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RULE NO. 424(b)(1)
REGISTRATION NO. 333-13523
PROSPECTUS
DADE INTERNATIONAL INC.
OFFER TO EXCHANGE ITS SERIES B 11 1/8% SENIOR SUBORDINATED NOTES DUE 2006 FOR
ANY AND ALL OF ITS OUTSTANDING 11 1/8% SENIOR SUBORDINATED NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER
4, 1996, UNLESS EXTENDED.
Dade International Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its Series B
11 1/8% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which will
have been registered under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to a Registration Statement of which this
prospectus is a part, for each $1,000 principal amount of its outstanding 11
1/8% Senior Subordinated Notes due 2006 (the "Notes"), of which $350,000,000
principal amount is outstanding. The form and terms of the Exchange Notes are
the same as the form and terms of the Notes (which they replace) except that
the Exchange Notes will bear a Series B designation and will have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain certain provisions relating to
an increase in the interest rate which were included in the terms of the Notes
in certain circumstances relating to the timing of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Notes (which they replace)
and will be issued under and be entitled to the benefits of the Indenture
dated May 7, 1996 between the Company and IBJ Schroder Bank & Trust Company
(the "Indenture") governing the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
The Company has not issued, and does not have any current firm arrangements
to issue, any significant indebtedness to which the Exchange Notes would rank
senior or pari passu in right of payment. The Exchange Notes will be
subordinated in right of payment to all Senior Debt of the Company (including
debt under the Bank Credit Agreement (as defined herein)) and will be
effectively subordinated in right of payment to all indebtedness of the
Company's subsidiaries. The aggregate amount of such Senior Debt was $485.0
million at June 30, 1996. The aggregate amount of indebtedness of all of the
Company's subsidiaries (excluding indebtedness owed by the Company's
subsidiaries to the Company of approximately $518.6 million) was approximately
$10.0 million at June 30, 1996.
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on December 4, 1996,
unless extended by the Company in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Company will not extend the Expiration Date
beyond January 31, 1997. Tenders of Notes may be withdrawn at any time prior
to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by the Company on May 7, 1996 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors that agreed to comply with
certain transfer restrictions and other conditions. Accordingly, the Notes may
not be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Registration Rights Agreement (as defined) entered into by
the Company in connection with the offering of the Notes. See "The Exchange
Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resale of the Exchange Notes." Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
SEE "RISK FACTORS" ON PAGE 20 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 31, 1996
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There has not previously been any public market for the Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Notes could be adversely affected.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Certificate representing the
Exchange Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Certificate, Exchange Notes in certified form will be issued in exchange for
the Global Certificate only on the terms set forth in the Indenture. See
"Description of Exchange Notes--Book-Entry; Delivery and Form."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Exchange Offer Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
the Regional Offices of the commission at 75 Park Place, New York, New York
10007 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports
and other information with the Commission. The obligation of the Company to
file periodic reports and other information with the Commission will be
suspended if the Exchange Notes are held of record by fewer than 300 holders
as of the beginning of any fiscal year of the Company other than the fiscal
year in which the Exchange Offer Registration Statement is declared effective.
The Company will nevertheless be required to continue to file reports with the
Commission if the Exchange Notes are listed on a national securities exchange.
In the event the Company ceases to be subject to the informational
requirements of the Exchange Act, the Company will be required under the
Indenture to continue to file with the Commission the annual and quarterly
reports, information, documents or other reports, including, without
limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required
pursuant to the informational requirements of the Exchange Act. Under the
Indenture, the Company shall file with the Trustee annual, quarterly and other
reports within fifteen days after it files such reports with the Commission.
Further, to the extent that annual, quarterly or other financial reports are
furnished by the Company to stockholders generally it will mail such reports
to holders of Exchange Notes. The Company will furnish annual and quarterly
financial reports to stockholders of the Company and will mail such reports to
holders of Exchange Notes pursuant to the Indenture, thus holders of Exchange
Notes will receive financial reports every quarter. Annual reports delivered
to the Trustee and the holders of Exchange Notes will contain financial
information that has been examined and reported upon, with an opinion
expressed by an independent public or certified public accountant. The Company
will also furnish such other reports as may be required by law.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER PROSPECTUS
SUMMARY," "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING
THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY, COST CUTTING PLANS AND
PLANS TO TAKE ADVANTAGE OF SYNERGIES, MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto included elsewhere in this
Prospectus. Market data used throughout this Prospectus were obtained from
internal company surveys and industry publications dating primarily from 1994
to 1996, the most currently available information. Industry publications
generally state that the information contained therein has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The Company has not independently verified this
market data. Similarly, internal company surveys, while believed by the Company
to be reliable, have not been verified by any independent sources. As used in
this Prospectus, unless the context otherwise requires, "Dade" refers to Dade
International Inc. prior to the consummation of the acquisition (the
"Acquisition") of the in vitro diagnostics business ("Dade Chemistry") of E.I.
du Pont de Nemours and Company and certain of its affiliates ("DuPont"), and
the "Company" refers to Dade International Inc. after giving effect to the
Acquisition.
THE COMPANY
The Company is the largest supplier of in vitro diagnostics ("IVD") products
and services to clinical laboratories in the United States and the third
largest IVD supplier to clinical laboratories in the world. Of the total
estimated $13.8 billion global IVD market, the Company serves a $7.1 billion
segment that consists of IVD instruments, reagents (compounds and liquids used
to perform tests), consumables (sample containers, lids, etc.) and services
targeted primarily at clinical laboratories ("Company Served Markets"). Within
the Company Served Markets, the Company has market leadership positions in four
of its five core product segments (clinical chemistry, microbiology, hemostasis
and controls) and a strong niche position in the fifth (immunochemistry). On a
pro forma basis, the Company would have generated revenue and EBITDA of $959.0
million and $179.5 million, respectively, for the year ended December 31, 1995.
In vitro (literally, "in glass") diagnostic tests are conducted outside the
body and are used to identify and measure substances in patients' tissue, blood
or urine samples which enable physicians to diagnose, treat and monitor
patients. The most common IVD tests, accounting for up to 40% of a clinical
laboratory's test volume, are traditional clinical chemistry tests such as
glucose, cholesterol or sodium measured as part of routine blood checks. Other
IVD tests measure bodily functions such as blood clotting ability, fertility
and cardiac function or measure the presence of infections or drugs. The wide
range and important nature of these tests have established IVD testing as an
integral part of the managed healthcare environment, providing for accurate and
timely patient diagnosis and treatment. Increasingly, IVD testing is being
recognized as making a significant contribution to improving patient care and
lowering total patient costs. As a result, management believes that future
growth in IVD testing will be driven by (i) greater automation in order to
achieve more consistent test results at lower costs; (ii) applications of
emerging test technologies (e.g., cardiac markers which test for the occurrence
of heart attacks); and (iii) demographic shifts such as the aging of the
population.
IVD tests are conducted primarily in clinical laboratories which, in the
United States, consist of approximately 6,000 hospital-based laboratories and
4,000 reference laboratories (independent of hospitals). The Company provides
products and services to over 90% of domestic hospital clinical laboratories
and to the majority of reference laboratories worldwide. Nearly all hospitals
require laboratory testing capability due to the "STAT" or emergency nature of
their diagnostic needs and, therefore, represent a stable, attractive customer
segment for the Company.
The Company manufactures and markets a broad offering of IVD products and
services which includes: (i) instruments (approximately 10% of pro forma 1995
sales); (ii) reagents and consumables (approximately 80% of pro forma 1995
sales); and (iii) services (approximately 10% of pro forma 1995 sales). The
Company's extensive
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product line is capable of conducting over 500 different types of IVD tests and
serves over half of the global IVD market.
In total, the Company has a worldwide installed base of approximately 21,500
instruments. With a typical instrument life of five to ten years, the Company's
installed base of instruments generates annual revenue of approximately $40,100
per instrument from ongoing sales of reagents, consumables and service. More
importantly, all but one of the Company's instrument systems are "closed"
systems, which require the exclusive use of Company reagents and consumables in
order to run tests. As a result, through its large installed base of
instruments, the Company generates an attractive, stable and recurring stream
of revenue from reagents, consumables, and service contracts.
The table below profiles the Company's position within each segment of the
Company Served Markets:
<TABLE>
<CAPTION>
COMPANY SERVED MARKETS
----------------------------------------------------------------------------------------------
MICROBIOLOGY
CLINICAL CHEMISTRY (1) IMMUNOCHEMISTRY (2) (3) HEMOSTASIS CONTROLS
------------------------ ------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Primary Test Routine tests for Specialized Identifies Measures blood Assesses the
Purpose: substances found in tests for disease- clotting accuracy and
large concentrations in substances causing ability precision of
blood or urine samples found in small bacteria and instruments
concentrations assists in the and procedures
in blood determination of various IVD
samples of treatment manufacturers
Example Tests: --Cholesterol level --Screen for --Strep or --Bleeding --Instrument
--Glucose level heart attack staph risk before, check
--Fertility infection during and
test --Effective after surgery
--Thyroid antibiotic --Other
function treatment bleeding
disorders
Company's
Worldwide
Installed Base
as of June 30,
1996: 9,300 4,200 3,700 4,300 N/A
Company System Type: Closed Closed Closed Open N/A
Number of Test
Types Offered
by the
Company: 198 30 150 30 160
Percent of
Company's Pro
Forma 1995
Sales (4): 47% 11% 14% 15% 4%
Average U.S.
Price to Patient: $9/test $25/test $20/test $14/test N/A
Company Product Lines: Paramax (Dade) Stratus (Dade) MicroScan Dade Total Quality
Dimension (Dade (Dade) Hemostasis Controls
Chemistry) (Dade)
aca (Dade Chemistry)
Analyst (Dade Chemistry)
</TABLE>
- --------
(1) The clinical chemistry segment of the Company Served Markets consists of
automated clinical chemistry. See "Industry."
(2) The immunochemistry segment of the Company Served Markets consists of the
thyroid, drugs of abuse, cancer, therapeutic drug monitoring, cardiac, anemia
and fertility test segments. See "Industry."
(3) The microbiology segment of the Company Served Markets consists of
identification/minimum inhibitory concentration ("ID/MIC" ) microbiology. See
"Industry."
(4) Excludes the sales of third-party distributed products and services as well
as immunohematology products.
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COMPETITIVE STRENGTHS
The Company attributes its leading positions in the IVD market to the
following competitive strengths:
. Leading manufacturer and supplier of IVD instruments and supplies. With
1995 pro forma sales of $959.0 million, the Company is the leading
supplier of IVD products and services to clinical laboratories in the
United States and is the third largest IVD supplier to clinical
laboratories in the world. The Company is the domestic market leader in
automated clinical chemistry and the only supplier with domestic
leadership positions in four major IVD segments.
. Broadest product and service offering. The Company is the only supplier
of products and services across five major IVD segments. The Company
believes that its broad product offering provides a competitive advantage
in marketing its products to a wide range of customers (from single-site
hospitals to Health Systems (see "Industry") to reference laboratories),
each with varying testing and performance requirements. For example, the
Company believes that its ability to offer "one-stop shopping" due to its
broad product offering was instrumental in its April 1996 signing of a
five year agreement for all of the Company's five core product lines with
Columbia/HCA (the largest for-profit hospital chain in the United States).
. Stable and recurring stream of reagent, consumable and service
revenues. The Company generates a stable and profitable stream of revenues
from its large installed base of instruments which require the ongoing
consumption of various reagents, consumables, and services. More
importantly, all but one of the Company's instrument systems, representing
approximately 80% of all installed instruments, are "closed" systems,
which require customers to use the Company's reagents and consumables
exclusively. In 1995, sales from reagents, consumables, and services
accounted for approximately 90% of the Company's pro forma sales.
. Extensive sales and service organization. The Company's sales and service
force of approximately 1,900 professionals worldwide is one of the largest
in the industry. Management believes this large network of customer
support functions (including sales, installation, training and service)
provides the Company with a competitive advantage in both acquiring and
retaining customers.
. Management team with successful track record. The Company has an
experienced management team that averages twenty years each in the health
care industry. Over the last several years, management has demonstrated
its ability to develop leading market share positions, rationalize
infrastructure and reduce costs.
BUSINESS STRATEGY
The Acquisition expanded Dade's leadership positions by significantly
improving its competitive position in the important clinical chemistry segment.
The Acquisition was consistent with the Company's strategy to seek
consolidation opportunities within the IVD industry that leverage its installed
base, broad product offering, international presence and economies of scale to
increase profitability and enhance its global leadership position. Dade
believes that its combination with Dade Chemistry creates one of the best
positioned suppliers of IVD products and services in the world. The Company is
committed to improving its strong market position through the following
strategies:
. Cross-sell products to increase market penetration. The Acquisition
provides the Company with a unique opportunity to cross-sell existing
product lines between Dade's and Dade Chemistry's extensive customer
bases. The Company intends to capitalize on cross-selling opportunities
primarily by marketing Dade Chemistry's clinical chemistry products to
existing Dade customers and marketing Dade's controls, microbiology,
immunochemistry and hemostasis products together with the sale of clinical
chemistry analyzers.
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. Increase international presence. The Acquisition provides Dade with
exposure to new international markets and increases Dade's total pro forma
1995 international sales by 48% to approximately $277 million. This
increased international presence will allow the Company to leverage sales,
marketing and administrative costs in countries currently served by both
Dade and Dade Chemistry and increase market share by introducing existing
products to countries currently served by only one of the two businesses.
The Company believes international markets also present growth
opportunities due to the immaturity of these markets.
. Maintain a pipeline of new products. The Company's research and
development resources focus on three types of initiatives: (i) expanding
test menus, such as the recent introduction of thirteen new assays in the
Dimension product line; (ii) upgrading instruments, such as MicroScan's
WalkAway or Dade Chemistry's next generation Dimension; and (iii)
developing niche instrument platforms, such as Dade Hemostasis' Platelet
Function Analyzer ("PFA"), the world's first commercial in vitro system to
provide automated analysis of blood platelet function. The Company
believes that these initiatives will allow it to both expand its large
installed base and increase reagent revenue per instrument.
. Leverage current infrastructure to reduce costs. In connection with the
Acquisition, the Company has identified significant cost reduction
opportunities expected to result in approximately $27 million of annual
savings by 1997. These reductions consist of approximately $26 million
from the immediate elimination of DuPont worldwide corporate allocations
and other redundant costs (offset by approximately $20 million of
incremental infrastructure costs required to operate within the
reconfigured overall organization) as well as approximately $21 million
from additional savings opportunities. In addition, the Company believes
there are additional long-term cost saving opportunities related to
improving manufacturing processes and leveraging its cost structure to
further enhance profitability.
. Seek additional consolidation opportunities. The Company believes that
large IVD industry participants with broad product offerings and large
installed bases have a competitive advantage in the current health care
environment. The Company believes the Acquisition positions it to be one
of the few market participants able to benefit from customer migration
towards IVD suppliers with broad product offerings. The Company intends to
continue to seek opportunities to form alliances and joint ventures, or
acquire businesses, product lines and technologies to further enhance its
global position.
The Company's principal executive offices are located at 1717 Deerfield Road,
Deerfield, Illinois 60015-0778 and its telephone number at such offices is
(847) 267-5300.
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THE TRANSACTIONS
General
On May 7, 1996 the Company completed the Acquisition (the "Closing") of Dade
Chemistry from DuPont for $512.0 million plus the assumption of certain
liabilities and obligations of DuPont. The Company is a wholly owned subsidiary
of Diagnostics Holding, Inc. ("Holdings"). Bain Capital, Inc. ("Bain Capital")
and GS Capital Partners, L.P., an affiliate of the Goldman Sachs Group, L.P.
("GS Capital"), and their respective related investors own substantially all of
the voting capital stock of Holdings, which owns all of the outstanding capital
stock of the Company. The Company's management has purchased common stock of
Holdings and will be eligible to receive additional equity in part based upon
the operating performance of the Company. See "Management--Compensation of
Executive Officers."
Funding for the Acquisition, related acquisition costs and the refinancing of
then existing indebtedness (collectively, the "Refinancing") consisted of: (i)
gross proceeds from the offering of the Notes of $350.0 million; (ii)
borrowings under a credit agreement with certain banks (the "Bank Credit
Agreement") of $510.0 million; and (iii) then existing cash on hand. The Bank
Credit Agreement provided for $460.0 million of term loans and a $125.0 million
revolving credit facility, of which $50.0 million was drawn down at the Closing
of the Acquisition. The Acquisition and the Refinancing are collectively
referred to herein as the "Transactions." See "The Transactions."
Transition Services Agreement. At the Closing, the Company and DuPont entered
into a transition services agreement (the "Transition Services Agreement")
pursuant to which DuPont provides primarily international support services to
the Company, including, among other things, certain human resources, finance
and accounting services, information management, warehousing and distribution
services, sales and marketing services and regulatory support as well as the
lease and management of certain facilities and the assistance of certain
designated personnel. Domestic services provided under the Transition Services
Agreement include certain information management and purchasing support
services. In general, DuPont will make these services available for one year
from the date of the Closing. The Company will have the right to request that a
particular service no longer be provided, subject to notice requirements.
Services under the Transition Services Agreement are provided by DuPont at
their estimated historical cost.
Manufacturing Agreement. At the Closing, the Company and DuPont entered into
a Manufacturing Agreement (the "Manufacturing Agreement") pursuant to which
DuPont, or a successor, will continue to manufacture certain clinical analyzer
components and related service parts at DuPont's manufacturing facility in
Newtown, Connecticut for up to three years from the date of the Closing.
Services under the Manufacturing Agreement are to be provided at DuPont's
estimated historical cost. Subsequent to the Closing, DuPont divested its
Newtown facility in conjunction with the sale of certain of its businesses.
DuPont transferred its obligations under the Manufacturing Agreement to the
purchaser of the Newtown facility.
Prior to the Acquisition, Dade Chemistry operated as subsidiaries and
divisions of DuPont and none of DuPont's debt was specifically allocated to
Dade Chemistry. See "Risk Factors" for a description of certain risks relating
to such level of indebtedness and the Acquisition.
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THE NOTES OFFERING
Notes....................... The Notes were sold by the Company on May 7, 1996
to BT Securities Corporation, CS First Boston,
and Morgan Stanley & Co., Inc. (the "Initial
Purchasers") pursuant to a Purchase Agreement
dated May 7, 1996 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes
to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and to a
limited number of institutional accredited
investors that agreed to comply with certain
transfer restrictions and other conditions.
Registration Rights Pursuant to the Purchase Agreement, the Company
Agreement................... and the Initial Purchasers entered into a
Registration Rights Agreement dated May 7, 1996
(the "Registration Rights Agreement"), which
grants the holder of the Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange rights which
terminate upon the consummation of the Exchange
Offer.
THE EXCHANGE OFFER
Securities Offered.......... $350,000,000 aggregate principal amount of Series
B 11 1/8% Senior Subordinated Notes due 2006 (the
"Exchange Notes").
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Notes. As of the date hereof, $350,000,000
aggregate principal amount of Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to
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time, may be used by a Participating Broker-
Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
Expiration Date............. 5:00 p.m., New York City time, on December 4,
1996 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Accrued Interest on the
Exchange Notes and the
Notes......................
Each Exchange Note will bear interest from its
issuance date. Holders of Notes that are accepted
for exchange will receive, in cash, accrued
interest thereon to, but not including, the
issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Notes wishing to accept the
Notes....................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other
10
<PAGE>
person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. See
"The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "--Procedures for Tendering."
Untendered Notes............ Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who
do not tender their Notes will not have any
further exchange rights and such Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Notes could be adversely
affected.
Consequences of Failure to The Notes that are not exchanged pursuant to the
Exchange.................... Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration If any holder of the Notes (other than any such
Statement................... holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Notes to the Company for use
therein, the Company has agreed to register the
Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practical on or
after the consummation of the Exchange Offer. The
Company has agreed to maintain the effectiveness
of the Shelf Registration Statement for, under
certain circumstances, a maximum of three years,
to cover resales of the Notes held by any such
holders.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes
in such owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. The Company will keep the
Exchange Offer open for not less than twenty days
in order to provide for the transfer of
registered ownership.
Guaranteed Delivery Holders of Notes who wish to tender their Notes
Procedures.................. and whose Notes are not immediately available or
who cannot deliver their Notes, the
11
<PAGE>
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Notes and
Delivery of Exchange
Notes......................
The Company will accept for exchange any and all
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. IBJ Schroder Bank & Trust Company
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which
they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the
holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights
Agreement, including the provisions providing for
an increase in the interest rate on the Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence
the same debt as the Notes and will be entitled
to the benefits of the Indenture. See
"Description of Exchange Notes." The Notes and
the Exchange Notes are referred to herein
collectively as the "Senior Subordinated Notes."
Securities Offered.......... $350,000,000 aggregate principal amount of Series
B 11 1/8% Senior Subordinated Notes due 2006 of
the Company.
Maturity Date............... May 1, 2006.
Interest Payment Dates...... May 1 and November 1, commencing November 1,
1996.
Ranking..................... The Exchange Notes will be unsecured obligations
of the Company, ranking subordinate in right of
payment to all Senior Debt (as defined herein) of
the Company. The aggregate amount of such Senior
Debt was $485.0 million at June 30, 1996.
12
<PAGE>
Optional Redemption......... The Exchange Notes are not redeemable at the
Company's option prior to May 1, 2001.
Thereafter, the Exchange Notes will be
redeemable, in whole or in part, at the option of
the Company, at the redemption prices set forth
herein plus accrued interest to the date of
redemption. In addition, at any time, or from
time to time, on or prior to May 1, 1999, the
Company may, at its option, use the net cash
proceeds of one or more Equity Offerings (as
defined below)
to redeem up to 40% (provided that such
percentage shall decrease to 35% if an Initial
Public Offering has not been consummated on or
prior to March 31, 1997 and any other Exchange
Notes previously redeemed pursuant to this
provision shall be included in determining such
percentage) of the aggregate principal amount of
Exchange Notes originally issued at a redemption
price equal to 110% (111.125% in the case of any
Equity Offering after March 31, 1997) of the
principal amount thereof plus, in each case,
accrued interest to the date of redemption;
provided that at least $175.0 million aggregate
principal amount of Exchange Notes remains
outstanding immediately after any such
redemption. In order to effect the foregoing
redemption with the proceeds of any Equity
Offering, the Company shall make such redemption
not more than 120 days after the consummation of
any such Equity Offering.
As used in the preceding paragraph, "Equity
Offering" means any offering of Qualified Capital
Stock of Holdings or the Company; provided that,
in the event of any Equity Offering by Holdings,
Holdings contributes to the capital of the
Company the portion of the net cash proceeds of
such Equity Offering necessary to pay the
aggregate redemption price (plus accrued interest
to the redemption date) of the Exchange Notes to
be redeemed pursuant to the preceding paragraph.
If fewer than all of the Exchange Notes are to be
redeemed the Exchange Notes to be redeemed shall
be selected on a pro rata basis, by lot or in
such other fair and reasonable manner chosen at
the discretion of the Trustee (as defined
herein). See "Description of Exchange Notes--
Redemption."
Change of Control........... In the event of a Change of Control (as defined
herein), the Company will be obligated to make an
offer to purchase all of the outstanding Exchange
Notes at a redemption price of 101% of the
principal amount thereof plus accrued interest to
the date of repurchase. However, the Company's
obligation to repurchase Exchange Notes pursuant
to a Change of Control is subject to compliance
with the requirements of Rule 14e-1 under the
Exchange Act and any other applicable securities
laws and regulations and subject to either the
repayment in full by the Company of indebtedness
under the Bank Credit Agreement and all other
Senior Debt or the Company obtaining the
requisite consents under the Bank Credit
Agreement and all other Senior Debt to permit the
repurchase of the Exchange Notes. In addition,
provisions in the Bank Credit Agreement (or other
similar agreements subsequently entered into)
could delay or prohibit the making of such an
offer in
13
<PAGE>
the event of a Change of Control. If indebtedness
is outstanding under the Bank Credit Agreement
then any offer by the Company to repurchase the
Exchange Notes would require approval of the
lenders under the Bank Credit Agreement.
Accordingly, the right of the holders of the
Exchange Notes to require the Company to
repurchase the Exchange Notes may be of limited
value if the Company cannot obtain approval under
the Bank Credit Agreement. Additionally, there
can be no assurance that the Company will have
sufficient funds to pay the required purchase
price for all Exchange Notes tendered by holders
upon a Change of Control. However, if the Company
cannot or does not repurchase the Exchange Notes
upon a Change of Control, the Exchange Notes will
remain outstanding and will continue to accrue
interest. Further, subject to compliance with the
requirements of Rule 14e-1 under the Exchange Act
and any other applicable securities laws and
regulations, if the Company does not repurchase
the Exchange Notes upon a Change of Control then
an Event of Default (as defined herein) will have
occurred under the Indenture. See "Description of
Exchange Notes--Events of Default." The
definition of Change of Control covers any
recapitalizations or transactions with the
Company's management or its affiliates in which
Bain Capital or GS Capital does not retain
control of the Company. Neither the Board of
Directors of the Company nor the Trustee may
waive the covenant relating to a holder's right
to redemption upon a Change of Control. See
"Description of Exchange Notes--Change of
Control."
Modification of the The Company and the Trustee, without the consent
Indenture................... of the holders of the Senior Subordinated Notes,
may amend the Indenture, if in the opinion of the
Trustee, such change does not adversely affect
the rights of the holders in any material
respect. Other modifications to the Indenture may
be made with the consent of holders of a majority
of the principal amount of the Senior
Subordinated Notes then outstanding except that
consent is required from all holders of Senior
Subordinated Notes in instances such as
reductions in the amount or timing of interest
payments, reductions in the principal and changes
in the maturity, redemption or repurchase dates
of the Senior Subordinated Notes. See
"Description of Exchange Notes-- Modification of
the Indenture."
Events of Default........... An Event of Default occurs under the Indenture
when there is a payment default under the Bank
Credit Agreement but not when there is a non-
payment default. Thus, a change of control under
the Bank Credit Agreement would only result in an
Event of Default if it resulted in a payment
default under the Bank Credit Agreement. See
"Description of Exchange Notes--Events of
Default" and "Risk Factors--A Change of Control
Could Adversely Affect Noteholders."
Certain Covenants........... The Indenture contains covenants relating to,
among other things, the incurrence of additional
indebtedness, the payment of dividends,
14
<PAGE>
the repurchase of stock and the making of certain
other Restricted Payments (as defined herein),
the creation of certain liens, transactions with
affiliates, mergers and certain consolidations,
and the sale of assets. Many of these covenants
contain significant exceptions. See "Description
of Exchange Notes--Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders who tender their Notes in the Exchange Offer, including
risks relating to (i) the Company's high level of indebtedness, (ii) ability to
successfully integrate Dade Chemistry, (iii) potential business disruption from
restructuring activities, (iv) charges relating to the transactions, (v) the
subordination of the Exchange Notes, (vi) competition, (vii) dependence on the
clinical laboratory industry, (viii) reliance on services provided by Baxter
and DuPont, and (ix) the effect of exchange rates on the Company's results of
operations.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
PREDECESSOR/DADE/COMPANY
The following summary historical financial data as of and for the six months
ended June 30, 1995 and 1996 were derived from unaudited historical financial
statements of Dade and the Company included elsewhere in this Prospectus. The
following summary historical financial data for the period from December 17,
1994 through December 31, 1994 and for the year ended December 31, 1995 were
derived from the audited financial statements of Dade included elsewhere in
this Prospectus. The following summary historical financial data for the year
ended December 31, 1993 and the period from January 1, 1994 through December
16, 1994 were derived from the audited financial statements of Baxter
Diagnostics, Inc. and certain of its affiliates (the "Predecessor"), which were
formerly owned by Baxter International Inc. ("Baxter"), included elsewhere in
this Prospectus. The following summary historical financial data for the year
ended December 31, 1992 were derived from audited financial statements of the
Predecessor, which have not been included in this Prospectus. The following
summary historical financial data for the year ended December 31, 1991 were
derived from unaudited historical financial statements of the Predecessor (not
included in this Prospectus) which, in the opinion of management, reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the unaudited period. The information contained
in this table should be read in conjunction with "Selected Historical Financial
Data--Predecessor/Dade/Company," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR DADE COMBINED DADE DADE COMPANY
----------------------------------- -------------- -------------- ------- ---------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM SIX MONTHS SIX MONTHS
1/1/94 TO 12/17/94 TO 1/1/94 TO ENDED ENDED
1991 1992 1993 12/16/94(1) 12/31/94(1)(2) 12/31/94(1)(2) 1995(2) 6/30/95(2) 6/30/96(2)(3)
------ ------ ------ ----------- -------------- -------------- ------- ---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(4).......... $619.0 $683.3 $690.2 $650.6 $19.0 $669.6 $614.3 $300.0 $353.8
Gross profit (5)...... 257.6 281.5 269.4 259.2 0.4 259.6 245.7 91.3 145.4
Marketing and
administrative
expenses............. 165.7 183.9 179.2 173.2 2.4 175.6 171.1 77.6 113.1
Research and develop-
ment expenses (6).... 45.9 53.2 47.2 33.4 1.1 34.5 26.5 13.7 114.2
Restructuring and
other related items.. -- -- 30.2(7) -- -- -- -- -- 11.4(8)
Goodwill amortization
expense (credit)..... 2.7 2.7 2.6 2.6 (0.1) 2.5 (0.4) (0.8) 0.8
Income (loss) from
operations (5)(6).... 43.3 41.7 10.2 50.0 (3.0) 47.0 48.5 0.8 (94.1)
Provision (benefit)
for income taxes..... 14.4 13.9 12.3 14.2 (2.3) 11.9 7.2 (4.8) (42.8)
Net income
(loss) (5)(6)(9)..... 28.9 22.1 (1.9) 35.8 (1.9) 33.9 12.7 (8.1) (97.9)
OTHER FINANCIAL DATA:
EBITDA (10)........... $ 84.3 $ 96.2 $ 99.1 $ -- $ -- $112.1 $ 97.0 $ 46.0 $ 54.2
Depreciation and
amortization expense
(credit) (11)........ 41.0 54.5 58.7 59.6 (0.1) 59.5 4.9 1.6 13.3
Capital expenditures.. 79.2 71.2 56.7 29.9 1.0 30.9 35.3 13.8 25.0
Ratio of earnings to
fixed charges (12)... -- -- -- -- N/M N/M 1.6x N/M N/M
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995(2) 1996(2)(3)
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $267.8 $ 175.8
Total assets.............................................. 554.0 1,044.6
Long term debt (including current maturities)............. 302.7 810.0
Stockholder's equity (deficit)............................ 78.9 (19.2)
</TABLE>
- --------
N/M=Not meaningful
(1) The financial data of the Predecessor and Dade for the period from January
1, 1994 to December 16, 1994 and the period from December 17, 1994 to
December 31, 1994, respectively, were prepared on different bases of
accounting.
16
<PAGE>
(2) Financial data for the period from December 17, 1994 to December 31, 1994,
for the year ended December 31, 1995 and the six months ended June 30, 1995
and 1996 exclude the results of the Bartels and Burdick & Jackson product
lines, which have been reflected as "Net assets held for sale."
(3) The financial data of the Company for the period from January 1, 1996 to
June 30, 1996 includes six months of Dade's results of operations and two
months of Dade Chemistry's post-Acquisition results of operations. The
balance sheet data as of June 30, 1996 reflects the Acquisition.
(4) Net sales include the net sales of Bartels and Burdick & Jackson as
follows: 1991--$32.1 million, 1992--$34.7 million, 1993--$36.7 million,
and 1994 (combined)--$34.3 million. Beginning on December 17, 1994, net
sales of Bartels and Burdick & Jackson were excluded from total net sales
as these businesses were accounted for as assets held for sale--see Note
(2) above.
(5) Dade's gross profit and net loss for the period December 17, 1994 to
December 31, 1994 include a non-recurring pre-tax charge of $5.6 million
(after-tax impact of $3.4 million) to cost of goods sold related to the
partial amortization of $46.0 million of allocated purchase price made to
record acquired finished goods and work-in-process inventory at fair market
value related to the Initial Acquisition. Dade's gross profit and net income
for the year ended December 31, 1995 include the non-recurring pre-tax
amortization of the remaining $40.4 million (after-tax impact of $24.2
million) of the inventory write-up discussed above. The Company's gross
profit and net loss for the six months ended June 30, 1996 include a non-
recurring pre-tax charge of $25.5 million (after-tax impact of $15.3 million)
to cost of goods sold related to the amortization of allocated purchase price
made to record acquired finished goods and work-in-process inventory at fair
market value related to the Acquisition.
(6) Includes a non-recurring pre-tax charge of $98.1 million ($58.9 million
after-tax) during the six months ended June 30, 1996 related to the write-off
of allocated purchase price made to record in-process research and
development projects at fair market value related to the Acquisition. Such
in-process research and development projects have no alternative future use.
(7) Reflects the restructuring effort undertaken by Baxter for downsizing its
sales, general and administrative, instrument manufacturing and non-strategic
research and development staffs in an effort to reorganize the businesses
into a single operating division.
(8) Represents the non-recurring charge for restructuring and related costs
incurred as a direct result of the Acquisition. The restructuring charge
primarily relates to severance and relocation costs.
(9) In 1992, Baxter recorded a $5.7 million after-tax charge related to the
Predecessor for the cumulative effect of adopting SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and, in 1993,
Baxter recorded a $3.3 million after-tax charge related to the Predecessor
for the cumulative effect of adopting SFAS No. 109 "Accounting for Income
Taxes." In the six months ended June 30, 1996 the Company recorded
extraordinary losses of $25.0 million (after-tax) related to the early
extinguishment of debt.
(10) "EBITDA" represents, for any period, the sum of income (loss) from
operations; depreciation and amortization expense; for 1993, restructuring
and downsizing costs of $30.2 million; for the period December 17, 1994 to
December 31, 1994, non-recurring purchase accounting write-offs of $5.6
million; for 1995, and for the six months ended June 30, 1995, non-recurring
purchase accounting write-offs of $40.4 million (see Note (5) above) and $3.2
million of non-recurring, non-cash charges (see Note 2 of "Notes to
Combined/Consolidated Financial Statements" included elsewhere in this
Prospectus) and; for the six months ended June 30, 1996, non-recurring
purchase accounting charges of $98.1 million (see Note (6) above), $25.5
million (see Note (5) above) and the $11.4 million non-recurring
restructuring charge (see Note (8) above). EBITDA is presented because it is
a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of the Predecessor's, Dade's or the
Company's operating results or to cash flows as a measure of liquidity.
(11) Excludes non-recurring purchase accounting write-offs (see Notes (5) and
(6) above).
(12) No ratio of earnings to fixed charges is presented for the Predecessor
because the Predecessor was not allocated interest expense by Baxter. In
calculating the ratio of earnings to fixed charges for Dade, earnings include
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest expense and amortization of deferred financing fees, whether
expensed or capitalized, plus one-third of rental expense under operating
leases which has been deemed by management to be representative of an
appropriate interest factor. As a result of the loss incurred during the
period December 17, 1994 to December 31, 1994, earnings did not cover fixed
charges by $4.3 million. Excluding the impact during this period of the non-
recurring purchase accounting write-off of $5.6 million (see Note (5) above),
the ratio of earnings to fixed charges would have been 2.0 to 1.0. As a
result of the loss incurred during the six months ended June 30, 1995,
earnings did not cover fixed charges by $12.9 million. Excluding the similar
$40.4 million non-recurring write-off in 1995, the 1995 ratio of earnings to
fixed charges for the full year would have been 2.7 to 1.0 and 2.6 to 1.0 for
the six months ended June 30, 1995. As a result of the loss incurred during
the six months ended June 30, 1996, earnings did not cover fixed charges by
$115.7 million. Excluding the $25.5 million non-recurring write-off of
inventory step-up, the $98.1 million non-recurring write-off of in-process
research and development and the $11.4 million non-recurring restructuring
charge, the ratio of earnings to fixed charges for the six months ended June
30, 1996 would have been 1.7 to 1.0.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data set forth below for
the year ended December 31, 1995 and the six months ended June 30, 1996 give
effect to the Transactions as if they had occurred as of January 1, 1995 and
1996, respectively. The summary unaudited pro forma income statement data and
other data do not (i) purport to represent what the Company's results of
operations actually would have been if the Transactions had actually occurred
as of such dates or what such results will be for any future periods or (ii)
give effect to certain non-recurring charges resulting from the Transactions.
The information contained in this table should be read in conjunction with
"Unaudited Pro Forma Financial Data," "Selected Historical Financial Data--
Predecessor/Dade/Company," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
--------------------- -------------------------
SUMMARY SUMMARY
COMBINED SUMMARY COMBINED SUMMARY
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $959.0 $959.0 $468.6 $468.6
Gross profit................ 408.9(1) 404.6(1) 204.8(2) 229.4
Marketing and administrative
expenses................... 279.9 261.0 150.7 145.3
Research and development ex-
penses..................... 60.2 55.0 126.0(3) 26.2
Restructuring and other re-
lated items................ -- -- 11.4(4) --
Goodwill amortization ex-
pense (credit)............. (0.4) 6.0 0.8 3.0
Income (loss) from opera-
tions...................... 69.2(1) 82.6(1) (84.1)(2)(3) 54.9
Interest expense............ 38.4 84.1 26.8 42.8
Provision for (benefit from)
income taxes............... 10.9 0.3 (39.8) 5.8
Net income (loss)........... 22.1(1) 0.4(1) (93.7)(5) 8.7
OTHER DATA:
EBITDA (6).................. $152.3 $179.5 $ 70.4 $ 78.6
Depreciation and amortiza-
tion expense............... 70.9 83.1 19.5 23.7
Capital expenditures........ 56.5 56.5 25.0 25.0
Ratio of earnings to fixed
charges (7)................ 1.0x 1.3x
Ratio of EBITDA to cash in-
terest expense (8)......... 2.3x 2.0x
Ratio of total debt to
EBITDA (9)................. 4.8x 5.5x
Ratio of "Adjusted total
debt" to EBITDA (10)....... 4.5x 5.2x
</TABLE>
- --------
(1) Includes non-recurring, non-cash purchase accounting charges related to
the amortization to cost of goods sold of inventory step-up of $40.4
million. The after-tax impact is $24.2 million. In addition, includes $8.8
million of abnormal restructuring implementation costs of Dade Chemistry
related to the relocation of its Manati, Puerto Rico operations to
Glasgow, Delaware, $1.4 million of costs related to the relocation of Dade
Chemistry's headquarters to existing space at the Glasgow, Delaware
facility, and $0.4 million of severance costs related to European
workforce reduction actions (aggregate after-tax impact of $6.4 million).
(2) Includes non-recurring, non-cash purchase accounting charge related to the
amortization to cost of goods sold of inventory step-up of $25.5 million
($15.3 million after tax) related to the Acquisition.
(3) Includes non-recurring, pre-tax charge of $98.1 million ($58.9 million
after-tax) during the six months ended June 30, 1996 related to the write-
off of allocated purchase price made to record in-process research and
development projects at fair market value related to the Acquisition. Such
in-process research and development projects have no alternative future
use.
(4) Represents the non-recurring charge for restructuring and related costs
incurred as a direct result of the Acquisition. The restructuring charge
primarily relates to severance and relocation costs.
(5) Includes the impact of items described in (2), (3), and (4) above, plus
the net of tax $25.0 million of extraordinary charges related to the
write-off of deferred financing fees and tender premium costs in
connection with the refinancing of existing indebtedness.
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(6) "EBITDA" represents the sum of income from operations; depreciation and
amortization expense; for 1995, for Dade Chemistry, $8.8 million of
abnormal costs associated with relocating the Manati operations, $1.4
million of relocation costs for moving Dade Chemistry's headquarters, $0.4
million of severance costs related to European workforce reduction actions
(see Note (1) above) and a $1.6 million adjustment to exclude the
favorable effect of Dade Chemistry's LIFO method of accounting (for the
"Summary Combined Historical" data only); and, for Dade, for 1995, $3.2
million of non-recurring, non-cash charges (see Note 2 of "Notes to
Combined/Consolidated Financial Statements" included elsewhere in this
Prospectus); for the six months ended June 30, 1996, $11.4 non-recurring
charge for restructuring and related costs for severance, relocation and
facility closures, and non-recurring purchase accounting charges of $98.1
million (see Note (3) above) and $25.5 million (see Note (2) above).
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to service and/or incur indebtedness. However, EBITDA
should not be considered as an alternative to net income as a measure of
the Company's operating results or to cash flows as a measure of
liquidity.
(7) In calculating the ratio of earnings to fixed charges, earnings consists
of income before income taxes plus fixed charges. Fixed charges consist of
interest expense and amortization of deferred financing fees, whether
expensed or capitalized, plus one-third of the rent expense under
operating leases, which management believes is a reasonable approximation
of an appropriate interest factor. For 1995, excluding the non-recurring
impacts of $40.4 million for Dade and the $8.8 million and $1.4 million of
relocation costs as well as the $0.4 million of European severance costs
for Dade Chemistry (see Note (1) above), the pro forma ratio of earnings
to fixed charges would have been 1.6 to 1.0.
(8) In calculating the ratio of EBITDA to cash interest expense, interest
expense excludes amortization of deferred financing fees of $5.7 million
for the year ended December 31, 1995 and $2.8 million for the six months
ended June 30, 1996.
(9) For the six months ended June 30, 1996, calculated by annualizing EBITDA.
(10) "Adjusted total debt" reflects the assumed $54.9 million repayment of debt
related to the expected proceeds from the sale of Dade's "Net assets held
for sale."
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RISK FACTORS
In addition to the other information set forth in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the Exchange Notes offered hereby.
HIGH LEVEL OF INDEBTEDNESS AND POSSIBLE INABILITY TO SERVICE DEBT
In connection with the Transactions, the Company incurred a significant
amount of indebtedness. At June 30, 1996, the Company's indebtedness was
$835.0 million, and its shareholder's deficit was $19.2 million. In addition,
subject to the restrictions in the Bank Credit Agreement and the Indenture,
the Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes. For the six months
ended June 30, 1996, on a pro forma basis, after giving effect to the
Acquisition as if it had occurred on January 1, 1996, the Company's ratio of
earnings to fixed charges would have been 1.3 to 1.0.
The level of the Company's indebtedness could have important consequences to
holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the
industry and economic conditions generally. Certain of the Company's
competitors currently operate on a less leveraged basis and have significantly
greater operating and financing flexibility than the Company.
The Company's ability to pay interest on the Exchange Notes and to satisfy
its other debt obligations will depend upon its future operating performance,
which will be affected by prevailing economic conditions and financial,
business and other factors, certain of which are beyond its control. If the
Company is unable to service its indebtedness, it will be forced to adopt an
alternative strategy that may include actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ABILITY TO SUCCESSFULLY COMPLETE THE INTEGRATION OF DADE CHEMISTRY
The integration and consolidation of Dade Chemistry into the Company since
the consummation of the Acquisition is proceeding according to management's
plan. This process, however, will require substantial continuing management,
financial and other resources and may pose risks with respect to production,
customer service and market share. While the Company's management believes
that it has sufficient financial and management resources to complete the
integration of Dade Chemistry, there can be no assurance in this regard or
that the Company will not experience difficulties with customers, personnel or
others. In addition, although the Company's management believes that the
Acquisition has enhanced the competitive position and business prospects of
the Company, there can be no assurance that such benefits will be fully
realized or that the integration of Dade Chemistry into the Company will
ultimately be successful.
As the Company adapts to the current health care environment and completes
the integration of Dade Chemistry, it has made and will continue to make
operational changes including consolidating certain operations and closing
certain facilities, all of which are designed to improve the future
profitability of the Company. However, there can be no assurance as to the
cost required to effect these integration changes or the timing or amount of
any cost savings that are actually realized as a result of such operational
changes. A reserve of $15.0 million was established through the purchase price
allocation primarily to provide for severance costs related to the
reconfigured Dade Chemistry organization. Additionally, an $11.4 million
restructuring reserve was established for direct costs to exit and consolidate
certain facilities in accordance with the integration plan for Dade Chemistry.
These actions may result in significant disruption to the Company's
operations, which could have a material adverse effect on the Company's
business. Management is continuing to assess the Company's overall
organization and cost structures and may, as a result of this on-going
process, develop future initiatives to increase operating and administrative
efficiency and enhance profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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CHARGES RELATING TO TRANSACTIONS WILL AFFECT FUTURE FINANCIAL STATEMENTS
The pro forma statements of income include adjustments to historical data
for items which will affect the business on an ongoing basis after the
Transactions. These adjustments reflect the full impact of structural changes
to business operations made in conjunction with the Transactions, including
increased interest expense related to the Transactions, increased goodwill and
intangibles amortization and increased depreciation expense, and an estimated
$19.6 million of annual incremental stand-alone corporate expenses.
The pro forma statements of income exclude the impact of non-recurring, non-
cash charges which the Company will record within its first full year of
operation. In the two months following the Transactions, the Company has
charged to cost of goods sold $25.5 million related to the write-up to fair
market value of finished goods and work-in-process inventory and charged to
expense $98.1 million related to the write-off of value allocated to in-
process research and development projects resulting from purchase price
allocation.
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes are subordinated in right of payment to all Senior Debt
of the Company. In the event of bankruptcy, liquidation or reorganization of
the Company, the assets of the Company will be available to pay obligations on
the Exchange Notes only after all Senior Debt has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Exchange Notes then outstanding. In addition, indebtedness outstanding under
the Bank Credit Agreement is secured by substantially all of the assets of the
Company and its subsidiaries. The Senior Debt of the Company at June 30, 1996
was approximately $485.0 million. Additional Senior Debt may be incurred by
the Company from time to time subject to certain restrictions contained in the
Bank Credit Agreement and the Indenture. See "Description of Bank Credit
Agreement" and "Description of Exchange Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right
of payment to any Senior Debt and senior in right of payment to the Exchange
Notes, impose restrictions on the ability of a subsidiary to pay dividends or
make certain payments to the Company, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. See "Description of Exchange
Notes--Certain Covenants." In addition, the Bank Credit Agreement contains
other and more restrictive covenants and prohibits the Company from prepaying
its indebtedness (including the Exchange Notes). The Bank Credit Agreement
also requires the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those
financial ratios and tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. A breach of
any of these covenants could result in a default under the Bank Credit
Agreement and/or the Indenture. In the event of an event of default under the
Bank Credit Agreement, the lenders could elect to declare all amounts
outstanding under the Bank Credit Agreement, together with accrued interest,
to be immediately due and payable. If the Company were unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. If the Bank Credit Agreement indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of
the Company, including the Exchange Notes. Substantially all the assets of the
Company and its subsidiaries are pledged as security under the Bank Credit
Agreement. See "Description of Bank Credit Agreement."
COMPETITION
The IVD industry is highly competitive, and the Company encounters
competition from several international manufacturers in both domestic and
foreign markets. Certain competitors are significantly larger and have greater
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resources, financial and other, than the Company. Moreover, the Company
encounters different competitors in each of its key product lines and there
can be no assurance that the Company will not encounter increased competition
in the future which could have a material adverse effect on the Company's
business. Competition in the healthcare environment, coupled with uncertainty
created in the marketplace by the divestiture of the Predecessor, has created
flat to negative sales growth across a significant portion of the Company's
product lines.
DEPENDENCE ON CLINICAL LABORATORY INDUSTRY
Substantially all of the Company's sales are to the clinical laboratory
industry. The clinical laboratory industry is heavily regulated and may be
significantly affected by healthcare reform legislation. Adverse changes in
the clinical laboratory industry could have a material adverse effect on the
Company.
RELIANCE ON BAXTER AND DUPONT; DISTRIBUTION AND TRANSITION SERVICES AGREEMENTS
Prior to the consummation of the acquisition (the "Initial Acquisition") of
the IVD products and services business of Baxter by Diagnostics Holding, Inc.
("Holdings"), the parent of Dade, the Company was a division of Baxter and did
not have suitable infrastructure to operate as a stand-alone entity. In
connection with the Initial Acquisition, Baxter agreed to provide domestic
distribution services and certain transitional services to Dade. Domestic
distribution services include certain warehousing and distribution, sales and
marketing, order processing, credit/collection, information management and
quality control services as well as the lease and management of certain
facilities and the assistance of certain designated personnel. Transitional
services, which primarily support international activities, include certain
human resources, finance and accounting services, information management,
warehousing and distribution services, sales and marketing services, and
regulatory support as well as the lease and management of certain facilities
and the assistance of certain designated personnel. Each of the distribution
agreement and the transition services agreement is terminable in whole or in
part by one or both parties at various times prior to their respective
expiration dates. Dade will need to continue establishing certain stand-alone
capabilities such as treasury, finance, human resources, cash management,
information systems, etc., which the Company expects will be funded as part of
its normal operations. The partial or complete termination of the distribution
or transition services agreements (either by Baxter or the Company) before
suitable alternative arrangements are secured, or the Company's inability to
replicate these services in a cost-effective manner, could have a material
adverse effect on the Company. However, the Company believes that the services
provided under the transition services agreements could be replicated by the
Company at a cost equal to or less than the fees currently paid to Baxter.
Also, the Company believes that services provided under the distribution and
transition services agreements could be provided by competitors of Baxter in a
cost effective manner.
Prior to the consummation of the Acquisition, Dade Chemistry was a division
of DuPont. DuPont has agreed to provide certain transitional services (similar
to those provided by Baxter) to the Company and has assigned the
responsibility for the manufacture of certain clinical analyzer components and
related service parts to the purchaser of DuPont's manufacturing facility in
Newtown, Connecticut. The partial or complete termination of either of these
agreements (either by DuPont or the Company) before suitable alternative
arrangements are secured could have a material adverse effect on the Company.
See "The Transactions." The Company has incurred and expects additional start-
up and duplicative costs as the Company establishes certain stand-alone
functions covered by transition services provided by Baxter and DuPont.
EFFECT OF POTENTIAL HEALTHCARE REFORM ON PROFIT MARGINS AND BUSINESS APPROACH
Healthcare reform and the growth of managed care organizations have been
considerable forces in the IVD industry. These competitive forces continue to
place constraints on the levels of overall pricing, and thus could have a
material adverse effect on the profit margins of the Company's products. Such
continuing changes in the United States healthcare market could also force the
Company to alter its approach in selling, marketing, distributing, and
servicing its customer base.
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A CHANGE OF CONTROL COULD ADVERSELY AFFECT NOTEHOLDERS
In the event of a Change of Control, the Company will be required (subject
to compliance with the requirements of Rule 14e-1 under the Exchange Act and
any other applicable securities laws and regulations and subject to either the
repayment in full by the Company of indebtedness under the Bank Credit
Agreement and all other Senior Debt or the Company obtaining the requisite
consents under the Bank Credit Agreement and all other Senior Debt to permit
the repurchase of the Exchange Notes) to offer to purchase all the outstanding
Senior Subordinated Notes at a purchase price equal to 101% of the principal
amount plus accrued interest to the date of repurchase. The Bank Credit
Agreement would restrict such a purchase and the offer would require the
approval of the lenders thereunder. Accordingly, the right of the holders of
the Exchange Notes to require the Company to repurchase the Exchange Notes may
be of limited value if the Company cannot obtain approval under the Bank
Credit Agreement. Additionally, there can be no assurance that the Company
will have the financial resources to fund its obligations in the event of a
Change of Control. Further, if a change of control under the Bank Credit
Agreement were not considered a Change of Control and did not result in a
payment default under the Bank Credit Agreement, then the holders of the
Exchange Notes could be materially adversely affected. See "Description of
Exchange Notes--Change of Control" and "Description of the Bank Credit
Agreement."
EXCHANGE RATES CAN ADVERSELY AFFECT RESULTS OF OPERATIONS
Approximately 28% of the Company's sales are international, and a
significant portion of the Company's earnings are attributable to operations
conducted abroad. The United States dollar value of sales and earnings of
these operations varies with currency exchange rate fluctuations. Changes in
certain exchange rates could have an adverse effect on the Company's ability
to meet interest and principal obligations on its United States dollar-
denominated debt.
FLOATING RATES UNDER THE BANK CREDIT AGREEMENT MAY ADVERSELY AFFECT DEBT
SERVICE
Interest under the Bank Credit Agreement, which represents 57% of the
Company's debt portfolio at June 30, 1996, accrues at a floating rate. As a
result, increases in the LIBOR rate could materially adversely affect the
Company's ability to service debt under the Bank Credit Agreement which could
result in the Company's inability to make interest payments on the Exchange
Notes. To reduce exposure to interest rate fluctuations, the Company has
purchased $230.0 million of interest rate caps. See "Description of Bank
Credit Agreement."
LACK OF RESTRICTIONS ON INTEREST RATE SWAP OBLIGATIONS AND CURRENCY AGREEMENTS
There are no restrictions on the amount of indebtedness that may be incurred
by the Company pursuant to interest rate swap obligations and currency
agreements. Although the Company only intends to engage in hedging actions
directed at reducing the Company's exposure to interest rate and currency
movements, any change in the Company's policy or imprudent use of such
derivative products could have a material adverse effect on the Company.
RELIANCE ON PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company owns numerous United States and foreign patents, and has patent
applications pending in the United States and abroad. The Company owns
numerous United States and foreign registered trademarks and service marks,
and has applications for the registration of trademarks and service marks
pending in the United States and abroad. The Company also owns several United
States copyright registrations. In addition, the Company owns a wide array of
unpatented proprietary technology and know-how. Further, the Company licenses
certain intellectual property rights from third parties. See "Business--
Intellectual Property."
The Company's ability to compete effectively with other companies depends,
to a significant extent, on its ability to maintain the proprietary nature of
its owned and licensed intellectual property. There can be no
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assurance as to the degree of protection offered by the various patents, the
likelihood that patents will be issued on pending patent applications, or,
with regard to the licensed intellectual property, that the licenses will not
be terminated. Furthermore, there can be no assurance that others will not
develop around the patented aspects of any of the Company's current or
proposed products, independently develop technology or know-how that is the
same as or competitive with the Company's technology and know-how or otherwise
obtain access to the Company's intellectual property. If the Company were
unable to maintain the proprietary nature of its intellectual property and its
significant current or proposed products, the Company's business would be
materially adversely affected.
REGULATORY COMPLIANCE
The Company's products and operations are subject to regulation by the
United States Food and Drug Administration (the "FDA") and various other
federal and state agencies, as well as by a number of foreign governmental
agencies. FDA regulations require that most of the Company's new products have
pre-marketing approval by the FDA, or prove substantial equivalence through a
510(k) application, and also require that most of the Company's products be
manufactured in accordance with Good Manufacturing Practices ("GMP").
Compliance with such regulations substantially increases the time, difficulty
and costs incurred in obtaining and maintaining the approval to market newly
developed and existing products. In addition, government regulatory actions
can result in the seizure or recall of products, suspension or revocation of
the authority necessary for their production and sale, and other civil or
criminal sanctions. See "Business--Legal Proceedings."
ENVIRONMENTAL LIABILITY
The Company is subject to federal, state, local and foreign environmental,
health and safety laws and regulations, and to liabilities and compliance
costs associated with past and current handling, processing, storing and
disposing of hazardous substances and wastes. From time to time, the
operations of the Company have resulted and may in the future result in
noncompliance with environmental or occupational health and safety laws, or
liability pursuant to such laws. For a more detailed discussion of
environmental compliance and liability issues affecting the Company, see
"Business--Environmental, Health and Safety Matters."
POSSIBLE INABILITY TO REPURCHASE EXCHANGE NOTES UPON CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to make an
offer to repurchase all outstanding Exchange Notes. In such event, there can
be no assurance that the Company will have sufficient funds to pay the
required purchase price. In addition, provisions contained in the Bank Credit
Agreement could delay or prohibit the making of such an offer.
CONTROLLING STOCKHOLDERS
As of October 1, 1996, Bain Capital, Inc. ("Bain Capital"), GS Capital
Partners, L.P. ("GS Capital"), and their respective related investors owned in
excess of 95% of Holdings' voting stock, and Bain Capital and GS Capital are
parties to a stockholders agreement regarding the ownership (including the
voting) of such stock. By virtue of such stock ownership and agreement, Bain
Capital and GS Capital have the power to control all matters submitted to
stockholders of, and to elect all directors of, Holdings and, indirectly, to
elect all directors of the Company.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Notes (other than any such holder that is
an "affiliate" of the company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration
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rights, and the Company is required to file a Shelf Registration Statement
with respect to such Notes. The Exchange Notes will constitute a new issue of
securities with no established trading market. The Company does not intend to
list the Exchange Notes on any national securities exchange or to seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchaser has advised the Company that
it currently intends to make a market in the Exchange Notes, but it is not
obligated to do so and may discontinue such market making at any time. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statements. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of the trading market for the
Exchange Notes. If a trading market does not develop or is not maintained,
holders of the Exchange Notes may experience difficulty in reselling the
Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of the Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Notes could be adversely
affected. See "The Exchange Offer."
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THE TRANSACTIONS
OVERVIEW
Dade Chemistry Systems Inc., an affiliate of Dade, and DuPont are parties to
a Purchase Agreement dated as of December 11, 1995 as amended and restated on
May 7, 1996 (the "Acquisition Agreement"), pursuant to which Dade acquired
Dade Chemistry.
Funding for the Acquisition and the Refinancing consisted of: (i) gross
proceeds from the offering of Notes of $350.0 million; (ii) borrowings under
the Bank Credit Agreement of $510.0 million; and (iii) existing cash on hand.
The Bank Credit Agreement provided for $460.0 million of term loans and a
$125.0 million revolving credit facility, of which $50.0 million was drawn
down at the Closing.
TERMS OF THE ACQUISITION AGREEMENT
As consideration for the Acquisition, Dade paid $512.0 million in cash to
DuPont at Closing, which amount is subject to adjustment as provided below,
plus assumption of certain liabilities and obligations of DuPont. The purchase
price will be (i) increased or decreased to the extent the accounts
receivable, inventories and other miscellaneous assets of Dade Chemistry as of
the date of the Closing exceeded or was less than, respectively, the accounts
receivable, inventories and miscellaneous assets of Dade Chemistry as of
December 31, 1994, and (ii) decreased to the extent the amount of capital
expenditures made through the date of Closing was less than an agreed upon
target. The purchase price adjustments are being determined through customary
post-Closing adjustment mechanisms.
The Acquisition Agreement contains other provisions customary for
transactions of this size and type, including representations and warranties
with respect to the condition and operations of the business, and covenants
with respect to the conduct of the business prior to the Closing.
Pursuant to the Acquisition Agreement, DuPont has agreed to retain, and/or
indemnify Dade for, certain liabilities and obligations relating to Dade
Chemistry, including liabilities and obligations relating to pre-Closing
accounts payable and accrued expenses, taxes, employee compensation and other
benefits (including post-retirement medical and life insurance benefits),
environmental matters and other matters as specified in the Acquisition
Agreement. Additionally, the Acquisition Agreement required Dade to assume
certain liabilities of DuPont including product warranties, certain employee
liabilities, deferred service obligations and other customer related contract
obligations.
TRANSITION SERVICES AGREEMENT
At the Closing, the Company and DuPont entered into the Transition Services
Agreement pursuant to which DuPont provides primarily international support
services to the Company, including, among other things, certain human
resources, finance and accounting services, information management,
warehousing and distribution services, sales and marketing services and
regulatory support as well as the lease and management of certain facilities
and the assistance of certain designated personnel. Domestic services provided
under the Transition Services Agreement include certain information management
and purchasing support services. In general, DuPont will make these services
available for one year from the date of the Closing. The Company has the right
to request that a particular service no longer be provided, subject to notice
requirements. Services under the Transition Services Agreement are provided by
DuPont at their estimated historical cost.
MANUFACTURING AGREEMENT
At the Closing, the Company and DuPont entered into the Manufacturing
Agreement pursuant to which DuPont, or a successor, will continue to
manufacture certain clinical analyzer components and related service parts at
DuPont's manufacturing facility in Newtown, Connecticut for up to three years
from the date of the Closing. Services under the Manufacturing Agreement are
to be provided at DuPont's estimated historical cost. Subsequent to the
Closing DuPont divested its Newtown Facility in conjunction with the sale of
certain of its businesses. DuPont transferred its obligations under the
Manufacturing Agreement to the purchaser of the Newtown Facility.
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USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The gross proceeds of $350.0 million from the issuance of the
Notes, together with borrowings under the Bank Credit Agreement and cash on
hand, were used to acquire the assets of Dade Chemistry and pay the related
fees and expenses. See "The Acquisition."
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CAPITALIZATION
The following tables set forth the capitalization of the Company on an
historical basis as of June 30, 1996. This table should be read in conjunction
with the "Selected Historical Financial Data" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
HISTORICAL
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C>
Long-term debt (including current maturities):
Bank Credit Agreement
Term loans......................................... $460.0
Senior Subordinated Notes............................ 350.0
------
Total long-term debt............................. 810.0
------
Stockholder's equity (deficit):
Common stock/additional paid-in capital.............. 87.0
Notes receivable on capital contributions............ (0.2)
Accumulated deficit (1).............................. (102.9)
Unrealized loss on investment........................ (1.4)
Cumulative translation adjustment.................... (1.7)
------
Total stockholder's equity (deficit)............. (19.2)
------
Total capitalization................................. $790.8
======
</TABLE>
- --------
(1) Includes aggregate after-tax charges of $133.6 million related to: (i) the
immediate write-off of value allocated to in-process research and
development projects in accordance with the purchase method of accounting
for the Acquisition ($58.9 million); (ii) the write-off of deferred
financing fees and the incurrence of the tender premium in connection with
the refinancing of existing debt ($25.0 million); (iii) the provision for
reorganization and integration costs related to Dade's existing facilities
and personnel ($6.8 million); and (iv) the amortization of inventory step-
ups related to the application of the purchase method of accounting of $27.6
million and $15.3 million for the Initial Acquisition and the Acquisition,
respectively.
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UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma statements of income for the year ended
December 31, 1995 and for the six month period ending June 30, 1996 give
effect to the Transactions as if they had occurred on January 1, 1995 and
1996, respectively. The unaudited pro forma financial data are based on the
historical consolidated financial statements of Dade and Dade Chemistry and
the assumptions and adjustments described in the accompanying notes. The
unaudited pro forma statements of income and of income before extraordinary
items: (i) do not purport to represent what the Company's results of
operations actually would have been if the Transactions had occurred as of the
dates indicated or what such results will be for any future periods and (ii)
exclude the impact of certain non-recurring charges directly related to the
Transactions as disclosed in the accompanying notes.
The unaudited pro forma financial data are based upon assumptions that the
Company believes are reasonable, including those related to cost savings
arising from the Company's integration plans, which the Company believes are
both factually supportable and directly attributable to the Acquisition. Such
unaudited pro forma financial data should be read in conjunction with the
Financial Statements of Dade and Dade Chemistry and the accompanying notes
thereto included elsewhere in this Prospectus.
DADE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
DADE COMPANY
DADE CHEMISTRY COMBINED ADJUSTMENTS PRO FORMA
------ --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $614.3 $344.7 $959.0 $959.0
Cost of sales........... 368.6 (1) 181.5(1) 550.1 $ 2.6 (2) 554.4
3.2 (3)
0.3 (4)
(1.8)(5)
------ ------ ------ ------ ------
Gross profit............ 245.7 (1) 163.2(1) 408.9 (4.3) 404.6
Marketing and
administrative
expenses................ 171.1 108.8 279.9 (1.0)(5) 261.0
(6.6)(6)
(12.3)(7)
1.0 (8)
Research and development
expenses................ 26.5 33.7 60.2 (4.7)(7) 55.0
(0.5)(5)
Goodwill amortization
expense (credit)........ (0.4) -- (0.4) 6.4 (9) 6.0
------ ------ ------ ------ ------
Income from operations.. 48.5 20.7 69.2 13.4 82.6
Interest expense........ 30.8 7.6 38.4 45.7 (10) 84.1
Interest income......... (2.2) (2.2) -- (2.2)
------ ------ ------ ------ ------
Income before income
taxes................... 19.9 (1) 13.1(1) 33.0 (32.3) 0.7
Provision for income
taxes................... 7.2 3.7 10.9 (10.6)(11) 0.3
------ ------ ------ ------ ------
Net income (loss)....... $ 12.7 (1) $ 9.4(1) $ 22.1 $(21.7) $ 0.4
====== ====== ====== ====== ======
OTHER DATA:
Ratio of earnings to
fixed charges......... 1.0x(12)
======
Depreciation and
amortization expense.. $ 45.3 (13) $ 25.6 $ 70.9 $ 12.2 $ 83.1
====== ====== ====== ====== ======
EBITDA(14)............ $ 97.0 $ 55.3 $152.3 $ 27.2 $179.5
====== ====== ====== ====== ======
Ratio of EBITDA to
cash interest
expense............... 2.3x(15)
======
</TABLE>
See accompanying notes.
29
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
The Unaudited Pro Forma Consolidated Statement of Income gives effect to the
following unaudited pro forma adjustments:
(1) Includes the non-recurring impact in 1995 for Dade of $40.4 of
amortization of inventory step-up arising from application of purchase
accounting to the Initial Acquisition as of December 16, 1994 ($24.2
after-tax), and for Dade Chemistry, $8.8 of abnormal restructuring
implementation costs related to the relocation of its Manati, Puerto Rico
operations to Glasgow, Delaware, $1.4 of costs related to Dade
Chemistry's headquarters relocation to Glasgow, Delaware and $0.4 of
severance costs associated with Dade Chemistry European workforce
reduction actions (an aggregate $6.4 after-tax impact).
(2) Represents additional depreciation expense resulting from the $46.1
write-up of property, plant and equipment to fair market value (primarily
buildings and special-purpose manufacturing machinery and equipment),
assumed to be allocated entirely to cost of sales.
(3) Represents the additional amortization expense for the twelve months
ended December 31, 1995 related to $32.1 of acquired patents and
trademarks.
(4) Reflects the estimated recurring cost savings of $1.3 relating to
manufacturing operations and field service operations from management's
reorganization plans relating to plant closings and certain production
department and field service consolidations resulting in headcount
reduction, offset by the removal of Dade Chemistry's $1.6 favorable LIFO
impact (the Company is on the FIFO inventory cost method).
(5) Represents the elimination of post-retirement medical and life insurance
benefits expense (OPEB) related to Dade Chemistry ($3.3 in aggregate).
Dade does not offer OPEB to its current employees and the Company will
not offer it prospectively to employees of Dade Chemistry, except to the
extent of OPEB liabilities retained by DuPont.
(6) Reflects the elimination of 100% of DuPont's "indirect corporate cost
allocations" and 100% of DuPont's "direct corporate cost allocations"
made to Dade Chemistry (an aggregate of $26.2); and the replacement of
such costs with the Company's estimate of incremental infrastructure
costs required to operate within the reconfigured overall Company
organization ($19.6).
(7) Reflects the estimated recurring cost savings related to research and
development as well as marketing and administrative activities from
management's reorganization plans as described below:
<TABLE>
<S> <C>
Consolidation of research and development organizations and headcount
reduction along with elimination of Paramax-related research pro-
jects............................................................... $ 4.7
Consolidation of domestic sales, marketing and service organizations
($9.5), along with international organizations in Europe and Japan
($2.1).............................................................. 11.6
Cost reductions arising from elimination of allocated DuPont corpo-
rate-sponsored "variable compensation program" related to DuPont
Medical Product Group management not remaining with Dade Chemistry.. 0.5
Elimination of $0.1 of rent expense at former Dade Chemistry head-
quarters location (not included in assets to be sold), which has
been relocated to space within an existing Glasgow, Delaware facil-
ity in late 1995 at no incremental cost and contractual reduction in
rent of $0.1 for the Dade Chemistry Delaware distribution facility
from what DuPont historically charged the Dade Chemistry business... 0.2
-----
$17.0
=====
</TABLE>
30
<PAGE>
(8) Represents the additional annual management fee in excess of the
historical fee paid by Dade ($2.0) to equal an agreed upon prospective
annual fee of $3.0 to be charged by Bain Capital and Goldman Sachs & Co.
for consulting and financial services to be provided to the Company.
(9) Represents the adjustment to reflect ongoing goodwill amortization
resulting from the purchase of Dade Chemistry. The Acquisition resulted
in estimated goodwill of $159.7 based on a preliminary allocation of
purchase price and is being amortized over a twenty-five year period
(annual amortization of $6.4).
(10) Addition to pro forma interest expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Elimination of Dade's and Dade Chemistry's historical interest
expense...................................................... ($38.4)
------
Interest on the $350.0 Senior Subordinated Notes (11.125%).... 38.9
Interest on borrowing under Bank Credit Agreement at LIBOR
(5.5374%) plus:
Revolver-2.75% (8.2874% on $50.0)........................... 4.1
Term A-2.75% (8.2874% on $185.0)............................ 15.3
Term B-3.25% (8.7874% on $90.0)............................. 7.9
Term C-3.50% (9.0374% on $90.0)............................. 8.1
Term D-3.75% (9.2874% on $95.0)............................. 8.8
Commitment fee on unused revolving credit facility at 0.50%... 0.3
------
Gross cash interest expense................................... 83.4
Less: Interest on $54.9 of debt to be repaid with proceeds
from "Net assets held for sale" at an average rate of
8.7636% (a)............................................... (4.8)
------
Net cash interest............................................. 78.6
Amortization of Acquisition debt issuance costs of $45.7 (av-
erage 8.29 years
amortization)................................................ 5.5
------
Interest from Acquisition debt requirements................... 84.1
------
Net increase.................................................. $ 45.7
======
</TABLE>
- --------
(a) Generally accepted accounting principles permit nonrecognition of
interest expense in post-acquisition periods on incremental debt to be
paid down with the expected net proceeds from assets identified for sale
at the date of an acquisition.
(11) Reflects tax provision for pro forma adjustments required to yield an
estimated effective income tax rate of 40% on pro forma income before
income taxes.
(12) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing fees and one-third of the
rent expense from operating leases, which management believes is a
reasonable approximation of an interest factor. Excluding the non-
recurring impacts of $40.4 for Dade and $8.8, $1.4 and $0.4, for Dade
Chemistry (see Note 1), the pro forma ratio of earnings to fixed charges
would have been 1.6 to 1.0.
(13) Includes the non-recurring impact of $40.4 of amortization of inventory
step-up arising from the application of purchase accounting to the
Initial Acquisition.
(14) EBITDA is defined as the sum of income from operations (excluding the
$1.6 favorable impact of LIFO for Dade Chemistry (and the effect of its
reversal in the "Adjustments" column in Note 4)); depreciation and
amortization expense; $8.8 of abnormal restructuring implementation
costs, $1.4 of relocation costs and $0.4 of European severance costs
related to the activities of Dade Chemistry (see Note 1); and other non-
cash charges of $3.2 for Dade (see Note 2 of "Notes to
Combined/Consolidated Financial Statements" included elsewhere in this
Prospectus).
(15) In calculating the ratio of EBITDA to cash interest expense, interest
expense excludes amortization of deferred financing fees of $5.5 for the
year ended December 31, 1995.
31
<PAGE>
DADE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
DADE COMPANY
DADE CHEMISTRY COMBINED ADJUSTMENTS PRO FORMA
------ --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................. $353.8 $114.8 $ 468.6 $468.6
Cost of sales............. 208.4 55.4 263.8 $(25.5)(1) 239.2
0.9 (2)
1.1 (3)
(0.4)(4)
(0.7)(5)
------ ------ ------- ------ ------
Gross profit.............. 145.4 59.4 204.8 24.6 229.4
Marketing and
administrative expenses... 113.1 37.6 150.7 (0.4)(5) 145.3
(1.3)(6)
(4.0)(7)
0.3 (8)
Research and development
expenses.................. 114.2 11.8 126.0 (98.1)(9) 26.2
(1.5)(7)
(0.2)(5)
Goodwill amortization
expense................... 0.8 -- 0.8 2.2 (10) 3.0
Restructuring and other
related items............. 11.4 -- 11.4 (11.4)(11) --
------ ------ ------- ------ ------
Income (loss) from
operations................ (94.1) 10.0 (84.1) 139.0 54.9
Interest expense.......... 23.9 2.9 26.8 16.0 (12) 42.8
Other income.............. (2.3) (0.1) (2.4) -- (2.4)
------ ------ ------- ------ ------
Income (loss) before
income taxes.............. (115.7) 7.2 (108.5) 123.0 14.5
Provision for (benefit
from) income taxes........ (42.8) 3.0 (39.8) 45.6 (13) 5.8
------ ------ ------- ------ ------
Income (loss) before
extraordinary items....... (72.9) 4.2 (68.7) 77.4 8.7
Extraordinary items, net
of tax.................... 25.0 -- 25.0 (25.0)(14) --
------ ------ ------- ------ ------
Net income (loss)......... $(97.9) $ 4.2 $ (93.7) $102.4 $ 8.7
====== ====== ======= ====== ======
OTHER DATA:
Ratio of earnings to
fixed charges........... 1.3x(15)
======
Depreciation and
amortization expense.... $ 13.3 $ 6.2 $ 19.5 $ 4.2 $ 23.7
====== ====== ======= ====== ======
EBITDA(16).............. $(80.8) $ 16.2 $ (64.6) $143.2 $ 78.6
====== ====== ======= ====== ======
Ratio of EBITDA to cash
interest expense........ 2.0x(17)
======
</TABLE>
See accompanying notes.
32
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS)
The Unaudited Pro Forma Consolidated Statement of Income gives effect to the
following unaudited pro forma adjustments:
(1) Represents the non-recurring, non-cash impact in 1996 of $25.5 of
amortization of inventory step-up arising from application of purchase
accounting to the Acquisition as of May 1, 1996 ($15.3 after-tax).
(2) Represents the additional depreciation expense for the four months ended
April 30, 1996 resulting from the $46.1 write-up of property, plant and
equipment to fair market value (primarily buildings and special-purpose
manufacturing machinery and equipment), assumed to be allocated entirely
to cost of sales.
(3) Represents the additional amortization expense for the four months ended
April 30, 1996 related to $32.1 of acquired patents.
(4) Reflects the prorated estimated recurring cost savings of $0.7 relating
to manufacturing operations and field service operations from
management's reorganization plans relating to plant closings and certain
production department and field service consolidations resulting in
headcount reduction, offset by the removal of Dade Chemistry's $0.3
favorable LIFO impact for the four months ended April 30, 1996 (the
Company is on the FIFO inventory cost method).
(5) Represents the elimination of post-retirement medical and life insurance
benefits expense (OPEB) related to Dade Chemistry ($1.3 in aggregate).
Dade does not offer OPEB to its current employees and the Company will
not offer it prospectively to employees of Dade Chemistry, except to the
extent of OPEB liabilities retained by DuPont.
(6) Reflects the elimination of 100% of DuPont's "indirect corporate cost
allocations" and 100% of DuPont's "direct corporate cost allocations"
made to Dade Chemistry for the four months ended April 30, 1996 (an
aggregate of $7.8); and the replacement of such costs with the Company's
estimate of prorated incremental infrastructure costs required to operate
within the reconfigured overall Company organization ($6.5).
(7) Reflects the estimated prorated recurring cost savings related to
research and development as well as marketing and administrative
activities from management's reorganization plans as described below:
<TABLE>
<S> <C>
Consolidation of research and development organizations and headcount
reduction along with elimination of Paramax-related research pro-
jects................................................................. $1.5
Consolidation of domestic sales, marketing and service organizations
($3.1), along with international organizations in Europe and Japan
($0.6)................................................................ 3.7
Cost reductions arising from elimination of allocated DuPont corporate-
sponsored "variable compensation program" related to DuPont Medical
Product Group management not remaining with Dade Chemistry............ 0.3
----
$5.5
====
</TABLE>
(8) Represents for the four months ended April 30, 1996 the prorated
additional annual management fee in excess of the historical fee paid by
Dade ($2.0) to equal an agreed upon prospective annual fee of $3.0 to be
charged by Bain Capital and Goldman Sachs & Co. for consulting and
financial services to be provided to the Company.
(9) Represents the non-recurring charge resulting from the application of
purchase accounting to acquired in-process research and development
projects which have no future alternative use.
33
<PAGE>
(10) Represents for the four months ended April 30, 1996 the prorated
adjustment to reflect ongoing goodwill amortization resulting from the
purchase of Dade Chemistry. The Acquisition resulted in estimated
goodwill of $159.7 based on a preliminary allocation of purchase price to
be amortized over a twenty-five year period (annual amortization of
$6.4).
(11) Represents the non-recurring charge for restructuring and related costs
incurred as a direct result of the Acquisition. The restructuring charge
relates primarily to severance and relocation costs.
(12) Addition to pro forma interest expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
<S> <C>
Elimination of Dade's and Dade Chemistry's historical inter-
est expense................................................ $(26.8)
------
Interest on the $350.0 Senior Subordinated Notes (11.125%).. 19.5
Interest on borrowing under Bank Credit Agreement at LIBOR
(5.5374%) plus:
Revolver--2.75% (8.2874% on $50.0)........................ 2.1
Term A--2.75% (8.2874% on $185.0)......................... 7.7
Term B--3.25% (8.7874% on $90.0).......................... 4.0
Term C--3.50% (9.0374% on $90.0).......................... 4.1
Term D--3.75% (9.2874% on $95.0).......................... 4.4
Commitment fee on unused revolving credit facility at
0.50%...................................................... 0.2
------
Gross cash interest expense................................. 42.0
Less: Interest on $45.0 of debt to be repaid with proceeds
from "Net assets held for sale" at an average rate of
8.7385% (a)............................................. (2.0)
------
Net cash interest........................................... 40.0
Amortization of Acquisition debt issuance costs of $45.7
(average 8.29 years
amortization).............................................. 2.8
------
Interest from Acquisition debt requirements................. 42.8
------
Net increase................................................ $ 16.0
======
</TABLE>
- --------
<TABLE>
<S> <C>
(a) Generally accepted accounting principles permit nonrecognition of
interest expense in post-acquisition periods on incremental debt to
be paid down with the expected net proceeds from assets identified
for sale at the date of an acquisition.
(13) Reflects tax provision for pro forma adjustments required to yield an
estimated effective income tax rate of 40% on pro forma income (loss)
before income taxes.
(14) Reflects the elimination of extraordinary losses directly related to
the Transactions.
(15) For purposes of computing this ratio, earnings consist of income
before income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of deferred financing fees and one-
third of the rent expense from operating leases, which management
believes is a reasonable approximation of an appropriate interest
factor.
(16) EBITDA is defined as the sum of income from operations, depreciation
and amortization expense.
</TABLE>
<TABLE>
<S> <C>
(17) In calculating the ratio of EBITDA to cash interest expense, interest
expense excludes amortization of deferred financing fees of $2.8 for
the six months ended June 30, 1996.
</TABLE>
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
PREDECESSOR/DADE/COMPANY
Set forth below are selected historical and other financial data of the
Predecessor, Dade and the Company as of the dates and for the periods shown.
The selected historical and other financial data as of June 30, 1995 and 1996,
and for the respective six months then ended, were derived from unaudited
historical financial statements of Dade and the Company for such periods. The
selected historical financial data as of December 31, 1994 and 1995, for the
period from December 17, 1994 through December 31, 1994 and for the year ended
December 31, 1995 have been derived from Dade's audited financial statements,
which were audited by Price Waterhouse LLP, and are included elsewhere in this
Prospectus. The selected historical financial data for the year ended December
31, 1993 and for the period from January 1, 1994 through December 16, 1994
were derived from the audited historical financial statements of the
Predecessor for such periods, which were audited by Price Waterhouse LLP, and
are included elsewhere in this Prospectus. The selected historical financial
data as of December 31, 1993 and for the year ended December 31, 1992 were
derived from the audited financial statements of the Predecessor, which do not
appear in this Prospectus. The selected historical financial data as of
December 31, 1992 and for the year ended December 31, 1991 was derived from
unaudited historical financial statements of the Predecessor (not included in
this Prospectus) which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the results for the unaudited periods. The selected historical financial
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR DADE COMBINED DADE DADE COMPANY
------------------------------------ -------------- -------------- ------- ---------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM SIX MONTHS SIX MONTHS
1/1/94 TO 12/17/94 TO 1/1/94 TO ENDED ENDED
1991 1992 1993 12/16/94(1) 12/31/94(1)(2) 12/31/94(1)(2) 1995(2) 6/30/95(2) 6/30/96(2)(3)
------ ------ ------ ----------- -------------- -------------- ------- ---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net Sales (4)....... $619.0 $683.3 $690.2 $650.6 $19.0 $669.6 $614.3 $300.0 $353.8
Cost of Sales....... 361.4 401.8 420.8 391.4 18.6 410.0 368.6 208.7 208.4
------ ------ ------ ------ ----- ------ ------ ------ ------
Gross profit (5).... 257.6 281.5 269.4 259.2 0.4 259.6 245.7 91.3 145.4
Marketing and
administrative
expenses........... 165.7 183.9 179.2 173.2 2.4 175.6 171.1 77.6 113.1
Research and
development
expenses........... 45.9 53.2 47.2 33.4 1.1 34.5 26.5 13.7 114.2(6)
Goodwill
amortization
expense (credit)... 2.7 2.7 2.6 2.6 (0.1) 2.5 (0.4) (0.8) 0.8
Restructuring and
other related
items.............. -- -- 30.2(8) -- -- -- -- -- 11.4(7)
------ ------ ------ ------ ----- ------ ------ ------ ------
Income (loss) from
operations......... 43.3 41.7 10.2 50.0 (3.0) 47.0 48.5 0.8 (94.1)
Provision (benefit)
for income taxes... 14.4 13.9 12.3 14.2 (2.3) 11.9 7.2 (4.8) (42.8)
------ ------ ------ ------ ----- ------ ------ ------ ------
Income (loss) before
extraordinary items
and cumulative
effect of change in
accounting
principle.......... 28.9 27.8 1.4 35.8 (1.9) 33.9 12.7 (8.1) (72.9)
Extraordinary
items.............. -- -- -- -- -- -- -- -- (25.0)
Cumulative effect of
change in
accounting
principle (9)...... -- (5.7) (3.3) -- -- -- -- -- --
------ ------ ------ ------ ----- ------ ------ ------ ------
Net income (loss)
(5)................. $ 28.9 $ 22.1 $ (1.9) $ 35.8 $(1.9) $ 33.9 $ 12.7 $ (8.1) $(97.9)
====== ====== ====== ====== ===== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (10)......... $ 84.3 $ 96.2 $ 99.1 $ -- $ -- $112.1 $ 97.0 $ 46.0 $ 54.2
Depreciation and
amortization
expense (credit)... 41.0 54.5 58.7 59.6 (0.1) 59.5 4.9(11) 1.6 13.3(11)
Capital
expenditures....... 79.2 71.2 56.7 29.9 1.0 30.9 35.3 13.8 25.0
Ratio of earnings to
fixed charges
(12)............... -- -- -- -- N/M N/M 1.6x N/M N/M
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
THE PREDECESSOR DADE COMPANY
------------------------- ------------------------- -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1995(2) 1996(2)(3)
------------ ------------ ------------ ------------ -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $250.8 $246.4 $259.1 $219.4 $267.8 $ 175.8
Total assets (13)........ 734.9 710.6 696.2 550.9 554.0 1,044.6
Long term debt (including
current maturities)..... -- -- 270.0 283.5 302.7 810.0
Parent company
investment/stockholder's
equity (deficit) (5).... 589.6 577.1 83.1 81.2 78.7 (19.2)
</TABLE>
- --------
N/M=Not meaningful.
(1) The financial data of the Predecessor and Dade for the period from
January 1, 1994 to December 16, 1994 and the period from December 17,
1994 to December 31, 1994, respectively, were prepared on different bases
of accounting.
(2) Financial data for the period from December 17, 1994 to December 31,
1994, for the year ended December 31, 1995 and the six months ended June
30, 1995 and 1996 exclude the results of the Bartels and Burdick &
Jackson product lines, which have been reflected as "Net assets held for
sale."
(3) The financial data of the Company for the period from January 1, 1996 to
June 30, 1996 includes six months of Dade's results of operations and two
months of Dade Chemistry's post-Acquisition results of operations. The
balance sheet at June 30, 1996 reflects the Acquisition.
(4) Net sales include the net sales of Bartels and Burdick & Jackson as
follows: 1991--$32.1 million, 1992--$34.7 million, 1993--$36.7 million,
and 1994 through December 16--$34.3 million. Beginning on December 17,
1994, net sales of Bartels and Burdick & Jackson were excluded from total
net sales as these businesses were accounted for as assets held for
sale--see Note (2) above.
(5) Dade's stockholder's equity as of December 31, 1994 and gross profit and
net loss for the period December 17, 1994 through December 31, 1994
includes a non-recurring pre-tax charge relating to the application of
purchase accounting for a partial write-off of $5.6 million (after-tax
impact of $3.4 million) to cost of goods sold related to the amortization
of the $46.0 million of allocated purchase price made to record acquired
finished goods and work-in-process inventory at fair market value related
to the Initial Acquisition. Dade's stockholder's equity, gross profit and
net income for the year ended December 31, 1995 include the non-recurring
pre-tax write-off of the remaining $40.4 million (after-tax impact of
$24.2 million) of the inventory write-up discussed above. Dade's
stockholder's deficit, gross profit and net loss for the six months ended
June 30, 1996 includes non-recurring purchase accounting charges related
to the amortization of $25.5 million of allocated purchase price made to
record Dade Chemistry inventories at fair market value ($15.3 million
after tax), the write-off of $98.1 million of acquired in-process
research and development projects ($58.9 million after tax),
restructuring charges of $11.4 million ($6.8 million after tax) and $39.7
million of deferred financing fees and note repurchase premiums ($25.0
million after tax) related to the Transactions.
(6) Includes the non-recurring, pre-tax charge of $98.1 million ($58.9
million after-tax) related to the write-off of allocated purchase price
made to record in-process research and development projects at fair
market value related to the Acquisition. Such in-process research and
development projects have no alternative future use.
(7) Represents the non-recurring charge for restructuring and related costs
incurred as a direct result of the Acquisition. The restructuring charge
relates primarily to severance and relocation costs.
(8) In 1993, Baxter undertook a restructuring effort, charging the
Predecessor with $30.2 million for downsizing its sales, general and
administrative, instrument manufacturing and non-strategic research and
development staffs in an effort to reorganize the businesses into a
single operating division.
(9) In 1992, Baxter recorded a $5.7 million after-tax charge related to the
Predecessor for the cumulative effect of adopting SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and, in 1993, Baxter recorded a $3.3 million after-tax charge related to
the Predecessor for the cumulative effect of adopting SFAS No. 109
"Accounting for Income Taxes."
(10) "EBITDA" represents, for any period, the sum of income from operations;
depreciation and amortization expense and; for 1993, restructuring and
downsizing costs of $30.2 million; for the period December 17, 1994 to
December 31, 1994, non-recurring purchase accounting write-offs of $5.6
million; for 1995 and the six months ended June 30, 1995, non-recurring
purchase accounting write-offs of $40.4 million (see Note (5) above) and
$3.2 million, respectively, of non-recurring, non-cash charges (see Note
2 of "Notes to Combined/Consolidated Financial Statements" included
elsewhere in this Prospectus); and, for the six months ended June 30,
1996, non-recurring purchase accounting charges of $98.1 million and
$25.5 million, and non-recurring restructuring charges of $11.4 million
(see Note (5) above). EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. However, EBITDA should not be considered as an alternative
to net income as a measure of the Predecessor's, Dade's or the Company's
operating results or to cash flows as a measure of liquidity.
(11) Excludes, for 1995 and for the six months ended June 30, 1996, $40.4
million, and $25.5 million, respectively, of non-recurring purchase
accounting write-offs (see Note (5) above).
(12) No ratio of earnings to fixed charges is presented for the Predecessor
because the Predecessor was not allocated interest expense by Baxter. In
calculating the ratio of earnings to fixed charges for Dade and the
Company, earnings include income (loss) before income
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taxes plus fixed charges. Fixed charges consist of interest expense and
amortization of deferred financing fees, whether expensed or capitalized,
plus one-third of rental expense under operating leases which has been
deemed by management to be representative of an appropriate interest
factor. As a result of the loss incurred during the period December 17,
1994 to December 31, 1994, earnings did not cover fixed charges by $4.3
million. Excluding the impact during this period of the non-recurring
purchase accounting write-off of $5.6 million (see Note (5) above), the
ratio of earnings to fixed charges would have been 2.0 to 1.0. As a result
of the loss incurred during the six months ended June 30, 1995, earnings
did not cover fixed charges by $12.9 million. Excluding the similar $40.4
million non-recurring write-off in 1995, the 1995 ratio of earnings to
fixed charges for the full year would have been 2.7 to 1.0 and 2.6 to 1.0
for the six months ended June 30, 1995. As a result of the loss incurred
during the six months ended June 30, 1996, earnings did not cover fixed
charges by $115.7 million. Excluding the $25.5 million non-recurring, non-
cash write-off of inventory step-up, the $98.1 million non-recurring write-
off of in-process research and development and the $11.4 million non-
recurring restructuring charge, the ratio of earnings to fixed charges for
the six months ended June 30, 1996 would have been 1.7 to 1.0.
(13) Dade's total assets at December 31, 1994 include $200.0 million of
restricted cash, which was used on January 6, 1995 to settle the
installment portion of the Initial Acquisition purchase price with
Baxter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Overview and Comparability
The following discussion and analysis describes material changes in the
Company's financial condition from December 31, 1995. The analysis of results
of operation compares the six-month period ended June 30, 1996 to the
corresponding period of 1995. Certain significant items related to the
Acquisition and the Initial Acquisition have been included in the Company's
consolidated financial statements for these periods which affect the
comparability of the financial statements and the Company's overall financial
performance:
. $25.5 million was amortized to cost of goods sold related to the write-up to
the fair market value of work-in-process and finished goods inventory in
connection with the Acquisition's purchase price allocation. This non-
recurring, write-off of inventory was recorded as cost of goods sold during
the second quarter of 1996.
. An $11.4 million restructuring charge was recorded in the second quarter of
1996 to operating expense. Approximately $9.4 million of this charge relates
to employee severance and relocation costs and $2.0 million relates to other
related expenses. No significant expenditures related to this reserve were
made as of June 30, 1996.
. The Company recorded a $98.1 million pre-tax charge to research and
development expenses upon consummation of the Acquisition pertaining to
purchase price allocated to in-process research and development projects
that have no future alternative use.
. Two extraordinary after-tax charges totaling $25.0 million were made in the
second quarter of 1996 to record the costs associated with the repurchase of
the original 13% Senior Subordinated Notes due 2005 and the write-off of
previously deferred financing costs.
. 1995 cost of goods sold include the amortization of $40.4 million of the
$46.0 million non-recurring, non-cash write-up of inventory related to the
Initial Acquisition which was recorded on the opening balance sheet of the
Company in December 1994.
Net Sales. Net sales for the six months ended June 30, 1996 increased by
17.9% from the comparable prior year period. As adjusted to include Dade
Chemistry's pro forma six month results and the impact of the differences in
reporting periods for the Company's International Operations, pro forma net
sales would have declined by 4.4% for the six months ended June 30, 1996.
Factors which contributed to these adjusted results include (1) increases in
sales volume in the MicroScan product line and the newly acquired Dade
Chemistry business, (2) the non-recurrence of 1995 sales of instruments and
consumables of the Company's former Hemostasis supplier and (3) a continuation
of volume declines in the Company's mature Stratus non-cardiac and Paramax
instruments lines.
Gross Profit. For the six months ended June 30, 1996, gross profit of $145.4
million represented an increase of 59.3% as compared to the comparable prior
period. As adjusted to include Dade Chemistry's pro forma six month results
and excluding impacts of purchase accounting items previously discussed and
the differences in reporting periods for the Company's International
Operations, pro forma gross profit for the six months ended June 30, 1996
would have been essentially unchanged as compared to prior year. Factors which
contributed to these adjusted results include (1) the favorable effects of
product mix and lower manufacturing costs stemming from cost reduction
initiatives undertaken in 1995, (2) sales declines in the Company's Stratus
non-cardiac and Paramax product lines, and (3) increased depreciation expense.
Research and Development Expenses. Research and development expenses for the
six months ended June 30, 1996 increased by $100.5 million from the comparable
prior year period. As adjusted to include Dade Chemistry's pro forma six month
results and excluding the impact of purchase accounting items previously
discussed, pro forma research and development expenses for the six months
ended June 30, 1996 were $27.9 million, a decrease of 8.8% as compared to the
comparable prior year period. This reduction is due to the non-
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recurrence of 1995 expense related to molecular biology research and lower
research and development expenses in the Company's Paramax product line. The
reduction in molecular biology research is due to the elimination of that unit
during early 1996. The balance of this decline is due to product line
rationalization efforts which began in early 1996 in anticipation of the
Acquisition.
Marketing and Administrative Expense. Marketing and administrative expenses
increased by $35.5 million or 45.7% for the six month period ended June 30,
1996 over the comparable prior period. As adjusted to include Dade Chemistry's
pro forma six month results and excluding the impacts of Acquisition related
costs and the differences in reporting periods for the Company's International
Operations, pro forma marketing and administrative expenses would have
increased by 6.6% for the six months ended June 30, 1996 as compared to the
comparable prior year period. This increase is principally the result of
incremental expenses in the areas of finance, information systems and human
resources required for the Company to operate as a stand-alone entity,
including certain expenses which duplicate those paid to Baxter for transition
services as the Company prepares for the expiration of certain transition
services by the end of 1996.
Income Taxes. The Company has recognized tax benefits for the six months
ended June 30, 1996 and 1995 at an effective rate of approximately 37%. At
June 30, 1996, the Company has recorded a net deferred tax asset of $220.3
million as compared to $138.4 million at December 31, 1995. Management
continues to believe that realization of the net tax asset is more likely to
occur than not. The deferred tax asset's realization is not dependent on
material improvement over Dade's forecast of current levels of consolidated
pre-tax income, material changes in the present relationship between income
reported for financial and tax purposes, material asset sales or other non-
routine transactions.
Net Income. For the six month period ended June 30, 1996, the Company
reported a net loss of $97.9 million as compared to a net loss of $8.1 million
for the same period in 1995. The losses as reported for the six months ended
June 30, 1996 are primarily attributable to the Acquisition, related purchase
accounting items and declines in sales volumes as previously discussed.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Overview and Comparability
The financial statements of Dade and its Predecessor for these periods are
not comparable in certain respects due to differences between the cost bases
of certain assets and liabilities and differences in the operating structures
of the new and old companies. On December 20, 1994, Dade consummated the
Initial Acquisition. Since the Initial Acquisition was accounted for in
accordance with the purchase method of accounting and because the estimated
fair value of assets acquired significantly exceeded total acquisition costs,
several purchase accounting adjustments were necessary to properly reflect the
assets and liabilities of Dade. These adjustments included:
. All non-current assets as of December 16, 1994 were reduced to zero and the
preliminary residual of $24.2 million was recorded as negative goodwill.
Since Dade's non-current assets were reduced to zero, 1995 results of
operations were favorably impacted by significantly reduced depreciation
expense and amortization credits arising from the negative goodwill.
. Dade management identified two product lines (Bartels and Burdick &
Jackson), along with certain excess land and warehouse facilities at another
location, as operations and assets held for sale. Such businesses and
property have been reflected as "Net assets held for sale" in Dade's
financial statements, and accordingly their 1995 results have been excluded
from Dade's consolidated 1995 results.
. A $46.0 million write-up of finished goods and work-in-process inventory to
fair value was recorded as of December 16, 1994, of which $40.4 million was
charged to cost of goods sold during 1995.
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Further complicating comparisons to the prior year are structural changes to
the business, such as changes in the manner in which products are distributed
in certain international markets, the establishment of a royalty-producing
licensing agreement in place of certain products previously sold by Dade and
incremental marketing and administrative costs necessary to operate on a
stand-alone basis. Finally, it should be noted that international results for
Dade were recorded on a one month delay (i.e., international November 1995
results were reported as December 1995). Because Dade closed its accounts as
of December 16, 1994 for the Initial Acquisition, consolidated results for the
period ended December 31, 1995 include international results only for the
period December 17, 1994 through November 30, 1995 (i.e., eleven and one-half
months).
Net Sales. Net sales in 1995 decreased 8.3% from the prior year. After
adjusting for the reclassification of sales for product lines included in "Net
assets held for sale" and the shorter reporting period for international
results, net sales in 1995 were $621.3 million, a decrease of 0.7% from a
comparable base of $625.9 million in 1994. The decrease in sales, as adjusted,
is due to price reductions which Dade implemented for Stratus non-cardiac
products, the loss of a portion of Dade Controls' OEM business and the lack of
a hemostasis instrument offering from January through July of 1995. Partially
offsetting these declines were increased hemostasis sales for the last five
months of 1995 due to the launch of the product line of TOA Medical
Electronics Co. Ltd. ("TOA") and growth in Dade's MicroScan product line.
MicroScan's growth was attributable to continued international penetration and
increased instrument placements as well as associated reagent volume resulting
from contracts signed with several significant integrated health system
providers.
Gross Profit. Gross profit in 1995 was significantly impacted by the
application of purchase accounting. These adjustments included the elimination
of depreciation expense as a result of the write-off of the Predecessor's
fixed assets, the amortization of the one-time non-cash write-up of
inventories and the reclassification of sales for product lines included in
"Net assets held for sale." Additionally, gross profit was impacted by the
shorter reporting period for international results. Excluding these effects,
gross profit and gross margin in 1995 were approximately equal to those in
1994. In 1995, declines due to price reductions which the Company implemented
on its Stratus non-cardiac products and the loss of a portion of Dade
Controls' OEM business were offset by increased volume in the MicroScan
product line and the launch of the TOA instrument line.
Marketing and Administrative Expenses. Marketing and administrative expenses
(including goodwill amortization) for 1995 decreased by $7.4 million from
$178.1 million in 1994 to $170.7 million in 1995, a decrease of 4.2%. The
reduction is largely the result of purchase accounting adjustments, the
reclassification of "Net assets held for sale" and the difference relating to
international reporting periods. Excluding the impact of purchase accounting,
the reclassification of "Net assets held for sale" and the difference relating
to international reporting, marketing and administrative expenses increased to
$173.9 million in 1995 from $165.0 million in 1994, principally as a result of
incremental expenses in the areas of finance, information systems and human
resources required for the Company to operate as a stand-alone entity.
Research and Development Expenses. Research and development expenses for
1995 declined by $8.0 million or 23.2% from 1994. After adjusting for the
reclassification of sales for product lines included in "Net assets held for
sale," the shorter reporting period for international results and the
elimination of historical depreciation, research and development expenses for
1995 declined modestly as compared to 1994. The decrease reflects the planned
spin-off of an advanced molecular biology research team, reduced research
efforts associated with the Paramax and Stratus instrument lines and a delay
in the staffing of open personnel positions in new projects. Dade's research
and development programs will continue to be focused on the hemostasis,
immunochemistry, microbiology and controls segments of the clinical
laboratory.
Provision for Restructuring. At December 31, 1994, Dade had an aggregate
reserve of $21.0 million to cover severance actions ($10.8 million) and direct
costs to exit certain facilities ($10.2 million) as part of a facilities and
plant rationalization program instituted at the time of the Initial
Acquisition. The cost of this program was reflected as part of Dade's
allocation of purchase price in accordance with the purchase method of
accounting. Dade estimates that the restructuring generated net cost savings
of approximately $7.2 million in 1995 which will increase to a full year
recurring impact of approximately $13.7 million in 1996. Approximately $13.9
million of the $21.0 million was spent on restructuring projects in 1995. The
Company expects that the remainder of its restructuring program actions will
be completed during 1996.
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Income Taxes. Given Dade's new legal and stand-alone operating structure,
its prospective effective tax rate is expected to be approximately 37.0%. Dade
and its Predecessor's combined effective tax rate during 1994 was 26.0%. As a
result of purchase accounting in 1994, Dade recorded a net deferred tax asset
of $125.3 million as of December 31, 1994. This asset increased to $143.0
million as of December 31, 1995 primarily as a result of tax net operating
losses created by depreciation on historical tax assets exceeding pre-tax
income during the year. In assessing the value of the deferred tax asset at
December 31, 1995 management has analyzed Dade's forecast for future taxable
earnings (and losses) by jurisdiction and other relevant factors and concluded
that recoverability of the net deferred tax asset is more likely to occur than
not. The deferred tax asset's realization is not dependent on material
improvement over Dade's forecast of current levels of consolidated pre-tax
income, material changes in the present relationship between income reported
for financial and tax purposes, material asset sales or other non-routine
transactions.
Net Income. Net income for 1995 declined 62.5% from $33.9 million in 1994 to
$12.7 million in 1995. Net income was negatively impacted by the effects of
purchase accounting, the reclassification of operating results for product
lines included in "Net assets held for sale," the shorter reporting period for
international results and by $30.8 million in interest expense attributable to
the debt incurred in connection with the Initial Acquisition.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales decreased 3.0% to $669.6 million in 1994 from $690.2
million in 1993. Approximately 90% of this decline occurred in domestic
operations where reduced Dade Hemostasis instrument sales resulted from the
termination of the Predecessor's instrument supplier relationship and, to a
lesser extent, where a reduction of sales in other product lines resulted from
health care reform initiatives existing at that time that curtailed hospital
spending and intensified competition. The Predecessor also lost sales in 1994
versus 1993 in its Stratus product line, primarily in its non-cardiac reagents
products. Additionally, sales were negatively affected by uncertainty
surrounding Baxter's announced divestiture of the Predecessor. The remaining
10% of this decrease was attributable to foreign operations, which declined
due to the negative impact of fluctuations in foreign currency rates and
reduced sales in the Dade Immunohematology product line. International sales
of MicroScan's product were ahead of 1993 sales.
Gross Profit. Gross profit in 1994 was impacted by the write-up of
inventories through purchase accounting and the partial ($5.6 million) flow
through to cost of goods sold as a one-time non-cash charge. Excluding this
impact, gross profit decreased by 1.6% to $265.2 million in 1994 compared to
$269.4 million in 1993 as a result of the decrease in sales. Excluding the
effects of purchase accounting, gross profit margins of 39.6% in 1994 were
slightly better than margins of 39.0% in 1993 partially due to a decline in
lower margin instrument sales. This increase was, in part, due to the 1993
Restructuring which reduced costs across the Predecessor's and Company's
manufacturing operations, especially the Stratus product line.
Marketing and Administrative Expenses. As a percentage of sales, marketing
and administrative expenses (including goodwill amortization) in 1994
increased slightly to 26.6% from 26.3% in 1993 primarily as a result of the
sales decline discussed above. However, on an absolute basis, approximately
$6.0 million of the $24.0 million in annual cost savings which resulted from
Baxter's 1993 restructuring of the Predecessor as described below (the "1993
Restructuring") were realized as reduced marketing and administrative expenses
in 1994.
Research and Development Expenses. Research and development expenses
incurred in 1994 decreased by 26.9% from 1993 as the Predecessor restructured
its organization in the second half of 1993 to focus its research efforts on
its highest priority projects. Research and development efforts are now
focused on the core hemostasis, controls, microbiology and cardiac product
lines. Approximately $14.0 million of the $24.0 million in annual cost savings
which resulted from the 1993 Restructuring were realized in reduced research
and development expenses for 1994. Management expects to maintain research and
development expenses at approximately $30.0 to $40.0 million annually as it
focuses increased attention on the Dade Hemostasis and MicroScan product
lines.
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Provision for Restructuring. At December 31, 1994, Dade had an aggregate
reserve of $21.0 million to cover severance actions ($10.8 million) and direct
costs to exit certain facilities ($10.2 million) as part of a facilities and
plant rationalization program instituted at the time of the Initial
Acquisition. The cost of this program was reflected as part of Dade's
allocation of purchase price in accordance with the purchase method of
accounting.
Income Taxes. Dade's and its Predecessor's combined effective tax rate in
1994 was 26.0% as compared to the Predecessor's 89.8% effective tax rate in
1993. Given Dade's new legal and stand-alone operating structure, its
prospective effective tax rate is expected to be approximately 37.0%.
As a result of purchase accounting in 1994, Dade had a net deferred tax
asset of $125.3 million which is expected to reduce income taxes payable in
future years. In assessing the value of the deferred tax assets at December
31, 1994, management has analyzed Dade's forecast for future taxable earnings
(and losses) by jurisdiction and other relevant factors and concluded that
recoverability of the net deferred tax asset of $125.3 million is more likely
to occur than not. The realization of this deferred tax asset is not dependent
on material improvements over Dade's forecast of current levels of
consolidated pre-tax income, material changes in the present relationship
between income reported for financial and tax purposes, material asset sales
or other non-routine transactions.
Net Income. Combined net income of $33.9 million in 1994 was higher than the
net loss of $1.9 million in 1993 due to the Predecessor recording a $30.2
million restructuring charge during 1993, as described above. Net income in
1993 was further reduced by $3.3 million for a cumulative adjustment to adopt
SFAS No. 109 "Accounting for Income Taxes." Net income for 1994 was also
negatively impacted by the aforementioned non-recurring purchase accounting
adjustment.
LIQUIDITY AND CAPITAL RESOURCES
The Acquisition required the complete refinancing of the Company's debt
arrangements in order to provide adequate funding for both the Dade Chemistry
purchase price and the retirement of the Company's existing obligations.
The Company submitted a tender offer for its 13% Senior Subordinated Notes
due 2005 which was accepted by all of the holders. The cost of the tender
offer to the Company totaled $146.3 million representing all principal,
interest and tender premiums paid to holders. In addition, the Company retired
all of its existing bank debt. To fund these retirements, the Company entered
into the following financing arrangements.
The first, a new Bank Credit Agreement, provides for loans up to $585
million comprised of $460 million of amortizing Term Loans and up to $125
million in a Revolving Credit Facility. On the date the Acquisition was
consummated, all of the Term Loans and $50 million under the Revolving Credit
Facility were drawn down. Second, $350 million of 11 1/8% Senior Subordinated
Notes due 2006 were issued under an indenture between the Company and IBJ
Schroder Bank & Trust Company. The notes are unsecured obligations of the
Company ranking subordinate in right of payment to all Senior Debt (as defined
in such indenture) of the Company. Interest on the notes is payable semi-
annually.
The Company's principal liquidity requirements are for working capital,
capital expenditures, restructuring activities and debt service.
During the first half of 1996, working capital decreased from $219.4 million
to $175.8 million primarily due to debt incurred and liabilities assumed in
connection with the Acquisition. Net assets held for sale decreased from $54.9
million to $45.0 million due to the sale of certain excess real estate.
Capital expenditures of the Company increased to $25.0 million from $13.8
million for the six months ended June 30, 1996 as compared to the comparable
period in 1995. This increase is attributable to investments in the Company's
stand-alone infrastructure and instruments placed in customer locations.
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The interest expense incurred by the Company in the first half of 1996 was
approximately $23.9 million exclusive of the write-off of the deferred
financing fees incurred under the prior financing arrangements.
During 1995, Dade's net working capital declined from $259.1 million at
December 31, 1994 to $219.4 million at December 31, 1995. After adjusting for
non-cash items recorded in connection with purchase accounting and the
increase in cash and cash equivalents during the period, net working capital
increased $7.2 million during 1995. Receivables increased $62.7 million in
1995, principally due to the initial rebuilding of balances to normal
operating levels stemming from Baxter's retention of a significant portion of
the receivables outstanding as of the Initial Acquisition closing date. Net
assets held for sale decreased by $18.3 million principally as a result of the
sale of Bartels. Total inventories decreased $49.2 million during the period
to a balance of $122.0 million as of December 31, 1995. Excluding the effects
of purchase accounting adjustments and certain reclassifications, particularly
the roll-out of the $40.4 million inventory write-up, inventory reductions
generated $0.8 million in cash in 1995. Increases in accounts payable and
accrued liabilities, attributable principally to rebuilding to normal
operating levels of balances retained by Baxter, resulted in cash generation
of $37.2 million during 1995.
Dade's annual capital expenditures include expenditures for property, plant
and equipment and expenditures for instruments placed with customers. Dade and
its Predecessor made capital expenditures in 1993, 1994 and 1995 of
approximately $56.7 million, $30.9 million and $35.3 million, respectively.
The decrease in 1994 spending resulted primarily from lower expenditures by
Baxter prior to the Initial Acquisition. In 1995, Dade increased capital
expenditures to finance various cost reduction initiatives and facilities and
systems necessary to operate on a stand-alone basis ($5.0 million).
The Company expects to expend $73.3 million of capital expenditures in the
first full year following the Acquisition. Approximately $16.0 million of
these expenditures are one-time outlays associated with developing a stand-
alone infrastructure, primarily for information systems. The remaining $57.3
million of expenditures primarily reflect outlays to support the ongoing
operations of the business.
Following the Initial Acquisition, Dade initiated a series of restructuring
activities as part of a facilities and plant rationalization program. In 1995,
Dade utilized approximately $13.9 million of cash related to these
restructuring activities which management estimates will result in
approximately $13.7 million of annualized operating savings. Another $7.1
million of restructuring reserves established at the Initial Acquisition
closing date will be expended during 1996 as the remaining restructuring
actions are implemented. Following the Acquisition of Dade Chemistry, the
Company recorded $26.4 million of restructuring reserves related primarily to
severance, relocation, and retention bonuses for certain employees during the
integration process and for direct costs to exit and consolidate certain
facilities. Management believes that the restructuring reserves provided will
be adequate based on the integration plan and expects that this restructuring
will be substantially completed in 1997. Management is continuing to assess
the Company's overall organization and cost structures and may, as a result of
this on-going process, develop future initiatives to increase operating and
administrative efficiency and enhance profitability.
In addition to the restructuring activities implemented following the
Initial Acquisition, Dade identified the Burdick & Jackson ("B&J") and Bartels
product lines and certain unutilized land and warehouse facilities as
operations and assets to be sold. In October 1995, Dade divested its Bartels
product line and received $16.5 million in gross cash proceeds from this asset
sale, which were used to repay existing indebtedness. At December 31, 1995,
Dade recorded the remaining Net assets held for sale at $54.9 million, which
represented the expected net sales proceeds of the asset sales. In January
1996, the land and warehouse facilities were sold and the proceeds were used
to repay existing indebtedness. Upon completion of the sale of B&J, the
Company will utilize a substantial portion of the proceeds from such sale to
repay bank debt in accordance with the Company's Bank Credit Agreement.
Management believes that cash from operating activities, together with
available revolving credit borrowings under the Bank Credit Agreement will be
sufficient to permit the Company to meet its financial obligations and fund
its operations.
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INFLATION
Inflation affects the cost of goods and services used by the Company.
Inflation has been modest in recent years. The competitive environment limits
the ability of the Company to recover these higher costs through increased
selling prices, although the Company selectively increases prices for certain
differentiated high value added products. Overall product prices have been
relatively stable during the past three years and the Company continues to
mitigate the adverse effects of inflation primarily through new product
offerings, improved productivity and cost containment and improvement
programs.
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting for Income Taxes. In 1993, the Predecessor adopted the provisions
of SFAS No. 109 "Accounting for Income Taxes." The adoption of SFAS No. 109
resulted in a cumulative charge of $3.3 million in 1993.
Accounting for Stock-Based Compensation. The Company intends to adopt in
1996 the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company does not expect that adoption of SFAS No. 123 will
materially impact the financial statements, with the exception of additional
required pro forma disclosures.
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INDUSTRY
IVD instruments and systems are utilized by clinical laboratories to
identify and measure substances in patients' tissue, blood or urine samples.
Due to its important role in the diagnosis and treatment of patients, IVD
testing is an integral part of overall patient care. Additionally, IVD testing
is increasingly valued as an effective method of reducing health care costs by
providing accurate, early detection of health disorders and also avoiding the
cost of lengthy in-patient stays.
The worldwide market for sales of IVD products (including instruments,
reagents, and consumables) and services approximates $13.8 billion, with
approximately 40% of this total in the United States market. The Company
primarily provides those products and services that are relevant to the
hospital and reference laboratory segments, which tend to use more precise,
higher volume and more automated IVD systems. The specific segments of the
overall IVD market served by the Company approximates $7.1 billion. The
definition and approximate worldwide segment size of the Company Served
Markets are as follows:
. Clinical Chemistry. Clinical chemistry instrument systems, the highest
volume instruments in most clinical laboratories, are primarily used to test
for glucose, cholesterol, sodium and other substances found in large
concentrations in the body. These tests are typically run for both routine
and emergency patients to help doctors understand the status of basic bodily
functions prior to ordering more extensive testing.
. Immunochemistry. Immunochemistry instrument systems use targeted antibodies
to identify and test enzymes, drugs, hormones and other substances found in
relatively small concentrations in the body. Typical immunochemistry tests
indicate conditions such as cardiac arrest, anemia and pregnancy, or monitor
the level of therapeutic drugs in a patient's bloodstream.
. Hemostasis. Hemostasis instrument systems test blood coagulation (clotting)
or platelet function. Hemostasis tests are typically run before and during
most surgeries or are performed to monitor patients on anti-coagulant
therapy.
. Microbiology. Automated microbiology instrument systems identify disease-
causing bacteria and determine their susceptibility to various antibiotics.
Example microbiology tests would include those for strep and staph
infections.
. Controls. Controls are used to test instruments for accuracy and
consistency. Because of the need for a high degree of accuracy in IVD
testing, controls are run daily on most instruments in a clinical
laboratory.
IVD systems are composed of instruments, reagents, consumables, service and
data management systems. Instruments typically have a five to ten year life
and serve to automate repetitive manual tasks, improve test accuracy and speed
results reporting. Reagents are liquid or powder chemical substances that
react with the patient sample to produce measurable, objective results. The
consumable accessories vary across application segments but are generally
items such as sample containers and lids used during test procedures. Both
reagents and consumables are typically exclusive to their related instruments
(thus, a "closed" system) and, therefore, generate significant ongoing
revenues for suppliers. Sample handling and preparation devices as well as
data management systems are becoming increasingly important components of the
IVD system. These system additions further reduce labor, improve safety and
reduce cost through their automation benefits. According to customer surveys
and industry research, the most important criteria customers use to evaluate
IVD systems are reliability, reagent quality and service. Providing a total
integrated system solution that is reliable and easy to use creates high
switching costs and loyalty among customers who value consistency and accuracy
in test results.
The primary users of IVD products are hospital and reference laboratories,
which constituted approximately 82% of the market. The remaining 18% of the
market included physicians' offices, clinics, home testing and alternate
sites. From 1983 to 1994, hospitals' share of test revenue has remained stable
at approximately 50% due to the large portion of hospital testing required on
a "STAT" (non-discretionary testing requiring a turnaround time of under two
hours) basis. The revenue share of reference laboratories has increased
significantly over the past several years, growing from approximately 10% of
the market eleven years ago to approximately
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32% of the market in 1994. Reference laboratories have largely grown at the
expense of physicians' offices and alternate sites, which declined from 40% to
18% during the same period, a trend affected largely by the Clinical
Laboratory Improvement Amendment of 1988 ("CLIA '88")--legislation which
encouraged a higher level of standardization and quality assurance among
testing laboratories.
A number of factors are likely to generate continued growth in the IVD
market. Instrument automation trends such as sample handling, sample
preparation, and data management systems will improve the consistency and
labor costs of IVD testing, thereby enhancing the value component of IVD use.
The development of new tests such as alternative cardiac markers will also
encourage increased IVD usage in new and/or more frequent applications. An
aging population is expected to increase the demand for health care services
in general and, despite health care reform initiatives targeted at reducing
the length of inpatient stays, hospital inpatient admissions and outpatient
visits (at which time the majority of IVD tests are performed) continue to
grow. Moreover, according to an independent industry source, the number of
laboratory tests per hospital patient grew at 4% per year, and STAT testing
grew at 6% per year.
This latter trend reflects the growing recognition of the contribution IVD
products can provide to the overall quality of patient care, particularly
where the timeliness and accuracy of diagnosis are critical. For example, IVD
testing can be used to identify the incidence of a heart attack. In the United
States, approximately five million people with chest pain are admitted each
year to hospitals, but only 14% of this group actually experience a heart
attack. The incorrect admission or, even worse, the incorrect discharge of a
patient can cost the health care system billions of dollars annually.
The value of these tests has established IVD as an integral part of patient
care, and IVD has become increasingly important to the overall delivery of
cost efficient, high quality health care. At the same time, the cost of IVD
products to the laboratory remains a small portion of their overall capital
and operating costs, and is therefore not likely to be an area targeted for
significant cost improvements. In fact, gross profit margins of IVD suppliers
generally have remained relatively constant during the period from 1990 to
1995.
In the past several years, management has observed that an increasing number
of domestic hospitals have formed into groups known as Health Systems. In
general, Health Systems consist of 3-10+ local or regional hospitals which
have merged or formed joint ventures in order to compete for patients, develop
strategic alliances with suppliers, and leverage specialized departments. The
formation of these Health Systems presents larger IVD suppliers, such as the
Company, with the opportunity to drive standardization of their products
across all hospitals in the group. Management believes that successful IVD
companies will need to offer a broad product portfolio, anchored by a strong
position in clinical chemistry. Additionally, as purchase decisions have
become more centralized, the sales process has become more sophisticated and
IVD companies will increasingly need to demonstrate that their product
offering can lower system costs and improve patient outcomes. The Company's
recently signed agreement with Columbia/HCA (the largest for-profit hospital
chain in the United States) across its five core product lines exemplifies the
benefits of standardization. With its leadership position in clinical
chemistry, its broad portfolio of products and its track record with Health
Systems, the Company is well suited to take advantage of these trends.
Management believes that as the IVD market continues to mature, IVD
suppliers will need to increase the scale of their operations and broaden the
scope of their product lines in order to leverage worldwide sales, service and
research and development infrastructures. These trends are driving industry
consolidation which, in turn, provides excellent opportunities for leading IVD
suppliers like the Company to increase market share and participate in
strategic alliances, joint ventures and acquisitions.
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BUSINESS
HISTORY
DADE
The Predecessor was established in 1949 as part of the Dade County Blood
Bank in Florida and is currently headquartered in Deerfield, Illinois. The
Predecessor initially distributed its blood products through American Hospital
Supply Corporation ("AHS") and was subsequently acquired by AHS in 1956.
Building upon its initial blood testing base, AHS initiated extensive research
and development efforts and acquisitions to expand into the emerging IVD
testing industry. From 1983 to 1985, Stratus and Paramax development, which
began in the late 1970s, culminated in product introductions into the
immunochemistry and clinical chemistry markets, respectively. The MicroScan
product line was developed through a series of acquisitions in the early
1980s. In 1985, Baxter acquired AHS and formed the Baxter Diagnostics
Division, which consisted of Dade's current major product lines. Baxter
Diagnostics, Inc. was incorporated in 1990 to hold Dade's current major
product lines and certain other businesses of Baxter.
In December of 1994, Bain Capital and GS Capital Partners acquired the
Predecessor from Baxter. Since the Initial Acquisition, Dade has made
significant progress in focusing and implementing its business strategy.
Several new products--such as the cardiac marker Troponin-I--were launched
with strong market acceptance. Dade also entered into a worldwide alliance
with TOA Medical Electronics Co. Ltd. ("TOA") to jointly develop and
distribute coagulation products. Cost reduction activities such as the
consolidation of Dade's Miami facilities, the increased automation of
MicroScan's panel manufacturing line, and the consolidation of Stratus' Puerto
Rico reagent manufacturing lines to Miami were implemented as part of Dade's
strategy to continuously improve its cost position. Additionally, two non-core
businesses were announced for sale, one of which was divested.
During 1995, management reorganized Dade's domestic sales and service force
to improve its customer tracking and retention capability, leverage its broad
product offering and to capitalize on its key Health Systems partnerships.
This reorganization was instrumental in driving a record level of fourth
quarter 1995 instrument placements for many of Dade's product lines.
Additionally, Dade's product line managers were realigned to have global
responsibility for their products. In the current IVD market, management
continues to believe that initiatives such as state-of-the-art customer
tracking and global product management will be critical to the Company's long-
term growth and competitiveness.
DADE CHEMISTRY
DuPont entered the automated clinical chemistry market in 1968 with the
introduction of the aca analyzer. The aca was the first random access
automated chemistry analyzer in the world. Its ease of use, random access
capability and broad test menu combined to make the aca one of the most widely
accepted analyzers. In 1986, Dade Chemistry launched its line of Dimension
analyzers to serve the needs of higher volume customers. Since that time, Dade
Chemistry has successfully introduced four significant new models to the
Dimension line, each designed for higher volume customers. The most recent
model, the Dimension XL, was released in mid-1995. Due to the success of the
aca and the Dimension product lines, Dade Chemistry's installed base of
clinical chemistry instruments is one of the largest in the world. Dade
Chemistry has been very successful at leveraging this group of customers with
an aggressive test development program focused on creating new tests which
work on all existing instrument models. Because the clinical chemistry
analyzer represents such a significant portion of a typical clinical
laboratory's test volume, Dade expects to continue to build upon Dade
Chemistry's strong position through new instrument models and enhanced test
menus.
Dade, a corporation organized under the laws of Delaware, has its principal
executive offices located at 1717 Deerfield Road, Deerfield, Illinois 60015-
0778; its telephone number is (847) 267-5300.
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OVERVIEW
The Company is the largest supplier of IVD products and services to clinical
laboratories in the United States and the third largest IVD supplier to
clinical laboratories in the world. Of the total estimated $13.8 billion
global IVD market, the Company serves a $7.1 billion segment that consists of
IVD instruments, reagents (compounds and liquids used to perform tests),
consumables (sample containers, lids, etc.) and services targeted primarily at
clinical laboratories. Within the Company Served Markets, the Company has
market leadership positions in four of its five core product segments
(clinical chemistry, microbiology, hemostasis and controls) and a strong niche
position in the fifth (immunochemistry). On a pro forma basis, the Company
would have generated revenue and EBITDA of $959.0 million and $179.5 million,
respectively, for the year ended December 31, 1995.
In vitro (literally, "in glass") diagnostic tests are conducted outside the
body and are used to identify and measure substances in patients' tissue,
blood or urine samples which enable physicians to diagnose, treat and monitor
patients. The most common IVD tests, accounting for up to 40% of a clinical
laboratory's test volume, are traditional clinical chemistry tests such as
glucose, cholesterol or sodium measured as part of routine blood checks. Other
IVD tests measure bodily functions such as blood clotting ability, fertility
and cardiac function or measure the presence of infections or drugs. The wide
range and important nature of these tests have established IVD testing as an
integral part of the managed healthcare environment, providing for accurate
and timely patient diagnosis and treatment. Increasingly, IVD testing is being
recognized as making a significant contribution to improving patient care and
lowering total patient costs. As a result, management believes that future
growth in IVD testing will be driven by (i) greater automation in order to
achieve more consistent test results at lower costs; (ii) applications of
emerging test technologies (e.g., cardiac markers which test for the
occurrence of heart attacks); and (iii) demographic shifts such as the aging
of the population.
IVD tests are conducted primarily in clinical laboratories which, in the
United States, consist of approximately 6,000 hospital-based laboratories and
4,000 reference laboratories (independent of hospitals). The Company provides
products and services to over 90% of domestic hospital clinical laboratories
and to the majority of reference laboratories worldwide. Nearly all hospitals
require laboratory testing capability due to the "STAT" or emergency nature of
their diagnostic needs and, therefore, represent a stable, attractive customer
segment for the Company.
The Company manufactures and markets a broad offering of IVD products and
services which includes: (i) instruments (approximately 10% of pro forma 1995
sales); (ii) reagents and consumables (approximately 80% of pro forma 1995
sales); and (iii) services (approximately 10% of pro forma 1995 sales). The
Company's extensive product line is capable of conducting over 500 different
types of IVD tests and serves over half of the global IVD market.
In total, the Company has a worldwide installed base of approximately 21,500
instruments. With a typical instrument life of five to ten years, the
Company's installed base of instruments generates annual revenue of
approximately $40,100 per instrument from ongoing sales of reagents,
consumables and service. More importantly, all but one of the Company's
instrument systems are "closed" systems, which require the exclusive use of
Company reagents and consumables in order to run tests. As a result, through
its large installed base of instruments, the Company generates an attractive,
stable and recurring stream of revenue from reagents, consumables, and service
contracts.
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COMPETITIVE STRENGTHS
The Company attributes its leading positions in the IVD market to the
following competitive strengths:
. Leading manufacturer and supplier of IVD instruments and supplies. With 1995
pro forma sales of $959.0 million, the Company is the leading supplier of
IVD products and services to clinical laboratories in the United States and
is the third largest IVD supplier to clinical laboratories in the world. The
Company is the domestic market leader in automated clinical chemistry and
the only supplier with domestic leadership positions in four major IVD
segments.
. Broadest product and service offering. The Company is the only supplier of
products and services across five major IVD segments. The Company believes
that its broad product offering provides a competitive advantage in
marketing its products to a wide range of customers (from single-site
hospitals to Health Systems to reference laboratories), each with varying
testing and performance requirements. For example, the Company believes that
its ability to offer "one-stop shopping" due to its broad product offering
was instrumental in its April 1996 signing of a five year agreement for all
of the Company's five core product lines with Columbia/HCA (the largest for-
profit hospital chain in the United States).
. Stable and recurring stream of reagent, consumable and service revenues. The
Company generates a stable and profitable stream of revenues from its large
installed base of instruments which require the ongoing consumption of
various reagents, consumables, and services. More importantly, all but one
of the Company's instrument systems, representing approximately 80% of all
installed instruments, are "closed" systems, which require customers to use
the Company's reagents and consumables exclusively. In 1995, sales from
reagents, consumables, and services accounted for approximately 90% of the
Company's pro forma sales.
. Extensive sales and service organization. The Company's sales and service
force of approximately 1,900 professionals worldwide is one of the largest
in the industry. Management believes this large network of customer support
functions (including sales, installation, training and service) provides the
Company with a competitive advantage in both acquiring and retaining
customers.
. Management team with successful track record. The Company has an experienced
management team that averages twenty years each in the health care industry.
Over the last several years, management has demonstrated its ability to
develop leading market share positions, rationalize infrastructure and
reduce costs.
BUSINESS STRATEGY
The Acquisition expanded Dade's leadership positions by significantly
improving its competitive position in the important clinical chemistry
segment. The Acquisition was consistent with the Company's strategy to seek
consolidation opportunities within the IVD industry that leverage its
installed base, broad product offering, international presence and economies
of scale to increase profitability and enhance its global leadership position.
Dade believes that its combination with Dade Chemistry creates one of the best
positioned suppliers of IVD products and services in the world. The Company is
committed to improving its strong market position through the following
strategies:
. Cross-sell products to increase market penetration. The Acquisition provides
the Company with a unique opportunity to cross-sell existing product lines
between Dade's and Dade Chemistry's extensive customer bases. The Company
intends to capitalize on cross-selling opportunities primarily by marketing
Dade Chemistry's clinical chemistry products to existing Dade customers and
marketing Dade's controls, microbiology and hemostasis products together
with the sale of routine clinical chemistry analyzers.
. Increase international presence. The Acquisition provides Dade with exposure
to new international markets and increases Dade's total international sales
by 48% to approximately $277 million. This increased international presence
will allow the Company to leverage sales, marketing and administrative costs
in countries currently served by both Dade and Dade Chemistry, and increase
market share by introducing existing products to countries currently served
by only one of the two businesses. The Company believes international
markets also present growth opportunities due to the current under-
penetration of automated systems in these markets.
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. Maintain a pipeline of new products. The Company's research and development
resources focuses on three types of initiatives: (i) expanding test menus,
such as the recent introduction of thirteen new assays in the Dimension
product line; (ii) upgrading instruments, such as MicroScan's WalkAway or
Dade Chemistry's next generation Dimension; and (iii) developing niche
instrument platforms, such as Dade Hemostasis' Platelet Function Analyzer
("PFA"), the world's first commercial in vitro system to provide automated
analysis of blood platelet function. The Company believes that these
initiatives will allow it to both expand its large installed base and
increase reagent revenue per instrument.
. Leverage current infrastructure to reduce costs. In connection with the
Acquisition, the Company has identified significant cost reduction
opportunities expected to result in approximately $27 million of annual
savings by 1997. These reductions consist of approximately $26 million from
the immediate elimination of DuPont worldwide corporate allocations and
other redundant costs (off-set by approximately $20 million of incremental
infrastructure costs required to operate within the reconfigured overall
organization) as well as approximately $21 million from additional savings
opportunities. In addition, the Company believes there are additional long-
term cost saving opportunities related to improving manufacturing processes
and leveraging its cost structure to further enhance profitability.
. Seek additional consolidation opportunities. The Company believes that large
IVD industry participants with broad product offerings and large installed
bases have a competitive advantage in the current health care environment.
The Company believes the Acquisition positions it to be one of the few
market participants able to benefit from customer migration towards IVD
suppliers with broad product offerings. The Company intends to continue to
seek opportunities to form alliances and joint ventures, or acquire
businesses, product lines and technologies to further enhance its global
position.
INDUSTRY SEGMENTS
The following details the industry segments in which the Company's key
products compete and the Company's market positions and strategies:
CLINICAL CHEMISTRY PRODUCTS
The Company is the leading domestic supplier in the automated clinical
chemistry segment of the IVD market and the second largest supplier worldwide.
The Company's clinical chemistry product line consists of three primary
instrument platforms marketed to clinical laboratories (Paramax (Dade), aca
(Dade Chemistry) and Dimension (Dade Chemistry)) and a fourth instrument
platform marketed primarily to physicians' offices (Analyst (Dade Chemistry)).
Routine clinical chemistry tests measure substances found in large
concentrations in patients' blood, urine or other bodily fluids. These
substances include cholesterol, glucose, iron and sodium and provide
information on a patient's basic bodily functions. As the sensitivity of
clinical chemistry analyzers has improved, more tests traditionally run on
immunochemistry instruments have been developed for traditional chemistry
instruments, such as those for therapeutic drug monitoring and drugs of abuse
screening. This progression of tests to lower cost clinical chemistry
analyzers allows customers to consolidate the number of instruments in their
laboratory and reduce the labor costs associated with operating multiple
instruments. The migration of certain immunochemistry tests from competitors'
systems represents an attractive growth prospect for the Company due to its
large installed base of routine and specialty clinical chemistry analyzers.
On average, hospitals operate two to three clinical chemistry analyzers
which serve such roles as routine, STAT, and specialty testing. The routine
clinical chemistry analyzer, such as the Paramax or Dimension, is considered
the workhorse of the clinical laboratory, accounting for up to 40% of all IVD
tests performed in such laboratories. These analyzers are characterized by
their high throughput capabilities. Specialty analyzers, such as the aca, are
often dedicated to lower volume tasks such as emergencies, off-hours testing
or drug screening. Specialty analyzers are characterized by their ease of use
and test menu breadth.
The clinical chemistry market is relatively mature. In the future, domestic
growth is expected to be driven primarily by the expansion of test menus. The
market is highly competitive and manufacturers have focused on specific
segments by offering analyzers with different throughput and menu
capabilities.
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The combination of Paramax and Dade Chemistry provides an excellent
strategic fit for the following reasons: (i) common customer focus; (ii)
similar technology; and (iii) cross-selling opportunities. Paramax has
historically focused on products targeting the medium to high volume market
while Dade Chemistry's Dimension line has focused on small to medium volume
accounts. The aca, due to its legacy as the first automated analyzer and
subsequent repositioning as a specialty and STAT analyzer, enjoys a strong
representation across all hospital volume segments. The Company believes that
the ability to provide a full clinical chemistry solution, regardless of
hospital size, is critical in order to be a strong competitor in clinical
chemistry. The broad product offering created by the combination of Dade and
Dade Chemistry will allow the Company to offer the variety of testing profiles
and instrument performance characteristics necessary for a full chemistry
solution. The technological fit is strong as well. Both Paramax and Dimension
reagents are based on a similar dry, tableted technology. This will allow for
the rapid integration of both research and development and manufacturing
operations. Additionally, features unique to both instruments, such as
Paramax's Closed Container Sampling and Dimension's solid state Multiply
technology, are expected to be quickly incorporated into the Company's next
generation analyzer. Lastly, the Company expects to benefit from cross-selling
opportunities such as the sale of Dade controls to current aca and Dimension
customers and from the migration of certain immunochemistry tests to lower
cost clinical chemistry platforms such as the Dimension.
IMMUNOCHEMISTRY PRODUCTS
Stratus is a strong niche competitor in the United States immunochemistry
market, with the leading position in the cardiac testing segment.
Immunochemistry testing relies upon the properties of antibodies and antigens
in the immune system as its key detection mechanism. Similar to clinical
chemistry testing, immunoassays (immunochemistry tests) measure substances
found in blood. Immunoassays are distinct, however, in their ability to
measure relatively low concentration substances that are difficult to detect
with conventional routine clinical chemistry methods.
The application of immunoassays to test extremely small concentrations has
become invaluable to some significant areas of clinical diagnoses. The
following are the immunochemistry segments in which the Company competes:
--Thyroid: thyroid dysfunction detection
--Drugs of abuse: detection of harmful drugs
--Cancer: detection of tumors
--Therapeutic drug monitoring: drug treatment efficacy
--Cardiac: diagnosis of heart attack
--Anemia: screening for anemia
--Fertility: screening for pregnancy
Dade introduced its first immunochemistry analyzer in 1983. The Stratus
analyzer currently offers a test menu of over 30 reagents and utilizes a
patented tab technology which facilitates one of the fastest test processing
times compared to those of competitors' instruments. The current installed
base of Stratus analyzers is approximately 4,200 instruments worldwide.
Because immunochemistry systems are "closed," sales of reagents are influenced
by instrument placements. The Company accelerated the placement of its
instruments in the early 1990s by providing Stratus instruments to its
customers at no charge in exchange for ongoing reagent revenues. This strategy
was pursued by other competitors and is now considered standard industry
practice.
The immunochemistry market is highly competitive. Stratus, however, has been
repositioned to compete in the cardiac testing niche of the immunochemistry
market because its instrument system currently provides the fastest response
time for cardiac testing. Cardiac tests facilitate a physician's diagnosis of
heart attacks or other forms of heart muscle damage by measuring blood markers
such as CK-MB, Troponin-I and myoglobin. The Company has outperformed its
competitors in new cardiac test development. Demand for its new Troponin-I
assay has grown rapidly since its introduction in August 1995. Clinical data
and market research indicates that Troponin-I will ultimately replace CK-MB as
the standard for the detection of heart muscle damage.
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The Company believes there is significant value in properly screening people
entering a hospital for chest pains. In the United States, approximately five
million people each year are admitted to a hospital with chest pains, but only
14% of these people actually suffer a heart attack. The incorrect admission
or, even worse, the incorrect discharge of a patient can cost the health care
system billions of dollars annually. Through the use of the Company's battery
of cardiac tests, heart attacks can be more accurately identified and, if
necessary, treated.
In the future, the Company plans to continue to emphasize specific niche
segments, especially cardiac, where it has established a market presence and
where it can market its instruments' throughput and turnaround capabilities.
To this end, the Company is working on a new point-of-care cardiac specific
platform.
MICROBIOLOGY PRODUCTS
Through its MicroScan product line, the Company has a worldwide leadership
position in the identification/minimum inhibitory concentration ("ID/MIC")
microbiology products market. Moreover, a highly focused initiative in Japan
has established a strong leadership position in that country with a rapid
sales growth trend (more than 50% annually from 1992 to 1995).
MicroScan serves a segment of the microbiology market that consists of
ID/MIC instruments, reagent panels, data management systems, disposable
accessories and service. Microbiology systems are "closed," meaning that
reagents and consumables can only be used on the instruments for which they
were produced. Growth in the microbiology testing market has been driven
primarily by advances in automation, the complexity of various microbes, and
the increasing resistance of microbes to antibiotics. Over the past three
years, MicroScan has been increasing international sales at a compound annual
growth rate of over 20%. Worldwide, MicroScan has approximately 3,700
instrument installations.
Microbiology laboratories use ID/MIC products to identify infection-causing
bacteria (e.g., strep and staph) and to determine the minimum concentration of
antibiotic (e.g., erythromycin and ampicillin) necessary to inhibit or kill
the bacteria. This information is critical to the optimum management of
patient therapy. MicroScan manufactures and markets both manual and automated
ID/MIC products. MicroScan's premier instruments are the WalkAway-40 and the
WalkAway-96, fully automated instruments that use patented dry reagent panels
to conduct bacterial identification and susceptibility testing at the same
time.
During 1995, the Company continued to implement its strategy of seeking
growth internationally by entering the German market, and by releasing new
products in Italy and Japan. Germany represents an attractive opportunity for
the Company due to the combination of an advanced health care sector, a
sizable population and a low penetration of automated microbiology systems. In
the United States, MicroScan continued to secure business through the
promotion of its Rapid Panels, which produce results sooner than those of
competitive systems, and through the placement of pharmLINK systems. The
pharmLINK system was enhanced in 1995 by a strategic alliance with SIMKIN.
SIMKIN is a pharmacokinetic software package which suggests dosage changes
based on patient-specific information (e.g., gender, age, weight, etc.).
Combined with pharmLINK's antibiotic monitoring capabilities, the two software
packages provide pharmacists, microbiologists and physicians with better
information for the management of antibiotic therapy. In addition to more
focused disease treatment, the system allows for more accurate tracking of
oral vs. IV and brand-name vs. generic antibiotics. Because antibiotics can
represent a significant portion of a typical hospital's drug budget, the
potential for cost savings will continue to drive the use of pharmLINK as an
important data management tool.
In the future, the Company expects to continue to aggressively develop
international markets and solidify its base in the United States. In addition,
the Company has begun work on the WalkAway with a focus on reducing costs,
improving ease of use and developing significant enhancements to its existing
data management software. As hospitals outside the United States continue to
develop the necessary information systems infrastructure, the Company expects
to enhance international growth by developing new versions of pharmLINK that
are specific to a country's needs.
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HEMOSTASIS PRODUCTS
Dade is a well recognized and respected name in the hemostasis segment of
the IVD industry. The introduction of some of Dade's products approximately 40
years ago helped to pioneer the IVD testing industry. The Dade Hemostasis
product line is a leader in both the domestic and worldwide hemostasis
markets. Hemostasis testing measures a patient's ability to form and dissolve
blood clots, a critical factor in the stabilization of the cardiovascular
system. These tests are typically performed before and during surgical
procedures. Hemostasis testing is also essential in post-surgical treatments
for patients with cardiovascular disorders (e.g., monitoring treatments to
"thin" the blood) and for patients with coagulation disorders (e.g.,
hemophilia).
Recent hemostasis market growth has been influenced primarily by the number
of surgical procedures performed. Additional market growth is expected to come
from new hemostasis tests which accurately measure blood clotting and provide
for improved patient treatment.
The hemostasis product line consists of reagents, instruments and associated
consumables. The Company offers over 30 routine and specialty coagulation
tests. Unlike most other product areas served by the Company, hemostasis
instrument systems are "open" systems, meaning that customers can use reagents
from a number of vendors with instruments manufactured by other vendors.
Primarily for this reason, the Company has sold third-party instruments rather
than incurring costs to develop instruments in-house. In July 1994, the
Company's former hemostasis instrument supplier, Medical Laboratory
Automation, Inc., terminated its relationship with Dade. In March 1995, Dade
signed a new supply agreement with TOA, a major global manufacturer of
hematology and hemostasis equipment and a recognized leader in product
innovation. In fact, TOA has introduced a new instrument system almost every
year for the past 10 years. The Company's relationship with TOA extends back
to 1993, when TOA outsourced the repair and service of their domestic
hematology instruments to Dade's Product Service Management group. TOA began
shipping its hemostasis instruments to Dade in July 1995, and the instrument
line has been well accepted by customers. Additionally, despite being without
a hemostasis instrument supplier from July 1994 to July 1995, the Company had
a net gain in domestic hemostasis customers in 1995. Management believes this
strong customer loyalty reflects the perception of Dade Hemostasis reagents as
premium quality products and the value of the broad portfolio of products
offered by the Company.
Dade Hemostasis is committed to innovation and product quality and offers a
broad product line with high lot-to-lot consistency in its reagents. These
factors have allowed Dade to increase sales despite operating in an "open"
system environment. This position has also allowed the Company to commit
significant resources to research and development into products such as the
Platelet Function Analyzer, a new system which provides more precise and
consistent measurement of patient blood clotting functions in a less invasive
and less time consuming manner than conventional testing procedures.
CONTROL PRODUCTS
Dade is also a well recognized and respected name in the controls segment of
the IVD industry. Dade developed the first commercially available control
reagents in 1951 and has since maintained its reputation as a quality-
assurance leader. The Company's Total Quality Control ("TQC") product line has
a leadership position in the worldwide laboratory IVD controls market.
Controls are used by laboratory technicians to assess the accuracy and
precision of equipment. Tests are performed using controls (solutions
formulated to specific, standardized values) to determine whether instruments
are producing results valid within a statistically acceptable range.
The worldwide controls market includes controls for hemostasis,
immunochemistry and clinical chemistry. CLIA '88 subjects laboratories to
impromptu inspection and subsequent fines/penalties for compliance violations.
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The implementation of governmental regulation mandating higher standards of
quality control will continue to drive laboratories' needs for controls.
The Company's TQC product line includes controls for use in the hemostasis,
clinical chemistry and immunochemistry segments, as well as controls-related
quality assurance programs ("QAPs"). These programs are sophisticated
statistical database systems that aid a laboratory in monitoring and
maintaining the accuracy and precision of testing over time. Dade's state-of-
the-art QAPs enable users to monitor and compare system test results with
those obtained by thousands of other laboratories using similar systems around
the world. With over 10,000 QAP participants, the Company possesses the
world's largest inter-laboratory peer group database. The Company plans to
complement this database with new real-time information and enhanced data
management products.
Dade has traditionally focused on developing controls primarily for its own
installed base of instruments. In 1995 however, the Company began an
aggressive campaign to seek new business by soliciting manufacturers for OEM
opportunities and developing customer compliance programs for non-Dade
instruments. In 1995, this resulted in an exclusive controls supplier
relationship with Columbia/HCA and an OEM relationship with a European
supplier of clinical chemistry analyzers.
The Company plans to continue to strengthen its business through: (i) the
migration of existing Dade Chemistry customers to Dade controls; (ii) the
aggressive pursuit of new OEM business; (iii) the development of specialty
controls for each of the main IVD segments; and (iv) the establishment of
exclusive supplier arrangements with Health Systems.
Many IVD instrument companies, like Dade Chemistry, view controls
manufacturing as non-strategic and often have a low share of their own
instrument base. Dade management, however, estimates that, due to its strong
history of controls manufacturing, its controls are used by approximately 75%
of its customers. Moreover, management estimates that Dade controls are
currently used on less than one-third of Dade Chemistry's domestic installed
base. With Dade's reorganized and refocused salesforce, the further migration
of Dade Chemistry's existing customers to Dade controls represents a clear
growth opportunity for the Company.
OTHER PRODUCT LINES
Immunohematology. Dade Immunohematology and related products are typically
used by hospital laboratories and blood donor centers to classify blood
products for use in transfusion procedures. The Dade Immunohematology line
consists of immunohematology reagents and laboratory equipment such as cell
washers and automated centrifuges. This product line has suffered from
increased competition in recent years due to a new, simpler testing procedure.
Product Service Management. The Company believes its Product Service
Management ("PSM") organization is the largest service organization in the
industry with over 1,000 product and service specialists worldwide. This
organization provides in-warranty and out-of-warranty service on the Company's
21,500 instruments and provides service on a third-party basis for other
medical instrument companies. All of the Company's field service personnel are
trained in the technical aspects of one or more of the Company's major
instrument systems. In the United States, this field service organization
provides rapid (usually within six hours), on-site service to the Company's
entire customer base. The Company also maintains a telephone-based, in-house
technical support and customer service group of over 400 people worldwide to
provide troubleshooting and other user help, which leverages the higher cost
of on-site service.
Third-Party Product Distribution and Royalties. The Company distributes
various products for third-party manufacturers in select international markets
where it can leverage its existing distribution network. The Company receives
a recurring stream of royalty revenues from third-parties related primarily to
certain intellectual property assets.
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<PAGE>
Planned Divestiture. Dade is marketing the Burdick & Jackson product line
for divestiture. Thus, this product line is being treated as "Net assets held
for sale" in Dade's Consolidated Financial Statements and the results of
operations from these product lines are excluded from Dade's 1995, 1994 and
1993 Consolidated Statement of Operations (see Note 4 of Notes to
Combined/Consolidated Financial Statements).
RESEARCH AND DEVELOPMENT
OVERVIEW
The Company maintains an active research and development program focused on
the development and commercialization of products which both complement and
update its existing product offerings. Within the IVD industry, the Company
has established a track record of innovation and timely product introduction.
In each of its core product lines, research and development was instrumental
in the development of key technologies which have helped to create strategic
product advantages. As of June 30, 1996, there were approximately 450
employees worldwide involved in the Company's research and development
efforts.
While management may adjust research and development levels to reflect the
changing dynamics of the IVD industry, new product development will remain an
important focus for continued growth and enhanced profitability. In order to
maximize growth and enhance profitability, research and development activities
are grouped into three primary categories: test menu development, next
generation platform development and niche platform development.
TEST MENU DEVELOPMENT
Once the Company places an instrument, the development of new reagents to
conduct additional tests represents a highly leveraged growth opportunity. The
Company's large installed base of approximately 21,500 instruments thus
represents significant potential for the Company's new reagent development
efforts. New reagents such as Troponin-I for Stratus, expanded Panels for the
MicroScan WalkAway and improvements to existing reagents will continue to
receive significant developmental focus.
NEXT GENERATION PLATFORM DEVELOPMENT
The Company is committed to enhancing its current instrument line.
Management believes that clinical laboratories are increasingly looking to IVD
suppliers to help them reduce labor costs, the largest cost component in the
laboratory. Among the activities that drive labor costs are: sample
preparation; instrument setup, throughput and maintenance; manual data entry
and manipulation; and the verification and reporting of results. The Company
is currently working on a next generation clinical chemistry instrument and
productivity enhancements for microbiology instrumentation that will further
automate the laboratory and reduce total system costs.
As part of the next generation clinical chemistry instrument, for example,
Dade Chemistry has invested in on-the-instrument automated centrifuge
technology to reduce excess sample handling and transportation time, enhanced
Data Fusion software to allow seamless communication of results between the
instrument and the laboratory information system and simplified on-board
specimen management to improve reliability. Additionally, the Company expects
to gain improvements by merging features unique to current Dade or Dade
Chemistry platforms (such as Paramax's Closed Container Sampling and
Dimension's Multiply technology) into its next generation instrument
offerings.
NICHE PLATFORM DEVELOPMENT
In addition to improvements in the existing portfolio of instruments, the
Company continues to seek out new growth opportunities through the focused
development of certain niche instruments. Such products include the recently
introduced Platelet Function Analyzer ("PFA"). Though platelet function can be
measured today,
55
<PAGE>
current tests have a number of disadvantages; they are manual and invasive,
involve significant sample preparation time, measure only partial platelet
function and are difficult to reproduce and standardize. The PFA automates the
testing of platelet function and provides a quantifiable measurement of
platelet function. Like most IVD instrument systems, the PFA is a "closed"
system that uses proprietary reagents and consumables designed exclusively for
this instrument. Potential niche products currently under research include a
cardiac-specific analyzer designed for the immediate identification of heart
attacks in patients with chest pain and a point-of-care metabolite analyzer
based on Dade Chemistry's Multiply technology.
CUSTOMERS
The Company has a broad customer base that includes primarily hospital and
reference laboratories. Though the Company sells worldwide and maintains a
substantial international presence, its sales are concentrated in the United
States hospital market due to Baxter's traditional emphasis on United States
hospital customers. No end-user customer represents more than 4% of the
Company's sales, on a pro forma basis.
SALES, DISTRIBUTION AND MARKETING
The Company employs approximately 950 people in its worldwide sales group,
comprised of approximately 750 field sales representatives and managers and
approximately 200 clinical application specialists ("CASs"). Field sales
representatives are the traditional salesforce and are organized by product
line. The 200 CASs provide troubleshooting in the field, customer training,
and conduct workshops and seminars. The CASs are also organized by major
product lines.
In the United States, the Company maintains sales offices in seventeen
cities. The Company maintains 20 additional sales offices internationally and
has main offices in the following cities: Barcelona, Brisbane (Australia),
Brussels, Dubai, Duedingen (Switzerland), Milan, Munich, Paris, Tokyo and
Toronto.
Approximately 450 of the 750 person field salesforce is domestic. In the
United States, this sales organization works closely with Baxter U.S.
Distribution, the hospital distribution division of Baxter, and the Company's
chief domestic distributor (after the Acquisition, sales through Baxter will
represent approximately one third of the Company's sales). A distribution
agreement has been established with Baxter which includes access to
approximately 500 of their highly trained distribution professionals, capable
of generating sales leads and maintaining interactions with hospital decision-
makers. Together with the Company's domestic field salesforce, these
individuals represent a sizable 950 person team that is capable of developing
strong relationships with thousands of customers. In addition to sales
prospecting, the distribution agreement also provides for routine distribution
and delivery functions such as order entry, invoicing, customer service,
database management and physical warehousing and delivery. This distribution
agreement can be terminated by Baxter at any time after June 18, 1999, subject
to notice requirements. Dade Chemistry products will continue to be
distributed through Dade Chemistry's existing distribution system.
In addition to its worldwide sales group, the Company employs approximately
300 marketing personnel worldwide with extensive knowledge and understanding
of industry issues, market trends, customer needs and competitive dynamics.
Both the sales and marketing organizations are among the largest in the
industry and should prove to be a valuable asset to the Company as these
capabilities are leveraged in a consolidating industry.
INSTRUMENT PLACEMENTS
The Company's instruments range in retail price from $20,000 to $110,000.
Approximately one-third of the Company's instrument placements in 1995 were
sold directly to customers, approximately one-third were sold to third-party
lessors and the remainder were financed directly by the Company.
The Company offers customers a variety of financing options designed to
offset the large up-front capital outlay necessary to purchase an IVD
instrument. The two most common financing methods are (i) third-party
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<PAGE>
capital leases, in which a third party (Baxter in the case of Dade instruments
and GE Capital in the case of Dade Chemistry instruments) purchases the
instrument from the Company and in turn leases such instrument to the customer
via a capital lease agreement; and (ii) reagent rental agreements in which
Dade retains title to the instrument and recoups the cost via premiums on its
reagents.
In addition to reagent rental expenditures, the Company will, in certain
circumstances primarily involving the Stratus product line, provide customers
with instruments at no charge in exchange for ongoing reagent revenues, a
practice commonly referred to in the industry as "seeding." Management's
decision to reposition the Stratus product line as a niche cardiac product
line has resulted in a decreased level of seeding. The Company believes it has
a competitive advantage in the cardiac test segment and therefore does not
need to engage in extensive instrument seeding. Dade Chemistry has not
historically made any material investments in seeded instruments.
INTELLECTUAL PROPERTY
The Company owns nearly one thousand United States and foreign patents and
has hundreds of patent applications currently pending in the United States and
abroad. These patents and patent applications cover a broad base of technology
relating to the Company's Dade, MicroScan, Stratus, Paramax, Dimension and aca
product lines as well as technology which has yet to be commercialized. The
Company also licenses certain patents and other intellectual property rights
from third parties. In addition to its extensive patent portfolio, the Company
possesses a wide array of unpatented proprietary technology and know-how.
The Company owns approximately five hundred United States and foreign
registered trademarks and service marks, including the Company's well-known
and respected Dade(R), MicroScan(R), Stratus(R), Paramax(R), aca(R),
Dimension(R) and Analyst(R) brand names. In addition, the Company has numerous
applications for registration of trademarks and service marks pending in the
United States and abroad. The Company also owns several United States
copyright registrations.
In the aggregate, these patents, patent applications, trademarks, copyrights
and licenses are of material importance to the Company's business. However,
the Company believes that no single patent, trademark or copyright (or related
group of patents, trademarks or copyrights) is material in relation to the
Company's business as a whole. The loss of any single license would not have a
material adverse effect on the Company's business, except for the non-
exclusive license granted by Hybritech Inc. to the Predecessor (now assigned
to the Company) for Hybritech's tandem patent, which license has been granted
for the life of the patent. Hybritech's tandem patent expires in August 2000
in the United States and expires between August 2001 and August 2003 in
various countries other than the United States. The Company has initiated
discussions with Hybritech concerning the Company's dispute of payments owed
under the Hybritech license. Although the Company can give no assurances as to
how this matter will be resolved, the Company currently knows of no reason why
the Hybritech license would be terminated and does not believe that
termination of this license is likely. See "Risk Factors-- Reliance on Patents
and Other Intellectual Property."
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FACILITIES
The Company provides its customers with high quality products by controlling
each stage of production. Dade manufactures products in nine locations (six in
the continental United States, one in Puerto Rico, and two in Switzerland),
with total plant area exceeding 1.4 million square feet (including
administrative areas housed at plant sites). Dade Hemostasis and Paramax
reagents as well as Total Quality Controls ("TQC") are manufactured in Puerto
Rico and Miami; MicroScan reagents and instruments are manufactured in
Sacramento, California; Stratus reagents are manufactured in Miami. Dade
Chemistry manufactures products in two locations, both in the continental
United States. Below is an overview of the Company's manufacturing facilities
(excluding those related solely to Burdick & Jackson):
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
FLOOR AREA OWNED/ NO. OF
LOCATION NO. OF SITES (SQ. FT.) LEASED PERSONNEL(1)
-------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C>
DADE:
Aguada, Puerto Rico............ 1 115,300 Leased 341
(Dade Hemostasis, Paramax and
TQC)
Duedingen, Switzerland......... 2 184,700 1 Owned 95
(Dade Immunohematology) 1 Leased
Miami, Florida................. 2 420,900 Owned 1,109
(Dade Hemostasis, Stratus,
Paramax and TQC)
Sacramento, California......... 2 236,900 1 Owned 599
(Microscan) 1 Leased
DADE CHEMISTRY:
Glasgow, Delaware.............. 1 447,000 Owned 1,023
Newtown, Connecticut........... 1 22,000 Leased 119
--- --------- -----
TOTAL........................ 9 1,426,800 3,286
=== ========= =====
</TABLE>
- --------
(1) Personnel numbers include approximately 450 temporary employees but do not
include personnel associated with, but not housed at, the locations (e.g.,
sales representatives and technical support specialists).
LEGAL PROCEEDINGS
The Company is the licensee of a third-party patent application that is
currently involved in an interference proceeding filed on December 15, 1993 in
the United States Patent and Trademark Office (Nemerson v. Edgington,
Interference No. 103,203). The interference proceeding relates to patent
protection of human recombinant tissue factor (hrTF), which is used in Dade's
Innovin(R) product to determine a patient's ability to clot blood. Although
current sales of Innovin(R) are immaterial, the Company expects sales of
Innovin(R) to increase in the future. A negative determination in the pending
patent interference proceeding could adversely impact the Company's use of
this licensed technology and its ability to market the Innovin product in the
United States, potentially resulting in a material adverse effect on the
Company's business prospects.
In October 1994, management of the Predecessor became aware that the
diagnostics division of Baxter's Italian subsidiary had come under scrutiny as
a part of an industry-wide investigation into business practices by diagnostic
equipment suppliers. Management of the Company's Italian subsidiary believe
that the Company has taken no actions related to the investigation that would
be subject to any reasonable criticism. Based on the Company's current
understanding of the facts and circumstances surrounding the investigation by
the Italian authorities, the Company does not believe that the outcome of this
investigation will have a material adverse effect on the Company's business or
operations.
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The Company is also involved in a number of legal proceedings arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company's business or financial condition.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, local and foreign environmental
laws and regulations and is subject to liabilities and compliance costs
associated with the past and current handling, processing, storing and
disposing of hazardous substances and wastes. The Company's operations are
also subject to federal, state and local occupational health and safety laws
and regulations. The Company devotes resources to maintaining environmental
compliance and managing environmental risk and believes that it conducts its
operations in substantial compliance with applicable environmental and
occupational health and safety laws and regulations. Nonetheless, from time to
time, the operations of the Company may result in noncompliance with
environmental or occupational health and safety laws or liability pursuant to
such laws. The Company does not expect to incur material capital expenditures
for environmental controls in the current or succeeding fiscal year.
In connection with the Initial Acquisition, Baxter agreed to retain
responsibility for, and indemnify Dade from and against, certain environmental
matters. In connection with the Acquisition, DuPont agreed to retain
responsibility for, and indemnify the Company from and against, certain
environmental matters. The more significant of these indemnified matters are
described below. Notwithstanding these contractual agreements, the Company
could be pursued in the first instance by governmental authorities or third
parties with respect to certain indemnified matters, subject to the Company's
right to seek indemnification from Baxter or DuPont. Management does not
currently believe that any such matter will have a material adverse effect on
the business or financial condition of the Company.
The federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and similar state laws, impose retroactive, strict, joint and
several liability with respect to certain releases or threatened releases of
hazardous substances. In particular, CERCLA can impose liability as a result
of waste disposal at a location that later requires cleanup. The Company did
not assume any liabilities for offsite waste disposal by Baxter prior to the
Initial Acquisition or offsite waste disposal by DuPont prior to the
Acquisition. Nonetheless, the Company could in the future be held liable for
waste disposal by the Company. To date, the Company has not received notice of
any such liability.
Prior to the Initial Acquisition, Baxter conducted certain environmental
investigatory and/or remedial work at the Dade East facility in Miami, Florida
(a soil investigation in a parking lot area and organic chemical-related
groundwater remediation elsewhere on site) and at the Burdick & Jackson
facility in Muskegon, Michigan (removal of underground storage tanks and
associated groundwater monitoring). The Muskegon, Michigan facility is an
asset held for sale. With regard to the soil investigation at the Dade East
facility, Baxter submitted its investigation results to the Dade County
environmental agency and received a determination that no further action is
required. As to the groundwater remediation at Dade East and the underground
tank-related matter at Muskegon, Baxter has completed remediation and is
continuing groundwater monitoring as directed by the respective agencies. In
all three cases, Baxter, in connection with the Initial Acquisition, has
agreed to complete and bear the cost of all required investigatory, remedial
and monitoring work and to indemnify Dade from and against any associated
liabilities. There are certain limitations to Baxter's obligation to indemnify
Dade for, or bear the cost of, these three issues, as follows: (i) Baxter will
not indemnify Dade for, or bear the cost of addressing, preexisting
contamination exacerbated through the negligence or willful misconduct of
Dade; and (ii) Baxter will not indemnify Dade for claims brought against Dade
by third parties arising from these three matters after December 20, 1999.
Prior to the Acquisition, DuPont discovered groundwater contamination at its
Glasgow Business Community, a portion of which is owned by the Company, and at
its Newtown, Connecticut facility, a portion of which is leased by the
Company. To the Company's knowledge, none of the contamination at Glasgow is
located within the parcel owned by the Company and none of the contamination
at Newtown is located within
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the portion leased by the Company. With respect to Glasgow, DuPont installed,
and continues to operate, a groundwater treatment system. With respect to
Newtown, at the direction of the state of Connecticut, DuPont conducts
groundwater monitoring and has supplied nearby residences with the municipal
water supply. The terms of the Acquisition Agreement provide that DuPont shall
retain responsibility for, and indemnify the Company without limitation from
and against, both of these groundwater contamination matters. Accordingly, the
Company expects that no expenditures will be made by the Company with respect
to these matters.
EMPLOYEES
As of June 30, 1996, Dade had approximately 4,070 full-time and part-time
employees, 3,370 in the United States (including Puerto Rico), 480 in Europe,
80 in Japan and 140 in other locations around the world. As of June 30, 1996,
Dade Chemistry had approximately 1,790 full-time and part-time employees,
1,620 in the United States, 135 in Europe, 25 in Japan and 10 in other
locations around the world. The Company has no collective bargaining
agreements with any unions and believes that its overall relations with
employees are satisfactory.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott T. Garrett........ 46 President, Chief Executive Officer and Director
Robert W. Brightfelt.... 52 Executive Vice President and Director
Lee D. Flowers.......... 50 Executive Vice President
Robert W. Kleinert...... 44 Executive Vice President
James W.P. Reid-
Anderson................ 38 Executive Vice President and Chief Financial Officer
John F. Doherty......... 53 Senior Vice President of Operations
Susan A. Evans.......... 49 Senior Vice President of Research and Development
Thomas E. Hill.......... 46 Senior Vice President of Human Resources
James E. Mahoney........ 38 Senior Vice President of Business Development and
Strategic Planning
Robert A. Boghosian..... 50 Corporate Vice President of Regulatory Affairs and
Quality Assurance
Dennis A. Taylor........ 52 Corporate Vice President and Controller
Mark E. Nunnelly........ 37 Director
Stephen G. Pagliuca..... 41 Director
Adam Kirsch............. 35 Director
John P. Connaughton..... 31 Director
Joseph H. Gleberman..... 38 Director
</TABLE>
Scott T. Garrett joined Baxter in 1975 as a product development engineer and
has served in a number of research, strategic planning and management
positions since that time. Mr. Garrett was named Vice President and General
Manager of the Predecessor's European operations in 1987 and was named
President of the Paramax Systems Division in 1989. Mr. Garrett became
Executive Vice President of the Predecessor in 1990, with responsibility for
all divisions and operations associated with manufactured product lines. In
1992, Mr. Garrett was elected Group Vice President of Baxter with
responsibility for the manufacturing and distribution divisions comprising the
Baxter Diagnostics, Inc. subsidiary. He became President and Chief Executive
Officer of Dade in 1994. Mr. Garrett is a member of the American Association
for Clinical Chemistry and also currently serves on the Health Industry
Manufacturers Association Board of Directors. He is also a director of Sunol
Molecular Corporation.
Robert W. Brightfelt joined DuPont in 1967 as a mechanical engineer and has
served in a number of research, supervisory and management positions since
that time. In 1984, Mr. Brightfelt was named Dade Chemistry's New Product
Development Manager and headed an effort to develop and commercialize two new,
fully automated diagnostic testing systems: Dimension and Vista. Following the
successful completion of this effort, Mr. Brightfelt was promoted to worldwide
Marketing Manager of Dade Chemistry in 1987 and to worldwide Business Director
in 1988. Following the Acquisition, Mr. Brightfelt became an Executive Vice
President, responsible for the Clinical Chemistry and Immunochemistry product
lines, and a Director of the Company. Mr. Brightfelt is also a director of
Molecular Biosystems, Inc.
Lee D. Flowers joined the Predecessor as a sales representative in 1973 and
has held a variety of positions in sales management, product management,
marketing and general management. Mr. Flowers has also served as Vice
President of Sales and Marketing at Paramax, Vice President of Marketing at
the former Dade Division of the Predecessor Company, President of Stratus and
Vice President of Venture Development for Baxter. Mr. Flowers became Executive
Vice President in 1994 and was responsible for operations in Japan and the
MicroScan and Paramax product lines. He is currently responsible for the
MicroScan, Hemostasis, Controls and Immunohematology product lines as well as
the Sacramento and Miami/Puerto Rico sites.
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Robert W. Kleinert, Jr. joined the Predecessor as a sales representative in
1974 and held various positions with the Predecessor in marketing, product
management and business planning, including President of Clintec Nutrition
Company, a joint venture created by Baxter and Nestle S.A., President of
Baxter Diagnostics Europe, and President of MicroScan prior to becoming
Executive Vice President in 1993. In this role he was responsible for the
Hemostasis, Controls, Immunohemotology, Baxter Equipment and Burdick &
Jackson. Additional duties included the global regional sales organization of
Europe, North America and the rest of the world. Currently, Mr. Kleinert is
responsible for the management of worldwide field operations. This includes
United States field operations (Field Sales, Customer Care, Product Service
Management, Sales Administration and Network Sales), Europe, Japan/Pacific and
Canada/Latin America. In addition, Mr. Kleinert will be responsible for the
Atlanta World Parts Center and the Duedingen, Switzerland sites.
James W. P. Reid-Anderson became Executive Vice President and Chief
Financial Officer in August 1996. Prior to joining the Company, Mr. Reid-
Anderson was Chief Administrative and Chief Financial Officer of Wilson
Sporting Goods; in addition concurrently he was also Chief Operating Officer
of Wilson and served as Vice President and General Manager of Wilson's
International Markets. Mr. Reid-Anderson has also served in various financial
positions of increasing responsibility for Pepsico Inc., Grand Metropolitan
PLC and Mobil Oil Corporation.
John F. Doherty joined Baxter as Manager of Distribution Planning and
Development in 1977 and has held a variety of positions since that time,
including General Manager of Lytening Systems, a division that develops,
manufactures, and sells specialty clinical analyzers for measuring
electrolytes. Currently, Mr. Doherty is Senior Vice President of Operations
and is responsible for the functional management of manufacturing,
distribution and information systems. This includes cost improvement projects
and worldwide stand-alone projects. Prior to joining Baxter, Mr. Doherty was
employed by Price Waterhouse LLP in management consulting and held a number of
positions in computer systems development.
Susan A. Evans has served as the Predecessor's Vice President of Research
and Development since 1991, after serving as Vice President of Research and
Development at the former Dade Division of Baxter. Dr. Evans joined Baxter as
a senior research scientist in 1981 and has held a variety of other positions.
In 1987, Dr. Evans was promoted to Vice President of Research and Development
at Dade, where she was responsible for programs in immunochemistry,
hemostasis, controls and immunohematology. Dr. Evans also is a member of the
American Chemical Society and has held numerous positions with the American
Association for Clinical Chemistry, where she is currently a member of the
board of directors.
Thomas E. Hill has served as the Predecessor's Vice President of Human
Resources since 1991. Dr. Hill joined American Hospital Supply in 1980 and has
held a number of positions within the human resource function including
Personal Planning Consultant, Manager of Personnel Research, Director of Human
Resource Information Systems, Director of Corporate Compensation, Director of
Compensation and Benefits for the Global Businesses and Vice President of
Corporate Human Resource Planning and Staffing for Baxter Healthcare
Corporation.
James E. Mahoney has served as the Predecessor's Vice President of Business
Development and Strategic Planning since 1993, after serving as its Director
of Business Development. Before joining Baxter in January 1991, Mr. Mahoney
was employed by FMC Corporation, where he held several positions in the areas
of business development, investment analysis and financial planning.
Robert A. Boghosian became Corporate Vice President of Regulatory Affairs
and Quality Assurance in August 1995. For the nine years prior to joining the
Company, Dr. Boghosian held management positions of increasing responsibility
in Clinical, Regulatory and Quality Affairs, Research and Development and
General Management for Johnson & Johnson Corporate and Ortho Diagnostic
Systems Inc. From 1969 to 1986, Dr. Boghosian held Operations and Research
management positions for Warner-Lambert's IVD and pharmaceutical businesses.
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Dennis A. Taylor served as the Vice President and Controller for Baxter's
Surgical Group until joining the Company in January, 1995. Mr. Taylor began
his career with American Hospital Supply Corporation in 1965 where he held a
variety of positions in financial management including Vice
President/Controller of its MicroScan Division. In 1988, Mr. Taylor was
promoted to the position of Vice President/Controller for Baxter's Operating
Room Division, which was later reorganized into the Surgical Group.
Mark E. Nunnelly has been a managing director of Bain Capital since May,
1993, and a general partner of Bain Venture Capital since 1990. Prior to
joining Bain Venture Capital, Mr. Nunnelly was a partner at Bain & Company
where he managed several relationships in the manufacturing sector, and he
also served with Procter and Gamble in product management. He serves on the
board of several companies including Stream International, EduServ
Technologies, SR Research and Strategic Mapping.
Stephen G. Pagliuca has been a managing director of Bain Capital since May,
1993, and a general partner of Bain Venture Capital since 1989. Prior to
joining Bain Venture Capital, Mr. Pagliuca was a partner at Bain & Company,
where he worked extensively in the health care arena. He also worked as a
senior accountant and international tax specialist for Peat Marwick Mitchell &
Company in the Netherlands. He serves on the board of several companies
including Gartner Group, Coram Healthcare, Physio Control, VIVRA, EduServ
Technologies and the Wesley-Jessen Corporation.
Adam Kirsch has been a managing director of Bain Capital since May, 1993 and
a general partner of Bain Venture Capital since 1990. Mr. Kirsch joined Bain
Venture Capital in 1985 as an associate, and prior to joining Bain Venture
Capital, Mr. Kirsch was a consultant at Bain & Company, where he worked in
mergers and acquisitions. He serves on the board of several companies
including Duane Reade Holding Corp., Stage Stores Inc., Brookstone, Inc. and
the Wesley-Jessen Corporation.
John P. Connaughton has been a principal of Bain Capital since 1995 and
prior to 1995 was an associate. Prior to joining Bain Capital in 1989, Mr.
Connaughton was a consultant at Bain & Company. Following the Acquisition, Mr.
Connaughton became a Director of the Company.
Joseph H. Gleberman is a partner in the Principal Investment Area of
Goldman, Sachs & Co. He joined Goldman Sachs in 1982 in the Mergers and
Acquisitions Department and became a partner of the firm in 1990. In 1990, he
became head of Mergers and Acquisitions for Asia and moved to Tokyo. Mr.
Gleberman joined the Principal Investment Area in 1993 and returned to New
York. He currently serves as a director of Applied Analytical Industries,
Inc., BCP/Essex Holdings Inc., Biofield Corporation and several private
companies.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
1994 and 1995 for the chief executive officer and the four other most highly
compensated officers of the Company (collectively, the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- --------------------------------------
ALL OTHER
NAME AND OPTIONS(1)/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SAR(#) PAYOUTS($)(2) ($)
------------------ ---- --------- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott T. Garrett....... 1995 297,480 285,000 129,000 -- 4,500(3)
President, Chief 9,750(4)
Executive Officer and
Director 1994 234,450 175,000 -- -- 350,000(5)
4,500(7)
5,835(8)
Robert W. Kleinert..... 1995 198,707 177,600 29,500 11,872 4,500(3)
Executive Vice
President 3,586(4)
1994 192,096 70,596 -- -- 185,000(5)
90,000(6)
4,500(7)
2,515(8)
Lee D. Flowers......... 1995 177,846 163,170 29,500 11,875 4,500(3)
Executive Vice
President 2,782(4)
1994 149,138 64,120 -- -- 185,000(5)
70,000(6)
4,500(7)
1,091(8)
John F. Doherty........ 1995 166,546 117,300 29,500 8,125 4,500(3)
Senior Vice President
of Operations 1994 149,686 56,246 -- -- 185,000(5)
70,000(6)
4,500(7)
780(8)
Thomas E. Hill......... 1995 161,323 107,350 22,500 8,125 4,500(3)
Senior Vice President
of Human Resources 1,644(4)
1994 155,577 43,307 -- -- 185,000(5)
75,000(6)
4,500(7)
1,055(8)
</TABLE>
- --------
(1) The options were granted under the Diagnostic Holding, Inc. Executive
Management Equity Plan.
(2) The Predecessor issued value rights under the Baxter Diagnostics Inc. Long
Term Incentive Plan. No new value rights were issued in 1995 or 1994.
Dade's board of directors approved a set price of $2.50 per value right to
be paid to holders of existing value rights in two equal installments if
Dade met EBITDA targets in 1995 and 1996. Dade met its 1995 EBITDA
targets, and as a result, half of the value rights were paid out. The
remaining aggregate number and value of each named executive officer's
value rights at the end of 1995 is as follows: Mr. Garrett forfeited his
16,600 value rights; Mr. Kleinert--4,750 value rights ($11,875); Mr.
Flowers--4,750 value rights ($11,875); Mr. Doherty--3,250 value rights
($8,125); and Dr. Hill--3,250 value rights ($8,125).
(3) Reflects amounts contributed by the Company for the benefit of the named
executive officers under the Dade Savings Investment Plan.
(4) Reflects amounts contributed by Dade for the benefit of the named
executive officer under the Dade Deferred Compensation Plan.
(5) Reflects amounts paid to the named executive officer by Baxter under the
Baxter Divestiture Management Bonus Arrangement.
(6) Reflects amounts paid to the named executive officer by Baxter under the
Baxter Retention Bonus Arrangement.
(7) Reflects amounts contributed by the Company for the benefit of the named
executive officer under the Baxter Incentive Investment Plan.
(8) Reflects amounts contributed by the Company for the benefit of the named
executive officer under the Baxter Incentive Investment Supplemental Plan.
64
<PAGE>
The following table sets forth information concerning the option grants by
Holdings in 1995 to each of the named executive officers:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
FOR OPTION TERM
INDIVIDUAL GRANTS (1)
---------------------------------------------------- ---------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED (#) EMPLOYEES IN BASE PRICE EXPIRATION DATE
NAME (2) FISCAL YEAR ($/SH) (3) 5% ($) 10% ($)
- ---- ---------- ------------ ----------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Scott T. Garrett........ 66,000 10.3% $ 0.50 July 28, 2005 $20,750 $52,590
31,500 4.9% $ 7.00 July 28, 2005 -- --
31,500 4.9% $16.00 July 28, 2005 -- --
Robert W. Kleinert...... 6,500 1.0% $ 0.50 July 28, 2005 $ 2,040 $ 5,180
11,500 1.8% $ 7.00 July 28, 2005 -- --
11,500 1.8% $16.00 July 28, 2005 -- --
Lee D. Flowers.......... 6,500 1.0% $ 0.50 July 28, 2005 $ 2,040 $ 5,180
11,500 1.8% $ 7.00 July 28, 2005 -- --
11,500 1.8% $16.00 July 28, 2005 -- --
John F. Doherty......... 6,500 1.0% $ 0.50 July 28, 2005 $ 2,040 $ 5,180
11,500 1.8% $ 7.00 July 28, 2005 -- --
11,500 1.8% $16.00 July 28, 2005 -- --
Thomas E. Hill.......... 4,500 0.7% $ 0.50 July 28, 2005 $ 1,420 $ 3,590
9,000 1.4% $ 7.00 July 28, 2005 -- --
9,000 1.4% $16.00 July 28, 2005 -- --
</TABLE>
- --------
(1) These amounts represent certain assumed rates of appreciation in accordance
with rules of the Commission. Holdings' Common Stock (as defined herein) is
not publicly traded. The assumed fair values of Holdings Common Stock and
Class L Common (as defined herein) as of December 31, 1995 are $0.50/share
and $40.50/share, respectively, the values determined by Holdings' board of
directors in a resolution dated July 31, 1995.
(2) All options were granted for shares of Holdings' Common Stock pursuant to
the Diagnostic Holding, Inc. Executive Management Equity Plan.
(3) The stock options expire earlier upon the termination of the employee.
65
<PAGE>
The following table summarizes exercises of stock options and stock
appreciation rights ("SARs") granted by Baxter in prior years by the five
highest paid executive officers in the past year, as well as the number and
value of all unexercised options and SARs held by such executive officers at
the end of 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT FISCAL YEAR
FISCAL YEAR END END (1)
--------------- --------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (2) REALIZED (3) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
Scott T. Garrett... 19,287 $212,570 13,200/115,800 /
Robert W. Klein-
ert............... 13,505 $105,780 1,300/28,200 /
Lee D. Flowers..... 4,301 $ 29,740 1,300/28,200 /
John F. Doherty.... 4,683 $ 44,070 1,300/28,200 /
Thomas E. Hill..... 6,072 $ 58,960 900/21,600 /
</TABLE>
- --------
(1) Holdings' common stock is not publicly traded. The assumed fair values of
Holdings Common Stock and Class L Common as of December 31, 1995 are
$.50/share and $40.50/share, respectively, the values determined by
Holdings' board of directors in a resolution dated July 31, 1995.
(2) Reflects the exercise of stock options for Baxter's common stock that were
granted to the named executive officers prior to the Initial Acquisition.
(3) The value realized is the difference between the market price of the
shares on the exercise date and the exercise price for each of the exercised
options.
The following table sets forth anticipated annual pension plan benefits
based on a participant's average final remuneration and the number of years of
participation in the Company's pension plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PLAN PARTICIPATION
---------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000............................ 32,813 43,750 54,688 65,625 76,563
150,000............................ 39,375 52,500 65,625 78,750 91,875
175,000............................ 45,938 61,250 76,563 91,875 107,188
200,000............................ 52,500 70,000 87,500 105,000 122,500
225,000............................ 59,063 78,750 98,438 118,125 137,813
250,000............................ 65,625 87,500 109,375 131,250 153,125
300,000............................ 78,750 105,000 131,250 157,500 183,750
400,000............................ 105,000 140,000 175,000 210,000 245,000
450,000............................ 118,125 157,500 196,875 236,250 275,625
500,000............................ 131,250 175,000 218,750 262,500 306,250
</TABLE>
- --------
The above estimated pension benefit amounts assume that benefit payments
begin at age 65 under a single life annuity form. Such amounts do not reflect
the social security offset incorporated by the pension benefit formula. The
social security offset amount is determined by a participant's social security
earnings history and normal retirement date of age 65. The estimated pension
amounts include benefits payable from the qualified and non-qualified pension
plans. The non-qualified pension plan provides benefits derived by the
qualified plan's formula which exceed legal maximum benefit limitations.
The pension benefit formula is:
1.75% of "Final Average Pay" multiplied by the number of years of
plan participation
minus
1.75% of "social security PIA" multiplied by the number of years of
plan participation (social security offset not to exceed 60% of PIA)
where "Final Average Pay" is defined as a participant's five highest
consecutive calendar year earnings (base salary and bonus) out of the last ten
calendar years before retirement.
As of January 1, 1996, the named executive officers' years of plan
participation and Final Average Pay for purposes of calculating pension
benefits payable under the Pension Plan are as follows: Mr. Garrett, 19 years
and $331,980; Mr. Kleinert, 21 years and $217,871; Mr. Flowers, 21 years and
$182,112; Mr. Doherty, 17 years and $170,519; Dr. Hill, 14 years and $174,735.
COMPENSATION OF DIRECTORS
Directors are not entitled to receive any compensation for serving on the
Company's Board of Directors. Directors are reimbursed for their out-of-pocket
expenses incurred in connection with such services.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
Dade is a wholly owned subsidiary of Holdings. The common stock of Holdings
consists of Common Stock, par value $.01 per share (the "Common Stock"), and
Class L Common Stock, par value $.01 per share (the "Class L Common"). The
holders of Class L Common have no voting rights except as required by law. The
holders of the Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of Holdings, including the election of
directors. Bain Capital and its related investors and GS Capital and its
related investors own 59.2% and 29.6%, respectively, of the Common Stock and
are parties to a stockholder agreement regarding the ownership (including the
voting) of such stock. By virtue of such stock ownership and stockholder
agreement, Bain Capital and GS Capital have the power to control all matters
submitted to a vote of stockholders of, and to elect all directors of,
Holdings and, indirectly, to elect all directors of the Company. In 1995,
certain members of Dade's management acquired voting common stock of Holdings,
and members of the Company's management are eligible to receive additional
common stock of Holdings in part based upon the future value of the Company.
The following tables set forth certain information as of October 1, 1996
regarding the beneficial ownership of (i) voting common stock by each person
(other than directors and executive officers of the Company) known to the
Company to own more than 5% of the outstanding voting common stock of Holdings
and (ii) voting and non-voting common stock by each director of the Company,
each named executive officer and all of the Company's directors and executive
officers as a group. To the knowledge of the Company, each of such
stockholders has sole voting and investment power as to the shares shown
unless otherwise noted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
COMMON STOCK
(VOTING)
-----------------------
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS (1)
------------------------------------ --------- -------------
<S> <C> <C>
Bain Capital Entities (2)........................ 5,960,000 58.2%
c/o Bain Capital
Two Copley Place
Boston, Massachusetts 02116
The Goldman Sachs Group, L.P. and related invest-
ors (3) ........................................ 2,980,000 29.1%
85 Broad Street
New York, NY 10004
</TABLE>
- --------
(1) The percentages assume that all options held by the Company's management
have been exercised. Certain of the options held by the Company's management
are exercisable in accordance with certain time and performance criteria.
(2) Amounts shown represent the aggregate number of shares held by Bain
Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and
BCIP Trust Associates, L.P. (the "Bain Capital Entities").
(3) Includes shares beneficially owned by certain investment limited
partnerships of which affiliates of The Goldman Sachs Group, L.P. ("GS
Group") are the general partners or the managing general partners. GS Group
disclaims beneficial ownership of shares held by such investment
partnerships to the extent partnership interests in such partnerships are
held by persons other than GS Group and its affiliates.
67
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
<TABLE>
<CAPTION>
CLASS L
COMMON STOCK COMMON STOCK
(VOTING) (NON-VOTING)
-------------------- ------------------------
NUMBER PERCENTAGE PERCENTAGE
NAME OF OF SHARES OF CLASS NUMBER OF CLASS
BENEFICIAL OWNER (1) (1) OF SHARES (1) (1)
---------------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Scott T. Garrett................. 209,100 2.0% 8,900 0.9%
Lee D. Flowers................... 74,500 0.7% 5,000 0.5%
Robert W. Kleinert............... 74,500 0.7% 5,000 0.5%
John F. Doherty.................. 74,500 0.7% 5,000 0.5%
Robert W. Brightfelt............. 67,200 0.6% 2,800 0.3%
Thomas E. Hill................... 49,500 0.5% 3,000 0.3%
Mark E. Nunnelly (2)............. 5,960,000 58.2% 662,222.22 63.4%
Stephen G. Pagliuca (2).......... 5,960,000 58.2% 662,222.22 63.4%
Adam Kirsch (2).................. 5,960,000 58.2% 662,222.22 63.4%
John P. Connaughton (2).......... 5,960,000 58.2% 662,222.22 63.4%
Joseph H. Gleberman (3).......... 2,980,000 29.1% 331,111.11 31.7%
All executive officers and
directors of the
Company as a group (16
persons)......................... 9,688,750 94.6% 1,030,383.33 98.5%
</TABLE>
- --------
(1) The number of shares held by management and the percentages assume that
all options held by management have been exercised. Certain options held
by management are exercisable in accordance with certain time and
performance criteria.
(2) All of the shares shown are held by the Bain Capital Entities. Messrs.
Kirsch, Nunnelly, Pagliuca and Connaughton, who serve as directors of the
Company, and are managing directors or principals of Bain Capital, which
is the general partner of certain of the Bain Capital Entities, and are
limited partners of Bain Capital Partners IV, L.P., the general partner
of certain of the Bain Capital Entities. Accordingly, Messrs. Kirsch,
Nunnelly, Pagliuca and Connaughton may be deemed to share voting and
dispositive power as to the shares held by the Bain Capital Entities.
Messrs. Kirsch, Nunnelly, Pagliuca and Connaughton disclaim beneficial
ownership of such shares.
(3) Mr. Gleberman is a general partner of Goldman, Sachs & Co. The shares
reported herein include shares beneficially owned by certain investment
limited partnerships of which affiliates of GS Group are the general
partners or the managing general partners. Mr. Gleberman disclaims
beneficial ownership of such shares.
68
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENTS
On December 20, 1994, Dade entered into 5-year Management Services
Agreements with Bain Capital and Goldman, Sachs & Co., an affiliate of GS
Capital, pursuant to which Dade pays Bain Capital and Goldman, Sachs & Co. an
aggregate annual fee of up to $2.0 million, plus their respective out-of-
pocket expenses. In connection with the Acquisition, the Company entered into
new Management Services Agreements with Bain Capital and Goldman, Sachs & Co.,
pursuant to which the Company paid Bain Capital and Goldman, Sachs & Co. (i)
at Closing, in the aggregate, a cash financial advisory fee of $15.0 million,
plus their respective out-of-pocket expenses and (ii) and will pay an
aggregate annual fee of $3.0 million plus their respective out-of-pocket
expenses, subject to compliance with the terms of the Indenture. Pursuant to
the Management Services Agreements, Bain Capital and Goldman, Sachs & Co. have
provided, and continue to provide, management consulting in the areas of
corporate finance, corporate strategy, investment analysis, market research
and business development, advisory services and support, negotiation and
analysis of financial alternatives, acquisitions and dispositions and other
services. Dade believes that the fees received for the professional services
rendered are at least as favorable as those which could be negotiated with an
unaffiliated third party.
STOCK PURCHASE AGREEMENT
On December 20, 1994, Holdings, Bain Capital Fund IV, L.P., Bain Capital
Fund IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory
thereto entered into a Stock Purchase Agreement whereby Holdings paid, in the
aggregate, a cash financial advisory fee and related out-of-pocket expenses of
$5.1 million to Bain Capital and $1.5 million to Goldman, Sachs & Co. Pursuant
to the Stock Purchase Agreement, Bain Capital and Goldman, Sachs & Co. devoted
significant resources and incurred significant expenses to the analysis,
negotiation and financing of the Initial Acquisition. Dade believes that the
fees received for the professional services rendered were at least as
favorable as those which could be negotiated with an unaffiliated third party.
STOCKHOLDERS AGREEMENT
On December 20, 1994, Holdings, Bain Capital Fund IV, L.P., Bain Capital
Fund IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory
thereto entered into a Stockholders Agreement whereby prior to the fifth
anniversary of the date of the Stockholders Agreement, if Holdings requires
certain services of an investment banking firm, Holdings agrees to retain
Goldman, Sachs & Co. to provide such services unless Holdings' Board of
Directors determines that the retention of another investment banking firm
would provide a material additional benefit to Holdings.
69
<PAGE>
BANK CREDIT AGREEMENT
The Company has entered into the Bank Credit Agreement with Bankers Trust
Company as agent (the "Agent"), and other institutions party thereto (the
"Banks"), which will provide loans of up to $585.0 million. Loans under the
Bank Credit Agreement consisted of $185.0 million in aggregate principal
amount of A Term Loans, $90.0 million in aggregate principal amount of B Term
Loans, $90.0 million in aggregate principal amount of C Term Loans and $95.0
million in aggregate principal amount of D Term Loans (the "A Term Loans," the
"B Term Loans," the "C Term Loans" and the "D Term Loans" are referred to
collectively as the "Term Loans") and a $125.0 million revolving credit
facility (the "Revolving Credit Facility"), of which $50.0 million was drawn
down at the Closing and which permits the Company to borrow up to $125.0
million to finance working capital, letters of credit and other general
corporate needs. The Company used the Term Loans to provide a portion of the
funds necessary to consummate the Acquisition. This information relating to
the Bank Credit Agreement is qualified in its entirety by reference to the
complete text of the documents entered into in connection therewith. The
following is a description of the general terms of the Bank Credit Agreement.
Indebtedness of the Company under the Bank Credit Agreement is guaranteed by
Holdings and certain of the domestic subsidiaries of the Company and is
secured by (i) a first priority security interest in all, subject to certain
customary exceptions, of the receivables, contracts, contract rights,
securities, equipment (other than certain equipment secured by purchase money
security interests), intellectual property, inventory and real estate owned by
the Company and its domestic subsidiaries, (ii) a first priority perfected
pledge of all capital stock and certain intercompany notes of the Company and
its domestic subsidiaries and (iii) a first priority perfected pledge of 65%
of the capital stock of foreign subsidiaries owned directly by the Company or
its domestic subsidiaries.
Indebtedness under the Bank Credit Agreement bears interest at a floating
rate. Indebtedness under the Revolving Credit Facility and the Term Loans
bears interest at a rate based upon (i) the Base Rate (defined as the higher
of (x) the applicable prime lending rate of Bankers Trust Company and (y) the
Federal Reserve reported certificate of deposit rate (as adjusted pursuant to
the Bank Credit Agreement) plus 1/2 of 1%), in each case plus 1.75% in respect
of the A Term Loans and the loans under the Revolving Credit Facility (the
"Revolving Loans"), 2.25% in respect of the B Term Loans, 2.50% in respect of
the C Term Loans and 2.75% in respect of the D Term Loans, or after the
earlier of (a) the primary syndication of the Term Loans and the Revolving
Credit Facility or (b) the 90th day following the effectiveness of the Bank
Credit Agreement, at the Company's option, (ii) the Eurodollar Rate (as
defined in the Bank Credit Agreement) for one, two, three, six or twelve
months, in each case plus 2.75% in respect of A Term Loans and Revolving
Loans, 3.25% in respect of B Term Loans, 3.50% in respect of the C Term Loans
and 3.75% in respect of the D Term Loans. The Company is required to maintain
specified levels of interest rate protection.
The A Term Loans will mature on December 31, 2001. The B Term Loans will
mature on December 31, 2002. The C Term Loans will mature on December 31,
2003. The D Term Loans will mature on December 31, 2004. The A Term Loans, the
B Term Loans, C Term Loans and D Term Loans are subject to quarterly
amortization payments commencing on March 31, 1997 with the B Term Loans
amortizing in nominal amounts until the maturity of the A Term Loans, the C
Term Loans amortizing in nominal amounts until the maturity of the B Term
Loans and the D Term Loans amortizing in nominal amounts until the maturity of
the C Term Loans. The Revolving Credit Facility will mature on December 31,
2001. In addition, the Bank Credit Agreement provides for mandatory
repayments, subject to certain exceptions, of the Term Loans based on certain
net asset sales outside the ordinary course of business of Holdings and its
subsidiaries, the net proceeds of certain debt and equity issuances, excess
cash flow and insurance proceeds.
The Revolving Loans may be repaid and reborrowed. The Company is required to
pay to the Banks under the Bank Credit Agreement a commitment fee equal to 1/2
of 1% per annum, payable in arrears on a quarterly basis, on the average
unused portion of the Revolving Credit Facility during such quarter. The
Company is also required to pay to the Banks participating in the Revolving
Credit Facility letter of credit fees equal to 2.75% per annum on the average
daily stated amount of each letter of credit outstanding and to the Bank
issuing a letter of credit a fronting fee of 1/4 of 1% on the average daily
stated amount of each outstanding letter of credit issued
70
<PAGE>
by such Bank, in each case payable in arrears on a quarterly basis. The Agent
and the Banks received and will continue to receive such other fees as have
been separately agreed upon with the Agent.
The Bank Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of EBITDA (as defined therein), minimum
interest coverage, maximum leverage ratio, maximum amounts of capital
expenditures and minimum current ratio. The Bank Credit Agreement also
contains covenants which, among other things, limit the incurrence of
additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, acquisitions, mergers and consolidations, prepayments of other
indebtedness (including the Senior Subordinated Notes), liens and encumbrances
and other matters customarily restricted in such agreements.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, failures under ERISA or foreign pension plans, judgment defaults,
failure of any guaranty or security document supporting the Bank Credit
Agreement to be in full force and effect and change of control of Holdings or
the Company.
71
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The Series B 11 1/8% Senior Subordinated Notes due 2006 (the "Exchange
Notes") will be issued under an indenture (the "Indenture"), to be dated as of
May 7, 1996 by and between the Company and IBJ Schroder Bank & Trust Company,
as Trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Trust Indenture Act of 1939, as amended
(the "TIA"), and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. A
copy of the Indenture may be obtained from the Company or the Initial
Purchasers. The definitions of certain capitalized terms used in the following
summary are set forth below under "Certain Definitions." For purposes of this
section, references to the "Company" include only the Company and not its
subsidiaries and references to the "Senior Subordinated Notes" include the
Notes and the Exchange Notes.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. The Senior
Subordinated Notes may be presented for registration or transfer and exchange
at the offices of the Registrar, which initially will be the Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to holders of the Senior Subordinated Notes (the "Holders").
The Company will pay principal (and premium, if any) on the Senior
Subordinated Notes at the Trustee's corporate office in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders. The form and
terms of the Exchange Notes are the same as the form and terms of the Notes
(which they replace) except that (i) the Exchange notes bear a Series B
designation, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof,
and (iii) the holders of Exchange Notes will not be entitled to certain rights
under the Registration Rights Agreement, including the provisions providing
for an increase in the interest rate on the Notes in certain circumstances
relating to the timing of the Exchange Offer, which rights will terminate when
the Exchange offer is consummated.
The Notes are, and the Exchange Notes will be, unsecured obligations of the
Company, ranking subordinate in right of payment to all Senior Debt of the
Company.
PRINCIPAL, MATURITY AND INTEREST
The Senior Subordinated Notes are limited in aggregate principal amount to
$350.0 million and will mature on May 1, 2006. Interest on the Senior
Subordinated Notes will accrue at the rate of 111/8% per annum and will be
payable semiannually in cash on each May 1 and November 1 having commenced on
November 1, 1996, to the Persons who are registered Holders at the close of
business on the April 15 and October 15 immediately preceding the applicable
interest payment date. Interest on the Senior Subordinated Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of issuance.
The Notes are not, and the Exchange Notes will not be, entitled to the
benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Exchange Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after May 1,
2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on May 1 of the year set
forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................ 105.563%
2002........................................ 103.708
2003........................................ 101.854
2004 and thereafter......................... 100.000
</TABLE>
72
<PAGE>
Optional Redemption Upon Equity Offerings. At any time, or from time to
time, on or prior to May 1, 1999, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up
to 40% (provided that such percentage shall decrease to 35% if an Initial
Public Offering has not been consummated on or prior to March 31, 1997 and any
other Senior Subordinated Notes previously redeemed pursuant to this provision
shall be included in determining such percentage) of the aggregate principal
amount of Notes originally issued at a redemption price equal to 110%
(111.125% in the case of any Equity Offering after March 31, 1997) of the
principal amount thereof plus, in each case, accrued interest to the date of
redemption; provided that at least $175.0 million aggregate principal amount
of Senior Subordinated Notes remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of
any Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any offering of
Qualified Capital Stock of Holdings or the Company; provided that, in the
event of any Equity Offering by Holdings, Holdings contributes to the capital
of the Company the portion of the net cash proceeds of such Equity Offering
necessary to pay the aggregate redemption price (plus accrued interest to the
redemption date) of the Senior Subordinated Notes to be redeemed pursuant to
the preceding paragraph.
SELECTION AND NOTICE
In case of a partial redemption, selection of the Senior Subordinated Notes
or portions thereof for redemption shall be made by the Trustee by lot, pro
rata or in such manner as it shall deem appropriate and fair and in such
manner as complies with any applicable legal requirements; provided, however,
that if a partial redemption is made with the proceeds of an Equity Offering,
selection of the Senior Subordinated Notes or portion thereof for redemption
shall be made by the Trustee only on a pro rata basis, unless such method is
otherwise prohibited. Senior Subordinated Notes may be redeemed in part in
multiples of $1,000 principal amount only. Notice of redemption will be sent,
by first class mail, postage prepaid, at least 30 days and not more than 60
days prior to the date fixed for redemption to each Holder whose Senior
Subordinated Notes are to be redeemed at the last address for such Holder then
shown on the registry books. If any Senior Subordinated Note is to be redeemed
in part only, the notice of redemption that relates to such Senior
Subordinated Note shall state the portion of the principal amount thereof to
be redeemed. A new Senior Subordinated Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Senior Subordinated Note. On and after any
redemption date, interest will cease to accrue on the Senior Subordinated
Notes or part thereof called for redemption as long as the Company has
deposited with the Paying Agent funds in satisfaction of the redemption price
pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Senior Subordinated Notes is
subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Obligations on the Senior Debt. Upon any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors upon any total or partial
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors or marshaling of assets of the Company or in a
bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Senior Subordinated Notes, or for the acquisition of any of
the Senior Subordinated Notes for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Senior Debt, no payment of any
kind or character shall be made by or on
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behalf of the Company or any other Person on its or their behalf with respect
to any Obligations on the Senior Subordinated Notes or to acquire any of the
Senior Subordinated Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default
have been cured or waived or have ceased to exist or the Trustee receives
notice from the Representative for the respective issue of Designated Senior
Debt terminating the Blockage Period (as defined below), during the 180 days
after the delivery of such Default Notice (the "Blockage Period"), neither the
Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Senior Subordinated
Notes or (y) acquire any of the Senior Subordinated Notes for cash or property
or otherwise. Notwithstanding anything herein to the contrary, in no event
will a Blockage Period extend beyond 180 days from the date the payment on the
Senior Subordinated Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed
or was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period that, in either case, would
give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt,
including the Holders, may recover less, ratably, than holders of Senior Debt.
As of June 30, 1996 the Company had approximately $485.0 million of Senior
Debt outstanding.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a
portion of such Holder's Senior Subordinated Notes pursuant to the offer
described below (the "Change of Control Offer"), at a purchase price equal to
101% of the principal amount thereof plus accrued interest to the date of
purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Bank Credit Agreement and all other Senior Debt the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Bank
Credit Agreement and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Bank Credit Agreement and all such other Senior Debt to
permit the repurchase of the Senior Subordinated Notes as provided below. The
Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Senior Subordinated Notes
pursuant to the provisions described below. The Company's failure to comply
with the immediately preceding sentence shall constitute an Event of Default
described in clause (iii) and not in clause (ii) under "Events of Default"
below.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier
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than 30 days nor later than 45 days from the date such notice is mailed, other
than as may be required by law (the "Change of Control Payment Date"). Holders
electing to have a Senior Subordinated Note purchased pursuant to a Change of
Control Offer will be required to surrender the Senior Subordinated Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Senior Subordinated Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third business
day prior to the Change of Control Payment Date.
A Change of Control includes a sale of "all or substantially all" (as
defined herein) of the assets of Holdings or the Company. The determination of
whether an asset disposition would constitute all or substantially all of the
assets of Holdings or the Company, and thereby trigger a Change of Control
Offer requirement, is uncertain under New York law, which governs the
interpretation of the Indenture, and has been the subject of limited judicial
interpretation in few jurisdictions. Courts addressing the issue have held
that such determination is dependent on the particular facts involved in the
disposition. As a result, there may be a degree of uncertainty in ascertaining
the proportion of assets that would be necessary to constitute such a
disposition for purposes of the Indenture.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Senior Subordinated Notes that might be delivered
by Holders seeking to accept the Change of Control Offer. In the event the
Company is required to purchase outstanding Senior Subordinated Notes pursuant
to a Change of Control Offer, the Company expects that it would seek third
party financing to the extent it does not have available funds to meet its
purchase obligations. However, there can be no assurance that the Company
would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant
liens on its property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of
the Senior Subordinated Notes, and there can be no assurance that the Company
or the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of
Senior Subordinated Notes protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Subordinated 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 Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares
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of any class of such Capital Stock, or (c) make any Restricted Investment
(each of the foregoing actions set forth in clauses (a), (b) and (c) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event
of Default shall have occurred and be continuing, (ii) the Company is not able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant, or (iii) the aggregate amount of Restricted Payments
made subsequent to the Issue Date shall exceed the sum of: (w) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus
(x) 100% of the aggregate net proceeds received by the Company (including the
fair market value of property other than cash) from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified Capital Stock of the
Company (including Capital Stock issued upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness); plus (y) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net proceeds (including the fair market value of property other than
cash) of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding any net proceeds from an Equity Offering to
the extent used to redeem Senior Subordinated Notes in accordance with the
optional redemption provisions of the Senior Subordinated Notes other than in
connection with an Equity Offering pursuant to a registration statement filed
with the Commission in accordance with the Securities Act); plus (z) 100% of
the aggregate net proceeds (including the fair market value of property other
than cash) of any (i) sale or other disposition of Restricted Investments made
by the Company and its Restricted Subsidiaries or (ii) dividend from, or the
sale of the stock of, an Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company (the "Retired Capital Stock"), either
(i) solely in exchange for shares of Qualified Capital Stock of the Company
(the "Refunding Capital Stock"), or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company, and, in the case of subclause (i) of this clause (2), if immediately
prior to the retirement of Retired Capital Stock the declaration and payment
of dividends thereon was permitted under clause (3) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; provided that at the time of the
declaration of any such dividends, no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof; (3) if no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the declaration and payment of dividends to
holders of any class or series of Designated Preferred Stock (other than
Disqualified Capital Stock) issued after the Issue Date (including, without
limitation, the declaration and payment of dividends on Refunding Capital
Stock in excess of the dividends declarable and payable thereon pursuant to
clause (2)); provided that, at the time of such issuance, the Company, after
giving effect to such issuance on a pro forma basis, would have had a
Consolidated Fixed Charge Coverage Ratio of at least 2.0 to 1.0; (4) payments
for the purpose of and in an amount equal to the amount required to permit
Holdings to redeem or repurchase Holdings' common equity or options in respect
thereof, in each case in connection with the repurchase provisions under
employee stock option or stock purchase agreements or other agreements to
compensate management employees; provided that such redemptions or repurchases
pursuant to this clause (4) shall not exceed $7.5 million (which amount shall
be increased (A) to $15.0 million upon consummation of an Initial Public
Offering and (B) by the amount of any proceeds to the Company from (x) sales
of Capital Stock of Holdings to management employees subsequent to the Issue
Date and (y) any "key-man" life insurance policies which are used to make such
redemptions or repurchases) in the aggregate; provided, further, that the
cancellation of Indebtedness owing to the Company from members of
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management of the Company or any of its Restricted Subsidiaries in connection
with a repurchase of Capital Stock of Holdings will not be deemed to
constitute a Restricted Payment under the Indenture; (5) the making of
distributions, loans or advances in an amount not to exceed $1.5 million per
annum sufficient to permit Holdings to pay the ordinary operating expenses of
Holdings (including, without limitation, directors' fees, indemnification
obligations, professional fees and expenses) related to Holdings' ownership of
Capital Stock of the Company (other than to the Principals or their Related
Parties); (6) the payment of any amounts pursuant to the Tax Allocation
Agreement; (7) the making of distributions, loans or advances in an amount not
to exceed $2.0 million per annum sufficient to permit Holdings to pay the
salaries or other compensation of employees who perform services for both
Holdings and the Company; (8) so long as no Default or Event of Default shall
have occurred and be continuing, payments to Holdings not to exceed $100,000
in the aggregate, to enable Holdings to make payments to holders of its
Capital Stock in lieu of issuance of fractional shares of its Capital Stock;
(9) so long as no Default or Event of Default shall have occurred and be
continuing, payments to, or on behalf of, Holdings not to exceed an aggregate
amount of $10.0 million plus the amount of all capitalized or accrued interest
on the 10% Exchangeable Preferred Stock of Holdings (the "Holdings Preferred
Stock") solely to purchase, redeem or otherwise retire some or all the
Holdings Preferred Stock which was issued to Baxter International, Inc. and/or
its affiliates in connection with the acquisition of the Company from Baxter
International, Inc. in 1994 or any notes (including interest thereon) of
Holdings issued in exchange for the Holdings Preferred Stock in accordance
with the terms of the Holdings Preferred Stock as in effect on the Issue Date;
(10) if no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof and the Company would be permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant, other Restricted Payments in an aggregate amount not
to exceed $12.0 million; and (11) repurchases of Capital Stock deemed to occur
upon the exercise of stock options if such Capital Stock represents a portion
of the exercise price thereof. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, (a) amounts expended (to
the extent such expenditure is in the form of cash) pursuant to clauses (1),
(2), (4), (9) and (10) shall be included in such calculation; provided such
expenditures pursuant to clause (4) shall not be included to the extent of
cash proceeds received by the Company from any "key man" life insurance
policies and (b) amounts expended pursuant to clauses (3), (5), (6), (7), (8)
or (11) shall be excluded from such calculation.
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than 2.0 to 1.0.
Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates involving
aggregate consideration in excess of $1.0 million (an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are not materially less
favorable than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate; provided, however, that for a transaction or series of related
transactions with an aggregate value of $7.5 million or more, at the Company's
option (i) such determination shall be made in good faith by a majority of the
disinterested members of the Board of the Directors of the Company or (ii) the
Board of Directors of the Company or any such Restricted Subsidiary party to
such Affiliate Transaction shall have received an opinion from a nationally
recognized investment
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banking firm that such Affiliate Transaction is on terms not materially less
favorable than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate; and provided, further, that for a transaction or series of related
transactions with an aggregate value of $10.0 million or more, the Board of
Directors of the Company or any such Restricted Subsidiary party to such
Affiliate Transaction shall have received an opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is on terms
not materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis
from a Person that is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary as determined in
good faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; (iii) transactions effected as part of a Qualified Securitization
Transaction; (iv) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant
to any amendment thereto) in any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date; (v) Restricted Payments permitted by the Indenture; (vi) the
payment of customary annual management, consulting and advisory fees and
related expenses to the Principals and their Affiliates; (vii) payments by the
Company or any of its Restricted Subsidiaries to the Principals and their
Affiliates made pursuant to any financial advisory, financing, underwriting or
placement agreement or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by the Board of Directors of the Company or such Restricted
Subsidiary in good faith; (viii) payments or loans to employees or consultants
which are approved by the Board of Directors of the Company in good faith;
(ix) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by the Company or any of
its Restricted Subsidiaries of obligations under, any future amendment to any
such existing agreement or under any similar agreement entered into after the
Issue Date shall only be permitted by this clause (ix) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the Holders of the Senior Subordinated Notes in any material respect; (x)
transactions permitted by, and complying with, the provisions of the covenant
described under "--Merger, Consolidation and Sale of Assets"; and (xi)
transactions with customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods or services, in each case in the ordinary
course of business (including, without limitation, pursuant to joint venture
agreements) and otherwise in compliance with the terms of the Indenture which
are fair to the Company or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of the Company or the senior
management thereof, or are on terms at least as favorable as might reasonably
have been obtained at such time from an unaffiliated party.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Senior Subordinated
Notes, the Senior Subordinated Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (ii) in all
other cases, the Senior Subordinated Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date and any extensions,
renewals or replacements thereof, (B) Liens securing Senior Debt, (C) Liens
securing the Senior Subordinated Notes, (D) Liens of the Company or a Wholly
Owned Restricted Subsidiary of the Company on assets of any Subsidiary of the
Company, (E) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens do not extend to or cover
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any property or assets of the Company or any of its Restricted Subsidiaries
not securing the Indebtedness so refinanced, and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
incur or suffer to exist Indebtedness that is senior in right of payment to
the Senior Subordinated Notes and subordinate in right of payment to any other
Indebtedness of the Company.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries 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 Capital Stock, (b)
make loans or advances or to pay any Indebtedness or other obligation owed to
the Company or any other Restricted Subsidiary of the Company or (c) transfer
any of its property or assets to the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture; (3)
non-assignment provisions of any contract or any lease entered into in the
ordinary course of business; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is 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; (5) agreements existing on
the Issue Date (including, without limitation, the Bank Credit Agreement and
the indenture governing the Existing Notes); (6) restrictions on the transfer
of assets subject to any Lien permitted under the Indenture imposed by the
holder of such Lien; (7) restrictions imposed by any agreement to sell assets
or Capital Stock permitted under the Indenture to any Person pending the
closing of such sale; (8) any agreement or instrument governing Capital Stock
of any Person that is acquired; (9) Indebtedness or other contractual
requirements of a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions apply only to such
Securitization Entity; (10) any agreement or instrument governing Indebtedness
(whether or not outstanding) of foreign Restricted Subsidiaries of the Company
incurred in reliance on clause (iii) of the definition of Permitted
Indebtedness; (11) other Indebtedness permitted to be incurred subsequent to
the Issue Date pursuant to the provisions of the covenant described under "--
Limitations on Incurrence of Additional Indebtedness"; provided that any such
restrictions are ordinary and customary with respect to the type of
Indebtedness being incurred (under the relevant circumstances); (12)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; and (13) any
encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (12) above; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Company's Board of
Directors, no more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Restricted Subsidiary of the Company) or
permit any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company) to own any Preferred Stock of any Restricted
Subsidiary of the Company, other than Permitted Foreign Subsidiary Preferred
Stock and Permitted Domestic Subsidiary Preferred Stock.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or a series of related transactions, consolidate with or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to, another Person or Persons or adopt
a plan of liquidation unless: (i) either (A) the Company shall be the survivor
of such merger or consolidation or (B) the surviving Person is a corporation,
partnership or trust organized and existing under the laws of the United
States, any state thereof or
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the District of Columbia and such surviving Person shall expressly assume all
the obligations of the Company under the Senior Subordinated Notes and the
Indenture; (ii) immediately after giving effect to such transaction (on a pro
forma basis, including any Indebtedness incurred or anticipated to be incurred
in connection with such transaction), the Company or the surviving Person is
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant; and (iii) immediately before and immediately after
giving effect to such transaction (including any Indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing. For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of transactions) of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company, the Capital
Stock of which constitutes all or substantially all of the properties and
assets of the Company, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company. Notwithstanding
the foregoing clauses (ii) and (iii), (a) any Restricted Subsidiary of the
Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company
in another jurisdiction.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Senior Subordinated Notes with the same effect as if
such surviving entity had been named as such.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents; provided that the amount of
(a) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or any such Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Senior
Subordinated Notes) that are assumed by the transferee of any such assets, (b)
any notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are immediately converted by the Company
or such Restricted Subsidiary into cash (to the extent of the cash received)
and (c) any Designated Noncash Consideration received by the Company or any of
its Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding (including any
Designated Noncash Consideration applied pursuant to the third paragraph of
this covenant), not to exceed 10% of Total Assets at the time of the receipt
of such Designated Noncash Consideration (with the fair market value of each
item of Designated Noncash Consideration being measured at the time received
and without giving effect to subsequent changes in value), shall be deemed to
be cash for the purposes of this provision or for purposes of the third
paragraph of this covenant, and (iii) upon the consummation of an Asset Sale,
the Company shall apply, or cause such Restricted Subsidiary to apply, the Net
Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the
availability under such revolving credit facility, (B) to repurchase Existing
Notes required to be repurchased under the indenture governing the Existing
Notes, (C) to reinvest in Productive Assets, or (D) a combination of
prepayment, repurchase and investment permitted by the foregoing clauses
(iii)(A), (iii)(B) and (iii)(C). Pending the final application of any such Net
Cash Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Cash Proceeds in Cash Equivalents. On the 366th day after an
Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A),
(iii)(B), (iii)(C) or (iii)(D) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
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which have not been applied on or before such Net Proceeds Offer Trigger Date
as permitted in clauses (iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by
the Company or such Restricted Subsidiary to make an offer to purchase (the
"Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not
less than 30 nor more than 45 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a pro rata basis that amount of Senior
Subordinated Notes equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Senior Subordinated Notes to be purchased,
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided, however, that if at any time any non-cash consideration (including
any Designated Noncash Consideration) received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger
Date relating to such initial Net Proceeds Offer Amount from all Asset Sales
by the Company and its Restricted Subsidiaries aggregates at least $10.0
million, at which time the Company or such Restricted Subsidiary shall apply
all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that have
been so deferred to make a Net Proceeds Offer (the first date the aggregate of
all such deferred Net Proceeds Offer Amounts is equal to $10.0 million or more
shall be deemed to be a "Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets, cash, cash
equivalents and/or marketable securities (i.e., such securities which could be
sold for cash within 180 days of the acquisition thereof) and (ii) such Asset
Sale is for fair market value (as determined in good faith by the Company's
Board of Directors); provided that any consideration not constituting
Productive Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall be subject to the provisions of the two preceding
paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Senior Subordinated Notes in whole or in
part in integral multiples of $1,000 in exchange for cash. To the extent
Holders properly tender Senior Subordinated Notes in an amount exceeding the
Net Proceeds Offer Amount, Senior Subordinated Notes of tendering Holders will
be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds
Offer shall remain open for a period of 20 business days or such longer period
as may be required by law. To the extent that the aggregate amount of Senior
Subordinated Notes tendered pursuant to a Net Proceeds Offer is less than the
Net Proceeds Offer Amount, the Company may use any remaining Net Proceeds
Offer Amount for general corporate purposes. Upon completion of any such Net
Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Subordinated Notes pursuant to a Net Proceeds Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the "Asset Sale" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
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Limitation of Guarantees by Subsidiaries. The Company will not permit any
Restricted Subsidiary, directly or indirectly, by way of the pledge of any
intercompany note or otherwise, to assume, guarantee or in any other manner
become liable with respect to any Indebtedness of the Company or any other
Subsidiary (other than (A) Indebtedness and other obligations under the Bank
Credit Agreement, (B) Permitted Indebtedness of a Restricted Subsidiary, (C)
Indebtedness under Currency Agreements in reliance on clause (vi) of the
definition of Permitted Indebtedness or (D) Interest Swap Obligations incurred
in reliance on clause (v) of the definition of Permitted Indebtedness),
unless, in any such case (a) such Restricted Subsidiary executes and delivers
a supplemental indenture to the Indenture, providing a guarantee of payment of
the Senior Subordinated Notes by such Restricted Subsidiary (the "Guarantee")
and (b) (x) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Senior Debt, the guarantee or
other instrument provided by such Restricted Subsidiary in respect of such
Senior Debt may be superior to the Guarantee pursuant to subordination
provisions no less favorable to the Holders of the Senior Subordinated Notes
than those contained in the Indenture and (y) if such assumption, guarantee or
other liability of such Restricted Subsidiary is provided in respect of
Indebtedness that is expressly subordinated to the Senior Subordinated Notes,
the guarantee or other instrument provided by such Restricted Subsidiary in
respect of such subordinated Indebtedness shall be subordinated to the
Guarantee pursuant to subordination provisions no less favorable to the
Holders of the Senior Subordinated Notes than those contained in the
Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Senior Subordinated Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph; or (ii) any sale
or other disposition (by merger or otherwise) to any Person which is not a
Restricted Subsidiary of the Company, of all of the Company's Capital Stock
in, or all or substantially all of the assets of, such Restricted Subsidiary;
provided that (a) such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture and (b) such
assumption, guarantee or other liability of such Restricted Subsidiary has
been released by the holders of the other Indebtedness so guaranteed.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses a majority of whose revenues are not derived from the
same or reasonably similar, ancillary or related to, or a reasonable
extension, development or expansion of, the businesses in which the Company
and its Restricted Subsidiaries are engaged on the Issue Date.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Senior Subordinated Note when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture); (ii) the failure to pay the principal on any
Senior Subordinated Note when such principal becomes due and payable, at
maturity, upon redemption or otherwise (including the failure to make a
payment to purchase Senior Subordinated Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer) (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture); (iii) a default
in the observance or performance of any other covenant or agreement contained
in the Indenture which default continues for a period of 30 days after the
Company receives written notice specifying the default (and demanding that
such default be remedied) from the Trustee or the Holders of at least 25% of
the outstanding principal amount of the Senior Subordinated Notes; (iv) the
failure to pay at final stated maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Restricted Subsidiary (other than a Securitization Entity) of the Company and
such failure continues for a period of 20 days or more, or the acceleration of
the final stated maturity of any such Indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within 20 days of receipt by the
Company or such Restricted Subsidiary of notice of
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any such acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at final maturity or which has been accelerated,
in each case with respect to which the 20-day period described above has
passed, aggregates $20.0 million or more at any time; (v) one or more
judgments in an aggregate amount in excess of $20.0 million shall have been
rendered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and non-appealable; and (vi)
certain events of bankruptcy affecting the Company or any of its Significant
Subsidiaries.
Upon the happening of any Event of Default specified in the Indenture, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Senior Subordinated Notes may declare the principal of and accrued interest on
all the Senior Subordinated Notes to be due and payable by notice in writing
to the Company and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice"), and the
same (i) shall become immediately due and payable or (ii) if there are any
amounts outstanding under the Bank Credit Agreement, shall become immediately
due and payable upon the first to occur of an acceleration under the Bank
Credit Agreement or 5 business days after receipt by the Company and the
Representative under the Bank Credit Agreement of such Acceleration Notice but
only if such Event of Default is then continuing. If an Event of Default with
respect to bankruptcy proceedings of the Company occurs and is continuing,
then such amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder
of Senior Subordinated Notes.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Senior Subordinated Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Senior
Subordinated Notes may rescind and cancel such declaration and its
consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely because
of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements and
advances and (v) in the event of the cure or waiver of an Event of Default of
the type described in clause (vi) of the description above of Events of
Default, the Trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or waived. The
holders of a majority in principal amount of the Senior Subordinated Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Senior Subordinated Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Subordinated
Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by
the outstanding Senior Subordinated Notes, except for (i) the rights of
holders of the Senior Subordinated Notes to receive payments in respect of the
principal of, premium, if any, and interest on the Senior Subordinated Notes
when such payments are due, (ii) the Company's obligations with respect to the
Senior Subordinated Notes concerning issuing temporary Senior Subordinated
Notes, registration of Senior Subordinated Notes, mutilated, destroyed, lost
or stolen Senior Subordinated Notes and the maintenance of an office or agency
for payments, (iii) the rights, powers, trust, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Senior Subordinated Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and
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insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Senior Subordinated Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the Senior Subordinated
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default with respect to the Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the Senior
Subordinated Notes concurrently with such incurrence); (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation
of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the
Company or others; (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of
the Company other than the Senior Subordinated Notes and (B) assuming no
intervening bankruptcy of the Company between the date of deposit and the 91st
day following the deposit and that no Holder is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and (ix) certain other
customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Senior Subordinated Notes, as expressly provided for in the Indenture) as to
all outstanding Senior Subordinated Notes when (i) either (a) all the Senior
Subordinated Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Senior Subordinated Notes which have been replaced or paid
and Senior Subordinated Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Senior Subordinated Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Senior Subordinated Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on
the Senior Subordinated Notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to the
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payment thereof at maturity or redemption, as the case may be; (ii) the
Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does
not, in the opinion of the Trustee, adversely affect the rights of any of the
Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Senior
Subordinated Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the
amount of Senior Subordinated Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest, on any Senior
Subordinated Notes; (iii) reduce the principal of or change or have the effect
of changing the fixed maturity of any Senior Subordinated Notes, or change the
date on which any Senior Subordinated Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make
any Senior Subordinated Notes payable in money other than that stated in the
Senior Subordinated Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Holder's Note on or after the due date thereof or to bring
suit to enforce such payment, or permitting holders of a majority in principal
amount of a class of Senior Subordinated Notes to waive Defaults or Events of
Default (other than Defaults or Events of Default with respect to the payment
of principal of or interest on the Senior Subordinated Notes); (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control
or make and consummate a Net Proceeds Offer with respect to any Asset Sale
that has been consummated or modify any of the provisions or definitions with
respect thereto after a Change of Control has occurred or the subject Asset
Sale has been consummated; or (vii) modify the subordination provisions of the
Indenture to adversely affect the Holders in any material respect.
ADDITIONAL INFORMATION
The Indenture provides that the Company will deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that after the Exchange Offer has been consummated, notwithstanding
that the Company may not be subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company will file with the Commission, to
the extent permitted, and provide the Trustee and Holders with such annual
reports and such information, documents and other reports specified in
Sections 13 and 15(d) of the Exchange Act. The Company will also comply with
the other provisions of TIA (S) 314(a).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or assumed in connection with the acquisition of assets from
such Person and not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
of the Company or such acquisition.
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"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by contract
or otherwise. Notwithstanding the foregoing, (i) no Person (other than the
Company or any Subsidiary of the Company) in whom a Securitization Entity
makes an Investment in connection with a Qualified Securitization Transaction
shall be deemed to be an Affiliate of the Company or any of its Subsidiaries
solely by reason of such Investment and (ii) none of Baxter International Inc.
or its Subsidiaries shall be deemed to be an Affiliate of the Company.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person if, as a result of such
Investment, such Person shall become a Restricted Subsidiary of the Company or
any Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person which constitute all or substantially all of the assets of such Person,
any division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million, (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under
"Merger, Consolidation and Sale of Assets" or any disposition that constitutes
a Change of Control, (iii) the sale or discount, in each case without
recourse, of accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof, (iv) the
factoring of accounts receivable arising in the ordinary course of business
pursuant to arrangements customary in the region, (v) the licensing of
intellectual property, (vi) disposals or replacements of obsolete equipment in
the ordinary course of business, (vii) the sale, lease, conveyance,
disposition or other transfer by the Company or any Restricted Subsidiary of
assets or property to one or more Wholly Owned Restricted Subsidiaries in
connection with Investments permitted under the "Limitations on Restricted
Payments" covenant, (viii) sales of accounts receivable, equipment and related
assets (including contract rights) of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the fair
market value thereof, including cash in an amount at least equal to 75% of the
fair market value thereof as determined in accordance with GAAP, and (ix)
transfers of accounts receivable, equipment and related assets (including
contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" (or a fractional undivided interest therein) by a
Securitization Entity in a Qualified Securitization Transaction. For the
purposes of clause (viii), Purchase Money Notes shall be deemed to be cash.
"Bain Related Party" means Bain Capital and any Affiliate of Bain Capital.
"Bank Credit Agreement" means the Credit Agreement dated as of the Issue
Date, among the Company, Holdings, the lenders party thereto in their
capacities as lenders thereunder and Bankers Trust Company, as agent, together
with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder
or adding Subsidiaries of the Company as additional borrowers or
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guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of corporate stock, including each class of common stock and
preferred stock of such Person and (ii) with respect to any Person that is not
a corporation, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means: (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances (or, with
respect to foreign banks, similar instruments) maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia,
Japan or any member of the European Economic Community or any U.S. branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $200.0 million; provided that instruments issued by
banks not having one of the two highest ratings obtainable from either S&P or
Moody's or by banks organized under the laws of Japan or any member of the
European Economic Community shall not constitute "Cash Equivalents" for
purposes of the subordination provisions of the Indenture; (v) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (iv) above; and (vi) investments in
money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company or Holdings to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture); (ii) the approval by the holders of Capital Stock of the Company
of any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of the Indenture);
(iii) any Person or Group (other than one or both of the Principals or their
respective Related Parties) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company or Holdings; or (iv) the first day within any
two-year period on which a majority of the members of the Board of Directors
of the Company or Holdings are not Continuing Directors.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
and foreign withholding taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period, (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges.
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"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence of any Indebtedness or the issuance of any Designated Preferred
Stock of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness or the
issuance or redemption of other Designated Preferred Stock (and the
application of the proceeds thereof) occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence, repayment, issuance or
redemption, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales
or Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such Person or
one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also
including any Consolidated EBITDA (including any pro forma expense and cost
reductions calculated on a basis consistent with Regulation S-X under the
Securities Act as in effect and applied as of December 31, 1995) attributable
to the assets which are the subject of the Asset Acquisition or Asset Sale
during the Four Quarter Period) occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition (including
the incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs) plus (ii) the amount
of all cash dividend payments on any series of Preferred Stock of such Person
plus (iii) the amount of all dividend payments on any series of Permitted
Foreign Subsidiary Preferred Stock or Permitted Domestic Subsidiary Preferred
Stock; provided that with respect to any series of Designated Preferred Stock
that was not paid cash dividends during such period but that is eligible to be
paid cash dividends during any period prior to the maturity date of the Senior
Subordinated Notes, cash dividends shall be deemed to have been paid with
respect to such series of Designated Preferred Stock during such period for
purposes of clause (ii) of this definition.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated
with Interest Swap Obligations, for such period determined on a consolidated
basis in conformity with GAAP, and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person
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and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) gains and losses from
Asset Sales (without regard to the $1.0 million limitation set forth in the
definition thereof) or abandonments or reserves relating thereto and the
related tax effects according to GAAP, (b) gains and losses due solely to
fluctuations in currency values and the related tax effects according to GAAP,
(c) items classified as extraordinary, unusual or nonrecurring gains and
losses (including, without limitation, restructuring costs), and the related
tax effects according to GAAP, (d) the net income (or loss) of any Person
acquired in a pooling of interests transaction accrued prior to the date it
becomes a Restricted Subsidiary of the Company or is merged or consolidated
with the Company or any Restricted Subsidiary of the Company, (e) the net
income of any Restricted Subsidiary of the Company to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of the Company of that income is restricted by contract, operation
of law or otherwise, (f) the net loss of any Person, other than a Restricted
Subsidiary of the Company, (g) the net income of any Person, other than a
Restricted Subsidiary of the Company, except to the extent of cash dividends
or distributions paid to the Company or a Restricted Subsidiary of the Company
by such Person, (h) only for purposes of clause (iii)(w) of the first
paragraph of the "Limitation on Restricted Payments" covenant, any amounts
included pursuant to clause (iii)(z) of the first paragraph of such covenant,
(i) one time non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction and (j) start-up costs and duplicative costs incurred in
connection with the transition service and distribution agreements in effect
on the Issue Date (as the same may be amended from time to time). For purposes
of clause (iii)(w) of the first paragraph of the "Limitation on Restricted
Payments" covenant, Consolidated Net Income shall be reduced by any cash
dividends paid with respect to any series of Designated Preferred Stock.
"Consolidated Net Worth" means, with respect to any Person for any date of
determination, the sum of (i) stated capital with respect to Capital Stock of
such Person and additional paid-in capital, and (ii) retained earnings (or
minus accumulated deficit) of such Person and its Subsidiaries (or, in the
case of the Company, the Restricted Subsidiaries), less, to the extent
included in the foregoing, amounts attributable to Disqualified Capital Stock,
each item determined on a consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
non-cash charge constituting an extraordinary item or loss or any such non-
cash charge which requires an accrual of or a reserve for cash charges for any
future period, other than the net non-cash charges related to deferred revenue
in connection with recourse provisions under instrument sales programs entered
into in the ordinary course of business).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company or Holdings, as the case may be, who (i)
was a member of such Board of Directors on the Issue Date or (ii) was
nominated for election or elected to such Board of Directors with, or whose
election to such Board of Directors was approved by, the affirmative vote of a
majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election or (iii) is any designee
of the Principals or their Affiliates or was nominated by the Principals or
their Affiliates or any designees of the Principals or their Affiliates on the
Board of Directors.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
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"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an officers' certificate executed by the principal
executive officer and the principal financial officer of the Company or such
Restricted Subsidiary, less the amount of cash or Cash Equivalents received in
connection with a sale of such Designated Noncash Consideration. Such
officers' certificate shall state the basis of such valuation, which shall be
a report of a nationally recognized investment banking firm with respect to
the receipt in one or a series of related transactions of Designated Noncash
Consideration with a fair market value in excess of $10.0 million.
"Designated Preferred Stock" means Preferred Stock that is so designated as
Designated Preferred Stock, pursuant to an officers' certificate executed by
the principal executive officer and the principal financial officer of the
Company, on the issuance date thereof, the cash proceeds of which are excluded
from the calculation set forth in clause (iii) of the first paragraph of the
"Limitation on Restricted Payments" covenant.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Bank Credit Agreement and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event (other than
an event which would constitute a Change of Control), matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control) on or prior to the final maturity
date of the Senior Subordinated Notes.
"Existing Notes" means the Company's 11 1/8% Senior Subordinated Notes due
2006.
"fair market value" means, unless otherwise specified, with respect to any
asset or property, the price which could be negotiated in an arm's-length,
free market transaction, for cash, between a willing seller and a willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a resolution of the Board of Directors of the Company delivered
to the Trustee.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the deduction or amortization of any premiums, fees, and
expenses incurred in connection with the Acquisition and related financings or
any other permitted incurrence of Indebtedness or Refinancing Indebtedness and
(ii) except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 (including non-cash
write-ups and non-cash charges relating to inventory, fixed assets and in-
process research and development, in each case arising in connection with the
Acquisition and the acquisition of the Company in 1994) and 17 (including non-
cash charges relating to intangibles and goodwill arising in connection with
the Acquisition).
"GS Capital Related Party" means (a) any stockholder or partner of GS
Capital on the Issue Date or (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest which consist of GS
Capital and/or such other Persons referred to in the immediately preceding
clause (a).
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"Indebtedness" means with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable and warranty and
service obligations arising in the ordinary course of business), (v) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured
by any lien on any property or asset of such Person, the amount of such
obligation being deemed to be the lesser of the fair market value of such
property or asset or the amount of the obligation so secured, (viii) all
obligations under currency swap agreements and interest swap agreements of
such Person and (ix) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified Capital Stock
being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, (x) the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock and (y) any
transfer of accounts receivable, equipment or other assets (including contract
rights) which constitute a sale for purposes of GAAP and any related recourse
provisions under instrument sales programs entered into in the ordinary course
of business shall not constitute Indebtedness hereunder.
"Initial Public Offering" means the first underwritten public offering of
Qualified Capital Stock by either Holdings or by the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act for aggregate net cash proceeds of at least $50.0 million;
provided that in the event the Initial Public Offering is consummated by
Holdings, Holdings contributes to the capital of the Company at least $50.0
million of the net cash proceeds of the Initial Public Offering.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional
amount.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Subsidiary, as
the case may be. For the purposes of the "Limitation on Restricted Payments"
covenant, (i) "Investment" shall include and be valued at the book value of
the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the book
value of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus
the cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
the Company no longer owns, directly or indirectly, 100% of the outstanding
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Common Stock of such Restricted Subsidiary, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the book value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents received by the Company or any of its
Subsidiaries from such Asset Sale net of (a) out-of-pocket expenses and fees
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), (b) taxes paid or payable
after taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements, (c)
repayment of Indebtedness that is required to be repaid in connection with
such Asset Sale, (d) any portion of cash proceeds which the Company determines
in good faith should be reserved for post-closing adjustments, it being
understood and agreed that on the day that all such post-closing adjustments
have been determined, the amount (if any) by which the reserved amount in
respect of such Asset Sale exceeds the actual post-closing adjustments payable
by the Company or any of its Subsidiaries shall constitute Net Cash Proceeds
on such date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness,
without duplication.
"Permitted Domestic Subsidiary Preferred Stock" means any series of
Preferred Stock of a domestic Restricted Subsidiary of the Company that
constitutes Qualified Capital Stock and has a fixed dividend rate, the
liquidation value of all series of which, when combined with the aggregate
amount of Indebtedness of the Company and its Restricted Subsidiaries incurred
pursuant to clause (xvi) of the definition of Permitted Indebtedness, does not
exceed $37.5 million; provided that such amount shall increase to $75.0
million upon consummation of an Initial Public Offering.
"Permitted Foreign Subsidiary Preferred Stock" means any series of Preferred
Stock of a foreign Restricted Subsidiary of the Company that constitutes
Qualified Capital Stock and has a fixed dividend rate, the liquidation value
of all series of which, when combined with the aggregate amount of
Indebtedness of foreign Restricted Subsidiaries of the Company incurred
pursuant to clause (iii) of the definition of Permitted Indebtedness, does not
exceed $35.0 million; provided that such amount shall increase to $50.0
million upon consummation of an Initial Public Offering.
"Permitted Indebtedness" means, without duplication, (i) the Senior
Subordinated Notes, (ii) Indebtedness incurred pursuant to the Bank Credit
Agreement in an aggregate principal amount at any time outstanding not to
exceed $585.0 million less the aggregate amount of Indebtedness of
Securitization Entities in Qualified Securitization Transactions (other than
Qualified Securitization Transactions involving equipment and related assets);
provided that the amount of such reduction shall not exceed $50.0 million, (A)
less the amount of all mandatory principal payments actually made by the
Company in respect of term loans thereunder (excluding any such payments to
the extent refinanced at the time of payment under a replaced Bank Credit
Agreement) and (B) reduced by any required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction) thereunder;
provided that the amount of Indebtedness permitted to be incurred pursuant to
the Bank Credit Agreement in accordance with this clause (ii) shall be in
addition to any Indebtedness permitted to be incurred pursuant to the Bank
Credit Agreement in reliance on, and in accordance with, clauses (x) and (xvi)
of this definition, (iii) Indebtedness of foreign Restricted Subsidiaries of
the Company, which
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together with the aggregate liquidation value of all outstanding series of
Permitted Foreign Subsidiary Preferred Stock, does not exceed $35.0 million;
provided that such amount shall increase to $50.0 million upon consummation of
an Initial Public Offering, (iv) other Indebtedness of the Company and its
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon, (v) Interest Swap Obligations of the Company or
any of its Subsidiaries covering Indebtedness of the Company or any of its
Subsidiaries; provided that any Indebtedness to which any such Interest Swap
Obligations correspond is otherwise permitted to be incurred under the
Indenture; provided, further, that such Interest Swap Obligations are entered
into, in the judgment of the Company, to protect the Company from fluctuation
in interest rates on their respective outstanding Indebtedness, (vi)
Indebtedness under Currency Agreements, (vii) intercompany Indebtedness owed
by the Company to any Wholly Owned Restricted Subsidiary of the Company or by
any Restricted Subsidiary of the Company to the Company or any Wholly Owned
Restricted Subsidiary of the Company, (viii) Acquired Indebtedness to the
extent the Company could have incurred such Indebtedness in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant on the date
such Indebtedness became Acquired Indebtedness, (ix) guarantees by the Company
and its Wholly Owned Restricted Subsidiaries of each other's Indebtedness;
provided that such Indebtedness is permitted to be incurred under the
Indenture, including, with respect to guarantees by Wholly Owned Restricted
Subsidiaries of the Company, the "Limitation on Guarantees by Subsidiaries"
covenant, (x) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount outstanding not to exceed
5% of Total Assets at the time of any incurrence thereof (including any
Refinancing Indebtedness with respect thereto) (which amount may, but need
not, be incurred in whole or in part under the Bank Credit Agreement), (xi)
Indebtedness incurred by the Company or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims, (xii) Indebtedness arising
from agreements of the Company or a Restricted Subsidiary of the Company
providing for indemnification, adjustment of purchase price, earn out or other
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a Restricted Subsidiary of the Company,
other than guarantees of Indebtedness incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition; provided that the maximum assumable liability
in respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in connection
with such disposition, (xiii) obligations in respect of performance and surety
bonds and completion guarantees provided by the Company or any Restricted
Subsidiary of the Company in the ordinary course of business, (xiv) any
refinancing, modification, replacement, renewal, restatement, refunding,
deferral, extension, substitution, supplement, reissuance or resale of
existing or future Indebtedness, including any additional Indebtedness
incurred to pay interest or premiums required by the instruments governing
such existing or future Indebtedness as in effect at the time of issuance
thereof ("Required Premiums") and fees in connection therewith ("Refinancing
Indebtedness"); provided that any such event shall not (1) result in an
increase in the aggregate principal amount of Permitted Indebtedness (except
to the extent such increase is a result of a simultaneous incurrence of
additional Indebtedness (A) to pay Required Premiums and related fees or (B)
otherwise permitted to be incurred under the Indenture) of the Company and its
Subsidiaries and (2) create Indebtedness with a Weighted Average Life to
Maturity at the time such Indebtedness is incurred that is less than the
Weighted Average Life to Maturity at such time of the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred,
extended, substituted, supplemented, reissued or resold (except that this
subclause (2) will not apply in the event the Indebtedness being refinanced,
modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold was originally incurred in
reliance upon clauses (vii) or (xvi) of this definition), (xv) the incurrence
by a Securitization Entity of Indebtedness in a Qualified Securitization
Transaction that is not recourse to the Company or any Subsidiary of the
Company (except for Standard Securitization Undertakings), and (xvi)
additional Indebtedness of the Company and its Restricted Subsidiaries in an
aggregate principal amount, which together with the aggregate liquidation
value of all
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outstanding series of Permitted Domestic Subsidiary Preferred Stock, does not
exceed $37.5 million at any one time outstanding (which amount, in the case of
Indebtedness, may, but need not, be incurred in whole or in part under the
Bank Credit Agreement); provided that such amount shall increase to $75.0
million upon consummation of an Initial Public Offering.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (whether existing on the Issue Date or created thereafter) or
in any other Person (including by means of any transfer of cash or other
property) if as a result of such Investment such Person shall become a Wholly
Owned Restricted Subsidiary of the Company and Investments in the Company by
any Restricted Subsidiary of the Company, (ii) cash and Cash Equivalents,
(iii) Investments existing on the Issue Date, (iv) loans and advances to
employees and officers of the Company and its Restricted Subsidiaries in the
ordinary course of business, (v) accounts receivable created or acquired in
the ordinary course of business, (vi) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture, (vii) Investments in Unrestricted Subsidiaries in an amount at any
one time outstanding not to exceed $25.0 million; provided that such amount
shall increase to $50.0 million upon consummation of an Initial Public
Offering, (viii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers, (ix)
guarantees (A) by the Company of Indebtedness otherwise permitted to be
incurred by Restricted Subsidiaries of the Company under the Indenture or (B)
permitted by the "Limitation on Guarantees by Subsidiaries" covenant, (x)
additional Investments having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (x) that are at that
time outstanding, not to exceed 5% of Total Assets at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value), (xi)
any Investment by the Company or a Wholly Owned Subsidiary of the Company in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest, (xii) any transaction to the extent
it constitutes an Investment that is permitted by, and made in accordance
with, clause (b) of the "Limitations on Transactions with Affiliates" covenant
(other than transactions described in clause (v) of such clause (b)), (xiii)
Investments the payment for which consists exclusively of Qualified Capital
Stock of the Company and (xiv) Investments received by the Company or its
Restricted Subsidiaries as consideration for asset sales, including Asset
Sales; provided in the case of an Asset Sale, such Asset Sale is effected in
compliance with the "Limitation on Asset Sales" covenant.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
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(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and (B) the Lien securing such Indebtedness shall be created within 90 days
of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Indebtedness of foreign Restricted Subsidiaries of
the Company incurred in reliance on clause (iii) of the definition of
Permitted Indebtedness;
(xiv) Liens securing Acquired Indebtedness incurred in reliance on clause
(viii) of the definition of Permitted Indebtedness;
(xv) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary with respect to obligations that do not in the
aggregate exceed $10.0 million at any one time outstanding;
(xvi) Liens on assets transferred to a Securitization Entity or on assets
of a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction;
(xvii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xviii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xx) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (xiv) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; provided that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
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"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principals" means Bain Capital and GS Capital.
"Productive Assets" means assets (including Capital Stock) of a kind used or
usable in the businesses of the Company and its Restricted Subsidiaries
permitted by the covenant entitled "Conduct of Business."
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note shall be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables or
newly acquired equipment.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any or its Subsidiaries may
sell, convey or otherwise transfer to (a) a Securitization Entity (in the case
of a transfer by the Company or any of its Subsidiaries) and (b) any other
Person (in the case of a transfer by a Securitization Entity), or may grant a
security interest in, any accounts receivable or equipment (whether now
existing or arising or acquired in the future) of the Company or any of its
Subsidiaries, and any assets related thereto including, without limitation,
all collateral securing such accounts receivable and equipment, all contracts
and contract rights and all guarantees or other obligations in respect of such
accounts receivable and equipment, proceeds of such accounts receivable and
equipment and other assets (including contract rights) which are customarily
transferred or in respect of which security interests are customarily granted
in connection with asset securitization transactions involving accounts
receivable and equipment.
"Related Party" means, with respect to Bain Capital, any Bain Related Party
and with respect to GS Capital, any GS Capital Related Party.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
Property.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable or equipment and related assets) which engages in no
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activities other than in connection with the financing of accounts receivable
or equipment and which is designated by the Board of Directors of the Company
(as provided below) as a Securitization Entity (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise) of which (i)
is guaranteed by the Company or any Subsidiary of the Company (excluding
guarantees of Obligations (other than the principal of, and interest on,
Indebtedness)) pursuant to Standard Securitization Undertakings, (ii) is
recourse to or obligates the Company or any Subsidiary of the Company in any
way other than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Company or any Subsidiary of the
Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not Affiliates
of the Company, other than fees payable in the ordinary course of business in
connection with servicing receivables of such entity, and (c) to which neither
the Company nor any Subsidiary of the Company has any obligation to maintain
or preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Senior Subordinated Notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations (including guarantees thereof) of every
nature of the Company under the Bank Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities, (y) all
Interest Swap Obligations (including guarantees thereof) and (z) all
obligations (including guarantees thereof) under Currency Agreements, in each
case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, Senior Debt shall not include (i) any
Indebtedness, if the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to the Notes, (ii) any Indebtedness of
the Company to a Subsidiary of the Company, (iii) Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee of the
Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iv) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services,
(v) Indebtedness represented by Disqualified Capital Stock, (vi) any liability
for federal, state, local or other taxes owed or owing by the Company, (vii)
that portion of any Indebtedness incurred in violation of the Indenture
provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (vii) if the holder(s) of such
obligation or their representative and the Trustee shall have received an
officers' certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made) would not violate such provisions of the
Indenture) and (viii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Company,
including, without limitation, the Existing Notes.
"Significant Subsidiary" means, as of any date of determination, for any
Person, each Subsidiary of such Person which (i) for the most recent fiscal
year of such Person (on or prior to December 31, 1996, the fiscal period
beginning on the Issue Date and ending on the most recently completed fiscal
quarter of such Person)
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accounted for more than 10% of consolidated revenues or consolidated net
income of such Person or (ii) as at the end of such fiscal year (on or prior
to December 31, 1996, the fiscal period beginning on the Issue Date and ending
on the most recently completed fiscal quarter of such Person), was the owner
of more than 10% of the consolidated assets of such Person.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable or equipment
transaction.
"Subsidiary", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Tax Allocation Agreement" means the tax allocation agreement between the
Company and Holdings as in effect on the Issue Date.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation, the Company is able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant and (y) immediately before and immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than directors' qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable law) are owned by
such Person or any Wholly Owned Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
The Certificates representing the Exchange Notes will be issued in fully
registered form, without coupons and will be deposited with, or on behalf of,
the Depositary, and registered in the name of Cede & Co., as the Depositary's
nominee in the form of a global Exchange Note certificate (the "Global
Certificate") or will remain in the custody of the Trustee.
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only by the Depositary to its nominee or by its nominee
to such Depositary or another nominee of the Depositary or by the Depositary
or its nominee to a successor of the Depositary or a nominee of such
successor.
The Company understands that the Depositary is a limited-purpose trust
company which was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not participants may beneficially
own securities held by the Depositary through Participants or indirect
participants ("Beneficial Owners").
Pursuant to procedures established by the Depositary (i) upon deposit of the
Global Certificate, the Depositary will credit the accounts of Participants
designated by the Initial Purchasers with portions of the principal amount of
the Global Certificate and (ii) ownership of the Senior Subordinated Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interest on
the Depositary's participants), the Depositary's Participants and the
Depositary's indirect participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer interests in the Global Certificate will be limited to such extent.
So long as the nominee of the Depositary is the registered owner of the
Global Certificate, such nominee will be considered the sole owner or holder
of the Senior Subordinated Notes for all purposes under the Indenture. Except
as provided below, the owners of interests in the Global Certificate will not
be entitled to have Senior Subordinated Notes registered in their names, will
not receive or be entitled to receive physical delivery of Senior Subordinated
Notes in definitive form and will not be considered the owners or holders
thereof under the Indenture. Accordingly, each person owning a beneficial
interest in the Global Certificate must rely on the procedures of the
Depositary and, if such person is not a participant, on the procedures of the
Participant through which such person owns its interest, to exercise any
rights of a Holder under the Indenture. The Depositary has represented to the
Company that, in the event that the Company requests any action of Holders or
that an owner of a beneficial interest in such a Global Certificate desires to
give or take any action which a Holder is entitled to give or take under the
Indenture, the Depositary would authorize the Participants holding the
relevant beneficial interests to give or take such action, and such
Participants would authorize Beneficial Owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by the Depositary to participants, by Participants to indirect
participants, and by Participants and indirect participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory
or regulatory requirements as may be in effect from time to time.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of interests in the Global Certificate or for
maintaining, supervising or reviewing any records relating to such interests.
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Principal and interest payments on the Global Certificate registered in the
name of the Depositary's nominee will be made by the Company or through a
paying agent to the Depositary's nominee as the registered owner of the Global
Certificate. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Senior Subordinated Notes are
registered as the owners of such Senior Subordinated Notes for the purpose of
receiving payments of principal and interest on such Senior Subordinated Notes
and for all other purposes whatsoever. Therefore, neither the Company, the
Trustee nor any paying agent has any direct responsibility or liability for
the payment of principal or interest on the Senior Subordinated Notes to
owners of interests in the Global Certificate. The Depositary has advised the
Company and the Trustee that its present practice is, upon receipt of any
payment of principal or interest, to credit immediately the account of the
Participants with payments in amounts proportionate to their respective
holdings in principal amount of interests in the Global Certificate as shown
on the records of the Depositary. Payments by Participants and indirect
participants to owners of interests in the Global Certificate will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants or indirect
participants.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company within
90 calendar days, the Company will issue Senior Subordinated Notes in
certificated form in exchange for the Global Certificate. In addition, the
Company may at any time determine not to have the Senior Subordinated Notes
represented by a Global Certificate, and, in such event, will issue Senior
Subordinated Notes in certificated form in exchange for the Global
Certificate. In either instance, an owner of an interest in the Global
Certificate would be entitled to physical delivery of such Senior Subordinated
Notes in certificated form. Senior Subordinated Notes so issued in
certificated form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or its nominee in identifying the beneficial owners or the related
Senior Subordinated Notes, and each such person may conclusively rely on, and
shall be protected in relying on, instructions from the Depositary or its
nominee for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Senior Subordinated
Notes to be issued).
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on May 7, 1996 to the Initial
Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Registration Rights Agreement with the Initial Purchaser (the
"Registration Rights Agreement") pursuant to which the Company has agreed, for
the benefit of the holders of the Notes, at the Company's cost, to use its
best efforts to (i) file the Exchange Offer Registration Statement within 150
days after the date of the original issue of the Notes with the Commission
with respect to the Exchange Offer for the Exchange Notes, and (ii) cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 225 days after the date of original issuance of the
Notes. Upon the Exchange Offer Registration Statement being declared
effective, the Company will offer the Exchange Notes in exchange for surrender
of the Notes. The Company will keep the Exchange Offer open for not less than
20 calendar days (or longer if required by applicable law) after the date on
which notice of the Exchange Offer is mailed to the holders of the Notes. For
each Note surrendered to the Company pursuant to the Exchange Offer, the
holder of such Note will receive an Exchange Note having a principal amount
equal to that of the surrendered Note. Interest on each Exchange Note will
accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Notes who is
an "affiliate" of the Company or who intends to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes (i) will not be able
to rely on the interpretation of the staff of the Commission, (ii) will not be
able to tender its Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Notes (other than certain specified holders) who wishes
to exchange the Notes for Exchange Notes in the Exchange Offer will be
required to represent in the Letter of Transmittal that (i) it is not an
affiliate of the Company, (ii) the Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any Participating Broker-Dealer who acquired the Notes for its own
account as a result of market-making or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Notes) with
the prospectus contained in the Exchange Offer Registration Statement. Under
the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes.
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 270 days after the original issue date of the Notes, or if
any holder of the Notes (other than an "affiliate" of the Company or the
Initial Purchaser) is not eligible to participate in the Exchange Offer, or
upon the request of the Initial Purchaser under certain circumstances, the
Company will, at its cost, (a) as promptly as practicable, file the Shelf
Registration Statement covering resales of the Notes, (b) use its best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement until the earlier of three years after its effective
date and such time as all of the applicable Notes have been sold thereunder.
The Company will, in the event of the
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filing of the Shelf Registration Statement, provide to each applicable holder
of the Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required
to permit unrestricted resales of the Notes. A holder of Notes that sells such
Notes pursuant to the Shelf Registration Statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Rights Agreement which
are applicable to such a holder (including certain indemnification
obligations). In addition, each holder of the Notes will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to
have their Notes included in the Shelf Registration Statement and to benefit
from the provisions set forth in the following paragraph.
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable with
respect to the Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 150 days following the Issue Date, Additional
Interest shall be accrued on the Notes over and above the stated interest
at a rate of 0.50% per annum for the first 90 days immediately following
the 151st day after the Issue Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
(ii) if an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 225 days following the date on
which such registration statement is required to be filed, then, commencing
on the 226th after the Issue Date, Additional Interest shall be accrued on
the Notes over and above the stated interest at a rate of 0.50% per annum
for the first 90 days immediately following the 90th day after the Issue
Date, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to 270 days
after the Issue Date or (B) the Exchange Offer Registration Statement
ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement ceases to
be effective at any time prior to the third anniversary of its effective
date(unless all the Notes have been sold thereunder), then Additional
Interest shall be accrued on the Notes over and above the stated interest
at a rate of 0.50% per annum for the first 90 days commencing on (x) the
271st day after the Issue Date with respect to the Notes validly tendered
and not exchanged by the Company, in the case of (A) above, or (y) the day
the Exchange Offer Registration Statement ceases to be effective or usable
for its intended purpose in the case of (B) above, or (z) the day such
Shelf Registration Statement ceases to be effective in the case of (C)
above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period;
provided however that the Additional Interest rate on the Notes may not exceed
in the aggregate 1.0% per annum; and provided further that (1) upon the filing
of the Exchange Offer Registration Statement or a Shelf Registration Statement
(in the case of clause (i) above), (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
clause (ii) above), or (3) upon the exchange of Exchange Notes for all Notes
tendered (in the case of clause (iii)(A) above), or upon the effectiveness of
the Exchange Offer Registration Statement which has ceased to remain effective
(in the case of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Notes as a result of such
clause (or the relevant subclause thereof), as the case may be, shall cease to
accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Notes. The amount of Additional Interest will be determined by
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multiplying the applicable Additional Interest rate by the principal amount of
the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised on twelve 30-day months),
and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Notes who
were eligible to participate in the Exchange Offer but who did not tender
their Notes will not have any further registration rights and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Notes pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $350,000,000 aggregate principal amount
of Notes were outstanding. The Company has fixed the close of business on
October 30, 1996 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December 4, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond January 31,
1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on May 1, 1997. Interest on the Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 1, and
November 1, commencing on May 1, 1997.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
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Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution
that is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the
Notes in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. Although delivery of the Notes may be effected through book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any
and all Notes not properly tendered or any Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right in its sole discretion to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Company shall
determine. Although the Company intends, to notify holders of defects or
irregularities with respect to tenders of Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any 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, as soon as practicable following the Expiration
Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Notes to be withdrawn (the
"Depositor"), (ii) identify the Notes to be withdrawn (including the
certificate number(s) and principal amount of such Notes, or, in the case of
Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Notes register the transfer of such Notes
into the name of the person withdrawing the tender and (iv) specify the name
in which any such Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not be
required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return
all tendered Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see "--
Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which
have not been withdrawn.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
IBJ Schroder Bank & Trust Company
One State Street Plaza
New York, New York 10004
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
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ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, or (iv) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Notes,
where such Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Notes must
acknowledge that it will deliver a prospectus in connection with any
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resale of such Exchange Notes. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
The exchange of the Notes for the Exchange Notes pursuant to the Exchange
Offer should not be a taxable event to the holder and thus the holder should
not recognize any taxable gain or loss as a result of the exchange. A holder's
adjusted tax basis in the Exchange Notes will be the same as his adjusted tax
basis in the Notes exchanged therefor, and his holding period for the Notes
will be included in his holding period for the Exchange Notes. Although the
exchange of the Notes for the Exchange Notes will not create additional
"market discount" or "amortizable bond premium," to the extent that a holder
acquired the Notes at a market discount or with amortizable bond premium, such
discount or premium would generally carry over to the Exchange Notes received
in exchange for the Notes. Such holders should consult their tax advisors
regarding the United States Federal income tax treatment of such market
discount and amortizable bond premium.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until January 29, 1997, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchaser or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
109
<PAGE>
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York. Partners of Kirkland & Ellis own 60,000 shares of Holdings'
Common Stock and 6,666.7 shares of Holdings' Class L Common Stock.
EXPERTS
Dade's consolidated balance sheets as of December 31, 1994 and 1995, and the
consolidated statements of operations, of cash flows, and of changes in
stockholder's equity for the period December 17, 1994 through December 31,
1994 and for the year ended December 31, 1995 included in this Prospectus have
been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The Predecessor's consolidated statements of operations and of cash flows
for the year ended December 31, 1993 and for the period January 1, 1994
through December 16, 1994 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
Dade Chemistry's combined statement of net assets to be sold as of December
31, 1993, 1994 and 1995 and the combined statement of operations for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
110
<PAGE>
DADE INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants--Dade.................................. F-2
Report of Independent Accountants--Predecessor........................... F-3
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995
(Dade).................................................................. F-4
Combined Statements of Operations for the year ended December 31, 1993
and the period from January 1, 1994 through December 16, 1994 (Predeces-
sor) and Consolidated Statements of Operations for the period from De-
cember 17, 1994 through December 31, 1994 and the year ended December
31, 1995 (Dade)......................................................... F-5
Combined Statements of Cash Flows for the year ended December 31, 1993
and the period from January 1, 1994 through December 16, 1994 (Predeces-
sor) and Consolidated Statements of Cash Flows for the period from De-
cember 17, 1994 through December 31, 1994 and the year ended December
31, 1995 (Dade)......................................................... F-6
Consolidated Statements of Changes in Stockholder's Equity for the period
from December 17, 1994 through December 31, 1994 and the year ended De-
cember 31, 1995 (Dade).................................................. F-7
Notes to Combined/Consolidated Financial Statements...................... F-8
Unaudited Consolidated Balance Sheet as of June 30, 1996................. F-35
Unaudited Consolidated Statement of Operations for the six months ended
June 30, 1995 and 1996.................................................. F-36
Unaudited Consolidated Statement of Cash Flows for the six months ended
June 30, 1995 and 1996.................................................. F-37
Notes to Unaudited Consolidated Financial Statements..................... F-38
IN VITRO DIAGNOSTICS, A DIVISION OF E.I. DU PONT DE NEMOURS AND COMPANY
("DADE CHEMISTRY")
Report of Independent Accountants........................................ F-42
Combined Statement of Operations for the years ended December 31, 1995,
1994 and 1993........................................................... F-43
Combined Statement of Net Assets to be Sold at December 31, 1995, 1994
and 1993................................................................ F-44
Notes to Combined Financial Statements................................... F-45
Unaudited Combined Statement of Operations for the four months ended
April 30, 1996 and 1995................................................. F-55
Unaudited Combined Statement of Net Assets to be Sold at April 30, 1996.. F-56
Notes to Unaudited Combined Financial Statements......................... F-57
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Dade International Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholder's equity present fairly, in all material respects, the financial
position of Dade International Inc. (a wholly-owned subsidiary of Diagnostics
Holding, Inc.) and its subsidiaries (the Company) at December 31, 1995 and
1994, and the results of their operations and their cash flows for the year
ended December 31, 1995 and for the period from December 17, 1994 (inception)
through December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 15, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Baxter International Inc.
In our opinion, the accompanying combined statements of operations and of cash
flows present fairly, in all material respects, the results of operations and
cash flows of the in vitro diagnostics products manufacturing and services
businesses of Baxter Diagnostics, Inc. and certain of its affiliates ("BDI")
(the predecessor entity of Dade International Inc.) for the period from
January 1, 1994 through December 16, 1994 and for the year ended December 31,
1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of BDI's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the combined financial statements, effective January
1, 1993, BDI adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
PRICE WATERHOUSE LLP
Chicago, Illinois
March 20, 1995
F-3
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (SUCCESSOR)
(DOLLARS IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 22.4 $ 27.9
Restricted cash (Notes 2 and 3).................... 200.0 --
Accounts receivable--trade, net.................... 40.9 76.0
Accounts receivable--trade, Baxter, net............ 15.4 55.2
Other receivables--Baxter, net..................... 21.9 9.7
Inventories........................................ 171.2 122.0
Refundable income taxes............................ -- 4.5
Deferred income taxes.............................. 21.0 34.4
Prepaid expenses and other current assets.......... 5.9 6.6
Net assets held for sale........................... 73.2 54.9
------ ------
Total current assets............................. 571.9 391.2
------ ------
Property, plant and equipment, net................... 1.0 31.8
Other assets......................................... -- 3.3
Debt issuance costs.................................. 21.9 19.1
Deferred income taxes................................ 101.4 105.5
------ ------
Total assets..................................... $696.2 $550.9
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of bank credit agreement........... $ 6.6 $ 5.8
Non-domestic bank debt............................. -- 2.1
Book overdrafts.................................... 4.9 6.9
Accounts payable, principally trade................ 17.6 35.1
Accounts payable--trade, Baxter.................... -- 14.5
Accrued liabilities................................ 82.6 105.9
Deferred income taxes.............................. 1.1 1.5
Installment note payable to Baxter (Note 3)........ 200.0 --
------ ------
Total current liabilities........................ 312.8 171.8
------ ------
Bank credit agreement, less current portion.......... 143.4 157.7
Accrued pension cost................................. 9.3 12.9
Other liabilities.................................... 3.5 1.7
Senior subordinated notes............................ 120.0 120.0
Negative goodwill, net............................... 24.1 5.6
------ ------
Total liabilities................................ 613.1 469.7
------ ------
Commitments and contingencies (Note 15).............. -- --
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding................ -- --
Additional paid in capital......................... 85.0 87.0
Notes receivable on capital contribution........... -- (0.2)
Retained earnings (deficit)........................ (1.9) (5.0)
Unrealized gain (loss) on marketable equity
securities........................................ -- (1.1)
Cumulative translation adjustment.................. -- 0.5
------ ------
Total stockholder's equity....................... 83.1 81.2
------ ------
Total liabilities and stockholder's equity....... $696.2 $550.9
====== ======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-4
<PAGE>
DADE INTERNATIONAL INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- -------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 17,
YEAR ENDED 1994 THROUGH 1994 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales--Third parties................................................. $690.2 $650.6 $ 3.6 $250.4
--Related party...................................................... -- -- 15.4 363.9
------ ------ ----- ------
690.2 650.6 19.0 614.3
------ ------ ----- ------
Operating costs and expenses:
Cost of goods sold..................................................... 420.8 391.4 18.6 368.6
Marketing and administrative expenses.................................. 179.2 173.2 2.4 171.1
Research and development expenses...................................... 47.2 33.4 1.1 26.5
Goodwill amortization expense (credit)................................. 2.6 2.6 (0.1) (0.4)
Restructuring and downsizing costs..................................... 30.2 -- -- --
------ ------ ----- ------
Income (loss) from operations............................................ 10.2 50.0 (3.0) 48.5
Other income (expense):
Interest expense....................................................... -- -- (1.2) (30.8)
Other income........................................................... 3.5 -- -- 2.2
------ ------ ----- ------
Income (loss) before income taxes and cumulative effect of accounting
change.................................................................. 13.7 50.0 (4.2) 19.9
Income tax expense (benefit)............................................. 12.3 14.2 (2.3) 7.2
------ ------ ----- ------
Income (loss) before cumulative effect of accounting change.............. 1.4 35.8 (1.9) 12.7
Cumulative effect of change in accounting for income taxes............... (3.3) -- -- --
------ ------ ----- ------
Net income (loss)........................................................ $ (1.9) $ 35.8 $(1.9) $ 12.7
- --------------------------------------------------
====== ====== ===== ======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-5
<PAGE>
DADE INTERNATIONAL INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- -------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 17,
YEAR ENDED 1994 THROUGH 1994 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOW PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)......... $ (1.9) $ 35.8 $ (1.9) $ 12.7
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Cumulative effect of
accounting change........ 3.3 -- -- --
Depreciation expense...... 50.3 50.3 -- 4.4
Amortization expense
(credit)................. 8.4 9.3 (0.1) 0.5
Amortization of debt
issuance costs........... -- -- 0.1 2.8
Amortization of inventory
step-up.................. -- -- 5.6 40.4
Provision for downsizing
costs.................... 30.2 -- -- --
Deferred income taxes
(benefit)................ -- -- (2.5) 1.6
Changes in balance sheet
items:
Accounts receivable, net.. 2.1 29.1 (11.6) (76.9)
Inventories............... 4.2 4.0 1.7 0.8
Accounts payable.......... (1.9) (1.5) 5.6 32.2
Accrued liabilities....... 2.5 (7.2) 6.2 5.0
Other assets.............. (12.6) (2.3) -- (1.3)
Restructuring and
downsizing payments...... (5.8) (4.3) -- --
Other..................... 10.6 (8.7) (6.1) (2.1)
------ ------ ------- -------
Cash flow provided by
(used in) operating
activities............... 89.4 104.5 (3.0) 20.1
------ ------ ------- -------
INVESTMENT ACTIVITIES:
Purchase of Company, net
of cash acquired......... -- -- (68.3) --
Proceeds from Baxter for
purchase price
adjustments, net......... -- -- -- 8.0
Cash "restricted" for
installment purchase
price.................... -- -- (200.0) --
Purchase of marketable
equity securities........ -- -- -- (2.0)
Capital expenditures...... (56.7) (29.9) (1.0) (35.3)
------ ------ ------- -------
Investment activities,
net..................... (56.7) (29.9) (269.3) (29.3)
------ ------ ------- -------
FINANCING ACTIVITIES:
Issuance of common stock.. -- -- 45.0 --
Capital contribution...... -- -- -- 1.8
Debt issuance costs....... -- -- (20.3) (1.7)
Cash dividend to Holdings
for purchase of Holdings
Preferred Stock from
Baxter................... -- -- -- (15.8)
Proceeds from revolving
credit agreement......... -- -- -- 23.0
Repayment of borrowings
under revolving credit
agreement................ -- -- -- (23.0)
Proceeds from bank credit
agreement................ -- -- 150.0 35.0
Repayment of borrowings
under bank credit
agreement................ -- -- -- (21.5)
Proceeds from issuance of
senior subordinated
notes.................... -- -- 120.0 --
Proceeds from sale of net
assets held for sale..... -- -- -- 16.5
Advances from (payments
to) Baxter (cash)........ (32.7) (74.6) -- --
------ ------ ------- -------
Financing activities,
net..................... (32.7) (74.6) 294.7 14.3
------ ------ ------- -------
Effect of exchange rate
changes on cash.......... -- -- -- 0.4
------ ------ ------- -------
Net increase in Cash and
Cash Equivalents......... 0.0 0.0 22.4 5.5
CASH AND CASH EQUIVALENTS:
Beginning of period....... -- -- -- 22.4
------ ------ ------- -------
End of period............. $ -- $ -- $ 22.4 $ 27.9
====== ====== ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the
period for interest...... $ -- $ -- $ 0.5 $ 25.0
====== ====== ======= =======
Cash paid during the
period for income taxes.. $ -- $ -- $ -- $ 7.7
====== ====== ======= =======
Acquisition consideration
contributed by Holdings.. $ -- $ -- $ 40.0 $ --
====== ====== ======= =======
Installment note payable
to Baxter for partial
acquisition
consideration............ $ -- $ -- $ 200.0 $ --
====== ====== ======= =======
Installment note paid from
restricted cash.......... $ -- $ -- $ -- $(200.0)
====== ====== ======= =======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-6
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (SUCCESSOR)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
NOTES ON
COMMON STOCK ADDITIONAL RECEIVABLE RETAINED MARKETABLE CUMULATIVE TOTAL
------------- PAID IN ON CAPITAL EARNINGS EQUITY TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL CONTRIBUTION (DEFICIT) SECURITIES ADJUSTMENT EQUITY
------ ------ ---------- ------------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 16,
1994................... -- $-- $ -- $ -- $ -- $ -- $-- $ --
----- ---- ----- ----- ------ ----- ---- ------
Issuance of common
stock.................. 1,000 -- 45.0 -- -- -- -- 45.0
Capital contribution.... -- -- 40.0 -- -- -- -- 40.0
Net loss................ -- -- -- -- (1.9) -- -- (1.9)
----- ---- ----- ----- ------ ----- ---- ------
Balance at December 31,
1994................... 1,000 -- 85.0 -- (1.9) -- -- 83.1
----- ---- ----- ----- ------ ----- ---- ------
Capital contribution.... -- -- 2.0 -- -- -- -- 2.0
Notes receivable on
capital contribution... -- -- -- (0.2) -- -- -- (0.2)
Net income.............. -- -- -- -- 12.7 -- -- 12.7
Cash dividend to
Holdings on common
stock.................. -- -- -- -- (15.8) -- -- (15.8)
Unrealized gain (loss)
on marketable equity
securities............. -- -- -- -- -- (1.1) -- (1.1)
Cumulative translation
adjustment............. -- -- -- -- -- -- 0.5 0.5
----- ---- ----- ----- ------ ----- ---- ------
Balance at December 31,
1995................... 1,000 $-- $87.0 $(0.2) $ (5.0) $(1.1) $0.5 $ 81.2
===== ==== ===== ===== ====== ===== ==== ======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-7
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION AND BUSINESS
Dade International Inc., as successor by merger to Dade Acquisition, Inc.,
(the "Company" or "Successor") was incorporated in Delaware in 1994 to effect
the acquisition (the "Acquisition") of the in vitro diagnostics products
manufacturing and services businesses and net assets of Baxter Diagnostics,
Inc. and certain of its affiliates ("BDI" or "Predecessor"), from Baxter
International Inc. and its affiliates ("Baxter"). The in vitro diagnostics
products manufacturing and services businesses of BDI consisted primarily of
assets and businesses acquired through Baxter's 1985 acquisition of American
Hospital Supply Corporation. The Company develops, manufactures and markets
diagnostic equipment, reagents, consumable supplies and services worldwide.
The financial statements include the accounts of the following product lines:
Dade, MicroScan, Stratus, Paramax, Burdick & Jackson, Bartels and Product
Services.
For 1993, operations outside the United States and Puerto Rico ("foreign
operations") are included in the Predecessor's financial statements on the
basis of fiscal years ending November 30. For 1994, as a result of the
Acquisition's December 16, 1994 effective date, foreign operations' balance
sheet amounts at December 16, 1994 are included in the Successor's
Consolidated Balance Sheet at December 31, 1994, adjusted for purchase
accounting resulting from the Acquisition. In addition, results of operations
outside the United States and Puerto Rico for the period December 1, 1993
through December 16, 1994 are included in the Predecessor's 1994 Combined
Statement of Operations while foreign operating results are excluded from the
Successor's Consolidated Statement of Operations for the period from December
17, 1994 through December 31, 1994. For 1995, foreign operations' balance
sheet amounts at November 30, 1995 are included in the Successor's
Consolidated Balance Sheet at December 31, 1995. Further, to facilitate prompt
year-end reporting of the consolidated financial statements, results of
foreign operations for the period from December 17, 1994 through November 30,
1995 are included in the Successor's 1995 Consolidated Statement of
Operations. Neither the inclusion of twelve and one-half months of foreign
operations in the Predecessor's combined results of operations for 1994, nor
the omission of one-half month of foreign operations from the Successor's 1994
and 1995 consolidated results of operations are material to the combined or
consolidated financial statements.
The Company is a wholly-owned subsidiary of Diagnostics Holding, Inc.
("Holdings"). Bain Capital, Inc. ("Bain Capital") and GS Capital Partners,
L.P., an affiliate of the Goldman Sachs Group, L.P. ("GS Capital"), and their
respective related investors owned, until August 2, 1995, all of the voting
capital stock of Holdings, which owns all of the outstanding capital stock of
the Company. On August 2, 1995, Holdings adopted stock purchase and option
plans (Note 9) which provide for members of the Company's management to own
capital stock of Holdings. At December 31, 1995 Bain Capital, GS Capital and
their respective related investors owned virtually all of the capital stock of
Holdings.
The financial statements of Holdings are not required to be included herein
by the rules and regulations of the Securities and Exchange Commission ("SEC")
as Holdings has not issued a guarantee with respect to the repayment of the
Company's 13% Senior Subordinated Notes ("Senior Subordinated Notes"). The
Company is restricted by its existing Bank Credit Agreement and Senior
Subordinated Notes indenture from loaning or dividending cash to Holdings,
except under limited circumstances.
The Acquisition was completed on December 20, 1994, effective as of December
16, 1994, under the terms of a purchase agreement between Baxter and Holdings
("Purchase and Sale Agreement"). The financial statements for the post-
Acquisition period present the consolidated accounts of the Company. For the
pre-Acquisition period, the combined financial statements present the
operations of BDI purchased by the Company.
The financial statements of the Company and BDI are not comparable in
certain respects due to differences between the cost bases of certain assets
and liabilities as well as Baxter having retained a significant portion of the
Predecessor's trade accounts receivable at December 16, 1994 in accordance
with the Purchase and Sale
F-8
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement. The Predecessor financial statements represent the "carve-out"
financial position, results of operations and cash flows for the periods
presented. Certain corporate and group general and administrative expenses of
Baxter have been allocated to BDI on various bases which, in the opinion of
management, are reasonable (Note 11). However, such expenses are not
necessarily indicative of the nature and level of expenses which might have
been incurred had BDI been operating as a separate company. Additionally, the
combined statements of operations of BDI include the results of operations of
Burdick & Jackson and Bartels which have been identified by the Company as
assets held for sale (Note 4). Consequently, the post-Acquisition results of
operations for these two businesses have been excluded from the Company's 1994
and 1995 Consolidated Statements of Operations.
The financial information included herein does not necessarily reflect what
the financial position and results of operations of BDI would have been had it
operated as a stand alone entity during the periods covered, and may not be
indicative of future operations or financial position.
Senior Subordinated Notes Exchange Offering
The Company filed a registration statement on Form S-4 (the "Exchange Offer
Registration Statement") in June 1995 under the Securities Act of 1933, as
amended, involving the registration of $120 million of its Series B 13% Senior
Subordinated Notes due 2005 which, in July 1995, were exchanged for its 13%
Senior Subordinated Notes due 2005 that were issued in connection with the
Acquisition of the Company (the "Exchange Offering").
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying financial statements.
These policies are in conformity with generally accepted accounting
principles, and have been applied consistently unless otherwise noted and
apply to both the Company and the Predecessor unless otherwise noted.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The combined/consolidated financial statements include all majority owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Certain amounts in the Predecessor's financial statements have
been reclassified to conform to the Successor's presentation.
Revenue Recognition
Successor's revenues for products that are subject to a Distribution
Agreement in the United States with Baxter (a related party as more fully
described in Notes 9 and 11) are recognized upon shipment of products to
Baxter or direct shipment of the products by the Company to third party
customers. Such revenues are recorded on the basis of the sales price to
customers (i.e., generally the end consumer) less a distribution discount
negotiated with Baxter's U.S. Distribution Division. All other revenues,
including sales to VWR (Note 11), for products sold (i.e., those not subject
to the Baxter Distribution Agreement) are recognized upon shipment of products
to customers and are recorded on the basis of the sales price to such
customers (i.e., generally the end consumer) or the sales price to VWR, as
applicable.
F-9
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 the Company has recorded an estimate of the
distribution discount due to Baxter's U.S. Distribution Division based upon
items sold to Baxter which Baxter has not yet sold to third party customers.
As the ultimate distribution discount is based upon the actual selling price
by Baxter to third party customers, the estimated distribution discount
recorded by the Company may be revised in the future as actual selling price
information becomes available.
Predecessor's revenues for products sold through Baxter (the Predecessor's
parent) in the United States were recognized upon shipment by Baxter to
customers (i.e., generally the end consumer). Such revenues were recorded on
the basis of the sales price to customers less an intercompany distribution
service fee negotiated with Baxter's U.S. Distribution Division. Distribution
service fees were $63.4 million for the period January 1, 1994 through
December 16, 1994 and $69.9 million for the year ended December 31, 1993 (Note
11). All other revenues for products sold were recognized upon shipment of
products to customers.
Revenues under product service contracts, which are generally for one year,
are deferred and recognized ratably over the term of the contract.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
demand deposits and cash equivalents which are highly liquid instruments with
maturities of three months or less at the time of purchase and are held to
maturity. Cash equivalents include $3.3 million and $23.7 million invested in
short-term money market investments at December 31, 1994 and 1995,
respectively.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported in the
Combined/Consolidated Statements of Cash Flows will not necessarily agree to
changes in the corresponding balances on the Combined/Consolidated Balance
Sheets. The effect of exchange rate changes on cash balances held in foreign
currencies is reported below cash flows from financing activities.
Restricted Cash
As of December 31, 1994, $200 million of cash was restricted to settle the
$200 million installment note payable to Baxter in connection with the
Acquisition (Note 3). The installment note was paid from the restricted cash
during 1995.
Accounts Receivable
Accounts receivable-trade are net of bad debt reserves of $2.2 million and
$6.8 million at December 31, 1994 and 1995, respectively. Accounts receivable-
trade are unsecured.
Research and Development Expenses
Expenditures by the Company for research, development and engineering of
products and manufacturing processes are expensed as incurred. In conjunction
with the Acquisition (Note 3), which was recorded in accordance with the
purchase method of accounting, $30.3 million of fair value was first allocated
to currently in-process research and development projects which were deemed to
be of value to Successor's continuing research efforts and then written down
to zero at the date of the Acquisition.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes materials, labor and manufacturing overhead costs.
Market for raw materials is based on replacement costs and for other
F-10
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
inventory classifications on net realizable value. Appropriate consideration
is given to deterioration, obsolescence and other factors in evaluating net
realizable value.
Inventories of the Company consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Raw materials...................................... $ 20.8 $ 21.9
Work-in-process.................................... 37.9 34.4
Finished products.................................. 112.5 65.7
------ ------
Total inventories.................................. $171.2 $122.0
====== ======
</TABLE>
Certain reclassifications have been made to the 1994 inventories balances to
conform to the presentation of the 1995 balances.
In connection with the Acquisition (Note 3), which was recorded in
accordance with the purchase method of accounting, Successor's total
inventories were written up by $46.0 million at the date of acquisition, $5.6
million and $40.4 million of which was charged to cost of goods sold during
the period December 17, 1994 through December 31, 1994 and the year ended
December 31, 1995, respectively. In addition, cost of goods sold for the year
ended December 31, 1995 includes approximately $3.2 million of one time
noncash charges related to historical depreciation expense associated with
historical property, plant and equipment written down to zero in connection
with the Acquisition (Note 3). Such depreciation expense was capitalized in
inventories at the Acquisition date.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for financial reporting purposes principally on the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
PREDECESSOR YEARS SUCCESSOR YEARS
----------------- ---------------
<S> <C> <C>
Buildings.................................. 40 40
Machinery and equipment.................... 3 to 11 3 to 10
</TABLE>
Assets recorded under capital leases are amortized over the life of the
lease. Instruments leased to or placed with customers are included in
machinery and equipment and are depreciated on a straight-line basis for a
period not exceeding five years.
Leasehold improvements are capitalized and amortized over their estimated
useful lives or over the terms of the related leases, if shorter.
Property, plant and equipment of the Company consist of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Land.............................................. $ -- $ --
Buildings and leasehold improvements.............. -- 0.4
Machinery and equipment........................... 0.5 26.9
Construction in progress.......................... 0.5 8.9
----- -----
Total property, plant and equipment, at cost...... 1.0 36.2
Accumulated depreciation and amortization......... -- (4.4)
----- -----
Net property, plant and equipment................. $ 1.0 $31.8
===== =====
</TABLE>
F-11
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Acquisition (Note 3), which was recorded in
accordance with the purchase method of accounting, total historical cost of
property, plant and equipment acquired was written down by $197.0 million to
zero at the date of the Acquisition.
Negative Goodwill/Goodwill
Successor's "negative" goodwill arose since the preliminary fair value of
net assets acquired significantly exceeded total acquisition cost, resulting
in the writedown of the Company's non-current assets and the fair value
allocated to currently in-process research and development projects to zero
with the residual preliminary discount of $24.2 million being allocated to
negative goodwill. Preliminary negative goodwill was $24.1 million at December
31, 1994, net of $0.1 million of accumulated amortization. Negative goodwill
was adjusted downward during 1995 by $18.1 million, net of tax, related to the
reallocation of final purchase price and the fair value of net assets acquired
based upon: (i) the resolution of certain pre-Acquisition contingencies,
including adjustments to certain legal accruals; (ii) the sale of Bartels and
revision of estimated net realizable value of remaining net assets held for
sale; (iii) a negotiated settlement amount of Other receivables--Baxter
related to the assumption of certain contractual liabilities; (iv) a
negotiated settlement with Baxter related to final purchase price adjustments;
(v) final determination of tax bases carried over from the Predecessor as of
the Acquisition date, and the related deferred tax effects; and (vi) other
miscellaneous adjustments arising from the determination of final fair values
of the net assets acquired. Negative goodwill was $5.6 million at December 31,
1995, net of $0.5 million of accumulated amortization. The $18.1 million
noncash adjustment to negative goodwill and its resulting impact on various
asset and liability accounts has not been reflected in the Company's
Consolidated Statement of Cash Flows for the year ended December 31, 1995.
Negative goodwill is being amortized on a straight-line basis as a credit to
income over 15 years.
Predecessor goodwill represents primarily the excess of cost over the fair
value of net assets allocated to the Predecessor arising from Baxter's 1985
acquisition of American Hospital Supply Corporation, and was being amortized
on a straight-line basis over 40 years.
Intangible Assets
Intangible assets of the Predecessor included purchased patents and other
identified rights which were amortized on a straight-line basis over their
legal or estimated useful lives, whichever was shorter (generally not
exceeding 17 years). In connection with the Acquisition (Note 3), intangible
assets acquired, including Predecessor's goodwill, were written down to zero
at the date of the Acquisition.
Debt Issuance Costs
Successor's debt issuance costs, which are being amortized over the
applicable terms of the Bank Credit Agreement and 13% Senior Subordinated
Notes indenture (7 years (weighted average) and 10 years, respectively), were
$21.9 million at December 31, 1994, net of accumulated amortization of $0.1
million, and $19.1 million at December 31, 1995, net of accumulated
amortization of $2.9 million.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), which is an asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the expected future tax consequences, utilizing current tax rates, of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Deferred tax assets are recognized, net of any valuation
allowance, for the
F-12
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
estimated future tax effects of deductible temporary differences and tax
operating loss and credit carryforwards. Deferred tax expense or benefit
represents the change in the deferred tax asset or liability balances.
Additionally, the Company provides deferred tax liabilities for the eventual
tax effect of repatriating all unremitted earnings of foreign subsidiaries.
The Company's operations are included in Holdings' consolidated U.S. federal
and state income tax returns.
Baxter adopted SFAS No. 109 effective January 1, 1993. The effect on the
combined financial statements of the Predecessor is reflected as the
Cumulative Effect of Change in Accounting in the Combined Statements of
Operations. Prior to January 1, 1993, the Predecessor accounted for income
taxes pursuant to Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes."
BDI's operations were historically included in Baxter's consolidated U.S.
federal and state income tax returns and in the tax returns of certain Baxter
foreign subsidiaries. The provisions for income taxes shown in the Combined
Statements of Operations have been determined as if BDI had filed separate tax
returns under its then existing legal structure for the periods presented. All
U.S. income taxes, including deferred taxes, were settled with Baxter on a
current basis through the Baxter investment accounts.
Environmental Expenditures
Environmental expenditures by the Successor, which are not indemnified under
the Purchase and Sale Agreement with Baxter (Note 15), are expensed or
capitalized depending upon their future economic benefit. Expenditures which
improve a property as compared with the condition of the property when
originally constructed or acquired and which prevent future environmental
contamination are capitalized. Expenditures which return a property to its
condition at the time of acquisition are expensed, and the related liabilities
recorded, when it is probable that obligations have been incurred and the
amounts can be reasonably estimated.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiaries are translated at the
fiscal year-end exchange rate. Revenues and expenses are translated at an
average rate of exchange in effect during the year. Due to the consolidation
of foreign subsidiaries as of December 16, 1994 in the December 31, 1994
Consolidated Balance Sheet and the exclusion of their results from the
Consolidated Statement of Operations for the period December 17, 1994 through
December 31, 1994 (Note 1), no cumulative translation adjustments related to
the Successor arose during that period.
Long-Term Intercompany Notes Payable
At December 31, 1994 and 1995, the Company had designated long-term interest
bearing intercompany notes payable (denominated in various foreign currencies)
from certain of its foreign subsidiaries as hedges of the Company's exposures
to exchange rate fluctuations in specified countries. The aggregate loan
values, translated to dollars, were $49.1 million both at inception and at
December 31, 1994 and were $51.9 million at December 31, 1995. Net gains or
losses on translation of these intercompany notes were recorded as a component
of the Company's cumulative translation adjustment.
Derivative Financial Instruments
The Company utilizes derivative financial instruments for purposes other
than trading, which include managing its exposure to foreign currency rate and
interest rate fluctuations.
F-13
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company enters into forward currency exchange contracts with highly-
rated counterparties, both forward contracts and option contracts, to manage
its exposure to foreign currency fluctuations on assets and liabilities,
including intercompany borrowing arrangements, denominated in foreign
currencies. Premiums and discounts on these contracts are deferred in other
assets and amortized to administrative expense over the life of the contract.
Gains and losses on forward contracts resulting from revaluations are recorded
to other assets during their life. Gains and losses on option contracts
resulting from exercise are recorded to administrative expense. At the
maturity of the forward contracts and the exercise of the option contracts,
the currencies involved will be exchanged based on the contracted exchange
rate. At December 31, 1995, deferred amounts relating to these contracts are
not material to the consolidated financial statements, and the replacement
value of "in-the-money" contracts was not significant. Total notional contract
value of foreign currencies bought and sold forward at December 31, 1995 are
as follows (in millions):
<TABLE>
<S> <C>
Forward purchases..................................... $ 7.4
Forward sales......................................... $27.4
</TABLE>
The Company also utilizes a purchased interest rate cap, for which the
Company will receive cash payments from the counterparty if an indexed rate of
interest is exceeded, to manage its exposure to interest rate increases on its
outstanding debt. Premiums paid for the purchase of the cap are capitalized
and amortized to interest expense over the life of the cap. Upon settlement of
the cap, amounts received, if any, are deferred and amortized to interest
expense over the related period. At December 31, 1995, capitalized amounts,
including deferrals, relating to the cap are not material to the consolidated
financial statements.
Other Income
For the year ended December 31, 1995, Other income in the Company's
Consolidated Statement of Operations consists of interest income of $2.2
million.
Earnings (Loss) Per Share
Historical earnings (loss) per share are not presented in the Predecessor's
Combined Statements of Operations because, as a division of Baxter, it had no
separate capital structure. Earnings (loss) per share are not presented for
the Successor as the Company's common stock is not publicly traded.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of trade accounts receivable. A large
percentage of U.S. accounts receivable were generated by the Company's sales
through Baxter's U.S. Distribution Division (Note 11). The credit risk is
mitigated due to the large number of entities comprising Baxter's worldwide
customer base and their dispersion across many different geographies.
At December 31, 1994 and 1995, the Company was aware of several other
potential concentrations of credit risk. A number of the Company's customers
operate in the hospital and reference laboratory market, which may be impacted
by any legislated healthcare reforms. Additionally, at December 31, 1994 and
1995, approximately $19.7 million or 61% and $20.0 million or 31%,
respectively, of the Company's foreign accounts receivable were geographically
concentrated in Italy. The Company does not expect these potential risk
factors to have a material adverse impact on its results of operations or
financial position. Furthermore, pursuant to the Purchase and Sale Agreement,
certain of the Company's foreign accounts receivable at the date of
Acquisition, including those in Italy, may be put back to Baxter if not fully
collected within certain specified time periods after December 16, 1994.
F-14
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying values of cash equivalents and other current assets and
liabilities (such as accounts receivable and payable) approximate fair value
at December 31, 1994 and 1995 because of the short maturity of these
instruments.
The excess of the fair values of derivative financial instruments, as noted
in "Derivative Financial Instruments" above, over carrying values aggregated
$0.4 million at December 31, 1995.
The carrying value of the Term Loans (Note 7) approximates fair value as the
interest rate on each instrument adjusts based upon market interest rate
changes. The fair value of the 13% Senior Subordinated Notes, as of December
31, 1995, is somewhat influenced by the general decline in longer term
interest rates since the Notes were issued. However, it is not practicable to
estimate current fair value of the Notes as there is no public listing for the
Notes and there has been little to no trading activity in the issue.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
3 ACQUISITION
Effective December 16, 1994, the Company, in separate transactions, acquired
certain net assets and businesses of BDI, including the stock of various
foreign subsidiaries, but excluding approximately $93.8 million of accounts
receivable. One transaction was structured as an exchange pursuant to Section
351 of the United States Internal Revenue Code. The remaining transactions
were structured as direct stock purchases or asset acquisitions. The
Acquisition was recorded in accordance with the purchase method of accounting.
Accordingly, the purchase price plus direct costs of the Acquisition were
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values at the date of Acquisition. Since the estimated fair
values of the net assets acquired significantly exceeded total acquisition
cost, the Company's non-current assets and currently in-process research and
development projects were reduced to zero and the residual was recorded as
negative goodwill. The estimated fair values were based on independent
appraisals, management estimates, and arms-length negotiations with Baxter,
and were subject to adjustments during 1995, which aggregated $18.1 million,
after tax, and reduced the preliminary amount of negative goodwill (see Note 2
for discussion of the nature of final adjustments).
A summary of assets acquired, liabilities assumed and the purchase price
paid is as follows (in millions):
<TABLE>
<S> <C>
Consideration:
Cash............................................................ $ 65.9
Installment note payable to Baxter.............................. 200.0
Preferred stock of Holdings issued to Baxter (Note 9)........... 40.0
Costs of Acquisition............................................ 8.3
Preliminary Purchase Price Adjustment due from Baxter........... (3.7)
------
310.5
Liabilities assumed............................................. 133.4
------
Cost of assets acquired......................................... $443.9
======
</TABLE>
F-15
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preliminary cost allocated to each of the Company's assets and
liabilities at the date of the Acquisition, as determined in accordance with
the purchase method of accounting, is presented in the table below (in
millions). The preliminary fair values allocated to acquired in-process
research and development; property, plant and equipment and identifiable
intangibles and other assets (shown below at a final allocated cost of zero)
were $30.3 million, $179.0 million and $53.3 million, respectively.
<TABLE>
<S> <C>
Cash.............................................................. $ 1.3
Accounts receivable............................................... 44.7
Inventories....................................................... 178.5
Prepaids and other current assets................................. 5.8
Net assets held for sale.......................................... 73.6
Other receivables from Baxter..................................... 20.1
Current deferred income tax assets................................ 19.2
In-process research and development............................... --
Property, plant and equipment..................................... --
Intangibles and other assets...................................... --
Non-current deferred income tax assets............................ 100.7
Accounts payable and accrued liabilities.......................... (93.3)
Pension and other non-current liabilities......................... (14.8)
Current deferred income tax liabilities........................... (1.1)
Negative goodwill................................................. (24.2)
------
Net assets acquired........................................... $310.5
======
</TABLE>
The Acquisition was financed by the issuance of $45 million of Holdings'
common stock, $150 million of bank debt, $120 million of senior subordinated
debt, and $40 million of Holdings' preferred stock. Of the $270 million of
debt proceeds, $22 million was used for debt issuance costs and approximately
$25 million was used for working capital purposes. The installment note
payable to Baxter was paid in full plus accrued interest on January 6, 1995.
In addition to the $3.7 million preliminary purchase price adjustment due from
Baxter, and in accordance with provisions of the Purchase and Sale Agreement,
the Company had submitted a reimbursement request to Baxter for approximately
$16.4 million of "Excluded General Liabilities" related to recorded pre-
Acquisition period "Taxes" and "Employee Benefits" obligations, as defined,
which have been or will be paid on Baxter's behalf by the Company. The
aggregate amount due from Baxter of $20.1 million, plus post-Acquisition net
operating cash "true-up" amounts of $1.8 million due from Baxter, was included
within "Other receivables--Baxter, net" in the accompanying Consolidated
Balance Sheet at December 31, 1994. The gross Acquisition-related amounts due
from Baxter were subject to customary review and post-closing adjustment
procedures provided for within the Purchase and Sale Agreement. The Company
received a substantial portion of the estimated amounts due from Baxter,
including final receipt in January 1996 from Baxter of the $9.7 million shown
in the December 31, 1995 Consolidated Balance Sheet. The negotiated amount of
the final purchase price that was not received was charged to negative
goodwill in the finalization of acquisition accounting.
The following represents the unaudited pro forma results of operations of
the Company and its subsidiaries as if the Acquisition had occurred on January
1, 1994 and January 1, 1993, respectively, after giving effect to certain
adjustments, including the exclusion of Burdick & Jackson's and Bartels'
results, exclusion of the Predecessor's 1993 restructuring and downsizing
costs, reduced depreciation of property, plant and equipment, reduced
amortization of intangibles, amortization of negative goodwill, cost savings
from the Company's restructuring actions (Note 5), increased employee benefits
offset by reduced postretirement expenses, increased stand alone costs,
increased interest expense on acquisition debt, the exclusion of non-recurring
inventory writeoffs, and the related income tax effects of these adjustments
(in millions):
F-16
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales.......................................... $653.5 $625.9
====== ======
Net income......................................... $ 39.1 $ 44.3
====== ======
</TABLE>
The unaudited pro forma results of operations presented above, which have
been adjusted to reflect the final amount of negative goodwill, are not
necessarily indicative of the results that actually would have been obtained
if the Acquisition had occurred on January 1, 1993 and 1994 and are not
intended to be a projection of future results or trends.
4 NET ASSETS HELD FOR SALE
The Company operated two businesses (Burdick & Jackson and Bartels) which,
along with certain excess land and warehouse facilities at another location,
were identified at the date of Acquisition (Note 3) as operations and assets
to be sold. Burdick & Jackson is an integrated manufacturer of high purity
solvents used for chromatography and spectrophotometry in the analytical
laboratory. Bartels manufactures viral testing and related reagents under the
Bartels name. Accordingly, the Company recorded $73.2 million as "Net assets
held for sale" at December 31, 1994, which represented the estimated proceeds
to be received from the sale of these operations and the excess land and
facilities plus expected operating cash flow during the holding period, offset
by interest expense on bank debt to be repaid with the estimated sales
proceeds. The results of operations of Burdick & Jackson and Bartels have not
been reflected in the Company's Consolidated Statements of Operations;
however, they have been reflected in the combined financial statements of the
Predecessor. Operating results for Burdick & Jackson and Bartels included in
the Predecessor's Combined Statements of Operations follow (in millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 16,
1993 1994
------------ ---------------
<S> <C> <C>
Net sales....................................... $36.7 $34.3
===== =====
Net income...................................... $ 5.6 $ 5.8
===== =====
</TABLE>
Bartels was sold during 1995 for gross proceeds of $16.5 million. The excess
of the actual net proceeds over the Bartels carrying value at the date of its
sale resulted in an adjustment and reallocation of the acquisition cost of the
Company. Burdick & Jackson and the excess land and facilities were not sold
during 1995; however, the excess land and facilities were sold in February
1996 at approximately the expected net proceeds, and the Company is currently
actively marketing Burdick & Jackson. As the Company intends to sell Burdick &
Jackson during 1996, the estimated net proceeds from its pending sale and from
the February 1996 sale of the excess land and facilities, aggregating $54.9
million, were recorded as Net assets held for sale at December 31, 1995. As
the Burdick & Jackson operations were not sold within one year of the
Acquisition, its operations, as well as the interest expense on bank debt to
be repaid with the estimated sales proceeds, will be reflected net within a
single line in the Company's Consolidated Statements of Operations starting
January 1, 1996. Interest expense allocated to the Net assets held for sale
aggregated $6.1 million for the year ended December 31, 1995.
Net assets held for sale at December 31, 1995 reflect the actual amount
received from the sale of excess land and facilities in February 1996 plus
management's best estimate of the amount expected to be realized on
F-17
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the sale of Burdick & Jackson. The amount the Company will ultimately realize
could differ materially from the amount assumed in arriving at the net
proceeds on disposal of the operations.
5 RESTRUCTURING AND DOWNSIZING CHARGES
At the time of the Acquisition, the Successor's new ownership had identified
a series of strategic restructuring actions for which it accrued an aggregate
reserve of $21.0 million to cover severance actions ($10.8 million) and direct
costs to exit certain facilities ($10.2 million) as part of a facilities and
plant rationalization program. This overall plan is designed to improve the
Company's future profitability. Restructuring actions include moving certain
reagent production from Puerto Rico to Miami; consolidation and relocation of
Paramax's manufacturing operations from Irvine, California; exiting an
existing leased facility in Miami and moving the operations to owned
facilities in Miami; streamlining the European sales force and exiting the
Company's in-house printing and labeling functions in favor of third-party
outsourcing. A total gross headcount reduction of 482 was identified as a part
of these actions, consisting primarily of manufacturing and manufacturing
support personnel at the affected operations and sales force personnel in
Europe. The majority of these actions have already been completed and the
overall program is expected to be completed prior to December 1996. During
1995, the Company paid $4.9 million to cover severance actions, paid $9.0
million for direct costs to exit certain facilities and terminated 288
employees under its restructuring plan, leaving a remaining restructuring
reserve balance at December 31, 1995 of $7.1 million.
In 1993, BDI undertook a series of measures to downsize its sales, general
and administrative and non-strategic research and development staffs as part
of a reorganization of its business units into a single operating division.
These actions resulted in a charge of approximately $13.9 million (primarily
for severance benefits paid to approximately 450 employees), substantially all
of which was paid prior to December 16, 1994. As part of these initiatives,
BDI also recorded a $16.3 million noncash charge for inventory and fixed asset
write-offs in 1993 due to a decision to discontinue further investment
(research and development and capital) and to curtail future production of
certain under-performing product lines.
The 1993 Combined Statement of Cash Flows includes $2.3 million of cash
expenditures related to a BDI 1990 restructuring program.
6 ACCRUED LIABILITIES
Accrued liabilities of the Company consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Salaries, wages, commissions, withholdings and
other payroll taxes............................ $19.2 $ 36.0
Property, sales and use and other taxes......... 1.3 8.4
Restructuring and downsizing costs.............. 21.9 7.1
Deferred service contract revenue/warranty...... 5.6 11.3
Accrued debt/Acquisition costs.................. 6.3 --
Interest payable................................ -- 8.8
Other........................................... 28.3 34.3
----- ------
$82.6 $105.9
===== ======
</TABLE>
Approximately $16.4 million of the Successor's accrued liabilities at
December 31, 1994 represent "Excluded General Liabilities" related to "Taxes"
and "Employee Benefits" obligations, as defined pursuant to the Purchase and
Sale Agreement, for which the Company submitted a request for reimbursement
from Baxter
F-18
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
as a result of the Company having to logistically settle these liabilities on
Baxter's behalf (Note 3). A substantial portion of these liabilities were
reimbursed to the Company by Baxter. The portion disputed by Baxter, and
ultimately agreed by the Company, was treated as an adjustment and
reallocation of the acquisition cost of the Company (Note 2).
7 LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt of the Company, which is subject to mandatory repayments
under certain conditions (as described below), consists of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Bank Credit Agreement:
A Term Loan...................................... $ 15.0 $ 39.9
B Term Loan...................................... 40.0 36.6
C Term Loan...................................... 45.0 41.2
D Term Loan...................................... 50.0 45.8
13% Senior Subordinated Notes...................... 120.0 120.0
------ ------
270.0 283.5
Less current portion............................... (6.6) (5.8)
------ ------
$263.4 $277.7
====== ======
</TABLE>
Term Loans and Revolving Credit Facility
The Company entered into a Bank Credit Agreement with Bankers Trust Company
as agent which provided for loans of up to $275 million (subsequently amended
to $250 million). Loans available under the Bank Credit Agreement originally
consisted of $115 million in aggregate principal amount of A Term Loan
(subsequently amended to $50 million), $40 million in aggregate principal
amount of B Term Loan, $45 million in aggregate principal amount of C Term
Loan and $50 million in aggregate principal amount of D Term Loan
(collectively, the "Term Loans") and a $25 million (subsequently amended to
$65 million) revolving credit facility (the "Revolving Credit Facility"),
which permits the Company to borrow up to $25 million (subsequently amended to
$65 million) to finance working capital, letters of credit and other general
corporate needs. The Company used $150 million of the Term Loans (only $15
million of the A Term Loan commitment) to provide a portion of the funds
necessary to consummate the Acquisition of the Company (Note 3).
Indebtedness of the Company under the Bank Credit Agreement is guaranteed by
Holdings and the domestic subsidiaries of the Company. The borrowings under
the Bank Credit Agreement are secured by all of the stock of the Company and
each of its direct and indirect subsidiaries as well as substantially all of
the domestic assets and certain foreign assets of the Company. The agreement
contains various restrictive covenants, including but not limited to minimum
earnings and interest coverage requirements, as well as limitations on
borrowings, dividends/advances to Holdings and capital expenditures. The
Company was in compliance with all debt covenants during the period December
17, 1994 through December 31, 1994 and during the year ended December 31,
1995.
Indebtedness under the Bank Credit Agreement bears interest at a floating
rate. Indebtedness under the Revolving Credit Facility and the Term Loans
bears interest at a rate based upon (i) the Base Rate (defined as the higher
of (a) the applicable prime rate of Bankers Trust Company or (b) the Federal
Reserve reported certificate of deposit rate as adjusted pursuant to the Bank
Credit Agreement plus 1/2 of 1%) in either case plus 1.75% in respect of A
Term Loan and the loan under the Revolving Credit Facility, 2.25% in respect
of B Term
F-19
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan, 2.50% in respect of C Term Loan and 2.875% in respect of D Term Loan or,
after March 19, 1995 at the Company's option, (ii) the Eurodollar Rate (as
defined in the Bank Credit Agreement) for one, two, three or six months, in
each case plus 2.75% in respect of A Term Loan and the Revolving Credit
Facility, 3.25% in respect of B Term Loan, 3.50% in respect of C Term Loan and
3.875% in respect of D Term Loan. At December 31, 1994, for the period
December 17, 1994 through December 31, 1994, and for the period January 1,
1995 through March 21, 1995 the Company had funded its borrowings using the
Base Rate option. At December 31, 1995 and for the period March 22, 1995
through December 31, 1995, the Company had funded its borrowings using the
Eurodollar Rate Option. The Base Rate in effect at December 31, 1994 was the
prime rate of 8.5%. The Eurodollar Rate in effect at December 31, 1995 was
5.875% in respect of A Term Loan and B Term Loan, 5.6875% in respect of C Term
Loan, and 5.625% in respect of D Term Loan. As a condition of its Bank Credit
Agreement, the Company has entered into an interest rate protection agreement
with one of its banks, whereby effective March 14, 1995, it purchased a three
year interest rate cap on $80 million of its outstanding term debt with a
strike price of a LIBOR rate of 9% per annum.
At December 31, 1994 and 1995, no amounts were outstanding under the
Revolving Credit Facility, which expires September 30, 2000.
The A Term Loan will mature on September 30, 2000. The B Term Loan will
mature on December 31, 2001. The C Term Loan will mature on December 31, 2002.
The D Term Loan will mature on June 30, 2003. The A Term Loan is subject to
quarterly amortization payments which commenced in June 1995. The B Term Loan,
C Term Loan and D Term Loan are subject to quarterly amortization payments
which commenced in March 1995. In addition, the Bank Credit Agreement provides
for mandatory repayments, subject to certain exceptions, of noncurrent
portions of the Term Loans (and after all Term Loans have been repaid, certain
commitment reductions under the Revolving Credit Facility) based on certain
net asset sales outside the ordinary course of business of Holdings and its
subsidiaries (including the asset sales contemplated in Note 4), the net
proceeds of certain debt and equity issuances and 75% of Excess Cash Flow (as
defined therein) per annum.
The Revolving Credit Facility may be repaid and reborrowed. The Company is
required to pay to the lenders under the Bank Credit Agreement a commitment
fee equal to 1/2 of 1% per annum, payable on a quarterly basis, on the average
unused portions of the Revolving Credit Facility and Term Loans during such
quarter.
The Bank Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of EBITDA (as defined therein), minimum
interest coverage, maximum leverage ratio, other covenants which, among other
things, limit the incurrence of additional indebtedness, dividends,
transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness (including the 13% Senior
Subordinated Notes), liens and encumbrances and other matters customarily
restricted in such agreements.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Bank Credit Agreement to be in full force and effect
and change of control of Holdings or the Company.
13% Senior Subordinated Notes
The 13% Senior Subordinated Notes are due February 1, 2005 with interest
payable semiannually. The 13% Senior Subordinated Notes are unsecured and were
exchanged for 13% senior subordinated notes which were registered under the
Securities Act of 1933 during 1995. The 13% Senior Subordinated Notes contain
certain restrictive covenants, such as restrictions on certain payments,
incurrence of additional debt and mergers and other change of control
provisions.
F-20
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 13% Senior Subordinated Notes are redeemable, in whole or in part, at
the Company's option commencing February 1, 2000, except that the Company may
redeem the Senior Subordinated Notes prior to February 1, 1998, with certain
limitations, with the net proceeds of one or more public equity offerings.
Redemption prices are specified in the Indenture Agreement.
Letters of Credit
At December 31, 1994, the Company was contingently obligated to fund $200
million in letters of credit to support the Company's installment note payable
to Baxter (Note 3). The note was paid in full, and the letters of credit
canceled, on January 6, 1995.
Aggregate Maturities of Long-Term Debt
The aggregate maturities of long-term debt at December 31, 1995 are as
follows (in millions):
<TABLE>
<S> <C>
1996................................................. $ 5.8
1997................................................. 9.1
1998................................................. 10.9
1999................................................. 10.9
2000................................................. 16.0
Thereafter........................................... 230.8
------
$283.5
======
</TABLE>
Multi--Currency Credit Facility
During 1995, the Company entered into a multi-currency credit facility
providing for aggregate borrowings of up to $10 million. This facility is
guaranteed by the Company and provides working capital funds to several
foreign subsidiaries. At December 31, 1995, of the $2.1 million of non-
domestic bank debt outstanding, borrowings aggregating $1.0 million were
outstanding under the facility, at interest rates on the various components
equal to the specific foreign currency LIBOR rate plus a margin of 2.75%.
Operating Leases
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Most of these operating leases contain renewal
options.
Future minimum lease payments (including interest) under noncancelable
operating leases at December 31, 1995 are as follows (in millions):
<TABLE>
<S> <C>
1996.................................................. $ 9.4
1997.................................................. 5.1
1998.................................................. 2.0
1999.................................................. 1.1
2000.................................................. 1.0
Thereafter............................................ 1.6
-----
$20.2
=====
</TABLE>
F-21
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total expense for all operating leases was a net $16.6 million for the year
ended December 31, 1993, $14.8 million for the period January 1, 1994 through
December 16, 1994, $0.5 million for the period December 17, 1994 through
December 31, 1994 and $12.9 million for the year ended December 31, 1995.
8 INCOME TAXES
Income (loss) before income tax expense is as follows (in millions):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, 1994
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Domestic (including
Puerto Rico)........... $39.3 $73.7 $(4.2) $20.5
Foreign................. (25.6) (23.7) -- (0.6)
----- ----- ----- -----
Income (loss) before in-
come tax expense....... $13.7 $50.0 $(4.2) $19.9
===== ===== ===== =====
</TABLE>
Tax Expense (Benefit)
Income tax expense (benefit) consists of the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, 1994
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
CURRENT
Domestic:
Federal............... $ -- $ -- $ -- $1.0
State and local (in-
cluding Puerto Ri-
co).................. 5.0 5.5 0.2 3.6
Foreign................. 0.6 1.9 -- 1.0
----- ----- ----- ----
Current income tax ex-
pense.................. 5.6 7.4 0.2 5.6
----- ----- ----- ----
DEFERRED
Domestic:
Federal............... -- -- (2.5) (0.3)
State and local (in-
cluding Puerto Ri-
co).................. 6.7 7.1 -- 0.2
Foreign................. -- (0.3) -- 1.7
----- ----- ----- ----
Deferred income tax ex-
pense (benefit)........ 6.7 6.8 (2.5) 1.6
----- ----- ----- ----
Total income tax expense
(benefit).............. $12.3 $14.2 $(2.3) $7.2
===== ===== ===== ====
</TABLE>
F-22
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Tax Rates
Differences between income taxes computed using the U.S. federal income tax
statutory rate of 35% and income tax expense recorded by the Company are
attributable to the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, 1994
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 16, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Income tax expense (ben-
efit) at statutory
rate................... $ 4.8 $ 17.5 $(1.5) $ 7.0
Tax exempt operations... (24.7) (26.5) (0.8) (4.8)
Nondeductible (nontax-
able) goodwill......... 2.3 2.2 -- (0.2)
State and local taxes
(net of federal bene-
fit)................... 0.4 0.5 -- 0.5
Unrecognized net operat-
ing loss
carryforwards.......... 19.9 8.9 -- 3.1
U.S. tax on unremitted
foreign earnings....... -- -- -- 1.1
Foreign tax expense
(benefit).............. 9.5 11.5 -- (0.3)
Other factors........... 0.1 0.1 -- 0.8
------ ------ ----- -----
Income tax expense (ben-
efit).................. $ 12.3 $ 14.2 $(2.3) $ 7.2
====== ====== ===== =====
</TABLE>
Deferred Taxes
Deferred tax assets (liabilities) of the Company are comprised of the
following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Gross deferred tax (liabilities)................. $ (4.0) $ (4.6)
------ ------
Gross deferred tax assets:
Property, plant and equipment basis differ-
ences......................................... 55.3 40.7
Tax goodwill................................... 41.2 39.4
Inventories basis difference................... 5.5 7.7
Accrued liabilities not currently deductible... 8.1 8.9
Other intangible assets basis difference....... 10.1 18.8
Net operating loss carryforwards............... -- 22.3
Other.......................................... 12.0 18.8
------ ------
Gross deferred tax assets........................ 132.2 156.6
Valuation allowance.............................. (6.9) (13.6)
------ ------
Net deferred tax assets.......................... 125.3 143.0
------ ------
$121.3 $138.4
====== ======
</TABLE>
Gross deferred tax assets were adjusted upward during 1995 by $21.3 million
related to the reallocation of final purchase price and the fair value of net
assets acquired (Note 2).
At December 31, 1994 the Company recorded a valuation allowance of $6.9
million related to management's evaluation of the future realization of the
excess tax basis for operating assets of certain foreign subsidiaries.
Management has determined that, based upon facts existing at December 31,
1994, an adjusted valuation allowance at December 31, 1994 of $10.2 million
was required. The offset to the $3.3 million upward adjustment to the
valuation allowance was recorded as a reallocation of final purchase price
(Note 2). In assessing
F-23
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the value of the gross deferred tax assets at December 31, 1995, management
has analyzed the Company's forecast for future taxable earnings (and losses)
by jurisdiction and other relevant factors and concluded that recoverability
of a net deferred tax asset of $143.0 million is more likely than not.
Accordingly, a $13.6 million valuation allowance has been established at
December 31, 1995.
The Company has requested a tax exemption grant from Puerto Rico which will
provide that its manufacturing operations be partially exempt from local taxes
until the year 2014. Appropriate taxes have been provided for these operations
assuming repatriation of all available earnings. Taxes have been provided on
the basis that the Company will receive the tax exemption retroactive to the
period ended December 31, 1994. If the Company does not receive the tax
exemption grant, the Company would be subject to additional local income taxes
of approximately $6.0 million, net of federal benefit, through December 31,
1995.
At December 31, 1995, the Company had net operating loss carryforwards
available in the United States for federal income tax return purposes of $43.6
million which expire in 2009 and 2010. U.S. tax rules impose limitations on
the use of net operating losses and excess tax bases following certain changes
in ownership. If such a change were to occur, the limitation could reduce the
amount of these benefits that would be available to offset future taxable
income, starting with the year of ownership change. Additionally, at December
31, 1995, the Company had net operating loss carryforwards available in
countries outside of the United States of $12.5 million with various dates of
expiration.
Deferred U.S. federal income taxes and foreign withholding taxes have been
provided on the undistributed earnings of foreign subsidiaries deemed
available for repatriation.
9 STOCKHOLDER'S EQUITY
Common Stock
The Company's common stock consists of 1,000 authorized shares of $.01 par
value stock with voting rights, of which 1,000 shares were issued and
outstanding at December 31, 1994 and 1995. All outstanding shares at December
31, 1994 and 1995 are owned by Holdings.
During 1995, Holdings sold additional common stock of Holdings to members of
the Company's management for $1.8 million in cash and $0.2 million in notes
receivable. Holdings contributed the aggregate $2.0 million, including the
notes receivable, to the capital of the Company which has classified the
contribution as "Additional paid in capital" at December 31, 1995.
Preferred Stock of Holdings
Preferred stock of Holdings, with a fair value of $40.0 million, was issued
to Baxter on December 20, 1994 as part of the total consideration paid to
Baxter for the Company. Such consideration was contributed by Holdings to the
capital of the Company and is classified as "Additional paid in capital" at
December 31, 1994. A portion of the preferred stock was repurchased by
Holdings from Baxter in a negotiated transaction and canceled by Holdings in
December 1995 for an aggregate purchase price less than its fair value at
issuance. The Company distributed $15.8 million to Holdings in December 1995
for Holdings' use for such preferred stock repurchase.
Stock Purchase and Option Plans of Holdings
On August 2, 1995, Holdings adopted the 1995 Executive Stock Purchase and
Option Plan (the "Executive Plan") and the 1995 Management Stock Option Plan
(the "Plan"). The Executive Plan provides for the sale of
F-24
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Holdings' common stock and the issuance of nonqualified stock options to
purchase Holdings' common stock to certain members of the Company's
management. The Plan provides for the issuance of nonqualified stock options
to purchase Holdings' common stock to certain other members of the Company's
management.
All common stock shares sold, and stock options granted, to management under
the Executive Plan and the Plan have issuance and exercise prices equal to or
greater than the fair market value of Holdings' common stock on the date of
sale or grant. The stock options have various vesting terms based upon the
Company's performance and the passage of time. All granted stock options vest
within ten years of the date of grant.
10 BAXTER INVESTMENT--PREDECESSOR
A summary of changes in Baxter's investment, excluding the "Cumulative
translation adjustment," is as follows (in millions):
<TABLE>
<S> <C>
Excess of assets over liabilities at December 31, 1992............ $596.6
Net loss 1993..................................................... (1.9)
Net change in amounts due to/from Baxter (Note 11)................ (29.4)
------
Excess of assets over liabilities at December 31, 1993............ 565.3
Net income from January 1, 1994 through December 16, 1994......... 35.8
Net change in amounts due to/from Baxter (Note 11)................ (74.6)
------
Excess of assets over liabilities at December 16, 1994............ $526.5
======
</TABLE>
11 RELATED PARTY TRANSACTIONS
Commencing in December 1994, the Company and Baxter entered into a
distribution agreement within the United States and other ancillary agreements
to provide transition services to the Company and product services to Baxter.
The terms of such agreements are summarized in the following paragraphs.
U.S. Distribution Agreement
Baxter
The U.S. Distribution Agreement, which became effective at closing, and as
amended and restated as of September 15, 1995, gives Baxter's U.S.
Distribution Division the right, generally on an exclusive basis, to sell the
Company's products in the areas in which Baxter's U.S. Distribution Division
previously sold BDI's products. The term of this agreement is five years and
provides for an automatic two year renewal term, and thereafter successive one
year renewal terms. Baxter may terminate the agreement at any time after the
four year anniversary date by providing the Company with at least six months
prior written notice. The Company may also terminate the agreement at any time
after the eighteen month anniversary with at least six months prior written
notice. As of December 31, 1994 and 1995, the Company had $15.4 million and
$53.4 million, respectively, of accounts receivable resulting from sales to
Baxter's U.S. Distribution Division. Net sales to Baxter's U.S. Distribution
Division aggregated $15.4 million for the period from December 17, 1994
through December 31, 1994 and $348.6 million for the year ended December 31,
1995. Net sales to Baxter divisions other than U.S. Distribution (including
those under product services agreements discussed below) aggregated $15.3
million for the year ended December 31, 1995. Accounts receivable related to
such non-U.S. Distribution Division sales aggregated $1.8 million at December
31, 1995.
F-25
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The U.S. Distribution Agreement provides for distribution margins to be
received by Baxter at specified percentages off end user selling prices for
which Baxter will provide the following: customer service, distribution
services, outbound transportation, accounts receivable credit and collection,
post sales services, leasing services (including capital equipment
coordinators), sales administration, and a quality assurance program. Baxter
will also continue to include the Company's products in Baxter's Corporate
Program which provides rebates to customers who meet large volume purchase
requirements.
The Company reimburses Baxter for office support, national rebates and
administration fees to multi-hospital systems, marketing tracing fees and cash
application services for Product Services at Baxter's cost, which aggregated
$0.2 million for the period December 17, 1994 through December 31, 1994 and
$4.1 million during the year ended December 31, 1995.
VWR Scientific Products Corporation (VWR)
Effective September 15, 1995, the Company entered into an Exclusive
Distribution Agreement with VWR for distribution of certain of its products to
Industrial Customers. Such products were previously covered by the U.S.
Distribution Agreement with Baxter; however, VWR acquired distribution rights
to such products in connection with VWR's acquisition of Baxter's industrial
products distribution business in 1995. The initial term of this agreement
ends on December 31, 2000 and provides for automatic one year renewal terms.
VWR or the Company may terminate the agreement any time after December 31,
2000 by providing at least six months prior written notice. The Company may
also terminate the agreement at any time after the date of the agreement with
at least six months prior written notice.
Transition Services Agreement
Pursuant to the Transition Services Agreement, which has a two year term,
Baxter will supply the Company with certain international support services
including regulatory support, sales and marketing support, warehousing
services, human resource support, information resources, office space and
accounting support. Baxter will also provide for two years certain domestic
support services including data processing, regulatory and administrative
services. Annual price increases will be the lower of 3% or the increase in
the United States Consumer Price Index (CPI). The Consolidated Statements of
Operations include $0.2 million for these services for the period December 17,
1994 through December 31, 1994 and $12.1 million for these services for the
year ended December 31, 1995.
Product Services Agreements
Baxter and the Company have entered into Product Services Agreements whereby
the Product Services unit of the Company will provide services to Baxter
divisions on terms similar to those used historically. The terms of these
Agreements range from one to three years, with automatic renewals unless
terminated by notice. Notice required for termination of these Agreements
ranges from 90 days to twelve months. The Consolidated Statement of Operations
includes $12.5 million of net sales for these services for the year ended
December 31, 1995.
Leases
In connection with the Acquisition, the Company will continue to lease
certain warehouse facilities from Baxter and, in turn, Baxter has entered into
a three year lease for one of the Company's owned warehouses in Miami. Lease
payments to Baxter aggregated $0.5 million during the year ended December 31,
1995. Lease payments received from Baxter aggregated $0.1 million during the
year ended December 31, 1995.
Management Services Agreements
The Company and Holdings entered into five year Management Services
Agreements with Bain Capital and Goldman, Sachs & Co. (an affiliate of GS
Capital) pursuant to which they will pay Bain Capital and Goldman,
F-26
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sachs & Co. an aggregate annual fee of up to $2.0 million, subject to
compliance with the terms of the Indenture governing the 13% Senior
Subordinated Notes, plus their respective out-of-pocket expenses. Pursuant to
the Management Services Agreements, Bain Capital and Goldman, Sachs & Co. have
provided, and will continue to provide, management consulting, advisory
services and support, negotiation and analysis of financing alternatives,
acquisitions and dispositions and other services agreed upon by the Company,
Bain Capital and Goldman, Sachs & Co. In connection with the Acquisition (Note
3), advisory fees and out-of-pocket expense reimbursements of $5.1 million and
$1.5 million were paid to Bain Capital and Goldman, Sachs & Co., respectively,
by Dade Acquisition, Inc. (Note 1). Advisory fees and out-of-pocket expense
reimbursements under the Management Services Agreements of $1.8 million and
$0.3 million to Bain Capital and Goldman, Sachs & Co., respectively, are
included in the Consolidated Statement of Operations for the year ended
December 31, 1995.
Baxter Cash Management System--Predecessor
The Predecessor participated in Baxter's centralized cash management program
with respect to intercompany sales and accounts receivable, accounts payable
and payroll/employee benefits. As a result, the Predecessor did not report a
cash balance. Historically, the intercompany receivables and payables were
settled in the normal course of business, usually within 30 to 60 days, and
were not interest-bearing.
Allocation of Baxter Selling, General and Administrative Expenses--
Predecessor
Baxter had provided to the Predecessor certain domestic legal, treasury,
audit, data processing, insurance, facility, regulatory and administrative
services. Baxter had also provided to the Predecessor certain international
support services from shared facilities in several locations worldwide. These
shared services include regulatory and quality assurance, sales and marketing,
warehousing, human resources, legal, information resources, office space and
accounting and tax services. Charges for these domestic and international
services to the Predecessor were based on allocations of Baxter's actual
direct and indirect costs using varying allocation bases as appropriate
(sales, payroll, headcount, managed capital, etc.) designed to estimate the
actual cost incurred by Baxter to render these services to the Predecessor.
The allocation process was consistent with the methodology used by Baxter to
allocate the cost of similar services provided to its other business units.
The allocated costs of these services are reflected in the Combined Statements
of Operations and are summarized in the table below. No provision was made for
possible incremental expenses that would have been incurred had the
Predecessor operated as an independent stand-alone entity.
The Predecessor also leased certain facilities on a month-to-month basis
from Baxter. The lease rates approximated Baxter's cost and are included in
the table below in the caption "Certain domestic services provided by Baxter."
Baxter's U.S. Distribution Division was the exclusive distributor for the
Predecessor's products in the United States. The U.S. Distribution Division
provided the following services to BDI: customer service, distribution
services, outbound transportation, accounts receivable, credit and collection,
post-sales services, leasing services (including capital equipment
coordinators), sales administration, and a quality assurance program.
The estimated cost of providing these services was allocated to the
Predecessor based on an allocation of actual direct and indirect costs
incurred by the U.S. Distribution Division to provide these services. The
allocation methodology was based primarily on sales volume and was consistent
with the manner in which such costs were allocated to other Baxter
manufacturing divisions for which the U.S. Distribution Division is the
exclusive U.S. distributor. Based on Baxter's exclusive distribution
arrangements with independent third-party manufacturers, management believes
these allocations approximated "arms-length" pricing for these services.
F-27
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The allocated costs of these services are included as direct reductions of
"Net sales" in the Combined Statements of Operations. Sales of products and
services through Baxter, net of allocated distribution costs, represented
61.5% and 68.0% of total company sales for the year ended December 31, 1993
and for the period January 1, 1994 through December 16, 1994, respectively.
The Baxter Corporate Program provides hospitals and multi-hospital systems
with a single point of contact to gain immediate and convenient access to all
of Baxter's products, services and systems. Customers participating in the
Corporate Program also receive corporate rebates in connection with large
volume purchases. Volume rebates pertaining to the sale of the Predecessor's
products under the Corporate Programs are included in the allocated
distribution costs discussed above.
The Product Services unit of the Predecessor provided maintenance and repair
services for medical devices sold by the Predecessor and several other Baxter
operating units. The allocated cost of these services was billed to Baxter on
the basis of hourly billing rates for services rendered, and is included in
"Net sales" in the Combined Statements of Operations as summarized in the
table below.
A summary of the Predecessor related party transactions described in the
paragraphs above, all of which are with Baxter or Baxter affiliates, is shown
in the table below (in millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 16,
1993 1994
------------ ---------------
<S> <C> <C>
Product services provided to Baxter........... $ 4.5 $ 5.8
===== =====
Certain domestic services provided by Baxter.. $ 6.6 $ 6.5
Certain international services provided by
Baxter....................................... 21.3 20.7
Other distribution services provided by Bax-
ter.......................................... 1.8 1.2
----- -----
Total services provided by Baxter............. $29.7 $28.4
===== =====
</TABLE>
12 MANAGEMENT INCENTIVE COMPENSATION PLAN AND DEFERRED COMPENSATION PLAN
The Company established a Management Incentive Compensation Plan (the
"MICP") in 1995 which provides for incentive awards to certain key executives
of the Company. The MICP is administered by the Board of Directors. At the end
of each year during the life of the MICP, the Board of Directors will make
cash awards based upon the attainment of annual predefined operating
performance objectives. Awards under the MICP are charged to operations in the
year earned.
The Company established a Deferred Compensation Plan in 1995 which permits
eligible employees to defer a portion of their compensation. The deferred
compensation, together with Company matching amounts and accumulated interest,
is accrued but unfunded and is distributable in cash after retirement or
termination of employment. Participation in the Deferred Compensation Plan is
limited to a group of Eligible Employees as designated by the Board of
Directors.
13 RETIREMENT PROGRAMS--SUCCESSOR
The Successor maintains non-contributory defined benefit pension plans
covering substantially all employees in the United States and Puerto Rico
("Domestic Plans") and a combination of contributory and non-contributory
plans in certain foreign locations ("Foreign Plans"). The Domestic Plans'
benefits are based on years of service and the employee's compensation during
five of the last ten years of employment as defined by
F-28
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the plans. The Company's funding policy is to make contributions to the trusts
of the plans which meet or exceed the minimum requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA").
Under the terms of the Acquisition, Baxter retained liability for future
benefits payable to existing retirees and non-transferred employees of the
Predecessor as of the Acquisition date, and the Company established new plans
for retained active employees. At December 31, 1994, approximately $34.6
million of assets related to the new plans remained in Baxter's trust accounts
pending a cash transfer by the trustees of this amount plus interest of 7.5%
per annum through the actual date of transfer. During 1995, substantially all
of the assets were transferred to the new plans. At December 31, 1995, plan
assets primarily consist of stocks, bonds and contracts with insurance
companies.
Assets held by the trusts of the Company's plans, including assets remaining
in Baxter's plans' trusts at December 31, 1994, consist of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Total assets--Domestic Plans....................... $25.0 $26.6
Total assets--Foreign Plans........................ 9.6 11.4
----- -----
$34.6 $38.0
===== =====
</TABLE>
Pension Expense
Pension expense applicable to the Company includes the following components
(in millions):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17, 1994
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
----------------- ------------
<S> <C> <C>
Service cost-benefits earned during the pe-
riod...................................... $ 0.1 $ 4.5
Interest cost on projected benefit obliga-
tion...................................... 0.1 2.9
Actual return on assets.................... (0.1) (2.0)
Net amortization and deferral.............. -- (0.3)
----- -----
Total pension expense...................... $ 0.1 $ 5.1
===== =====
</TABLE>
Assumptions used for the above pension expense calculations include:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Discount rate applied to benefit obligation:
Domestic plans................................... 8.75% 8.75%
Foreign plans (average).......................... 4.30%
Long-term return on assets:
Domestic plans................................... 9.50% 9.50%
Foreign plans (average).......................... 5.00%
</TABLE>
As foreign operations' results are excluded from the Company's Consolidated
Statement of Operations for the period from December 17, 1994 through December
31, 1994, no pension expense related to foreign operations was recorded in the
Consolidated Statement of Operations during that period.
F-29
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Funded Status
The following tables set forth the funded status of amounts applicable to
the Company (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits................................ $ 32.9 $ 46.5
------ ------
Accumulated benefits........................... 33.5 46.8
------ ------
Projected benefits............................. 43.9 56.0
Less allocated plan assets at fair value......... (34.6) (38.0)
------ ------
Projected benefit obligation in excess of plan
assets.......................................... 9.3 18.0
Unrecognized net gains (losses) and unrecognized
prior service cost.............................. -- (5.1)
------ ------
Net pension liability............................ $ 9.3 $ 12.9
====== ======
</TABLE>
Assumptions used for the above funded status calculations include:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Annual rate of increase in compensation levels:
United States plans............................ 4.50% 4.50%
Puerto Rico plan............................... 4.00% 4.00%
Foreign plans (average)........................ 4.60% 3.10%
Discount rate applied to benefit obligation:
United States plans............................ 8.75% 7.75%
Puerto Rico plan............................... 8.75% 7.75%
Foreign plans (average)........................ 6.00% 4.30%
</TABLE>
Most of the United States employees are eligible to participate in the Dade
International Savings Investment Plan (SIP), a Company-sponsored qualified
401(k) plan. Participants may contribute up to 12% of their annual
compensation, up to certain limits, to the SIP and the Company matches the
participants' contributions, up to 3% of compensation. Matching contributions
made by the Company were $0.1 million for the period December 17, 1994 through
December 31, 1994 and $2.6 million for the year ended December 31, 1995.
In conjunction with the Acquisition, the Company did not assume any existing
retiree postretirement benefit obligations. At December 31, 1995, the Company
does not offer postretirement benefits to its employees.
14 RETIREMENT PROGRAMS--PREDECESSOR
BDI participated in Baxter-sponsored non-contributory defined benefit
pension plans covering substantially all employees in the United States and
Puerto Rico. The benefits were based on years of service and the employee's
compensation during five of the last ten years of employment as defined by the
plans. Baxter's funding policy has been to make contributions to the trust of
the Qualified Plans which meet or exceed the minimum requirements of ERISA.
Assets held by the trusts of the plans consist primarily of equity and fixed
income securities. BDI also participated in Baxter-sponsored retirement plans
in certain locations outside the United States and Puerto Rico.
F-30
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pension Expense
Pension expense applicable to BDI includes the following components (in
millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 16,
1993 1994
------------ ---------------
<S> <C> <C>
Service cost-benefits earned during the peri-
od.......................................... $ 5.1 $ 4.1
Interest cost on projected benefit obliga-
tion........................................ 4.0 3.1
Actual return on assets...................... (2.6) (2.5)
Net amortization and deferral................ 0.8 0.7
----- -----
Total pension expense........................ $ 7.3 $ 5.4
===== =====
</TABLE>
Assumptions used for the above pension expense calculations include:
<TABLE>
<CAPTION>
1993 1994
----- -----
<S> <C> <C>
Discount rate applied to benefit obligation:
United States and Puerto Rico plans........................... 8.0% 7.5%
Foreign plans (average)....................................... 7.0% 7.0%
Long-term return on assets:
United States and Puerto Rico plans........................... 10.5% 10.5%
Foreign plans (average)....................................... 8.0% 8.0%
</TABLE>
Postretirement Benefits
In addition to pension benefits, BDI participated in certain Baxter-
sponsored contributory healthcare and life insurance benefit plans for
substantially all domestic retired employees. Under these plans, BDI accrued
costs for postretirement benefits over the service years of the employees. The
postretirement benefit plans are not funded.
Net postretirement healthcare and life insurance expense ("postretirement
benefits") applicable to BDI for active employees includes the following
components (in millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1994
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 16,
1993 1994
------------ ------------
<S> <C> <C>
Service cost-benefits earned during the period.... $0.7 $0.5
Interest cost on projected benefit obligations.... 0.7 0.4
---- ----
Net postretirement benefits cost.................. $1.4 $0.9
==== ====
Assumptions used in determining the net postretirement benefits cost were:
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Discount rate..................................... 8.0% 7.5%
Annual rate of increase in the per capita costs... 14.0% 13.0%
Rate to decrease to............................... 6.0% 5.0%
By the year ended................................. 2003 2004
</TABLE>
F-31
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Most of the United States employees were eligible to participate in a
Baxter-sponsored qualified 401(k) plan. Participants could contribute up to
12% of their annual compensation (limited in 1994 to $9,240 per individual) to
the plan and Baxter matched the participants' contributions, up to 3% of
compensation. Matching contributions made by Baxter related to BDI's employees
were $3.6 million in 1993 and $3.3 million for the period January 1, 1994
through December 16, 1994.
15 COMMITMENTS, CONTINGENCIES AND INDEMNIFICATIONS
The Company is a party in a number of legal proceedings. Based on the advice
of legal counsel, management believes that any potential liability relative to
the various legal proceedings pending against the Company, including the item
described below, will not have a material adverse effect on the Company's
conduct of its business, its results of operations, or its financial position.
The Company is involved in a patent interference action involving certain
Innovin(TM) products. This technology is licensed from a third party. Sales
and operating margins associated with these products have not had a material
impact on the Predecessor's or the Company's combined/consolidated financial
statements. While the ultimate outcome cannot be predicted at this time, a
negative determination by the United States Patent and Trademark Office in
this interference could have a potentially material adverse effect on the
Company's future plans for this technology.
Purchase and Sale Agreement Indemnifications
Pursuant to the Purchase and Sale Agreement, as subsequently amended,
Baxter, Holdings and the Company entered into a number of indemnification and
cross-indemnification agreements. Such indemnifications by the Company, where
provided, generally relate to the protection of Baxter from certain actions,
or failure to take certain actions, with respect to obligations assumed by the
Company. Management believes that these indemnification obligations will not
have a material adverse effect on the Company's conduct of its business, its
results of operations, or its financial position.
Conversely, Baxter has indemnified the Company, generally for a period of
two years after the effective date of the Acquisition and subject to a
deductible of $250,000 for each claim and an aggregate deductible of $15
million, for any pre-Acquisition intellectual property infringement matters
and any breaches of representations and warranties by Baxter. Additionally,
Baxter has indemnified the Company for all known and unknown "Taxes," as
defined, relating to all pre-Acquisition periods (except with respect to
recorded "Taxes" related to five smaller foreign and domestic subsidiaries),
and for certain pre-Acquisition environmental liabilities (see "Environmental
Matters" below), all pre-Acquisition workers' compensation claims and
occurrences, and certain pre-Acquisition product liabilities and warranty
matters.
Environmental Matters
Reserves for off-site environmental liabilities totaling $5.0 million at
December 31, 1993 were created and accrued as a result of the actions of the
Predecessor and its predecessors. Management believes the reserves established
by Predecessor were adequate to cover any future environmental liability.
Baxter has retained these off-site environmental liabilities, as well as other
known pre-Acquisition environmental liabilities as specified in the Purchase
and Sale Agreement; subject, in some cases, to certain nominal baskets and an
overall $170.0 million cap. Baxter will also indemnify the Company for 100% of
unknown pre-Acquisition liabilities, whether related to on-site or off-site
matters, subject to survival periods ranging from three years to an indefinite
period subsequent to the Acquisition date. In addition, Baxter has indemnified
the Company for 65% of certain costs incurred by the Company to correct
violations of environmental regulations at Transferred Real Properties (as
defined) which occurred prior to the Acquisition. No environmental liability
is recorded on the Company's Consolidated Balance Sheet at December 31, 1994
or 1995.
F-32
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16 BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company is a leading manufacturer of diagnostics test equipment and
supplies and provides related services to the hospital and reference lab
market which is considered to be a single business segment.
Financial information by geographic area for the year ended December 31,
1995 (Successor), the period December 17, 1994 through December 31, 1994
(Successor), the period January 1, 1994 through December 16, 1994
(Predecessor) and the year ended December 31, 1993 (Predecessor) is summarized
as follows (in millions):
<TABLE>
<CAPTION>
OTHER GENERAL INTER-AREA
UNITED STATES EUROPE INTERNATIONAL CORPORATE ELIMINATIONS TOTAL
------------- ------ ------------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 AND THE YEAR THEN ENDED--SUCCESSOR (1)
Trade sales............. $428.2 110.9 75.2 $614.3
Inter-area sales........ 60.3 1.5 -- (61.8) --
------ ----- ---- ----- ------
Total sales............. $488.5 112.4 75.2 (61.8) $614.3
====== ===== ==== ===== ======
Pretax income (loss)
(2).................... $ 55.8 14.3 5.9 (56.1) $ 19.9
====== ===== ==== ===== ======
Identifiable assets
(3).................... $232.4 91.0 40.1 187.4 $550.9
DECEMBER 31, 1994 AND THE PERIOD DECEMBER 17, 1994 THROUGH DECEMBER 31, 1994--
SUCCESSOR (1)
Trade sales............. $ 19.0 -- -- $ 19.0
Inter-area sales........ 1.4 -- -- (1.4) --
------ ----- ---- ----- ------
Total sales............. $ 20.4 -- -- (1.4) $ 19.0
====== ===== ==== ===== ======
Pretax income (loss)
(2).................... $ (1.6) -- -- (2.6) $ (4.2)
====== ===== ==== ===== ======
Identifiable assets
(3).................... $206.3 75.9 18.4 395.6 $696.2
PERIOD JANUARY 1, 1994 THROUGH DECEMBER 16, 1994--PREDECESSOR
Trade sales............. $449.4 115.5 85.7 $650.6
Inter-area sales........ 50.1 -- -- (50.1) --
------ ----- ---- ----- ------
Total sales............. $499.5 115.5 85.7 (50.1) $650.6
====== ===== ==== ===== ======
Pretax income (loss).... $ 42.0 15.4 5.6 (13.0) $ 50.0
====== ===== ==== ===== ======
THE YEAR ENDED DECEMBER 31, 1993--PREDECESSOR
Trade sales............. $496.5 116.6 77.1 $690.2
Inter-area sales........ 61.8 -- -- (61.8) --
------ ----- ---- ----- ------
Total sales............. $558.3 116.6 77.1 (61.8) $690.2
====== ===== ==== ===== ======
Pretax income (loss)
(4).................... $ 4.3 19.1 3.6 (13.3) $ 13.7
====== ===== ==== ===== ======
</TABLE>
- --------
(1) As described in Note 1, foreign results of operations for the period
December 17, 1994 through December 31, 1994 are not material and have been
omitted from the 1994 consolidated financial statements but were included
in the 1995 consolidated financial statements.
(2) As described in Note 2, pretax income (loss) includes a non-recurring
charge resulting from the application of purchase accounting for a write-
off of $5.6 million and $40.4 million for the period December 17, 1994
through December 31, 1994 and the year ended December 31, 1995,
respectively, to cost of goods sold related to the amortization of the
$46.0 million of allocated purchase price made to record acquired finished
goods and work-in-process inventory at fair market value.
F-33
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) As described in Notes 2, 3, 4 and 8, general corporate identifiable assets
at December 31, 1994 include net assets held for sale of $73.2 million,
restricted cash of $200.0 million to settle the installment purchase price
with Baxter, and net deferred tax assets of $125.3 million. At December
31, 1995, general corporate identifiable assets include net assets held
for sale of $54.9 million and net deferred tax assets of $143.0 million.
(4) As described in Note 5, pretax income for the year ended December 31, 1993
includes $30.2 million of restructuring charges.
Inter-area transactions are accounted for at cost. Identifiable assets are
those assets associated with a specific geographic area.
Foreign net sales (including U.S. export sales) of all combined foreign
entities were $210.5 million for the year ended December 31, 1993, $216.5
million for the period January 1, 1994 through December 16, 1994 and $202.2
million for the year ended December 31, 1995. Foreign net assets were $18.5
million and $21.1 million as of December 31, 1994 and 1995, respectively.
17 SUBSEQUENT EVENT--SUCCESSOR
On December 11, 1995, the Company entered into a purchase and sale agreement
with E. I. du Pont de Nemours and Company ("DuPont") pursuant to which the
Company will acquire the worldwide in vitro diagnostics products manufacturing
and services business ("IVD" or "Acquired Business" of DuPont) (the "IVD
Acquisition"). The IVD Acquisition, which is expected to be consummated on or
about April 30, 1996, involves an all cash purchase price of $525 million,
which will require the Company to incur a significant amount of incremental
debt to finance. Depending upon how the IVD Acquisition is financed and
integrated within the Company, a portion or all of the Company's existing
deferred financing fees may be written off and other one time costs are likely
to be recorded.
F-34
<PAGE>
DADE INTERNATIONAL INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C>
ASSETS:
Current Assets:
Cash and cash equivalents....................................... $ 10.9
Accounts receivable--trade and related party, net............... 166.1
Inventories..................................................... 160.2
Prepaid expenses and other current assets....................... 14.5
Net assets held for sale........................................ 45.0
Deferred income taxes........................................... 34.5
--------
Total Current Assets.......................................... 431.2
Property, plant and equipment, net................................ 160.0
Debt issuance costs............................................... 44.7
Deferred income taxes............................................. 187.1
Goodwill, net..................................................... 153.3
Patents and trademarks............................................ 31.6
Other assets...................................................... 15.8
Prepaid pension asset............................................. 20.9
--------
Total Assets.................................................. $1,044.6
========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current Liabilities:
Current portion of Bank Credit Agreement........................ $ 7.7
Non-domestic bank debt.......................................... 10.0
Revolving credit agreement...................................... 15.0
Accounts payable--trade and related party....................... 59.0
Accrued liabilities............................................. 162.4
Deferred income taxes........................................... 1.3
--------
Total Current Liabilities..................................... 255.4
Bank credit agreement, less current portion....................... 452.3
Senior Subordinated Notes......................................... 350.0
Other liabilities................................................. 6.1
--------
Total Liabilities............................................. 1,063.8
Commitments and contingencies..................................... --
STOCKHOLDER'S EQUITY:
Common stock, $.01 per value, 1000 shares authorized, issued and
outstanding...................................................... --
Additional paid-in-capital........................................ 87.0
Notes receivable on capital contribution.......................... (0.2)
Retained earnings (deficit)....................................... (102.9)
Unrealized gain (loss) on investments............................. (1.4)
Cumulative translation adjustment................................. (1.7)
--------
Total Stockholder's Equity.................................... (19.2)
--------
Total Liabilities and Stockholder's Equity.................... $1,044.6
========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-35
<PAGE>
DADE INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
----------
1995 1996
------ ------
(UNAUDITED)
<S> <C> <C>
Net Sales--Third party......................................... $112.7 $187.8
--Related party....................................... 187.3 166.0
------ ------
300.0 353.8
------ ------
Operating Costs and Expenses:
Cost of goods sold........................................... 208.7 208.4
Marketing and administrative expenses........................ 77.6 113.1
Research and development expenses............................ 13.7 114.2
Goodwill amortization expense (credit)....................... (0.8) 0.8
Restructuring and other related items........................ -- 11.4
------ ------
Income (loss) from operations.................................. 0.8 (94.1)
Other Income (Expense):
Interest expense............................................. (15.0) (23.9)
Other income................................................. 1.3 2.3
------ ------
Income (loss) before income taxes.............................. (12.9) (115.7)
Income tax expense (benefit)................................... (4.8) (42.8)
------ ------
Income (loss) before extraordinary items....................... $ (8.1) (72.9)
Extraordinary items (net of tax benefit of $14.7):
Write-off of deferred financing fees......................... -- (11.4)
Premium on purchase of Senior Subordinated Notes............. -- (13.6)
------ ------
Net income (loss).............................................. $ (8.1) $(97.9)
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-36
<PAGE>
DADE INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-------------
1995 1996
----- ------
(UNAUDITED)
<S> <C> <C>
CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss....................................................... $(8.1) $(97.9)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Write-off of in process research and development............. -- 98.1
Depreciation and amortization expense........................ 2.4 12.5
Amortization of goodwill..................................... (0.8) 0.8
Deferred income taxes........................................ (4.8) (57.8)
Restructuring and other related costs........................ -- 11.4
Write-off of deferred finance fees........................... -- 18.1
Amortization of inventory write-up........................... 40.4 25.5
Changes in balance sheet items:
Accounts receivable........................................ (71.0) 13.6
Inventories, net of amortization for inventory write-up.... 17.1 (6.3)
Prepaid expenses........................................... (3.3) (3.9)
Accounts payable and bank overdrafts....................... 24.4 3.5
Accrued liabilities........................................ 4.5 (10.5)
Other liabilities.......................................... (1.3) 5.2
Other...................................................... (5.3) 1.4
----- ------
Cash flow (used) provided by operating activities.............. (5.8) 13.7
INVESTING ACTIVITIES:
Purchase of IVD................................................ -- (529.1)
Capital expenditures........................................... (13.8) (25.0)
Proceeds from Baxter International Inc., for purchase price ad-
justments..................................................... 15.9 9.7
----- ------
Investing activities, net...................................... 2.1 (544.4)
FINANCING ACTIVITIES:
Proceeds from "net assets held for sale"....................... -- 9.9
Proceeds from revolving credit agreement, net of repayments.... -- 15.0
Proceeds from short term notes................................. 2.2 8.3
Proceeds from Senior Subordinated Notes, net of repayments..... -- 230.0
Proceeds of bank credit agreement, net of repayments........... 32.7 296.5
Deferred financing fees........................................ -- (45.7)
----- ------
Financing activities, net...................................... 34.9 514.0
----- ------
Effect of exchange rate changes on cash........................ 0.8 (0.3)
----- ------
Net increase (decrease) in Cash and Cash Equivalents........... 32.0 (17.0)
CASH AND CASH EQUIVALENTS:
Beginning of Period............................................ $22.4 $ 27.9
----- ------
End of Period.................................................. $54.4 $ 10.9
===== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-37
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1. FINANCIAL INFORMATION, ORGANIZATION AND BUSINESS
Dade International Inc. (the "Company") was incorporated in Delaware in 1994
to effect the acquisition (the "Dade Acquisition") of the in vitro diagnostics
products manufacturing and services businesses of Baxter Diagnostics Inc., a
wholly-owned subsidiary of Baxter International Inc. ("Baxter"). The Company
develops, manufactures and markets diagnostic equipment, reagents, consumable
supplies and services worldwide.
The Company is a wholly-owned subsidiary of Diagnostics Holding, Inc.
("Holdings"). Bain Capital, Inc. ("Bain Capital") and GS Capital Partners,
L.P., an affiliate of the Goldman Sachs Group, L.P. ("GS Capital"), and their
respective related investors owned, until August 2, 1995, all of the voting
capital stock of Holdings, which in turn owns all of the outstanding capital
stock of the Company. On August 2, 1995, Holdings adopted stock purchase and
option plans which provided for members of the Company's management to own
capital stock of Holdings. At June 30, 1996, Bain Capital, GS Capital, their
respective related investors and the management of the Company owned all of
the capital stock of Holdings.
On May 7, 1996, the Company acquired (the "Chemistry Acquisition") the
world-wide in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont de
Nemours and Company ("DuPont") with effect as of May 1, 1996. As a result, the
Consolidated Statements of Operations for the six months and quarter ended
June 30, 1996 and the Consolidated Balance Sheet as of June 30, 1996 are not
comparable to the consolidated Balance Sheet and the Consolidated Statements
of Operations in 1995.
The unaudited interim financial statements of the Company have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures have
been condensed or omitted. These unaudited interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes for the year ended December 31, 1995.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments (which include only normal and recurring
adjustments) necessary for a fair presentation of the interim periods. The
results of operations for the interim periods are not necessarily indicative
of the results of operations expected for the full year. The results reported
for the six month period ended June 30, 1996 reflect management's preliminary
allocation of the purchase price necessary to record the Chemistry Acquisition
as well as the results of Dade Chemistry subsequent to May 1, 1996. This
preliminary allocation will be refined during the remainder of 1996.
Certain balances have been reclassified to conform with the current
presentation.
NOTE 2. CHANGE IN INTERNATIONAL REPORTING PERIOD
Prior to 1996, the Company's operations outside the United States and Puerto
Rico (collectively "International Operations") were consolidated on a one-
month delay (i.e. international May 1995 results were reported as June 1995
results) in the consolidated financial statements of the Company. Effective
with 1996 reporting, this one month lag for International Operations was
eliminated. As a consequence, operating results for the six-month period ended
June 30, 1996 include seven months of International Operations. The Company
has designated the month of December 1995 as the "lag month" for purposes of
comparability to future periods. International Operations during the lag month
produced net sales of approximately $12.3 million, and a net income of
approximately $1.3 million, thus increasing consolidated net sales and
consolidated net income by these respective amounts for the six month period
ended June 30, 1996.
F-38
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS)
NOTE 3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw Materials................................... $ 21.9 $ 32.8
Work in Process................................. 34.4 47.1
Finished Products............................... 65.7 80.3
------ ------
Total Inventories............................. $122.0 $160.2
====== ======
</TABLE>
In connection with the Dade Acquisition and the Chemistry Acquisition, which
were recorded in accordance with the purchase method of accounting, the
Company's inventories were written-up by $46.0 million and $25.5 million at
the respective acquisition dates. Of the $46.0 million write-up, $5.6 million
was charged to cost of goods sold during the period December 17, 1994 through
December 31, 1994. The remaining $40.4 million was charged to cost of goods
sold during the period January 1, 1995 through March 31, 1995. The $25.5
million write-up was charged to cost of goods sold during the quarter ended
June 30, 1996.
NOTE 4. CHEMISTRY ACQUISITION
The Chemistry Acquisition was recorded in accordance with the purchase
accounting method. Accordingly, the sum of the purchase price and the direct
costs of the Chemistry Acquisition, which aggregated $529.1 million, was
allocated to the assets acquired and the liabilities assumed based upon their
fair market values at the date of the Chemistry Acquisition. Since the
purchase price exceeded the fair market value of the net assets acquired, the
residual, initially aggregating $158.0 million, was recorded as goodwill and
is being amortized using the straight-line method over twenty-five years. The
results of operations of Dade Chemistry are included in the accompanying
Unaudited Consolidated Statements of Operations since the date of consummation
of the Chemistry Acquisition. The assets and liabilities of Dade Chemistry, as
determined in accordance with the purchase method of accounting, are also
consolidated in the accompanying Unaudited Consolidated Balance Sheet from the
date of the Chemistry Acquisition resulting in increases in various balances
as compared to December 31, 1995.
A summary of assets acquired, liabilities assumed and the purchase price
paid is as follows:
<TABLE>
<S> <C>
Cash consideration.................... $512.0
Costs of acquisition.................. 17.1
------
529.1
Liabilities assumed................... 56.4
------
Costs of assets acquired.............. $585.5
======
</TABLE>
The Company's preliminary allocation of the Dade Chemistry purchase price
includes $98.1 million of costs attributed to in-process research and
development projects which the Company believes have no future alternative
use. Accordingly, such costs were expensed upon the consummation of the
Chemistry Acquisition.
The Chemistry Acquisition was financed principally by the issuance of $350
million of senior subordinated debt, $510 million of bank debt and
approximately $14 million of Company cash. Of the $860 million of debt
proceeds, approximately $146 million was utilized for repayment of previously
issued senior subordinated notes and related costs and approximately $154
million was used for the repayment of senior bank debt and accrued interest.
An additional $45 million was used for debt issuance costs.
F-39
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS)
The following represents the unaudited pro forma results of operations of
the Company and its subsidiaries as if the Chemistry Acquisition had occurred
on January 1, 1995 and January 1, 1996 respectively, after giving effect to
the following adjustments: increased depreciation of property, plant and
equipment, increased amortization of intangibles, increased amortization of
goodwill, increased interest expense on acquisition debt, refinancing charges,
and related income tax effects of these adjustments:
<TABLE>
<CAPTION>
PRO FORMA SIX PRO FORMA SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net sales.................................... $ 479.5 $ 468.6
======= =======
Loss before extraordinary items.............. $ (81.7) $ (77.2)
======= =======
Net loss..................................... $(106.7) $(102.2)
======= =======
</TABLE>
The unaudited pro forma results of operations presented above are not
necessarily indicative of the results that would have been obtained if the
Chemistry Acquisition had actually occurred on January 1, 1995 and January 1,
1996. Moreover, the synergistic savings that are expected to be realized as a
result of the Chemistry Acquisition and the adjustment for the differences in
reporting periods for the Company's International Operations are not reflected
in the unaudited pro forma results presented above.
NOTE 5. REFINANCING
Bank Credit Agreement. To fund the Chemistry Acquisition, the Company
refinanced its existing indebtedness by entering into a credit agreement
("Bank Credit Agreement") with Bankers Trust Company as agent and other
institutions party thereto which provides for borrowing up to $585.0 million,
of which $460 million is in term loans and $125 million in a revolving credit
facility ("Revolving Credit Facility"). Initial borrowings under the Bank
Credit Agreement consist of $185.0 million of A Term Loans, $90.0 million of B
Term Loans, $90.0 million amount of C Term Loans, $95.0 million of D Term
Loans and $50 million of the $125 million under the Revolving Credit Facility.
The borrowings under the Bank Credit Agreement are guaranteed by Holdings and
the Company's domestic subsidiaries, and are secured by substantially all the
domestic assets and certain foreign assets of the Company.
The Bank Credit Agreement bears interest at floating rates as provided
therein. The A Term Loans will mature on December 31, 2001. The B Term Loans
will mature on December 31, 2002. The C Term Loans will mature on December 31,
2003. The D Term Loans will mature on December 31, 2004. The Revolving Credit
Facility will mature on December 31, 2001.
The Revolving Credit Facility may be repaid and reborrowed. The Company will
be required to pay to the banks a commitment fee on the average unused portion
of the Revolving Credit Facility during each quarter. The Company also will be
required to pay to the banks participating in the Revolving Credit Facility
letter of credit fees for each letter of credit outstanding and a fronting fee
for each outstanding letter of credit issued.
Under the terms of the Bank Credit Agreement, the Company is required to
maintain specified levels of interest rate protection. The Company has
purchased a series of interest rate caps under which the Company will receive
cash payments from the counterparties if certain indexed rates of interest are
exceeded. Premiums paid for the purchase of the caps are capitalized and
amortized to interest expense over the life of the caps.
Senior Subordinated Notes. Concurrent with the refinancing of the Bank
Credit Agreement, Dade repurchased $120 million, 13% Senior Subordinated Notes
due 2005 and subsequently issued $350 million 11 1/8% Senior Subordinated
Notes due 2006 (the "Senior Subordinated Notes"). Interest on the Senior
Subordinated Notes accrues from the date of issuance and is payable semi-
annually on May 1 and November 1, commencing November 1, 1996. The Senior
Subordinated Notes are redeemable in whole or in part, at the Company's option
commencing May 1, 2006.
F-40
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS)
In connection with the debt refinancing and purchase of the 13% Senior
Subordinated Notes due 2005, $18.1 million ($11.4 million net of tax) of
deferred financing fees and $21.6 million ($13.6 million net of tax) of
premiums were realized as extraordinary items.
NOTE 6. RESTRUCTURING
During the second quarter of 1996, the Company recorded an $11.4 million
charge for restructuring and costs in connection with the Chemistry
Acquisition. The restructuring plan is designed to decrease costs, increase
efficiency and eliminate redundant operations and is expected to produce
annual savings and result in the elimination of permanent and temporary
positions. Management expects to complete this restructuring within one year.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
E. I. du Pont de Nemours and Company
We have audited the accompanying combined statement of net assets to be sold
of In Vitro Diagnostics (the "Business"), a division of E. I. du Pont de
Nemours and Company (the "Company"), at December 31, 1995, 1994 and 1993 and
the related combined statement of operations of the Business for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
The accompanying combined financial statements were prepared to comply with
the rules and regulations of the Securities and Exchange Commission and on the
basis of presentation as described in Note 1, to present the combined net
assets of the Business to be sold to Dade International Inc. and the related
combined results of operations of the Business and are not intended to be a
complete presentation of the Business' financial position or cash flows.
In our opinion, the combined financial statements present fairly, in all
material respects, the combined net assets of the Business to be sold to Dade
International Inc. at December 31, 1995, 1994 and 1993 and the combined
results of operations of the Business for the years then ended, in conformity
with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
August 2, 1996
F-42
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
COMBINED STATEMENT OF OPERATIONS [SEE NOTE 1]
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
SEE ---------------------
NOTE 1995 1994 1993
---- ------ ------ ------
<C> <S> <C> <C> <C>
4 Sales ......................................... $341.8 $325.9 $333.2
Other Income................................... 2.9 3.7 1.2
------ ------ ------
Total Revenues................................. 344.7 329.6 334.4
Cost of Goods Sold and Other Operating
6 Expenses....................................... 181.5 172.9 172.4
3 Selling, General and Administrative Expenses... 108.8 102.6 104.9
Research and Development Expenses.............. 33.7 33.6 34.6
5 Restructuring Charges.......................... -- 13.3 9.9
------ ------ ------
Income Before Interest Expense and Taxes....... 20.7 7.2 12.6
2 Interest Expense............................... 7.6 6.8 6.8
------ ------ ------
Income Before Income Taxes..................... 13.1 0.4 5.8
2,7 Provision for (Benefit from) Income Taxes...... 3.7 (0.9) (3.4)
------ ------ ------
NET INCOME..................................... $ 9.4 $ 1.3 $ 9.2
====== ====== ======
</TABLE>
See pages F-45 to F-54 for Notes to Combined Financial Statements.
F-43
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
COMBINED STATEMENT OF NET ASSETS TO BE SOLD [SEE NOTE 1]
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEE ---------------------
NOTE 1995 1994 1993
---- ------ ------ -------
<C> <S> <C> <C> <C>
ASSETS
4 Accounts Receivable Trade--Net..................... $ 74.2 $ 65.0 $ 64.8
8 Inventories........................................ 33.1 31.1 40.9
9 Property, Plant and Equipment...................... 184.8 208.0 202.3
Less: Accumulated Depreciation..................... 112.3 128.0 105.0
------ ------ -------
Net Property, Plant and Equipment.................. 72.5 80.0 97.3
------ ------ -------
Other Assets....................................... 8.6 10.4 9.9
------ ------ -------
TOTAL ASSETS TO BE SOLD............................ 188.4 186.5 212.9
------ ------ -------
LIABILITIES
Product Warranty................................... 3.1 2.0 2.3
Deferred Service Revenue........................... 11.8 16.2 18.5
------ ------ -------
TOTAL LIABILITIES TO BE ASSUMED.................... 14.9 18.2 20.8
------ ------ -------
NET ASSETS TO BE SOLD.............................. $173.5 $168.3 $ 192.1
====== ====== =======
</TABLE>
See pages F-45 to F-54 for Notes to Combined Financial Statements.
F-44
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1. BASIS OF PRESENTATION
On December 11, 1995, E. I. du Pont de Nemours and Company ("DuPont")
entered into an Asset Purchase and Sale Agreement (the "Agreement") with Dade
International Inc. ("Dade") for the sale of DuPont's worldwide In Vitro
Diagnostics operations (the "Business"). The Business designs, manufactures
and markets clinical analyzers and reagents, and provides related equipment
service and customer support for hospitals and alternative health care markets
worldwide.
Under the terms of the Agreement, on April 30, 1996 (the "Closing Date"),
DuPont sold to Dade essentially all of the assets related to DuPont's
operation of the Business in the following countries:
NORTH AMERICA SOUTH AMERICA EUROPE ASIA PACIFIC
United States Venezuela Belgium Australia
Canada France Japan
Puerto Rico Germany
Italy
Netherlands
Spain
Switzerland
United Kingdom
The major manufacturing operations of the Business are conducted at Glasgow,
DE, and, through October 1995, at Manati, Puerto Rico. Operations in Puerto
Rico were transferred to the U.S. during 1995 [See Note 6]. In addition, the
Business has other manufacturing operations at Newtown, CT.
Under the terms of the Agreement, Dade assumed the deferred service and
product warranty liabilities of the Business. Other liabilities, which will be
retained by DuPont, are generally not specifically identifiable with the
Business. Under DuPont's centralized cash management system, cash requirements
of the Business were generally provided directly to the Business by DuPont and
cash generated by the Business was generally remitted directly to DuPont.
Transaction systems (e.g., payroll, employee benefits, freight, and accounts
payable) used to record and account for cash disbursements were provided by
centralized DuPont organizations. Most of these corporate systems are not
designed to track liabilities and payments on a business specific basis.
Accordingly, it is not practical to determine liabilities associated with the
Business for the above items; therefore, such liabilities cannot be included
in the Combined Financial Statements. Given these constraints, a Combined
Statement of Net Assets to be Sold is presented in lieu of a statement of
financial position and certain supplemental cash flow information is presented
in lieu of a statement of cash flows [See Note 12].
Throughout the period covered by the Combined Financial Statements, the
Business' U.S. operations were conducted and accounted for as a division of
DuPont's Medical Products Strategic Business Unit ("Medical SBU"). Non-U.S.
operations of the Business were conducted in each country through DuPont
subsidiaries that included other DuPont businesses.
Historically, financial statements were not prepared for the Business. These
Combined Financial Statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission. These statements were
derived from DuPont's historical accounting records, and are presented as if
the operations of the Business in each country had been conducted exclusively
within a wholly-owned subsidiary of the DuPont subsidiary in that country.
F-45
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Combined Statement of Operations includes all revenues and costs
attributable to the Business, including 1) costs for facilities, functions and
services used by the Business at sites shared with other DuPont operations, 2)
costs for certain functions and services performed by centralized DuPont
organizations directly charged to the Business, 3) allocations of DuPont's
Medical Products SBU management expense and 4) allocations of interest expense
[See Notes 2 and 3].
All of the allocations and estimates in the Combined Financial Statements
are based on assumptions that DuPont management believes are reasonable under
the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if the Business
had been operated as a separate entity.
Transactions between the Business and other DuPont operations have been
identified in the Combined Financial Statements as transactions between
related parties to the extent practicable [See Note 3].
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The Combined Financial Statements include the accounts of the various units
comprising the Business. All material transactions and accounts among the
units have been eliminated in combination.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to the customer. Service revenues are recognized ratably over the life
of the service agreement or as service is performed, if not under a service
agreement. Revenue on equipment leased to customers is recognized over the
term of the lease.
Inventories
U.S. inventories are valued at the lower of aggregate cost or market, with
cost being determined by the last-in, first-out (LIFO) method. Non-U.S.
inventories, as well as stores and supplies, are valued at the lower of
aggregate cost or market, with cost being determined by the average cost
method. Elements of cost in inventory include raw materials, direct labor and
manufacturing overhead.
Property, Plant and Equipment (PP&E)
PP&E is carried at cost and, for PP&E acquired subsequent to 1994, is
depreciated using the straight-line method. PP&E acquired prior to 1995 is
generally classified in depreciable groups and depreciated under the sum-of-
the-years' digits method. This change in depreciation method did not have a
material effect on 1995 results and was made to conform with the common
industry practice, which management considers to be preferable.
Depreciation rates are based on estimated useful lives of 15 to 25 years for
buildings, 4 to 8 years for equipment leased to customers and 5 to 25 years
for all other equipment.
Generally, for PP&E acquired prior to 1991, the gross carrying value of PP&E
surrendered, retired, sold or otherwise disposed of is charged to accumulated
depreciation and any salvage or other recovery therefrom is credited to
accumulated depreciation. For disposals of PP&E acquired after 1990, the gross
carrying value and related accumulated depreciation are removed from the
accounts and included in determining gain or loss on such disposals.
F-46
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Maintenance and repairs are charged to operations; replacements and
betterments are capitalized.
Research and Development Expenses
Research and development costs are charged to expense when incurred.
Interest Expense
Interest expense is determined by DuPont based on consolidated indebtedness
and, in these Combined Financial Statements, has been allocated to the
Business on the basis of the Business' proportionate share of the identifiable
operating assets of DuPont. DuPont management believes this allocation is
reasonable, but it is not necessarily indicative of the cost that would have
been incurred if the Business had been operated as a separate entity.
Income Taxes
The taxable income/loss of the various units comprising the Business was
included in the tax return of the DuPont entity of which it was a part. As
such, separate income tax returns were not prepared or filed for the Business.
Tax expense has been separately determined for the Business by applying the
asset and liability approach to the various units of the Business as if it
were a separate taxpaying entity.
Under the basis of presentation for these Combined Financial Statements, no
provision has been made for taxes on cash remittances from the various units
of the Business to the DuPont entity of which they are a part. Generally,
remittances from a wholly-owned subsidiary to its in-country parent are tax
free.
Foreign Currency Translation
DuPont has determined that the U.S. dollar is the functional currency of its
worldwide operations and that this functional currency determination is
appropriate to the economic environment in which the Business operated during
the periods covered by these Combined Financial Statements. Foreign currency
asset and liability amounts are translated into U.S. dollars at end-of-period
exchange rates except for inventories and property, plant and equipment, which
are translated at historical rates. Income and expenses are translated at
average exchange rates in effect during the year, except for expenses related
to balance sheet amounts which are translated at historical exchange rates.
Gains and losses from the translation of monetary assets and liabilities are
included in income in the period they occur and are allocated to the Business
based on its proportionate share of the beginning-of-period and end-of-period
balances of each monetary asset and liability of the DuPont subsidiary of
which it is a part.
Pensions
DuPont has noncontributory defined benefit plans covering substantially all
U.S. employees, including the employees of the Business. The benefits for
these plans are based primarily on employees' years of service and pay near
retirement. The cost of these plans for active employees was assigned to the
Business. Pension coverage for employees of DuPont's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through similar separate plans.
Obligations under such plans are systematically provided for by depositing
funds with trustees, under insurance policies or by book reserves. The cost of
these non-U.S. plans has been assigned to the Business using methods that
DuPont believes are reasonable.
Pension cost assigned to the Business is considered to be financed by DuPont
in the period the pension cost was incurred. Pension assets and liabilities
have been measured at December 31, 1995, 1994, 1993 and 1992.
F-47
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Accordingly, resulting gains or losses associated with actuarial changes and
with actual investment returns have been excluded from the pension costs
assigned to the Business. Such cost is not necessarily indicative of the
pension cost that would have been incurred if the Business had been operated
as a separate company. DuPont has assumed responsibility for pension payments
to Business retirees and will transfer assets to Dade, from the DuPont pension
fund, equal to the agreed-upon liabilities for transferred employees.
Accordingly, pension related assets and liabilities are not included in the
Combined Financial Statements [See Note 10].
Other Postretirement Benefits
DuPont and certain of its subsidiaries provide medical, dental and life
insurance benefits to pensioners and their survivors. These benefits are
accounted for as they are earned by employees. Other postretirement
liabilities have been measured at December 31, 1995, 1994, 1993 and 1992.
Accordingly, resulting gains or losses associated with actuarial changes have
been excluded from the postretirement costs assigned to the Business. These
benefit costs are not necessarily indicative of the postretirement benefit
costs that would have been incurred if the Business had operated as a separate
entity. The cost of these benefits is considered to be financed by DuPont in
the period incurred. Liabilities associated with other postretirement benefits
will be retained by DuPont and are not included in the Combined Financial
Statements [See Note 11].
Compensation Plan
DuPont sponsors a Variable Compensation Plan under which awards may be
granted in DuPont stock and/or cash to employees of the Business who have
contributed most in a general way to the Business' success, consideration
being given to ability to attain more important managerial responsibility.
Insurance
During the period covered by the Combined Financial Statements, DuPont did
not insure for property damage losses. Liability insurance was purchased with
large deductibles. Costs included in the Combined Statement of Operations
resulting from non-insured losses were not material; such costs are included
in income as incurred.
Environmental Remediation
Expenses for environmental matters are recorded as operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Where feasible, these costs are
assigned to the business unit responsible for the conditions being remediated.
During 1995, 1994 and 1993, no material environmental remediation costs were
assigned to the Business.
Product Warranty
The Business warrants its equipment products for a period of up to one year.
Anticipated costs related to product warranty claims are charged to Cost of
Goods Sold and Other Operating Expenses when the related sales occur.
NOTE 3. RELATED PARTY TRANSACTIONS
The Combined Financial Statements include significant transactions with
other DuPont organizations involving functions and services (such as cash
management, tax administration, legal and data processing) that were provided
to the Business. The costs of these functions and services have been directly
charged and/or
F-48
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
allocated to the Business using methods that DuPont management believes are
reasonable. Such charges and allocations are not necessarily indicative of the
costs that would have been incurred if the Business had been a separate
entity. It is not feasible to segregate all of these charges from costs
incurred directly by the Business. However, Selling, General and
Administrative Expenses include $26.2 in 1995, $26.1 in 1994 and $24.9 in 1993
representing allocations of general corporate expenses to the Business.
NOTE 4. SALES AND ACCOUNTS RECEIVABLE TRADE
Substantially all of the Business' sales are to hospitals and alternative
health care markets.
Accounts Receivable Trade is net of an allowance for doubtful accounts of
$1.3, $1.5 and $1.4 at December 31, 1995, 1994 and 1993, respectively.
NOTE 5. RESTRUCTURING CHARGES
During 1993, the Business recorded $9.9 of restructuring charges directly
related to management's decision to downsize its global work force and to
consolidate its warehousing and distribution activities at Glasgow, DE.
Employee separation costs of $7.3 were incurred for the voluntary termination
of about 160 employees based upon a plan that identified the number of
employees to be terminated and their functions. The remaining portion of the
restructuring charge, $2.6, resulted primarily from the withdrawal from
distribution facilities in Atlanta, GA. This restructuring was completed in
1994.
During 1994, the Business recorded $13.3 of additional restructuring charges
directly related to management's decision to further downsize its U.S. work
force and to cease the manufacturing at a facility in Manati, Puerto Rico in
order to improve productivity and competitiveness. Employee separation costs
totaling $3.3 were incurred for the involuntary and voluntary termination of
about 150 employees based upon a plan which identified the number of employees
to be terminated and their functions. The remaining portion of the
restructuring charge, $10.0, is primarily attributable to the loss on the sale
of the Manati facility. The Business' restructuring program was completed in
1995.
NOTE 6. COST OF GOODS SOLD AND OTHER OPERATING EXPENSES
In connection with implementation of the Business' 1994 restructuring plan,
additional abnormal costs of $8.8 and $3.3 in 1995 and 1994, respectively,
were expensed as incurred. These costs were primarily due to product transfer
activities and employee training and relocation.
F-49
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. PROVISION FOR INCOME TAXES
Throughout the period covered by the Combined Financial Statements, DuPont
utilized various tax planning strategies and elections to minimize its total
income tax expense. It is not practicable to identify the effects of these
strategies and elections on the results of operations of the Business.
Management believes that the Business would have adopted other tax strategies
and elections if it had operated as a separate entity.
The Provision for (Benefit from) Income Taxes consists of:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Current Tax Expense:
U.S. Federal....................................... $2.0 $ 6.3 $ --
U.S. State and Local............................... 0.6 -- --
Non-U.S............................................ 0.5 2.1 1.8
---- ----- -----
Total............................................ 3.1 8.4 1.8
---- ----- -----
Deferred Tax Expense:
U.S. Federal....................................... 0.8 (8.5) (4.4)
U.S. State and Local............................... (0.4) (0.8) (1.0)
Non-U.S............................................ 0.2 -- 0.2
---- ----- -----
Total............................................ 0.6 (9.3) (5.2)
---- ----- -----
Provision for (Benefit from) Income Taxes........ $3.7 $(0.9) $(3.4)
==== ===== =====
</TABLE>
Deferred income taxes result from temporary differences between the
financial and tax basis of the Business' assets and liabilities. The tax
effects of temporary differences and tax loss/tax credit carry forwards
included in the deferred income tax provision are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Depreciation......................................... $2.0 $(2.5) $(2.1)
Inventory............................................ 0.5 0.4 0.5
Accrued Liabilities.................................. (1.8) 5.7 (3.3)
Net Operating Loss Carry Forwards.................... (1.0) (14.0) (1.1)
Change in Valuation Allowance........................ 0.7 1.1 1.1
Other................................................ 0.2 -- (0.3)
---- ----- -----
Total.............................................. $0.6 $(9.3) $(5.2)
==== ===== =====
</TABLE>
An analysis of the income tax provision (benefit) follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Income Before Income Taxes.......................... $13.1 $ 0.4 $ 5.8
----- ----- -----
Tax at 35% statutory U.S. federal tax rate.......... 4.6 0.1 2.0
Lower effective tax rate on operations within U.S.
possessions........................................ (1.0) (1.8) (5.7)
Change in Valuation Allowance....................... 0.7 1.1 1.1
Other--Net.......................................... (0.6) (0.3) (0.8)
----- ----- -----
Provision for (Benefit from) Income Taxes......... $ 3.7 $(0.9) $(3.4)
===== ===== =====
</TABLE>
F-50
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Raw materials......................................... $ 9.7 $12.1 $13.5
Semi-finished product................................. 12.5 11.2 12.5
Finished product...................................... 22.6 22.1 29.6
Stores and supplies................................... 2.4 1.4 1.2
----- ----- -----
Total before LIFO 47.2 46.8 56.8
LIFO Reserve.......................................... (14.1) (15.7) (15.9)
----- ----- -----
Inventories......................................... $33.1 $31.1 $40.9
===== ===== =====
</TABLE>
DuPont's application of LIFO is not focused on individual business units.
Accordingly, the results of applying LIFO are allocated to the Business.
Management believes such allocations are reasonable, but may not necessarily
reflect the cost that would have been incurred if LIFO had been applied on a
business specific basis. The impact of the LIFO method was to decrease Cost of
Goods Sold and Other Operating Expenses by $1.6 during 1995, $0.2 during 1994
and $1.3 during 1993. Inventories valued at LIFO comprise approximately 80
percent of combined inventories before LIFO adjustment for all years.
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Land................................................. $ 0.8 $ 1.0 $ 1.0
Buildings and Equipment.............................. 129.7 158.7 146.0
Equipment Leased to Customers........................ 49.1 41.3 46.8
Construction......................................... 5.2 7.0 8.5
------ ------ ------
Property, Plant and Equipment, at Cost............. $184.8 $208.0 $202.3
====== ====== ======
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Capital Expenditures:
U.S. Capitalized Instruments....................... $ 9.3 $ 8.0 $ 6.7
U.S. Capitalized Software.......................... 2.2 2.2 2.1
U.S. All Other..................................... 7.5 8.0 5.5
Non-U.S............................................ 4.4 3.7 7.0
------ ------ ------
Total Capital Expenditures....................... $ 23.4 $ 21.9 $ 21.3
====== ====== ======
</TABLE>
Non-U.S. capital expenditures for all three years were principally
capitalized instruments.
NOTE 10. PENSION COST
For U.S. plans, the pension cost was determined using a discount rate of
9.00 percent, 7.25 percent and 8.50 percent for 1995, 1994 and 1993,
respectively. A long-term rate of compensation increase of 5 percent was used
for all years. For non-U.S. plans, no one of which was material, similar
economic assumptions were used.
F-51
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The projected benefit obligation (PBO) used in determining the pension cost
was $61.9, $88.6 and $59.8 at January 1, 1995, 1994 and 1993, respectively.
For the U.S. qualified plan, the PBO was assumed to be fully funded by pension
plan assets allocated from the DuPont plan, with an assumed long-term rate of
return of 9 percent for all years.
The elements of pension cost assigned to the Business using the above
methods were:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost.......................................... $ 4.8 $ 6.7 $ 4.7
Interest cost......................................... 5.7 6.3 5.1
Expected return on plan assets........................ (4.9) (7.1) (4.7)
----- ----- -----
Net Pension Cost.................................... $ 5.6 $ 5.9 $ 5.1
===== ===== =====
</TABLE>
The year-end PBO was $97.4 for 1995. For the U.S. plans, the PBO was
determined using a discount rate of 7.25 percent and a long-term rate of
compensation increase of 5 percent. For the non-U.S. plans, similar economic
assumptions were used.
NOTE 11. OTHER POSTRETIREMENT BENEFITS
Costs associated with other postretirement benefits include the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $1.4 $2.0 $1.6
Interest cost.............................................. 1.9 2.2 2.0
---- ---- ----
Other Postretirement Benefits Cost....................... $3.3 $4.2 $3.6
==== ==== ====
</TABLE>
The above costs were based on an accumulated postretirement benefit
obligation (APBO) of $20.6, $30.9 and $22.6 at January 1, 1995, 1994 and 1993,
respectively. The health care cost trend used in determining the APBO was an
escalation rate of 8 percent decreasing to 5 percent over 8 years, 10 percent
decreasing to 5 percent over 10 years and 11 percent decreasing to 5 percent
over 10 years, respectively, for January 1, 1995, 1994 and 1993. A 5 percent
assumed long-term rate of compensation increase was used for life insurance
for all years. The discount rate was 9.00 percent, 7.25 percent and 8.50
percent for January 1, 1995, 1994 and 1993, respectively. A one percentage-
point increase in the health care cost escalation rate would have increased
the costs associated with other postretirement benefits by $0.4 in 1995, $0.7
in 1994 and $0.6 in 1993.
F-52
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION
As described in Note 1, DuPont's cash management system is not designed to
trace centralized cash and related financing transactions to the specific cash
requirements of the Business. In addition, DuPont's corporate transaction
systems are not designed to track liabilities and payments on a business
specific basis. Given these constraints, the following data are presented to
facilitate analysis of key components of cash flow activity.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net Income.......................................... $ 9.4 $ 1.3 $ 9.2
Deferred Tax Expense................................ 0.6 (9.3) (5.2)
Depreciation........................................ 24.0 24.5 24.6
Amortization of Capitalized Software................ 1.6 1.4 1.0
Provision for Manati Sale [See Note 5].............. -- 10.0 --
Change in Accounts Receivable....................... (9.2) (0.2) 12.9
Change in Inventory................................. (2.0) 9.8 2.4
Change in Other Assets.............................. 2.4 0.3 0.5
Change in Product Warranty.......................... 1.1 (0.3) 0.3
Change in Deferred Service Revenue.................. (4.4) (2.3) 2.2
----- ----- -----
Cash Flow from Operating Activities, excluding
DuPont Financing................................... 23.5 35.2 47.9
Investment Activities:
Capital Expenditures................................ (23.4) (21.9) (21.3)
Proceeds from Manati Sale........................... 8.0 -- --
----- ----- -----
Net Financing Provided to DuPont*................... $ 8.1 $13.3 $26.6
===== ===== =====
</TABLE>
- --------
* The difference between Cash Flow from Operating Activities and Investment
Activities does not necessarily represent the cash flows of the Business, or
the timing of such cash flows, had it operated as a separate entity.
F-53
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Business has various purchase commitments for materials, supplies and
items of permanent investment incidental to the ordinary conduct of business.
In the aggregate, such commitments are not at prices in excess of current
market.
The Business does not have any material lease commitments.
The Business is subject to various lawsuits and claims with respect to such
matters as product liabilities, governmental regulations and other actions
arising out of the normal course of business. While the effect on future
financial results is not subject to reasonable estimation because considerable
uncertainty exists, in the opinion of DuPont's counsel, the ultimate
liabilities resulting from such lawsuits and claims will not materially affect
the consolidated financial position of the Business.
NOTE 14. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Business operates within a single industry segment.
<TABLE>
<CAPTION>
UNITED
STATES EUROPE OTHER COMBINED
------ ------ ----- --------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers (1)............ $258.7 $59.4 $23.7 $341.8
Transfers between geographic areas............. 38.8 0.6 -- --
------ ----- ----- ------
Total........................................ $297.5 $60.0 $23.7 $341.8
====== ===== ===== ======
Income (Loss) before interest expense and tax-
es............................................ $ 21.4 $ 2.1 $(2.8) $ 20.7
====== ===== ===== ======
Total assets to be sold........................ $134.2 $40.8 $13.4 $188.4
====== ===== ===== ======
1994
Sales to unaffiliated customers (1)............ $257.5 $46.3 $22.1 $325.9
Transfers between geographic areas............. 35.3 0.2 0.4 --
------ ----- ----- ------
Total........................................ $292.8 $46.5 $22.5 $325.9
====== ===== ===== ======
Income (Loss) before interest expense and tax-
es............................................ $ 8.6 $(0.3) $(1.1) $ 7.2
====== ===== ===== ======
Total assets to be sold........................ $140.7 $32.5 $13.3 $186.5
====== ===== ===== ======
1993
Sales to unaffiliated customers (1)............ $265.4 $45.3 $22.5 $333.2
Transfers between geographic areas............. 27.6 0.3 2.2 --
------ ----- ----- ------
Total........................................ $293.0 $45.6 $24.7 $333.2
====== ===== ===== ======
Income (Loss) before interest expense and tax-
es............................................ $ 15.9 $(3.5) $ 0.2 $ 12.6
====== ===== ===== ======
Total assets to be sold........................ $167.3 $31.7 $13.9 $212.9
====== ===== ===== ======
</TABLE>
- --------
(1) Sales outside the United States of products manufactured in, and exported
from, the United States totaled $6.9 in 1995, $13.6 in 1994 and $11.6 in
1993.
F-54
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E.I. DU PONT DE NEMOURS AND COMPANY)
UNAUDITED COMBINED STATEMENT OF OPERATIONS [SEE NOTE 1]
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30,
-------------
SEE (UNAUDITED)
NOTE 1996 1995
---- ------ ------
<C> <S> <C> <C>
Sales................................................ $114.8 $109.4
3 Other Income......................................... 0.1 1.3
------ ------
Total Revenues....................................... $114.9 $110.7
4 Cost of Goods Sold and Other Operating Expenses...... 55.4 53.6
2 Selling, General and Administrative Expenses......... 37.6 34.7
Research and Development Expense..................... 11.8 11.2
------ ------
Income Before Interest Expense and Taxes............. $10.1 $11.2
Interest Expense..................................... 2.9 1.4
------ ------
Income Before Income Taxes........................... $7.2 $9.8
Provision for Income Taxes........................... 3.0 2.8
------ ------
Net Income........................................... $4.2 $7.0
====== ======
</TABLE>
See Pages F-57 to F-58 for Notes to Unaudited Combined Financial Statements.
F-55
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
UNAUDITED COMBINED STATEMENT OF NET ASSETS TO BE SOLD [SEE NOTE 1]
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
APRIL 30,
SEE 1996
NOTE -----------
---- (UNAUDITED)
<C> <S> <C>
ASSETS:
Accounts Receivable Trade--Net......................... $ 68.9
6 Inventories............................................ 33.5
7 Property, Plant and Equipment.......................... 193.0
Less: Accumulated Depreciation......................... 113.6
------
Net Property, Plant and Equipment...................... 79.4
Other Assets........................................... 9.6
------
TOTAL ASSETS TO BE SOLD................................ $191.4
------
LIABILITIES:
Product Warranty....................................... $ 4.3
Deferred Service Revenue............................... 10.6
------
TOTAL LIABILITIES TO BE ASSUMED........................ $ 14.9
------
NET ASSETS TO BE SOLD.................................. $176.5
======
</TABLE>
See pages F-57 to F-58 for notes to Unaudited Combined Financial Statements
F-56
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited Combined Financial Statements for the four-month periods of
April 30, 1996 and 1995, should be read in conjunction with both Note 1 (Basis
of Presentation) and Note 2 (Summary of Significant Accounting Policies)
included in the audited 1995 Combined Financial Statements of the Business
("Audited 1995 Financial Statements"). Other notes considered by DuPont
management to be relevant to the accompanying unaudited Combined Financial
Statements are included herein.
The unaudited Combined Financial Statements for the Business are based
principally on DuPont's internal results and, in the opinion of management,
reflect, consistent with the Audited 1995 Financial Statements, appropriate
adjustments to more closely present the results of operations in accordance
with generally accepted accounting principles.
NOTE 2. RELATED PARTY TRANSACTIONS
Selling, General and Administrative Expenses include $7.8 and $8.7 for the
four-month periods ended April 30, 1996 and 1995, representing allocations of
general corporate expenses to the Businesses.
NOTE 3. OTHER INCOME
Other income includes exchange gains/(losses) of $(0.3) and $0.5 for the
four-month periods ended April 30, 1996 and 1995, respectively.
NOTE 4. COST OF GOODS SOLD AND OTHER OPERATING EXPENSES
In connection with implementation of restructuring plans, additional
abnormal expenses of $2.1 were included in the four-month period ending April
30, 1995, primarily due to product transfer activities and employee training
and relocation.
NOTE 5. PENSION COST AND OTHER POSTRETIREMENT BENEFITS
Pension Costs assigned to the business were $1.9 and $1.9, and Other
Postretirement Benefits costs assigned to the Business were $1.3 and $1.1 for
the four-month periods ended April 30, 1996 and 1995, respectively.
NOTE 6. INVENTORIES
<TABLE>
<CAPTION>
APRIL 30,
1996
-----------
(UNAUDITED)
<S> <C>
Raw materials................................................. $11.4
Semi-finished product......................................... 11.9
Finished Products............................................. 22.2
Stores and supplies........................................... 1.8
-----
Total before LIFO............................................. $47.3
LIFO Reserve.................................................. (13.8)
-----
Inventories................................................... $33.5
=====
</TABLE>
F-57
<PAGE>
IN VITRO DIAGNOSTICS
(A DIVISION OF E. I. DU PONT DE NEMOURS AND COMPANY)
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
DuPont's application of LIFO is not focused on individual business units.
Accordingly, the results of applying LIFO are allocated to the Business.
Management believes such allocations are reasonable, but may not necessarily
reflect the cost that would have been incurred if LIFO had been applied on a
business specific basis. The impact of the LIFO method was to decrease Cost of
Goods Sold and Other Operating Expenses by $0.3 and $0.6, for the four-month
periods ended April 30, 1996 and 1995, respectively.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
APRIL 30,
1996
-----------
(UNAUDITED)
<S> <C>
Land........................................................... $ 0.8
Buildings and Equipment (Includes
Equipment Leased to Customers)................................ 186.3
Construction................................................... 5.9
------
Property, Plant and Equipment, at Cost......................... $193.0
======
</TABLE>
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
DuPont's cash management system is not designed to trace centralized cash
and related financing transactions to the specific cash requirements of the
Business. In addition, DuPont's corporate transaction systems are not designed
to track liabilities and payments on a business specific basis. Given these
constraints, the following data are presented to facilitate analysis of key
components of cash flow activity.
<TABLE>
<CAPTION>
FOUR MONTHS ENDED FOUR MONTHS ENDED
APRIL 30, 1995 APRIL 30, 1996
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income............................ $7.0 $ 4.2
==== =====
Depreciation and amortization......... $7.3 $ 6.2
==== =====
Capital expenditures.................. $6.8 $10.0
==== =====
</TABLE>
F-58
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CON-
TAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES IT CON-
STITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PER-
SON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HERE-
OF.
---------------
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 20
The Transactions.......................................................... 26
Use of Proceeds........................................................... 27
Capitalization............................................................ 28
Unaudited Pro Forma Financial Data........................................ 29
Selected Historical Financial Data........................................ 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Industry.................................................................. 45
Business.................................................................. 47
Management................................................................ 61
Principal Stockholders.................................................... 67
Certain Relationships and Related Transactions............................ 69
Bank Credit Agreement..................................................... 70
Description of Exchange Notes............................................. 72
The Exchange Offer........................................................ 101
Certain Federal Income Tax Consequences................................... 109
Plan of Distribution...................................................... 109
Legal Matters............................................................. 110
Experts................................................................... 110
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL JANUARY 29, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-------------
PROSPECTUS
-------------
DADE INTERNATIONAL INC.
OFFER TO EXCHANGE ITS
SERIES B 11 1/8% SENIOR SUBORDINATED NOTES
DUE 2006 FOR ANY
AND ALL OF ITS OUTSTANDING
11 1/8% SENIOR SUBORDINATED NOTES
DUE 2006
OCTOBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
