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 Rule 14a-12.
LABONE, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] 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: common
stock, par value $0.01 per share
2) Aggregate number of securities to which transaction applies:
17,500,766 shares of common stock and 1,610,212 options to purchase common
stock.
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): [X]
The filing fee was determined based upon the sum of (A) 17,500,766 shares
of common stock multiplied by $43.90 per share and (B) options to purchase
1,610,212 shares of common stock multiplied by $20.17 per share (which is
the difference between $43.90 and the weighted average exercise price per
share). In accordance with Exchange Act Rules 14a-6(a) and 0-11(c), the
filing fee was determined by calculating a fee of $117.70 per $1,000,000.00
of the aggregate merger consideration of $800,761,603.44.
4) Proposed maximum aggregate value of transaction: $800,761,603.44
5) Total fee paid: $94,249.65
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY-SUBJECT TO COMPLETION
[LABONE, INC. LOGO]
_________, 2005
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
LabOne, Inc. ("LabOne") to be held on _________ ____, 2005 at _____ a.m., local
time, at LabOne's corporate headquarters at 10101 Renner Boulevard, Lenexa,
Kansas 66219.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger, dated as of August 8, 2005,
that we entered into with Quest Diagnostics Incorporated and its wholly-owned
subsidiary, Fountain, Inc. Under the merger agreement, Quest Diagnostics will
acquire LabOne by means of a merger of Fountain, Inc. with and into LabOne. As a
result of the merger, each issued and outstanding share of LabOne common stock
(other than dissenting shares) will be converted into the right to receive
$43.90 in cash, without interest and less applicable tax withholding.
The Board of Directors of LabOne has approved the merger agreement and
determined that the merger is advisable and in the best interests of LabOne and
its shareholders, and unanimously recommends that you vote "FOR" the approval of
the merger agreement.
Your vote is important. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of LabOne's common stock entitled to vote
at the special meeting is required to approve the merger agreement. All of the
directors and executive officers of LabOne, owning an aggregate of _____________
shares, or ________% of outstanding shares, have indicated that they intend to
vote for approval of the merger agreement.
Shareholders are urged to read carefully the accompanying proxy statement,
which contains a detailed description of the merger and related matters. You may
also obtain more information about LabOne from documents we have filed with the
Securities and Exchange Commission.
Whether or not you plan to attend the special meeting personally, please
complete, sign and date the enclosed proxy card and mail it as soon as possible
in the enclosed postage-paid envelope, or cast your vote via the Internet or
telephone as soon as possible. If you attend the special meeting, you may vote
in person if you wish, even if you have previously submitted your proxy. If you
receive more than one proxy card because you own shares that are registered
differently, please vote all of your shares on all of your proxy cards. You
should not send in the certificates for your shares of common stock until you
receive specific instructions at a later date.
We thank you for your prompt attention to this matter and appreciate your
support.
Sincerely,
W. Thomas Grant, II
Chairman of the Board, President
and Chief Executive Officer
The accompanying proxy statement is dated _____, 2005 and is first being
mailed to LabOne shareholders on or about ____________, 2005.
LABONE, INC.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held _____________ ____, 2005
To the Shareholders of LabOne, Inc.:
A Special Meeting of Shareholders of LabOne, Inc. ("LabOne") will be held
at 10101 Renner Boulevard, Lenexa, Kansas on ___________ ____, 2005, at ______
a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of August 8, 2005, by and among LabOne, Inc.,
Quest Diagnostics Incorporated and Fountain, Inc. pursuant to which,
upon the merger becoming effective, each share of common stock, par
value $0.01 per share, of LabOne (other than shares held in treasury
by LabOne, shares owned by LabOne subsidiaries, shares owned by Quest
Diagnostics, Inc., or Fountain, Inc. or by shareholders who are
entitled to and properly demand dissenter's rights in compliance with
all of the required procedures under Missouri law) will be converted
into the right to receive $43.90 in cash, without interest;
2. To consider and vote upon any proposal to adjourn the special meeting,
if necessary or appropriate, to solicit additional proxies if there
are not sufficient votes for approval of the merger agreement at the
special meeting; and
3. To transact such other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
The Board of Directors has fixed the close of business on ___________, 2005
as the record date for the determination of shareholders entitled to receive
notice of and to vote at the special meeting and any postponements and
adjournments thereof. A list of shareholders entitled to vote at the special
meeting will be available for examination by LabOne's shareholders for any
purpose germane to the special meeting (i) at the special meeting upon the
request of a LabOne shareholder or (ii) for a period of ten (10) days prior to
the special meeting during ordinary business hours at LabOne's principal
executive offices at 10101 Renner Boulevard, Lenexa, Kansas 66219.
Holders of LabOne's common stock entitled to vote on the proposal to
approve the merger agreement who do not vote in favor thereof have the right to
receive payment of the fair value of their shares upon compliance with the
provisions of Section 351.455 of the General and Business Corporation Law of
Missouri (the "MGBCL"), the full text of which is included as Appendix C to the
proxy statement attached to this Notice of Special Meeting of Shareholders. For
a summary of the dissenters' rights of LabOne's shareholders, see "THE MERGER --
Dissenters' Rights" in the proxy statement. Failure to comply strictly with the
procedures set forth in Section 351.455 of the MGBCL will cause a shareholder to
lose dissenters' rights.
You are cordially invited to attend the special meeting. However, whether
or not you plan to be personally present at the special meeting, please
complete, sign and date the enclosed proxy card and promptly return it in the
envelope provided or vote via the Internet or telephone, as specified on the
proxy card. If you sign, date and mail your proxy card without indicating how
you wish to vote, your vote will be counted as a vote in favor of approval of
the merger agreement and in favor of any proposal to adjourn the special
meeting, if necessary. If you fail to return your proxy card, do not vote via
the Internet or telephone and do not attend the special meeting and vote in
person, or fail to instruct your broker or bank how to vote your shares if your
shares are held in "street name", it will have the same effect as a vote against
the approval of the merger agreement, but will not affect the outcome of the
vote regarding the adjournment of the special meeting, if necessary. No postage
is necessary if mailed in the United States. If you are a shareholder of record
and attend the meeting, you may revoke your proxy by voting in person.
By Order of the Board of Directors,
W. Thomas Grant, II
Chairman of the Board, President
and Chief Executive Officer
Lenexa, Kansas
_____________ ____, 2005
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................iii
SUMMARY TERM SHEET.....................................................viii
The Companies........................................................viii
The Special Meeting....................................................ix
The Merger..............................................................x
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................1
THE COMPANIES.............................................................2
LabOne, Inc.............................................................2
Quest Diagnostics Incorporated and Fountain, Inc........................2
THE SPECIAL MEETING.......................................................2
Date, Time and Place of the Special Meeting.............................2
Matters to Be Considered at the Special Meeting.........................2
Record Date for the Special Meeting.....................................2
Quorum..................................................................3
Votes Required for Approval.............................................3
Proxies.................................................................3
Solicitation of Proxies.................................................4
THE MERGER................................................................5
Background of the Merger................................................5
Recommendation of LabOne's Board and Reasons for the Merger.............9
Opinion of LabOne's Financial Advisor..................................12
Interests of Certain Persons in the Merger.............................17
Regulatory Approvals...................................................21
Certain U.S. Federal Income Tax Consequences...........................21
Dissenters' Rights.....................................................23
Source of Funds........................................................24
Delisting and Deregistration of Our Common Stock.......................24
Anticipated Accounting Treatment.......................................24
Effect on LabOne Convertible Debentures................................24
THE MERGER AGREEMENT.....................................................25
Effective Time.........................................................25
Merger Consideration...................................................25
Conversion of Shares; Procedures for Exchange of Certificates..........25
Treatment of Outstanding Stock Options.................................26
Representations and Warranties.........................................27
Conduct of Business Pending the Merger.................................28
Indemnification and Insurance..........................................30
No Solicitation by Us..................................................30
Employee Benefits......................................................32
Other Covenants........................................................33
Conditions to the Completion of the Merger.............................34
Termination............................................................35
Termination Fees and Expenses..........................................36
Amendment and Waiver...................................................37
MARKET PRICES AND DIVIDENDS..............................................38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........38
SHAREHOLDER PROPOSALS....................................................40
WHERE YOU CAN FIND MORE INFORMATION......................................40
Appendix A - Agreement and Plan of Merger
i
Appendix B - Opinion of J.P. Morgan
Appendix C - Section 351.455 of the Missouri General and Business Corporation
Law
ii
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LABONE, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
_____________, 2005
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are provided for your convenience and
briefly address some commonly asked questions about the merger and the special
meeting of LabOne shareholders. These questions and answers may not address all
questions that may be important to you as a LabOne shareholder. Please also
consult the more detailed information contained elsewhere in this proxy
statement, the appendices to this proxy statement, and the documents referred to
in this proxy statement.
Except as otherwise specifically noted in this proxy statement or as the
context otherwise requires, "we," "our," "us" and similar words in this proxy
statement refer to LabOne, Inc. and its subsidiaries. In addition, we sometimes
refer to LabOne, Inc. as "LabOne" or the "Company". We refer to Quest
Diagnostics Incorporated as "Quest Diagnostics" and to Fountain, Inc. as
"Fountain."
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote upon a proposal to approve a merger
agreement that provides for the proposed acquisition of LabOne by Quest
Diagnostics, and to grant the persons named as proxies discretionary authority
to vote to adjourn the special meeting, if necessary or appropriate, to solicit
additional proxies in the event that there are not sufficient votes to approve
the merger agreement. The proposed acquisition would be accomplished through a
merger of Fountain, a wholly-owned subsidiary of Quest Diagnostics, with and
into LabOne.
Q: WHERE AND WHEN IS THE SPECIAL MEETING?
A: The special meeting will take place at LabOne's corporate head-
quarters at 10101 Renner Boulevard, Lenexa, Kansas 66219, on ___________ ____,
2005, at ______ a.m. local time.
Q: WHAT WILL LABONE'S SHAREHOLDERS RECEIVE IN THE MERGER?
A: As a result of the merger, our shareholders will receive $43.90 in
cash, without interest and less any applicable tax withholding, for each share
of LabOne common stock they own (other than dissenting shares). See "THE MERGER
AGREEMENT - Merger Consideration."
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully and to consider
how the merger affects you. Then just mail your completed, dated and signed
proxy card in the enclosed return envelope as soon as possible, or vote via the
Internet or telephone, so that your shares can be voted at the special meeting
of our shareholders. If you hold your shares in "street name", follow the
instructions from your broker on how to vote your shares. Please do not send in
your stock certificates with your proxy.
Q: HOW DOES LABONE'S BOARD OF DIRECTORS RECOMMEND I VOTE?
A: At a meeting held on August 5, 2005, LabOne's board of directors
unanimously approved the merger agreement and declared the merger agreement and
the merger advisable and in the best interests of LabOne and its shareholders.
Our board of directors unanimously recommends that you vote "FOR" approval of
the merger agreement and "FOR" approval of the proposal to grant discretionary
authority to the persons named as proxies to
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vote to adjourn the special meeting, if necessary or appropriate, to solicit
additional proxies. See "THE MERGER - Recommendation of LabOne's Board and
Reasons for the Merger."
Q: What vote of shareholders is required to approve the merger agreement?
A: Approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of LabOne's common
stock entitled to vote at the special meeting.
The proposal to adjourn the special meeting, if necessary or appropriate,
to solicit additional proxies requires the affirmative vote of a majority of the
shares represented in person or by proxy at the special meeting entitled to vote
thereon.
Q: HOW ARE VOTES COUNTED?
A: For the proposal relating to the merger agreement, you may vote FOR,
AGAINST or ABSTAIN. Abstentions will not count as votes cast on the proposal
relating to the adoption of the merger agreement, but will count for the purpose
of determining whether a quorum is present at the special meeting. As a result,
if you ABSTAIN, it has the same effect as if you vote AGAINST the adoption of
the merger agreement.
For the proposal to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies, you may vote FOR, AGAINST or
ABSTAIN. Abstentions will not count as votes cast on the proposal to adjourn the
special meeting, if necessary or appropriate, to solicit additional proxies, but
will count for the purpose of determining whether a quorum is present at the
special meeting. As a result, if you ABSTAIN, it has the same effect as if you
vote AGAINST adjournment of the special meeting, if necessary or appropriate, to
solicit additional proxies.
If you sign your proxy card without indicating your vote, your votes will
be voted "FOR" the adoption of the merger agreement, and "FOR" adjournment of
the special meeting, if necessary or appropriate, to solicit additional proxies.
A broker non-vote generally occurs when a broker, bank or other nominee
holding shares on your behalf does not vote on a proposal because the nominee
has not yet received your instructions and lacks discretionary power to vote the
shares. Broker non-votes will not count as votes cast on a proposal, but will
count for purposes of determining whether a quorum is present at the special
meeting.
As a result, broker non-votes will have the same effect as a vote against
the adoption of the merger agreement. Broker non-votes will not affect the
outcome of the vote on the adjournment of the special meeting, if necessary or
appropriate, to solicit additional proxies.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A: Only shareholders of record as of the close of business on ____________,
2005 are entitled to receive notice of the special meeting and to vote the
shares of our common stock that they held at that time at the special meeting,
or at any adjournments or postponements of the special meeting.
Q: MAY I VOTE IN PERSON?
A: Yes. If your shares are not held in "street name" through a broker or
bank you may attend the special meeting and vote your shares in person, rather
than signing and returning your proxy card or voting via the Internet or
telephone. If your shares are held in "street name," you must get a proxy from
your broker or bank in order to attend the special meeting and vote those
shares.
Q: MAY I VOTE VIA THE INTERNET OR TELEPHONE?
A: Yes. If your shares are not held in "street name" through a broker or
bank, you may submit a proxy authorizing the voting of your shares over the
Internet at _____________ or telephonically by calling
iv
_______________. Proxies submitted via the Internet or telephone must be
received by ___ p.m. local time on _____, 2005. You must have the enclosed proxy
card available, and follow the instructions on such proxy card, in order to
submit a proxy via the Internet or telephone.
Q: HOW WILL MY PROXY BE VOTED?
A: If proxies are properly dated, executed and returned, the shares they
represent will be voted at the special meeting in accordance with the
instructions of the shareholder. If no specific instructions are given, the
shares will be voted as follows:
o FOR the approval of the merger agreement;
o FOR the grant of discretionary authority to the persons named as
proxies to vote to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies.
Q: WHAT HAPPENS IF I DO NOT RETURN MY PROXY CARD, DO NOT VOTE VIA THE
INTERNET OR TELEPHONE AND DO NOT ATTEND THE SPECIAL MEETING AND VOTE IN PERSON?
A: Approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of our common stock
entitled to vote at the special meeting. Therefore, if you do not return your
proxy card, or vote via the Internet or telephone, or attend the special meeting
and vote in person, or instruct your broker or bank how to vote your shares if
your shares are held in "street name," it will have the same effect as if you
voted against the merger. The approval of any proposal to adjourn the special
meeting requires the affirmative vote of the holders of a majority of the shares
of our common stock represented in person or by proxy at the special meeting and
entitled to vote thereon. If you do not vote your shares in person or by proxy,
it will not affect the outcome of the vote on this matter.
Q: MAY I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
A: Yes. You may change your vote at any time before your proxy card is
voted at the special meeting. If your shares are registered in your name, you
can do this in one of four ways.
o First, you can deliver to D. F. King & Co., Inc., a written notice
bearing a date later than your previously submitted proxy stating that
you would like to revoke your proxy.
o Second, you can complete, execute and deliver to D. F. King & Co.,
Inc., a new, later dated proxy card for the same shares.
o Third, you can log onto the Internet website specified on your proxy
card in the same manner you would do to submit your proxy
electronically or by calling the telephone number specified on your
proxy card (in each case if you are eligible to do so) and follow the
instructions on the proxy card.
o Fourth, you can attend the special meeting and vote in person. Your
attendance alone will not revoke your proxy.
Any written notice of revocation or subsequent proxy should be delivered to
D. F. King & Co., Inc. or hand delivered to D. F. King & Co., Inc., 48 Wall
Street, New York, New York 10005, at or before the taking of the vote at the
special meeting. If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change those instructions. See
"THE SPECIAL MEETING - Proxies."
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
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A: Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares following the
procedure provided by your broker. Without instructions, your shares will not be
voted, which will have the same effect as if you voted against approval of the
merger agreement. Broker non-votes will have no effect on the proposal to grant
the persons named as proxies discretionary authority to vote to adjourn the
special meeting, if necessary or appropriate, to solicit additional proxies. See
"THE SPECIAL MEETING - Proxies."
Q: WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS?
A: You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards or voting
instruction cards. If you hold your shares in more than one brokerage account,
you will receive a separate voting instruction card for each brokerage account
in which you hold shares. If you are a shareholder of record and your shares are
registered in more than one name, you will receive more than one proxy card.
Please complete, sign, date and return (or vote via the Internet or telephone
with respect to) each proxy card and voting instruction card that you receive to
ensure that all of your shares are voted.
Q: WHAT HAPPENS IF I SELL MY SHARES OF LABONE COMMON STOCK BEFORE THE
SPECIAL MEETING?
A: The record date for the special meeting is earlier than the date of the
special meeting and the date that the merger is expected to be completed. If you
transfer your shares of LabOne common stock after the record date but before the
special meeting, you will retain your right to vote at the special meeting, but
will transfer the right to receive the merger consideration.
Q: WILL THE MERGER BE TAXABLE TO ME?
A: Generally, yes. The receipt of cash pursuant to the merger will
generally be a taxable transaction for U.S. federal income tax purposes, and may
also be a taxable transaction under applicable state, local or foreign income or
other tax laws. Generally, for U.S. federal income tax purposes, a shareholder
will recognize gain or loss equal to the difference between the amount of cash
received by the shareholder in the merger and the shareholder's adjusted basis
in the shares of LabOne common stock converted into cash in the merger. If the
shares of LabOne common stock are held by a shareholder as capital assets, gain
or loss recognized by such shareholder will be capital gain or loss, which will
be long term capital gain or loss if the shareholder's holding period for the
shares of LabOne common stock exceeds one year. Because individual circumstances
may differ, you should consult your own tax advisor to determine the particular
tax effects to you. See "THE MERGER - Certain U.S. Federal Income Tax
Consequences."
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: Yes. As a holder of LabOne common stock, you are entitled to dissenters'
rights under the General and Business Corporation Law of Missouri in connection
with the merger if you meet certain conditions. These conditions are described
in this proxy statement under the caption "THE MERGER - Dissenters' Rights."
Q: SHOULD I SEND IN MY LABONE STOCK CERTIFICATES NOW?
A: No. Shortly after the merger is completed, you will receive written
instructions for exchanging your shares of our common stock for the merger
consideration. If your shares are held in "street name" by your broker, you will
receive instructions from your broker as to how to effect the surrender of your
"street name" shares and receive the merger consideration for those shares. DO
NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you would like additional copies, without charge, of this proxy
statement or if you have more questions about the merger, including the
procedures for voting your shares, you should contact:
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D. F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550 - Banks and Brokers (collect calls)
(888) 567-1626 - All others (toll-free)
vii
SUMMARY TERM SHEET
This summary highlights selected information from this proxy statement and
may not contain all of the information that may be important to you. For a more
complete understanding of the merger and related transactions and the other
information contained in this proxy statement, you should read carefully this
entire proxy statement and the appendices to this proxy statement. A copy of the
Agreement and Plan of Merger, dated as of August 8, 2005, by and among Quest
Diagnostics, Fountain and LabOne is attached as Appendix A to this proxy
statement. For instructions on obtaining more information concerning us, see
"WHERE YOU CAN FIND MORE INFORMATION" on page 38.
The Companies
LabOne, Inc. (see page )
LabOne, Inc.
10101 Renner Boulevard
Lenexa, Kansas 66219
Telephone: (913) 888-1770
Headquartered in the Greater Kansas City area, we are a diagnostic services
provider. The services and information we provide include risk assessment
information services for the insurance industry; diagnostic healthcare testing
to physicians, hospitals, managed care organizations and employers; and drug
testing services and related employee qualification products to employers and
the government.
Quest Diagnostics Incorporated and Fountain, Inc. (see page )
Quest Diagnostics Incorporated
1290 Wall Street
West Lyndhurst, New Jersey 07071
Telephone: (210) 393-5000
Quest Diagnostics is a provider of diagnostic testing, information and services
through its nation-wide network of laboratories and patient service centers.
Quest Diagnostics provides interpretive consultation through its medical and
scientific staff. Quest Diagnostics is also a provider of esoteric testing,
including gene-based testing and testing for drugs of abuse, and anatomic
pathology services and testing for clinical trials.
Fountain, a wholly-owned subsidiary of Quest Diagnostics, was organized under
the laws of Missouri solely for the purpose of entering into the merger
agreement with us and completing the merger and has not conducted any business
operations.
viii
The Special Meeting
General (see page )
This proxy statement is furnished to our shareholders for use at the
special meeting of shareholders called to consider and vote upon (1) the
proposal to approve the merger agreement and (2) upon any proposal to
adjourn the special meeting, if necessary or appropriate, to solicit
additional proxies in the event that there are not sufficient votes to
approve the merger agreement. The special meeting will be held at ______
a.m. local time on ___________, 2005 at our corporate headquarters at 10101
Renner Boulevard, Lenexa, Kansas 66219.
Record Date and Quorum Requirement (see page )
We have set the close of business on ___________, 2005 as the record date
for determining those shareholders who are entitled to notice of and to
vote at the special meeting. There were _______ shares of our common stock
outstanding at the close of business on that date.
A majority of the shares of our common stock issued and outstanding and
entitled to vote at the special meeting must be present in person or
represented by proxy to constitute a quorum for transacting business at the
special meeting.
Vote Required (see page )
The approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of our common
stock entitled to vote at the special meeting. If you do not return your
proxy card, or vote via the Internet or telephone, or attend the special
meeting and vote in person, or instruct your broker or bank how to vote
your shares if your shares are held in "street name", it will have the same
effect as if you voted against the merger agreement.
The approval of any proposal to adjourn the special meeting requires the
affirmative vote of the holders of a majority of the shares of our common
stock represented in person or by proxy at the special meeting and entitled
to vote thereon. If you do not vote your shares, it will not affect the
outcome of the vote on this matter.
ix
The Merger
The Merger (see page )
The merger agreement provides for the acquisition by Quest Diagnostics of
us through the merger of its wholly-owned subsidiary, Fountain, with and
into us. After the merger, LabOne will be the surviving corporation and
Quest Diagnostics will own all of our common stock.
What You Will Receive in the Merger (see page )
Unless you seek dissenters' rights, you will be entitled to receive $43.90
in cash, without interest and subject to applicable tax withholding, in
exchange for each share of our common stock you own at the time of the
merger.
Expected Time for Completing the Merger (see page )
We are working to complete the merger as soon as practicable, but we must
first satisfy the conditions to the completion of the merger set forth in
the merger agreement. We presently expect to complete the merger in the
fourth quarter of 2005. However, we cannot provide you absolute assurance
of when or if the merger will occur.
The Board of Directors Recommends That You Vote For the Merger Agreement
(see page )
After careful consideration, our board of directors has unanimously
approved the merger agreement and has determined that the merger agreement
and merger are advisable and in the best interests of us and our
shareholders. Our directors unanimously recommend that you vote "FOR" the
approval of the merger agreement and "FOR" the approval to adjourn the
special meeting, if necessary or appropriate, to solicit additional proxies
if there are not sufficient votes for approval of the merger agreement at
the special meeting.
Reasons for the Merger (see page )
Our board of directors considered a number of factors in reaching its
determination to approve the merger agreement. See "THE MERGER--
Recommendation of LabOne's Board and Reasons for the Merger".
x
Opinion of Financial Advisor (see page )
In connection with the merger, we retained J.P. Morgan Securities Inc.
(referred to herein as JPMorgan), as our financial advisor. In deciding to
approve the merger, our board of directors considered the oral opinion of
JPMorgan provided to the board of directors on August 5, 2005 (subsequently
confirmed in writing on August 6, 2005) that, as of the date of the opinion
and based upon and subject to the considerations described in its opinion
and such other matters as JPMorgan considered relevant, the consideration
to be received by the holders of common stock in the proposed merger was
fair, from a financial point of view, to such holders.
The full text of the written opinion of JPMorgan, which sets forth, among
other things, the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken by JPMorgan in
connection with the opinion, is attached to this proxy statement as
Appendix B and incorporated in this document by reference. JPMorgan
provided its opinion for the information and assistance of our board of
directors in connection with its consideration of the transaction
contemplated by the merger agreement. The JPMorgan opinion is not a
recommendation as to how any holder of common stock should vote with
respect to the merger or any other matter. Pursuant to the terms of our
engagement letter with JPMorgan, we agreed to pay the fees described below
under "THE MERGER -- Opinion of LabOne's Financial Advisor", part of which
was due to JPMorgan upon delivery of JPMorgan's opinion and the balance of
which is due upon closing of the transaction contemplated by the merger
agreement.
Interests of Our Directors and Executive Officers in the Merger (see page )
When considering the recommendation by our board of directors in favor of
the merger, you should be aware that our directors and executive officers
have interests in the merger that are different from, or in addition to,
your interests, including the following:
o our directors and executive officers will have their unvested
stock options accelerated and their vested and unvested stock
options "cashed out" in connection with the merger, meaning that
they will receive cash payments for each share underlying their
options equal to the excess of $43.90 per share over the exercise
price per share of their options, subject to any required
withholding for taxes;
o two of our executive officers will be entitled to cash severance
payments under certain change of control severance agreements
upon the effective time of the merger;
o five of our executive officers have entered into new employment
arrangements with the surviving corporation subject to
consummation of the merger; and
o certain indemnification and liability insurance arrangements for
our current and former directors and officers will be continued
for six years following the effective time of the merger if the
merger is completed.
Our board of directors was aware of these interests and considered them,
among other matters, in making its recommendation to our shareholders to
approve the merger agreement.
xi
Market Prices and Dividends (see page )
The closing price of a share of our common stock on August 5, 2005, which
was the trading day immediately preceding our announcement that we had
entered into the merger agreement, was $37.64 per share.
We did not pay dividends on our common stock during 2005, 2004 or 2003.
Treatment of Outstanding Stock Options (see page )
At the effective time of the merger, each outstanding stock option will
become fully vested and exercisable. All stock options will be cancelled at
the effective time of the merger. The holder of each stock option will
generally be entitled to receive, in full satisfaction of the rights of
such holder with respect to such stock option, an amount for each share
subject to the stock option equal to the excess of the merger consideration
of $43.90 per share over the exercise price per share, less any withholding
taxes. Holders of options pursuant to our 2001 Long-Term Incentive Plan
will be required to complete a notice of exercise in order to receive the
cash payable at the effective time of the merger. All amounts payable will
be paid at or as soon as practicable following the effective time of the
merger, without interest and subject to applicable tax withholding.
Conditions to the Closing of the Merger (see page )
Quest Diagnostics', Fountain's and our respective obligations to consummate
the merger are subject to the satisfaction of the following conditions:
o approval of the merger agreement and the merger by our
shareholders;
o the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which we refer to as the HSR Act; and
o the absence of any law, rule, injunction, judgment, decree or
order prohibiting the merger.
In addition, we are not obligated to effect the merger unless certain
conditions have been satisfied or waived in writing, including the
following:
o the representations and warranties of Quest Diagnostics and
Fountain set forth in the merger agreement that are qualified as
to materiality must be true and correct, and those that are not
so qualified must be true and correct in all material respects,
in each case as of the date of the merger agreement and as of the
effective time of the merger (except representations and
warranties that by their terms speak as of a specified date);
except where any failure of such representations and warranties
to be true and correct, individually or in the aggregate, would
not prohibit or materially delay the consummation of the merger
or prevent Quest Diagnostics or Fountain from performing their
obligations under the merger agreement;
o Quest Diagnostics' and Fountain's representation and warranty
that Quest Diagnostics will have sufficient funds as of the
effective time of the merger to consummate the merger and to pay
the merger consideration and amounts required to cash-out
outstanding stock options must be true and correct as of the
effective time of the merger; and
xii
o Quest Diagnostics and Fountain must have complied in all material
respects with all of their covenants and agreements under the
merger agreement to be complied with prior to the effective time
of the merger.
In addition, Quest Diagnostics and Fountain are not obligated to complete
the merger unless certain conditions are satisfied or waived in writing,
including the following:
o the representations and warranties by us set forth in the merger
agreement that are qualified as to materiality or material
adverse effect must be true and correct, and those that are not
so qualified must be true and correct in all material respects,
in each case as of the date of the merger agreement and as of the
effective time of the merger (except representations and
warranties that by their terms speak as of a specified date);
except where any failure of such representations and warranties
to be true and correct, either individually or in the aggregate,
would not have a material adverse effect;
o we must have complied in all material respects with all of our
covenants and agreements under the merger agreement to be
complied with prior to the effective time of the merger; and
o a demand for fair value of dissenting shares of our common stock
must not have been perfected, asserted or demanded with respect
to more than 10% of the aggregate number of our outstanding
shares of common stock.
No Solicitation by Us (see page )
The merger agreement contains restrictions on our ability to solicit or
engage in discussions or negotiations with a third party regarding an
acquisition proposal. Notwithstanding these restrictions, under certain
limited circumstances, our board of directors may respond to an unsolicited
written bona fide acquisition proposal and may terminate the merger
agreement and enter into a definitive agreement with respect to a superior
proposal.
Termination of the Merger Agreement (see page )
Quest Diagnostics and we can terminate the merger agreement under certain
circumstances, even after the shareholders of LabOne have approved the
merger agreement, including:
o by mutual written consent of Quest Diagnostics and us;
o if the merger has not been completed by April 7, 2006, which date
may be extended to August 8, 2006 under certain circumstances, by
Quest Diagnostics, as long as the failure to complete the merger
was not caused by the failure of Quest Diagnostics to fulfill any
obligation under the merger agreement, or by us, as long as the
failure to complete the merger was not caused by the failure of
the Company to fulfill any obligation under the merger agreement;
o by either Quest Diagnostics or us if there is any law or order
prohibiting completion of the merger, and such order shall have
become final and nonappealable;
xiii
o by Quest Diagnostics, in the event of any breach by us of any
representation, warranty or covenant that would cause any
condition to Quest Diagnostics' obligation to complete the merger
to not be satisfied, which breach is not cured in accordance with
the merger agreement;
o by us, in the event of any breach by Quest Diagnostics or
Fountain of any representation, warranty or covenant that would
cause any condition to our obligation to complete the merger to
not be satisfied, which breach is not cured in accordance with
the merger agreement;
o by Quest Diagnostics if, at any time prior to the date of the
special meeting, our board of directors shall have (i) effected a
change in the company recommendation regarding the merger or (ii)
approved or recommended, or proposed to approve or recommend, any
competing transaction;
o by Quest Diagnostics or us if, upon a vote taken at the special
meeting or any postponement or adjournment of the special
meeting, the merger agreement is not approved by the holders of
at least two-thirds of the outstanding shares of our common stock
entitled to vote thereon; or
o by us, at any time prior to obtaining shareholder approval of the
merger agreement, in order to enter into a definitive agreement
with respect to a superior proposal in accordance with the merger
agreement.
Termination Fees and Expenses (see page )
The merger agreement requires that we pay Quest Diagnostics a $26.5 million
termination fee if:
1. (a) Quest Diagnostics terminates the merger agreement because our
board of directors effects a change in the company recommendation
regarding the merger prior to the date of the special meeting,
and
(b) we enter into a definitive agreement, within 12 months after
such termination, relating to a competing transaction and such
transaction is thereafter consummated; or
2. (a) Quest Diagnostics or we terminate the merger agreement
because, upon a vote taken at the special meeting or any
postponement or adjournment of the special meeting, the merger
agreement is not approved by the holders of at least two-thirds
of the outstanding shares of our common stock entitled to vote
thereon,
xiv
(b) prior to the vote by our shareholders on the merger
agreement, a competing transaction is publicly announced and not
withdrawn, or otherwise becomes publicly known after the date of
the merger agreement, and
(c) we enter into a definitive agreement, within 12 months after
such termination, relating to a competing transaction and such
transaction is thereafter consummated; or
3. we terminate the merger agreement in order to enter into a
definitive agreement with respect to a superior proposal in
accordance with the merger agreement; or
4. Quest Diagnostics terminates the merger agreement because prior
to the date of the special meeting our board of directors shall
have approved or recommended, or proposed to approve or
recommend, any competing transaction.
The merger agreement also requires that we reimburse Quest Diagnostics for
reasonable out-of-pocket expenses, up to a maximum of $3.5 million, if: (a)
Quest Diagnostics terminates the merger agreement as a result of any breach by
us of any representation, warranty or covenant in the merger agreement that
would cause any condition to Quest Diagnostics' obligation to complete the
merger to not be satisfied, which breach is not cured in accordance with the
merger agreement; or (b) Quest Diagnostics terminates the merger agreement
because our board of directors shall have effected a change in the company
recommendation regarding the merger prior to the date of the special meeting.
The termination fee payable pursuant to Item 1 above will be reduced by the
amount of any expenses of Quest Diagnostics required to be reimbursed by us
under the merger agreement.
Regulatory Approvals (see page )
Completion of the merger is subject to expiration or termination of the waiting
period under the HSR Act. The merger cannot proceed in the absence of expiration
or early termination of the waiting period. LabOne and Quest Diagnostics filed
notification and report forms under the HSR Act with the Federal Trade
Commission, which we refer to as the FTC, and the Antitrust Division of the
Department of Justice on August 19, 2005. At any time before or after completion
of the merger, notwithstanding the expiration or early termination of the
waiting period under the HSR Act, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the completion of the merger or
seeking divestiture of substantial assets of us or Quest Diagnostics. The
consummation of the merger is subject to the condition that there be no law,
rule, injunction, judgment, decree or order prohibiting the merger.
Except as noted above with respect to the required filings under the HSR Act and
the filing of articles of merger in Missouri at or before the effective date of
the merger, we are unaware of any material, federal, state or foreign regulatory
requirements or approvals required for the execution of the merger agreement or
completion of the merger.
xv
Certain U.S. Federal Income Tax Consequences (see page )
The receipt of cash by U.S. holders in exchange for shares of our common stock
in the merger will generally be a taxable transaction for U.S. federal income
tax purposes and may also be a taxable transaction under applicable state,
local, foreign or other tax laws. Generally, this means you will recognize
taxable gain or loss equal to the difference, if any, between (1) the cash you
receive in the merger and (2) your adjusted tax basis in your shares. See "THE
MERGER - Certain Material U.S. Federal Income Tax Consequences" for a more
detailed discussion of certain material U.S. federal income tax consequences of
the merger. Tax matters are very complicated and the tax consequences of the
merger to you depend on the facts of your own situation. You should consult your
own tax advisor for a full understanding of the tax consequences of the
transaction to you.
Dissenters' Rights (see page )
Shareholders of record are entitled to exercise dissenters' rights if they do
not vote in favor of the merger agreement and if they comply with the procedures
set forth in Section 351.455 of the General and Business Corporation Law of
Missouri, which we refer to as the MGBCL. A copy of Section 351.455 of the MGBCL
is attached to this proxy statement as Appendix C.
Employee Benefits (see page )
Under the merger agreement, Quest Diagnostics has agreed that, for a period of
one year after the effective time of the merger, it will honor (without
modification in a manner adverse to the participants therein) all of our and our
subsidiaries' existing employee contracts, agreements, arrangements, policies,
plans and commitments, excluding any requirement that contributions be paid in
employer stock; provided that Quest Diagnostics may transfer some or all of our
and our subsidiaries' employees to the applicable employee benefit arrangements
of Quest Diagnostics and its subsidiaries during the one-year period, as long as
the employees who are transferred receive benefits under the arrangements that
are not less favorable than the benefits provided to similarly situated
employees of Quest Diagnostics and its subsidiaries.
Where to Find More Information (see page )
If you have more questions about the merger or would like additional copies of
this proxy statement, you should contact:
D. F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550 - Banks and Brokers (collect calls)
(888) 567-1626 - All others (toll-free)
xvi
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions.
This proxy statement, and the documents to which we refer you in this proxy
statement, may include forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact may be deemed to be forward-looking
statements. Examples of forward-looking statements include, but are not limited
to: (i) projections of revenues, income or loss, earnings or loss per share,
capital expenditures, the payment or non-payment of dividends, capital structure
and other financial items, (ii) statements of plans and objectives of our
management or board of directors, including plans or objectives relating to our
products or services, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying the statements described in (i), (ii) and
(iii). Forward-looking statements can often be identified by the use of
forward-looking terminology, such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," "target," "objective," "strategy,"
"goal" and words and terms of similar substance. Our forward-looking statements
are based on management's current views about future events and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at which, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
management's good faith belief with respect to future events, and is subject to
risks and uncertainties that could cause our actual performance or results to
differ materially from those expressed in the statements. Important factors that
could cause such differences include, but are not limited to: whether we are
able to complete the merger; effects of the announcement and pendency of the
merger on our business; whether we are fully successful in implementing our
financial and operational initiatives; industry competition, conditions,
performance and consolidation; legislative and/or regulatory developments; the
effects of adverse general economic conditions, both within the U.S. and
globally; any adverse economic or operational repercussions from terrorist
activities, any government response thereto and any future terrorist activities,
war or other armed conflicts; changes in fuel prices; changes in labor costs;
labor stoppages; the outcome of claims and litigation; natural events such as
severe weather, floods and earthquakes; and other factors described in our
filings with the Securities and Exchange Commission.
We caution you not to place undue reliance on our forward-looking
statements, which speak only as of the date of this proxy statement. Except as
required by law, we are under no obligation, and expressly disclaim any
obligation, to update or alter any forward-looking statements made in this proxy
statement or elsewhere, whether as a result of new information, future events or
otherwise.
For additional information about factors that could cause actual results to
differ materially from those described in the forward-looking statements, please
see the filings and reports that we make with the Securities and Exchange
Commission as described under "Where You Can Find More Information."
1
THE COMPANIES
LabOne, Inc.
Headquartered in the Greater Kansas City area, we are a diagnostic services
provider. We provide: risk assessment information services for the insurance
industry; diagnostic healthcare testing to physicians, hospitals, managed care
organizations and employers; and drug testing services and related employee
qualification products to employers and the government. Our principal executive
offices are located at 10101 Renner Boulevard, Lenexa, Kansas 66219, and our
telephone number is (913) 888-1770.
Quest Diagnostics Incorporated and Fountain, Inc.
Quest Diagnostics is a provider of diagnostic testing, information and
services through its nation-wide network of laboratories and patient service
centers. Quest Diagnostics also is a provider of esoteric testing, including
gene-based testing and testing for drugs of abuse, and anatomic pathology
services and testing for clinical trials. Quest Diagnostics' principal executive
offices are located at 1290 Wall Street West, Lyndhurst, New Jersey 07071, and
its telephone number is (201) 393-5000.
Fountain, a wholly-owned subsidiary of Quest Diagnostics, was organized
under the laws of Missouri solely for the purpose of entering into the merger
agreement with us and completing the merger and has not conducted any business
operations.
THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
This proxy statement is being furnished to shareholders in connection with
the solicitation of proxies by our board of directors for use at the special
meeting of shareholders to be held on ____________, 2005 at our corporate
headquarters at 10101 Renner Boulevard, Lenexa, Kansas 66219, at ______, local
time, and at any adjournments or postponements thereof.
This proxy statement and the accompanying form of proxy are first being
mailed by us to our shareholders on or about ____________, 2005.
Matters to Be Considered at the Special Meeting
At the special meeting, our shareholders will be asked to vote on the
following proposals:
o to approve the merger agreement,
o to approve any proposal to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies in the
event that there are insufficient votes at the time of the
special meeting to approve the merger agreement, and
o to conduct any other business that properly comes before the
special meeting or any adjournments or postponements of the
special meeting.
Record Date for the Special Meeting
Our board of directors has fixed the close of business on _________ __,
2005 as the record date for determination of the shareholders entitled to notice
of, and to vote at, the special meeting. On the record date, there
2
were ______ shares of our common stock outstanding, held by approximately ______
holders of record. At the special meeting, each holder of our common stock will
have one vote for each share of our common stock held.
Quorum
If a majority of the shares of our common stock issued and outstanding and
entitled to vote at the special meeting is represented either in person or by
proxy at the special meeting, a quorum will be present at the special meeting.
Shares represented in person or by proxy and for which the holder has abstained
from voting will be counted as present at the special meeting for purposes of
determining the presence or absence of a quorum.
A broker who holds shares in nominee or "street name" for a customer who is
the beneficial owner of those shares is prohibited from giving a proxy to vote
those shares on the matters to be considered and voted upon at the special
meeting without specific instructions from such customer with respect to such
matters. These so-called "broker non-votes" will be counted as present at the
special meeting for purposes of determining whether a quorum exists.
Votes Required for Approval
Approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of our common stock
entitled to vote at the special meeting. Abstentions and broker non-votes will
have the same effect as votes against the proposal to approve the merger
agreement.
Approval of any proposal to adjourn the special meeting requires the
affirmative vote of the holders of a majority of the shares of our common stock
represented in person or by proxy at the special meeting and entitled to vote on
the proposal. Abstentions on this matter will have the effect of negative votes.
Broker non-votes will not affect the outcome of the vote on this matter because
these votes will not be considered present and entitled to vote for this
purpose.
Recommendation of the Board of Directors
Our directors unanimously recommend that you vote "FOR" approval of the
merger agreement.
Our directors unanimously recommend that you vote "FOR" approval of the
grant of discretionary authority to the persons named as proxies to vote to
adjourn the special meeting, if necessary or appropriate, to solicit additional
proxies.
Proxies
All shares of our common stock represented by properly executed proxies
received before or at the special meeting will, unless revoked, be voted in
accordance with the instructions indicated on those proxies. If you execute your
proxy but make no specification, your proxy will be voted "FOR" approval of the
merger agreement and "FOR" approval of the grant of discretionary authority to
the persons named as proxies to vote to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies. You are urged to
complete and sign the proxy card enclosed with this proxy statement and mail it
promptly in the enclosed postage prepaid envelope, or to vote via the Internet
or telephone. If you do not return your proxy card, or vote via the Internet or
telephone, or attend the special meeting and vote in person, or instruct your
broker or bank how to vote your shares if your shares are held in "street name",
it will have the same effect as if you voted against the merger agreement.
3
We do not expect that any other matters will be brought before the special
meeting. If, however, other matters are properly presented, the persons named as
proxies will vote the shares represented by properly executed proxies in
accordance with their judgment with respect to those matters.
If you are a holder of record, you may revoke your proxy at any time before
it is voted by:
o delivering to D. F. King & Co., Inc. a written notice bearing a
date later than the proxy stating that you would like to revoke
your proxy;
o completing, executing and delivering to D. F. King & Co., Inc. a
new, later dated proxy card for the same shares;
o logging onto the Internet website specified on your proxy card in
the same manner you would do to submit your proxy electronically
or by calling the telephone number specified on your proxy card
(in each case if you are eligible to do so) and following the
instructions on the proxy card; or
o attending the special meeting and voting in person. Your
attendance alone will not revoke your proxy.
If your shares are held by a bank, broker or other nominee, you will need
to contact such third party for instructions to revoke your proxy.
Shareholders who do not vote in favor of the proposal to approve the merger
agreement and who otherwise comply with applicable statutory procedures of the
MGBCL summarized elsewhere in this proxy statement will be entitled to seek
appraisal of the fair value of their common stock under Section 351.455 of the
MGBCL. See "THE MERGER -- Dissenters' Rights."
Solicitation of Proxies
We will bear the cost of soliciting proxies for the special meeting and of
printing and mailing this proxy statement. In addition to solicitation by mail,
our directors, officers and other employees, without additional compensation,
may solicit proxies in person, or by telephone, telecopy or other means of
electronic communication. We will request brokerage houses and other custodians,
nominees and fiduciaries to send the proxy materials to beneficial owners, and
we will, upon written request, reimburse those brokerage houses and custodians
for their reasonable expenses in so doing. We urge shareholders to mail
completed proxies without delay or vote via the Internet or telephone, as
specified on the proxy card.
We have retained D. F. King & Co., Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the special
meeting at an anticipated cost not to exceed $7,500, plus reimbursement of
reasonable out-of-pocket expenses for such items as mailing, copying, phone
calls, faxes and other related items. In addition, we have agreed to indemnify
D. F. King & Co., Inc. against any losses arising out of that firm's proxy
soliciting services on our behalf.
Stock Certificates
Please do not send your common stock certificates with your proxy cards.
Promptly after the merger is completed, the paying agent for the merger will
send a transmittal letter to you with instructions for surrendering your stock
certificates in exchange for the $43.90 per share cash payment, without interest
and subject to applicable tax withholding.
4
THE MERGER
The discussion under the sections of this proxy statement entitled "The
Merger" and "The Merger Agreement" summarizes certain terms of the merger. This
summary may not contain all the information that is important to you. We
strongly encourage you to read carefully the merger agreement in its entirety, a
copy of which is attached as Appendix A to this proxy statement.
Background of the Merger
On February 28, 2005, W. Thomas Grant II, our Chairman, President and Chief
Executive Officer, was contacted by Surya N. Mohapatra, Ph.D., the Chairman,
President and Chief Executive Officer of Quest Diagnostics. Dr. Mohapatra asked
to meet with Mr. Grant when they both would be attending professional meetings
in New York. At a dinner meeting on March 15, 2005, Dr. Mohapatra informed Mr.
Grant that Quest Diagnostics was potentially interested in acquiring us and
requested the opportunity to conduct due diligence to determine whether Quest
Diagnostics would be interested in pursuing such a transaction. Mr. Grant
responded that we were not seeking a sale, but that he would consult with his
management team regarding the indication of interest. Mr. Grant informed Dr.
Mohapatra later by telephone that a written indication of interest from Quest
Diagnostics stating a potential price range and the form of consideration would
be needed prior to taking Quest Diagnostics' request to our board of directors.
Quest Diagnostics provided to us a written, non-binding indication of
interest dated March 24, 2005 indicating its preliminary interest, subject to
various conditions, in acquiring all of our outstanding stock for cash at a
price in the range of $40 - $42 per share, and requesting an exclusivity period
for a limited duration in order to conduct due diligence. After receiving the
indication of interest, Mr. Grant discussed the indication of interest with
members of management and our outside counsel and individually with our
directors. Based upon these discussions, Mr. Grant called a meeting of the
executive committee of the board of directors to discuss procedures for
responding to the indication of interest, including retention of a financial
adviser and the timing of a meeting of the full board of directors. Based on
these discussions, management determined to consider retaining JPMorgan as
financial adviser, based upon JPMorgan's experience in the industry and the
existing relationship between us and an affiliate of JPMorgan as lead lender on
our existing senior credit facility. Thereafter, we contacted JPMorgan to
determine what the terms of their engagement would be if we retained them.
On March 25, 2005, a meeting of the executive committee of the board of
directors was held in Kansas City, Missouri. At the meeting, the executive
committee determined that a meeting of the full board should be held promptly to
consider the indication of interest and authorized our officers to retain
JPMorgan to act as financial adviser to the board in evaluating the indication
of interest from Quest Diagnostics.
On March 31, 2005, a special meeting of the board of directors was held in
Kansas City, Missouri. At that meeting, (a) members of management made
presentations to the board regarding our business segments and financial
performance, (b) representatives of JPMorgan made a presentation regarding,
among other things, various financial analyses of us and Quest Diagnostics'
indication of interest, and (c) our outside legal counsel, Stinson Morrison
Hecker LLP, gave an oral presentation describing the fiduciary duties of the
directors in responding to an acquisition proposal and other matters relating to
a possible sale transaction. The directors discussed whether we should engage in
discussions with Quest Diagnostics concerning a possible sale transaction,
actively solicit third parties with respect to a possible sale transaction or
continue to pursue our long-term strategy as an independent company. The board
also discussed possible negotiating strategies designed to improve the proposed
offering price. Prior to making any determinations, the directors decided to
meet again on April 5, 2005, following the receipt of further requested
information and analysis from management and from the outside legal and
financial advisers. The next day, Stinson Morrison Hecker LLP distributed to the
directors a detailed memorandum describing the fiduciary duties of the directors
in responding to an acquisition proposal and other matters relating to a
possible sale transaction.
5
On April 5, 2005, a special meeting of our board of directors was held in
Overland Park, Kansas. After presentations regarding our business by members of
management, the directors continued their discussion of our possible response to
the indication of interest by Quest Diagnostics. The directors determined that
public disclosure of a potential sale transaction without a high degree of
confidence that it would be consummated would not be in our best interests. In
addition, Quest Diagnostics had conditioned its willingness to proceed with
negotiations on maintaining the confidentiality of those negotiations and
entering into an exclusivity agreement for a limited period. Accordingly, the
directors determined that the negotiations with Quest Diagnostics would remain
confidential until they were either terminated or led to a definitive
acquisition agreement with limited conditions to closing that would increase the
likelihood of consummating the acquisition. However, in view of the need to
protect our best interests by not having a premature public announcement or an
auction in advance of signing, the board recognized the need to ensure that it
could hold discussions with, and provide confidential information to, third
parties subsequent to the execution of any definitive acquisition agreement
where it could reasonably be expected that such discussions would lead to a
superior offer. Similarly, the board recognized the need for any definitive
acquisition agreement with Quest Diagnostics to include a so-called
"fiduciary-out" that would give us the right to terminate that agreement if we
entered into a definitive acquisition agreement with a third party for a
superior offer in consideration of paying Quest Diagnostics a reasonable
termination fee that would not be preclusive of such third party interest. The
board also recognized the need for any exclusivity agreement to include a form
of fiduciary out. The board unanimously authorized Mr. Grant to contact Dr.
Mohapatra and inform him that we would be willing to enter into an exclusivity
agreement with Quest Diagnostics for a limited duration, with a full
fiduciary-out, if Quest Diagnostics was willing to pursue a transaction at a
price of not less than $44 per share, assuming satisfactory due diligence was
completed, and with adequate confidentiality protections for us and provisions
limiting the risk to us of delay and non-consummation of any possible
transaction.
On April 13, 2005, Mr. Grant, John W. McCarty, our Chief Financial Officer,
and Michael J. Asselta, our Chief Operating Officer, met with Dr. Mohapatra and
other members of senior management of Quest Diagnostics in Overland Park Kansas.
During this meeting, we described each of our business segments and the
potential benefits to customers and cost savings which could potentially be
produced by combining the two companies. At the onset of the meeting, the
parties executed a Confidentiality Agreement which included customary standstill
provisions that prohibited attempts to acquire our stock or assets, or to
conduct a proxy contest, without approval of our board.
On April 15, 2005, we sent a draft of an Exclusive Negotiating Agreement to
Quest Diagnostics that required Quest Diagnostics to provide its non-binding
assent to certain terms of any acquisition, including a price per share of not
less than $44 and specified conditions to closing. On April 21, 2005, a
representative of Quest Diagnostics contacted Joseph C. Benage, our General
Counsel, to inform us that Quest Diagnostics would not give its non-binding
assent to the terms attached to the Exclusive Negotiating Agreement at that
stage of the parties' discussion, but would proceed with negotiations and due
diligence without an exclusivity agreement.
On April 22, 2005, Quest Diagnostics provided a letter to us stating that
it believed it could reach the price level of $44 per share, subject to due
diligence, and provided a generalized response to our view on potential
contractual terms and conditions. We then determined that we would allow Quest
Diagnostics to conduct due diligence that excluded certain sensitive
information, and that a second level of due diligence providing access to such
information would be permitted only after we were comfortable with Quest
Diagnostics' views on price, the more significant contractual terms and
conditions as well as termination rights.
Beginning on May 4, 2005 and continuing until May 24, 2005, representatives
of Quest Diagnostics and its financial and legal advisers conducted due
diligence regarding us at the offices of Stinson Morrison Hecker LLP, in Kansas
City, Missouri.
On May 19, 2005, Quest Diagnostics and we began discussing an agreement
that we had with one of our managed care customers. Quest Diagnostics expressed
concern that the agreement might be interpreted to require
6
that Quest Diagnostics become subject to the same terms as those applicable to
us upon acquisition of us. Although we had doubts as to Quest Diagnostics'
interpretation, discussions were subsequently held between us and the managed
care company to resolve the issue either through a negotiated settlement or
binding arbitration.
On May 20, 2005, Quest Diagnostics provided to us a first draft of a merger
agreement. From May 20, 2005 until June 9, 2005, Quest Diagnostics and we
engaged in discussions with respect to the provisions in the draft relating to
conditions to closing, regulatory approvals and termination of the agreement.
On May 21, 2005, Dr. Mohapatra and a member of senior management of Quest
Diagnostics met in Kansas City, Missouri individually with members of our senior
management to discuss our service offerings, management philosophies, and
potential employment with Quest Diagnostics should a transaction be consummated.
Term sheets setting forth the proposed terms of their employment with Quest
Diagnostics were distributed to Mr. Grant, Mr. Asselta, Gregg R. Sadler, our
Executive Vice President and President -- Insurance Services Division, and L.
Patrick James, M.D., our Executive Vice President -- Laboratory and Pathology
Services. Dr. Mohapatra also discussed the status of the transaction with
Messrs. Grant, Asselta, McCarty and Benage.
On June 6, 2005, the executive committee of the board of directors met at
our headquarters in Lenexa, Kansas to discuss the status of negotiations of the
provisions of the merger agreement relating to conditions to closing, regulatory
approvals and termination rights under the agreement. On June 7, 2005, we sent
to Quest Diagnostics our requested revisions to the specified provisions of
Quest Diagnostics' May 20, 2005 draft of the merger agreement.
On June 8, 2005, Quest Diagnostics informed us that it was unwilling to
proceed with an acquisition of us until it had completed the second level of due
diligence to its satisfaction and unless, among other things, the interpretation
of the managed care contract described above was resolved to its satisfaction.
On June 10, 2005, a special meeting of our board of directors was held via
teleconference. The directors discussed the dispute with the managed care
company and Quest Diagnostics' position that it would not proceed with a
transaction with us unless the interpretation of that agreement was
satisfactorily resolved. Management reported that it appeared that a quick
resolution of the dispute was unlikely and that any formal dispute resolution
under the managed care contract could take up to six months or longer. The board
determined that formal discussions with Quest Diagnostics regarding a sale
should cease due to management's view that a quick resolution appeared unlikely.
On July 6, 2005, Mr. Grant discussed with the members of the executive
committee the terms of a settlement offer received from the managed care company
that would require the payment of a settlement amount by us. Mr. Grant
communicated management's view that we should not pay the settlement amount
unless the payment was made in the context of completing a transaction for the
sale of LabOne. After discussion, the executive committee members authorized Mr.
Grant to communicate the settlement offer to Quest Diagnostics and determine how
we could be protected from making the settlement payment if a possible sale
transaction with Quest Diagnostics was not consummated.
On July 7, 2005, Mr. Grant called Dr. Mohapatra and they discussed the
status of the negotiations with the managed care company and how a settlement
with the managed care company might be structured in the context of a possible
sale transaction between Quest Diagnostics and us. Mr. Grant communicated the
results of these discussions to the members of our board of directors, and Quest
Diagnostics and we then recommenced negotiations of a possible sale transaction.
Between July 8, 2005 and July 11, 2005, Mr. Grant had additional conversations
with members of senior management of Quest Diagnostics, including Dr. Mohapatra,
regarding how a settlement might be structured in the context of a possible sale
transaction.
7
On July 11, 2005, we contacted the managed care company concerning its
settlement offer and thereafter continued discussions with the managed care
company.
On July 11, 2005, we engaged Fried, Frank, Harris, Shriver & Jacobson, LLP,
which had previously been engaged as outside legal counsel with respect to
antitrust matters, as special outside legal counsel to assist in any future
merger negotiations.
On July 12, 2005, we provided Quest Diagnostics with our requested
revisions to Quest Diagnostics' May 20, 2005 draft of the merger agreement. On
July 13 and 14, 2005, representatives of Quest Diagnostics and us and our
respective outside legal counsels met in the New York offices of Shearman and
Sterling LLP, outside legal counsel to Quest Diagnostics, to negotiate the terms
of the merger agreement. During the meeting on July 13, 2005, representatives of
our senior management discussed with representatives of Quest Diagnostics'
senior management the concept of possibly adjusting the purchase price per share
based on the amount of the settlement payment to the managed care company.
Thereafter, until the substantive terms of the definitive merger agreement were
completed on August 5, 2005, the representatives of the parties continued to
negotiate the terms of the merger agreement by telephone and through written
communications, and several drafts of the merger agreement were exchanged.
Beginning on July 12, 2005 and continuing until July 15, 2005,
representatives of Quest Diagnostics conducted additional due diligence
regarding us at the offices of Stinson Morrison Hecker LLP in Kansas City,
Missouri.
On July 14, 2005, the parties reached an understanding on the bases upon
which the second level of due diligence would be permitted.
On July 19, 2005, a special meeting of our board of directors was held via
teleconference. Management described to the directors the status of negotiations
with Quest Diagnostics and the status of the negotiations with the managed care
company. A representative of JPMorgan then joined the meeting and reviewed with
directors, among other things, the recent performance of our stock price and
other relevant matters concerning valuation of our stock.
On July 25 and 26, 2005, our representatives met with representatives of
the managed care company to negotiate a settlement of the dispute. Thereafter
the parties continued their negotiations by telephone and through written
correspondence until a final resolution was reached on August 5, 2005.
On July 31, 2005, a special meeting of the board of directors was held in
Mission Hills, Kansas. Fried, Frank, Harris, Shriver & Jacobson LLP provided an
additional review of the directors' fiduciary duties in connection with a
possible transaction with Quest Diagnostics as well as a review of the proposed
merger agreement. Representatives of JPMorgan made a presentation regarding,
among other matters, the economics of the proposed transaction and their
valuation analysis of our stock. The representatives concluded that subject to
reviewing the terms of the final merger agreement and changes in market
conditions prior to final board approval, JPMorgan would be in a position to
issue an opinion, based upon and subject to the considerations described in its
opinion and other matters as JPMorgan considered relevant, that the
consideration to be received by the holders of common stock in the proposed
merger was fair, from a financial point of view, to such holders. Management
reviewed with the directors the recent performance of our businesses and the
bases for their recommendation to approve the proposed transaction.
During the week of August 1, 2005, the representatives of the parties
continued to negotiate the terms of the merger agreement, including the purchase
price per share, the amount of the termination fee and reimbursed expenses and
the terms and conditions pursuant to which those amounts would be paid.
Ultimately, and subject to
8
the approval of each party's board of directors, the parties agreed upon a
purchase price of $43.90, a termination fee of $26.5 million and an expense cap
of $3.5 million.
During the week of August 1, 2005, Quest Diagnostics reached agreement on
the terms of their employment by the surviving corporation with Messrs. Grant,
Asselta, Sadler and James and with Philip A. Spencer, our Executive Vice
President -- Healthcare Marketing. Also during the week of August 1, 2005, Quest
Diagnostics continued its due diligence review of us.
On August 5, 2005, a special meeting of our board of directors was held via
teleconference. The directors reviewed the changes made to the merger agreement
since the prior meeting of the directors. JPMorgan presented a summary of its
financial analyses relating to the proposed merger and responded to questions
posed by our board of directors. In connection with the deliberation by our
board of directors, JPMorgan provided its oral opinion (subsequently confirmed
in writing) that, as of the date of the opinion and based upon and subject to
the considerations described in JPMorgan's written opinion and such other
matters as JPMorgan considered relevant, the consideration to be received by the
holders of common stock in the proposed merger was fair, from a financial point
of view, to such holders. The directors reviewed information regarding the
compensation to be received and employment arrangements to be entered into by
the executive officers in connection with the merger. Following further
discussion, the directors, among other things, unanimously approved the merger
agreement, determined that the merger agreement and the merger were advisable
and in the best interests of us and our shareholders, directed that the merger
agreement be submitted for approval of our shareholders and recommended that our
shareholders vote in favor of the approval of the merger agreement. JPMorgan
confirmed its opinion in writing on August 6, 2005.
On August 6, 2005, the board of directors of Quest Diagnostics unanimously
approved the merger agreement.
The merger agreement was signed by the parties effective August 8, 2005,
and before the commencement of trading on Nasdaq on August 8, 2005, Quest
Diagnostics and we issued a joint press release announcing the execution of the
merger agreement.
Recommendation of LabOne's Board and Reasons for the Merger
Our board of directors believes the terms of the merger agreement are
advisable and in the best interests of us and our shareholders. Accordingly, at
the meeting of our board of directors on August 5, 2005, our directors
unanimously approved the merger agreement. The directors unanimously recommend
that our shareholders vote "FOR" approval of the merger agreement.
In the course of reaching its determination, our board of directors
consulted with legal counsel with respect to its legal duties and the terms of
the merger agreement. In addition, our board of directors consulted with its
financial advisor with respect to the financial aspects and fairness of the
transaction from a financial point of view, and with senior management
regarding, among other things, financial aspects, operational matters and
strategic alternatives. The terms of the merger agreement are the result of
arm's length negotiations.
In reaching its determination that the merger is advisable to, and in the
best interests of, our shareholders, our board of directors considered a number
of factors, including, without limitation, the following:
o the presentations and views expressed by our management
regarding, among other things: (1) our financial condition,
results of operations, cash flows, business and prospects; (2)
the likelihood of achieving maximum long-term value on a
stand-alone basis; (3) the strategic alternatives available to us
and the associated advantages and disadvantages; and (4) the
recommendation by our management to approve the merger agreement;
9
o the range of potential values if we remained independent and the
execution and other risks inherent in remaining independent and
achieving our strategic plan, including business, market and
competitive risks, pricing pressures due to, among other things,
consolidation in the life insurance industry and risks that our
risk assessment business would be valued at lower multiples than
our other faster-growing businesses;
o the premium of the merger consideration of $43.90 per share to
the closing price per share on the trading day immediately
preceding our announcement of the merger agreement, $37.64, the
average closing price per share price of our common stock for the
previous one month, $39.39, the previous three months, $39.10,
the previous six months, $36.94, and the previous twelve months,
$33.65, as well as being greater than the trailing 52-week high,
$40.75;
o the fact that the merger consideration to be paid is cash which
provides certainty of value and immediate liquidity to our
shareholders;
o the financial presentation of JPMorgan, and its oral opinion
issued to the board of directors on August 5, 2005 (which was
confirmed in writing on August 6, 2005) that based upon and
subject to the considerations described in its written opinion
and such other matters as JPMorgan considered relevant, the
consideration to be received by the holders of common stock in
the merger was fair, from a financial point of view, to such
holders as described more fully below under "--Opinion of
LabOne's Financial Advisor";
o the terms and conditions of the merger agreement, including the
parties' representations, warranties and covenants, the
conditions to their respective obligations and the limited
ability of the parties to terminate the merger agreement;
o the likelihood that the merger would be consummated, in light of
the experience, reputation and financial capability of Quest
Diagnostics, the absence of any financing condition to the
obligation of Quest Diagnostics to complete the merger, and the
likelihood of obtaining required regulatory approvals;
o the likelihood that a superior offer from another potential
purchaser would be made was insufficient to justify seeking
alternative proposals from any potential purchasers and risking
not proceeding with the favorable transaction with Quest
Diagnostics as well as risking the potential loss of customers
and employees without a high degree of assurance that a
transaction would be consummated;
o provisions in the merger agreement permitting our board of
directors, in the exercise of its duties to us and our
shareholders under applicable Missouri law, to furnish
information and data, and enter into discussions and
negotiations, in connection with a competing proposal that
constitutes or may be reasonably expected to lead to a superior
proposal (as defined in the merger agreement), subject to
conditions specified in the merger agreement;
o provisions in the merger agreement permitting our board of
directors, in the exercise of its duties to us and our
shareholders under applicable Missouri law, to terminate the
merger agreement in favor of a superior proposal or to provide
the board of directors' recommendation in favor of a competing
transaction, taking into account that following such termination
or recommendation, we must pay Quest Diagnostics a fee of $26.5
million which is within a range of termination fees that is
customary for transactions of this type and size and is not
expected to preclude a third party from making a competing
transaction;
10
o the fact that the merger agreement would be subject to approval
by the holders of at least two-thirds of our outstanding shares
of our common stock; and
o the ability of shareholders who may not support the merger to
obtain "fair value" for their shares if they properly perfect and
exercise their dissenters' rights under Section 351.455 of the
MGBCL, which provides shareholders with the opportunity to
exercise appraisal rights and to seek a judicial determination as
to the fair value of their shares of common stock (see
"--Dissenters' Rights" for information on how to exercise your
appraisal rights).
In the course of its deliberations, our board of directors also considered
a variety of potentially countervailing factors in its deliberations concerning
the merger, including the following:
o the fact that we will no longer exist as an independent public
company and our shareholders will forgo any future increase in
our value that might result from our possible growth;
o the risks and contingencies related to the announcement and
pendency of the merger, including the impact of the merger on our
employees, customers and our relationships with third parties;
o the conditions to Quest Diagnostics' obligation to complete the
merger and the right of Quest Diagnostics to terminate the merger
agreement in certain circumstances;
o the risk that the merger might not receive necessary regulatory
approvals and clearances to complete the merger or that
governmental authorities could attempt to condition the merger on
one or more of the parties' compliance with certain burdensome
terms or conditions beyond those which Quest Diagnostics is
required to undertake under the merger agreement; o the fact that
under the terms of the merger agreement, we cannot solicit other
acquisition proposals and must pay to Quest Diagnostics a
termination fee of $26.5 million, if the merger agreement is
terminated under certain circumstances, which, in addition to
being costly, might have the effect of discouraging other parties
from proposing an alternative transaction that might be more
advantageous to our shareholders than the merger;
o the fact that the merger consideration consists solely of cash
and will therefore be taxable to our shareholders for U.S.
federal income tax purposes;
o the interests that certain of our directors and executive
officers may have with respect to the merger, in addition to
their interests as our shareholders generally, as described in
"THE MERGER -- Interests of Certain Persons in the Merger;"
o the fact that, pursuant to the merger agreement, we must
generally conduct our business in the ordinary course and we are
subject to a variety of other restrictions on the conduct of our
business prior to closing of the merger or termination of the
merger agreement, which may delay or prevent us from pursuing
business opportunities that may arise or preclude actions that
would be advisable if we were to remain an independent company;
o if the merger does not close, our officers and other employees
will have expended extensive efforts attempting to complete the
transaction and will have experienced significant distractions
from their work during the pendency of the transaction; and
o we will have incurred substantial transaction costs in connection
with the transaction and such costs will negatively impact our
operating results.
11
Our board of directors concluded that these potential countervailing
factors did not outweigh the benefits of the merger to us and our shareholders
and that such factors were satisfactorily addressed by the amount of the merger
consideration and the terms and conditions of the merger agreement.
As part of our board of directors' consideration of the transaction, our
board of directors was aware of, discussed with management and its financial
advisor and considered the amount of cash held by us. As of June 30, 2005, we
had cash, cash equivalents and short-term investments of approximately $24.3
million.
The preceding discussion is not meant to be an exhaustive description of
the information and factors considered by our board of directors but is believed
to address the material information and factors considered. In view of the wide
variety of factors considered in connection with its evaluation of the merger
and the complexity of these matters, our board of directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the various factors considered in reaching its determination. In
considering the factors described above, individual members of the board may
have given different weight to different factors.
Opinion of LabOne's Financial Advisor
Pursuant to an engagement letter dated April 5, 2005, LabOne retained
JPMorgan as its financial advisor in connection with the proposed transaction
and to render an opinion to the board of directors of LabOne as to the fairness,
from a financial point of view, of the consideration to be received by the
holders of LabOne common stock in the proposed merger. JPMorgan was selected by
the board of directors based on JPMorgan's qualifications, reputation and
substantial experience with transactions similar to the merger, as well as
JPMorgan's familiarity with LabOne. JPMorgan rendered its oral opinion to the
board of directors on August 5, 2005 (as subsequently confirmed in writing on
August 6, 2005), that, as of that date, the consideration to be received by the
holders of common stock in the proposed merger was fair, from a financial point
of view, to those holders.
The full text of the written opinion delivered by JPMorgan to the board of
directors, dated August 6, 2005, which sets forth the assumptions made, general
procedures followed, matters considered and limitations on the scope of the
review undertaken by JPMorgan in rendering its opinion, is attached as Appendix
B to this document and is incorporated herein by reference. JPMorgan's opinion
is directed to the board of directors of LabOne and addresses the fairness, from
a financial point of view, to the holders of common stock of the consideration
to be received by those holders in the merger. JPMorgan's opinion does not
constitute a recommendation to any shareholders as to how to vote with respect
to the proposed transaction. The shareholders are urged to read such opinion in
its entirety. JPMorgan's opinion did not address the merits of the underlying
decision by LabOne to engage in the merger. This summary is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, JPMorgan:
o reviewed a draft dated August 5, 2005 of the merger agreement;
o reviewed certain publicly available business and financial
information concerning LabOne and the industries in which it
operates;
o compared the proposed financial terms of the merger with the
publicly available financial terms of certain transactions
involving companies JPMorgan deemed relevant and the
consideration received for such companies;
o compared the financial and operating performance of LabOne with
publicly available information concerning certain other companies
JPMorgan deemed relevant and reviewed the current and historical
market prices of the LabOne common stock and certain publicly
traded securities of such other companies;
12
o reviewed certain internal financial analyses and forecasts
prepared by the management of LabOne relating to its business;
and
o performed such other financial studies and analyses and
considered such other information as JPMorgan deemed appropriate
for the purposes of the JPMorgan opinion.
JPMorgan also held discussions with certain members of the management of
LabOne with respect to certain aspects of the merger, and the past and current
business operations of LabOne, the financial condition and future prospects and
operations of LabOne, and other matters JPMorgan believed necessary or
appropriate to JPMorgan's inquiry.
In giving its opinion, JPMorgan relied upon and assumed, without assuming
responsibility or liability for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished to
or discussed with JPMorgan by LabOne or otherwise reviewed by or for JPMorgan.
JPMorgan did not conduct any valuation or appraisal of any assets or
liabilities, nor did JPMorgan evaluate the solvency of LabOne or Quest
Diagnostics under any state or federal laws relating to bankruptcy, insolvency
or similar matters. In relying on financial analyses and forecasts provided to
JPMorgan, JPMorgan assumed that such analyses and forecasts were reasonably
prepared based on assumptions reflecting the best currently available estimates
and judgments by management as to the expected future results of operations and
financial condition of LabOne to which the analyses or forecasts relate.
JPMorgan expressed no view as to such analyses or forecasts or the assumptions
on which they were based. JPMorgan also assumed that the merger and other
transactions contemplated by the merger agreement would be consummated as
described in the merger agreement, and that the definitive merger agreement
would not differ in any material respect from the draft thereof furnished to
JPMorgan. JPMorgan relied, as to all legal matters relevant to rendering its
opinion, upon the advice of its legal counsel. JPMorgan further assumed that all
material governmental, regulatory or other consents and approvals necessary for
the consummation of the merger will be obtained without any adverse effect on
LabOne.
JPMorgan's opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to JPMorgan as
of, August 5, 2005. Subsequent developments may affect the JPMorgan opinion and
JPMorgan does not have any obligation to update, revise, or reaffirm its
opinion. JPMorgan's opinion is limited to the fairness, from a financial point
of view, of the consideration to be received by the holders of common stock in
the proposed merger and JPMorgan expressed no opinion as to the fairness of the
merger to, or any consideration of, the holders of any other class of
securities, creditors or other constituencies of LabOne or as to the underlying
decision by LabOne to engage in the merger.
JPMorgan noted that it was not authorized to and did not solicit any
expressions of interest from any other parties with respect to the sale of all
or any part of LabOne or any other alternative transaction. Consequently,
JPMorgan assumed that the terms of the merger are the most beneficial terms from
LabOne's perspective that could under the circumstances be negotiated among the
parties to the transaction and JPMorgan does not express any opinion as to
whether any alternative transaction might produce consideration for LabOne's
shareholders in an amount in excess of that contemplated in the merger.
The following is a brief summary of the material financial analyses
performed by JPMorgan in connection with providing its opinion to the board of
directors on August 5, 2005, as subsequently confirmed in writing on August 6,
2005. Some of the summaries of the financial analyses include information
presented in tabular format. To fully understand the financial analyses, the
tables should be read together with the text of each summary. Considering the
data set forth in the table without considering the narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of the financial
analyses.
13
Historical Stock Price Analysis
JPMorgan reviewed the historical daily closing trading prices of the common
stock for the 52 weeks ending August 4, 2005 and reviewed the average, lowest
and highest values among this data set. The analysis indicated that the average,
highest and lowest trading prices of the common stock for the 52 weeks ending
August 4, 2005, were $33.62, $40.75 and $26.91, respectively. The price of the
common stock as of August 4, 2005, was $38.41, which was 94.3% of the 52 week
high of $40.75. The analysis indicated that the consideration to be received by
the holders of common stock in the proposed merger represented:
o a premium of 14.3% based on the closing price of the common stock
on August 4, 2005 of $38.41;
o a premium of 11.2% based on the 1-month average closing price as
of August 4, 2005 of $39.47;
o a premium of 12.2% based on the 3-month average closing price as
of August 4, 2005 of $39.13;
o a premium of 18.9% based on the 6-month average closing price as
of August 4, 2005 of $36.94; and
o a premium of 30.6% based on the 1-year average closing price as
of August 4, 2005 of $33.62.
Comparison of Trading Multiples
Using public SEC filings, company press releases, selected publicly
available Wall Street equity research and brokerage firm estimates, and other
publicly available information, JPMorgan compared financial information,
financial ratios and public market valuation multiples for LabOne to
corresponding measures for three publicly traded clinical laboratory testing
companies. The companies reviewed in connection with this analysis were Quest
Diagnostics, Laboratory Corporation of America Holdings and Bio-Reference
Laboratories Inc.
Although none of the selected companies is directly comparable to LabOne,
the companies were chosen because they are publicly traded companies with
businesses and operations that, for purposes of the analysis, may be considered
similar to certain operations of LabOne. The financial ratios and valuation
multiples of LabOne and the selected companies were calculated using the closing
prices of the common stock of LabOne and the selected companies on August 4,
2005.
JPMorgan calculated the enterprise values of LabOne and the selected
companies as multiples of the estimated earnings before interest, taxes,
depreciation and amortization (excluding minority interest) ("EBITDA") for the
2005 and 2006 calendar years for LabOne and the selected companies. The
enterprise value of each company was calculated by JPMorgan as fully-diluted
market capitalization of each company as of August 4, 2005 plus total debt less
total cash and cash equivalents of each respective company as of the most recent
relevant public SEC filing date for each company. JPMorgan also calculated the
ratio of the stock price as of August 4, 2005 to the estimated earnings per
share for each company for the 2005 and 2006 calendar years estimated and
published by Wall Street equity research and brokerage firms. The following
table presents the summary results of this analysis:
Enterprise Enterprise
Value/2005E Value/2006E
EBITDA Price/2005E EPS EBITDA Price/2006E EPS
Median 9.5x 17.8x 8.7x 16.1x
Mean 10.1x 19.5x 8.8x 16.2x
High 11.5x 23.4x 9.0x 16.9x
Low 9.3x 17.4x 8.5x 15.5x
14
In conducting its analysis, JPMorgan considered two sets of distinct
financial projection cases for LabOne that were prepared by LabOne's management,
referred to as Case A and Case B. Case B, which was LabOne's existing five-year
plan, assumed higher estimated annual revenue growth rates for the projected
years compared to Case A. Case B also assumed higher annual profits and margins
than those used in Case A with higher capital expenditures and net working
capital requirements. Following a review of LabOne's anticipated second quarter
results and discussions with representatives of JPMorgan, management concluded
that the growth assumptions in Case B may be optimistic in view of the recent
historical financial performance of the risk assessment business and therefore
prepared Case A as an additional case reflecting the possible continuation of
trends implicit in such performance.
Based on this analysis and based on management's projected financial Case
A, JPMorgan selected a range of multiples of:
o enterprise value to estimated 2005 EBITDA of 9.0x to 10.5x;
o enterprise value to estimated 2006 EBITDA of 8.0x to 9.0x;
o stock price to estimated 2005 earnings per share of 17.0x to
21.0x; and
o stock price to estimated 2006 earnings per share of 15.0x to
19.0x.
This range of multiples implied a range of equity value per share under
Case A of $25.50 to $38.00 for LabOne (rounded to the nearest $0.25), based on
management estimates of 2005 EBITDA and 2006 EBITDA of $74.6 million and $77.5
million, respectively, and of 2005 earnings per share and 2006 earnings per
share of $1.72 and $1.69, respectively, and based on the fully diluted shares of
LabOne common stock outstanding, including the common share equivalent of
outstanding options calculated using the treasury method. For purposes of this
analysis, since LabOne's convertible debt is not qualified for conversion into
shares at the range of implied equity values per share outlined above, JPMorgan
included the face value of the convertible debt as part of LabOne's total debt.
Based on the above analysis and based on management's projected financial
Case B, JPMorgan also selected a range of multiples of:
o enterprise value to estimated 2005 EBITDA of 9.5x to 11.0x;
o enterprise value to estimated 2006 EBITDA of 8.5x to 9.5x;
o current stock price to estimated 2005 earnings per share of 18.0x
to 22.0x; and
o current stock price to estimated earnings per share of 16.0x to
20.0x.
This range of multiples implied a range of equity value per share under
Case B of $31.00 to $40.00 for LabOne (rounded to the nearest $0.25), based on
management estimates of 2005 EBITDA and 2006 EBITDA of $74.6 million and $86.6
million, respectively, and of 2005 earnings per share and 2006 earnings per
share of $1.72 and $2.00, respectively, and based on the fully diluted shares of
LabOne common stock outstanding, including the common share equivalent of
outstanding options calculated using the treasury method. For purposes of this
analysis, since LabOne's convertible debt is not uniformly qualified for
conversion into shares within the range of implied equity values per share
outlined above, JPMorgan included the face value of the convertible debt as part
of LabOne's total debt for the range of implied equity values per share that was
less than the conversion price of the convertible debt. For the range of implied
equity values per share that was equal to or greater than the conversion
15
price, JPMorgan included the face value of the convertible debt as part of
LabOne's total debt and included the common share equivalent of the residual
value of the convertible debt above its face value as part of LabOne's fully
diluted shares outstanding.
Selected Historical Transactions Multiples Analysis
Using publicly available information, JPMorgan examined the following
transactions involving US clinical laboratory testing companies:
Date Acquiror Target
Transaction
Announced
March 30, 2005 Laboratory Corp. of America Esoterix, Inc.
Holdings
December 14, Laboratory Corp. of America US Pathology Labs, Inc.
2004 Holdings
December 9, 2002 Welsh Carson Anderson & Stowe AmeriPath, Inc.
November 11, Laboratory Corp. of America Dianon Systems, Inc.
2002 Holdings
April 2, 2002 Quest Diagnostics UniLab Corporation
February 7, 2002 Quest Diagnostics American Medical
Laboratories, Inc.
June 28, 2001 Dianon Systems, Inc. UroCor, Inc.
May 9, 2002 Laboratory Corp. of America Dynacare Inc.
Holdings
March 27, 2001 Laboratory Corp. of America US Pathology Labs, Inc.
Holdings
Based on public SEC filings, publicly available Wall Street equity research
and brokerage firm reports, publicly available company press releases and other
publicly available information, JPMorgan calculated the implied enterprise
values of the target companies in the transactions as multiples of the latest 12
month EBITDA (excluding minority interests) for the target companies in the
selected transactions.
The following table presents the summary results of this analysis:
Enterprise
Value/
LTM EBITDA
Median 12.5x
High 21.0x
Low 7.6x
Based on this analysis, JPMorgan selected a range of multiples of estimated
EBITDA of the last 12 months of 12.5x to 14.5x for LabOne, which implied a range
of equity value per share of $39.75 and $47.00 (rounded to the nearest $0.25)
for LabOne based on last 12 month EBITDA for LabOne of $67.7 million as of June
30, 2005 and based on the fully diluted shares of LabOne common stock
outstanding, including the common share equivalent of outstanding options
calculated using the treasury method. For purposes of this analysis, since
LabOne's convertible debt is qualified for conversion into shares at the range
of implied equity values per share outlined above, JPMorgan included the value
of the common share equivalent of the convertible debt, including the value of
additional shares to be issued as a result of an increase in the convertible
debt's conversion rate resulting from the proposed merger, as part of LabOne's
total debt.
None of the companies or the selected transactions used in the above
analysis is identical to LabOne or the merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and the selected transactions and other factors that may have
affected the selected transactions and/or affect the merger.
17
Discounted Cash Flow Analysis
JPMorgan calculated a range of discounted cash flows for LabOne using
projections based on management forecasts and calculated a range of implied
equity values per common share based on the sum of (i) the present value of
projected, standalone, after-tax, unlevered free cash flows of LabOne after
minority interests for fiscal periods from 2004 through fiscal year 2014 and
(ii) the present value of the projected terminal value, based on an annual
perpetuity revenue growth rate. JPMorgan calculated a range of values for LabOne
by utilizing a cost of capital range of 9.75% to 10.25% and perpetuity revenue
growth rate ranging from 3.25% to 3.75%. JPMorgan applied these ranges to both
of the projected financial cases prepared by LabOne's management.
Based on the foregoing calculations and based on management's financial
projection Case A, JPMorgan derived a range of illustrative values on an equity
value per share basis, as of August 8, 2005, of $24.50 to $28.25 (rounded to the
nearest $0.25) per share of common stock, based on the fully diluted shares of
LabOne common stock outstanding, including the common share equivalent of
outstanding options calculated using the treasury method. For purposes of this
analysis, since LabOne's convertible debt is not qualified for conversion into
shares at the range of implied equity values per share outlined above, JPMorgan
included the face value of the convertible debt as part of LabOne's total debt.
Also based on the above calculations and based on management's financial
projection Case B, JPMorgan derived a range of illustrative values on an equity
value per share basis, as of August 8, 2005, of $44.00 to $50.00 (rounded to the
nearest $0.25) per share of common stock, based on the fully diluted shares of
LabOne common stock outstanding, including the common share equivalent of
outstanding options calculated using the treasury method. For purposes of this
analysis, since LabOne's convertible debt is qualified for conversion into
shares at the range of implied equity values per share outlined above, JPMorgan
included the face value of the convertible debt as part of LabOne's total debt
and included the common share equivalent of the residual value of the
convertible debt above its face value as part of LabOne's fully diluted shares
outstanding.
Pursuant to an engagement letter dated April 5, 2005, between LabOne and
JPMorgan, JPMorgan has acted as financial advisor to LabOne with respect to the
proposed merger and LabOne will pay to JPMorgan a fee equal to 0.70% of the
consideration payable to the shareholders of LabOne in the merger. The fee is
payable in installments as follows: (i) an initial installment of $1 million was
due upon delivery of the JPMorgan opinion and (ii) the balance shall be payable
upon closing of the merger. LabOne will also indemnify JPMorgan for certain
liabilities arising out of JPMorgan's engagement and reimburse JPMorgan for its
reasonable expenses incurred up to a maximum of $50,000, unless otherwise agreed
to by LabOne. JPMorgan and its affiliates have from time to time provided
investment banking and commercial banking services to LabOne, including acting
as bookrunning lead managing underwriter in connection with LabOne's offering of
its convertible debt securities in 2004. JPMorgan's affiliate, JPMorgan Chase
Bank, National Association, acts as administrative agent with respect to
LabOne's revolving credit facility and is a lender to Quest Diagnostics. In the
ordinary course of our businesses, JPMorgan and its affiliates may actively
trade the debt and equity securities of LabOne or Quest Diagnostics for
JPMorgan's own account or for the accounts of customers and, accordingly,
JPMorgan may at any time hold long or short positions in such securities.
Interests of Certain Persons in the Merger
In considering the recommendation of our board of directors regarding the
merger, our shareholders should be aware that the directors and executive
officers identified below have interests in the merger that differ from those of
other shareholders, as described below. Our board of directors was aware of
these interests and considered them, among other matters, in making its
recommendation to approve the merger agreement. Our shareholders should take
these benefits into account in deciding whether to vote for approval of the
merger agreement.
Acceleration of Stock Options. At the effective time of the merger, each
outstanding stock option will become fully vested and exercisable. All stock
options will be cancelled at the effective time of the merger. The holder of
each stock option will generally be entitled to receive, in full satisfaction of
the rights of such holder with
18
respect to such stock options, an amount in cash equal to the excess, if any, of
the merger consideration of $43.90 per share over the exercise price per share
of our common stock subject to such stock option, multiplied by the number of
shares of our common stock subject to such stock option, less any withholding
taxes. See "THE MERGER AGREEMENT - Treatment of Outstanding Stock Options."
The following table summarizes the vested and unvested options held by our
executive officers and directors as of ____________, and the value of these
options based on the difference between the merger consideration and the
exercise price of those options:
Shares Shares
Subject to Subject to Value of Value of Total
Outstanding Exercisable Vested Unvested Value
Name Options Options Options (1) Options (1) Of Options
---- ----------- ---------- ------------ ------------ -----------
Michael J. Asselta 175,000 69,000 $ 1,295,250 $ 2,071,000 $3,366,250
Joseph C. Benage 133,517 81,517 2,543,450 712,360 3,255,810
Jill L. Force 2,929 550 7,458 21,115 28,573
W. Thomas Grant, 428,875 274,955 6,511,042 2,767,760 9,278,802
II
Troy L. Hartman 76,950 16,950 297,263 1,283,094 1,580,357
L. Patrick James 35,000 7,000 104,590 418,360 522,950
Lawrence N. 1,632 0 0 9,135 9,135
Kugelman
John P. Mascotte 7,270 3,441 76,037 55,612 131,649
Kent J. McAllister 35,000 0 0 474,600 474,600
John W. McCarty 155,269 71,269 1,344,918 1,455,000 2,799,918
Gregg R. Sadler 124,769 74,769 1,828,724 920,000 2,748,724
James R. Seward 9,005 5,788 154,087 41,230 195,317
Philip A. Spencer 55,000 11,000 150,450 601,800 752,250
John E. Walker 9,695 6,478 167,714 41,230 208,945
----------- ---------- ------------ ------------ -----------
TOTALS 1,249,911 622,717 $14,480,982 $10,872,297 $25,353,279
=========== ========== ============ ============ ===========
(1) The value of each option equals the amount by which the merger consideration
of $43.90 per share exceeds the exercise price per share, multiplied by the
number of shares of our common stock subject to the option.
Future Employment. Certain of our employees have entered into employment
agreements with us on behalf of Quest Diagnostics which are contingent upon the
approval of and the consummation of the merger. Each of those employment
agreements was executed in connection with the merger agreement and will become
effective only upon the closing of the merger and the execution by such
executive officer of a non-competition, non-solicitation, non-disclosure and
confidentiality agreement with Quest Diagnostics.
W. Thomas Grant, II Employment Agreement. Mr. Grant will serve as the
Senior Vice President of the surviving corporation in the merger, reporting to
the Chairman and Chief Executive Officer of Quest Diagnostics. Mr. Grant
relinquished his right to approximately $1,360,000 of cash severance
compensation to which he would be entitled under his current employment
agreement by virtue of the merger in consideration of his new employment
agreement.
Michael J. Asselta Employment Agreement. Mr. Asselta will serve as the
Executive Director, Merger Integration of the surviving corporation, reporting
to the regional vice president of Quest Diagnostics. Mr. Asselta relinquished
his right to approximately $778,000 of cash severance compensation to which he
would be entitled under his current employment agreement by virtue of the merger
in consideration of his new employment agreement.
Philip A. Spencer Employment Agreement. Mr. Spencer will serve as Vice
President, Sales of the surviving corporation, reporting to the Senior Vice
President of the surviving corporation. Mr. Spencer relinquished his right
18
to approximately $335,000 of cash severance compensation to which he would be
entitled under his current employment agreement by virtue of the merger in
consideration of his new employment agreement.
Gregg R. Sadler Employment Agreement. Mr. Sadler will serve as the Vice
President, Insurance Services Group of the surviving corporation, reporting to
the Senior Vice President of the surviving corporation. Mr. Sadler relinquished
his right to approximately $700,000 of cash severance compensation to which he
would be entitled by virtue of the merger under his current employment agreement
in consideration of his new employment agreement.
L. Patrick James, M.D. Employment Agreement. Dr. James will serve as the
Senior Managing Director of the surviving corporation, reporting to the regional
vice president of Quest Diagnostics. Dr. James relinquished his right to
approximately $300,000 of cash severance compensation to which he would be
entitled by virtue of the merger under his current employment agreement in
consideration of his new employment agreement.
The following table summarizes the salary, signing bonus, annual bonus and
equity compensation that may be received by these executive officers pursuant to
their new employment agreements.
Number of
Maximum options that Value of
Annual may be Shares of
Base Signing Bonus for granted in Restricted
Officer Salary Bonus (1) 2006 (2) 2006 (3) Stock (4)
W. Thomas Grant, II $ 365,000 $ 150,000 $403,000 70,000 $250,000
Michael J. Asselta 240,000 125,000 240,000 30,000 200,000
Philip A. Spencer 185,000 110,000 136,000 18,000 180,000
Gregg R. Sadler 210,000 125,000 157,500 12,000 200,000
L. Patrick James, M.D 310,000 75,000 170,500 10,000 75,000
-------------
(1) The respective signing bonus is to be paid as soon as practicable after the
effective date of the respective new employment agreement upon consummation of
the merger.
(2) Each employee will be eligible under his new employment agreement for a
special annual performance bonus for each of fiscal years 2006, 2007 and 2008,
in the amount of $38,000 for Mr. Grant, 25% of base salary for Mr. Asselta,
$25,000 for 2006, $18,900 for 2007 and $12,800 for 2008 for Mr. Spencer, 25% of
base salary for Mr. Sadler, and 15% of base salary for Dr. James, based upon the
achievement of performance metrics (as determined by Quest Diagnostics) relating
to the effective integration and growth of the business for which the employee
is responsible. For each employment period during the respective new employment
agreement, the respective employee will be eligible for an annual bonus under
the Quest Diagnostics Senior Management Incentive Plan not to exceed 100% of
base salary for Mr. Grant, 75% of base salary for Mr. Asselta, 60% of base
salary for Mr. Spencer, 50% of base salary for Mr. Sadler, and 40% of base
salary for Dr. James. In addition, Mr. Asselta is entitled to receive an
additional bonus of $25,000 for each additional six-month extension period of
Mr. Asselta's initial employment term under his new employment agreement, up to
and including four extension periods.
(3) Under the respective new employment agreements, the surviving corporation
agrees to recommend to the Compensation Committee of the Board of Directors of
Quest Diagnostics for fiscal year 2006 that it approve and grant to the
respective employee an option to purchase the specified number of shares of
Quest Diagnostics. The terms and conditions of the stock option shall be as set
forth in the Quest Diagnostics Employee Long Term Incentive Plan and a stock
option agreement to be entered into between Quest Diagnostics and the employee.
(4) Under the respective new employment agreements, the surviving corporation
agrees to recommend to the Compensation Committee of the Board of Directors of
Quest Diagnostics for fiscal year 2006 that it approve and grant to the
respective employee restricted stock of Quest Diagnostics having a fair market
value equal to the specified amount. The terms and conditions of the restricted
stock shall be as set forth in the Quest Diagnostics Employee Long Term
Incentive Plan and a restricted stock agreement to be entered into between Quest
Diagnostics and the employee.
19
The terms of the new employment agreements are: three years from its
effective date for Messrs. Grant, Spencer, Sadler and James, and two years from
its effective date for Mr. Asselta. If the employment of any of Messrs. Grant,
Spencer, Sadler or James under his new employment agreement is terminated due to
the employee's death or disability, or by the surviving corporation without
cause, the surviving corporation will be required to pay to the employee his
earned and unpaid base salary plus a lump sum payment equal to $438,520 in the
case of Mr. Grant, $325,000 in the case of Mr. Spencer, $676,878 in the case of
Mr. Sadler and $300,000 in the case of Dr. James, less in each case the amount
of his signing bonus and any special annual performance bonuses, if any, and the
value of any restricted stock awarded to him and vested at the termination.
With respect to Mr. Asselta, if his employment is terminated under his new
employment agreement due to his death or disability, or by the surviving
corporation without cause, the surviving corporation will be required to pay Mr.
Asselta his earned and unpaid base salary plus a lump sum payment equal to
$662,359, less the amount of his signing bonus, any additional bonuses for any
six-month extension, and any special annual performance bonuses, if any, and the
value of any restricted stock awarded to Mr. Asselta and vested at the
termination. Mr. Asselta may voluntarily resign upon sixty days notice following
the second anniversary of his new employment agreement. In the event of such a
resignation, Mr. Asselta will be entitled to the same severance compensation as
described above with respect to termination due to Mr. Asselta's death or
disability, or by the surviving corporation without cause. If his employment is
terminated under his new employment agreement for cause, he will be entitled to
the same severance compensation as described above less any actual damages
suffered by the surviving corporation as a result of the behavior constituting
cause, with certain exceptions.
In the event of any change of control of Quest Diagnostics following the
merger, Messrs. Grant, Spencer and Sadler will have certain rights under Quest
Diagnostics' executive severance plan. Upon the expiration of the term of the
employee's new employment agreement, the employee will become an "at-will"
employee, although in the case of Messrs. Grant, Spencer and Sadler if he is
terminated from employment thereafter, he will also have certain rights under
Quest Diagnostics' executive severance plan.
Severance Payments. Under the terms of their employment agreements, Joseph
C. Benage, our Executive Vice President, General Counsel and Secretary, and John
W. McCarty, our Executive Vice President and Chief Financial Officer, will be
entitled to certain cash severance payments as a result of the merger. If the
merger is consummated before November 17, 2005, Mr. Benage will be entitled to
$861,816. If the merger is consummated on or after November 17, 2005 and prior
to January 1, 2006, he will be entitled to receive $871,136. Mr. McCarty will
receive $963,108 if the closing of the merger occurs at any time during 2005.
Due to the operation of the formula for determining the amount of severance
payments under their employment agreements, the amount of the severance payments
payable to Messrs. Benage and McCarty will change if the merger is consummated
in 2006.
Indemnification and Insurance. Under the merger agreement, Quest
Diagnostics agrees that (a) the existing rights to indemnification of all of our
directors and officers under our articles of incorporation or bylaws shall
survive the merger and continue for a period of six years, (b) indemnification
agreements between us and our directors and executive officers shall remain in
full force and effect in accordance with their terms following the merger, (c)
subject to certain conditions, Quest Diagnostics will maintain in effect for six
years from the effective time of the merger directors' and officers' liability
insurance with respect to matters existing or occurring prior to the effective
time of the merger and (d) subject to certain conditions, Quest Diagnostics will
provide indemnification for a period of six years to persons who, at or prior to
the effective time, were officers or directors of us or any of our subsidiaries
or served at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. See "MERGER
AGREEMENT - Indemnification and Insurance."
20
Copies of the new employment agreements with Messrs. Grant, Asselta,
Spencer, Sadler and James were filed as Exhibits 10.9 - 10.13 to our Current
Report on Form 8-K filed with the Securities and Exchange Commission on August
8, 2005. See "WHERE YOU CAN FIND MORE INFORMATION."
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which we refer to as the HSR Act, and the rules promulgated thereunder by the
Federal Trade Commission, which we refer to as the FTC, the merger cannot be
completed until we and Quest Diagnostics file a notification and report form
under the HSR Act and the applicable waiting period has expired or been
terminated. We and Quest Diagnostics filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division of the Department of Justice
on August 19, 2005. At any time before or after completion of the merger,
notwithstanding the expiration or early termination of the waiting period under
the HSR Act, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger or seeking divestiture
of substantial assets of us or Quest Diagnostics. At any time before or after
the completion of the merger, and notwithstanding the expiration or early
termination of the waiting period under the HSR Act, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the completion of the
merger or seeking divestiture of substantial assets of us or Quest Diagnostics.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
While there can be no assurance that the merger will not be challenged by a
governmental authority or private party on antitrust grounds, we and Quest
Diagnostics believe that the merger can be effected in compliance with federal
and state antitrust laws. Under the terms of the merger agreement, Quest
Diagnostics has agreed to use its reasonable best efforts to eliminate, avoid or
resolve any objection raised by any antitrust governmental authority, any suit
challenging the merger under any antitrust or competition law or any other
impediment to the merger under any anti-trust or competition law, so as to allow
the parties to consummate the merger as promptly as practicable, subject to the
limitations described in the next paragraph.
Under the merger agreement, Quest Diagnostics agreed to commit to and
effect as promptly as practicable, by consent decree, hold separate orders, or
otherwise, the sale, divestiture or disposition of such of its and its
affiliates' assets or operations, and/or of the assets or operations to be
acquired by it pursuant to the merger, as is required to be sold, divested or
disposed of, including entering into any agreements required to be entered into
by any governmental authority in connection therewith, in order to obtain any
required regulatory approval or to avoid the commencement of any suit or
proceeding seeking or to avoid entry of any decree, order, judgment, injunction,
temporary restraining order or other order that would have the effect of
materially delaying or prohibiting the consummation of the merger. Quest
Diagnostics, however, is not required to hold separate, sell, divest or dispose
of any assets or operations owned by it or its affiliates or by us or our
affiliates, which individually or collectively produced aggregate revenues in
calendar year 2004 in excess of the 2.5% of our consolidated revenues for 2004
(which amount is equal to $11.7 million), or hold separate, sell, divest or
dispose of any full service laboratory.
Certain U.S. Federal Income Tax Consequences
The following is a discussion of certain U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) of shares of our
common stock. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (which we refer to as the "Code"), existing,
proposed and temporary regulations promulgated thereunder, rulings,
administrative pronouncements and judicial decisions, changes to which could
materially affect the tax consequences described herein and could be made on a
retroactive basis.
For purposes of this discussion, we use the term "U.S. holder" to mean a
U.S. citizen or resident alien individual as defined in the Code, a corporation
or entity taxable as a corporation, created or organized in or under
21
the laws of the U.S. or any state thereof or the District of Columbia, an estate
the income from which is includable in its gross income for U.S. federal income
tax purposes without regard to its source, or a trust if either (A) both (1) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (2) one or more U.S. persons have the authority to control all of
the substantial decisions of the trust or (B) it has in effect a valid election
to be treated as a domestic trust for U.S. federal income tax purposes. A
non-U.S. holder is any holder that is not a U.S. holder.
This discussion assumes that you hold the shares of our common stock as a
capital asset within the meaning of Section 1221 of the Code. This discussion
does not address all aspects of U.S. federal income taxation that may be
relevant to you in light of your particular circumstances, or that may apply to
you if you are subject to special treatment under the U.S. federal income tax
laws (including, for example, regulated investment companies, persons who
mark-to-market our common stock, S corporations, partnerships or other
pass-through entities, dealers and certain traders in securities and currencies,
financial institutions, insurance companies, tax-exempt entities, U.S.
expatriates, holders that are not U.S. holders, investors who received our
common stock upon conversion of securities or exercise of warrants or other
rights to acquire common stock, persons who hold our common stock as part of a
synthetic security, straddle, hedge, constructive sale, or a conversion or other
integrated transaction, persons that have a functional currency other than the
U.S. dollar, persons who are subject to the alternative minimum tax, investors
in a pass-through or similar entity, persons who receive our common stock
through the exercise of employee stock options or otherwise as compensation, or
if you do not hold our common stock as a capital asset).
THIS U.S. FEDERAL INCOME TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY
AND MAY NOT ADDRESS ALL TAX CONSIDERATIONS THAT MAY BE SIGNIFICANT TO YOU. YOU
ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
The receipt of cash in the merger by U.S. holders of shares of our common
stock generally will be a taxable transaction for U.S. federal income tax
purposes (and may also be a taxable transaction under applicable state, local
and foreign tax laws). In general, for U.S. federal income tax purposes, a U.S.
holder of shares of our common stock will recognize gain or loss for U.S.
federal income tax purposes equal to the difference, if any, between (1) the
merger consideration received in exchange for such shares and (2) the U.S.
holder's adjusted tax basis in such shares. If the holding period in our shares
surrendered is greater than one year as of the date of the merger, the gain or
loss will be long-term capital gain or loss. The deductibility of a capital loss
recognized on the exchange is subject to limitations. If you acquired different
blocks of our stock at different times or different prices, you must determine
your tax basis and holding period separately with respect to each block of our
stock.
There are limitations on the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against a non-corporate
stockholder's ordinary income only up to a maximum annual amount of $3,000, and
non-corporate stockholders may carry forward unused capital losses. A corporate
stockholder can deduct capital losses only to the extent of capital gains;
unused capital losses may be carried back three years and forward five years.
Receipt of the merger consideration may also be a taxable transaction under
applicable state, local and foreign tax laws.
Backup withholding at a rate of 28% will apply to all cash received by a
shareholder under the merger, unless the shareholder provides a taxpayer
identification number (social security number, in the case of individuals, or
employer identification number, in the case of other shareholders), certifies
that such a number is correct, and otherwise complies with the backup
withholding tax rules. Each of our shareholders should complete and sign the
Substitute Form W-9 included as part of the letter of transmittal and return it
to the paying agent in order to provide
22
the information and certification necessary to avoid backup withholding tax,
unless an exemption applies and is established in a manner satisfactory to the
paying agent. Backup withholding is not an additional tax and any amounts
withheld under the backup withholding rules may be refunded or credited against
your U.S. federal income tax liability, if any, provided that you furnish the
required information to the Internal Revenue Service in a timely manner. In
addition, certain foreign persons such as certain nonresident aliens may
establish an exemption from, or a reduced rate of, backup withholding by
delivering the proper version of Form W-8.
Because individual circumstances may differ, you are encouraged to consult
your own tax advisor as to the particular tax consequences of the merger to you,
including the application and effect of state, local, foreign and other tax
laws.
Dissenters' Rights
Under Missouri law, holders of shares of our common stock are entitled to
dissenters' rights in connection with the merger. Any holder of shares of our
common stock at the time of the merger who does not vote in favor of the merger
may elect to receive payment of the fair value of the shares in cash in
accordance with Section 351.455 of the General and Business Corporation Law of
Missouri if the merger is consummated. However, Quest Diagnostics may elect not
to consummate the merger if a demand for fair value of dissenting shares of our
common stock has been perfected, asserted or demanded with respect to more than
10% of the aggregate number of our outstanding shares of common stock.
Any shareholder contemplating the exercise of the right to dissent should
review carefully the provisions of Section 351.455 set forth in Appendix C to
this proxy statement. A summary of the principal steps to be taken if the right
to dissent is to be exercised is set forth below. This summary should be read in
conjunction with, and is qualified in its entirety by reference to, the full
text of Section 351.455.
EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF
SECTION 351.455 IN ORDER FOR HOLDERS OF SHARES OF OUR COMMON STOCK TO PERFECT
DISSENTERS' RIGHTS.
Under Missouri statutory law, a shareholder who dissents from the merger
may, in certain circumstances and subject to certain limitations (as described
below), demand the fair value of his or her shares. A shareholder's failure to
vote against the proposal to approve the merger agreement will not, by itself,
constitute a waiver or forfeiture by such shareholder of his or her dissenter's
rights. However, in order to receive the fair value of those shares, the
dissenting shareholder must take certain steps to perfect his or her dissenter's
rights. In particular, the dissenting shareholder:
o must file with us, prior to or at the special meeting of
shareholders, a written objection to the merger (if the shares
were held by the shareholder as of the record date for the
special meeting);
o must not vote in favor of the merger;
o within 20 days after the merger is effected, make a written
demand on the surviving corporation for payment of the fair value
of his or her shares as of the day prior to the special meeting;
and
o must state, in such written demand, the number and class of the
shares held by the dissenting shareholder.
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Shareholders will not receive any notice with respect to the expiration of
the 20 day period. Any shareholder failing to make a written demand within the
20 day period shall be conclusively presumed to have consented to the merger and
shall be bound by the terms thereof. A vote against the merger does not
constitute a demand as required under the statute. If, within 30 days after the
effective date of the merger, the fair value of the dissenting shareholder's
shares is agreed upon between the dissenting shareholder and the surviving
corporation, payment for such shares must be made by the surviving corporation
within 90 days after the effective date of the merger, upon the surrender of the
dissenting shareholder's stock certificates representing his or her shares. Upon
payment of the agreed value, the dissenting shareholder ceases to have any
interest in the shares or in the surviving corporation.
If, within 30 days after the effective date of the merger, there is no such
agreement as to the fair value of the dissenting shareholder's shares between
the dissenting shareholder and the surviving corporation, then the dissenting
shareholder may, within 60 days after the expiration of the 30 day period, file
a petition in any court of competent jurisdiction specified in Section 351.455
asking for a finding and determination of the fair value of his or her shares as
of the day prior to the special meeting of shareholders. The dissenting
shareholder will be entitled to judgment against the surviving corporation for
an amount equal to the fair value of his or her shares measured as of the day
prior to the special meeting, together with interest thereon to the date of the
judgment.
The judgment will only be payable upon and simultaneously with the
surrender to the surviving corporation of the stock certificates representing
the shares owned by the dissenting shareholder. Upon payment of the judgment,
the shareholder will cease to have any interest in the shares or in the
surviving corporation. Further, unless the dissenting shareholder files the
petition with the court within the 60-day time limit described above, that
shareholder and all persons claiming under that shareholder shall be
conclusively presumed to have approved or ratified the merger and shall be bound
by the terms thereof. The right of a dissenting shareholder to be paid the fair
value of his or her shares as provided above ceases if and when we abandon the
merger.
Source of Funds
The obligation of Quest Diagnostics to consummate the merger is not
conditioned upon Quest Diagnostics obtaining financing. Approximately $934
million will be required to pay the aggregate merger consideration for shares of
our common stock, to cash out outstanding stock options and to pay amounts to be
paid with respect to our debentures. Quest Diagnostics has informed us that it
presently expects to fund the cash requirements for the merger from a
combination of available cash, borrowings under its existing credit facility and
the issuance of new debt securities.
Delisting and Deregistration of Our Common Stock
If the merger is completed, our common stock will cease to be quoted on the
Nasdaq National Market, will not be publicly traded and will be deregistered
under the Securities Exchange Act of 1934, as amended.
Anticipated Accounting Treatment
Quest Diagnostics has informed us that it intends to account for the merger
under the "purchase" method of accounting for financial accounting purposes.
Effect on LabOne Convertible Debentures
Upon consummation of the merger, the holders of the Company's 3.5%
Convertible Senior Debentures in the aggregate principal amount of $103.5
million will have the right to receive such principal amount, plus a specified
premium as a result of an increase of the conversion rate of the debentures, in
an aggregate cash amount of approximately $132 million. In accordance with the
terms of the indenture for the debentures, upon
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consummation of the merger, (a) the debentures may be converted, the right to
receive cash and stock upon conversion will be changed into the right to receive
cash, and the conversion rate will be increased as provided in the indenture for
the debentures and (b) holders of debentures will have the right to require us
to repurchase their debentures upon the terms and conditions set forth in the
indenture for the debentures.
THE MERGER AGREEMENT
The following discussion summarizes certain provisions of the merger
agreement. This summary may not contain all the information about the merger
agreement that is important to you. We strongly encourage you to read carefully
the merger agreement in its entirety, a copy of which is attached as Appendix A
to this proxy statement.
Effective Time
We will file articles of merger with the Secretary of State of the State of
Missouri as soon as practicable on or after the closing date, which will not be
later than the fifth business day after satisfaction or waiver of the conditions
to the closing of the merger as set forth in Article VIII of the merger
agreement. The merger will become effective upon the issuance of a certificate
of merger by the Secretary of State of the State of Missouri.
Merger Consideration
Each share of our common stock issued and outstanding immediately prior to
the merger, at the effective time of the merger, will automatically be cancelled
and will be converted into the right to receive $43.90 in cash, per share,
without interest and subject to applicable tax withholding. After the merger is
effective, each holder of a certificate representing any of these shares of our
common stock who does not exercise dissenters' rights will no longer have any
rights with respect to the shares, except for the right to receive the merger
consideration. Each share of our common stock held by us and any shares held by
Quest Diagnostics or Fountain at the time of the merger will be cancelled
without any payment.
Holders of shares of our common stock are entitled to assert dissenters'
rights instead of receiving the merger consideration. For a description of these
dissenters' rights, please refer to "THE MERGER - Dissenters' Rights."
No Further Ownership Rights
After the effective time of the merger, each of our outstanding stock
certificates held by you will represent only the right to receive the merger
consideration. The merger consideration paid upon surrender of each certificate
will be paid in full satisfaction of all rights pertaining to the shares of our
common stock represented by that certificate.
Conversion of Shares; Procedures for Exchange of Certificates
Your right to receive $43.90 per share in cash, without interest and
subject to applicable tax withholding, will occur automatically upon completion
of the merger. Prior to the effective time of the merger, Fountain will
designate a bank or trust company to act as paying agent under the merger
agreement. Immediately after the effective time of the merger, Quest Diagnostics
will deposit with the paying agent cash in an amount sufficient to enable the
paying agent to pay the aggregate merger consideration to the holders of shares
of our common stock.
Promptly after the effective time of the merger, but in no event later than
three business days thereafter, Fountain will cause to be mailed to each record
holder of shares a letter of transmittal and instructions for use in
surrendering certificates in exchange for the merger consideration. No
shareholder should surrender any certificates until the shareholder receives the
letter of transmittal and other materials for such surrender. Upon
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surrender of a stock certificate for cancellation to the paying agent, together
with a letter of transmittal, duly completed and validly executed, the holder of
such certificate will be entitled to receive the merger consideration into which
the number of shares of common stock previously represented by such stock
certificate(s) shall have been converted pursuant to the merger agreement,
without any interest thereon. The certificates so surrendered will be cancelled.
In the event of a transfer of ownership of shares of common stock which is
not registered in our transfer records, payment may be made with respect to such
shares to the transferee if the stock certificate representing such shares is
presented to the paying agent, accompanied by all documents reasonably required
by the paying agent to evidence such transfer and to evidence that any
applicable stock transfer taxes relating to such transfer have been paid.
If your stock certificate has been lost, stolen or destroyed, the paying
agent will deliver to you the applicable merger consideration for the shares
represented by that certificate if:
o you make an affidavit claiming such certificate has been lost,
stolen or destroyed; and
o if required by the surviving corporation, you post a bond in form
and substance and with surety reasonably satisfactory to the
surviving corporation.
Shareholders should not send their certificates now and should send them
only pursuant to instructions set forth in the letters of transmittal to be
mailed to shareholders promptly after the effective time of the merger. In all
cases, the merger consideration will be provided only in accordance with the
procedures set forth in this proxy statement and such letters of transmittal.
At the effective time of the merger, our share transfer books will be
closed, and there will be no further registration of transfers of outstanding
shares of our common stock. If, after the effective time of the merger,
certificates are presented to the surviving corporation or the paying agent for
transfer or any other reason, they will be cancelled and exchanged for the
merger consideration.
None of the paying agent, Fountain or the surviving corporation will be
liable to any person for any shares or cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. At any
time after the nine month anniversary of the effective time of the merger, the
surviving corporation may request the paying agent to deliver to it any funds
made available to the paying agent which have not been disbursed to holders of
our common stock. Any shareholders who have not complied with the above
described procedures to receive payment of the merger consideration during such
nine month period may thereafter look only to the surviving corporation and
Quest Diagnostics for payment of the merger consideration to which they are
entitled.
Treatment of Outstanding Stock Options
At the effective time of the merger, each outstanding stock option will
become fully vested and exercisable. All stock options will be cancelled at the
effective time of the merger. The holder of each stock option will generally be
entitled to receive, in full satisfaction of the rights of such holder with
respect to such stock option, an amount for each share subject to the stock
option equal to the excess of the merger consideration of $43.90 per share over
the exercise price per share, less any applicable tax withholding. Holders of
options under our 2001 Long-Term Incentive Plan will be required to complete a
notice of exercise in order to receive the cash payable at the effective time of
the merger. All amounts payable will be paid at or as soon as practicable
following the effective time of the merger, without interest. As of August 8,
2005 there were outstanding options to purchase 1,610,812 shares of our common
stock with an exercise price per share that is less than $43.90, the per share
merger consideration.
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Representations and Warranties
The merger agreement contains various representations and warranties by us
as of specific dates. The statements embodied in those representations and
warranties were made only for purposes of the merger agreement among Quest
Diagnostics, Fountain and us, and are subject to important qualifications and
limitations agreed upon by such parties in connection with negotiating the terms
of the merger agreement. In addition, the representations and warranties may be
subject to standards of materiality different from those generally applicable to
shareholders and may have been made for the purpose of allocating risk between
us and Quest Diagnostics rather than establishing the matters addressed in the
representations and warranties as matters of fact. All of the representations
and warranties will expire at the effective time of the merger. These
representations and warranties relate to, among other things:
o corporate organization and existence, good standing and corporate
power to operate our businesses;
o our articles of incorporation and our bylaws;
o our capitalization;
o the authority and power to enter into the merger agreement and to
consummate the transactions contemplated by the merger agreement;
o the absence of certain violations of or conflicts with our
organizational documents, applicable law or certain agreements as
a result of entering into the merger agreement and consummating
the merger;
o required consents and approvals of governmental entities in
connection with the merger;
o compliance with laws and permits;
o reports and financial statements filed with the SEC;
o our internal control over financial reporting and disclosure
controls and procedures;
o the absence of certain changes or events since March 31, 2005,
concerning us and our subsidiaries, including the absence of a
material adverse effect (as defined under "Conditions to the
Completion of the Merger" below);
o pending or threatened litigation and outstanding court orders
against us;
o our compensation arrangements and benefit plans;
o employment and labor matters;
o the accuracy of information in this proxy statement;
o real property owned and leased by us;
o our intellectual property;
o tax matters;
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o environmental matters;
o the inapplicability of our rights agreement to the merger
agreement and the merger;
o certain listed contracts;
o our insurance policies;
o transactions with our affiliates;
o our customers and suppliers;
o the absence of undisclosed broker's fees; and
o our receipt of a fairness opinion from JPMorgan.
The merger agreement also contains representations and warranties by Quest
Diagnostics and Fountain that are subject, in some cases, to specified
exceptions and qualifications. The representations and warranties relate to,
among other things:
o corporate organization and existence, good standing and corporate
power to operate its businesses;
o the authority and power to enter into the merger agreement and to
consummate the transactions contemplated by the merger agreement;
o the absence of any violation of or conflict with their
organizational documents, applicable law or certain agreements as
a result of entering into the merger agreement and consummating
the merger;
o required consents and approvals of governmental entities as a
result of the merger;
o the accuracy and completeness of information they have supplied
for inclusion in this proxy statement;
o the sufficiency as of the effective time of the merger of
available funds to pay the merger consideration and amounts
required to cash-out stock options;
o the absence of undisclosed broker's fees; and
o non-ownership of our capital stock by Quest Diagnostics and
Fountain.
Conduct of Business Pending the Merger
Under the merger agreement, we have agreed that prior to the effective time
of the merger, subject to certain exceptions, unless we obtain Quest
Diagnostics' prior written agreement (which agreement shall not be unreasonably
withheld or delayed), we will conduct our business in all material respects in
the ordinary course and consistent with past practice, and use our reasonable
best efforts to preserve substantially intact our business organization, to keep
available the services of our current officers, employees and consultants, and
to preserve our current relationships with customers, suppliers and other
persons with which we have significant business relations. In addition, we have
also agreed that until the effective time of the merger, unless expressly
contemplated or set
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forth in the merger agreement (and the disclosure schedule incorporated therein)
or with Quest Diagnostics' prior written consent (which consent shall not be
unreasonably withheld or delayed), we will not, among other things, do or
propose to do any of the following:
o amend or otherwise change our articles of incorporation or
bylaws;
o issue, sell, grant or encumber any shares or options of our
capital stock, or any other ownership interest in us (except for
the issuance of shares of common stock upon exercise of
outstanding stock options or upon conversion of the debentures);
o sell, pledge or encumber any of our assets;
o authorize, declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to our capital stock;
o reclassify, combine, split, subdivide or redeem, or purchase or
otherwise acquire, directly or indirectly, any of our capital
stock, other than in connection with the exercise of employee
stock options or the purchase of stock from the minority
shareholders of one of our subsidiaries;
o acquire any business, corporation, partnership, other business
organization or any division thereof;
o incur, repay, assume or guarantee any indebtedness for borrowed
money or issue any debt securities in excess of specified amounts
and in the ordinary course of business consistent with past
practice;
o enter into any contract or agreement that requires payments in
excess of specified amounts;
o make or authorize any capital expenditures with respect to 2005
outside of our 2005 capital expenditures budget in excess of
specified amounts, and make or authorize any capital expenditures
with respect to 2006 in excess of specified amounts;
o increase the compensation or benefits of our directors, officers
or employees, except increases in the ordinary course of business
and consistent with past practice of salaries or wages of
employees who are not officers or directors;
o grant any severance or termination pay to any of our directors,
officers, or employees;
o enter into any employment or severance agreement (other than
employment offer letters which do not provide for severance on
termination provisions) with any of our directors, officers or
employees;
o establish, adopt or amend any collective bargaining, bonus,
compensation or stock option or other benefit plan for our
directors, officers or employees;
o change any of our accounting principles, policies or procedures,
other than as required by GAAP or applicable law;
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o make, revoke or change any tax election or method of tax
accounting, settle any material tax liability, consent to any
material tax claim or assessment, or waive the statute of
limitations for any material tax claim or assessment;
o pay, discharge or satisfy any claim, liability or obligation,
other than in the ordinary course of business and consistent with
past practice;
o amend or modify in any material respect or consent to the
termination of any listed contract, other than in the ordinary
course of business and consistent with past practice;
o settle any material litigation;
o sell, transfer, or grant any license or sublicense with respect
to any of our material intellectual property other than in the
ordinary course of business and consistent with past practice; or
o announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the
foregoing.
Indemnification and Insurance
Under the merger agreement, Quest Diagnostics agrees that the existing
rights to indemnification of all of our directors or officers under our articles
of incorporation or bylaws shall survive the merger for a period of six years.
In addition, indemnification agreements between us and our directors and
executive officers shall remain in full force and effect in accordance with
their terms following the merger.
Quest Diagnostics also agrees to maintain in effect for six years from the
effective time of the merger directors' and officers' liability insurance with
respect to matters existing or occurring prior to the effective time of the
merger. Quest Diagnostics may substitute policies of at least the same coverage
containing terms and conditions that are not, in the aggregate, less favorable
to any beneficiary thereof. Quest Diagnostics, however, shall not be required to
pay more than an amount equal to 300% of current annual premiums paid by us for
such insurance. If the amount of the premiums necessary to maintain or procure
such insurance coverage exceeds such maximum amount, Quest Diagnostics is
required to maintain or procure, for such six-year period, the most advantageous
policies of directors' and officers' insurance obtainable for a premium equal to
that maximum amount.
In addition, under the merger agreement, Quest Diagnostics is required for
six years from and after the effective time of the merger, to indemnify and hold
harmless (and release from any liability to the surviving corporation or any of
their respective subsidiaries) the persons who, at or prior to the effective
time of the merger, were officers or directors of us or any of our subsidiaries
or served at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against all
expenses (including reimbursement for reasonable fees and expenses incurred in
advance of the final disposition of any action, suit or proceeding), losses,
claims, damages, judgments, fines and amounts paid in settlement to the fullest
extent permitted by the MGBCL as of the date of the merger agreement (assuming
the MGBCL were applicable).
No Solicitation by Us
Subject to the exceptions described below, we have agreed to certain
restrictions on our ability to solicit, negotiate and enter into acquisition
transactions with third parties. We have agreed that we will not, and agreed
that we will instruct and use our reasonable best efforts to cause our and our
subsidiaries' directors, officers, employees, agents, advisors and other
representatives (including any investment banker, attorney or accountant
retained by us or any subsidiary) not to, directly or indirectly:
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o solicit, initiate or knowingly encourage (including by way of
furnishing nonpublic information), or take any other action to
knowingly facilitate, any inquiries or the making of any proposal
or offer (including any proposal or offer to our shareholders)
that constitutes, or may reasonably be expected to lead to, any
competing transaction,
o enter into or maintain or continue discussions or negotiations
with any person or entity in furtherance of such inquiries or to
obtain a proposal or offer for a competing transaction,
o agree to, approve, endorse or recommend any competing transaction
or enter into any letter of intent or other contract, agreement
or commitment contemplating or otherwise relating to any
competing transaction, or
o authorize or permit any of the officers, directors or employees
of us or any subsidiary, or any investment banker, financial
advisor, attorney, accountant or other representative retained by
us or any subsidiary, to take any such action.
Subject to the exceptions described below, we have also agreed not to
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Quest Diagnostics or Fountain, the approval or recommendation of the merger
agreement or the merger by our board of directors.
Notwithstanding these agreements, prior to obtaining shareholder approval
of the merger agreement, we may, in response to an unsolicited, written, bona
fide proposal or offer regarding a competing transaction, (a) furnish
information to the third party making the proposal or offer, and enter into and
conduct discussions and negotiations with such third party, regarding the
proposal or offer, and (b) release the third party from, or waive any provision
of, any confidentiality or standstill agreement to which it is a party to the
extent reasonably necessary to permit the third party to make and pursue the
proposal or offer, if, prior to doing so, our board of directors shall have:
o determined, in its good faith judgment (after having received the
advice of its financial advisor and outside legal counsel (who
may be our regularly engaged independent legal counsel)), that
the proposal or offer constitutes or may be reasonably expected
to lead to a superior proposal,
o determined, in its good faith judgment after consultation with
independent legal counsel (that may be our regularly engaged
independent legal counsel), that a failure to furnish such
information, enter into such discussions and negotiations or
release or waive such provisions would be inconsistent with its
fiduciary duties to us or our shareholders under applicable law,
o provided prior written notice to Quest Diagnostics of our intent
to furnish information to, or enter into discussions with, the
third party, and
o obtained from the third party an executed confidentiality
agreement on terms no less favorable to us in all material
respects than those contained in the confidentiality agreement
with Quest Diagnostics, with certain exceptions.
In addition, if our board of directors determines, in its good faith
judgment (after having received the advice of its financial advisor and outside
legal counsel (who may be our regularly engaged independent legal counsel)),
that an unsolicited, written, bona fide offer from a third party constitutes a
superior proposal, then we may terminate the merger agreement and enter into an
agreement with the third party with respect to the superior proposal, if:
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o prior to doing so, our board of directors shall have determined
in its good faith judgment after consultation with independent
legal counsel (who may be our regularly engaged independent legal
counsel), that a failure to take any such action would be
inconsistent with its fiduciary duties to us or our shareholders
under applicable law;
o prior to entering into an agreement for a superior proposal, we
notify Quest Diagnostics in writing at least three business days
prior to doing so, of our intention to enter into the agreement,
specifying its material terms and identifying the person making
the superior proposal, and Quest Diagnostics does not make,
within three business days of receipt of the written
notification, an offer that our board of directors determines in
good faith (after having received the advice of its financial
advisor and outside legal counsel (who may be our regularly
engaged independent legal counsel)) is at least as favorable from
a financial point of view to our shareholders as the superior
proposal; and
o we pay a $26.5 million termination fee to Quest Diagnostics
simultaneous with termination of the merger agreement.
In addition, subject to termination fee requirements described under
"--Termination Fees and Expenses", our board of directors may change its
recommendation regarding the merger agreement and the merger if it determines,
in its good faith judgment after consultation with independent legal counsel
(who may be our regularly engaged independent legal counsel), that to do
otherwise would be inconsistent with its fiduciary duties to us or our
shareholders under applicable law.
A "competing transaction" is defined in the merger agreement as any of the
following: (i) any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
involving us; (ii) any sale, lease, exchange, transfer or other disposition of
all of our consolidated assets, or a portion thereof having an aggregate value
equal to 15% or more of our market capitalization or generating 15% or more of
our consolidated revenue for the fiscal year ended December 31, 2004; (iii) any
sale, exchange, transfer or other disposition of 15% or more of any class of our
equity securities; or (iv) any tender offer or exchange offer that, if
consummated, would result in any person beneficially owning 15% or more of any
class of our equity securities.
A "superior proposal" is defined in the merger agreement as an unsolicited
written bona fide offer made by a third party to consummate any competing
transaction (i) that is on terms that our board of directors determines in its
good faith judgment (after consultation with its financial advisor and after
taking into account all the terms and conditions of the contemplated
transaction) are more favorable to our shareholders (in their capacity as
shareholders) from a financial point of view than the merger agreement (taking
into account any alterations to that merger agreement agreed to in writing by
Quest Diagnostics in response thereto in accordance with the merger agreement),
(ii) that is not conditioned upon receipt of requisite financing or for which
financing, to the extent required, is then committed and (iii) that our board of
directors determines in its good faith (after consultation with its financial
advisor and outside legal counsel (who may be our regularly engaged independent
legal counsel)) is reasonably capable of being consummated; except that for
purposes of this definition the reference to "15%" in clauses (ii), (iii) and
(iv) of the definition of competing transaction shall be deemed to be a
reference to "50%."
Employee Benefits
Under the merger agreement, Quest Diagnostics has agreed that, for a period
of one year after the merger, it will honor (without modification in a manner
adverse to the participants therein) all of our and our subsidiaries' existing
employee contracts, agreements, arrangements, policies, plans and commitments,
excluding any requirement that contributions be paid in employer stock; provided
that Quest Diagnostics may transfer some or all of our and our subsidiaries'
employees to the applicable employee benefit arrangements of Quest Diagnostics
and
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its subsidiaries during the one-year period, as long as the employees who are
transferred receive benefits under the arrangements that are not less favorable
than the benefits provided to similarly situated employees of Quest Diagnostics
and its subsidiaries.
Under the merger agreement, our and our subsidiaries' employees will
receive credit for service accrued prior to the merger (a) for purposes of
eligibility to participate and vesting (but not for benefit accruals) under the
employee benefit arrangements of Quest Diagnostics and its subsidiaries that may
be extended to the employees, except as may cause a duplication of benefits, and
(b) for purposes of determining the level of benefits under any vacation or
severance plan following the merger established or maintained by Quest
Diagnostics or any of its subsidiaries that is extended to the employees. Quest
Diagnostics and its subsidiaries have agreed to waive any limitations on
benefits relating to any pre-existing conditions to the same extent such
limitations are waived under any comparable plan of Quest Diagnostics and its
subsidiaries and to recognize, for purposes of annual deductible, co-payment and
out-of-pocket limits under its medical and dental plans, deductible, co-payment
and out-of-pocket expenses paid by our and our subsidiaries' employees in the
respective plan year in which the merger occurs. The merger agreement provides
that following the merger, all of our and our subsidiaries' employees shall be
entitled to all unused vacation time accrued as of the effective time of the
merger.
Other Covenants
The merger agreement contains a number of other covenants, including
covenants:
o requiring us to hold a special meeting and to use our reasonable
best efforts to obtain shareholder approval of the merger
agreement, subject to the provisions of the merger agreement;
o governing the parties' obligations with respect to the
preparation and filing with the Securities and Exchange
Commission of this proxy statement;
o requiring us to provide Quest Diagnostics and Fountain with
reasonable access during normal business hours to our and our
subsidiaries' officers, employees, agents, properties, offices,
plants and other facilities, books and records, subject to
certain exceptions;
o requiring the parties to give prompt notice of matters that
reasonably could be expected to cause any representation or
warranty contained in the merger agreement to be untrue or
inaccurate in any material respect, of any failure of any party
to comply with any covenant under the merger agreement and of any
other material development relating to us or our subsidiaries;
o requiring the parties to use their reasonable best efforts to
obtain all consents or approvals required from third parties
other than governmental authorities in order to consummate the
merger as promptly as practicable;
o requiring Quest Diagnostics to cause Fountain to perform its
obligations under the merger agreement and to consummate the
merger and to unconditionally guarantee the full and complete
performance by Fountain and the surviving corporation of their
obligations under the merger agreement; and
o requiring the parties to use their reasonable best efforts to
consult with each other before issuing any press release or
otherwise making any public statements with respect to the merger
agreement or the merger.
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Conditions to the Completion of the Merger
Our, Quest Diagnostics' and Fountain's respective obligations to consummate
the merger are subject to the satisfaction of the following conditions:
o approval of the merger agreement by our shareholders in
accordance with Missouri law and our articles of incorporation;
o the expiration or termination of the waiting period under the HSR
Act; and
o the absence of any law, rule, injunction, judgment, decree or
order prohibiting the merger.
In addition, we are not obligated to effect the merger unless the following
conditions have been satisfied or waived in writing:
o the representations and warranties of Quest Diagnostics and
Fountain set forth in the merger agreement that are qualified as
to materiality must be true and correct, and those that are not
so qualified must be true and correct in all material respects,
in each case as of the date of the merger agreement and as of the
effective time of the merger (except that the accuracy of
representations and warranties that by their terms speak as of a
specified date will be determined as of such date); except where
any failure of such representations and warranties to be true and
correct, individually or in the aggregate, would not prohibit or
materially delay the consummation of the merger or prevent Quest
Diagnostics or Fountain from performing their obligations under
the merger agreement;
o Quest Diagnostics' and Fountain's representation and warranty
that Quest Diagnostics will have sufficient funds as of the
effective time of the merger to consummate the merger and to pay
the merger consideration and amounts required to cash-out
outstanding stock options must be true and correct as of the
effective time of the merger;
o Quest Diagnostics and Fountain must have complied in all material
respects with all of their covenants and agreements under the
merger agreement to be complied with prior to the effective time
of the merger; and
o Quest Diagnostics and Fountain must have delivered to us a
certificate dated as of the closing date of the merger and signed
by a duly authorized officer certifying that the conditions in
the three preceding bullet points have been satisfied.
In addition, Quest Diagnostics and Fountain are not obligated to complete
the merger unless the following conditions are satisfied or waived in writing:
o the representations and warranties by us set forth in the merger
agreement that are qualified as to materiality or material
adverse effect must be true and correct, and those that are not
so qualified must be true and correct in all material respects,
in each case as of the date of the merger agreement and as of the
effective time of the merger (except that the accuracy of
representations and warranties that by their terms speak as of a
specified date will be determined as of such date); except where
any failure of such representations and warranties to be true and
correct, either individually or in the aggregate, would not have
a material adverse effect;
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o we must have complied in all material respects with all of our
covenants and agreements under the merger agreement to be
complied with prior to the effective time of the merger;
o we must have delivered to Quest Diagnostics and Fountain a
certificate dated as of the closing date of the merger and signed
by a duly authorized officer certifying that the conditions in
the two preceding bullet points have been satisfied; and
o a demand for fair value of dissenting shares of our common stock
must not have been perfected, asserted or demanded with respect
to more than 10% of the aggregate number of our outstanding
shares of common stock.
The merger agreement provides that a "material adverse effect" means any
event, circumstance or change that, individually or in the aggregate with all
other events, circumstances or changes, has, or is reasonably likely to (i) have
a materially adverse effect on our business, condition (financial or otherwise)
or results of operations, or (ii) prevent or materially delay our ability to
consummate the transactions contemplated by the merger agreement; except that
the definition of "material adverse effect" shall not include any event,
circumstance, change or effect resulting from or relating to (A) changes in
general U.S. economic conditions or changes in the general economic conditions
in the geographic areas in which we operate, so long as in any such case we are
not materially disproportionately affected relative to other entities that
operate in such geographic areas, (B) changes affecting the industries within
which we operate, so long as in any such case we are not materially
disproportionately affected relative to other industry participants, (C) changes
in any applicable law, (D) the execution or public announcement of the merger
agreement or the transactions contemplated hereby, (E) actions expressly
required to be taken us pursuant to the terms of the merger agreement, or (F)
any act of terrorism or war (whether or not threatened, pending or declared).
Termination
Quest Diagnostics and we can terminate the merger agreement under certain
circumstances, including:
o by mutual written consent of Quest Diagnostics and us;
o by either Quest Diagnostics or us, if the merger has not been
completed by April 7, 2006 for any reason, except that if (1) the
merger is not completed by April 7, 2006 because all applicable
waiting periods under the HSR Act have not expired or been
terminated or because an order (other than a final and
nonappealable order) has been entered by a governmental authority
which enjoins completion of the merger, and (2) all other
conditions to the merger have been satisfied, the permitted
termination date may be extended until August 8, 2006 by either
Quest Diagnostics or us, as long as the failure to complete the
merger was not caused by the failure of Quest Diagnostics or us,
as the case may be, to fulfill any obligation under the merger
agreement.
o by either Quest Diagnostics or us if any governmental authority
shall have enacted, issued, promulgated, enforced or entered any
law or order prohibiting completion of the merger, and such order
shall have become final and nonappealable;
o by Quest Diagnostics, in the event of any breach by us of any
representation, warranty or covenant that would cause any
condition to Quest Diagnostics' obligation to complete the merger
to not be satisfied, which breach, if capable of cure, shall not
have been cured within ten business days of receipt by us of
written notice from Quest Diagnostics specifying such breach;
35
o by us, in the event of any breach by Quest Diagnostics or
Fountain of any representation, warranty or covenant that would
cause any condition to our obligation to complete the merger to
not be satisfied, which breach, if capable of cure, shall not
have been cured within ten business days of receipt by Quest
Diagnostics or Fountain, as applicable, of written notice from us
specifying such breach;
o by Quest Diagnostics if, at any time prior to the date of our
special meeting, our board of directors shall have (i) effected a
change in its recommendation (as defined below) or (ii) approved
or recommended, or proposed to approve or recommend, any
competing transaction;
o by Quest Diagnostics or us if, upon a vote taken at the special
meeting or any postponement or adjournment of the meeting, the
merger agreement is not approved by the holders of at least
two-thirds of outstanding shares of our common stock entitled to
vote thereon; or
o by us, at any time prior to obtaining shareholder approval of the
merger agreement, in order to enter into a definitive agreement
with respect to a superior proposal in accordance with the merger
agreement and payment of a termination fee of $26.5 million.
As defined in the merger agreement, a change in company recommendation
means that either our board of directors or any committee of our board of
directors shall have withdrawn or modified, or proposed to withdraw or modify,
in a manner adverse to Quest Diagnostics or Fountain, the approval or
recommendation by our board of directors or any such committee of the merger
agreement or the merger.
In the event of the termination of the merger agreement by Quest
Diagnostics or us, the merger agreement shall become void, and there shall be no
liability on the part of any party or their respective officers, directors,
employees, agents, advisors or other representatives, except that (a) the
confidentiality agreement, the termination provisions in the merger agreement
and the general provisions in Article X of the merger agreement shall survive
termination and (b) termination shall not relieve any party from liability or
damages arising out of any intentional or willful breach of any covenant in the
merger agreement prior to termination.
Termination Fees and Expenses.
Except as described below, the merger agreement provides that regardless of
whether the merger is consummated, all costs and expenses incurred in connection
with the merger agreement and the merger will be paid by the party incurring
such costs and expenses.
The merger agreement requires that we pay Quest Diagnostics a $26.5 million
termination fee if:
1. (a) Quest Diagnostics terminates the merger agreement because our
board of directors shall have effected a change in the company
recommendation prior to the date of the special meeting, and
(b) we enter into a definitive agreement, within 12 months after
such termination, relating to a competing transaction and such
transaction is thereafter consummated; or
2. (a) Quest Diagnostics or we terminate the merger agreement
because, upon a vote taken at the special meeting or any
postponement or adjournment of the special meeting, the merger
agreement is not approved by the holders of at least two-thirds
of outstanding shares of our common stock entitled to vote
thereon,
(b) prior to the vote by our shareholders on the merger
agreement, a competing transaction shall have been publicly
announced and not withdrawn, or shall have otherwise become
publicly known after the date of the merger agreement, and
36
(c) we enter into a definitive agreement, within 12 months after
such termination, relating to a competing transaction and such
transaction is thereafter consummated; or
3. we terminate the merger agreement in order to enter into a
definitive agreement with respect to a superior proposal in
accordance with the merger agreement; or
4. Quest Diagnostics terminates the merger agreement because prior
to the date of the special meeting our board of directors shall
have approved or recommended, or proposed to approve or
recommend, any competing transaction.
The merger agreement also requires that we reimburse Quest Diagnostics for
reasonable out-of-pocket expenses, up to a maximum of $3.5 million, incurred by
it or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of the merger agreement or
related to the merger if:
A. Quest Diagnostics terminates the merger agreement as a result of
any breach by us of any representation, warranty or covenant in
the merger agreement that would cause any condition to Quest
Diagnostics' obligation to complete the merger to not be
satisfied, which breach, if capable of cure, shall not have been
cured within ten business days of receipt by us of written notice
from Quest Diagnostics specifying such breach; or
B. Quest Diagnostics terminates the merger agreement because our
board of directors shall have effected a change in the company
recommendation prior to the date of the special meeting.
The termination fee payable pursuant to Item 1 above will be reduced by the
amount of any expenses of Quest Diagnostics required to be reimbursed by us
under the merger agreement.
The merger agreement provides that payment of fees and expenses as required
in the merger agreement shall not be in lieu of any damages incurred in the
event of a willful breach or intentional breach of any covenant in the merger
agreement prior to such termination.
Amendment and Waiver
Any provision of the merger agreement may be amended, modified or waived in
writing by the parties to the agreement, by action taken by or authorized by
each party's board of directors, provided that only amendments allowed under
applicable law are permitted after the merger agreement is approved by the
shareholders.
37
MARKET PRICES AND DIVIDENDS
Our common stock is listed on the Nasdaq National Market under the symbol
"LABS." On August 5, 2005, the last trading day before our announcement that we
had signed the merger agreement, the last reported sale price per share of our
common stock on the Nasdaq National Market was $37.64. On __________, 2005,
there were approximately ________ holders of record of our common stock.
The following table sets forth the high and low prices for our common stock
for the periods indicated, as reported by the Nasdaq National Market.
High Low
---- ---
2003 First Quarter.............. $ 20.86 $ 17.38
Second Quarter............. $ 22.55 $ 17.79
Third Quarter.............. $ 25.24 $ 19.91
Fourth Quarter............. $ 32.50 $ 21.04
2004 First Quarter.............. $ 36.24 $ 27.42
Second Quarter............. $ 34.14 $ 27.87
Third Quarter.............. $ 32.47 $ 26.27
Fourth Quarter............. $ 33.00 $ 28.81
2005 First Quarter.............. $ 36.63 $ 30.98
Second Quarter ............ $ 40.20 $ 33.54
Third Quarter ............. $ $
(through ________, 2005)
We did not pay dividends on our common stock during 2005, 2004 or 2003.
Additionally, our senior credit facility includes a covenant restricting the
payment of dividends on our common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Principal Shareholders. The following table lists any person who, to our
knowledge, was the beneficial owner, as of August 1, 2005, of more than 5% of
our outstanding shares of common stock.
Shares Percentage of Outstanding
Beneficially Common Stock
Beneficial Owner Owned Beneficially Owned
---------------- ----- ------------------
AXA Financial, Inc. 1,385,740(1) 8.1%
1920 Avenue of the Americas
New York, NY 10104
T. Rowe Price Associates, Inc. 1,260,154(2) 7.3%
100 E. Pratt Street
Baltimore, MD 21202
38
St. Denis J. Villere & Company, 1,070,108(3) 6.2%
L.L.C.
Suite 808
210 Baronne Street
New Orleans, LA 70112-1727
---------------------------------
(1) According to the Schedule 13G filed by the reporting person on February 14,
2005, the reporting person has sole voting power with respect to 792,700 shares,
shared voting power with respect to 490,800 and sole dispositive power with
respect to all 1,385,740 shares. The Schedule 13G also stated that the shares
are held by the reporting person's subsidiaries Alliance Capital Management L.P.
and AXA Equitable Life Insurance Company, with Alliance Capital Management L.P.
having sole voting power with respect to 652,740 shares, shared voting power
with respect to 490,800 shares and sole dispositive power with respect to
1,245,780 shares, and AXA Equitable Life Insurance Company having sole voting
and dispositive power with respect to 139,960 shares. The Schedule 13G was filed
jointly by AXA Financial, Inc., AXA Assurances I.A.R.D. Mutuelle, AXA Assurances
Vie Mutuelle, AXA Courtage Assurance Mutuelle, and AXA.
(2) According to the Schedule 13G filed by the reporting person on February 14,
2005, the reporting person has sole voting power with respect to 197,582 shares
and sole dispositive power with respect to all 1,260,154 shares. The reporting
person indicates that (i) these securities are owned by various individual and
institutional investors to which the reporting person serves as investment
adviser with power to direct investments and/or sole power to vote the
securities and (ii) for purposes of the reporting requirements of the Securities
Exchange Act of 1934, the reporting person is deemed to be a beneficial owner of
such securities; however, the reporting person expressly disclaims that it is,
in fact, the beneficial owner of such securities.
(3) According to the Schedule 13G filed by the reporting person on February 28,
2005, the reporting person has sole voting and dispositive power with respect to
3,700 shares and shared voting and dispositive power with respect to 1,066,408
shares.
Management. The following table sets forth information as of August 1, 2005
regarding the shares of our common stock beneficially owned by each director,
our chief executive officer and our four other most highly compensated executive
officers with total cash compensation exceeding $100,000 during our last
completed fiscal year, and all directors and executive officers as a group.
Shares Percentage of Outstanding
Beneficially Common Stock
Beneficial Owner Owned(1),(2) Beneficially Owned(3)
---------------- ------ ------------------
W. Thomas Grant, II 398,640(4),(5) 2.28%
John W. McCarty 78,138 *
Michael J. Asselta 72,603(4) *
L. Patrick James 7,398(4) *
Joseph C. Benage 83,434(4) *
James R. Seward 43,144 *
Jill L. Force 2,136 *
John E. Walker 28,248(6) *
John P. Mascotte 5,358 *
Lawrence N. Kugelman 326 *
39
All directors and executive 841,417 4.81%
officers as a group (14 persons)
-----------------------------------
* Less than 1% of outstanding shares.
1. Unless otherwise indicated, each person has sole voting and investment power
with respect to the shares listed.
2. Includes the following numbers of shares which such persons have the right to
acquire within 60 days after August 1, 2005 pursuant to options granted under
LabOne's Long-Term Incentive and Bonus Replacement Plans: W. Thomas Grant II,
274,955 shares; Michael J. Asselta, 69,000 shares; John W. McCarty, 71,269
shares; Joseph C. Benage, 81,517 shares; L. Patrick James, 7,000 shares; James
R. Seward, 5,788 shares; Jill L. Force, 550 shares; John E. Walker, 6,478
shares; John P. Mascotte, 4,053 shares; and all directors and executive officers
as a group, 623,329 shares.
3. For purposes of determining this percentage, the outstanding shares of LabOne
include shares which such persons have the right to acquire as of or within 60
days after August 1, 2005.
4. Includes the following numbers of shares held as of August 1, 2005 in
individually directed accounts of the named persons under LabOne's 401(k)
profit-sharing plan, as to which each of such persons has sole investment power
only: W. Thomas Grant II, 27,881 shares; Michael J. Asselta, 3,603; Joseph C.
Benage 935 shares; L. Patrick James, 398 shares; and all directors and executive
officers as a group, 41,278 shares.
5. Includes 63,462 shares held in a family trust for which W. Thomas Grant II
serves as co-trustee and in that capacity shares voting and investment powers,
13,763 shares owned by a son of W. Thomas Grant II who lives in the home, and
4,007 shares owned by the wife of W. Thomas Grant II, as to which he disclaims
beneficial ownership.
6. Includes 20,482 shares owned by a revocable trust for Mr. Walker's wife, as
to which he disclaims beneficial ownership.
SHAREHOLDER PROPOSALS
We will not hold an annual meeting of shareholders in 2006 if the merger is
completed. However, if the merger is not completed by then, we will hold our
2006 annual meeting.
If we hold our 2006 annual meeting, shareholder nominations of persons for
election as directors or other proposals may be brought before the 2006 annual
meeting of shareholders only by shareholders entitled to vote at such meeting
who give timely written notice thereof in compliance with Article VI of our
by-laws, which notice must be delivered to our Secretary on the earlier of (a)
90 days prior to the date of such meeting or (b) if we do not provide at least
100 days' prior notice or public announcement of the date of such meeting, the
shareholder notice must be delivered to the Secretary not more than ten days
following the mailing date of the notice or public announcement of the date of
the meeting.
If we hold our 2006 annual meeting, to be considered for inclusion in the
proxy statement and proxy for the 2006 annual meeting of shareholders, any
shareholder proposal must be received at our corporate office by December 20,
2005.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. The annual reports
include our audited financial statements and the quarterly reports include our
unaudited financial statements. You may read and copy any reports, statements or
other information that we file at the SEC's public reference room, which is
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Shareholders may obtain information on the operation of the public
reference
40
room by calling the SEC at 1-800-SEC-0330. Copies of such materials are also
available from the public reference section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Copies of such materials may
also be accessed through the SEC's Internet web site at http://www.sec.gov. Once
the merger is completed, we will no longer be subject to the reporting
requirements of the Securities Exchange Act of 1934.
You should rely only on the information contained in this proxy statement
to vote your shares of our common stock at the special meeting. Neither us,
Quest Diagnostics nor Fountain has authorized anyone to provide you with
information that is different from what is contained in this proxy statement.
This proxy statement is dated ________, 2005. You should not assume that
the information contained in this proxy statement is accurate as of any date
other than such date (except as otherwise expressly provided herein), and
mailing of this proxy statement to shareholders will not create any implication
to the contrary.
All information contained in this proxy statement relating to Quest
Diagnostics and Fountain, Inc. has been provided by Quest Diagnostics.
If you would like additional copies, without charge, of this proxy
statement or if you have more questions about the merger, including the
procedures for voting your shares, you should contact:
D. F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550 - Banks and Brokers (collect calls)
(888) 567-1626 - All others (toll-free)
41
Appendix A
================================================================================
AGREEMENT AND PLAN OF MERGER
among
QUEST DIAGNOSTICS INCORPORATED,
FOUNTAIN, INC.
and
LABONE, INC.
Dated as of August 8, 2005
================================================================================
Table of Contents
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.....................................................1
ARTICLE II
THE MERGER
SECTION 2.01 The Merger......................................................7
SECTION 2.02 Effective Time; Closing.........................................7
SECTION 2.03 Effect of the Merger............................................7
SECTION 2.04 Articles of Incorporation; Bylaws...............................7
SECTION 2.05 Directors and Officers..........................................7
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.01 Conversion of Securities........................................8
SECTION 3.02 Employee Stock Options..........................................8
SECTION 3.03 Dissent Rights..................................................9
SECTION 3.04 Surrender of Shares; Stock Transfer Books.......................9
SECTION 3.05 Withholding Rights.............................................11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01 Organization and Qualification; Subsidiaries...................11
SECTION 4.02 Articles of Incorporation and Bylaws...........................11
SECTION 4.03 Capitalization.................................................12
SECTION 4.04 Authority Relative to this Agreement...........................13
SECTION 4.05 No Conflict; Required Filings and Consents.....................14
SECTION 4.06 Permits; Compliance............................................15
SECTION 4.07 SEC Filings; Financial Statements..............................16
SECTION 4.08 Absence of Certain Changes or Events...........................18
SECTION 4.09 Absence of Litigation..........................................18
SECTION 4.10 Employee Benefit Plans.........................................18
SECTION 4.11 Labor and Employment Matters...................................20
SECTION 4.12 Information Supplied...........................................20
SECTION 4.13 Real Property; Title to Assets.................................21
SECTION 4.14 Intellectual Property..........................................22
SECTION 4.15 Taxes..........................................................22
SECTION 4.16 Environmental Matters..........................................23
SECTION 4.17 Rights Agreement...............................................24
SECTION 4.18 Listed Contracts...............................................24
SECTION 4.19 Insurance......................................................25
SECTION 4.20 Interested Party Transactions..................................26
SECTION 4.21 Customers and Suppliers........................................26
SECTION 4.22 Brokers........................................................26
SECTION 4.23 Opinion of Financial Advisor...................................26
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 5.01 Corporate Organization.........................................27
SECTION 5.02 Authority Relative to This Agreement...........................27
SECTION 5.03 No Conflict; Required Filings and Consents.....................27
SECTION 5.04 Information Supplied...........................................28
SECTION 5.05 Financing......................................................28
SECTION 5.06 Brokers........................................................28
SECTION 5.07 Ownership of Shares............................................28
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01 Conduct of Business by the Company Pending the Merger..........28
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Company Shareholders Meeting...................................31
SECTION 7.02 Proxy Statement................................................31
SECTION 7.03 Access to Information; Confidentiality.........................32
SECTION 7.04 No Solicitation of Transactions................................32
SECTION 7.05 Employee Benefits Matters......................................35
SECTION 7.06 Directors' and Officers' Indemnification and Insurance.........36
SECTION 7.07 Notification of Certain Matters................................37
SECTION 7.08 Further Action; Reasonable Efforts.............................37
SECTION 7.09 Obligations of Purchaser.......................................39
SECTION 7.10 Public Announcements...........................................39
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Parent, Purchaser and the
Company........................................................40
SECTION 8.02 Conditions to the Obligations of the Company...................40
SECTION 8.03 Conditions to the Obligations of Parent and Purchaser..........41
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination....................................................41
SECTION 9.02 Effect of Termination..........................................42
SECTION 9.03 Fees and Expenses..............................................42
SECTION 9.04 Amendment and Waiver...........................................43
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations and Warranties................44
SECTION 10.02 Notices.......................................................44
SECTION 10.03 Severability..................................................45
SECTION 10.04 Entire Agreement; Assignment..................................45
SECTION 10.05 Parties in Interest...........................................45
SECTION 10.06 Specific Performance..........................................45
SECTION 10.07 Governing Law; Jurisdiction...................................46
SECTION 10.08 Waiver of Jury Trial..........................................46
SECTION 10.09 Headings......................................................46
SECTION 10.10 Counterparts..................................................46
AGREEMENT AND PLAN OF MERGER, dated as of August 8, 2005 (this
"Agreement"), among QUEST DIAGNOSTICS INCORPORATED, a Delaware corporation
("Parent"), FOUNTAIN, INC., a Missouri corporation and a wholly owned subsidiary
of Parent ("Purchaser"), and LABONE, INC., a Missouri corporation (the
"Company").
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General and Business Corporation Law of the
State of Missouri (the "MGBCL"), Parent, Purchaser and the Company desire to
effect a business combination transaction pursuant to which Purchaser will merge
with and into the Company (the "Merger");
WHEREAS, the board of directors of the Company (the "Company Board")
has approved this Agreement and resolved to direct the submission of this
Agreement to a vote at a meeting of its shareholders;
WHEREAS, the respective boards of directors of each of Parent and
Purchaser deem it in the best interests of their respective stockholders and
shareholders, as the case may be, for Purchaser to be merged with and into the
Company upon the terms and subject to the conditions set forth herein, whereby
each issued and outstanding share of common stock, par value $0.01 per share, of
the Company, together with each associated Right (as hereinafter defined) under
the Rights Agreement (as hereinafter defined) (a "Share") not owned by Parent,
Purchaser, the Company or a Subsidiary shall be converted into the right to
receive the Merger Consideration (as hereinafter defined); and
WHEREAS, certain employees of the Company have executed and
delivered employment agreements with the Company, and which shall become
effective upon consummation of the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. (a) For purposes of this Agreement:
-----------
"affiliate" of a specified person means a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified person.
"business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day (other than a Saturday
or Sunday) on which banks are not required or authorized to close in The
City of New York or Kansas City, Missouri.
"Cincinnati Facility" means the laboratory facility that is located
at 6700 Steger Road, Cincinnati, Ohio.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Company Stock Option Plans" means the 2001 Long-Term Incentive
Plan, as amended, the 1997 Long-Term Incentive Plan, as amended, and the
1987 Long-Term Incentive Plan, as amended.
"Competing Transaction" means any of the following: (i) any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or other similar transaction involving the
Company; (ii) any sale, lease, exchange, transfer or other disposition of
all of the consolidated assets of the Company and the Subsidiaries, taken
as a whole, or a portion thereof having an aggregate value equal to 15% or
more of the market capitalization of the Company or generating 15% or more
of the consolidated revenue of the Company and its Subsidiaries, taken as
a whole, for the fiscal year ended December 31, 2004; (iii) any sale,
exchange, transfer or other disposition of 15% or more of any class of
equity securities of the Company; or (iv) any tender offer or exchange
offer that, if consummated, would result in any person beneficially owning
15% or more of any class of equity securities of the Company.
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
"Disclosure Schedule" shall mean the disclosure schedule delivered
by the Company to Parent at the time of the execution of this Agreement.
"Environmental Laws" means any United States federal, state, or
local statute, rule or regulation relating to Hazardous Substances or the
protection of the environment, including the following United States
federal statutes and their state counterparts, as each may be amended from
time to time, and all regulations thereunder: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expenses" means all reasonable out-of-pocket expenses (including,
without limitation, all fees and expenses of counsel, accountants,
financial advisors, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation of the documents related to
the Merger, the filing of any required notices under the HSR Act or other
similar regulations and all other matters related to the closing of the
Merger and the other transactions contemplated by this Agreement.
2
"Fee" means an amount equal to $26,500,000.
"Hazardous Substances" means (i) those substances defined in or
regulated under the following United States federal statutes and their
state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe
Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act; (ii) petroleum and
petroleum products, including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated
biphenyls, asbestos and radon; and (v) any other contaminant, substance,
material or waste regulated by any Governmental Authority pursuant to any
Environmental Law.
"Healthcare Business Segment" means clinical laboratories,
healthcare services and the substance abuse testing business segment of
the Company and its Subsidiaries.
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means, with respect to any person, (a) all
indebtedness of such person, whether or not contingent, for borrowed
money, (b) all obligations of such person for the deferred purchase price
of property (other than in the ordinary course of such person's business),
(c) all obligations of such person evidenced by notes, bonds, debentures
or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect
to property acquired by such person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), (e) all obligations of
such person as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases, (f) all obligations,
contingent or otherwise, of such person under acceptance, letter of credit
or similar facilities, (g) all obligations of such person to purchase,
redeem, retire, defease or otherwise acquire for value any capital stock
of such person or any warrants, rights or options to acquire such capital
stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and
unpaid dividends, (h) all Indebtedness of others referred to in clauses
(a) through (g) above guaranteed directly or indirectly in any manner by
such person and (i) all Indebtedness referred to in clauses (a) through
(g) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any encumbrance
on property (including accounts and contract rights) owned by such person,
even though such person has not assumed or become liable for the payment
of such Indebtedness.
"knowledge of the Company" or "Company's knowledge" means the actual
knowledge of the individuals listed on Schedule 1.01(a) hereto.
"Law" means any United States or non-United States federal,
national, supranational, state, provincial, municipal or local statute,
law, ordinance, regulation,
3
rule, code, executive order, injunction, judgment, decree or other order
of a Governmental Authority.
"Material Adverse Effect" means any event, circumstance or change
that, individually or in the aggregate with all other events,
circumstances or changes, has, or is reasonably likely to (i) have a
materially adverse effect on the business, condition (financial or
otherwise) or results of operations of the Company and the Subsidiaries,
taken as a whole, or (ii) prevent or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement;
provided, however, that the definition of "Material Adverse Effect" shall
not include any event, circumstance, change or effect resulting from or
relating to (A) changes in general United States economic conditions or
changes in the general economic conditions in the geographic areas in
which the Company or any Subsidiary operates, so long as in any such case
the Company and its Subsidiaries, taken as a whole, are not materially
disproportionately affected relative to other entities that operate in
such geographic areas, (B) changes affecting the industries within which
the Company and the Subsidiaries operate, so long as in any such case the
Company and its Subsidiaries, taken as a whole, are not materially
disproportionately affected relative to other industry participants, (C)
changes in any applicable Law, (D) the execution or public announcement of
this Agreement or the transactions contemplated hereby, (E) actions
expressly required to be taken by the Company pursuant to the terms of
this Agreement, or (F) any act of terrorism or war (whether or not
threatened, pending or declared).
"Ohio Minority Holders" means Vincent DeRisio, Marie Zurieck,
Joanne Griffith, Rick Margraf and Kenneth W. Clarke.
"Order" means any executive order, injunction, judgment, decree or
other order of a Governmental Authority.
"person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Specified Amount" means an amount equal to or in excess of two and
one-half percent (2.5%) of the consolidated revenues of the Company for
its fiscal year ended December 31, 2004.
"State Farm Master Agreement" means the Revised Master Agreement for
Outsourcing Services between State Farm and the Company, dated October 27,
2000.
"subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means an affiliate controlled by
such person, directly or indirectly through one or more intermediaries.
4
"Superior Proposal" means an unsolicited written bona fide offer
made by a third party to consummate any Competing Transaction (i) that is
on terms that the Company Board determines in its good faith judgment
(after consultation with its financial advisor and after taking into
account all the terms and conditions of the contemplated transaction) are
more favorable to the Company's shareholders (in their capacity as
shareholders) from a financial point of view than this Agreement (taking
into account any alterations to this Agreement agreed to in writing by
Purchaser in response thereto in accordance with Section 7.04), (ii) that
is not conditioned upon receipt of requisite financing or for which
financing, to the extent required, is then committed and (iii) that the
Company Board determines in good faith (after consultation with its
financial advisor and outside legal counsel (who may be the Company's
regularly engaged independent legal counsel)) is reasonably capable of
being consummated; provided, however, that for purposes of this definition
the reference to "15%" in clauses (ii), (iii) and (iv) of the definition
of Competing Transaction shall be deemed to be a reference to "50%."
"Tax Return" shall mean any return, report, declaration, election,
estimate, claim for refund, information return, statement, form or other
document filed or required to be filed with any Governmental Authority, in
connection with the determination, assessment or collection of any Tax or
the administration of any Laws relating to any Tax, and including any
schedule or attachment thereto and any amendment thereof.
"Taxes" shall mean (a) any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or taxing
authority, including, without limitation: taxes or other charges on or
with respect to income, franchise, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, severance, unemployment compensation or
net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license,
registration and documentation fees; and customers' duties, tariffs and
similar charges, and (b) any liability for the payment of any Tax (i) as a
result of being a member of a consolidated, combined, unitary or
affiliated group that includes any other person, (ii) by reason of any
obligation to indemnify or otherwise assume or succeed to the liability of
any other person for Taxes, including, without limitation, a tax sharing,
tax indemnity or similar agreement and (iii) by reason of transferee or
successor liability, whether imposed by Law, contractual arrangement or
otherwise.
(b) The following terms have the meaning set forth in the Sections
set forth below:
Defined Term Location of Definition
------------ ----------------------
"Action"...................................... ss. 4.09
"Agreement"................................... Preamble
"Balance Sheet"............................... ss. 4.07(c)
"Certificates"................................ ss. 3.04(b)
"Change in the Company Recommendation"........ ss. 7.04(c)
"CLIA"........................................ ss. 4.06(d)
5
Defined Term Location of Definition
------------ ----------------------
"Closing"..................................... ss. 2.02
"Company"..................................... Preamble
"Company Board"............................... Preamble
"Company Employees"........................... ss. 7.05(a)
"Company Preferred Stock"..................... ss. 4.03(a)
"Company Shareholders Meeting"................ ss. 7.01
"Company Stock Awards"........................ ss. 4.03(a)
"Confidentiality Agreement"................... ss. 7.03(b)
"Credit Agreement"............................ ss. 4.03(d)
"Debentures".................................. ss. 4.03(b)
"Disclosure Schedule"......................... ss. 4.01(b)
"Dissent Shares".............................. ss. 3.03(a)
"DOJ"......................................... ss. 7.08(b)
"Effective Time".............................. ss. 2.02
"Enforceability Exceptions"................... ss. 4.04(a)
"Environmental Permits"....................... ss. 4.16
"ERISA"....................................... ss. 4.10(a)
"FTC"......................................... ss. 7.08(b)
"GAAP"........................................ ss. 4.07(b)
"Governmental Authority"...................... ss. 4.05(b)
"HSR Filing".................................. ss. 7.08(b)
"Indemnifiable Claim"......................... ss. 7.06(c)
"Indemnitees"................................. ss. 7.06(c)
"Intellectual Property"....................... ss. 4.14(b)
"IRS"......................................... ss. 4.10(a)
"Lease Documents"............................. ss. 4.13(b)
"Liens"....................................... ss. 4.17(a)
"Listed Contracts"............................ ss. 4.18(a)
"Management Letters".......................... ss. 4.07(d)
"Merger"...................................... Recitals
"Merger Consideration"........................ ss. 3.01(a)
"MGBCL"....................................... Recitals
"Multiemployer Plan".......................... ss. 4.10(b)
"Multiple Employer Plan"...................... ss. 4.10(b)
"Outside Date"................................ ss. 9.01(b)
"Parent"...................................... Preamble
"Paying Agent"................................ ss. 3.04(a)
"Plans"....................................... ss. 4.10(a)
"Pre-Closing Service"......................... ss. 7.05(a)
"Proxy Statement"............................. ss. 4.05(b)
"Purchaser"................................... Preamble
"Requisite Shareholder Approval".............. ss. 4.04(c)
"Rights"...................................... ss. 4.03(b)
"Rights Agreement"............................ ss. 4.03(b)
"SEC Reports"................................. ss. 4.07(a)
6
Defined Term Location of Definition
------------ ----------------------
"Share"....................................... Recitals
"Stock Option"................................ ss. 3.02
"Subsidiary".................................. ss. 4.01(a)
"Surviving Corporation"....................... ss. 2.01
"Third Party"................................. ss. 7.04(b)
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the conditions
set forth in Article VIII, and in accordance with the MGBCL, at the Effective
Time (as defined in Section 2.02), Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 2.02 Effective Time; Closing. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VIII, but in no event later than five business days after all such
conditions have been satisfied or waived, the parties hereto shall cause the
Merger to be consummated by filing articles of merger complying with the
requirements of the MGBCL with the Secretary of State of the State of Missouri.
The Merger shall become effective at the time of the issuance of the certificate
of merger by the Secretary of State of the State of Missouri (the "Effective
Time"). Immediately prior to the filing of the articles of merger, a closing
("Closing") shall be held at the offices of Shearman & Sterling LLP, 599
Lexington Avenue, New York, New York 10022, or such other place as the parties
shall agree, for the purpose of confirming the satisfaction or waiver, as the
case may be, of the conditions set forth in Article VIII.
SECTION 2.03 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of the MGBCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all of the property, rights, privileges, powers and franchises
of the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04 Articles of Incorporation; Bylaws. (a) At the Effective
Time, and subject to Section 7.06(a), the Articles of Incorporation of the
Company shall be the Articles of Incorporation of the Surviving Corporation
until thereafter amended as provided by Law and such Articles of Incorporation.
(b) At the Effective Time, and subject to Section 7.06(a), the Bylaws
of the Company shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by Law, the Articles of Incorporation of the Surviving
Corporation and such Bylaws.
SECTION 2.05 Directors and Officers. At the Effective Time, the
directors of Purchaser immediately prior to the Effective Time shall be the
initial directors of the Surviving
7
Corporation, each to hold office in accordance with the MGBCL, the Articles of
Incorporation and the Bylaws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.01 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Purchaser,
the Company or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to
the Effective Time (other than the Shares cancelled in accordance with
Section 3.01(b) and Dissent Shares (as hereinafter defined), if any)
shall be cancelled and shall be converted automatically into the right
to receive from the Surviving Corporation $43.90 per share in cash,
without interest (the "Merger Consideration"), payable to the holder
thereof upon surrender, in the manner provided in Section 3.04 of the
certificate or certificates which immediately prior to the Effective
Time evidenced such Shares.
(b) Each Share that is held by the Company as treasury stock
or by any of its Subsidiaries and any Shares owned by Parent or
Purchaser immediately prior to the Effective Time shall be cancelled
and retired and shall cease to exist, and no Merger Consideration
shall be delivered in exchange therefor.
(c) Each share of common stock, par value $0.01 per share,
of Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $0.01
per share, of the Surviving Corporation.
SECTION 3.02 Employee Stock Options. The Company shall (i) use its
reasonable best efforts to, effective as of the Effective Time, terminate the
Company Stock Option Plans, as amended through the date of this Agreement, (ii)
use its reasonable best efforts to cause, effective at or prior to the Effective
Time, each outstanding option to purchase Shares (each, a "Stock Option")
granted under the 1987 Long-Term Incentive Plan that is outstanding and
unexercised prior to the Effective Time, to either (A) be exercised or
terminated prior to the Effective Time or (B) be cancelled as of the Effective
8
Time to the extent in effect immediately prior to the Effective Time (subject to
the obligations of the Surviving Corporation in the immediately following
sentence), (iii) cause each Stock Option that is outstanding and unexercised
prior to the Effective Time under the 1997 Long-Term Incentive Plan to become
fully vested and exercisable prior to the Effective Time and be cancelled as of
the Effective Time to the extent in effect immediately prior to the Effective
Time (subject to the obligations of the Surviving Corporation in the immediately
following sentence) and (iv) cause each Stock Option that is outstanding and
unexercised prior to the Effective Time under the 2001 Long-Term Incentive Plan
to become fully vested and exercisable prior to the Effective Time and either
(A) be exercised or terminated prior to the Effective Time or (B) be cancelled
as of the Effective Time to the extent in effect immediately prior to the
Effective Time (subject to the obligations of the Surviving Corporation in the
immediately following sentence). Each holder of a Stock Option that is
outstanding and unexercised immediately prior to the Effective Time and that has
an exercise price per share that is less than the per share Merger Consideration
applicable to the Shares issuable to the holder of such Stock Option upon
exercise shall be entitled (subject to the provisions of the last sentence of
this Section 3.02) to be paid by the Surviving Corporation immediately after the
Effective Time, in exchange for the cancellation of such Stock Option, an amount
in cash, with respect to each Share subject to the Stock Option, equal to the
excess of the applicable per share Merger Consideration payable with respect to
such Share over the applicable per share exercise price of such Stock Option.
Any payments made pursuant to this Section 3.02 shall be subject to all
applicable federal, state and local Tax withholding requirements.
SECTION 3.03 Dissent Rights. (a) Notwithstanding any provision of this
Agreement to the contrary, to the extent permitted by the MGBCL, Shares that are
outstanding immediately prior to the Effective Time and that are held by any
person who is entitled to demand and properly demands payment of the fair value
of such Shares pursuant to, and who complies in all respects with, Section
351.455 of the MGBCL (collectively, the "Dissent Shares") shall not be converted
into, or represent the right to receive, the Merger Consideration. Such
shareholders shall be entitled to payment of the fair value of such Dissent
Shares in accordance with and subject to Section 351.455 of the MGBCL; provided,
however, that if any holder of Dissent Shares shall have failed to perfect or
effectively shall have withdrawn or lost their right to be paid fair value under
Section 351.455 of the MGBCL, then the right of such holder to be paid fair
value for such Dissent Shares shall cease and such Dissent Shares shall
thereupon be deemed to have been converted into, and to have become exchangeable
for, as of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon, upon surrender of the certificate or certificates
that formerly evidenced such Shares, in the manner provided in Section 3.04.
(b) The Company shall give Parent (i) prompt notice of any demands for
payment of the fair value of any Shares received by the Company, withdrawals of
such demands, and any other related instruments served pursuant to the MGBCL and
received by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for payment of fair value under the MGBCL.
The Company shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for payment of fair value or offer to settle
or settle any such demands.
SECTION 3.04 Surrender of Shares; Stock Transfer Books. (a) Prior to
the Effective Time, Purchaser shall designate a bank or trust company reasonably
satisfactory to the Company to act as agent (the "Paying Agent") for the holders
of Shares to receive the funds to which holders of Shares shall become entitled
pursuant to Section 3.01(a). Immediately after the Effective Time, Parent shall,
or shall cause Purchaser to, transfer such funds to the Paying Agent by wire
transfer of immediately available funds. Such funds shall be invested by the
Paying Agent as directed by Parent; provided, however, that such investments
shall be in obligations of or guaranteed by the United States of America or any
agency or instrumentality thereof and backed by the full faith and credit of the
United States of America, in commercial paper obligations rated A-1 or P-1 or
better by Moody's Investors Service, Inc. or Standard & Poor's
9
Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding $1
billion. Any net profit resulting from, or interest income produced by, such
investments shall be payable to Parent.
(b) Promptly after the Effective Time, but in no event later than
three business days thereafter, the Surviving Corporation shall cause to be
mailed to each person who was, at the Effective Time, a holder of record of
Shares entitled to receive the Merger Consideration pursuant to Section 3.01(a)
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates evidencing such Shares
(the "Certificates") shall pass, only upon proper delivery of the Certificates,
to the Paying Agent and which shall be in such form and with such additional
provisions as the Surviving Corporation may reasonably specify) and instructions
for use in effecting the surrender of the Certificates pursuant to such letter
of transmittal. Upon surrender to the Paying Agent of a Certificate, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each Share
formerly evidenced by such Certificate, and such Certificate shall then be
canceled. No interest shall accrue or be paid on the Merger Consideration
payable upon the surrender of any Certificate for the benefit of the holder of
such Certificate. If the payment equal to the Merger Consideration is to be made
to a person other than the person in whose name the surrendered Certificate
formerly evidencing Shares is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer and that
the person requesting such payment shall have paid all transfer and other Taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered, or shall have
established to the satisfaction of Purchaser that such Taxes either have been
paid or are not applicable. If any holder of Shares is unable to surrender such
holder's Certificates because such Certificates have been lost, mutilated or
destroyed, such holder may deliver in lieu thereof an affidavit and, if required
by the Surviving Corporation, indemnity bond in form and substance and with
surety reasonably satisfactory to the Surviving Corporation.
(c) At any time following the nine-month anniversary of the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds that had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and
other income received by the Paying Agent in respect of all funds made available
to it), and, thereafter, such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar Laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar Law.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the
10
holders of Shares outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable Law.
SECTION 3.05 Withholding Rights. Each of Parent, Purchaser, the
Surviving Corporation and the Paying Agent shall be entitled to deduct and
withhold from any amounts otherwise payable pursuant to this Agreement such
amount as it is required to deduct and withhold with respect to the making of
such payment under the Code or any Law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for purposes of this Agreement
as having been paid to the holder of the Shares in respect of which such
deduction and withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Purchaser to enter into this
Agreement, except as set forth in the Disclosure Schedule or specifically
disclosed in the SEC Reports filed prior to the date of this Agreement, the
Company hereby represents and warrants to Parent and Purchaser as follows:
SECTION 4.01 Organization and Qualification; Subsidiaries. (a) The
Company is duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its organization and has the requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Each subsidiary of the Company (each a
"Subsidiary") is duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its organization and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority
would not have a Material Adverse Effect. The Company and each Subsidiary is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not have a Material Adverse Effect.
(b) A true and complete list of all the Subsidiaries, together with
the jurisdiction of organization of each Subsidiary, the percentage of the
outstanding capital stock of each Subsidiary owned by the Company and each other
Subsidiary, is set forth in Section 4.01(b) of the Disclosure Schedule. The
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 4.02 Articles of Incorporation and Bylaws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and the Bylaws or equivalent organizational documents, each as
amended to date, of the Company and each Subsidiary. Such Articles of
Incorporation, Bylaws or equivalent organizational documents, as amended to
date, are in full force and effect. Neither the Company nor any
11
Subsidiary is in violation of any of the provisions of its Articles of
Incorporation, Bylaws or equivalent organizational documents.
SECTION 4.03 Capitalization. (a) The authorized capital stock of the
Company consists of 40,000,000 Shares and 3,000,000 shares of preferred stock,
par value $0.01 per share ("Company Preferred Stock"). As of the date of this
Agreement, (i) 17,489,058 Shares are issued and outstanding (excluding Shares
held in the treasury of the Company), all of which are duly authorized, validly
issued, fully paid and nonassessable and were issued free of preemptive (or
similar) rights, (ii) 538,671 Shares are held in the treasury of the Company,
(iii) no Shares are held by the Subsidiaries and (iv) 1,621,920 Shares are
reserved for future issuance pursuant to outstanding Company Stock Options and
other purchase rights (the "Company Stock Awards") granted pursuant to the
Company Stock Option Plans. As of the date of this Agreement, no shares of
Company Preferred Stock are issued and outstanding. Section 4.03(a)(i) of the
Disclosure Schedule sets forth the following information with respect to each
Company Stock Award outstanding on the date of this Agreement: (i) the name of
the Company Stock Award recipient; (ii) the particular plan pursuant to which
such Company Stock Award was granted; (iii) the number of Shares subject to such
Company Stock Award; (iv) the exercise or purchase price of such Company Stock
Award; (v) the date on which such Company Stock Award was granted; (vi) the
applicable vesting schedule; and (vii) the date on which such Company Stock
Award expires. All Shares subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
(b) Except (i) as set forth in Section 4.03(a) of this Agreement, (ii)
for the rights (the "Rights") issued pursuant to the Rights Agreement, dated as
of February 11, 2000, as amended by Amendment No. 1 to Rights Agreement, dated
as of August 31, 2001, and Amendment No. 2 to Rights Agreement, dated as of
April 20, 2005 (as so amended, and as further amended from time to time, the
"Rights Agreement"), between the Company and American Stock Transfer & Trust
Company, as rights agent, in respect of which no Distribution Date (as defined
in the Rights Agreement) has occurred, (iii) for the 3.50% Convertible Senior
Debentures Due 2034 (the "Debentures") issued pursuant to the Indenture, dated
as of June 25, 2004, between the Company and Wells Fargo Bank, National
Association, as trustee and (iv) for the 1,398 shares of voting common stock,
par value $0.01, of LabOne of Ohio, Inc., a Delaware corporation, owned by the
Ohio Minority Holders, there are no (A) subscriptions, calls, contracts,
options, warrants or other rights, agreements, arrangements, understandings,
restrictions or commitments of any character to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound
relating to the issued or unissued capital stock of the Company or any
Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, other equity interests in or debt securities of, the
Company or any Subsidiary, (B) securities of the Company or securities
convertible, exchangeable or exercisable for shares of capital stock or voting
securities of the Company, or (C) equity equivalents, stock appreciation rights,
phantom stock, ownership interests in the Company or any Subsidiary or similar
rights. All Shares subject to issuance as set forth in Section 4.03(a) of this
Agreement, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive (or similar)
rights. Except for the Debentures, there are no outstanding contractual
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
12
acquire any outstanding securities of the Company or any Subsidiary, to vote or
to dispose of any Shares or any capital stock of any Subsidiary or to make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary or any other person. None of the Company or any Subsidiary is a party
to any shareholders' agreement, voting trust agreement or registration rights
agreement relating to any equity securities of the Company or any Subsidiary or
any other Contract relating to disposition, voting or dividends with respect to
any equity securities of the Company or of any Subsidiary, other than the
registration rights agreement entered into in connection with the Debentures. No
dividends on the Shares have been declared or have accrued since December 31,
2004. All of the Shares have been issued by the Company in compliance with
applicable federal securities Laws.
(c) Each outstanding share of capital stock (or other equity interest)
of each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and was issued free of preemptive (or similar) rights, and other
than the shares of LabOne of Ohio, Inc. owned by the Ohio Minority Holders, each
such share is owned by the Company or another Subsidiary free and clear of all
options, rights of first refusal, agreements, limitations on the Company's or
any Subsidiary's voting, dividend or transfer rights, charges and other
encumbrances or liens of any nature whatsoever.
(d) The only principal amount of outstanding indebtedness for borrowed
money of the Company and the Subsidiaries (not including intercompany amounts,
capital leases, purchase price obligations with respect to acquisitions or the
Debentures) is (i) $9,000,000 in aggregate principal amount of City of Lenexa,
Kansas Taxable Industrial Revenue Bonds due September 1, 2009, (ii) borrowings
that would be permitted under Section 6.01(e) of this Agreement if incurred
after the date hereof and (iii) CDN$1,000,000 (one-million Canadian dollars)
outstanding as of the date hereof under the Company's $175,000,000 Amended and
Restated Credit Agreement, dated as of August 11, 2004, among the Company, the
lenders named therein and JPMorgan Chase Bank, as Administrative Agent and
Collateral Agent (the "Credit Agreement").
SECTION 4.04 Authority Relative to this Agreement. (a) The Company has
all necessary corporate power and corporate authority to execute and deliver
this Agreement, to perform its obligations hereunder and, subject to obtaining
the Requisite Shareholder Approval, to consummate the Merger. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Merger have been duly and validly authorized by all necessary corporate
action on the part of the Company, and no other corporate proceedings on the
part of the Company or its holders of Shares are necessary to authorize this
Agreement or to consummate the Merger (other than, with respect to the Merger,
(i) obtaining the Requisite Shareholder Approval and (ii) filing and recording
appropriate merger documents as required by the MGBCL). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Purchaser, constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms subject to the effect of any applicable
bankruptcy, insolvency (including all Laws relating to fraudulent transfers),
reorganization, moratorium or similar Laws affecting creditors' rights generally
and subject to the effect of general principles of equity (collectively, the
"Enforceability Exceptions"). The Company Board has unanimously
13
approved this Agreement and no restrictions on business combinations set forth
in the MGBCL shall apply to the Merger.
(b) The Company Board, at a meeting duly called and held, duly and
unanimously adopted resolutions (i) approving this Agreement and the Merger
contemplated by this Agreement and directing the submission of this Agreement to
a vote at a meeting of shareholders of the Company, (ii) determining that the
terms of the Merger are fair to and in the best interests of the Company and its
shareholders and (iii) subject to the terms of this Agreement, recommending that
the Company's shareholders approve this Agreement. Such resolutions are the only
resolutions necessary in order for the Merger to comply with Article Ten and
Article Twelve of the Company's Articles of Incorporation. In addition, based
upon the representations made in Section 5.07 hereof, the Company Board has
taken all action necessary to render (A) Section 351.407 of the MGBCL and (B)
Section 351.459 of the MGBCL inapplicable to this Agreement, the Merger, and to
Parent and Purchaser to the extent of this Agreement, or the Merger. No other
state takeover statute or regulation is applicable to Company with respect to
this Agreement or the Merger.
(c) The only vote of holders of any class or series of capital stock
of the Company necessary to approve this Agreement and the Merger is the
approval of this Agreement by the holders of two-thirds or more of the
outstanding Shares (the "Requisite Shareholder Approval").
SECTION 4.05 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement and the consummation of the Merger by the Company
will not, (i) conflict with or violate the Articles or the Bylaws or the
articles of incorporation or bylaws (or any equivalent organizational documents)
of any Subsidiary, (ii) assuming that all consents, approvals and other
authorizations described in Section 4.05(b) of this Agreement have been obtained
and that all filings and other actions described in Section 4.05(b) of this
Agreement have been made or taken, conflict with or violate any Law applicable
to the Company or any Subsidiary or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) except with respect to
the Debentures, result in any breach of or constitute a default (or an event
which, with notice or lapse of time or both, would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of the Company or any Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Subsidiary is a party or by
which the Company or a Subsidiary or any property or asset of the Company or any
Subsidiary is bound or affected, except with respect to clause (ii) or (iii),
for any such conflicts, violations, breaches, defaults or other occurrences that
would not have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement and the consummation by the Company
of the Merger will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any United States or non-United States
supranational, national, federal, state, provincial, municipal or local
government, governmental, regulatory or administrative authority, agency,
instrumentality or commission or any court, tribunal, or judicial or arbitral
body (a
14
"Governmental Authority"), except for (i) applicable requirements, if any, of
the Exchange Act or state securities Laws, (ii) the pre-merger notification
requirements of the HSR Act, (iii) the filing with the SEC of a proxy statement
relating to the approval of this Agreement by the Company's shareholders (as
amended or supplemented from time to time, the "Proxy Statement"), (iv) any
required filing with, and any approvals required under, the rules and
regulations of the NASDAQ National Market, (v) the filing and recordation of
appropriate merger documents as required by the MGBCL, and (vi) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not have a Material Adverse Effect.
SECTION 4.06 Permits; Compliance. (a) The Company and each Subsidiary
is in compliance with all Laws applicable to the Company or any Subsidiary or by
which its or any of their respective properties or assets are bound, except for
any such failure to be in compliance which would not have a Material Adverse
Effect. The Company and the Subsidiaries have all permits, licenses,
authorizations, exemptions, orders, consents, approvals and franchises from any
Governmental Authority required to own, lease and operate their respective
properties or conduct their respective businesses as now being conducted, except
for any such permit, license, authorization, exemption, order, consent, approval
or franchise the absence of which would not have a Material Adverse Effect.
(b) None of the Company or any Subsidiary or any individual who is
currently an executive officer, director or, to the knowledge of the Company,
employee of the Company or any Subsidiary (i) has been convicted of, or to the
knowledge of the Company, charged with a Medicare, Medicaid or state health
program-related offense, (ii) since December 31, 2002, has been convicted of, or
to the knowledge of the Company, investigated for or charged with a violation of
Law related to fraud, theft, embezzlement, financial misconduct or obstruction
of an investigation, (iii) has been excluded or suspended from participation in
Medicare, Medicaid or any federal or state health program, or (iv) since
December 31, 2002, has been subject to any Order of, or any criminal or civil
fine or penalty imposed by, any Governmental Authority with respect to any such
Medicare, Medicaid or any other federal or state health care program.
(c) The Company has made available to Parent prior to the date of this
Agreement true and complete copies of (i) all material surveys, reports,
notices, inquiries, subpoenas and other correspondence related to any
certification, licensure or other inspections directly or indirectly impacting
the Healthcare Business Segment, and summaries of all proficiency test results
relating to the Healthcare Business Segment for the period from December 31,
2002 (or, if later than such date, in the case of a Subsidiary, from the date
such entity became a Subsidiary) through the date hereof, (ii) all material
written inquiries, notices, requests for records, subpoenas and correspondence
received by the Company or any Subsidiary related to utilization, reimbursement
or other material audits or investigations relating to the Healthcare Business
Segment for the period from December 31, 2002 (or, if later than such date, in
the case of a Subsidiary, from the date such entity became a Subsidiary) through
the date hereof, (iii) filings made by the Company or any Subsidiary pursuant to
Section 1887 of the Social Security Act (42 U.S.C. Section 1395nn), and (iv) all
current licenses or certifications of the Company or any Subsidiary under the
Clinical Laboratory Improvement Act of 1988 and the regulations promulgated
thereunder ("CLIA").
15
(d) Except as would not be material to the Company and the
Subsidiaries, taken as a whole, (i) none of the Company nor any Subsidiary has
engaged in any activities that are prohibited under or would violate Medicare
and Medicaid statutes, 42 U.S.C. Sections 1320a 7a and 7b, or the regulations
promulgated pursuant to such statutes, or comparable state or local Law or rules
of professional conduct, (ii) the Company and the Subsidiaries have timely and
accurately filed all requisite claims and other reports required to be filed in
connection with all applicable state and federal Medicare and Medicaid programs
due on or before the date of this Agreement, (iii) there is no arrangement
providing for any rebates, kickbacks or other forms of compensation that is
unlawful to be paid to any person or entity in return for the referral of
business or for the arrangement for recommendation of such referrals, and (iv)
none of the Company nor any Subsidiary has any financial arrangement which
renders any of its billings unlawful pursuant to any Law.
(e) To the knowledge of the Company, all agreements of the Company and
the Subsidiaries with third party healthcare payors were entered into by the
Company or a Subsidiary, as the case may be, in the ordinary course of business.
The Company and the Subsidiaries are in compliance with each of their respective
third party healthcare payor agreements, and the Company and the Subsidiaries
have properly charged and billed in accordance with the terms of their
respective third party healthcare payor agreements, including, where applicable,
billing and collection of all deductibles and co-payments, except for any such
failure to comply or to properly charge and bill that would not have a Material
Adverse Effect.
(f) Neither the Company nor any Subsidiary has since December 31, 2002
(or, if later than such date, in the case of a Subsidiary, from the date such
entity became a Subsidiary) received written notice from any Governmental
Authority that it has been the subject of any inspection, investigation, survey,
audit, monitoring or other form of review by any Governmental Authority,
professional review organization, accrediting organization or certifying agency
for the purpose of any alleged improper activity on the part of such entity,
other than routine audits or inquiries and other than those that would not have
a Material Adverse Effect.
SECTION 4.07 SEC Filings; Financial Statements. (a) The Company has
filed or otherwise transmitted all forms, reports, statements, schedules,
registration statements and other documents required to be filed by it with the
SEC since December 31, 2002 (such forms, reports, statements, schedules,
registration statements and other documents being collectively, the "SEC
Reports"). Each SEC Report (i) at the time it was filed or, if amended, as of
the date of such amendment, complied in all material respects and was prepared
in all material respects in accordance with the applicable requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder, each in effect on the date so filed, and
(ii) did not, at the time it was filed, or, if amended, as of the date of such
amendment, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No Subsidiary is required to file any form, report or
other document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the
16
periods indicated (except as may be indicated in such statements or the notes
thereto) and each fairly presents, in all material respects, the consolidated
financial position, results of operations and cash flows of the Company and its
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein except as otherwise noted therein
(including, in each case, in any notes thereto, and subject, in the case of
unaudited statements, to normal period-end adjustments).
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the consolidated Subsidiaries as of December 31, 2004,
including the notes thereto (the "Balance Sheet"), neither the Company nor any
Subsidiary has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), in each case that is required by GAAP to be
set forth in a consolidated balance sheet of the Company or disclosed in the
notes thereto, except for liabilities and obligations (including purchasing
obligations) (i) incurred in the ordinary course of business since December 31,
2004, or (ii) that would not be material to the Company and its Subsidiaries
taken as a whole.
(d) Section 4.07(d) of the Disclosure Schedule lists all "management
letters" and other similar letters relating to the Company's or any of its
Subsidiaries' internal controls and accounting practices that have been received
by the Company from its independent accountants since January 1, 2002 (the
"Management Letters"). True and complete copies of all Management Letters have
been made available to Parent.
(e) The Company conducted an assessment of its internal control over
financial reporting as of December 31, 2004 pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 and found it to be effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP and, since
such time, to the knowledge of the persons listed on Schedule 1.01(a) hereto,
the Company has obtained no knowledge of any material weaknesses or significant
deficiencies in internal control over financial reporting. The management of the
Company has (x) implemented disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) to ensure that material information relating
to the Company, including its consolidated Subsidiaries, is made known to the
management of the Company by others within those entities and such controls are
effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with GAAP, and (y) disclosed on a timely basis, based on its most
recent evaluation, to the Company's outside auditors and the audit committee of
the Company Board (A) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely
affect the Company's ability to record, process, summarize and report financial
data and (B) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal control
over financial reporting.
(f) Since December 31, 2002, neither the Company, any Subsidiary nor,
to the Company's knowledge, any director, officer, employee, auditor, accountant
or representative of the Company or any Subsidiary, has received or otherwise
had or obtained knowledge of any material complaint, allegation, assertion or
claim, whether written or oral, regarding the
17
accounting or auditing practices, procedures, methodologies or methods of the
Company or any Subsidiary or their respective internal accounting controls or
any complaint, allegation, assertion or claim that the Company or any Subsidiary
has engaged in questionable accounting or auditing practices. To the knowledge
of the Company, no attorney representing the Company or any Subsidiary, whether
or not employed by the Company or any Subsidiary, has reported evidence of a
material violation of securities Laws, breach of fiduciary duty or similar
violation by the Company or any of its officers, directors, employees or agents
to the Company Board or any committee thereof or to any director or officer of
the Company. Since December 31, 2002, there have been no internal investigations
regarding accounting or financial reporting discussed with, reviewed by or
initiated at the direction of the chief executive officer, chief financial
officer, general counsel, the Company Board or any committee thereof.
SECTION 4.08 Absence of Certain Changes or Events. Since March 31,
2005, except as expressly contemplated by this Agreement, (a) the Company and
the Subsidiaries have conducted their businesses in all material respects only
in the ordinary course of business and in a manner consistent with past
practice, and (b) there has not been any Material Adverse Effect, and none of
the Company or any Subsidiary has taken any action that, if taken after the date
of this Agreement, would constitute a breach of the covenants set forth in
Section 6.01(a), (c), (d), (e), (g), (h) or (j) hereto.
SECTION 4.09 Absence of Litigation. There is no material litigation,
suit, claim, action, proceeding or, to the knowledge of the Company,
investigation (an "Action") pending or, to the knowledge of the Company,
threatened in writing against the Company or any Subsidiary, by or before any
Governmental Authority. Neither the Company nor any Subsidiary is subject to any
continuing order of, consent decree, settlement agreement or similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Authority, or any continuing order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority that
would have a Material Adverse Effect.
SECTION 4.10 Employee Benefit Plans. (a) Section 4.10(a) of the
Disclosure Schedule lists (i) all employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements, to which the Company or any Subsidiary is a party, with respect to
which the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of, or any current or former
consultant to, the Company or any Subsidiary, (ii) each employee benefit plan
for which the Company or any Subsidiary could incur material liability under
Section 4069 of ERISA in the event such plan has been or were to be terminated,
(iii) any material plan in respect of which the Company or any Subsidiary could
incur liability under Section 4212(c) of ERISA, and (iv) any material contracts,
arrangements or understandings between the Company or any Subsidiary, on the one
hand, and any employee of the Company or any Subsidiary, on the other hand,
relating to employee benefits or to the sale of the Company or any Subsidiary
(collectively, the "Plans"). Each Plan is in writing and the Company has made
available to Parent a true and
18
complete copy of each Plan and has made available to Parent a true and complete
copy of each of the following, if any, prepared in connection with each such
Plan: (i) a copy of each trust or other funding arrangement, (ii) each summary
plan description and summary of material modifications, (iii) the most recently
filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently
received IRS determination letter for each such Plan, and (v) the most recently
prepared financial statement in connection with each such Plan. Neither the
Company nor any Subsidiary has any express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual, or (iii) to modify, change
or terminate any Plan, other than with respect to a modification, change or
termination required by applicable Law, including ERISA or the Code, or as
contemplated by this Agreement.
(b) None of the Plans is a multiemployer plan (within the meaning of
Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for
which the Company or any Subsidiary could incur liability under Section 4063 or
4064 of ERISA (a "Multiple Employer Plan"). None of the Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of the Company or any Subsidiary. Each
of the Plans is subject only to the Laws of the United States or a political
subdivision thereof.
(c) Each Plan is now and always has been operated in all material
respects in accordance with its terms and the requirements of all applicable
Laws including, without limitation, ERISA and the Code. The Company and the
Subsidiaries have performed in all material respects the obligations to be
performed by them under, and are not in any material respect in default under or
in violation of, any Plan.
(d) For each Plan that is intended to be qualified under Section
401(a) or Section 401(k) of the Code, the IRS has issued a favorable "GUST"
determination letter (taking into account the changes in the qualification
requirements made by the Uruguay Round Agreements Act, the Small Business Job
Protection Act of 1996, the Tax Reform Act of 1997, the IRS Restructuring and
Reform Act of 1998 and the Community Renewal Relief Act of 2000) that has not
been revoked, and no events have occurred that would have or that would
reasonably be expected to have a Material Adverse Effect on the qualified status
of such Plans or a loss of the tax-exempt status of the related trust. The
Company has timely adopted all amendments to the Company's 401(k) Plan required
by the Code (and the applicable rulings and final regulations thereunder), ERISA
or other applicable law, including, without limitation, amendments required by
the Economic Growth and Tax Relief Reconciliation Act of 2001 and Section
401(a)(9) of the Code and the applicable rulings and final regulations
thereunder. To the knowledge of the Company, no fact or event has occurred since
the date of such determination letter or letters from the IRS to adversely
affect the qualified status of any such Plan or the exempt status of any such
trust.
(e) There has not been any prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor any Subsidiary has incurred any material liability
under, arising out of or by operation of Title IV of ERISA, including any
liability in connection with (i) the termination or
19
reorganization of any employee benefit plan subject to Title IV of ERISA or (ii)
the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and to the
knowledge of the Company no fact or event exists that could give rise to any
such liability.
(f) All contributions, premiums or payments required to be made prior
to the date hereof with respect to any Plan have been made in all material
respects on or before their due dates. No deduction with respect to any Plan for
income Tax purposes has been challenged or disallowed by any Governmental
Authority and no fact or event exists which could reasonably give rise to any
such challenge or disallowance, except for any failure that would not have a
Material Adverse Effect.
(g) Except as provided in Section 3.02, (i) neither the execution of
this Agreement, shareholder approval of the principal terms of this Agreement
nor the consummation of the transactions contemplated hereby will (A) entitle
any employees of the Company or any Subsidiary to severance pay or any increase
in severance pay upon any termination of employment after the date hereof, or
(B) accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under, or
increase the amount payable or trigger any other material obligation pursuant
to, any of the Plans and (ii) none of the Plans in effect on the date of this
Agreement would result separately or in the aggregate (including as a result of
this Agreement or the transactions contemplated hereby) in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code.
(h) The Company and each Subsidiary has timely given any and all
notices and taken any other actions required with respect to the Worker
Adjustment and Retraining Notification Act of 1988, as amended, or other similar
Laws of any state or other jurisdiction.
SECTION 4.11 Labor and Employment Matters. There are no controversies
pending or, to the knowledge of the Company, threatened between the Company or
any Subsidiary, on the one hand, and any of their respective employees, on the
other hand, which controversies would have a Material Adverse Effect. Neither
the Company nor any Subsidiary is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company or
any Subsidiary, nor, to the knowledge of the Company, are there any activities
or proceedings of any labor union to organize any such employees. There are no
unfair labor practice complaints pending against the Company or any Subsidiary
before the National Labor Relations Board or any current union representation
questions involving employees of the Company or any Subsidiary. There is no
strike, slowdown, work stoppage or lockout, or, to the knowledge of the Company,
threat thereof, by or with respect to any employees of the Company or any
Subsidiary. All individuals classified by the Company or any Subsidiary as
independent contractors have been properly classified as non-employees for
purposes of applicable Laws, except as would not be material to the Company and
its Subsidiaries taken as a whole.
SECTION 4.12 Information Supplied. The Proxy Statement that will be
mailed to shareholders of the Company in connection with the Company
Shareholders Meeting (as defined in Section 7.01) shall not, on the date the
Proxy Statement (or any amendment or supplement thereto) is first mailed or
otherwise disseminated to shareholders of the Company and at the time of the
Company Shareholders Meeting, contain any untrue statement of a material
20
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, at the time and in light of
the circumstances under which they were made, not false or misleading, or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Shareholders Meeting which shall
have become false or misleading. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
Parent, Purchaser or any of Parent's or Purchaser's representatives for
inclusion in the foregoing documents. The Proxy Statement shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.13 Real Property; Title to Assets. (a) Section 4.13(a) of
the Disclosure Schedule lists each parcel of real property owned by the Company
or any Subsidiary and the location of such real property. Each parcel of real
property owned by the Company or any Subsidiary (i) is owned free and clear of
all mortgages, pledges, liens, security interests, conditional and installment
sale agreements, encumbrances, charges or other claims of third parties of any
kind, including, without limitation, any lease, license, occupancy agreement,
easement, right of way or other encumbrance to title, or any option, right of
first refusal, or right of first offer (collectively, "Liens"), other than (A)
Liens for current Taxes and assessments not yet due for which adequate reserves
have been established in accordance with GAAP, (B) inchoate Liens imposed for
construction work in progress, including mechanics' liens, workers' or
repairmen's liens, (C) Liens securing obligations under the Credit Agreement, or
(D) Liens that do not adversely affect in any material respect the use or
operation of the applicable property owned by the Company or such Subsidiary,
and (ii) is neither subject to any Order to be sold nor is being condemned,
expropriated or otherwise taken by any Governmental Authority with or without
payment of compensation therefor, nor, to the knowledge of the Company, has any
such condemnation, expropriation or taking been proposed, except as would not
have materially adversely affected the value or use of the applicable property
owned by the Company or such Subsidiary.
(b) Section 4.13(b) of the Disclosure Schedule lists each parcel of
real property currently leased or subleased by the Company or any Subsidiary
that involves consideration in excess of $100,000 per calendar year or $500,000
in the aggregate for the remaining term of such lease or sublease (without
renewal of such lease or sublease), and the location of such real property, with
the name of the lessor and the date of the lease, sublease, assignment of the
lease, any guaranty given or leasing commissions payable by the Company or any
Subsidiary in connection therewith and each amendment to any of the foregoing
(collectively, the "Lease Documents"). True, correct and complete copies of all
Lease Documents have been made available to Parent. All such current leases and
subleases are in full force and effect, are valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or event of default (or event which, with notice or
lapse of time, or both, would constitute a default or event of default) by the
Company or any Subsidiary or, to the Company's knowledge, by the other party to
such lease or sublease, or person in the chain of title to such leased premises,
and, to the knowledge of the Company, neither tenant nor landlord has exercised
any right to terminate such leases and subleases as a result of a default under
such leases and subleases by either tenant or landlord.
21
(c) Except as would not materially adversely affect the value or use
of the applicable property owned by the Company or such Subsidiary, (i) there
are no contractual or legal restrictions that preclude or restrict the ability
to use any real property owned by the Company or any Subsidiary or leased by the
Company or any Subsidiary pursuant to a sale-leaseback transaction for the
purposes for which it is currently being used, and (ii) there are no latent
defects or adverse physical conditions affecting the real property owned by the
Company or any Subsidiary, and improvements thereon, owned by the Company or any
Subsidiary or leased by the Company or any Subsidiary pursuant to a
sale-leaseback transaction.
SECTION 4.14 Intellectual Property. (a) Section 4.14(a) of the
Disclosure Schedule sets forth a true and complete list of all patents, patent
application, copyright registrations and applications, trademark registrations
and applications and domain name registrations that are owned by the Company
and/or the Subsidiaries as of the date of this Agreement. The Company and/or the
Subsidiaries exclusively own each such item free and clear of encumbrances, and,
to the knowledge of the Company, each is subsisting, valid and enforceable, and
is not subject to any outstanding judgment, order or license adversely affecting
in any material respect the Company's and/or the Subsidiaries' use thereof in
the ordinary course of the Company's and/or the Subsidiaries' respective
businesses or its/their rights thereto.
(b) The Company and the Subsidiaries own or have the rights to use all
patents, inventions, copyrights, software, trademarks, service marks, domain
names, trade dress, trade secrets and all other intellectual property rights of
any kind or nature ("Intellectual Property") used in their business as currently
conducted, which rights shall survive the execution of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby,
except as would not have a Material Adverse Effect. To the knowledge of the
Company, such Intellectual Property is not being infringed by any third party.
To the knowledge of the Company, neither the conduct of the Company nor any of
the Subsidiaries infringes Intellectual Property of any third party.
(c) The Company and the Subsidiaries have taken reasonable steps in
accordance with normal industry practice to maintain the confidentiality of
their trade secrets and other confidential Intellectual Property. To the
Company's knowledge, there has been no misappropriation of any trade secret or
other confidential information of the Company or the Subsidiaries.
SECTION 4.15 Taxes. Except as would not have a Material Adverse
Effect, (i) the Company and each of its Subsidiaries have timely filed (or have
had filed on their behalf) all Tax Returns they were required to file, and have
paid all Taxes that have become due and payable, except such Taxes that are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been provided in the relevant financial statements in accordance
with GAAP; (ii) all such Tax Returns are true, accurate and complete; (iii)
adequate reserves have been provided in the relevant financial statements as
required by GAAP for all Taxes not yet due and payable; (iv) neither the IRS nor
any other United States or non-United States taxing authority or agency has
asserted in writing or, to the knowledge of the Company, has threatened to
assert against the Company or any Subsidiary any deficiency or claim for any
Taxes; (v) there are no pending or, to the knowledge of the Company, threatened
actions, investigations, suits, Governmental Authority proceedings or audits for
the assessment or
22
collection of Taxes against the Company or any Subsidiary; (vi) neither the
Company nor any Subsidiary has granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any Tax;
(vii) neither the Company nor any Subsidiary has made an election under Section
341(f) of the Code; (viii) there are no Tax Liens upon any property or assets of
the Company or any of the Subsidiaries except Liens for current Taxes not yet
due; (ix) neither the Company nor any of the Subsidiaries is a party to any
agreement, understanding, or arrangement (with any person other than the Company
and/or any of the Subsidiaries) relating to allocating or sharing of any amount
of Taxes; (x) neither the Company nor any of the Subsidiaries has any liability
for any amount of Taxes of any person other than the Company or any of its
Subsidiaries under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law), as a transferee or successor, or by
contract; (xi) neither the Company nor any Subsidiary has been a "distributing
corporation" or a "controlled corporation" in a distribution intended to qualify
under Section 355 of the Code within the past five years; (xii) neither the
Company nor any Subsidiary will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Effective Time as a result of any transaction
occurring in, or a change in accounting method made for, a taxable period ending
on or before the Effective Time; (xiii) there is no material intercompany income
or gain which may in the future become taxable to the Company or any Subsidiary,
whether on disposition of particular Subsidiaries or otherwise; and (xiv)
neither the Company nor any Subsidiary has participated in "listed transactions"
or "reportable transactions" or "tax shelters" within the meaning of the Code
requiring it to file, register, prepare, produce or maintain any disclosure,
report, list or any other statement or document under Section 6111 or 6112 of
the Code, except as set forth on Section 4.15 of the Disclosure Schedule, in
which case the Company or the relevant Subsidiary has filed all disclosures and
properly registered or maintained all lists, reports and other similar documents
in compliance and as required by Section 6011, 6111, or 6112 of the Code and the
Treasury regulations issued thereunder.
SECTION 4.16 Environmental Matters. Except as would not have a
Material Adverse Effect, (a) neither the Company nor any of the Subsidiaries has
violated or is in violation of any Environmental Law; (b) neither the Company
nor any of the Subsidiaries has received written notice of liability or is aware
of facts or circumstances reasonably likely to result in written notice of
liability, for any off-site contamination by Hazardous Substances; except, with
respect to any such notification, to the extent that such matter has been
resolved with the appropriate foreign, federal, state or local regulatory
authority or otherwise; (c) neither the Company nor any of the Subsidiaries has
received written notice of liability or is aware of facts or circumstances
reasonably likely to result in written notice of liability, under any
Environmental Law (including, without limitation, pending or threatened liens)
except, with respect to any such notification, to the extent that such matter
has been resolved with the appropriate foreign, federal, state or local
regulatory authority or otherwise; (d) each of the Company and each Subsidiary
has all permits, licenses and other authorizations required under any
Environmental Law ("Environmental Permits"); (e) each of the Company and each
Subsidiary is in compliance with its Environmental Permits; and (f) neither the
execution of this Agreement nor the consummation of the Merger will require any
investigation, remediation or other action pursuant to any applicable
Environmental Law or Environmental Permit with respect to any real property
owned or leased by the Company or any of the Subsidiaries.
23
SECTION 4.17 Rights Agreement. The Company Board has taken all action
necessary so that none of the execution or delivery of this Agreement and the
consummation of the Merger will result in (i) the occurrence of the "flip-in
event" described under Section 11(a)(ii) of the Rights Agreement, (ii) the
occurrence of the "flip-over event" described in Section 13 of the Rights
Agreement, or (iii) the rights becoming evidenced by, and transferable pursuant
to, certificates separate from the certificates representing Shares.
SECTION 4.18 Listed Contracts. (a) Except for any default that would
not, individually or in the aggregate with any other defaults, have a Material
Adverse Effect (i) neither the Company nor any of the Subsidiaries is in default
under any Listed Contract to which the Company or any of the Subsidiaries is a
party or by which it or any of its respective properties or assets are bound
nor, to the knowledge of the Company, is any other party thereto in default
thereunder, and (ii) no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default under any such Listed
Contract by the Company or any of the Subsidiaries or, to the knowledge of the
Company, any other party. No party to any such Listed Contract has given written
notice to the Company or any of the Subsidiaries of, or made a claim against the
Company or any of the Subsidiaries with respect to, any breach or default under
any such Listed Contract, in any such case, where such breach or default would
have a Material Adverse Effect. Assuming the Listed Contracts have been duly
authorized, executed and delivered by the respective other parties thereto,
except as would not have a Material Adverse Effect, the Listed Contracts are
valid, binding and enforceable obligations of the Company, the Subsidiaries and
the other parties thereto, subject to the Enforceability Exceptions. Schedule
4.18 of the Disclosure Schedule sets forth the following contracts and
agreements (the "Listed Contracts"):
(i) each contract and agreement (other than (A) contracts and
agreements otherwise made available or otherwise disclosed to Parent
pursuant to the terms of this Agreement and (B) supplier and vendor
contracts), whether or not made in the ordinary course of business, that
contemplates an exchange of consideration with a value of more than
$1,000,000 in the aggregate, on an annual basis, in each case determined by
the revenue received under each such contract during the 12-month period
ended June 30, 2005 (except for insurance services group customer
contracts, which are based upon revenue received under each contract during
the fiscal year ended December 31, 2004);
(ii) all contracts and agreements under which the Company or any
Subsidiary provides or receives laboratory management services or specimen
collection services;
(iii) all contracts and agreements with group purchasing
organizations, managed care companies, and third party payors (except for
contracts with LabCard(R) customers which shall be set forth in Section
4.18(a) of the Disclosure Schedule pursuant to clause (i) of this Section
4.18(a) to the extent required to be listed pursuant to such clause);
(iv) contracts and agreements with each of the Company's top 10
substance abuse testing customers determined by the revenue received from
such customers during the 12-month period ended June 30, 2005;
24
(v) each of the top ten supply agreements determined by the amounts
paid by the Company during the 12-month period ended June 30, 2005;
(vi) all contracts and agreements under which the Company or any
Subsidiary referred specimens to a third party for testing that involved
payments made in excess of $1,000,000 during the fiscal year ending
December 31, 2004;
(vii) all contracts and agreements evidencing Indebtedness;
(viii) any contract that would be required to be filed by the Company
as a material contract pursuant to Item 601(b)(10) of Regulation S-K under
the Securities Act;
(ix) all partnership and joint venture agreements;
(x) all contracts and agreements that (A) limit or purport to limit
the ability of the Company or any Subsidiary or, to the Company's
knowledge, any key executives of the Company or any Subsidiary, to compete
in any line of business or with any person or in any geographic area or
during any period of time (except with respect to the use of information
pursuant to any confidentiality or non-disclosure agreement), (B) require
the Company or any Subsidiary to use any supplier or third party for all or
substantially all of the Company's or the Subsidiaries' requirements or
needs, (C) limit or purport to limit the ability of the Company or any
Subsidiary to solicit any customers or clients of the other parties
thereto, (D) require the Company or any Subsidiary to provide to the other
parties thereto "most favored nations" pricing, (E) require the Company or
any Subsidiary to market or co-market any clinical laboratory services or
other products or services of a third party, or (F) any "take-or-pay"
contract or other similar agreement or arrangement requiring the Company or
any Subsidiary to make a minimum payment for goods or services from third
party suppliers irrespective of usage;
(xi) all executory contracts, agreements and arrangements between the
Company or any of its Subsidiaries and any other party relating to the
acquisition or disposition by the Company or such Subsidiary (including,
without limitation, by merger, consolidation, acquisition of stock or
assets or any other business combination) of any corporation, partnership,
other business organization or division thereof, in each case since
December 31, 2002 and for an aggregate purchase price in excess of
$5,000,000; and
(xii) each of the top ten contracts or arrangements between the
Company or any Subsidiary and any paramedical examination company
determined by the revenue received under such contracts during the 12-month
period ended June 30, 2005.
(b) The Company has furnished or made available to Parent a true,
complete and correct copy of all written Listed Contracts, together with
all amendments, waivers or other changes thereto, and has given a written
description of all oral contracts included in the Listed Contracts.
SECTION 4.19 Insurance. The Company maintains insurance coverage with
reputable insurers, or maintains self-insurance practices, in such amounts and
covering such risks
25
as are in accordance with normal industry practice for companies engaged in
businesses similar to that of the Company and its Subsidiaries taken as a whole.
The Company has not received any notice of cancellation or termination with
respect to any such insurance policy. Each such insurance policy is in full
force and effect and the premiums due thereunder have been paid as they became
due and payable. Section 4.19 of the Disclosure Schedule sets forth the premiums
paid by the Company with respect to directors' and officers' liability insurance
policies as of the date of this Agreement.
SECTION 4.20 Interested Party Transactions. To the knowledge of the
Company, no director, officer or other affiliate of the Company or any
Subsidiary has (i) an economic interest in any person that furnishes or sells
services or products that the Company or any Subsidiary furnishes or sells; (ii)
an economic interest in any person that purchases from or sells or furnishes to
the Company, or any Subsidiary, any goods or services; (iii) a beneficial
interest in any party (other than the Company or any Subsidiary) to any Listed
Contract; or (iv) any contractual or other arrangement with the Company or any
Subsidiary (excluding employment, director, management or consulting
arrangements and benefit programs); provided, however, that ownership of no more
than two percent (2%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any person" for
purposes of this Section 4.20.
SECTION 4.21 Customers and Suppliers. Section 4.21 of the Disclosure
Schedule sets forth a true and complete list of the Company's top ten customers
of each of the risk assessment, healthcare and substance abuse testing business
segments (based on the revenue from such customers during the 12-month period
ended June 30, 2005). As of the date of this Agreement, none of the Company's
customers listed in Section 4.21 of the Disclosure Schedule accounted for more
than three percent (3%) of the Company's consolidated revenues during the
12-month period ended June 30, 2005, other than pursuant to the State Farm
Master Agreement, and since June 30, 2004, none of such customers and no
material supplier of the Company and its Subsidiaries (i) has cancelled or
otherwise terminated any contract with the Company or any Subsidiary prior to
the expiration of the contract term or (ii) to the Company's knowledge, as of
the date of this Agreement, has threatened, or indicated its intention in
writing, to cancel or otherwise terminate its relationship with the Company or
its Subsidiaries or to reduce substantially its purchase from or sale to the
Company or any Subsidiary of any products, goods or services.
SECTION 4.22 Brokers. No broker, finder or investment banker (other
than J.P. Morgan Securities Inc.) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of the Company. The Company has heretofore furnished to
Parent a complete and correct copy of all agreements between the Company and
J.P. Morgan Securities Inc. pursuant to which such firm would be entitled to any
payment relating to the Merger.
SECTION 4.23 Opinion of Financial Advisor. The Company has received
the written opinion of J.P. Morgan Securities Inc., dated as of the date of this
Agreement, to the effect that, as of such date, the consideration to be received
by the shareholders of the Company in the Merger is fair from a financial point
of view to such shareholders.
26
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
As an inducement to the Company to enter into this Agreement, Parent
and Purchaser hereby, jointly and severally, represent and warrant to the
Company as follows:
SECTION 5.01 Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its incorporation and has the requisite corporate power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, prohibit or materially delay consummation of the Merger or
otherwise prevent Parent or Purchaser from performing its obligations under this
Agreement.
SECTION 5.02 Authority Relative to This Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Merger. The execution and delivery of this Agreement by Parent and Purchaser and
the consummation by Parent and Purchaser of the Merger have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Purchaser, and no other corporate proceedings on the part of Parent or Purchaser
are necessary to authorize this Agreement or to consummate the Merger (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by the MGBCL). This Agreement has been duly and
validly executed and delivered by Parent and Purchaser and, assuming due
authorization, execution and delivery by the Company constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 5.03 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, and the
consummation of the Merger by Parent and Purchaser will not (i) conflict with or
violate the Certificate of Incorporation or By-laws of Parent or the Articles of
Incorporation or Bylaws of Purchaser, (ii) assuming that all consents, approvals
and other authorizations described in Section 5.03(b) have been obtained and
that all filings and other actions described in Section 5.03(b) have been made
or taken, conflict with or violate any Law applicable to Parent or Purchaser or
by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of, or constitute a default (or an event which, with notice
or lapse of time or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any property or asset of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any property or asset of either of
them is bound or affected, except, with respect to clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other occurrences that
would not, individually or in the aggregate, prohibit or materially delay
consummation of the Merger or otherwise prevent Parent or Purchaser from
performing its obligations under this Agreement.
27
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority, except for (i) applicable
requirements, if any, of the Exchange Act or state securities Laws, (ii) the
pre-merger notification requirements of the HSR Act, (iii) the filing and
recordation of appropriate merger documents as required by the MGBCL, and (iv)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not, individually or in the
aggregate, prohibit or materially delay consummation of the Merger, or otherwise
prevent Parent or Purchaser from performing its obligations under this
Agreement.
SECTION 5.04 Information Supplied. The information supplied by Parent
for inclusion in the Proxy Statement shall not, at the date the Proxy Statement
(or any amendment or supplement thereto) is first mailed or otherwise
disseminated to shareholders of the Company, at the time of the Company
Shareholders Meeting or at the Effective Time, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not false or misleading, or necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholders Meeting which shall have
become false or misleading. Notwithstanding the foregoing, Parent and Purchaser
make no representation or warranty with respect to any information supplied by
the Company or any of its representatives for inclusion in any of the foregoing
documents. The information supplied by Parent for inclusion in the Proxy
Statement shall comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder.
SECTION 5.05 Financing. At the Effective Time, Parent will have
sufficient funds to permit Purchaser to consummate the Merger and pay the Merger
Consideration and the amounts payable to the holders of Stock Options pursuant
to Section 3.02.
SECTION 5.06 Brokers. No broker, finder or investment banker (other
than Merrill Lynch & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of Parent or Purchaser.
SECTION 5.07 Ownership of Shares. None of Parent, any of its
subsidiaries or any of their respective controlled affiliates beneficially owns
any Shares.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01 Conduct of Business by the Company Pending the Merger.
The Company agrees that, between the date of this Agreement and the Effective
Time, except as required by Law, as otherwise specifically contemplated by this
Agreement or as set forth in the Disclosure Schedule, unless Parent shall
otherwise agree in writing (which agreement shall not be unreasonably withheld
or delayed), the businesses of the Company and the Subsidiaries shall be
conducted in all material respects only in the ordinary course of business and
in a manner
28
consistent with past practice; and the Company shall use its reasonable best
efforts to preserve substantially intact the business organization of the
Company and the Subsidiaries, to keep available the services of the current
officers, employees and consultants of the Company and the Subsidiaries and to
preserve the current relationships of the Company and the Subsidiaries with
customers, suppliers and other persons with which the Company or any Subsidiary
has significant business relations. By way of amplification and not limitation,
except as expressly contemplated by this Agreement and Section 6.01 of the
Disclosure Schedule, neither the Company nor any Subsidiary shall, between the
date of this Agreement and the Effective Time, directly or indirectly, do, or
propose to do, any of the following without the prior written consent of Parent
(which consent shall not be unreasonably withheld or delayed):
(a) amend or otherwise change its Articles of Incorporation or Bylaws;
(b) (i) issue, sell, pledge, dispose of, grant or encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of,
any shares of capital stock of the Company or any Subsidiary, or any
Company Stock Options or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock, or
any other ownership interest (including, without limitation, any phantom
interest) of the Company or any Subsidiary (except for the issuance of
shares of Common Stock upon exercise of outstanding Company Stock Options
or upon conversion of the Debentures) or (ii) sell, pledge, dispose of,
encumber, or authorize the sale, pledge, disposition or encumbrance of, any
assets of the Company or any Subsidiary, except (x) immaterial assets in
the ordinary course of business and in a manner consistent with past
practice or (y) assets held for resale;
(c) authorize, declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except for dividends by any direct or wholly
owned Subsidiary to the Company or any other Subsidiary;
(d) reclassify, combine, split, subdivide or redeem, or purchase or
otherwise acquire, directly or indirectly, any of its capital stock or that
of any Subsidiary, other than in connection with the exercise of employee
stock options or the purchase of stock of LabOne of Ohio, Inc. from the
Ohio Minority Holders pursuant to the terms of existing agreements with the
Ohio Minority Holders;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any business, corporation, partnership, other business
organization or any division thereof ; (ii) repurchase, repay, cancel or
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any person, or make any loans or advances or grant any
security interest in any of its assets, except for the incurrence of any
indebtedness that does not exceed $1,000,000 individually or $1,500,000 in
the aggregate and that arises in the ordinary course of business and is
consistent with past practice (which shall be deemed to include the renewal
of and borrowings and repayments under the Credit Agreement); (iii) enter
into any contract or agreement that requires the payment of more than
$1,500,000 during
29
the term of such contract or agreement other than contracts or agreements
that are terminable pursuant to the terms of such contract upon not more
than 90 days' notice without penalty (it being agreed and understood that
retroactive price increases permitted under the terms of such agreement
shall not be considered for purposes of determining the aggregate payments
required under any such contract or agreement or constitute a penalty under
any such contract or agreement); (iv) (x) with respect to fiscal year 2005,
authorize, or make any commitment with respect to, capital expenditures
outside of the Company's fiscal year 2005 capital expenditure budget,
attached hereto as Schedule 6.01(e), other than any individual capital
expenditure in excess of $500,000 or aggregate capital expenditures in
excess of $1,500,000 for the Company and its Subsidiaries, taken as a
whole, and (y) with respect to fiscal year 2006, authorize, or make any
commitment with respect to, capital expenditures, which in the case of any
individual capital expenditure is in excess of $1,500,000 or which in the
case of aggregate capital expenditures is in excess of $5,000,000 for the
Company and the Subsidiaries, taken as a whole, in any fiscal quarter; or
(v) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this Section 6.01(e); except in
each case as may reasonably be required in connection with the construction
of the Cincinnati Facility as disclosed in Section 6.01(e) of the
Disclosure Schedule;
(f) except in each case as required to comply with any Plan, written
policy or agreement in effect on the date of this Agreement that has been
previously disclosed in writing to Parent, increase the compensation
payable or to become payable or the benefits provided to its directors,
officers or employees, except for increases in the ordinary course of
business and consistent with past practice in salaries or wages of
employees of the Company or any Subsidiary who are not directors or
officers of the Company or any Subsidiary, or grant any severance or
termination pay to, or enter into any employment or severance agreement
with (other than employment offer letters which do not provide for
severance on termination provisions), any director, officer or other
employee of the Company or of any Subsidiary, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit-sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee;
(g) change any of the accounting principles, policies or procedures
used by it other than as required by GAAP or applicable Law, which Law
shall have been enacted or effective after the date hereof;
(h) make, revoke or change any express or deemed Tax election or
method of Tax accounting, settle or compromise any material liability with
respect to Taxes, consent to any material claim or material assessment
relating to Taxes or waive the statute of limitations for any such claim or
assessment;
(i) subject to Section 6.01(e)(ii), pay, discharge or satisfy any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of business and
consistent with past practice;
30
(j) amend or modify in any material respect or consent to the
termination of any Listed Contract, or waive in any material respect any
rights of the Company or any Subsidiary thereunder, other than in the
ordinary course of business and consistent with past practice;
(k) settle any material Action;
(l) sell, transfer, or grant any license or sublicense of, or execute
any agreement with respect to, any right under or with respect to any
material Intellectual Property held by the Company or any of its
Subsidiaries or disclose any Intellectual Property held by the Company or
any of its Subsidiaries in the form of confidential information to any
third party, except in the ordinary course of business and consistent with
past practice; or
(m) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Company Shareholders Meeting. The Company shall duly
call, give notice of, convene and hold a meeting of its shareholders, as
promptly as reasonably practicable following the execution of this Agreement for
the purpose of approving this Agreement (the "Company Shareholders Meeting").
Subject to Section 7.04(c), the Company shall (i) include in the Proxy
Statement, and not subsequently withdraw or modify in any manner adverse to
Purchaser or Parent, the recommendation of the Company Board that the
shareholders of the Company approve this Agreement, and (ii) use its reasonable
best efforts to obtain the Requisite Shareholder Approval, including, without
limitation, to the extent permitted under applicable Law, postponing or
adjourning the Company Shareholders Meeting to obtain a quorum or to solicit
additional proxies.
SECTION 7.02 Proxy Statement. The Company shall, as promptly as
reasonably practicable following the execution of this Agreement (but in any
event within 30 days thereafter unless the parties shall otherwise agree), file
the Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC as
promptly as practicable. Parent, Purchaser and the Company shall cooperate with
each other in the preparation of the Proxy Statement, and the Company shall
notify Parent of the receipt of any comments of the SEC with respect to the
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of the
Company and the SEC with respect thereto. The Company shall give Parent and its
counsel a reasonable opportunity to review and comment on the Proxy Statement,
including all amendments and supplements thereto, prior to such documents being
filed with the SEC or disseminated to holders of Shares and shall give Parent
and its counsel a reasonable opportunity to review and comment on all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. If at any time prior to the Company
Shareholders Meeting, there shall occur any event with respect to the Company,
Parent
31
or any of their Subsidiaries, or with respect to any information provided
by the Company or Parent for inclusion in the Proxy Statement, which event is
required by applicable Law to be described in an amendment or supplement to the
Proxy Statement, such amendment or supplement shall be promptly filed with the
SEC, as required by applicable Law, and disseminated to holders of Shares, as
applicable. Each of the Company, Parent and Purchaser agrees to use its
reasonable best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC and to cause
the Proxy Statement and all required amendments and supplements thereto to be
mailed, as may be required, to the holders of Shares entitled to vote at the
Company Shareholders Meeting at the earliest practicable time.
SECTION 7.03 Access to Information; Confidentiality. (a) Except as
prohibited by applicable Law and subject to any applicable privileges (including
the attorney-client privilege), from the date hereof until the Effective Time,
upon reasonable prior notice, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser reasonable access during normal business hours to the
officers, employees, agents, properties, offices, plants and other facilities,
books and records of the Company and each Subsidiary, and the Company shall
furnish Parent and Purchaser with such financial, operating and other data and
information as Parent or Purchaser, through its officers, employees or agents,
may reasonably request; provided that such investigation shall not unreasonably
interfere with the business or operations of the Company or any Subsidiary.
(b) All information obtained by Parent or Purchaser pursuant to this
Section 7.03 shall be kept confidential in accordance with the confidentiality
agreement, dated April 13, 2005, and Supplement to Confidentiality Agreement,
dated July 14, 2005 (the "Confidentiality Agreement"), between Parent and the
Company.
(c) No investigation pursuant to this Section 7.03 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 7.04 No Solicitation of Transactions. (a) The Company agrees
that neither it nor any Subsidiary nor any of the directors, officers or
employees of it or any Subsidiary will, and that it will instruct and use its
reasonable best efforts to cause its and its Subsidiaries' directors, officers,
employees, agents, advisors and other representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
Subsidiary) not to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing nonpublic information), or take any
other action to knowingly facilitate, any inquiries or the making of any
proposal or offer (including any proposal or offer to its shareholders) that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or (ii) enter into or maintain or continue discussions or
negotiations with any person or entity in furtherance of such inquiries or to
obtain a proposal or offer for a Competing Transaction, or (iii) agree to,
approve, endorse or recommend any Competing Transaction or enter into any letter
of intent or other contract, agreement or commitment contemplating or otherwise
relating to any Competing Transaction, or (iv) authorize or permit any of the
officers, directors or employees of the Company or any of its Subsidiaries, or
any investment banker,
32
financial advisor, attorney, accountant or other representative retained by the
Company or any of its Subsidiaries, to take any such action. The Company shall
notify Parent as promptly as practicable (and in any event within one business
day after the Company attains knowledge thereof), orally and in writing, if any
proposal or offer, or any inquiry or contact with any person with respect
thereto, regarding a Competing Transaction is made, specifying the material
terms and conditions thereof and the identity of the party making such proposal
or offer or inquiry or contact (including material amendments or proposed
material amendments). The Company shall, and shall direct or cause its and its
Subsidiaries' directors, officers, employees, representatives and agents to,
immediately cease and terminate any discussions or negotiations with any parties
that may have been conducted heretofore with respect to a Competing Transaction.
The Company shall not release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which it is a party and the
Company also agrees to promptly request each person that has heretofore executed
a confidentiality agreement in connection with its consideration of acquiring
(whether by merger, acquisition of stock or assets or otherwise) the Company or
any Subsidiary, if any, to return (or if permitted by the applicable
confidentiality agreement, destroy) all confidential information heretofore
furnished to such person by or on behalf of the Company or any Subsidiary and,
if requested by Parent, to use its reasonable best efforts to enforce such
person's obligation to do so. The Company shall not take any action to make the
provisions of Section 351.407, Section 351.015 or Section 351.459 of the MGBCL
and Article X of the Company's Articles of Incorporation inapplicable to any
transaction other the transactions contemplated by this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, (x)
neither the Company nor the Company Board shall be prohibited from taking and
disclosing to its shareholders a position contemplated by Rule 14d-9 and Rule
14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act
(or any similar communication to shareholders in connection with the making or
amendment of a tender offer or exchange offer) or from making any disclosure
required under applicable Law or the rules of the Nasdaq National Market, and
(y) any "stop-look-and-listen" communication by the Company or the Company Board
to the shareholders of the Company pursuant to Rule 14d-9(f) promulgated under
the Exchange Act (or similar communication to the shareholders of the Company in
connection with the making or amendment of a tender offer or exchange offer
containing the substance of a "stop-look-and-listen" communication pursuant to
such Rule 14d-9(f)) shall not be considered a Change in the Company
Recommendation (as hereinafter defined) or an approval, recommendation or
proposal to approve or recommend any Competing Transaction.
(b) Notwithstanding anything to the contrary in this Section 7.04,
prior to obtaining the Requisite Shareholder Approval, in the event a person (a
"Third Party") makes an unsolicited, written, bona fide proposal or offer
regarding a Competing Transaction, (A) the Company and its Subsidiaries,
directors, officers, employees, agents, advisors and other representatives
(including, without limitation, any investment broker, attorney or accountant
retained by the Company or any Subsidiary) may furnish information to such Third
Party (it being understood that any such information furnished to a Third Party
not previously furnished to Parent shall be contemporaneously furnished to
Parent), and enter into and conduct discussions and negotiations with such Third
Party, regarding such proposal or offer, and (B) the Company may release the
Third Party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party to the extent reasonably necessary to permit
the Third Party to make and pursue the proposal or offer; provided, however,
that, prior to furnishing any
33
such information, conducting any such discussions and negotiations or releasing
or waiving any such provisions, the Company Board shall have (i) determined, in
its good faith judgment (after having received the advice of its financial
advisor and outside legal counsel (who may be the Company's regularly engaged
independent legal counsel)), that such proposal or offer constitutes or may be
reasonably expected to lead to a Superior Proposal, (ii) determined, in its good
faith judgment after consultation with independent legal counsel (that may be
the Company's regularly engaged independent legal counsel), that a failure to
furnish such information, enter into such discussions and negotiations or
release or waive such provisions would be inconsistent with its fiduciary duties
to the Company or its shareholders under applicable Law, (iii) provided prior
written notice to Parent of its intent to furnish information to, or enter into
discussions with, the Third Party, and (iv) obtained from the Third Party an
executed confidentiality agreement on terms no less favorable to the Company in
all material respects than those contained in the Confidentiality Agreement (it
being understood that such confidentiality agreement and any related agreements
shall not include any provision calling for any exclusive right to negotiate
with such party or having the effect of prohibiting the Company from satisfying
its obligations under this Agreement).
(c) Except as set forth in this Section 7.04(c), neither the Company
Board nor any committee thereof shall withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent or Purchaser, the approval or
recommendation by the Company Board or any such committee of this Agreement and
the Merger (a "Change in the Company Recommendation") or approve or recommend,
or cause or permit the Company to enter into any letter of intent, agreement or
obligation with respect to, any Competing Transaction. Notwithstanding the
foregoing or anything else to the contrary in this Section 7.04(c), prior to
obtaining the Requisite Shareholder Approval, if the Company Board has
determined, in its good faith judgment (after having received the advice of its
financial advisor and outside legal counsel (who may be the Company's regularly
engaged independent legal counsel)), that an unsolicited, written, bona fide
offer from a Third Party constitutes a Superior Proposal, then the Company may
terminate this Agreement pursuant to Section 9.01(h) and enter into a definitive
agreement with respect to such Superior Proposal; provided, however, that, (x)
prior to taking any such action contemplated by this Section 7.04(c), the
Company Board shall have determined in its good faith judgment after
consultation with independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), that a failure to take any such action would
be inconsistent with its fiduciary duties to the Company or its shareholders
under applicable Law; (y) prior to entering into a definitive agreement for such
a Superior Proposal (excluding a confidentiality agreement of the type
referenced in Section 7.04(b)), the Company notifies Parent, in writing at least
three business days prior to doing so, of its intention to enter into such
definitive agreement, specifying the material terms of such proposed definitive
agreement and identifying the person making such Superior Proposal, and Parent
does not make, within three business days of receipt of such written
notification, an offer that the Company Board determines in good faith (after
having received the advice of its financial advisor and outside legal counsel
(who may be the Company's regularly engaged independent legal counsel)) is at
least as favorable from a financial point of view to the shareholders of the
Company as such Superior Proposal, it being understood that the Company shall
not enter into any definitive agreement with respect to such Superior Proposal
prior to the expiration of such three business day period; and (z) the Company
shall pay the Fee required under Section 9.03(a)(ii) of this Agreement to Parent
simultaneously with any termination of this Agreement in accordance with
34
the terms of this Section 7.04(c). In addition, notwithstanding the foregoing or
anything else to the contrary in this Section 7.04, the Company Board may make a
Change in the Company Recommendation if it determines, in its good faith
judgment after consultation with independent legal counsel (who may be the
Company's regularly engaged independent legal counsel), that to do otherwise
would be inconsistent with its fiduciary duties to the Company or its
shareholders under applicable Law.
SECTION 7.05 Employee Benefits Matters. (a) For a period of one year
from and after the Effective Time, Parent shall cause the Surviving Corporation
and its subsidiaries to honor in accordance with their terms (without amendment
or modification in a manner adverse to the participants therein) all contracts,
agreements, arrangements, policies, plans and commitments of the Company and the
Subsidiaries as in effect immediately prior to the Effective Time that are
applicable to any current or former employees or directors of the Company or any
Subsidiary; provided, however, that Parent and the Surviving Corporation shall
not be required to provide an employer stock fund in any defined contribution
plan, or to make any matching or other contributions to such plans in stock;
provided, further, that after the first anniversary of the Effective Time,
Parent and the Surviving Corporation or any of Parent's subsidiaries shall not
be prohibited from amending, modifying or terminating any such contracts,
agreements, arrangements, policies, plans and commitments in accordance with
their terms. Employees of the Company or any Subsidiary (the "Company
Employees") shall receive credit for service accrued prior to the Effective Time
with the Company or any Subsidiary ("Pre-Closing Service") for purposes of
eligibility to participate and vesting (but not for benefit accruals) under any
employee benefit plan, program or arrangement established or maintained by
Parent or any of its subsidiaries (including the Surviving Corporation) that is
extended to the Company Employees; provided, however, that such crediting of
service shall not operate to duplicate any benefit or the funding of any such
benefit. In addition, Parent and the Surviving Corporation shall waive, or cause
to be waived, any limitations on benefits relating to any pre-existing
conditions to the same extent such limitations are waived under any comparable
plan of Parent or its subsidiaries and recognize, for purposes of annual
deductible, co-payment and out-of-pocket limits under its medical and dental
plans, deductible, co-payment and out-of-pocket expenses paid by employees of
the Company and its Subsidiaries in the respective plan year in which the
Effective Time occurs; and provided, further, however, that (i) all Pre-Closing
Service shall be counted for purposes of determining the level of benefits under
any vacation or severance plan following the Effective Time established or
maintained by Parent or any of its subsidiaries (including the Surviving
Corporation) that is extended to Company Employees and (ii) following the
Effective Time, all employees of the Company and the Subsidiaries shall be
entitled to all unused vacation time accrued as of the Effective Time.
Notwithstanding any of the foregoing to the contrary, during the one-year period
following the Effective Time, Parent may cause the Surviving Corporation and the
other subsidiaries of Parent to provide to certain employees of the Company and
the Subsidiaries all employee benefit plans, programs or arrangements of Parent
or any of its subsidiaries available to similarly situated employees of Parent
and its subsidiaries; provided that the employees of the Company and the
Subsidiaries receive benefits under such employee benefit plans, programs or
arrangements that are not less favorable than the benefits provided to similarly
situated employees of Parent and its subsidiaries, in lieu of the employee
benefit plans, programs or arrangements of the Company and the Surviving
Corporation.
35
(b) Section 7.05 of the Disclosure Schedule sets forth, with respect
to certain executive officers of the Company, the cash severance payment that
would be due to such executive officer under such person's employment agreement
with the Company upon the termination of such person's employment with the
Company after a Change of Control (as defined therein). At the Effective Time,
without limiting the rights of such executive officer under such person's
agreements with the Company, the Surviving Corporation will pay to such
executive officer, pursuant to the employment agreement between the Company and
such executive officer, the amount of the cash severance payment set forth
opposite such person's name in Section 7.05 of the Disclosure Schedule.
SECTION 7.06 Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Incorporation and Bylaws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than those
set forth in the Company's Articles of Incorporation and Bylaws, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would affect adversely the
rights thereunder of individuals who, at or prior to the Effective Time, were
directors, officers, employees, fiduciaries or agents of the Company, unless
such modification shall be required by Law.
(b) Parent shall maintain in effect for six years from the Effective
Time directors' and officers' liability insurance covering those persons who are
currently covered on the date of this Agreement by the current directors' and
officers' liability insurance policies maintained by the Company (provided that
Parent may substitute therefor policies of at least the same coverage containing
terms and conditions that are not, in the aggregate, less favorable to any
beneficiary thereof) with respect to matters existing or occurring prior to the
Effective Time; provided, however, that in no event shall Parent be required to
expend pursuant to this Section 7.06(b) more than an amount equal to 300% of
current annual premiums paid by the Company for such insurance; provided
further, however, that, if the amount of premium necessary to maintain or
procure such insurance coverage exceeds such maximum amount, Parent shall
maintain or procure, for such six-year period, the most advantageous policies of
directors' and officers' insurance obtainable for a premium equal to that
maximum amount. Nothing contained in this Section 7.06(b) or otherwise in this
Agreement is intended to or shall relieve any of the Company's existing
insurance carriers from any obligations that such carriers now have or may in
the future have relating to the Company, its Subsidiaries and any of their
respective officers and directors.
(c) In addition to the other rights provided for in this Section 7.06
and not in limitation thereof (but without in any way limiting or modifying the
obligations of any insurance carrier contemplated by Section 7.06(b) of this
Agreement), for six years from and after the Effective Time, Parent shall, to
the fullest extent permitted by the MGBCL as of the date hereof (assuming the
MGBCL were applicable), indemnify and hold harmless (and release from any
liability to the Surviving Corporation or any of their respective subsidiaries)
the persons who, at or prior to the Effective Time, were officers or directors
of the Company or any Subsidiary or served at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (the "Indemnitees") against all expenses
(including reimbursement for reasonable fees and expenses incurred in advance of
the final disposition of any action, suit or proceeding), losses, claims,
damages, judgments, fines and
36
amounts paid in settlement that are actually and reasonably incurred by the
Indemnitee in connection with any threatened, pending or completed action, suit
or proceeding, whether criminal, civil, administrative or investigative, that
related to an event, act or omission which occurred prior to the Effective Time
by reason of the fact that such person was at or prior to the Effective Time a
director or officer of the Company or any of its current or former Subsidiaries
(collectively, an "Indemnifiable Claim"). In the event any Indemnifiable Claim
is asserted or made within such six-year period, all rights to indemnification
shall continue until such claim is disposed of or all judgments, orders, decrees
or other rulings in connection with such claim are fully satisfied.
(d) In addition to the other rights provided for in this Section 7.06,
and not in limitation thereof, the Surviving Corporation, Parent and the Company
agree that all individual indemnity agreements between the Company and any
Indemnitees, as in effect on the date hereof, set forth in Section 4.18 or
Section 4.20 of the Disclosure Schedule, copies of which have been provided to
Parent prior to the date hereof, shall survive the Effective Time and continue
in full force and effect in accordance with their terms.
(e) The provisions of this Section 7.06 will survive the Effective
Time and are intended for the benefit of, and will be enforceable by, each
Indemnitee and his or her heirs and representatives. Parent will pay or cause to
be paid all expenses, including reasonable fees and expenses of legal counsel,
that an Indemnitee may incur in enforcing the indemnity and other obligations
provided for in this Section 7.06 (subject to reimbursement if the Indemnitee is
subsequently determined not to be entitled to indemnification under Section
7.06).
(f) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set forth in this
Section 7.06.
SECTION 7.07 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which reasonably could be expected to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect, (b) any failure of the Company, Parent or
Purchaser, as the case may be, to comply with or satisfy any covenant or
agreement to be complied with or satisfied by it hereunder and (c) any other
material development relating to the Company or the Subsidiaries; provided,
however, that the delivery of any notice pursuant to this Section 7.07 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice; provided further, however, that a failure to comply with
this Section 7.07 will not constitute the failure of any condition set forth in
Article VIII or Article IX to be satisfied unless the underlying event would
independently result in the failure of a condition set forth in Article VIII or
Article IX to be satisfied.
SECTION 7.08 Further Action; Reasonable Efforts. (a) Upon the terms
and subject to the conditions of this Agreement (i) each of the parties hereto
shall make promptly its respective filings, and thereafter make any other
required submissions, under the HSR Act with
37
respect to the Merger and (ii) each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable Laws to consummate and make effective the Merger as
promptly as practicable, including, without limitation, using its reasonable
best efforts to obtain all Permits, consents, approvals, authorizations,
qualifications and Orders of Governmental Authorities as are necessary for the
consummation of the Merger.
(b) Without limiting the generality of the foregoing, each of the
Company and Parent shall, in no event later than ten business days following the
date hereof, file with the United States Federal Trade Commission (the "FTC")
and the United States Department of Justice (the "DOJ") the notification and
report form ("HSR Filing") pursuant to the HSR Act, required for the
transactions contemplated hereby. Each party's HSR Filing shall comply in all
material respects with the requirements of the HSR Act, and the Company and
Parent shall request early termination of the waiting period required by the HSR
Act. Each of the Company and Parent shall, as promptly as practicable, provide
to the FTC, DOJ and each and every federal, state, local or foreign governmental
entity with jurisdiction over enforcement of any applicable antitrust or
competition laws all non-privileged information and documents requested by such
Governmental Authority or that is reasonably necessary or advisable to permit
consummation of the transactions. Subject to applicable Law, each of the Company
and Parent shall inform the other promptly of any communication made by or on
behalf of such party to (including permitting the other party to review such
communication in advance), or received from, any Governmental Authority relating
to this Agreement or the transactions contemplated hereby and shall furnish to
the other such information and assistance as the other may reasonably request in
connection with its preparation of any filing, submission or other act that is
necessary or advisable to permit consummation of the transactions under
applicable Law. Subject to applicable Law, each party shall furnish the other
party with copies of all substantive or otherwise material correspondence,
filings, and written communications between such party and its affiliates and
their respective representatives on the one hand, and any Governmental Authority
on the other hand, with respect to this Agreement and the transactions
contemplated hereby. Neither the Company nor Parent or Purchaser shall agree to
participate in any meeting with any Governmental Authority in respect of any
filings, investigation or other inquiry relating to this Agreement or the
transactions contemplated hereby unless it consults with the other party in
advance, and to the extent permitted by such Governmental Authority, gives the
other party the opportunity to attend and participate thereat. The Company and
Parent shall keep each other timely apprised of the status of any communications
with, and any inquiries or requests for additional information from, any
Governmental Authority relating to this Agreement or the transactions
contemplated hereby.
(c) Parent agrees to use its reasonable best efforts to avoid, resolve
or eliminate each and every objection raised by the FTC, DOJ or any state
antitrust Governmental Authority to the Merger asserted, or suit challenging the
Merger instituted, or other impediment to the Merger under any antitrust or
competition Law, so as to enable the parties to consummate the Merger as
promptly as practicable. For purposes of this Section 7.08, "reasonable best
efforts" shall include Parent committing to and effecting as promptly as
practicable, by consent decree, hold separate orders, or otherwise, the sale,
divestiture or disposition of such of its and its affiliates' assets or
operations, and/or of the assets or operations to be acquired by it pursuant to
the Merger, as is required to be sold, divested or disposed of, including
entering into any
38
agreements required to be entered into by any Governmental Authority in
connection therewith, in order to obtain any required regulatory approval or to
avoid the commencement of any suit or proceeding seeking, and/or to avoid entry
of, and/or to effect the dissolution of, any decree, Order, judgment,
injunction, temporary restraining order or other Order that would have the
effect of materially delaying or prohibiting the consummation of the Merger;
provided that, anything herein to the contrary notwithstanding, in no event
shall Parent be required to hold separate, sell, divest or dispose of any assets
or operations owned by Parent or its affiliates or by the Company or its
affiliates, which individually or collectively produced aggregate revenues in
calendar year 2004 in excess of the Specified Amount or hold separate, sell,
divest or dispose of any full service laboratory.
(d) Without limiting the Company's rights under Section 7.04, neither
party shall or shall permit its subsidiaries to consummate another transaction
or enter into an agreement with respect to another transaction or take any other
action if the intent or reasonably likely anticipated consequence of such
transaction or action is, or would be, to cause any Governmental Authority to
delay or not grant approval of, or to take legal action to seek to prevent, the
consummation, in whole or in part, of the transactions contemplated by this
Agreement.
(e) Parent's and the Company's obligations under this Section 7.08
shall include the obligation to use their respective reasonable best efforts to
defend any lawsuits or other legal proceedings, whether judicial or
administrative, challenging the consummation of the Merger or the other
transactions contemplated hereby, including using their respective reasonable
best efforts to seek to have any stay or other injunctive relief which would
prohibit or materially delay or impair the consummation of the transactions
contemplated by this Agreement entered by any court or other Governmental
Authority reversed on appeal or vacated.
(f) Each of the parties shall use its reasonable best efforts to take,
or cause to be taken, all appropriate action, and to do, or cause to be done,
all things reasonably necessary, proper or advisable to obtain all consents or
approvals required from third parties other than Governmental Authorities in
order to consummate the transactions contemplated hereby as promptly as
practicable.
SECTION 7.09 Obligations of Purchaser. Parent shall take all action
necessary to cause Purchaser to perform its obligations under this Agreement and
to consummate the Merger on the terms and subject to the conditions set forth in
this Agreement. Parent unconditionally guarantees the full and complete
performance by Purchaser or the Surviving Corporation, as applicable, of its
respective obligations under this Agreement and shall be jointly and severally
liable with Purchaser for any breach of any covenant or obligation of Purchaser
or the Surviving Corporation, as applicable, under this Agreement.
SECTION 7.10 Public Announcements. The initial press release relating
to this Agreement shall be a joint press release the text of which has been
agreed to by each of Parent and the Company. Thereafter, unless otherwise
required by applicable Law or the requirements of the New York Stock Exchange or
the NASDAQ National Market, each of Parent and the Company shall use its
reasonable best efforts to consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or the Merger;
39
provided, however, that this Section 7.10 shall terminate in the event the
Company Board shall have effected a Change in the Company Recommendation.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Parent, Purchaser and
the Company. The obligations of Parent, Purchaser and the Company to consummate
the Merger shall be subject to the satisfaction, at or prior to the Effective
Time, of the following conditions:
(a) Shareholder Approval. This Agreement shall have been approved by
the requisite affirmative vote of the shareholders of the Company in
accordance with the MGBCL and the Company's Articles of Incorporation.
(b) Antitrust Waiting Period. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) No Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law or Order that is then in effect
and has the effect of making consummation of the Merger illegal or
otherwise prohibiting consummation of the Merger.
SECTION 8.02 Conditions to the Obligations of the Company. The
obligations of the Company to effect the Merger shall be subject to the
satisfaction or written waiver, at or prior to the Effective Time, of the
following conditions:
Representations and Warranties. (i) (x) Each of the representations
and warranties of Parent and Purchaser contained in this Agreement that is
not qualified as to "materiality" (other than the representation and
warranty contained in Section 5.05 of this Agreement) shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time, except to the extent that such representations and
warranties are made as of another date, in which case such representations
and warranties shall be true and correct in all material respects as of
such other date; and (y) each of the representations and warranties of
Parent and Purchaser that is qualified as to "materiality" shall be true
and correct in all respects as of the date of this Agreement and as of the
Effective Time, except to the extent such representations and warranties
are made as of another date, in which case such representations and
warranties shall be true and correct as of such other date, except in the
case of either (x) or (y), where any failure of such representations and
warranties to be true and correct would not, individually or in the
aggregate, prohibit or materially delay consummation of the Merger or
otherwise prevent Parent or Purchaser from performing their obligations
under this Agreement; (ii) the representation and warranty contained in
Section 5.05 of this Agreement shall be true and correct as of the
Effective Time; (iii) the covenants and agreements contained in this
Agreement to be complied with by Parent and Purchaser on or before the
Effective Time shall have been complied with in all material respects; and
(iv) the Company shall have
40
received a certificate from a duly authorized officer of Parent and
Purchaser to the foregoing effect.
SECTION 8.03 Conditions to the Obligations of Parent and Purchaser.
The obligations of Parent and Purchaser to effect the Merger shall be subject to
the satisfaction or waiver, at or prior to the Effective Time, of the following
conditions:
(a) Representations and Warranties. (i) (x) Each of the
representations and warranties of the Company contained in this Agreement
that is qualified by reference to "materiality" or Material Adverse Effect
shall be true and correct as of the date of this Agreement and as of the
Effective Time, except to the extent such representations and warranties
are made as of another date, in which case such representations and
warranties shall be so true and correct as of such other date; and (y) each
of the representations and warranties of the Company that is not qualified
by reference to "materiality" or Material Adverse Effect shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time, except, to the extent such representations and
warranties are made as of another date, in which case such representations
and warranties shall be so true and correct as of such other date, except
in the case of either (x) or (y) where any failure of such representations
and warranties to be true and correct either individually or in the
aggregate would not have a Material Adverse Effect; (ii) the covenants and
agreements contained in this Agreement to be complied with by the Company
on or before the Effective Time shall have been complied with in all
material respects; and (iii) Parent shall have received a certificate from
a duly authorized officer of the Company to the foregoing effect.
(b) Dissent Shares. A demand for fair value of the Shares under
Section 351.455 of the MGBCL shall not have been perfected, asserted or
demanded with respect to more than 10% of the aggregate number of Shares.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time:
(a) By mutual written consent of each of Parent and the Company;
(b) By either Parent or the Company if the Effective Time shall not
have occurred on or before April 7, 2006 (the "Outside Date"); provided
that such date may be extended until August 8, 2006 by either Parent or the
Company if all of the conditions to Closing set forth in Article VIII
(other than conditions with respect to actions the respective parties will
take at the Closing itself) have been satisfied as of the Outside Date,
except that (1) all applicable waiting periods under the HSR Act have not
expired or been terminated or (2) an Order (whether preliminary or
permanent) has been entered by a Governmental Authority which had the
effect of enjoining the consummation of the Merger (other than a final and
nonappealable Order); provided that the right to extend the Outside Date or
terminate this Agreement under this Section 9.01(b) shall not be
41
available to (A) Parent if its failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date or (B) the Company if the
failure of the Company to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date;
(c) By either Parent or the Company if any Governmental Authority
shall have enacted, issued, promulgated, enforced or entered any Law or
Order prohibiting consummation of the Merger, and such Order shall have
become final and nonappealable;
(d) By Parent, in the event of a breach by the Company of any
representation, warranty or covenant that would cause any condition
contained in Section 8.03(a) not to be satisfied, which breach, if capable
of cure, shall not have been cured within ten business days of receipt by
the Company of written notice from Parent specifying such breach;
(e) By the Company, in the event of a breach by Parent or Purchaser of
any representation, warranty or covenant that would cause any condition
contained in Section 8.02 not to be satisfied, which breach, if capable of
cure, shall not have been cured within ten business days of receipt by
Parent or Purchaser, as applicable, of written notice from the Company
specifying such breach;
(f) Subject to clause (y) of the last sentence of Section 7.04(a) of
this Agreement, by Parent if, at any time prior to the date of the Company
Shareholders Meeting, the Company Board shall have (i) effected a Change in
the Company Recommendation or (ii) approved or recommended, or proposed to
approve or recommend, any Competing Transaction;
(g) By the Company or Parent if, upon a vote taken thereon at the
Company Shareholders Meeting or any postponement or adjournment thereof,
the Requisite Shareholder Approval is not obtained; or
(h) By the Company, at any time prior to obtaining the Requisite
Shareholder Approval of this Agreement, in accordance with Section 7.04(c)
in order to enter into a definitive agreement with respect to a Superior
Proposal.
SECTION 9.02 Effect of Termination. In the event of the termination of
this Agreement by either Parent or the Company pursuant to Section 9.01, this
Agreement shall forthwith become void, and there shall be no liability on the
part of any party hereto or their respective officers, directors, employees,
agents, advisors or other representatives, except that (a) Section 7.03(b), this
Section 9.02, Section 9.03 and Article X shall survive termination and (b)
nothing herein shall relieve any party from liability or damages arising out of
any intentional or willful breach of any covenant in this Agreement prior to
such termination.
SECTION 9.03 Fees and Expenses. (a) In the event that:
(i) this Agreement shall be terminated by Parent pursuant to clause
(i) of Section 9.01(f), or any person (including, without limitation, the
Company or any affiliate
42
thereof) pursuant to Section 9.01(g), and (A) in the case of termination
pursuant to Section 9.01(g), prior to the vote by the Company's
shareholders on this Agreement, a Competing Transaction shall have been
publicly announced and not withdrawn, or has otherwise become publicly
known after the date of this Agreement, and (B) in the case of termination
pursuant to either clause (i) of Section 9.01(f) or Section 9.01(g), the
Company enters into a definitive agreement, within 12 months after such
termination, relating to a Competing Transaction and such transaction is
thereafter consummated, the Company shall pay the Fee to Parent on the date
of completion of such transaction less any Expenses paid to Parent pursuant
to Section 9.03(b);
(ii) this Agreement is terminated pursuant to Section 9.01(h), the
Company shall pay the Fee to Parent on the date of such termination; or
(iii) this Agreement is terminated by Parent pursuant to clause (ii)
of Section 9.01(f), the Company shall pay the Fee to Parent within five
business days of the date of such termination.
(b) If this Agreement is terminated by Parent pursuant to Section
9.01(d) or 9.01(f)(i) of this Agreement, then the Company shall pay to Parent,
within five business days after receipt by the Company of reasonable
documentation with respect to such expenses, Expenses incurred by Parent through
the date of termination of this Agreement up to a maximum of $3,500,000.
(c) Except as set forth in this Section 9.03, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such costs and expenses,
whether or not the Merger is consummated.
(d) All amounts payable under this Section 9.03 shall be paid in
immediately available funds to an account specified by Parent.
(e) The Company acknowledges that the agreements contained in this
Section 9.03 are an integral part of the transactions contemplated by this
Agreement and that without these agreements Parent would not enter in this
Agreement. In the event that the Company shall fail to pay the Fee or Expenses,
such Fee or Expenses shall be deemed to include the costs and expenses actually
incurred or accrued by Parent or Purchaser (including, without limitation, fees
and expenses of counsel) in connection with the collection under and enforcement
of this Section 9.03, together with interest on such unpaid Fee or Expenses,
commencing on the date that such Fee or Expenses became due, at a rate equal to
the rate of interest publicly announced by Citibank, N.A. from time to time, in
the City of New York, as such bank's base rate. Payment of the fees and expenses
described in this Section 9.03 shall not be in lieu of any damages incurred in
the event of a willful breach or intentional breach of any covenant in this
Agreement prior to such termination.
SECTION 9.04 Amendment and Waiver. Except as may otherwise be provided
herein, any provision of this Agreement may be amended, modified or waived by
the parties hereto, by action taken by or authorized by their respective Board
of Directors, prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, in the case of
43
an amendment, by the Company and Parent or, in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
approval of this Agreement by the shareholders of the Company, no such amendment
shall be made except as allowed under applicable Law. Any waiver of any term
shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition, or a waiver of any other term or condition
of this Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations and Warranties. The
representations, warranties, covenants and agreements contained in this
Agreement and in any certificate or instrument delivered pursuant hereto shall
terminate at the Effective Time or upon the termination of this Agreement,
except for Section 7.06 and those other covenants or obligations that by their
terms apply or are to be performed in whole or in part after the Effective Time.
SECTION 10.02 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
overnight courier, by facsimile or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 10.02):
if to Parent or Purchaser:
Quest Diagnostics, Inc.
1290 Wall Street West
Lyndhurst, New Jersey 07071
Facsimile No: (201) 559-2255
Attention: General Counsel
with a copy to:
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Facsimile No: (212) 848-7179
Attention: Clare O'Brien, Esq.
Stephen Besen, Esq.
if to the Company:
LabOne, Inc.
10101 Renner Boulevard
Lenexa, Kansas 66219
Facsimile No: 913 859-6832
Attn: General Counsel
44
with a copy to:
Stinson Morrison Hecker LLP
1201 Walnut, Suite 2800
Kansas City, Missouri 64106
Facsimile No: (816) 691-3495
Attn: John A. Granda, Esq.
with an additional copy to:
Fried, Frank, Harris, Shriver & Jacobson
LLP
One New York Plaza
New York, New York 10004
Facsimile No: (212) 859-4000
Attn: Jeffrey Bagner, Esq.
SECTION 10.03 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Merger be consummated as originally contemplated to the fullest extent possible.
SECTION 10.04 Entire Agreement; Assignment. This Agreement and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
any party hereto, except that Parent and Purchaser may assign all or any of
their rights and obligations hereunder to any affiliate of Parent (who in the
case of Purchaser is a corporation incorporated under Chapter 351 of the MGBCL),
provided that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 10.05 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, expressed or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 7.06 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 10.06 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to seek specific performance of the terms hereof, in addition to any
other remedy at Law or equity.
45
SECTION 10.07 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the Laws of the State of New York
applicable to contracts executed in and to be performed in that State (other
than those provisions set forth herein that are required to be governed by the
MGBCL). All actions and proceedings arising out of or relating to this Agreement
shall be heard and determined exclusively in a federal court sitting in the
State of Delaware. The parties hereto hereby (a) submit to the exclusive
jurisdiction of any federal court sitting in the State of Delaware for the
purpose of any Action arising out of or relating to this Agreement brought by
any party hereto, and (b) irrevocably waive, and agree not to assert by way of
motion, defense, or otherwise, in any such Action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the Action is
brought in an inconvenient forum, that the venue of the Action is improper, or
that this Agreement or the Merger may not be enforced in or by any of the
above-named courts.
SECTION 10.08 Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable Law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement or the Merger. Each of the
parties hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce that foregoing waiver and (b)
acknowledges that it and the other hereto have been induced to enter into this
Agreement and the Merger, as applicable, by, among other things, the mutual
waivers and certifications in this Section 10.08.
SECTION 10.09 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.10 Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
46
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above.
QUEST DIAGNOSTICS INCORPORATED
By /s/ Surya N. Mohaparta, Ph. D.
------------------------------
Name: Surya N. Mohapatra, Ph. D.
Title: Chairman, President and
Chief Executive Officer
FOUNTAIN, INC.
By /s/ Surya N. Mohaparta, Ph. D.
------------------------------
Name: Surya N. Mohapatra, Ph. D.
Title: President
LABONE, INC.
By /s/ W. Thomas Grant, II
----------------------
Name: W. Thomas Grant, II
Title: Chairman and Chief Executive
Officer
Appendix B
[JPMorgan letterhead]
August 06, 2005
The Board of Directors
LabOne, Inc.
10101 Renner Boulevard
Lenexa, Kansas 66219
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $0.01 per share (the "Company
Common Stock"), of LabOne, Inc. (the "Company") of the consideration to be
received by such holders in the proposed merger (the "Merger") of the Company
with a wholly-owned subsidiary of Quest Diagnostics Incorporated (the "Merger
Partner"). Pursuant to the Agreement and Plan of Merger (the "Agreement") among
the Company, the Merger Partner and Fountain, Inc. ("Merger Sub"), the Company
will become a wholly-owned subsidiary of the Merger Partner, and each
outstanding share of Company Common Stock, other than shares of Company Common
Stock held in treasury or owned by any subsidiaries of the Company or by the
Merger Partner or Merger Sub, will be converted into the right to receive $43.90
per share in cash.
In arriving at our opinion, we have (i) reviewed a draft dated August 5, 2005 of
the Agreement; (ii) reviewed certain publicly available business and financial
information concerning the Company and the industries in which it operates;
(iii) compared the proposed financial terms of the Merger with the publicly
available financial terms of certain transactions involving companies we deemed
relevant and the consideration received for such companies; (iv) compared the
financial and operating performance of the Company with publicly available
information concerning certain other companies we deemed relevant and reviewed
the current and historical market prices of the Company Common Stock and certain
publicly traded securities of such other companies; (v) reviewed certain
internal financial analyses and forecasts prepared by the management of the
Company relating to its business; and (vi) performed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Merger, and the past and
current business operations of the Company, the financial condition and future
prospects and operations of the Company, and certain other matters we believed
necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed, without assuming
responsibility or liability for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished to
or discussed with us by the Company or otherwise reviewed by or for us. We have
not conducted or been provided with any valuation or appraisal of any assets or
liabilities, nor have we evaluated the solvency of the Company or the
Merger Partner under any state or federal laws relating to bankruptcy,
insolvency or similar matters. In relying on financial analyses and forecasts
provided to us, we have assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the Company to which such analyses or forecasts relate. We express
no view as to such analyses or forecasts or the assumptions on which they were
based. We have also assumed that the Merger and the other transactions
contemplated by the Agreement will be consummated as described in the Agreement,
and that the definitive Agreement will not differ in any material respects from
the draft thereof furnished to us. We have relied as to all legal matters
relevant to rendering our opinion upon the advice of counsel. We have further
assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the Merger will be obtained without
any adverse effect on the Company.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
Our opinion is limited to the fairness, from a financial point of view, of the
consideration to be received by the holders of the Company Common Stock in the
proposed Merger and we express no opinion as to the fairness of the Merger to,
or any consideration of, the holders of any other class of securities, creditors
or other constituencies of the Company or as to the underlying decision by the
Company to engage in the Merger.
We note that we were not authorized to and did not solicit any expressions of
interest from any other parties with respect to the sale of all or any part of
the Company or any other alternative transaction. Consequently, we have assumed
that such terms are the most beneficial terms from the Company's perspective
that could under the circumstances be negotiated among the parties to such
transactions, and no opinion is expressed whether any alternative transaction
might produce consideration for the Company's shareholders in an amount in
excess of that contemplated in the Merger.
We have acted as financial advisor to the Company with respect to the proposed
Merger and will receive a fee from the Company for our services. We will also
receive an additional fee if the proposed Merger is consummated. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. We and our affiliates have from time to time provided investment
banking and commercial banking services to the Company, including acting as
bookrunning lead managing underwriter in connection with the Company's offering
of its convertible debt securities in 2004. Our affiliate, JPMorgan Chase Bank,
National Association, acts as administrative agent with respect to the Company's
revolving credit facility and is a lender to the Merger Partner. In the ordinary
course of our businesses, we and our affiliates may actively trade the debt and
equity securities of the Company or the Merger Partner for our own account or
for the accounts of customers and, accordingly, we may at any time hold long or
short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be received by the holders of the Company
Common Stock in the proposed Merger is fair, from a financial point of view, to
such holders.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the Merger or any other matter. This
opinion may not be disclosed, referred to, or communicated (in whole or in part)
to any third party for any purpose whatsoever except with our prior written
approval. This opinion may be reproduced in full in any proxy or information
statement mailed to shareholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written approval.
Very truly yours,
/s/ J.P. MORGAN SECURITIES INC.
Appendix C
Missouri Statute 351.455. - Dissenters' Rights.
Shareholder who objects to merger may demand value of shares, when
1. If a shareholder of a corporation which is a party to a merger or
consolidation and, in the case of a shareholder owning voting stock as of the
record date, at the meeting of shareholders at which the plan of merger or
consolidation is submitted to a vote shall file with such corporation prior to
or at such meeting a written objection to such plan of merger or consolidation,
and shall not vote in favor thereof, and such shareholder, within twenty days
after the merger or consolidation is effected, shall make written demand on the
surviving or new corporation for payment of the fair value of his or her shares
as of the day prior to the date on which the vote was taken approving the merger
or consolidation, the surviving or new corporation shall pay to such
shareholder, upon surrender of his or her certificate or certificates
representing said shares, the fair value thereof. Such demand shall state the
number and class of the shares owned by such dissenting shareholder. Any
shareholder failing to make demand within the twenty-day period shall be
conclusively presumed to have consented to the merger or consolidation and shall
be bound by the terms thereof.
2. If within thirty days after the date on which such merger or consolidation
was effected the value of such shares is agreed upon between the dissenting
shareholder and the surviving or new corporation, payment therefor shall be made
within ninety days after the date on which such merger or consolidation was
effected, upon the surrender of his or her certificate or certificates
representing said shares. Upon payment of the agreed value the dissenting
shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the surviving or new
corporation do not so agree, then the dissenting shareholder may, within sixty
days after the expiration of the thirty-day period, file a petition in any court
of competent jurisdiction within the county in which the registered office of
the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under such shareholder shall be conclusively presumed to have approved
and ratified the merger or consolidation, and shall be bound by the terms
thereof.
4. The right of a dissenting shareholder to be paid the fair value of such
shareholder's shares as herein provided shall cease if and when the corporation
shall abandon the merger or consolidation.
5. When the remedy provided for in this section is available with respect to a
transaction, such remedy shall be the exclusive remedy of the shareholder as to
that transaction, except in the case of fraud or lack of authorization for the
transaction.
PRELIMINARY FORM OF PROXY
LABONE, INC.
SPECIAL MEETING OF SHAREHOLDERS
_____________, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints W. Thomas Grant, II and Joseph C. Benage,
and any one or more of them with full power of substitution, as a Proxy or
Proxies to vote, as designated on the reverse side, all the shares of Common
Stock of LabOne the undersigned is entitled to vote at the special meeting of
shareholders of LabOne to be held on __________, 2005, or any adjournments or
postponements thereof. This proxy revokes all prior proxies given by the
undersigned.
If no instructions are specified, this proxy, if signed, will be voted
"FOR" on Proposals 1 and 2 on the reverse side. If any other business is
properly presented at the special meeting, this proxy will be voted by the above
named proxies in their discretion. At the present time, the board of directors
knows of no other business to be presented at the special meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING
THE ENCLOSED PREPAID ENVELOPE.
(Continued and to be signed on the reverse side)
SPECIAL MEETING OF SHAREHOLDERS OF
LABONE, INC.
_____________________, 2005
BY MAIL: BY TELEPHONE THROUGH THE INTERNET
Mark, sign and date your (Available until ____, (Available until ____,
proxy card Central Central
and return it in the Time, on _______, 2005) Time, on _______, 2005)
enclosed envelope Call toll-free Access website at
to: ________________ on https://www._________________`
D. F. King & Co., Inc. any touch-tone telephone to to authorize the voting of
48 Wall Street authorize the voting of your
New York, New York 10005 your shares. shares. You may access the
(212) 269-5550 - Banks and You may call 24 hours a site 24
Brokers day, 7 days hours a day, 7 days a week.
(collect calls) a week. You will be You will
(888) 567-1626 - All others prompted to be prompted to follow simple
(toll-free) follow simple instructions. instructions.
V Please detach and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 and 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
1. Approval of the Agreement and Plan of Merger, dated as of For Against Abstain
August 8, 2005, by and among LabOne, Inc., Quest Diagnostics [ ] [ ] [ ]
Incorporated and Fountain, Inc.
2. Approval of the grant to the proxyholders of the authority For Against Abstain
to vote in their discretion to adjourn the special meeting to [ ] [ ] [ ]
a later date to solicit additional proxies.
-----------------
Should the undersigned be present and elect to vote at the Special Meeting or any postponement or adjournment
thereof and after notification to the Secretary of the Company at the Special Meeting of the Shareholder's
decision to terminate this proxy, then the power of such proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to the Secretary of the Company at
the address set forth on the Notice of Special Meeting of Shareholders, by filing of a later-dated proxy to
vote on the proposals at the Special Meeting, or by logging onto the Internet website specified above or by
calling the telephone number specified above.
Please complete, date and sign this proxy and return it promptly in the enclosed postage paid envelope.
[ ] Please mark this box if you plan to attend the Special Meeting.
Signature of Shareholder _____________________ Date___________ Signature of Shareholder _____________________ Date___________
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.