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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
COMMISSION FILE NO. 333-13523
DADE BEHRING INC.
(FORMERLY DADE INTERNATIONAL INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3949533
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYERIDENTIFICATION NO.)
OFINCORPORATION OR ORGANIZATION)
1717 DEERFIELD ROAD, DEERFIELD, 60015-0778
ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 267-5300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 20, 1998 was approximately zero. At March 20, 1998,
there were 1,000 shares of Common Stock outstanding, all held by the
registrant's parent, Dade Behring Holdings, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
HISTORY
The predecessor to Dade Behring Inc. ("Dade Behring" or the "Company",
formerly Dade International Inc.), the Baxter Diagnostics business (the
"Predecessor") of Baxter International Inc. ("Baxter"), was established in
1949 as part of the Dade County Blood Bank in Florida. 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 microbiology,
immunochemistry and chemistry markets of the emerging in vitro diagnostic
testing industry. From 1983 to 1985, Stratus and Paramax development, which
began in the late 1970's, 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.
In December 1994, Bain Capital, Inc. ("Bain Capital") and GS Capital
Partners, L.P. ("GS Capital") formed Dade Behring Holdings, Inc. ("Holdings",
formerly Diagnostics Holding, Inc.) and acquired the Predecessor from Baxter
(the "Dade Acquisition"), with the Company becoming a wholly-owned subsidiary
of Holdings. Since the Dade Acquisition, the Company has made significant
progress in implementing and focusing its business strategy through
acquisitions and the introduction of new products such as the Dimension RxL
clinical chemistry analyzer, new hemostasis instrument platforms and its
immunoassay module, the cardiac marker Troponin-I and the Platelet Function
Analyzer.
In May 1996, the Company purchased (the "Chemistry Acquisition") from DuPont
its in vitro diagnostics business ("Dade Chemistry"), which had entered into
the automated clinical chemistry market in 1968 with the introduction of the
first random access automated chemistry analyzer in the world and whose
installed base of clinical chemistry instruments is one of the largest in the
world.
In October 1997, the Company combined (the "Behring Combination") with the
in vitro diagnostics business ("Behring") of Hoechst A.G. Behring was
established in 1904 by Emil von Behring, the recipient of the first Nobel
Prize in medicine. The Behring Combination has broadened the product offering
and balanced the geographic scope of the Company's business.
Dade Behring, 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.
INDUSTRY
In vitro (literally, "in glass") diagnostic ("IVD") 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 are traditional clinical chemistry
tests which measure glucose, cholesterol or sodium 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 care 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 for emerging test technologies (e.g., cardiac markers which test
for the occurrence of heart attacks); (iii) demographic shifts such as the
aging of the population; and (iv) applications which provide point-of-care or
near-patient testing capabilities.
Dade Behring serves the IVD market with instruments, reagents (compounds and
liquids used to perform tests), consumables (primarily disposable reaction
vessels, cuvettes, lids, etc.) and services targeted primarily at
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clinical laboratories. Hospital and reference laboratories tend to use more
precise, higher volume and more automated IVD systems. The definitions of the
components of the IVD market in which the Company's products compete ("Company
Served Markets") are as follows:
. Clinical Chemistry Clinical chemistry instrument systems, the highest
volume analyzers 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 performance 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. The
general immunochemistry discipline contains a number of distinct segments,
including drugs, plasma proteins, infectious disease and allergy, as well
as more general platforms designed for a broad range of analyses including
cardiac arrest, cancer, anemia, fertility and pregnancy.
. Drugs Drugs tests are used to measure the level of therapeutic drugs or
drugs of abuse in either blood or urine. Although these tests have
historically been categorized as part of the immunochemistry discipline,
many drug assays are now also performed on routine chemistry analyzers and
are therefore also defined as part of the clinical chemistry market.
. Plasma Protein Plasma protein instrument systems test serum, plasma,
urine or cerebral spinal fluid to help both diagnose diseases such as
coronary heart diseases and rheumatic diseases, as well as to detect
disorders such as tumors and malnutrition.
. Hemostasis Hemostasis instrument systems test blood coagulation
(clotting) or platelet function. Hemostasis tests are typically run before
or during most surgeries or are performed to monitor patients on an anti-
coagulant therapy.
. Microbiology Automated microbiology instrument systems identify disease-
causing bacteria and determine their susceptibility to various
antibiotics. These 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 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
tubes and stoppers 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. 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 helping to reduce the overall cost of care. 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
also expected to increase the overall level of demand for diagnostic testing.
The development of point-of-care and near-patient diagnostic testing
capability will expand the application of IVD in non-laboratory settings
(e.g., operating room, home care).
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Management believes that certain trends affecting the purchasers of IVD
instruments, as well as the maturation of many IVD testing applications will
drive further consolidation and globalization in the IVD industry. Over the
past several years, an increasing number of domestic hospitals have formed
into groups known as Health Systems in order to compete for patients, develop
strategic alliances with suppliers and leverage specialized departments. The
formation of these Health Systems, as well as the consolidation occurring
among competitors in the independent reference lab market presents larger IVD
suppliers with the opportunity to drive standardization of their products
across all labs in a group. As testing applications mature in these and other
laboratories, 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.
Management believes that the Company, with its global reach and broad product
portfolio, is well positioned to take advantage of these trends.
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 $17.5 billion
global IVD market, the Company serves a $10.7 billion segment that consists of
IVD instruments, reagents, consumables and services targeted primarily at
clinical laboratories. Within the Company Served Markets, the Company has
market leadership positions in six of the seven core product segments
(clinical chemistry, drugs, plasma protein, microbiology, hemostasis, and
controls) and a strong niche position in the seventh (immunochemistry).
IVD tests are conducted primarily in clinical laboratories which in the
United States consists of approximately 6,000 hospital-based laboratories and
4,000 reference laboratories (independent from hospitals). The Company
provides products and services to over 90% of domestic hospital-based 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 to serve.
The Company manufactures and markets a broad offering of IVD products and
services which includes: (i) instruments (approximately 12% of sales); (ii)
reagents and consumables (approximately 81% of sales); and (iii) services
(approximately 7% of sales). In total, the Company has a worldwide installed
base of approximately 39,500 instruments. With a typical instrument life of
five years, the Company's installed base of instruments generates annual
revenue of approximately $31,000 per instrument from ongoing sales of
reagents, consumables and service. More importantly, over 75% 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, the
Company generates an attractive, stable and recurring stream of revenue from
reagents, consumables and service contracts.
Clinical 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 and 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 analyzers. According to industry
estimates, the United States automated clinical chemistry market in which the
Company competes approximated $3.2 billion in sales in 1996.
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 Dimension or Paramax, is
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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 Company's product line consists of three primary instrument platforms
marketed to clinical laboratories (Dimension, aca and Paramax) and an
instrument platform marketed to physicians, Analyst. The newest clinical
chemistry analyzer, the Dimension RxL, was introduced in late 1996 and offers
advanced automation and productivity features and a wide test menu. To exploit
the migration of high volume tests from immunochemistry to clinical chemistry
analyzers, Dimension launched a new immunoassay module in late 1997 to perform
highly sensitive immunoassays along with routine chemistry tests. 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's size, is critical
in order to be a strong competitor in clinical chemistry. The Company's broad
product offering allows it to offer the variety of testing profiles and
instrument performance characteristics necessary for a full chemistry
solution.
Immunochemistry
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 Company's immunochemistry products include the Stratus, OPUS and BEP
instruments. Both Stratus and OPUS are strong niche competitors in the United
States immunochemistry market, with leadership positions in the cardiac
testing segment. 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.
OPUS analyzers run a menu of 40 reagents using a unique dry film technology
which allows reagents to be completely self-contained. The Company's line of
BEP instruments offer a menu of over 30 assays to test for infectious
diseases, including AIDS and hepatitis.
Despite the highly competitive nature of the immunochemistry market, Stratus
and OPUS have been positioned to compete effectively in the cardiac testing
niche. Stratus currently provides the fastest response time for cardiac
testing and OPUS offers a broad panel of cardiac markers. 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.
Demand for the 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.
The Company believes there is tremendous value in properly screening people
entering a hospital for chest pains. In the United States, approximately 6
million people each year arrive at a hospital for chest pain and almost 2
million are admitted, but only approximately 1 million of these people
actually suffer a heart attack. The costs associated with incorrect admissions
or, alternatively, incorrect discharges, are tremendous. Through the use of
the Company's battery of cardiac tests, heart attacks can be more accurately
identified and 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 developing a new point-of-care cardiac specific
platform.
Plasma Protein
Plasma protein instrument systems test serum, plasma, urine or cerebral
spinal fluid to help both diagnose diseases such as coronary heart diseases
and rheumatic diseases as well as to detect disorders such as tumors and
malnutrition. Plasma protein tests are conducted on two types of instrument
platforms. The majority of plasma
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protein tests are run on dedicated nephelometers such as the Company's BNII;
some laboratories, however, also run tests on routine clinical chemistry
analyzers such as the Company's Dimension.
The Company is the market leader in Plasma Protein worldwide market. The
Company offers four dedicated plasma protein instruments: the BNII and BNA,
targeted at large, high volume hospital and commercial laboratories; the BN
100, sold to small to medium sized labs; and the TurbiTimeSystem, a manual
instrument sold to small hospitals and private labs. The BNII, a large, highly
automated instrument, was released in late 1996 and has proven to be a
successful upgrade path for former customers of the BNA and BN 100 who are
striving to reduce lab costs and increase actual testing throughput. The
Company's instruments offer up to 40 assays which cover the complete spectrum
of plasma protein tests.
The Company's focus on expanding its plasma protein business has led to the
development of the broadest portfolio of plasma protein products in the
market, allowing it to target customers of all sizes and usage profiles. In
addition, the Company has been able to further leverage its expertise in assay
development on dedicated nephelometers by offering plasma protein assays for
the routine clinical chemistry analyzer market. The Company is also working to
grow the plasma protein market by developing new markers for disorders such as
malnutrition.
Microbiology
MicroScan serves a segment that consists of identification/antimicrobial
susceptibility testing ("ID/AST") instruments, reagent panels, data management
systems, disposable accessories and service. Microbiology laboratories use
ID/AST 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. 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.
The Company manufactures and markets both manual and automated ID/AST
products. MicroScan's premier instruments are the WalkAway(R)-40 and the
WalkAway(R)-96, fully automated instruments that use patented dry reagent
panels to conduct bacterial identification and susceptibility testing at the
same time.
The Company has been able to achieve a leadership position in the
Microbiology market by focusing on high growth international markets, as well
as by upgrading its instruments to help laboratories reduce their overall
costs. In the United States, the Company continues to secure business through
the promotion of its Conventional Panels, testing devices which produce more
accurate results than competitive systems, and through the placement of
pharmLINK systems, which provide pharmacists, microbiologists and physicians
with better information for the management of antibiotic therapy. Because
antibiotics represent approximately 30% of a typical hospital's drug budget,
the potential for significant 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. Many
international markets rely predominately upon manual systems--creating a
significant opportunity for MicroScan as customers move to more efficient
automated systems. In addition, as hospitals outside the United States
continue to build the necessary information systems infrastructure, the
Company expects to develop new versions of pharmLINK that are specific to a
country's needs. In addition, the Company has begun work on the next
generation WalkAway with a focus on reducing costs, improving ease of use and
developing significant enhancements to its existing data management software.
Hemostasis
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.,
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hemophilia). Market growth is expected to come from a continued growth in the
number of surgeries performed as well as from new hemostasis tests which
accurately measure blood clotting and provide for improved patient treatment.
The Company pioneered the field of hemostasis and continues to maintain a
global leadership position through its commitment to innovation and its
development of new and improved products and services. 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 both third party instruments as well as those manufactured in
house. The Company has a strong history of instrument product development, and
has introduced two new systems (the BCS and BCT) over the past two years as
well as committed significant resources to developing a 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.
The Company has an exclusive relationship with Cardiovascular Diagnostics
Inc. ("CVDI") in distributing a new point-of-care hemostasis instrument in the
United States market.
Drugs
Drugs tests are used to measure the level of therapeutic drugs ("TDM") or
drugs of abuse ("DAT") in either blood or urine. TDM tests assist physicians
in ensuring that the level of therapeutic drugs patients receive do not exceed
safe ranges in the bloodstream. An example of a TDM application is testing
performed on transplant patients to monitor the level of immunosuppressive
drugs that they are given. Drugs of abuse tests screen for the use of illicit
substances such as cocaine and marijuana. Because of their range of
application, drugs tests are used at a variety of sites, from clinical
laboratories to employers' offices. Drugs tests are also conducted on multiple
platform types, including dedicated immunochemisty platforms such as the
Company's ETS instruments, as well as routine clinical chemistry analyzers
such as the Company's Dimension instruments.
The Company manufacturers a wide range of products under the Syva name in
the drugs market, including both dedicated instruments, as well as a line of
over 40 reagents, which it markets to both clinical and non-clinical
laboratories. Syva is the world leader in DAT testing and is also a leader in
DAT innovation, with the broadest menu of assays available and a large
pipeline of new tests. The Company's new test for LSD was chosen over the
competition for use by the United States military. In order to increase the
convenience of testing for its customers, the Company is developing new DAT
sample collection technologies, such as a patch that detects drugs from sweat
rather than urine. In addition, the Company is taking advantage of the trend
in diagnostics toward testing at the point-of-care by developing a self-
contained, unitized test device. The Company also has a strong position in the
TDM market with an especially strong position in the high growth
immunosuppressives market. The Company has been successful at developing tests
for immunosuppressive drugs; it was the first to market a research-use only
test for MpA and recently acquired a license to test for FK506.
The Company's plans for growth in the drugs market center on expanding the
scope of its testing platforms and assays, as well as international expansion.
In order to take advantage of the growing need for drugs tests, the Company
has been rapidly developing new sample collection methodologies and point-of-
care devices. The Company is also taking advantage of the market potential for
tests on non-dedicated platforms by extending its OEM relationships with
manufacturers of routine clinical chemistry analyzers. The Company has been a
leader in developing assays for those and other platforms, as exemplified by
its new LSD test. Growth opportunities exist for the Company outside of the
United States, where drug testing is currently less well penetrated. For
example, the Company has been in discussions with the governments of Germany
and France to use its testing devices on people involved in car accidents.
Controls
Controls are used by laboratory technicians to test instruments for accuracy
and consistency. Tests are performed using controls (solutions formulated to
specific, standardized values) to determine whether instruments are producing
results valid within a statistically acceptable range. Because of the need for
a high degree of
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accuracy in IVD testing, controls are run daily on most instruments in a
clinical laboratory. CLIA '88 subjects laboratories to impromptu inspection
and subsequent fines/penalties for compliance violations; this and other
governmental regulations mandating higher standards of quality control will
continue to drive laboratories' needs for controls.
The Company is a well recognized and respected name in the controls segment
of the IVD industry. The Company 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
includes both controls, 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.
The Company's controls business has several advantages over its competitors.
In addition to being used by over 75% of its own customers, the Company has a
proven ability to leverage its experience across many other platforms. In
1995, the Company established an exclusive controls supply relationship with
Columbia/HCA and an OEM relationship with a European supplier of clinical
chemistry analyzers. The Company's state-of-the-art QAPs have enabled users to
monitor and compare system tests results with those obtained by thousands of
other laboratories using similar systems around the world. With over 10,000
Dade Behring 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.
Other
Immunohematology. Dade Behring immunohematology and related products are
typically used by hospital laboratories and blood donor centers to classify
blood products for use in transfusion procedures. The immunohematology line
consists of immunohematology reagents and base laboratory equipment such as
cell washers and automated centrifuges. This product line is considered non-
core and has suffered from increased competition in recent years due to a new,
simpler testing procedure.
Integrated Services Division. The Company believes its Integrated Services
Division ("ISD") organization is the largest service organization in the
industry with over 1,200 product and service specialists worldwide. This
organization provides in-warranty and out-of-warranty service on the Company's
39,500 instruments and provides service on a third-party basis to 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. In the United States, the Company also maintains a
telephone-based, in-house technical support and customer service group of over
180 people to provide troubleshooting and other user help, which leverages the
higher cost of on-site service.
Third Party Product Distribution. The Company distributes various products
for third party manufacturers in select international markets where it can
leverage its existing distribution network.
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. At December 31, 1997, there were approximately 750
employees involved in the Company's product 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.
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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 39,500 instruments thus
represents significant potential for the Company's new reagent development
efforts. The Company is currently developing a series of highly sensitive
immunoassays for the Dimension RxL platform, cardiac markers for the point-of-
care Stratus Cardiac System (Stratus CS), new acute phase protein markers like
Cystatin C and SAA for the nephlometer platforms, as well as new and updated
identification and antibiotic susceptibility panels for the MicroScan
platforms. In addition, the Company is investing in new and enhanced tests for
its hemostasis platforms as well as a next generation Hepatitis B Surface
Antigen and new combined antibody/antigen HIV tests to expand the infectious
disease product line menu.
Next Generation Platform Development
The Company is committed to continued investments in new platform
development to maintain its competitive advantage. 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
significant enhancements to its clinical chemistry and microbiology
instruments that will further automate the laboratory and support total system
cost reduction.
As part of the next generation of the clinical chemistry instrument, the
Company has invested in the concept of enhanced productivity through
workstation consolidation. The Company has developed an immunochemistry module
that has become an integrated component of the Dimension RxL platform creating
the first platform capable of performing highly sensitive heterogeneous
immunoassays along with routine chemistry, specialty tests, electrolytes, and
metabolites. The Company is investing in on-line centrifugation technology to
reduce excess sample handling and transportation time, increased use of
sensor-based technology to enhance instrument efficiency, and a number of
additional features that will enhance the product offering. The Company is
also supporting the development of enhanced automation for the MicroScan
WalkAway platforms to improve the sample handling process for the microbiology
laboratory.
The Company also markets two new high-end automated platforms, one for the
plasma protein product line, the second for the hemostasis segment. Current
new product initiatives include platform systems that are designed to meet the
needs of the smaller volume customer for the plasma protein, Syva and
hemostasis product lines.
Niche Platform Development
In addition to improvements in the existing portfolio of instruments, the
Company continues to seek out new opportunities through the focused
development of certain niche instruments. Such products include the recently
introduced Platelet Function Analyzer (PFA-100). The PFA-100 is an instrument
that automates the testing of platelet function and provides a quantifiable
measurement of platelet function. Like most IVD instrument systems, the PFA-
100 uses proprietary reagents and consumables designed exclusively for this
instrument. The Company is also investing in the development of the Stratus CS
which is designed to address the need for rapid measurement of cardiac-
specific markers in the emergency room and other near-patient care
environments, as well as the central laboratory.
CUSTOMERS
The Company has a broad customer base that includes primarily hospital and
reference laboratories. The Company sells its products worldwide and derives
46% of its revenue from outside the United States. No end-consumer represents
more than 4% of the Company's sales. Sales to Allegiance Healthcare
Corporation, the Company's U.S. distribution for certain product lines,
represented 26% of the Company's sales.
9
<PAGE>
SALES, DISTRIBUTION AND MARKETING
The Company employs over 2,300 people in its worldwide sales group,
comprised of field sales representatives, manager's, clinical application
specialists ("CASs") and field service representatives. Field sales
representatives are the traditional salesforce and are organized by product
line. The CASs provide troubleshooting in the field, customer training, and
conduct workshops and seminars. The CASs are also organized by major product
lines. Field service representatives install instruments at customer locations
and provide maintenance and service work on the instuments.
In the United States, the Company maintains sales offices in twelve cities.
The Company maintains thirty sales offices outside the U.S.
In the United States, this sales organization works closely with the
Company's chief domestic distributor, Allegiance Healthcare Corporation
("Allegiance", Baxter's distributor successor), whose approximately 400 highly
trained distribution professionals are capable of generating sales leads and
important interactions with hospital decision makers. Together with the
Company's domestic field salesforce, this team is capable of developing strong
relationships with thousands of customers. In addition to sales prospecting,
Allegiance also provides routine distribution and delivery functions such as
order entry, invoicing, customer service, database management and physical
warehousing and delivery. Chemistry and Syva products are sold directly to
customers in the U.S. without an intervening distributor.
In addition to its worldwide sales group, the Company employs approximately
350 marketing personnel worldwide with extensive knowledge and understanding
of industry issues, market trends, customer needs and competitive dynamics.
INSTRUMENT PLACEMENTS
The Company's instruments range in retail price from $20,000 to $135,000.
Approximately one-third of the Company's instrument placements in 1997 were
sold to customers, approximately one-third were sold through third-party
lessors and the remainder were financed directly by the Company. Approximately
half of the Company's 1997 domestic instrument placements were sold to
customers with the remaining half sold through third-party lessors.
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 capital
leases, and (ii) reagent rental agreements in which Dade Behring retains title
to the instrument and recoups the cost via premiums on its reagents.
INTELLECTUAL PROPERTY
The Company owns over 3,500 United States and non-U.S. 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, Analyst, Syva, 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 3,000 United States and non-U.S. registered
trademarks, and service marks, including the Company's well-known and
respected Dade(R), Syva(R), MicroScan(R), Stratus(R), Paramax(R) and
Dimension(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.
10
<PAGE>
EMPLOYEES
As of December 31, 1997 the Company had approximately 7,400 full-time and
part-time employees, 4,550 in the United States (including Puerto Rico), 2,250
in Europe, 300 in Japan and 300 in other locations around the world. The
Company also contracted with approximately 550 temporary employees as of
December 31, 1997.
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 handling, processing, storing and disposing of hazardous
substances and wastes. The Company's operations are also subject to federal,
state, local and foreign 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.
ITEM 2. PROPERTIES.
The Company provides its customers with high quality products by controlling
each stage of production.
Below is an overview of the Company's manufacturing facilities including key
products manufactured:
<TABLE>
<CAPTION>
FLOOR
NO. OF AREA
LOCATION SITES (SQ. FT.) OWNED/LEASED PRODUCTS
- -------- ------ --------- ------------ ----------------------
<S> <C> <C> <C> <C>
Duedingen, Switzerland..... 2 184,700 1 Owned Immunohematology
1 Leased
Miami, Florida............. 2 420,900 Owned Hemostasis, Chemistry,
Controls
Sacramento, California..... 2 236,900 1 Owned Microscan
1 Leased
Glasgow, Delaware.......... 1 447,000 Owned Chemistry
Newtown, Connecticut....... 1 22,000 Leased Chemistry
Cupertino, California...... 1 110,000 Leased Syva
Westwood, Massachusetts.... 1 155,000 Leased Chemistry,
Immunochemistry
Marburg, Germany........... 3 320,000 1 Owned Hemostasis,
2 Leased Plasma Proteins,
Immunochemistry
Scoppito, Italy............ 1 14,000 Leased Plasma Proteins
Kawagoe, Japan............. 1 29,000 Leased Plasma Proteins
--- ---------
15 1,939,500
=== =========
</TABLE>
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
None.
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below are selected historical financial data of the Predecessor
and the Company as of the dates and for the periods shown. The selected
historical financial data as of December 31, 1994, December 31, 1995, December
31, 1996 and December 31, 1997, for the period from December 17, 1994 through
December 31, 1994 and for the three years ended December 31, 1997 were derived
from the Company's financial statements, which, except for data as of December
31, 1994 and 1995 and for the period from December 17, 1994 through December
31, 1994, are included elsewhere in this Form 10-K. The selected historical
financial data as of December 31, 1993 and the year then ended and for the
period from January 1, 1994 through December 16, 1994 were derived from the
Predecessor's financial statements, which were audited by Price Waterhouse LLP
and do not appear in this Form 10-K. 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 Consolidated Financial
Statements and accompanying notes thereto included elsewhere in this Form 10-
K.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) COMPANY(1)
------------------- ---------------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
1/1/94 TO 12/17/94 TO 1/1/94 TO
1993 12/16/94 12/31/94(2) 12/31/94 1995(2)(3) 1996(6) 1997(7)
------ ----------- ----------- ----------- ---------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $690.2 $650.6 $19.0 $669.6 $614.3 $ 795.8 $ 980.5
Cost of sales........... $420.8 $391.4 $18.6 $410.0 $368.6 $ 444.1 $ 654.1
Gross profit............ $269.4 $259.2 $ 0.4 $259.6 $245.7 $ 351.7 $ 326.4
Marketing and
administration
expenses............... $179.2 $173.2 $ 2.4 $175.6 $171.1 $ 255.5 $ 366.8
Research and development
expenses............... $ 47.2 $ 33.4 $ 1.1 $ 34.5 $ 26.5 $ 138.0 $ 61.7
Goodwill amortization
expense (credit)....... $ 2.6 $ 2.6 $(0.1) $ 2.5 $ (0.4) $ 3.3 $ 5.4
Restructuring and
downsizing costs(4).... $ 30.2 $ -- $ -- $ -- $ -- $ 15.0 $ 40.1
Income (loss) from
operations............. $ 10.2 $ 50.0 $(3.0) $ 47.0 $ 48.5 $ (60.1) $(147.6)
Extraordinary items..... $ -- $ -- $ -- $ -- $ -- $ (25.0) $ --
Cumulative effect of
change in accounting
principles(5).......... $ (3.3) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)....... $ (1.9) $ 35.8 $ 1.9 $ 33.9 $ 12.7 $(105.3) $(142.6)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
1993 1994 1995 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Total assets............................. $710.6 $696.2 $550.9 $1,005.1 $1,510.4
Long-term liabilities.................... $ 37.9 $300.3 $297.9 $ 807.9 $ 875.1
</TABLE>
- --------
(1) The financial data of the Predecessor and the Company were prepared on
different bases of accounting.
(2) Financial data for the period from December 17, 1994 to December 31, 1994
and for the year ended December 31, 1995 exclude the results of the
Bartels and Burdick & Jackson product lines, which have been reflected as
"Net assets held for sale."
(3) The Company's stockholder's equity 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 to cost of goods sold
12
<PAGE>
related to the write-off of the $46.0 million of allocated purchase price
made to record acquired finished goods and work-in-process inventory at fair
market value. The Company's stockholder's equity and net income for the year
ended December 31, 1995 include the non-recurring pre-tax write-off of the
remaining $40.4 million of the inventory write-up discussed above.
(4) 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. In 1996, a $15.0 million restructuring charge was recorded
related to a plan to eliminate redundancies and rationalize production
capacity in connection with the Chemistry Acquisition. In 1997, the
Company recorded a $40.1 million restructuring charge to consolidate
manufacturing and distribution operations and eliminate redundant sales,
service and administrative functions.
(5) 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."
(6) The pre-tax loss for the year ended December 31, 1996 reflects the
following pre-tax charges resulting from purchase accounting for the
Chemistry Acquisition and other items: (i) a charge to cost of goods sold
for $24.8 million of allocated purchase price to record work-in-process
and finished goods inventories to fair market values, (ii) a $15.0 million
restructuring charge designed to lower operating costs, increase
efficiency, and eliminate redundant operations, (iii) a $98.1 million
charge to research and development expense for acquired research and
development projects which does not have alternative applications or
separable economic value, and (iv) a $9.5 million charge to cost of goods
sold to establish a reserve for excess spare parts inventories related to
the Paramax product line.
(7) The net loss for the year ended December 31, 1997 reflects the following
pre-tax charges resulting from application of purchase accounting for the
Behring Combination related to the following: (i) a charge to cost of
goods sold for $171.4 million of allocated purchase price to record
acquired finished goods and work-in process inventories to fair market
values, (ii) a $40.1 million restructuring charge to consolidate
manufacturing and distribution operations and eliminate redundant sales,
service and administrative functions, (iii) a $1.1 million charge to
research and development expense for acquired research and development
projects which do not have alternative applications or separable economic
value, (iv) $33.5 million of charges related to distribution costs,
increased inventory reserves resulting from plant closures and non-core
product transition costs, (v) $11.4 million of stock-based compensation
charges related to grants of stock options and purchase rights, and (vi)
$2.0 million of integration costs associated with the Behring Combination.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information should be read in conjunction with the Consolidated
Financial Statements included herein. Certain statements included in this
discussion are forward-looking, such as statements relating to estimates of
operating and capital expenditure requirements, future revenue and operating
income levels, and cash flow and liquidity. Such forward-looking statements
are based on Management's current expectations and are subject to a number of
risks and uncertainties that could cause actual results in the future to
differ significantly from the results expressed or implied in any forward-
looking statements made by, or on behalf of, the Company. These risks and
uncertainties include, but are not limited to, uncertainties relating to
global economic and business conditions, governmental and regulatory policies,
and the competitive environment in which the Company operates.
COMPARABILITY
Comparisons drawn from the Company's Consolidated Financial Statements for
1995 through 1997 are impacted by the Dade Acquisition effective December 16,
1994, the Chemistry Acquisition effective May 1, 1996 and the Behring
Combination effective October 1, 1997. These transactions were accounted for
under the purchase method and accordingly their respective results have been
included in the Consolidated Financial Statements from the date of
acquisition. Certain significant purchase accounting related and other items
impacting comparability include:
1997
. A $171.4 million charge was recorded to cost of goods sold related to the
step-up to fair value of work-in-process and finished goods inventory in
connection with the purchase price allocation for the Behring Combination.
. A $40.1 million restructuring charge was recorded to consolidate
manufacturing and distribution operations and eliminate redundant sales,
service and administrative functions.
13
<PAGE>
. $1.1 million was charged to research and development expense upon
consummation of the Behring Combination pertaining to purchase price
allocated to acquired research and development projects which have no
alternative future use.
. $33.5 million of charges were recorded including $12.2 million charged to
cost of goods sold primarily for distribution costs and increased inventory
reserves resulting from the Miami plant closure actions and $21.3 million
charged to marketing and administrative expense related primarily to the
transition of the Stratus non-cardiac and Paramax product lines.
. $11.4 million of stock-based compensation charges were recorded related to
grants of stock options and purchase rights.
. $2.0 million of integration costs associated with the Behring Combination.
1996
. A $24.8 million charge was recorded to cost of goods sold related to the
step-up to fair value of work-in-process and finished goods inventory in
connection with the purchase price allocation for the Chemistry
Acquisition.
. A $15.0 million restructuring charge was recorded to operating expense in
connection with a restructuring plan designed to lower operating costs,
increase efficiency and eliminate redundant operations.
. The Company recorded a $98.1 million charge to research and development
expense upon consummation of the Chemistry Acquisition pertaining to
purchase price allocated to in-process research and development projects
that have no alternative future use.
. Two extraordinary charges totaling $25.0 million after-tax were made 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 fees.
. A $9.5 million charge to cost of goods sold was recorded to establish a
reserve for excess inventories related to the Paramax product line. This
non-cash charge was a direct result of the Chemistry Acquisition and the
decision to designate the Paramax product line as non-core.
. The elimination of the reporting period lag for the Company's international
operations added $12.3 million to the sales for the year ended December 31,
1996. The change in reporting period did not significantly impact earnings.
1995
. $40.4 million was charged to cost of goods sold related to the $46.0
million non-recurring step-up to fair value of work-in-process and finished
goods inventory in connection with purchase price allocation for the Dade
Acquisition.
Results of Operations
1997 Compared to 1996
Net sales for 1997 were $980.5 million, an increase of $184.7 million or
23.2% over 1996. The increase was attributable primarily to the inclusion of
sales from the Behring Combination during the three months of ownership in
1997 and the inclusion of twelve months of sales from the Chemistry
Acquisition (versus eight months of sales in 1996). The strong U.S. dollar
reduced international sales by $45.3 million in 1997 versus 1996.
Gross profit for 1997 totaled $510.0 million as compared to $386.0 million
in 1996, after adjusting for the following items impacting comparability; in
1996, the $24.8 million purchase accounting inventory step-up impact, the $9.5
million charge to establish a reserve for excess Paramax inventories recorded
and in 1997, the $171.4 million purchase accounting inventory step-up and the
$12.2 million charge related primarily to distribution costs and to increased
inventory reserves resulting from the Miami plant closure actions recorded in
14
<PAGE>
1997. The $124.0 million increase in gross profit over 1996 exclusive of the
above impact was due to the inclusion of twelve months of results of the
Chemistry Acquisition, as compared to only eight months of activity in 1996,
three months of results of the Behring Combination, as well as the ongoing
realization of manufacturing cost reduction initiatives and a shift toward
higher margin products. The strong U.S. dollar reduced gross profit by $24.9
million in 1997 versus 1996. Gross margins for 1997 improved to 52.0% as
compared to 48.5% in 1996 exclusive of the above adjustments.
Marketing and administrative expense for 1997 totaled $345.5 million,
excluding $21.3 million of non-recurring charges primarily related to the
transition of non-core product lines, as compared to $255.5 million in 1996.
The increase is due to the inclusion of twelve months of activity from the
Chemistry Acquisition as compared to only eight months of activity in 1996 and
the inclusion for 1997 of three months of operations from the Behring
Combination and non-recurring costs related to the integration of Behring,
offset by cost reduction programs and lower international expenses resulting
from the strength of the U.S. dollar.
Research and development increased by $20.7 million or 51.9% in 1997 as
compared to 1996 exclusive of $98.1 million purchase accounting write-off of
in-process research and development projects related to the Chemistry
Acquisition in 1996 and the $1.1 million purchase accounting write-off of in-
process research and development projects related to the Behring Combination
in 1997. The increase is attributable to twelve months of operations from the
Chemistry Acquisition as compared to only eight months of activity in 1996,
three months of operations from the Behring Combination, offset partially by
realized cost synergies. Research and development expenditures are primarily
focused on supporting projects that are expanding test menus, developing the
next generation Dimension RxL clinical chemistry instrument platform and
developing a new point-of-care cardiac instrument platform.
During 1997, the Company recorded a $40.1 million restructuring charge and
allocated $77.7 million of the Behring Combination purchase price related to a
restructuring plan to consolidate manufacturing and distribution operations
and eliminate redundant sales, service and administrative functions. The
restructuring plans include actions to close the Miami and Westwood
manufacturing facilities, consolidate and reorganize the global sales,
marketing and R&D organizations and eliminate administrative redundancies.
Net interest expense for the year ended December 31, 1997 was $87.8 million
as compared to $65.6 million for 1996. The increase is attributable to a full
year of Chemistry Acquisition debt service recorded (versus eight months in
1996), offset partially by lower borrowing rates.
Other income of $9.0 million in 1997 includes a gain of $9.5 million for a
settlement with a supplier for non-performance under a contractual agreement
partially offset by foreign currency transaction losses.
An income tax benefit of $83.8 million (an effective rate of 37%) was
recorded in 1997. The Company's pre-tax loss of $226.4 million was caused by
purchase accounting related adjustments of $171.4 million for inventory step-
up and $1.1 million for the write-off of in-proceess research and development
projects with no alternative future use, the restructuring charge of $40.1
million and the other non-recurring charges of $33.5 million. At December 31,
1997, the Company had a net deferred tax asset of $383.1 million. In assessing
the realizability of the deferred tax asset, management has analyzed the
Company's forecast of future taxable income by jurisdiction and other relevant
factors and has concluded that recoverability of the net deferred tax asset is
more likely to occur than not. The realization of the deferred tax asset is
not dependent upon material improvement over the Company's forecast level of
pre-tax income, significant changes in the current relationship between income
reported for financial and tax purposes, or material asset sales or other
transactions not in the normal course of business.
For the year ended December 31, 1997, the Company had a net loss of $142.6
million as compared to a net loss of $105.3 million in 1996. The net loss in
1997 was due to the effects of purchase accounting, restructuring charges,
increased interest expense related to a full year of Chemistry Acquisition
debt service, non-recurring operating charges, incremental and duplicative
operating costs and integration costs.
15
<PAGE>
For the year ended December 31, 1997, the Company's EBITDA was $176.0
million, as compared to $126.5 million for 1996. The increase over 1996 is
attributable to the full year of operations from the Chemistry Acquisition and
three months of operations from the Behring Combination and realization of
cost synergies from the integration of the Chemistry and Behring operations.
Foreign currency exchange rate fluctuations had an adverse impact of $9.2
million on EBITDA during 1997 versus 1996. EBITDA, which is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness, represents the sum of net loss, depreciation and amortization,
the purchase accounting write-offs related to inventory step-up and in-process
research and development with no alternative future use, noncash stock-based
compensation expense, integration expenses, restructuring and other non-
recurring operating charges and other noncash charges. EBITDA should not be
considered as an alternative to net income as a measure of a Company's
operating results or to cash flows as a measure of liquidity.
1996 Compared to 1995
Net sales for 1996 were $795.8 million, an increase of $181.5 million or
29.5% over 1995. The increase was attributable primarily to the Chemistry
Acquisition (particularly the Dimension system), which added $228.6 million of
revenues during the eight months of ownership in 1996. The growth in net sales
was also supported by the Company's other core product lines: microbiology,
immunochemistry, hemostasis and TQC. Sales of the Stratus cardiac
immunochemistry product line showed significant strength increasing $15.4
million or 36.4% over 1995. In connection with the Chemistry Acquisition, the
Paramax and Stratus non-cardiac product lines were designated as non-core due
to product line overlap and to better position and leverage the Company's
product offerings in the cardiac market. Sales of these two non-core product
lines declined in 1996, with combined sales slipping by $61.5 million from
1995 levels. Also impacting sales in 1996 was the adverse impact of foreign
currency exchange as the U.S. dollar strengthened against most other
currencies; the impact in 1996 was to reduce sales by $6.0 million.
Cost of sales increased $75.5 million or 20.5% from 1995 to 1996. Excluding
the non-recurring impacts of the purchase accounting inventory step-ups in
1995 and 1996, and the impact of the Paramax inventory reserve, the increase
was $81.6 million. Gross margins, after giving effect to the above
adjustments, increased from 46.6% in 1995 to 48.5% in 1996. The increase in
gross margins is attributable to the Chemistry Acquisition and successful
initiatives in 1996 to reduce manufacturing costs, offset partially by a
competitive pricing environment and higher levels of depreciation expense.
Marketing and administrative expenses increased by $84.4 million or 49.3% in
1996 as compared to 1995. The majority of this increase is related to the
Chemistry Acquisition, with the balance due to incremental and duplicative
expenses incurred to establish stand-alone finance, information systems and
human resources functions, as the Company prepared for the termination of the
transition services arrangements with Baxter and DuPont.
Research and development expenses increased 50.6% to $39.9 million during
1996, net of the $98.1 million non-recurring write-off of in-process research
and development projects related to the Chemistry Acquisition. This increase
is attributable to eight months of incremental research and development for
the Chemistry product line. Significant research and development expenditures
in 1996 supported the development of the next generation Dimension RxL
instrument, the Platelet Function Analyzer and a new cardiac instrument
platform. Lower research and development expense levels were incurred related
to the de-emphasized Paramax product line.
During 1996, the Company accrued restructuring charges of $15.0 million in
connection with a restructuring plan designed to lower operating costs,
increase efficiency and eliminate redundant operations. Additional
restructuring reserves of $15.0 million were established through the
allocation of the Chemistry Acquisition purchase price. The plan includes
actions to close two production facilities, reorganize the domestic field
service function, downsize operations in Canada, and eliminate international
management and marketing organizational redundancies. A total of 718 positions
were identified for elimination as part of these actions, which are expected
to be substantially completed in 1997.
16
<PAGE>
Interest expense for the year ended December 31, 1996 was $65.6 million as
compared to $30.8 million for 1995. The increase is related to the eight
months of increased indebtedness incurred by the Company to finance the
Chemistry Acquisition. Partially offsetting the higher borrowing levels was
the impact of lower rates on the Company's 11 1/8% subordinated notes as
compared to the 13% notes outstanding during 1995.
Other income in 1996 includes a $2.7 million loss from a write-down of an
investment in marketable equity securities, a gain of $2.8 million related to
the settlement of a patent litigation matter, a loss on the sale of "Net
assets held for sale" of $2.8 million and foreign currency transaction gains
of $1.4 million.
Income tax benefit of $45.4 million (an effective rate of 36.1%) was
recorded for 1996. The Company's pre-tax loss of $125.7 million was primarily
caused by the purchase accounting adjustments related to the Chemistry
Acquisition as described above. At December 31, 1996 the Company had a net
deferred tax asset of $214.7 million.
In connection with the refinancing required for the Chemistry Acquisition, a
premium was paid to retire the senior subordinated notes and previously
deferred financing fees were written off. An extraordinary, net of tax loss of
$25.0 million was recorded in the second quarter to reflect the impact of
these transactions.
For the year ended December 31, 1996 the Company had a net loss of $105.3
million as compared to net income of $12.7 million in 1995. The net loss was
due to the impacts of purchase accounting, increased interest expense related
to the increased level of indebtedness, restructuring charges and incremental
and duplicative operating costs related to the establishment of stand-alone
capabilities. Excluding the impact of purchase accounting, extraordinary
losses and restructuring charges, the Company's 1996 net income would have
been $7.8 million.
Financial Condition and Liquidity
The Company's primary liquidity requirements are for working capital,
capital expenditures, restructuring expenditures and debt service. At December
31, 1997, the Company's entire $105.0 million revolving credit facility, as
well as $115.7 million under various non-U.S. credit lines were available.
(See further discussion in the notes to the consolidated financial
statements.)
Capital expenditures, including instrument placements in customer locations,
totaled $68.4 million in 1997, compared to $57.3 million in 1996. The increase
reflects the impact of a full year of ownership of Dade Chemistry, three
months ownership of Behring, investment in reagent rental agreements (in which
the Company retains title to an instrument and recoups the investment through
premiums on reagents over a multi-year period) and incremental investments for
stand-alone infrastructure needs, particularly in the area of information
systems. Capital expenditures in 1998 are expected to exceed 1997 levels due
primarily to a full year of activity related to the Behring Combination.
Based on preliminary study, the Company expects to spend approximately $15.0
million to $17.0 million from 1997 through 1999 to replace or modify certain
computer information systems to enable proper processing of transactions
relating to the year 2000 and beyond. The Company continues to evaluate
appropriate courses of corrective action. The Company does not expect the
amounts required to be charged to operations over the next two years to have a
material effect on its financial position or results of operations. The amount
expensed in 1997 was not significant.
Management believes cash from operating activities and the available
revolving credit facility will be sufficient to permit the Company to meet its
financial obligations and fund its operations and planned investments.
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
17
<PAGE>
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.
Outlook
Management expects sales and operating income growth in 1998 over 1997
reflecting full results of the Behring Combination and the realization of
synergies. Revenue growth domestically is subject to a relatively competitive
pricing environment, with an increasing level of influence by large buying
groups. Management believes the Company's broad product line offering and
extensive sales and service infrastructure position it well in such an
environment. Sales results outside the United States are subject to
significant influence by foreign currency exchange rates.
Continued growth by the Dimension product line is anticipated as the new
heterogenous module for immunoassay testing was launched in late 1997. In
addition, the launch of the new point-of-care Stratus CS platform, the new CA-
500 Hemostasis instrument positioned for smaller hospitals and the
introduction of new assays will further contribute to sales growth. Management
expects continued declines across mature product lines (such as Paramax and
Stratus non-cardiac) as the Company continues its successful strategy of
migrating customers from these non-core product lines to newer platforms (e.g.
Dimension).
The Company expects to achieve significant productivity gains in 1998 from
the integration of the Behring Combination. Synergies will be achieved from
the closure of the Miami, Florida and Westwood, Massachusetts facilities,
consolidation of country sales and service organizations, elimination of
duplicative administrative functions and the elimination of overlapping R&D
projects.
ITEM 8. FINANCIAL STATEMENTS.
See the attached Consolidated Financial Statements (pages F-1 through F-28).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers and directors of Dade Behring are as follows
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven W. Barnes...................... 37 President, Chief Executive Officer
and Director
James W. P. Reid-Anderson............. 38 Chief Administrative Officer,
Chief Financial Officer and Director
Robert W. Brightfelt.................. 55 Group President, Chemistry
and Director
Friedhelm Blobel...................... 49 Group President, Biology
John Sullivan......................... 58 President, Syva
Robert W. Kleinert.................... 46 Executive Vice President
Marc N. Casper........................ 29 Executive Vice President
Thomas E. Hill........................ 47 Senior Vice President
of Human Resources
Scott T. Garrett...................... 48 Director
Mark E. Nunnelly...................... 39 Director
Stephen G. Pagliuca................... 43 Director
Adam Kirsch........................... 36 Director
John P. Connaughton................... 32 Director
Joseph H. Gleberman................... 39 Director
</TABLE>
Steven W. Barnes served as the Company's President of Global Products and
Chief Operating Officer beginning in 1996, and was appointed President, Chief
Executive Officer and Director in 1997. In 1996 and 1997 Mr. Barnes was
Executive Vice President of Bain Capital where he was responsible for several
portfolio companies including Dade Behring Inc. and Claricom, Inc., where he
served as President and Director. From 1988 to 1996 Mr. Barnes served various
positions including President and Director of the Holson Burnes Group, Inc.
and from 1982 to 1988 Mr. Barnes served various positions with Price
Waterhouse. Mr. Barnes is also currently a Director of Claricom, Inc. and
Miltex, Inc.
James W. P. Reid-Anderson became Executive Vice President and Chief
Financial Officer in August 1996 and was subsequently promoted to Chief
Administrative Officer and Chief Financial Officer in October 1997 following
the Behring Combination. Prior to joining the Company, Mr. Reid-Anderson was
Chief Administrative Officer and Chief Financial Officer of Wilson Sporting
Goods; in addition concurrently he was 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.
Robert W. Brightfelt joined the DuPont Company in 1967 as a mechanical
engineer and served in positions of increasing responsibility in new product
development, manufacturing, R&D and plant management. In 1981, he joined the
DuPont in vitro diagnostics business as Manager of Product Management and
Strategic Planning. He was named New Product Development Manager in 1984,
Worldwide Marketing Director in 1987, and Worldwide Business Director in 1989.
Mr. Brightfelt became Executive Vice President of Dade Behring, Chemistry
Systems, effective with the close of the sale of DuPont Diagnostics to Dade
Behring in May 1996. He became Group President, Chemistry, effective with the
Behring Combination in October 1997. Mr. Brightfelt is also a member of the
Board of Directors of Molecular Biosystems, Inc. in San Diego, CA.
19
<PAGE>
Freidhelm Blobel, PhD, has more than twenty years of experience in the
diagnostics industry with Boehringer Mannheim Corporation. In his most recent
position with Boehringer Mannheim, he was Senior Vice President, Development,
Manufacturing and Quality within the Patient Care Division. Dr. Blobel joined
Dade Behring as Group President, Biology following the merger in October 1997.
He was previously Chief Technology Officer and Head of Worldwide Product
Supply and Technology of Behring.
John Sullivan was formerly the President and CEO of Behring Diagnostics,
Inc. and Head of Worldwide Business Development for Behring and subsequently
became President, Syva following the Behring Combination. Mr. Sullivan has
spent over 30 years in management and executive positions at United Carbon,
Celanese Fibers, Inc. and Hoechst Celanese.
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 has been responsible for
Hemostasis, Controls, Immunohemotology, Baxter Equipment and Burdick &
Jackson. Additional duties have included the global regional sales
organization of Europe, Japan, North America and worldwide field operations.
Mr. Kleinert is currently responsible for U.S. sales and service.
Marc N. Casper joined Dade Behring in January 1997 with responsibility for
the international sales organization and international country operations.
Prior to joining the Company, Mr. Casper was an Associate with Bain Capital
and worked with the Company as a member of Bain Capital's Portfolio Management
Group. Mr. Casper has also worked as a strategy consultant at Bain & Company
where he held several positions of increasing responsibility. Following the
merger, Mr. Casper has responsibility for the regional sales organizations and
country operations in Europe, Asia and Intercontinental, which includes
Canada, Latin America and South America.
Thomas E. Hill, PhD, served as the Predecessor's Senior 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 Personnel 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.
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. Mr.
Garrett served as Chief Executive Officer from 1994-1997. 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. Mr. Garrett resigned from
the Company effective October 31, 1997.
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 Corporate Software and Technology, The Learning
Company, SR Research and DoubleClick.
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, Wesley Jessen and
Vivra Specialty Partners.
20
<PAGE>
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 Therma Wave, Wessley Jessen, Stage Stores and Brookstone.
John P. Connaughton has been a Managing Director of Bain Capital since 1997
and a member of the firm since 1989. Prior to joining Bain Capital in 1989,
Mr. Connaughton was a consultant at Bain & Company where he worked in consumer
products and healthcare strategy consulting. Following the Chemistry
Acquisition, Mr. Connaughton became a Director of the Company.
Joseph H. Gleberman is a Managing Director in the Principal Investment Area
of Goldman, Sachs & Co. He joined Goldman Sachs in 1982 in the Mergers and
Acquisitions Department. 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., Biofield Corporation and several
privately-held companies.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ------------------------------------------
NAME AND PRINCIPAL OPTIONS(3)/ LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($) SAR(#) PAYMENTS($)(4) COMPENSATION($)
------------------ ---- --------- -------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steven W. Barnes........ 1997 -0- -0- 180,000
President, Chief
Executive Officer and
Director (1)
Scott T. Garrett........ 1997 377,648 188,800 44,776 3,200 (5)
Director (2) 15,900 (6)
11,648 (7)
250,000(10)
1996 310,602 55,650 -0- 4,500 (5)
13,368 (6)
9,900 (7)
1995 297,480 285,000 129,000 4,500 (5)
9,750 (6)
James W.P. Reid-
Anderson............... 1997 330,000 178,500 49,850 5,755 (6)
Chief Administrative
Officer, 29,230 (8)
Chief Financial Officer
and Director 1996 116,769 148,500 69,000
Robert W. Kleinert...... 1997 240,824 85,000 17,910 3,200 (5)
Executive Vice
President 8,973 (6)
7,756 (7)
1996 202,862 32,680 -0- 3,200 (5)
6,914 (6)
6,300 (7)
1995 198,707 177,600 29,230 11,870 3,200 (5)
3,586 (6)
Robert W. Brightfelt.... 1997 233,538 95,000 17,910 3,200 (5)
Group President, 2,881 (6)
Chemistry and Director 18,076 (9)
1996 134,700 30,933 42,000
Marc N. Casper.......... 1997 190,903 107,500 55,000 9,969 (7)
Executive Vice
President
</TABLE>
- --------
1. Effective October 1997, Mr. Barnes became CEO. Mr. Barnes' current annual
base salary is $350,000. Mr. Barnes' salary and bonus were paid by Bain
Capital through December 31, 1997.
2. Mr. Garrett resigned as CEO in October 1997.
3. The options were granted under Holdings' Executive Management Equity Plan.
4. The Predecessor issued value rights under the Baxter Diagnostics Inc.
Long-Term Incentive Plan. No new Value Rights were issued in 1996 or 1995.
Dade Behring'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 Behring met EBITDA targets in 1995 and 1996. Dade
Behring met its 1995 EBITDA targets and, as a result, half of the value
rights were paid out. The EBITDA target was not reached in 1996 and,
accordingly, all value rights expired as of December 31, 1996.
5. Reflects amounts contributed by Dade Behring for the benefit of the named
executive officers under the Savings Investment Plan.
22
<PAGE>
6. Reflects amounts contributed by Dade Behring for the benefit of the named
executive officers under the Deferred Compensation Plan.
7. Reflects amounts contributed by the Company for an automobile allowance.
8. Reflects amounts provided by the Company for home leave allowance.
9. Reflects payment by the Company and reimbursed by DuPont for vacation
accrued under the DuPont vacation bank policy.
10. Mr. Garrett resigned as CEO effective October 31, 1997. As part of a
separation agreement, he received a payment of $250,000 in November 1997.
He will also receive $41,667 per month from January 1, 1998 through
December 31, 1998, and $16,667 per month from January 1, 1999 to December
31, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION OF
INDIVIDUAL GRANTS OPTION TERMS(1)
----------------------------------------------------------- -----------------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO EMPLOYEES EXERCISE OR
UNDERLYING IN FISCAL BASE PRICE EXPIRATION
NAME OPTIONS GRANTED(2) YEAR ($/SH) DATES 5% 10%
- ---- ------------------ ------------ ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven W. Barnes........ 180,000 18.8% $16.00 October 1, 2008 $13,979,059 $23,965,234
Scott T. Garrett........ 22,388 18.6% $ 7.00 January 1, 2008 $ 1,940,176 $ 3,182,235
22,388 18.6% $16.00 January 1, 2008 $ 1,738,684 $ 2,980,743
James W.P. Reid-
Anderson............... 14,925 12.4% $ 7.00 January 1, 2008 $ 1,293,422 $ 2,121,442
14,925 12.4% $16.00 January 1, 2008 $ 1,159,097 $ 1,987,117
20,000 2.1% $16.00 October 1, 2008 $ 1,553,229 $ 2,662,804
Robert W. Brightfelt.... 8,955 7.4% $ 7.00 January 1, 2008 $ 776,053 $ 1,272,865
8,955 7.4% $16.00 January 1, 2008 $ 695,458 $ 1,192,270
Robert W. Kleinert...... 8,955 7.4% $ 7.00 January 1, 2008 $ 776,053 $ 1,272,865
8,955 7.4% $16.00 January 1, 2008 $ 695,458 $ 1,192,270
Marc N. Casper.......... 20,000 23.1% $ 4.00 January 1, 2008 $ 1,793,229 $ 2,902,804
15,000 12.5% $ 7.00 January 1, 2008 $ 1,299,922 $ 2,132,103
15,000 12.5% $16.00 January 1, 2008 $ 1,164,922 $ 1,997,103
5,000 .4% $34.50 October 1, 2008 $ 295,807 $ 573,201
</TABLE>
The following table sets forth information concerning the option grants by
Holdings in 1997 to each of the named executive officers:
- --------
1. These amounts represent certain assumed rates of appreciation over a ten
year period utilizing annual rates of appreciation of 5% and 10%, in
accordance with rules of the Securities Exchange Commission. Holdings'
Common Stock is not publicly traded. The assumed fair values of Holdings'
Common Stock (as defined herein) and Class L Common (as defined herein) are
$57.50/share and $107.00/share, respectively, the values determined by
independent appraisal as of October 1, 1997.
2. All options were granted for shares of Holdings' Common Stock (as defined
herein) pursuant to the Holdings' Executive Management Equity Plan.
3. The stock options expire earlier upon the termination of the employee.
23
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
COMPANY
---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1)
---- --------------- -----------
<S> <C> <C>
Robert W. Brightfelt.......................... 3,600 $50,400
</TABLE>
- --------
1. Holdings' Common Stock is not publicly traded. The assumed fair values of
Holdings Common Stock (as defined) as of the date of the exercise (May 28,
1997) was $18.00/share.
PENSION PLAN BENEFITS
Effective January 1, 1997, Dade Behring transitioned its pension plan from a
final average pay to a cash balance plan design. Under the Dade Behring Cash
Balance Plan (the Plan), credits to an eligible participant's account are
posted to a notional account based on eligible compensation and service.
Moreover, interest credits are posted to each notional account as of the end
of each quarter at the prevailing rate of return for 10-year U.S. Treasury
bills at the end of the previous quarter.
Individuals participating in the Plan as of December 31, 1996 will continue
to accrue service and have their benefits calculated under both the final
average pay formula and the cash balance formula through June 30, 1999.
Of the named executive officers, three participated in the Plan as of
December 31, 1996. The following table sets forth anticipated annual pension
plan benefits under the final average pay formula of the Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PLAN PARTICIPATION
--------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
125,000............................ $ 32,810 $ 43,750 $ 54,680 $ 65,620 $ 76,560
150,000............................ 39,370 52,500 65,620 78,750 91,870
175,000............................ 45,930 61,250 76,560 91,870 107,180
200,000............................ 52,500 70,000 87,500 105,000 122,500
225,000............................ 59,060 78,750 98,430 118,120 137,810
250,000............................ 65,620 87,500 109,370 131,250 153,120
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............................ 118,120 157,500 196,870 236,250 275,620
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.
24
<PAGE>
As of January 1, 1998, the eligible named executive officers' years of plan
participation and Final Average Pay for purposes of calculating pension
benefits payable under the Plan are as follows: Mr. Garrett, 21 years and
$433,299, and Mr. Kleinert, 23 years and $273,512, and Mr. Brightfelt, 30
years and $283,756. Mr. Barnes, Mr. Reid-Anderson, and Mr. Casper did not
participate in the Plan as of December 31, 1996.
CASH BALANCE PLAN DESIGN
Employees with an accrued benefit in the Plan as of December 31, 1996 were
credited with an opening cash balance based on the lump-sum present value of
the final average pay formula accrued benefit. In addition, the present value
of the aforementioned accrued benefit was increased by a transitional benefit
supplement expressed as a percentage multiplier. This transitional benefit
supplement recognized the sum of age and service as of December 31, 1996, as
follows:
<TABLE>
<CAPTION>
POINTS FOR AGE PLUS SERVICE TRANSITIONAL BENEFIT SUPPLEMENT
--------------------------- -------------------------------
<S> <C>
less than 35............................ 110%
35 to 44................................ 115%
45 to 54................................ 120%
55 or more.............................. 125%
</TABLE>
As of January 1, 1997, the named executive officers had transitional benefit
supplements as follows: Mr. Barnes, $0, Mr. Garrett, $94,961, Mr. Reid-
Anderson, $0, Mr. Kleinert, $54,197, Mr. Brightfelt, $18,722, and Mr. Casper,
$0. These transitional benefits include supplements to the qualified and non-
qualified pension plans.
The following table sets forth the annual credits posted to Cash Balance
accounts:
<TABLE>
<CAPTION>
POINTS FOR AGE PLUS SERVICE AS OF COMPANY CREDITS
DECEMBER 31 OF THE PREVIOUS PLAN YEAR AS A PERCENT OF PAY
------------------------------------- -------------------
<S> <C>
Less than 35........................................ 4%
35 to 44............................................ 5%
45 to 54............................................ 6%
55 to 64............................................ 7%
65 to 74............................................ 8%
75 to 84............................................ 9%
85 or more.......................................... 10%
</TABLE>
As of December 31, 1997, the named executive officers had company and
interest credits as follows: Mr. Barnes, $0, Mr. Garrett, $67,273, Mr. Reid-
Anderson, $5,731, Mr. Kleinert, $40,565, Mr. Brightfelt, $32,509, and Mr.
Casper, $0. These credits were posted to the qualified and non-qualified
pension plans.
COMPENSATION OF DIRECTORS
Directors are not entitled to receive any compensation for serving on Dade
Behring's Board of Directors. Directors are reimbursed for their out-of-pocket
expenses incurred in connection with such services.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
Dade Behring 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,
GS
25
<PAGE>
Capital and its related investors, and Hoechst A.G. own 36.1%, 18.0%, and
31.4%, 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, GS
Capital, and Hoechst A.G. 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 Dade Behring. In 1995, 1996 and 1997,
certain members of Dade Behring's management acquired voting common stock of
Holdings, and members of Dade Behring's management are eligible to receive
additional common stock of Holdings in part based upon the operating
performance of Dade Behring.
The following tables set forth certain information as of December 31, 1997
regarding the beneficial ownership of (i) voting common stock by each person
(other than directors and executive officers of Dade Behring) known to Dade
Behring 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 Dade Behring,
each named executive officer and all of Dade Behring's directors and executive
officers as a group. To the knowledge of Dade Behring, 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)
---------------------------------------
PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL NUMBER OF OF PERCENTAGE OF
OWNER SHARES CLASS (1) CLASS-UNDILUTED (2)
- ------------------------------ --------- ---------- ------------------
<S> <C> <C> <C>
Bain Capital Entities(3) 5,960,000 36.1% 40.7%
c/o Bain Capital
Two Copley Place
Boston, Massachusetts 02116
The Goldman Sachs Group, L.P. and 2,980,000 18.0% 20.4%
related investors(4)
85 Broad Street
New York, New York 10004
Hoechst A.G. 5,188,609 31.4% 35.2%
Bruningstrasse 50
D-65929 Frankfurt a. M.
Germany
</TABLE>
- --------
1. The percentages assume that all options held by Dade Behring's management
have been exercised. Certain of the options held by Dade Behring's
management are exercisable in accordance with certain time and performance
criteria. Excludes warrant held by Hoechst A.G. to purchase 1,279,587
shares of voting Common Stock.
2. The percentages are based on ownership of outstanding shares as of December
31, 1997.
3. 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").
4. 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.
26
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
<TABLE>
<CAPTION>
COMMON STOCK CLASS L COMMON STOCK
(VOTING) (NON-VOTING)
--------------------- --------------------------
PERCENTAGE
NUMBER OF OF CLASS NUMBER OF PERCENTAGE OF
NAME OF BENEFICIAL OWNER SHARES (1) (1) SHARES (1) CLASS (1)
------------------------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Steven W. Barnes.............. 180,000 1.1% 0 0
Scott T. Garrett.............. 253,876 1.5% 8,900 0.6%
James W.P. Reid-Anderson...... 122,450 0.7% 400 --%
Robert W. Kleinert............ 92,410 0.6% 5,000 0.3%
Robert W. Brightfelt.......... 85,110 0.5% 2,800 0.2%
Marc N. Casper................ 66,250 0.4% 1,250 0.1%
Mark E. Nunnelly (2).......... 5,960,000 36.1% 662,222.22 42.7%
Stephen G. Pagliuca (2)....... 5,960,000 36.1% 662,222.22 42.7%
Adam Kirsch (2)............... 5,960,000 36.1% 662,222.22 42.7%
John P. Connaughton (2)....... 5,960,000 36.1% 662,222.22 42.7%
Joseph H. Gleberman (3)....... 2,980,000 18.1% 331,111.11 21.3%
All executive officers and
directors of Dade Behring as
a group (11 people).......... 9,740,096 65.9% 1,011,683.33 65.1%
</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 shares shown are held by the Bain Capital Entities. Messrs. Kirsch,
Nunnelly, Connaughton and Pagliuca, who serve as directors of Dade Behring,
and are managing directors 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, Connaughton and
Pagliuca may be deemed to share voting and dispositive power as to the
shares held by the Bain Capital Entities. Messrs. Kirsch, Nunnelly,
Connaughton and Pagliuca 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 the Goldman Sachs Group, L.P.
("GS Group") are the general partners or the managing general partners. Mr.
Gleberman disclaims beneficial ownership of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has a Management Services Agreement with Bain Capital and
Goldman, Sachs & Co., an affiliate of GS Capital pursuant to which the Company
will pay an aggregate annual fee of $3.0 million plus their respective out-of-
pocket expenses to Bain Capital and Goldman, Sachs & Co., 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. In
connection with the Behring Combination, the Company paid Bain Capital,
Goldman Sachs & Co. and Hoechst at closing, in aggregate, a cash financial
advisory fee of $18.8 million, plus their respective out-of-pocket expenses.
Dade Behring believes that the fees paid for the professional services
rendered are at least as favorable to the Company 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 (the
27
<PAGE>
"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.
On October 31, 1997, Holdings, Hoechst, 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 an Amended and Restated Stockholders Agreement
(the "Amended and Restated Stockholders Agreement"). The Amended and Restated
Stockholders Agreement provides certain conditions in connection with the
election of directors, transfer of stock, sale of the Company and certain
restrictions on Dade Behring's activities.
TRANSITION SERVICES AGREEMENT
Pursuant to Transition Services Agreements dated September 30, 1997, Hoechst
provides the Company with certain support services including administrative
support, warehousing and distribution services, human resource support,
information systems support, accounting support and office space. The
Transition Services Agreements have various terms from October 1, 1997 through
December 31, 1999. The Company paid $7.9 million to Hoechst related to this
agreement for the year ended December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report.
(i) See "Index to Financial Statements and Schedule" on page F-1
hereof.
(ii) See "Index to Exhibits" on page X-1 hereof.
(b) Reports on Form 8-K.
(i) On October 20, 1997, the Company filed a Current Report on Form
8-K providing information with respect to Diagnostics Holding, Inc.'s
acquisition of the stock of various subsidiaries of Hoechst A.G. and
certain of its affiliates.
(ii) On December 16, 1997, the Company filed an Amendment No. 1 to
its Current Report on Form 8-K (which was originally filed on October
20, 1997) providing Financial Statements and Pro Forma Financial
Information related to Diagnostics Holding, Inc.'s acquisition of the
stock of various subsidiaries of Hoechst A.G. and certain of its
affiliates.
(iii) On December 18, 1997, the Company filed an Amendment No. 2 to
its Current Report on Form 8-K (which was originally filed on October
20, 1997) providing corrected Financial Statements and Pro Forma
Financial Information related to Diagnostics Holding, Inc.'s
acquisition of the stock of various subsidiaries of Hoechst A.G. and
certain of its affiliates.
28
<PAGE>
DADE BEHRING INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1997. F-3
Consolidated Statements of Operations for the three years ended December
31, 1997................................................................. F-4
Consolidated Statements of Cash Flows for the three years ended December
31, 1997................................................................. F-5
Consolidated Statements of Changes in Stockholder's Equity (Deficit) for
the three years ended December 31, 1997.................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Financial Statements Schedule (Schedule II)............................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Dade Behring 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 (deficit) present fairly, in all material respects, the
financial position of Dade Behring Inc. (a wholly-owned subsidiary of Dade
Behring Holdings, Inc.) and its subsidiaries (the Company) at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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 25, 1998
F-2
<PAGE>
DADE BEHRING INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1996 1997
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ -- $ 20.5
Restricted cash.................................... -- 3.7
Accounts receivable, net........................... 183.8 359.6
Inventories........................................ 155.0 272.5
Prepaid expenses and other current assets.......... 9.6 11.9
Deferred income taxes.............................. 45.5 97.0
-------- --------
Total current assets............................. 393.9 765.2
-------- --------
Property, plant and equipment, net................... 187.0 214.5
Debt issuance costs, net............................. 42.4 37.0
Goodwill, net........................................ 135.3 135.6
Deferred income taxes................................ 171.9 286.1
Other assets......................................... 74.6 72.0
-------- --------
Total assets..................................... $1,005.1 $1,510.4
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................. $ 3.4 $ 3.7
Short-term debt.................................... 15.8 54.4
Accounts payable................................... 56.5 89.2
Accrued liabilities................................ 146.5 283.9
-------- --------
Total current liabilities........................ 222.2 431.2
-------- --------
Long-term debt, less current portion................. 436.6 416.9
Senior subordinated notes............................ 350.0 350.0
Other liabilities.................................... 21.3 108.2
-------- --------
Total liabilities................................ 1,030.1 1,306.3
-------- --------
Commitments and contingencies (Note 18).............. -- --
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding................ -- --
Additional paid-in capital......................... 87.2 468.4
Notes receivable on capital contribution........... -- (0.7)
Accumulated deficit................................ (110.3) (252.9)
Unrealized gain (loss) on marketable equity
securities........................................ 0.1 (0.1)
Cumulative translation adjustment.................. (2.0) (10.6)
-------- --------
Total stockholder's equity (deficit)............. (25.0) 204.1
-------- --------
Total liabilities and stockholder's equity
(deficit)....................................... $1,005.1 $1,510.4
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DADE BEHRING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Net sales............................................ $614.3 $ 795.8 $ 980.5
------ ------- -------
Operating costs and expenses:
Cost of goods sold................................. 368.6 444.1 654.1
Marketing and administrative expenses.............. 171.1 255.5 366.8
Research and development expenses.................. 26.5 138.0 61.7
Goodwill amortization expense...................... (0.4) 3.3 5.4
Restructuring expenses............................. -- 15.0 40.1
------ ------- -------
Income (loss) from operations........................ 48.5 (60.1) (147.6)
Other income (expense):
Interest expense, net.............................. (30.8) (65.6) (87.8)
Other.............................................. 2.2 -- 9.0
------ ------- -------
Income (loss) before income taxes.................... 19.9 (125.7) (226.4)
Income tax expense (benefit)......................... 7.2 (45.4) (83.8)
------ ------- -------
Income (loss) before extraordinary items............. 12.7 (80.3) (142.6)
Extraordinary items (net of tax benefit of $14.7):
Write-off of deferred financing fees............... -- (11.4) --
Premium on purchase of 13% senior subordinated
notes............................................. -- (13.6) --
------ ------- -------
Net income (loss).................................... $ 12.7 $(105.3) $(142.6)
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DADE BEHRING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $ 12.7 $(105.3) $(142.6)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-off of in-process research and development... -- 98.1 1.1
Depreciation and amortization expense.............. 7.7 44.1 56.6
Stock-based compensation expense................... -- -- 11.4
Other non-cash charges............................. -- -- 37.1
Write-off of deferred financing fees............... -- 18.1 --
Amortization of inventory step-up.................. 40.4 24.8 171.4
Restructuring expenses............................. -- 15.0 40.1
Non-cash write-off of excess spare parts........... -- 9.5 --
Loss on sale of "Net asset held for sale".......... -- 2.8 --
Loss on write-down of marketable equity
securities........................................ -- 2.7 --
Premium on purchase of 13% senior subordinated
notes............................................. -- 21.6 --
Deferred income taxes.............................. 1.6 (48.2) (86.1)
Changes in balance sheet items: --
Accounts receivable, net......................... (76.9) 1.0 (3.3)
Inventories...................................... 0.8 (6.9) (6.3)
Accounts payable................................. 32.2 1.5 (11.0)
Accrued liabilities.............................. 5.0 (34.2) (66.0)
Other............................................ (5.5) (11.8) 53.8
------- ------- -------
Net cash flow provided by operating activities. 18.0 32.8 56.2
------- ------- -------
INVESTING ACTIVITIES:
Acquisitions, net of acquired cash.................. -- (522.5) (0.9)
Capital expenditures................................ (35.3) (57.3) (68.4)
Proceeds from sale of fixed assets.................. (2.0) -- 0.7
Proceeds from Baxter for purchase price adjustments. 8.0 9.7 --
------- ------- -------
Net cash flow utilized by investing activities. (29.3) (570.1) (68.6)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from sale of "Net assets held for sale".... 16.5 54.8 --
Proceeds from issuance of short-term debt, net of
repayments......................................... 2.1 15.7 (0.5)
Cash dividend to parent for Behring Combination..... -- -- (34.8)
Cash dividend to parent for redemption of parent's
preferred stock from Baxter........................ (15.8) -- --
Proceeds from revolving credit facility............. 23.0 205.0 259.4
Repayment of borrowings under revolving credit
facility........................................... (23.0) (205.0) (259.4)
Proceeds from issuance of 11 1/8% senior
subordinated notes................................. -- 350.0 --
Repayment of borrowings and premium paid on 13%
senior subordinated notes.......................... -- (141.6) --
Proceeds from issuance of long-term loans........... 35.0 460.0 50.0
Repayment of borrowings under long-term loans....... (21.5) (183.5) (69.4)
Contribution from parent............................ 1.8 0.4 88.4
Debt issuance costs................................. (1.7) (46.2) (0.4)
------- ------- -------
Net cash flow provided by financing activities. 16.4 509.6 33.3
------- ------- -------
Effect of foreign exchange rates on cash............ 0.4 (0.2) (0.4)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 5.5 (27.9) 20.5
CASH AND CASH EQUIVALENTS:
Beginning of Period................................. 22.4 27.9 --
------- ------- -------
End of Period....................................... $ 27.9 $ -- $ 20.5
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest............ $ 25.0 $ 62.0 $ 92.2
======= ======= =======
Cash paid during the period for income taxes........ $ 7.7 $ 2.4 $ 7.8
======= ======= =======
Installment note to Baxter paid from restricted
cash............................................... $(200.0) -- --
======= ======= =======
Non Cash Supplemental Disclosure of Cash Flow
Information:
Acquired company contributed by parent.............. -- -- $ 316.0
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DADE BEHRING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
NOTES GAIN (LOSS) TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE ON MARKETABLE CUMULATIVE STOCKHOLDER'S
------------- PAID-IN ON CAPITAL ACCUMULATED EQUITY TRANSLATION EQUITY
SHARES AMOUNT CAPITAL CONTRIBUTION DEFICIT SECURITIES ADJUSTMENT (DEFICIT)
------ ------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................... 1,000 $-- $ 85.0 $ -- $ (1.9) $ -- $ -- $ 83.1
----- ---- ------ ----- ------- ----- ------ -------
Net income.............. 12.7 12.7
Capital contribution
from parent............. 2.0 2.0
Notes receivable on
capital contribution.... (0.2) (0.2)
Cash dividend to parent
on common stock......... (15.8) (15.8)
Unrealized 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
----- ---- ------ ----- ------- ----- ------ -------
Net loss................ (105.3) (105.3)
Forgiveness of
shareholder debt........ 0.1 0.1
Payments on notes
receivable.............. 0.1 0.1
Capital contribution
from parent............. 0.4 0.4
Recognition of other
than temporary
impairment of marketable
equity securities....... 1.1 1.1
Unrealized gain on
marketable equity
securities.............. 0.1 0.1
Cash dividend to parent
on common stock......... (0.2) (0.2)
Cumulative translation
adjustment.............. (2.5) (2.5)
----- ---- ------ ----- ------- ----- ------ -------
Balance at December 31,
1996.................... 1,000 -- 87.2 -- (110.3) 0.1 (2.0) (25.0)
----- ---- ------ ----- ------- ----- ------ -------
Net loss................ (142.6) (142.6)
Capital contribution
from parent............. 404.6 404.6
Notes receivable on
capital contribution.... (0.7) (0.7)
Cash dividend to parent
on common stock......... (34.8) (34.8)
Stock-based
compensation............ 11.4 11.4
Unrealized loss on
marketable equity
securities.............. (0.2) (0.2)
Cumulative translation
adjustment.............. (8.6) (8.6)
----- ---- ------ ----- ------- ----- ------ -------
Balance at December 31,
1997.................... 1,000 $-- $468.4 $(0.7) $(252.9) $(0.1) $(10.6) $ 204.1
===== ==== ====== ===== ======= ===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Dade Behring Inc., formerly Dade International Inc., as successor by merger
to Dade Acquisition, 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 and net assets of
Baxter Diagnostics, Inc. and certain of its affiliates (the"Predecessor"),
from Baxter International Inc. and its affiliates ("Baxter"). The Company
develops, manufactures and markets in vitro diagnostic equipment, reagents,
consumable supplies and services worldwide.
The Company is a wholly-owned subsidiary of Dade Behring Holdings, Inc.,
formerly Diagnostics Holding Inc. ("Holdings"). Bain Capital, Inc. ("Bain
Capital"), GS Capital Partners, L.P., an affiliate of the Goldman Sachs Group,
L.P. ("GS Capital"), their respective related investors, Hoechst A.G. and
certain of its affiliates ("Hoechst") and the management of the Company own
substantially all of the capital stock of Holdings at December 31, 1997.
The Dade Acquisition was completed on December 20, 1994, effective as of
December 16, 1994, under the terms of the purchase agreement between Baxter
and Holdings (Note 6). The financial statements present the consolidated
accounts of the Company.
Effective May 1, 1996, the Company acquired (the "Chemistry Acquisition")
the worldwide in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont
de Nemours and Company ("DuPont") (Note 5). The results of operations of Dade
Chemistry and the allocation of purchase price to the acquired assets and
assumed liabilities, as determined in accordance with the purchase method of
accounting, are included in the Company's consolidated financial statements
since the effective date of the Chemistry Acquisition.
Effective October 1, 1997, Holdings acquired the stock and beneficial
interest (the "Stock") of various subsidiaries of Hoechst that operate the
worldwide business of the research, development, manufacture, marketing, sale,
distribution and service of in vitro diagnostic equipment, reagents,
consumable supplies and services ("Behring") (Note 4). The Stock was
contributed to the Company (the "Behring Combination") effective October 1,
1997. The results of operations of Behring and the preliminary allocation of
purchase price to the acquired assets and assumed liabilities, as determined
in accordance with the purchase method of accounting, are included in the
Company's consolidated financial statements since the effective date of the
Behring Combination.
2. CHANGE IN NON-U.S. REPORTING PERIOD
Prior to 1996, the Company's non-U.S. operations reported financial results
on a fiscal year ending November 30. For 1995, results of non-U.S. operations
for the period from December 17, 1994 through November 30, 1995 are included
in the Company's 1995 Consolidated Statement of Operations. The omission of
one-half month of non-U.S. Operations from the Company's 1995 consolidated
results of operations are not material to the consolidated financial
statements.
Effective January 1, 1996, the Company's non-U.S. operations changed to a
calendar year-end. As a consequence, the Company's results of operations for
1996 include 13 months of non-U.S. operations' results. The Company has
designated the month of December 1995 as the "lag month" for purposes of
comparability to future periods. Non-U.S. operations during the lag month
reported net sales of approximately $12.3 million, thus increasing
consolidated net sales by this amount for the year ended December 31, 1996.
The impact on net income was not significant.
F-7
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently 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, liabilities, revenues,
expenses and related disclosures. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include all majority owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
Revenues for products sold are recognized upon shipment of products to
customers and are recorded on the basis of the sales price to such customers.
Revenues for products that are subject to a distribution agreement in the
United States are recognized upon shipment of products to the distributor or
direct shipment of the products by the Company to third party customers. Such
revenues are recorded on the basis of the estimated sales price to third party
customers (i.e., generally the end consumer) less a contractual distribution
discount to the distributor. The estimated discount recorded by the Company
may be revised in the future as actual selling price information becomes
available.
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 $0.2 million and $10.1 million invested in
short-term money market investments at December 31, 1996 and 1997,
respectively.
Accounts Receivable
Accounts receivable are net of bad debt reserves of $9.6 million and $27.7
million at December 31, 1996 and 1997, respectively. Accounts receivable are
unsecured.
Research and Development Expenses
Expenditures by the Company for research and development are expensed as
incurred.
In 1997, in connection with the Behring Combination (Note 4), $1.1 million
of the purchase price was allocated to acquired in-process research and
development for projects which have no alternative future use. Such costs were
expensed immediately following consumation of the Behring Combination.
In conjunction with the Chemistry Acquisition in 1996 (Note 5), $98.1
million of the purchase price was allocated to acquired in-process research
and development projects which have no alternative future. Accordingly, such
costs were expensed immediately following the consummation of the Chemistry
Acquisition.
F-8
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
inventory classifications, on net realizable value. Appropriate consideration
is given to deterioration, obsolescence and other factors in evaluating net
realizable value.
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>
<S> <C>
Buildings.................................................. 15 to 40 years
Machinery and equipment.................................... 3 to 15 years
Equipment placed with customers............................ 3 to 8 years
</TABLE>
Assets recorded under capital leases are amortized over the life of the
lease. Leasehold improvements are capitalized and amortized over their
estimated useful lives or over the terms of the related leases, if shorter.
Goodwill
Goodwill represents the excess cost over the fair value of net assets
acquired in connection with the Chemistry Acquisition. Goodwill at December
31, 1996 aggregated $135.3 million, net of accumulated amortization of $3.7
million, based upon the Chemistry Acquisition purchase price allocation.
Goodwill at December 31, 1997 aggregated $135.6 million, net of $9.4 million
of accumulated amortization, and reflects the finalization of the Chemistry
Acquisition purchase price allocation. Goodwill is being amortized using the
straight-line method over 25 years. The carrying value of goodwill and other
long-lived assets are reviewed for impairment when events or changes in
circumstances indicate the carrying value of the asset may not be recoverable.
This review compares projected future undiscounted cash flows before interest
to the carrying value of the asset.
Patents and Trademarks
Patents and trademarks are being amortized over their legal or estimated
useful lives, whichever is shorter (generally not exceeding 17 years). Patents
and trademarks totaled $30.0 million and $26.8 million, net of accumulated
amortization of $2.1 million and $5.3 million, at December 31, 1996 and 1997,
respectively.
Debt Issuance Costs
Debt issuance costs, which are being amortized over the applicable terms of
the Bank Credit Agreement (7 years weighted average) and 11 1/8% senior
subordinated notes (10 years), totaled $42.4 million at December 31, 1996, net
of accumulated amortization of $3.8 million and $37.0 million at December 31,
1997, net of accumulated amortization of $9.6 million.
Income Taxes
Deferred tax assets and liabilities are recognized at current tax rates for
the expected future tax consequences 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 estimated
future tax effects of deductible temporary differences and tax operating loss
and credit carryforwards. Additionally, the Company provides deferred tax
liabilities for the eventual tax effect of repatriating all unremitted
earnings of non-U.S. subsidiaries. The Company's operations are included in
Holdings' consolidated United States federal and state income tax returns.
F-9
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency Translation
The Company has determined that the local currencies of its non-U.S.
operations, except for highly inflationary economies, are their functional
currencies. Assets and liabilities of the non-U.S. subsidiaries are translated
at the year-end exchange rates. Revenues and expenses are translated at
average rates of exchange in effect during the year.
Derivative Financial Instruments
The Company utilizes derivative financial instruments for purposes other
than trading, specifically to manage its exposure to foreign currency and
interest rate fluctuations.
The Company enters into forward currency exchange contracts with highly-
rated counterparties to manage its exposure to foreign currency fluctuations
on short-term intercompany borrowing arrangements denominated in foreign
currencies. The intercompany borrowing arrangements support the underlying
working capital needs of non-U.S. subsidiaries. Premiums and discounts on
these contracts are deferred and amortized to expense over the life of the
contract. Gains and losses on forward contracts resulting from revaluations
are recorded to expense. At the maturity of the forward contracts the
currencies involved are exchanged based on the contracted exchange rate. At
December 31, 1996 and December 31, 1997, deferred amounts relating to these
contracts were 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 currency exchange contracts outstanding
were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
----- ------
<S> <C> <C>
Forward purchases............................................ $16.1 $ 79.0
Forward sales................................................ $32.5 $139.2
</TABLE>
The Company also utilizes purchased interest rate caps, for which the
Company will receive cash payments from the counterparty if an indexed rate of
interest is exceeded, to manage a portion of its exposure to interest rate
increases on its outstanding debt. The notional value of these caps was $230.0
million at December 31, 1996 and 1997. Premiums paid for the purchase of the
caps are recorded to interest expense over the life of the caps. Amounts
received, if any, are recorded as a reduction of interest expense over the
related period. As of December 31, 1996 and 1997, capitalized amounts relating
to the caps are not material to the consolidated financial statements.
Earnings (Loss) Per Share
Earnings (loss) per share is not presented for the Company as its 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 was generated by the Company's sales to
Allegiance Healthcare Corporation ("Allegiance"). This credit risk is
mitigated due to the large number of entities comprising Allegiance's
worldwide customer base and their dispersion across different regional
economies.
A number of the Company's customers operate in the hospital and reference
laboratory market, which may be subject to legislated healthcare reforms.
Additionally, at December 31, 1996 and 1997, approximately $20.2 million or
22% and $59.9 million or 17%, respectively, of the Company's non-U.S. accounts
receivable were geographically concentrated in Italy. The Company does not
expect these risk factors to have a material adverse impact on its results of
operations, financial position or liquidity.
F-10
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying values of cash equivalents and other current assets and
liabilities approximate fair value at December 31, 1996 and 1997 because of
the short maturity of these instruments.
The excess of the fair values of derivative financial instruments over
carrying values aggregated $0.2 million and $1.7 million at December 31, 1996
and 1997, respectively, using year-end published exchange rates.
The carrying value of the long-term debt of $436.6 million and $416.9
million at December 31, 1996 and 1997, respectively, approximates fair value
as the interest rate on each instrument adjusts based upon market interest
rate changes. The fair value of the $350.0 million 11 1/8% senior subordinated
notes was $379.8 and $390.3 million at December 31, 1996 and 1997,
respectively, based on the trading value at that date.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation", encourages, but does not require, the use of a
fair value method for recording compensation expense for stock-based
compensation plans. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method in accordance
with Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under the intrinsic value method,
compensation cost for stock options is based on the excess, if any, of the
fair value of the stock at the date of the grant over the amount the employee
must pay to acquire the stock.
Reclassifications
Certain reclassifications have been made to prior period balances to conform
to the current year presentation.
4. BEHRING COMBINATION
Effective October 1, 1997, Holdings completed its acquisition of Behring
from Hoechst. As consideration for the acquisition, Holdings issued equity
securities to Hoechst providing Hoechst with a 32.5% interest in Holdings and
paid $0.1 million to Hoechst at closing, which amounts are subject to
adjustments based on changes in Net Assets (as defined in the Agreement and
Plan of Contribution related to the acquisition) of Behring. The equity
securities issued to Hoechst comprise 5,702,383 shares of Holdings' Common
Stock and a warrant expiring October 1, 1999 to acquire 1,403,663 additional
shares of Holdings' Common Stock for $80.0 million. The issued shares and
warrant were valued by independent appraisal at $352.8 million and $16.1
million, respectively, as of October 1, 1997. Holdings contributed Behring to
the Company effective October 1, 1997 and the Company recorded a capital
contribution of $403.7 million, representing the aforementioned appraised
values and direct costs of the acquisition of $34.8 million. The transaction
was accounted for as a purchase and, accordingly, the operating results of
Behring have been included in the consolidated operating results since October
1, 1997. The purchase price has been preliminarily allocated to assets
acquired and liabilities assumed ($293.4 million) based on fair market values
at the date of acquisition. Since the estimated fair values of the net assets
acquired exceeded total acquisition cost, the preliminary allocation of
purchase price resulted in a prorata write-down of non-current assets,
including in-process research and development projects. The estimated fair
values are based on independent appraisals and management estimates, and are
subject to adjustments upon resolution of certain preacquisition contingencies
that may impact the value of certain assets acquired and liabilities assumed.
The following represents the unaudited pro forma results of operations of
the Company as if the Behring Combination had occurred on January 1, 1996 and
January 1, 1997, respectively, after giving effect to the
F-11
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
following adjustments: write-off of in-process research and development,
write-off of inventory step-up, decreased depreciation of property, plant and
equipment, decreased amortization of intangibles, decreased amortization of
goodwill, and related income tax effects of these adjustments (in millions):
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales......................................... $1,449.4 $1,412.1
======== ========
Income (loss) from operations..................... $ (186.5) $ (109.4)
======== ========
Loss before extraordinary items................... $ (163.9) $ (116.9)
======== ========
Net loss.......................................... $ (188.9) $ (116.9)
======== ========
</TABLE>
The unaudited pro forma results of operations presented above are not
necessarily indicative of the results that would have been obtained if the
Behring Combination had actually occurred on January 1, 1996 and January 1,
1997 and are not intended to be a projection of future results or trends.
Income (loss) from operations, includes the following significant items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Write-off of in-process research and development.. $ 99.2 $ 1.1
Write-off of inventory step-up.................... 196.2 171.4
Restructuring costs............................... 55.5 51.1
Stock-based compensation expense.................. -- 11.4
Behring transaction related employee expenses..... -- 13.9
International lag month........................... (2.4) --
Non-cash charge for excess spare parts............ 9.5 --
Other charges..................................... -- 33.5
------- -------
358.0 282.4
Pro forma income (loss) from operations, as
above.......................................... (186.5) (109.4)
------- -------
$ 171.5 $ 173.0
======= =======
</TABLE>
The pro forma results of operations excludes the $9.0 million of other
income recorded in 1997 and includes incremental and duplicative expenses
associated with the development of stand-alone infrastructure in the areas of
information systems, finance and human resources as the Company prepares for
the termination of the transition service agreements with Baxter, DuPont and
Hoechst. Additionally, the Company was adversely impacted by foreign currency
exchange rates during 1997. Moreover, the synergistic savings that are
expected to be realized as a result of the Behring Combination are not
reflected in the unaudited pro forma results presented above.
5. DADE CHEMISTRY ACQUISITION
Effective May 1, 1996, the Company completed the acquisition of Dade
Chemistry from DuPont, which was accounted for as a purchase. Accordingly, the
purchase price and the direct costs of the Chemistry Acquisition, which
aggregated $585.9 million, were allocated to the assets acquired and the
liabilities assumed based upon their fair market values at the date of the
acquisition. The Chemistry Acquisition was financed principally by the
issuance of $350.0 million of senior subordinated notes, a refinancing of bank
debt and cash.
F-12
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Since the purchase price exceeded the fair market value of the net assets
acquired, the residual, aggregating $145.0 million, was recorded as goodwill.
The estimated fair values, which were finalized during 1997, are based on
independent appraisals, management estimates and arms-length negotiations with
DuPont.
The summary of assets acquired, liabilities assumed and the purchase price
paid is as follows (in millions):
<TABLE>
<S> <C>
Cash consideration................................................ $504.1
Costs of acquisition.............................................. 19.3
------
523.4
Liabilities assumed............................................... 62.5
------
Costs of assets acquired.......................................... $585.9
======
</TABLE>
The Company's allocation of the Dade Chemistry purchase price includes $98.1
million of costs attributed to in-process research and development projects
which have no alternative future use. Accordingly, such costs were expensed
upon the consummation of the Chemistry Acquisition. During the fourth quarter
of 1996, the Company recorded a non-cash charge of $9.5 million to cost of
goods sold, to provide for excess spare parts for the Paramax product line.
This non-cash charge, which was a direct result of the designation of the
Paramax product line as non-core due to the Chemistry Acquisition,
appropriately relates to the second quarter of 1996.
The following represents the unaudited pro forma results of operations of
the Company as if the Chemistry Acquisition had occurred on January 1, 1995
and January 1, 1996, respectively, after giving effect to the following
adjustments: write-off of in-process research and development, write-off of
inventory step-up, 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 (in millions):
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales......................................... $ 959.0 $ 910.6
======= =======
Loss before extraordinary items................... $ (89.2) $ (83.6)
======= =======
Net loss.......................................... $(114.2) $(108.6)
======= =======
</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 and are not intended to be a projection of future results or trends. The
decline in net sales for the year ended December 31, 1996 is primarily due to
the rationalization of overlapping product lines and product repositioning
following the integration of Dade Chemistry. The losses for both periods
include a $98.1 million charge related to the write-off of in-process research
and development projects which have no alternative future use and the $24.8
million write-off of inventory step-up. In addition, results for 1996 include
$15.0 million of restructuring costs, a $9.5 million non-cash charge for
excess spare parts as well as incremental and duplicative expenses associated
with the development of stand-alone infrastructure in the areas of information
systems, finance and human resources as the Company prepared for the
termination of the transition service agreements with Baxter and DuPont.
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 non-U.S. operations are not reflected in
the unaudited pro forma results presented above.
F-13
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DADE ACQUISITION
Effective December 16, 1994, the Company, in separate transactions, acquired
certain net assets and businesses of the Predecessor, including the stock of
various non-U.S subsidiaries. The Dade Acquisition was recorded in accordance
with the purchase method of accounting. Accordingly, the purchase price plus
direct costs of the Dade Acquisition were allocated to the assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. The estimated fair values were based on independent appraisals,
management estimates, and arms-length negotiations with Baxter. Since the
estimated fair values of the net assets acquired significantly exceeded total
acquisition cost, the Company's non-current assets and in-process research and
development projects were reduced to zero and the residual aggregating $6.1
million was recorded as negative goodwill.
A summary of assets acquired, liabilities assumed and the purchase price
paid is as follows (in millions):
<TABLE>
<S> <C>
Cash consideration................................................ $ 65.9
Installment note payable to Baxter................................ 200.0
Preferred stock of Holdings issued to Baxter (Note 14)............ 40.0
Costs of acquisition.............................................. 8.3
Preliminary purchase price adjustment............................. (3.7)
------
310.5
Liabilities assumed............................................... 133.4
------
Cost of assets acquired........................................... $443.9
======
</TABLE>
The Dade Acquisition was financed by the issuance of $45.0 million of
Holdings' common stock, $150.0 million of bank debt, $120.0 million of senior
subordinated debt, and $40.0 million of Holdings' preferred stock. Of the
$270.0 million of debt proceeds, $22.0 million was used for debt issuance
costs and approximately $25.0 million was used for working capital purposes.
The installment note payable to Baxter was paid in full plus accrued interest
on January 6, 1995 with restricted cash. In addition to the $3.7 million
preliminary purchase price adjustment 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-Dade Acquisition period "Taxes" and "Employee
Benefits" obligations, as defined, which were paid on Baxter's behalf by the
Company. The Company received a substantial portion of the estimated amounts
due from Baxter, including final receipt in January 1996 from Baxter of $9.7
million. The negotiated amount of the final purchase price that was not
received was charged to negative goodwill in the finalization of acquisition
accounting.
7. INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Raw materials............................................... $ 33.1 $ 59.5
Work-in-process............................................. 39.9 64.0
Finished products........................................... 82.0 149.0
------ ------
Total inventories........................................... $155.0 $272.5
====== ======
</TABLE>
In connection with the Dade Acquisition (Note 6), the Chemistry Acquisition
(Note 5) and the Behring Combination (Note 4), which were each recorded in
accordance with the purchase method of accounting, the Company's inventories
were written-up to fair value by $46.0 million, $24.8 million and $171.4
million, respectively. Of the $46.0 million Dade Acquisition write-up, $40.4
million was charged to cost of goods sold
F-14
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
during the period January 1, 1995 through March 31, 1995. The $24.8 million
Chemistry Acquisition write-up was charged to cost of goods sold during the
second quarter of 1996. In the fourth quarter of 1997, the $171.4 million
write-up of inventory relating to the Behring Combination was charged to cost
of goods sold.
8. NET ASSETS HELD FOR SALE
The Predecessor 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 the Dade Acquisition (Note 6) as
operations and assets to be sold. In allocating acquisition cost related to
the Dade Acquisition, the Company recorded "Net assets held for sale" which
represented the estimated proceeds to be received from the sale of these
operations and the excess land and warehouse 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. Interest expense
allocated to net assets held for sale aggregated $6.1 million for the year
ended December 31, 1995.
During 1995, Bartels was sold 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. The excess land facilities were sold during the first quarter
of 1996 for the expected net proceeds of $10.8 million. Burdick & Jackson was
sold during the fourth quarter of 1996 for cash proceeds of $44.0 million
which resulted in a pre-tax loss of $2.8 million.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Land...................................................... $ 5.7 $ 7.0
Buildings and leasehold improvements...................... 36.0 60.1
Machinery and equipment................................... 95.2 402.5
Equipment placed with customers........................... 43.8 82.9
Construction in progress.................................. 38.7 26.5
------ ------
Total property, plant and equipment, at cost.............. 219.4 579.0
Accumulated depreciation and amortization................. (32.4) (364.5)
------ ------
Net property, plant and equipment..................... $187.0 $214.5
====== ======
</TABLE>
Equipment placed with customers includes instruments provided at no charge
in exchange for contractual commitments for ongoing reagent revenues. The net
book value of this equipment was $22.0 million and $46.4 million at December
31, 1996 and 1997, respectively. Management believes the carrying value of
this equipment is recoverable from the revenues anticipated from future
reagent sales.
10. RESTRUCTURING
In connection with the Behring Combination, the Company recorded a $40.1
million restructuring charge and allocated $77.7 million of the Behring
Combination purchase price for a restructuring plan to consolidate
manufacturing and distribution operations and eliminate redundant sales,
service and administrative functions. These restructuring actions include the
closure of the Company's Miami, Florida and Behring's Westwood, Massachusetts
manufacturing facilities, the consolidation and reorganization of the global
sales, marketing and research and development organizations and elimination of
administrative redundancies. The actions are expected to be substantially
completed within two years. A total of approximately 1,600 employees have been
identified
F-15
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for termination resulting from these initiatives; approximately 825 of which
were employees of the Company prior to the Behring Combination. Of the $40.1
million restructuring charge, $26.4 million relates to employee severance and
$13.0 million relates to lease terminations and facility dispositions with the
remainder relating to other exit costs. The Behring Combination reserve
includes $42.4 million related to employee severance and $29.2 million related
to facility exit costs with the remainder relating to other exit costs. As of
December 31, 1997, 69 of the 825 identified Company employees described above
have been severed, while 58 of the 775 identified Behring employees have been
severed. During 1997, an aggregate of $3.7 million was paid for severance and
$9.0 million was paid for exit costs. The reserve as of December 31, 1997 for
these restructuring actions was $105.1 million.
In conjunction with the Chemistry Acquisition, the Company recorded a $15.0
million restructuring charge and also allocated $15.0 million of the Chemistry
Acquisition purchase price to provide for the costs of a restructuring plan
designed to decrease operating costs, increase efficiencies and eliminate
redundant field service operations. Restructuring actions, which were
substantially complete within one year, included closing two production
facilities, reorganizing the domestic field service function, streamlining
operations in Canada and eliminating non-U.S. management and marketing
redundancies. A total of 718 employees were identified for termination as part
of these actions; 595 of which were employees of the Company prior to the
Chemistry Acquisition. Of the $15.0 million restructuring charge, $10.6
million related to severance, with the balance relating to exit costs. Of the
$15.0 million reserve established through the allocation of the Chemistry
Acquisition purchase price, $8.9 million related to severance, $0.3 million
related to relocation and the balance related to other exit costs. As of
December 31, 1997, the restructuring program was substantially completed and
remaining reserve amounts were not material. During 1996, an aggregate of $3.2
million was paid for severance and $5.8 million was paid for exit costs.
At the time of the Dade Acquisition, the Company's management 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 was designed to improve the
Company's future profitability. Restructuring actions included moving certain
reagent production from Puerto Rico to Miami, Florida; 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, Florida; 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 program was completed by December 1996 and all
reserve amounts were expended.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Salaries, wages, commissions, withholdings and other pay-
roll taxes............................................... $ 39.3 $ 64.7
Restructuring............................................. 21.0 55.6
Property, sales and use and other taxes................... 7.1 12.2
Deferred service contract revenue/warranty................ 19.5 16.7
Interest payable.......................................... 11.1 11.1
Vendor lease obligations.................................. -- 42.7
Other..................................................... 48.5 80.9
------ ------
$146.5 $283.9
====== ======
</TABLE>
F-16
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. DEBT
Long-term debt consists of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Revolver.................................................. $ -- $ --
Bank Credit Agreement:
A Term Loan............................................. 165.0 124.5
B Term Loan............................................. 90.0 104.8
C Term Loan............................................. 90.0 104.8
D Term Loan............................................. 95.0 86.5
11 1/8% Senior Subordinated Notes......................... 350.0 350.0
------ ------
790.0 770.6
Less current portion.................................... (3.4) (3.7)
------ ------
$786.6 $766.9
====== ======
</TABLE>
To fund the Chemistry Acquisition, the Company refinanced its existing
indebtedness by entering into a new credit agreement with a number of banks
("Bank Credit Agreement") providing for borrowing up to $585.0 million, issued
$350.0 million of 11 1/8% senior subordinated notes, and repurchased its
$120.0 million 13% senior subordinated notes.
The Company filed a registration statement on Form S-1 in October 1996 under
the Securities Act of 1933, to register $350.0 million of its Series B 11 1/8%
senior subordinated notes due 2006, which were exchanged for its then
outstanding 11 1/8% senior subordinated notes due 2006.
Bank Credit Agreement
The Bank Credit Agreement consisted of $460.0 million in term loans and
$125.0 million in a revolving credit facility ("Revolving Credit Facility").
The borrowings are guaranteed by Holdings and the Company's domestic
subsidiaries, and are secured by substantially all the domestic assets and
certain non-U.S. assets of the Company.
At December 31, 1996, indebtedness under the Bank Credit Agreement bore
interest at (i) the Base Rate (as defined) plus margins ranging from 1.75% to
2.75% or (ii) the Eurodollar Rate plus margins ranging from 2.75% to 3.75%. At
December 31, 1996, the Company funded its borrowings using the Eurodollar
Rate. The Eurodollar Rate in effect at December 31, 1996 was 5.94% in respect
of A Term Loan, 5.56% in respect of B Term Loan, 5.56% in respect of C Term
Loan, and 5.63% in respect of D Term Loan.
In 1997, the Company amended the Bank Credit Agreement to consist of $460.0
million in term loans and $105.0 million in a Revolving Credit Facility. In
addition, the interest on the Borrowings were amended to (i) the Base Rate (as
defined) plus margins ranging from 1.25% to 2.00% or (ii) the Eurodollar Rate
plus margins ranging from 2.25% to 3.00%. At December 31, 1997, the Company
funded the borrowings using the Eurodollar Rate. The Eurodollar Rate in effect
at December 31, 1997 was 5.75% in respect of A Term Loan, 5.88% in respect of
B Term Loan, 5.88% in respect of C Term Loan, and 5.88% in respect of D Term
Loan.
During 1998, the Company amended certain of the terms of the Bank Credit
Agreement. Under the amended terms borrowings will bear interest at (i) the
Base Rate (as defined) plus margins ranging from 1% to 2% or (ii) the
Eurodollar Rates plus margins ranging from 2% to 3%.
F-17
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank Credit Agreement contains various restrictive covenants including
mandatory repayments under certain conditions, minimum levels of earnings
before interest, taxes, depreciation and amortization (as defined therein),
minimum interest coverage, maximum leverage ratios, and other covenants which,
among other things, limit the incurrence of additional indebtedness,
dividends, transactions with affiliates, asset purchases and sales,
acquisitions, mergers and consolidations, prepayments of other indebtedness,
(including the 11 1/8% Senior Subordinated Notes), liens and encumbrances and
other matters customarily restricted in such agreements.
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 payment 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 cap.
The Revolving Credit Facility may be repaid and reborrowed at any time and
is due December 31, 2001. The Company is required to pay to the lenders under
the Bank Credit Agreement (as amended) a commitment fee equal to 1/2 of 1% per
annum, payable on a quarterly basis, on the daily unused portions of the
Revolving Credit Facility during such quarter. At December 31, 1996 and 1997,
no amounts were outstanding under the Revolving Credit Facility.
The A, B, C, and D Term Loans mature on December 31, 2001, 2002, 2003, and
2004, respectively.
Senior Subordinated Notes
Interest on the 11 1/8% senior subordinated notes due 2006 accrues from the
date of issuance and is payable semi-annually on May 1 and November 1. The 11
1/8% senior subordinated notes are redeemable in whole or in part, at the
Company's option commencing May 1, 2001. The 11 1/8% senior subordinated notes
contain restrictive covenants which include, among others the incurrence of
additional debt, mergers and change of control.
In connection with the 1996 debt refinancing and purchase of the 13% senior
subordinated notes due 2005, $18.1 million ($11.4 million net of tax) and
$21.6 million ($13.6 million net of tax) of premiums were recognized as
extraordinary items.
Other Credit Facilities
At year end December 31, 1997, the Company's non-U.S. subsidiaries had
credit lines from various financial institutions totaling $170 million. The
majority of the credit lines do not have commitment fees. However, the Company
is required to pay under a DEM 50 million bank line a commitment fee equal to
0.3125% per annum, payable on a quarterly basis, on the daily unused portion
of the bank line. These credit lines are pricipally to provide working capital
financing in local currencies.
The Company had utilized $54.4 million of these credit lines at December 31,
1997 at the prevailing market interest rates in the local country of debt.
Aggregate Maturities of Long-Term Debt
The aggregate maturities of long-term debt at December 31, 1997 are as
follows (in millions):
<TABLE>
<S> <C>
1998............................................................... $ 3.7
1999............................................................... 14.8
2000............................................................... 46.2
2001............................................................... 74.8
2002............................................................... 102.0
Thereafter......................................................... 529.1
------
$770.6
======
</TABLE>
F-18
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES
Income (loss) before income tax expense is as follows (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
U.S. (including Puerto Rico).................... $20.5 $(103.8) $(184.9)
Non-U.S......................................... (0.6) (21.9) (41.5)
----- ------- -------
Income (loss) before income tax expense......... $19.9 $(125.7) $(226.4)
===== ======= =======
</TABLE>
Tax Expense (Benefit)
Income tax expense (benefit) consists of the following (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
CURRENT
U.S.
Federal.......................................... $1.0 $ -- $ 0.2
State and local (including Puerto Rico).......... 3.6 2.6 0.9
Non-U.S............................................ 1.0 0.2 1.2
---- ------ ------
Current tax expense.............................. 5.6 2.8 2.3
---- ------ ------
DEFERRED
U.S.
Federal.......................................... (0.3) (38.5) (63.2)
---- ------ ------
State and local (including Puerto Rico).......... 0.2 (6.5) (9.7)
Non-U.S............................................ 1.7 (3.2) (13.2)
---- ------ ------
Deferred income tax expense (benefit)............ 1.6 (48.2) (86.1)
---- ------ ------
Total income tax expense (benefit)............. $7.2 $(45.4) $(83.8)
==== ====== ======
</TABLE>
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>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate..... $7.0 $(44.0) $(79.3)
Tax exempt operations.............................. (4.8) (2.9) (3.0)
Nondeductible (non-taxable) goodwill............... (0.2) 0.5 0.4
Nondeductible items................................ 0.8 1.4 1.1
State and local taxes (net of federal benefit)..... 0.5 (4.5) (8.3)
Valuation allowances............................... 3.1 6.3 2.8
U.S. tax on unremitted foreign earnings............ 1.1 (0.1) 0.7
Excess foreign tax benefit......................... (0.3) (2.9) (1.1)
Other factors...................................... -- 0.8 2.9
---- ------ ------
Income tax expense (benefit)....................... $7.2 $(45.4) $(83.8)
==== ====== ======
</TABLE>
F-19
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Taxes
Deferred tax assets (liabilities) are comprised of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Gross deferred tax liabilities........................... $ (2.7) $ (2.9)
------ ------
Property, plant and equipment basis differences.......... 27.4 78.3
Trade receivables basis difference....................... 5.3 13.7
Inventory basis difference............................... 19.3 19.1
Accrued liabilities not currently deductible............. 25.0 88.4
Other intangible assets basis difference................. 89.5 119.0
Net operating loss carryforwards......................... 64.6 122.8
Other.................................................... 5.4 7.0
------ ------
Gross deferred tax assets................................ 236.5 448.3
Valuation allowance...................................... (19.1) (65.2)
------ ------
Net deferred tax assets.................................. 217.4 383.1
------ ------
$214.7 $380.2
====== ======
</TABLE>
In assessing the realizability of the gross deferred tax assets at December
31, 1997, management analyzed the Company's forecast for future taxable
earnings (and losses) by jurisdiction and other relevant factors and concluded
that recoverability of the deferred tax asset of $383.1 million, net of a
$65.2 million valuation allowance, was more likely than not. This analysis
also supported the release in 1997 of $6.2 million of valuation allowance
previously established against deferred tax assets arising in Italy.
The Company received a tax exemption grant from Puerto Rico during 1996
which provides 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. Total tax
benefit for the year ended December 31, 1997 includes tax benefits aggregating
$4.1 million related to this grant. In addition, the Company has filed a
section 936 election for its Puerto Rico operations. Total income tax benefit
for the year ended December 31, 1997 includes tax benefits aggregating $3.0
million related to the section 936 election.
At December 31, 1996 and 1997, the Company had net operating loss
carryforwards available in the United States for federal income tax return
purposes of $104.8 million and $211.4 million, respectively, which expire
during 2004 through 2012. United States 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. The $211.4 million of net
operating loss carryforward at December 31, 1997, includes $56.5 million of
United States net operating loss carryforward from the pre-combination Behring
entity. Since the use of these loss carryforwards is subject to the change in
ownership limitation, a full deferred tax valuation has been recorded.
Additionally, at December 31, 1997, the Company had net operating loss
carryforwards available in countries outside of the United States of $90.0
million with various dates of expiration.
Deferred United States federal income taxes and non-U.S. withholding taxes
have been provided on the undistributed earnings of non-U.S. subsidiaries
deemed available for repatriation.
14. 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, 1996 and 1997. All outstanding shares at December
31, 1996 and 1997 were owned by Holdings.
F-20
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 was classified as "Additional paid-in capital". 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
Holdings has various stock purchase and option plans ("Plans") principally
for the benefit of the Company's employees. The Plans provide for the sale of
53,594 shares of Holdings' Class L Common Stock and the sale or granting of
options of 2,823,402 shares of Holdings' Common Stock. The stock options are
exercisable either over time (Time Options) or upon the achievement of certain
investment return levels by the owners of Holdings (Performance Options). All
stock options vest within ten years of the date of grants.
During 1995, 44,444 shares of Holding's Class L Common Stock and 399,996
shares of Holdings' Common Stock were sold at $40.50 and $0.50 per share,
respectively. During 1996 and 1997, 6,050 shares of Holdings' Class L Common
Stock and 54,450 shares of Holdings' Common Stock were sold at $44.00 and
$4.00 per share, respectively. Management believes the purchase prices for
these stock purchases reasonably approximated the fair market value of the
stock at the respective dates of sale. Additionally, during 1997, 24,000
shares of Holdings' Common Stock were acquired by certain executives of the
Company at a price $32.50 below the fair market value of Holdings' Common
Stock at that date, as established by an independent valuation. Stock
compensation expense of $0.8 million was recorded by the Company in 1997
related to these stock purchases.
All stock options granted during 1995 and 1996 have exercise prices that
management believes equaled or exceeded the fair market value of the Holdings'
Common Stock on the dates of the grants. During 1997, certain option grants
were made with exercise prices below fair market values of Holdings' Common
Stock, based on independent valuations. The Time Options vest ratably over a
five year period and have a ten year term. The Performance Options become
exercisable at $7 or $16 per share either within ten years of grant or earlier
if investment returns (as defined) of three times or five times, respectively,
the total investment (as defined) of the original investors of the Company is
achieved. Stock option activity during 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Outstanding at January 1..................... -- 629,170 684,170
<CAPTION>
TIME OPTIONS
------------
<S> <C> <C> <C>
Granted...................................... 318,200 84,000 994,400
Exercised.................................... -- (54,900) (40,840)
Forfeited.................................... (11,000) (9,500) (59,340)
<CAPTION>
PERFORMANCE OPTIONS
-------------------
<S> <C> <C> <C>
Granted...................................... 325,970 60,400 262,574
Exercised.................................... -- -- --
Forfeited.................................... (4,000) (25,000) (58,514)
------- ------- ---------
Outstanding at December 31................... 629,170 684,170 1,782,450
======= ======= =========
Exercisable at December 31................... 61,440 62,740 114,080
Available for grant at December 31........... 22,500 22,500 336,912
</TABLE>
F-21
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Weighted average option exercise price information for 1997, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
TIME OPTIONS 1995 1996 1997
------------ ------ ------ ------
<S> <C> <C> <C>
Outstanding at January 1............................ -- $ 0.50 $ 1.40
Granted............................................. $ 0.50 $ 4.00 $30.41
Exercised........................................... $ 0.50 $ 0.50 $ 1.35
Forfeited........................................... $ 0.50 $ 0.50 $ 1.25
Outstanding at December 31.......................... $ 0.50 $ 1.40 $24.90
Exercisable at December 31.......................... $ 0.50 $ 0.50 $ 0.67
<CAPTION>
PERFORMANCE OPTIONS
-------------------
<S> <C> <C> <C>
Outstanding at January 1............................ -- $11.50 $11.50
Granted............................................. $11.50 $11.50 $11.50
Exercised........................................... -- -- --
Forfeited........................................... $11.50 $11.50 $11.50
Outstanding at December 31.......................... $11.50 $11.50 $11.50
Exercisable at December 31.......................... -- -- --
</TABLE>
Effective April 1, 1997, 46,500 Time Options with an exercise price of
$4.00, 99,787 Performance Options with an exercise price of $7.00 and 99,787
Performance Options with an exercise price of $16.00 were granted, which
represented discounts of $14.00, $11.00 and $2.00, respectively, below fair
market value of Holdings' Common Stock at that date, as established by an
independent valuation. Effective October 1, 1997, 860,900 Time Options with an
exercise prices of $0.50-$34.50 were granted, which represented a discount of
$23.00-$57.00 from fair market value of Holding's Common Stock at that date,
as established by an independent appraisal. Accordingly, stock compensation
expense of $10.6 million was recorded by the Company in 1997 related to these
grants.
Significant option groups outstanding at December 31, 1997 and related
weighted average price and life information is as follows:
<TABLE>
<CAPTION>
REMAINING
OPTIONS OPTIONS EXERCISE LIFE
GRANT DATE OUTSTANDING EXERCISABLE PRICE (YEARS)
- ---------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Time Options--7/31/95... 210,420 108,680 $ 0.50 8
Time Options--7/31/96... 63,200 5,400 $ 4.00 9
Time Options--2/5/97-
8/25/97................ 86,500 -- $ 4.00 10
Time Options--10/1/97... 860,900 -- $22.07 10
Performance Options--
7/31/95................ 121,328 -- $ 7.00 8
Performance Options--
7/31/95................ 121,328 -- $16.00 8
Performance Options--
7/31/96................ 28,100 -- $ 7.00 9
Performance Options--
7/31/96................ 28,100 -- $16.00 9
Performance Options--
2/5/97-8/25/97......... 131,287 -- $ 7.00 10
Performance Options--
2/5/97-8/25/97......... 131,287 -- $16.00 10
</TABLE>
As Holdings' Common Stock is not publicly traded, the fair value of options
was estimated using the minimum value method as proscribed in SFAS No. 123,
using the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<C> <S> <C> <C> <C>
Expected life (years): Time Options............................ 5 5 5
Performance Options..................... 3 3 2
Interest rate: Time Options............................ 6.1% 5.5% 5.7%
Performance Options..................... 5.9% 5.4% 5.6%
Dividend yield: Time Options............................ 0.0% 0.0% 0.0%
Performance Options..................... 0.0% 0.0% 0.0%
</TABLE>
F-22
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value at the date of grant of the Time Options and Performance
Options granted during 1997 were $36.1 million and $1.6 million, respectively.
The fair value at the date of grant of the Time Options and Performance
Options granted during 1996 were $0.1 million and $0.1 million, respectively.
The fair value at the date of grant of the Time Options and Performance
Options granted during 1995 were $0.1 million and $0.5 million, respectively.
No stock-based compensation expense was recorded in 1995 and 1996. Pro forma
stock-based compensation would not have been significant in 1995 or 1996 had
the fair value of options granted in those years had been recognized as
compensation expense on a straight-line basis over the vesting of the grants.
Pro forma stock-based compensation for 1997 would not be materially different
from the recorded expense had the fair value of the options granted in 1997
been recognized as compensation expense on a straight-line basis over the
vesting of the grants.
15. TRANSACTIONS WITH BAXTER AND ALLEGIANCE
Commencing in December 1994, the Company and Baxter entered into a
distribution agreement within the United States. The U.S. Distribution
Agreement, which became effective at the closing of the Dade Acquisition, gave
Baxter's U.S. Distribution Division the right, generally on an exclusive
basis, to sell the Predecessor's domestic products in the areas in which
Baxter's U.S. Distribution Division previously sold the Predecessor's
products. Effective October 1, 1996, Baxter "spun-off" its distribution
business as Allegiance and Allegiance assumed the Company's Distribution
Agreement. The term of this agreement, as amended, extends to December 31,
2000. Allegiance 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.
Net sales to Baxter's U.S. Distribution Division aggregated $348.6 million for
the year ended December 31, 1995 and $221.8 million for the year ended
December 31, 1996. Net sales to Allegiance totaled $72.2 million and $257.5
million for the years ended December 31, 1996 and 1997, respectively. At
December 31, 1996 and 1997, receivables from Allegiance totaled $47.3 million
and $67.8 million, respectively.
16. RELATED PARTY TRANSACTIONS
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, Sachs & Co.
an aggregate annual fee of up to $3.0 million, subject to compliance with the
terms of the indenture governing the 11 1/8% 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, divestitures
and other services agreed upon by the Company, Bain Capital and Goldman, Sachs
& Co. In connection with the Chemistry Acquisition (Note 5), the Company paid
$11.4 million for advisory fees and expenses to Bain Capital and $3.6 to
Goldman, Sachs & Co. The Company paid, in the aggregate, $18.8 million to Bain
Capital, Goldman, Sachs & Co. and Hoechst in connection with the Behring
Combination (Note 4). Advisory fees and related 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. For
the year ended December 31, 1996 the Consolidated Statement of Operations
includes advisory fees and related expenses of $2.7 million and $0.3 million
to Bain Capital and Goldman, Sachs & Co., respectively. The Consolidated
Statement of Operations for the year ended December 31, 1997 includes advisory
fees and related expenses of $1.4 million and $0.3 million to Bain Capital and
Goldman, Sachs & Co., respectively.
Pursuant to Transition Services Agreements dated September 30, 1997, Hoechst
provides the Company with certain support services including administrative
support, warehousing and distribution services, human resource support,
information systems support, accounting support and office space. The
Transition Services Agreements have various terms from October 1, 1997 through
December 31, 1999. The Company paid $7.9 million to Hoechst related to these
agreements for the year ended December 31, 1997.
F-23
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. RETIREMENT PROGRAMS
The Company maintains non-contributory defined benefit pension plans
covering substantially all employees in the United States and Puerto Rico
("U.S. Plans") and a combination of contributory and non-contributory plans in
certain non-U.S. locations ("Non-U.S. Plans"). Through December 31, 1996, the
U.S. Plans' benefits are based on years of service and the employees
compensation during five of the last ten years of employment as defined by the
plans. Effective January 1, 1997, the Company amended its pension plan
covering U.S. employees to change to a cash balance formula. 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 Behring Combination (Note 4), effective January 1,
1998, the employees' pension assets and liablities of Behring were transferred
into various Company Plans and the Company assumed responsibility for the
liability for future benefits payable under the terms of the Company's Plans
for those employees as of January 1, 1998. The Company reimbursed Hoechst for
the service costs of those Plans for the period October 1, 1997 through
December 31, 1997.
Under the terms of the Chemistry Acquisition (Note 5), the transferred
DuPont employees' pension assets and liabilities were transferred directly
into the existing Domestic Plans and the Company assumed responsibility for
the liability for future benefits payable under the terms of the Company's
plan for those employees as of the Chemistry Acquisition date.
Under the terms of the Dade Acquisition (Note 6), Baxter retained liability
for future benefits payable to existing retirees and non-transferred employees
of the Predecessor as of the Dade Acquisition date, and the Company
established new plans for retained active employees. During 1995,
substantially all of the assets were transferred to the new plans. At December
31, 1996 and December 31, 1997, plan assets primarily consist of stocks, bonds
and contracts with insurance companies.
Assets held by the trusts of the Company's plans consist of the following
(in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Total assets--U.S. Plans................................... $104.0 $111.9
Total assets--Non-U.S. Plans............................... $ 12.7 $ 24.3
</TABLE>
Pension Expense
Pension expense includes the following components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Service cost-benefits earned during the period...... $ 4.5 $ 7.4 $ 9.6
Interest cost on projected benefit obligation....... 2.9 5.8 8.1
Actual return on assets............................. (2.0) (8.8) (12.2)
Net amortization and deferral....................... (0.3) 1.5 0.7
Curtailment gains................................... -- (2.1) --
----- ----- ------
Total pension expense............................... $ 5.1 $ 3.8 $ 6.2
===== ===== ======
</TABLE>
Curtailment gains of $1.5 million and $0.6 million related to restructuring
actions and the sale of Burdick & Jackson, respectively, were recognized in
1996.
F-24
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used for the above pension expense calculations include:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate applied to benefit obligation:
U.S. plans............................................ 8.75% 7.75% 8.25%
Non-U.S. plans (average).............................. 4.30% 5.00% 5.20%
Long-term return on assets:
U.S. plans............................................ 9.50% 9.50% 9.50%
Non-U.S. plans (average).............................. 5.00% 5.40% 4.90%
</TABLE>
Funded Status
The following tables set forth the funded status of the Plans (in millions):
<TABLE>
<CAPTION>
UNDERFUNDED OVERFUNDED
PLANS PLANS
DECEMBER 31, DECEMBER 31,
-------------- ----------------
1996 1997 1996 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obliga-
tion:
Vested benefits............................ $ 15.5 $ 38.4 $ 65.4 $ 86.3
------ ------ ------- -------
Accumulated benefits....................... 18.0 41.7 70.4 89.8
------ ------ ------- -------
Projected benefits......................... 24.6 52.3 70.7 90.6
Less accumulated plan assets at fair value... (14.3) (21.7) (102.4) (114.5)
------ ------ ------- -------
Plan assets (in excess of) less than pro-
jected benefit obligation................... 10.3 30.6 (31.7) (23.9)
Unrecognized net gains (losses) and unrecog-
nized prior service cost.................... (0.3) (1.2) 5.7 --
------ ------ ------- -------
Net pension liabilities (assets)......... $ 10.0 $ 29.4 $ (26.0) $ (23.9)
====== ====== ======= =======
</TABLE>
Assumptions used for the above funded status calculations include:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Annual rate of increase in compensation levels:
U.S. plans............................................ 4.50% 4.50% 4.50%
Non-U.S. plans (average).............................. 3.10% 4.00% 3.40%
Discount rate applied to benefit obligation:
U.S. plans............................................ 7.75% 8.25% 7.75%
Non-U.S. plans (average).............................. 4.30% 5.00% 5.20%
</TABLE>
Savings Plan
Most U.S. employees are eligible to participate in a Company sponsored
qualified 401(k) plan. Participants may contribute up to 12% of their annual
compensation, up to certain limits, to the 401(k) plan and the Company matches
the participants' contributions, up to 2% of compensation. Matching
contributions made by the Company were $2.6 million for the year ended
December 31, 1995, $3.2 million for the year ended December 31, 1996 and $2.9
million for the year ended December 31, 1997.
F-25
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
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 will not have a
material adverse effect on the Company's conduct of its business, its results
of operations, its financial position or its liquidity.
Letters of Credit
As of December 31, 1997, the Company has letters of credit outstanding of
approximately $16.7 million.
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, 1997 are as follows (in millions):
<TABLE>
<S> <C>
1998............................................................... $ 31.5
1999............................................................... 23.7
2000............................................................... 18.0
2001............................................................... 16.4
2002............................................................... 13.8
Thereafter......................................................... 62.3
------
Total.......................................................... $165.7
======
</TABLE>
Total expense for all operating leases was $12.9 million for the year ended
December 31, 1995, $14.1 million for the year ended December 31, 1996 and
$22.9 million for the year ended December 31, 1997.
F-26
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company is a leading manufacturer of diagnostic 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 years ended December 31,
1997, 1996 and 1995 is summarized as follows (in millions):
<TABLE>
<CAPTION>
UNITED OTHER GENERAL INTER-AREA
STATES EUROPE INTERNATIONAL CORPORATE ELIMINATIONS TOTAL
------ ------ ------------- --------- ------------ --------
DECEMBER 31, 1997 AND
THE YEAR THEN ENDED
---------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $649.1 217.5 113.9 $ 980.5
Inter-area sales........ 111.9 27.4 -- (139.3) --
------ ----- ----- ------ --------
Total sales............. $761.0 244.9 113.9 (139.3) $ 980.5
====== ===== ===== ====== ========
Pretax income (loss)(1). $ 31.3 (59.7) (9.7) (188.2) -- $ (226.3)
====== ===== ===== ====== ====== ========
Identifiable assets(5).. $763.1 349.8 102.9 294.6 -- $1,510.4
====== ===== ===== ====== ====== ========
<CAPTION>
DECEMBER 31, 1996 AND
THE YEAR THEN ENDED (4)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $559.5 149.1 87.2 $ 795.8
Inter-area sales........ 61.0 1.5 -- (62.5) --
------ ----- ----- ------ --------
Total sales............. $620.5 150.6 87.2 (62.5) $ 795.8
====== ===== ===== ====== ========
Pretax income (loss)(2). $(40.5) 15.3 12.2 (112.7) $ (125.7)
====== ===== ===== ====== ========
Identifiable assets (5). $594.7 135.5 51.8 223.1 $1,005.1
====== ===== ===== ====== ========
<CAPTION>
DECEMBER 31, 1995 AND
THE YEAR THEN ENDED (4)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
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)(3). $ 55.8 14.3 5.9 (56.1) $ 19.9
====== ===== ===== ====== ========
Identifiable assets (5). $232.4 91.0 40.1 187.4 $ 550.9
====== ===== ===== ====== ========
</TABLE>
- --------
(1) The pre-tax loss for the year ended December 31, 1997 reflects the
following pre-tax charges resulting from purchase accounting for the
Behring Combination and other items: (i) a charge to cost of goods sold
for $171.4 million of allocated purchase price to record acquired finished
goods and work-in-process inventories to fair market values, (ii) a $40.1
million restructuring charge to consolidate manufacturing and distribution
operations and eliminate redundant sales, service and administrative
functions, (iii) a $1.1 million charge to research and development expense
for acquired research and development projects which do not have
alternative applications or separable economic values, (iv) $33.5 million
of non-recurring charges related to increased inventory reserves relating
to plant closures, non-recurring distribution costs and non-core product
transition costs, (v) $11.4 million of stock based compensation charges
related to grants of stock options and purchase rights, and (vi) $2.0
million of non-recurring integration costs associated with the Behring
Combination.
(2) The pre-tax loss for the year ended December 31, 1996 reflects the
following pre-tax charges resulting from purchase accounting for the
Chemistry Acquisition and other items: (i) a charge to cost of goods sold
for $24.8 million of allocated purchase price to record work-in-process
and finished goods inventories to fair market values, (ii) a $15.0 million
restructuring charge designed to lower operating costs, increase
F-27
<PAGE>
DADE BEHRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
efficiency, and eliminate redundant operations, (iii) a $15.3 million
charge to research and development expense for acquired research and
development projects which do not have alternative applications or
separable economic value, (iv) a $9.5 million charge to cost of goods sold
to establish a reserve for excess spare parts inventories related to the
Paramax product line.
(3) The pre-tax income for the year ended December 31, 1995 reflects a charge
to cost of goods sold for the remaining $40.4 million of allocated
purchase price related to the $46.0 million recorded step-up to fair
market value of work-in-process and finished goods inventory in connection
with the Dade Acquisition.
(4) As described in Note 2, non-U.S. results of operations for the period
December 17, 1994 through December 31, 1994 are not material and have been
included in the 1995 consolidated financial statements. During 1996, the
one month reporting lag for non-U.S. operations was eliminated and
therefore operating results for the year ended December 31, 1996 include
thirteen months of non U.S. operating results.
(5) 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. At December 31, 1996, general corporate identifiable
assets include net deferred tax assets of $188.3 million. At December 31,
1997, general corporate identifiable assets include net deferred tax
assets of $259.6 million.
Inter-area transactions are accounted for at cost. Identifiable assets are
those assets associated with a specific geographic area.
Non-U.S. net sales (including U.S. export sales) of all combined non-U.S.
entities were $202.2 million for the year ended December 31, 1995, $236.6
million for the year ended December 31, 1996 and $331.4 million for the year
ended December 31, 1997. Non-U.S. net assets were $123.3 million and $210.9
million as of December 31, 1996 and 1997, respectively.
F-28
<PAGE>
SCHEDULE II
Valuation and qualifying accounts and reserves (in millions)
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
JANUARY 1, AND TO OTHER DECEMBER 31,
DESCRIPTION 1997 EXPENSES ACCOUNTS DEDUCTIONS 1997
----------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for bad debts. $ 9.6 17.0 6.3 (2) (5.2) $27.7
Income tax valuation
allowance.............. $19.1 9.0 45.2 (2) (6.2) $65.2
(1.9)(1)
</TABLE>
- --------
(1) Impact of foreign currency translation.
(2) Acquired in the Behring Combination
F-29
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, IN THE CITY OF DEERFIELD, STATE OF ILLINOIS, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 30, 1998.
/s/ Steven W. Barnes
By: _________________________________
Name: Steven W. Barnes
Title: President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES INDICATED ON MARCH 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Steven W. Barnes President, Chief Executive Officer and
___________________________________________ Director (principal executive officer)
Steven W. Barnes
/s/ James W. P. Reid-Anderson Chief Administrative Officer, Chief
___________________________________________ Financial Officer and Director (principal
James W. P. Reid-Anderson financial officer)
/s/ Glenn R. Richter Vice President/Controller
___________________________________________ (principal accounting officer)
Glenn R. Richter
/s/ Robert W. Brightfelt Group President, Chemistry and Director
___________________________________________
Robert W. Brightfelt
/s/ Mark E. Nunnelly Director
___________________________________________
Mark E. Nunnelly
/s/ Stephen G. Pagliuca Director
___________________________________________
Stephen G. Pagliuca
/s/ Adam Kirsch Director
___________________________________________
Adam Kirsch
/s/ John P. Connaughton Director
___________________________________________
John P. Connaughton
/s/ Joseph H. Gleberman Director
___________________________________________
Joseph H. Gleberman
/s/ Scott T. Garrett Director
___________________________________________
Scott T. Garrett
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
3.1 Certificate of Incorporation of Dade Behring Inc. Incorporated
by reference to Exhibit 3.1 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on Octo-
ber 4, 1996 as amended effective October 1, 1997.
3.2 Amended and Restated By-laws of Dade Behring Inc.
4.1 Indenture dated as of May 7, 1996 between Dade International,
Inc. and IBJ Schroder Bank & Trust Company. Incorporated by
reference to Exhibit 4.1 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on Octo-
ber 4, 1996.
4.2 Purchase Agreement dated as of April 30, 1996 among Dade In-
ternational Inc., BT Securities Corporation, CS First Boston
Corporation and Morgan Stanley & Co. Incorporated. Incorpo-
rated by reference to Exhibit 4.2 to Dade's Form S-1 Registra-
tion Statement under the Securities Act of 1933, as filed on
October 4, 1996.
4.3 Registration Rights Agreement dated as of May 7, 1996 among
Dade International Inc., BT Securities Corporation, CS First
Boston Corporation and Morgan Stanley & Co. Incorporated. In-
corporated by reference to Exhibit 4.3 to Dade's Form S-1 Reg-
istration Statement under the Securities Act of 1933, as filed
on October 4, 1996.
10.1 Amended and Restated Credit Agreement dated as of April 29,
1997 among Diagnostics Holdings, Inc., Dade International
Inc., various lending institutions and Bankers Trust Company,
as Agent. Incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q under the Securities Act of 1934, as filed
on May 15, 1997.
10.2 Security Agreement dated as of May 7, 1996 among Diagnostics
Holding, Inc., Dade International Inc., certain subsidiaries
of Dade International Inc. and Bankers Trust Company as Col-
lateral Agent. Incorporated by reference to Exhibit 10.2 to
Dade's Form S-1 Registration Statement under the Securities
Act of 1933, as filed on October 4, 1996.
10.3 Pledge Agreement dated as of May 7, 1996 among Diagnostics
Holding, Inc., Dade International Inc., various subsidiaries
of Dade International Inc. and Bankers Trust Company as Col-
lateral Agent. Incorporated by reference to Exhibit 10.3 to
Dade's Form S-1 Registration Statement under the Securities
Act of 1933, as filed on October 4, 1996.
10.4 Asset Purchase and Sale Agreement dated December 11, 1995, as
amended and restated on May 7, 1996, between E.I. du Pont de
Nemours and Company and Dade Chemistry Systems Inc. incorpo-
rated by reference to Exhibit 2.1 to the Company's Form 8-K
under the Securities Act of 1934, as filed on May 22, 1996
(No. 33-90462).
10.5 Agreement and Plan of Combination by and between Diagnostics
Holdings, Inc. and Hoechst A.G. dated as of June 24, 1997 and
supplemented on July 2, 1997 and as further supplemented on
September 29, 1997 and September 30, 1997 incorporated by ref-
erence to Exhibit 2.1 to the Company's Form 8-K under the Se-
curities Act of 1934, as filed on October 20, 1997.
10.6 Transitional Services Agreement entered into as of May 7,
1996, effective as of April 30, 1996 by and between E.I. du
Pont Nemours and Company and Dade Chemistry Systems Inc. In-
corporated by reference to Exhibit 10.5 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.7 Manufacturing Agreement entered into as of May 7, 1996, effec-
tive as of April 30, 1996 by and between E.I. du Pont Nemours
and Company and Dade Chemistry Systems Inc. Incorporated by
reference to Exhibit 10.6 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on Octo-
ber 4, 1996.
</TABLE>
X-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.8 Stockholders Agreement made as of December 20, 1994 by and
among Dade International Inc. and the other parties signatory
thereto incorporated by reference to Exhibit 10.6 to the
Company's Form S-4 Registration Statement under the Securities
Act of 1933, as filed on March 20, 1995 (No. 33-90462).
10.9 Management Services Agreement dated as of December 20, 1994 by
and among Dade International Inc. and Bain Capital, Inc. In-
corporated by reference to Exhibit 10.7 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933,
as filed on March 20, 1995 (No. 33-90462) as amended by Amend-
ment No. 1 to Management Services Agreement dated as of May 7,
1996, incorporated by reference to Exhibit 10.8 to Dade's Form
S-1 Registration Statement under the Securities Act of 1933,
as filed on October 4, 1996.
10.10 Management Services Agreement dated as of December 20, 1994 by
and among Dade International Inc. and Goldman, Sachs & Co. In-
corporated by reference to Exhibit 10.8 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933,
as filed on March 20, 1995 (No. 33-90462).
10.11 Tax Law Change Indemnification dated as of December 16, 1994
between Baxter International Inc. and Diagnostics Holding,
Inc. Incorporated by reference to Exhibit 10.9 to the
Company's Form S-4 Registration Statement under the Securities
Act of 1933, as filed on March 20, 1995 (No. 33-90462).
10.12 Amended and Restated Exclusive Distribution Agreement dated as
of September 15, 1995, by and between Dade International Inc.
and Baxter Healthcare Corporation as amended on September 26,
1996. Incorporated by reference to Exhibit 10.11 to Dade's
Form S-1 Registration Statement under the Securities Act of
1933, as filed on October 4, 1996.
10.13 1995 Executive Stock Purchase and Option Plan incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q under the
Securities Act of 1934, as filed on August 14, 1995 (No. 33-
90462).
10.14 1995 Management Stock Option Plan incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q under the Securities
Act of 1934, as filed on August 14, 1995 (No. 33-90462).
10.15 Form of Agreement under 1995 Executive Stock Purchase and Op-
tion Plan incorporated by reference to Exhibit 10.3 to the
Company's Form 10-Q under the Securities Act of 1934, as filed
on August 14, 1995 (No. 33-90462).
10.16 Form of Agreement under 1995 Management Stock Option Plan in-
corporated by reference to Exhibit 10.4 to the Company's Form
10-Q under the Securities Act of 1934, as filed on August 14,
1995 (No. 33-90462).
10.17 1996 Executive Stock Purchase and Option Plan. Incorporated by
reference to Exhibit 10.16 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on Octo-
ber 4, 1996.
10.18 Form of Agreement under 1996 Executive Stock Option Plan. In-
corporated by reference to Exhibit 10.17 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.19 1997 Executive Stock Purchase and Option Plan incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q under the
Securities Act of 1934, as filed on May 15, 1997.
10.20 Form of Agreement under 1997 Executive Stock Purchase and Op-
tion Plan incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q under the Securities Act of 1934, as filed
on May 15, 1997.
10.21 1997 Management Stock Option Plan incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q under the Securities
Act of 1934, as filed on May 15, 1997.
10.22 Form of Agreement under 1997 Management Stock Option Plan in-
corporated by reference to Exhibit 10.4 to the Company's Form
10-Q under the Securities Act of 1934, as filed on May 15,
1997.
10.23 1997 Executive Stock Purchase and Option Plan.
21.1 Subsidiaries of Dade Behring Inc.
23.1 Report of Independent Accountants on Financial Statement
Schedule.
27.1 Financial Data Schedule.
</TABLE>
X-2
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
--------------------
BY-LAWS
-------
OF
--
DADE BEHRING INC.
-----------------
A Delaware Corporation
ARTICLE I
---------
OFFICERS
--------
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be located at 1209 Orange Street, Corporation
Trust Center, in the City of Delaware, County of New Castle 19801. The name of
the corporation's registered agent at such address shall be The Corporation
Trust Company. The registered office and/or registered agent of the corporation
may be changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held on the first Wednesday of March each year if not a
legal holiday and if a legal holiday, then on the next secular day following, at
10:00 A.M., or at such other date and time as shall be designated from time to
time by the board of directors
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver thereof.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
<PAGE>
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares
of capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
-2-
<PAGE>
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have
not consented in writing. Any action taken pursuant to such written consent or
consents of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.
-3-
<PAGE>
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of
directors shall be established from time to time by resolution of the board.
There shall be an elected position entitled Chairman of the Board of Directors.
The directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article lilt Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board
of directors may be removed at any time, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. . The annual meeting of each newly elected board of
directors shall be held without other notice than this by-law immediately after,
and at the same place as the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president on at least 24 hours notice to each director, either
personally, by telephone, by mail, or by telegraph.
-4-
<PAGE>
Section 7. Quorum, Required Vote and Adjournment. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the
-5-
<PAGE>
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Such member shall be conclusively presumed
to have assented to any action taken unless his or her dissent shall be entered
in the minutes of the meeting or unless his or her written dissent to such
action shall be filed with the person acting as the secretary of the meeting
before the adjournment thereof or shall be forwarded by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to any member who voted in favor of such
action.
Section 12. Action by Written Consent. Unless otherwise restricted by
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
ARTICLE IV
--------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
the board of directors and shall consist of a chief executive officer,
president, any number of vice presidents, a secretary, any number of assistant
secretaries and such other officers and assistant officers as may be deemed
necessary or desirable by the board of directors. Any number of offices may be
held by the same person. In its discretion, the board of directors may choose
not to fill any office for any period as it may deem advisable, except that the
offices of president and secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. Vacancies may be filled or new offices created and filled
at any meeting of the board of directors. Each officer shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be
-6-
<PAGE>
filled by the board of directors for the unexpired portion of the term by the
board of directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed
by the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chief Executive Officer. The chief executive officer of the
corporation, subject to the powers of the board of directors, shall have general
and active management of the business of the corporation; and shall see that all
orders and resolutions of the board of directors are carried into effect. The
chief executive officer shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the chief executive
officer or the board of directors or as may be provided in these bylaws.
Section 7. President. The president shall be the chief executive
officer of the corporation; shall preside at all meetings of the stockholders
and board of directors at which he or she is present; subject to the powers of
the board of directors, shall have general charge of the business, affairs and
property of the corporation, and control over its officers, agents and
employees; and shall see that all orders and resolutions of the board of
directors are carried into effect. The president shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation. The
president shall have-such other powers and perform such other duties as may be
prescribed by the board of directors, the chief executive officer or as may be
provided in these by-laws.
Section 8. Vice-Presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The vice-
presidents shall also perform such other duties and have such other powers as
the board of directors, the chief executive officer, the president or these by-
laws may, from time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the president's supervision, the secretary shall give, or cause to be
given,
-7-
<PAGE>
all notices required to be given by these by-laws or by law; shall have such
powers and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers. as the board of directors, the
chief executive officer or the president may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the
president or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of the office of the treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the chief executive
officer or the president may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
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Section 12. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director. or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, is or was a
director or officer, of the corporation or is or was serving at the request of
the corporation as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee, fiduciary or agent or in any other capacity while serving as
a director, officer, employee, fiduciary or agent, shall be indemnified and held
harmless by the corporation to the fullest extent which it is empowered to do so
by the General Corporation Law of the State of Delaware, as the same e)exists or
may hereafter be amended against all expense, liability and loss (including
attorneys' fees actually and reasonably incurred by such person in connection
with such proceeding) and such indemnification shall inure to the benefit of his
or her heirs, executors and administrators; provided, however, that, except as
provided in Section 2 hereof, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such person
only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Article V shall be a
contract right and, subject to Sections 2 and 5 hereof, shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition. The corporation may, by action
of its board of directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers.
Any indemnification of a director, officer, employee, fiduciary or agent of the
corporation under Section 1 of this Article V or advance of expenses under
Section 5 of this Article V shall be made promptly, and in any event within 30
days, upon the written request of the director, officer, employee, fiduciary or
agent. If a determination (as defined in the General Corporation Law of the
State of Delaware) by the corporation that the director, officer, employee,
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fiduciary or agent is entitled to indemnification pursuant to this Article V is
required, and the corporation fails to respond within sixty days to a written
request for indemnity, the corporation shall be deemed to have approved the
request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as granted by this Article V shall be enforceable by the director,
officer, employee, fiduciary or agent in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the corporation to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the corporation. Neither the failure of the corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the corporation would have the power
to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article V in defending a proceeding shall be paid by the
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corporation in advance of such proceeding's final disposition upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Mercer or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, fiduciary or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under this
Article V with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chief executive officer, the president, or a vice-president and the
secretary or any assistant secretary of the corporation, certifying the number
of shares owned by such holder in the corporation. If such a certificate is
countersigned (1) by a transfer agent or an assistant transfer agent other than
the corporation
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or its employee or (2) by a registrar, other than the corporation or its
employee, the signature of the chief executive officer, the president, any vice-
president, secretary, or any assistant secretary may be facsimiles. In case any
officer or . officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation whether because of death,
resignation or otherwise before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. Shares of stock of the corporation shall only be
transferred on the books of the corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer authorization, and other matters as the corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event. it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates, and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates the board of
director may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate
Section 3. Fixing a Record Date for Stockholder Meetings. In order
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
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upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In
order that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
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Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner.
Section 7. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer
or officers, or any agent or agents, of the corporation to enter into any
contract or to execute and deliver any instrument in the name of and on behalf
of the corporation, and such authority may be general or confined to specific
instances.
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Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned by Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution
Section B. Inspection of Books and Records' Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
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Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision
of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new bylaws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
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Exhibit 10.23
Dade Behring Holdings, Inc.
---------------------------
1997 EXECUTIVE STOCK PURCHASE AND OPTION PLAN
---------------------------------------------
1. Purpose of Plan. This 1997 Executive Stock Purchase and Option Plan
(the "Plan") of Dade Behring Holdings, Inc. (the "Company") is designed to
provide incentives to such present and future officers, employees, consultants
or advisors of the Company or its subsidiaries as may be selected in the sole
discretion of the Board (collectively, "Participants"), through the grant of
Options by the Company to Participants or through the sale of Common Stock to
Participants. Only those Participants who are employees of the Company and its
Subsidiaries shall be eligible to receive incentive stock options.
2. Definitions. Certain terms used in this Plan have the meanings set
forth below:
"Board" means the Company's board of directors.
"Cause" shall have the meaning assigned to such term in any individual
Participant's written employment arrangements with the Company or any of its
Subsidiaries or, in the absence of any such written employment arrangements,
"Cause" shall mean (i) the intentional disregard of a written direction from the
Board to a Participant to which such Participant has not objected within ten
(10) days of receiving such written direction, which intentional disregard is
materially injurious to the Company or any of its Subsidiaries, (ii) the knowing
and intentional theft by such Participant of property of the Company or any of
its Subsidiaries, which property has a substantial value, (iii) the commission
by such Participant of an act of moral turpitude which is materially injurious
to the Company or any of its Subsidiaries or (iv) any material breach of this or
any employment agreement between the Company or its Subsidiaries and such
Participant or any material breach of any executive agreement evidencing the
purchase and sale of Common Stock or the grant of Options by the Company to such
Participant.
"Class L Common" means the Company's Class L Common Stock, par value $.01
per share, or, in the event that the outstanding shares of Class L Common are
hereafter recapitalized, converted into or exchanged for different stock or
securities of the Company, such other stock or securities.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Common" means the Company's Common Stock, par value $.01 per share, or, in
the event that the outstanding shares of Common are hereafter recapitalized,
converted into or exchanged for different stock or securities of the Company,
such other stock or securities.
<PAGE>
"Common Stock" means the Class L Common and the Common.
"Disability" means (i) any physical or mental incapacitation which results
in a Participant's inability to perform his or her duties and responsibilities
for the Company and its Subsidiaries for a total of 120 days during any 12 month
period, as determined by the Board in its good faith judgment and (ii) shall be
deemed to have occurred on the 120th day of such inability to perform.
"Executive Stock" with respect to a Participant, means any Common Stock
purchased by such Participant hereunder and any Common Stock issued to such
Participant upon exercise of any Options granted hereunder.
"Fair Market Value" of a share of Common Stock means (a) the mean between
the highest and lowest reported sale prices of a share of Common Stock on the
New York Stock Exchange--Composite Transactions Table (or, if not so reported,
on any domestic stock exchanges on which the Common Stock is then listed); or
(b) if the Common Stock is not listed on any domestic stock exchange, the mean
between the closing high bid and low asked prices of a share of Common Stock as
reported by the National Association of Securities Dealers Automated Quotation
System (or, if not so reported, by the system then regarded as the most reliable
source of such quotations); or (c) if the Common Stock is listed on a domestic
stock exchange or quoted in the domestic over-the-counter market, but there are
not reported sales or quotations, as the case may be, on the given date, the
value determined pursuant to (a) or (b) above using the reported sale prices or
quotations on the last previous date on which so reported; or (d) if none of the
foregoing clauses apply, the fair market value of a share of Common Stock
without discounts as determined in good faith by the Board and stated in writing
in a notice delivered to the holders of the Common Stock involved (a
"Determination Notice").
"Independent Third Party" means any person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company's Common
Stock on a fully-diluted basis (a "5% Owner"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other persons.
"Investors" means the Persons listed on Schedule A hereto.
"Option" means any option enabling the holder thereof to purchase any class
of Common Stock from the Company granted by the Board pursuant to the provisions
of this Plan. Options to be granted under this Plan may be incentive stock
options within the meaning of Section 422 of the Code ("Incentive Stock
Options") or in such other form, consistent with this Plan, as the Board may
determine.
"Original Value" for each share of Executive Stock will be equal to the
price paid by the Participant for each share of Common Stock (as proportionally
adjusted for all stock splits, stock dividends, and other recapitalizations
affecting the Common Stock subsequent to the date of adoption hereof).
<PAGE>
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time the option is
granted, each of the corporations other than the last corporation in the chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
3. Grant of Options. The Board shall have the right and power to grant to
any Participant, at any time prior to the termination of this Plan, Options in
such quantity, at such price, on such terms and subject to such conditions that
are consistent with this Plan and established by the Board. Options granted
under this Plan shall be in one of the forms described in this paragraph 3
below, or in such other form or forms as the Board may determine, and shall be
subject to such additional terms and conditions and evidenced by agreements as
shall be determined from time to time by the Board. Except as otherwise set
forth in such an agreement between the Company and any Participant, Options
shall be subject to all of the terms and conditions contained in this Plan.
(a) Target Options.
(i) A "Tranche I Option" shall entitle a Participant to purchase from
the Company one or more shares of Common and shall have an exercise price
per share as determined by the Board and evidenced in such Participant's
executive agreement (the "Tranche I Price").
(ii) A "Tranche II Option" shall entitle a Participant to purchase
from the Company one or more shares of Common and shall have an exercise
price per share as determined by the Board and evidenced in such
Participant's executive agreement (the "Tranche II Price").
(iii) Tranche I Options and Tranche II Options are referred to herein
as "Target Options," and the shares issued upon exercise of the Tranche I
Options or the Tranche II Options are referred to herein as "Target Option
Shares". The number of Target Option Shares, the Tranche I Price and the
Tranche II Price will be equitably adjusted for any stock split, stock
dividend, reclassification or recapitalization of the Company which occurs
subsequent to the date of adoption hereof. The Target Options will expire
on the earlier of the tenth anniversary of the date of grant or the date of
termination of the respective Participant's employment with the Company or
any of its Subsidiaries for any reason (the "Termination Date"); provided
that any portion of the Target Options which has not vested and become
exercisable prior to the Termination Date shall expire on the Termination
Date and may not be exercised under any circumstance; provided further that
any portion of the Target Options which has vested and become exercisable
prior to the Termination Date will expire on the earlier of (i) 30 days
after the Termination Date and (ii) the tenth anniversary of the date such
options are granted. Target Options are not intended to be "incentive stock
options" within the meaning of Section 422A of the Internal Revenue Code.
(iv) Exercisability. Target Options will immediately vest and become
exercisable
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with respect to Target Option Shares on the date immediately prior to the
tenth anniversary of the date of adoption hereof; provided that upon the
occurrence of a Tranche I Acceleration Event, all of the Tranche I Options
will immediately vest and become exercisable and upon the occurrence of a
Tranche II Acceleration Event, all of the Tranche II Options will
immediately vest and become exercisable. For this purpose, a Tranche I
Acceleration Event shall be the date on which the purchasers of the
Company's common stock under that certain Stock Purchase Agreement dated as
of December 20, 1994 (the "Stock Purchase Agreement") as set forth on
Exhibit A attached hereto (collectively, the "Investors") have achieved an
Investor Return Multiple (as defined below) of at least three (a "Tranche I
Acceleration Event") and a Tranche II Acceleration Event shall be the date
on which the Investors have achieved an Investor Return Multiple of at
least five (a "Tranche II Acceleration Event"). A Tranche I Acceleration
Event and Tranche II Acceleration Event are also referred to herein as
"Acceleration Events."
(v) Vesting of Target Option Shares. Target Option Shares shall be
fully vested immediately upon exercise of the Target Options with respect
thereto.
(vi) Procedure for Exercise. At any time after all or any portion of
the Target Options have become exercisable with respect to any Target
Option Shares and prior to the Expiration Date, a Participant may exercise
all or a portion of his or her Target Options with respect to Target Option
Shares which have become vested and exercisable by delivering written
notice of exercise to the Company together with (i) a written
acknowledgment that such Participant has read and has been afforded an
opportunity to ask questions of management of the Company regarding all
financial and other information provided to such Participant regarding the
Company and (ii) payment in full by delivery of a cashier's, certified
check or wire transfer in the amount equal to the product of (A) in the
case of the Tranche I Option, the Tranche I Price multiplied by the number
of Tranche I Option Shares to be acquired and (B) in the case of the
Tranche II Option, the Tranche II Price multiplied by the number of Tranche
II Option Shares to be acquired. As a condition to any exercise of a Target
Option, a Participant will permit the Company to deliver to him or her all
financial and other information regarding the Company and its Subsidiaries
which it believes necessary to enable such Participant to make an informed
investment decision.
(vii) Determination of Investor Return Multiple.
(A) "Acceleration Event" will be the first to occur of (i) a Sale of
the Company or (ii) on any date subsequent to the date that (A) the Company
sells any shares of its common stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended and (B) the Investors or their
affiliates cease to own in the aggregate at least 20% of the outstanding common
stock of the Company.
(B) "Investor Return Multiple" means the number determined by dividing
Cash Inflows (as defined below) by Cash Outflows (as defined below). The
calculation of the
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Investor Return Multiple will be determined in good faith by the Board.
(C) "Cash Inflows" as used herein shall include the sum of all cash
payments received by the Investors on the consummation of or prior to an
Acceleration Event with respect to debt or equity securities of the Company
purchased by the Investors (excluding all management fees, points, and other
fees paid to the Investors by or on behalf of the Company and/or its
Subsidiaries) prior to such Acceleration Event (whether such payments are
received from the Company or any third party, and whether such payments are
received as interest, dividends, proceeds with respect to sale or redemption of
such securities, upon a liquidation of the Company or otherwise), including
reimbursement for payments made by Investors in respect of fees and expenses
incurred in connection therewith.
(D) "Cash Outflows" as used herein shall include the sum of all cash
payments and investments made by the Investors to and in the Company and to
others to acquire debt or equity securities of the Company prior to an
Acceleration Event, including payments made by Investors in respect of fees and
expenses incurred in connection therewith.
(E) "Sale of the Company" means any transaction involving the Company
and an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of the Company's board of directors (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis
(for purposes hereof "all or substantially all" shall have the meaning given
such phrase in the Revised Model Business Corporation Act).
(b) Time Options.
(i) A "Time Option" shall entitle a Participant to purchase one or
more shares of Common ("Time Option Shares") and shall have an exercise
price per share as determined by the Board and evidenced in such
Participant's executive agreement (the "Option Price"). The Option Price
and the number of Time Option Shares will be equitably adjusted for any
stock split, stock dividend, reclassification or recapitalization of the
Company which occurs subsequent to the date of adoption hereof. The Time
Options will expire on the earlier of the tenth anniversary of the date of
grant or the Termination Date; provided that any portion of the Time
Options which has not vested and become exercisable prior to the
Termination Date shall expire on the Termination Date and may not be
exercised under any circumstance; provided further that any portion of the
Time Options which has vested and become exercisable prior to the
Termination Date will expire on the earlier of (i) 30 days after the
Termination Date and (ii) the tenth anniversary of the date such options
are granted. Time Options are not intended to be "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code.
(ii) Exercisability. On each date set forth below, the Time Options
will vest, and
-5-
<PAGE>
thus become exercisable as set forth in the agreement between the Company
and the Participant, or, in the absence of such a term in such agreement,
with respect to the cumulative percentage of Time Option Shares set forth
opposite such date if the respective Participant is, and has been,
continuously employed by the Company or any of its Subsidiaries from the
date of grant through such date:
<TABLE>
<CAPTION>
Cumulative Percentage
Date of Time Options Vested
---- ----------------------
<S> <C>
October 1, 1998 20%
October 1, 1999 40%
October 1, 2000 60%
October 1, 2001 80%
October 1, 2002 100%
</TABLE>
(iii) Vesting of Time Option Shares. Time Option Shares shall be fully
vested immediately upon exercise of the Time Option with respect thereto.
(iv) Procedure for Exercise. At any time after all or any portion of
the Time Options have become exercisable with respect to any Time Option
Shares and prior to the Expiration Date, a Participant may exercise all or
a portion of his or her Time Option with respect to the Time Option Shares
which have become vested and exercisable by delivering written notice of
exercise to the Company together with (i) a written acknowledgment that
such Participant has read and has been afforded an opportunity to ask
questions of management of the Company regarding all financial and other
information provided to such Participant regarding the Company and (ii)
payment in full by delivery of a cashier's, certified check or wire
transfer in the amount equal to the product of the Option Price multiplied
by the number of Time Option Shares to be acquired. As a condition to any
exercise of a Time Option, a Participant will permit the Company to deliver
to him or her all financial and other information regarding the Company and
its Subsidiaries which it believes necessary to enable such Participant to
make an informed investment decision.
4. Sale of Common Stock. The Board shall have the power and authority to
sell to any Participant any class or classes of Common Stock ("Purchased Stock")
at any time prior to the termination of this Plan in such quantity, at such
price, on such terms and subject to such conditions that are consistent with
this Plan and established by the Board. Common Stock sold under this Plan shall
be subject to such terms and evidenced by agreements as shall be determined from
time to time by the Board.
5. Repurchase Option. In the event that a Participant is no longer
employed by the Company or any of its Subsidiaries for any reason (the date of
such termination being referred to
-6-
<PAGE>
herein as the "Termination Date"), the Executive Stock issued to such
Participant, whether held by such Participant or one or more transferees, will
be subject to repurchase by the Company and the Investors (solely at their
option) pursuant to the terms and conditions set forth in this paragraph 5 (the
"Repurchase Option"), unless otherwise set forth in the agreement between the
Company and the Participant.
(a) Termination Other than for Cause. If a Participant is no longer
employed by the Company or any of its Subsidiaries as a result of any reason
other than such Participant's termination for Cause, then on or after the
Termination Date, the Company may elect to purchase all or any portion of the
Executive Stock issued to such Participant at a price per share equal to the
Fair Market Value thereof (x) as determined on the Termination Date, if the
Repurchase Notice (as defined in subparagraph (c) below) has been delivered
within three months of the Termination Date or (y) as determined on a date
determined by the Board within 30 days prior to the delivery of the Repurchase
Notice, if the Repurchase Notice is delivered after the third month following
the Termination Date.
(b) Termination for Cause. If a Participant is no longer employed by the
Company or any of its Subsidiaries as a result of such Participant's termination
for Cause, then on or after the Termination Date, the Company may elect to
purchase all or any portion of the Executive Stock issued to such Participant at
a price per share equal to the lower of its Original Value or the Fair Market
Value thereof.
(c) Repurchase Procedures. Pursuant to the Repurchase Option, the Company
may elect to exercise the right to purchase all or any portion of the shares of
Executive Stock issued to a Participant by delivering written notice (the
"Repurchase Notice") to the holder or holders of the such Executive Stock. The
Repurchase Notice will set forth the number of shares of Executive Stock to be
acquired from such holder(s), the Fair Market Value for such shares, the
aggregate consideration to be paid for such shares and the time and place for
the closing of the transaction. In the event that the Company elects to purchase
a portion of such Executive Stock pursuant to the terms of this paragraph 5, if
any shares of such Executive Stock are held by transferees of such Participant,
the Company shall purchase the shares elected to be purchased from such
holder(s) of Executive Stock, pro rata according to the number of shares of
Executive Stock held by such holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share). If
Executive Stock of different classes is to be purchased by the Company and
Executive Stock is held by transferees of such Participant, the number of shares
of each class of Executive Stock to be purchased will be allocated among such
holders, pro rata according to the total number of shares of Executive Stock to
be purchased from such persons.
(d) Investor Rights.
(i) If for any reason the Company does not elect to purchase all of
the Executive Stock (issued to a particular Participant) pursuant to the
Repurchase Option prior to the 180th day following the Termination Date,
the Investors will be entitled to exercise the Repurchase Option, in the
manner set forth in this paragraph 5, for the Executive Stock the Company
has
-7-
<PAGE>
not elected to purchase (the "Available Shares"). As soon as practicable,
but in any event within thirty (30) days after the Company determines that
there will be any Available Shares, the Company will deliver written notice
(the "Option Notice") to the Investors setting forth the number of
Available Shares and the price for each Available Share as determined
pursuant to the provisions of this paragraph 5.
(ii) Each of the Investors will initially be permitted to purchase its
pro rata share (based upon the number of shares of Common Stock then held
by such Investors) of the Available Shares. Each Investor may elect to
purchase any number of the Available Shares (subject to all of the terms of
this paragraph 5) by delivering written notice to the Company within 30
days after receipt of the Option Notice from the Company (such 30-day
period being referred to herein as the "Investor Election Period").
(iii) As soon as practicable but in any event within five (5) days
after the expiration of the Investor Election Period, the Company will, if
necessary, notify the Investors electing to purchase Available Shares of
any Available Shares which Investors have elected not to purchase and each
of the electing Investors will be entitled to purchase the remaining
Available Shares on the same terms as described above (the "Second Option
Notice"); provided that if in the aggregate such Investors elect to
purchase more than the remaining Available Shares, such remaining Available
Shares purchased by each such Investor will be reduced on a pro rata basis
based upon the number of shares of Common Stock then held by such
Investors. Each Investor may elect to purchase any of the remaining
Available Shares available to such Investor by delivering written notice to
the Company within 10 days after the delivery of the Second Option Notice
(with such 10-day period referred to herein as the "Second Investor
Election Period").
(iv) As soon as practicable but in any event within five (5) business
days after the expiration of the Investor Election Period or the Second
Investor Election Period (if any), the Company will, if necessary, notify
the holder(s) of the Executive Stock as to the number of shares of
Executive Stock being purchased from the holder(s) by the Investors (the
"Supplemental Repurchase Notice"). At the time the Company delivers a
Supplemental Repurchase Notice to the holder(s) of such Executive Stock,
the Company will also deliver to each electing Investor written notice
setting forth the number of such shares of Executive Stock that the Company
and each Investor will acquire, the aggregate purchase price to be paid and
the time and place of the closing of the transaction.
(v) The Company shall have the option at any time to repurchase from
any Investor any shares of Common Stock purchased by such Investor pursuant
to the terms hereof at a price per share equal to the amount paid therefor
by such Investor plus 8% per annum from the date such Investor purchased
such shares to the date of repurchase of such shares by the Company. For
purposes of determining an Investor Return Multiple, the amount of cash
payments to, and investments by, Investors under this paragraph 5 shall not
be taken into account in determining Cash Inflows and Cash Outflows.
-8-
<PAGE>
(e) Closing. The closing of the transactions contemplated by this paragraph
5 will take place on the date designated by the Company in the Repurchase Notice
or the Supplemental Repurchase Notice, as the case may be, which date will not
be more than 90 days after the delivery of such notice. The Company and/or the
Investors, as the case may be, will pay for the Executive Stock to be purchased
pursuant to the Repurchase Option by delivery of, in the case of each Investor,
a check payable to the holder of Executive Stock, and in the case of the Company
(i) a check payable to the holder of such Executive Stock or (ii) if the
repurchase price to be paid by the Company is greater than $100,000, the Company
may elect to deliver a check payable to the holder of such Executive Stock in an
amount equal to the greater of $100,000 or one-third (1/3) of the repurchase
price to be paid by the Company, and a note or notes in the amount of the
balance of the repurchase price to be paid by the Company, which note or notes
shall be payable in three equal annual installments beginning on the first
anniversary of the closing of such purchase and bearing interest (payable
quarterly) at a rate per annum equal to 8%. Any notes issued by the Company
pursuant to this paragraph 5(e) shall be subject to any restrictive covenants to
which the Company is subject at the time of such purchase. The Company and/or
the Investors, as the case may be, will receive customary representations and
warranties from each seller regarding the sale of Executive Stock, including,
but not limited to, the representation that such seller has good and marketable
title to the Executive Stock to be transferred free and clear of all liens,
claims and other encumbrances.
(f) Restrictions on Repurchase. Notwithstanding anything to the contrary
contained in this Plan, all repurchases of Executive Stock by the Company shall
be subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of
Executive Stock hereunder which the Company is otherwise entitled to make, the
Company may make such repurchases as soon as it is permitted to do so under such
restrictions.
6. Administration of the Plan. The Board shall have the power and
authority to prescribe, amend and rescind rules and procedures governing the
administration of this Plan, including, but not limited to, the full power and
authority (i) to interpret the terms of this Plan, the terms of any Options
granted under this Plan, and the rules and procedures established by the Board
governing any such Options and (ii) to determine the rights of any person under
this Plan, or the meaning of requirements imposed by the terms of this Plan or
any rule or procedure established by the Board. Each action of the Board shall
be binding on all persons.
7. Participation Rights. At least 30 days prior to any sale or exchange
(a "Transfer") of any class of Common Stock by an Investor (other than a
Transfer among the Investors, their affiliates or an employee of the Company or
its Subsidiaries), such Investor (the "Transferring Stockholder") will deliver a
written notice (the "Sale Notice") to the Company and the holders of such class
of Executive Stock (the "Other Stockholders"), specifying in reasonable detail
the identity of the prospective transferee(s) and the terms and conditions of
the Transfer. The Other Stockholders may elect to participate in the
contemplated Transfer by delivering written notice to the Transferring
Stockholder within 30 days after delivery of the Sale Notice. If any Other
-9-
<PAGE>
Stockholders have elected to participate in such Transfer, each of the
Transferring Stockholder and such Other Stockholders will be entitled to sell in
the contemplated Transfer, at the same price and on the same terms, a number of
shares of such class of Common Stock equal to the product of (i) the quotient
determined by dividing the number of shares of such class of Common Stock owned
by such person by the aggregate number of shares of such class of Common Stock
owned by the Transferring Stockholder and the Other Stockholders participating
in such sale and (ii) the number of shares of such class of Common Stock to be
sold in the contemplated Transfer. Notwithstanding the foregoing, in the event
that the Transferring Stockholder intends to transfer more than one class of
Common Stock, the Other Stockholders participating in such transfer shall be
required to sell in the contemplated Transfer a pro rata portion of shares of
all classes of Common Stock, which portion shall be determined in the manner set
forth immediately above. The Transferring Stockholder will use reasonable
efforts to obtain the agreement of the prospective transferee(s) to the
participation of the Other Stockholders in any contemplated Transfer, and the
Transferring Stockholder will not Transfer any of its shares of Common Stock to
the prospective transferee(s) unless (i) the prospective transferee(s) agrees to
allow the participation of the Other Stockholders or (ii) the Transferring
Stockholder agrees to purchase the number of shares of such class of Common
Stock from the Other Stockholders which the Other Stockholders would have been
entitled to sell pursuant to this Paragraph 7.
8. Anti-Dilution.
(a) If and whenever on or after the date of adoption hereof, the Company
issues or sells, or in accordance with this paragraph 8 is deemed to have issued
or sold, any shares of Common Stock (including shares held in the Company's
treasury) ("New Stock") some or all of which are issued and/or sold, other than
pursuant to the terms hereof, to any of the Investors or any of their affiliates
(the "Existing Stockholders"), then immediately upon such issuance or sale the
Company shall, in a written notice (a "New Stock Notice") delivered to each
Participant no later than the tenth (10th) day following such issuance or sale,
offer for sale to each Participant a number of additional shares of Common Stock
such that the number of shares of Common Stock, plus the number of unexercised
Options, held by such Participant immediately after such issuance or sale
(assuming purchase by such Participant of such additional shares) equals the
number of shares of Common Stock, plus the number of unexercised Options, held
by such Participant immediately prior to such issuance or sale multiplied by a
fraction, the numerator of which equals the total number of shares of Common
Stock deemed under this paragraph 8 to be outstanding immediately after such
issuance or sale, and the denominator of which equals the total number of shares
of Common Stock deemed under this paragraph 8 to be outstanding immediately
prior to such issuance or sale. The New Stock Notice shall state the number of
shares offered for sale to such Participant pursuant to this paragraph 8, the
purchase price per share therefor, as determined pursuant to this paragraph 8,
and the time and place for the closing of the purchase in the event such
Participant accepts the offer. The date of such closing shall be not more than
ninety (90) days following the issuance or sale of the New Stock.
(b) A Participant may elect to purchase all, none, or any portion not less
than 20% of the Common Stock offered for sale in a New Stock Notice by
delivering to the Company written notice
-10-
<PAGE>
thereof within fifteen (15) days following such Participant's receipt of such
New Stock Notice. In the event any one or more Participants elect to purchase
less than all of the shares offered for sale to such Participants in New Stock
Notices with respect to a particular issuance or sale, the Company shall make
available any such shares which such Participants elect not to purchase on a pro
rata basis to all other Participants, in a manner substantially similar to that
provided in paragraph 5(d) hereof with respect to Investors' rights.
(c) For purposes of the computation referred to in this paragraph 8, the
number of shares of Common Stock outstanding shall be deemed to include all
shares issuable to the holders of any securities exercisable for, or convertible
into, shares of Common Stock. For purposes of the computation of the
consideration per share received, as referred to in this paragraph 8, the
consideration received upon issuance or sale of securities shall be deemed to
include the consideration received for all securities issued in the same
transaction to the same purchaser, as appropriate under the circumstances. The
Common Stock offered for sale pursuant to this paragraph 8 shall be of the same
class as the New Stock; and, if the New Stock is comprised of Common Stock of
more than one class, the stock offered for sale pursuant to this paragraph 8
shall be comprised of the same classes in the same proportions as the New Stock.
The purchase price per share for Common Stock offered for sale pursuant to this
paragraph 8 shall be equal to the price per share at which the New Stock is
sold.
(d) The Existing Stockholders may, in their sole discretion, elect to
fulfill the Company's obligations to Participants under this paragraph 8 out of
such Existing Stockholders' holdings of Common Stock. In the event the Existing
Stockholders fulfill the Company's obligations to Participants under this
paragraph 8 with respect to an issuance or sale of Common Stock, the Company
shall have no further obligations to such Participants under this paragraph 8
with respect to such issuance or sale.
9. Limitation on the Aggregate Number of Shares. The number of shares of
Common Stock issued under this Plan (including the number of shares of Common
Stock with respect to which Options may be granted under this Plan (and which
may be issued upon the exercise or payment thereof)) shall not exceed, in the
aggregate, 1,000,000 shares of Common (as such number is equitably adjusted
pursuant to the terms hereof). If any Options expire unexercised or unpaid or
are canceled, terminated or forfeited in any manner without the issuance of
Common Stock or payment thereunder, the shares with respect to which such
Options were granted shall again be available under this Plan. Similarly, if any
shares of Common Stock issued hereunder, either as Purchased Stock or upon
exercise of Options, are repurchased hereunder, such shares shall again be
available under this Plan for reissuance as Executive Stock. In addition, if any
party other than the Company purchases shares of Common Stock in lieu of
repurchase by the Company, the Company will, as promptly as legally permissible,
purchase such shares from such party and such shares shall again be available
under this Plan for reissuance as Executive Stock. Shares of Common Stock to be
issued upon exercise of the Options or shares of Common Stock to be sold
directly hereunder may be either authorized and unissued shares, treasury
shares, or a combination thereof, as the Board shall determine.
-11-
<PAGE>
10. Incentive Stock Options. All Incentive Stock Options (i) shall have
an exercise price per share of Common Stock of not less than 100% of the fair
market value of such share on the date of grant, (ii) shall not be exercisable
more than ten years after the date of grant, (iii) shall not be transferable
other than by will or under the laws of descent and distribution and, during the
lifetime of the Participant to whom such Incentive Stock Options were granted,
may be exercised only by such Participant (or his guardian or legal
representative), and (iv) shall be exercisable only during the Participant's
employment by the Company or a Subsidiary, provided, however, that the Board
may, in its discretion, provide at the time that an Incentive Stock Option is
granted that such Incentive Stock Option may be exercised for a period ending no
later than either (x) the termination of this Plan in the event of the
Participant's death while an employee of the Company or a Subsidiary, or (y) the
date which is three months after termination of the Participant's employment for
any other reason. The Board's discretion to extend the period during which an
Incentive Stock Option is exercisable shall only apply if and to the extent that
(i) the Participant was entitled to exercise such Option on the date of
termination, and (ii) such Option would not have expired had the Participant
continued to be employed by the Company or a Subsidiary. To the extent that the
aggregate fair market value of stock with respect to which Incentive Stock
Options are exercisable for the first time by any individual during any calendar
year exceeds $100,000, such Options shall be treated as Options which are not
Incentive Stock Options.
11. Listing, Registration and Compliance with Laws and Regulations. Each
Option shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares subject to the Option upon any securities exchange or under any state
or federal securities or other law or regulation, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition to or
in connection with the granting of such Option or the issue or purchase of
shares thereunder, no such Option may be exercised or paid in Common Stock in
whole or in part unless such listing, registration, qualification, consent or
approval (a "Required Listing") shall have been effected or obtained, and the
holder of the Option will supply the Company with such certificates,
representations and information as the Company shall request which are
reasonably necessary or desirable in order for the Company to obtain such
Required Listing, and shall otherwise cooperate with the Company in obtaining
such Required Listing. In the case of officers and other persons subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, the Board may
at any time impose any limitations upon the exercise of an Option which, in the
Board's discretion, are necessary or desirable in order to comply with Section
16(b) and the rules and regulations thereunder. If the Company, as part of an
offering of securities or otherwise, finds it desirable because of federal or
state regulatory requirements to reduce the period during which any Options may
be exercised, the Board may, in its discretion and without the consent of the
holders of any such Options, so reduce such period on not less than 15 days'
written notice to the holders thereof.
12. Cash Payments Upon Exercise. Upon the written request of the holder of
exercisable Options which are not Incentive Stock Options, the Board may provide
that such holder shall, as soon as practicable after the exercise of the
Options, receive, in lieu of any issuance of
-12-
<PAGE>
Common Stock, a cash payment in such amount as the Board and such holder may
agree, but not more than the excess of the Fair Market Value of a share of
Common Stock (on the date the holder recognizes taxable income) over the
Option's exercise price multiplied by the number of shares as to which the
Option is exercised.
13. Adjustment for Change in Common Stock. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation or other change in the Common Stock, the Board
shall make appropriate changes in the number and type of shares authorized by
this Plan, the number and type of shares covered by outstanding Options and the
prices specified therein.
14. Taxes. The Company shall be entitled, if necessary or desirable, to
withhold (or secure payment from the Plan participant in lieu of withholding)
the amount of any withholding or other tax due from the Company or any
subsidiary with respect to any amount payable and/or shares issuable under this
Plan, and the Company or any subsidiary may defer such payment or issuance
unless indemnified to its satisfaction.
15. Termination and Amendment. The Board at any time may suspend or
terminate this Plan and make such additions or amendments as it deems advisable
under this Plan, except that they may not, without further approval by the
Company's stockholders, (a) increase the maximum number of shares as to which
Options may be granted under this Plan, except pursuant to an express provision
hereof or (b) extend the term of this Plan; provided that, subject to paragraph
11 hereof, the Board may not change any of the terms of a written agreement with
respect to an Option between the Company and the holder of such Option without
the approval of the holder of such Option. No Options shall be granted or shares
of Common Stock issued hereunder after October 1, 2007; provided that, if the
term of this Plan is otherwise extended, no Incentive Stock Options shall be
granted hereunder after October 1, 2007.
-13-
<PAGE>
Schedule A
Investors
---------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
Randolph Street Partners
GS Capital Partners, L.P.
Bridge Street Fund 1994, L.P.
Stone Street Fund 1994
-14-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF DADE BEHRING INC.
<TABLE>
<CAPTION>
State or Jurisdiction of
Subsidiary Incorporation or Organization
---------- -----------------------------
<S> <C>
Dade B.V. The Netherlands
Dade AG Switzerland
Dade Diagnostics Lda Portugal
Dade Diagnostics, SL Spain
Dade Diagnostics Corporation Canada
Dade Diagnostics of P.R., Inc. Delaware
Dade Diagnostics Pty. Ltd Australia
Dade Diagnostika GmbH Germany
Dade Export Corporation Delaware
Dade Foreign Sales Corporation Barbados W.I.
Dade Finance, Inc. Delaware
Dade Limited Japan
Dade Ltda. Brazil
Dade Microscan Inc. Delaware
Dade S.A. Belgium
Dade S.A. France
Dade S.A. de CV Mexico
Dade S.p.A. Italy
Syva Diagnostics Holding Company San Jose
Syva Company San Jose
Syva Childcare Inc. San Jose
Dade Behring Canada Inc. Canada
Behring Diagnostica de Mexico, S.A. de C.V. Mexico
Behring Diagnostica Ltda Brazil
Dade International de Venezuela C.A. Venezuela
Dade Behring Holding GmbH Germany
Dade Behring Marburg GmbH Germany
Dade Behring Vertriebs GmbH Germany
Dade Behring Grundstucks GmbH Germany
Dade Behring SA France
Dade Behring Diagnostica S.p.A. Italy
Instituto Behring S.p.A. Italy
Behring Diagnostics Iberica SA Spain
Behring Diagnostics Portugal Portugal
Syva Diagnostica B.V. Netherlands
Syva European Distribution BV Netherlands
Dade Behring SA Belgium
Behring Diagnostics Benelux s.a.-n.v. Belgium
Behring Diagnostica Austria Ges.m.b.H. Austria
Behring Diagnostica Denmark A/S Denmark
Behring Diagnostics Finland Oy/Ab Finland
Behring Diagnostika Norway AS Norway
Behring Diagnostika Sweden AS Sweden
Behring Diagnostics UK Ltd UK
Behring Diagnostika Hellas ABEE Greece
</TABLE>
X-3
<PAGE>
<TABLE>
<S> <C>
Behring Diagnostics Polska Sp.ro.o. Poland
Behring Diagnostics AG Switzerland
Dade Diagnostics AG Switzerland
Hoechst Behring Diagnotics Ltd Japan
Behring Diagnostics Australia Pty Ltd Australia
Behring Diagnostics Ltd., NZ New Zealand
Behring Diagnostics Asia Pte. Ltd. Singapore
Behring Diagnostics (Malaysia) San Bhd Malaysia
PT Behrindonusa Perkasa Indonesia
Behring Diagnostics Philippines, Inc. Philippines
</TABLE>
X-4
<PAGE>
Exhibit 23.1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Dade Behring Inc.
Our audits of the consolidated financial statements of Dade Behring Inc.
referred to in our report dated March 25, 1998 (which report and consolidated
financial statements are listed in the "Index to Financial Statements and
Schedule" of this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a)(i) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 25, 1998
X-5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Dade Behring and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,500
<SECURITIES> 0
<RECEIVABLES> 359,600
<ALLOWANCES> 27,700
<INVENTORY> 272,500
<CURRENT-ASSETS> 765,200
<PP&E> 214,500
<DEPRECIATION> 364,500
<TOTAL-ASSETS> 1,510,400
<CURRENT-LIABILITIES> 431,200
<BONDS> 350,000
0
0
<COMMON> 0
<OTHER-SE> 204,100
<TOTAL-LIABILITY-AND-EQUITY> 1,510,400
<SALES> 980,500
<TOTAL-REVENUES> 980,500
<CGS> 654,100
<TOTAL-COSTS> 1,128,100
<OTHER-EXPENSES> (9,000)
<LOSS-PROVISION> 17,000
<INTEREST-EXPENSE> 87,800
<INCOME-PRETAX> (226,400)
<INCOME-TAX> (83,800)
<INCOME-CONTINUING> (142,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,600)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
