Filed by: Quest Diagnostics Incorporated
This communication is filed pursuant to Rules 165 and 425
promulgated under the Securities Act of 1933, as amended.
Subject Company: Unilab Corporation
Commission File No.: 0-22758
FORWARD-LOOKING STATEMENTS:
This communication contains certain forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements,
which may include, but are not limited to, statements concerning the financial
condition, results of operations and businesses of Quest Diagnostics and Unilab
and the benefits expected to result from the contemplated transaction, are based
on management's current expectations and estimates and involve risks and
uncertainties that could cause actual results or outcomes to differ materially
from those contemplated by the forward-looking statements.
Factors that could cause or contribute to such differences may include, but are
not limited to, the risk that the conditions relating to the required minimum
tender of Unilab shares or regulatory clearance might not be satisfied in a
timely manner or at all, risks relating to the integration of the technologies
and businesses of Quest Diagnostics and Unilab, unanticipated expenditures,
changing relationships with customers, suppliers and strategic partners,
conditions of the economy and other factors described in the most recent reports
on Form 10-Q, most recent reports on Form 10-K and other periodic reports filed
by Quest Diagnostics and Unilab with the Securities and Exchange Commission.
ADDITIONAL INFORMATION:
Quest Diagnostics intends to file a Registration Statement on Form S-4 and a
Schedule TO, and Unilab plans to file a Solicitation/Recommendation Statement on
Schedule 14D-9, with the Securities and Exchange Commission in connection with
the transaction. Quest Diagnostics and Unilab expect to mail a Prospectus, which
is part of the Registration Statement on Form S-4, the
Solicitation/Recommendation Statement on Schedule 14D-9 and related exchange
offer materials, including a letter of election and transmittal, to stockholders
of Unilab upon commencement of the exchange offer.
In addition, Quest Diagnostics intends to file a Statement on Schedule 13D
relating to its agreement with Kelso Investment Associates VI, L.P. and KEP VI,
LLC. Investors and stockholders of Unilab are urged to read all of these
documents carefully when they are available. These documents contain important
information about the transaction and should be read before any decision is made
with respect to the exchange offer. Investors and stockholders will be able to
obtain free copies of these documents through the website maintained by the
Securities and Exchange Commission at www.sec.gov. Free copies of these
documents may also be obtained from Quest Diagnostics, by directing a request to
Quest Diagnostics Incorporated at 1 Malcolm Avenue, Teterboro, NJ 07608, or from
Unilab, by directing a request to Unilab Corporation at 18448 Oxnard Street,
Tarzana, CA 91356.
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In addition to the Registration Statement on Form S-4, Schedule TO, Prospectus,
Solicitation/Recommendation Statement on Schedule 14D-9 and related exchange
offer materials, both Quest Diagnostics and Unilab file annual, quarterly and
special reports, proxy Statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, Statements or other
information filed by Quest Diagnostics or Unilab at the SEC public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549 or at any of the
Securities and Exchange Commission's other public reference rooms in New York,
New York and Chicago, Illinois. Please call the Securities and Exchange
Commission at 800-SEC-0330 for further information on the public reference
rooms. Quest Diagnostics' and Unilab's filings with the Securities and Exchange
Commission are also available to the public from commercial document-retrieval
services and at the website maintained by the Securities and Exchange Commission
at www.sec.gov.
UNILAB OPTION HOLDER MEMORANDUM - RE PROPOSED ACQUISITION BY QUEST DIAGNOSTICS
As you know, Unilab has entered into an Agreement and Plan of Merger
with Quest Diagnostics Incorporated ("Quest Diagnostics"). The proposed
acquisition of Unilab by Quest Diagnostics will take place in two steps.
First, a specially-formed subsidiary of Quest Diagnostics ("Quest Sub")
will make what is known as an "exchange offer" to purchase all outstanding
shares of Unilab common stock for a combination of cash and Quest Diagnostics
common stock (the "Offer"). We expect this Offer to begin in May.
Under the Offer, Unilab stockholders may elect to tender each of their
shares of Unilab common stock for either (1) $26.50 in cash or (2) 0.3256 of a
share of Quest Diagnostics common stock (this fraction was determined by
dividing $26.50 by the average closing price of a share of Quest Diagnostics
common stock over a specified five-day period). Stockholders who elect to
receive cash in exchange for their shares of Unilab common stock may be subject
to proration, because the maximum amount of cash payable to Unilab stockholders
is limited to 30% of the total consideration paid to Unilab stockholders in the
Offer and the Merger (defined below).
If at least 50.1% of the outstanding shares of Unilab common stock are
tendered into the Offer and certain other conditions are satisfied, Quest
Diagnostics will purchase the tendered shares on the "Acceptance Date" of the
Offer. At that point, the second step of the acquisition will be the merger of
Unilab into Quest Sub (the "Merger"), and Quest Diagnostics will become the sole
shareholder of the merged company. At the time of the Merger, each share of
Unilab common stock that remains outstanding will be converted into 0.3256 of a
share of Quest Diagnostics common stock.
Q - How does the proposed acquisition affect my Unilab stock options?
A - If the Acceptance Date occurs, all Unilab stock options you hold will become
vested and exercisable. If the Acceptance Date does not occur, your stock
options will not be affected since the acquisition of Unilab by Quest
Diagnostics will not occur.
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Q - Will my Class A service options be treated any differently than my Class C
performance options?
A - Your Class A service options and your Class C performance options will be
treated the same.
Q - Can I exercise my stock options and tender into the Offer any shares of
Unilab common stock I acquire from my exercise?
A - Yes, you may exercise your stock options and tender all the acquired shares
of Unilab common stock into the Offer. However, because we will not know if the
Acceptance Date will occur until at least 50.1% of the outstanding shares of
Unilab common stock have been tendered into the Offer and certain other
conditions have been satisfied, the exercise of your stock options will be
conditioned upon the occurrence of the Acceptance Date.
Q - Who should I contact to exercise my stock options?
A - You will need to contact Salomon Smith Barney, which is Quest Diagnostics'
stock option plan brokerage firm. They will facilitate the stock option exercise
transactions. More information including contact names, telephone numbers and
the required forms will be provided to you in May.
Q - If I exercise my stock options and tender the acquired shares of Unilab
common stock, do I get to choose between receiving $26.50 and 0.3256 of a share
of Quest Diagnostics common stock in respect of each acquired share?
A - Yes, you can elect to receive $26.50 or 0.3256 of a share of Quest
Diagnostics common stock for each share of Unilab common stock you acquire upon
exercise of your stock options. Note, however, that since the total amount of
cash available in the transaction is limited, your ability to receive cash for
your shares of Unilab common stock will depend on elections made by other Unilab
stockholders.
Q - What happens if I elect to receive the cash for each of the shares of Unilab
common stock I acquire upon exercise of my Unilab stock options but the holders
of more than 30% of the outstanding shares of Unilab common stock also elect to
receive cash for each of their shares?
A - If the holders of more than 30% of the outstanding shares of Unilab common
stock elect to receive the cash consideration in the Offer, then you will
receive a pro-rated combination of cash and shares of Quest Diagnostics common
stock in exchange for each share of Unilab common stock that you elect to
exchange for the cash consideration.
For example, assume the following circumstances:
1. 100 Unilab shares outstanding prior to the expiration of the Offer;
2. all 100 Unilab shares are tendered in the Offer;
3. the holders of 40 Unilab shares elect to exchange their shares for
cash; and
4. the holders of 60 Unilab shares elect to exchange their shares for
shares of Quest Diagnostics common stock.
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In the circumstances described above, each of the 40 "cash electing" Unilab
shares would be exchanged into a pro-rated combination of cash and Quest
Diagnostics shares as follows:
Cash $26.50 X (30/40) = $19.875
Quest Diagnostics
Shares 0.3256 X (1-30/40) = 0.0814 of a Quest Diagnostics
common share
Q - When can I expect to receive the cash and/or shares of Quest Diagnostics
shares in for the shares of Unilab common stock I tender?
A - You will receive cash and/or shares of Quest Diagnostics common stock
shortly after the Acceptance Date.
Q - What are the tax consequences of an exercise of my Unilab stock options?
A - Stock options granted under the Unilab option plans are treated as
nonstatutory stock options.
- Employees who are citizens or residents of the United States will, upon
exercise of their nonstatutory stock options, recognize ordinary compensation
income equal to the amount by which the fair market value of the shares on the
date of exercise exceeds the option price paid. The ordinary income recognized
upon exercise of a nonstatutory stock option will be subject to both wage
withholding and employment taxes.
- Your tax basis in these shares will be the fair market value of the shares on
the Acceptance Date. Your holding period for capital gains purposes will
commence on the date on which you recognize taxable income in respect of such
shares.
- Because federal, state and local tax consequences may vary with individual
circumstances, you are urged to consult your own accountant, legal counsel or
other financial advisor regarding the tax consequences of the exercise of your
stock options and tender of the shares into the Offer.
Q - Do I have to pay the exercise price and the applicable payroll and
withholding taxes before I can exercise my stock options?
A - The answer to this question depends upon the election you make regarding the
shares of Unilab common stock you acquire upon exercise of the stock option.
A special cashless exercise procedure has been established for individuals who
wish to tender all of their shares of Unilab common stock acquired upon
exercise. Under the cashless exercise procedure, if you elect to tender all the
shares subject to your stock options into the Offer and to receive cash for all
the shares subject to the stock options, you don't have to pay the exercise
price and the applicable tax withholding at the time of exercise. Instead, the
amount of cash you receive for the acquired shares will be credited toward the
payment of the aggregate exercise
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price of the stock options and applicable payroll and withholding taxes as a
result of the ordinary income you recognize upon exercise of the stock options.
If the amount of cash that would be payable to you under the tender offer is
less than the amount you owe on exercise of your stock options, as soon as
practicable after the Acceptance Date you will be advised of the balance of the
cash that you need to pay before the shares of Quest Diagnostics common stock,
if any, are released to you. You can arrange to have Salomon Smith Barney
transfer the cash amount owed to Unilab out of the proceeds from the sale of any
shares of Quest Diagnostics common stock issued to you from the exchange offer.
If you choose instead either to (1) exercise your stock options but elect to
tender only some of the shares you receive into the Offer, or (2) tender the
shares you receive upon exercise into the Offer but elect to receive Quest
Diagnostics common stock instead of cash for some of the shares acquired upon
exercise, you must deliver the option exercise price by cash or check to the
offer exchange agent by prior to the Acceptance Date. If the Acceptance Date
does not occur, your check or cash will be returned to you. In addition,
promptly following the Acceptance Date, you must deliver to the offer exchange
agent the payroll and withholding taxes due as a result of the ordinary income
you recognize upon exercise of the stock option. As an alternative, we are
planning to establish a process with Salomon Smith Barney under which you would
not be required to deliver payment of the exercise price before the Acceptance
Date as long as you have provided irrevocable instructions to Salomon Smith
Barney for a market order to sell, following the Acceptance Date, a sufficient
number of shares of Quest Diagnostic common stock to pay the exercise prive and
the witholding taxes. Salomon Smith Barney will then pay the exercise price and
the witholding taxes out of the proceeds of such sale. We will provde you with
more information about this alternative in the near future.
Q - Am I required to exercise my Unilab stock options?
A - No, you are not required to exercise your Unilab stock options. Any Unilab
stock options not exercised will be converted into vested and exercisable Quest
Diagnostics stock options when the Merger occurs.
Q - How will my Unilab stock options be converted into Quest Diagnostics stock
options?
A - This is best explained by an example. Applying the adjustment formula
described above, if you hold Unilab stock options to purchase 10,000 shares of
Unilab common stock at an exercise price of $5.93, those Unilab stock options
would be adjusted as follows:
--------------------------------------------------------------------------------
Number of stock options Number of stock options
to purchase Unilab shares to purchase Quest
Diagnostics shares
------------------------- (multiplied by 0.3256) -----------------------
10,000 -> 3,256
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Unilab Exercise Price Quest Diagnostics
exercise price
------------------------- (divided by 0.3256) -----------------------
$5.93 -> $18.2125
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Aggregate value of stock Aggregate value of
options stock options
------------------------- = -----------------------
$59,300 $59,300
--------------------------------------------------------------------------------
Although the number of shares subject to the option has decreased and the option
exercise price has increased, you will be holding Quest Diagnostics stock
options with option "spread" equal to that of your Unilab stock options prior to
the conversion.
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Q - If I don't exercise my Unilab stock options, will Quest Diagnostics send me
a letter telling me how many Quest Diagnostics stock options I hold and the per
share exercise price of the options?
A - Yes, Quest Diagnostics will provide you with this information as well as (i)
a summary of the Amended and Restated Unilab Stock Option Plan that will be
assumed by Quest Diagnostics upon completion of the Merger (ii) a prospectus and
(iii) information regarding procedures applicable to exercising Quest
Diagnostics stock options.
Q - Will shares of Quest Diagnostics common stock acquired upon exercise of the
Quest Diagnostics stock options be subject to transferability restrictions?
A - No, unlike shares of Unilab common stock that you may have acquired upon
exercise of your Unilab stock options, the shares of Quest Diagnostics common
stock that you acquire upon exercise of Quest Diagnostics stock options will be
freely transferable and can be sold at any time in accordance with Quest
Diagnostics policy and in compliance with applicable law.
Q - If I don't exercise some or all of my Unilab stock options, when will my
converted Quest Diagnostics stock options expire?
A - Your converted Quest Diagnostics stock options will expire on the same date
that your Unilab stock options were scheduled to expire.
Q - Who can I contact if I have further questions?
A - If you have any questions, you should contact either David Gee at (425) 898
3100 or Brian Urban at (818) 996 7300.
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