SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES 
     EXCHANGE ACT OF 1934

     For the fiscal year ended         December 31, 1997

[ ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  
     EXCHANGE ACT OF 1934

     For the transition period from __________ to __________

                           Commission File No. 0-22758

                               UNILAB CORPORATION
             (Exact name of Registrant as specified in its Charter)

               Delaware                                   95-4415490            
               --------                                   ----------            
     (State or other jurisdiction                      (I.R.S. Employer 
     of incorporation or organization                  Identification No.)

     18448 Oxnard Street,  Tarzana, California        91356
     -----------------------------------------        -----
     (Address of principal executive offices)       (Zip code)

                                 (818) 996-7300
                                 --------------
              (Registrant's telephone number, including area code)

     Securities registered pursuant to Section 12(b) of the Act: None
     Securities registered pursuant to Section 12(g) of the Act:

     Title of Each Class               Name of Each Exchange on Which Registered
     -------------------               -----------------------------------------
     Common Stock, $.01 par value                   American Stock Exchange

     Indicate by check mark whether the Registrant (1) has filed all reports
     required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
     of 1934 during the preceding 12 months (or for such shorter period that the
     Registrant was required to file such reports), and (2) has been subject to
     such filing requirement for the past 90 days. Yes [X]  No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to item
     405 of regulation S-K is not contained herein, and will not be contained,
     to the best of registrant's knowledge, in definitive proxy or information
     statements incorporated by reference in Part III of this Form 10-K or any
     amendment to this Form 10-K. [ ]

     At February 9, 1998, 40,597,626 shares of Registrant's Common Stock, par
     value $.01 per share were outstanding. The aggregate market value of the
     Common Stock, based on the closing price on the American Stock Exchange as
     of February 9, 1998, held by nonaffiliates of the Registrant was
     approximately $96.1 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part II - Portions of the Annual Report to shareholders for the year ended
     December 31, 1997

     Part III - Proxy Statement for Annual Meeting of Stockholders to be held
     May 19, 1998

     Page 1 of 40 pages.


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                                TABLE OF CONTENTS

Item                                                                PAGE
----                                                                ----

Part I.    1 Business..............................................     3

           2 Properties............................................    19

           3 Legal Proceedings.....................................    20

           4 Submission of Matters to a Vote
             of Security Holders...................................    23

Part II.   5 Market for the Registrant's Common Equity and
             Related Stockholder Matters...........................    25

           6 Selected Financial Data...............................    26

           7 Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................    27

           8 Financial Statements and Supplementary Data...........    27

           9 Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure...................    27

Part III. 10 Directors and Executive Officers of the Registrant....    28

          11 Executive Compensation................................    28

          12 Security Ownership of Certain Beneficial Owners
             and Management and Directors..........................    28

          13 Certain Relationships and Transactions with Related
             Persons...............................................    28

Part IV.  14 Exhibits, Financial Statements, Financial Statement
             Schedules and Reports on Form 8-K.....................    29

Signatures  .......................................................    31


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                                     PART I

Item 1.     Business

General

            Unilab Corporation ("Unilab" or the "Company") is the largest
independent clinical laboratory testing company in California, providing
laboratory testing services to physicians, managed care groups, hospitals and
other health care providers. The Company believes that its revenues in
California for the year ended December 31, 1997 were approximately twice the
annual sales in California of the next largest independent clinical laboratory
in that market. During such period, Unilab had approximately 15-20% of
California's independent clinical laboratory market, which is the largest state
clinical laboratory market in the United States. As of December 31, 1997, the
Company operated three centrally-located full-service laboratories,
approximately 35 strategically-located short turn around ("STAT") laboratories
and approximately 224 conveniently-located patient service centers ("PSC").

Facilities and Testing

            Unilab currently operates three full-service clinical laboratories
in San Jose, Tarzana (Los Angeles) and Sacramento, California which offer over
1,000 clinical testing procedures, ranging from routine screening to advanced
technical procedures, used in the diagnosis, monitoring and treatment of
diseases and other medical conditions. Unilab operates 24 hours a day, 365 days
a year, utilizing a fully integrated collection and processing system. Patient
specimens are collected from client offices or Unilab's own collecting stations
and efficiently transported to full-service or STAT laboratories, where each
specimen and related test request form is checked for completeness, bar coded
and logged for testing and billing purposes into Unilab's computer system.
Laboratory technicians then perform the requested tests, with results generally
available to clients the next morning. Unilab's clinical computer program keeps
track of patients' samples, reports test results in a readable format and
maintains records and billing information. The Company is in the process of
upgrading and modifying its laboratory, billing and accounting systems in order
for such systems to properly recognize and perform date calculations in the year
2000 (the "Year 2000 issue"). The Company anticipates that it will cost
approximately $500,000 for additional hardware, upgraded software and consulting
time to enable the Company to properly address the Year 2000 issue. While the
consequences of an incomplete or untimely resolution of the Year 2000 issue
could have a significant impact on the Company's ability to finalize laboratory
results, properly bill the numerous different payor groups and gather and report
financial information, the Company believes that it will adequately resolve the
Year 2000 issue. The Company believes it will have all necessary steps to deal
with the Year 2000 issue in place by late 1998 and early 1999 in order to
provide sufficient time for modifications, if any, prior to the arrival of the
year 2000.

            As of December 31, 1997, on an average workday, Unilab processed
approximately 33,200 patient specimens and performed over 62,000 clinical tests.
Tests performed by Unilab measure the levels of, and analyze chemical and
cellular components in, human body fluids and tissue and are used in the
diagnosis, monitoring and treatment of disease. They include procedures in the
areas of blood chemistry, hematology, urine chemistry, tissue pathology and
cytology, among others. Commonly ordered individual tests include red and white
blood cell counts, PAP smears, blood cholesterol level tests, urinalysis and
procedures to measure

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blood sugar levels and to determine pregnancy. Routine test groups include tests
to determine the function of the kidney, heart, liver and thyroid, as well as
other organs, and a general health screen that measures several important body
health parameters. Many of the routine tests are performed by automated
equipment and are capable of being performed and reported within a 24-hour
period. Approximately 85% of the tests conducted by Unilab are considered to be
routine. Reports are frequently sent via telecommunications to equipment
installed by Unilab in the physicians' offices or are delivered by hard copy.

            Unilab also conducts esoteric testing services. Esoteric tests
generally require complex manual techniques, a higher degree of technical skill
and knowledge and sophisticated equipment. As a consequence, esoteric tests are
priced higher than routine tests. Two examples of esoteric tests provided by
Unilab include immunoelectrophoresis, used for the diagnosis of autoimmune
disorders and myelomas, and hepatitis markers, used for the diagnosis of acute
hepatitis A and B and for identification of chronic carriers of these diseases.
The number of esoteric tests performed by the Company has been increasing as new
medical discoveries are made and testing procedures developed. Unilab performs
more than 98% of the tests requested by its clients, with less than 2% performed
by third party reference laboratories with whom Unilab contracts. On a revenue
basis, approximately 7% of testing fees collected by Unilab are paid to third
party reference laboratories or pathology services.

Customers

            Unilab provides testing services to a broad range of health care
providers. The following factors, among others, are often used by health care
providers in selecting a laboratory: (i) accuracy, timeliness and consistency in
reporting test results; (ii) number and type of testing services performed;
(iii) service capability and convenience offered by the laboratory; (iv) pricing
of the laboratory's testing services; and (v) reputation of the laboratory for
the foregoing.

            The primary types of customers that Unilab services are as follows:

o Independent Physicians and Physician Groups. Physicians performing testing for
their patients who are unaffiliated with a pre-paid health plan are the
principal source of Unilab's clinical laboratory business. Unilab markets its
services to physicians through its sales force and competes primarily on the
basis of the accuracy of testing, convenient locations for patient specimen
collection, rapid test result reporting and informational services, and its
competitive pricing. Fees for clinical laboratory testing services rendered for
physicians are billed either to the physician, to the patient, or to the
patient's third-party payor such as Blue Cross, Medicare and Medicaid.

o HMOs and Other Managed Care Groups. HMOs and other managed care groups (which
designate the laboratory to be used for tests ordered by the physician)
generally select an independent laboratory based on competitive pricing offered
to high volume customers, capability of the laboratory to effectively service
incremental blocks of business, field distribution system, including couriers
and PSCs to service their networks of physician providers, and the reputation of
the laboratory in the medical community.

o Hospitals. Unilab provides esoteric testing for hospitals which are not
equipped to perform such sophisticated tests and general reference testing for
hospitals which have reduced or eliminated their in-hospital laboratory testing
in an attempt to reduce their cost of delivering 


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patient care. The selection of an independent laboratory by hospitals is usually
based on reputation of the laboratory in the medical community, type of services
offered, accuracy, timeliness and consistency of test results and competitive
pricing.

o Independent Laboratories. Unilab also provides reference testing services to
independent clinical laboratories which do not have the full range of Unilab's
testing capabilities.

            California has the highest enrollment rate (approximately 40% of the
population) in managed care plans of any state in the country and, as a result,
delivery of health care to participants in such plans has become integral to the
health care delivery system throughout the state. The proliferation of managed
care providers in the healthcare industry has altered the customer base of
healthcare service providers, especially in California. From 1993 to 1994,
Unilab more than doubled its number of covered lives (i.e., individuals covered
by contracts between pre-paid health plans and Unilab for the provision of
laboratory services) to over 2 million lives. During 1995 the Company continued
to serve a similar number of covered lives, and during the first half of 1996,
increased its managed care coverage to over 2 1/2 million lives, which is
approximately the number of covered lives serviced by the Company today. This
business had historically been viewed as having substantial value, in large part
because of the economies of scale inherent in its considerable volume. It was
also viewed as a competitive advantage in obtaining additional non-managed care
business generated from many of the same offices which were serving managed care
patients. Increasingly, Unilab, like other major laboratory companies, has come
to recognize that the pricing received in relation to the cost of services
provided to managed care patients was disproportionately low, and the Company
undertook a concerted effort in 1997 to improve the situation. To this end,
Unilab renegotiated contracts representing approximately two-thirds of the
covered lives and received an average price increase in excess of 50% on those
renegotiated contracts. In addition, these contracts have increasingly been
structured so that they exclude unlimited high cost services, such as high
labor-intensive pap smears and outsourced esoteric tests. Unilab is committed to
providing high quality laboratory testing at profitable pricing levels.

Specimen Collection and Processing

            Unilab utilizes an extensive distribution and collection system of
approximately 350 couriers, approximately 224 PSCs and approximately 20 courier
hubs to achieve efficient and integrated collection and testing. Courier routes
are logically designed based on lab location, geographic density and specimen
volume. Strategically located full service labs and satellite courier "hubs"
serve as control centers to ensure courier routing is efficient and tightly
controlled. In addition, PSCs act as initial specimen processing centers
effectively putting control of the specimen in Unilab's possession earlier in
the process. The Company believes this distribution infrastructure is integral
to providing efficient, convenient and reliable service to its clients.

Quality Assurance

            Unilab believes that its quality assurance procedures meet the
highest standards in the industry. Unilab has established a comprehensive
quality assurance program for all of its laboratories and other facilities to
ensure that specimens are collected and transported properly, tests are
performed accurately, and client, patient and test information are reported,
billed and filed correctly. Unilab's quality assurance programs include (i)
preventive maintenance of laboratory testing equipment, (ii) maintenance of high
personnel standards and training which 


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require that only qualified personnel perform testing and (iii) testing of
control specimens in order to ensure accuracy and precision of test equipment.
In addition, all laboratories certified by the Health Care Financing
Administration ("HCFA") for participation in the Medicare program under the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"), such as Unilab,
must participate in basic quality assurance programs. Each of Unilab's
laboratories is licensed (or has licensure pending) by its respective state
authorities and certified by HCFA for participation in the Medicare program
under CLIA.

            In addition, Unilab participates in a number of independent
proficiency testing programs. Participation in a federally recognized
proficiency testing program is a requirement of CLIA. Under these programs, an
independent testing authority submits pre-tested samples to a laboratory. These
tests measure the laboratory's test results against known proficiency test
values. Unilab also participates in a number of proficiency testing programs
which generally entail submitting pre-tested samples to a laboratory to verify
the laboratory test results against the known proficiency test value. These
proficiency programs are conducted both by Unilab on its own and in conjunction
with groups such as the College of American Pathologists ("CAP"), and state and
Federal government regulatory agencies. CAP is an independent non-governmental
organization of board certified pathologists which offers an accreditation
program to which laboratories can voluntarily subscribe. CAP accreditation
program involves both on-site inspections of the laboratory and participation in
CAP's proficiency testing program for all categories in which the laboratory is
accredited by CAP. CAP's proficiency testing program is federally recognized for
purposes of CLIA. A laboratory's receipt of accreditation by CAP satisfies the
Medicare requirement for participation in proficiency testing programs
administered by an external source. Each of Unilab's full-service laboratories
in Sacramento, San Jose and Tarzana has earned full accreditation by CAP. In the
1997 External Proficiency Testing Program conducted by CAP at the Company's
three primary laboratories, the total accuracy rate for all sections of the
laboratories was 99.5%, slightly better than the 1996 cumulative accuracy rate
of 99.4%, 1995 cumulative accuracy rate of 99.3% and the 1994 rate of 99.2%.

Sales, Service and Marketing

            As of December 31, 1997, Unilab employed a full-time sales,
marketing and account service manager staff of approximately 78 people. Members
of the sales, service and marketing staff are selected based upon their skill
and experience. In addition, all sales, service and marketing personnel
participate in training programs developed to provide detailed and specialized
knowledge of the requirements of Unilab's varied market segments. Compensation
packages for certain of such persons contain an element of commission-based
income and are designed to reward individual performance for increasing
collectible revenue through expanding the Company's client base with the
addition of quality business.

            Unilab continuously monitors existing accounts and assesses service
levels in order to maintain client relationships and identify and resolve any
potential client dissatisfaction. Unilab's account service managers also monitor
advances in testing technologies and notify physician clients of the
availability of such advances. Compensation packages for account service
managers are designed to reward individual performance for retaining existing
client accounts. Certain individuals serve both sales and service functions.


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Acquisitions

            Unilab's management, while employed by the Company or its
predecessor, has successfully executed and integrated a number of acquisitions
in the clinical laboratory industry, which have accounted for a substantial
portion of the Company's growth. Since 1989, the Company or its predecessor has
completed eight acquisitions in California, including four since 1994 with
aggregate revenues in excess of $50 million. While the Company does not intend
to focus in the short term on growth through acquisition, Unilab may selectively
seek acquisitions designed to result in cost savings and other benefits
resulting from the elimination or reduction of (i) redundancies in testing
equipment and personnel, (ii) overlapping courier routes, (iii) overlapping PSCs
and STAT laboratories, (iv) duplicative administrative personnel and (v)
redundant marketing efforts and personnel. The Company seeks to achieve
consolidation efficiencies within six to eighteen months after completion of an
acquisition.

MLN Acquisition

            On May 16, 1995, Unilab acquired MLN Holding Acquisition Co., the
parent company of Medical Laboratory Network, Inc. ("MLN"), a Ventura,
California based clinical laboratory company. The acquisition of MLN, which
operated a network of one regional laboratory, five STAT laboratories and 31
PSCs in California, significantly increased Unilab's market share in several
regions of California (Ventura County, Santa Barbara County, Sonoma County and
Fresno). The operations of MLN were substantially integrated with those of the
Company during the period from June to September 1995. As a result of such
integration, the Company benefitted from annualized cost savings primarily
related to the reduction in headcount of approximately 100 employees, closure of
11 PSCs and downsizing of the main MLN laboratory in Ventura, California, the
disposition of laboratory equipment, furniture and fixtures, courier vehicles
and leasehold improvements due to the downsizing of the main MLN laboratory and
consolidation of other overlapping operations.

The Clinical Laboratory Industry

Overview and Trends

            Unilab believes based on published industry reports that the total
U.S. clinical laboratory market during 1997 was approximately $30 billion in
annual revenue, of which the California market accounted for approximately $4
billion. The clinical laboratory market nationally, and particularly in
California, is highly fragmented and composed of three segments: (i)
laboratories located in hospitals; (ii) laboratories located in physicians'
offices and physician-owned laboratories; and (iii) independent clinical
laboratories. Industry sources estimate that there are currently fewer than
4,500 independent clinical labs in the United States, with as many as 750
located in California. The Company believes that approximately 50% of clinical
laboratory testing revenues in California result from tests performed by
hospitals, 20% from tests performed by physicians in their offices and
physician-owned laboratories and 30% from tests performed by independent
laboratories. The Company believes that the consolidation trend of the last
several years is likely to continue, resulting in fewer independent clinical
labs both nationally and in California.


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            Clinical laboratory testing continues to be an integral part of the
delivery of health care services in the United States due to a number of
factors, including: (i) the aging of the U.S. population, resulting in increased
utilization of testing services; (ii) an increase in the number of routine tests
and esoteric tests due to advances in technology and scientific knowledge; (iii)
increased automation in testing procedures due to the development of highly
automated laboratory testing equipment which has resulted in greater
efficiencies in testing operations; (iv) increased awareness among physicians
and the general public concerning the importance of preventive medicine and
early detection; and (v) increased use of tests by physicians as protection
against potential malpractice suits. Unilab believes that there will be further
opportunities for independent laboratories to capture certain testing from the
market currently served by hospital and physician office laboratories by
focusing on the cost and service advantages which large independent laboratories
like Unilab have with respect to high volume, non-emergency testing. However,
the number of clinical laboratories has declined as hospitals and physicians
have exited the clinical laboratory business and consolidation has occurred in
the independent laboratory segment. Moreover, as a result of certain recent
required changes in the billing and collecting of Medicare and Medicaid
payments, more detailed procedures have been required, complicating the billing
and collection process and making such processes more expensive.

California Market

            California is the single largest state clinical laboratory market in
the U.S., accounting for approximately 13% of the country's laboratory testing
revenues. The Company believes that consolidation in California has occurred and
will continue for reasons similar to those which have caused the industry
nationwide to consolidate, such as: (i) the cost of compliance with increasingly
stringent regulatory requirements; (ii) the cost efficiencies afforded by
large-scale automation of routine testing; (iii) legislative developments, such
as restrictions on physician self-referrals and ownership of laboratories; (iv)
reductions in Medicare and other third-party reimbursements; (v) the growth of
HMOs and other managed care groups which require efficient testing services from
high-capacity laboratories; (vi) the increasing demand for sophisticated
equipment and management information systems that tend to be prohibitively
expensive for small laboratories; and (vii) the competition for a limited supply
of qualified laboratory personnel. The Company has focused on the California
clinical laboratory market because of (1) its size and density, (2) the high
degree of fragmentation and prospects of continued consolidation and (3)
Unilab's current leadership position in the market and the prospects of
leveraging this status across the state.

Strategy

            Unilab's objective is to build upon its position as the largest and
low cost provider of clinical laboratory testing services in California both to
provide quality and valued services to its customers and to earn a profitable
return for its stake-holders. The Company's business strategy for achieving this
objective is to maintain superior quality and service, provide ancillary
services commensurate with the value which its customers place on them, and
conduct its billing and business practices in an appropriate, efficient,
effective, and responsible manner. Similar to the actions taken in 1997, the
Company also intends to closely monitor and, where appropriate, reduce its
expense base, while simultaneously taking steps to increase its revenue stream
through higher pricing.

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Governmental Regulation

            Numerous aspects of Unilab's operations, including its testing
processes, its business practices and in some instances, the amount and methods
by which it is paid, are subject to governmental regulation at the Federal,
state and/or local levels.

Federal and State Clinical Laboratory Licensing

            All clinical laboratories operating in the United States, with
limited exceptions, are required to obtain Federal certification pursuant to
CLIA and its implementing regulations. The law and its implementing regulations
impose, as conditions for such certification, requirements relating to test
processes, personnel qualifications, facilities and equipment, recordkeeping,
quality control, quality assurance and participation in proficiency testing. The
same regulatory requirements also apply as conditions for participation in the
Medicare and Medicaid programs. CLIA regulations vary depending on the
complexity of the methodologies performed by the laboratory. Compliance is
verified by periodic on-site inspections. Sanctions for failure to meet
CLIA/Medicare certification requirements include suspension or revocation of
certification, criminal penalties, injunctive actions to close the laboratory,
civil penalties or imposition of specific plans of correction to remedy alleged
deficiencies.

            Licensing requirements similar to those imposed pursuant to CLIA
also apply at the state level, with similar sanctions for noncompliance.
Effective January 1, 1996, California Senate Bill 113 ("SB 113") became law and
amended the California laws governing clinical laboratories to make them at
least as stringent as CLIA was as of January 1, 1994. Since Unilab must comply
with CLIA in any event, SB 113 has had little practical effect on the Company.
This law could, however, impose additional regulatory burdens on
California-based physician office laboratories ("POL's") by increasing the
responsibilities of directors at POL's for oversight and supervision. In each of
the past two Congresses, however, legislation has been introduced, but not
passed, to exempt POLs from CLIA.

            Additionally, in California specific proficiency testing
participation is required for those laboratories, like Unilab, that perform
testing to detect the presence of the human immunodeficiency virus ("HIV").
Notwithstanding compliance costs, Unilab regards these licensing requirements as
beneficial to the industry and favorable to its business because the CLIA
certification requirements apply not only to independent laboratories but to all
clinical laboratories, with only narrow exceptions for those facilities
performing a limited number of simple procedures.

Federal and State Billing and Fraud and Abuse Laws

            The Federal Medicare laws impose specific billing requirements on
clinical laboratories. Generally, laboratories are required to bill the Medicare
program directly rather than billing physicians or beneficiaries. Exceptions to
this "direct billing" requirement permit a referring laboratory to bill Medicare
for testing performed by another laboratory if at least 70% of the tests for
which the referring laboratory receives requisitions are performed on-site. This
so-called "shell lab" exception is expected to benefit the independent
laboratory industry by limiting incentives for physician-owned laboratories.


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            Additionally, a wide array of Medicare/Medicaid fraud and abuse
provisions apply to those clinical laboratories participating in these programs.
These laws prohibit, among other things, (i) the submission of false claims or
false information to the programs, (ii) deceptive or fraudulent conduct, (iii)
the provision of excessive or unnecessary services or services at excessive
prices and (iv) the offer or receipt of broadly defined inducements for the
referral of Medicare, Medicaid or other federal health care program patients or
business. Penalties for violations of these Federal laws include exclusion from
participation in the Medicare/Medicaid programs, asset forfeitures, civil
penalties and criminal penalties. Civil penalties for a wide range of offenses
may be up to $10,000 per item and twice the amount claimed. In the case of
certain severe offenses, exclusion from participation in Medicare and Medicaid
is a mandatory penalty. These fraud and abuse provisions are interpreted
liberally and enforced aggressively by the various enforcing agencies of the
federal government.

            Several Federal agencies are charged with the responsibility of
investigating allegations of fraudulent and abusive conduct by health care
providers. These agencies include, without limitation, the Department of Justice
("DOJ"), Federal Bureau of Investigation ("FBI") and the Office of Inspector
General ("OIG") of the Department of Health and Human Services ("HHS").
Additionally, Medicare carriers and Medicaid state agencies now have certain
fraud and abuse control authority. According to public statements by the DOJ,
health care fraud has been elevated to the second-highest priority of the DOJ,
and FBI agents have been transferred from investigating counterintelligence
activities to health care provider fraud. The OIG also is involved in such
investigations and has, according to recent OIG Workplans, targeted certain
laboratory practices for study, investigation and prosecution. Pursuant to one
such project in the fiscal 1992/1993 Workplan, entitled "Laboratory Unbundle,"
laboratories that offer packages of tests to physicians and "unbundle" them into
"several tests to get higher reimbursement when billing Medicare and Medicaid"
were to be identified and "suitable cases will be presented for prosecution".
Under another project in the fiscal 1992/1993 Workplan, laboratories "that link
price discounts to the volume of physician referrals, `unbundle' tests in order
to bill Medicare at a higher total rate, and conduct unnecessary tests, ... will
be identified to coordinate investigations throughout the country". Such
projects culminated in the industry-wide governmental "LabScam" investigations
that have resulted in approximately $800 million of aggregate settlement
payments being made by a number of independent clinical labs in the past several
years. The LabScam investigation appears to be ongoing.

            The OIG's fiscal year 1994/1995 Workplan also targeted a wide range
of clinical laboratory practices for study and investigation. In fiscal years
1994-1995, the OIG planned to "continue to investigate potential fraud in Part B
of the Medicare program", targeting certain specific areas including "laboratory
fraud". In October 1994 the OIG issued a "Fraud Alert" targeting certain
specific practices in the clinical laboratory industry, including the provision
of free computers or fax machines to ordering physicians; the provision of free
laboratory testing for health care providers, their families and employees; the
provision of phlebotomy services to physicians; the collection by laboratories
of bio-hazardous waste from physician offices; and certain other practices. The
Fraud Alert, entitled "Arrangements for the Provision of Clinical Laboratory
Services," was disseminated widely to physicians and other providers of
Medicare/Medicaid services. In this document, the OIG asked persons who become
aware of any of the identified practices to contact OIG Regional Offices around
the U.S. Additionally, the Fraud Alert announced the OIG's plan to "actively
investigate and prosecute" the practices described in the document.

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            The OIG's 1996/97 Workplan also proposed targeting a wide range of
laboratory practices for investigation, including HCFA's enforcement of CLIA;
duplicate claims from physician office and independent laboratories for the same
tests; and billing by hospital laboratories for outpatient services. In
addition, in 1997 the OIG released a "Model Compliance Plan" for clinical
laboratories, which set out certain voluntary standards laboratories were to
follow to comply with federal fraud and abuse laws.

            The OIG's 1997/98 Workplan again identified various laboratory
practices for evaluation and investigation. These include a follow-up audit of
hospital outpatient billing for chemistry, hematology and urinalysis tests
covered by a previous investigation; scrutiny of the enforcement of the Stark I
physician/laboratory self-referral ban (see below) to ensure that enforcement is
adequate; evaluating the enforcement of CLIA to make sure that it is adequate;
and a study of trends in laboratory test utilization to identify possible
utilization controls.

            In addition, a Federal "self-referral" law commonly referred to as
the "Stark" law prohibits Medicare payments for laboratory tests referred by
physicians who (personally or through a family member) have a financial interest
(including "ownership interests" and "compensation arrangements") in the testing
laboratory. There are certain exceptions, the most significant being in-office
testing personally performed by or under the supervision of the physician or the
group practice to which the physician belongs. Another exception would permit a
physician to refer specimens to a laboratory owned by a company, the stock of
which is traded on a public exchange and which has shareholders' equity of at
least $75 million in the most recently completed year or an average of $75
million over the prior three years even if the physician owns stock of that
company. Sanctions for laboratory violations of the prohibition include denial
of Medicare payment, refunds, civil money penalties of up to $15,000 for each
service billed in violation of the prohibition and exclusion from the Medicare
program. These restrictions, which became effective January 1, 1992, may benefit
the independent clinical laboratory industry by restricting physicians from
"self-referring" Medicare testing to physician-owned entities. As of January 1,
1995, as a result of the adoption of the "Stark II" law, these restrictions
applied to Medicaid-covered services and to certain additional diagnostic and
therapeutic "designated health services", as well, with similar expected
benefits for the independent laboratory industry. Regulations implementing the
Stark I Law were published August 14, 1995. Proposed regulations to implement
the Stark II Law were published January 9, 1998.

            The 1995 House Medicare reform proposal contained, and the
House-Senate report adopted, provisions that would have, if passed,
significantly narrowed the scope of the Stark anti-referral laws. That proposal
would have ended the ban on physician referrals to laboratories based on any
"compensation arrangements" between the lab and the physician. Such compensation
arrangements would have remained subject to the federal anti-kickback laws. The
President vetoed this bill on December 5, 1995. The President's Medicare reform
proposal would not have narrowed the scope of the Stark laws. While the
proposals to narrow the scope of the self-referral law were not passed in 1995
or 1996, it is possible that similar proposals could be introduced in Congress
in 1998.

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            In 1996, Congress passed and the President signed into law the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
frequently referred to as the "Kennedy-Kassebaum Act", after its principal
Senatorial sponsors. The law made major changes in federal fraud and abuse laws
applicable to health care providers. It established a new federal program
designed to coordinate federal, state and local fraud and abuse control
programs. The law permitted the DOJ and the OIG to conduct audits and
investigations relating to the delivery of health care in the United States,
without limitation to Medicare and Medicaid, and established a Fraud and Abuse
Trust Fund. HIPAA also mandated the creation of a new safe harbor under the
anti-kickback law that is to apply to remuneration paid or received by a managed
care organization, where there is a written agreement that places the entity at
substantial financial risk for the cost or utilization of health care services
provided. HIPAA also expanded the federal antikickback law so that it applies
not only to situations involving Medicare and Medicaid, but to almost all
federally funded health care programs. In addition, the law for the first time
permits providers to obtain advisory opinions from the government concerning the
legality of certain contemplated practices under the anti-kickback law; the OIG
published regulations implementing this advisory opinion mandate in February
1997. The Kennedy-Kassebaum law also significantly increased the penalties for
certain civil violations of the Medicare law and increased the types of offenses
for which a provider could be excluded from Medicare/Medicaid. Finally, the law
established a number of new criminal provisions applicable to health care fraud.

            The Balanced Budget Act of 1997 ("BBA '97") contains numerous
changes in Medicare/Medicaid fraud and abuse provisions. BBA '97 requires
permanent exclusion from Medicare and Medicaid for persons convicted of three
health care-related crimes and a 10-year exclusion period for persons convicted
of certain offenses who have one previous conviction. The statute permits the
Secretary of HHS to refuse to enter into Medicare participation agreements with
individuals or entities that have been convicted of felonies. The new law
further permits the exclusion from Medicare and Medicaid of an entity that is
controlled by a family member of an individual who has incurred Medicare or
Medicaid sanctions, where such sanctioned individual transferred his or her
ownership or control interest in the entity in anticipation of, or following, a
conviction, money penalty or exclusion from the program. In addition, BBA '97
expands the reach of Medicare/Medicaid civil money penalties to apply to persons
who arrange or contract with excluded persons for the provision of covered
services. Further, the statute includes a provision permitting civil money
penalties of up to $50,000 per violation, plus damages equal to three times the
total amount offered, paid, solicited or received, for violations of the
Medicare/Medicaid anti-kickback statute. Finally, BBA '97 requires the Secretary
of HHS to issue advisory opinions regarding potential violations of the Stark II
law prohibiting Medicare/Medicaid physician self-referral for designated health
services. The Health Care Financing Administration (HCFA) published regulations
implementing this advisory opinion provision on January 9, 1998.

            The LabScam investigation and settlements have spawned additional
federal lawsuits brought by private parties (insurers and individuals) under the
Racketeering Influenced Corrupt Organization Act (RICO), which permits the
recovery of treble damages. At least two lawsuits were filed under this statute
against major clinical laboratories during 1997.

            It should be noted that, among the many federal provisions available
to enforcement authorities in connection with health care offenses, an
especially potent remedy is exclusion from Medicare, Medicaid and other federal
health care programs. Particularly significant is the permissive exclusion
authority of the OIG, the principal threat that has brought


                                       12
<PAGE>

many clinical laboratories to the settlement table in the LabScam operation. On
December 29, 1997, the OIG released non-binding guidelines indicating the
criteria it will use in making permissive exclusion decisions. These criteria
address the circumstances and seriousness of the offense, the defendant's
response to allegations, the likelihood of reoccurrences of the same or similar
offenses, and whether the provider can continue participating in federal health
care programs without a real threat of bankruptcy or to its ability to provide
quality care.

            At the state level, laboratory operations are affected by billing
requirements applicable to all laboratory services and state fraud and abuse and
anti-inducement laws that similarly apply to all laboratory services.
California, where the Company conducts almost all of its business, has adopted
especially stringent laws of this type, including the Physician Ownership and
Referral Act, known as the "Speier Bill", which became effective January 1, 1995
and which prohibits, under most circumstances, referrals of laboratory testing
business by physicians to laboratories in which the physician has a "financial
interest". Penalties for violation of these provisions can include fines,
criminal penalties and disciplinary action against referring physicians. In
addition, California has adopted the "Calderon" law, which prohibits physicians
from "marking up" laboratory bills. The Company believes the Calderon law
benefits independent laboratories by reducing the financial incentives for
physician-owned laboratories.

            In August 1993, Unilab received a subpoena from HHS in connection
with an investigation and internal review relating to the possible submission of
false or improper claims under the Medicare and Medicaid programs. The HHS
subpoena required production of a broad range of documents, including those
relating to Unilab's selling, pricing and billing practices. The HHS subpoena
concerned fourteen tests, including five tests that were the subject of the
civil claims settlements. See "Legal Proceedings--Department of Justice
Settlement". Unilab completed production of these documents in February 1994.

            In August 1995, the Company received a subpoena from HHS requesting
certain information with respect to the Company's marketing and billing
practices for a complete blood count (CBC), a diagnostic test which was not
included in any prior subpoena or the subject of any of the settlements entered
into by the Company in September 1993 (the "Settlements"). See, "Legal
Proceedings--Department of Justice Settlement". Unilab promptly completed
production of all documents in response to the HHS subpoena and cooperated fully
in the HHS investigation. The Company reached an agreement with the Federal
government in September 1996 to pay $4.0 million to conclude this investigation.
The Company has remaining payments, excluding interest, to the U.S. Government
of $650,000 due September 1, 1998, $500,000 due March 1, 1999 and approximately
$324,000 due on September 1, 1999. In addition, in September 1996, the Company
paid the California MediCal program approximately $160,000 to settle all their
claims regarding the same issue. The settlement did not constitute an admission
by the Company with respect to any allegation, issue of law or fact arising from
the investigation and the Company received a full civil and administrative
release from all claims by the government with respect to these billings through
the date of the settlement agreement.

Professional Ethics

            The American Medical Association's (AMA's) view regarding referrals
by physicians to businesses in which they hold ownership interests is that "in
general, physicians should not refer patients to a health care facility outside
their office practice at which they do not directly provide care or services
when they have an investment interest in the facility". Under the 


                                       13
<PAGE>

AMA guidelines physicians are expected to refer patients to independent
laboratories rather than to laboratories in which they have an investment
interest. The AMA guidelines do not have the force of law. The management of
Unilab believes that such AMA policy against physician self-referrals may have a
positive effect on Unilab by further facilitating referrals away from
physician-owned laboratories to independent laboratory concerns such as Unilab.


Reimbursement

            Medicare reimbursement for clinical laboratory services is made
pursuant to Medicare fee schedules, subject to a national limitation amount
("cap") that is based upon the median of all the Medicare fee schedules. During
the late 1980s and the 1990s, that cap dropped from 115% of the median to 100%
of the median, to 93% of the median, to 88% of the median, to 84% of the median
to 80% of the median to 76% of the median and effective January 1, 1998 to 74%
of the median. BBA '97 provides for a freeze on fee schedule payments for 1998
through 2002.

            BBA '97 included a provision, proposed by the Clinton
Administration, that allows the Secretary of HHS to implement up to five
demonstration projects to establish competitive acquisition areas for Part B
services, including laboratory services. Each project can be conducted in no
more than three competitive acquisition areas and can be operated over a
three-year period. The Secretary can limit the number of contractors in a
competitive acquisition area to the number needed to meet the demand for
services. Where the Secretary determines after an evaluation that there is clear
evidence that the project has resulted in a decrease in federal expenditures
adversely affecting or impacting access, quality or diversity of product
selection, the Secretary may expand the projects. BBA '97 also requires the
Secretary to request the Institute of Medicine to conduct a study of laboratory
payments to review the adequacy of the current methodology and recommendations
regarding alternative payment systems. This report is to be completed within two
years. The new law also includes a package of "administrative simplification"
provisions for laboratory testing. Under these provisions, by July 1, 1999,
regional carriers for not more than five regions must be in place for clinical
laboratories, and by January 1, 1999, the Secretary must establish uniform rules
in several laboratory policy areas through a negotiated rulemaking process.
Finally, effective July 1, 1998, Medicare Part B laboratory services (other than
physician services) provided to residents of nursing facilities must be billed
directly to the nursing facility, and payment will flow from Medicare to the
nursing facility and the nursing facility to the laboratory.

            Current Procedural Terminology ("CPT") codes form the basis for the
coding of tests billed to Medicare and Medicaid, as well as to some third-party
payors, and, thus, coding changes may substantially affect reimbursement levels.
CPT codes are periodically revised by the AMA. One of the areas of the CPT code
revision that has most affected laboratory reimbursement levels is a change in
the codes that designate panel and profile tests, so that numerous panel codes
have been eliminated entirely and those remaining have been given specific
definitions for constituent tests for the first time. This coding change reduced
laboratory reimbursement for Unilab and the clinical laboratory industry
generally. Other codes have been eliminated or superseded by new codes, and
codes have been added for new, previously uncoded procedures. In late 1994, HCFA
issued a draft document revising Medicare policies concerning the reimbursement
of panel tests. The draft document expanded the list of clinical laboratory
tests that are considered to be parts of automated panels and are to be
reimbursed by Medicare using panel codes. In November 1995, HCFA adopted a final
revised policy on reimbursement of panel tests. As of January 1, 1996, 22
automated tests (rather than 19 tests) became reimbursable by Medicare



                                       14
<PAGE>

as part of an automated chemistry profile. An additional allowance of 50 cents
per test was authorized when more than 19 tests are billed in a profile. In
addition, this HCFA policy required laboratory providers to submit documentation
of the medical necessity for panel tests. Medicare will reimburse laboratories
only for the tests in a profile it determines to be medically necessary and
requires that ICD-9 diagnostic codes be provided by physicians to certain
specified tests as evidence of that test's medical necessity. This policy could
have an adverse effect on the revenues and operating costs of the clinical
laboratory industry, including Unilab. In a related change of policy, effective
as of March 1, 1996, HCFA eliminated its prior policy of permitting payment for
all tests contained in an automated chemistry profile when at least one of the
tests in the profile is covered. Instead, where only some of the tests in a
profile are covered, Medicare payment will not exceed the amount that would have
been paid if only the covered tests (determined on the basis of "medical
necessity") had been ordered.

            A substantial CPT revision effective as of April 1, 1998 included
numerous new and revised individual and panel test codes affecting several
laboratory specialties. The most significant changes again concern panel codes.
The 1998 CPT replaced the 19 pre-existing multichannel chemistry profile codes
with four "clinically relevant" test panels. Effective April 1, 1998, HCFA
directed that laboratories could no longer bill Medicare for the multichannel
chemistry profiles, but must use the new "clinically relevant" panels
exclusively. This change could have an adverse effect on revenues and operating
costs of the clinical laboratory industry, including Unilab.

            Additionally, laboratory pricing practices in general have received
substantial scrutiny from the Federal government. Under its "LabScam" inquiry,
the federal government, through numerous of its agencies, including DOJ, OIG,
FBI and HCFA, has investigated the sales and billing practices of many of the
country's independent clinical laboratories. A number of these laboratories,
including Damon Clinical Labs, Corning Clinical Labs (now Quest Diagnostics),
Laboratory Corporation of America Holdings, Physicians Clinical Laboratory,
Meris Laboratories and SmithKline Beecham Clinical Laboratories, as well as the
Company, have in recent years entered into agreements with the government to
settle the government's allegations of wrongdoing, in certain cases for hundreds
of millions of dollars. Additionally, the government is pursuing criminal
investigations of certain employees of lab companies in connection with
allegedly fraudulent sales and billing practices.

Drug Testing

            Drug testing for public sector employees is regulated by the
National Institute on Drug Abuse ("NIDA"), which has established detailed
performance and quality standards that laboratories must meet in order to be
approved to perform drug testing on employees of the Federal government, Federal
government contractors and certain other entities. To the extent that Unilab
performs such testing, it must be certified as meeting NIDA standards. Unilab's
Tarzana (Los Angeles) laboratory is NIDA-certified.

Occupational Safety

            In addition to its comprehensive regulation of safety in the
workplace, the Federal Occupational Safety and Health Administration ("OSHA")
has adopted rules that establish extensive requirements related to workplace
safety for health care employers, including clinical laboratories, whose workers
may be exposed to bloodborne pathogens. These regulations, among 


                                       15
<PAGE>

other things, require work practice controls, protective clothing and equipment,
training, medical follow-up, vaccinations and other measures designed to
minimize exposure to, and transmission of, bloodborne pathogens such as HIV and
the hepatitis B virus. OSHA has also adopted rules establishing safety
requirements for the use of chemicals as reagents and for other purposes.

            At the state level, California imposes occupational safety and
health requirements administered by the California Occupational Safety and
Health Administration.

Food and Drug Regulation

            The Federal Food and Drug Administration ("FDA") administers laws
that require pre-marketing approval for medical devices, including test kits
used in performing clinical laboratory procedures. The FDA's pre-marketing
approval requirements can affect the availability of test kits to clinical
laboratories such as Unilab.

Controlled Substances

            The use of controlled substances in testing for drugs-of-abuse is
regulated by the Federal Drug Enforcement Administration.

Specimen Transportation

            Regulations of the Department of Transportation, the Public Health
Service, and the Postal Service apply to the transportation of clinical
laboratory specimens.

Radioimmunoassay Testing

            Radioimmunoassay testing, which is performed by certain of Unilab's
laboratories, is subject to regulation and licensing by the Federal Nuclear
Regulatory Commission.

Other Legislation

            Clinical laboratory legislation introduced in 1994 in both Houses of
Congress contained laboratory "direct billing" bills. These bills would have
required laboratories to bill the payor directly for all clinical laboratory
services in the nation, whether reimbursed by Medicare, Medicaid, other federal
or state programs, or private third-party payors, rather than billing a
test-ordering physician or other practitioner. Such direct billing legislation
is intended to eliminate the mark-up associated with billing doctors who may
bill patients on a mark-up basis. Such legislation has been advocated for many
years by the independent laboratory industry and is viewed by independent
laboratories as advantageous. In 1995 the House Medicare proposal contained an
all-payor direct billing provision; however that provision was not included in
the House-Senate conference report approved in late November 1995 and no similar
provision was included in BBA `97. If enacted, direct billing legislation would
likely be favorable for the revenues and competitive position of Unilab.

            BBA `97 included several provisions in addition to those discussed
above that could affect clinical laboratory operations and/or the reimbursement
for clinical laboratory services. These include provisions intended to expand
the penetration of managed care in the Medicare program; mandates for Medicare
to replace cost reimbursement with prospective payment systems


                                       16
<PAGE>

for hospital outpatient services, home health care services, skilled nursing
facility services, and others; and an expansion of public health care coverage
for certain uninsured children not already covered by Medicaid and other
pre-existing public health programs.

Environmental Compliance

            As with all clinical laboratories, each of Unilab's laboratories
must comply with the provisions of numerous federal, state and local statutes
and regulations relating to public health and the environment, including:
practices and procedures regarding the proper storage and labeling of hazardous
and toxic materials or other substances associated with the operation of
clinical laboratories and the proper management of medical waste, hazardous
waste and low-level radioactive waste generated by operation of clinical
laboratories; public disclosure requirements regarding certain hazardous and
toxic materials or other substances associated with the operation of clinical
laboratories; employee training and notification; environmental protection
requirements, such as standards relating to the discharge of pollutants into the
air, water and land; emergency response and remediation or cleanup in connection
with hazardous and toxic materials or other substances associated with operation
of clinical laboratories; operation and remediation, if necessary, of
underground storage tank sites; the removal, encapsulation or disturbance of
asbestos-containing materials when such materials are in poor condition or in
the event of construction, remodeling, renovation or demolition of a building;
and other safety and health standards.

            As regulated entities, Unilab's facilities are subject to compliance
investigations from numerous governmental agencies. From time to time, such
inspections have resulted in a notice of violation being issued to a laboratory
in connection with certain regulatory requirements, e.g. labeling of regulated
substances. In each such case, Unilab has responded to the inspecting agency and
the alleged violation has been addressed without the imposition of substantial
fines or penalties. Unilab is not aware of any past or present violation which
it believes could have a material adverse effect on Unilab or its financial
conditions or results of operations.

Competition

            The independent clinical laboratory industry in the U.S. and in
California is highly fragmented and is characterized by intense competition.
According to HCFA, there are in the neighborhood of 4,500 independent clinical
laboratories in the U.S., as many as 750 of which are in California. These
independent clinical laboratories fall into two separate categories, the first
of which are the smaller, local laboratories that generally offer fewer tests
and services and have less capital than the larger laboratories. These
laboratories seek to differentiate themselves by maintaining a close working
relationship with their physician clients by providing a high level of personal
and localized services.

            The second group, which includes laboratories such as Unilab,
consists of the larger regional or national laboratories that provide a broader
range of tests and services. In California, Unilab's four largest independent
clinical laboratory competitors are SmithKline Beecham Clinical Laboratories,
Inc., Bio-Cypher Laboratories, Inc. (a subsidiary of Nu-Tech Bio-Med, Inc.
formerly known as Physicians Clinical Laboratories), Laboratory Corporation of
America (formerly National Health Laboratories) and Meris Laboratories, Inc.


                                       17
<PAGE>


            Unilab competes primarily on the basis of the quality of its
testing, reporting and information services, its reputation in the medical
community, price, the introduction of new testing procedures and its ability to
perform a comprehensive range of tests. Competition for qualified personnel is
also intensifying as statutory requirements for the licensing of personnel
become more stringent. Unilab believes that its extensive California facilities
provide easy access to its clients and quick reporting of results at competitive
prices. It is expected that Unilab will be able to provide the full range of
required testing, either through its own testing capabilities or by utilizing
outside reference testing services contracted from third parties.

Employees

            As of December 31, 1997, Unilab employed approximately 2,100
full-time employees and approximately 550 part-time or temporary employees, none
of whom were under union contract. The Company believes that its relations with
employees are good.

Seasonality

            The Company's operations experience seasonal trends that it believes
affect all clinical laboratory companies. Testing volume tends to be lower
during holiday seasons and inclement weather. As a result, because a substantial
portion of the Company's expenses are relatively fixed over the short term,
Unilab's operating income as a percentage of revenue tends to decrease during
the fourth quarter of each year, mainly due to the Christmas and Thanksgiving
holidays.

CAUTIONARY  STATEMENT FOR PURPOSES OF THE "SAFE  HARBOR"  PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      The Private Securities Litigation Reform Act of 1995 (the "Litigation
Reform Act") provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about their companies
without fear of litigation, provided those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the statement. Accordingly, the Company
hereby identifies the following important factors that could cause the Company's
actual financial or operating results to differ materially from those projected,
forecast or estimated by the Company in forward-looking statements.

      The Company wishes to caution investors that the following factors are
hereby identified as potentially important factors that could cause the
Company's actual financial or operating results to differ materially from those
projected, forecast or estimated by the Company in forward-looking statements
contained in this Form 10-K.

      (a)   Adverse actions by governmental or other third-party payors,
            including Medicare and Medicaid, including unilateral reduction of
            fee schedules payable to the Company.

      (b)   The impact of the Company's compliance with Medicare and Medicaid
            administrative and legal policies, including, specifically, but
            without limitation, the requirements by Medicare carriers that
            physicians provide diagnosis (ICD-9) codes for certain tests in
            order for such tests to be deemed "medically necessary" and,
            therefore, reimbursed; the policy of HCFA to eliminate Medicare
            reimbursement for tests contained in certain



                                       18
<PAGE>

            commonly ordered automated multichannel chemistry panels, (CPT
            Series 80002-80019); reimbursement based on demonstrable "medical
            necessity"; and, in connection with such "medical necessity" issues
            and compliance-related recommendations made by governmental
            representatives (including the recommendations made in the OIG Model
            Compliance Plan for Clinical Laboratories), the Company's
            introduction during 1998 of a new requisition form for ordering
            chemistry tests.

      (c)   Adverse implications of the Company's introduction of a new
            requisition form to meet the requirements set forth in (b) above.

      (d)   Impact of changes in payor mix, including the shift from
            traditional, fee-for-service medicine to managed care, including the
            increased shift of MediCal testing business to managed care.

      (e)   Failure to properly contain costs and expenses.

      (f)   Failure to obtain new or retain existing customers at profitable
            pricing.

      (g)   Adverse results from any new governmental investigations, including
            in particular significant monetary damages and/or exclusion from the
            Medicare and Medicaid programs and/or other significant litigation.

      (h)   Computer or other system failures that affect the ability of the
            Company to perform tests, report test results or properly bill
            customers, including the Year 2000 issue.

      (i)   Inability to obtain professional liability insurance coverage or a
            material increase in premiums for such coverage.

      (j)   Denial of CLIA certification or other licensure of any of the
            Company's clinical laboratories under CLIA, by HCFA for Medicare and
            Medicaid programs or other federal, state and local agencies.

Item 2.     Properties

            Unilab's corporate headquarters are located in leased offices at
18448 Oxnard Street, Tarzana, California 91356. Unilab's major regional
laboratories are located in the following metropolitan areas: Los Angeles
(Tarzana), California; San Jose, California; and Sacramento, California.

            Unilab leases its laboratory facilities and PSCs. All of the major
laboratory facilities have been built or improved for the purpose of providing
clinical laboratory testing services. The Company believes its facilities are
suitable, adequate and have sufficient production capacity for its operations as
currently conducted and as anticipated to be conducted. Unilab believes that if
it were to lose the lease on any of its facilities, it could find alternate
space at competitive market rates and relocate its operations to such new
locations.


                                       19
<PAGE>


Item 3.     Legal Proceedings

Unilab is a party to various legal proceedings arising in the ordinary course of
its business. Although the ultimate disposition of these proceedings is not
determinable, management does not believe that adverse determinations in any or
all of such proceedings will have a material adverse effect upon the financial
condition, liquidity or results of operations of Unilab.

Trylon Arbitration

            Unilab, MetWest Inc., formerly a wholly-owned subsidiary of Unilab
("MetWest") and certain unnamed persons or entities were named as defendants in
The Trylon Corporation v. MetWest Inc., Unilab Corporation and Does 1 through
30, filed on or about December 8, 1993 in the Superior Court of the State of
California for the County of Los Angeles. The plaintiff alleged that MetWest and
Unilab breached a contract, and the implied covenants of good faith and fair
dealing in connection with that contract with respect to the sales, marketing
and distribution by MetWest and Unilab of Blue-White Speculite Lightsticks, a
Trylon product designed for use in connection with PAP smears to screen for
cervical cancer and precancerous conditions in women. Plaintiff sought an
unspecified amount of damages. In February 1994, the case was referred to
arbitration before the American Arbitration Association in Los Angeles County in
accordance with the arbitration clause of the contract between the parties. The
Company recorded a $1.2 million non-recurring charge during the first quarter of
1995 related to the expected cost, consisting primarily of legal fees, of
resolving such matter. In September 1995, the arbitrator rendered an award in
favor of Trylon of approximately $437,000. In November 1995, the arbitrator
reduced the award to Trylon to approximately $374,000 (comprised of
approximately $313,000 principal award plus interest of approximately $61,000)
and granted Trylon's request for reimbursement of legal fees of approximately
$1.4 million. The Company's appeal of that award of legal fees was rejected by
the California Superior Court. The Company took an approximately $2.0 million
nonrecurring charge in the fourth quarter of 1995, reflecting the costs
associated with the conclusion of this arbitration, including the amount of the
principal award plus the legal fees of counsel for Trylon and Unilab.

Department of Justice Settlement

            In 1991, the DOJ contacted Unilab concerning an investigation of
certain of its sales, marketing, pricing and billing practices. During 1993,
Unilab learned that a "qui tam" complaint was filed approximately two years
earlier by a former employee.

            A qui tam action, under the Federal "whistleblower" statute, is a
private action brought on behalf of the U.S. government in connection with
claims for payments submitted to the U.S. The private individual(s) bringing the
qui tam action may be entitled to 15% to 30% of any amounts recovered as a
consequence of the qui tam action. By law, the DOJ is required to investigate
the matters raised by the qui tam complaint to determine whether to "intervene"
(i.e., pursue the action itself) or to permit the private plaintiff to pursue
the action.


                                       20
<PAGE>

            In September 1993, Unilab entered into settlements, which included
Corning with regard to its subsidiary, MetPath, pursuant to which Unilab made
payments to the DOJ (the "DOJ Settlement") and to the State of California (the
"California Settlement" and, together with the DOJ Settlement, the
"Settlements") to settle certain civil claims relating to the investigation.
Unilab's portion of the Settlements was approximately $3.0 million, which
included approximately $2.2 million of the DOJ Settlement and the entire $0.5
million amount of the California Settlement.

            By their terms, the Settlements reserved the rights of the
government agencies involved to pursue criminal prosecutions in connection with
certain related claims. Criminal convictions in these matters could have
resulted in mandatory exclusion of the Company from Medicare and state health
programs, including Medicaid. In May 1995, the Company was informed by the DOJ
that its criminal investigation concerning the allegations at issue in the 1993
investigation and in the Settlements has been closed without prosecution.

            The Settlements did not constitute an admission of wrongdoing with
respect to any issue of law or fact arising from the civil action brought on
behalf of the United States, that gave rise to the DOJ investigation. The DOJ
Settlement addresses the U.S. government's contention that Unilab submitted
improper Medicare claims for unnecessary blood tests with respect to five tests
(HDL, LDL, TIBC, PBG and serum ferritin) offered in conjunction with basic blood
chemistry profiles. The California Settlement addresses the State of
California's contention that improper MediCal claims were submitted with respect
to the same five tests.

            The government's allegations involved a series of laboratory tests
conducted at the time on a "sequential multiple analysis computer" ("SMAC") for
which Medicare reimbursed laboratories on a flat fee basis for any 19 or more
blood chemistry tests. The government alleged that some or all of the five tests
that were the subject of the investigation were added routinely to the SMAC for
a "nominal" additional price or as part of annual across-the-board price
increases to the physicians, while the fact that Medicare would be billed
separately for each test at retail prices often was not revealed to the doctors.
The government contended that as a result of this marketing approach, some
doctors ordered blood chemistry profiles (which covered the SMAC plus the
additional tests) even if they needed only the SMAC, not realizing that the
additional tests were being billed to Medicare.

            Unilab historically has made and continues to make available to its
clients test profiles which provide the choice of incorporating as few or as
many of these additional tests in the basic blood chemistry profile as its
physician-clients feel appropriate for a full diagnostic evaluation.
Notwithstanding such policy, the government contended that it was not made
sufficiently clear to physician-clients the financial consequences to the
Medicare program of their choice in ordering such tests as "add-ons" to the
basic blood chemistry profile, thereby resulting in physicians' ordering certain
of these tests, and Medicare or MediCal, as the case may be, being billed for
such tests, when not medically necessary.

            The government did not question the quality, reliability or validity
of any tests or test results. The tests for HDL cholesterol (High Density
Lipoprotein, or "good" cholesterol) and LDL cholesterol (Low Density
Lipoprotein, or "bad" cholesterol) are classic established diagnostic
measurements used in assessing the risk for cardiovascular disease. TIBC (Total
Iron Binding Capacity) and serum ferritin (a test which Unilab offered, when
requested by the physician-client, as a reflex when indicated by abnormal
results in other panel tests) are useful indicators of iron deficiency or iron
overload. PBG (Protein Bound Glucose), used in conjunction with the glucose


                                       21
<PAGE>


test, is a test that aids in the diagnosis of diabetes, a disease which affects
almost 10% of the general population, and can have severe detrimental effects if
not promptly identified and treated. While the Settlements did not require any
specific changes to policies or practices with regard to these tests, Unilab
nevertheless has re-emphasized to its clients the financial consequences to them
and to third party payors of their profile component test choices.

CHAMPUS Settlement

            In February 1994, as part of a joint settlement with MetPath related
to the same activities that were the subject of the DOJ Settlement, a payment of
$1.1 million was made by MetPath to the Office of Civilian Health and Medical
Program of the Uniformed Services ("CHAMPUS") to settle all civil claims of
CHAMPUS against MetPath and Unilab with respect to the same issues and same five
tests that were the subject of the DOJ Settlement and California Settlement.
Unilab's portion of such payment was approximately $25,000, with the remainder
being paid by MetPath. As with the DOJ Settlement and California Settlement, the
CHAMPUS settlement included a reservation of rights with respect to certain
criminal prosecutions which could result in mandatory exclusion of the Company
from Medicare and State health programs should any criminal convictions result.
The Champus settlement, however, does not constitute an admission by Unilab of
any wrongdoing with respect to any issue of law or fact arising from the civil
action brought by the U.S. government that gave rise to CHAMPUS' inquiry. The
Company was informed in May 1995 of the government's closure of its criminal
inquiry without prosecution.

HHS Subpoenas

            In August 1993, Unilab received a subpoena from HHS in connection
with an investigation and internal review relating to the possible submission of
false or improper claims under the Medicare and Medicaid programs. The HHS
subpoena required production of a broad range of documents, including those
relating to Unilab's selling, pricing and billing practices. The HHS subpoena
concerned fourteen tests, including the five tests that were the subject of the
civil claims Settlements. Unilab completed production of these documents in
February 1994. Other independent clinical laboratories have received similar
requests for production as part of what the Company believes to be an
industry-wide investigation of certain practices in the clinical laboratory
industry. In July 1994, Unilab was informed that jurisdiction for this
investigation had been transferred to the United States Attorney's Office in
Newark, New Jersey. In May 1995, the Company was informed by the DOJ that its
criminal investigation concerning the allegations at issue in the 1993 HHS
subpoena and in the Settlements had been closed without prosecution.

            In August 1995, the Company received a subpoena from HHS requesting
certain information with respect to the Company's marketing and billing
practices for a CBC, a diagnostic test which was not included in any prior
subpoena or the subject of any of the Settlements. Unilab promptly completed
production of all documents in response to the HHS subpoena and cooperated fully
in the HHS investigation. The Company reached an agreement with the Federal
government in September 1996 to pay $4.0 million to conclude this investigation.
The Company has remaining payments to the U.S. Government of $650,000 due
September 1, 1998, $500,000 due March 1, 1999 and approximately $324,000 due on
September 1, 1999. In addition, in September 1996 the Company paid the
California MediCal program approximately $160,000 to settle all their claims
regarding the same issue. The settlement did not constitute an admission by the
Company with respect to any allegation, issue of law or fact arising from the
investigation and the Company


                                       22
<PAGE>


received a full civil and administrative release from all claims by the
government with respect to these billings through the date of the settlement
agreement.

Item 4.     Submission Of Matters to a Vote of Security Holders

            No matter was submitted to a vote of security holders during the
fourth quarter of the year covered by this report.

Executive Officers and Key Management Personnel of the Registrant

            The following table sets forth certain information as of February 9,
1998 regarding the directors, executive officers and key management personnel of
Unilab.

Name                          Age     Position
----                          ---     --------

David C. Weavil...............47      Chairman of the Board, President and
                                      Chief Executive Officer

Haywood Cochrane..............49      Director
Kirby L. Cramer...............61      Director
William Gedale................56      Director
Richard A. Michaelson.........46      Director
Gabriel Balthazar Thomas......56      Director

Mark L. Bibi..................39      Vice President, Secretary and General
                                      Counsel
Ian J. Brotchie...............58      Division President, Unilab Northern
                                      California
R. Jeffrey Lanzolatta.........45      Division President, Unilab Southern
                                      California
Brian D. Urban................35      Chief Financial Officer and Treasurer
Paul T. Wertlake..............62      Vice President, Chief Medical Officer

            David C. Weavil has been Chairman, President and Chief Executive
Officer of the Company since January 1997. He served as Executive Vice President
of Laboratory Corporation of America Holdings ("LabCorp") since the April 1995
merger of Roche Biomedical Laboratories, Inc. ("RBL") and National Health
Laboratories, Inc. ("NHL"), which created LabCorp. He was appointed Chief
Operating Officer of LabCorp in September 1995. Previously, Mr. Weavil served as
Senior Vice President and Chief Operating Officer of RBL from 1989 to April
1995. From 1988 through 1989, Mr. Weavil was Regional Senior Vice
President-Mid-Atlantic of RBL. Prior to that, he served as Senior Vice President
and Chief Financial Officer of RBL from 1982.

            Haywood Cochrane has been a director of Unilab since May 1997. He
has served as President and Chief Executive Officer of Meridian Occupational
Healthcare Associates, Inc. since February 1997. He was Executive Vice
President, Chief Financial Officer and Treasurer of LabCorp from April 1995 to
November 1996 and a consultant to LabCorp from November 1996 to February 1997.
Mr. Cochrane was President, Chief Executive Officer and a Director of Allied
Clinical Laboratories, Inc. ("Allied") from its formation in 1989 until its
acquisition by NHL in June 1994. Mr. Cochrane serves as a Director of JDN Realty
Corp., Pathology Corporation of America and Meridian Occupational Healthcare
Associates, Inc.

            Kirby L. Cramer has been a member of Unilab's Board of Directors
since March 1990. Mr. Cramer is the Chairman Emeritus of the Board of Directors
of Hazleton Laboratories Corporation (a subsidiary of Corning), a biological
research company. Mr. Cramer served as


                                       23
<PAGE>


Chief Executive Officer of Hazleton Laboratories Corp. from 1968 through 1987,
when it was sold to Corning, and as Chairman of the Board of Directors of
Hazleton Laboratories Corp. from 1987 through 1991. Mr. Cramer also currently
serves as a director of each of Immunex Corp., Commerce Bancorporation, Landec
Corporation, ATL Ultrasound, Inc., Northwestern Trust Company, and
Pharmaceutical Product Development, Inc.

            William Gedale has been a member of Unilab's Board of Directors
since September 1997. He is currently President and CEO of Mount Everest
Advisors, LLC, an investment counseling and management firm. Previously, from
1989 to 1994 he served as President and CEO of General American Investors, a New
York Stock Exchange closed-end investment company and as a Managing Director of
John W. Bristol from June 1995 to June 1996. He currently serves as a director
of Bioreliance Corporation, a biological pre-clinical contract research
organization. He previously served as a director of Allied (until its merger
with NHL) and of U.S. Home Health Care. He is a director of New York Hospital
Departmental Associates and is a trustee of the Neuroscience Research
Foundation.

            Richard A. Michaelson has been a member of Unilab's Board of
Directors since September 1997. He has been a principal of Focused Healthcare
Partners Ltd., a healthcare investment entity, since January 1, 1998. He was
Senior vice President of Unilab from September 1997 to December 1997, Senior
Vice President-Finance, Treasurer and Chief Financial Officer of Unilab from
February 1994 to September 1997 and Vice President-Finance, Treasurer and Chief
Financial Officer of Unilab from November 1993 to February 1994. Mr. Michaelson
also served as Vice President of Unilab beginning in October 1990. Mr.
Michaelson joined MetPath (the predecessor to Quest Diagnostics Inc.) in 1980
and served as Vice President of MetPath from 1983 and Treasurer of CLSI from
1990 through, in each case, September 1992. From 1977 to 1980, Mr. Michaelson
held various financial positions at International Business Machines Corp.

            Gabriel Balthazar Thomas has been a member of Unilab's Board of
Directors since its formation in November 1998. He was a director of Unilab's
predecessor entity from December 1986 until November 1988. Mr. Thomas has been a
consultant in international marketing and management since 1971 and served as a
consultant to Unilabs Holdings S.A., a Swiss corporation and clinical laboratory
holding company, from October 1987 to May 1992. Mr. Thomas was President of
Unilab from 1989 through January 1992. Mr. Thomas is a director of Decora
Industries, Inc.

            Mark L. Bibi has been Vice President, Secretary and General Counsel
of Unilab since June 1993. Mr. Bibi was associated with the New York City law
firm of Schulte Roth & Zabel from May 1989 through June 1993. Prior thereto, he
was associated with Sullivan & Cromwell, New York, New York.

            Ian J. Brotchie has been Division President of Unilab Northern
California since August 1997. He was Division President of Unilab San Jose from
February 1994 to August 1997. He was President of PathLab from November 1991 to
September 1995. Mr. Brotchie served as President of Lab Concepts Inc. from
February 1990 to November 1991. Prior thereto, Mr. Brotchie served as Business
Development Director with SmithKline Bio-Science Laboratories in Dublin,
California from January 1989 to February 1990.



                                       24
<PAGE>



            R. Jeffrey Lanzolatta has been Division President of Unilab Southern
California since July 1996. He was Senior Vice President, Sales and Marketing of
Unilab Southern California from December 1994 to July 1996. He served as Vice
President, Sales and Marketing for Unilab from November 1993 to December 1994.
He served as Vice President, Sales and Marketing of MetWest from January 1993 to
November 1993. Prior thereto Mr. Lanzolatta served as Regional Vice President
and General Manager of MetWest's Southern California operations from July 1990
to December 1992. From April 1990 to June 1990, Mr. Lanzolatta served as
Director of Sales and Marketing for MetWest's Northern California operations.
Mr. Lanzolatta was Vice President, Business Development of International
Clinical Laboratories' Western Operations from July 1985 through January 1989.

            Brian D. Urban has been Chief Financial Officer and Treasurer of
Unilab since September 1997. He was Vice President and Controller of Unilab from
November 1993 to September 1997. Mr. Urban served as Assistant Controller of
Unilab from October 1992 to November 1993. He was Manager of External Reporting
of MetPath from July 1992 to October 1992. Prior thereto, Mr. Urban was senior
audit manager at Price Waterhouse where he worked from November 1986 to July
1992.

            Paul T.  Wertlake,  M.D.,  has been Vice  President  and Chief
Medical  Officer of the Company since  January  1994.  Since October 1989,
Dr.  Wertlake  has  served as the  Senior  Medical  Officer  for  Southern
California  and Medical  Director of Unilab's  Tarzana  Laboratory.  Prior
thereto,  Dr. Wertlake has served in the academic,  hospital and reference
laboratory sectors.

                                 PART II

Item 5.     Market for the Registrant's Common Equity and Related Stockholder
            Matters

Market information for the Registrant's common stock is contained in Note 15
(Unaudited Quarterly Financial Data) of the Notes to Consolidated Financial
Statements at page 30 of the Company's 1997 Annual Report to shareholders, and
such information is incorporated herein by reference.

The Company's common stock trades on the American Stock Exchange under the
symbol "ULB". As of February 9, 1998, there were 40,597,626 shares of Common
Stock outstanding held by 2,695 holders of record.

The Company has not paid any cash dividends with respect to its common stock and
does not expect to do so in the foreseeable future.



                                       25
<PAGE>


Item 6.     Selected Financial Data

The selected financial data for each of the five years in the period ended
December 31, 1997 is as follows:

(amounts in thousands, except per share data)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

For the Years Ended December 31,                        1997          1996        1995       1994       1993
                                                        ----          ----        ----       ----       ----
<S>                                              <C>            <C>           <C>        <C>        <C>     
Revenue                                          $   214,001    $  205,217    $189,042   $151,820   $207,399

Legal, acquisition and restructuring
related charges                                           --        70,595       4,400      1,282      5,612

Operating income (loss)                               14,604       (72,842)      4,539      9,137     12,117

Loss on sale of equity investment/
promissory note                                           --         4,529      36,499         --         --

Income (loss) before income taxes
and extraordinary item                                   536       (89,493)    (40,043)     4,515      6,711

Income tax provision                                      --            --          --         --        200

Income (loss) before extraordinary item                  536       (89,493)    (40,043)     4,515      6,511

Extraordinary item                                        --         3,451       1,732         --         --

Net income (loss)                                        536       (92,944)    (41,775)     4,515      6,511

Preferred stock dividends                                138           144         144        144         20

Net income (loss) available to
common shareholders                                      398       (93,088)    (41,919)     4,371      6,491

Basic net income (loss) before extraordinary
item per common share                                   0.01         (2.43)      (1.12)      0.12       0.15

Basic net income (loss) per common share                0.01         (2.53)      (1.17)      0.12       0.15

Weighted average shares outstanding                   39,926        36,831      35,918     34,904     43,850
At December 31,

Total assets                                         118,700       125,919     196,174    196,407    134,106

Long-term debt, net of current portion               124,285       126,120      87,207     67,660     31,659

Shareholders' equity (deficit)                       (32,283)      (34,688)     56,330     95,334     78,339
</TABLE>



                                       26
<PAGE>


Note:     The variations in the year-to-year comparisons are due primarily to
          the acquisition of MLN Holding Acquisition Co., effective May 16, 1995
          and the acquisition of Premier Laboratory Services, Inc., effective
          January 24, 1994. In addition, see Notes 4, 5 and 8 of the Notes to
          Consolidated Financial Statements at page 23 of the Company's 1997
          Annual Report to shareholders for a more detailed discussion of the
          legal and acquisition related charges, restructuring charges and loss
          on sale of equity investment/promissory note recorded in 1996 and
          1995, and such information is incorporated herein by reference. The
          $1.2 million acquisition related charges recorded in 1994 relates to
          the closure of Unilab patient service centers and related facilities
          and reduction in the Unilab workforce incurred in connection with the
          Premier acquisition. The $5.6 million legal charge recorded in 1993
          relates to a settlement reached with the U.S. Government and State of
          California into certain of the Company's sales, marketing and billing
          practices. Furthermore, due to a reorganization, the Company's results
          of operations, assets and liabilities from November 10, 1993 primarily
          include the operations in California and the Company's 40% equity
          interest in UGL (until its disposition effective June 30, 1995) and
          are not comparable to the Company's results of operations, assets and
          liabilities prior to November 10, 1993, which include the results of
          non-California operations and do not include UGL.

Item 7.   Management's  Discussion  and Analysis of Financial  Condition and
          Results of Operations

            "Management's Discussion and Analysis" at pages 12 through 15 of the
Company's 1997 Annual Report to shareholders is incorporated herein by
reference.

Item 8.     Financial Statements and Supplementary Data

            The Company's consolidated financial statements, together with the
report thereon of Arthur Andersen LLP ("AA") dated February 13, 1998, appearing
on pages 16 through 32 of the Company's 1997 Annual Report to shareholders, are
incorporated herein by reference. With the exception of the aforementioned
information in this Item 8 and the information incorporated by reference in
Items 5, 6 and 7, the 1997 Annual Report to shareholders is not to be deemed
filed as part of this Form 10-K Annual Report.

Item 9.     Changes in and  Disagreements  with  Accountants on Accounting
            and Financial Disclosure

            None.



                                       27
<PAGE>


                                 PART III

Item 10.    Directors and Executive Officers of the Registrant

            Information relating to directors of the Registrant will be
contained in a definitive Proxy Statement involving the election of directors
which the Registrant will file with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after December 31, 1997, and
such information is incorporated herein by reference. Certain other information
relating to Executive Officers and Key Management Personnel of the Registrant
appears at pages 23 to 25 of this Form 10-K Annual Report.

Item 11.    Executive Compensation

            Information relating to executive compensation will be contained in
the Proxy Statement referred to above in "Item 10. Directors and Executive
Officers of the Registrant", and such information is incorporated herein by
reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and
           Directors

            Information relating to security ownership of certain beneficial
owners and management and directors will be contained in the Proxy Statement
referred to above in "Item 10. Directors and Executive Officers of the
Registrant", and such information is incorporated herein by reference.

Item 13.    Certain Relationships and Transactions with Related Persons

            Information relating to certain relationships and transactions with
related persons will be contained in the Proxy Statement referred to above in
"Item 10. Directors and Executive Officers of the Registrant", and such
information is incorporated herein by reference.



                                       28
<PAGE>


                                 PART IV

Item 14.   Exhibits, Financial Statements, Financial Statement Schedules and
           Reports on Form 8-K

                                                Reference

                                   ----------------------------------
                                         Form 10-K    Annual Report to
                                       Annual Report    Shareholders

                                           Page             Page

(a)(1) Index to Consolidated Financial
Statements:
Incorporated by reference to the 1997
Annual Report to shareholders:

Consolidated Statements of Operations
for the years ended December 31, 1997,
1996, 1995                                   ---            16

Consolidated Balance Sheets at
December 31, 1997 and 1996                   ---            17

Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1997, 1996, 1995                             ---            18

Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995, 1994                             ---            20

Notes to Consolidated Financial Statements   ---            21

Report of Independent Accountants            ---            32

(2) Index to Consolidated Financial
Statement Schedule:

Report of Independent Accountants on
Financial Statement Schedule                 32             ---

II - Valuation and Qualifying
Accounts for the years ended
December 31, 1997, 1996 and 1995             33             ---

The financial statement schedule should be read in conjunction with the
financial statements incorporated by reference in Item 8 of this Form 10-K
Annual Report. Schedules other than those listed above have been omitted because
of the absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or the
notes thereto. 

                                       29
<PAGE>
(3)         Exhibits required to be filed by Item 601 of Regulation S-K.


            The information called for by this paragraph is incorporated herein
            by reference to the Exhibit Index of this report.

(b)         Reports on Form 8-K

            No Current Reports on Form 8-K were filed during the fourth quarter
            of 1997.



                                       30
<PAGE>

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Unilab
Corporation has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated:      3/27/98                          UNILAB CORPORATION

                                             By: /s/ Brian D. Urban
                                             ----------------------------
                                             Name: Brian D. Urban
                                             Title: Chief Financial Officer and
                                                     Treasurer


                                       31
<PAGE>



              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To Unilab Corporation

We have audited in accordance with generally accepted auditing standards, the
balance sheets as of December 31, 1997 and 1996, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997 included in Unilab Corporation's
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 13, 1998. Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14a(2) for the years ended December 31, 1997,
1996 and 1995 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Los Angeles, California
February 13, 1998




                                       32
<PAGE>

<TABLE>
<CAPTION>

                                                                                                    Schedule II

                                      UNILAB CORPORATION AND SUBSIDIARIES
                                      -----------------------------------
                                       VALUATION AND QUALIFYING ACCOUNTS
                                       ---------------------------------
                                            (Amounts in thousands)
 
                                                                     Amount
                                        Balance at     Charged to    Acquired                   Balance
                                        Beginning      Costs and     through                    End of
                                        of Period      Expenses    Acquisitions   Deductions    Period
                                        ---------      --------    ------------   ----------    ------
<S>                                     <C>            <C>          <C>           <C>           <C>    

FOR THE YEAR ENDED
DECEMBER 31, 1995;
Allowance for doubtful accounts         $ 5,828        $12,017      $   200      $ (9,591)      $8,454

FOR THE YEAR ENDED
DECEMBER 31, 1996;
Allowance for doubtful accounts         $ 8,454        $14,180      $    --      $(13,296)      $9,338

FOR THE YEAR ENDED
DECEMBER 31, 1997;
Allowance for doubtful accounts         $ 9,338        $15,663      $    --      $(15,182)      $9,819

</TABLE>

                                       33
<PAGE>



                                      Index

Exhibit No.                         Description

 2.1                    Agreement and Plan of Merger and Reorganization, dated
                        as of January 19, 1993, among Corning Incorporated,
                        Corning Lab Services, Inc. UL Sub Inc., the Company,
                        MetWest Inc. and MetCal Inc. (Incorporated by reference
                        to Exhibit No. 10.1 to the Company's Current Report on
                        Form 8-K dated January 19, 1993).

 2.2                    Stock  Purchase  Agreement,  dated  December  20,  1993,
                        by and among Premier Laboratory Services, Inc., the
                        stockholders of Premier and the Company (Incorporated by
                        Reference to Exhibit 2.1 to the Company's Current Report
                        on Form 8-K dated January 3, 1994).

 2.3                    Stock Purchase Agreement, dated as of April 13, 1995,
                        among MLN Equity Ltd., Paul Beyer, Paribas Principal
                        Inc., MLN Holding Acquisition Co., MLN Holding, Inc.,
                        Medical Laboratory Network, Inc., and the Company
                        (Incorporated by reference to Exhibit No. 2.1 to the
                        Company's Current Report on Form 8-K dated May 24,
                        1995).

 2.4                    Stock  Purchase Agreement, dated  as of June  30, 1995, 
                        by and between the Company, Unilabs Group Limited and
                        UniHolding Corp. (Incorporated by Reference to Exhibit
                        No. 2.1 to the Company's Current Report on Form 8-K
                        dated July 27, 1995).

 3.1                    Amended and Restated Certificate of Incorporation of the
                        Company (Incorporated by Reference to Exhibit 3.1 to the
                        Company's Registration Statement on Form S-1, dated
                        November 30, 1993).

 3.2                    Amendment to the  Company's  Certificate  of  
                        Incorporation, dated May 14, 1996 (Incorporated by
                        Reference to Exhibit 3.1 to the Company's Quarterly
                        Report on Form 10-Q for the Quarter ended June 30, 1996,
                        dated August 6, 1996).

 3.3                    Second  Amended and Restated  By-laws of the Company, as
                        amended as of February 27, 1996 (Incorporated by
                        Reference to Exhibit 3.1 to the Company's Current Report
                        on Form 8-K dated March 19, 1996).

 4.1                    Rights  Agreement dated as of February 25, 1994, between
                        the Company and Mellon Securities Trust Company as
                        Rights Agent (Incorporated by Reference to Exhibit 4.1
                        to the Company's Current Report on Form 8-K dated March
                        1, 1994).

                                       34
<PAGE>

4.2                     Amended and Restated Rights Agreement dated as of March
                        15, 1996 between the Company and Chemical Mellon
                        Shareholder Services as Rights Agent (Incorporated by
                        Reference to Exhibit 4.2 to the Company's Amendment No.
                        1 to Registration Statement on Form 8-A dated March 18,
                        1996).

4.3                     Indenture, dated as of March 14, 1996, with respect to
                        the 11% Senior Notes due 2006, between the Company and
                        Marine Midland Bank, as Trustee (Incorporated by
                        reference to Exhibit 4.2 to the Company's Quarterly
                        Report on Form 10-Q for the Quarter ended March 31,
                        1996, dated May 1, 1996).

10.1                    Amended and Restated Stock Purchase Agreement, dated as
                        of June 30, 1993, by and between the Company and MetCal
                        Inc. and Unilabs Holdings S.A. (Panama) (Incorporated by
                        Reference to Exhibit 10.2 to the Company's Form S-1
                        Registration Statement dated November 30, 1993).

10.2                    Credit Agreement, Dated as of March 14, 1996, among the
                        Company, various Banks and Banque Paribas, as Agent
                        (Incorporated by Reference to Exhibit 10.1 to the
                        Company's Quarterly Report on Form 10-Q for the Quarter
                        ended March 31, 1996, dated May 1, 1996).

10.3                    Termination and Release Agreement, dated as of December
                        20, 1996, among the Company, various Banks and Banque
                        Paribas, as agent, terminating the Credit Agreement,
                        dated as of March 14, 1996 among the Company, various
                        banks and Banque Paribas, as Agent (Incorporated by
                        Reference to Exhibit 10.3 to the Company's Annual Report
                        on Form 10-K, dated March 21, 1997).

10.4                    Healthcare Receivables Purchase Agreement dated as of
                        July 31, 1996 between the Company and Daiwa Healthco-2
                        LLC (Incorporated by Reference to Exhibit 10.1 to the
                        Company's Quarterly Report on 10-Q for the Quarter ended
                        September 30, 1996, dated November 4, 1996).

10.5                    Employment Agreement, dated as of  November  10,  1993  
                        between Richard A. Michaelson and the Company
                        (Incorporated by Reference to Exhibit No. 10.7 to the
                        Company's Form S-1 Registration Statement dated November
                        30, 1993).

10.6                    Stock Option Agreement, dated as of October 20, 1992,  
                        between the Company and Richard A. Michaelson
                        (Incorporated by Reference to Exhibit No. 10.9 to the
                        Company's Annual Report on Form 10-K dated April 13,
                        1993).


                                       35
<PAGE>

10.7                    Stock Option Agreement, dated as of February 25, 1994
                        between the Company and Richard A. Michaelson
                        (Incorporated by reference to Exhibit 10.11 to the
                        Company's Annual Report on Form 10-K dated March 11,
                        1996).

10.8                    Stock Option Agreement, dated as of January 1, 1995,
                        between the Company and Richard A. Michaelson
                        (Incorporated by reference to Exhibit 10.12 to the
                        Company's Annual Report on form 10-K dated March 11,
                        1996).

10.9                    Stock Option Agreement, dated as of May 1, 1995, between
                        the Company and Richard A. Michaelson (Incorporated by
                        reference to Exhibit 10.13 to the Company's Annual
                        Report on Form 10-K dated March 11, 1996).

10.10                   Restricted Stock Agreement, dated as of May 1, 1995,
                        between the Company and Richard A. Michaelson
                        (Incorporated by reference to Exhibit 10.14 to the
                        Company's Annual Report on Form 10-K dated March 11,
                        1996).

10.11                   Stock Option Agreement, dated as of February 27, 1996,
                        between the Company and Richard A. Michaelson
                        (Incorporated by Reference to Exhibit 10.3 to the
                        Company's Quarterly Report on Form 10-Q for the Quarter
                        ended March 31, 1996, dated May 1, 1996).

10.12                   Stock Option Agreement, dated as of April 28, 1997,
                        between the Company and Richard A. Michaelson.

10.13                   Stock Option Agreement, dated as of April 28, 1997,
                        between the Company and Richard A. Michaelson.

10.14                   Letter Agreement, dated September 17, 1997, between the
                        Company and Richard A. Michaelson.

10.15                   Consulting Agreement, dated as of September 17, 1997,
                        between the Company and Richard A. Michaelson.

10.16                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement dated as of April 28, 1997,
                        between the Company and Richard A. Michaelson.

10.17                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of April 28, 1997,
                        between the Company and Richard A. Michaelson.

10.18                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of February 27, 1996,
                        between the Company and Richard A. Michaelson.


                                       36
<PAGE>


10.19                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of May 1, 1995, between
                        the Company and Richard A. Michaelson.

10.20                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of January 1, 1995,
                        between the Company and Richard A. Michaelson.

10.21                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of February 25, 1994,
                        between the Company and Richard A. Michaelson.

10.22                   Amendment No. 1, dated as of September 17, 1997, to the
                        Stock Option Agreement, dated as of October 20, 1992,
                        between the Company and Richard A. Michaelson.

10.23                   Amendment No. 1, dated as of September 17, 1997, to the
                        Restricted Stock Agreement, dated as of May 1, 1995,
                        between the Company and Richard A.Michaelson

10.24                   Employment Agreement, dated as of January 20, 1997
                        between David C. Weavil and the Company (Incorporated by
                        Reference to Exhibit 10.12 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.25                   Stock Option Agreement, dated as of January 20, 1997
                        between David C. Weavil and the Company (Incorporated by
                        Reference to Exhibit 10.13 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.26                   Promissory Note, dated January 20, 1997, payable by
                        David C. Weavil to the Company (Incorporated by
                        Reference to Exhibit 10.14 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.27                   Secured Promissory Note, dated January 20, 1997, payable
                        by David C. Weavil to the Company (Incorporated by
                        Reference to Exhibit 10.15 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.28                   Stock Option Agreement, dated as of February 27, 1996,
                        between the Company and Andrew H. Baker (Incorporated by
                        reference to Exhibit 10.16 to the Company's Quarterly
                        Report on Form 10-Q for the Quarter ended March 31,
                        1996, dated May 1, 1996).

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<PAGE>


10.29                   Letter Agreement, dated January 20, 1997, between Andrew
                        H. Baker and the Company (Incorporated by Reference to
                        Exhibit 10.17 to the Company's Annual Report on Form
                        10-K, dated March 21, 1997).

10.30                   Restricted Stock Agreement, dated as of January 20,
                        1997, between Andrew H. Baker and the Company
                        (Incorporated by Reference to Exhibit 10.18 to the
                        Company's Annual Report on Form 10-K dated March 21,
                        1997).

10.31                   Amendment No. 1, dated as of January 20, 1997, to Stock
                        Option Agreement dated as of October 20, 1992, between
                        Andrew H. Baker and the Company (Incorporated by
                        Reference to Exhibit 10.19 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.32                   Amendment No. 1, dated as of January 20, 1997, to Stock
                        Option Agreement, dated as of January 1, 1995, between
                        Andrew H. Baker and the Company with respect to options
                        to purchase 120,000 shares of Unilab Common Stock
                        (Incorporated by Reference to Exhibit 10.20 to the
                        Company's Annual Report on Form 10-K, dated March 21,
                        1997).

10.33                   Amendment No. 1, dated as of January 20, 1997 to Stock
                        Option Agreement, dated as of January 1, 1995, between
                        Andrew H. Baker and the Company with respect to options
                        to purchase 60,000 shares of Unilab Common Stock
                        (Incorporated by Reference to Exhibit 10.21 to the
                        Company's Annual Report on Form 10-K, dated March 21,
                        1997).

10.34                   Amendment No. 1, dated as of January 20, 1997, to Stock
                        Option Agreement, dated as of February 27, 1996, between
                        Andrew H. Baker and the Company (Incorporated by
                        Reference to Exhibit 10.22 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).

10.35                   Non-Compete Agreement, dated as of January 20, 1997,
                        between Andrew H. Baker and the Company (Incorporated by
                        Reference to Exhibit 10.23 to the Company's Annual
                        Report on Form 10-K dated March 21, 1997).

10.36                   Consulting Agreement, dated as of January 20, 1997,
                        between the Company and Hartill Ltd. (Incorporated by
                        Reference to Exhibit 10.24 to the Company's Annual
                        Report on Form 10-K, dated March 21, 1997).


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<PAGE>


10.37                   General Assignment and Assumption, dated as of November
                        10, 1993, by and among the Company, MetWest and MetCal
                        Inc. (Incorporated by Reference to Exhibit No. 10.3 to
                        the Company's Forms S-1 Registration Statement dated
                        November 30, 1993).

10.38                   Stockholders' Agreement, dated as of November 10, 1993,
                        by and among MetCal Inc., Unilabs Holdings S.A. (Panama)
                        and Unilabs Group Limited (Incorporated by Reference to
                        Exhibit No. 10.4 to the Company's Form S-1 Registration
                        Statement dated November 30, 1993).

10.39                   Form of Employee Stock Option Agreement (Incorporated by
                        Reference to Exhibit No. 10.5 to the Company's Form S-1
                        Registration Statement dated November 30, 1993).

10.40                   Form of Key Management Personnel Employment Agreement
                        (Incorporated by Reference to Exhibit No. 10.5 to
                        Amendment No. 1, dated December 23, 1993, to the
                        Company's Form S-1 Registration Statement dated November
                        30, 1993).

10.41                   Settlement Agreement, dated September 13, 1993, by and
                        among the United States Department of Justice, the
                        Office of Inspector General of the United States
                        Department of Health and Human Services; MetPath, a
                        division of Corning Lab Services Inc; MetWest Inc.; the
                        Company; and C. Jack Dowden (Incorporated by Reference
                        to Exhibit No. 99.2 to the Company's Current Report on
                        Form 8-K dated September 13, 1993).

10.42                   Settlement Agreement, dated September 22, 1993, by and
                        among the State of California; MetPath, a division of
                        Corning Lab Services, Inc.; MetWest Inc.; the Company
                        and C. Jack Dowden (Incorporated by Reference to Exhibit
                        No. 99.1 to the Company's Current Report on Form 8-K
                        dated September 27, 1993).

10.43                   Settlement Agreement, dated as of February 17, 1994, by
                        and among the United States Department of Justice; the
                        Office of the Civilian Health and Medical Program of the
                        Uniformed Services; MetPath Inc; and the Company
                        (Incorporated by Reference to Exhibit 10.18 to the
                        Company's Annual Report on Form 10-K dated March 30,
                        1994).



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10.44                   Settlement Agreement, dated September 19, 1996, among
                        the Company, Corning Inc., the Office of Inspector
                        General of the Department of Health and Human Services,
                        the State of California and certain other governmental
                        entities (Incorporated by Reference to Exhibit 10.2 to
                        the Company's Quarterly Report on Form 10-Q for the
                        Quarter Ended September 30, 1996, dated November 4,
                        1996).

10.45                   Participation Agreement, dated as of November 7, 1996,
                        by and between the Company and Donaldsosn, Lufkin and
                        Jenrette Securities Corporation (Incorporated by
                        Reference to Exhibit 10.33 to Annual Report on Form
                        10-K, dated March 21, 1997).

13.1                    Annual Report to Shareholders

21.1                    Subsidiaries of the Company

22.1                    Proxy Statement,  dated April __, 1998, for Annual 
                        Meeting of Stockholders  held on May 19, 1998.

24.1                    Power of Attorney of David C. Weavil

24.2                    Power of Attorney of Haywood Cochrane

24.3                    Power of Attorney of Kirby L. Cramer

24.4                    Power of Attorney of William Gedale

24.5                    Power of Attorney of Richard Michaelson

24.6                    Power of Attorney of Gabriel B. Thomas

99.1                    Press Release, dated February 4, 1998, announcing fourth
                        quarter and full year 1997 earnings results.


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