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As filed with the Securities and Exchange Commission on
March 26, 2010
Registration
No. 333-164897
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
INVERNESS MEDICAL INNOVATIONS,
INC.
See Table of Additional Registrants Below
(Exact name of registrant as
specified in its charter)
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Delaware
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2835
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04-3565120
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code)
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(I.R.S. Employer
Identification Number)
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51 Sawyer Road, Suite 200
Waltham, Massachusetts 02453
(781) 647-3900
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Ron Zwanziger
Chairman, Chief Executive Officer and President
51 Sawyer Road, Suite 200
Waltham, Massachusetts 02453
(781) 647-3900
(Name, Address, Including Zip
Code, and Telephone Number, Including Area Code, of Agent for
Service)
With copies to:
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John D. Patterson, Jr., Esq.
Foley Hoag LLP
155 Seaport Boulevard
Boston, Massachusetts 02210
(617) 832-1000
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Jay McNamara, Esq.
Senior Counsel, Corporate & Finance
Inverness Medical Innovations, Inc.
51 Sawyer Road, Suite 200
Waltham, Massachusetts 02453
(781) 647-3900
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Approximate date of commencement of proposed sale to the
public: As soon as possible after the effective
date of this registration statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
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Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
TABLE OF
ADDITIONAL REGISTRANTS
The direct and indirect wholly owned domestic subsidiaries of
Inverness Medical Innovations, Inc. listed in the table below
are expected to guarantee the debt securities issued pursuant to
this registration statement. The address, including zip code,
and telephone number, including area code, of each of the
co-registrants is 51 Sawyer Road, Suite 200, Waltham,
Massachusetts, 02453,
(781) 647-3900.
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State or Other
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Jurisdiction of
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I.R.S. Employer
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Exact Name of Additional Registrant as
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Incorporation or
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Identification
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Specified in its Charter
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Organization
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Number
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Alere Health, LLC
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Delaware
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26-2564744
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Alere Healthcare of Illinois, Inc.
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Georgia
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58-2068880
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Alere Health Improvement Company
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Delaware
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23-2776413
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Alere Health Systems, Inc.
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Delaware
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22-3493126
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Alere Medical, Inc.
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California
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94-3238845
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Alere NewCo, Inc.
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Delaware
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27-2104833
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Alere NewCo II, Inc.
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Delaware
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27-2104868
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Alere Wellology, Inc.
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Delaware
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54-1776557
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Alere Womens and Childrens Health, LLC
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Delaware
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58-2205984
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Ameditech Inc.
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California
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33-0859551
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Applied Biotech, Inc.
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California
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33-0447325
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Binax, Inc.
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Delaware
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20-2507302
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Biosite Incorporated
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Delaware
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33-0288606
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Cholestech Corporation
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Delaware
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94-3065493
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First Check Diagnostics Corp.
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Delaware
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20-8329751
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First Check Ecom, Inc.
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Massachusetts
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33-1026518
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Free & Clear, Inc.
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Delaware
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20-0231080
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GeneCare Medical Genetics Center, Inc.
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North Carolina
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56-1348485
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Hemosense, Inc.
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Delaware
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77-0452938
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IM US Holdings, LLC
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Delaware
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26-0349667
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Innovacon, Inc.
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Delaware
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20-1100264
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Innovative Mobility, LLC
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Florida
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20-0351538
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Instant Technologies, Inc.
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Virginia
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54-1837621
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Inverness Medical, LLC
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Delaware
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26-0392649
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Inverness Medical Biostar Inc.
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Delaware
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91-1929582
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Inverness Medical Innovations North America, Inc.
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Delaware
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26-1444559
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Inverness Medical International Holding Corp.
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Delaware
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20-0963463
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Ischemia Technologies, Inc.
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Delaware
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84-1489537
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IVC Industries, Inc.
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Delaware
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22-1567481
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Kroll Laboratory Specialists, Inc.
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Louisiana
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72-0846066
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Laboratory Specialists of America, Inc.
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Oklahoma
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73-1451065
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Matria of New York, Inc.
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New York
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58-1873062
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Matritech, Inc.
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Delaware
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26-1436477
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New Binax, Inc.
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Delaware
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36-4668096
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New Biosite Incorporated
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Delaware
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27-2104785
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Ostex International, Inc.
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Washington
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91-1450247
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Quality Assured Services, Inc.
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Florida
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59-3437644
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Redwood Toxicology Laboratory, Inc.
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California
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68-0332937
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RMD Networks, Inc.
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Delaware
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84-1581993
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RTL Holdings, Inc.
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Delaware
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20-4371685
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Scientific Testing Laboratories, Inc.
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Virginia
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54-1624514
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Selfcare Technology, Inc.
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Delaware
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04-3383533
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Tapestry Medical, Inc.
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Delaware
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20-0391730
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Wampole Laboratories, LLC
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Delaware
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37-1485678
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ZyCare, Inc.
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North Carolina
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56-1398496
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The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities, and we are not soliciting an offer to buy these
securities, in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED MARCH 26, 2010
Prospectus
INVERNESS MEDICAL INNOVATIONS,
INC.
OFFER TO EXCHANGE
ALL $100,000,000 AGGREGATE
PRINCIPAL AMOUNT OF UNREGISTERED
7.875% SENIOR NOTES DUE
2016 ISSUED ON SEPTEMBER 28, 2009
FOR
UP TO $100,000,000 AGGREGATE
PRINCIPAL AMOUNT OF 7.875% SENIOR
NOTES DUE 2016 THAT HAVE
BEEN REGISTERED
UNDER THE SECURITIES ACT OF
1933
This
exchange offer and withdrawal rights will expire at
5:00 p.m., New York City time,
on May 3, 2010, unless extended.
We are offering to exchange up to $100.0 million aggregate
principal amount of our new 7.875% Senior Notes due 2016,
which have been registered under the Securities Act of 1933,
referred to in this prospectus as the new notes, for any and all
of our outstanding unregistered 7.875% Senior Notes due
2016 that we issued on September 28, 2009, referred to in
this prospectus as the old notes. We issued the old notes in a
transaction not requiring registration under the Securities Act.
We are offering you new notes, with terms substantially
identical to those of the old notes, in exchange for old notes
in order to satisfy our obligation under a registration rights
agreement into which we entered in connection with the offering
and sale of the old notes. The new notes will be treated as a
single class with the $150.0 million aggregate principal
amount of 7.875% Senior Notes due 2016 that we issued on
August 11, 2009, which we refer to in this prospectus as
the pre-existing notes. The old notes, the new notes and the
pre-existing notes are collectively referred to in this
prospectus as the senior notes.
Material
Terms of the Exchange Offer
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The terms of the new notes are identical in all material
respects to the terms of the old notes, except that the new
notes will not contain the terms with respect to transfer
restrictions, registration rights and payments of additional
interest that relate to the old notes.
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The new notes will be fully and unconditionally guaranteed,
jointly and severally, on a senior basis, subject to certain
exceptions, by all of our domestic subsidiaries that guarantee
certain of our other indebtedness.
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The exchange offer expires at 5:00 p.m., New York City
time, on May 3, 2010, which we refer to as the expiration
time and the expiration date, respectively, unless extended by
us.
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Subject to the terms of this exchange offer, we will exchange
all of the old notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer.
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You may withdraw your tender of old notes at any time before the
expiration of this exchange offer.
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If you do not properly tender your old notes, you will continue
to hold unregistered notes that you will not be able to transfer
freely.
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The exchange of old notes for new notes generally will not be a
taxable event for U.S. federal income tax purposes.
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We do not intend to list the new notes on any national
securities exchange or seek approval for quotation through any
automated trading system.
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We will not receive any proceeds from this exchange offer.
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All broker-dealers must comply with the registration and
prospectus delivery requirements of the Securities Act.
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See the section entitled Risk Factors that begins
on page 12 for a discussion of the risks that you should
carefully consider before tendering your old notes for
exchange.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is March , 2010
Each broker-dealer that receives new notes for its own account
in connection with the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
new notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes
acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, if
requested by such a broker-dealer, for a period of at least
45 days after the date of effectiveness of the registration
statement of which this prospectus forms a part, we will make
this prospectus, as amended and supplemented, available to any
broker-dealer for use in connection with any such resale. See
Plan of Distribution. The letter of transmittal
delivered with this prospectus states that a
broker-dealer,
by acknowledging that it will deliver and by delivering a
prospectus, will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act
of 1933, as amended, or the Securities Act.
We have not authorized any broker, dealer or other person to
give any information other than that contained in this
prospectus. You must not rely upon any information not contained
in this prospectus as if we had authorized it. This prospectus
does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities
to which it relates, nor does this prospectus constitute an
offer to sell or a solicitation of an offer to buy securities in
any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
TABLE OF
CONTENTS
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or the SEC.
We may add, update or change any information contained in this
prospectus through a prospectus supplement. You should read this
prospectus and any prospectus supplement, as well as any
post-effective amendments to the registration statement of which
this prospectus is a part, together with the additional
information described under Where You Can Find More
Information, before you make any investment decision.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to exchange old notes for new notes only in
jurisdictions where such offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or any actual exchange of old notes for new
notes.
Unless otherwise stated or unless the context otherwise
requires, all references to we, us,
our, our company or the
Company in this prospectus refer collectively to Inverness
Medical Innovations, Inc., a Delaware corporation, and its
subsidiaries, and their respective predecessor entities for the
applicable periods, considered as a single enterprise.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-4
under the Securities Act with respect to the new notes offered
hereby. This prospectus, which is a part of the registration
statement, does not contain all of the information contained in
the registration statement, as amended, or the exhibits and
schedules filed with the registration statement. For further
information with respect to us and the new notes offered hereby,
please see the registration statement, as amended, and the
exhibits and schedules filed with the registration statement.
Each statement contained in this prospectus regarding the
contents of any contract or any other document that is filed as
an exhibit to the registration statement is qualified in all
respects by reference to the full text of such contract or other
document filed as an exhibit to the registration statement. A
copy of the registration statement, as amended, and the exhibits
and schedules filed with the registration statement may be
inspected without charge at the public reference room maintained
by the SEC, located at 100 F Street, NE,
Washington, D.C. 20549, and copies of all or any part of
the registration statement may be obtained from such offices
upon the payment of the fees prescribed by the SEC. Please call
the SEC at
1-800-SEC-0330
for further information about the public reference room. The SEC
also maintains an internet website that contains reports, proxy
and information statements and other information regarding
registrants that file electronically with the SEC. The address
of the website is www.sec.gov.
We are subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, and we file annual, quarterly and periodic
reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information are
available for inspection and copying at the public reference
room and website of the SEC referred to above.
You may request a copy of this information and the filings we
mention above, at no cost, by writing or calling us at Inverness
Medical Innovations, Inc., 51 Sawyer Road, Suite 200,
Waltham, Massachusetts, 02453, telephone
(781) 647-3900,
Attention: Secretary.
To obtain timely delivery of any copies of filings requested,
please write or call us no later than April 28, 2010, five
days prior to the expiration of the exchange offer.
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SUMMARY
This summary highlights the information appearing elsewhere
in this prospectus. Because it is only a summary, it does not
contain all the information that may be important to you or that
you should consider before exchanging your old notes for new
notes. You should carefully read this entire prospectus,
including the Risk Factors section, and should
consult with your own legal and tax advisors to understand fully
the terms of the exchange offer and the new notes.
OUR
COMPANY
General
Inverness Medical Innovations, Inc. enables individuals to take
charge of improving their health and quality of life at home by
developing new capabilities in near-patient diagnosis,
monitoring and health management. Our global leading products
and services, as well as our new product development efforts,
focus on cardiology, womens health, infectious disease,
oncology and drugs of abuse. Our business is organized into
three major reportable segments: professional diagnostics,
health management and consumer diagnostics. Through our
professional diagnostics segment, we develop, manufacture and
market an extensive array of innovative rapid diagnostic test
products and other in vitro diagnostic tests to medical
professionals and laboratories for detection of infectious
diseases, cardiac conditions, drugs of abuse and pregnancy. Our
health management segment provides comprehensive, integrated
programs and services focused on wellness, disease and condition
management, productivity enhancement and informatics, all
designed to reduce health-related costs and enhance the health
and quality of life of the individuals we serve. Our consumer
diagnostic segment consists primarily of manufacturing
operations related to our role as the exclusive manufacturer of
products for SPD Swiss Precision Diagnostics, or SPD, our 50/50
joint venture with The Procter & Gamble Company, or
P&G. SPD holds a leadership position in the worldwide
over-the-counter
pregnancy and fertility/ovulation test market. We have grown our
businesses by leveraging our strong intellectual property
portfolio and making selected strategic acquisitions. Our
products are sold in approximately 150 countries through our
direct sales force and an extensive network of independent
global distributors.
Inverness Medical Innovations, Inc. is a Delaware corporation.
Our principal executive offices are located at 51 Sawyer Road,
Suite 200, Waltham, Massachusetts 02453 and our telephone
number is
(781) 647-3900.
Our website is www.invernessmedical.com. The information found
on our website is not part of this prospectus.
Acquisition
of Majority Interest in Standard Diagnostics
On March 22, 2010, we completed our follow-on cash tender
offer to acquire up to an additional 1,295,836 common shares of
our majority-owned subsidiary, Standard Diagnostics, Inc., a
corporation organized under the laws of South Korea, or Standard
Diagnostics. Standard Diagnostics is a Korean manufacturer and
distributor of diagnostic reagents and devices for hepatitis,
infectious disease, tumor markers, fertility and drugs of abuse,
which had 2009 revenues and income before income taxes
(calculated in accordance with U.S. GAAP) of approximately
$58.4 million and $24.4 million, respectively.
Pursuant to the follow-on tender offer, we acquired
approximately 1,029,120 common shares of Standard Diagnostics,
which are in addition to the 4,767,025 common shares of Standard
Diagnostics that we acquired on February 8, 2010 pursuant
to an earlier tender offer for such shares. In the initial
tender offer, we acquired approximately 61.9% of the issued and
outstanding common shares of Standard Diagnostics, and the
follow-on tender offer increased our ownership to approximately
74.8% of such issued and outstanding common shares. We paid an
aggregate purchase price of approximately 41.16 billion
South Korean Won, or approximately $36.4 million, for the
common shares tendered in the follow-on tender offer. We paid an
aggregate purchase price of approximately 190.7 billion
South Korean Won, or approximately $166.3 million, for the
common shares tendered in the initial tender offer.
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SUMMARY
OF THE TERMS OF THE EXCHANGE OFFER
On September 28, 2009, we completed the private offering of
$100.0 million aggregate principal amount of old notes. As
part of that offering, we entered into a registration rights
agreement with the initial purchasers of the old notes in which
we agreed, among other things, to deliver this prospectus to you
and to conduct an exchange offer for the old notes. Below is a
summary of the exchange offer.
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Old Notes |
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7.875% Senior Notes due 2016 that were issued on September
28, 2009. |
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New Notes |
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Up to $100.0 million aggregate principal amount of our
7.875% Senior Notes due 2016. The terms of the new notes
are identical in all material respects to the terms the old
notes, except that the new notes will not contain the terms of
with respect to transfer restrictions, registration rights and
payments of additional interest that relate to the old notes.
After payment of the unpaid additional interest that has accrued
on the old notes, if any, the additional interest provisions
relating to the old notes will not apply. The new notes will be
treated as a single class with the $150.0 million aggregate
principal amount of our pre-existing notes. The terms of the new
notes are identical to the terms of the pre-existing notes, and
the new notes will be issued as additional notes
under the indenture governing the pre-existing notes. The new
notes will bear the same CUSIP and ISIN numbers as the
pre-existing notes, except that if additional interest has
accrued on the old notes and remains unpaid at the time of the
completion of the exchange offer, then, in order to identify the
new notes that are entitled to receive such accrued and unpaid
additional interest after the completion of the exchange offer,
the new notes will have temporary CUSIP and ISIN numbers
different from those of the pre-existing notes. In such case,
following the first interest payment date after the consummation
of the exchange offer, after payment of the interest on the new
notes (including such accrued and unpaid additional interest),
the new notes will be assigned the same CUSIP and ISIN numbers
as those of the pre-existing notes without any further action on
the part of the holders. |
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The Exchange Offer |
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We are offering to exchange a like amount of new notes for our
old notes in minimum denominations of $2,000 and integral
multiples of $1,000. In order to be exchanged, an old note must
be properly tendered and accepted. All old notes that are
validly tendered and not withdrawn will be exchanged. As of the
date of this prospectus, there is $100.0 million aggregate
principal amount of old notes outstanding. We will issue new
notes promptly after the expiration of the exchange offer. |
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Expiration Date and Time |
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The exchange offer will expire at 5:00 p.m., New York City
time, on May 3, 2010 unless we extend the exchange offer.
If for any reason, including an extension by us, the exchange
offer is not consummated on or before June 25, 2010, we may
be required to pay additional interest on the old notes. |
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Conditions to the Exchange Offer |
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The exchange offer is subject to certain conditions, some of
which may be waived by us. See The Exchange
Offer Conditions to the Exchange Offer for
information regarding the conditions to the exchange offer. |
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Procedures for Tendering Old Notes |
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The old notes were issued as global securities. Beneficial
interests that are held by direct or indirect participants in
The Depository Trust Company, or DTC, are shown on, and
transfers of the old notes can be made only through, records
maintained in book-entry form by DTC with respect to its
participants. |
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If you are a holder of old notes held in book-entry form and you
wish to tender your old notes pursuant to the exchange offer,
you must transmit to the exchange agent, before the expiration
time either: |
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a written or facsimile copy of an executed letter of
transmittal and all other required documents to the address set
forth on the cover page of the letter of transmittal; or
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a computer-generated message transmitted by means of
DTCs Automated Tender Offer Program system in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal and which, when received by the exchange agent,
forms a part of a confirmation of book-entry transfer.
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The exchange agent must also receive before the expiration time
a timely confirmation of the book-entry transfer of your old
notes into the exchange agents account at DTC, in
accordance with the procedures described for book-entry transfer
in this prospectus under the heading The Exchange
Offer Procedures for Tendering Old Notes. |
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By tendering your old notes, you will represent to us in writing
that, among other things: |
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you are not an affiliate (as defined in
Rule 405 under the Securities Act) of us or any subsidiary
guarantor of the new notes, or if you are an affiliate, you will
comply with the registration and prospectus delivery
requirements under the Securities Act to the extent applicable;
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you are not participating, do not intend to
participate and have no arrangement or understanding with any
person to participate in the distribution (within the meaning of
the Securities Act) of the new notes in violation of the
provisions of the Securities Act;
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you will receive the new notes in the ordinary
course of your business;
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if you are not a broker-dealer, you are not engaged
in, and do not intend to engage in, a distribution of new notes;
and
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if you are a broker-dealer that will receive new
notes for your own account in exchange for old notes acquired as
a result of market-making or other trading activities, which we
refer to as a participating broker-dealer, you will deliver a
prospectus in connection with any resale of such new notes.
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If any of these conditions are not satisfied and you transfer
any new notes issued to you in the exchange offer without
delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration from
these requirements, you |
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may incur liability under the Securities Act. We will not
assume, nor will we indemnify you against, any such liability. |
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Special Procedures for Beneficial Owners |
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If you are the beneficial owner of book-entry interests in
outstanding notes and your name does not appear on a security
position listing of DTC as the holder of those book-entry
interests or you own a beneficial interest in outstanding old
notes that are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to
tender, you should contact the registered holder promptly and
instruct the registered holder to tender on your behalf. |
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If you are a beneficial owner who wishes to tender on the
registered holders behalf, prior to completing and
executing the letter of transmittal and delivering the old
notes, you must either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of
registered ownership may take considerable time. See The
Exchange Offer Procedures for Tendering Old
Notes. |
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Guaranteed Delivery Procedures |
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If you wish to tender your old notes in the exchange offer but
the required documentation cannot be completed by the expiration
time or the procedures for book-entry transfer cannot be
completed on a timely basis, you must tender your old notes
according to the guaranteed delivery procedures described in
The Exchange Offer Procedures for Tendering
Old Notes Guaranteed Delivery. |
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Effect of Not Tendering |
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Old notes that are not tendered or that are tendered but not
accepted will, following the completion of the exchange offer,
continue to be subject to the existing restrictions on transfer
of the old notes. |
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The trading market for old notes not exchanged in the exchange
offer may be significantly more limited after the exchange
offer. Therefore, if your old notes are not tendered and
accepted in the exchange offer, it may be more difficult for you
to sell or transfer your unexchanged old notes. |
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Furthermore, you will not generally be able to require us to
register your old notes under the Securities Act and you will
not be able to resell, offer to resell or otherwise transfer
your old notes unless they are registered under the Securities
Act or unless you resell, offer to resell or otherwise transfer
them under an exemption from the registration requirements of,
or in a transaction not subject to, the Securities Act. |
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Broker-Dealers |
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Each broker-dealer that receives new notes for its own account
in connection with the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
new notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes
acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, if
requested by |
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such a broker-dealer, for period of at least 45 days after
the date of effectiveness of the registration statement of which
this prospectus forms a part, we will make this prospectus, as
amended and supplemented, available to any broker-dealer for use
in connection with any such resale. See Plan of
Distribution. The letter of transmittal delivered with
this prospectus states that a broker-dealer, by acknowledging
that it will deliver and by delivering a prospectus, will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act. |
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Any broker-dealer who acquired old notes directly from us may
not rely on interpretations of the staff of the SEC to the
foregoing effect and must instead comply with the registration
requirements and prospectus delivery requirements of the
Securities Act (including being named as a selling
securityholder) in order to resell the old notes or the new
notes. |
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Withdrawal Rights |
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You may withdraw your tender of old notes at any time before the
expiration time. To withdraw, the exchange agent must receive a
notice of withdrawal at its address indicated under The
Exchange Offer Exchange Agent before the
expiration time. We will return to you, without charge, promptly
after the expiration or termination of the exchange offer any
old notes that you tendered but that were not accepted for
exchange or that you tendered and withdrew prior to the
expiration time. |
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Interest Payments on the New Notes |
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The new notes will bear interest from the most recent date
through which interest has been paid on the old notes. If your
old notes are accepted for exchange, then you will receive
interest on the new notes (including any accrued but unpaid
additional interest on the old notes) and not on the old notes. |
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Registration Rights Agreement |
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In connection with the offering of the old notes, we and the
guarantor subsidiaries and Jefferies & Company, Inc.,
Goldman, Sachs & Co. and Wells Fargo Securities, LLC,
the initial purchasers in the offering, entered into a
registration rights agreement that granted the holders of the
old notes issued in the offering certain exchange and
registration rights. Specifically, in the registration rights
agreement, we agreed to file, on or before February 25,
2010, the registration statement of which this prospectus forms
a part with respect to a registered offer to exchange the old
notes for the new notes. We also agreed to use our commercially
reasonable efforts to have this registration statement declared
effective by the SEC on or before May 26, 2010. We also
agreed to use our commercially reasonable efforts to consummate
the exchange offer on or before June 25, 2010. If we fail
to fulfill any of these obligations under the registration
rights agreement, additional interest will accrue on the old
notes at a rate of 0.25% per annum for the first
90-day
period immediately following failure to meet any of the
deadlines listed above. The amount of the additional interest
will increase by an additional 0.25% per annum with respect to
each subsequent
90-day
period up to a maximum amount of additional interest of 1.00%
per annum, from and including the date on which any of the
deadlines listed above were not met to, but excluding, the
earlier of (1) the date on which all registration defaults
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(2) the date on which all of the old notes otherwise become
freely transferable by holders other than affiliates of us or
any guarantor subsidiary without further registration under the
Securities Act. |
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Tax Consequences |
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Your exchange of old notes for new notes will not be treated as
a taxable exchange for United States federal income tax
purposes. See Material United States Federal Income Tax
Consequences. |
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Accounting Treatment |
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The new notes will be recorded at the same carrying value as the
old notes, and we will not recognize any gain or loss from the
exchange offer for accounting purposes. See The Exchange
Offer Accounting Treatment. |
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Acceptance of Old Notes and Delivery of New Notes |
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Subject to the conditions stated in The Exchange
Offer Conditions to the Exchange Offer, we
will accept for exchange any and all old notes that are properly
tendered and not withdrawn in the exchange offer at or before
the expiration time. See The Exchange Offer
Procedures for Tendering Old Notes. The new notes issued
pursuant to this exchange offer will be delivered promptly
following the expiration time. |
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Exchange Agent |
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We have appointed The Bank of New York Mellon
Trust Company, N.A., as the exchange agent for the exchange
offer. The mailing address and telephone number of the exchange
agent are: The Bank of New York Mellon, Corporate
Trust Operations, Reorganization Unit, 101 Barclay
Street 7 East, New York, NY 10286, Attention:
Carolle Montreuil,
(212) 815-5920.
See The Exchange Offer Exchange Agent. |
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Fees and Expenses |
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We will pay all expenses related to this exchange offer. See
The Exchange Offer Fees and Expenses. |
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Use of Proceeds |
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We will not receive any cash proceeds from the issuance of the
new notes. In consideration for issuing the new notes in
exchange for old notes as described in this prospectus, we will
receive old notes of like principal amount. The old notes
surrendered in exchange for the new notes will be retired and
canceled. |
Risk
Factors
You should carefully consider all information in this
prospectus. In particular, you should evaluate the specific risk
factors set forth in the section entitled Risk
Factors in this prospectus for a discussion of risks
relating to our business and an investment in the new notes.
6
SUMMARY
OF TERMS OF THE NEW NOTES
The following summary describes the principal terms of the new
notes. The following description is subject to important
limitations and exceptions. The Description of New
Notes section of this prospectus contains a more detailed
description of the new notes than this summary section.
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Issuer |
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Inverness Medical Innovations, Inc., a Delaware corporation. |
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Notes Offered |
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Up to $100.0 million aggregate principal amount of our
7.875% Senior Notes due 2016. The terms of the new notes
are identical in all material respects to the terms of the old
notes, except that the new notes will not contain the terms with
respect to transfer restrictions, registration rights and
payments of additional interest that relate to the old notes.
After payment of the unpaid additional interest that has accrued
on the old notes, if any, the additional interest provisions
relating to the old notes will not apply. The new notes will be
treated as a single class with the $150.0 million aggregate
principal amount of our pre-existing notes. The terms of the new
notes are identical to the terms of the pre-existing notes, and
the new notes will be issued as additional notes
under the indenture governing the pre-existing notes. The new
notes will bear the same CUSIP and ISIN numbers as the
pre-existing notes, except that if additional interest has
accrued on the old notes and remains unpaid at the time of the
completion of the exchange offer, then, in order to identify the
new notes that are entitled to receive such accrued and unpaid
additional interest after the completion of the exchange offer,
the new notes will have temporary CUSIP and ISIN numbers
different from those of the pre-existing notes. In such case,
following the first interest payment date after the consummation
of the exchange offer, after payment of the interest on the new
notes (including such accrued and unpaid additional interest),
the new notes will be assigned the same CUSIP and ISIN numbers
as those of the pre-existing notes without any further action on
the part of the holders. |
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Maturity Date |
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February 1, 2016. |
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Interest |
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7.875% per annum, payable semi-annually on February 1 and August
1 of each year, commencing February 1, 2010. Interest will
accrue from the most recent date to which interest has been paid
on the old notes. |
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Optional Redemption |
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We may, at our option, redeem the new notes, in whole or part,
at any time on or after February 1, 2013, at the redemption
prices described in Description of New Notes
Redemption Optional Redemption plus accrued
and unpaid interest to (but excluding) the redemption date. |
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Optional Redemption After Certain Equity Offerings |
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At any time (which may be more than once) until August 1,
2012, we can choose to redeem up to 35% of the new notes and the
pre-existing notes (together with any other additional
notes that may be issued under the indenture governing the
pre-existing notes), taken together, which we refer to
collectively as our August 2009 |
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senior notes, with money that we raise in certain equity
offerings, so long as: |
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we pay 107.875% of the face amount of the applicable
August 2009 senior notes, plus accrued and unpaid interest to
(but excluding) the redemption date;
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we redeem the applicable August 2009 senior notes
within 90 days of completing such equity offering; and
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at least 65% of the aggregate principal amount of
the August 2009 senior notes remains outstanding afterwards. See
Description of New Notes
Redemption Redemption with Proceeds from Equity
Offerings.
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Make-Whole Redemption |
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Prior to February 1, 2013, we may redeem some or all of the
new notes by the payment of a make-whole premium described under
Description of New Notes
Redemption Make-whole Redemption, plus accrued
and unpaid interest to (but excluding) the redemption date. |
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Change of Control |
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If a change of control occurs, subject to certain conditions, we
must give holders of the new notes an opportunity to sell the
new notes to us at a purchase price of 101% of the principal
amount of the new notes, plus accrued and unpaid interest to
(but excluding) the date of the purchase. See Description
of New Notes Change of Control. |
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Guarantees |
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The payment of the principal, premium and interest on the new
notes is or will be fully and unconditionally guaranteed,
jointly and severally, on a senior basis by, subject to certain
exceptions, all of our current and future domestic subsidiaries
that guarantee certain other of our indebtedness. A guarantee
may be released if we dispose of the guarantor subsidiary or it
ceases to guarantee certain other indebtedness of ours or any of
our other subsidiaries. See Description of New
Notes Guarantees of the Notes. |
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Ranking |
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The new notes will be our general senior unsecured obligations
and will be: |
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pari passu in right of payment with all of
our existing and future senior indebtedness, including
indebtedness arising under the old notes and the pre-existing
notes;
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effectively subordinated to all of our existing and
future secured indebtedness, including indebtedness arising
under our secured credit facilities, to the extent of the assets
securing such indebtedness;
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senior in right of payment to all of our existing
and future subordinated indebtedness, including indebtedness
arising under our 9.00% senior subordinated notes due 2016 that
we issued on May 12, 2009, which we refer to as our senior
subordinated notes, and indebtedness arising under our 3.00%
senior subordinated convertible notes due 2016 that we issued on
May 14, 2007, which we refer to as our senior subordinated
convertible notes;
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unconditionally guaranteed on a senior basis by the
guarantor subsidiaries; and
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structurally subordinated to all existing and future
obligations of each of our subsidiaries that do not guarantee
the new notes;
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See Description of New Notes Ranking of the
Notes and the Guarantees. |
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The guarantees will be general senior unsecured obligations of
the guarantor subsidiaries and will be: |
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pari passu in right of payment with all
existing and future senior indebtedness of the guarantor
subsidiaries, including indebtedness arising under the guarantor
subsidiaries guarantees of the old notes and the
pre-existing notes;
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effectively subordinated to all existing and future
secured indebtedness of the guarantor subsidiaries, including
indebtedness arising under our secured credit facilities, to the
extent of the assets securing such indebtedness;
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senior in right of payment to all existing and
future subordinated indebtedness of the guarantor subsidiaries,
including indebtedness arising under the guarantor
subsidiaries guarantees of the senior subordinated notes;
and
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structurally subordinated to all existing and future
obligations of each of our subsidiaries that do not guarantee
the new notes.
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See Description of New Notes Ranking of the
Notes and the Guarantees. |
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As of December 31, 2009, we had approximately
$1.36 billion in aggregate principal amount of secured debt
outstanding, including approximately $1.34 billion in
aggregate principal amount of debt outstanding under our secured
credit facilities. |
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Asset Sale Proceeds |
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If we or our subsidiaries engage in asset sales, we generally
must either invest the net cash proceeds from such sales in our
business within a period of time, repay certain indebtedness or
make an offer to purchase a principal amount of August 2009
senior notes equal to the excess net cash proceeds, subject to
certain exceptions. The purchase price of the August 2009 senior
notes will be 100% of their principal amount, plus accrued and
unpaid interest. See Description of New Notes
Certain Covenants Limitations on Asset Sales. |
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Certain Covenants |
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We will issue the new notes as additional notes under a base
indenture dated as of August 11, 2009 with The Bank of New
York Mellon Trust Company, N.A., as trustee, as
supplemented by a first supplemental indenture dated as of
August 11, 2009 with certain of the guarantor subsidiaries
and The Bank of New York Mellon Trust Company, as trustee,
a second supplemental indenture dated as of September 22,
2009, with certain of the guarantor subsidiaries and The Bank of
New York Mellon Trust Company, as trustee, a fourth
supplemental indenture dated as of November 25, 2009, with
certain of the guarantor subsidiaries and The Bank of New York |
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Mellon Trust Company, as trustee, a sixth supplemental
indenture dated as of February 1, 2010, with certain of the
guarantor subsidiaries and The Bank of New York Mellon
Trust Company, as trustee, an eighth supplemental indenture
dated as of March 1, 2010, with certain of the
guarantor subsidiaries and The Bank of New York Mellon
Trust Company, as trustee, and a tenth supplemental indenture
dated as of March 19, 2010, with certain of the guarantor
subsidiaries and The Bank of New York Mellon Trust Company, as
trustee. We refer to the base indenture as so supplemented as
the indenture. The indenture will govern the new notes and the
pre-existing notes, which together shall constitute a single
class of securities under the indenture. The indenture governing
the new notes contains covenants that limit our ability and our
restricted subsidiaries ability to, among other things: |
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incur additional debt;
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pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or subordinated debt;
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make certain investments;
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create liens on our assets;
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transfer or sell assets;
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engage in transactions with our affiliates;
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create restrictions on the ability of our
subsidiaries to pay dividends or make loans, asset transfers or
other payments to us;
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issue capital stock of our subsidiaries;
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engage in any business, other than our existing
businesses and related businesses;
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enter into sale and leaseback transactions;
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incur layered indebtedness; and
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consolidate or merge with any person (other than
certain affiliates) or transfer all or substantially all of our
assets or the aggregate assets of us and our subsidiaries.
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These covenants are subject to important exceptions and
qualifications, which are described under the caption
Description of New Notes Certain
Covenants. |
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Covenant Suspension |
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At any time that the new notes are rated investment grade, and
subject to certain conditions, certain covenants contained in
the indenture will be suspended. See Description of New
Notes Certain Covenants. |
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Qualified Reopening |
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For United States federal income tax purposes, we intend to
treat the old notes as issued pursuant to a qualified
reopening of the pre-existing notes and the new notes as a
continuation of the old notes. For United States federal income
tax purposes, debt instruments issued in a qualified reopening
are deemed to be part of the same issue as the original debt
instruments. Under this treatment, all of the old notes and the
new notes will be deemed to have the |
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same issue date, the same issue price and (with respect to
holders) the same adjusted issue price as the pre-existing notes
for United States federal income tax purposes, and
therefore will be treated as having been issued with the same
amount of remaining original issue discount as the pre-existing
notes. See Material United States Federal Income Tax
Consequences. |
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Use of Proceeds |
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We will not receive any cash proceeds from the issuance of the
new notes. In consideration for issuing the new notes in
exchange for old notes as described in this prospectus, we will
receive old notes of like principal amount. The old notes
surrendered in exchange for the new notes will be retired and
canceled. |
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Book-Entry Form |
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Initially, the new notes will be represented by one or more
global notes in definitive, fully registered form deposited with
a custodian for, and registered in the name of, a nominee of The
Depository Trust Company. |
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Illiquid Market |
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There can be no assurance as to the development or liquidity of
any market for the new notes. At the time of the private
offering of the old notes, the initial purchasers of the old
notes advised us that they intended to make a market for the old
notes. However, they are not obligated to do so with respect to
the new notes and may discontinue any such market-making
activities at any time without notice. |
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Transfer Restrictions |
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The old notes have not been registered under the Securities Act
or any state securities laws and are subject to restrictions on
transfer. The new notes have been registered under the
Securities Act and are not subject to those restrictions. |
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RISK
FACTORS
You should carefully consider the following risk factors as
well as the other information contained in this prospectus
before deciding to tender your outstanding old notes in the
exchange offer. The risks described below are not the only risks
facing us. Additional risks and uncertainties not currently
known to us or those we currently view to be immaterial may also
materially and adversely affect our business, financial
condition or results of operations. Any of the following risks
could materially and adversely affect our business, financial
condition or results of operations. In such a case, you may lose
all or part of your original investment. This prospectus
contains statements that constitute forward-looking statements
regarding, among other matters, our intentions, beliefs or
current expectations about our business. These forward-looking
statements are subject to risks, uncertainties and assumptions,
as further described in the section entitled Special Note
Regarding Forward-Looking Statements.
Risks
Relating to Tendering Old Notes for New Notes
There may
be a limited or no trading market for the new notes, and you may
not be able to sell them quickly or at the price that you
paid.
Upon consummation of the exchange offer, the new notes will be
considered a single class with the pre-existing notes. There is
a limited trading market for the pre-existing notes. We do not
intend to apply for the new notes or the pre-existing notes to
be listed on any securities exchange or to arrange for quotation
on any automated dealer quotation system. At the time of the
public offering of the pre-existing notes, the underwriters
advised us that they intended to make a market for the
pre-existing notes. Similarly, at the time of the private
offering of the old notes, the initial purchasers advised us
that they intended to make a market for the old notes. However,
neither the underwriters nor the initial purchasers are
obligated to do so with respect to the new notes and may
discontinue any such market-making activities at any time
without notice. In addition, the liquidity of the trading market
in the new notes, if any, and any market price quoted for the
new notes, may be adversely affected by changes in the overall
market for high-yield securities and by changes in our financial
performance or prospects or in the financial performance or
prospects for companies in our industry generally. In addition,
such market-making activities, if any, will be subject to limits
imposed by the United States federal securities laws, and may be
limited during the pendency of any shelf registration statement.
As a result, there may be a limited or no active trading market
for the new notes, which could negatively impact your ability to
sell the new notes. In addition, if there is a limited or no
active trading market for the new notes, the prices that you
receive when you sell may not be favorable. Future trading
prices of the new notes will depend on many factors, including:
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our operating performance and financial condition;
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our ability to complete the offer to exchange the old notes for
the new notes;
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the interest of securities dealers in making a market; and
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the market for similar securities.
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If you do
not carefully follow the required procedures in order to
exchange your old notes, you will continue to hold old notes
subject to transfer restrictions, which will make it difficult
for you to sell or otherwise transfer such old notes.
If the required procedures for the exchange of the old notes are
not followed, you will continue to hold old notes, which are
subject to transfer restrictions. The new notes will be issued
in exchange for the old notes only after timely receipt by the
exchange agent of a properly completed and executed letter of
transmittal and all other required documents. Therefore, if you
wish to tender your old notes, you must allow sufficient time to
ensure timely delivery. Neither we nor the exchange agent has
any duty to notify you of defects or irregularities with respect
to tenders of old notes for exchange. Any holder of old notes
who tenders in the exchange offer for the purpose of
participating in a distribution of the new notes will be
required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
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transaction. Each broker or dealer that receives new notes for
its own account in exchange for old notes that were acquired in
market-making or other trading activities must acknowledge that
it will deliver a prospectus in connection with any resale of
the new notes. See Plan of Distribution.
In
certain instances, failure of participants in the exchange offer
to deliver a prospectus in connection with transfers of the new
notes could result in liability under the Securities
Act.
Based on no-action letters issued by the staff of the SEC, we
believe that certain holders may offer for resale, resell or
otherwise transfer the new notes without compliance with the
registration and prospectus delivery requirements of the
Securities Act. However, in some instances described in this
prospectus under The Exchange Offer, you will remain
obligated to comply with the registration and prospectus
delivery requirements of the Securities Act (including being
named a selling securityholder) to transfer your new notes. In
these cases, if you transfer any new note without delivering a
prospectus meeting the requirements of the Securities Act, you
may incur liability under the Securities Act. We do not and will
not assume, or indemnify you against, this liability.
Risks
Relating to Continued Ownership of Old Notes
If you do
not exchange old notes for new notes, transfer restrictions will
continue and trading of the old notes may be difficult, which
could result in a decrease in the value of the old
notes.
The old notes have not been registered under the Securities Act
and are subject to substantial restrictions on transfer. Old
notes that are not tendered for exchange or are tendered but are
not accepted will, following completion of the exchange offer,
continue to be subject to existing restrictions on transfer. We
do not expect to register the old notes under the Securities
Act. You may not offer or sell the old notes unless they are
registered under the Securities Act or the offer or sale is
exempt from registration under the Securities Act and applicable
securities laws. These continued transfer restrictions may make
it difficult for you to sell or otherwise transfer old notes.
See The Exchange Offer Consequences of Failure
to Exchange.
The
trading market for old notes could be limited, which could make
it difficult for you to sell or otherwise transfer old notes and
thereby result in a decrease in the value of the old
notes.
There is a risk that an active trading market in the old notes
will not exist, develop or be maintained following the
consummation of the exchange offer. The trading market for old
notes could become significantly more limited after the exchange
offer as a result of the anticipated reduction in the amount of
old notes outstanding upon consummation of the exchange offer.
Therefore, if your old notes are not exchanged for new notes in
the exchange offer, it may become more difficult for you to sell
or otherwise transfer your old notes. This reduction in
liquidity may in turn reduce the market price, and increase the
price volatility, of the old notes.
Risks
Relating to Our Debt, Including the New Notes
Our
business has substantial indebtedness, which could, among other
things, make it more difficult for us to satisfy our debt
obligations, require us to use a large portion of our cash flow
from operations to repay and service our debt or otherwise
create liquidity problems, limit our flexibility to adjust to
market conditions, place us at a competitive disadvantage and
expose us to interest rate fluctuations.
We currently have, and will likely continue to have, a
substantial amount of indebtedness. As of December 31,
2009, we had total debt outstanding of approximately
$2.1 billion, which included approximately
$1.1 billion in aggregate principal amount of indebtedness
outstanding under our senior secured credit facility,
$250.0 million in aggregate principal amount of
indebtedness outstanding under our junior secured credit
facility, which we refer to, together with the senior secured
credit facility, as our secured credit facilities,
$250.0 million in aggregate principal amount of
indebtedness under our outstanding senior notes,
$400.0 million in aggregate principal amount of
indebtedness under our outstanding senior subordinated notes,
and $150.0 million in aggregate principal amount of
indebtedness under our outstanding senior subordinated
convertible notes.
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Our substantial indebtedness could affect our future operations
in important ways. For example, it could:
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make it more difficult to satisfy our obligations under the
senior notes, the senior subordinated notes, the senior
subordinated convertible notes, our secured credit facilities
and our other debt-related instruments;
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require us to use a large portion of our cash flow from
operations to pay principal and interest on our indebtedness,
which would reduce the amount of cash available to finance our
operations and service obligations, could delay or reduce
capital expenditures or the introduction of new products, could
force us to forego business opportunities, including
acquisitions, research and development projects or product
design enhancements;
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limit our flexibility to adjust to market conditions, leaving us
vulnerable in the event of a downturn in general economic
conditions or in our business and less able to plan for, or
react to, changes in our business and the industries in which we
operate;
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impair our ability to obtain additional financing;
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place us at a competitive disadvantage compared to our
competitors that have less debt; and
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expose us to fluctuations in the interest rate environment with
respect to our indebtedness that bears interest at variable
rates.
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We expect to obtain the money to pay our expenses and to pay the
principal and interest on the senior notes, the senior
subordinated notes, the senior subordinated convertible notes,
our secured credit facilities and our other debt from cash flow
from our operations and potentially from other debt or equity
offerings. Accordingly, our ability to meet our obligations
depends on our future performance and capital-raising
activities, which will be affected by financial, business,
economic and other factors. We will not be able to control many
of these factors, such as economic conditions in the markets in
which we operate and pressure from competitors. We cannot be
certain that our cash flow will be sufficient to allow us to pay
principal and interest on our debt, including the new notes and
the other senior notes, and meet our other obligations. If our
cash flow and capital resources prove inadequate, we could face
substantial liquidity problems and might be required to dispose
of material assets or operations, restructure or refinance our
debt, including the new notes and the other senior notes, seek
additional equity capital or borrow more money. We cannot
guarantee that we will be able to do so on acceptable terms. In
addition, the terms of existing or future debt agreements,
including the credit agreements governing our secured credit
facilities and the indentures governing the senior notes, the
senior subordinated notes and the senior subordinated
convertible notes, may restrict us from adopting any of these
alternatives.
Despite
our current indebtedness levels, we may incur substantially more
indebtedness. This could further increase the risks associated
with our leverage.
We may incur substantial additional indebtedness in the future.
The agreements governing our indebtedness, including the credit
agreements governing our secured credit facilities and the
indentures governing the senior notes, the senior subordinated
notes and the senior subordinated convertible notes, permit us,
subject to certain limitations, to incur additional
indebtedness, which may be substantial. If new indebtedness is
added to our current levels of indebtedness, the related risks
that we now face could intensify.
The
agreements governing our indebtedness subject us to various
restrictions that may limit our ability to pursue business
opportunities.
The agreements governing our indebtedness, including the credit
agreements governing our secured credit facilities and the
indentures governing the senior notes, the senior subordinated
notes and the senior subordinated convertible notes, subject us
to various restrictions on our ability to engage in certain
activities, including, among other things, our ability to:
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incur additional debt;
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pay dividends or make distributions or repurchase or redeem our
stock or subordinated debt;
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acquire other businesses;
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make investments;
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make loans to or extend credit for the benefit of third parties
or their subsidiaries;
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prepay indebtedness;
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enter into transactions with affiliates;
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raise additional capital;
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make capital or finance lease expenditures;
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dispose of or encumber assets; and
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consolidate, merge or sell all or substantially all of our
assets.
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These restrictions may limit or restrict our cash flow and our
ability to pursue business opportunities or strategies that we
would otherwise consider to be in our best interests.
Our
secured credit facilities contain certain financial covenants
that we may not satisfy, which, if not satisfied, could result
in the acceleration of the amounts due under our secured credit
facilities and the limitation of our ability to borrow
additional funds in the future.
The agreements governing our secured credit facilities subject
us to various financial and other restrictive covenants with
which we must comply on an ongoing or periodic basis. These
include covenants pertaining to maximum consolidated leverage
ratios, minimum consolidated interest coverage ratios and limits
on capital expenditures. If we violate any of these covenants,
we may suffer a material adverse effect. Most notably, our
outstanding debt under our secured credit facilities could
become immediately due and payable, our lenders could proceed
against any collateral securing such indebtedness and our
ability to borrow additional funds in the future may be limited.
Alternatively, we could be forced to refinance or renegotiate
the terms and conditions of our secured credit facilities,
including the interest rates, financial and restrictive
covenants and security requirements of the secured credit
facilities, on terms that may be significantly less favorable to
us.
A default
under any of the agreements governing our indebtedness could
result in a default and acceleration of indebtedness under other
agreements.
The agreements governing our indebtedness, including the credit
agreements governing our secured credit facilities and the
indentures governing the senior notes, the senior subordinated
notes and the senior subordinated convertible notes, contain
cross-default provisions whereby a default under one agreement
could result in a default and acceleration of our repayment
obligations under other agreements. If a cross-default were to
occur, we may not be able to pay our debts or borrow sufficient
funds to refinance them. Even if new financing were available,
it may not be on commercially reasonable terms or acceptable
terms. If some or all of our indebtedness is in default for any
reason, our business, financial condition and results of
operations could be materially and adversely affected.
If we
default on our obligations to pay our indebtedness, we may not
be able to make payments on the new notes.
Any default under the agreements governing our indebtedness,
including a default under our secured credit facilities, that is
not waived by the required lenders, and the remedies sought by
the holders of such indebtedness, could prevent us from paying
principal, premium, if any, and interest on the new notes and
substantially decrease the market value of the new notes. If we
are unable to generate sufficient cash flow and are otherwise
unable to obtain funds necessary to meet required payments of
principal, premium, if any, and interest on our indebtedness, or
if we otherwise fail to comply with the various covenants,
including financial and operating covenants, in the instruments
governing our indebtedness (including covenants in our secured
credit facilities and the indentures governing the senior notes
and the senior subordinated notes), we could be in default under
the terms of the agreements governing such indebtedness. In the
event of such default, the
15
holders of such indebtedness could elect to declare all the
funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, the lenders under our secured
credit facilities could elect to terminate their commitments
thereunder, cease making further loans and institute foreclosure
proceedings against our assets, and we could be forced into
bankruptcy or liquidation. If our operating performance
declines, we may need to obtain waivers from the required
lenders under our secured credit facilities to avoid being in
default. If we breach our covenants under our secured credit
facilities and seek a waiver, we may not be able to obtain a
waiver from the required lenders. If this occurs, we would be in
default under our secured credit facilities, the lenders could
exercise their rights, as described above, and we could be
forced into bankruptcy or liquidation.
The new
notes are not secured by our assets or those of our guarantor
subsidiaries.
The new notes and the related guarantees are our and our
guarantor subsidiaries general unsecured obligations and
are effectively subordinated in right of payment to all of our
and our guarantor subsidiaries secured indebtedness and
obligations, including secured obligations that are otherwise
subordinated. Accordingly, our secured indebtedness and
obligations, including secured obligations that are otherwise
subordinated, would effectively be senior to the new notes to
the extent of the assets securing that indebtedness.
As of December 31, 2009, we had approximately
$1.36 billion in aggregate principal amount of secured
indebtedness outstanding, including approximately
$1.34 billion in aggregate principal amount of indebtedness
outstanding under our secured credit facilities. Any additional
borrowings pursuant to our existing or future credit facilities
would also be secured indebtedness if incurred. Although the
indenture governing the new notes contains limitations on the
amount of additional indebtedness that we may incur, under
certain circumstances the amount of such indebtedness could be
substantial and, in any case, such indebtedness may be secured
indebtedness. See Description of New Notes
Certain Covenants Limitations on Additional
Indebtedness.
Your
right to receive payment on the new notes will be structurally
subordinated to the obligations of our non-guarantor
subsidiaries.
Some of our existing and future domestic subsidiaries will
guarantee our obligations under the new notes. However, our
foreign subsidiaries and our other domestic subsidiaries will
not be required by the indenture to guarantee the new notes. Our
non-guarantor subsidiaries are separate and distinct legal
entities with no obligation to pay any amounts due pursuant to
the new notes or the guarantees of the new notes or to provide
us or the guarantor subsidiaries with funds for our payment
obligations. Our cash flow and our ability to service our debt,
including the new notes, depend in part on the earnings of our
non-guarantor subsidiaries and on the distribution of earnings,
loans or other payments to us by these subsidiaries. For the
fiscal year ended December 31, 2009, our non-guarantor
subsidiaries (which include all of our foreign subsidiaries and
certain of our domestic subsidiaries) had net revenues of
approximately $630.7 million, or approximately 32.8% of our
consolidated 2009 revenues, and operating income of
approximately $58.1 million, or approximately 39.8% of our
consolidated 2009 operating income. As of December 31,
2009, our non-guarantor subsidiaries had assets of approximately
$1.7 billion, or approximately 24.8% of our consolidated
assets. These figures do not give pro forma effect to any
acquisition we have made since such date. Payments to us or a
guarantor subsidiary by these non-guarantor subsidiaries will be
contingent upon their earnings and their business considerations.
The new notes will be structurally subordinated to all current
and future liabilities, including trade payables, of our
subsidiaries that do not guarantee the new notes. The claims of
creditors of those subsidiaries, including trade creditors, will
have priority as to the assets and cash flows of those
subsidiaries. In the event of a bankruptcy, liquidation,
dissolution or similar proceeding of any of the non-guarantor
subsidiaries, holders of their liabilities, including their
trade creditors, will generally be entitled to payment on their
claims from assets of those subsidiaries before any assets are
made available for distribution to us or our guarantor
subsidiaries. As of December 31, 2009, the non-guarantor
subsidiaries had approximately $563.9 million of total
indebtedness and other liabilities, including trade payables but
excluding intercompany liabilities. This figure does not give
pro forma effect to any acquisition we have made since
such date.
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The
lenders under our secured credit facilities will have the
discretion to release the guarantors under the secured credit
facilities in a variety of circumstances, which will cause those
guarantors to be released from their guarantees of the new
notes.
While any obligations under our secured credit facilities remain
outstanding, any guarantee of the new notes may be released
without action by, or consent of, any holder of the new notes or
the trustee under the indenture governing the new notes if the
relevant guarantor is no longer a guarantor of obligations under
the secured credit facilities or certain other indebtedness. See
Description of New Notes Guarantees of the
Notes. The lenders under the secured credit facilities or
such other indebtedness will have the discretion to release the
guarantees under the secured credit facilities in a variety of
circumstances. You will not have a claim as a creditor against
any subsidiary that is no longer a guarantor of the new notes.
If we
undergo a change of control, we may not have the ability to
raise the funds necessary to finance the change of control offer
required by the indenture governing the new notes, which would
violate the terms of the new notes.
Upon the occurrence of a change of control, as defined in the
indenture governing the new notes and the pre-existing notes,
holders of the new notes and holders of the pre-existing notes
will have the right to require us to purchase all or any part of
such holders new notes or pre-existing notes, as the case
may be, at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to (but
excluding) the date of purchase. The events that constitute a
change of control under the indenture may also constitute:
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a default under our secured credit facilities, which prohibit
the purchase of the new notes and pre-existing notes by us in
the event of certain changes of control, unless and until our
indebtedness under the secured credit facilities is repaid in
full;
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a change of control under the indentures governing our old notes
and our senior subordinated notes, which would give the holders
of the old notes and the holders of the senior subordinated
notes the right to require us to purchase all or any part of
such notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any to (but
excluding) the date of purchase; and
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a fundamental change under the indenture governing our senior
subordinated convertible notes, which would give the holders of
the senior subordinated convertible notes the right to require
us to purchase all or any part of such notes at a price equal to
100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to (but excluding) the date of purchase.
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There can be no assurance that either we or our guarantor
subsidiaries would have sufficient financial resources available
to satisfy all of our or their obligations under the new notes
or the related guarantees, our secured credit facilities or the
related guarantees, our old notes or the related guarantees, our
pre-existing notes or the related guarantees, our senior
subordinated notes or the related guarantees, or our senior
subordinated convertible notes in the event of a change of
control. Our failure to purchase the new notes and the
pre-existing notes as required under the indenture governing the
new notes and the pre-existing notes would result in a default
under that indenture and under our secured credit facilities and
could result in a default under the indentures governing the old
notes, the senior subordinated notes and the senior subordinated
convertible notes, each of which could have material adverse
consequences for us and the holders of the new notes. See
Description of New Notes Change of
Control.
The
trading prices of the new notes will be directly affected by our
ratings with major credit rating agencies, the prevailing
interest rates being paid by companies similar to us, and the
overall condition of the financial and credit markets.
The trading prices of the new notes in the secondary market will
be directly affected by our ratings with major credit rating
agencies, the prevailing interest rates being paid by companies
similar to us, and the overall condition of the financial and
credit markets. It is impossible to predict the prevailing
interest rates or the condition of the financial and credit
markets. Credit rating agencies continually revise their ratings
for companies that they follow, including us. Any ratings
downgrade could adversely affect the trading price of
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the new notes or the trading market for the new notes, to the
extent any trading market for the new notes develops. The
condition of the financial and credit markets and prevailing
interest rates have fluctuated in the past and are likely to
fluctuate in the future.
A
subsidiary guarantee could be voided if it constitutes a
fraudulent transfer under U.S. federal bankruptcy or similar
state law, which would prevent the holders of the new notes from
relying on that subsidiary to satisfy claims.
The new notes will be guaranteed by some of our domestic
subsidiaries that are guarantors or borrowers under our secured
credit facilities. The guarantees may be subject to review under
U.S. federal bankruptcy law and comparable provisions of
state fraudulent conveyance laws if a bankruptcy or another
similar case or lawsuit is commenced by or on behalf of our or a
guarantor subsidiarys unpaid creditors or another
authorized party. Under these laws, if a court were to find
that, at the time any guarantor subsidiary issued a guarantee of
the new notes, either it issued the guarantee to delay, hinder
or defraud present or future creditors, or it received less than
reasonably equivalent value or fair consideration for issuing
the guarantee and at the time:
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it was insolvent or rendered insolvent by reason of issuing the
guarantee;
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it was engaged, or about to engage, in a business or transaction
for which its remaining unencumbered assets constituted
unreasonably small capital to carry on its business;
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it intended to incur, or believed that it would incur, debts
beyond its ability to pay as they mature; or
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it was a defendant in an action for money damages, or had a
judgment for money damages docketed against it if, in either
case, after final judgment, the judgment is unsatisfied,
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then the court could void the obligations under the guarantee,
subordinate the guarantee of the new notes to other debt or take
other action detrimental to holders of the new notes.
We cannot be sure as to the standard that a court would use to
determine whether a guarantor subsidiary was solvent at the
relevant time, or, regardless of the standard that the court
uses, that the issuance of the guarantees would not be voided or
that the guarantees would not be subordinated to other debt. If
such a case were to occur, the guarantee could also be subject
to the claim that, since the guarantee was incurred for our
benefit, and only indirectly for the benefit of the guarantor
subsidiary, the obligations of the applicable guarantor
subsidiary were incurred for less than fair consideration. A
court could thus void the obligations under the guarantee,
subordinate the guarantee to the applicable guarantor
subsidiarys other debt or take other action detrimental to
holders of the new notes. If a court were to void a guarantee,
you would no longer have a claim against the guarantor
subsidiary. Sufficient funds to repay the new notes may not be
available from other sources, including the remaining guarantor
subsidiaries, if any. In addition, the court might direct you to
repay any amounts that you already received from or are
attributable to the guarantor subsidiary.
Each subsidiary guarantee contains a provision intended to limit
the guarantor subsidiarys liability to the maximum amount
that it could incur without causing the incurrence of
obligations under its subsidiary guarantee to be a fraudulent
transfer. This provision may not be effective to protect the
subsidiary guarantees from being voided under fraudulent
transfer law.
If a
bankruptcy petition were filed by or against us, holders of new
notes may receive a lesser amount for their claims than they
would have been entitled to receive under the indenture
governing the new notes.
If a bankruptcy petition were filed by or against us under the
U.S. Bankruptcy Code after the issuance of the new notes,
the claim by any holder of the new notes for the principal
amount of the new notes may be limited to an amount equal to the
sum of:
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the original issue price for the new notes; and
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that portion of the original issue discount that does not
constitute unmatured interest for purposes of the
U.S. Bankruptcy Code.
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Any original issue discount that was not accreted as of the date
of the bankruptcy filing would constitute unmatured interest.
Accordingly, holders of the new notes under these circumstances
may receive a lesser amount than they would be entitled to
receive under the terms of the indenture governing the new
notes, even if sufficient funds are available.
The old
notes were, and the new notes will be, issued with original
issue discount and market discount for United States federal
income tax purposes.
For United States federal income tax purposes, we intend to
treat the old notes as issued pursuant to a qualified
reopening of the pre-existing notes and the new notes as a
continuation of the old notes. For United States federal income
tax purposes, debt instruments issued in a qualified reopening
are deemed to be part of the same issue as the original debt
instruments. Under this treatment, all of the old notes and the
new notes will be deemed to have the same issue date, the same
issue price and (with respect to holders) the same adjusted
issue price as the pre-existing notes for United States federal
income tax purposes, and therefore will be treated as having
been issued with the same amount of remaining original issue
discount as the pre-existing notes. In addition to the stated
interest on the old notes and the new notes, U.S. holders
(as defined in Material United States Federal Income Tax
Consequences) will be required to include any amounts
representing original issue discount in gross income (as
ordinary income) as it accrues on a constant yield to maturity
basis for United States federal income tax purposes in advance
of the receipt of cash payments to which such income is
attributable, regardless of whether a holder is on the cash or
accrual method of tax accounting. Because the offering price of
the old notes was less than the old notes adjusted
issue price on September 28, 2009, the old notes were
issued with market discount. Further, because the new notes will
be treated as a continuation of the old notes, the new notes
will be treated as having the same amount of market discount as
the old notes. Market discount is subject to special rules for
United States federal income tax purposes. See Material
United States Federal Income Tax Consequences.
Interest
on the old notes and the new notes may not be deductible by us
for United States federal income tax purposes.
The deductibility of interest is subject to many limitations
under the Internal Revenue Code. We may not be able to deduct,
in whole or in part, the interest on the old notes or the new
notes. The availability of an interest deduction was not
determinative in our issuance of these notes.
Certain
covenants contained in the indenture will not be applicable
during any period in which the new notes are rated investment
grade.
The indenture governing the new notes will provide that certain
covenants will not apply to us during any period in which the
new notes are rated investment grade by both
Standard & Poors and Moodys and no default
has otherwise occurred and is continuing under the indenture.
The covenants that would be suspended include, among others,
limitations on our and our restricted subsidiaries ability
to pay dividends, incur additional indebtedness, sell certain
assets and enter into certain other transactions. Any actions
that we take while these covenants are not in force will be
permitted even if the new notes are subsequently downgraded
below investment grade and such covenants are subsequently
reinstated. There can be no assurance that the new notes will
ever be rated investment grade, or that if they are rated
investment grade, the new notes will maintain such ratings. See
Description of New Notes Certain
Covenants Suspension of Covenants.
Risks
Relating to Our Business
Disruptions
in the capital and credit markets related to the current
national and worldwide financial crisis, which may continue
indefinitely or intensify, could adversely affect our results of
operations, cash flows and financial condition, or those of our
customers and suppliers.
The current disruptions in the capital and credit markets may
continue indefinitely or intensify, and adversely impact our
results of operations, cash flows and financial condition, or
those of our customers and
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suppliers. These disruptions could adversely affect our ability
to draw on our bank revolving credit facility, which is
dependent on the ability of the banks that are parties to the
facility to meet their funding commitments. Those banks may not
be able to meet their funding commitments to us if they
experience shortages of capital and liquidity. Disruptions in
the capital and credit markets as a result of uncertainty,
changing or increased regulation, reduced alternatives or
failures of significant financial institutions could adversely
affect our access to liquidity needed to conduct or expand our
businesses or conduct acquisitions or make other discretionary
investments, as well as our ability to effectively hedge our
currency exchange or interest rate risk. Such disruptions may
also adversely impact the capital needs of our customers and
suppliers, which, in turn, could adversely affect our results of
operations, cash flows and financial condition.
Our
acquisitions may not be profitable, and the integration of these
businesses may be costly and difficult and may cause disruption
to our business.
Since commencing activities in November 2001, we have acquired
and integrated into our operations numerous businesses. Since
the beginning of 2006, we have acquired and integrated, or are
in the process of integrating Standard Diagnostics, Inc., or
Standard Diagnostics, Laboratory Specialists of America, Inc.,
or Laboratory Specialists, RMD Networks, Inc., or RMD, Tapestry
Medical, Inc., or Tapestry; Free & Clear; ZyCare;
GeneCare Medical Genetics Center, Inc., or GeneCare; Concateno;
the ACON second territory business; the ACON first territory
business; Matria Healthcare, Inc., or Matria; BBI Holdings Plc,
or BBI; Panbio Limited, or Panbio; ParadigmHealth, Inc., or
ParadigmHealth; Redwood Toxicology Laboratory, Inc., or Redwood;
Alere Medical, Inc., or Alere Medical; HemoSense, Inc., or
HemoSense; Cholestech Corporation, or Cholestech; Biosite
Incorporated, or Biosite; and Instant Technologies, Inc., or
Instant. We have also made a number of smaller acquisitions. The
ultimate success of all of these acquisitions depends, in part,
on our ability to realize the anticipated synergies, cost
savings and growth opportunities from integrating these
businesses or assets into our existing businesses. However, the
successful integration of independent businesses or assets is a
complex, costly and time-consuming process. The difficulties of
integrating companies and acquired assets include, among others:
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consolidating manufacturing, research and development operations
and health management information technology platforms, where
appropriate;
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integrating newly acquired businesses or product lines into a
uniform financial reporting system;
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coordinating sales, distribution and marketing functions and
strategies, including the integration of our current health
management products and services;
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establishing or expanding manufacturing, sales, distribution and
marketing functions in order to accommodate newly-acquired
businesses or product lines or rationalizing these functions to
take advantage of synergies;
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preserving the important licensing, research and development,
manufacturing and supply, distribution, marketing, customer and
other relationships;
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minimizing the diversion of managements attention from
ongoing business concerns; and
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coordinating geographically separate organizations.
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We may not accomplish the integration of our acquisitions
smoothly or successfully. The diversion of the attention of our
management from current operations to integration efforts and
any difficulties encountered in combining operations could
prevent us from realizing the full benefits anticipated to
result from these acquisitions and adversely affect our other
businesses. Additionally, the costs associated with the
integration of our acquisitions may be substantial. To the
extent that we incur integration costs that are not anticipated
when we finance our acquisitions, these unexpected costs could
adversely impact our liquidity or force us to borrow additional
funds. Ultimately, the value of any business or asset that we
have acquired may not be greater than or equal to the purchase
price of that business or asset.
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If we
choose to acquire or invest in new and complementary businesses,
products or technologies rather than developing them internally,
such acquisitions or investments could disrupt our business and,
depending on how we finance these acquisitions or investments,
could result in the use of significant amounts of
cash.
Our success depends in part on our ability to continually
enhance and broaden our product offerings in response to
changing technologies, customer demands and competitive
pressures. Accordingly, from time to time, we may seek to
acquire or invest in businesses, products or technologies
instead of developing them internally. Acquisitions and
investments involve numerous risks, including:
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the inability to complete the acquisition or investment;
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disruption of our ongoing businesses and diversion of management
attention;
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difficulties in integrating the acquired entities, products or
technologies;
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difficulties in operating the acquired business profitably;
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difficulties in transitioning key customer, distributor and
supplier relationships;
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risks associated with entering markets in which we have no, or
limited, prior experience; and
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unanticipated costs.
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In addition, any future acquisitions or investments may result
in:
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issuances of dilutive equity securities, which may be sold at a
discount to market price;
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use of significant amounts of cash;
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the incurrence of debt;
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the assumption of significant liabilities, including litigation;
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unfavorable financing terms;
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large one-time expenses; and
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the creation of intangible assets, including goodwill, the
write-down of which may result in significant charges to
earnings.
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Our joint
venture transaction with P&G may not realize all of its
intended benefits.
In connection with SPD, our 50/50 joint venture with P&G,
we may experience:
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difficulties in integrating our corporate culture and business
objectives with that of P&G into the joint venture;
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difficulties or delays in transitioning clinical studies;
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diversion of our managements time and attention from other
business concerns;
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higher than anticipated costs of integration at the joint
venture;
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difficulties in retaining key employees who are necessary to
manage the joint venture; or
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difficulties in working with an entity based in Switzerland and
thus remote or inconvenient to our Waltham, Massachusetts
headquarters.
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Moreover, because SPD is a 50/50 joint venture, we do not have
complete control over its operations, including business
decisions which may impact SPDs profitability.
For any of these reasons, or as a result of other factors, we
may not realize the anticipated benefits of the joint venture
and cash flow or profits derived from our ownership interest in
SPD may be less than the cash flow or profits that could have
been derived had we retained the transferred assets and
continued to operate
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the consumer diagnostics business ourselves. P&G retains an
option to require us to purchase P&Gs interest in SPD
at fair market value during the
60-day
period beginning on May 17, 2011. Moreover, certain
subsidiaries of P&G have the right, at any time upon
certain material breaches by us or our subsidiaries of our
obligations under the joint venture documents, to acquire all of
our interest in the joint venture at fair market value less
damages.
We may
not be successful in conducting future joint venture
transactions.
In addition to SPD, our 50/50 joint venture with P&G, we
may enter into additional joint venture transactions in the
future. We may experience unanticipated difficulties in
connection with those joint venture transactions. We cannot
assure you that any such joint venture transaction will be
profitable or that we will receive any of the intended benefits
of such a transaction.
If
goodwill and/or other intangible assets that we have recorded in
connection with our acquisitions of other businesses become
impaired, we could have to take significant charges against
earnings.
In connection with the accounting for our acquisitions we have
recorded, or will record, a significant amount of goodwill and
other intangible assets. Under current accounting guidelines, we
must assess, at least annually and potentially more frequently,
whether the value of goodwill and other intangible assets has
been impaired. Any reduction or impairment of the value of
goodwill or other intangible assets will result in a charge
against earnings, which could materially adversely affect our
reported results of operations in future periods.
We may
experience manufacturing problems or delays due to, among other
reasons, our volume, specialized processes or our Chinese
operations, which could result in decreased revenue or increased
costs.
Many of our manufacturing processes are complex and involve
sensitive scientific processes, including unique and often
proprietary antibodies which cannot be replicated or acquired
through alternative sources without undue delay or expense. In
addition, our manufacturing processes often require complex and
specialized equipment which can be expensive to repair or
replace with required lead times of up to a year. Also, our
private label consumer diagnostics business relies on
operational efficiency to mass produce products at low margins
per unit. We also rely on numerous third parties to supply
production materials and, in some cases, there may not be
alternative sources immediately available.
In recent years we have shifted production of several of our
products to our manufacturing facilities in China and closed
less efficient and more expensive facilities elsewhere. We
expect to continue to shift production to China and other lower
cost facilities as part of our continuing efforts to reduce
costs, improve quality and more efficiently serve targeted
markets. Moving the production of products is difficult and
involves significant risk. Problems establishing relationships
with local materials suppliers; acquiring or adapting the new
facility and its equipment to the production of new products;
hiring, training and retaining personnel; and establishing and
maintaining compliance with governmental regulations and
industry standards can cause delays and inefficiencies, which
could have a material negative impact on our financial
performance. We also currently rely on a number of significant
third-party manufacturers to produce certain of our professional
diagnostics products. Any event which negatively impacts our
manufacturing facilities, our manufacturing systems or
equipment, or our contract manufacturers or suppliers,
including, among others, wars, terrorist activities, natural
disasters and outbreaks of infectious disease, could delay or
suspend shipments of products or the release of new products or
could result in the delivery of inferior products. Our revenues
from the affected products would decline or we could incur
losses until such time as we or our contract manufacturers are
able to restore our or their production processes or we are able
to put in place alternative contract manufacturers or suppliers.
Even though we carry business interruption insurance policies,
we may suffer losses as a result of business interruptions that
exceed the coverage available under our insurance policies.
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We may
experience difficulties that may delay or prevent our
development, introduction or marketing of new or enhanced
products or services.
We intend to continue to invest in product and technology
development. The development of new or enhanced products or
services is a complex and uncertain process. We may experience
research and development, manufacturing, marketing and other
difficulties that could delay or prevent our development,
introduction or marketing of new products, services or
enhancements. We cannot be certain that:
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any of the products or services under development will prove to
be effective in clinical trials;
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any products or services under development will not infringe on
intellectual property rights of others;
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we will be able to obtain, in a timely manner or at all,
regulatory approval to market any of our products or services
that are in development or contemplated;
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the products and services we develop can be manufactured or
provided at acceptable cost and with appropriate quality; or
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these products and services, if and when approved, can be
successfully marketed.
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The factors listed above, as well as manufacturing or
distribution problems, or other factors beyond our control,
could delay new product or service launches. In addition, we
cannot assure you that the market will accept these products and
services. Accordingly, there is no assurance that our overall
revenue will increase if and when new products or services are
launched.
If the
results of clinical studies required to gain regulatory approval
to sell our products are not available when expected, or do not
demonstrate the anticipated safety and effectiveness of those
potential products, we may not be able to sell future products
and our sales could be adversely affected.
Before we can sell certain of our products, we must conduct
clinical studies intended to demonstrate that our potential
products are safe and effective and perform as expected. The
results of these clinical studies are used as the basis to
obtain regulatory approval from government authorities such as
the Food and Drug Administration, or FDA. Clinical studies are
experiments conducted using potential products and human
patients having the diseases or medical conditions that the
product is trying to evaluate or diagnose. Conducting clinical
studies is a complex, time-consuming and expensive process. In
some cases, we may spend several years completing certain
studies.
If we fail to adequately manage our clinical studies, those
clinical studies and corresponding regulatory approvals may be
delayed or we may fail to gain approval for our potential
product candidates altogether. Even if we successfully manage
our clinical studies, we may not obtain favorable results and
may not be able to obtain regulatory approval. If we are unable
to market and sell our new products or are unable to obtain
approvals in the timeframe needed to execute our product
strategies, our business and results of operations would be
materially and adversely affected.
If we are
unable to obtain required clearances or approvals for the
commercialization of our products in the United States, we may
not be able to sell future products and our sales could be
adversely affected.
Our future performance depends on, among other matters, our
estimates as to when and at what cost we will receive regulatory
approval for new products. Regulatory approval can be a lengthy,
expensive and uncertain process, making the timing, cost and
ability to obtain approvals difficult to predict. In addition,
regulatory processes are subject to change, and new or changed
regulations can result in increased costs and unanticipated
delays.
In the United States, clearance or approval to commercially
distribute new medical devices is received from the FDA through
clearance of a Premarket Notification, or 510(k), or through
approval of a Premarket Approval, or PMA. To receive 510(k)
clearance, a new product must be substantially equivalent to a
medical device first marketed in interstate commerce prior to
May 1976. The FDA may determine that a new product is not
substantially equivalent to a device first marketed in
interstate commerce prior to May 1976 or that
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additional information is needed before a substantial
equivalence determination can be made. A not substantially
equivalent determination, or a request for additional
information, could prevent or delay the market introduction of
new products that fall into this category. The 510(k) clearance
and PMA review processes can be expensive, uncertain and
lengthy. It generally takes from three to five months from
submission to obtain 510(k) clearance, and from six to eighteen
months from submission to obtain a PMA approval; however, it may
take longer, and 510(k) clearance or PMA approval may never be
obtained.
Modifications or enhancements that could significantly affect
safety or effectiveness, or constitute a major change in the
intended use of the device, require new 510(k) or PMA
submissions. We have made modifications to some of our products
since receipt of initial 510(k) clearance or PMA. With respect
to several of these modifications, we filed new 510(k)s
describing the modifications and received FDA 510(k) clearance.
We have made other modifications to some of our products that we
believe do not require the submission of new 510(k)s or PMAs.
The FDA may not agree with any of our determinations not to
submit a new 510(k) or PMA for any of these modifications made
to our products. If the FDA requires us to submit a new 510(k)
or PMA for any device modification, we may be prohibited from
marketing the modified products until the new submission is
cleared by the FDA.
We are
also subject to applicable regulatory approval requirements of
the foreign countries in which we sell products, which are
costly and may prevent or delay us from marketing our products
in those countries.
In addition to regulatory requirements in the United States, we
are subject to the regulatory approval requirements for each
foreign country to which we export our products. In the European
Union, regulatory compliance requires affixing the
CE mark to product labeling. Although our products
are currently eligible for CE marking through
self-certification, this process can be lengthy and expensive.
In Canada, as another example, our products require approval by
Health Canada prior to commercialization, along with
International Standards Organization, or ISO, 13485/CMDCAS
certification. It generally takes from three to six months from
submission to obtain a Canadian Device License. Any changes in
foreign approval requirements and processes may cause us to
incur additional costs or lengthen review times of our products.
We may not be able to obtain foreign regulatory approvals on a
timely basis, if at all, and any failure to do so may cause us
to incur additional costs or prevent us from marketing our
products in foreign countries, which may have a material adverse
effect on our business, financial condition and results of
operations.
Failure
to comply with ongoing regulations applicable to our businesses
may result in significant costs or, in certain circumstances,
the suspension or withdrawal of previously obtained clearances
or approvals.
Our businesses are extensively regulated by the FDA and other
federal, state and foreign regulatory agencies. These
regulations impact many aspects of our operations, including
manufacturing, labeling, packaging, adverse event reporting,
storage, advertising, promotion and record-keeping. For example,
our manufacturing facilities and those of our suppliers and
distributors are, or can be, subject to periodic regulatory
inspections. The FDA and foreign regulatory agencies may require
post-marketing testing and surveillance to monitor the effects
of approved products or place conditions on any product
approvals that could restrict the commercial applications of
those products. In addition, the subsequent discovery of
previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product
from the market. We are also subject to routine inspection by
the FDA and certain state agencies for compliance with the
Quality System Regulation and Medical Device Reporting
requirements in the United States and other applicable
regulations worldwide, including but not limited to ISO
requirements. Certain portions of our health management business
are subject to unique licensing or permit requirements. For
example, we may be required to obtain certification to
participate in governmental payment programs, such as state
Medicaid programs, we may need an operating license in some
states, and some states have established Certificate of Need
programs regulating the expansion of healthcare operations. In
addition, we believe certain of our health management services
are educational in nature, do not constitute the practice of
medicine or provision of healthcare, and thus do not require
that we maintain federal or state licenses to provide such
services. However, it is possible
24
that federal or state laws regarding the provision of
virtual or telephonic medicine could be revised or
interpreted to include our services, or that other laws may be
enacted which require licensure or otherwise relate to our
health management services. In such event, we may incur
significant costs to comply with such laws and regulations. In
addition, we are subject to numerous federal, state and local
laws relating to such matters as privacy, healthcare kickbacks
and false claims, safe working conditions, manufacturing
practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. We
may incur significant costs to comply with these laws and
regulations. If we fail to comply with applicable regulatory
requirements, we may be subject to fines, suspension or
withdrawal of regulatory approvals, product recalls, seizure of
products or injunctions against our distribution, termination of
our service agreements by our customers, disgorgement of money,
operating restrictions and criminal prosecution.
New federal or state laws may be enacted, or regulatory agencies
may impose new or enhanced standards that would increase our
costs, as well as the risks associated with non-compliance. In
addition, the federal government recently enacted the Genetic
Information Non-discrimination Act of 2008 (GINA), and we may
incur additional costs in assisting our customers with their
efforts to comply with GINA while continuing to offer certain of
our services.
Healthcare
reform legislation could adversely affect our revenue and
financial condition.
There are a number of initiatives on the federal and state
levels for comprehensive reforms affecting the payment for, the
availability of and reimbursement for healthcare services in the
United States. These initiatives range from proposals to
fundamentally change federal and state healthcare reimbursement
programs, including providing comprehensive healthcare coverage
to the public under governmental funded programs, to minor
modifications to existing programs. In particular, federal
legislation has reduced or significantly altered Medicare and
Medicaid reimbursements. Legislative and regulatory bodies are
likely to continue to pursue healthcare reform initiatives and
may continue to reduce the funding of the Medicare and Medicaid
programs, including Medicare Advantage, in an effort to reduce
overall federal healthcare spending. Other proposals include
additional taxes on the sale of medical devices to fund a
portion of the reform proposals. Legislative proposals are also
pending that would impose federal reporting requirements
regarding payments or relationships between manufacturers of
covered drugs, devices or biological or medical supplies and
physicians, among others. The ultimate content or timing of any
future healthcare reform legislation, and its impact on us, is
impossible to predict. If significant reforms are made to the
healthcare system in the United States, or in other
jurisdictions, those reforms may have an adverse effect on our
financial condition and results of operations.
If we
deliver products with defects, our credibility may be harmed,
market acceptance of our products may decrease and we may be
exposed to liability in excess of our product liability
insurance coverage.
The manufacturing and marketing of professional and consumer
diagnostics involve an inherent risk of product liability
claims. For example, a defect in one of our diagnostic products
may cause the product to report inaccurate information, such as
a false positive result, a false negative result or an error
message. In addition, our product development and production are
extremely complex and could expose our products to defects. Any
defects could harm our credibility and decrease market
acceptance of our products. In addition, our marketing of
monitoring services may cause us to be subjected to various
product liability claims, including, among others, claims that
inaccurate monitoring results lead to injury or death. Potential
product liability claims may exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the
policy. In the event that we are held liable for a claim for
which we are not indemnified, or for damages exceeding the
limits of our insurance coverage, that claim could materially
damage our business and financial condition.
The
effect of market saturation may negatively affect the sales of
our products, including our Triage BNP tests.
Our meter-based Triage BNP test, launched domestically in
January 2001, was the first blood test available to aid in the
detection of heart failure and benefited from a
first-to-market
position until the entry of
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direct competition in June 2003. As the acute care and initial
diagnosis market segment for BNP testing in the
U.S. hospital setting becomes saturated, unless we are able
to successfully introduce new products into the market and
achieve market acceptance of those products in a timely manner,
we expect the growth rates of sales unit volume for our Triage
BNP tests in 2010 and future periods to be lower than the growth
rates experienced over the past several years. In addition, as
the market for BNP testing matures and more competitive products
become available, the average sales price for the Triage BNP
tests is likely to decline, which will adversely impact our
product sales, gross margins and our overall financial results.
The
health management business is a relatively new component of the
overall healthcare industry.
The health management services provided by our Alere health
management business and our subsidiaries Quality Assured
Services, Inc., or QAS, and Tapestry, are relatively new
components of the overall healthcare industry. Accordingly, our
health management customers have not had significant experience
in purchasing, evaluating or monitoring such services, which can
result in a lengthy sales cycle. The success of our health
management business depends on a number of factors. These
factors include:
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our ability to differentiate our health management services from
those of our competitors;
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the extent and timing of the acceptance of our services as a
replacement for, or supplement to, traditional managed care
offerings;
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the effectiveness of our sales and marketing and engagement
efforts with customers and their health plan participants;
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our ability to sell and implement new and additional services
beneficial to health plans and employers and their respective
participants or employees;
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our ability to achieve, measure and effectively communicate cost
savings for health plans and employers through the use of our
services; and
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our ability to retain health plan and employee accounts as
competition increases.
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Since the health management business is continually evolving, we
may not be able to anticipate and adapt to the developing
market. Moreover, we cannot predict with certainty the future
growth rate or the ultimate size of the market.
Increasing
health insurance premiums and co-pays may cause individuals to
forgo health insurance and avoid medical attention, either of
which may reduce demand for our products and services.
Health insurance premiums and co-pays have generally increased
in recent years. Increased premiums may cause individuals to
forgo health insurance, as well as medical attention. This may
reduce demand for our
point-of-care
diagnostic products and also reduce the number of lives managed
by our health management programs. Increased co-pays may cause
insured individuals to forgo medical attention thereby reducing
demand for our professional diagnostic tests, as well as
revenues under certain health management programs.
Our
health management business may be adversely affected by cost
reduction pressures among our customers.
Our customers continue to face cost reduction pressures that may
cause them to curtail their use of, or reimbursement for, health
management services, to negotiate reduced fees or other
concessions or to delay payment. In addition, the loss of jobs
due to the recent economic crisis may cause the number of lives
we manage to decrease. These financial pressures could have an
adverse impact on our business.
Rising
unemployment may negatively impact the collectibility of
uninsured accounts and patient due accounts and/or reduce total
health plan populations.
One of the primary collection risks of our health management
business accounts receivable relates to uninsured patient
accounts and patient accounts for which the primary insurance
carrier has paid the amounts
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covered by the applicable agreement, but patient responsibility
amounts (deductibles and copayments) remain outstanding. As
unemployment rates rise nationally, these uninsured and patient
due accounts could make up a greater percentage of the health
management business accounts receivable. Deterioration in
the collectibility of these accounts could adversely affect the
health management business collection of accounts
receivable, cash flows and results of operations. Additionally,
certain of our health management contracts provide reimbursement
to us based on total relevant populations managed by health
plans. As unemployment rates rise, certain of our revenues may
be reduced under these contracts as managed lives may decrease.
If we are
unable to retain and negotiate favorable contracts with managed
care plans, our revenues may be reduced.
The ability of our health management business to obtain
favorable contracts with health maintenance organizations,
preferred provider organizations and other managed care plans
significantly affects the revenues and operating results of our
health management business. The business future success
will depend, in part, on its ability to retain and renew its
managed care contracts and to enter into new managed care
contracts on terms favorable to us. If the health management
business is unable to retain and negotiate favorable contracts
with managed care plans, our revenues may be reduced.
A portion
of our health management fees are contingent upon
performance.
Some of our existing health management agreements contain
savings or other guarantees, which provide that our revenues, or
a portion of them, are contingent upon projected cost savings or
other quality performance measures related to our health
management programs. There is no guarantee that we will
accurately forecast cost savings and clinical outcome
improvements under our health management agreements or meet the
performance criteria necessary to recognize potential revenues
under the agreements. Additionally, untimely, incomplete or
inaccurate data from our customers, or flawed analysis of such
data, could have a material adverse impact on our ability to
recognize revenues.
If our
costs of providing health management services increase, we may
not be able to pass these cost increases on to our
customers.
Many of our health management services are provided pursuant to
long-term contracts that we may not be able to re-negotiate. If
our costs increase, we may not be able to increase our prices,
which would adversely affect results of operations. Accordingly,
any increase in our costs could reduce our overall profit margin.
Demands
of non-governmental payers may adversely affect our growth in
revenues.
Our ability to negotiate favorable contracts with
non-governmental payers, including managed care plans,
significantly affects the revenues and operating results of our
health management business. These non-governmental payers
increasingly are demanding discounted fee structures, and the
trend toward consolidation among non-governmental payers tends
to increase their bargaining power over fee structures.
Reductions in price increases or the amounts received from
managed care, commercial insurance or other payers could have a
material, adverse effect on the financial position and results
of operations of our health management business.
Our data
management and information technology systems are critical to
maintaining and growing our business.
Our businesses, and in particular our health management
business, are dependent on the effective use of information
technology and, consequently, technology failure or obsolescence
may negatively impact our businesses. In addition, data
acquisition, data quality control, data security and data
analysis, which are a cornerstone of our health management
programs, are intense and complex processes subject to error.
Untimely, incomplete or inaccurate data, flawed analysis of such
data or our inability to properly integrate, implement and
update systems could have a material adverse impact on our
business and results of operations.
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Our
financial condition or results of operations may be adversely
affected by international business risks.
We generate a significant percentage of our net revenue from
outside the United States, and a significant number of our
employees, including manufacturing, sales, support and research
and development personnel, are located in foreign countries,
including England, Scotland, Japan, China, Australia, Germany
and Israel. Conducting business outside the United States
subjects us to numerous risks, including:
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increased costs or reduced revenue as a result of movements in
foreign currency exchange rates;
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decreased liquidity resulting from longer accounts receivable
collection cycles typical of foreign countries;
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lower productivity resulting from difficulties managing sales,
support and research and development operations across many
countries;
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lost revenues resulting from difficulties associated with
enforcing agreements and collecting receivables through foreign
legal systems;
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lost revenues resulting from the imposition by foreign
governments of trade protection measures;
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higher cost of sales resulting from import or export licensing
requirements;
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lost revenues or other adverse effects as a result of economic
or political instability in or affecting foreign countries in
which we sell our products or operate; and
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adverse effects resulting from changes in foreign regulatory or
other laws affecting the sales of our products or our foreign
operations.
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Because
our business relies heavily on foreign operations and revenues,
changes in foreign currency exchange rates and our need to
convert currencies may negatively affect our financial condition
and results of operations.
Our business relies heavily on our foreign operations. Three of
our four largest manufacturing operations are conducted outside
the United States in Hangzhou and Shanghai, China and Matsudo,
Japan, and we also have manufacturing operations in the United
Kingdom, Australia, South Africa and Israel. We also have
significant research and development operations in Jena, Germany
and Stirling, Scotland, as well as in the United Kingdom,
Australia and Israel. In addition, for the year ended
December 31, 2009, approximately 31.0% of our net revenue
was derived from sales outside the United States. Because of our
foreign operations and foreign sales, we face exposure to
movements in foreign currency exchange rates. Our primary
exposures are related to the operations of our European and Asia
Pacific subsidiaries and our manufacturing facilities in China
and Japan. These exposures may change over time as business
practices evolve and could result in increased costs or reduced
revenue and could affect our actual cash flow.
Intense
competition could reduce our market share or limit our ability
to increase market share, which could impair the sales of our
products and harm our financial performance.
The medical products industry is rapidly evolving, and
developments are expected to continue at a rapid pace.
Competition in this industry, which includes both our
professional diagnostics and consumer diagnostics businesses, is
intense and expected to increase as new products and
technologies become available and new competitors enter the
market. Our competitors in the United States and abroad are
numerous and include, among others, diagnostic testing and
medical products companies, universities and other research
institutions.
Our future success depends upon maintaining a competitive
position in the development of products and technologies in our
areas of focus. Our competitors may:
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develop technologies and products that are more effective than
our products or that render our technologies or products
obsolete or noncompetitive;
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obtain patent protection or other intellectual property rights
that would prevent us from developing potential products; or
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obtain regulatory approval for the commercialization of our
products more rapidly or effectively than we do.
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Also, the possibility of patent disputes with competitors
holding patent rights may limit or delay expansion possibilities
for our diagnostic businesses and new product launches. In
addition, many of our existing or potential competitors have or
may have substantially greater research and development
capabilities, clinical, manufacturing, regulatory and marketing
experience and financial and managerial resources.
We could
suffer monetary damages, incur substantial costs or be prevented
from using technologies important to our products as a result of
a number of pending legal proceedings.
We are involved in various legal proceedings arising out of our
businesses, including those matters discussed in the section
entitled Business Legal
Proceedings. Because of the nature of our business, we may
be subject at any particular time to commercial disputes,
product liability claims, negligence claims or various other
lawsuits arising in the ordinary course of our business,
including infringement, employment or investor matters, and we
expect that this will continue to be the case in the future.
Such lawsuits generally seek damages, sometimes in substantial
amounts, for commercial or personal injuries allegedly suffered
and can include claims for punitive or other special damages. An
adverse ruling or rulings in one or more such lawsuits could,
individually or in the aggregate, have a material adverse effect
on our sales, operations or financial performance. In addition,
we aggressively defend our patent and other intellectual
property rights. This often involves bringing infringement or
other commercial claims against third parties. These suits can
be expensive and result in counterclaims challenging the
validity of our patents and other rights. We cannot assure you
that these lawsuits or any future lawsuits relating to our
business will not have a material adverse effect on us.
The
rights we rely upon to protect the intellectual property
underlying our products may not be adequate, which could enable
third parties to use our technology and would reduce our ability
to compete in the market.
Our success will depend in part on our ability to develop or
acquire commercially valuable patent rights and to protect our
intellectual property. Our patent position is generally
uncertain and involves complex legal and factual questions. The
degree of present and future protection for our proprietary
rights is uncertain and may be impacted by intellectual property
law or legislation.
The risks and uncertainties that we face with respect to our
patents and other proprietary rights include the following:
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the pending patent applications we have filed, or to which we
have exclusive rights, may not result in issued patents or may
take longer than we expect to result in issued patents;
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the claims of any patents which are issued may not provide
meaningful protection;
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we may not be able to develop additional proprietary
technologies that are patentable;
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the patents licensed or issued to us or our customers may not
provide a competitive advantage;
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other parties may challenge patents or patent applications
licensed or issued to us or our customers;
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patents issued to other companies may harm our ability to do
business; and
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other companies may design around technologies we have patented,
licensed or developed.
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In addition to patents, we rely on a combination of trade
secrets, non-disclosure agreements and other contractual
provisions and technical measures to protect our intellectual
property rights. Nevertheless, these measures may not be
adequate to safeguard the technology underlying our products. If
these measures do not protect our rights, third parties could
use our technology and our ability to compete in the market
would be reduced. In addition, employees, consultants and others
who participate in the development of our products may breach
their agreements with us regarding our intellectual property,
and we may not have adequate remedies for the breach. We also
may not be able to effectively protect our intellectual property
rights in some
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foreign countries. For a variety of reasons, we may decide not
to file for patent, copyright or trademark protection or
prosecute potential infringements of our patents. Our trade
secrets may also become known through other means not currently
foreseen by us. Despite our efforts to protect our intellectual
property, our competitors or customers may independently develop
similar or alternative technologies or products that are equal
or superior to our technology and products without infringing on
any of our intellectual property rights, or design around our
proprietary technologies.
Claims by
others that our products infringe on their proprietary rights
could adversely affect our ability to sell our products and
services and could increase our costs.
Substantial litigation over intellectual property rights exists
in both the professional and consumer diagnostics industries. We
expect that our products and services could be increasingly
subject to third-party infringement claims, as the number of
competitors grows and the functionality of products and
technology in different industry segments overlaps. Third
parties may currently have, or may eventually be issued, patents
which our products and services or technology may infringe. Any
of these third parties might make a claim of infringement
against us. Any litigation could result in the expenditure of
significant financial resources and the diversion of
managements time and resources. In addition, litigation in
which we are accused of infringement may cause negative
publicity, have an impact on prospective customers, cause
product delays, require us to develop non-infringing technology,
make substantial payments to third parties or enter into royalty
or license agreements, which may not be available on acceptable
terms, or at all. If a successful claim of infringement were
made against us and we could not develop non-infringing
technology or license the infringed or similar technology on a
timely and cost-effective basis, we may be forced to stop
selling current products or abandon new products under
development and we could be exposed to legal actions by our
customers.
We have
initiated, and may need to further initiate, lawsuits to protect
or enforce our patents and other intellectual property rights,
which could be expensive and, if we lose, could cause us to lose
some of our intellectual property rights, which would reduce our
ability to compete in the market.
We rely on patents to protect a portion of our intellectual
property and our competitive position. In order to protect or
enforce our patent rights, we may initiate patent litigation
against third parties, such as infringement suits or
interference proceedings. Litigation may be necessary to:
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|
|
assert claims of infringement;
|
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|
|
enforce our patents;
|
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|
|
protect our trade secrets or know-how; or
|
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|
determine the enforceability, scope and validity of the
proprietary rights of others.
|
Currently, we have initiated a number of lawsuits against
competitors whom we believe to be selling products that infringe
our proprietary rights. These current lawsuits and any other
lawsuits that we initiate could be expensive, take significant
time and divert managements attention from other business
concerns. Litigation also puts our patents at risk of being
invalidated or interpreted narrowly and our patent applications
at risk of not issuing. Additionally, we may provoke third
parties to assert claims against us.
Patent law relating to the scope of claims in the technology
fields in which we operate is still evolving and, consequently,
patent positions in our industry are generally uncertain. We may
not prevail in any of these suits and the damages or other
remedies awarded, if any, may not be commercially valuable.
During the course of these suits, there may be public
announcements of the results of hearings, motions and other
interim proceedings or developments in the litigation. If
securities analysts or investors perceive any of these results
to be negative, the trading price of the new notes may decline.
30
Non-competition
obligations and other restrictions will limit our ability to
take full advantage of our management team, the technology we
own or license and our research and development
capabilities.
Members of our management team have had significant experience
in the diabetes field. In addition, technology we own or license
may have potential applications to this field and our research
and development capabilities could be applied to this field.
However, in conjunction with our split-off from Inverness
Medical Technology, Inc., or IMT, we agreed not to compete with
IMT and Johnson & Johnson in the field of diabetes
through 2011. In addition, our license agreement with IMT
prevents us from using any of the licensed technology in the
field of diabetes. As a result of these restrictions, we are
limited in our ability to pursue opportunities in the field of
diabetes at this time.
Our
operating results may fluctuate due to various factors and as a
result
period-to-period
comparisons of our results of operations will not necessarily be
meaningful.
Factors relating to our business make our future operating
results uncertain and may cause them to fluctuate from period to
period. Such factors include:
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|
the timing of new product announcements and introductions by us
and our competitors;
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|
market acceptance of new or enhanced versions of our products;
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|
the extent to which our current and future products rely on
rights belonging to third parties;
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|
changes in manufacturing costs or other expenses;
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|
competitive pricing pressures;
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|
changes in healthcare reimbursement policies and amounts;
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|
regulatory changes;
|
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|
the gain or loss of significant distribution outlets or
customers;
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|
increased research and development expenses;
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|
liabilities and costs associated with litigation;
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|
length of sales cycle and implementation process for new health
management customers;
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the costs and timing of any future acquisitions;
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general economic conditions; or
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|
general stock market conditions or other economic or external
factors.
|
Because our operating results may fluctuate from quarter to
quarter, it may be difficult for us or our investors to predict
future performance by viewing historical operating results.
Period-to-period
comparisons of our operating results may not be meaningful due
to our acquisitions.
We have engaged in a number of acquisitions in recent years,
which makes it difficult to analyze our results and to compare
them from period to period. Significant acquisitions since 2006
include our acquisitions of the ACON business in the first
territory in March 2006, Instant in March 2007, Biosite in June
2007, Cholestech in September 2007, Matria in May 2008, the ACON
second territory business in April 2009 and our majority
interest in Standard Diagnostics, Inc. in February and March
2010.
Period-to-period
comparisons of our results of operations may not be meaningful
due to these acquisitions and are not indications of our future
performance. Any future acquisitions will also make our results
difficult to compare from period to period in the future.
31
The terms
of the Series B Preferred Stock may limit our ability to
raise additional capital through subsequent issuances of
preferred stock.
For so long as any shares of Series B Preferred Stock
remain outstanding, we are not permitted, without the
affirmative vote or written consent of the holders of at least
two-thirds of the Series B Preferred Stock then
outstanding, to authorize or designate any class or series of
capital stock having rights on liquidation or as to
distributions (including dividends) senior to the Series B
Preferred Stock. This restriction could limit our ability to
plan for or react to market conditions or meet extraordinary
capital needs, which could have a material adverse impact on our
business.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act. You can
identify these statements by forward-looking words such as
may, could, should,
would, intend, will,
expect, anticipate, believe,
estimate, continue or similar words. You
should read statements that contain these words carefully
because they discuss our future expectations, contain
projections of our future results of operations or of our
financial condition or state other forward-looking
information. There may be events in the future that we are
unable to predict accurately or control and that may cause our
actual results to differ materially from the expectations we
describe in our forward-looking statements. We caution investors
that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from
those we discuss in this prospectus. These differences may be
the result of various factors, including the factors identified
in the section entitled Risk Factors in this
prospectus, the factors identified in the section entitled
Risk Factors in our annual report on
Form 10-K/A
for the year ended December 31, 2009 and other factors
identified from time to time in our periodic filings with the
SEC. Some important factors that could cause our actual results
to differ materially from those projected in any such
forward-looking statements are as follows:
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our inability to predict the effects of the current national and
worldwide financial and economic crisis, including disruptions
in the capital and credit markets, and potential legislative and
regulatory responses to the crisis;
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|
our inability to predict the effects of anticipated United
States national healthcare reform legislation and similar
initiatives in other countries;
|
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|
|
economic factors, including inflation and fluctuations in
interest rates and foreign currency exchange rates, and the
potential effect of such fluctuations on revenues, expenses and
resulting margins;
|
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|
competitive factors, including technological advances achieved
and patents obtained by competitors and general competition;
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|
|
domestic and foreign healthcare changes resulting in pricing
pressures, including the continued consolidation among
healthcare providers, trends toward managed care and healthcare
cost containment and laws and regulations relating to sales and
promotion, reimbursement and pricing generally;
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|
laws and regulations affecting domestic and foreign operations,
including those relating to trade, monetary and fiscal policies,
taxes, price controls, regulatory approval of new products,
licensing and environmental protection;
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|
|
manufacturing interruptions, delays or capacity constraints or
lack of availability of alternative sources for components for
our products, including our ability to successfully maintain
relationships with suppliers, or to put in place alternative
suppliers on terms that are acceptable to us;
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difficulties inherent in product development, including the
potential inability to successfully continue technological
innovation, complete clinical trials, obtain regulatory
approvals or clearances in the United States and abroad and the
possibility of encountering infringement claims with respect to
patent or other intellectual property rights which can preclude
or delay commercialization of a product;
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32
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significant litigation adverse to us including product liability
claims, patent infringement claims and antitrust claims;
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|
product efficacy or safety concerns resulting in product recalls
or declining sales;
|
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|
|
the impact of business combinations and organizational
restructurings consistent with evolving business strategies;
|
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|
|
our ability to satisfy the financial covenants and other
conditions contained in the agreements governing our
indebtedness;
|
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|
|
our ability to effectively manage the integration of our
acquisitions into our operations;
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|
our ability to obtain required financing on terms that are
acceptable to us; and
|
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|
|
the issuance of new or revised accounting standards by the
American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, the Public Company
Accounting Oversight Board or the SEC or the impact of any
pending unresolved SEC comments.
|
The foregoing list provides many, but not all, of the factors
that could impact our ability to achieve the results described
in any forward-looking statement. Readers should not place undue
reliance on our forward-looking statements. Before you invest in
the new notes, you should be aware that the occurrence of the
events described above and elsewhere in this prospectus could
seriously harm our business, prospects, operating results and
financial condition. We do not undertake any obligation to
update any forward-looking statement as a result of future
events or developments.
33
SELECTED
CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables provide our selected consolidated financial
data as of the dates and for the periods shown. Our selected
consolidated statement of operations data for the years ended
December 31, 2007, 2008 and 2009 and our selected
consolidated balance sheet data as of December 31, 2008 and
2009 are derived from our consolidated financial statements
included elsewhere in this prospectus, which have been audited
by BDO Seidman, LLP, our independent registered public
accounting firm, as indicated in their report. Our selected
consolidated statement of operations data for the years ended
December 31, 2005 and 2006 and our selected consolidated
balance sheet data as of December 31, 2005, 2006 and 2007
are derived from our consolidated financial statements not
included in this prospectus, which have been audited by BDO
Seidman, LLP, our independent registered public accounting firm.
The selected consolidated financial data set forth below should
be read in conjunction with, and are qualified in their entirety
by reference to Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
audited consolidated financial statements, including the related
notes thereto, included elsewhere in this prospectus, or, in the
case of the years ended December 31, 2005 and 2006, not
included herein but included in our annual reports on
Form 10-K/A
for such periods.
For a discussion of certain factors that materially affect the
comparability of the selected consolidated financial data or may
cause the data reflected herein not to be indicative of our
future results of operations or financial condition, see the
sections of this prospectus entitled Risk Factors
and Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
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|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data and ratios)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
331,046
|
|
|
$
|
470,079
|
|
|
$
|
728,091
|
|
|
$
|
1,151,265
|
|
|
$
|
1,365,079
|
|
Services revenue
|
|
|
|
|
|
|
|
|
|
|
16,646
|
|
|
|
405,462
|
|
|
|
528,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue
|
|
|
331,046
|
|
|
|
470,079
|
|
|
|
744,737
|
|
|
|
1,556,727
|
|
|
|
1,893,566
|
|
License and royalty revenue
|
|
|
15,393
|
|
|
|
17,324
|
|
|
|
21,979
|
|
|
|
25,826
|
|
|
|
29,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
346,439
|
|
|
|
487,403
|
|
|
|
766,716
|
|
|
|
1,582,553
|
|
|
|
1,922,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net product sales
|
|
|
192,326
|
|
|
|
257,785
|
|
|
|
365,545
|
|
|
|
543,317
|
|
|
|
619,503
|
|
Cost of services revenue
|
|
|
|
|
|
|
|
|
|
|
5,261
|
|
|
|
177,098
|
|
|
|
240,026
|
|
Cost of license and royalty revenue
|
|
|
4,539
|
|
|
|
5,432
|
|
|
|
9,149
|
|
|
|
8,620
|
|
|
|
8,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenue
|
|
|
196,865
|
|
|
|
263,217
|
|
|
|
379,955
|
|
|
|
729,035
|
|
|
|
868,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
149,574
|
|
|
|
224,186
|
|
|
|
386,761
|
|
|
|
853,518
|
|
|
|
1,054,222
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
30,992
|
|
|
|
48,706
|
|
|
|
69,547
|
|
|
|
111,828
|
|
|
|
112,848
|
|
Purchase of in-process research and development
|
|
|
|
|
|
|
4,960
|
|
|
|
173,825
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
66,300
|
|
|
|
89,700
|
|
|
|
163,028
|
|
|
|
381,939
|
|
|
|
441,646
|
|
General and administrative
|
|
|
56,045
|
|
|
|
67,938
|
|
|
|
155,153
|
|
|
|
295,059
|
|
|
|
357,033
|
|
(Gain) loss on dispositions, net
|
|
|
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
(3,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3,763
|
)
|
|
|
9,384
|
|
|
|
(174,792
|
)
|
|
|
64,692
|
|
|
|
146,050
|
|
Interest expense and other expenses, net, including amortization
of original issue discounts and write-off of deferred financing
costs
|
|
|
(7,536
|
)
|
|
|
(17,595
|
)
|
|
|
(73,563
|
)
|
|
|
(102,939
|
)
|
|
|
(105,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes
|
|
|
(11,299
|
)
|
|
|
(8,211
|
)
|
|
|
(248,355
|
)
|
|
|
(38,247
|
)
|
|
|
40,248
|
|
Provision (benefit)for income taxes
|
|
|
6,971
|
|
|
|
5,712
|
|
|
|
(1,049
|
)
|
|
|
(16,644
|
)
|
|
|
15,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before equity earnings
of unconsolidated entities, net of tax
|
|
|
(18,270
|
)
|
|
|
(13,923
|
)
|
|
|
(247,306
|
)
|
|
|
(21,603
|
)
|
|
|
24,621
|
|
Equity earnings of unconsolidated entities, net of tax
|
|
|
|
|
|
|
336
|
|
|
|
4,372
|
|
|
|
1,050
|
|
|
|
7,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(18,270
|
)
|
|
|
(13,587
|
)
|
|
|
(242,934
|
)
|
|
|
(20,553
|
)
|
|
|
32,247
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
(939
|
)
|
|
|
(3,255
|
)
|
|
|
(418
|
)
|
|
|
(1,048
|
)
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(19,209
|
)
|
|
|
(16,842
|
)
|
|
|
(243,352
|
)
|
|
|
(21,601
|
)
|
|
|
34,181
|
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
1,401
|
|
|
|
167
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data and ratios)
|
|
|
Net income (loss) attributable to Inverness Medical Innovations,
Inc. and subsidiaries
|
|
|
(19,209
|
)
|
|
|
(16,842
|
)
|
|
|
(244,753
|
)
|
|
|
(21,768
|
)
|
|
|
33,716
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,989
|
)
|
|
|
(22,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders(1)
|
|
$
|
(19,209
|
)
|
|
$
|
(16,842
|
)
|
|
$
|
(244,753
|
)
|
|
$
|
(35,757
|
)
|
|
$
|
10,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share attributable to
Inverness Medical Innovations, Inc. and subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from continuing operations(1)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(4.74
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from discontinued
operations(1)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share
|
|
$
|
(0.79
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(4.75
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share attributable to
Inverness Medical Innovations, Inc. and subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from continuing operations(1)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(4.74
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from discontinued
operations(1)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share(1)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(4.75
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(2)(3)
|
|
|
0.5
|
x
|
|
|
0.7
|
x
|
|
|
|
|
|
|
0.7
|
x
|
|
|
1.4
|
x
|
Ratio of earnings to combined fixed charges and preference
dividends(2)(4)
|
|
|
0.5
|
x
|
|
|
0.7
|
x
|
|
|
|
|
|
|
0.5
|
x
|
|
|
1.0
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,270
|
|
|
$
|
71,104
|
|
|
$
|
414,732
|
|
|
$
|
141,324
|
|
|
$
|
492,773
|
|
Working capital
|
|
$
|
84,514
|
|
|
$
|
133,297
|
|
|
$
|
674,048
|
|
|
$
|
470,349
|
|
|
$
|
828,944
|
|
Total assets
|
|
$
|
791,166
|
|
|
$
|
1,085,771
|
|
|
$
|
4,880,759
|
|
|
$
|
5,955,360
|
|
|
$
|
6,943,992
|
|
Total debt
|
|
$
|
262,504
|
|
|
$
|
202,976
|
|
|
$
|
1,387,849
|
|
|
$
|
1,520,534
|
|
|
$
|
2,149,324
|
|
Total stockholders equity
|
|
$
|
397,308
|
|
|
$
|
714,138
|
|
|
$
|
2,586,667
|
|
|
$
|
3,278,838
|
|
|
$
|
3,527,555
|
|
|
|
|
(1) |
|
Net income (loss) available to common stockholders and basic
and diluted net income (loss) per common share are computed as
described in Notes 2(n) and 15 of our consolidated
financial statements included elsewhere in this prospectus. |
|
(2) |
|
For the purpose of computing our ratio of earnings to fixed
charges, earnings consist of pre-tax income before
adjustment for income from equity investees plus fixed charges
(excluding capitalized interest). Fixed charges
consist of interest expensed and capitalized, amortized
premiums, discounts and capitalized expenses related to
indebtedness and an estimate of the interest within rental
expense. This ratio is adjusted to include preference dividends
in the ratio of earnings to combined fixed charges and
preference dividends. Preference dividends equal the
amount of pre-tax earnings that is required to pay the dividends
on outstanding preference securities. |
|
(3) |
|
For the years ended December 31, 2005, 2006, 2007 and
2008, our earnings were insufficient to fully cover our fixed
charges. The amount of the coverage deficiency in such periods
was $11.3 million, $8.2 million, $248.4 million
and $37.0 million, respectively. |
|
(4) |
|
For the years ended December 31, 2005, 2006, 2007 and
2008, our earnings were insufficient to fully cover our combined
fixed charges and preference dividends. The amount of the
coverage deficiency in such periods was $11.3 million,
$8.2 million, $248.4 million and $37.0 million,
respectively. |
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This prospectus, including this Managements
Discussion and analysis of Financial Condition and Results of
Operations, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. You can identify these statements by
forward-looking words such as may,
could, should, would,
intend, will, expect,
anticipate, believe,
estimate, continue or similar words. You
should read statements that contain these words carefully
because they discuss our future expectations, contain
projections of our future results of operations or of our
financial condition or state other forward-looking
information. Forward-looking statements in this section include,
without limitation, statements regarding anticipated expansion
and growth in certain of our product and service offerings,
research and development expenditures, the impact of our
research and development activities, potential new product and
technology achievements, the impact of our global distribution
network, our ability to improve our working capital and
operating margins, our expectations with respect to Apollo, our
new integrated health management technology platform, our
ability to improve care and lower healthcare costs for both
providers and patients, and our funding plans for our future
working capital needs and commitments. Actual results or
developments could differ materially from those projected in
such statements as a result of numerous factors, including,
without limitation, those risks and uncertainties set forth in
Risk Factors, which begins on page 12 of this
prospectus, as well as those factors identified from time to
time in our periodic filings with the Securities and Exchange
Commission. We do not undertake any obligation to update any
forward-looking statements. This prospectus and, in particular,
the following discussion and analysis of our financial condition
and results of operations, should be read in light of those
risks and uncertainties and in conjunction with our consolidated
financial statements and notes thereto included elsewhere in
this prospectus.
Overview
We enable individuals to take charge of improving their health
and quality of life at home by developing new capabilities in
near-patient diagnosis, monitoring and health management. Our
global, leading products and services, as well as our new
product development efforts, currently focus on cardiology,
womens health, infectious disease, oncology and drugs of
abuse. We are continuing to expand our product and service
offerings in all of these categories both through acquisitions
and new product development.
Through our August 2009 acquisition of Concateno and our
February 2010 acquisition of Kroll, we expanded the range of
drugs of abuse testing products and services that we can offer
the government, employers, health plans and healthcare
professionals. Our February 2010 acquisition of a majority
interest in Standard Diagnostics brought us a comprehensive
range of rapid diagnostic products, with particular strength in
the infectious disease category. In December 2009, we also
entered into an agreement with Epocal Inc. to become the
exclusive distributor of the
epoc®
point-of-care
diagnostic system in the U.S. and other key markets. Over time,
we expect this high-precision platform to support a broad menu
of tests serving the critical care,
point-of-care
and, eventually, home settings. Within our health management
segment, our September 2009 acquisition of Free &
Clear brought us highly differentiated smoking cessation
programs.
We have also continued to make progress toward our long-standing
goal of strengthening our global network in order to efficiently
distribute our current and future diagnostic products and,
ultimately, our services, to customers around the globe. Our
April 2009 acquisition of the remainder of ACON
Laboratories rapid diagnostics business greatly enhanced
our presence in China. We also acquired smaller distributors in
Switzerland, Ireland, South Korea, Taiwan and Argentina.
Our research and development efforts focus on developing
technology platforms that will facilitate movement of testing
from the hospital and central laboratory to the physicians
office and, ultimately, the home. During the fourth quarter of
2009, we recognized our first commercial sales of the PIMA CD4
analyzer in Africa. Developed by our research team in Jena,
Germany, this portable,
point-of-care
device provides
36
laboratory quality results for determining patient therapy
eligibility for HIV positive individuals and monitoring for
patients on life-long therapy. Additionally, through our strong
pipeline of novel proteins, or combinations of proteins that
function as disease biomarkers, we are developing new
point-of-care
tests targeted toward all of our areas of focus. During the
first quarter of 2009, we launched the Triage NGAL test outside
of the U.S. Recent studies published on the NGAL marker can help
identify patients at risk for acute kidney injury and we hope
that the Triage NGAL test will eventually develop broad market
appeal.
As a global, leading supplier of near-patient monitoring tools,
as well as value-added healthcare services, we are uniquely
positioned to improve care and lower healthcare costs for both
providers and patients. Our rapidly growing home coagulation
monitoring business, which supports doctors and
patients efforts to monitor warfarin therapy using our
INRatio blood coagulation monitoring system, represents an early
example of the convergence of diagnostic devices with health
management services. In November 2009, we supplemented our
growing QAS home coagulation monitoring business by acquiring
Tapestry whose strong management team and core strength in
Medicare reimbursement will, along with QAS, provide us with a
stable platform for growth in this significantly
under-penetrated market. During 2009, we also invested heavily
in our new integrated health management technology platform,
called Apollo. Using a sophisticated data engine for acquiring
and analyzing information, combined with a state of the art
touch engine for communicating with individuals and their health
partners, we expect Apollo to benefit healthcare providers,
health insurers and patients alike by enabling more efficient
and effective health management programs. We successfully
launched Apollo on January 1, 2010.
2009
Financial Highlights
Net revenue in 2009 of $1.9 billion increased by
$340.1 million, or 21%, from $1.6 billion in 2008. Net
revenue increased primarily as a result of our health management
and professional diagnostics-related acquisitions which
contributed $233.2 million of the increase. Additionally,
as a result of the H1N1 flu outbreak, revenues from our North
American flu sales increased by approximately
$66.5 million, or 192%, in 2009, from $34.6 million in
2008.
Gross profit increased by $200.7 million, or 24%, to
$1.1 billion in 2009 from $853.5 million in 2008,
principally as a result of the increase in net product sales and
services revenue resulting from acquisitions, an increase in
flu-related sales associated with the H1N1 flu outbreak and
organic growth from our professional diagnostics business
segment. Gross profit was adversely impacted by
$9.5 million and $17.9 million during 2009 and 2008,
respectively, for restructuring charges related to the closure
of various manufacturing and operating facilities.
Results
of Operations
The following discussions of our results of continuing
operations exclude the results related to the vitamins and
nutritional supplements business segment, which was previously
presented as a separate operating segment prior to its
divestiture in January 2010. The vitamins and nutritionals
supplements business segment has been segregated from continuing
operations and reflected as discontinued operations for all
periods presented. See Discontinued Operations
below. Our results of operations were as follows:
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net Product Sales and Services Revenue. Net
product sales and services revenue increased by
$336.8 million, or 22%, to $1.9 billion in 2009 from
$1.6 billion in 2008. Excluding the unfavorable impact of
currency translation, net product sales and services revenue in
2009 grew by approximately $363.8 million, or 23%, over
2008. Of the currency adjusted increase, revenue increased
primarily as a result of our professional diagnostic-related
acquisitions which contributed $233.2 million of the
increase. Additionally, as a result of the H1N1 flu outbreak,
revenues from our North American flu sales increased by
approximately $66.5 million, or 192%, in 2009, from
$34.6 million in 2008.
37
Net Product Sales and Services Revenue by Business
Segment. Net product sales and services revenue
by business segment for 2009 and 2008 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(decrease)
|
|
|
Professional diagnostics
|
|
$
|
1,238,251
|
|
|
$
|
1,029,528
|
|
|
|
20
|
%
|
Health management
|
|
|
521,695
|
|
|
|
392,399
|
|
|
|
33
|
%
|
Consumer diagnostics
|
|
|
133,620
|
|
|
|
134,800
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue
|
|
$
|
1,893,566
|
|
|
$
|
1,556,727
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Diagnostics
The increase in net product sales and services revenue from our
professional diagnostics business segment was
$208.7 million, or 20%, resulting in $1.2 billion of
net product and services revenue in 2009. As a result of the
H1N1 flu outbreak, revenues from our North American flu sales
increased approximately $66.5 million comparing 2009 to
2008. Additionally, net product sales and services revenue
increased as a result of our acquisitions of: (i) the ACON
Second Territory Business, in April 2009, which contributed
$38.3 million of net product sales and services revenue,
(ii) Concateno, in August 2009, which contributed
$33.3 million of net product sales and services revenue,
(iii) Prodimol Biotecnologia S.A., or Prodimol, in October
2008, which contributed additional net product sales and
services revenue of $6.4 million in excess of those earned
in the prior years comparative period, (iv) Vision
Biotech Pty Ltd, or Vision, in September 2008, which contributed
additional net product sales and services revenue of
$6.3 million in excess of those earned in the prior
years comparative period and (v) various less
significant acquisitions, which contributed an aggregate of
$11.2 million of such increase.
Health
Management
Our health management net product sales and services revenue
increased $129.3 million, or 33%, to $521.7 million in
2009 from $392.4 million in 2008. Of the increase, net
product sales and services revenue increased primarily as a
result of our acquisitions of: (i) Matria, in May 2008,
which contributed additional net product sales and services
revenue of $103.0 million in excess of those earned in the
prior years comparative period, (ii) Free &
Clear, in September 2009, which contributed $14.3 million
of net product sales and services revenue, (iii) CVS
Caremarks common disease management program, or Accordant,
in September 2009, which contributed $11.5 million of net
product sales and services revenue and (iv) various less
significant acquisitions, which contributed an aggregate of
$8.9 million of such increase.
Consumer
Diagnostics
Our consumer diagnostics net product sales and services revenue
decreased by $1.2 million, or 1%, to $133.6 million in
2009 from $134.8 million in 2008. The decrease during the
year ended December 31, 2009, as compared to the year ended
December 31, 2008, was primarily driven by a decrease in
net product sales and services revenue associated with our First
Check at-home testing drugs of abuse business.
Net Product Sales and Services Revenue by Geographic
Location. Net product sales and services revenue
by geographic location for 2009 and 2008 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Increase
|
|
|
United States
|
|
$
|
1,302,376
|
|
|
$
|
1,098,894
|
|
|
|
19
|
%
|
Europe
|
|
|
315,130
|
|
|
|
283,552
|
|
|
|
11
|
%
|
Other
|
|
|
276,060
|
|
|
|
174,281
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue
|
|
$
|
1,893,566
|
|
|
$
|
1,556,727
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue of $1.3 billion and
$1.1 billion generated in the United States were
approximately 69% and 71%, respectively, of total net product
sales and services revenue for the year
38
ended December 31, 2009 and 2008, respectively. The growth
in net product sales and services revenue in all geographic
regions resulted primarily from the various acquisitions and
organic growth, both discussed above.
License and Royalty Revenue. License and
royalty revenue represents license and royalty fees from
intellectual property license agreements with third parties.
License and royalty revenue increased by $3.2 million, or
13%, to $29.1 million in 2009, from $25.8 million in
2008. The increase in license and royalty revenue during 2009,
as compared to 2008, was primarily attributed to an increase in
royalty payments received from Quidel under existing licensing
agreements and a $5.0 million royalty payment received in
connection with a license arrangement in the field of animal
health diagnostics.
Gross Profit and Margin. Gross profit
increased by $200.7 million, or 24%, to $1.1 billion
in 2009, from $853.5 million in 2008. The increase in gross
profit for 2009, as compared to 2008, was largely attributed to
the increase in net product sales and services revenue resulting
from acquisitions, an increase in flu-related sales associated
with the H1N1 flu outbreak, and organic growth from our
professional diagnostics business segment. Included in gross
profit in 2009 were restructuring charges totaling
$9.5 million associated with the closure of various
manufacturing and operating facilities and $2.0 million of
stock-based compensation expense. Included in gross profit in
2008 were restructuring charges totaling $17.9 million
associated with the closure of various manufacturing and
operating facilities and $1.5 million of stock-based
compensation expense. Cost of net revenue included amortization
expense of $42.1 million and $43.4 million in 2009 and
2008, respectively.
Overall gross margin was 55% in 2009, compared to 54% in 2008.
Gross Profit from Net Product Sales and Services Revenue by
Business Segment. Gross profit from net product
sales and services revenue increased by $197.7 million to
$1.0 billion in 2009, from $836.3 million in 2008.
Gross profit from net product sales and services revenue by
business segment for 2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(decrease)
|
|
|
Professional diagnostics
|
|
$
|
733,640
|
|
|
$
|
596,186
|
|
|
|
23
|
%
|
Health management
|
|
|
280,547
|
|
|
|
214,356
|
|
|
|
31
|
%
|
Consumer diagnostics
|
|
|
19,850
|
|
|
|
25,770
|
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from net product sales and services revenue
|
|
$
|
1,034,037
|
|
|
$
|
836,312
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Diagnostics
Gross profit from our professional diagnostics net product sales
and services revenue increased by $137.5 million, or 23%,
to $733.6 million during 2009, compared to
$596.2 million during 2008, principally as a result of
gross profit earned on revenue from acquired businesses, as
discussed above. Reducing gross profit for 2009 and 2008 was
$8.6 million and $17.9 million in restructuring
charges, respectively.
As a percentage of our professional diagnostics net product
sales and services revenue, gross profit from our professional
diagnostics business was 59% in 2009, compared to 58% in 2008.
Health
Management
Gross profit from our health management net product sales and
services revenue increased by $66.2 million, or 31%, to
$280.5 million during 2009, compared to $214.4 million
during 2008. The increase in gross profit was largely attributed
to gross margins earned on revenues from recent acquisitions, as
discussed above. Reducing gross profit for 2009 was
$0.6 million in restructuring charges.
As a percentage of our health management net product sales and
services revenue, gross profit from our health management
business was 54% in 2009, compared to 55% in 2008.
39
Consumer
Diagnostics
Gross profit from our consumer diagnostics net product sales and
services revenue decreased $5.9 million, or 23%, to
$19.8 million during 2009, compared to $25.8 million
during 2008. The decrease in gross profit is primarily a result
of net product sales and services revenue mix during the year
ended December 31, 2009, compared to the year ended
December 31, 2008.
As a percentage of our consumer diagnostics net product sales
and services revenue, gross profit from our consumer diagnostics
business was 15% for 2009, compared to 19% in 2008.
Research and Development Expense. Research and
development expense increased by $1.0 million, or 1%, to
$112.8 million in 2009, from $111.8 million in 2008.
Included in research and development expense in 2009 is $5.2
million of stock-based compensation expense, representing an
increase of approximately $0.6 million from 2008.
Restructuring charges associated with our various restructuring
plans to integrate our newly-acquired businesses totaling
$1.1 million were included in research and development
expense during 2009, representing a decrease of approximately
$6.2 million from 2008. Amortization expense of
$3.7 million was included in research and development
expense for both 2009 and 2008.
Research and development expense as a percentage of net revenue
decreased to 6% for 2009, from 7% for 2008.
Sales and Marketing Expense. Sales and
marketing expense increased by $59.7 million, or 16%, to
$441.6 million in 2009, from $381.9 million in 2008.
Amortization expense of $186.9 million and
$148.6 million was included in sales and marketing expense
for 2009 and 2008, respectively. The remaining increase in sales
and marketing expense primarily relates to additional spending
related to newly-acquired businesses. Also included in sales and
marketing expense is $4.2 million of stock-based
compensation expense, representing a decrease of approximately
$0.1 million from 2008. Restructuring charges associated
with our various restructuring plans to integrate our
newly-acquired businesses totaling $1.9 million were
included in sales and marketing expense during 2009,
representing a decrease of approximately $2.4 million from
2008.
Sales and marketing expense as a percentage of net revenue
decreased to 23% for 2009, from 24% for 2008.
General and Administrative Expense. General
and administrative expense increased by $62.0 million, or
21%, to $357.0 million in 2009, from $295.1 million in
2008. The increase in general and administrative expense relates
primarily to additional spending related to newly-acquired
businesses. Contributing to the increase in general and
administrative expense for 2009, as compared to 2008, was
$15.9 million for acquisition-related costs recorded in
connection with our adoption of a new accounting standard for
business combinations on January 1, 2009. Also included in
general and administrative expense is $16.7 million of
stock-based compensation expense, representing an increase of
approximately $0.7 million from 2008. Amortization expense
of $22.9 million and $18.2 million was included in
general and administrative expense for 2009 and 2008,
respectively.
General and administrative expense as a percentage of net
revenue was 19% for both 2009 and 2008.
Interest Expense. Interest expense includes
interest charges and the amortization of deferred financing
costs. Interest expense in 2009 also includes the amortization
of original issue discounts associated with certain debt
issuances. Interest expense increased by $5.7 million, or
6%, to $106.8 million for the year ended December 31,
2009, from $101.1 million for the year ended
December 31, 2008. Such increase was principally due to
additional interest expense incurred on our 9% subordinated
notes and 7.875% senior notes, totaling $32.3 million
for the year ended December 31, 2009. Substantially
offsetting this increase was lower interest expense incurred due
to lower interest rates charged during the year ended
December 31, 2009, compared to the year ended
December 31, 2008.
40
Other Income (Expense), Net. Other income
(expense), net, includes interest income, realized and
unrealized foreign exchange gains and losses, and other income
and expense. The components and the respective amounts of other
income (expense), net, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Interest income
|
|
$
|
2,342
|
|
|
$
|
6,566
|
|
|
$
|
(4,224
|
)
|
Foreign exchange gains (losses), net
|
|
|
1,267
|
|
|
|
(457
|
)
|
|
|
1,724
|
|
Other
|
|
|
(2,613
|
)
|
|
|
(7,916
|
)
|
|
|
5,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
996
|
|
|
$
|
(1,807
|
)
|
|
$
|
2,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net for 2009 increased by
$2.8 million as compared to 2008, and included a decrease
in interest income of $4.2 million which resulted from
lower interest earned on available cash balances,
$1.9 million of expense associated with fully-vested
compensation-related costs for certain executives incurred in
connection with the acquisition of Concateno during the third
quarter of 2009, a $2.9 million realized foreign currency
gain associated with restricted cash established in connection
with the acquisition of Concateno, and $0.6 million of
stamp duty tax incurred during 2009 in connection with an
incremental investment made in one of our foreign subsidiaries.
Other income (expense), net, for 2008 includes a
$12.5 million charge associated with an arbitration
decision, a $1.7 million realized foreign currency loss
associated with restricted cash established in connection with
the acquisition of BBI partially offset by $5.5 million of
income associated with settlements of prior years
royalties during 2008.
Provision (Benefit) for Income
Taxes. Provision (benefit) for income taxes
increased by $32.3 million, to a $15.6 million
provision in 2009, from a $16.6 million benefit in 2008.
The effective tax rate in 2009 was 39%, compared to 43% in 2008.
The increase in the provision for income taxes from 2008 to 2009
is primarily related to increased income in foreign
jurisdictions. The decrease in the effective tax rate between
the two years primarily results from the mix of tax
jurisdictions, along with the impact of increased U.S. R&D
credits.
The primary components of the 2009 provision for income taxes
relates to U.S. federal and state income taxes and taxes on
foreign income. The primary components of the 2008 benefit for
income taxes relates to U.S. federal and state income
taxes, taxes on foreign income and the recognition of benefit on
German and U.K. losses.
Discontinued Operations, Net of Tax. The
results of the vitamins and nutritional supplements business are
included in income (loss) from discontinued operations, net of
tax, for all periods presented. For the year ended
December 31, 2009, the discontinued operations generated
net income of $1.9 million, as compared to a net loss of
$1.0 million for the year ended December 31, 2008.
Net Income (Loss). For the year ended
December 31, 2009, we generated net income of
$33.7 million, or $0.13 per basic and diluted common share
after preferred stock dividends, based on net income available
to common stockholders of $10.7 million. For the year ended
December 31, 2008, we generated a net loss of
$21.8 million, or $0.46 per basic and diluted common share
after preferred stock dividends, based on net loss available to
common stockholders of $35.8 million. The net income in
2009 and the net loss 2008 resulted from the various factors as
discussed above. See Note 14 of our consolidated financial
statements included elsewhere in this prospectus for the
calculation of net income (loss) per common share.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Net Product Sales and Services Revenue. Net
product sales and services revenue increased by
$812.0 million, or 109%, to $1.6 billion in 2008 from
$744.7 million in 2007. Excluding the unfavorable impact of
currency translation, net product sales and services revenue in
2008 grew by approximately $812.3 million, or 109%, over
2007. Of the currency adjusted increase, revenue increased
primarily as a result of our professional diagnostic-related
acquisitions which contributed $392.4 million of the
increase. Organic growth, particularly from our professional
infectious disease and drugs of abuse products also contributed
to the growth.
41
Net Product Sales and Services Revenue by Business
Segment. Net product sales and services revenue
by business segment for 2008 and 2007 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(decrease)
|
|
|
Professional diagnostics
|
|
$
|
1,029,528
|
|
|
$
|
565,265
|
|
|
|
82
|
%
|
Health management
|
|
|
392,399
|
|
|
|
23,374
|
|
|
|
1,579
|
%
|
Consumer diagnostics
|
|
|
134,800
|
|
|
|
156,098
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
1,556,727
|
|
|
$
|
744,737
|
|
|
|
109
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Diagnostics
The increase in net product sales and services revenue from our
professional diagnostics business segment was
$464.3 million, or 82%, resulting in $1.0 billion of
net product sales and services revenue in 2008. Of the increase,
net product sales and services revenue increased primarily as a
result of our acquisitions of: (i) Biosite, in June 2007,
which contributed additional net product sales and services
revenue of $161.7 million in excess of those earned in the
prior years comparative period, (ii) Cholestech, in
September 2007, which contributed additional net product sales
and services revenue of $49.4 million in excess of those
earned in the prior years comparative period,
(iii) Bio-Stat Healthcare Group, or Bio-Stat, in October
2007, which contributed additional net product sales and
services revenue of $21.6 million in excess of those earned
in the prior years comparative period,
(iv) HemoSense, in November 2007, which contributed
additional net product sales and services revenue of
$27.2 million in excess of those earned in the prior
years comparative period, (v) Redwood, in December
2007, which contributed additional net product sales and
services revenue of $52.4 million in excess of those earned
in the prior years comparative period, (vi) BBI, in
February 2008, which contributed product revenue of
$32.4 million and (vii) various less significant
acquisitions, which contributed an aggregate of
$47.6 million of such increase. Organic growth contributed
to the increase in net revenue during the year ended
December 31, 2008, as compared to the year ended
December 31, 2007.
Health
Management
The increase in net product sales and services revenue from our
health management business segment was $369.0 million, or
1,579%, resulting in $392.4 million of net product sales
and services revenue in 2008. Of the increase, net product sales
and services revenue increased primarily as a result of our
acquisitions of: (i) Matria, in May 2008, which contributed
$197.7 million of net product sales and services revenue,
(ii) QAS, in June 2007, which contributed additional net
product sales and services revenue of $10.9 million in
excess of those earned in the prior years comparative
period, (iii) Alere, in November 2007, which contributed
additional net product sales and services revenue of
$79.6 million in excess of those earned in the prior
years comparative period and (iv) ParadigmHealth in
December 2007, which contributed additional net product sales
and services revenue of $69.4 million in excess of those
earned in the prior years comparative period.
Consumer
Diagnostics
The decrease in net product sales and services revenue from our
consumer diagnostics business segment was $21.3 million, or
14%, resulting in $134.8 million of net product sales and
services revenue for 2008. The decrease was primarily driven by
the completion of our 50/50 joint venture with P&G in May
2007 in which we transferred substantially all of the assets of
our consumer diagnostics business, other than our manufacturing
and core intellectual property assets. Upon completion of the
arrangement to form the joint venture, we ceased to consolidate
the operating results of our consumer diagnostics business
related to the joint venture and instead account for our 50%
interest in the results of the joint venture under the equity
method of accounting. Net product sales and services revenue
from our consumer diagnostics business segment for 2008 and 2007
included $103.0 million and $65.0 million,
respectively, of manufacturing revenue associated with our
manufacturing agreement with SPD, whereby we manufacture and
sell consumer diagnostics to the joint venture. Partially
offsetting the impact of the joint venture was an increase
$13.5 million of net product sales and services revenue
attributed to our acquisitions of: (i) First Check
Diagnostics LLC, or First Check, in
42
January 2007, which contributed additional net product sales
and services revenue of $1.1 million in excess of those
earned in the prior years comparative period,
(ii) Bio-Stat, in October 2007, which contributed
additional net product sales and services revenue of
$4.6 million in excess of those earned in the prior
years comparative period and (iii) BBI, in February
2008, which contributed net product sales and services revenue
of $7.8 million.
Net Product Sales and Services Revenue by Geographic
Location. Net product sales and services revenue
by geographic location for 2008 and 2007 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(decrease)
|
|
|
United States
|
|
$
|
1,098,894
|
|
|
$
|
445,462
|
|
|
|
147
|
%
|
Europe
|
|
|
283,552
|
|
|
|
192,593
|
|
|
|
47
|
%
|
Other
|
|
|
174,281
|
|
|
|
106,682
|
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue
|
|
$
|
1,556,727
|
|
|
$
|
744,737
|
|
|
|
109
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales and services revenue of $1.1 billion and
$445.5 million generated in the United States were
approximately 71% and 60%, respectively, of total net product
sales and services revenue for the year ended December 31,
2008 and 2007, respectively. The growth in net product sales and
services revenue in all geographic regions resulted from the
various acquisitions discussed above and organic growth,
partially offset by the decrease in revenue associated with the
formation of our 50/50 joint venture with P&G in May 2007.
License and Royalty Revenue. License and
royalty revenue represents license and royalty fees from
intellectual property license agreements with third parties.
License and royalty revenue increased by $3.8 million, or
18%, to $25.8 million in 2008, from $22.0 million in
2007. License and royalty revenue for 2008 increased primarily
as a result of our acquisition of Biosite in June 2007, which
contributed an additional $1.9 million of royalty revenue
in excess of those earned in 2007. Additionally, incremental
royalty revenue was derived from new royalty agreements entered
into during 2008, along with increases associated with certain
existing royalty agreements, partially offset by decreases in
other royalty agreements.
Gross Profit and Margin. Gross profit
increased by $466.8 million, or 121%, to
$853.5 million in 2008, from $386.8 million in 2007.
Gross profit during 2008 benefited from higher than average
margins earned on revenue from our recently acquired businesses
and from the favorable impact of our low cost manufacturing
facilities in China. Included in gross profit in 2008 were
restructuring charges totaling $17.9 million associated
with the closure of various manufacturing and operating
facilities, a $2.0 million charge related to the
write-up to
fair market value of inventory acquired in connection with our
first quarter acquisitions of BBI and Panbio, and
$1.5 million of stock-based compensation expense. Included
in gross profit in 2007 were restructuring charges totaling
$2.0 million associated with the closure of various
manufacturing and operating facilities, an $8.2 million
charge related to the
write-up to
fair market value of inventory acquired in connection with our
acquisitions of Biosite, Cholestech and HemoSense and
$0.6 million of stock-based compensation expense. Cost of
net revenue included amortization expense of $43.4 million
and $24.0 million in 2008 and 2007, respectively.
Overall gross margin was 54% in 2008, compared to 50% in 2007.
43
Gross Profit from Net Product Sales and Services Revenue by
Business Segment. Gross profit from net product
sales and services revenue increased by $462.4 million to
$836.3 million in 2008, from $373.9 million in 2007.
Gross profit from net product sales and services revenue by
business segment for 2008 and 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(decrease)
|
|
|
Professional diagnostics
|
|
$
|
596,186
|
|
|
$
|
306,710
|
|
|
|
94
|
%
|
Health management
|
|
|
214,356
|
|
|
|
11,979
|
|
|
|
1,689
|
%
|
Consumer diagnostics
|
|
|
25,770
|
|
|
|
55,242
|
|
|
|
(53
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from net product sales
|
|
$
|
836,312
|
|
|
$
|
373,931
|
|
|
|
124
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Diagnostics
Gross profit from our professional diagnostics net product sales
and services revenue increased by $289.5 million, or 94%,
comparing 2008 to 2007, principally as a result of gross profit
earned on revenue from acquired businesses, as discussed above,
which contributed higher than average gross profits. The higher
than average profits were partially offset by a
$2.0 million charge related to the
write-up to
fair market value of inventory acquired in connection with our
acquisitions of BBI and Panbio and $17.9 million in
restructuring charges. Reducing gross profit for 2007 was an
$8.2 million charge related to the
write-up to
fair market value of inventory acquired in connection with our
acquisitions of Biosite, Cholestech and HemoSense and
$0.5 million in restructuring charges.
As a percentage of our professional diagnostics net product
sales and services revenue, gross profit from our professional
diagnostics business was 58% in 2008, compared to 54% in 2007.
Health
Management
Gross profit from our health management net product sales and
services revenue increased by $202.4 million, or 1,689%,
comparing 2008 to 2007, principally as a result of gross profit
earned on revenue from acquired businesses, as discussed above.
As a percentage of our health management net product sales and
services revenue, gross profit from our health management
business was 55% in 2008, compared to 51% in 2007.
Consumer
Diagnostics
Gross profit from our consumer diagnostics net product sales and
services revenue decreased $29.5 million, or 53%, comparing
2008 to 2007. The decrease is primarily a result of the
formation of our
50/50
joint venture with P&G for our consumer diagnostics
business in May 2007, partially offset by the gross profit
earned on net products sales and services revenue from acquired
businesses, primarily our BBI acquisition and the manufacturing
profit associated with products sold under our manufacturing
agreement with the joint venture. Gross profit for 2007 was
adversely impacted by restructuring charges totaling
$1.5 million related to the formation of the joint venture.
As a percentage of our consumer diagnostics net product sales
and services revenue, gross profit from our consumer diagnostics
business was 19% for 2008, compared to 35% in 2007. The decrease
in gross margin percentage for 2008, as compared to 2007, is
driven by the formation of our 50/50 joint venture with P&G
in May 2007. As a result of the joint venture, our consumer
diagnostics net product sales and services revenue primarily
consist of the manufacturing revenue associated with our
manufacturing agreement with the joint venture, whereby we
manufacture and sell consumer diagnostics to the joint venture.
Research and Development Expense. Research and
development expense increased by $42.3 million, or 61%, to
$111.8 million in 2008 from $69.5 million in 2007. The
year over year increase in research and development expense is
primarily the result of increased spending related to our
cardiology research programs, partially offset by the transition
of our consumer-related research and development efforts into
our 50/50 joint
44
venture with P&G. Additionally, our funding relationship
with ITI Scotland Limited was complete as of December 31,
2007 and, as such, no funding was earned during 2008. This
funding relationship was reflected as an offset to research and
development expense totaling $18.5 million during 2007.
Also included in research and development expense is
$4.6 million of stock-based compensation expense,
representing an increase of approximately $2.4 million from
2007. Restructuring charges associated with our various
restructuring plans to integrate our newly-acquired businesses
totaling $7.2 million were included in research and
development expense during 2008, representing an increase of
approximately $4.7 million from 2007. Amortization expense
of $3.7 million and $2.9 million was included in
research and development expense for 2008 and 2007, respectively.
Research and development expense as a percentage of net revenue
decreased to 7% for 2008, from 9% for 2007.
Purchase of In-Process Research and Development
(IPR&D). In connection with two
of our acquisitions since 2007, we acquired various IPR&D
projects. Substantial additional research and development will
be required prior to any of our acquired IPR&D programs and
technology platforms reaching technological feasibility. In
addition, once research is completed, each product candidate
acquired will need to complete a series of clinical trials and
receive FDA or other regulatory approvals prior to
commercialization. Our estimates of the time and investment
required to develop these products and technologies may change
depending on the different applications that we may choose to
pursue. We cannot give assurances that these programs will ever
reach technological feasibility or develop into products that
can be marketed profitably. For example, we have discontinued
funding certain of the programs listed below. In addition, we
cannot guarantee that we will be able to develop and
commercialize products before our competitors develop and
commercialize products for the same indications. The following
table sets forth IPR&D projects for companies and certain
assets we have acquired since 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used in
|
|
|
|
|
|
|
|
Company/
|
|
|
|
|
|
|
|
|
|
Estimating
|
|
|
Year of
|
|
|
Estimated
|
|
Year Assets
|
|
Purchase
|
|
|
|
|
|
|
|
Cash
|
|
|
Expected
|
|
|
Cost to
|
|
Acquired
|
|
Price
|
|
|
IPR&D(1)
|
|
|
Programs Acquired
|
|
Flows(1)
|
|
|
Launch
|
|
|
Complete
|
|
|
Diamics/2007
|
|
$
|
4,000
|
|
|
$
|
682
|
|
|
PapMap (Pap Screening Methods)
|
|
|
63
|
%
|
|
|
2009-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
1,049
|
|
|
C-Map (Automated Pap Screening)
|
|
|
63
|
%
|
|
|
2009-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
3,094
|
|
|
POC (Point of Care Systems)
|
|
|
63
|
%
|
|
|
2009-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biosite/2007
|
|
$
|
1,800,000
|
|
|
$
|
13,000
|
|
|
Triage Sepsis Panel
|
|
|
15
|
%
|
|
|
2008-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
156,000
|
|
|
Triage NGAL
|
|
|
15
|
%
|
|
|
2008-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Management assumes responsibility for determining the
valuation of the acquired IPR&D projects. The fair value
assigned to IPR&D for each acquisition is estimated by
discounting, to present value, the cash flows expected once the
acquired projects have reached technological feasibility. The
cash flows are probability adjusted to reflect the risks of
advancement through the product approval process. In estimating
the future cash flows, we also considered the tangible and
intangible assets required for successful exploitation of the
technology resulting from the purchased IPR&D projects and
adjusted future cash flows for a charge reflecting the
contribution to value of these assets. |
Sales and Marketing Expense. Sales and
marketing expense increased by $218.9 million, or 134%, to
$381.9 million in 2008, from $163.0 million in 2007.
The increase in sales and marketing expense primarily relates to
additional spending related to newly-acquired businesses. Also
included in sales and marketing expense is $4.3 million of
stock-based compensation expense, representing an increase of
approximately $2.6 million from 2007. Partially offsetting
the increases was the favorable impact of the formation of our
50/50 joint
venture with P&G. Restructuring charges associated with our
various restructuring plans to integrate our newly-acquired
businesses totaling $4.2 million were included in sales and
marketing expense during 2008, representing an
45
increase of approximately $3.4 million from 2007.
Amortization expense of $148.6 million and
$34.5 million was included in sales and marketing expense
for 2008 and 2007, respectively.
Sales and marketing expense as a percentage of net revenue
increased to 25% for 2008, from 22% for 2007.
General and Administrative Expense. General
and administrative expense increased by $139.9 million, or
90%, to $295.1 million in 2008, from $155.2 million in
2007. The increase in general and administrative expense relates
primarily to additional spending related to newly-acquired
businesses. Legal spending increased by approximately
$9.4 million in 2008, as compared to 2007. Also included in
general and administrative expense is $16.0 million of
stock-based compensation expense, representing a decrease of
approximately $36.9 million from 2007 which included a
charge of $45.2 million related to our acquisition of
Biosite. Partially offsetting the increases was the favorable
impact from the formation of our
50/50 joint
venture with P&G. Amortization expense of
$18.2 million and $0.1 million was included in general
and administrative expense for 2008 and 2007, respectively.
General and administrative expense as a percentage of net
revenue decreased to 19% for 2008, from 20% for 2007.
Interest Expense. Interest expense includes
interest charges and the amortization of deferred financing
costs associated with our debt issuances. Interest expense in
2007 also includes the write-off of deferred financing costs and
early termination fees associated with the repayment of
outstanding debt. Interest expense increased by
$18.1 million, or 22%, to $101.1 million in 2008, from
$83.0 million in 2007. The increase in interest expense in
2008 was due to higher average outstanding borrowing balances in
2008 and $6.6 million in interest expense related to the
accelerated present value accretion of our lease restoration
costs due to the early termination of our facility lease in
Bedford, England recorded in connection with our 2008
restructuring plans. Also contributing to the increase in 2008
was $0.8 million of interest expense recorded in connection
with a legal settlement with one of our distributors in June
2008. Interest expense for 2007 included the write-off of
$15.6 million of deferred financing costs and prepayment
premium related to the repayment of outstanding debt, in
conjunction with our financing arrangements related to our
Biosite acquisition.
Other Income (Expense), Net. Other income
(expense), net, includes interest income, realized and
unrealized foreign exchange gains and losses, and other income
and expense. The components and the respective amounts of other
income (expense), net, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Interest income
|
|
$
|
6,566
|
|
|
$
|
11,286
|
|
|
$
|
(4,720
|
)
|
Foreign exchange gains (losses), net
|
|
|
(457
|
)
|
|
|
(2,007
|
)
|
|
|
1,550
|
|
Other
|
|
|
(7,916
|
)
|
|
|
145
|
|
|
|
(8,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
(1,807
|
)
|
|
$
|
9,424
|
|
|
$
|
(11,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net, for 2008 includes a
$12.5 million charge associated with an arbitration
decision, partially offset by $5.5 million of income
associated with settlements of prior years royalties
during 2008.
Other income (expense), net, for 2007 includes a foreign
exchange gain of $1.9 million realized on the settlement of
intercompany notes and $3.9 million in unrealized foreign
currency loss associated with a cash escrow established in
connection with the acquisition of BBI.
(Benefit) Provision for Income
Taxes. (Benefit) provision for income taxes
increased by $15.6 million, to a $16.6 million benefit
in 2008, from a $1.0 million benefit in 2007. The effective
tax rate in 2008 was 43%, compared to 1.0% in 2007. The increase
in the benefit for income taxes from 2007 to 2008 is primarily
related to the recognition of the benefit of losses in Germany,
Japan and the United Kingdom.
The primary components of the 2008 benefit for income taxes
relates to U.S. federal and state income taxes, taxes on
foreign income and the recognition of benefit on German and U.K.
losses. The primary components of the 2007 provision for income
taxes relates to the recognition of benefit on U.S. and
U.K.
46
losses, state income taxes and taxes on foreign income. We
recognized the benefit of U.S. net operating loss, or NOL,
carryforwards and other U.S. deferred tax assets due to the
U.S. non-current deferred tax liabilities recorded in
purchase accounting for 2007 acquisitions. During 2007, we
released approximately $83.0 million of valuation allowance
for these pre-acquisition U.S. deferred tax assets, which
was released to goodwill. Thereafter, we recognized a benefit or
recorded a provision, as appropriate, for the current year
U.S. losses.
Discontinued Operations, Net of Tax. The
results of the vitamins and nutritional supplements business are
included in income (loss) from discontinued operations, net of
tax, for all periods presented. For the year ended
December 31, 2008, the discontinued operations incurred a
net loss of $1.0 million as compared to a net loss of
$0.4 million for the year ended December 31, 2007.
Net Loss. We incurred a net loss of
$21.8 million in 2008, while we incurred a net loss of
$244.8 million in 2007. Net loss per common share available
to common stockholders was $0.46 per basic and diluted common
share in 2008, as compared to net loss of $4.75 per basic and
diluted common share in 2007. The net loss in 2008 and 2007
resulted from the various factors as discussed above. See
Note 14 of our consolidated financial statements included
elsewhere in this prospectus for the calculation of net loss per
common share.
Liquidity
and Capital Resources
Based upon our current working capital position, current
operating plans and expected business conditions, we currently
expect to fund our short and long-term working capital needs and
other commitments primarily through our operating cash flow, and
we expect our working capital position to improve as we improve
our operating margins and grow our business through new product
and service offerings and by continuing to leverage our strong
intellectual property position. At this point in time, our
liquidity has not been materially impacted by the recent and
unprecedented disruption in the current capital and credit
markets and we do not expect that it will be materially impacted
in the near future. However, we cannot predict with certainty
the ultimate impact of these events on us. We will therefore
continue to closely monitor our liquidity and capital resources.
In addition, we may also utilize our revolving credit facility,
or other sources of financing, to fund a portion of our capital
needs and other future commitments, including future
acquisitions. We utilized these resources to complete our recent
acquisitions of Standard Diagnostics and Kroll. If the capital
and credit markets continue to experience volatility and the
availability of funds remains limited, we may incur increased
costs associated with issuing commercial paper
and/or other
debt instruments. In addition, it is possible that our ability
to access the capital and credit markets may be limited by these
or other factors at a time when we would like, or need, to do
so, which could have an impact on our ability to refinance
maturing debt
and/or react
to changing economic and business conditions.
Our funding plans for our working capital needs and other
commitments may be adversely impacted by unexpected costs
associated with prosecuting and defending our existing lawsuits
and/or
unforeseen lawsuits against us, integrating the operations of
newly-acquired companies and executing our cost savings
strategies. We also cannot be certain that our underlying
assumed levels of revenues and expenses will be realized. In
addition, we intend to continue to make significant investments
in our research and development efforts related to the
substantial intellectual property portfolio we own. We may also
choose to further expand our research and development efforts
and may pursue the acquisition of new products and technologies
through licensing arrangements, business acquisitions, or
otherwise. We may also choose to make significant investment to
pursue legal remedies against potential infringers of our
intellectual property. If we decide to engage in such
activities, or if our operating results fail to meet our
expectations, we could be required to seek additional funding
through public or private financings or other arrangements. In
such event, adequate funds may not be available when needed, or,
may be available only on terms which could have a negative
impact on our business and results of operations. In addition,
if we raise additional funds by issuing equity or convertible
securities, dilution to then existing stockholders may result.
47
7.875% Senior Notes
During the third quarter of 2009, we sold a total of
$250.0 million aggregate principal amount of
7.875% senior notes due 2016, or the 7.875% senior
notes, in two separate transactions. On August 11, 2009, we
sold $150.0 million aggregate principal amount of
7.875% senior notes in a public offering. Net proceeds from
this offering amounted to approximately $145.0 million,
which was net of underwriters commissions totaling
$2.2 million and original issue discount totaling
$2.8 million. The net proceeds were used to fund our
acquisition of Concateno. At December 31, 2009, we had
$147.3 million in indebtedness under this issuance of our
7.875% senior notes.
On September 28, 2009, we sold $100.0 million
aggregate principal amount of 7.875% senior notes in a
private placement to initial purchasers, who agreed to resell
the notes only to qualified institutional buyers. We also agreed
to file a registration statement with the Securities Exchange
Commission, or SEC, so that the holders of these notes may
exchange the notes for registered notes that have substantially
identical terms as the original notes. Net proceeds from this
offering amounted to approximately $95.0 million, which was
net of the initial purchasers original issue discount
totaling $3.5 million and offering expenses totaling
approximately $1.5 million. The net proceeds were used to
partially fund our acquisition of Free & Clear. At
December 31, 2009, we had $96.6 million in
indebtedness under this issuance of our 7.875% senior notes.
The 7.875% senior notes were issued under an Indenture
dated August 11, 2009, as amended or supplemented, the
Indenture. The 7.875% senior notes accrue interest from the
dates of their respective issuances at the rate of 7.875% per
year. Interest on the notes are payable semi-annually on
February 1 and August 1, commencing on February 1,
2010. The notes mature on February 1, 2016, unless earlier
redeemed.
We may redeem the 7.875% senior notes, in whole or part, at
any time on or after February 1, 2013, by paying the
principal amount of the notes being redeemed plus a declining
premium, plus accrued and unpaid interest to, but excluding, the
redemption date. The premium declines from 3.938% during the
twelve months on and after February 1, 2013 to 1.969%
during the twelve months on and after February 1, 2014 to
zero on and after February 1, 2015. At any time prior to
August 1, 2012, we may redeem up to 35% of the aggregate
principal amount of the 7.875% senior notes with money that
we raise in certain equity offerings, so long as (i) we pay
107.875% of the principal amount of the notes being redeemed,
plus accrued and unpaid interest to, but excluding, the
redemption date; (ii) we redeem the notes within
90 days of completing such equity offering; and
(iii) at least 65% of the aggregate principal amount of the
7.875% senior notes remains outstanding afterwards. In
addition, at any time prior to February 1, 2013, we may
redeem some or all of the 7.875% senior notes by paying the
principal amount of the notes being redeemed plus the payment of
a make-whole premium, plus accrued and unpaid interest to, but
excluding, the redemption date.
If a change of control occurs, subject to specified conditions,
we must give holders of the 7.875% senior notes an
opportunity to sell their notes to us at a purchase price of
101% of the principal amount of the notes, plus accrued and
unpaid interest to, but excluding, the date of the purchase.
If we, or our subsidiaries, engage in asset sales, we, or they,
generally must either invest the net cash proceeds from such
sales in our, or their, businesses within a specified period of
time, prepay certain indebtedness or make an offer to purchase a
principal amount of the 7.875% senior notes equal to the
excess net cash proceeds, subject to certain exceptions. The
purchase price of the notes will be 100% of their principal
amount, plus accrued and unpaid interest.
The 7.875% senior notes are unsecured and are equal in
right of payment to all of our existing and future senior debt,
including our borrowing under our secured credit facilities. Our
obligations under the 7.875% senior notes and the Indenture
are fully and unconditionally guaranteed, jointly and severally,
on an unsecured senior basis by certain of our domestic
subsidiaries, and the obligations of such domestic subsidiaries
under their guarantees are equal in right of payment to all of
their existing and future senior debt. See Note 28 for
guarantor financial information.
The Indenture contains covenants that will limit our ability,
and the ability of our subsidiaries, to, among other things,
incur additional debt; pay dividends on capital stock or redeem,
repurchase or retire capital stock or subordinated debt; make
certain investments; create liens on assets; transfer or sell
assets; engage in
48
transactions with affiliates; create restrictions on our or
their ability pay dividends or make loans, asset transfers or
other payments to us or them; issue capital stock; engage in any
business, other than our or their existing businesses and
related businesses; enter into sale and leaseback transactions;
incur layered indebtedness and consolidate, merge or transfer
all or substantially all of our, or their, assets, taken as a
whole. These covenants are subject to certain exceptions and
qualifications.
Interest expense related to our 7.875% senior notes for the
year ended December 31, 2009, including amortization of
deferred financing costs and original issue discounts, was
$7.3 million. As of December 31, 2009, accrued
interest related to the senior subordinated notes amounted to
$7.8 million.
9% Senior Subordinated Notes
On May 12, 2009, we completed the sale of
$400.0 million aggregate principal amount of 9% senior
subordinated notes due 2016, or the 9% subordinated notes,
in a public offering. Net proceeds from this offering amounted
to $379.5 million, which was net of underwriters
commissions totaling $8.0 million and original issue
discount totaling $12.5 million. The net proceeds are
intended to be used for general corporate purposes. At
December 31, 2009, we had $388.3 million in
indebtedness under our 9% subordinated notes.
The 9% subordinated notes, which were issued under an
Indenture dated May 12, 2009, as amended or supplemented,
the Indenture, accrue interest from the date of their issuance,
or May 12, 2009, at the rate of 9% per year. Interest on
the notes are payable semi-annually on May 15 and
November 15, commencing on November 15, 2009. The
notes mature on May 15, 2016, unless earlier redeemed.
We may redeem the 9% subordinated notes, in whole or part,
at any time on or after May 15, 2013, by paying the
principal amount of the notes being redeemed plus a declining
premium, plus accrued and unpaid interest to, but excluding, the
redemption date. The premium declines from 4.50% during the
twelve months after May 15, 2013 to 2.25% during the twelve
months after May 15, 2014 to zero on and after May 15,
2015. At any time prior to May 15, 2012, we may redeem up
to 35% of the aggregate principal amount of the
9% subordinated notes with money that we raise in certain
equity offerings so long as (i) we pay 109% of the
principal amount of the notes being redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date;
(ii) we redeem the notes within 90 days of completing
such equity offering; and (iii) at least 65% of the
aggregate principal amount of the 9% subordinated notes
remains outstanding afterwards. In addition, at any time prior
to May 15, 2013, we may redeem some or all of the
9% subordinated notes by paying the principal amount of the
notes being redeemed plus the payment of a make-whole premium,
plus accrued and unpaid interest to, but excluding, the
redemption date.
If a change of control occurs, subject to specified conditions,
we must give holders of the 9% subordinated notes an
opportunity to sell their notes to us at a purchase price of
101% of the principal amount of the notes, plus accrued and
unpaid interest to, but excluding, the date of the purchase.
If we, or our subsidiaries, engage in asset sales, we, or they,
generally must either invest the net cash proceeds from such
sales in our, or their, businesses within a specified period of
time, prepay senior debt or make an offer to purchase a
principal amount of the 9% subordinated notes equal to the
excess net cash proceeds, subject to certain exceptions. The
purchase price of the notes will be 100% of their principal
amount, plus accrued and unpaid interest.
The 9% subordinated notes are unsecured and are
subordinated in right of payment to all of our existing and
future senior debt, including our borrowing under our secured
credit facilities. Our obligations under the
9% subordinated notes and the Indenture are fully and
unconditionally guaranteed, jointly and severally, on an
unsecured senior subordinated basis by certain of our domestic
subsidiaries, and the obligations of such domestic subsidiaries
under their guarantees are subordinated in right of payment to
all of their existing and future senior debt. See Note 28
of our consolidated financial statements included elsewhere in
this prospectus for guarantor financial information.
The Indenture contains covenants that will limit our ability,
and the ability of our subsidiaries, to, among other things,
incur additional debt; pay dividends on capital stock or redeem,
repurchase or retire capital stock or subordinated debt; make
certain investments; create liens on assets; transfer or sell
assets; engage in
49
transactions with affiliates; create restrictions on our or
their ability pay dividends or make loans, asset transfers or
other payments to us or them; issue capital stock; engage in any
business, other than our or their existing businesses and
related businesses; enter into sale and leaseback transactions;
incur layered indebtedness and consolidate, merge or transfer
all or substantially all of our, or their, assets, taken as a
whole. These covenants are subject to certain exceptions and
qualifications.
Interest expense related to our 9% subordinated notes for
the year ended December 31, 2009, including amortization of
deferred financing costs and original issue discounts, was
$25.0 million. As of December 31, 2009, accrued
interest related to the senior subordinated notes amounted to
$5.0 million.
Secured
Credit Facility
As of December 31, 2009, we had approximately
$1.0 billion in aggregate principal amount of indebtedness
outstanding under our First Lien Credit Agreement and
$250.0 million in aggregate principal amount of
indebtedness outstanding under our Second Lien Credit Agreement
(collectively, with the First Lien Credit Agreement, the secured
credit facility). Included in the secured credit facility is a
revolving
line-of-credit
of $150.0 million, of which $142.0 million was
outstanding as of December 31, 2009.
Interest on our First Lien indebtedness, as defined in the
credit agreement, is as follows: (i) in the case of Base
Rate Loans, at a rate per annum equal to the sum of the Base
Rate and the Applicable Margin, each as in effect from time to
time, (ii) in the case of Eurodollar Rate Loans, at a rate
per annum equal to the sum of the Eurodollar Rate and the
Applicable Margin, each as in effect for the applicable Interest
Period and (iii) in the case of other Obligations, at a
rate per annum equal to the sum of the Base Rate and the
Applicable Margin for Revolving Loans that are Base Rate Loans,
each as in effect from time to time. The Base Rate is a floating
rate which approximates the U.S. Prime rate and changes on
a periodic basis. The Eurodollar Rate is equal to the LIBOR rate
and is set for a period of one to three months at our election.
Applicable margin with respect to Base Rate Loans is 1.00% and
with respect to Eurodollar Rate Loans is 2.00%. Applicable
margin ranges for our revolving
line-of-credit
with respect to Base Rate Loans is 0.75% to 1.25% and with
respect to Eurodollar Rate Loans is 1.75% to 2.25%.
The outstanding indebtedness under the Second Lien Credit
Agreement includes term loans in the aggregate amount of
$250.0 million. Interest on these term loans, as defined in
the credit agreement, is as follows: (i) in the case of
Base Rate Loans, at a rate per annum equal to the sum of the
Base Rate and the Applicable Margin, each as in effect from time
to time, (ii) in the case of Eurodollar Rate Loans, at a
rate per annum equal to the sum of the Eurodollar Rate and the
Applicable Margin, each as in effect for the applicable Interest
Period and (iii) in the case of other Obligations, at a
rate per annum equal to the sum of the Base Rate and the
Applicable Margin for Base Rate Loans, as in effect from time to
time. Applicable margin with respect to Base Rate Loans is 3.25%
and with respect to Eurodollar Rate Loans is 4.25%.
For the year ended December 31, 2009, interest expense,
including amortization of deferred financing costs, under the
secured credit facility was $64.3 million. As of
December 31, 2009, accrued interest related to the secured
credit facility amounted to $0.9 million. As of
December 31, 2009, we were in compliance with all debt
covenants related to the secured credit facility, which
consisted principally of maximum consolidated leverage and
minimum interest coverage requirements.
In August 2007, we entered into interest rate swap contracts,
with an effective date of September 28, 2007, that have a
total notional value of $350.0 million and have a maturity
date of September 28, 2010. These interest rate swap
contracts pay us variable interest at the three-month LIBOR
rate, and we pay the counterparties a fixed rate of 4.85%. In
March 2009, we extended our August 2007 interest rate hedge for
an additional two-year period, commencing in September 2010 at a
one-month LIBOR rate of 2.54%. These interest rate swap
contracts were entered into to convert $350.0 million of
the $1.2 billion variable rate term loans under the senior
credit facility into fixed rate debt.
In January 2009, we entered into interest rate swap contracts,
with an effective date of January 14, 2009, that have a
total notional value of $500.0 million and have a maturity
date of January 5, 2011. These interest rate swap contracts
pay us variable interest at the one-month LIBOR rate, and we pay
the counterparties a
50
fixed rate of 1.195%. These interest rate swap contracts were
entered into to convert $500.0 million of the
$1.2 billion variable rate term loans under the secured
credit facility into fixed rate debt.
3% Senior Subordinated Convertible Notes
In May 2007, we sold $150.0 million aggregate principal
amount of 3% senior subordinated convertible notes, or
senior subordinated convertible notes. At December 31,
2009, we had $150.0 million in indebtedness under our
senior subordinated convertible notes. The senior subordinated
convertible notes are convertible into 3.4 million shares
of our common stock at a conversion price of $43.98 per share.
Interest expense related to our senior subordinated convertible
notes for the year ended December 31, 2009, including
amortization of deferred financing costs, was $5.1 million.
As of December 31, 2009, accrued interest related to the
senior subordinated convertible notes amounted to
$0.6 million.
Series B Convertible Perpetual Preferred Stock
As of December 31, 2009, we had approximately
2.0 million shares of our Series B preferred stock
issued and outstanding. Each share of Series B preferred
stock, which has a liquidation preference of $400.00 per share,
is convertible, at the option of the holder and only upon
certain circumstances, into 5.7703 shares of our common
stock, plus cash in lieu of fractional shares. The conversion
price is $69.32 per share, subject to adjustment upon the
occurrence of certain events, but will not be adjusted for
accumulated and unpaid dividends. Upon a conversion of these
shares of Series B preferred stock, we may, at our option
and in our sole discretion, satisfy the entire conversion
obligation in cash, or through a combination of cash and common
stock, to the extent permitted under our secured credit
facilities and under Delaware law. There were no conversions as
of December 31, 2009.
Summary
of Changes in Cash Position
As of December 31, 2009, we had cash and cash equivalents
of $492.8 million, a $351.4 million increase from
December 31, 2008. Our primary sources of cash during the
year ended December 31, 2009 included $287.5 million
generated by our operating activities, $631.2 million of
net proceeds from issuance of debt, of which $387.5 million
related to the issuance of our 9% subordinated notes and
$243.7 million related to the issuance of our
7.875% senior notes, a $12.6 million return of
capital, of which $10.0 million was from our
50/50 joint
venture with P&G, and $30.0 million from common stock
issuances under employee stock option and stock purchase plans.
Our primary uses of cash during the year ended December 31,
2009 related to $468.5 million net cash paid for
acquisitions and transactional costs, $99.8 million of
capital expenditures, net of proceeds from the sale of
equipment, $11.0 million in repayment of long-term debt,
$17.9 million paid for financing costs principally related
to the issuance of our 9% subordinated notes and
7.875% senior notes and $8.0 million related to net
repayments under our revolving
lines-of-credit,
other debt and capital lease obligations. Fluctuations in
foreign currencies positively impacted our cash balance by
$13.8 million during the year ended December 31, 2009.
Operating Cash Flows
Net cash provided by operating activities during the year ended
December 31, 2009 was $287.5 million, which resulted
from net income of $34.2 million, $347.2 million of
non-cash items, offset by $89.8 million of cash used to
meet net working capital requirements during the period. The
$347.2 million of non-cash items included
$312.4 million related to depreciation and amortization,
$8.5 million related to the impairment of assets,
$28.2 million related to non-cash stock-based compensation
expense and $10.4 million of interest expense related to
the amortization of deferred financing costs and original issue
discounts, partially offset by a $9.1 million decrease
related to the recognition of a tax benefit for current year
losses and tax loss carryforwards and $7.6 million in
equity earnings in unconsolidated entities.
51
Investing Cash Flows
Our investing activities during the year ended December 31,
2009 utilized $583.7 million of cash, including
$468.5 million used for acquisitions and
transaction-related costs, net of cash acquired,
$99.8 million of capital expenditures, net of proceeds from
sale of equipment and a $15.2 million increase in
investments and other assets.
The acquisitions of Tapestry, Free & Clear, Concateno
and the ACON Second Territory Business during 2009 accounted for
approximately $383.1 million of the $468.5 million of
cash used for acquisitions.
Financing Cash Flows
Net cash provided by financing activities during the year ended
December 31, 2009 was $633.9 million. Financing
activities during the year ended December 31, 2009
primarily included $631.2 million of net proceeds from the
issuance of debt, of which $387.5 million related to the
issuance of our 9% subordinated notes and
$243.7 million related to the issuance of our
7.875% senior notes and $30.0 million cash received
from common stock issuances under employee stock option and
stock purchase plans, offset by $11.1 million in repayments
of long-term debt, $17.9 million paid for financing costs
related to certain debt issuances and $8.0 million related
to net repayments under our revolving
lines-of-credit,
other debt and capital lease obligations.
As of December 31, 2009, we had an aggregate of
$1.8 million in outstanding capital lease obligations which
are payable through 2014.
Income
Taxes
As of December 31, 2009, we had approximately
$184.5 million of domestic NOL and capital loss
carryforwards and $33.5 million of foreign NOL and capital
loss carryforwards, respectively, which either expire on various
dates through 2028 or may be carried forward indefinitely. These
losses are available to reduce federal, state and foreign
taxable income, if any, in future years. These losses are also
subject to review and possible adjustments by the applicable
taxing authorities. In addition, the domestic NOL carryforward
amount at December 31, 2009 included approximately
$143.3 million of pre-acquisition losses at Matria, QAS,
ParadigmHealth, Biosite, Cholestech, Redwood, HemoSense,
Inverness Medical Nutritionals Group, Ischemia, Inc. and Ostex
International, Inc. Effective January 1, 2009, we adopted a
new accounting standard for business combinations. Prior to
adoption of this standard, the pre-acquisition losses were
applied first to reduce to zero any goodwill and other
non-current intangible assets related to the acquisitions, prior
to reducing our income tax expense. Upon adoption of the new
accounting standard, the reduction of a valuation allowance is
generally recorded to reduce our income tax expense.
Furthermore, all domestic losses are subject to the Internal
Revenue Service Code Section 382 limitation and may be
limited in the event of certain cumulative changes in ownership
interests of significant shareholders over a three-year period
in excess of 50%. Section 382 imposes an annual limitation
on the use of these losses to an amount equal to the value of
the company at the time of the ownership change multiplied by
the long-term tax exempt rate. We have recorded a valuation
allowance against a portion of the deferred tax assets related
to our NOLs and certain of our other deferred tax assets to
reflect uncertainties that might affect the realization of such
deferred tax assets, as these assets can only be realized via
profitable operations.
Off-Balance
Sheet Arrangements
We had no material off-balance sheet arrangements as of
December 31, 2009.
52
Contractual
Obligations
The following table summarizes our principal contractual
obligations as of December 31, 2009 and the effects such
obligations are expected to have on our liquidity and cash flow
in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
Thereafter
|
|
|
Long-term debt obligations(1)
|
|
$
|
2,165,248
|
|
|
$
|
18,970
|
|
|
$
|
22,754
|
|
|
$
|
1,064,005
|
|
|
$
|
1,059,519
|
|
Capital lease obligations(2)
|
|
|
1,857
|
|
|
|
920
|
|
|
|
837
|
|
|
|
100
|
|
|
|
|
|
Operating lease obligations(3)
|
|
|
156,560
|
|
|
|
29,628
|
|
|
|
46,688
|
|
|
|
43,139
|
|
|
|
37,105
|
|
Long-term and other liabilities(4)
|
|
|
4,329
|
|
|
|
666
|
|
|
|
1,332
|
|
|
|
1,332
|
|
|
|
999
|
|
Minimum royalty obligations
|
|
|
220
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related obligations(5)
|
|
|
60,907
|
|
|
|
37,436
|
|
|
|
23,471
|
|
|
|
|
|
|
|
|
|
Purchase obligations capital expenditure
|
|
|
19,085
|
|
|
|
19,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations other(6)
|
|
|
41,792
|
|
|
|
38,042
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
Interest on debt(7)
|
|
|
400,876
|
|
|
|
61,427
|
|
|
|
123,532
|
|
|
|
123,378
|
|
|
|
92,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,850,874
|
|
|
$
|
206,394
|
|
|
$
|
222,364
|
|
|
$
|
1,231,954
|
|
|
$
|
1,190,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes original issue discounts associated with the
9% senior subordinated notes and 7.875% senior notes.
See description of various financing arrangements in this
section and Note 6 of our consolidated financial statements
included elsewhere in this prospectus. |
|
(2) |
|
See Note 8 of our consolidated financial statements
included elsewhere in this prospectus. |
|
(3) |
|
See Note 11(a) of our consolidated financial statements
included elsewhere in this prospectus. |
|
(4) |
|
Included in long-term and other liabilities is
$4.3 million in pension
obligations. |
|
(5) |
|
Includes $44.3 million of deferred payments associated
with the acquisition of the ACON Second Territory Business,
$15.0 million in deferred payments associated with the
acquisition of Accordant common disease management programs, or
Accordant, $1.2 million in deferred payments associated
with the acquisition of Biolinker S.A. and $0.4 million in
deferred payments associated with the acquisition of Jinsung
Meditech, Inc. |
|
(6) |
|
Other purchase obligations relate to inventory purchases and
other operating expense commitments. |
|
(7) |
|
Includes the 3% senior subordinated convertible notes
and other non-variable interest-bearing debt. See description of
various financing arrangements in this section and Note 6
of our consolidated financial statements included elsewhere in
this prospectus. |
In addition to the contractual obligations detailed above, we
have contractual contingent consideration terms related to the
following acquisitions:
|
|
|
|
|
Accordant has a maximum earn-out of $6.0 million that, if
earned, will be paid in quarterly payments of $1.5 million
beginning in the fourth quarter of 2012.
|
|
|
|
Ameditech, Inc., or Ameditech, has a maximum earn-out of
$4.0 million that, if earned, will be paid during 2010 and
2011.
|
|
|
|
Binax Inc., or Binax, has a maximum remaining earn-out of
$3.7 million that, if earned, will be paid no later than
2010.
|
|
|
|
Free & Clear has a maximum earn-out of
$30.0 million that, if earned, will be paid in 2011.
|
|
|
|
Gabmed GmbH, or Gabmed, has a maximum remaining earn-out of
0.5 million that, if earned, will be paid in equal
annual amounts during 2010 through 2012.
|
|
|
|
JSM has a maximum earn-out of $3.0 million that, if earned,
will be paid in annual amounts during 2011 through 2013.
|
53
|
|
|
|
|
Mologic Limited, or Mologic, has a maximum earn-out of
$19.0 million that, if earned, will be paid in annual
amounts during 2011 through 2012, payable in shares of our
common stock.
|
|
|
|
Tapestry has a maximum earn-out of $25.0 million that, if
earned, will be paid in annual amounts during 2011 and 2013. The
earn-out is to be paid in shares of our common stock, except in
the case that the 2010 financial targets defined under the
earn-out agreement are exceeded, in which case the seller may
elect to be paid the 2010 earn-out in cash.
|
|
|
|
Vision has a maximum remaining earn-out of $1.2 million
that, if earned, will be paid in 2010.
|
|
|
|
Privately-owned health management business acquired in 2008 has
an earn-out that, if earned, will be paid in 2011.
|
For further information pertaining to our contractual contingent
consideration obligations see Note 11 of our consolidated
financial statements included elsewhere in this prospectus.
Additionally, we have a contractual contingent obligation to pay
£1.0 million in compensation to certain executives of
Concateno in accordance with the acquisition agreement, that, if
earned, 65.0% will be paid in 2010 and the balance in 2011. All
payments vest in full on a change of control event.
Critical
Accounting Policies
The consolidated financial statements included elsewhere in this
prospectus are prepared in accordance with accounting principles
generally accepted in the United States of America, or GAAP. The
accounting policies discussed below are considered by our
management and our audit committee to be critical to an
understanding of our financial statements because their
application depends on managements judgment, with
financial reporting results relying on estimates and assumptions
about the effect of matters that are inherently uncertain.
Specific risks for these critical accounting policies are
described in the following paragraphs. For all of these
policies, management cautions that future events rarely develop
exactly as forecast and the best estimates routinely require
adjustment. In addition, the notes to our audited consolidated
financial statements for the year ended December 31, 2009
included elsewhere in this prospectus include a comprehensive
summary of the significant accounting policies and methods used
in the preparation of our consolidated financial statements.
Revenue
Recognition
We primarily recognize revenue when the following four basic
criteria have been met: (1) persuasive evidence of an
arrangement exists, (2) delivery has occurred or services
rendered, (3) the fee is fixed and determinable and
(4) collection is reasonably assured.
The majority of our revenue is derived from product revenue. We
recognize revenue upon title transfer of the products to
third-party customers, less a reserve for estimated product
returns and allowances. Determination of the reserve for
estimated product returns and allowances is based on our
managements analyses and judgments regarding certain
conditions. Should future changes in conditions prove
managements conclusions and judgments on previous analyses
to be incorrect, revenue recognized for any reporting period
could be adversely affected.
Additionally, we generate services revenue in connection with
contracts with leading healthcare organizations whereby we
distribute clinical expertise through fee-based arrangements.
Revenue for fee-based arrangements is recognized over the period
in which the services are provided. Some contracts provide that
a portion of our fees are at risk if our customers do not
achieve certain financial cost savings over a period of time,
typically one year. Revenue subject to refund is not recognized
if (i) sufficient information is not available to calculate
performance measurements or (ii) interim performance
measurements indicate that we are not meeting performance
targets. If either of these two conditions exists, we record the
amounts as other current liabilities in the consolidated balance
sheet, deferring recognition of the revenue until we establish
that we have met the performance criteria. If we do not meet the
performance targets at the end of the contractual period we are
obligated under the contract to refund some or all of the at
risk fees.
54
We also receive license and royalty revenue from agreements with
third-party licensees. Revenue from fixed fee license and
royalty agreements are recognized on a straight-line basis over
the obligation period of the related license agreements. License
and royalty fees that the licensees calculate based on their
sales, which we have the right to audit under most of our
agreements, are generally recognized upon receipt of the license
or royalty payments, unless we are able to reasonably estimate
the fees as they are earned. License and royalty fees that are
determinable prior to the receipt thereof are recognized in the
period they are earned.
Use of
Estimates for Sales Returns and Other Allowances and Allowance
for Doubtful Accounts
Certain sales arrangements require us to accept product returns.
From time to time, we also enter into sales incentive
arrangements with our retail customers, which generally reduce
the sale prices of our products. As a result, we must establish
allowances for potential future product returns and claims
resulting from our sales incentive arrangements against product
revenue recognized in any reporting period. Calculation of these
allowances requires significant judgments and estimates. When
evaluating the adequacy of the sales returns and other
allowances, our management analyzes historical returns, current
economic trends and changes in customer and consumer demand and
acceptance of our products. When such analysis is not available
and a right of return exists, we record revenue when the right
of return is no longer applicable. Material differences in the
amount and timing of our product revenue for any reporting
period may result if changes in conditions arise that would
require management to make different judgments or utilize
different estimates.
Our total provision for sales returns and other allowances
related to sales incentive arrangements amounted to
$60.2 million, $35.8 million and $38.4 million,
or 4%, 3% and 5%, respectively, of net product sales in 2009,
2008 and 2007, respectively, which have been recorded against
product sales to derive our net product sales. Of these amounts,
approximately $9.3 million, $9.3 million and
$18.8 million, for 2009, 2008 and 2007, respectively,
represent allowances for future deductions which have been
provided against our related accruals for such charges with the
balance charged directly against net sales.
Similarly, our management must make estimates regarding
uncollectible accounts receivable balances. When evaluating the
adequacy of the allowance for doubtful accounts, management
analyzes specific accounts receivable balances, historical bad
debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment
terms and patterns. Our accounts receivable balance was
$354.5 million and $261.4 million, net of allowances
for doubtful accounts of $12.5 million and
$10.0 million, as of December 31, 2009 and
December 31, 2008, respectively.
Additionally, we generate services revenue in connection with
contracts with leading healthcare organizations, whereby we
distribute clinical expertise through fee-based arrangements.
Revenue for fee-based arrangements is recognized over the period
in which the services are provided. Some contracts provide that
a portion of our fees are at risk if our customers do not
achieve certain financial cost savings over a period of time,
typically one year. Revenue subject to refund is not recognized
if (i) sufficient information is not available to calculate
performance measurements or (ii) interim performance
measurements indicate that we are not meeting performance
targets. If either of these two conditions exists, we record the
amounts as other current liabilities in the consolidated balance
sheet, deferring recognition of the revenue until we establish
that we have met the performance criteria. If we do not meet the
performance targets at the end of the contractual period we are
obligated under the contract to refund some or all of the at
risk fees. Our deferred revenue balance was $24.0 million
and $22.0 million, as of December 31, 2009 and
December 31, 2008, respectively.
Valuation of Inventories
We state our inventories at the lower of the actual cost to
purchase or manufacture the inventory or the estimated current
market value of the inventory. In addition, we periodically
review the inventory quantities on hand and record a provision
for excess and obsolete inventory. This provision reduces the
carrying value of our inventory and is calculated based
primarily upon factors such as forecasts of our customers
demands, shelf lives of our products in inventory, loss of
customers and manufacturing lead times. Evaluating these
factors, particularly forecasting our customers demands,
requires management to make assumptions and estimates. Actual
product and services revenue may prove our forecasts to be
inaccurate, in which case we
55
may have underestimated or overestimated the provision required
for excess and obsolete inventory. If, in future periods, our
inventory is determined to be overvalued, we would be required
to recognize the excess value as a charge to our cost of sales
at the time of such determination. Likewise, if, in future
periods, our inventory is determined to be undervalued, we would
have over-reported our cost of sales, or understated our
earnings, at the time we recorded the excess and obsolete
provision. Our inventory balance was $221.5 million and
$173.6 million, net of a reserve for excess and obsolete
inventory of $12.6 million and $9.6 million, as of
December 31, 2009 and 2008, respectively.
Valuation of Goodwill and Other Long-Lived and Intangible
Assets
Our long-lived assets include (1) property, plant and
equipment, (2) goodwill and (3) other intangible
assets. As of December 31, 2009, the balances of property,
plant and equipment, goodwill and other intangible assets, net
of accumulated depreciation and amortization, were
$324.4 million, $3.5 billion and $1.7 billion,
respectively.
Goodwill and other intangible assets are initially created as a
result of business combinations or acquisitions of intellectual
property. The values we record for goodwill and other intangible
assets represent fair values calculated by accepted valuation
methods. Such valuations require us to provide significant
estimates and assumptions which are derived from information
obtained from the management of the acquired businesses and our
business plans for the acquired businesses or intellectual
property. Critical estimates and assumptions used in the initial
valuation of goodwill and other intangible assets include, but
are not limited to: (1) future expected cash flows from
product sales, customer contracts and acquired developed
technologies and patents, (2) expected costs to complete
any in-process research and development projects and
commercialize viable products and estimated cash flows from
sales of such products, (3) the acquired companies
brand awareness and market position, (4) assumptions about
the period of time over which we will continue to use the
acquired brand and (5) discount rates. These estimates and
assumptions may be incomplete or inaccurate because
unanticipated events and circumstances may occur. If estimates
and assumptions used to initially value goodwill and intangible
assets prove to be inaccurate, ongoing reviews of the carrying
values of such goodwill and intangible assets, as discussed
below, may indicate impairment which will require us to record
an impairment charge in the period in which we identify the
impairment.
Where we believe that property, plant and equipment and
intangible assets have finite lives, we depreciate and amortize
those assets over their estimated useful lives. For purposes of
determining whether there are any impairment losses, as further
discussed below, our management has historically examined the
carrying value of our identifiable long-lived tangible and
intangible assets and goodwill, including their useful lives
where we believe such assets have finite lives, when indicators
of impairment are present. In addition, we conduct an impairment
review on the carrying values of all goodwill on at least an
annual basis. For all long-lived tangible and intangible assets
and goodwill, if an impairment loss is identified based on the
fair value of the asset, as compared to the carrying value of
the asset, such loss would be charged to expense in the period
we identify the impairment. Furthermore, if our review of the
carrying values of the long-lived tangible and intangible assets
with finite lives indicates impairment of such assets, we may
determine that shorter estimated useful lives are more
appropriate. In that event, we will be required to record higher
depreciation and amortization in future periods, which will
reduce our earnings.
Valuation of Goodwill
We perform an impairment review on the carrying value of
goodwill at least annually, or more frequently if events occur
or circumstances exist that indicate that a reporting
units carrying value exceeds its fair value. We performed
our annual impairment review as of September 30, 2009,
using the market approach and the discounted cash flows approach
and, based upon this review, we do not believe that the goodwill
related to our professional diagnostics, health management and
consumer diagnostics reporting units was impaired. Because
future cash flows and operating results used in the impairment
review are based on managements projections and
assumptions, future events can cause such projections to differ
from those used at September 30, 2009, which could lead to
significant impairment charges of goodwill in the future. As of
December 31, 2009, we have goodwill balances related to our
professional diagnostics, health management and consumer
diagnostics
56
reporting units, which amounted to $2.0 billion,
$1.4 billion and $52.2 million, respectively, with the
fair value of our professional and consumer diagnostics segments
exceeding their carrying value by greater than 10% and the fair
value of our health management segment exceeding its carrying
value by approximately 9%.
We based our fair value estimates on assumptions we believe to
be reasonable but that are unpredictable and inherently
uncertain, including estimates of future growth rates and
operating margins and assumptions about the overall economic
climate and the competitive environments for our business units.
There can be no assurances that our estimates and assumptions
made for purposes of our goodwill and identifiable intangible
testing as of September 30, 2009 will prove accurate
predictions in the future. If our assumptions regarding business
plans, competitive environments or anticipated growth rates are
not achieved or change, we may be required to record goodwill
and/or
intangible asset impairment charges in future periods, whether
in connection with our next annual impairment testing or
earlier, if an indicator of an impairment is present outside of
the timing of our next annual evaluation.
Valuation of Other Long-Lived Tangible and Intangible
Assets
Factors we generally consider important which could trigger an
impairment review on the carrying value of other long-lived
tangible and intangible assets include the following:
(1) significant underperformance relative to expected
historical or projected future operating results,
(2) significant changes in the manner of our use of
acquired assets or the strategy for our overall business,
(3) underutilization of our tangible assets,
(4) discontinuance of product lines by ourselves or our
customers, (5) significant negative industry or economic
trends, (6) significant decline in our stock price for a
sustained period, (7) significant decline in our market
capitalization relative to net book value and (8) goodwill
impairment identified during an impairment review. Although we
believe that the carrying value of our long-lived tangible and
intangible assets was realizable as of December 31, 2009,
future events could cause us to conclude otherwise.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date
based on the fair value of the award and is recognized as
expense over the vesting period. Determining the fair value of
stock-based awards at the grant date requires judgment,
including estimating our stock price volatility and employee
stock option exercise behaviors. If actual results differ
significantly from these estimates, stock-based compensation
expense and our results of operations could be materially
impacted.
Our expected volatility is based upon the historical volatility
of our stock. The expected term is based on the assumption that
all outstanding options will exercise at the midpoint of the
vesting date and the full contractual term, including data on
experience to date. As stock-based compensation expense is
recognized in our consolidated statement of operations is based
on awards ultimately expected to vest, the amount of expense has
been reduced for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based on historical
experience. If factors change and we employ different
assumptions, the compensation expense that we record in future
periods may differ significantly from what we have recorded in
the current period.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each
of the jurisdictions in which we operate. This process involves
us estimating our actual current tax exposure and assessing
temporary differences resulting from differing treatment of
items, such as reserves and accruals and lives assigned to
long-lived and intangible assets, for tax and accounting
purposes. These differences result in deferred tax assets and
liabilities. We must then assess the likelihood that our
deferred tax assets will be recovered through future taxable
income and, to the extent we believe that recovery is not more
likely than not, we must establish a valuation allowance. To the
extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within our tax
provision.
57
Significant management judgment is required in determining our
provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net
deferred tax assets. We have recorded a valuation allowance of
$37.5 million as of December 31, 2009, due to
uncertainties related to the future benefits, if any, from our
deferred tax assets related primarily to our foreign businesses
and certain U.S. net operating losses, or NOLs, and tax
credits. Included in this valuation allowance is
$8.9 million for deferred tax assets of acquired companies,
the future benefits of which will be generally applied to reduce
our income tax expense. This is an increase of
$24.8 million from the valuation allowance of
$12.7 million as of December 31, 2008. The increase is
primarily related to domestic state NOLs and domestic state
credits. The valuation allowance is based on our estimates of
taxable income by jurisdiction in which we operate and the
period over which our deferred tax assets will be recoverable.
In the event that actual results differ from these estimates or
we adjust these estimates in future periods, we may need to
establish an additional valuation allowance or reduce our
current valuation allowance which could materially impact our
tax provision.
We established reserves for tax uncertainties that reflect the
use of the comprehensive model for the recognition and
measurement of uncertain tax positions. We are currently
undergoing routine tax examinations by various state and foreign
jurisdictions. Tax authorities periodically challenge certain
transactions and deductions we reported on our income tax
returns. We do not expect the outcome of these examinations,
either individually or in the aggregate, to have a material
adverse effect on our financial position, results of operations
or cash flows.
Loss
Contingencies
In the section of this prospectus entitled
Business Legal Proceedings, we have
reported on material legal proceedings. In addition, because of
the nature of our business, we may from time to time be subject
to commercial disputes, consumer product claims or various other
lawsuits arising in the ordinary course of our business,
including employment matters, and we expect this will continue
to be the case in the future. These lawsuits generally seek
damages, sometimes in substantial amounts, for commercial or
personal injuries allegedly suffered and can include claims for
punitive or other special damages. In addition, we aggressively
defend our patent and other intellectual property rights. This
often involves bringing infringement or other commercial claims
against third parties, which can be expensive and can result in
counterclaims against us.
We do not accrue for potential losses on legal proceedings where
our company is the defendant when we are not able to reasonably
estimate our potential liability, if any, due to uncertainty as
to the nature, extent and validity of the claims against us,
uncertainty as to the nature and extent of the damages or other
relief sought by the plaintiff and the complexity of the issues
involved. Our potential liability, if any, in a particular case
may become reasonably estimable and probable as the case
progresses, in which case we will begin accruing for the
expected loss.
Recent
Accounting Pronouncements
See Note 2(r) in the notes to the consolidated financial
statements included elsewhere in this prospectus, regarding the
impact of certain recent accounting pronouncements on our
consolidated financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
The following discussion about our market risk disclosures
involves forward-looking statements. Actual results could differ
materially from those discussed in the forward-looking
statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not
use derivative financial instruments for speculative or trading
purposes.
Interest
Rate Risk
We are exposed to market risk from changes in interest rates
primarily through our investing and financing activities. In
addition, our ability to finance future acquisition transactions
or fund working capital requirements may be impacted if we are
not able to obtain appropriate financing at acceptable rates.
58
Our investing strategy, to manage interest rate exposure, is to
invest in short-term, highly-liquid investments. Our investment
policy also requires investment in approved instruments with an
initial maximum allowable maturity of eighteen months and an
average maturity of our portfolio that should not exceed six
months, with at least $500,000 cash available at all times.
Currently, our short-term investments are in money market funds
with original maturities of 90 days or less. At
December 31, 2009, our short-term investments approximated
market value.
At December 31, 2009, we had term loans in the amount of
$951.0 million and a revolving
line-of-credit
available to us of up to $150.0 million, of which
$142.0 million was outstanding as of December 31,
2009, under our First Lien Credit Agreement. Interest on these
term loans, as defined in the credit agreement, is as follows:
(i) in the case of Base Rate Loans, at a rate per annum
equal to the sum of the Base Rate and the Applicable Margin,
each as in effect from time to time, (ii) in the case of
Eurodollar Rate Loans, at a rate per annum equal to the sum of
the Eurodollar Rate and the Applicable Margin, each as in effect
for the applicable Interest Period and (iii) in the case of
other obligations, at a rate per annum equal to the sum of the
Base Rate and the Applicable Margin for revolving loans that are
Base Rate Loans, each as in effect from time to time. The Base
Rate is a floating rate which approximates the U.S. Prime
rate and changes on a periodic basis. The Eurodollar Rate is
equal to the LIBOR rate and is set for a period of one to three
months at our election. Applicable margin with respect to Base
Rate Loans is 1.00% and with respect to Eurodollar Rate Loans is
2.00%. Applicable margin ranges for our revolving line-of-credit
with respect to Base Rate Loans is 0.75% to 1.25% and with
respect to Eurodollar Rate Loans is 1.75% to 2.25%.
At December 31, 2009, we also had term loans in the amount
of $250.0 million under our Second Lien Credit Agreement.
Interest on these term loans, as defined in the credit
agreement, is as follows: (i) in the case of Base Rate
Loans, at a rate per annum equal to the sum of the Base Rate and
the Applicable Margin, each as in effect from time to time,
(ii) in the case of Eurodollar Rate Loans, at a rate per
annum equal to the sum of the Eurodollar Rate and the Applicable
Margin, each as in effect for the applicable Interest Period and
(iii) in the case of other obligations, at a rate per annum
equal to the sum of the Base Rate and the Applicable Margin for
Base Rate Loans, as in effect from time to time. Applicable
margin with respect to Base Rate Loans is 3.25% and with respect
to Eurodollar Rate Loans is 4.25%.
In August 2007, we entered into interest rate swap contracts,
with an effective date of September 28, 2007, that have a
total notional value of $350.0 million and a maturity date
of September 28, 2010. These interest rate swap contracts
pay us variable interest at the three-month LIBOR rate, and we
pay the counterparties a fixed rate of 4.85%. In March 2009, we
extended our August 2007 interest rate hedge for an additional
two-year period commencing in September 2010 at a one-month
LIBOR rate of 2.54%. These interest rate swap contracts were
entered into to convert $350.0 million of the
$1.2 billion variable rate term loans under the senior
credit facility into fixed rate debt.
In January 2009, we entered into interest rate swap contracts,
with an effective date of January 14, 2009, that have a
total notional value of $500.0 million and a maturity date
of January 5, 2011. These interest rate swap contracts pay
us variable interest at the one-month LIBOR rate, and we pay the
counterparties a fixed rate of 1.195%. These interest rate swap
contracts were entered into to convert $500.0 million of
the $1.2 billion variable rate term loans under the secured
credit facility into fixed rate debt.
Assuming no changes in our leverage ratio and considering our
interest rate swaps, which would affect the margin of the
interest rates under the credit agreements, the effect of
interest rate fluctuations on outstanding borrowings as of
December 31, 2009 over the next twelve months is quantified
and summarized as follows (in thousands):
|
|
|
|
|
|
|
Interest Expense
|
|
|
Increase
|
|
Interest rates increase by 100 basis points
|
|
$
|
4,930
|
|
Interest rates increase by 200 basis points
|
|
$
|
9,860
|
|
59
Foreign
Currency Risk
We face exposure to movements in foreign currency exchange rates
whenever we, or any of our subsidiaries, enter into transactions
with third parties that are denominated in currencies other than
our, or its, functional currency. Intercompany transactions
between entities that use different functional currencies also
expose us to foreign currency risk. During 2009, the net impact
of foreign currency changes on transactions was a gain of
$1.3 million. Historically, we have not used derivative
financial instruments or other financial instruments with
original maturities in excess of three months to hedge such
economic exposures.
Gross margins of products we manufacture at our foreign plants
and sell in U.S. dollars and manufacturing by our
U.S. plants and sold in currencies other than the
U.S. dollar are also affected by foreign currency exchange
rate movements. Our gross margin on total net product sales was
54.6% in 2009. If the U.S. dollar had been stronger by 1%,
5% or 10%, compared to the actual rates during 2009, our gross
margin on total net product sales would have been 54.7%, 54.9%
and 55.1%, respectively.
In addition, because a substantial portion of our earnings is
generated by our foreign subsidiaries, whose functional
currencies are other than the U.S. dollar (in which we
report our consolidated financial results), our earnings could
be materially impacted by movements in foreign currency exchange
rates upon the translation of the earnings of such subsidiaries
into the U.S. dollar.
If the U.S. dollar had been uniformly stronger by 1%, 5% or
10%, compared to the actual average exchange rates used to
translate the financial results of our foreign subsidiaries, our
net product sales and net income would have been impacted by
approximately the following amounts (in thousands):
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Approximate
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Approximate
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Decrease in
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Decrease in
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Net Revenue
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Net Income
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If, during 2009, the U.S. dollar was stronger by:
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1%
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$
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5,013
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|
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$
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530
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5%
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$
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25,050
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|
|
$
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2,650
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|
10%
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|
$
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50,096
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|
|
$
|
5,300
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60
BUSINESS
Our website is www.invmed.com and we make available through this
site, free of charge, our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and Amendments to those reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such
reports are electronically filed with, or furnished to, the
Securities and Exchange Commission, or the SEC. These reports
may be accessed through our websites investor information
page. We also make our code of ethics and certain other
governance documents and policies available through this site.
Segments
Our major reportable operating segments are professional
diagnostics, health management and consumer diagnostics.
Financial information about our reportable segments is provided
in Note 19 of the notes to our consolidated financial
statements, which are included elsewhere in this prospectus.
On January 15, 2010, we completed the sale of our vitamins
and nutritional supplements business. This business, which had
been reported in prior periods as a separate operating segment,
is now classified as discontinued operations. See Note 24
of the notes to our consolidated financial statements, which are
included elsewhere in this prospectus.
Products
and Services
Professional Diagnostics. Professional
diagnostics are generally designed to assist medical
professionals in both preventative and interventional medicine,
and include testing and monitoring performed in hospitals and
doctors offices and, increasingly, testing and monitoring
done at home at the direction of the medical professional, or
through patient self-testing. Professional diagnostic products
provide for qualitative or quantitative analysis of a
patients body fluids or tissue for evidence of a specific
medical condition, disease state or toxicological state or to
measure response to therapy. Within professional diagnostics, we
focus on
point-of-care,
rapid diagnostic testing and health monitoring and the
developing patient self-testing market. We distinguish the
point-of-care
and patient self-testing markets from clinical diagnostic
markets consisting of large, centralized laboratories offering a
wide range of highly-automated laboratory services in hospital
or related settings. The
point-of-care
market for rapid diagnostic products consists primarily of small
and medium size laboratories and testing locations, such as
physician office laboratories, specialized mobile clinics,
emergency rooms and some rapid-response laboratories in larger
medical centers.
In the market for rapid diagnostic products, the ability to
deliver faster, accurate results at reasonable prices generally
drives demand. This means that, while there is certainly demand
for faster, more efficient automated equipment from large
hospitals and major reference testing laboratories, there is
also growing demand by
point-of-care
facilities and smaller laboratories for fast, high-quality, less
expensive, self-contained diagnostic kits. As the speed and
accuracy of such products improve, we believe that these
products will play an increasingly important role in achieving
early diagnosis, timely intervention and therapy monitoring
outside of acute medicine environments, especially where
supplemented by the support and management services that we also
provide.
Our current professional diagnostic products test for over 100
disease states and conditions and include
point-of-care
and laboratory tests in the following areas:
Cardiology. Cardiovascular disease
encompasses a spectrum of conditions and illnesses, including
high blood pressure, high cholesterol, metabolic syndrome,
coronary artery disease, heart attack, heart failure and stroke.
It is estimated that 80 million Americans alone have one or
more types of cardiovascular disease. The worldwide cardiology
diagnostic market, including the markets for heart failure
diagnostics, coronary artery disease risk assessment,
coagulation testing and acute coronary syndrome, exceeds
$1.5 billion. Our Triage, Cholestech LDX and INRatio
products, all acquired through acquisitions in 2007, have
established us as a leader in this market. The Triage system
consists of a portable fluorometer that interprets consumable
test
61
devices for cardiovascular conditions, as well as the detection
of certain drugs of abuse. The Triage cardiovascular tests
include the following:
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Triage BNP Test. An immunoassay that measures
B-type Natriuretic Peptide (BNP) in whole blood or plasma, used
as an aid in the diagnosis and assessment of severity of heart
failure. The test is also used for the risk stratification of
patients with acute coronary syndrome and heart failure. We also
offer a version of the Triage BNP Test for use on Beckman
Coulter lab analyzers.
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Triage Cardiac Panel. An immunoassay for the
quantitative determination of CK-MB, myoglobin and troponin I in
whole blood or plasma, used as an aid in the diagnosis of acute
myocardial infarction.
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Triage CardioProfilER Panel. An immunoassay
for use as an aid in the diagnosis of acute myocardial
infarction, the diagnosis and assessment of severity of
congestive heart failure, risk stratification of patients with
acute coronary syndromes and risk stratification of patients
with heart failure. This panel combines troponin I, CK-MB,
myoglobin and BNP to provide rapid, accurate results in whole
blood and plasma.
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Triage Profiler Shortness of Breath (S.O.B.)
Panel. An immunoassay for use as an aid in the
diagnosis of myocardial infarction, the diagnosis and assessment
of severity of congestive heart failure, the assessment and
evaluation of patients suspected of having disseminated
intravascular coagulation and thromboembolic events, including
pulmonary embolism and deep vein thrombosis, and the risk
stratification of patients with acute coronary syndromes. This
panel combines troponin I, CK-MB, myoglobin, BNP and
d-dimer to provide rapid, accurate results in whole blood and
plasma.
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Triage D-Dimer Test. An immunoassay for use as
an aid in the assessment and evaluation of patients suspected of
having disseminated intravascular coagulation or thromboembolic
events, including pulmonary embolism and deep vein thrombosis.
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The Cholestech LDX System is a
point-of-care
monitor of blood cholesterol and related lipids which is used to
test patients at risk of, or suffering from, heart disease and
related conditions. The Cholestech LDX System makes it possible
to provide a complete lipid profile with tests for total
cholesterol (TC), HDL & LDL cholesterol,
triglycerides, and glucose (GLU), as well as tests for ALT and
AST (for liver enzyme monitoring), and high sensitivity
C-reactive protein (hs-CRP). The Cholestech LDX System can also
provide coronary heart disease risk assessment from the
patients results as measured on the lipid profile
cassette. The Cholestech LDX System provides results in five
minutes per test cassette (seven minutes for hs-CRP) and is
CLIA-waived, meaning the United States Food and Drug
Administration, or FDA, has waived the more stringent
requirements for laboratory testing applicable to moderate or
high complexity laboratories based on the Cholestech LDX
Systems ease of use and accuracy. This allows the
Cholestech LDX System to be marketed to physicians
offices, rather than hospitals or larger laboratories, and it is
present in approximately 12% of U.S. CLIA-waived
physicians office laboratories with an installed base of
approximately 10,000 units in regular use.
The INRatio System is an easy-to-use, hand-held blood
coagulation monitoring system for use by patients and healthcare
professionals in the management of warfarin, a commonly
prescribed medication used to prevent blood clots. The INRatio
System measures PT/INR, which is the patients blood
clotting time reported pursuant to an internationally normalized
ratio, to help ensure that patients with risk of blood clot
formation are maintained within the therapeutic range with the
proper dosage of oral anticoagulant therapy. The INRatio System
is 510(k) cleared by the FDA for use by healthcare
professionals, as well as for patient self-testing, and is also
CE marked in Europe. The INRatio System is targeted to both the
professional, or
point-of-care
market, as well as the patient self-testing market. Recently we
introduced the INRatio2 System, which targets the patient
self-testing market and offers enhanced ease of use. Patient
self-testing has gained significant momentum since March 2008
when Centers for Medicare & Medicaid Services expanded
coverage of home INR monitoring to include chronic atrial
fibrillation and venous thromboembolism patients on warfarin.
As of November 30, 2009, we also distribute the
epoc®
Blood Analysis System for blood gas and electrolyte testing
pursuant to an agreement with Epocal, Inc., or Epocal, The epoc
(enterprise point of care) platform is a
point-of-care
analysis system which provides wireless bedside blood gas and
electrolyte
62
measurement testing solutions and compliments our Triage
products in cardiology and emergency room settings. Utilizing
easy to use, low-cost disposable
Smart-Cardstm,
the epoc System produces laboratory quality results in critical
and acute care settings in about 30 seconds. The epoc System
received FDA 510(k) clearance in 2006 for marketing in the U.S.
We also sell disposable, lateral flow rapid diagnostic tests for
d-dimer and troponin I under our Clearview brand. These tests
offer efficiency, as well as ease of use and accuracy, to
clinics, hospitals and laboratories around the world.
Womens Health. Since womens
health and general sexual health issues are a global health
concern, this remains a priority area for us. In the
professional marketplace, we are a global leader in pregnancy
fertility/ovulation testing and bone therapy (osteoporosis)
monitoring. Our professional pregnancy tests are generally
urine-based, CLIA-waived rapid tests in dipstick or cassette
format.
Our professional womens health products also target
diseases, such as rubella and Group B strep, which pose unique
threats to unborn or newborn babies and, in addition, we market
a portfolio of tests for sexually-transmitted diseases. Our
womens health products are sold under our Acceava,
Clearview, Sure-Step, Inverness Medical TestPack and Osteomark
brands.
Infectious Disease. We believe that the
demand for infectious disease diagnostic products is growing
faster than many other segments of the immunoassay market due to
the increasing incidence of certain diseases or groups of
diseases, including viral hepatitis, respiratory syncytial virus
(RSV), influenza, tuberculosis, human immunodeficiency virus
(HIV) / acquired immunodeficiency syndrome (AIDS),
herpes and other sexually-transmitted diseases. To meet this
demand, we have continued to expand our product offerings and
now offer one of the worlds largest infectious disease
test menus. We develop and market a wide variety of
point-of-care
tests for Influenza A/B, strep throat, HIV, HSV-2, HCV Malaria,
C.difficile, infectious mononucleosis, Lyme disease, Chlamydia,
H.pylori, RSV, Rubella and other infectious diseases. Our tests
for infectious disease are sold under brand names which include
Acceava, BinaxNOW, Clearview, Determine, Inverness Medical
TestPack, DoubleCheckGold, Panbio and
TECHLAB®.
We have, as of February 2010, also acquired a majority interest
in Standard Diagnostics, Inc., or Standard Diagnostics, whose SD
branded rapid diagnostic tests, particularly its tests for HIV,
malaria and influenza, have a strong presence in Asia, Africa
and the Middle East.
In addition to
point-of-care
products, we also offer a line of indirect fluorescent antibody,
or IFA, assays for over 20 viral, bacterial and autoimmune
diseases, a full line of serology diagnostic products covering a
broad range of disease categories and over 70 enzyme-linked
immunosorbent assays (ELISA) tests for a wide variety of
infectious and autoimmune diseases, as well as a full line of
automated instrumentation for processing ELISA assays. We are
the exclusive U.S. distributor of the AtheNA
Multi-Lyte®
Test System, a multiplexed, fluorescent bead-based system
designed to simultaneously perform multiple assays from a single
sample using just one well. It offers a simple and streamlined
alternative to IFA and ELISA testing, providing improved
clinical sensitivity and comparable clinical specificity in a
labor-saving, automation-friendly format. Our IFA, serology and
ELISA products, which generally serve the clinical diagnostics
laboratory markets, are generally marketed under our Wampole
brand.
Demand for certain infectious disease tests, primarily Influenza
A/B, or flu, is significantly affected by the seasonal nature of
the cold and flu season. As a result, we typically experience
higher sales of our flu tests in the first and fourth quarters.
Sales of our flu products also vary from year to year based in
large part on the severity, length and timing of the onset of
the cold and flu season. While we believe that the severity,
length and timing of the onset of the cold and flu season will
continue to impact sales of certain of our infectious disease
products, there can be no assurance that our future sales of
these products will necessarily follow historical patterns.
Oncology. Among chronic disease
categories, we are focused on oncology diagnostics as an area of
significant future opportunity. The Matritech NMP22 BladderChek
Test is the only in-office test approved by the FDA as an aid in
the diagnosis of bladder cancer. The NMP22 BladderChek Test is a
non-invasive assay, performed on a single urine sample that
detects elevated levels of NMP22 protein. The test can be
performed
63
in a physicians office with results delivered during the
patient visit, allowing a rapid, accurate and cost-effective
means of aiding the detection of bladder cancer in patients at
risk, when used in conjunction with standard diagnostic
procedures. We also offer the NMP22 Test Kit, a quantitative
ELISA also designed to detect elevated levels of NMP22 protein.
Our Clearview FOB and Ultra FOB rapid tests aid in the early
detection of colorectal cancer, the third most common type of
cancer in men and the second most common in women.
Drugs of Abuse. Drug abuse is a major
global health problem, as well as a social and economic burden.
In addition to being a primary cause of lost workforce
productivity, family conflict and drug-related crime, drug abuse
is linked to the spread of HIV/AIDS through contaminated
needles. Drug abuse is one of the most costly health problems in
the United States. As a result, employers, law enforcement
officials and others expend considerable effort to be sure their
employees and constituents are free of substance abuse, creating
a significant market for simple, reliable tests to detect the
most commonly abused substances. Additionally, physicians are
increasingly utilizing drug testing to identify and address
signs of prescription drug misuse. Urine-based screening tests
for drugs of abuse range from simple immunoassay tests to
complex analytical procedures. The speed and sensitivity of
immunoassays have made them the most widely-accepted method for
screening urine for drugs of abuse.
We offer one of the broadest and most comprehensive lines of
drugs of abuse tests available today. We offer tests to detect
alcohol, as well as the following illicit and prescription drugs
of abuse: amphetamines/methamphetamines, cocaine, opiates,
phencyclidine, tetrahydrocannabinol, acetaminophen,
barbiturates, benzodiazepines, methadone, propoxyphene and
tricyclic antidepressants, using both urine and saliva body
fluids.
Our rapid drugs of abuse tests are sold primarily under the
brands Triage, iScreen, Concateno and SureStep. The TOX Drug
Screen panel sold for use with our Triage system detects the
presence of any illicit or prescription drugs listed above at
the
point-of-care
in approximately 15 minutes. It is widely used in hospital and
clinical testing as a laboratory instrument to aid in the
detection of drug abuse. Our Drug Detection System, or DDS, is
an enhanced, on-site saliva drug detection system which displays
results for the presence of up to six different drugs in under
five minutes and two drugs in under 90 seconds.
We have recently expanded our drugs of abuse products and
services significantly, particularly in the toxicology
laboratory field. Our addition of Concateno plc, or Concateno,
in August 2009, allows us to offer comprehensive lab-based
testing services throughout Europe, and the acquisition of Kroll
Laboratory Services, Inc., or Kroll, in February 2010, enables
us to offer toxicology services through laboratories certified
by the U.S. Substance Abuse and Mental Health Services
Administration, or SAMHSA. Through our subsidiary Redwood
Toxicology Laboratory, Inc., or Redwood, we also offer
comprehensive, low-cost laboratory testing services to multiple
domestic clients, including law enforcement agencies, penal
systems, insurers and employers. Our comprehensive offerings
deliver the certainty of science, the dependability of proven
processes and the assurance of legally defensible results.
Health Management. We believe that by
utilizing both existing professional diagnostic devices and new
devices under development to enhance the delivery of health
management and other services to healthcare providers, we can
further facilitate cost containment and outcome-driven decision
making. Our Alere health management business strives to empower
participants of our programs and physicians so they can work
together towards better health. We also provide services
supporting home INR testing through Quality Assured Services,
Inc., or QAS, and Tapestry Medical, Inc., or Tapestry.
Our expert-designed health management programs:
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embrace the entire lifespan, from pre-cradle to
end-of-life,
and targeted health states, from wellness to prevention to total
health management of the individual for those having various
chronic illnesses.
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target high-cost chronic conditions with programs designed to
improve outcomes and reduce expenditures.
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provide health coaches who engage and motivate participants
during teachable moments.
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64
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help participants improve their health by supporting their
individual health goals.
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bring greater clarity to healthcare with empowering technologies
that lead to better outcomes.
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offer the expertise of 1,850 healthcare professionals who share
a passion for patient and customer care.
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Our key health management programs are:
Care. The Alere Disease Management
Program provides technology-enabled, evidence-based solutions
for managing chronic and high-cost conditions, improving
productivity and reducing healthcare costs. The Alere Disease
Management Program assists individuals with chronic diseases or
conditions to better manage their care by increasing their
knowledge about their illnesses, potential complications and the
importance of medication and treatment plan compliance. Our
highly-trained clinicians proactively contact participants to
monitor their progress and ensure they are following the plan of
care set by their physician. They work with participants to
identify potential gaps in care, which occur when individuals do
not receive national standards of care, or best practices, or
when an individual fails to comply with their treatment plan.
We offer a personal health support model of care. This model
differs from providers of traditional, total population health
models in several ways, including how individuals are selected,
as well as a more disciplined approach to defining who can
benefit from what kinds of touches and how these
specific interactions are best accomplished. A second key
differentiator is the use of the Alere DayLink Monitor for
persons participating in higher risk health management programs.
The DayLink Monitor records a participants weight
and/or
answers to questions regarding their symptoms. This information
is gathered daily and sent to our clinicians for review. The
Alere Disease Management Program currently assists individuals
with the following diseases or conditions: asthma, coronary
artery disease, chronic obstructive pulmonary disease, diabetes,
heart failure, pain, weight management and depression. In
addition, we also offer Complex Care Management and Chronic Care
Management for participants who require more attention and care
than a traditional disease management program provides. What
distinguishes our two programs is that Complex Care provides
on-site
care, and the Chronic Complex program involves telephone contact
with Alere clinicians.
Patient Self-Testing Services. We also
offer services designed to support anticoagulation management
for patients at risk for stroke and other clotting disorders who
can benefit from home INR monitoring. As mentioned, home INR
monitoring has grown increasingly popular since the Centers for
Medicare & Medicaid Services expanded coverage to
include home INR monitoring of chronic atrial fibrillation and
venous thromboembolism patients on warfarin. Our QAS and
Tapestry businesses assist patients in acquiring home INR
monitors, including our INRatio2 monitors, and seeking Medicare
reimbursement and insurance coverage, while providing physicians
with a comprehensive solution for incorporating home INR
monitoring into their practice. Our CoagNow program includes our
Face-2-Face patient training model, which utilizes experienced
nurse educators; patient scheduling; collection and reporting of
home testing results to the physician and CoagClinic, our
sophisticated web-based application that provides healthcare
professionals with real-time access to patient information.
Womens & Childrens
Health. Our Womens and Childrens
Health division delivers a total spectrum of obstetrical care
services, ranging from a risk assessment to identify women at
risk for preterm birth to a neonatal program for early infant
care management. In between are first and second trimester
genetic testing as well as home-based obstetrical programs to
manage and monitor pregnant women who have medical or
pregnancy-related problems that could harm the health of the
mother or baby. We deliver telephonic and home-based nursing
services that support physician and patient goals. We have
developed and refined these services over the years to
accommodate physician plans of care. We focus on assessment of
patient data and providing education. Our high-risk pregnancy
management program revenues tend to be seasonal. Revenues tend
to decrease with the onset of the holiday season starting with
Thanksgiving. As a result, first and fourth quarter revenues of
each year tend to be lower than second and third quarter
revenues.
Oncology. The Alere Oncology Program is
the longest-running cancer management program (since
1994) in the nation. This program screens for and manages
62 types of cancer. Since the programs inception, we have
managed more than 50,000 participants. Cancer continues to
challenge employers and health plans as they search for tools to
compassionately manage this condition among their population in
the most cost-
65
effective manner. By incorporating best of breed
practices and coordinating with physicians and participants, we
provide an integrated solution to proactively manage this
expensive and debilitating disease.
Wellness. Wellness Solutions is a suite
of integrated wellness programs and resources designed to help
organizations reduce health risks and improve the health and
productivity of their employees while reducing
healthcare-related costs. Wellness programs include screening
for risk factors associated with diabetes, cardiovascular heart
disease, hypertension and obesity; screening for high-risk
pregnancies; assessments of health risks for broad populations;
programs that promote better health by encouraging sustainable
changes in behavior and health coaching. In September 2009, we
enhanced our wellness offerings through our acquisition of
Free & Clear, Inc., or Free & Clear, the
healthy behaviors company that specializes in web-based learning
and phone-based cognitive behavioral coaching to help employers,
health plans and state governments improve the overall health
and productivity of their covered populations. Free &
Clears evidence-based programs address the four key
modifiable health risks that contribute to chronic disease:
tobacco use, poor nutrition, physical inactivity and stress.
Technology Solutions. Our
technology solutions provide employers and health plans with a
powerful portal or front door to our continuum of
healthcare services and allow individuals to create a HIPAA
Compliant, confidential on-line record of all of their personal
healthcare data. On January 1, 2010, we launched our
enhanced integrated health management portal, Apollo, with
several large clients. Apollo will be rolled out to the
remainder of Aleres existing clients throughout 2010 and
2011. The enhanced system provides the framework and supporting
infrastructure for a series of significant enhancements to
Aleres services, including a whole new dynamic,
interactive and personalized experience for employees via an
enhanced health portal and will provide us with an unparalleled
ability to integrate data from a variety of sources, including
health plans, pharmacy benefit managers and point of care
devices.
Apollo serves as the hub for participants to access their
medical information, personal health record and appropriate
health programs and offers the following key enhancements:
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personalized platform that acts as a virtual coach,
presenting content based on data collected on the participant
and delivering personal health support in a way that is designed
to feel satisfying to the participant and when they need it the
most,
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a meaningful, engaging experience with content and activities
presented based on their preferences, activities and personal
health data, and
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a deep, rich library of multi-media resources designed to
address individual learning styles that can be generated
dynamically by the system or located in a search by the
participant.
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Providing access to the broad-based resources of the portal
demonstrates a commitment to the enhanced health of an
organizations population.
Consumer Diagnostics. On May 17, 2007, we
and affiliates of The Procter & Gamble Company, or
P&G, commenced a 50/50 joint venture for the
development, manufacturing, marketing and sale of existing and
to-be-developed consumer diagnostic products, outside the
cardiology, diabetes and oral care fields. As part of this
arrangement, we transferred essentially all of the assets of our
consumer diagnostics business, other than our manufacturing and
core intellectual property assets, to the joint venture, and
P&G acquired its interest in the joint venture.
Accordingly, substantially all of the consumer diagnostics
business conducted by us prior to the joint venture, including
all of our products targeting the worldwide
over-the-counter
pregnancy and fertility/ovulation test market, are now sold by
the joint venture, which is an unconsolidated entity operating
primarily under the name SPD Swiss Precision Diagnostics GmbH,
or SPD.
As part of the SPD joint venture with P&G, we entered into
a finished product purchase agreement, pursuant to which we
currently manufacture and sell to SPD substantially all of the
consumer diagnostic products which it sells. We also entered
into certain transition and long-term services agreements with
SPD, pursuant to which we provide certain operational support
services to the joint venture. Our consumer diagnostics segment
recognizes the revenue and costs arising from these arrangements.
66
Our other current consumer diagnostic products consist of our
market-leading First Check brand of
over-the-counter
drugs of abuse tests for at-home testing for up to seven illicit
drugs and five prescription drugs, as well as First Check brand
over-the-counter
tests for alcohol abuse, cholesterol monitoring and colon cancer
screening. Taking advantage of our leadership in the field of
womens health, we also sell Balance Activ Vaginal Gel
directly to consumers and health care professionals for the
effective treatment of bacterial vaginosis without antibiotics.
Methods
of Distribution and Customers
In the United States, Canada, the United Kingdom, Ireland,
Germany, Italy, Spain, Switzerland, the Netherlands, Belgium,
France, Austria, India, Japan, China, South Korea, Taiwan, Hong
Kong, Australia, New Zealand, South Africa, Brazil, Argentina,
Colombia and Israel, we distribute our professional diagnostic
products to hospitals, reference laboratories, physicians
offices and other
point-of-care
settings through our own sales forces and distribution networks.
In these countries, as well as in all other major world markets,
we also utilize third-party distributors to sell our products.
Our QAS and Tapestry subsidiaries facilitate the distribution of
our INRatio and INRatio2 coagulation monitors by contacting
targeted customers and facilitating the Medicare reimbursement
process for physicians and for patients monitoring at home.
We market our health management programs primarily to health
plans (both commercial and governmental) and self-insured
employers and, to a lesser extent, to pharmaceutical companies
and physicians, through our employee sales force and channel
partners.
We market and sell our First Check consumer drug testing
products in the United States through retail drug stores, drug
wholesalers, groceries and mass merchandisers. These products
compete intensively with other brand name drug testing products
based on price, performance and brand awareness, which is
achieved through targeted radio advertising.
Manufacturing
Our primary manufacturing facilities are located in Hangzhou and
Shanghai, China; Matsudo, Japan; San Diego, California; and
Scarborough, Maine. We are in the final stages of closing
another significant facility in Bedford, England and
transferring the manufacturing operations located there to our
low cost production facilities mainly in China. We also
manufacture products at a number of other facilities in the
United States, the United Kingdom, Germany, Spain, Israel,
Australia and South Africa. We recently acquired a majority
interest in Standard Diagnostics, a manufacturer and distributor
of professional diagnostic products, which has significant
manufacturing facilities in Yongin, South Korea and Gurgaon,
India.
Our primary manufacturing facilities are ISO certified and
registered with the FDA. We manufacture substantially all of our
consumable diagnostic products at these facilities. We also
manufacture the consumable diagnostic devices containing the
diagnostic chemistry or other proprietary diagnostic technology,
which are used in conjunction with our diagnostic or monitoring
systems, including our Triage system, our Cholestech LDX
monitoring devices, our INRatio monitoring devices and the
digital pregnancy and ovulation prediction tests and fertility
monitors that we supply to the SPD joint venture. We contract
with third parties to supply the electronic reader portion of
these diagnostic or monitoring systems and to supply various
other products which we sell, including our
Triage®
BNP Test for use on Beckman Coulter systems, a majority of our
IFA and ELISA tests and our
TECHLAB®
products.
Research
and Development
Our primary research and development centers are in Jena,
Germany; Stirling, Scotland and San Diego, California. We
also conduct research and development at various of our other
facilities including facilities in the United States, the United
Kingdom, Spain, Australia and Israel. Standard Diagnostics also
has significant research and development operations. Our
research and development programs currently focus on the
development of cardiology, womens health, infectious
disease, oncology and drugs of abuse products.
Global
Operations
We are a global company with major manufacturing facilities in
Hangzhou and Shanghai, China and Matsudo, Japan and significant
research and development operations in Jena, Germany and
Stirling, Scotland.
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Standard Diagnostics has significant operations in Yongin, South
Korea and Gurgaon, India. Our distribution network supporting
our professional diagnostics business includes offices in the
United States, Canada, the United Kingdom, Germany, Italy,
Spain, Switzerland, the Netherlands, Belgium, France, Austria,
India, Japan, China, South Korea, Taiwan, Hong Kong, Australia,
New Zealand, South Africa, Brazil, Argentina, Colombia and
Israel.
Our professional diagnostic products are sold throughout the
world. Our health management programs are offered almost
exclusively in the United States. During 2009 and 2008,
respectively, approximately 69% and 71% of our net revenue was
generated from the United States, approximately 17% and 18% of
our net revenue was generated from Europe, and approximately 14%
and 11% of our net revenue was generated from customers located
elsewhere.
Competition
Professional Diagnostics. The main competitors
for our professional rapid diagnostic products are Becton
Dickinson and Quidel Corporation, or Quidel. Some competitors in
this market, such as Becton Dickinson, are large companies with
substantial resources, while numerous smaller, yet aggressive
companies are also competitors. Some automated immunoassay
systems may be considered competitors when labor shortages force
laboratories to automate or when the costs of such systems are
lower. Such systems are provided by Abbott, Siemens AG, Beckman
Coulter, Johnson & Johnson, Roche Diagnostics and
other large diagnostic companies. In the infectious disease
area, newer technologies utilizing amplification techniques for
analyzing molecular DNA gene sequences, from companies such as
Abbott, Becton Dickinson, Roche Diagnostics, Cepheid and
Gen-Probe, are making in-roads into this market. Competition for
rapid diagnostics is intense and is primarily based on price,
breadth of product line and distribution capabilities.
Our competitors in the ELISA diagnostics market include the
large diagnostics companies named above, which manufacture
state-of-the-art
automated immunoassay systems and a wide array of diagnostic
products designed for processing on those systems. Other
competitors in this market, DiaSorin and Diamedx, in particular,
are smaller companies who compete based on quality and service.
In the United States and Canada, we focus on matching the
instrumentation and product testing requirements of our
customers by offering a wide selection of diagnostic products
and test equipment.
The markets for our serology and our IFA and microbiology
products are mature and competition is based primarily on price
and customer service. Our main competitors in serology and
microbiology testing include Remel and Biokit. Our main
competitors in IFA testing are Bio-Rad Laboratories, INOVA
Diagnostics, Immuno Concepts, The Binding Site, Trinity Biotech,
Meridian Biosciences and DiaSorin. However, products in these
categories also compete to a large extent against rapid membrane
and ELISA products, which are often easier to perform and read
and can be more precise.
In cardiology, the majority of diagnostic immunoassays utilized
by physicians and other healthcare providers are performed by
independent clinical reference laboratories and hospital-based
laboratories using automated analyzers for batch testing. As a
result, the primary competitors of our Triage and LDX
point-of-care
testing systems, which consist of rapid diagnostic devices
interpreted by portable electronic readers, are the large
diagnostic companies identified above who produce automated
immunoassay systems. We expect these large companies to continue
to compete vigorously to maintain their dominance of the
cardiology testing market. Although we offer our Triage BNP test
for use on Beckman Coulter Immunoassay Systems, our other
primary cardiology products are not currently designed for
automated batch testing. Our Triage products face strong
competition from Abbott Laboratories i-Stat hand-held
system and our LDX system also faces direct competition from
Abaxis Medical Diagnostics, which markets its
point-of-care
blood laboratory systems to physicians office
laboratories, and Polymer Technology Systems, which sells a home
cholesterol test system. The primary competitors for our INRatio
coagulation monitoring system are Roche Diagnostics and
International Technidyne Corporation, a division of Thoratec,
who together currently account for approximately 75% of the
domestic sales of PT/INR
point-of-care
and patient self-testing devices.
In oncology, our NMP-22 diagnostic products aid in diagnosing
and monitoring bladder cancer patients, in conjunction with
standard diagnostic procedures, and are based on our proprietary
nuclear matrix protein technology. Our NMP-22 BladderChek Test
is currently the only in-office test approved by the FDA as an
aid
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in the diagnosis of bladder cancer. However, competition in the
development and marketing of cancer diagnostics and
therapeutics, using a variety of other technologies, is intense.
Competing diagnostic products based on other technologies may be
introduced by other companies and could adversely affect our
competitive position. In a larger sense, our tests also compete
with more invasive or expensive procedures, such as surgery,
bone scans, magnetic resonance imaging and other in vivo imaging
techniques. In the market for urine-based diagnostic tests, our
NMP-22 tests also compete with existing cellular-based tests,
such as the microscopic examination of suspicious cells and a
test known as
UroVysiontm,
which is a fluorescent in-situ hybridization test.
Generally, our professional diagnostic products
competitive positions may be based on, among other things, being
first to market with a novel product, product performance,
accuracy, convenience, cost-effectiveness, the strength of our
intellectual property and price, as well as on the effectiveness
of our sales force and our marketing and distribution partners.
Where we face competition from large diagnostic companies, these
competitors have greater resources than we do. In addition,
certain competitors may have more favorable competitive
positions than we do in markets outside of the United States.
We believe that our dedication to research and development and
our strong intellectual property portfolio, coupled with our
advanced manufacturing expertise, diversified product
positioning, global market presence and established distribution
networks, provide us with a competitive advantage in the
point-of-care
markets in which we compete.
Health Management. Competition for our health
management services is also intense. Other health management
service providers include Health Dialog and Healthways, Inc. Our
competitors and potential competitors also include health plans,
self-insured employers, healthcare providers, pharmaceutical
companies, pharmacy benefit management companies, case
management companies and other organizations that provide
services to health plans and self-insured employers. Some of
these entities, health plans and self-insured employers in
particular, may be customers or potential customers and may own,
acquire or establish health management service providers or
capabilities for the purpose of providing health management
services in-house. Many of these competitors are considerably
larger than us, with access to greater resources. We believe
however that our ability to improve clinical and financial
outcomes and our technology platforms, most notably our new
Apollo system, will enable us to compete effectively.
Consumer Diagnostics. Our First Check tests
compete against
over-the-counter
diagnostic tests sold primarily by Phamatech, Inc., but also by
other smaller competitors. Essentially, all of our remaining
consumer diagnostic product sales are to SPD, our joint venture.
These products are sold by SPD in retail markets where
competition is intense and based primarily on brand recognition
and price. Our revenues, as well as our share of the profits
from the sale of these products by SPD, are dependent upon
SPDs ability to effectively compete in these markets.
Patents
and Proprietary Technology; Trademarks
We have built a strong intellectual property portfolio
consisting of an increasing number of patents, patent
applications and licensed patents which protect our vision of
the technologies, products and services of the future. Our
intellectual property portfolio consists of patents that we own
and, in some cases, licenses to patents or other proprietary
rights of third parties which may be limited in terms of field
of use, transferability or may require royalty payments.
The medical products industry, including the diagnostic testing
industry, historically has been characterized by extensive
litigation regarding patents, licenses and other intellectual
property rights. As the fact of our pending litigation with
Healthways, Inc. and Robert Bosch North America Corp. and with
Health Hero Network Inc. suggests, litigation relating to
intellectual property rights is also a risk in the health
management industry. For more information regarding these
pending matters see the section entitled
Business Legal Proceedings
beginning on page 72.
We believe that our history of successfully enforcing our
intellectual property rights in the United States and abroad
demonstrates our resolve in enforcing our intellectual property
rights, the strength of our
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intellectual property portfolio and the competitive advantage
that we have in this area. We have incurred substantial costs,
both in asserting infringement claims against others and in
defending ourselves against patent infringement claims, and we
expect to incur substantial litigation costs as we continue to
aggressively protect our technology and defend our proprietary
rights.
Finally, we believe that certain of our trademarks are valuable
assets that are important to the marketing of both our products
and services. Many of these trademarks have been registered with
the United States Patent and Trademark Office or
internationally, as appropriate.
The medical products industry, including the diagnostic testing
industry, and the health management industry place considerable
importance on obtaining and enforcing patent and trade secret
protection for new technologies, products, services and
processes. Trademark protection is an important factor in the
success of certain of our product lines and health management
programs. Our success therefore depends, in part, on our
abilities to obtain and enforce the patents and trademark
registrations necessary to protect our products, to preserve our
trade secrets and to avoid or neutralize threats to our
proprietary rights from third parties. We cannot, however,
guarantee our success in enforcing or maintaining our patent
rights; in obtaining future patents or licensed patents in a
timely manner or at all; or as to the breadth or degree of
protection that our patents or trademark registrations or other
intellectual property rights might afford us. For more
information regarding the risks associated with our reliance on
intellectual property rights see the risk factors discussed in
the section entitled Risk Factors on pages 12
through 32 of this prospectus.
Government
Regulation
Our businesses are subject to extensive and frequently changing
federal, state and local regulations. Changes in applicable laws
or any failure to comply with existing or future laws,
regulations or standards could have a material adverse effect on
our results of operations, financial condition, business and
prospects. We believe our current arrangements and practices are
in material compliance with applicable laws and regulations.
There can be no assurance that we are in compliance with all
applicable existing laws and regulations or that we will be able
to comply with new laws or regulations.
Our research, development and clinical programs, as well as our
manufacturing and marketing operations, are subject to extensive
regulation in the United States and other countries. Most
notably, all of our products sold in the United States are
subject to the Federal Food, Drug and Cosmetic Act, or the FDCA,
as implemented and enforced by the FDA. All of our diagnostic
products sold in the United States require FDA clearance to
market under Section 510(k) of the FDCA, which may require
pre-clinical and clinical trials. Foreign countries may require
similar or more onerous approvals to manufacture or market these
products. The marketing of our consumer diagnostic products is
also subject to regulation by the U.S. Federal Trade
Commission, or the FTC. In addition, we are required to meet
regulatory requirements in countries outside the United States,
which can change rapidly with relatively short notice.
The Clinical Laboratory Improvement Act of 1967 and the Clinical
Laboratory Improvement Amendments of 1988, or CLIA, extended
federal oversight to many clinical laboratories, including
certain of our drug testing laboratories in the United States,
by requiring that they be certified to meet quality assurance,
quality control and personnel standards. Laboratories also must
undergo proficiency testing and are subject to inspections.
Certain of our drug testing laboratories perform drug testing on
employees of federal government contractors and certain other
entities and are therefore regulated by the Substance Abuse and
Mental Health Services Administration, or SAMHSA (formerly the
National Institute on Drug Abuse), which has established
detailed performance and quality standards that laboratories
must meet to be approved to perform drug testing on employees of
federal government contractors and certain other entities.
Certain of the clinicians, such as nurses, must comply with
individual licensing requirements. All of our clinicians who are
subject to licensing requirements are licensed in the state in
which they are physically present, such as the location of the
call center from which they operate and, if applicable, states
in which they visit or interact with patients, to the extent
such licensure is required. In the future, multiple state
licensing requirements for healthcare professionals who provide
services telephonically over state lines may require us to
license more of our clinicians in more than one state. New
judicial decisions, agency interpretations or
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federal or state legislation or regulations could increase the
requirement for multi-state licensing of a greater number of our
clinical staff, which would increase our administrative costs.
Certain aspects of our health management business are subject to
unique licensing or permit requirements by state and local heath
agencies. In addition, our health management business is subject
to the Health Insurance Portability and Accountability Act and
its regulations, or HIPAA, and the Health Information Technology
for Economic and Clinical Health (HITECH) Act. We are also
required to obtain certification to participate in certain
governmental payment programs, such as various state Medicaid
programs. Some states have established Certificate of Need, or
CON, programs regulating the expansion of healthcare operations.
The failure to obtain, renew or maintain any of the required
licenses, certifications or CONs could adversely affect our
business.
Employees
As of January 31, 2010, we had approximately
11,300 employees, including temporary and contract
employees, of which approximately 6,400 employees are
located in the United States. In addition, we utilize
consultants specializing in areas such as research and
development, risk management, regulatory compliance, strategic
planning and marketing.
Properties
Our principal corporate administrative office, together with the
administrative office for most of our United States consumer
operations, is located at 51 Sawyer Road, Waltham,
Massachusetts. Our Alere health management business is
headquartered in Atlanta, Georgia. We also operate a shared
service center in Orlando, Florida which houses certain critical
back-office and sales operations supporting our
U.S. professional diagnostics operations. These key
administrative facilities are leased from third parties.
We own approximately 26.1 acres of land in San Diego,
California which houses one of our five primary manufacturing
operations, as well as significant administrative and research
and development operations for our professional diagnostics
businesses. Our buildings on this property include
167,000 square feet of manufacturing space for professional
diagnostic products. Our other primary manufacturing operations
are in Hangzhou and Shanghai, China; Matsudo, Japan and
Scarborough, Maine. We currently manufacture a portion of our
consumer and professional diagnostics out of a manufacturing
facility of approximately 300,000 square feet in Hangzhou,
China, which we own. The majority of our consumer diagnostic
products are manufactured out of approximately
54,000 square feet of space in Shanghai, China. In October
2009, we moved the manufacture of our Determine products to a
leased space of approximately 35,000 square feet in
Matsudo, Japan, which lease expires in December 2016. We will
also continue to rent 16,000 square feet of space in
Matsudo from Abbott Laboratories until June 2011. We manufacture
certain professional diagnostic products out of a
64,000 square foot facility that we lease in Scarborough,
Maine. We also continue to conduct some technical manufacturing
and antibody production operations related to certain
professional and consumer diagnostic products from a plant which
we lease in Bedford, England. In addition, Standard Diagnostics
manufactures its professional diagnostic products in facilities
in Yongin, South Korea, which it owns, and Gurgaon, India, which
it leases. The San Diego, Hangzhou and Scarborough
facilities, as well as the Standard Diagnostics facilities, also
house significant research and development operations which
support our diagnostic businesses, as does a facility which we
rent in Jena, Germany.
We rely increasingly on toxicology laboratories to provide
reliable drugs of abuse testing results to customers. Redwood
provides its laboratory testing services out of a leased
facility in Redwood, California, while Concateno operates its
primary laboratory out of a leased facility in Abingdon,
England. We also recently acquired, and now own, two SAMHSA
certified laboratories located in Gretna, Louisiana and
Richmond, Virginia.
We also have leases or other arrangements for other facilities
in various locations worldwide, including smaller manufacturing
operations and laboratories, administrative or sales offices,
call centers and warehouses.
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Legal
Proceedings
Healthways,
Inc. and Robert Bosch North America Corp., v. Alere,
Inc.
Healthways, Inc. and Robert Bosch North America Corp. filed a
complaint in U.S. District Court in the Northern District
of Illinois on November 5, 2008 against Alere Medical
alleging infringement of 11 patents, licensed by Bosch from
Healthways. Alere Medical answered the complaint and filed
counterclaims seeking declarations that the patents are invalid
and not infringed. The plaintiffs subsequently filed an amended
complaint substituting Alere LLC, or Alere, our consolidated
health management subsidiary, as the defendant in place of Alere
Medical. On August 31, 2009, plaintiffs filed a motion to
dismiss Aleres affirmative defense and counterclaim that
the
patents-in-suit
are unenforceable due to inequitable conduct. Alere opposed the
motion and filed a motion to amend the existing pleadings to
include newly discovered facts of inequitable conduct. Neither a
hearing for those motions nor a trial date has been scheduled.
We believe that we have strong defenses to Healthways
allegations and we intend to defend them vigorously. However, a
ruling against Alere could potentially have a material adverse
impact on our sales, operations or financial performance or
could limit our current or future business opportunities.
Claims in
the Ordinary Course and Other Matters
We are not a party to any other pending legal proceedings that
we currently believe could have a material adverse impact on our
sales, operations or financial performance. However, because of
the nature of our business, we may be subject at any particular
time to commercial disputes, consumer product claims, negligence
claims or various other lawsuits arising in the ordinary course
of our business, including infringement, employment or investor
matters, and we expect that this will continue to be the case in
the future. Such lawsuits generally seek damages, sometimes in
substantial amounts.
As an example, our subsidiary Alere Medical continues to defend
infringement claims brought by Health Hero Network, Inc., a
subsidiary of Robert Bosch North America Corp., which alleges to
have patented certain processes related to home monitoring of
patients. That matter has been stayed pending reexamination of
the Health Hero patents by the U.S. Patent and Trademark
Office. Also, Alere Medical continues to defend a previously
disclosed class action lawsuit brought by the Estate of Melissa
Prince Quisenberry which relates to the March 14, 2007 sale
of Alere Medical to an unrelated entity. While we believe that
we have strong defenses to the claims brought by Health Hero and
Quisenberry, and we intend to defend them vigorously, these, or
other claims, could potentially have a negative impact on our
sales, operations or financial performance or could limit our
existing or future business opportunities.
In addition, we aggressively defend our patent and other
intellectual property rights. This often involves bringing
infringement or other commercial claims against third parties.
These suits can be expensive and result in counterclaims
challenging the validity of our patents and other rights.
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THE
EXCHANGE OFFER
As a condition to the initial sale of the old notes, we and
certain of our domestic subsidiaries entered into a registration
rights agreement with Jefferies & Company, Inc.,
Goldman, Sachs & Co. and Wells Fargo Securities, LLC.
In that agreement, we agreed, at our cost, to file with the SEC,
on or before February 25, 2010, the registration statement
of which this prospectus forms a part, which we refer to in this
prospectus as the registration statement, with respect to a
registered offer to exchange the old notes for the new notes. In
addition, we agreed to use our commercially reasonable efforts
to cause the registration statement to become effective under
the Securities Act on or before May 26, 2010 and to
consummate the exchange offer on or before June 25, 2010.
If we fail to meet the filing, effectiveness or completion
deadlines set forth in the registration rights agreement, we
will be required to pay the holders of old notes additional
interest at a rate of 0.25% per annum for the first
90-day
period immediately following failure to meet any of the filing,
effectiveness or completion deadlines, increasing by an
additional 0.25% per annum with respect to each subsequent
90-day
period up to a maximum amount of additional interest of 1.00%
per annum from and including the date on which any of the
deadlines listed above were not met to, but excluding, the
earlier of (1) the date on which all registration defaults
have been cured or (2) the date on which all of the old
notes otherwise become freely transferable by holders other than
affiliates of us or any guarantor subsidiary without further
registration under the Securities Act. Under certain
circumstances we and our guarantor subsidiaries may delay the
filing or the effectiveness of the registration statement for a
period of up to 90 days. Any delay period will not alter
our obligations to pay additional interest. This summary of the
terms of the registration rights agreement does not contain all
of the information that you may wish to consider, and we refer
you to the provisions of the registration rights agreement,
which has been filed as an exhibit to the registration statement
and copies of which are available as indicated under the heading
Where You Can Find More Information.
The exchange offer is being made pursuant to the registration
rights agreement to satisfy our obligations thereunder. You are
a holder with respect to the exchange offer if your
old notes are registered in your name on our books or if you
have obtained a properly completed bond power from the
registered holder or any person whose old notes are held of
record by DTC.
Upon the effectiveness of the registration statement, we must
offer the new notes in exchange for surrender of the old notes.
We must keep the exchange offer open for not less than
30 days (or longer if required by applicable law) after the
date notice of the exchange offer is mailed to the holders of
the old notes. For each old note surrendered to us pursuant to
the exchange offer, the holder of such old note will receive a
new note having a principal amount equal to that of the
surrendered old note. Under existing SEC interpretations, the
new notes and the related guarantees will be freely transferable
by holders other than affiliates of us or any guarantor
subsidiary after the exchange offer without further registration
under the Securities Act, except as described below.
If you do not tender your old notes, or if your old notes are
tendered but not accepted, you generally will have to rely on
exemptions from the registration requirements of the securities
laws, including the Securities Act, if you wish to sell your old
notes.
Under existing SEC interpretations, we believe the new notes and
the related guarantees will generally be freely transferable by
holders other than affiliates of us or any guarantor subsidiary
after the exchange offer without further registration under the
Securities Act. If you wish to exchange your old notes for new
notes, you will be required to represent that, among other
things:
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you are not an affiliate (as defined in Rule 405 under the
Securities Act) of us or any guarantor subsidiary of the new
notes, or if you are an affiliate, you will comply with the
registration and prospectus delivery requirements under the
Securities Act to the extent applicable;
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you are not participating, do not intend to participate and have
no arrangement or understanding with any person to participate
in the distribution (within the meaning of the Securities Act)
of the new notes in violation of the provisions of the
Securities Act;
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you will receive the new notes in the ordinary course of your
business;
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if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of new notes; and
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if you are a broker-dealer that will receive new notes for your
own account in exchange for old notes acquired as a result of
market-making or other trading activities, which we refer to in
this prospectus as a participating broker-dealer, you will
deliver a prospectus in connection with any resale of such new
notes.
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Under existing SEC interpretations, participating broker-dealers
may fulfill their prospectus delivery requirements with respect
to the new notes (other than a resale of an unsold allotment
from the original sale of the old notes) with this prospectus,
as it may be amended or supplemented from time to time. Under
the registration rights agreement, if timely requested by a
participating broker-dealer, we and our guarantor subsidiaries
are required to use our commercially reasonable efforts to keep
the registration statement continuously effective for a period
of at least 45 days after the date on which it is declared
effective in order to enable them to satisfy their prospectus
delivery requirements.
The exchange offer is not being made to you, and you may not
participate in the exchange offer, in any jurisdiction in which
the exchange offer or its acceptance would not be in compliance
with the securities laws of that jurisdiction.
Terms of
the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we
will accept any and all old notes validly tendered prior to the
expiration time. You should read Expiration
Date and Time; Extensions; Termination; Amendments below
for an explanation of how the expiration time may be extended.
We will issue up to $100.0 million aggregate principal amount of
new notes in exchange for a like principal amount of outstanding
old notes that are validly tendered and accepted in the exchange
offer. Subject to the conditions of the exchange offer described
below, we will accept any and all old notes that are validly
tendered.
You may tender some or all of your old notes pursuant to the
exchange offer. However, old notes may be tendered only in
minimum denominations of $2,000 and integral multiples of
$1,000. The exchange offer is not conditioned upon the tender of
any minimum aggregate principal amount of old notes.
The form and terms of the new notes will be the same in all
respects as the form and terms of the pre-existing notes and the
same in all material respects as the form and terms of the old
notes tendered in exchange for such new notes, except that the
new notes will be registered under the Securities Act, will not
bear legends restricting their transfer, will generally not be
entitled to registration rights under the registration rights
agreement and will not contain the terms with respect to
additional interest that relate to the old notes. The new notes
will not represent additional indebtedness of ours and will be
entitled to the benefits of the same indenture under which the
pre-existing notes were issued. Old notes that are accepted for
exchange will be canceled and retired.
Interest on the new notes will accrue from the most recent date
to which interest has been paid on the old notes. Accordingly,
registered holders of new notes on the relevant record date for
the first interest payment date following the completion of the
exchange offer will receive interest accruing from the most
recent date to which interest has been paid on the old notes.
Old notes accepted for exchange will cease to accrue interest
from and after the date the exchange offer closes. If your old
notes are accepted for exchange, you will not receive any
payment in respect of interest on the old notes for which the
record date occurs on or after completion of the exchange offer.
You do not have any appraisal rights or dissenters rights
in connection with the exchange offer. If you do not tender your
old notes for exchange or if your tender is not accepted, your
old notes will remain outstanding and you will be entitled to
the benefits of the indenture governing the old notes, but
generally will not be entitled to any registration rights under
the registration rights agreement.
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In connection with the exchange offer, there are no federal or
state regulatory requirements that must be complied with or
approval that must be obtained, except for the declaration by
the SEC of the effectiveness of the registration statement.
We will be deemed to have accepted validly tendered old notes
when, as and if we have given oral or written notice of
acceptance to the exchange agent for the exchange offer. The
exchange agent will act as agent for the tendering holders for
the purpose of receiving the new notes from us. See
Acceptance of Old Notes for Exchange
below.
If any tendered old notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set
forth in this prospectus or otherwise, we will return the
certificates (if any) for the unaccepted old notes to the
tendering holders of those notes, without expense, as promptly
as practicable after the expiration time.
Holders of old notes exchanged in the exchange offer will not be
obligated to pay brokerage commissions or transfer taxes with
respect to the exchange of their old notes other than as
described in Transfer Taxes or in
Instruction 9 to the letter of transmittal. We will pay all
other charges and expenses in connection with the exchange
offer. Each holder of new notes shall pay all discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of such notes.
We make no recommendation to the holders of old notes as to
whether to tender or refrain from tendering all or any portion
of their old notes pursuant to the exchange offer. In addition,
no one has been authorized to make any such recommendation.
Holders of old notes must make their own decisions regarding
whether to tender pursuant to the exchange offer and, if so, the
aggregate amount of old notes to tender after reading this
prospectus and the letter of transmittal and consulting with
their advisers, if any, based on their own financial position
and requirements.
Expiration
Date and Time; Extensions; Termination; Amendments
The exchange offer will expire at the expiration time unless
extended by us. We expressly reserve the right to extend the
exchange offer on a daily basis or for such period or periods as
we may determine in our sole discretion from time to time by
giving oral or written notice to the exchange agent and by
making a public announcement to that effect, prior to
9:00 a.m., New York City time, on the first business day
following the previously scheduled expiration time. During any
extension of the exchange offer, all old notes previously
tendered, not validly withdrawn and not accepted for exchange
will remain subject to the exchange offer and may be accepted
for exchange by us.
To the extent we are legally permitted to do so, we expressly
reserve the absolute right, in our sole discretion, to:
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delay accepting for exchange any old notes for new notes or
extend or terminate the exchange offer and not accept for
exchange any old notes for new notes if any of the events set
forth under Conditions to the Exchange
Offer occurs and we do not waive the condition by giving
oral or written notice of the waiver to the exchange
agent; or
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amend any of the terms of the exchange offer.
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Any delay in acceptance for exchange, extension or amendment
will be followed promptly by a public announcement of the delay,
extension or amendment. If we amend the exchange offer in a
manner that we determine constitutes a material change, we will
disseminate additional exchange offer materials and we will
extend the exchange offer to the extent required by law. Any
amendment to the exchange offer will apply to all old notes
tendered, regardless of when or in what order the old notes were
tendered. If we terminate the exchange offer, we will give
immediate notice to the exchange agent, and all old notes
previously tendered and not accepted for payment will be
returned promptly to the tendering holders. The rights we have
reserved in this paragraph are in addition to our rights set
forth under Conditions to the Exchange
Offer.
If the exchange offer is withdrawn or otherwise not completed,
new notes will not be given to holders of old notes that have
tendered their old notes.
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Acceptance
of Old Notes for Exchange
Upon the terms and subject to the conditions of the exchange
offer, we will accept for exchange old notes validly tendered
pursuant to the exchange offer, or defectively tendered, if such
defect has been waived by us, and not withdrawn before the
expiration time of the exchange offer. We will not accept old
notes for exchange after the expiration time of the exchange
offer. Tenders of old notes will be accepted only in principal
amounts equal to a minimum denomination of $2,000 and integral
multiples of $1,000.
If for any reason we delay acceptance for exchange of validly
tendered old notes or we are unable to accept for exchange
validly tendered old notes, then the exchange agent may,
nevertheless, on our behalf, retain tendered old notes, without
prejudice to our rights described under
Expiration Date and Time; Extensions;
Termination; Amendments and Withdrawal
of Tenders, subject to
Rule 14e-1
under the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer.
If any tendered old notes are not accepted for exchange for any
reason, including if certificates are submitted evidencing more
old notes than those that are properly tendered, certificates
evidencing old notes that are not exchanged will be returned,
without expense, to the tendering holder, or, in the case of old
notes tendered by book-entry transfer into the exchange
agents account at a book-entry transfer facility under the
procedure set forth under Procedures for
Tendering Old Notes Book-Entry Transfer, such
old notes will be credited to the account maintained at such
book-entry transfer facility from which such old notes were
delivered, unless otherwise required by such holder under
Special Delivery Instructions in the letter of
transmittal, promptly following the expiration time or the
termination of the exchange offer.
Procedures
for Tendering Old Notes
Only a holder of old notes may tender them in the exchange
offer. To validly tender in the exchange offer, you must deliver
an agents message (as described below) or a completed and
signed letter of transmittal (or facsimile), together with any
required signature guarantees and other required documents, to
the exchange agent before the expiration time, and the old notes
must be tendered pursuant to the procedures for book-entry
transfer set forth below.
Any beneficial owner whose old notes are registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee or held through a book-entry transfer facility and who
wishes to tender old notes should contact such registered holder
promptly and instruct such registered holder to tender old notes
on such beneficial owners behalf. If you are a beneficial
owner who wishes to tender on a registered holders behalf,
prior to completing and executing the letter of transmittal and
delivering the old notes, you must either make appropriate
arrangements to register ownership of the old notes in your name
or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time.
If you tender an old note, and do not validly withdraw your
tender, your actions will constitute an agreement with us in
accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
Tender of Old Notes Held Through DTC. The
exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC automated tender offer program.
Accordingly, DTC participants may electronically transmit their
acceptance of the exchange offer by causing DTC to transfer old
notes to the exchange agent in accordance with DTCs
automated tender offer program procedures for transfer. DTC will
then send an agents message to the exchange agent.
The term agents message means, with respect to
any tendered old notes, a message transmitted by DTC, received
by the exchange agent and forming part of the book-entry
confirmation, which states that DTC has received an express
acknowledgement from the tendering participant to the effect
that, with respect to those old notes, the participant has
received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce such agreement against such
participant. In the case of an agents message relating to
guaranteed delivery, the term means a message transmitted by DTC
and received by the exchange agent, which states that
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DTC has received an express acknowledgement from the tendering
participant to the effect that, with respect to those old notes,
it has received and agrees to be bound by the notice of
guaranteed delivery.
Tender of Old Notes Held in Physical Form. For
a holder to validly tender old notes held in physical form:
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the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together
with any signature guarantees and any other documents required
by the instructions to the letter of transmittal; and
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the exchange agent must receive certificates for tendered old
notes at such address, or such old notes must be transferred
pursuant to the procedures for book-entry transfer described
above. A confirmation of such book-entry transfer must be
received by the exchange agent before the expiration time of the
exchange offer. A holder who desires to tender old notes and who
cannot comply with the procedures set forth in this prospectus
for tender on a timely basis or whose old notes are not
immediately available must comply with the procedures for
guaranteed delivery set forth below.
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Letters
of transmittal and old notes should be sent only to the exchange
agent and not to us or to any book-entry transfer
facility.
The method of delivery of old notes, letters of transmittal
and all other required documents to the exchange agent is at
your election and risk. Delivery of such documents will be
deemed made only when actually received by the exchange agent.
Instead of delivery by mail, we recommend that you use an
overnight or hand delivery service. If delivery is by mail, we
suggest that the holder use properly insured, registered mail
with return receipt requested. In all cases, you should allow
sufficient time to assure delivery to the exchange agent before
the expiration time. You may request that your broker, dealer,
commercial bank, trust company or nominee effect the tender for
you. No alternative, conditional or contingent tenders of old
notes will be accepted.
Signature Guarantees. Signatures on the letter
of transmittal or a notice of withdrawal, as the case may be,
must be guaranteed by an eligible institution unless:
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the letter of transmittal is signed by the registered holder of
the old notes tendered therewith, or by a participant in one of
the book-entry transfer facilities whose name appears on a
security position listing that lists it as the owner of those
old notes, or if any old notes for principal amounts not
tendered are to be issued directly to the holder, or, if
tendered by a participant in one of the book-entry transfer
facilities, any old notes for principal amounts not tendered or
not accepted for exchange are to be credited to the
participants account at the book-entry transfer facility,
and neither the Special Issuance Instructions nor
the Special Delivery Instructions box on the letter
of transmittal has been completed; or
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the old notes are tendered for the account of an eligible
institution.
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An eligible institution is a bank, broker, dealer, credit union,
savings association or other entity which is a member in good
standing of a recognized Medallion Program approved by the
Securities Transfer Association Inc., including the Securities
Transfer Agents Medallion Program (STAMP), the Stock
Exchange Medallion Program (SEMP) and the New York Stock
Exchange Medallion Signature Program (MSP) or any other
eligible guarantor institution, as that term is
defined in
Rule 17Ad-15
under the Exchange Act.
If the letter of transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a
corporation or another person acting in a fiduciary or
representative capacity, that person should so indicate when
signing and, unless we waive it, evidence satisfactory to us of
the persons authority to act must be submitted with the
letter of transmittal.
Book-Entry Transfer. The exchange agent will
seek to establish a new account or utilize an outstanding
account with respect to the old notes at DTC promptly after the
date of this prospectus. Any financial institution that is a
participant in the book-entry transfer facility system and whose
name appears on a security position listing that lists it as the
owner of the old notes may make book-entry delivery of old notes
by causing the book-entry transfer facility to transfer such old
notes into the exchange agents account. However,
although delivery of old notes may be effected through
book-entry transfer into the exchange agents
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account at a book-entry transfer facility, a properly
completed and validly executed letter of transmittal, or a
manually signed facsimile thereof, with any required signature
guarantees and any other required documents must, in any case,
be received by the exchange agent at its address set forth in
this prospectus before the expiration time of the exchange
offer, or else the guaranteed delivery procedures described
below must be complied with. The confirmation of a book-entry
transfer of old notes into the exchange agents account at
a book-entry transfer facility is referred to in this prospectus
as a book-entry confirmation. Delivery of documents
to the book-entry transfer facility in accordance with that
book-entry transfer facilitys procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery. If you wish to tender
your old notes and:
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certificates representing your old notes are not lost but are
not immediately available;
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time will not permit your letter of transmittal, certificates
representing your old notes and all other required documents to
reach the exchange agent before the expiration time of the
exchange offer; or
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the procedures for book-entry transfer cannot be completed
before the expiration time of the exchange offer,
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then you may tender if both of the following are complied with:
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your tender is made by or through an eligible
institution; and
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before the expiration time of the exchange offer, the exchange
agent has received from the eligible institution a properly
completed and validly executed notice of guaranteed delivery, by
manually signed facsimile transmission, mail or hand delivery,
in substantially the form provided with this prospectus.
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The notice of guaranteed delivery must:
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set forth your name and address, the registered number(s) of
your old notes and the principal amount of old notes tendered;
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state that the tender is being made thereby; and
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guarantee that, within three New York Stock Exchange trading
days after the expiration time of the exchange offer, the letter
of transmittal or facsimile thereof properly completed and
validly executed, or an agents message, together with
certificates representing the old notes, or a book-entry
confirmation, and any other documents required by the letter of
transmittal and the instructions thereto, will be deposited by
the eligible institution with the exchange agent.
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The exchange agent must receive the properly completed and
validly executed letter of transmittal or facsimile thereof with
any required signature guarantees, together with certificates
for all old notes in proper form for transfer, or a book-entry
confirmation, and any other required documents, within three New
York Stock Exchange trading days after the expiration time of
the exchange offer.
Other Matters. New notes will be issued in
exchange for old notes accepted for exchange only after timely
receipt by the exchange agent of:
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certificates for (or a timely book-entry confirmation with
respect to) your old notes, a properly completed and duly
executed letter of transmittal or facsimile thereof with any
required signature guarantees, or, in the case of a book-entry
transfer, an agents message; and
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any other documents required by the letter of transmittal.
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All questions as to the form of all documents and the validity,
including time of receipt, and acceptance of all tenders of old
notes will be determined by us, in our sole discretion, which
determination shall be final and binding. Alternative,
conditional or contingent tenders of old notes will not be
considered valid. We reserve the absolute right to reject
any or all tenders of old notes that are not in proper form or
the acceptance of which, in our opinion, might be unlawful. We
also reserve the right to waive any defects or irregularities as
to particular old notes.
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Our interpretation of the terms and conditions of the exchange
offer, including the instructions in the letter of transmittal,
will be final and binding.
Any defect or irregularity in connection with tenders of old
notes must be cured within the time we determine, unless waived
by us. Tenders of old notes will not be deemed to have been made
until all defects and irregularities have been waived by us or
cured. Neither we, the exchange agent nor any other person will
be under any duty to give notice of any defects or
irregularities in tenders of old notes, or will incur any
liability to holders for failure to give any such notice. Any
old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to
the tendering holders, unless otherwise provided in the letter
of transmittal, promptly after the expiration time.
In addition, we reserve the right in our sole discretion
(subject to the limitations contained in the indenture under
which the old notes were issued):
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to purchase or make offers for any old notes that remain
outstanding after the expiration time; and
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to the extent permitted by applicable law, to purchase old notes
in the open market, in privately negotiated transactions or
otherwise.
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The terms of any purchases or offers could differ from the terms
of the exchange offer.
By tendering, you represent to us, among other things, that:
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you are not an affiliate (as defined in Rule 405 under the
Securities Act) of us or any subsidiary guarantor of the new
notes, or if you are an affiliate, you will comply with the
registration and prospectus delivery requirements under the
Securities Act to the extent applicable;
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you are not participating, do not intend to participate and have
no arrangement or understanding with any person to participate
in the distribution (within the meaning of the Securities Act)
of the new notes in violation of the provisions of the
Securities Act;
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you will receive the new notes in the ordinary course of your
business;
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if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of new notes; and
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if you are a broker-dealer that will receive new notes for your
own account in exchange for old notes acquired as a result of
market-making or other trading activities, you will deliver a
prospectus in connection with any resale of such new notes.
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Withdrawal
of Tenders
Except as otherwise provided in this prospectus, you may
withdraw your tender of old notes at any time before the
expiration time, unless previously accepted for exchange.
For your withdrawal to be effective:
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the exchange agent must receive a written notice of withdrawal
at its address set forth below under Exchange
Agent before the expiration time, and prior to acceptance
for exchange by us; or
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you must comply with the appropriate procedures of DTCs
automated tender offer program system.
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Any notice of withdrawal must:
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specify the name of the person who tendered the old notes to be
withdrawn;
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identify the old notes to be withdrawn, including the principal
amount of the old notes;
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include a statement that such person is withdrawing its election
to have its old notes exchanged; and
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be signed in the same manner as the original signature on the
letter of transmittal by which the old notes were tendered
(including any required signature guarantees).
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If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be
credited with the withdrawn old notes and otherwise comply with
the procedures of DTC.
We will determine all questions as to the validity, form,
eligibility and time of receipt of any notice of withdrawal, and
our determination shall be final and binding on all parties. We
will deem any old notes so withdrawn not to have been validly
tendered for exchange for purposes of the exchange offer and no
new notes will be issued with respect to them unless the old
notes so withdrawn are validly retendered.
Any old notes that have been tendered for exchange but that are
not exchanged for any reason will be returned to their holder
without cost to the holder or, in the case of old notes tendered
by book-entry transfer into the exchange agents account at
DTC according to the procedures described above, such old notes
will be credited to an account maintained with DTC for the old
notes. This return or crediting will take place promptly after
withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn old notes by
following one of the procedures described under
Procedures for Tendering Old Notes at
any time before the expiration time.
Conditions
to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, or
any extension of the exchange offer, we will not be required to
accept for exchange, or to exchange, any old notes for any new
notes, and, as described below, may terminate the exchange
offer, whether or not any old notes have been accepted for
exchange, or may waive any conditions to or amend the exchange
offer, if any of the following conditions has occurred or exists:
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there shall occur any change in the current interpretation by
the staff of the SEC, which now permits the new notes issued
pursuant to the exchange offer in exchange for old notes to be
offered for resale, resold and otherwise transferred by the
holders (other than broker-dealers and any holder which is an
affiliate) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided
that such new notes are acquired in the ordinary course of such
holders business and such holders have no arrangement or
understanding with any person to participate in the distribution
of the new notes;
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any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency
or body with respect to the exchange offer which, in our
judgment, would reasonably be expected to impair our ability to
proceed with the exchange offer;
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any law, statute, rule or regulation shall have been adopted or
enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer;
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a banking moratorium shall have been declared by United States
federal or New York State authorities which, in our judgment,
would reasonably be expected to impair our ability to proceed
with the exchange offer;
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trading on any national securities exchange or generally in the
United States
over-the-counter
market shall have been suspended by order of the SEC or any
other governmental authority which, in our judgment, would
reasonably be expected to impair our ability to proceed with the
exchange offer;
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an attack on the United States, an outbreak or escalation of
hostilities or acts of terrorism involving the United States, or
any declaration by the United States of a national emergency or
war shall have occurred;
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a stop order shall have been issued by the SEC or any state
securities authority suspending the effectiveness of the
registration statement of which this prospectus is a part or
proceedings shall have been initiated or, to our knowledge,
threatened for that purpose or any governmental approval shall
not have been obtained, which approval we shall, in our sole
discretion, deem necessary for the consummation of the exchange
offer; or
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any change, or any development involving a prospective change,
in our business or financial affairs or any of our subsidiaries
shall have occurred which is or may be adverse to us or we shall
have become aware of facts that have or may have an adverse
impact on the value of the old notes or the new notes, which in
our sole judgment in any case makes it inadvisable to proceed
with the exchange offer
and/or with
the acceptance for exchange or with the exchange.
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If we determine in our sole discretion that any of the foregoing
events or conditions has occurred or exists, we may, subject to
applicable law, terminate the exchange offer, whether or not any
old notes have been accepted for exchange, or may waive any such
condition or otherwise amend the terms of the exchange offer in
any respect. See Expiration Date and Time;
Extensions; Termination; Amendments above.
These conditions to the exchange offer are for our sole benefit
and may be asserted by us in our sole discretion regardless of
the circumstances giving rise to any condition not being
satisfied or may be waived by us, in whole or in part, at any
time and from time to time in our sole discretion, other than
regulatory approvals, which cannot be waived at any time. Our
failure to exercise any of the foregoing rights at any time is
not a waiver of any of these rights, and each of these rights
will be an ongoing right, which may be asserted by us at any
time and from time to time. We have not made a decision as to
what circumstances would lead us to waive any condition, and any
waiver would depend on circumstances prevailing at the time of
that waiver. Any determination by us concerning the events
described in this section shall be final and binding upon all
persons.
Although we have no present plans or arrangements to do so,
we reserve the right to amend, at any time, the terms of the
exchange offer. We will give holders notice of any amendments if
required by applicable law.
Consequences
of Failure to Exchange
As a result of making the exchange offer, we will have fulfilled
one of our obligations under the registration rights agreement.
You will not have any further registration rights under the
registration rights agreement or otherwise if you do not tender
your old notes. Accordingly, if you do not exchange your old
notes for new notes in the exchange offer, your old notes will
remain outstanding and will continue to be subject to their
existing terms, except to the extent of those rights or
limitations that, by their terms, terminate or cease to have
further effectiveness as a result of the exchange offer.
Interest on the old notes will continue to accrue at the annual
rate of 7.875%. Moreover, the old notes will continue to be
subject to restrictions on transfer as set forth in the legend
printed on the old notes as a consequence of the issuance of the
old notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act
and applicable state securities laws.
In general, you may not offer or sell the old notes unless the
offer and sale are either registered under the Securities Act or
exempt from registration under the Securities Act and applicable
state securities laws.
The trading market for old notes not exchanged in the exchange
offer may be significantly more limited after the exchange
offer. Therefore, if your old notes are not tendered and
accepted in the exchange offer, it may become more difficult for
you to sell or transfer your old notes. See Risk
Factors Risks Related to Continued Ownership of Old
Notes.
The new notes will be issued as additional notes under the same
indenture that governs the pre-existing notes. The new notes and
the pre-existing notes will constitute a single class of debt
securities under that indenture. This means that, in
circumstances where the indenture provides for holders of debt
securities of any series issued under the indenture to vote or
take any other action as a class, the holders of the
pre-existing notes and the holders of the new notes will vote or
take the action as a single class.
Termination
of Certain Rights
You will not be entitled to certain rights under the
registration rights agreement following the completion of the
exchange offer, including the right to receive additional
interest if the registration statement of which this prospectus
is a part is not declared effective by the SEC, or the exchange
offer is not consummated, within specified time periods.
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Exchange
Agent
The Bank of New York Mellon Trust Company, N.A., has been
appointed as exchange agent for the exchange offer. You should
direct questions and requests for assistance, requests for
additional copies of this prospectus, the letter of transmittal
or any other documents to the exchange agent. You should send
certificates for old notes, letters of transmittal and any other
required documents to the exchange agent addressed as follows:
By Mail, Hand or Overnight Courier:
The Bank of New York Mellon
Corporate Trust Operations
Reorganization Unit
101 Barclay Street 7 East
New York, NY 10286
Attn: Carolle Montreuil
By Facsimile:
(212) 298-1915
Confirm by Telephone:
(212) 815-5920
Delivery of any document to any other address or by any other
means will not constitute valid delivery.
Fees and
Expenses
We have agreed to pay the exchange agent reasonable and
customary fees for its services and will reimburse it for its
reasonable
out-of-pocket
expenses in connection with the exchange offer. We will also pay
brokerage houses and other custodians, nominees and fiduciaries
the reasonable
out-of-pocket
expenses incurred by them in forwarding copies of this
prospectus and related documents to the beneficial owners of old
notes, and in handling or tendering for their customers. We will
not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
Accounting
Treatment
The new notes will be recorded at the same carrying value as the
old notes, as reflected in our accounting records on the date of
the exchange. Accordingly, we will not recognize any gain or
loss for accounting purposes upon the completion of the exchange
offer. The expenses of the exchange offer will be amortized over
the term of the new notes.
Transfer
Taxes
The holder of the old notes generally will not be obligated to
pay transfer taxes applicable to the transfer and exchange of
old notes pursuant to the exchange offer, other than as
described in Instruction 9 to the letter of transmittal.
Other
Participation in the exchange offer is voluntary and you should
carefully consider whether to accept. You are urged to consult
your financial and tax advisors in making your decision on what
action to take.
In the future, we may seek to acquire old notes in open market
or privately negotiated transactions, through subsequent
exchange offers or otherwise. We have no present plans to
acquire any old notes that are not tendered in the exchange
offer or to file a registration statement to permit resales of
any old notes except to the extent that we may be required to do
so under the registration rights agreement.
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USE OF
PROCEEDS
We will not receive any cash proceeds from the issuance of the
new notes. In consideration for issuing the new notes in
exchange for old notes as described in this prospectus, we will
receive old notes of like principal amount. The old notes
surrendered in exchange for the new notes will be retired and
canceled.
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DESCRIPTION
OF NEW NOTES
General
The 7.875% Senior Notes due 2016 in the aggregate principal
amount of $100.0 million that we are offering to exchange
pursuant to the exchange offer (and which we refer to as the old
notes) were issued on September 28, 2009 under an indenture
dated as of August 11, 2009 between Inverness Medical
Innovations, Inc., as issuer, and The Bank of New York Mellon
Trust Company, N.A., as trustee (the Base
Indenture), as supplemented by a supplemental indenture
dated as of September 28, 2009 among Inverness Medical
Innovations, Inc., as issuer, the Guarantors named therein, as
guarantors, and The Bank of New York Mellon Trust Company,
N.A., as trustee, and as further supplemented to date (the Base
Indenture, as so supplemented, the September 2009 Senior
Notes Indenture).
The new 7.875% Senior Notes due 2016 in the aggregate
principal amount of $100.0 million that we are offering in
exchange for the old notes pursuant to the exchange offer (and
which we refer to as the new notes) will be issued under the
Base Indenture, as supplemented by a supplemental indenture
dated as of August 11, 2009, among Inverness Medical
Innovations, Inc., as issuer, the Guarantors named therein, as
guarantors, and The Bank of New York Mellon Trust Company,
N.A., as trustee, and as further supplemented to date (the Base
Indenture, as so supplemented, the August 2009 Senior
Notes Indenture). The terms of the new notes will be
identical to those of the old notes, except that the new notes
will not contain the terms with respect to transfer
restrictions, registration rights and payments of additional
interest that relate to the old notes.
On August 11, 2009, we issued 7.875% Senior Notes due
2016 in an aggregate principal amount of $150.0 million
(which we refer to as the pre-existing notes) under the August
2009 Senior Notes Indenture. The August 2009 Senior Notes
Indenture permits us to issue additional notes thereunder
(Additional Notes) in an unlimited principal amount,
subject to compliance with the covenant described under
Certain Covenants Limitations on
Additional Indebtedness below. The new notes will be
issued as Additional Notes under the August 2009 Senior Notes
Indenture and accordingly will have terms and conditions
identical to those of the pre-existing notes and will be treated
as a single class with the pre-existing notes for all purposes
under the August 2009 Senior Notes Indenture.
The following is a summary of the material provisions of the
August 2009 Senior Notes Indenture. It does not purport to be
complete and does not restate the August 2009 Senior Notes
Indenture in its entirety. The terms of the new notes include
those stated in the August 2009 Senior Notes Indenture and those
made part of the August 2009 Senior Notes Indenture by reference
to the Trust Indenture Act of 1939, as amended. The new
notes are subject to all those terms, and you should review the
August 2009 Senior Notes Indenture and the Trust Indenture
Act because they, and not this description, will define your
rights as a holder of new notes. A copy of the August 2009
Senior Notes Indenture may be obtained as described above under
Where You Can Find More Information.
You can find definitions of certain terms used in this
description under the heading Certain
Definitions. As used below in this Description of
New Notes section, the Issuer means Inverness
Medical Innovations, Inc., a Delaware corporation, and its
successors, but not any of its subsidiaries, the
Notes means the pre-existing notes and the new
notes, along with any other Additional Notes issued under the
August 2009 Senior Notes Indenture, the Indenture
means the August 2009 Senior Notes Indenture, and the
Issue Date means August 11, 2009 (the date on
which the pre-existing were issued), and not the date on which
the new notes are issued.
Principal,
Maturity and Interest
The Notes will mature on February 1, 2016. The Notes will
bear interest at a rate of 7.875% per annum, payable
semi-annually on February 1 and August 1 of each year, or if any
such day is not a Business Day, on the next succeeding Business
Day (each an Interest Payment Date), commencing on
February 1, 2010, to holders of record at the close of
business on the January 15 or July 15, as the case may be,
immediately preceding the relevant interest payment date.
Interest on the Notes will be computed on the basis of a
360-day year
of twelve
30-day
months. The Issuer will be required to pay interest (including
post-petition interest in
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any proceeding under any Bankruptcy Law) on overdue principal,
premium and installments of interest, if any, from time to time
on demand to the extent lawful at the interest rate applicable
to the Notes.
Each holder of old notes, upon exchanging them for new notes,
will forgo any right to receive interest on the old notes (other
than unpaid additional interest, if any, that accrued on the old
notes due to our failure to meet any of the filing,
effectiveness or completion deadlines set forth in the
registration rights agreement; see The Exchange
Offer), including interest accrued but unpaid at the time
of the exchange. However, interest on the new notes will accrue
from the most recent date to which interest has been paid on the
old notes, rather than from the actual date of issuance of the
new notes. Therefore, the interest payments to which a Holder
will be entitled by virtue of its ownership of new notes will
equal the interest payments to which such Holder would have been
entitled under the old notes exchanged for such new notes
pursuant to the exchange offer.
Notes are issued in registered form, without coupons, and in
minimum denominations of $2,000 and integral multiples of $1,000.
Subject to compliance with the covenant described under
Certain Covenants Limitations on
Additional Indebtedness below, we may, without the consent
of the Holders, create and issue Additional Notes (in addition
to the new notes) in an unlimited principal amount having terms
and conditions identical to those of the new notes and the
pre-existing notes, other than with respect to the date of
issuance, the offering price, the principal amount and the date
of the first payment of interest thereon. If the entire $100.0
million aggregate principal amount of the old notes is exchanged
for new notes pursuant to the exchange offer, then the aggregate
principal amount of the Notes (excluding any other Additional
Notes we may issue in addition to the new notes) will equal
$250.0 million. The new notes and any other Additional Notes we
may issue will rank equally with the pre-existing notes and will
be treated as a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments,
redemptions and offers to purchase.
Methods
of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Issuer
at least 10 Business Days prior to the applicable payment date,
the Issuer will make all payments on such Holders Notes by
wire transfer of immediately available funds to the account
specified in those instructions. Otherwise, payments on the
Notes will be made at the office or agency of the paying agent
(the Paying Agent) and registrar (the
Registrar) for the Notes within the City and State
of New York unless the Issuer elects to make interest payments
by check mailed to the Holders at their addresses set forth in
the register of Holders.
Ranking
of the Notes and the Guarantees
The Notes are and will be:
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general unsecured obligations of the Issuer;
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pari passu in right of payment with all existing and
future senior indebtedness of the Issuer, including indebtedness
arising under the old notes and the pre-existing notes;
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effectively subordinated to all existing and future secured
indebtedness of the Issuer, including indebtedness arising under
the secured Credit Facilities, to the extent of the assets
securing such indebtedness;
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senior in right of payment to any existing or future
indebtedness of the Issuer that is, by its terms, subordinated
in right of payment to the Notes, including indebtedness arising
under the Senior Subordinated Notes and the 2007 Convertible
Notes;
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unconditionally guaranteed by the Guarantors; see
Guarantees of the Notes below; and
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structurally subordinated to all existing and future obligations
of each of the Issuers Subsidiaries that is not a
Guarantor.
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Each Guarantee is and will be:
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a general unsecured obligation of the Guarantor thereunder;
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pari passu in right of payment with all existing and
future senior indebtedness of that Guarantor, including
indebtedness arising under that Guarantors guarantee of
the old notes and the pre-existing notes;
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effectively subordinated to all existing and future secured
indebtedness of that Guarantor, including indebtedness arising
under the secured Credit Facilities, to the extent of the assets
securing such indebtedness;
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senior in right of payment to any existing or future
indebtedness of that Guarantor that is, by its terms,
subordinated in right of payment to the Guarantee of that
Guarantor, including indebtedness arising under that
Guarantors guarantee of the Senior Subordinated Notes; and
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structurally subordinated to all existing and future obligations
of each Subsidiary of that Guarantor that is not also a
Guarantor.
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Guarantees
of the Notes
The Issuers obligations under the Notes and the Indenture
are and will be jointly and severally guaranteed by each
Restricted Subsidiary that is a Domestic Subsidiary that
guarantees any Indebtedness or other Obligation under any Credit
Agreement; provided, however, that neither of the
following shall be a Guarantor unless the Issuer so elects:
(a) the Issuers Subsidiary SPDH, Inc.; and
(b) the Issuers former Subsidiary Diamics, Inc.
(which ceased to be a Subsidiary of the Issuer on a date
following the issuance of the pre-existing notes pursuant to the
August 2009 Senior Notes Indenture), until such time, if ever,
that it becomes a Wholly-Owned Restricted Subsidiary.
Not all of our Subsidiaries guarantee or will guarantee the
Notes. Unrestricted Subsidiaries, Foreign Subsidiaries, the
Subsidiaries named above, and Domestic Subsidiaries that do not
guarantee any Indebtedness or other Obligation under the Credit
Agreements are not, and will not be, Guarantors. In the event of
a bankruptcy, liquidation or reorganization of any of these
non-guarantor Subsidiaries, these non-guarantor Subsidiaries
will pay the holders of their debts and their trade creditors
before they will be able to distribute any of their assets to
us. For the fiscal year ended December 31, 2009, our
non-guarantor Subsidiaries had net revenues of approximately
$630.7 million, or approximately 32.8% of our consolidated
2009 revenues, and operating income of approximately
$58.1 million, or approximately 39.8% of our consolidated
2009 operating income. As of December 31, 2009, our
non-guarantor Subsidiaries had assets of approximately
$1.7 billion, or approximately 24.8% of our consolidated
assets. In addition, as of December 31, 2009, our
non-guarantor Subsidiaries had total indebtedness and other
liabilities of approximately $563.9 million, including
trade payables but excluding intercompany liabilities. These
figures do not give pro forma effect to any acquisition we have
made since such date. For additional information, see
note 28 of the notes to our consolidated audited financial
statements included elsewhere in this prospectus and Risk
Factors Risks Relating to Our Debt, Including the
New Notes under the subheadings The new
notes are not secured by our assets or those of our guarantor
subsidiaries and Your right to receive
payment on the new notes will be structurally subordinated to
the obligations of our non-guarantor subsidiaries.
Under the circumstances described below under the subheading
Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries, the Issuer is
and will be permitted to designate some of its Subsidiaries as
Unrestricted Subsidiaries. As of the date of this
prospectus, no Subsidiary is an Unrestricted Subsidiary and all
Subsidiaries of the Issuer are Restricted Subsidiaries. The
effects of designating a Subsidiary as an Unrestricted
Subsidiary would be as follows:
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an Unrestricted Subsidiary would not be subject to many of the
restrictive covenants in the Indenture;
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a Subsidiary that had previously been a Guarantor and that is
designated an Unrestricted Subsidiary would be released from its
Guarantee; and
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the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary would not be consolidated with those of
the Issuer for purposes of calculating compliance with the
restrictive
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covenants contained in the Indenture, except for income of the
Unrestricted Subsidiary to the extent any such income has
actually been received by the Issuer or any of its Wholly-Owned
Restricted Subsidiaries.
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The Obligations of each Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such Guarantor
(including any guarantees under any Credit Facility (including
any Credit Agreement) permitted under clause (1) of
Certain Covenants Limitations on
Additional Indebtedness and including such
Guarantors guarantee of the Issuers obligations
under the Senior Subordinated Notes and the Senior Subordinated
Notes Indenture and, if any old notes remain outstanding after
completion of the exchange offer, such Guarantors
guarantees of the Issuers obligations under the old notes
and the September 2009 Senior Notes Indenture) and after giving
effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the Obligations of such
other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, result in the
obligations of such Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law. Each Guarantor that makes a payment
for distribution under its Guarantee is entitled to a
contribution from each other Guarantor in a pro rata
amount based on adjusted net assets of each Guarantor.
A Guarantor shall be released from its obligations under its
Guarantee and the Indenture:
(1) in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor, by way of
merger, consolidation or otherwise, or a sale or other
disposition of all of the Equity Interests of such Guarantor
then held by the Issuer and the Restricted Subsidiaries;
(2) if such Guarantor is designated as an Unrestricted
Subsidiary or otherwise ceases to be a Restricted Subsidiary, in
each case in accordance with the provisions of the Indenture,
upon effectiveness of such designation or when it first ceases
to be a Restricted Subsidiary, respectively; or
(3) if such Guarantor does not guarantee any Indebtedness
or other Obligation under any Credit Agreement (other than if
such Guarantor no longer guarantees any Indebtedness or other
Obligation under such Credit Agreement as a result of payment
under any guarantee of any such Indebtedness or other Obligation
by such Guarantor); provided, however, that a
Guarantor shall not be permitted to be released from its
Guarantee if it is an obligor with respect to any Indebtedness
or other Obligation that would not, under
Certain Covenants Limitations on
Additional Indebtedness, be permitted to be incurred by a
Restricted Subsidiary that is not a Guarantor.
Redemption
Optional
Redemption
Except as set forth below, the Notes may not be redeemed at the
Issuers option prior to February 1, 2013. At any time
on or after February 1, 2013, the Issuer, at its option,
may redeem the Notes, in whole or in part, upon not less than 30
nor more than 60 days notice, at the redemption
prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest thereon, if
any, to but excluding the redemption date, if redeemed during
the 12-month
period beginning February 1 of the years indicated:
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Year
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Optional Redemption Price
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2013
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103.938
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2014
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101.969
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2015 and thereafter
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100.000
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Redemption
with Proceeds from Equity Offerings
At any time prior to August 1, 2012, the Issuer may redeem
up to 35% of the aggregate principal amount of the Notes with
the net cash proceeds of one or more Qualified Equity Offerings
at a redemption price equal to 107.875% of the principal amount
of the Notes to be redeemed, plus accrued and unpaid interest
thereon, if any, to but excluding the date of redemption;
provided, however, that (1) at least 65% of
the aggregate
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principal amount of Notes issued under the Indenture remains
outstanding immediately after the occurrence of such redemption
and (2) the redemption occurs within 90 days of the
date of the closing of any such Qualified Equity Offering.
Make-whole
Redemption
At any time prior to February 1, 2013, the Issuer may
redeem all or a part of the Notes, upon not less than 30 nor
more than 60 days notice, at a redemption price equal
to 100% of the principal amount (or portion thereof) of the
Notes to be redeemed plus the Applicable Premium as of, and
accrued and unpaid interest, if any, to but excluding, the date
of redemption.
Mandatory
Redemption
The Issuer is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
Other
Acquisitions of Notes
The Issuer may acquire Notes by means other than a redemption,
whether pursuant to an issuer tender offer, open market purchase
or otherwise, in accordance with applicable securities laws, so
long as the acquisition does not otherwise violate the terms of
the Indenture.
Selection
and Notice of Redemption
In the event that less than all of the Notes are to be redeemed
at any time pursuant to an optional redemption, a redemption
with proceeds from Qualified Equity Offerings or a make-whole
redemption, selection of the Notes for redemption will be made
by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not then listed on a
national security exchange, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and
appropriate; provided, however, partial redemption
of Notes of any Holder may only be made of principal equal to
$1,000 or integral multiples thereof (provided,
however, that no Note will be purchased in part if such
Note would have a remaining principal amount of less than
$2,000). In addition, if a partial redemption is made pursuant
to the provisions described in
Redemption Redemption with
Proceeds from Equity Offerings, selection of the Notes or
portions thereof for redemption will be made by the Trustee only
on a pro rata basis or on as nearly a pro rata
basis as is practicable (subject to the procedures of the
Depository), unless that method is otherwise prohibited.
Notice of redemption will be mailed by first-class mail, postage
prepaid, at least 30 but not more than 60 days before the
date of redemption to each Holder of Notes to be redeemed at the
Holders registered address, except that redemption notices
may be mailed more than 60 days prior to the applicable
redemption date if the notice is issued in connection with a
satisfaction and discharge of the Indenture. The notice, if
given in the manner provided above and in the Indenture, shall
be conclusively presumed to have been given, whether or not the
Holder receives such notice. If any Note is to be redeemed in
part only, the notice of redemption that relates to that Note
will state the portion of the principal amount of the Note to be
redeemed. A new Note in a principal amount equal to the
unredeemed portion of the Note will be issued in the name of the
Holder of the Note upon cancellation of the original Note. On
and after the date of redemption, interest will cease to accrue
on Notes or portions thereof called for redemption so long as
the Issuer has deposited with the paying agent for the Notes
funds in satisfaction of the redemption price (including accrued
and unpaid interest, if any, on the Notes to be redeemed)
pursuant to the Indenture.
Change of
Control
Upon the occurrence of any Change of Control, each Holder will
have the right to require that the Issuer purchase all or any
part (equal to $1,000 or an integral multiple thereof
(provided, however, that no Note will be purchased
in part if such Note would have a remaining principal amount of
less than $2,000)) of that Holders Notes for a cash price
(the Change of Control Purchase Price) equal to 101%
of the principal
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amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to but excluding the date of purchase.
Within 30 days following any Change of Control, the Issuer
will mail, or caused to be mailed, to the Holders a notice:
(1) describing the transaction or transactions that
constitute the Change of Control;
(2) offering to purchase, pursuant to the procedures
required by the Indenture and described in the notice (a
Change of Control Offer), on a date specified in the
notice (which shall be a Business Day not earlier than
30 days nor later than 60 days from the date the
notice is mailed) and for the Change of Control Purchase Price,
all Notes properly tendered by such Holder pursuant to such
Change of Control Offer; and
(3) describing the procedures that Holders must follow to
accept the Change of Control Offer.
The Change of Control Offer is required to remain open for at
least 20 Business Days or for such longer period as is required
by law.
The Issuer will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the date of
purchase.
In the event that at the time of such Change of Control the
terms of the Indebtedness under any Credit Agreement restrict or
prohibit the purchasing of the Notes upon a Change of Control,
then prior to mailing the notice described above to the Holders,
but in any event within 30 days following any Change of
Control, the Issuer must either repay in full the Indebtedness
and terminate all commitments under the Credit Agreement that
contains the prohibition or obtain the requisite consent of the
applicable lenders to permit the purchase of Notes. The Issuer
shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase
Notes upon a Change of Control or to send the notice pursuant to
the provisions described above. The Issuers failure to
comply with the covenant described in the second preceding
sentence (and any failure to send the notice described above to
the Holders because the same is prohibited by the second
preceding sentence) may (with notice and lapse of time)
constitute an Event of Default described in clause (3) of
the definition of Event of Default below but shall
not constitute an Event of Default described in clause (2)
of the definition of Event of Default below.
Our existing Credit Agreements may prohibit us from purchasing
any Notes, and also provide that some change of control events
with respect to us would constitute a default under these Credit
Agreements. Any future Credit Agreements or other agreements
relating to Indebtedness to which the Issuer becomes a party may
contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when the Issuer is prohibited
from purchasing Notes, if the Issuer does not obtain all
required consents of our lenders to purchase the Notes or repay
or refinance the borrowings that contain the prohibition, the
Issuer will remain prohibited from purchasing Notes. In that
case, our failure to obtain such consents or repay or refinance
such borrowings so that we may purchase the Notes would
constitute an Event of Default under the Indenture, which would,
in turn, constitute a default under the Credit Agreements and
any such other Indebtedness.
The provisions described above that require us to make a Change
of Control Offer following a Change of Control will be
applicable regardless of whether any other provisions of the
Indenture are applicable. Except as described above with respect
to a Change of Control, the Indenture does not contain
provisions that permit the Holders to require that the Issuer
purchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Issuers obligation to make a Change of Control Offer
will be satisfied if a third party makes the Change of Control
Offer in the manner and at the times and otherwise in compliance
with the requirements applicable to a Change of Control Offer
made by the Issuer and purchases all Notes properly tendered and
not withdrawn under the Change of Control Offer.
The definition of Change of Control under the
Indenture contains important exceptions for certain types of
transactions. The occurrence of transactions within these
exceptions would not constitute a Change of
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Control for purposes of the Indenture, and would therefore
not trigger the Holders right to require the Issuer to
purchase Notes as set forth above. The definition of
Change of Control is set forth below under
Certain Definitions.
With respect to any disposition of assets, the phrase all
or substantially all as used in the Indenture (including
as set forth under Certain
Covenants Limitations on Mergers, Consolidations,
Etc. below) varies according to the facts and
circumstances of the subject transaction, has no clearly
established meaning under New York law (which governs the
Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction
would involve a disposition of all or substantially
all of the assets of the Issuer, and therefore it may be
unclear as to whether a Change of Control has occurred and
whether the Holders have the right to require the Issuer to
purchase Notes.
The Issuer will comply with applicable tender offer rules,
including the requirements of
Rule 14e-l
under the Exchange Act and any other applicable laws and
regulations in connection with the purchase of Notes pursuant to
a Change of Control Offer. To the extent that the provisions of
any securities laws or regulations conflict with the
Change of Control provisions of the Indenture, the
Issuer shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its
obligations under the Change of Control provisions
of the Indenture by virtue of this compliance.
Certain
Covenants
The Indenture contains, among others, the following covenants:
Limitations
on Additional Indebtedness
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness;
provided, however, that the Issuer or any
Restricted Subsidiary may incur additional Indebtedness, and the
Issuer or any Restricted Subsidiary may incur Acquired
Indebtedness, if, after giving effect thereto, the Consolidated
Interest Coverage Ratio would be at least 2.00 to 1.00 (the
Coverage Ratio Exception).
Notwithstanding the above, each of the following is and will be
permitted to be incurred (the Permitted
Indebtedness):
(1) Indebtedness of the Issuer or any Restricted Subsidiary
under any Credit Facility (including any Credit Agreement)
(including the issuance or creation of letters of credit and
bankers acceptances thereunder) so long as the aggregate
amount of all Indebtedness of the Issuer and its Restricted
Subsidiaries (without duplication) at any time outstanding under
all Credit Facilities (including all Credit Agreements)
(excluding Hedging Obligations related to the Indebtedness
thereunder) does not exceed the greater of
(x) $1.75 billion, less the aggregate amount of
Net Available Proceeds applied to repayments under the Credit
Agreements in accordance with the covenant described under
Limitations on Asset Sales, and
(y) 85% of the book value of the accounts receivable of the
Issuer and the Restricted Subsidiaries plus 65% of the
book value of inventory of the Issuer and the Restricted
Subsidiaries, in each case calculated on a consolidated basis
and in accordance with GAAP as of the last day of the last full
fiscal quarter for which financial statements are available;
(2) the Notes issued on the Issue Date and the related
Guarantees;
(3) Indebtedness of the Issuer and the Restricted
Subsidiaries to the extent outstanding on the Issue Date (other
than Indebtedness referred to in clauses (1) and
(2) above);
(4) Indebtedness of the Issuer or any Restricted Subsidiary
under Hedging Obligations (i) entered into for bona fide
purposes of hedging against fluctuations in interest rates
with respect to Indebtedness under any Credit Facility
(including any Credit Agreement) or (ii) entered into in
the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation that are
designed to protect against fluctuations in interest rates,
foreign currency exchange rates and commodity prices,
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provided that if, in the case of either (i) or (ii), such
Hedging Obligations are of the type described in clause (1)
of the definition thereof, (a) such Hedging Obligations
relate to payment obligations on Indebtedness otherwise
permitted to be incurred by this covenant, and (b) the
notional principal amount of such Hedging Obligations at the
time incurred does not exceed the principal amount of the
Indebtedness to which such Hedging Obligations relate;
(5) Indebtedness of the Issuer owed to a Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary owed to
the Issuer or any other Restricted Subsidiary, provided that
upon any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or such Indebtedness being owed to any Person other
than the Issuer or a Restricted Subsidiary, the Issuer or such
Restricted Subsidiary, as applicable, shall be deemed to have
incurred Indebtedness not permitted by this clause (5);
(6) (i) Indebtedness in respect of bid, performance or
surety bonds issued for the account of the Issuer or any
Restricted Subsidiary in the ordinary course of business,
including guarantees or obligations of the Issuer or any
Restricted Subsidiary with respect to letters of credit
supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed), and
(ii) Indebtedness of the Issuer or any Restricted
Subsidiary consisting of reimbursement obligations with respect
to commercial letters of credit and letters of credit issued to
landlords, in each case in the ordinary course of business in an
aggregate face amount not to exceed $10.0 million at any
time;
(7) Purchase Money Indebtedness incurred by the Issuer or
any Restricted Subsidiary, and Refinancing Indebtedness with
respect thereto, in an aggregate outstanding amount not to
exceed $50.0 million at any time;
(8) Indebtedness of the Issuer or any Restricted Subsidiary
arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business,
provided that such Indebtedness is extinguished within five
Business Days of incurrence;
(9) Indebtedness of the Issuer or any Restricted Subsidiary
arising in connection with endorsement of instruments for
deposit in the ordinary course of business;
(10) (i) Capitalized Lease Obligations arising under
Sale and Leaseback Transactions with respect to any of the real
property currently owned by Biosite Incorporated or any of its
Restricted Subsidiaries in San Diego, California or
San Clemente, California, and Refinancing Indebtedness with
respect thereto, in an aggregate outstanding amount for all such
transactions under this clause (i) not to exceed
$150.0 million at any time and (ii) Capitalized Lease
Obligations arising under any other Sale and Leaseback
Transactions, and Refinancing Indebtedness with respect thereto,
in an aggregate outstanding amount for all such transactions
under this clause (ii) not to exceed $50.0 million at
any time;
(11) guarantee Obligations of the Issuer or any of its
Restricted Subsidiaries with respect to Indebtedness of the
Issuer or any of its Restricted Subsidiaries;
(12) (i) Indebtedness incurred by the Issuer or any
Restricted Subsidiary for the purpose of financing all or any
part of the cost of, or in order to consummate, the acquisition
of (x) Equity Interests of another Person engaged in the
Permitted Business that becomes a Restricted Subsidiary,
(y) all or substantially all of the assets of such a Person
or a line of business, division or business unit within the
Permitted Business by the Issuer or a Restricted Subsidiary, or
(z) any other Permitted Business assets by the Issuer or a
Restricted Subsidiary and (ii) Acquired Indebtedness
incurred by the Issuer or any Restricted Subsidiary in
connection with an acquisition by the Issuer or a Restricted
Subsidiary; provided, however, that, in each of
the foregoing cases, on the date of the incurrence of such
Indebtedness or Acquired Indebtedness, after giving effect to
the incurrence thereof and the use of any proceeds therefrom and
otherwise determined on a pro forma basis for such
transaction in accordance with the provisions set forth in the
definition of Consolidated Interest Coverage Ratio
in Certain Definitions below, either:
(a) the Issuer would be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Coverage Ratio
Exception, or
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(b) the Consolidated Interest Coverage Ratio would be
greater than the Consolidated Interest Coverage Ratio
immediately prior to the incurrence of such Indebtedness;
(13) guarantees by the Issuer or any of its Restricted
Subsidiaries of the performance by any Restricted Subsidiary of
its obligations under the P&G JV Agreements or the joint
venture agreement or other related agreements, instruments or
documents relating to any other joint venture entered into by
the Issuer of any of its Restricted Subsidiaries in compliance
with the Indenture (for the avoidance of doubt this clause shall
not be read to allow guarantees of Indebtedness of any joint
venture or joint venture partner or their Affiliates);
(14) Refinancing Indebtedness incurred by the Issuer or any
Restricted Subsidiary with respect to Indebtedness incurred
pursuant to the Coverage Ratio Exception or clause (2),
(3) or (12) or this clause (14) in this section;
(15) Indebtedness of any Foreign Restricted Subsidiary or
of any Domestic Subsidiary that is not a Guarantor in an
aggregate outstanding principal amount for all such Indebtedness
at any time not to exceed $50.0 million; and
(16) any other Indebtedness of the Issuer or any Restricted
Subsidiary in an aggregate outstanding principal amount for all
such Indebtedness not to exceed $50.0 million at any time.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Indebtedness
described in clauses (1) through (16) above or is
entitled to be incurred pursuant to the Coverage Ratio
Exception, the Issuer shall, in its sole discretion, classify
such item of Indebtedness and may divide and classify (and may
later redivide and reclassify) such Indebtedness in more than
one of the types of Indebtedness described in this covenant in
any manner that complies with this covenant, except that
Indebtedness incurred under any Credit Agreement on the Issue
Date shall be deemed to have been incurred under clause (1)
above. Any item of Indebtedness entitled to be incurred pursuant
to the Coverage Ratio Exception and classified by the Issuer
within such type of Indebtedness shall retain such
classification (and the amount thereof shall not be counted in
the determination of the amount of Indebtedness under any of
clauses (1) through (16) of this covenant
notwithstanding that the Coverage Ratio Exception is not
available at any later time). In addition, for purposes of
determining any particular amount of Indebtedness under this
covenant or any category of Permitted Indebtedness, guarantees,
Liens, letter of credit obligations or other obligations
supporting Indebtedness otherwise included in the determination
of such particular amount shall not be included so long as
incurred by a Person that could have incurred such Indebtedness.
The accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the
same terms and the payment of dividends on Disqualified Equity
Interests of the Issuer in the form of additional shares of the
same class of Disqualified Equity Interest (or in the form of
Qualified Equity Interests) will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
Limitations
on Layering Indebtedness
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness
that by its terms (or by the terms of any agreement governing
such Indebtedness) is or purports to be contractually
subordinated in right of payment to any other Indebtedness of
the Issuer or such Restricted Subsidiary, as the case may be,
unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) made contractually
subordinate in right of payment to the Notes or the Guarantee,
if any, of such Restricted Subsidiary to the same extent and in
the same manner as such Indebtedness is subordinated to such
other Indebtedness of the Issuer or such Restricted Subsidiary,
as the case may be.
For purposes of the foregoing, no Indebtedness will be deemed to
be subordinated in right of payment to any other Indebtedness of
the Issuer or any Restricted Subsidiary solely by virtue of
being unsecured or by virtue of the fact that the holders of
such Indebtedness have entered into intercreditor agreements or
other
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arrangements giving one or more of such holders priority over
the other holders in the collateral held by them or by virtue of
structural subordination.
Limitations
on Restricted Payments
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted
Payment if at the time of such Restricted Payment:
(1) a Default shall have occurred and be continuing or
shall occur as a consequence thereof;
(2) the Issuer cannot incur $1.00 of additional
Indebtedness pursuant to the Coverage Ratio Exception; or
(3) the amount of such Restricted Payment, when added to
the aggregate amount of all other Restricted Payments made after
the Issue Date (other than Restricted Payments made pursuant to
clauses (2) through (7), (8) (with respect to non-cash
dividends only), (10) and (11) of the next paragraph),
exceeds the sum (the Restricted Payments Basket) of
(without duplication):
(a) 50% of Consolidated Net Income for the period (taken as
one accounting period) commencing on the first day of the first
full fiscal quarter commencing after the Issue Date to and
including the last day of the fiscal quarter ended immediately
prior to the date of such calculation for which consolidated
financial statements are available (or, if such Consolidated Net
Income shall be a deficit, minus 100% of such aggregate
deficit), plus
(b) 100% of the aggregate net proceeds, including cash and
the Fair Market Value of the equity of a Person or of assets
used in or constituting a line of business, in each case which
becomes or becomes owned by a Restricted Subsidiary, received by
the Issuer from the issuance and sale of Qualified Equity
Interests after the Issue Date, other than any such proceeds
which are used to redeem Notes in accordance with the second
paragraph under Redemption Redemption with
Proceeds from Equity Offerings, provided that the Issuer
delivers to the Trustee:
(x) with respect to any equity or assets with a Fair Market
Value in excess of $15.0 million, an Officers
Certificate setting forth such Fair Market Value and a
Secretarys Certificate which sets forth and authenticates
a resolution that has been adopted by a majority of the
Independent Directors approving such Fair Market Value; and
(y) with respect to any equity or assets with a Fair Market
Value in excess of $50.0 million, the certificates
described in the preceding clause (x) and a written opinion
as to the Fair Market Value of such equity or assets received by
the Issuer from the issuance and sale of such Qualified Equity
Interests to the Issuer issued by an Independent Financial
Advisor (which opinion may be in the form of a fairness opinion
with respect to the transaction in which the equity or assets
are acquired), plus
(c) 100% of the aggregate net cash proceeds received by the
Issuer as contributions to the common or preferred equity (other
than Disqualified Equity Interests) of the Issuer after the
Issue Date, other than any such proceeds which are used to
redeem Notes in accordance with the second paragraph under
Redemption Redemption with
Proceeds from Equity Offerings, plus
(d) the aggregate amount by which Indebtedness incurred by
the Issuer or any Restricted Subsidiary subsequent to the Issue
Date is reduced on the Issuers balance sheet upon the
conversion or exchange (other than by a Subsidiary of the
Issuer) of Indebtedness into Qualified Equity Interests (less
the amount of any cash, or the fair value of assets, distributed
by the Issuer or any Restricted Subsidiary upon such conversion
or exchange), plus
(e) in the case of the disposition or repayment of or
return on any Investment that was treated as a Restricted
Payment made after the Issue Date, an amount (to the extent not
included in the computation of Consolidated Net Income) equal to
the lesser of (i) the return of capital with respect
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to such Investment and (ii) the amount of such Investment
that was treated as a Restricted Payment, in either case, less
the cost of the disposition of such Investment and net of taxes,
plus
(f) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the lesser of (i) the Fair Market
Value of the Issuers proportionate interest in such
Subsidiary immediately following such Redesignation, and
(ii) the aggregate amount of the Issuers Investments
in such Subsidiary to the extent such Investments reduced the
Restricted Payments Basket and were not previously repaid or
otherwise reduced.
The foregoing provisions will not prohibit:
(1) the payment by the Issuer or any Restricted Subsidiary
of any dividend within 60 days after the date of
declaration thereof, if on the date of declaration the payment
would have complied with the provisions of the Indenture;
(2) the redemption of any Equity Interests of the Issuer or
any Restricted Subsidiary in exchange for, or out of the
proceeds of the substantially concurrent issuance and sale of,
Qualified Equity Interests (and any payment of cash in lieu of
delivering fractional shares in connection therewith);
(3) the redemption of Subordinated Indebtedness of the
Issuer or any Restricted Subsidiary (a) in exchange for, or
out of the proceeds of the substantially concurrent issuance and
sale of, Qualified Equity Interests (and any payment of cash in
lieu of delivering fractional shares in connection therewith) or
(b) in exchange for, or out of the proceeds of the
substantially concurrent incurrence of, Refinancing Indebtedness
permitted to be incurred under the Limitations
on Additional Indebtedness covenant and the other terms of
the Indenture;
(4) the redemption of Equity Interests of the Issuer held
by officers, directors or employees or former officers,
directors or employees (or their transferees, estates or
beneficiaries under their estates) upon their dissolution,
death, disability, retirement, severance or termination of
employment or service; provided, however, that the
aggregate cash consideration paid for all such redemptions shall
not exceed $10.0 million during any calendar year;
(5) repurchases of Equity Interests deemed to occur upon
the exercise of stock options or warrants if the Equity
Interests represents a portion of the exercise price thereof;
(6) the redemption of any Indebtedness of the Issuer or any
Restricted Subsidiary owing to any Restricted Subsidiary or the
Issuer;
(7) upon the occurrence of a Change of Control and within
120 days after the completion of the offer to repurchase
the Notes pursuant to the provisions of the Indenture described
under Change of Control, any redemption
of Indebtedness of the Issuer required pursuant to the terms
thereof;
(8) the payment by the Issuer of any dividend on shares of
the Series B Preferred Stock, in accordance with the terms
thereof set forth in the Issuers certificate of
incorporation as in effect on the Issue Date (as may be modified
thereafter in a manner not adverse to the Holders), whether paid
in cash or Equity Interests (other than Disqualified Equity
Interests);
(9) payments of dividends on Disqualified Equity Interests
issued in compliance with the covenant described under
Limitations on Additional Indebtedness;
(10) payments made using any Net Proceeds Deficiency (as
such term is defined in Limitations on Asset
Sales below); or
(11) other Restricted Payments in an amount which, when
taken together with all other Restricted Payments made pursuant
to this clause (11), does not exceed $50.0 million in the
aggregate (with the amount of each Restricted Payment being
determined as of the date made and without regard to subsequent
changes in value);
provided, however, that (a) in the case of
any Restricted Payment pursuant to clause (3)(b), (10) or
(11) above, no Default shall have occurred and be
continuing or will occur as a consequence thereof and
(b) no issuance
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and sale of Qualified Equity Interests pursuant to
clause (2) or (3) above shall increase the Restricted
Payments Basket, except to the extent the proceeds thereof
exceed the amounts used to effect the transactions described
therein.
Limitations
on Dividend and Other Restrictions Affecting Restricted
Subsidiaries
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in
respect of its Equity Interests;
(b) make loans or advances, or pay any Indebtedness or
other obligation owed, to the Issuer or any other Restricted
Subsidiary; or
(c) transfer any of its assets to the Issuer or any other
Restricted Subsidiary;
except for:
(1) encumbrances or restrictions existing under or by
reason of applicable law;
(2) encumbrances or restrictions existing under the
Indenture (including the Guarantees) and the Notes;
(3) non-assignment provisions or other restrictions on
transfer contained in any lease, license or other contract;
(4) encumbrances or restrictions existing under agreements
existing on the date of the Indenture (including any Credit
Facility or Credit Agreement, and including the Senior
Subordinated Notes Indenture) (with similar restrictions under
any such agreement applicable to future Restricted Subsidiaries
being permitted hereunder);
(5) encumbrances or restrictions under any Credit Facility
(including any Credit Agreement) (including with regard to
future Restricted Subsidiaries);
(6) restrictions on the transfer of assets subject to any
Lien imposed by the holder of such Lien;
(7) restrictions on the transfer of assets imposed under
any agreement to sell such assets to any Person pending the
closing of such sale;
(8) encumbrances or restrictions under any instrument
governing Acquired Indebtedness that are not applicable to any
Person, or the properties or assets of any Person, other than
the Person or the properties or assets of the Person so acquired;
(9) encumbrances or restrictions under any other agreement
entered into after the Issue Date that are, in the good faith
judgment of the Issuer, not materially more restrictive, taken
as a whole, with respect to any Restricted Subsidiary than those
in effect on the Issue Date with respect to that Restricted
Subsidiary (or any future Restricted Subsidiary) pursuant to
agreements in effect on the Issue Date (including the Indenture,
the Senior Subordinated Notes Indenture and the Credit
Agreements);
(10) restrictions under customary provisions in partnership
agreements, limited liability company organizational or
governance documents, joint venture agreements, corporate
charters, stockholders agreements, and other similar
agreements and documents on the transfer of ownership interests
in such partnership, limited liability company, joint venture or
similar Person;
(11) encumbrances or restrictions imposed under Purchase
Money Indebtedness on the assets acquired that are of the nature
described in clause (c) above, provided such Purchase Money
Indebtedness is incurred in compliance with the covenant
described under Limitations on Additional
Indebtedness;
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(12) restrictions of the nature described in
clause (c) above contained in any security agreement or
mortgage securing Indebtedness or other obligations of the
Issuer or any Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to
such security agreement or mortgage; and
(13) any encumbrances or restrictions imposed by any
amendments or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through
(12) above; provided, however, that such
encumbrances or restrictions are, in the good faith judgment of
the Issuer, no more materially restrictive, taken as a whole,
than those in effect prior to such amendment or refinancing.
Limitations
on Transactions with Affiliates
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, in one transaction or a
series of related transactions, sell, lease, transfer or
otherwise dispose of any of its assets to, or purchase any
assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (an Affiliate
Transaction), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Issuer or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction at such time on an arms-length basis by the
Issuer or that Restricted Subsidiary from a Person that is not
an Affiliate of the Issuer or that Restricted
Subsidiary; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving
aggregate value expended by the Issuer or any Restricted
Subsidiary in a consecutive twelve-month period in excess of
$15.0 million, an Officers Certificate certifying
that such Affiliate Transaction complies with clause (1)
above and a Secretarys Certificate which sets forth and
authenticates a resolution that has been adopted by a majority
of the Independent Directors approving such Affiliate
Transaction; and
(b) with respect to any Affiliate Transaction involving
aggregate value expended by the Issuer or any Restricted
Subsidiary in a consecutive twelve-month period of
$50.0 million or more, the certificates described in the
preceding clause (a) and a written opinion as to the
fairness of such Affiliate Transaction to the Issuer or such
Restricted Subsidiary from a financial point of view issued by
an Independent Financial Advisor.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) the
Issuer and one or more Restricted Subsidiaries or
(b) Restricted Subsidiaries, provided in each case, that no
Affiliate of the Issuer (other than another Restricted
Subsidiary) owns Equity Interests of any such Restricted
Subsidiary;
(2) director, officer and employee compensation (including
bonuses) and other benefits (including retirement, health, stock
option and other benefit plans) and indemnification and
insurance arrangements;
(3) the entering into of any tax sharing agreement, or the
making of payments pursuant to any such agreement, between the
Issuer
and/or one
or more Subsidiaries, on the one hand, and any other Person with
which the Issuer or such Subsidiaries are required or permitted
to file a consolidated tax return or with which the Issuer or
such Subsidiaries are part of a consolidated group for tax
purposes, on the other hand, which payments by the Issuer and
the Subsidiaries are not materially in excess of the tax
liabilities that would have been payable by them on a
stand-alone basis;
(4) any Permitted Investments;
(5) Restricted Payments which are made in accordance with
the covenant described above under Limitations
on Restricted Payments (including payments and
transactions that would constitute Restricted Payments but for
the exclusions in clauses (1) and (2) of the
definition thereof);
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(6) any transaction with an Affiliate where the only
consideration paid by the Issuer or any Restricted Subsidiary is
Qualified Equity Interests (and any payments of cash in lieu of
delivering fractional shares in connection therewith);
(7) the sale to an Affiliate of the Issuer of Equity
Interests of the Issuer that do not constitute Disqualified
Equity Interests, and the sale to an Affiliate of the Issuer of
Indebtedness (including Disqualified Equity Interests) of the
Issuer in connection with an offering of such Indebtedness in a
market transaction and on terms substantially identical to those
of other purchasers in such market transaction who are not
Affiliates;
(8) any transaction with a joint venture in which the
Issuer or a Restricted Subsidiary is a joint venturer and no
other Affiliate is a joint venturer, or with any Subsidiary
thereof or other joint venturer therein, pursuant to the joint
venture agreement or related agreements for such joint venture,
including any transfers of any equity or ownership interests in
any such joint venture to any other joint venturer therein
pursuant to the performance or exercise of any rights or
obligations to make such transfer under the terms of the
agreements governing such joint venture; or
(9) without limiting clause (8) immediately above,
(a) any transaction with a P&G JV Company or any
Subsidiary or member thereof pursuant to the P&G JV
Agreements or (b) any other transactions with a P&G JV
Company or any Subsidiary or member thereof for the
manufacturing, packaging, supply or distribution of products or
materials, or the provision of other administrative or
operational services (whether on a transitional or ongoing
basis), solely with respect to the consumer diagnostic business,
so long as, with respect to this clause (b), the charges for
manufacturing such products are on a cost-plus basis.
The foregoing restrictions in clause (2) of the first
paragraph of this covenant shall not apply to ordinary course
transactions between the Issuer or any Restricted Subsidiary and
an Unrestricted Subsidiary.
Limitations
on Liens
The Issuer shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Lien of any nature whatsoever
(other than Permitted Liens) against any assets of the Issuer or
any Restricted Subsidiary (including Equity Interests of a
Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, or any proceeds therefrom, in each case
securing an obligation that ranks pari passu in right of
payment with, or that is subordinated in right of payment to,
the Notes or any Guarantee, unless contemporaneously therewith:
(1) in the case of any Lien securing an obligation that
ranks pari passu in right of payment with the Notes or
any Guarantee, effective provision is made to secure the Notes
or such Guarantee, as the case may be, at least equally and
ratably with or prior to such obligation with a Lien on the same
collateral; and
(2) in the case of any Lien securing an obligation that is
subordinated in right of payment to the Notes or a Guarantee,
effective provision is made to secure the Notes or such
Guarantee, as the case may be, with a Lien on the same
collateral that is prior to the Lien securing such subordinated
obligation,
in each case, for so long as such obligation is secured by such
Lien.
Limitations
on Asset Sales
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale
unless:
(1) the Issuer or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the assets included in such Asset
Sale; and
(2) at least 75% (or, solely in the case of any Asset Sale
to create any Health Management Joint Venture, 50%) of the total
consideration received in such Asset Sale consists of cash or
Cash Equivalents.
97
For purposes of clause (2) (and not for purposes of determining
the Net Available Proceeds with respect to the application and
purchase offer provisions in this covenant), the following shall
be deemed to be cash:
(a) the amount (without duplication) of any Indebtedness of
the Issuer or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to
which the Issuer or such Restricted Subsidiary, as the case may
be, is released by the holder of such Indebtedness;
(b) the amount of any obligations received from such
transferee that are within 180 days converted by the Issuer
or such Restricted Subsidiary to cash (to the extent of the cash
actually so received);
(c) the Fair Market Value of (i) any assets (other
than securities) received by the Issuer or any Restricted
Subsidiary to be used by it in the Permitted Business,
(ii) Equity Interests in a Person that is a Restricted
Subsidiary or in a Person engaged in a Permitted Business that
shall become a Restricted Subsidiary immediately upon the
acquisition of such Person by the Issuer or (iii) a
combination of (i) and (ii); and
(d) the Fair Market Value of any Equity Interests for which
the Issuer or such Restricted Subsidiary has a contractual right
to require the registration of such Equity Interests under the
Securities Act or the applicable securities laws of the
jurisdiction in which such Securities are listed on a Major
Foreign Exchange (Designated Non-Cash
Consideration); provided, however, that no
consideration received in an Asset Sale will constitute
Designated Non-Cash Consideration if and to the extent that the
classification of such consideration as Designated Non-Cash
Consideration would cause the aggregate amount of all such
Designated Non-Cash Consideration outstanding at that time to
exceed 2.5% of Consolidated Total Assets (with the Fair Market
Value of each item of Designated Non-Cash Consideration being
measured at the time received and without giving effect to
subsequent changes in value).
If at any time any non-cash consideration (including any
Designated Non-Cash Consideration) received by the Issuer or any
Restricted Subsidiary of the Issuer, as the case may be, in
connection with any Asset Sale is repaid or converted into or
sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then
the date of such repayment, conversion or disposition shall be
deemed to constitute the date of an Asset Sale hereunder and the
Net Available Proceeds thereof shall be applied in accordance
with this covenant.
If the Issuer or any Restricted Subsidiary engages in an Asset
Sale, the Issuer or such Restricted Subsidiary shall, no later
than 360 days following the consummation thereof, apply all
or any (or, in the Issuers discretion, none) of the Net
Available Proceeds therefrom to:
(1) repay (a) Indebtedness under any Credit Facility
(including any Credit Agreement), (b) other Indebtedness
(other than Subordinated Indebtedness) of the Issuer or any
Restricted Subsidiary that is secured by a Lien permitted by
clause (14) or (27) of the definition of
Permitted Liens, or (c) Indebtedness of a
Restricted Subsidiary that is not a Guarantor (so long as the
assets subject to such Asset Sale are assets of a Subsidiary
that is not a Guarantor), and in the case of any such repayment
under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit
facility, in each case if and to the extent permitted under the
terms of such Indebtedness;
(2) repay any Indebtedness which was secured by the assets
sold in such Asset Sale; and/or
(3) (a) invest all or any part of the Net Available
Proceeds thereof in assets (other than securities), including
expenditures for research and development activities, to be used
by the Issuer or any Restricted Subsidiary in the Permitted
Business, (b) acquire Equity Interests in a Person that is
a Restricted Subsidiary or in a Person engaged in a Permitted
Business that shall become a Restricted Subsidiary immediately
upon the consummation of such acquisition or (c) a
combination of (a) and (b).
The amount of Net Available Proceeds not applied or invested as
provided in this paragraph will constitute Excess
Proceeds. The Issuer or such Restricted Subsidiary may
repay Indebtedness under a revolving Credit Facility during the
360 days following the consummation of such Asset Sale
without effecting a permanent reduction in the availability
under such revolving credit facility, pending application of
such proceeds pursuant to clause (1), (2) or (3) above
or their use as Excess Proceeds in accordance with the next
paragraph, and such repayment shall not be considered an
application of Net Available Proceeds for purposes of this
paragraph; provided, however, that, if such Net
Available Proceeds are not applied after 360 days for
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any purpose other than the repayment of a revolving credit
facility, a permanent reduction in the availability under such
revolving credit facility shall then be required in order for
such repayment to be considered an application of Net Available
Proceeds for purposes of this paragraph.
When the aggregate amount of Excess Proceeds equals or exceeds
$50.0 million, the Issuer will be required to make an offer
to purchase from all Holders and, if applicable, redeem (or make
an offer to do so) any Pari Passu Indebtedness of the Issuer the
provisions of which require the Issuer to redeem such Pari Passu
Indebtedness with the proceeds from any Asset Sales (or offer to
do so), in an aggregate principal amount of Notes and such Pari
Passu Indebtedness equal to the amount of such Excess Proceeds
as follows:
(1) the Issuer will (a) make an offer to purchase (a
Net Proceeds Offer) to all Holders in accordance
with the procedures set forth in the Indenture, and
(b) redeem (or make an offer to do so) any such other Pari
Passu Indebtedness, on a pro rata basis (or on as nearly
a pro rata basis as is practicable) in proportion to the
respective principal amounts of the Notes and such other Pari
Passu Indebtedness required to be redeemed, the maximum
principal amount of Notes (in each case in whole in a principal
amount of $1,000 or integral multiples thereof; provided,
however, that no Note will be purchased in part if such
Note would have a remaining amount of less than $2,000) and Pari
Passu Indebtedness that may be redeemed out of the amount (the
Payment Amount) of such Excess Proceeds;
(2) the offer price for the Notes will be payable in cash
in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to a Net Proceeds Offer, plus accrued and
unpaid interest thereon, if any, to the date such Net Proceeds
Offer is consummated (the Offered Price), in
accordance with the procedures set forth in the Indenture and
the redemption price for such Pari Passu Indebtedness (the
Pari Passu Indebtedness Price) shall be as set forth
in the related documentation governing such Indebtedness;
(3) if the aggregate Offered Price of Notes validly
tendered and not withdrawn by Holders thereof exceeds the pro
rata portion of the Payment Amount allocable to the Notes,
Notes to be purchased will be selected on a pro rata
basis (or on as nearly a pro rata basis as is
practicable); and
(4) upon completion of such Net Proceeds Offer in
accordance with the foregoing provisions, the amount of Excess
Proceeds with respect to which such Net Proceeds Offer was made
shall be deemed to be zero.
To the extent that the sum of the aggregate Offered Price of
Notes tendered pursuant to a Net Proceeds Offer and the
aggregate Pari Passu Indebtedness Price paid to the holders of
such Pari Passu Indebtedness is less than the Payment Amount
relating thereto (such shortfall constituting a Net
Proceeds Deficiency), the Issuer may use the Net Proceeds
Deficiency, or a portion thereof, for general corporate
purposes, subject to the provisions of the Indenture, and the
amount of Excess Proceeds with respect to such Net Proceeds
Offer shall be deemed to be zero.
The Issuer will comply with applicable tender offer rules,
including the requirements of
Rule 14e-1
under the Exchange Act and any other applicable laws and
regulations in connection with the purchase of Notes pursuant to
a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the covenant
described under Limitations on Asset
Sales, the Issuer shall comply with the applicable
securities laws and regulations and will not be deemed to have
breached its obligations under the covenant described under
Limitations on Asset Sales by virtue of
this compliance.
Limitations
on Designation of Unrestricted Subsidiaries
The Issuer may designate any Subsidiary of the Issuer (including
any newly acquired or newly formed Subsidiary) as an
Unrestricted Subsidiary under the Indenture (a
Designation) only if:
(1) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; and
(2) the Issuer would be permitted to make, at the time of
such Designation, (a) a Permitted Investment or (b) an
Investment pursuant to the first paragraph of
Limitations on Restricted Payments
above, in either case, in an amount (the Designation
Amount) equal to the Fair Market Value of the
Issuers proportionate interest in such Subsidiary on such
date less, for this purpose, the amount of any
intercompany loan from the Issuer or any Restricted Subsidiary
to such Subsidiary that was treated as a Restricted Payment.
99
No Subsidiary shall be Designated as an Unrestricted
Subsidiary unless such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary
unless the terms of the agreement, contract, arrangement or
understanding are no less favorable to the Issuer or the
Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates;
(3) is a Person with respect to which neither the Issuer
nor any Restricted Subsidiary has any direct or indirect
obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve the Persons financial
condition or to cause the Person to achieve any specified levels
of operating results; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Issuer or
any Restricted Subsidiary in excess of $25.0 million in the
aggregate, except for any guarantee given solely to support the
pledge by the Issuer or any Restricted Subsidiary of the Equity
Interests of such Unrestricted Subsidiary, which guarantee is
not recourse to the Issuer or any Restricted Subsidiary, and
except to the extent the amount thereof constitutes a Restricted
Payment permitted pursuant to the covenant described under
Limitations on Restricted Payments.
If, at any time, any Unrestricted Subsidiary fails to meet the
preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes
of the Indenture and any Indebtedness of the Subsidiary and any
Liens on assets of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary as of the date of such
cessation and, if the Indebtedness is not permitted to be
incurred under the covenant described under
Limitations on Additional Indebtedness
above, or the Lien is not permitted under the covenant described
under Limitations on Liens above, the
Issuer shall be in default of the applicable covenant.
The Issuer may redesignate an Unrestricted Subsidiary as a
Restricted Subsidiary (a Redesignation) only if:
(1) no Default shall have occurred and be continuing at the
time of and after giving effect to such Redesignation; and
(2) all Liens, Indebtedness and Investments of such
Unrestricted Subsidiary outstanding immediately following such
Redesignation would, if incurred or made at such time, have been
permitted to be incurred or made for all purposes of the
Indenture.
All Designations and Redesignations must be evidenced by
(1) resolutions of the Board of Directors of the Issuer,
and (2) an Officers Certificate certifying compliance
with the foregoing provisions, in each case delivered to the
Trustee.
Limitations
on Sale and Leaseback Transactions
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into any Sale and
Leaseback Transaction; provided, however, that the
Issuer or any Restricted Subsidiary may enter into a Sale and
Leaseback Transaction if:
(1) the Issuer or such Restricted Subsidiary could have
(a) incurred the Indebtedness attributable to such Sale and
Leaseback Transaction pursuant to the covenant described under
Limitations on Additional Indebtedness
and (b) incurred a Lien to secure such Indebtedness without
equally and ratably securing the Notes pursuant to the covenant
described under Limitations on Liens;
(2) the gross cash proceeds of such Sale and Leaseback
Transaction are at least equal to the Fair Market Value of the
asset that is the subject of such Sale and Leaseback
Transaction; and
(3) the transfer of assets in such Sale and Leaseback
Transaction is permitted by, and the Issuer or the applicable
Restricted Subsidiary applies the proceeds of such transaction
in accordance with, the covenant described under
Limitations on Asset Sales.
100
Limitations
on the Issuance or Sale of Equity Interests of Restricted
Subsidiaries
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, sell or issue any shares
of Equity Interests of any Restricted Subsidiary except
(1) by any Wholly-Owned Restricted Subsidiary to the Issuer
or any Restricted Subsidiary, (2) to the Issuer, a
Restricted Subsidiary or the minority stockholders of any
Restricted Subsidiary, on a pro rata basis, at Fair
Market Value, or (3) to the extent such shares represent
directors qualifying shares or shares required by
applicable law to be held by a Person other than the Issuer or a
Wholly-Owned Restricted Subsidiary. The sale of all the Equity
Interests of any Restricted Subsidiary is permitted by this
covenant but is subject to the covenant described under
Limitations on Asset Sales.
Limitations
on Mergers, Consolidations, Etc.
The Issuer will not, directly or indirectly, in a single
transaction or a series of related transactions,
(a) consolidate or merge with or into any other Person
(other than a merger with a Wholly-Owned Restricted Subsidiary
solely for the purpose of changing the Issuers name or
jurisdiction of incorporation to another State of the United
States), or sell, lease, transfer, convey or otherwise dispose
of or assign all or substantially all of the assets of the
Issuer or the Issuer and the Restricted Subsidiaries (taken as a
whole) to any other Person or (b) effect a Plan of
Liquidation unless, in either case:
(1) either (x) the Issuer will be the surviving or
continuing Person or (y) the Person formed by or surviving
such consolidation or merger (if not the Issuer) or to which
such sale, lease, conveyance or other disposition shall be made
(or, in the case of a Plan of Liquidation, any Person to which
assets are transferred) (collectively, the
Successor) is a corporation organized and existing
under the laws of any State of the United States of America or
the District of Columbia, and the Successor expressly assumes,
by supplemental indenture in form and substance satisfactory to
the Trustee, all of the obligations of the Issuer under the
Notes and the Indenture;
(2) immediately after giving effect to such transaction and
the assumption of the obligations as set forth in clause (1)(y)
above, if applicable, and the incurrence of any Indebtedness to
be incurred in connection therewith, no Default shall have
occurred and be continuing; and
(3) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Issuer, immediately
after giving effect to such transaction and the assumption of
the obligations set forth in clause (1)(y) above, if applicable,
and the incurrence of any Indebtedness to be incurred in
connection therewith, and the use of any net proceeds therefrom
on a pro forma basis, (a) the Consolidated Net Worth
of the Issuer or the Successor, as the case may be, would be at
least equal to the Consolidated Net Worth of the Issuer
immediately prior to such transaction and (b) either
(i) the Issuer or the Successor, as the case may be, could
incur $1.00 of additional Indebtedness pursuant to the Coverage
Ratio Exception or (ii) the Consolidated Interest Coverage
Ratio of the Issuer or the Successor, as the case may be,
determined on a pro forma basis for such transaction,
would not be lower than the Consolidated Interest Coverage Ratio
of the Issuer immediately prior to such transaction.
For purposes of this covenant, any Indebtedness of the Successor
which was not Indebtedness of the Issuer immediately prior to
the transaction shall be deemed to have been incurred in
connection with such transaction.
Except as provided under the caption
Guarantees of the Notes, no Guarantor
may consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person) another Person (other than
the Issuer or another Guarantor), whether or not affiliated with
such Guarantor, unless:
(1) either:
(a) such Guarantor will be the surviving or continuing
Person; or
(b) the Person formed by or surviving any such
consolidation or merger assumes, by supplemental indenture in
the form of Exhibit B attached to the Indenture, all of the
obligations of such Guarantor under the Guarantee of such
Guarantor and the Indenture; and
(2) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing.
101
For purposes of this covenant, the sale, lease, transfer,
conveyance or other disposition or assignment of all or
substantially all of the assets of one or more Restricted
Subsidiaries, the Equity Interests of which constitute all or
substantially all of the assets of the Issuer, will be deemed to
be the transfer of all or substantially all of the assets of the
Issuer.
Except as provided under the caption
Guarantees of the Notes, upon any
consolidation, combination or merger of the Issuer or a
Guarantor, or any sale, lease, transfer, conveyance or other
disposition or assignment of all or substantially all of the
assets of the Issuer in accordance with the foregoing, in which
the Issuer or such Guarantor is not the continuing obligor or
continuing guarantor, as the case may be, under the Notes or its
Guarantee, the surviving entity formed by such consolidation or
into which the Issuer or such Guarantor is merged or the entity
to which the sale, lease, transfer, conveyance or other
disposition or assignment is made will succeed to, and be
substituted for, and may exercise every right and power of, the
Issuer or such Guarantor under the Indenture, the Notes and the
Guarantee with the same effect as if such surviving entity had
been named therein as the Issuer or such Guarantor, and, except
in the case of a lease, the Issuer or such Guarantor, as the
case may be, will be released from the obligation to pay the
principal of and interest on the Notes or in respect of its
Guarantee, as the case may be, and all of the Issuers or
such Guarantors other obligations and covenants under the
Notes, the Indenture and its Guarantee, if applicable.
Notwithstanding the foregoing, any Restricted Subsidiary may
merge into the Issuer or another Restricted Subsidiary.
Additional
Guarantees
If, after the Issue Date, (1) the Issuer or any Restricted
Subsidiary acquires or creates a Domestic Subsidiary that
guarantees any Indebtedness or other Obligation under any Credit
Agreement (other than a Subsidiary that has been designated an
Unrestricted Subsidiary), (2) any Unrestricted Subsidiary
that is a Domestic Subsidiary that guarantees any Indebtedness
or other Obligation under any Credit Agreement is redesignated a
Restricted Subsidiary, or (3) if the proviso in the
definition of Domestic Subsidiary shall cease to
apply with respect to Inverness Medical Investments, LLC, BBI
Research, Inc. or Seravac USA Inc. such that any such Subsidiary
shall become a Domestic Subsidiary (and provided that such
Domestic Subsidiary is a Restricted Subsidiary and guarantees
any Indebtedness or other Obligations under any Credit
Agreement), then, in each such case, the Issuer shall cause such
Restricted Subsidiary to execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit B attached to
the Indenture, pursuant to which such Restricted Subsidiary
shall unconditionally and irrevocably guarantee all of the
Issuers obligations under the Notes and the Indenture.
Thereafter, such Restricted Subsidiary shall be a Guarantor for
all purposes of the Indenture.
Conduct
of Business
The Issuer will not, and will not permit any Restricted
Subsidiary to, engage in any business other than the Permitted
Business.
SEC
Reports
Whether or not required by the SECs rules and regulations,
so long as any Notes are outstanding, the Issuer will furnish to
the Holders of Notes, cause the Trustee to furnish to the
Holders, or file electronically with the SEC through the
SECs Electronic Data Gathering, Analysis and Retrieval
System (or any successor system, including the Interactive Data
Electronic Applications System), within the time periods
(including any extensions thereof) applicable to (or that would
be applicable to) the Issuer under the SECs rules and
regulations:
(1) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on
Forms 10-Q
or 10-K (or
any successor forms), as the case may be, if the Issuer were
required to file these Forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report on the annual financial
statements by the Issuers independent accountants; and
(2) all current reports that would be required to be filed
with the SEC on
Form 8-K
(or any successor form) if the Issuer were required to file
these reports.
102
In addition, whether or not required by the SECs rules and
regulations, the Issuer will file a copy of all of the
information and reports referred to in clauses (1) and
(2) above with the SEC for public availability within the
time periods applicable to the Issuer under Section 13(a)
or 15(d) of the Exchange Act (unless the SEC will not accept the
filing, in which case the Issuer shall make the information
available to securities analysts and prospective investors upon
request). The Issuer also shall comply with the other provisions
of Trust Indenture Act § 314(a).
Suspension
of Covenants
During any period of time following the issuance of the Notes
that (i) the Notes have a rating equal to or higher than
Baa3 (or the equivalent) by Moodys and BBB- (or the
equivalent) by S&P, or, if both will not make a rating on
the Notes publicly available, from a nationally recognized
statistical rating agency or agencies, as the case may be,
selected by the Issuer that will be substituted for Moodys
or S&P or both, as the case may be (Moodys, S&P
or such other agency or agencies, as the case may be, the
Rating Agencies), an equivalent rating by such other
agency or agencies, as the case may be (any such rating, an
Investment Grade Rating), and (ii) no Default
has occurred and is continuing under the Indenture (the
occurrence of the events described in the foregoing
clauses (i) and (ii) being collectively referred to as
a Covenant Suspension Event), the Issuer and the
Restricted Subsidiaries will not be subject to the covenants
described above under the following headings:
(1) Limitations on Additional
Indebtedness;
(2) Limitations on Restricted Payments;
(3) Limitations on Dividend and other
Restrictions Affecting Restricted Subsidiaries;
(4) Limitations on Transactions with
Affiliates;
(5) Limitations on Asset Sales;
(6) Limitations on Sale and Leaseback
Transactions; and
(7) clause (3) under Limitations on
Mergers, Consolidations, Etc.
(collectively, the Suspended Covenants). Upon the
occurrence of a Covenant Suspension Event, the amount of Net
Available Proceeds with respect to any applicable Asset Sale
will be set at zero at such date (the Suspension
Date). In the event that the Issuer and the Restricted
Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the foregoing, and on any
subsequent date (the Reversion Date) one or both of
the Rating Agencies withdraws its Investment Grade Rating or
downgrades the rating assigned to the Notes below an Investment
Grade Rating or a Default occurs and is continuing, then the
Issuer and the Restricted Subsidiaries will thereafter again be
subject to the Suspended Covenants, but only with respect to
events after the Reversion Date. The period of time between the
Suspension Date and the Reversion Date is referred to as the
Suspension Period. Notwithstanding that the
Suspended Covenants may be reinstated, no Default will be deemed
to have occurred as a result of a failure to comply with the
Suspended Covenants during the Suspension Period.
On the Reversion Date, all Indebtedness incurred during the
Suspension Period will be subject to the covenant described
above under the caption Limitations on
Additional Indebtedness. To the extent such Indebtedness
would not be so permitted to be incurred pursuant to the
covenant described below under the caption
Limitations on Additional Indebtedness,
such Indebtedness will be deemed to have been outstanding on the
Issue Date, so that it is classified as permitted under
clause (3) of the definition of Permitted
Indebtedness.
Calculations made after the Reversion Date of the amount
available to be made as Restricted Payments under the covenant
described above under the caption Limitations
on Restricted Payments will be made as though such
covenant had been in effect from the Issue Date and throughout
the Suspension Period. Accordingly, Restricted Payments made
during the Suspension Period will be deemed to have been
permitted but will reduce the amount available to be made as
Restricted Payments under the first paragraph of the covenant
described below under the caption Limitations
on Restricted Payments.
103
During a Suspension Period, the Issuer may not designate a
Subsidiary as an Unrestricted Subsidiary under the covenant
described under the caption Limitations on
Designation of Unrestricted Subsidiaries.
Notwithstanding the foregoing, neither (1) the continued
existence, after the Reversion Date, of facts and circumstances
or obligations that occurred, were incurred or otherwise came
into existence during a Suspension Period nor (2) the
performance of any such obligations, shall constitute a breach
of any Suspended Covenant set forth in the Indenture or cause a
Default thereunder, provided that (i) the Issuer and the
Restricted Subsidiaries did not incur or otherwise cause such
facts and circumstances or obligations to exist in anticipation
of a withdrawal or downgrade by the applicable Rating Agency
below an Investment Grade Rating and (ii) the Issuer
reasonably believed that such incurrence or actions would not
result in such withdrawal or downgrade.
Events of
Default
Each of the following is an Event of Default:
(1) failure by the Issuer to pay interest on any of the
Notes when it becomes due and payable and the continuance of any
such failure for 30 consecutive days;
(2) failure by the Issuer to pay the principal on any of
the Notes when it becomes due and payable, whether at stated
maturity, upon redemption, upon purchase, upon acceleration or
otherwise (including the failure to make a payment to purchase
Notes tendered pursuant to a Change of Control Offer or Net
Proceeds Offer on the date specified for such payment in the
applicable offer to purchase, if required);
(3) failure by the Issuer to comply with any other
agreement or covenant in the Indenture and the continuance of
any such failure for 60 consecutive days after notice of the
failure has been given to the Issuer by the Trustee or by the
Holders of at least 25% of the aggregate principal amount of the
Notes then outstanding (except in the case of a default with
respect to the covenant described under
Limitations on Mergers, Consolidations,
Etc. which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(4) default under any mortgage, indenture or other
instrument or agreement under which there may be issued or by
which there may be secured or evidenced Indebtedness of the
Issuer or any Restricted Subsidiary, whether such Indebtedness
exists on the Issue Date or is incurred after the Issue Date,
which default:
(a) is caused by a failure to pay at final maturity (giving
effect to any applicable grace periods and any extensions
thereof) principal on such Indebtedness, or
(b) results in the acceleration of such Indebtedness prior
to its express final maturity,
and in each case, the principal amount of such Indebtedness,
together with any other Indebtedness with respect to which an
event described in clause (a) or (b) has occurred and
is continuing, aggregates $50.0 million or more;
(5) entry by a court or courts of competent jurisdiction
against the Issuer or any Restricted Subsidiary of one or more
final judgments or orders for the payment of money that exceed
$50.0 million in the aggregate (net of amounts covered by
insurance or bonded) and such judgments or orders have not been
satisfied, stayed, annulled or rescinded within 60 days of
entry (or such longer period as may be permitted for timely
appeal under applicable law);
(6) the Issuer or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it
in an involuntary case,