Exhibit 10.1
December 7, 2005
Laboratory Corporation of America
Holdings
358 South Main Street
Burlington, North Carolina 27215
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Re:
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Enhanced
Overnight Share Repurchase
(Reference Number NY-20574 )
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Ladies and Gentlemen:
SECTION 1. Initial Shares;
Seller’s Initial Hedge .
(a) Bank of America, N.A. (the
“ Seller ”) will sell to Laboratory Corporation
of America Holdings, a Delaware corporation (the “
Company ”), and the Company will purchase from the
Seller for settlement on December 12, 2005 (the “ Purchase
Date ”), 4,803,996 shares (the
“ Initial Shares ”) of common stock, par value
$0.10 per share, of the Company (the “ Common Stock
”) at a purchase price (the “ Purchase Price
”) equal to the number of the Initial Shares multiplied by
$52.04. Such sale shall be effected in accordance with the
Seller’s customary procedures.
(b) In connection with its purchase
of the Initial Shares, and in addition to the payment of the
Purchase Price, the Company will pay on the Purchase Date a
brokerage fee of $0.03 per Initial Share to Banc of America
Securities LLC (“ BAS ”), which is registered as
a broker and a dealer under the Securities Exchange Act of 1934, as
amended (the “ Exchange Act ”).
(c) Following the Purchase Date, the
Seller shall establish the Seller’s initial hedge of the
price and market risk of the transactions contemplated hereby as a
result of the Cap Price (the “ Seller’s Initial
Hedge ”) (it being understood that the Seller’s
Initial Hedge shall not include the sale and purchase of the
Initial Shares pursuant to Section 1(a) above). Subject to Section
7(b) below, upon the completion of the Seller’s Initial
Hedge, the Seller shall determine the Cap Price, the Hedge
Execution Price and the Premium in the manner set forth below based
on the Seller’s Initial Hedge, and shall deliver to the
Company a supplemental terms notice substantially in the form of
Appendix C hereto (the “ Supplemental Terms Notice
”) within two Business Days following the completion of the
Seller’s Initial Hedge.
(d) In addition, in consideration of
the terms contained in this Letter Agreement, the Company hereby
agrees to pay the Premium to the Seller on the Premium Payment Date
specified in the Supplemental Terms Notice, subject to Section 7(b)
below.
SECTION 2. Definitions
.
As used in this Letter Agreement,
the following terms shall have the following meanings:
“ Announcement Date
” means the date of first public announcement of any
corporate event involving the Company or the Common Stock that, in
the determination of the Calculation Agent, is, as of such date, or
becomes at any date subsequent to such date but on or prior to the
last day of the Averaging Period, a Friendly Transaction, or the
first date of public announcement by the Company that the Company
is engaged in discussions with another party concerning a potential
Friendly Transaction or is considering strategic alternatives that,
if consummated, would be or include a Friendly Transaction (as
determined by the Calculation Agent in its reasonable
discretion).
“ Averaging Period
” means the period of consecutive Trading Days commencing on
the first Trading Day immediately following the Trade Date and
ending on June 13, 2006; provided that the Seller may, in
its absolute discretion, accelerate the last day of the Averaging
Period to any Trading Day on or after April 12, 2006 upon written
notice to the Company (it being understood that such notice may be
given on the same date that the Seller elects to be the last day of
the Averaging Period).
“ Average Purchase
Price ” means the arithmetic average of the Daily Average
Prices for all Trading Days during the Averaging Period.
“ BAS ” has the
meaning specified in Section 1(b).
“ Business Day ”
means any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of
New York.
“ Calculation Agent
” means BAS.
“ Cap Fair Market Value
” means the fair market value on the Measurement Date, as
determined by the Calculation Agent, of a call option, written by
the Seller, with a settlement amount equal to the excess, if any,
of the product of 0.50 and the Repurchase Cost (calculated without
regard to the proviso to the definition thereof) over the product
of 2,401,998 and the Cap Price, and a settlement date equal to the
date that the Calculation Agent, in its good faith reasonable
discretion, as of the Measurement Date, expects will be the last
day of the Averaging Period.
“ Cap Price ”
means the price per share specified as such in the Supplemental
Terms Notice, which shall be equal to 115% of the Hedge Execution
Price.
“ Common Stock ”
has the meaning specified in Section 1(a).
“ Company ” has
the meaning specified in Section 1(a).
“ Daily Average Price
” means (i) for any Trading Day in the Averaging Period, the
Reported VWAP for such Trading Day minus $0.70 or (ii) for
any Trading Day in the Valuation
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Period, the dollar volume weighted average price
per share of Common Stock for that Trading Day based on
transactions executed by the Seller or its designated affiliate
during that Trading Day in connection with the settlement of this
Letter Agreement.
“ Designee ” has
the meaning specified in Section 15.
“ Exchange ”
means, at any time, the principal national securities exchange or
automated quotation system, if any, on which the Common Stock is
listed or quoted at such time.
“ Exchange Act ”
has the meaning specified in Section 1(b).
“ Federal Funds Rate
” means, for any day, the rate on such day for Federal Funds,
as published by Bloomberg and found by pressing the following
letters “FEDSOPEN” followed by pressing the
<Index> key and pressing the following letters
“HP” followed by pressing the <Go> key;
provided that if any such day is not a New York Banking Day,
the Federal Funds Rate for such day shall be the Federal Funds Rate
for the immediately preceding New York Banking Day.
“ Friendly Transaction
” means any Merger Event or Tender Offer that is approved,
agreed to or recommended by the Company or its board of directors,
or negotiated by the Company or any authorized representative of
the Company, including without limitation (i) any transaction
involving the merger of the Company with or into any third party
and (ii) any transaction in which the Company or its board of
directors has a legal obligation to make a recommendation to its
shareholders in respect of such transaction (whether pursuant to
Rule 14e-2 under the Exchange Act or otherwise) and does not
recommend that its shareholders reject such transaction.
“ Hedge Execution Price
” means the price per share specified as such in the
Supplemental Terms Notice, which shall be equal to the net volume
weighted average price per share at which the Seller executes the
Seller’s Initial Hedge, as determined by the Calculation
Agent.
“ Initial Shares
” has the meaning specified in Section 1(a).
“ ISDA Definitions
” means the 2002 ISDA Equity Derivatives Definitions, as
published by the International Swaps and Derivatives Association,
Inc.
“ Make-Whole Payment
Shares ” has the meaning specified in Section
5(c).
“ Maximum Deliverable
Number ” means 15,000,000, subject to adjustment pursuant
to Section 7(a).
“ Measurement Date
” means the tenth Business Day prior to the Announcement
Date.
“ Merger Event ”
has the meaning specified in the ISDA Definitions. For purposes of
the ISDA Definitions, the Shares are shares of Common Stock, the
Issuer is the Company, the Merger Date shall be deemed to be the
Announcement Date and the final Valuation Date shall be deemed to
be the last day of the Averaging Period.
“ New York Banking Day
” means any day except for a Saturday, Sunday or a day on
which the Federal Reserve Bank of New York is closed.
“ Payment Shares
” means Restricted Payment Shares or Make-Whole Payment
Shares.
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“ Premium ” means
the amount specified as such in the Supplemental Terms Notice,
which shall be an amount equal to the product of (i) 2,401,998
multiplied by (ii) the Hedge Execution Price multiplied
by (iii) 1.2%.
“ Premium Payment Date
” means the date specified as such in the Supplemental Terms
Notice, which shall be the third Business Day following the
completion of the Seller’s Initial Hedge.
“ Private Placement
Agreement ” has the meaning specified in Section
6(a)(iii).
“ Purchase Date ”
has the meaning specified in Section 1(a).
“ Purchase Price
” has the meaning specified in Section 1(a).
“ Refund Shares ”
has the meaning specified in Section 5(a)(i)(A).
“ Regulation M ”
means Regulation M under the Exchange Act.
“ Remaining Scheduled
Days ” means the scheduled number of Trading Days
remaining in the Averaging Period or the Valuation Period as of the
time of any suspension of the Averaging Period or the Valuation
Period, as the case may be.
“ Reported VWAP ”
means, for any Trading Day, the dollar volume weighted average
price per share of Common Stock for that Trading Day based on
transactions executed during that Trading Day on the Exchange,
excluding (i) transactions that do not settle regular way, (ii)
opening transactions (regular way) reported in the consolidated
system, (iii) transactions effected during the 10 minutes before
the scheduled close of trading on the Exchange and 10 minutes
before the scheduled close of the primary trading session in the
market where the transaction is effected and (iv) transactions on
such day that do not satisfy the requirements of Rule 10b-18(b)(3)
under the Exchange Act (in each case as determined by the
Calculation Agent), as reported on Bloomberg Page “LH.N
<Equity> AQR SEC” (or any successor thereto) or, in the
event such price is not so reported on such Trading Day for any
reason, as reasonably determined by the Calculation
Agent.
“ Repurchase Cost
” means the product of (i) the Average Purchase Price
multiplied by (ii) the number of Initial Shares;
provided that, if such sum is greater than the product of
the Cap Price and the number of the Initial Shares, the Repurchase
Cost shall be the sum of (x) the Cap Price multiplied by
2,401,998 plus (y) the Repurchase Cost calculated without
regard to this proviso multiplied by 0.50.
“ Requirements ”
has the meaning specified in Section 3(b).
“ Restricted Payment
Shares ” has the meaning specified in Section
5(a)(ii).
“ Restricted Share
Amount ” means the quotient of (i) the absolute value of
the Settlement Amount divided by (ii) the Restricted Share
Value of a Restricted Payment Share.
“ Restricted Share
Value ” means, with respect to any Restricted Payment
Shares or Make-Whole Payment Shares, 95% of the value thereof per
share to the Seller, determined by the Calculation Agent by
commercially reasonable means.
“ Rule 10b-18 ”
means Rule 10b-18 under the Exchange Act.
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“ Securities Act
” means the Securities Act of 1933, as amended.
“ Seller ” has
the meaning specified in Section 1(a).
“ Seller’s Initial
Hedge ” has the meaning specified in Section
1(c).
“ Settlement Amount
” means an amount equal to (i) the Purchase Price
minus (ii) the Repurchase Cost, subject to adjustment as
provided in Section 7(b).
“ Settlement Balance
” has the meaning specified in Section 5(c).
“ Settlement Day
” means any day that is not a Saturday, a Sunday or a day on
which banking institutions or trust companies in The City of New
York are authorized or obligated by law or executive order to
close. A Settlement Day “corresponds” to a Trading Day
if it is the day for settlement of regular way transactions for
equity securities entered into on the Exchange on that Trading
Day.
“ Share Amount ”
means, for any Trading Day, the quotient of (i) the product of (A)
the Valuation Fraction multiplied by (B) the absolute value
of the Settlement Amount, divided by (ii) the Daily Average
Price for that Trading Day.
“ Supplemental Terms
Notice ” has the meaning specified in Section
1(c).
“ Tender Offer ”
has the meaning specified in the ISDA Definitions. For purposes of
the ISDA Definitions, the Issuer is the Company.
“ Trade Date ”
means the date of completion of the Seller’s Initial Hedge
(as determined by the Seller in good faith).
“ Trading Day ”
means any day (i) other than a Saturday, a Sunday or a day on which
the Exchange is not open for business, (ii) during which trading of
any securities of the Company on any national securities exchange
has not been suspended and (iii) during which there has not been,
in the Calculation Agent’s judgment, a material limitation in
the trading of Common Stock.
“ Valuation Fraction
” means a fraction, the numerator of which is one and the
denominator of which is the number of Trading Days in the Valuation
Period.
“ Valuation Period
” means, in the case of settlement pursuant to Sections
5(a)(i)(A) or 5(a)(ii)(A), the period commencing on the first
Trading Day immediately following the final day of the Averaging
Period. The number of Trading Days in the Valuation Period shall be
determined by the Seller in its discretion and notified to the
Company by the Seller prior to the commencement of the Valuation
Period. Without limiting the generality of Section 3(b), in the
case of settlement pursuant to Section 5(a)(i)(A), the number of
Trading Days in the Valuation Period shall be a number of Trading
Days that the Seller reasonably expects, based on information
provided to the Seller by the Company and readily available market
information, will result in Share Amounts for each Trading Day
during the Valuation Period that will be less than or equal to the
maximum number of shares of Common Stock that the Company could
have purchased on such Trading Day in compliance with the
conditions set forth in Rule 10b-18. For the avoidance of doubt, if
the Company elects either to receive a cash payment pursuant to
Section 5(a)(i)(B) or make a cash payment pursuant to Section
5(a)(ii)(B), there will be no Valuation Period.
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SECTION 3. Seller Purchases
.
(a) The Initial Shares may be sold
short to the Company. It is understood that during the Averaging
Period the Seller shall purchase shares of Common Stock in
connection with this Letter Agreement, which shares may be used to
cover all or a portion of such short sale and, if the Settlement
Amount is greater than zero, during the Valuation Period the Seller
will purchase shares of Common Stock to fulfill its obligations to
deliver Refund Shares to the Company pursuant to Section 5. Such
purchases will be conducted independently of the Company. The
timing of such purchases by the Seller, the number of shares
purchased by the Seller on any day, the price paid per share of
Common Stock pursuant to such purchases and the manner in which
such purchases are made, including without limitation whether such
purchases are made on any securities exchange or privately, shall
be within the absolute discretion of the Seller. It is the intent
of the parties that this transaction comply with the requirements
of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act, and the parties
agree that (i) this Letter Agreement shall be interpreted to comply
with the requirements of Rule 10b5-1(c), and (ii) they shall take
no action that results in this transaction not so complying with
such requirements. Without limiting the generality of the preceding
sentence, the Company acknowledges and agrees that (A) the Company
does not have, and shall not attempt to exercise, any influence
over how, when or whether the Seller effects any purchases of
Common Stock in connection with this Letter Agreement, (B) during
the period beginning on (but excluding) the date of this Letter
Agreement and ending on the last day of the Valuation Period, if
any, neither the Company nor its officers or employees shall,
directly or indirectly, communicate any information regarding the
Company or the Common Stock to any employee of the Seller or its
affiliates responsible for trading the Common Stock in connection
with the transactions contemplated hereby, (C) the Company is
entering into this Letter Agreement in good faith and not as part
of a plan or scheme to evade compliance with federal securities
laws including, without limitation, Rule 10b-5 promulgated under
the Exchange Act and (D) the Company will not alter or deviate from
this Letter Agreement or enter into or alter a corresponding
hedging transaction with respect to the Common Stock. The Company
also acknowledges and agrees that any amendment, modification,
waiver or termination of this Letter Agreement must be effected in
accordance with the requirements for the amendment of a
“plan” as defined in Rule 10b5-1(c) under the Exchange
Act. Without limiting the generality of the foregoing, any such
amendment, modification, waiver or termination shall be made in
good faith and not as part of a plan or scheme to evade the
prohibitions of Rule 10b-5 under the Exchange Act, and no such
amendment, modification, waiver or termination shall be made at any
time at which the Company or any officer or director of the Company
is aware of any material nonpublic information regarding the
Company or the Common Stock.
(b) In the event that the Seller
reasonably determines that it is appropriate with regard to any
legal, regulatory or self-regulatory requirements or related
policies and procedures (whether or not such requirements, policies
or procedures are imposed by law or have been voluntarily adopted
by the Seller, and including without limitation Rule 10b-18, Rule
10b-5, Regulation 13D-G and Regulation 14E under the Exchange Act,
“ Requirements ”), for the Seller to refrain
from purchasing Common Stock or to purchase fewer than the number
of shares of Common Stock that the Seller would otherwise purchase
on any Trading Day during the Averaging Period or, if the
Settlement Amount is greater than zero, the Valuation Period, then
the Seller may, in its discretion, elect that the Averaging Period
or the Valuation Period, as the case may be, be suspended as
appropriate with regard to any Requirements. The Seller shall
notify the Company upon the exercise of the Seller’s rights
pursuant to this Section 3(b) and shall subsequently notify the
Company on the day the Seller believes that the circumstances
giving rise to such exercise have changed. If the Averaging Period
or the Valuation Period is suspended by the Seller pursuant to this
Section 3(b), at the end of such suspension the Seller shall
determine the number of Trading Days remaining in the Averaging
Period or the Valuation Period, as the case may be, which number
shall not exceed the Remaining Scheduled Days as of the time of
such suspension.
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(c) The Company agrees that neither
the Company nor any of its affiliates or agents shall take any
action that would cause Regulation M to be applicable to any
purchases of Common Stock, or any security for which the Common
Stock is a reference security (as defined in Regulation M), by the
Company or any of its affiliated purchasers (as defined in
Regulation M) during the Averaging Period or, if the Settlement
Amount is greater than zero, the Valuation Period.
(d) The Company shall, at least one
day prior to the first day of the Averaging Period, notify the
Seller of the total number of shares of Common Stock purchased in
Rule 10b-18 purchases of blocks pursuant to the once-a-week block
exception contained in Rule 10b-18(b)(4) by or for the Company or
any of its affiliated purchasers during each of the four calendar
weeks preceding the first day of the Averaging Period and during
the calendar week in which the first day of the Averaging Period
occurs (“Rule 10b-18 purchase”, “blocks”
and “affiliated purchaser” each being used as defined
in Rule 10b-18), which notice shall be substantially in the form
set forth as Appendix B hereto.
(e) From the date hereof through the
last day of the Averaging Period or, if the Settlement Amount is
greater than zero, through the last day of the Valuation Period,
the Company shall (i) notify the Seller prior to the opening of
trading in the Common Stock on any day on which the Company makes,
or expects to be made, any public announcement (as defined in Rule
165(f) under the Securities Act) of any merger, acquisition, or
similar transaction involving a recapitalization relating to the
Company (other than any such transaction in which the consideration
consists solely of cash and there is no valuation period), (ii)
promptly notify the Seller following any such announcement that
such announcement has been made, and (iii) promptly deliver to the
Seller following the making of any such announcement a certificate
indicating (A) the Company’s average daily Rule 10b-18
purchases (as defined in Rule 10b-18) during the three full
calendar months preceding the date of the announcement of such
transaction and (B) the Company’s block purchases (as defined
in Rule 10b-18) effected pursuant to paragraph (b)(4) of Rule
10b-18 during the three full calendar months preceding the date of
the announcement of such transaction. In addition, the Company
shall promptly notify the Seller of the earlier to occur of the
completion of such transaction and the completion of the vote by
target shareholders. The Company acknowledges that any such public
announcement may cause the Averaging Period or Valuation Period, as
the case may be, to be suspended pursuant to Section 3(b).
Accordingly, the Company acknowledges that its actions in relation
to any such announcement or transaction must comply with the
standards set forth in Section 3(a).
SECTION 4. Company Purchases
.
Without the prior written consent of
the Seller, which consent shall not be unreasonably withheld or
delayed, the Company shall not, and shall cause its affiliates and
affiliated purchasers (each as defined in Rule 10b-18) not to,
directly or indirectly (including, without limitation, by means of
a cash-settled or other derivative instrument) purchase, offer to
purchase, place any bid or limit order that would effect a purchase
of, or commence any tender offer relating to, any shares of Common
Stock (or an equivalent interest, including a unit of beneficial
interest in a trust or limited partnership or a depository share)
or any security convertible into or exchangeable for shares of
Common Stock during the period beginning on, and including, the
Purchase Date and ending on, and including, the date all payments
or deliveries of shares pursuant to Section 5 below have been made;
provided that purchases of shares of Common Stock effected
by or for a plan of the Company by an agent independent of the
issuer that satisfy the requirements of
7
Rule 10b-18(a)(13)(ii) (“plan” and
“agent of the issuer” each being used as defined in
Rule 10b-18) shall not be subject to the requirements of this
sentence; provided further that, for purposes of this
Section 4, the Seller hereby consents to the Rule 10b5-1 Stock
Purchase Plan entered into between the Company and an affiliate of
the Seller on the date of this Letter Agreement. During such time,
any purchases of Common Stock (or any security convertible into or
exchangeable for shares of Common Stock) by the Company shall be
made through BAS, which is an affiliate of the Seller, pursuant to
a letter substantially in the form of Appendix A hereto and subject
to such conditions as the Seller shall impose, and shall be in
compliance with Rule 10b-18 or otherwise in a manner that the
Company and the Seller believe is in compliance with applicable
requirements (including, without limitation, Rule 10b-5, Regulation
13D-G and Regulation 14E under the Exchange Act). Notwithstanding
the foregoing, the Seller acknowledges that directors, officers and
employees of the Company shall be entitled, in their discretion, to
exercise stock options granted by the Company pursuant to existing
equity compensation plans without restriction or obligation to the
Seller or BAS hereunder.
SECTION 5. Purchase Price
Adjustment and Settlement .
(a) After the expiration of the
Averaging Period,
(i) if the Settlement Amount is
greater than zero, as an adjustment to the Purchase Price, the
Company shall elect either for
(A) the Seller to transfer to the
Company, for no additional consideration, a number of shares of
Common Stock equal to the sum of the Share Amounts for each of the
Trading Days in the Valuation Period (the “ Refund
Shares ”) in the manner provided in Section 5(b),
or
(B) the Seller to make a cash
payment to the Company in immediately available funds in an amount
equal to the Settlement Amount on the Settlement Day corresponding
to the last Trading Day of the Averaging Period, and
(ii) if the Settlement Amount is
less than zer
