SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] 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)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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LOGO
Laboratory Corporation of America(R) Holdings
358 South Main Street
Burlington, NC 27215
Telephone: 336-229-1127
April 6, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 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
Tuesday, May 2, 2000 at 9:00 a.m., Eastern Daylight time.
The attached notice of the Annual Meeting and Proxy Statement provide
information concerning the matters to be considered at the meeting.
As set forth in the notice, one of the items of business to be addressed
at the Annual Meeting is to consider and act upon a proposal to amend the
Company's Certificate of Incorporation, (the "Certificate of Incorporation") to
effect a one-for-ten reverse stock split of the Company's Common Stock (the
"Common Stock"). This proposal will decrease the number of outstanding shares
of Common Stock from approximately 130 million to approximately 13 million.
PLEASE NOTE THAT THE REVERSE STOCK SPLIT WILL NOT CHANGE YOUR PROPORTIONATE
EQUITY INTERESTS IN THE COMPANY, EXCEPT AS MAY RESULT FROM THE ELIMINATION OF
FRACTIONAL SHARES.
The Board of Directors believes that the recent per share price of the
Company's Common Stock has had a negative effect on the marketability of the
Common Stock. Management of the Company believes that a reverse stock split
could position the Company more attractively with institutional investors and
retail stock brokers who generally have restrictions on investing in low priced
stocks.
The Board of Directors unanimously recommends that the Company's
stockholders approve each of the proposals set forth in the Notice. The
enclosed Proxy Statement sets forth more detailed information regarding these
proposals. Please carefully review the information in the Proxy Statement.
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 you do need to sign, date, and return it in the enclosed
postage-paid envelope in order to record your vote. Proxy voting via the
Internet or telephone is now available to many stockholders. Using the Internet
to vote results in substantial savings on return postage for the Company. Your
enclosed proxy card will indicate whether these voting options are available to
you and how to use them. 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,
LOGO
Thomas P. Mac Mahon
Chairman of the Board, President and
Chief Executive Officer
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PRELIMINARY PROXY MATERIALS
LOGO
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 2000 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 Tuesday, May 2, 2000 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 approve the Company's 2000 Stock Incentive Plan (the "Incentive
Plan");
3. To consider and approve a proposal to amend the Company's
Certificate of Incorporation (the "Amendment") to effect a one-for-ten
reverse stock split (the "Reverse Stock Split") of the Company's Common
Stock (the "Common Stock") as a result of which holders of the Common
Stock will receive one share of Common Stock for each ten shares of Common
Stock owned on the effective date of the Amendment;
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the year ending December 31, 2000;
and
5. 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 4, 2000 are entitled to notice of, and to vote at, the Annual
Meeting and at any adjournments thereof.
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1999 has either preceeded or accompanies this notice.
By Order of the Board of Directors
LOGO
Bradford T. Smith
Secretary
April 6, 2000
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.
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These materials constitute preliminary proxy material filed with respect to a
forthcoming annual meeting of stockholders. Certain information, including
information relating to the proposed reverse stock split, will be revised to
reflect actual facts at the time that the definitive proxy statements
are mailed to stockholders.
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
2000 annual meeting of stockholders to be held at The Paramount Theater, 128
East Front Street, Burlington, NC 27215, on Tuesday, May 2, 2000 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 April 7, 2000.
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 approve the Company's 2000 Stock
Incentive Plan (the "Incentive Plan"), (iii) to approve the Amendment to the
Certificate of Incorporation to effect the Reverse Stock Split, (iv) to ratify
the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for the year ending December 31, 2000, and (v) 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, the approval of the 2000 Stock Incentive Plan, the approval of the
Amendment to the Certificate of Incorporation, and the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 2000. Any stockholder may revoke his/her 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.
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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 4, 2000 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. At the close of business on March 10, 2000, there were issued and
outstanding 129,851,617 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. 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 approval of the Incentive Plan, the
approval of the Amendment to the Certificate of Incorporation, and ratification
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for the year ending December 31, 2000. On such items, an abstention
or broker non-vote will have no effect on the vote to ratify the appointment of
independent accountants. The Stockholder Agreement provides that, the Reverse
Stock Split will require approval by a majority of the Roche Directors and at
least one Independent Director (a "Special Majority Vote"). As of March 1,
2000, the directors and executive officers of the Company beneficially owned an
aggregate of 3,264,505 shares of Common Stock, representing approximately 2.5%
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 48.0% of the outstanding shares of Common Stock as of March 1,
2000, 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.
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Roche has informed the Company that it will vote for the election of each
of the nominees to the Board of Directors identified herein, the approval of
the Incentive Plan, the approval of the Amendment to the Certificate of
Incorporation, and the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for 2000.
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), the approval of the Incentive Plan, the approval of the
Amendment to the Certificate of Incorporation, and the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 2000.
ITEM ONE: 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 as of April 6, 2000, 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 (53) 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 and a member of the Executive and
Management Committees 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 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.
Jean-Luc Belingard (51) has served as a Director of the Company since the
Merger, April 28, 1995. Mr. Belingard has served as Chief Executive Officer of
Pierre Fabre S.A., a diversified French health care holding
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company, since January 1999. His current responsibilities include the
management of the worldwide pharmaceutical, cosmetic and communication business
of Pierre Fabre S.A. Prior to this position, Mr. Belingard was 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 joining Pierre Fabre S.A. Mr. Belingard is also a
Director of Perkin-Elmer Corporation, Norwalk, Connecticut and a Foreign Trade
Advisor to the French Government.
Wendy E. Lane (48) 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 has been
nominated to serve as a director of Tyco International, Ltd.
Robert E. Mittelstaedt, Jr. (56) has been a Director of the Company since
November 1996. Mr. Mittlestaedt is Vice Dean, Executive Education of The
Wharton School of the University of Pennsylvania, Adjunct Associate Professor
of Management, and Director of the Aresty Institute of Executive Education. Mr.
Mittelstaedt has served 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. Mr. Mittelstaedt also serves as a Director of Innovative
Solutions & Support, Inc., A.G. Simpson Automotive, Inc., and HIP Foundation,
Inc.
James B. Powell, M.D. (61) has served as a Director of the Company since
the Merger, April 28, 1995. From the Merger to January 1997, Dr. Powell served
as President and Chief Executive Officer of the Company. Previously, Dr. Powell
was President of RBL from 1982 until the Merger. Dr. Powell has been President
and Chief Executive Officer of TriPath Imaging, Inc. (f/k/a AutoCyte, Inc.) a
developer of analytical systems for cytology and pathology, since January 1997.
Dr. Powell is a Director and a principal investor in TriPath. He is a medical
doctor and became certified in anatomic and clinical pathology in 1969. Dr.
Powell serves as a Director of Mid-Carolina Bank, New Century Finance, and
Pathology Partners. Dr. Powell also serves as a Director and a member of the
compensation committee of U.S. Trust Co. of N.C. (f/k/a North Carolina Trust
Co.).
David B. Skinner, M.D. (64) has served as a Director of the Company since
the Merger, April 28, 1995. 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. (65) has served as a Director of the Company since
the Merger, April 28, 1995. 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.
Dr. Wallace also serves as a Director for Welch Allyn, Inc. and Dorothy Rider
Poole Trust.
The Board of Directors of the Company recommends that stockholders vote
"FOR" the election of each of the nominees for director listed above.
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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, Mr.
Mittelstaedt, and Dr. Wallace, 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 accountants
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 Ms.
Lane, Mr. Mac Mahon, Dr. Powell, Dr. Skinner, and Dr. Wallace, 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 Ms. Lane, Mr. Mac Mahon,
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.
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 2001 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 2, 2001.
During 1999, the Board of Directors held ten meetings and acted twice 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 two meetings and acted once by unanimous written
consent; the Audit Committee held three meetings and acted once by unanimous
written consent; and the Ethics and Quality Assurance Committee held two
meetings in 1999. The Nominating Committee held no meetings in 1999, but did
act once by unanimous written consent. During 1999, none of the directors
attended fewer than 92% of the total meetings of the Board of Directors and the
committees of which he or she was a member with the exception of Mr. Belingard
who attended seven of ten meetings of the Board of Directors and 100% of the
committee meetings of which he was a member; and Dr. Skinner who attended nine
of ten meetings of the Board of Directors and six of seven committee meetings
of which he was a member.
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 Directors Stock Plan (the "Directors Stock Plan") approved by the
stockholders of the Company, 50% of such annual retainer shall be payable in
cash and 50% shall be payable
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in Common Stock of the Company. In 1999, Messrs. Mittelstaedt and Belingard,
Drs. Skinner, Powell and Wallace, and Ms. Lane each earned 6,820 shares of
Common Stock under the Directors Stock Plan. If the Incentive Plan is approved,
non-employee directors will automatically be granted annual option awards with
respect to shares having a Fair Market Value equal to $65,000. Further
information with respect to such awards is set forth below under Item Two.
EXECUTIVE OFFICERS
The following table sets forth as of the date hereof the Executive
Officers of the Company.
Name Age Office
---- --- ------
Thomas P. Mac Mahon .......... 53 Chairman of the Board, President, and
Chief Executive Officer
Wesley R. Elingburg........... 43 Executive Vice President, Chief
Financial Officer, and Treasurer
Myla P. Lai-Goldman, M.D. ... 42 Executive Vice President, Chief
Scientific Officer, and Medical
Director
Richard L. Novak ............. 59 Executive Vice President and Chief
Operating Officer
Bradford T. Smith ............ 46 Executive Vice President of Public
Affairs, Human Resources, Law, and
Compliance, and Secretary
Stevan R. Stark............... 52 Executive Vice President of Sales and
Marketing
Thomas P. Mac Mahon has served as Chairman of the Board and a Director
since April 28, 1996. Prior to such date and since the Merger on April 28,
1995, he served as Vice Chairman and a Director. Mr. Mac Mahon has been
President and Chief Executive Officer and a member of the Executive and
Management Committees 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 of all United States operations of the
diagnostic business of Hoffmann-La Roche. Mr. Mac Mahon was formerly a Director
on the Board of TriPath Imaging, Inc. (formerly known as AutoCyte, Inc.).
Wesley R. Elingburg has served as Executive Vice President, Chief
Financial Officer, and Treasurer since October 1996. Mr. Elingburg is a member
of the Executive and Management Committees of the Company. Prior to October
1996, and since April 28, 1995, 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.
Myla P. Lai-Goldman, M.D. was appointed Executive Vice President, Chief
Scientific Officer, and Medical Director in April 1998. 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. 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 joined RBL in
1990.
Richard L. Novak has served as Executive Vice President and Chief
Operating Officer of the Company since January 1999. Prior to this date and
since his hire in March 1997, Mr. Novak served as Executive Vice President and
oversaw the Company's Eastern Operations which included the Mid-Atlantic,
Northeast, South, Florida, and South Atlantic Divisions. Mr. Novak is a member
of the Executive and Management Committees of the Company.
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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.
Bradford T. Smith has served as Executive Vice President, General Counsel,
and Secretary since the Merger. He was appointed Compliance Officer in August
1996. Mr. Smith also oversees the Company's Public Affairs, Human Resources and
Law operations. Mr. Smith is a member of the Executive and Management
Committees of the Company. 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.
Stevan R. Stark has served as Executive Vice President since October 1996
and was Senior Vice President, New York Division, Cranford Division, 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. Mr. Stark is a member of the
Executive and Management Committees of the Company. Previously, Mr. Stark was a
Vice President and Division Manager from 1991 to 1995 and a Division Manager
from 1986 to 1991. Mr. Stark served as a Director for Universal Standard
Healthcare; the directorship ended on March 30, 1999.
10
<PAGE>
EXECUTIVE COMPENSATION AND BENEFIT PLANS
Executive Compensation
The compensation paid by the Company during the year ended December 31,
1999 to certain Executive Officers is set forth below. The Executive Officers
named are the Chief Executive Officer during the year and the four other most
highly compensated Executive Officers serving at year end.
Summary Compensation Table
<TABLE>
Long-Term
Compensation
Name and Principal Position Annual Compensation Awards
--------------------------- ------------------- ------
Securities
Restricted Underlying All Other
Stock Options/ Compensation
Year Salary(1)($) Bonus(2)($) Awards($) SARs(#) (3)($)
---- ------------ ----------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Mac Mahon 1999 $ 683,333 $ 496,832 $ 1,100,000 -- $ 23,689
President and Chief Executive 1998 600,000 382,328 -- 1,000,000 38,884
Officer(4) 1997 600,000 355,040 -- 500,000 26,779
Richard L. Novak 1999 $ 546,504 $ 196,504 $ 371,250 -- $ 42,136
Executive Vice President and 1998 268,750 162,382 -- 300,000 37,688
Chief Operating Officer(5) 1997 229,167 92,032 -- 210,000 18,950
Wesley R. Elingburg 1999 $ 274,167 $ 152,537 $ 371,250 -- $ 17,321
Executive Vice President, Chief 1998 240,000 111,399 -- 232,000 19,256
Financial Officer, and 1997 225,000 99,563 -- 210,000 18,177
Treasurer
Bradford T. Smith 1999 $ 274,167 $ 149,309 $ 371,250 -- $ 19,362
Executive Vice President, 1998 240,000 131,507 -- 232,000 22,408
General Counsel, Corporate 1997 225,000 114,389 -- 210,000 19,910
Compliance Officer, and
Secretary
Stevan R. Stark 1999 $ 238,667 $ 139,052 $ 371,250 -- $ 17,534
Executive Vice President-- 1998 230,250 117,935 -- 232,000 23,802
Sales and Marketing 1997 225,000 99,045 -- 210,000 226,698
</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) Includes paid auto allowance, executive long-term disability premiums,
relocation expenses, 401(a) and (k) contributions, personal financial
planning, and group life premiums. Individual annual amounts exceeding 25%
of the total all other compensation for each individual are as follows:
(i) executive long-term disability premiums of $6,562 in 1999, $13,265 in
1998, and $9,895 in 1997 for Mr. Mac Mahon; (ii) paid auto allowance of
$8,280 in 1999, 1998 and 1997 for Mr. Smith; $7,860 in 1999, 1998 and 1997
for Mr. Elingburg; $6,900 in 1997 for Mr. Novak; and $5,548 in 1999 for
Mr. Stark; (iii) relocation expenses of $18,042 in 1999 and $10,183 in
1998 for Mr. Novak, $210,547 in 1997 for Mr. Stark; (iv) 401(a) and (k)
contributions of $8,280 in 1997 for Mr. Mac Mahon, $4,329 in 1999 for Mr.
Elingburg, and $4,800 in 1999 for Mr. Stark; and (v) group life premiums
of $3,846 in 1999 for Mr. Stark, and $5,700 in 1997 for Mr. Novak.
(4) Mr. Mac Mahon was appointed President and Chief Executive Officer
effective January 7, 1997.
(5) Mr. Novak was appointed an Executive Officer of the Company effective
March 3, 1997.
11
<PAGE>
Restricted Stock Transactions in 1999
During 1999, the following restricted stock grants were made under the
Amended and Restated 1999 Stock Incentive Plan for the current Executive
Officers named in the Summary Compensation Table:
Restricted Stock Awards in 1999
Price on
Number of Performance Date of Price on
Shares Period Until Grant 12/31/99
Name Granted(1) Maturation (1) ($/Sh) ($/Sh)
---- ---------- --------------- ------ ------
Thomas P. Mac Mahon....... 400,000 6 years $ 2.750 $ 3.6875
Richard L. Novak.......... 135,000 6 years $ 2.750 $ 3.6875
Wesley R. Elingburg....... 135,000 6 years $ 2.750 $ 3.6875
Bradford T. Smith......... 135,000 6 years $ 2.750 $ 3.6875
Stevan R. Stark........... 135,000 6 years $ 2.750 $ 3.6875
- ---------
(1) Effective June 16, 1999, the Company's shareholders approved the issuance
of shares of Common Stock to key employees under a restricted stock plan.
A total of 1,620,000 restricted shares have been issued under the plan.
Restrictions limit the sale or transfer of these shares during a six-year
period whereby the restrictions lapse. The plan provides for accelerated
vesting of outstanding shares in precentages of 33.3%, 66.7%, or 100%, if
certain predefined profitability targets are achieved as of December 31,
2001.
Stock Option Transactions in 1999
During 1999, there were no grants of stock options to the Executive
Officers. The following chart shows, for 1999, the number of stock options
exercised and the 1999 year-end value of the options held by the current
Executive Officers named in the Summary Compensation Table:
Aggregated Option/SAR Exercises in 1999
and Year-End 1999 Option/SAR Values
<TABLE>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Shares Options/SARs Options/SARs
Acquired at Year-End at Year-End ($)(1)
on Value ------------ -----------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Mac Mahon 0 $ 0.00 833,334 666,666 $1,114,834.50 $1,166,665.50
Richard L. Novak 0 $ 0.00 310,000 200,000 293,230.00 350,000.00
Wesley R. Elingburg 0 $ 0.00 312,334 154,666 253,564.50 270,665.50
Bradford T. Smith 0 $ 0.00 317,334 154,666 253,564.50 270,665.50
Stevan R. Stark 0 $ 0.00 329,935 154,666 253,564.50 270,665.50
</TABLE>
- ---------
(1) Calculated using the actual December 31, 1999 closing price per common
share on the NYSE Composite Tape of $3.6875.
12
<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)
Wesley R. Elingburg and Bradford T. Smith
Five-year
average 10 20 15 25 30
Compensation(2) Years(3) Years(3) Years(3) Years(3) Years(3)
--------------- -------- --------- --------- --------- --------
$50,000 $ 7,378 $ 14,285 $ 10,832 $ 17,738 $ 17,738
100,000 17,177 33,882 25,529 42,234 42,234
150,000 27,177 53,882 40,529 67,234 67,234
200,000 37,177 73,882 55,529 92,234 92,234
250,000 47,177 93,882 70,529 117,234 117,234
300,000 57,177 113,882 85,529 142,234 142,234
320,683 61,313 122,155 91,734 152,576 152,576
Pension Plan Table(4)
Thomas P. Mac Mahon, Richard L. Novak, and Stevan R. Stark
Five-year
average 10 15 20 25 30
Compensation(2) Years(3) Years(3) Years(3) Years(3) Years(3)
--------------- -------- --------- --------- --------- --------
$50,000 $ 6,576 $ 9,864 $ 13,152 $ 16,439 $ 19,727
100,000 15,754 23,631 31,509 39,386 47,263
150,000 25,114 37,671 50,229 62,786 75,343
200,000 34,474 51,711 68,949 86,186 103,423
250,000 43,834 65,751 87,669 109,586 131,503
300,000 53,194 79,791 106,389 132,986 159,583
315,648 57,066 85,599 114,132 142,665 171,199
- ---------
(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 1999, this additional benefit amounted to $472 per year.
(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 1999, this limit is $320,683. 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
13
<PAGE>
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 benefit payable under all qualified plans of an
employer to any one individual. The limitation solely with respect to defined
benefit pension plans was $130,000 for 1999 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 1999 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
Plan is 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, 1999, credited years of service under the retirement
plans for the following individuals are for Mr. Mac Mahon--2.0 years, Mr.
Elingburg--18.4 years, Mr. Smith--16.9 years, Mr. Stark--15 years, and Mr.
Novak--1.5 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 One: Election of Directors."
The Committee is comprised of a majority of Independent Directors. During
1999, the Committee met twice to review and evaluate executive compensation and
benefit programs, including information provided to the Company by independent
compensation and benefit consultants.
14
<PAGE>
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.
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, total accessions, operating expenses
and certain other specific measures. A total of $1.1 million in benefits were
earned by certain Executive Officers in 1999 (see "Summary Compensation Table"
for amounts paid to certain Executive Officers under the plan).
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 (as defined in the stock
plans) per share on the date of grant or other appropriate date as determined
by the Board of Directors. In connection with the restricted stock awards
granted to the Executive Officers in 1999, the plan provides for accelerated
vesting of outstanding shares in precentages of 33.3%, 66.7%, or
15
<PAGE>
100%, if certain predefined profitability targets are achieved as of December
31, 2001. Restrictions limit the sale or transfer of these shares during a
six-year period whereby the restrictions lapse. No stock option or restricted
stock 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 940,000 restricted
stock awards were granted to certain Executive Officers in 1999 (see
"Restricted Stock Transactions in 1999").
Chief Executive Officer Compensation. Thomas P. Mac Mahon was paid
$683,333 in base salary for the year ended December 31, 1999. 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 became eligible to participate in the Company's
Retirement Benefits and Savings Plan in 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 incentive plans as performance-based if such plans meet
certain requirements. The Company's stock incentive plans are generally
structured to meet the requirements of OBRA. However, options which are granted
in excess of individual Section 162(m) limitations and restricted stock awards
which do not vest based entirely on performance criteria will not 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.
16
<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 and one clinical
laboratory company which is a direct competitor of the Company, all with sales
ranging from approximately $1.1 billion to $3.9 billion. Other 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., Quest Diagnostics, Incorporated, 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
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
Company $100 $71 $22 $13 $10 $28
S&P 500 $100 $137 $169 $225 $289 $350
Peer Group $100 $135 $144 $154 $162 $205
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPHIC TO COME]
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth as of March 1, 2000, the total number of
shares of Common 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
Stock, (ii) each person or entity known to the Company to be the beneficial
owner of more than 5% of the outstanding Common 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 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>
Amount and Nature
Amount and Nature of Beneficial
of Beneficial Ownership of
Ownership of Percent Common Stock Percent
Beneficial Owner Common Stock of Class Assuming Full Conversion(1) of Class
---------------- ------------ -------- --------------------------- --------
<S> <C> <C> <C> <C>
Roche Holdings, Inc. ..................... 61,329,256 (2) 46.9% 173,513,507 (2) 51.2%
15 East North Street
Dover, DE 19901
Wellington Management Company, LLP........ 12,314,808 (3) 9.4% 12,314,808 (6) 3.6%
75 State Street
Boston, MA 02109
FMR Corp. 12,263,624 (4) 9.4% 12,263,624 (7) 3.6%
82 Devonshire Street
Boston, MA 02109
Thomas P. Mac Mahon....................... 1,270,663 (5) 1.0% 1,955,863 (8,9) *
Jean-Luc Belingard........................ 24,551 * 31,860 (8) *
Wendy E. Lane............................. 21,501 * 23,210 (8) *
Robert E. Mittelstaedt, Jr. .............. 26,501 * 28,210 (8) *
James B. Powell........................... 32,555 * 40,737 (8) *
David B. Skinner.......................... 24,551 * 31,824 (8) *
Andrew G. Wallace......................... 24,551 * 24,551 *
Wesley R. Elingburg....................... 397,326 (5) * 595,417 (8,9) *
Richard L. Novak.......................... 413,225 (5) * 613,225 (9) *
Bradford T. Smith......................... 395,259 (5) * 592,259 (9) *
Stevan R. Stark........................... 406,695 (5) * 585,695 (9) *
All current directors and Executive
Officers as a group (12 persons).......... 3,264,505 2.5% 4,928,978 1.5%
</TABLE>
- ----------
* Less than 1%
(1) For purposes of disclosing beneficial ownership, the Common Stock includes
the total number of shares of Common Stock that would result from an
assumed conversion of 100% of the Company's Convertible Preferred stock at
a ratio of 18.1818 shares of Common per share of Preferred and also
including shares of Restricted Common Stock.
(2) 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 Holdings. This
includes 112,184,251 shares of Common Stock assumed to be converted from
ownership of 6,170,140 shares of Preferred Stock.
(3) As reported in the Schedule 13G filed with the Commission on February 11,
2000, on behalf of Wellington Management Company, LLP ("Wellington").
Wellington owns shared voting power on 1,996,399 of the above listed
shares.
18
<PAGE>
(4) As reported in the Schedule 13G filed with the Commission on February 11,
2000, on behalf of FMR Corp. FMR Corp. owns sole voting power on 3,083,633
of the above listed shares.
(5) 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--1,166,667; Mr. Elingburg--389,667; Mr. Novak--410,000; Mr.
Smith--394,667; Mr. Stark--398,268; all directors and Executive Officers
as a group--2,933,437.
(6) The Company is unaware of any Preferred Stock held either directly or
indirectly by Wellington.
(7) The Company is unaware of any Preferred Stock held either directly or
indirectly by FMR Corp.
(8) Includes shares of Common Stock assumed to be converted from ownership of
shares of Preferred Stock as indicated for the following individuals: Mr.
Mac Mahon--44,200 shares (2,431 shares of Preferred Stock; Mr.
Belingard--7,309 shares (402 shares of Preferred Stock); Ms. Lane--1,709
shares (94 shares of Preferred Stock); Mr. Mittelstaedt--1,709 shares (94
shares of Preferred Stock); Dr. Powell--8,182 shares (450 shares of
Preferred Stock); and Dr. Skinner--7,273 shares (400 shares of Preferred
Stock); and Mr. Elingburg--1,091 shares (60 shares of Preferred Stock).
(9) Includes shares of Restricted Common Stock. The number of shares of
Restricted Common Stock included in the table is as follows: Mr. Mac
Mahon--641,000; Mr. Novak--200,000; Messrs. Elingburg and Smith--197,000;
and Mr. Stark--179,000; all directors and Executive Officers as a
group--1,593,000.
Section 16(A) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers, and any beneficial owner
of more than 10% of a class of equity securities of the Company, are required
to report their ownership of the Company's equity securities and any changes in
such ownership to the Commission and the securities exchange on which the
equity securities are registered. The Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports with respect to the fiscal year ended December 31, 1999. To the
Company's knowledge, each of the directors and officers of the Company, other
than Mr. Mittelstaedt, will have filed their Form 5 for the fiscal year ended
December 31, 1999 approximately one month after the February 14, 2000 due date
because of an inadvertent misunderstanding between the Company and its local
outside counsel regarding the need to report transactions under the Company's
plans: the 1995 Non-employee Directors Plan, the 1997 Employee Stock Purchase
Plan, and the Amended and Restated 1999 Stock Incentive Plan. (Mr. Mittelstaedt
filed a Form 4 on March 10, 2000, which included a late report on his
transactions under the Company's 1995 Non-employee Directors Plan for the
fiscal year ended December 31, 1999). Specific beneficial ownership of the
Company's equity securities and any changes in such ownership by the Company's
directors and executive officers, with the exception of Dr. Myla Lai-Goldman,
is disclosed in the table set forth above and has been disclosed in a timely
manner in prior annual meeting proxies.
ITEM TWO: APPROVAL OF THE 2000 STOCK INCENTIVE PLAN
On March 8, 2000, the Board of Directors approved the Laboratory
Corporation of America Holdings 2000 Stock Incentive Plan (the "Incentive
Plan"). The Incentive Plan shall take effect as of May 4, 2000 (the "Effective
Date") if approved by the holders of the majority of the voting shares of the
Company represented at the Annual Meeting. The description of the Incentive
Plan below assumes the implementation of and gives effect to the Amendment to
effect a one-for-ten reverse stock split of the Common Stock (the "Reverse
Stock Split"). If such Reverse Stock Split is not approved by the holders of
the majority of the voting shares of the Company represented at the Annual
Meeting, the number of shares of Common Stock authorized for issuance and
individual grants set forth therein shall be adjusted accordingly. The summary
description herein of the principal features of the Incentive Plan is qualified
by reference to the Incentive Plan, which is attached hereto as Annex I.
The purpose of the Incentive Plan is to attract and retain the best
available employees, directors and consultants for the Company and to encourage
the highest level of performance by such persons, thereby enhancing the value
of the Company for the benefit of its stockholders. The Incentive Plan is also
intended to motivate such persons to contribute to the Company's future growth
and profitability, to reward the performance of employees and
19
<PAGE>
consultants and increase the proprietary and vested interest of all such
persons in the growth and performance of the Company in a manner that provides
them with a means to increase their holdings of Common Stock and aligns their
interests with the interests of the stockholders of the Company.
The Incentive Plan will be administered by the Employee Benefits Committee
appointed by the Company's Board of Directors. During the ten-year period
ending on the tenth anniversary of the adoption of the Incentive Plan, the
Employee Benefits Committee will have authority, subject to the terms of the
Incentive Plan, and except with respect to awards to non-employee directors, to
determine when and to whom to make awards under the plan, the number of shares
to be covered by the awards, the types and terms of awards granted and the
exercise price of the shares of common stock covered by options and stock
appreciation rights ("SARs"), and to prescribe, amend and rescind rules and
regulations relating to the Incentive Plan.
Under the terms of the Incentive Plan, incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQSOs"), SARs, restricted
shares and performance awards may be granted by the Employee Benefits Committee
in its discretion to key employees (including officers and directors who are
employees), independent contractors, consultants and non-employee directors of
the Company and any of its affiliates, except that ISOs may be granted only to
employees of the Company and its parent company and any subsidiary corporation.
Due to the provision of the Incentive Plan, which permits awards in the
discretion of the Employee Benefits Committee, it is not possible to determine
how many employees of the Company and its affiliates may be eligible for grants
of awards.
Shares Available
The Incentive Plan generally provides that no individual employee may be
granted options or SARs representing an aggregate of more than 150,000 shares
of Common Stock on a post-split basis (1.5 million shares of Common Stock if
the Reverse Stock Split is not implemented), and no "covered officer" (as
defined in Section 162(m) of the Internal Revenue Code) may be granted
performance-based restricted shares or performance awards, which are intended
to be Section 162(m) awards, representing an aggregate of more than 100,000
shares of Common Stock on a post-split basis (1 million shares of Common Stock
if the Reverse Stock Split is not implemented) or cash-based performance awards
aggregating more than $5 million in any year. The aggregate number of shares of
Common Stock as to which awards may be granted under the Incentive Plan may not
exceed 1.7 million shares on a post-split basis (17 million if the Reverse
Stock Split is not implemented) (plus any shares remaining available for grant
under the Amended and Restated 1999 Stock Incentive Plan and the 1994 Stock
Option Plan), of which 750,000 are available for grant of restricted shares and
performance awards on a post-split basis (7.5 million if the Reverse Stock
Split is not implemented).
Shares, which are subject to an award, that remain unissued upon
expiration or cancellation of the award will be available for new awards under
the Incentive Plan. If awards are exercised by delivery of shares of Common
Stock or satisfied by the withholding of shares of Common Stock, the number of
shares available for awards under the Incentive Plan will be increased by the
number of shares so delivered or withheld.
Options
The exercise price of an ISO or a NQSO ("Option Price") may not be less
than one hundred percent (100%) of the fair market value of the shares of
Common Stock on the date of grant, except that, in the case of an ISO granted
to an individual who, at the time the ISO is granted, owns shares possessing
more than ten percent of the total combined voting power of all classes of
Common Stock, such Option Price may not be less than one hundred ten percent
(110%) of such fair market value. The Option Price of, and the number of shares
covered by, each option will not change during the life of the option, except
for adjustments to reflect stock dividends, splits, other recapitalizations or
reclassifications or changes affecting the number or kind of outstanding
shares. The vesting terms will be set forth in award agreements.
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<PAGE>
The shares of Common Stock purchased upon the exercise of an option are to
be paid for in cash (including cash that may be received from the Company at
the time of exercise as additional compensation), or through the delivery of
other shares of Common Stock held for at least six months with a value equal to
the total option price or in a combination of cash and such shares, or with
money lent by the Company to the optionee in compliance with applicable law and
on terms and conditions to be determined by the Company.
If the employment of an optionee terminates for any reason (other than by
reason of death, Disability, or Retirement, each as defined in the Incentive
Plan), the optionee may, within the three-month period following such
termination, exercise such options to the extent he/she was entitled to
exercise such option at the date of termination. If an optionee dies while
employed (or within three months after termination of employment) or terminates
employment by reason of Disability or Retirement, all previously granted
options (whether or not then exercisable), may, unless earlier terminated in
accordance with their terms, be exercised by the person or persons to whom the
optionee's rights pass within one year after the optionee's death or by the
optionee within one year after the optionee's Disability or Retirement.
If (i) an optionee dies while employed by the Company or an affiliate,
(ii) an optionee shall die within three (3) months after the termination of
such optionee's employment, (iii) the optionee's employment shall terminate by
reason of Disability or Retirement, or (iv) there is a Change in Control (as
described further below), then in any such case all options theretofore granted
to such optionee (whether or not then exercisable) may, unless earlier
terminated or expired in accordance with their terms, be exercised by the
optionee or by the optionee's estate or by a person who acquired the right to
exercise such option by bequest or inheritance or otherwise by reason of the
death or Disability of the optionee, at any time within one year after the date
of death, Disability or Retirement of the optionee or a Change in Control.
SARs
The Employee Benefits Committee may also grant SARs either alone ("Free
Standing Rights") or in conjunction with all or part of an option ("Related
Rights"). Upon the exercise of a SAR, a holder is entitled, without payment to
the Company, to receive cash, unrestricted shares of Common Stock or any
combination thereof, as determined by the Employee Benefits Committee, in an
amount equal to the excess of the fair market value of one share of Common
Stock over the option price specified in the related option (or in the case of
a Free Standing Right, the price per share specified in such right) multiplied
by the number of shares in respect of which the SAR is exercised. The vesting
terms will be set forth in award agreements.
The Company is required to charge earnings at the close of each accounting
period during which the SARs are outstanding. The charge will be equal to the
amount by which the fair market value of the shares of stock subject to the
SARs exceeds the price for which the SARs may be exercised, less the tax
deduction to which the Company may be entitled if the SARs were exercised and
less any portion of such amount charged to earnings in prior periods. In the
event that the stock subject to the SARs has depreciated in market value since
the last accounting period, there will be a credit to earnings.
Restricted Shares
The Company may also grant restricted shares under the Incentive Plan,
subject to the terms of the plan and any applicable award agreement. Such
restricted shares may be subject to transfer restrictions and are subject to
forfeiture upon certain termination of employment events that occur prior to
vesting. The vesting terms (which may include performance-based conditions)
will be set forth in award agreements.
Performance Awards
The Company may also grant performance awards under the Incentive Plan,
subject to the terms of the plan and any applicable award agreement.
Performance awards may be denominated in cash or shares of Common Stock, valued
based on the achievement of performance goals over performance periods. Such
performance awards are
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<PAGE>
subject to forfeiture upon certain termination of employment events that occur
prior to vesting. The vesting terms will be set forth in award agreements.
Performance-Based Awards to "Covered Officers"
With respect to awards to "covered officers" designed to comply with
Section 162(m), performance goals will be expressed in terms of the achievement
of one or more of the following Company, subsidiary, operating unit or division
financial performance measures:
(i) earnings before interest, taxes, depreciation and/or amortization
(ii) operating income or profit
(iii) return on equity, assets, capital, capital employed, or investment
(iv) after tax operating income
(v) net income
(vi) earnings or book value per share
(vii) cash flow(s)
(viii) total sales or revenues, or sales or revenues per employee
(ix) stock price or total shareholder return
(x) dividends
(xi) strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business
expansion goals, and goals relating to acquisitions or
divestitures
or any combination thereof. Each goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ comparisons based on
internal targets, the past performance of the Company and/or the past or
current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders'
equity and/or shares outstanding, or to assets or net assets.
Before any awards intended to comply with Section 162(m) may be paid to
covered officers, the Employee Benefits Committee must certify the extent to
which performance goals and any other material terms were satisfied.
Non-Employee Director Awards
Each non-employee director shall be granted an option to purchase that
number of shares of Common Stock having a Fair Market Value equal to $65,000 as
of the date of each annual meeting of the stockholders of the Company (the
"Annual Grant Amount") following the effectiveness of the Incentive Plan at
which such individual is elected or reelected to the office of director, (the
"Meeting Grant Date") with each such grant effective as of each Meeting Grant
Date. In addition, that notwithstanding the foregoing, (i) if the Incentive
Plan is approved by shareholders at this Annual Meeting, options will be
granted to such directors elected at the Annual Meeting for a number of shares
having a Fair Market Value equal to $65,000 as of the Effective Date to be
effective as of the Effective Date and (ii) with respect to any director who is
elected or nominated to become director other than in connection with an annual
meeting of the stockholders of the Company , such director shall be granted an
option, to be effective as of the date of his or her election or appointment,
in an amount equal to a portion of the Annual Grant Amount, prorated by a
percentage which reflects the portion of the year for which such director will
have served. Notwithstanding the foregoing, the minimum and maximum number of
shares which may be subject to an option in any year shall be 1,000 and 3,500
respectively, prorated for partial service, each on a post-split basis (10,000
and 35,000, respectively, if the Reverse Stock Split is not effected).
The exercise price of an option grant to a non-employee director may not
be less than one hundred percent (100%) of the Fair Market Value (as defined in
the Incentive Plan) of the shares of Common Stock on the date of grant. The
vesting terms will be set forth in award agreements.
If the service of a director terminates for any reason (other than by
reason of death or Disability) the director may, within the three-month period
following such termination, exercise such options to the extent he was entitled
to
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<PAGE>
exercise such option at the date of termination. If a director dies while
serving (or within three months after termination of service) or terminates by
reason of Disability, all previously granted options (whether or not then
exercisable), may, unless earlier terminated in accordance with their terms, be
exercised by the person or persons to whom the director's rights pass within
one year after the director's death or by the director within one year after
the director's Disability.
If (i) a director dies while in the service of the Company or an
affiliate, (ii) a director shall die within three (3) months after the
termination of such director's service, (iii) the director's service shall
terminate by reason of Disability, or (iv) there is a Change in Control (as
described further below), then in any such case all options theretofore granted
to such director (whether or not then exercisable) may, unless earlier
terminated or expired in accordance with their terms, be exercised by the
director or by the director's estate or by a person who acquired the right to
exercise such option by bequest or inheritance or otherwise by reason of the
death or Disability of the director, at any time within one year after the date
of death or Disability of the director or a Change in Control.
Change in Control
Under the Incentive Plan, the vesting of all or portion of an award will
be accelerated upon a Change in Control of the Company (as defined in the
Incentive Plan). If the vesting of an award is so accelerated, payments made
may constitute an "excess parachute payment" that is not deductible by the
Company in whole or in part under Section 280G of the Code. Such acceleration
may also subject the participant to a 20% federal excise tax under Section 4999
of the Code on all or a portion of the value conferred on such holder by reason
of the Change in Control. Award agreements may provide that the Company will
reimburse such holder for the full amount of any such excise tax imposed.
Transferability
Except as otherwise provided in an award agreement, no award may be
transferred by an optionee during his lifetime except by will or the laws of
descent and distribution.
Amendment and Termination
Unless terminated by action of the Board of Directors or the Employee
Benefits Committee, no awards may be granted under the Incentive Plan after May
4, 2010. The Incentive Plan may be amended or terminated at any time by the
Board of Directors, except that no amendment may be made without shareholder
approval if the Employee Benefits Committee determines that such approval is
necessary to comply with any tax or regulatory requirement, including any
approval requirement which is a prerequisite for exemptive relief from Section
16 of the Securities Exchange Act of 1934, as amended, for which or with which
the Employee Benefits Committee determines that it is desirable to qualify or
comply. The Employee Benefits Committee may amend the terms of any award
granted, retroactively or prospectively, but no amendment may adversely affect
any vested award without the holder's consent.
In the event of a stock split, stock dividend, subdivision or combination
of the shares of Common Stock or other change in corporate structure affecting
the shares of Common Stock, the Employee Benefits Committee may make such
adjustments to the number of shares authorized under the Incentive Plan and to
outstanding awards thereunder as it deems necessary.
The Incentive Plan is not subject to any provision of ERISA and is not
qualified under Section 401(a) of the Code.
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<PAGE>
Federal Tax Consequences
Generally, when an optionee exercises a NQSO, the difference between the
Option Price and any higher fair market value of the shares of Common Stock on
the date of exercise will be ordinary income to the optionee and will be
generally allowed as a deduction for federal income tax purposes to the
employer.
Any gain or loss realized by an optionee on disposition of the Common
Stock acquired upon exercise of a NQSO will generally be capital gain or loss
to such optionee, long-term or short-term depending on the holding period, and
will not result in any additional tax consequences to the employer. The
optionee's basis in the shares of Common Stock is determined generally at the
time of exercise.
When an optionee exercises an ISO while employed by the Company or a
subsidiary or within three months (one year for Disability) after termination
of employment by reason of Retirement or death, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares of Common Stock acquired upon such exercise over the
Option Price will be an adjustment to taxable income for purposes of the
federal alternative minimum tax applicable to individuals. If the shares of
Common Stock acquired upon exercise of the ISO are not disposed of prior to the
expiration of one year after the date of acquisition and two years after the
date of grant of the option, the excess (if any) of the sales proceeds over the
aggregate Option Price of such shares of Common Stock will be long-term capital
gain, but the employer will not be entitled to any tax deduction with respect
to such gain. Generally, if the shares of Common Stock are disposed of prior to
the expiration of such periods (a "Disqualifying Disposition"), the excess of
the fair market value of such shares at the time of exercise over the aggregate
Option Price (but not more than the gain on the disposition if the disposition
is a transaction on which a loss, if realized, would be recognized) will be
ordinary income at the time of such Disqualifying Disposition (and the employer
will generally be entitled to a federal income tax deduction in a like amount).
Any gain realized by the optionee as the result of a Disqualifying Disposition
that exceeds the amount treated as ownership income will be capital in nature,
long-term or short-term depending on the holding period. If an ISO is exercised
more than three months (one year for disability) after termination of
employment, the tax consequences are the same as described above for NQSOs.
Certain additional special rules apply if the exercise price for an option
is paid in shares of Common Stock previously owned by the optionee rather than
in cash.
ACCORDINGLY, EACH OPTIONEE SHOULD CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF INCENTIVE PLAN
AWARDS, AS WELL AS THE USE OF SHARES FOR EXERCISE, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL, OR FOREIGN INCOME TAX AND OTHER LAWS.
When a Participant exercises SARs, the amount of cash and the fair market
value of property received (including Shares), unless the property is subject
to transfer restrictions or forfeiture, will be ordinary income to the
participant and will be allowed as a deduction for federal income tax purposes
to the Company or a subsidiary.
In the absence of an election by a participant under Section 83(b) of the
Code, the grant of restricted shares will not result in taxable income to the
participant or a deduction to the Company or its subsidiary or affiliate in the
year of the grant. The value of such restricted shares will be taxed to a
participant in the year in which the restrictions lapse. Alternatively, a
participant may elect to treat as income in the year of grant the fair market
value of the restricted shares on the date of grant, provided the Participant
makes an election under Section 83(b) of the Code within thirty days after the
date of such grant. If such an election were made, a participant would not be
allowed to deduct at a later date the amount included as taxable income if
he/she should forfeit the restricted shares to the Company or its subsidiary or
affiliate. Generally, the amount of ordinary income recognized by a participant
is deductible by the Company or its subsidiary or affiliate in the year the
income is recognized by the participant. If the participant does not make an
election under Section 83(b) of the Code, dividends paid on the shares prior to
the lapse of restrictions on such shares will be taxable to the participant as
additional compensation in the year received free of restrictions, and the
Company or its subsidiary or affiliate will be allowed a corresponding
deduction subject to Section 162(m).
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<PAGE>
In general, the grant of performance awards will not result in taxable
income to the participant or a deduction to the company or its subsidiary or
affiliate in the year of the grant. The value of the award will be taxed to a
participant in the year in which the award is settled and the Company will
receive a deduction in the same amount, subject to Section 162(m).
The foregoing discussion summarizes the federal income tax consequences of
the Incentive Plan based on current provisions of the Code, which are subject
to change. This summary does not cover any state or local tax consequences of
participation in the Incentive Plan.
New Plan Benefits
The amounts of awards that may be granted under the Incentive Plan in 2000
are not yet determinable, except that upon the effectiveness of the Incentive
Plan, each non-employee director will be automatically granted options having a
Fair Market Value of $65,000 as of such grant date and annually thereafter on
the date of the annual meeting of stockholders of the Company.
The Board of Directors of the Company recommends that stockholders vote
"FOR" the approval of the adoption of the 2000 Stock Incentive Plan.
ITEM THREE: APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION (THE REVERSE STOCK SPLIT)
General
The Board of Directors has determined that it would be advisable to amend
the Company's Certificate of Incorporation to effect a one-for-ten reverse
stock split (the "Reverse Stock Split") of the Company's Common Stock. A copy
of the Amendment to the Certificate of Incorporation is attached hereto as
Annex II. If the Amendment is approved by the stockholders, each TEN shares of
Common Stock, par value $0.01 per share, (the "Old Common Stock") outstanding
on the Effective Date (as defined below) will be converted automatically into
ONE share of new Common Stock, par value $0.10 per share, (the "New Common
Stock"). To avoid the existence of fractional shares of New Common Stock,
stockholders who would otherwise be entitled to receive fractional shares of
New Common Stock shall receive a cash distribution in lieu thereof. See
"Exchange of Stock Certificates". The "Effective Date" of the Reverse Stock
Split will be the date on which the Amendment is filed with the Secretary of
State of Delaware, which is anticipated to be as soon as reasonably practicable
following the date of the Annual Meeting.
Background of and Reasons for the Reverse Stock Split
On February 9, 2000, the Board of Directors adopted resolutions approving
the Amendment and directing that the Amendment be placed on the agenda for
consideration by the stockholders at the Annual Meeting.
On December 31, 1999, the closing price per share of the Common Stock on
the NYSE was $3.6875. The Board of Directors believes that the present level of
the per share market price of the Common Stock impairs the acceptability of the
stock to portions of the financial community and the investing public.
Many investors look upon low priced stock as unduly speculative in nature
and, as a matter of policy, avoid investment in such stocks. The Board of
Directors also believes that the current per share price of the Common Stock
has reduced the effective marketability of the shares because of the reluctance
of many leading brokerage firms to recommend low priced stock to their clients.
Further, various brokerage house policies and practices tend to discourage
individual brokers from dealing in low priced stocks. Some of those policies
and practices pertain to the payment of brokers' commissions and to
time-consuming procedures which function to make the handling of low
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priced stocks unattractive to brokers from an economic standpoint.
Additionally, several institutional investors have policies prohibiting them
from holding low priced stock in their own portfolios. Also, the structure of
trading commissions also tends to have an adverse impact upon holders of low
priced stock because the brokerage commission on a sale of low priced stock
generally represents a higher percentage of the sales price than the commission
on higher priced stock.
The Board of Directors is optimistic that the decrease in the number of
shares of Common Stock outstanding as a consequence of the Reverse Stock Split
and the resulting anticipated increased price level will result in greater
interest in the Common Stock by the financial community and the investing
public.
There can be no assurance, however, that the foregoing will occur or that
the market price of the Common Stock immediately after implementation of the
Reverse Stock Split will increase, and if it does increase, no assurance that
such increase can be maintained for any period of time, or that such market
price will approximate ten times the market price before the Reverse Stock
Split.
Dissenting stockholders have no appraisal rights under Delaware law or
under the Company's Certificate of Incorporation and By-Laws in connection with
the Reverse Stock Split.
Effects of the Reverse Stock Split
General Effects. If the Amendment is approved by the stockholders, the
principal effect of the Reverse Stock Split will be to decrease the number of
outstanding shares of Common Stock from approximately 130 million shares to
approximately 13 million shares, based on share information as of March 10,
2000. The Reverse Stock Split would not affect the proportionate equity
interest in the Company of any holder of Common Stock, except as may result
from the provisions for the elimination of fractional shares as described
below. The Reverse Stock Split will not affect the registration of the Common
Stock under the Exchange Act or the listing of the Common Stock on the New York
Stock Exchange.
In order that the Company may avoid the expense and inconvenience of
issuing and transferring fractional shares of New Common Stock, stockholders
who would otherwise be entitled to receive a fractional share of New Common
Stock (the "Fractional Stockholders") shall receive payment in cash in lieu of
receiving a fractional share of New Common Stock. See "Exchange of Stock
Certificates."
The Reverse Stock Split may leave certain stockholders with one or more
"odd lots" of New Common Stock, i.e., stock in amounts of less than 100 shares.
These odd lots may be more difficult to sell or require greater transaction
costs per share to sell, than shares in even multiples of 100.
Effect on Stock Option Plans
As of March 10, 2000 there were outstanding options to purchase shares
under the Company's stock incentive plans relating to an aggregate of
approximately 11.1 million shares of Common Stock. On that date 2,533 shares of
Common Stock remained available for grant under such plans. All of the
outstanding options, other grants and rights to purchase stock under the
employee stock purchase plans include provisions for adjustments in the number
of shares covered thereby, and the exercise price thereof, in the event of a
reverse stock split by appropriate action of the Employee Benefits Committee of
the Company's Board of Directors. If the Reverse Stock Split is approved and
effected, there would be reserved for future issuance upon exercise of all
outstanding options a total of 1.1 million shares of Common Stock. Each of the
outstanding options would thereafter evidence the right to purchase 10% of the
shares of Common Stock previously covered thereby and the exercise price per
share would be ten times the previous exercise price. Each of the outstanding
grants of shares would thereafter evidence the contingent obligation to deliver
10% of the shares of Common Stock previously covered thereby. The number of
shares currently available for grant under the Company's stock incentive and
employee stock purchase plans would be decreased to approximately 288,000
shares of Common Stock, if the Reverse Stock Split is effected.
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Effect on Preferred Stock
An aggregate of approximately 250 million shares of Common Stock are
currently authorized for issuance upon conversion of all outstanding shares of
Preferred Stock. If the Reverse Stock Split is approved and effected, the
conversion rates for such shares of Preferred Stock would be adjusted
proportionately so that the new conversion rates would be 10% of the present
conversion rate and there would be reserved for issuance for this purpose
approximately 25 million shares of Common Stock. As a result, following the
Reverse Stock Split, each share of Series A Preferred Stock would thereafter be
convertible into 1.81818 shares of Common Stock instead of 18.1818 shares. In
addition, the voting powers of the Series A Preferred Stock would thereafter be
reduced correspondingly.
Changes in Stockholders' Equity
The following table illustrates the principal effects of the Reverse Stock
Split discussed in the preceding paragraphs:
<TABLE>
Prior to Reverse After Reverse
Split and Amendment Split and Amendment
Number of Shares of Common Stock to Certificate to Certificate
-------------------------------- -------------- --------------
<S> <C> <C>
Authorized.......................................................... 520,000,000 52,000,000
Outstanding (1)..................................................... 129,851,617 12,985,161
Reserved for future grants under the stock incentive plans.......... 2,533 253 (2)
Reserved for future issuance upon exercise of outstanding options... 11,150,190 1,115,019
Restricted stock awards issued under the stock incentive plan....... 2,138,000 213,800
Reserved for future issuance pursuant to the employee stock 2,883,683 288,368
purchase plan...................................................
Authorized for issuance upon conversion of Preferred Stock.......... 249,092,296 24,909,229
Available for future issuance by action of the Board of Directors
(after giving effect to the above reservations)................. 127,019,681 12,701,968
</TABLE>
- ---------
(1) Including restricted stock awards.
(2) After giving effect to the approval of the proposed 2000 Stock
Incentive Plan, if approved, the number of shares of Common Stock
reserved for future grants under the stock incentive plans would be
1,700,253.
Assuming the Amendment effecting the Reverse Stock Split is approved, the
Amendment will be filed with the Secretary of State of the State of Delaware as
promptly as reasonably practicable thereafter. The Amendment and the proposed
Reverse Stock Split would become effective upon the Effective Date.
Federal Income Tax Consequences
The following summary of the federal income tax consequences of the
Reverse Stock Split is based on current law, including the Internal Revenue
Code of 1986, as amended (the "Code"), and is for general information only. The
tax treatment of a stockholder may vary depending upon the particular facts and
circumstances of such stockholder. Certain stockholders, including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
non-resident aliens, foreign corporations, and persons who do not hold the
Common Stock as a capital asset, may be subject to special rules not discussed
below.
ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE STOCK
SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, OR
FOREIGN INCOME TAX AND OTHER LAWS.
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The receipt of shares of New Common Stock (excluding fractional shares of
New Common Stock) in the Reverse Stock Split will be a nontaxable transaction
under the Code for federal income tax purposes. Consequently, a stockholder
receiving shares of New Common Stock will not recognize either gain or loss, or
any other type of income, with respect to whole shares of New Common Stock
received as a result of the Reverse Stock Split. In addition, the aggregate tax
basis of such stockholder's shares of Common Stock prior to the Reverse Stock
Split will carry over as the tax basis of the stockholder's shares of New
Common Stock. Each stockholder will be required to allocate such stockholder's
basis in such stockholder's shares of Common Stock ratably among the total
number of shares of New Common Stock owned following the Reverse Stock Split.
The holding period of the shares of New Common Stock will also include the
holding period during which the stockholder held the Common Stock, provided
that such Common Stock was held by the stockholder as a capital asset on the
Effective Date.
The receipt by a Fractional Stockholder of cash in lieu of a fractional
share of New Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu of
fractional shares of New Common Stock will result in gain or loss (rather than
dividend income) to the Fractional Stockholders measured by the difference
between the amount of cash received and the adjusted basis of the fractional
share assuming, as the Company believes, that such cash distribution is
undertaken solely for the purpose of saving the Company the expense and
inconvenience of issuing and transferring fractional shares of New Common
Stock. Capital gain or loss will be long term capital gain or loss if on the
Effective Date the shares of Common Stock have been held by the Fractional
Stockholder for longer than one year.
Based on certain exceptions contained in regulations issued by the
Internal Revenue Service, the Company does not believe that it or Fractional
Stockholders will be subject to backup withholding or informational reporting
with respect to the cash distributed to a Fractional Stockholder.
Exchange of Stock Certificates
If the proposal to implement the Reverse Stock Split is adopted,
stockholders will be required to exchange their stock certificates for new
certificates representing the shares of New Common Stock. Stockholders of
record on the Effective Date will be furnished the necessary materials and
instructions for the surrender and exchange of share certificates at the
appropriate time by the Company's transfer agent (the "Transfer Agent").
Stockholders will not have to pay a transfer fee or other fee in connection
with the exchange of certificates. Stockholders should not submit any
certificates until requested to do so.
As soon as practicable after the Effective Date, the Transfer Agent will
send a letter of transmittal to each stockholder advising such holder of the
procedure for surrendering stock certificates in exchange for new certificates
representing the ownership of New Common Stock. No certificates representing
fractional shares shall be issued. In lieu thereof, a certificate or
certificates evidencing the aggregate of all fractional shares otherwise
issuable (rounded, if necessary, to the next higher whole share) shall be
issued to the Transfer Agent or its nominee, as agent for the accounts of all
holders of Common Stock otherwise entitled to have a fraction of a share issued
to them in connection with the Reverse Stock Split. Sales of fractional
interests will be effected by the Transfer Agent as soon as practicable on the
basis of prevailing market prices of the Common Stock on the NYSE at the time
of sale. After the Effective Date, the Transfer Agent will pay to such
stockholders their pro rata share of the net proceeds derived from the sale of
their fractional interests upon surrender of their stock certificates. No
service charges or brokerage commissions will be payable by stockholders in
connection with the sale of fractional interests, all of which costs will be
borne by the Company.
Until they have surrendered their stock certificates for exchange,
stockholders will not be entitled to receive any dividends or other
distributions that may be declared and payable to holders of record. Upon the
surrender of certificates representing Old Common Stock, certificates
representing New Common Stock together with any such withheld dividends or
other distributions, without interest, will be delivered. At the same time or
as soon as possible thereafter, any cash payment for a fractional share will be
paid (without interest).
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Any stockholder whose certificate for Old Common Stock has been lost,
destroyed or stolen, will be entitled to issuance of a certificate representing
the shares of New Common Stock into which such shares will have been converted
upon compliance with such requirements as the Company and the Transfer Agent
customarily apply in connection with lost, stolen or destroyed certificates.
The Board of Directors of the Company recommends that stockholders vote
"FOR" approval of the Amendment to the Company's Certificate of Incorporation.
ITEM FOUR: RATIFICATION OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed PricewaterhouseCoopers LLP ("PwC") to audit the accounts of the
Company for the year ending December 31, 2000. For the year ended December 31,
1999 the Company's accounts were audited by PwC.
PwC's report on the financial statements of the Company for the year ended
December 31, 1999 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, 1999, there were no
disagreements with PwC on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedure which, if not
resolved to the satisfaction of PwC, would have caused PwC to make reference to
the matter in its reports.
Representatives of PwC 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 PwC as the Company's
independent accountants is not required by the Company's By-Laws 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 PwC as the Company's independent accountants for the year ending December
31, 2000, 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 PwC as the Company's independent
accountants for 2000.
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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.
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 Holdings, Inc., a Delaware
corporation and indirect wholly-owned subsidiary of M&F Holdings 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.
Certain Other Transactions with Roche
At December 31, 1999, 61,329,256 shares of the Company's outstanding
common stock, or approximately 47.6% at December 31, 1999, were owned by Roche.
In addition, Roche owned 6,170,140 shares of the Company's
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redeemable convertible preferred stock at December 31, 1999, or approximately
54.4%. No voting rights are associated with the redeemable preferred shares.
As of December 31, 1999, 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
$38.3 million in 1999. In addition, the Company made royalty payments to Roche
in the amount of $2.9 million in 1999. 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 $0.9 million in
1999. 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 TriPath Imaging, Inc. (formerly known as AutoCyte,
Inc.)
Dr. Powell is President, Chief Executive Officer and a Director on the
Board of TriPath Imaging, Inc. ("TriPath") and has a beneficial ownership of
approximately 8.0% of TriPath's common stock. Mr. Mac Mahon has a beneficial
ownership of less than 1% of TriPath's common stock.
The Company has certain on-going arrangements with TriPath for the
purchase by the Company of certain products with an aggregate value of
approximately $0.4 million in 1999.
In 1998, TriPath leased a portion of the Company's facility in Elon
College, North Carolina and purchased cytology services for total payments of
approximately $0.1 million to the Company.
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 2000 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 2, 2001. This date was based on a
planned meeting date in early June 2001.
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.
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ADDITIONAL INFORMATION
The Company will make available a copy of the 1999 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 4, 2000) 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
LOGO
Bradford T. Smith
Secretary
April 6, 2000
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ANNEX I
LABORATORY CORPORATION OF AMERICA HOLDINGS
2000 STOCK INCENTIVE PLAN
1. Purpose; Restrictions on Amount Available under this Plan.
This 2000 Stock Incentive Plan (this "Plan") is intended to encourage
stock ownership by employees, consultants, and non-employee directors of
Laboratory Corporation of America Holdings (the "Company") and employees and
consultants of Affiliate Corporations (as defined in Section 2(a) hereof), so
that they may acquire or increase their proprietary interest in the Company,
and to encourage such employees, consultants and non-employee directors to
remain in the employ and/or service of the Company and to put forth maximum
efforts for the success of the business of the Company. It is further intended
that options granted by the Committee pursuant to Section 6 of this Plan shall
constitute "incentive stock options" ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder (the "Code"), and options granted by the
Committee pursuant to Sections 7 and 8 of this Plan shall constitute
"nonqualified stock options" ("Nonqualified Stock Options"). Grants under this
Plan may consist of Incentive Stock Options, Nonqualified Stock Options
(collectively, "Options"), stock appreciation rights ("Rights"), which Rights
may be either granted in conjunction with Options ("Related Rights") or
unaccompanied by Options ("Free Standing Rights"), restricted stock awards
("Restricted Shares"), or performance awards ("Performance Awards"), as
hereinafter set forth.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Affiliate Corporation" or "Affiliate" shall mean any
corporation, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with the Company.
(b) "Award" shall mean an Option, a Right, Restricted Share, or
Performance Award granted hereunder.
(c) "Award Agreement" shall have the meaning set forth in Section 3
hereof.
(d) "Change in Control" shall mean circumstances under which Roche
Holding Ltd or any corporation directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
Roche Holding Ltd ceases to maintain "beneficial ownership" (as defined in
Rule 13d-3 of the Exchange Act), individually or in the aggregate, of
securities of the Company representing five percent (5%) or more of the
combined voting power of the Company's then outstanding securities.
(e) "Common Stock" shall mean shares of the Company's common stock,
par value $0.10 per share.
(f) "Covered Officer" as of a particular date shall mean (i) any
individual who, with respect to the previous taxable year of the Company,
was a "covered employee" of the Company within the meaning of Section
162(m) of the Internal Revenue Code; provided, however, that the term
"Covered Officer" shall not include any such individual who is designated
by the Committee, in its discretion, at the time of any Award or at any
subsequent time, as reasonably expected not to be such a "covered
employee" with respect to the current taxable year of the Company and (ii)
any individual who is designated by the Committee, in its discretion, at
the time of any Award or at any subsequent time, as reasonably expected to
be such a "covered employee" with respect to the current taxable year of
the Company or with respect to the taxable year of the Company in which
any applicable Award will be paid.
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(g) "Disability" shall mean a Participant's inability to engage in
any substantial gainful activity by reason of medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock on a national
securities exchange for the last preceding date on which there was a sale
of such Common Stock on such exchange, or (ii) if the shares of Common
Stock are then traded on an over-the-counter market, the average of the
closing bid and asked prices for the shares of Common Stock in such
over-the-market for the last preceding date on which there was a sale of
such Common Stock in such market, or (iii) if the shares of Common Stock
are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee in its discretion may
determine.
(j) "Parent Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if,
at the time of granting an Award, each of such corporations (other than
the Company) owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(k) "Participant" shall have the meaning set forth in Section 4
hereof.
(l) "Prior Plans" shall mean the Laboratory Corporation of America
Holdings Amended and Restated 1999 Stock Incentive Plan and the Laboratory
Corporation of America Holdings 1994 Stock Option Plan.
(m) "Retirement" shall mean a Participant's termination of employment
in accordance with the provisions of the Company's Employee Retirement
Plan at such Participant's Normal Retirement Date, as defined in such
plan.
(n) "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Company if, at the time of granting an option, each of such corporations
other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(o) "Ten Percent Stockholder" shall mean a Participant who, at the
time an Incentive Stock Option is granted, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent Corporation or Subsidiary
Corporations.
3. Administration.
This Plan shall be administered by a committee (the "Committee") appointed
by the Board of Directors of the Company (the "Board"), which shall be
comprised of two or more persons, each of whom shall qualify as a "Non-Employee
Director" as described in Rule 16b-3(b)(3)(i) promulgated under the Exchange
Act.
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of this Plan, to administer this
Plan and to exercise all the powers and authorities either specifically granted
to it under this Plan or necessary or advisable in the administration of this
Plan, including, without limitation, the authority to grant Awards; to
designate Participants, other than as set forth in Section 8 hereof; to
determine the type or types of Awards to be granted to a Participant; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine which Rights
(if any) shall be granted in conjunction with Options; to determine the
purchase price of the shares of Common Stock covered by each Option (the
"Option Price"); to determine the persons to whom, and the time or times at
which, Awards shall be granted; to determine the number of shares to be covered
by each Award; to interpret this Plan; to prescribe,
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amend and rescind rules and regulations relating to this Plan; to determine the
terms and provisions of the agreements (which need not be identical) entered
into in connection with Awards granted under this Plan (each an "Award
Agreement"); and to make all other determinations deemed necessary or advisable
for the administration of this Plan. The Committee may delegate to one or more
of its members or to one or more agents such administrative duties as may be
deemed advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under this
Plan.
No member of the Board of Directors or Committee shall be liable for any
action taken or determination made in good faith with respect to this Plan or
any Award granted hereunder.
4. Eligibility.
Awards may be granted to key employees (including, without limitation,
officers and directors who are employees) and non-employee directors of the
Company or its present or future Affiliate Corporations. For purposes of the
foregoing, "employee" shall mean any employee, independent contractor,
consultant, advisor, or similar individual who is providing or who has agreed
to provide services to the Company or to any of its present or future Affiliate
Corporations. Notwithstanding any provision of this paragraph, Incentive Stock
Options shall be granted only to individuals who, on the date of such grant,
are employees of the Company or a Parent Corporation or a Subsidiary
Corporation. In determining the persons to whom Awards shall be granted and the
number of shares to be covered by each Award, the Committee shall take into
account the duties of the respective persons, their present and potential
contributions to the success of the Company and such other factors as the
Committee shall deem relevant in connection with accomplishing the purpose of
this Plan. A person to whom an Award has been granted hereunder is sometimes
referred to herein as a "Participant" or "Optionee."
A Participant shall be eligible to receive more than one grant of an Award
during the term of this Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
5. Stock.
The stock subject to Awards hereunder shall be shares of Common Stock.
Such shares may, in whole or in part, be authorized but unissued shares or
shares that shall have been or that may be reacquired by the Company. The
aggregate number of shares of Common Stock as to which Awards may be granted
from time to time under this Plan shall not exceed 1.7 million, plus any shares
which remain available for grants of awards under the Prior Plans, of which the
number of shares of Common Stock as to which Restricted Shares and/or
Performance Awards may be granted from time to time under this Plan shall not
exceed 750,000. No person may be granted Options or Rights under this Plan
representing an aggregate of more than 150,000 shares of Common Stock in any
year. The limitations established by the preceding three sentences shall be
subject to adjustment as provided in Sections 14 and 18 hereof.
To the extent that (1) any Award granted under the Plan or the Prior Plans
expires, is terminated or forfeited without being exercised, settled or with
respect to Restricted Shares, vested, (2) any Option granted under the Plan or
the Prior Plans is surrendered on exercise of a Right for cash or the issuance
of fewer shares of Common Stock than issuable under such surrendered Option, or
(3) any Free Standing Right granted under the Plan or the Prior Plans expires
or is terminated without being exercised, the shares of Common Stock issuable
thereunder, less such shares issued, shall become available for grants of
Awards.
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6. Incentive Stock Options.
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in
Sections 5 and 9 hereof:
(a) Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common
Stock with respect to which Options granted under this Plan and all other
option plans of the Company, any Parent Corporation and any Subsidiary
Corporation become exercisable for the first time by a Participant during
any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholders. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall
not be less than one hundred ten percent (110%) of the Fair Market Value
of a share of Common Stock of the Company on the date of grant of such
Incentive Stock Option, and (ii) the exercise period shall not exceed five
(5) years from the date of grant of such Incentive Stock Option.
7. Employee Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Sections 5 and 9 hereof.
8. Director Nonqualified Stock Options.
(a) Each non-employee director shall be granted an Option to purchase
that number of shares of Common Stock having a Fair Market Value
equal to $65,000 as of the date of each annual meeting of the
stockholders of the Company (the "Annual Grant Amount") following the
meeting at which the Plan is approved at which such individual is
elected or reelected to the office of director (the "Meeting Grant
Date") with each such grant effective as of each Meeting Grant Date.
In addition, that notwithstanding the foregoing, (i) options will be
granted to directors elected at the meeting at which the Plan is
approved for a number of shares having a Fair Market Value equal to
$65,000 as of the Effective Date to be effective as of the Effective
Date and (ii) with respect to any director who is elected or
nominated to become director other than in connection with an annual
meeting of the stockholders of the Company, such director shall be
granted an option, to be effective as of the date of his or her
election or appointment, in an amount equal to the product of the
Annual Grant Amount and a fraction the numerator which is the number
of months from the date of such election or appointment until the
expected date of the next annual meeting and the denominator of which
is twelve. Notwithstanding the foregoing, the minimum and maximum
number of shares which may be subject to an Option in any year shall
be 1,000 and 3,500 respectively. Options granted pursuant to this
Section 8 are intended to constitute Nonqualified Stock Options and
shall be subject, to the extent applicable, to the general terms and
conditions specified in Sections 5 and 9 hereof.
(b) With respect to the Options granted pursuant to this Section 8,
neither the Board nor the Committee shall have discretion with
respect to the selection of directors to receive Options, the number
of shares subject to such Options, the purchase price thereunder or
the timing of the grant of Options under this Section 8.
9. Terms and Conditions of Options.
Each Option granted pursuant to this Plan shall be evidenced by a written
Award Agreement between the Company and the Participant, which agreement shall
comply with and be subject to the following terms and conditions:
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(a) Number of Shares. Each Award Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Award agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock
Option and the portion, if any, which constitutes a Nonqualified Stock
Option.
(c) Option Price. Each Award Agreement shall state the Option Price
per share of Common Stock, which shall be not less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock of the
Company on the date of grant of the Option and which, in the case of
Incentive Stock Options, shall be further subject to the limitation
described in Section 6(b) hereof. The Option Price shall be subject to
adjustment as provided in Section 14 hereof. The date on which the
Committee adopts a resolution expressly granting an Option shall be
considered the day on which such Option in granted.
(d) Medium And Time of Payment. The Option Price shall be paid or
satisfied in full, at the time of exercise, in cash or in shares of Common
Stock owned by the Participant for at least six months (which are not the
subject of any pledge or other security interest) having a Fair Market
Value equal to such Option Price or in a combination of cash and such
shares, and may be effected in whole or in part, at the discretion of the
Committee (i) with monies received from the Company at the time of
exercise as a compensatory cash payment, or (ii) with monies borrowed from
the Company pursuant to repayment terms and conditions as shall be
determined from time to time by the Committee, in its discretion
separately with respect to each exercise of Options and each Participant;
provided, however, that each such method and time for payment and each
such borrowing and terms and conditions of security, if any, and repayment
shall be permitted by and be in compliance with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Award Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be determined by the Committee; provided, however,
that in the case of any Incentive Stock Option, such exercise period shall
not exceed ten (10) years from the date of grant of such Incentive Stock
Option and such exercise period shall be further limited in circumstances
described in Section 6(b) hereof. The exercise period shall be subject to
earlier termination as provided in Section 9(f) and 9(g) hereof. An Option
may be exercised as to any or all full shares of Common Stock as to which
the Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option may not be
exercised at any one time as to fewer than one hundred (100) shares (or
such number of shares as to which the Option is then exercisable if such
number of shares is less than one hundred (100)).
(f) Termination of Employment. Except as provided in this Section
9(f) and in Section 9(g) hereof, an Option may not be exercised unless the
Participant is then in the employ or service of (1) the Company, (2) an
Affiliate Corporation or (3) a corporation issuing or assuming the Option
in a transaction to which Section 424 of the Code applies or a parent
corporation or subsidiary corporation of the corporation described in this
Clause 3, and unless the Participant has remained continuously so employed
since the date of grant of the Option. In the event that the employment or
service of a Participant shall terminate (other than by reason of death,
Disability or Retirement), all Options of such Participant that are
exercisable at the time of such termination may, unless earlier terminated
in accordance with their terms, be exercised within three (3) months after
such termination. Nothing in this Plan or in any Option or Right granted
pursuant hereto shall confer upon an individual any right to continue in
the employ or service of the Company or any of its Affiliate Corporations
or interfere in any way with the right of the Company or any such
Affiliate Corporation to terminate such employment or service at any time.
(g) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
employed by the Company or an Affiliate Corporation thereof,
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(ii) a Participant shall die within three (3) months after the termination
of such Participant's employment, (iii) the Participant's employment shall
terminate by reason of Disability or Retirement, or (iv) there is a Change
in Control, then in any such case all Options theretofore granted to such
Participant (whether or not then exercisable) may, unless earlier
terminated or expired in accordance with their terms, be exercised by the
Participant or by the Participant's estate or by a person who acquired the
right to exercise such Option by bequest or inheritance or otherwise by
reason of the death or Disability of the Participant, at any time within
one year after the date of death, Disability or Retirement of the
Participant or the Change in Control.
(h) Nontransferability of Options. Except as otherwise provided in an
Award Agreement, Options granted under this Plan shall not be transferable
otherwise than by will or by the laws of descent and distribution, and
Options may be exercised, during the lifetime of the Participant, only by
the Participant or by his guardian or legal representative.
(i) Rights as a Stockholder. A Participant who is the holder of an
Option or a transferee of an Option shall have no rights as a stockholder
with respect to any shares covered by the Option until the date of the
issuance of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distribution of other rights for
which the record date is prior to the date such stock certificate is
issued, except as provided in Section 14 hereof.
(j) Other Provisions. The Award Agreements authorized under this Plan
shall contain such other provisions, including, without limitation, (i)
the granting of Rights, (ii) the imposition of restrictions upon the
exercise of an Award, and (iii) in the case of an Incentive Stock Option,
the inclusion of any condition not inconsistent with such Option
qualifying as an Incentive Stock Option, as the Committee shall deem
advisable.
10. Stock Appreciation Rights.
(a) Grant and Exercise. In the case of a Nonqualified Stock Option,
Related Rights may be granted either at or after the time of the grant of such
Option. In the case of an Incentive Stock Option, related Rights may be granted
only at the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to a
given Option shall terminate and no longer be exercisable upon the termination
or exercise of the related Option, except that, unless otherwise provided by
the Committee at the time of grant, a Related Right granted with respect to
less than the full number of shares covered by a related Option shall only be
reduced if and to the extent that the number of shares covered by the exercise
or termination of the related Option exceeds the number of shares not covered
by the Right.
A Related Right may be exercised by a Participant, in accordance with
paragraph (b) of this Section 10, by surrendering the applicable portion of the
related Option. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 10. Options which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent the Related Rights have been
exercised.
(b) Terms and Conditions. Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee and as evidenced by a written
Award Agreement between the Company and the Participant, including the
following:
(1) Related Rights shall be exercisable only at such time or times
and to the extent that the Options to which they relate shall be
exercisable in accordance with the provisions of Section 6, 7, 9 and this
Section 10 of this Plan.
(2) Upon the exercise of a Related Right, a Participant shall be
entitled to receive up to, but not more than, an amount in cash or shares
of Common Stock equal in value to the excess of the Fair Market
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Value of one (1) share of Common Stock over the option price per share
specified in the related Option multiplied by the number of shares in
respect of which the Related Right shall have been exercised, with the
Committee having the right to determine the form of payment.
(3) Related Rights shall be transferable only when and to the extent
that the underlying Option would be transferable under paragraph (h) of
Section 9 of this Plan.
(4) A Related Right granted in connection with an Incentive Stock
Option may be exercised only if and when the market price of the Common
Stock subject to the Incentive Stock Option exceeds the exercise price of
such Option.
(5) Free Standing Rights shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Committee at or after grant.
(6) The term of each Free Standing Right shall be fixed by the
Committee, but no Free Standing Right shall be exercisable more than ten
(10) years after the date such right is granted.
(7) Upon the exercise of a Free Standing Right, a Participant shall
be entitled to receive up to, but not more than, an amount in cash or
shares of Common Stock equal in value to the excess of the Fair Market
Value of one share of Common Stock over the price per share specified in
the Free Standing Right (which shall be no less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date of grant)
multiplied by the number of shares in respect of which the Right is being
exercised, with the Committee having the right to determine the form of
payment.
(8) No Free Standing Right shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, and all
such rights shall be exercisable, during the Participant's lifetime, only
by the Participant or his legal guardian or legal representative.
(9) In the event of the termination of employment of a recipient of a
Free Standing Right, such right shall be exercisable to the same extent
that an Option would have been exercisable in the event of the termination
of employment of a Participant.
11. Restricted Shares.
(a) Grant. Subject to the provisions of this Plan, the Committee shall
have sole and complete authority to determine the Participants to whom
Restricted Shares shall be granted, the number of Restricted Shares to be
granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Shares may be forfeited to the Company,
and the other terms and conditions of such Awards (including whether or not
such Restricted Shares shall qualify as Performance Awards).
(b) Transfer Restrictions. Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as otherwise provided in
an Award Agreement. Certificates issued in respect of Restricted Shares shall
be registered in the name of the Participant and deposited by such Participant,
together with a stock power endorsed in blank, with the Company. Upon the lapse
of the restrictions applicable to such Restricted Shares, the Company shall
deliver such certificates to the Participant or the Participant's legal
representative.
(c) Dividends and Distributions. Dividends and other distributions paid on
or in respect of Restricted Shares, if any, may be paid directly to the
Participant, or may be reinvested in additional Restricted Shares, as
determined by the Committee in its sole discretion.
(d) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
employed by the Company or an Affiliate Corporation thereof, (ii) the
Participant's employment shall terminate by reason of Disability or Retirement,
or (iii) there is a Change in Control,
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then in any such case all Restricted Shares theretofore granted to such
Participant shall become immediately vested and nonforfeitable.
12. Performance Awards.
(a) Grant. Subject to the provisions of this Plan, the Committee shall
have sole and complete authority to determine the Participants to whom
Performance Awards shall be granted, the number of shares of Common Stock
subject to Performance Awards, the duration of the period during which, and the
conditions under which, the Performance Awards may be forfeited to the Company,
and the other terms and conditions of such Awards. Performance Awards may be
(i) denominated in cash or Shares, (ii) valued, as determined by the Committee,
in accordance with the achievement of such performance goals during such
performance periods as the Committee shall establish, and (iii) payable at such
time and in such form as the Committee shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award. Unless
otherwise provided in an Award Agreement, Performance Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered.
(c) Payment of Performance Awards. Performance Awards may be paid in a
lump sum or in installments following the close of the performance period or,
in accordance with procedures established by the Committee, on a deferred
basis.
13. Provisions Applicable to Covered Officers.
To the extent the Committee determines, all performance-based Restricted
Shares and Performance Awards granted to Covered Officers shall be subject to
the terms and provisions of this Section 13.
(a) Performance goals shall be limited to one or more of the following
Company, subsidiary, operating unit or division financial performance
measures:
(i) earnings before interest, taxes, depreciation and/or
amortization
(ii) operating income or profit
(iii) return on equity, assets, capital, capital employed, or
investment
(iv) after tax operating income
(v) net income
(vi) earnings or book value per share
(vii) cash flow(s)
(viii) total sales or revenues or sales or revenues per employee
(ix) stock price or total shareholder return
(x) dividends
(xi) strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business
expansion goals, and goals relating to acquisitions or
divestitures
or any combination thereof. Each goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ comparisons based on
internal targets, the past performance of the Company and/or the past or
current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders'
equity and/or shares outstanding, or to assets or net assets.
(b) The maximum annual number of shares in respect of which
performance-based Restricted Shares and Performance Awards may be granted under
the Plan is 100,000 and the maximum annual amount of any such Award settled in
cash is $5 million.
(c) To the extent necessary to comply with Section 162(m), no later than
90 days following the commencement of each performance period (or such other
time as may be required or permitted by Section 162(m)
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of the Code), the Committee shall, in writing, (A) select the performance goal
or goals applicable to the performance period, (B) establish the various
targets and bonus amounts which may be earned for such performance period and
(C) specify the relationship between performance goals and targets and the
amounts to be earned by each Covered Officer for such performance period.
Following the completion of each performance period, the Committee shall
certify in writing whether the applicable performance targets have been
achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned for a given performance
period, subject to any applicable Award Agreement, the Committee shall have the
right to reduce (but not increase) the amount payable at a given level of
performance to take into account additional factors that the Committee may deem
relevant to the assessment of individual or corporate performance for the
performance period.
14. Effect of Certain Changes.
(a) If there is any change in the number of outstanding shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination, exchange of shares, merger, consolidation, liquidation, split-up,
spin-off or other similar change in capitalization, any distribution to
shareholders, including a rights offering, other than cash dividends, or any
like change, then the number of shares of Common Stock available for Awards,
the maximum number of shares of Common Stock that may be subject to Awards, the
number of such shares of Common Stock covered by outstanding Awards, and the
price per share of Options or the applicable market value of Rights, shall be
proportionately adjusted by the Committee to reflect such change or
distribution; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(b) In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of its authorized shares with par value
into the same number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of this Plan.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that each Incentive Stock Option granted pursuant to this Plan shall
not be adjusted in a manner that causes such option to fail to continue to
qualify as an Incentive Stock Option within the meaning of Section 422 of Code.
15. Agreement by Participant Regarding Withholding Taxes.
If the Committee shall so require, as a condition of grant, exercise, or
settlement or otherwise, each Participant shall agree that:
(a) no later than the date a Participant recognizes taxable income in
connection with an Award granted hereunder in connection with the exercise
or settlement of such Award or otherwise, the Participant will pay to the
Company or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law
to be withheld upon the exercise or settlement of such Award (any such
tax, a "Withholding Tax"); and
(b) the Company shall, to the extent permitted or required by law,
have the right to deduct any Withholding Tax from any payment of any kind
otherwise due to the Participant.
16. Gross-Up for Excise Tax.
An Award Agreement may provide that in the event that a Participant
becomes entitled by reason of a Change of Control to the accelerated vesting of
an Award, if such Participant will be subject to excise tax (the "Excise Tax")
under Section 4999 of the Code, the Company shall pay to such Participant as
additional compensation an amount (the "Gross-Up Payment") which, after payment
by such Participant of all taxes (including
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any federal, state and local income tax and excise tax upon the payment
provided for by this Section 16) allows Participant to retain an amount of the
Gross-Up Payment equal to the Excise Tax. For purposes of determining whether a
Participant will be subject to the Excise Tax and the amount of such Excise
Tax, (i) any other payments or benefits received or to be received by such
Participant in connection with a Change in Control of the Company or the
Participant's termination of employment (whether pursuant to the terms of the
Award Agreement or any other plan, arrangement or agreement with the Company,
any entity whose actions result in a Change in Control of the Company or any
entity affiliated with the Company or such entity) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Company's independent auditors and reasonably
acceptable to the Participant such other payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, or are otherwise not subject
to the Excise Tax, (ii) the amount of payments or benefits treated as subject
to the Excise Tax shall be equal to the lesser of (A) the total amount of
payments or benefits conferred on such Participant by reason of the Change of
Control or (B) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii)
the value of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Participant shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Participant's residence on the date on which the
Excise Tax is incurred, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder, the Participant shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Participant with respect to
such excess) at the time that the amount of such excess finally is determined.
The Participant and the Company each shall reasonably cooperate with the other
in connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax.
17. Termination and Amendment.
Unless terminated by action of the Board of Directors or the Committee, no
Awards may be granted under this Plan after May 4, 2010. This Plan may be
amended or terminated at any time by the Committee, except that no amendment
may be made without shareholder approval if the Committee determines that such
approval is necessary to comply with any tax or regulatory requirement,
including any approval requirement which is a prerequisite for exemptive relief
from Section 16 of the Exchange Act, for which or with which the Committee
determines that it is desirable to qualify or comply. The Committee may amend
the terms of any Award Agreement and any Award granted, retroactively or
prospectively, but no amendment may adversely affect any vested Award without
the holder's consent.
18. Effectiveness; Approval of Stockholders.
This Plan shall take effect as of May 4, 2000 (the "Effective Date"),
subject to the approval of the holders of the majority of the voting shares of
the Company at the Company's 2000 annual meeting of Stockholders (the "2000
Annual Meeting"). This Plan gives effect to the amendment of the Company's
Certificate of Incorporation to effect a one-for-ten reverse stock split of the
Common Stock (the "Reverse Stock Split"). If such Reverse Stock
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Split is not approved by the holders of the majority of the voting shares of
the Company, this Plan will be restated so that the number of shares of Common
Stock authorized for issuance and individual grants set forth herein, including
but not limited to Sections 5, 8, and 13 shall be adjusted so that the
limitations set forth therein shall be multiplied by ten.
19. Effect of Headings.
The section and subsection headings contained herein are for convenience
only and shall not affect the construction hereof.
20. Governing Law
The validity, construction and effect of the Plan shall be determined in
accordance with the laws of the State of Delaware.
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ANNEX II
PROPOSED CERTIFICATE OF AMENDMENT
OF
LABORATORY CORPORATION OF AMERICA HOLDINGS
Laboratory Corporation of America Holdings (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the directors of the Corporation, a resolution was
duly adopted setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation, as previously amended, and such amendment was
declared to be advisable, and such amendment was submitted to the stockholders
of the Corporation for consideration at their annual meeting. The resolution
setting forth the proposed amendment is as follows:
RESOLVED: Effective as of the close of business on the date of filing
this Certificate of Amendment to the Certificate of Incorporation
pursuant to the Delaware General Corporate Law (the "Effective
Time"), each TEN shares of common stock, $.01 par value ("Old Common
Stock"), of the Corporation issued and outstanding, shall be combined
into ONE validly issued, fully paid and nonassessable share of common
stock, $0.10 par value ("New Common Stock"), of the Corporation. Upon
such Effective Time, each holder of Old Common Stock shall thereupon
automatically be and become the holder of ONE share of New Common
Stock for every TEN shares of Old Common Stock then held by such
holder. Upon such Effective Time, each certificate formerly
representing a stated number of shares of Common Stock shall
thereupon be deemed for all corporate purposes to evidence ownership
of New Common Stock in the appropriately reduced whole number of
shares. As soon as practicable after such Effective Time,
stockholders as of the date of the reclassification will be notified
thereof and, upon their delivery of their certificates of Old Common
Stock to the Corporation, will be sent stock certificates
representing their shares of New Common Stock, rounded down to the
nearest whole number, together with cash representing the fair value
of such holder's fractional shares of Old Common Stock. No scrip or
fractional share certificates for New Common Stock will be issued in
connection with this reverse stock split.
RESOLVED: That it is advisable that Article FOURTH of the
Corporation's Certificate of Incorporation, as amended, be amended to
read in its entirety as follows:
FOURTH. The total number of shares of stock which the
Corporation has authority to issue is eighty-two million
(82,000,000) shares of which fifty-two million (52,000,000) will
be shares of Common Stock, each having a par value of $0.10, and
thirty million (30,000,000) will be shares of Preferred Stock,
each having a par value of $0.10.
SECOND: That thereafter, pursuant to resolution of the Board of Directors, a
meeting of the stockholders of the Corporation was duly called and held, upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required
by the General Corporation Law of the State of Delaware voted in favor of the
amendment.
THIRD: That such amendment of the Certificate of Incorporation, as amended, was
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or by
reason of said amendment.
FIFTH: That the effective date of this amendment shall be May 3, 2000.
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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 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, NC, 27215 on Tuesday, May
2, 2000 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, Item 3 and Item 4. 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>
The Board of Directors recommends that you vote "FOR" all the nominees listed
under Item No. 1 and "FOR" Item No. 2, Item No. 3 and Item No. 4.
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, 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.
FOR AGAINST ABSTAIN
2. Approval of the Laboratory [_] [_] [_]
Corporation of America Holdings
2000 Stock Incentive Plan
3. Approval of the Amendment [_] [_] [_]
to the Laboratory Corporation
of America Holdings Certificate
of Incorporation (the reverse
stock split)
4. Ratification of the appointment [_] [_] [_]
of PricewaterhouseCoopers LLP
as Laboratory Corporation of
America Holdings' independent
accountants for 2000.
SHAREHOLDER NAME AND ADDRESS
Signature(s) ___________________________________________ Date: _______________
NOTE: Please sign exactly as name(s) appear(s) above. If acting as an executor,
administrator, trustee, guardian, etc. you should so indicate signing. If the
shareholder is a corporation, please sign the full corporate name, by duly
authorized officer. If shares are held jointly, each shareholder should sign.
Date and promptly return the card in the envelope provided.
