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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JOHNSON & JOHNSON
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 2834 22-1024240
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ONE JOHNSON & JOHNSON PLAZA
NEW BRUNSWICK, NEW JERSEY 08933
TELEPHONE: (732) 524-0400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN M. ROSENBERG, ESQ.
JAMES J. BERGIN, ESQ.
JOHNSON & JOHNSON
ONE JOHNSON & JOHNSON PLAZA
NEW BRUNSWICK, NEW JERSEY 08933
TELEPHONE: (732) 524-0400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
ROBERT I. TOWNSEND, III, ESQ. STEPHEN W. CARR, P.C.
CRAVATH, SWAINE & MOORE PAUL D. SCHWARTZ, P.C.
WORLDWIDE PLAZA GOODWIN PROCTER LLP
825 EIGHTH AVENUE 53 STATE STREET
NEW YORK, NY 10019 BOSTON, MA 02109
TELEPHONE: (212) 474-1000 TELEPHONE: (617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the split-off and merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] --------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] --------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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Common Stock, par value $1.00 per share...... 25,105,088(2) N/A $1,420,454,702(3) $355,114
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(1) This Registration Statement relates to securities of the registrant issuable
to holders of common stock, par value $.001 per share ("Inverness common
stock"), of Inverness Medical Technology, Inc., a Delaware corporation
("Inverness"), in the proposed merger of Sunrise Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of the registrant, with
and into Inverness.
(2) Based on the maximum number of shares to be issued in connection with the
merger, an integral part of which is the split-off of Innovations (as
defined below), calculated as the product of (a) 38,240,805, the aggregate
number of shares of Inverness common stock outstanding on August 6, 2001
(other than shares owned by Inverness, Sunrise Acquisition Corp. or the
registrant) or issuable pursuant to the exercise of outstanding options,
warrants or other rights prior to the date the merger is expected to be
completed and (b) an assumed exchange ratio of 0.6565 shares of the
registrant's common stock for each share of Inverness common stock. In the
split-off, common stock of Inverness Medical Innovations, Inc., a Delaware
corporation and a majority-owned subsidiary of Inverness ("Innovations"),
also will be exchanged for each share of Inverness common stock. The shares
of Innovations common stock are being registered on a separate Registration
Statement on Form S-4 under CIK No. 0001145460 (the "Innovations S-4").
(3) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of the
registrant's common stock was calculated based upon the market value of
shares of Inverness common stock (the securities to be cancelled in the
merger) in accordance with Rule 457(c) under the Securities Act as follows:
(a) $37.145, the average of the high and low prices per share of Inverness
common stock on August 6, 2001, as reported on the American Stock Exchange,
multiplied by (b) 38,240,805, the aggregate number of shares of Inverness
common stock outstanding as of August 6, 2001 or issuable pursuant to the
exercise of outstanding options, warrants or other rights prior to the date
the merger is expected to be completed. The fee relates to the transactions
described herein, including the merger and the split-off in respect of which
Innovations is filing the Innovations Form S-4.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INVERNESS MEDICAL TECHNOLOGY, INC.
51 SAWYER ROAD, SUITE 200
WALTHAM, MA 02453-3448
--, 2001
Dear Fellow Stockholder:
You are cordially invited to attend the special meeting of stockholders of
Inverness Medical Technology, Inc., to be held on --, --, 2001, at --, local
time, at the offices of Goodwin Procter LLP, 53 State Street, Boston,
Massachusetts 02109.
At the special meeting, we will ask you to vote on a proposal to adopt an
agreement and plan of split-off and merger pursuant to which Johnson & Johnson
will acquire our diabetes care products business and we will simultaneously
distribute, or split-off, our women's health, nutritional supplements and
clinical diagnostics businesses. The transaction will occur in the following
steps:
- Inverness will restructure its operations so that its women's health,
nutritional supplements and clinical diagnostics businesses are held by
Inverness Medical Innovations, Inc., a majority-owned subsidiary of
Inverness and
- Inverness will merge with and become a wholly-owned subsidiary of Johnson
& Johnson and Innovations will be split-off as a separate company. As
part of the split-off and merger, shares of Johnson & Johnson common
stock, together with shares of Innovations common stock, will be issued
to our stockholders.
The split-off and merger will occur simultaneously and each will occur only
if the other occurs. After completion of the transaction, Inverness will be a
wholly-owned subsidiary of Johnson & Johnson and Innovations will be an
independent, publicly-owned company owned primarily by our stockholders.
If the split-off and merger agreement is adopted and the transaction is
subsequently completed, you will receive the following for each share of
Inverness common stock you own:
- a fraction of a share of Johnson & Johnson common stock, based upon an
exchange ratio that will be calculated by dividing $35.00 by the average
of the volume weighted averages of the trading prices of Johnson &
Johnson common stock for the 20 consecutive trading days ending with the
third trading day immediately preceding the date on which the split-off
and merger are completed and
- 0.20 of a share of Innovations common stock.
You will receive cash for any fractional share of Johnson & Johnson common
stock or any fractional share of Innovations common stock you would be entitled
to receive in the split-off and merger.
Johnson & Johnson common stock is traded on the New York Stock Exchange
under the trading symbol "JNJ," and on --, 2001 its closing price was $-- per
share. Innovations has applied for its shares to be approved for listing on the
American Stock Exchange under the trading symbol "--." There is currently no
public trading market for the shares of Innovations common stock.
The Inverness board of directors has carefully reviewed and considered the
terms and conditions of the proposed split-off and merger and the other
transactions contemplated by the split-off and merger agreement. The Inverness
board of directors has determined that the terms of the split-off and merger
agreement are advisable and in the best interests of Inverness and its
stockholders. THE INVERNESS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
SPLIT-OFF AND MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE ADOPTION OF THE SPLIT-OFF AND MERGER AGREEMENT.
At the special meeting, we will also ask you to vote on a proposal to
approve the Innovations 2001 stock option and incentive plan and a proposal to
approve the Innovations executive bonus plan. We refer
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to these plans collectively as the Innovations incentive plans. The completion
of the split-off and merger is not conditioned on approval of the Innovations
incentive plans, but the effectiveness of these plans is conditioned on
completion of the split-off and merger. THE INVERNESS BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE INNOVATIONS
INCENTIVE PLANS.
Your vote is important. We cannot complete the split-off and merger unless
the split-off and merger agreement is adopted by the affirmative vote of the
holders of a majority of the shares of Inverness common stock outstanding and
entitled to vote at the special meeting. Failure to vote in person or by proxy
will have the same effect as a vote against the adoption of the split-off and
merger agreement. Only stockholders who owned shares of Inverness common stock
at the close of business on --, 2001 will be entitled to vote at the special
meeting.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. Therefore, after reading this proxy
statement/prospectus, please complete, sign, date and return the enclosed proxy
card promptly. You may also vote by telephone, or electronically over the
Internet, by following the instructions on your proxy card.
This proxy statement/prospectus describes the proposed split-off and merger
and the split-off and merger agreement, as well as the Innovations incentive
plans, and provides specific information concerning the special meeting. Please
review this document carefully. YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS RELATING TO THE SPLIT-OFF AND MERGER" ON PAGE 12 OF THIS PROXY
STATEMENT/PROSPECTUS AND "RISK FACTORS -- RISKS RELATED TO THE SPLIT-OFF" AND
"RISK FACTORS -- RISKS RELATED TO OUR BUSINESS" ON PAGES X-6 AND X-9 OF THE
INNOVATIONS PROSPECTUS PORTION OF THIS PROXY STATEMENT/PROSPECTUS BEFORE VOTING.
Thank you for your cooperation, and we look forward to seeing you at the
meeting.
Cordially,
Ron Zwanziger
Chairman, Chief Executive Officer and
President
This proxy statement/prospectus serves as a prospectus of Johnson & Johnson
relating to the shares of Johnson & Johnson common stock to be issued by Johnson
& Johnson to Inverness stockholders in the merger and a prospectus of
Innovations relating to the shares of Innovations common stock to be issued by
Innovations to Inverness stockholders in the split-off. The Innovations
prospectus begins on page X-i of this proxy statement/prospectus and is a part
of this proxy/statement prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE SPLIT-OFF AND MERGER DESCRIBED IN THIS
PROXY STATEMENT/PROSPECTUS OR THE JOHNSON & JOHNSON COMMON STOCK OR INNOVATIONS
COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE SPLIT-OFF AND MERGER, OR
DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated --, 2001,
and is first being mailed to Inverness stockholders on or about --, 2001.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Johnson & Johnson and Inverness from documents that
are not included in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses and telephone numbers:
JOHNSON & JOHNSON INVERNESS MEDICAL TECHNOLOGY, INC.
One Johnson & Johnson Plaza 51 Sawyer Road, Suite 200
New Brunswick, NJ 08933 Waltham, MA 02453
Attention: Investor Relations Attention: Investor Relations
Telephone: (732) 524-6491 Telephone: (781) 647-3900
If you would like to request documents, please do so by --, 2001 in order
to receive them before the special meeting.
See "Where You Can Find More Information" on page 96.
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INVERNESS MEDICAL TECHNOLOGY, INC.
51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453-3448
--, 2001
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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DATE: --, 2001
TIME: --, local time
PLACE: Goodwin Procter LLP
53 State Street
Boston, Massachusetts 02109
PURPOSE:
1. To consider and vote upon a proposal to adopt the agreement and plan of
split-off and merger among Johnson & Johnson, Sunrise Acquisition Corp., a
wholly-owned subsidiary of Johnson & Johnson, and Inverness Medical Technology,
Inc. In the split-off and merger:
- Inverness will merge with Sunrise Acquisition Corp. and become a
wholly-owned subsidiary of Johnson & Johnson
- Inverness Medical Innovations, Inc., a majority-owned subsidiary of
Inverness which will operate the women's health, nutritional supplements
and clinical diagnostics businesses of Inverness, will be split-off from
Inverness and
- shares of Johnson & Johnson common stock, together with shares of
Innovations common stock, will be issued to the stockholders of
Inverness.
You should carefully review the split-off and merger agreement, a copy of
which is attached as Annex 1 to this proxy statement/prospectus.
2. To consider and vote upon a proposal to approve the Innovations 2001
stock option and incentive plan.
3. To consider and vote upon a proposal to approve the Innovations
executive bonus plan.
We will transact no other business at the special meeting except such
business as may be properly brought before the special meeting or any
adjournment or postponement of it by the Inverness board of directors.
Only stockholders who owned shares of Inverness common stock at the close
of business on --, 2001, the record date for the special meeting, are entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements of the special meeting.
We cannot complete the split-off and merger unless the split-off and merger
agreement is adopted by the affirmative vote of the holders of a majority of the
shares of Inverness common stock outstanding and entitled to vote at the special
meeting. Holders of Inverness common stock have no appraisal rights under
Delaware law in connection with the split-off and merger. The accompanying proxy
statement/prospectus describes the proposed split-off and merger and the other
transactions contemplated by the split-off and merger agreement and provides
additional information about the parties involved. It also describes the
Innovations incentive plans. Please give this information your careful
attention.
THE INVERNESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE ADOPTION OF THE SPLIT-OFF AND MERGER AGREEMENT AND "FOR" THE APPROVAL OF THE
INNOVATIONS INCENTIVE PLANS.
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Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. Therefore, after reading the
accompanying proxy statement/prospectus, please complete, sign, date and return
the enclosed proxy card promptly in the enclosed postage-paid return envelope.
You may also vote by telephone, or electronically over the Internet, by
following the instructions on your proxy card. You may revoke the proxy at any
time prior to its exercise in the manner described in the accompanying proxy
statement/prospectus. Any stockholder present at the special meeting, including
any adjournments or postponements of the special meeting, may revoke such
stockholder's proxy and vote personally on the split-off and merger agreement
and the other matters to be considered at the special meeting. Executed proxies
with no instructions indicated thereon will be voted "FOR" the adoption of the
split-off and merger agreement and "FOR" the approval of the Innovations
incentive plans.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME. IF THE SPLIT-OFF
AND MERGER ARE COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER
OF YOUR STOCK CERTIFICATES.
Kenneth D. Legg, Ph.D.
Secretary
--, 2001
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TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE SPLIT-OFF AND MERGER........ 1
SUMMARY..................................................... 2
General................................................... 2
The Special Meeting....................................... 4
The Split-off and Merger.................................. 5
The Companies............................................. 7
Market Prices and Dividend Information.................... 7
Comparative Per Share Information......................... 9
Selected Historical Consolidated Financial Data of Johnson
& Johnson.............................................. 10
Selected Historical Consolidated Financial Data of
Inverness Medical Technology, Inc. .................... 11
RISK FACTORS RELATING TO THE SPLIT-OFF AND MERGER........... 12
THE SPECIAL MEETING......................................... 14
Date, Time and Place...................................... 14
Purpose of the Special Meeting............................ 14
Recommendation of the Inverness Board of Directors........ 14
Record Date; Shares Entitled to Vote; Quorum.............. 14
Vote Required............................................. 14
Shares Owned by Inverness Directors, Executive Officers
and Affiliates......................................... 15
Voting of Proxies......................................... 15
Revocability of Proxies................................... 15
Solicitation of Proxies................................... 15
THE COMPANIES............................................... 17
Johnson & Johnson......................................... 17
Inverness................................................. 17
Innovations............................................... 17
THE SPLIT-OFF AND MERGER AND RELATED TRANSACTIONS........... 19
Background to the Split-off and Merger and Related
Transactions........................................... 19
Reasons for the Split-off and Merger and Related
Transactions........................................... 22
Opinions of ABN AMRO Incorporated and UBS Warburg LLC..... 24
Interests of Inverness Directors and Executive Officers in
the Split-off and Merger and Related Transactions...... 36
Pre-Merger Restructuring Transactions..................... 39
Accounting Treatment of the Merger........................ 40
Form of the Merger........................................ 40
Merger and Split-off Consideration........................ 40
Ownership of Johnson & Johnson and Innovations Following
the Split-off and Merger............................... 40
Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares........................ 41
Effective Time of the Merger.............................. 42
Post-Closing Arrangements Between Johnson & Johnson,
Inverness and Innovations.............................. 42
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PAGE
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Stock Exchange Listing of Johnson & Johnson and
Innovations Common Stock............................... 42
Delisting and Deregistration of Inverness Common Stock.... 42
Material United States Federal Income Tax Consequences of
the Split-off and Merger............................... 42
Regulatory Matters........................................ 44
Appraisal Rights.......................................... 45
Litigation................................................ 45
Inverness Employee Benefits Matters....................... 46
Effect on Options and Warrants Relating to Inverness
Common Stock........................................... 47
Resale of Johnson & Johnson Common Stock.................. 48
Resale of Innovations Common Stock........................ 48
PRE-MERGER RESTRUCTURING TRANSACTION........................ 49
General................................................... 49
The Restructuring and Transfer of Assets.................. 49
Assumption of Liabilities................................. 49
Ancillary Agreements...................................... 50
Employee Matters.......................................... 50
Conversion of Options and Warrants........................ 51
Conditions................................................ 53
Mutual Release............................................ 53
Termination............................................... 53
THE SPLIT-OFF AND MERGER AGREEMENT.......................... 54
Conditions to the Completion of the Merger................ 54
No Solicitation........................................... 57
Termination of the Split-off and Merger Agreement......... 59
Fees and Expenses......................................... 60
Conduct of Business Pending the Split-off and Merger...... 60
Representations and Warranties............................ 63
Certificate of Incorporation and By-laws of the Surviving
Corporation............................................ 65
Amendment................................................. 65
Extension; Waiver......................................... 65
THE STOCK OPTION AGREEMENT.................................. 66
General................................................... 66
Exercise of the Option.................................... 66
Adjustments Upon Changes in Capitalization................ 66
Cash Payments for the Option.............................. 67
Limitation on Total Profit................................ 67
Registration Rights and Listing........................... 67
Assignability; Transfer Restrictions...................... 67
Effect of Stock Option Agreement.......................... 68
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PAGE
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POST-CLOSING ARRANGEMENTS................................... 69
The Tax Allocation Agreement.............................. 69
The Post-Closing Covenants Agreement...................... 70
The License Agreement..................................... 73
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 76
DESCRIPTION OF JOHNSON & JOHNSON CAPITAL STOCK.............. 77
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS OF JOHNSON &
JOHNSON AND INVERNESS..................................... 78
Capitalization............................................ 78
Number, Election, Vacancy and Removal of Directors........ 78
Amendments to Charter Documents........................... 79
Amendments to By-laws..................................... 80
Action by Written Consent................................. 80
Notice of Stockholder Actions............................. 81
Special Stockholder Meetings.............................. 82
Stockholder Inspection Rights; Stockholder Lists.......... 82
Limitation of Personal Liability and Indemnification of
Directors and Officers................................. 82
Dividends................................................. 84
Conversion................................................ 84
Voting Rights; Required Vote for Authorization of Certain
Actions................................................ 84
OTHER PROPOSALS............................................. 88
Approval of the Inverness Medical Innovations, Inc. 2001
Stock Option and Incentive Plan........................ 88
Approval of the Inverness Medical Innovations, Inc.
Executive Bonus Plan................................... 93
LEGAL MATTERS............................................... 94
EXPERTS..................................................... 95
OTHER MATTERS............................................... 95
FUTURE STOCKHOLDER PROPOSALS................................ 95
WHERE YOU CAN FIND MORE INFORMATION......................... 96
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 99
INVERNESS MEDICAL INNOVATIONS, INC. PROSPECTUS COVER........ X-i
PROSPECTUS SUMMARY.......................................... X-1
RISK FACTORS................................................ X-6
SPECIAL STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...... X-18
THE RESTRUCTURING AND THE SPLIT-OFF......................... X-19
POST-CLOSING ARRANGEMENTS................................... X-24
CAPITALIZATION.............................................. X-31
DIVIDEND POLICY............................................. X-32
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INVERNESS
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES................ X-33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. X-36
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PAGE
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BUSINESS.................................................... X-49
MANAGEMENT.................................................. X-59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. X-68
PRINCIPAL STOCKHOLDERS...................................... X-69
DESCRIPTION OF INNOVATIONS CAPITAL STOCK.................... X-71
MATERIAL DIFFERENCES IN THE RIGHTS OF OUR STOCKHOLDERS AND
INVERNESS STOCKHOLDERS.................................... X-75
SHARES ELIGIBLE FOR FUTURE SALE............................. X-76
MATERIAL TAX CONSEQUENCES................................... X-77
LEGAL MATTERS............................................... X-80
EXPERTS..................................................... X-80
ABOUT THIS PROSPECTUS AND WHERE YOU MAY FIND MORE
INFORMATION............................................... X-80
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED FINANCIAL STATEMENTS............................. XF-i
ANNEXES
Annex 1 -- Agreement and Plan of Split-off and Merger
Annex 2 -- Stock Option Agreement
Annex 3 -- Form of Restructuring Agreement
Annex 4 -- Form of Tax Allocation Agreement
Annex 5 -- Form of Post-Closing Covenants Agreement
Annex 6 -- Form of License Agreement
Annex 7 -- Opinion of ABN AMRO Incorporated
Annex 8 -- Opinion of UBS Warburg LLC
Annex 9 -- Inverness Medical Innovations, Inc. 2001 Stock
Option and Incentive Plan
iv
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QUESTIONS AND ANSWERS ABOUT THE SPLIT-OFF AND MERGER
Q: WHAT WILL HAPPEN TO INVERNESS AS A RESULT OF THE SPLIT-OFF AND MERGER?
A: If the split-off and merger are completed, Inverness' women's health,
nutritional supplements and clinical diagnostics businesses will be held by
Innovations, a newly formed publicly traded company to be owned primarily by
Inverness stockholders, while Inverness, which will consist primarily of its
diabetes care products business, will merge with and become a wholly-owned
subsidiary of Johnson & Johnson.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please complete, sign and date your proxy and
return it in the enclosed postage-paid return envelope as soon as possible,
so that your shares may be represented at the special meeting. You may also
vote by telephone, or electronically over the Internet, by following the
instructions on your proxy card. If you sign and send in your proxy and do
not indicate how you want to vote, we will count your proxy as a vote in
favor of the adoption of the split-off and merger agreement. Because the
required vote of Inverness stockholders is based upon the number of
outstanding shares of Inverness common stock, rather than upon the shares
actually voted, the failure by the holder of any such shares to submit a
proxy or to vote in person at the special meeting, including abstentions and
broker non-votes, will have the same effect as a vote against the adoption
of the split-off and merger agreement.
The special meeting will take place on --, 2001, at -- a.m., local time, at
the offices of Goodwin Procter LLP, 53 State Street, Boston, Massachusetts
02109. You may attend the special meeting and vote your shares in person,
rather than completing, signing, dating and returning your proxy.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy bearing a later date. If you choose
either of these two methods, you must submit your notice of revocation or
your new proxy to Inverness at 51 Sawyer Road, Suite 200, Waltham, MA 02453,
Attention: Secretary. You can also submit your new proxy by telephone or
electronically over the Internet. Third, you can attend the special meeting
and vote in person. Attendance at the special meeting will not in and of
itself constitute revocation of a proxy.
Q: IF MY INVERNESS SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your Inverness shares only if you provide instructions
on how to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. Without
instructions, your shares will not be voted, which will have the effect of a
vote against the adoption of the split-off and merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the split-off and merger are completed, you will receive a
transmittal form with instructions for the surrender of Inverness common
stock certificates. Please do not send in your stock certificates with your
proxy.
Q: WHEN DO YOU EXPECT THE SPLIT-OFF AND MERGER TO BE COMPLETED?
A: We are working to complete the split-off and merger as quickly as possible.
If approved by Inverness stockholders and if we receive the necessary
regulatory approvals, we expect to complete the split-off and merger during
the fourth quarter of 2001.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the split-off and merger or if you need
additional copies of this proxy statement/prospectus or the enclosed proxy
card, you should contact:
Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453
Attention: Investor Relations
Telephone: (781) 647-3900
1
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all the information that is important
to you. To understand the split-off and merger fully and for a more complete
description of the legal terms of the split-off and merger, you should carefully
read this entire proxy statement/prospectus and the other documents to which we
refer you, including in particular the copies of the split-off and merger
agreement, the stock option agreement, the restructuring agreement, the tax
allocation agreement, the post-closing covenants agreement, the license
agreement and the opinions of ABN AMRO Incorporated and UBS Warburg LLC that are
attached as annexes to this proxy statement/prospectus. See also "Where You Can
Find More Information" on page 96. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
GENERAL
WHAT INVERNESS STOCKHOLDERS WILL RECEIVE IN THE SPLIT-OFF AND MERGER (PAGE 40)
In the split-off and merger, each share of Inverness common stock will be
converted into the right to receive: (1) 0.20 of a share of Innovations common
stock and (2) a fraction of a share of Johnson & Johnson common stock based on
an exchange ratio intended to value that fractional share at $35.00. The exact
amount of Johnson & Johnson common stock to be exchanged for each share of
Inverness common stock, referred to as the exchange ratio, will be determined by
dividing $35.00 by the average of the volume weighted averages of the trading
prices of Johnson & Johnson common stock on the New York Stock Exchange for each
of the 20 consecutive trading days ending with the third trading day immediately
preceding the date on which the split-off and merger are completed.
Inverness stockholders will receive cash for any fractional shares of
Johnson & Johnson common stock and Innovations common stock they would otherwise
receive in the split-off and merger. The amount of cash for any fractional
shares that each Inverness stockholder will receive will be calculated by
multiplying the fractional share interest to which he or she is entitled by, in
the case of Johnson & Johnson common stock, the closing price of Johnson &
Johnson common stock on the date on which the split-off and merger are completed
as reported on the New York Stock Exchange Composite Transactions Tape, and, in
the case of Innovations common stock, the closing price of Innovations common
stock as reported on the American Stock Exchange, on the first full trading day
following the date on which the split-off and merger are completed.
On --, 2001, the last practicable trading day before the date of this proxy
statement/prospectus, Johnson & Johnson common stock closed at $-- per share. If
this were the average of the volume weighted averages of the trading prices of
Johnson & Johnson common stock during the 20 trading day valuation period, each
share of Inverness common stock would be exchanged for -- shares of Johnson &
Johnson common stock. This means that an Inverness stockholder who owns 100
shares of Inverness common stock would be entitled to receive 20 shares of
Innovations common stock and -- shares of Johnson & Johnson common stock. Since
cash will be paid instead of fractional shares of Johnson & Johnson common
stock, that Inverness stockholder would receive 20 shares of Innovations common
stock, -- shares of Johnson & Johnson common stock and a check in an amount
equal to the fractional share multiplied by the closing price of Johnson &
Johnson common stock on the date on which the split-off and merger are
completed. The market value of Johnson & Johnson common stock on the day the
split-off and merger are completed may be different than the average of the
volume weighted averages of the trading prices of Johnson & Johnson common stock
during the 20 trading day valuation period. As a result, the market value of the
shares of Johnson & Johnson common stock that you receive in the split-off and
merger may be more or less than the value attributed to your shares of Inverness
common stock in calculating the number of shares of Johnson & Johnson common
stock to which you are entitled.
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OWNERSHIP OF JOHNSON & JOHNSON AND INNOVATIONS FOLLOWING THE SPLIT-OFF AND
MERGER (PAGE 40)
Based on the number of outstanding shares of Inverness common stock and the
closing price of Johnson & Johnson common stock, each as of the record date, we
anticipate that Inverness stockholders will receive approximately -- shares of
Johnson & Johnson common stock in the merger. Based on that number and on the
number of outstanding shares of Johnson & Johnson common stock on the record
date, Inverness stockholders will own approximately --% of the outstanding
shares of Johnson & Johnson common stock immediately following the completion of
the split-off and merger.
Based on the number of outstanding shares of Inverness common stock on the
record date, we anticipate that Inverness stockholders will receive
approximately -- shares of Innovations common stock in the split-off.
Immediately following the completion of the split-off and merger, Inverness
stockholders and members of Innovations' management will own 100% of the
outstanding shares of Innovations common stock. For a more detailed description
of the capitalization of Innovations following completion of the split-off and
merger, see "Capitalization" beginning on page X-31 of the Innovations
prospectus portion of this proxy statement/prospectus.
APPRAISAL RIGHTS (PAGE 45)
Under Delaware law, Inverness stockholders will not have appraisal rights
in connection with the split-off and merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SPLIT-OFF AND
MERGER (PAGE 42)
Based on an opinion letter provided to Inverness by its counsel, Goodwin
Procter LLP, we believe that the split-off and the merger will be two separate
transactions for federal income tax purposes. Based on that opinion letter, we
also believe that it is more likely than not that the split-off will qualify, as
to Inverness stockholders, as a transaction described in Section 355 of the
Internal Revenue Code. Assuming the split-off qualifies as a transaction
described in Section 355, holders of Inverness common stock will not recognize
gain or loss for federal income tax purposes when shares of their Inverness
common stock are redeemed in exchange for Innovations common stock in the
split-off, except for cash received instead of fractional shares of Innovations
common stock. If the split-off is not tax-free under Section 355, then the
split-off will be treated as a redemption of a portion of each stockholder's
Inverness common stock, and will be taxable, generally as capital gain, to the
extent that the fair market value of the Innovations common stock received
exceeds the stockholder's basis in such redeemed Inverness common stock.
Regardless of whether or not the split-off qualifies under Section 355, the
split-off will be taxable to Inverness.
Further, based on the opinion letter from Goodwin Procter LLP, we believe
that the merger will be treated as a reorganization under Section 368 of the
Internal Revenue Code. Assuming the merger qualifies as a reorganization under
Section 368, holders of Inverness common stock will not recognize gain or loss
for federal income tax purposes when shares of their Inverness common stock are
exchanged for shares of Johnson & Johnson common stock in the merger, except for
cash received instead of fractional shares of Johnson & Johnson common stock.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE SPLIT-OFF
AND MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD
CONSULT YOUR OWN TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES
OF THE SPLIT-OFF AND MERGER TO YOU.
RECOMMENDATION OF THE INVERNESS BOARD OF DIRECTORS (PAGE 24)
The Inverness board of directors believes that the split-off and merger and
the other transactions contemplated by the split-off and merger agreement are
advisable and in the best interests of Inverness and its stockholders and
unanimously recommends that the stockholders vote "FOR" the adoption of the
split-off and merger agreement.
To review the background of and reasons for the split-off and merger, as
well as certain risks related to the split-off and merger, see "The Split-off
and Merger and Related Transactions" on page 19 and "Risk Factors Relating to
the Split-off and Merger" on page 12.
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OPINIONS OF ABN AMRO INCORPORATED AND UBS WARBURG LLC (PAGE 24)
In connection with the split-off and merger, the Inverness board of
directors received the separate opinions of ABN AMRO Incorporated and UBS
Warburg LLC as to the fairness, from a financial point of view, of the aggregate
consideration to be received by the holders of Inverness common stock in the
split-off and merger. THE OPINIONS DO NOT ADDRESS THE MERITS OF THE UNDERLYING
DECISION BY INVERNESS TO ENGAGE IN THE SPLIT-OFF AND MERGER AND DO NOT
CONSTITUTE A RECOMMENDATION TO ANY INVERNESS STOCKHOLDER AS TO HOW TO VOTE ON
THE PROPOSAL TO ADOPT THE SPLIT-OFF AND MERGER AGREEMENT. The full text of the
written opinions of ABN AMRO and UBS Warburg, each dated May 23, 2001, which set
forth the assumptions made, matters considered and limitations on the review
undertaken, are attached as Annexes 7 and 8, respectively. You are encouraged to
read each opinion carefully in its entirety.
INTERESTS OF INVERNESS DIRECTORS AND EXECUTIVE OFFICERS IN THE SPLIT-OFF AND
MERGER AND RELATED TRANSACTIONS (PAGE 36)
In considering the recommendation of the Inverness board of directors that
Inverness stockholders vote in favor of the adoption of the split-off and merger
agreement, Inverness stockholders should be aware that the members of the
Inverness board of directors and Inverness' executive officers have personal
interests in the split-off and merger and the related transactions that are or
may be different from, or in addition to, the interests of other Inverness
stockholders. These interests include accelerated vesting and continued
exercisability of certain stock option rights, the continuance of rights to
indemnification and exculpation from liabilities for certain acts or omissions
and, for several executive officers, benefits under consulting and
noncompetition agreements. For executive officers of Inverness that will become
executive officers of Innovations, these interests also include benefits under
the Innovations incentive plans. For a more complete description, see "The
Split-off and Merger and Related Transactions -- Interests of Inverness
Directors and Executive Officers in the Split-off and Merger and Related
Transactions."
MATERIAL DIFFERENCES BETWEEN RIGHTS OF COMMON STOCKHOLDERS OF INVERNESS AND
JOHNSON & JOHNSON AND INNOVATIONS (PAGES 78 AND X-75)
Inverness stockholders, whose rights are currently governed by the
Inverness certificate of incorporation, the Inverness by-laws and Delaware law,
will, upon completion of the split-off and merger, become stockholders of
Johnson & Johnson and Innovations and their rights with respect to their
ownership of Johnson & Johnson shares will be governed by the Johnson & Johnson
certificate of incorporation, the Johnson & Johnson by-laws and New Jersey law
and their rights with respect to their ownership of Innovations shares will be
governed by the Innovations certificate of incorporation, the Innovations
by-laws and Delaware law.
APPROVAL OF THE INNOVATIONS INCENTIVE PLANS (PAGE 88)
Inverness stockholders are also being asked to approve the Innovations 2001
stock option and incentive plan and the Innovations executive bonus plan. We
refer to these plans collectively as the Innovations incentive plans.
Stockholder approval of the Innovations incentive plans is required to ensure
that Innovations will be able to deduct, for federal income tax purposes,
certain compensation payable under these plans.
The Innovations incentive plans are an important component of Innovations'
employment incentive program after the split-off. The purpose of these plans is
to enable Innovations to attract, motivate and retain highly-qualified employees
and to further align the interests of employees of Innovations with those of
stockholders of Innovations. The Inverness board of directors unanimously
recommends that Inverness stockholders vote "FOR" the approval of the
Innovations incentive plans.
THE SPECIAL MEETING (PAGE 14)
The special meeting of Inverness stockholders will be held at the offices
of Goodwin Procter LLP, 53 State Street, Boston, Massachusetts 02109, at --
a.m., local time, on --, --, 2001. At the special meeting, Inverness
stockholders will be asked to adopt the split-off and merger agreement and to
approve the Innovations incentive plans.
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RECORD DATE; VOTING POWER (PAGE 14)
Inverness stockholders are entitled to vote at the special meeting if they
owned shares of Inverness common stock as of the close of business on --, 2001,
the record date.
On the record date, there were -- shares of Inverness common stock entitled
to vote at the special meeting. Stockholders will have one vote at the special
meeting for each share of Inverness common stock that they owned on the record
date.
VOTE REQUIRED (PAGE 14)
The adoption of the split-off and merger agreement requires the affirmative
vote of stockholders holding a majority of the shares of Inverness common stock
outstanding on the record date.
The approval of the Innovations incentive plans requires the affirmative
vote of stockholders holding a majority of the shares of Inverness common stock
present in person or represented by proxy at the special meeting and entitled to
vote on those matters.
VOTING BY INVERNESS DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES (PAGE 15)
On the record date, directors and executive officers of Inverness and their
affiliates beneficially owned and were entitled to vote -- shares of Inverness
common stock, which represented approximately --% of the shares of Inverness
common stock outstanding on that date.
THE SPLIT-OFF AND MERGER (PAGE 19)
The split-off and merger agreement is attached as Annex 1 to this proxy
statement/prospectus. We encourage you to read the split-off and merger
agreement because it is the principal document governing the split-off and
merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 54)
Johnson & Johnson and Inverness will complete the merger only if they
satisfy, or in some cases, waive, several conditions, including the following:
- the split-off and merger agreement has been adopted by the affirmative
vote of stockholders representing a majority of the shares of Inverness
common stock outstanding on the record date
- the shares of Johnson & Johnson common stock to be issued to Inverness
stockholders upon completion of the merger have been approved for listing
on the New York Stock Exchange, and the shares of Innovations common
stock to be issued to Inverness stockholders upon completion of the
split-off have been approved for listing on a national securities
exchange or for quotation on NASDAQ
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 has expired or has been terminated
- the execution and delivery of the restructuring agreement, tax allocation
agreement, post-closing covenants agreement and license agreement, which
together with the split-off and merger agreement are referred to as the
transaction agreements, and the completion of the restructuring as
described in the restructuring agreement
- no temporary restraining order, injunction or other court order or
statute, law, rule, legal restraint or prohibition is in effect that
prevents the completion of the merger
- the registration statement on Form S-4 for Johnson & Johnson common stock
distributed in the merger and the registration statement on Form S-4 for
Innovations common stock distributed in the split-off, in each case, of
which this proxy statement/prospectus forms a part, have been declared
effective by the Securities and Exchange Commission and are not the
subject of any stop order or proceedings seeking a stop order and
- other customary contractual conditions set forth in the split-off and
merger agreement.
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Johnson & Johnson's obligation to complete the merger is subject to
satisfaction or waiver of additional conditions, including the following:
- all consents, approvals, authorizations, qualifications and orders of
governmental entities required in connection with the split-off and
merger agreement and the other transaction agreements under any
applicable competition, merger control, antitrust or similar laws or
regulations of Switzerland or any country that is part of the European
Union have been obtained, except for those the failure of which are not
reasonably expected to (1) restrain or prohibit the merger or related
transactions or (2) prohibit or limit in any material respect the
ownership, operation or effective control by Johnson & Johnson of any
portion of Inverness' post-restructuring business
- the consents of holders of particular warrants to acquire shares of
Inverness common stock to amend their respective warrant agreements have
been obtained
- Inverness has received at least $50,000,000 of proceeds from financings
on terms and conditions no less favorable to Inverness than those set
forth in a commitment letter dated May 18, 2001
- the consulting and non-competition agreements and all transaction
agreements are in full force and effect and none of the parties thereto,
other than Johnson & Johnson, have breached or threatened to breach any
of the material covenants in those agreements and
- there is no pending suit, action or proceeding by any governmental entity
seeking to (1) restrain or prohibit the completion of the merger or any
of the other transactions contemplated by the transaction agreements, (2)
prohibit or materially limit Johnson & Johnson's or Inverness' ownership
or operation of any portion of either company's business or assets, other
than those transferred to Innovations, (3) compel Johnson & Johnson or
Inverness to divest or hold separate any portion of any business or
assets, other than those transferred to Innovations, as a result of the
merger or any of the other transactions contemplated by the transaction
agreements or (4) prevent Johnson & Johnson from effectively controlling
in any material respect any portion of the post-restructuring business of
Inverness.
Inverness' obligation to complete the merger also is subject to
satisfaction or waiver of additional conditions, including that Inverness has
received from its tax counsel an opinion stating that (1) the merger will be
treated for United States federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code and (2) Johnson &
Johnson and Inverness will each be a party to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code.
For a more complete description, see "The Split-off and Merger
Agreement -- Conditions to the Completion of the Merger."
TERMINATION OF THE SPLIT-OFF AND MERGER AGREEMENT; TERMINATION FEE (PAGE 59 AND
60)
The split-off and merger agreement contains provisions addressing the
circumstances under which Johnson & Johnson or Inverness may terminate the
split-off and merger agreement. In addition, the split-off and merger agreement
provides that, in several circumstances, Inverness may be required to pay
Johnson & Johnson a termination fee of $28 million. For a more complete
description, see "The Split-off and Merger Agreement -- Termination of the
Split-off and Merger Agreement" and "-- Fees and Expenses."
THE STOCK OPTION AGREEMENT (PAGE 66)
Inverness has granted an option to Johnson & Johnson to purchase up to
6,417,689 shares of Inverness common stock if any of the events occur that
entitle Johnson & Johnson to receive the termination fee under the split-off and
merger agreement. The stock option agreement limits the total amount of profit
that Johnson & Johnson can receive under the agreement, together with the
termination fee, to $28 million in the aggregate.
REGULATORY MATTERS (PAGE 44)
United States antitrust laws prohibit Johnson & Johnson and Inverness from
completing the merger until they have furnished certain informa-
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tion and materials to the Antitrust Division of the Department of Justice and
the Federal Trade Commission and a required waiting period has ended. Johnson &
Johnson and Inverness each filed the required notification and report forms with
the Antitrust Division and the Federal Trade Commission on June 27, 2001 and
requested an early termination of the required waiting period. On July 16, 2001,
Johnson & Johnson and Inverness were granted an early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act.
The merger is not notifiable to the European Commission because it lacks
the requisite European Community dimension. However, filings have been made in
Germany and Italy seeking approval of the merger. On July 19, 2001, Johnson &
Johnson received clearance from the German competition authority to complete the
transaction. Johnson & Johnson believes that the Italian regulatory approval
process will not materially delay or impede the completion of the split-off and
merger.
ACCOUNTING TREATMENT (PAGE 40)
Johnson & Johnson intends to treat the merger as a purchase for accounting
and financial reporting purposes, which means that Inverness will be treated as
a separate entity for periods prior to completion of the merger and, thereafter,
the financial results of Inverness' post-restructuring business, including its
diabetes care products business, will be consolidated with Johnson & Johnson's
financial results.
FEES AND EXPENSES (PAGE 60)
Each of Johnson & Johnson and Inverness will pay its own fees and expenses
in connection with the split-off and merger and related transactions. Inverness
will pay its expenses and the expenses of Innovations and its subsidiaries
directly relating to the restructuring, the split-off and the merger up to a
specified amount, while Innovations will pay all such expenses, if any, in
excess of that amount, subject to specified exceptions.
THE RESTRUCTURING AND SPLIT-OFF (PAGE 49)
After completion of the restructuring of Inverness and the split-off of
Innovations, Innovations will be an independent, publicly-owned company that
will hold and operate Inverness' women's health, nutritional supplements and
clinical diagnostics businesses. In the restructuring, Innovations will receive
(1) up to $40 million in net cash, (2) the assets and liabilities primarily
relating to the women's health, nutritional supplements and clinical diagnostics
businesses and (3) rights to intellectual property under a license agreement.
Following completion of the split-off and merger, Inverness and Johnson &
Johnson, on the one hand, and Innovations, on the other hand, will indemnify
each other with respect to various losses, damages, claims and liabilities,
including those arising out of each of their respective businesses.
THE COMPANIES (PAGE 17)
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Telephone: (732) 524-0400
Johnson & Johnson, with approximately 100,000 employees, is the world's
most comprehensive and broadly-based manufacturer of health care products, as
well as a provider of related services, for the consumer, pharmaceutical and
professional markets. Johnson & Johnson has more than 195 operating companies in
51 countries around the world, selling products in more than 175 countries.
Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453
Telephone: (781) 647-3900
Inverness develops, manufactures and markets innovative products focused
primarily on diabetes self-management. Inverness' principal products are
advanced electrochemical blood glucose monitoring systems that are used by
people with diabetes to determine their blood glucose levels in order to manage
their disease. In addition to its diabetes products, Inverness sells products
for the women's health market and, to a lesser extent, the infectious disease
market.
MARKET PRICES AND DIVIDEND INFORMATION (PAGE 76)
Shares of Johnson & Johnson common stock are listed on the New York Stock
Exchange. Shares of Inverness common stock are listed on
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the American Stock Exchange. The following table presents:
- the last reported sale price of a share of Johnson & Johnson common
stock, as reported by the Dow Jones & Company, Inc.
- the last reported sale price of a share of Inverness common stock, as
reported by the Dow Jones & Company, Inc. and
- the market value of a share of Inverness common stock on an equivalent
per share basis
in each case on (1) May 8, 2001, the last full trading day prior to the public
announcement that Johnson & Johnson and Inverness were in advanced discussions
regarding the proposed split-off and merger, (2) May 22, 2001, the last full
trading day prior to the public announcement that Johnson & Johnson and
Inverness had signed the definitive split-off and merger agreement and (3) --,
2001, the last practicable trading day prior to the date of this proxy
statement/prospectus. The price information for Johnson & Johnson common stock
has been adjusted to reflect a two-for-one stock split effected in June 2001.
The equivalent price per share data for Inverness common stock has been
determined by multiplying the last reported sale price of a share of Johnson &
Johnson common stock on each of these dates by an exchange ratio determined by
dividing $35.00 by the average of the volume weighted averages of the trading
prices of Johnson & Johnson common stock for each of the 20 consecutive trading
days ending with the third trading day immediately preceding the calculation
date. Because there is currently no public trading market for shares of
Innovations common stock, the 0.20 of a share of Innovations common stock to be
issued in the split-off for each outstanding share of Inverness common stock
were not factored into the calculation of the equivalent price per share of
Inverness common stock.
EQUIVALENT
PRICE PER
JOHNSON & SHARE OF
JOHNSON INVERNESS INVERNESS
COMMON COMMON COMMON
DATE STOCK STOCK STOCK
---- --------- --------- ----------
May 8, 2001.......... $48.98 $35.91 $36.67
May 22, 2001......... 49.50 34.95 35.82
--, 2001............. -- -- --
Innovations has no history as an independent, publicly traded company.
Innovations has applied to have its common stock listed on the American Stock
Exchange and it is anticipated that the Innovations common stock will be listed
on the American Stock Exchange immediately after the completion of the split-off
and merger.
Johnson & Johnson declares and pays regular quarterly dividends. Inverness
does not pay dividends. It is anticipated that Innovations will not pay
dividends in the foreseeable future. See "Comparative Stock Prices and
Dividends."
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COMPARATIVE PER SHARE INFORMATION
The following table shows certain per share data of Johnson & Johnson and
Inverness and also shows similar information reflecting the combination of the
two companies, which is referred to as "pro forma" information.
The comparative per share data is derived from, and should be read with,
the historical financial statements of Johnson & Johnson and the historical
financial statements of Inverness that are included in the documents described
under "Where You Can Find More Information" on page 96.
The Inverness "equivalent pro forma" data was calculated by multiplying the
corresponding pro forma combined data by an exchange ratio of 0.6565, which
would have been the exchange ratio had the merger been completed on August 9,
2001. This data shows how each share of Inverness common stock would have
participated in net income and book value of Johnson & Johnson if the companies
had always been combined for accounting and financial reporting purposes for all
periods presented. These amounts, however, are not intended to reflect future
per share levels of net income and book value of Johnson & Johnson. Inverness
has not declared or paid any cash dividends during any of the periods presented.
FISCAL YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2000 APRIL 1, 2001
----------------- ------------------
JOHNSON & JOHNSON -- HISTORICAL
Net income per diluted share............................ $1.61 $ 0.50
Unaudited book value per share(1)....................... $6.77 $ 7.19
Cash dividends per share(2)............................. $0.62 $ 0.16
INVERNESS -- DIABETES CARE PRODUCTS ONLY
Net income (loss) per diluted share..................... $0.27 $(1.77)
Unaudited book value per share(1)....................... $5.19 $ 5.83
Cash dividends per share(2)............................. $ -- $ --
Unaudited pro forma combined net income per diluted share:
Per Johnson & Johnson share............................. $1.61 $ 0.48
Equivalent per Inverness share.......................... $1.05 $ 0.32
Unaudited pro forma combined book value per share:
Per Johnson & Johnson share(1).......................... $6.77 $ 7.20
Equivalent per Inverness share(1)....................... $4.45 $ 4.73
---------------
(1) Historical book value per share is computed by dividing shareowners' equity
or stockholders' equity by the number of shares of common stock outstanding
at the end of each period. Johnson & Johnson's unaudited pro forma combined
book value per share is computed by dividing unaudited pro forma
shareowners' equity by the unaudited pro forma number of shares of Johnson &
Johnson common stock that would have been outstanding had the merger been
completed as of each balance sheet date.
(2) Johnson & Johnson's current quarterly dividend is $0.18 per share ($0.72 per
share annualized) and is subject to future approval and declaration by the
Johnson & Johnson board of directors. Inverness does not currently pay a
cash dividend. The pro forma dividends per share are the same as the
historical dividends per share since no change in dividend policy is
expected as a result of the merger.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF JOHNSON & JOHNSON
The following selected financial information of Johnson & Johnson as of and
for the three fiscal years ended December 31, 2000 has been derived from Johnson
& Johnson's audited supplemental financial statements incorporated by reference
in this proxy statement/prospectus. The supplemental financial statements of
Johnson & Johnson reflect the restatement of Johnson & Johnson's historical
financial statements to reflect the merger with ALZA Corporation, which was
accounted for using the pooling of interests method of accounting. The
supplemental financial statements for those periods were audited by
PricewaterhouseCoopers LLP, independent accountants. The selected financial
information for the three fiscal years ended January 3, 1999, have been derived
from Johnson & Johnson's audited financial statements not included or
incorporated by reference in this proxy statement/prospectus. The financial
information for Johnson & Johnson as of and for the three months ended April 1,
2001 and April 2, 2000 has been derived from the unaudited supplemental
financial statements incorporated by reference in this proxy
statement/prospectus and, in the opinion of Johnson & Johnson's management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information for the unaudited interim
periods. The operating results for the three months ended April 1, 2001 are not
necessarily indicative of results for the full fiscal year ending December 30,
2001. This information should be read in conjunction with management's
discussion and analysis of results of operations and financial condition of
Johnson & Johnson and the consolidated financial statements and notes thereto of
Johnson & Johnson incorporated by reference into this proxy
statement/prospectus.
THREE MONTHS THREE MONTHS
FISCAL YEAR ENDED ENDED ENDED
---------------------------------------------------------------------- ------------ ------------
DEC. 29, DEC. 28, JAN. 3, JAN. 2, DEC. 31, APR. 2, APR. 1,
1996 1997 1999 2000 2000 2000 2001
------------ ------------ ----------- ----------- ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
EARNINGS DATA:
Sales.................... $21,984 $23,118 $24,398 $28,007 $29,846 $7,440 $ 8,021
Cost of expenses......... 17,841 18,776 20,065 22,130 22,978 5,526 5,804
Earnings before
taxes(1)............... 4,143 4,342 4,333 5,877 6,868 1,914 2,217
Net earnings(1).......... $ 2,958 $ 3,105 $ 3,101 $ 4,273 $ 4,953 $1,331 $ 1,552
Net earnings/diluted
share(1)............... $ 0.98 $ 1.02 $ 1.02 $ 1.39 $ 1.61 $ 0.44 $ 0.50
Cash dividends/share..... $0.3675 $0.4250 $0.4850 $0.5450 $ 0.62 $ 0.14 $ 0.16
BALANCE SHEET DATA (at
period end):
Total assets............. $22,248 $23,615 $28,966 $31,064 $34,245 N/A $34,901
Long-term debt........... 2,347 2,084 2,652 3,429 3,163 N/A 2,698
Shareowner's equity...... $11,958 $13,300 $14,674 $16,995 $20,395 N/A $21,762
---------------
(1) Excluding special charges, results for the years ended December 28, 1997,
January 3, 1999, January 2, 2000 and December 31, 2000, respectively are:
DEC 28, 1997 JAN 3, 1999 JAN 2, 2000 DEC 31, 2000
------------ ----------- ----------- ------------
Earnings before taxes..................... $4,698 $5,244 $5,959 $6,901
Net earnings.............................. 3,385 3,798 4,348 4,998
Net earnings per diluted share............ $ 1.11 $ 1.24 $ 1.42 $ 1.63
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INVERNESS
You should read the following selected consolidated financial data of
Inverness in conjunction with Inverness' consolidated financial statements and
notes and the other information contained in or incorporated by reference into
this proxy statement/ prospectus. The selected consolidated balance sheet data
as of December 31, 1999 and 2000 and the selected consolidated statement of
operations data for the years ended December 31, 1998, 1999 and 2000 have been
derived from Inverness' audited consolidated financial statements that have been
audited by Arthur Andersen LLP, independent public accountants, and are
incorporated by reference into this proxy statement/prospectus. The selected
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 and the
selected consolidated statement of operations data for the years ended December
31, 1996 and 1997 have been derived from Inverness' audited consolidated
financial statements not included or incorporated by reference in this proxy
statement/prospectus. The selected consolidated statement of operations data for
the three-month periods ended March 31, 2000 and 2001 and the selected
consolidated balance sheet data at March 31, 2001 are derived from Inverness'
unaudited consolidated financial statements incorporated by reference into this
proxy statement/prospectus. The unaudited consolidated financial statements for
the three-month periods have been prepared on a basis consistent with Inverness'
audited consolidated financial statements and, in the opinion of Inverness
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Inverness' consolidated
financial position and consolidated results of operations for these periods. The
consolidated results of operations for the three months ended March 31, 2001 are
not necessarily indicative of results for the year ending December 31, 2001 or
any future period. The following selected historical financial data of
Inverness' is presented on a historical basis and includes financial information
and results of operations of Inverness' women's health, nutritional supplements
and clinical diagnostics businesses, which after the completion of the split-off
and merger will no longer be part of Inverness.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS:
Net revenues.............................. $ 19,063 $ 52,250 $117,984 $125,873 $170,344 $37,697 $ 51,254
Cost of sales............................. 10,958 26,277 77,081 83,246 99,723 21,901 34,784
-------- -------- -------- -------- -------- ------- --------
Gross profit.......................... 8,105 25,973 40,903 42,627 70,621 15,796 16,470
-------- -------- -------- -------- -------- ------- --------
Operating expenses:
Research and development................ 6,643 15,633 7,380 6,906 12,489 3,168 4,442
Selling, general and administrative..... 14,713 25,805 36,290 35,390 38,734 9,121 9,136
Other expenses.......................... 4,397 3,303 7,542 -- -- -- 56,123
-------- -------- -------- -------- -------- ------- --------
Total operating expenses................ 25,753 44,741 (51,212) 42,296 51,223 12,289 69,701
-------- -------- -------- -------- -------- ------- --------
Operating (loss) income............... (17,648) (18,768) (10,309) 331 19,398 3,507 (53,231)
-------- -------- -------- -------- -------- ------- --------
Interest expense, including amortization
of original issue discount.............. (11,561) (5,487) (9,565) (8,093) (7,583) (2,150) (893)
Interest and other income (expense),
net..................................... 741 434 1,787 (533) 1,785 68 1,427
-------- -------- -------- -------- -------- ------- --------
(Loss) income before dividends and
accretion on mandatorily redeemable
preferred stock of a subsidiary..... (28,468) (23,821) (18,087) (8,295) 13,600 1,425 (52,697)
Dividends and accretion on mandatorily
redeemable preferred stock of a
subsidiary.............................. (110) (114) (147) (226) (430) (55) (47)
-------- -------- -------- -------- -------- ------- --------
(Loss) income before extraordinary
loss and income taxes............... (28,578) (23,935) (18,234) (8,521) 13,170 1,370 (52,744)
Extraordinary loss on modification and
early extinguishment of debt............ -- (579) -- (306) (2,362) -- --
-------- -------- -------- -------- -------- ------- --------
(Loss) income before income taxes..... (28,578) (24,514) (18,234) (8,827) 10,808 1,370 (52,744)
Provision for income taxes................ -- 196 544 245 168 135 57
-------- -------- -------- -------- -------- ------- --------
Net (loss) income..................... $(28,578) $(24,710) $(18,778) $ (9,072) $ 10,640 $ 1,235 $(52,801)
======== ======== ======== ======== ======== ======= ========
Net (loss) income per common and potential
common share(1):
Basic..................................... $ (6.00) $ (3.36) $ (1.55) $ (0.66) $ 0.43 $ 0.05 $ (1.74)
======== ======== ======== ======== ======== ======= ========
Diluted................................... $ (6.00) $ (3.36) $ (1.55) $ (0.66) $ 0.37 $ 0.04 $ (1.74)
======== ======== ======== ======== ======== ======= ========
DECEMBER 31,
-------------------------------------------------------- MARCH 31,
1996 1997 1998 1999 2000 2001
------- ------- -------------- -------- -------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................ $16,459 $15,670 $ 9,200 $ 5,234 $ 82,272 $ 45,146
Working capital.................................. 9,863 (2,282) 2,733 (8,673) 55,599 41,030
Total assets..................................... 41,089 95,372 115,077 114,837 213,303 224,163
Debt obligations................................. 8,833 59,903 62,481 60,375 49,066 26,940
Preferred stock subject to redemption............ 1,754 1,868 3,718 3,944 4,375 4,422
Total stockholders' equity....................... $12,079 5,441 $ 15,009 $ 18,120 $121,384 $153,268
---------------
(1) Historical basic and diluted net (loss) income per common and potential
common share is computed as described in Inverness' historical financial
statements and related notes incorporated by reference into this proxy
statement/prospectus.
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RISK FACTORS RELATING TO THE SPLIT-OFF AND MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, Inverness stockholders should consider
carefully the matters described below in determining whether to adopt the
split-off and merger agreement.
THE NUMBER OF SHARES OF JOHNSON & JOHNSON COMMON STOCK TO BE RECEIVED BY
INVERNESS STOCKHOLDERS IN THE SPLIT-OFF AND MERGER IS SUBJECT TO CHANGES IN THE
STOCK PRICE OF JOHNSON & JOHNSON COMMON STOCK UNTIL SHORTLY BEFORE THE
COMPLETION OF THE SPLIT-OFF AND MERGER. Under the split-off and merger
agreement, each share of Inverness common stock will be converted into the right
to receive: (1) 0.20 of a share of Innovations common stock, and (2) a fraction
of a share of Johnson & Johnson common stock based on an exchange ratio intended
to value that fractional share at $35.00. The amount of Johnson & Johnson common
stock to be received for each share of Inverness common stock will not be
determined until shortly before the completion of the split-off and merger. The
exchange ratio will be determined by dividing $35.00 by the average of the
volume weighted averages of the trading prices of Johnson & Johnson common stock
on the New York Stock Exchange for each of the 20 consecutive trading days
ending with the third trading day immediately preceding the date on which the
split-off and merger are completed. We have included in this proxy
statement/prospectus an estimate of the exchange ratio based on the closing
price per share of Johnson & Johnson common stock on --, 2001, the last
practicable trading day before the date of this proxy statement/prospectus. The
actual exchange ratio could be more or less than this estimated exchange ratio,
which means that the number of shares of Johnson & Johnson common stock you
actually receive could be more or less than you would receive based on the
estimated exchange ratio. The price of Johnson & Johnson common stock upon the
completion of the split-off and merger may vary from its price on the date of
this proxy statement/prospectus and on the date of the special meeting. The
price may vary as a result of changes in the business, operations or prospects
of Johnson & Johnson, market assessments of the likelihood that the split-off
and merger will be completed, the timing of the completion of the split-off and
merger, the prospects of post-merger operations, regulatory considerations,
general market and economic conditions and other factors. Because the date that
the split-off and merger are completed may be later than the date of the special
meeting, the price of Johnson & Johnson common stock on the date of the special
meeting may not be indicative of its price on the date the split-off and merger
are completed. We urge Inverness stockholders to obtain current market
quotations for Johnson & Johnson common stock.
THE MARKET VALUE OF SHARES OF JOHNSON & JOHNSON COMMON STOCK TO BE RECEIVED
BY INVERNESS STOCKHOLDERS IN THE SPLIT-OFF AND MERGER MAY BE MORE OR LESS THAN
THE VALUE ATTRIBUTED TO SHARES OF INVERNESS COMMON STOCK IN CALCULATING THE
EXCHANGE RATIO. The exchange ratio will be based on an average trading price of
Johnson & Johnson common stock during a period of 20 trading days. The market
value of Johnson & Johnson common stock on the date on which the split-off and
merger are completed may be different than the average Johnson & Johnson share
price during the 20-day period used in determining the exchange ratio. As a
result, the market value of the shares of Johnson & Johnson common stock that
Inverness stockholders will receive in the split-off and merger may be more or
less than the value attributed to shares of Inverness common stock in
calculating the exchange ratio.
THE INTEGRATION OF INVERNESS' DIABETES CARE PRODUCTS BUSINESS INTO JOHNSON
& JOHNSON FOLLOWING THE SPLIT-OFF AND MERGER WILL PRESENT SIGNIFICANT
CHALLENGES. Johnson & Johnson and Inverness will face significant challenges in
combining their diabetes care operations and product lines in a timely and
efficient manner and retaining key Inverness personnel. The integration of
Inverness' diabetes care products business into Johnson & Johnson will be
complex and time-consuming. The failure to integrate successfully Inverness'
diabetes care products business into Johnson & Johnson and to manage
successfully the challenges presented by the integration process may result in
Johnson & Johnson and Inverness not achieving the anticipated potential benefits
of the merger.
THE PRICE OF JOHNSON & JOHNSON COMMON STOCK MAY BE AFFECTED BY FACTORS
DIFFERENT FROM THOSE AFFECTING THE PRICE OF INVERNESS COMMON STOCK. Upon
completion of the merger, holders of Inverness common stock will become holders
of Johnson & Johnson common stock. Johnson & Johnson's business is
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different from that of Inverness, and Johnson & Johnson's results of operations,
as well as the price of Johnson & Johnson common stock, may be affected by
factors different than those affecting Inverness' results of operations and the
price of Inverness common stock. For a discussion of Johnson & Johnson's and
Inverness' businesses and certain factors to consider in connection with such
businesses, see Johnson & Johnson's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, as amended, and Inverness' Annual Report on Form
10-K for the fiscal year ended December 31, 2000, each of which is incorporated
by reference in this proxy statement/prospectus.
THERE ARE VARIOUS RISKS ASSOCIATED WITH HOLDING AN INTEREST IN
INNOVATIONS. In the split-off, Inverness stockholders will receive shares of
the common stock of Innovations, an independent, publicly-owned company with no
prior operating history as a stand-alone entity. There are various risks which
may materially impact your interest in Innovations or materially affect
Innovations and its business, financial condition, results of operations and
prospects. For a more complete discussion of the risk factors relating to
Innovations and its common stock that should be carefully considered in
determining whether to adopt the split-off and merger agreement, see "Risk
Factors" beginning on page X-6 of the Innovations prospectus portion of this
proxy statement/prospectus.
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THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to Inverness stockholders
as of the record date as part of the solicitation of proxies by the Inverness
board of directors for use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at the offices of Goodwin Procter LLP, 53
State Street, Boston, Massachusetts, at -- a.m., local time, on --, --, 2001.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we will ask holders of Inverness common stock to
adopt the split-off and merger agreement. A vote for the adoption of the
split-off and merger agreement has the effect of approving the merger, including
the split-off, and the other transactions contemplated by the split-off and
merger agreement. No separate vote on the split-off is required or being
requested. The split-off and merger agreement is attached as Annex 1 to this
proxy statement/prospectus. Please read it and the other information contained
in this proxy statement/prospectus carefully before deciding how to vote on the
split-off and merger agreement.
At the special meeting, we will also ask holders of Inverness common stock
to approve the Innovations 2001 stock option and incentive plan and the
Innovations executive bonus plan. The completion of the split-off and merger is
not conditioned on approval of the Innovations incentive plans, but the
effectiveness of these plans is conditioned on completion of the split-off and
merger. The Innovations stock option plan is attached as Annex 9 to this proxy
statement/prospectus. Please read it and the other information contained in this
proxy statement/prospectus carefully before deciding how to vote on the
Innovations incentive plans.
RECOMMENDATION OF THE INVERNESS BOARD OF DIRECTORS
The Inverness board of directors has determined that the merger, including
the split-off, and the other transactions contemplated by the split-off and
merger agreement are advisable and in the best interests of Inverness and its
stockholders, and has unanimously approved the split-off and merger agreement
and the transactions contemplated by the split-off and merger agreement. THE
INVERNESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ADOPTION OF THE SPLIT-OFF AND MERGER AGREEMENT. THE INVERNESS BOARD OF DIRECTORS
ALSO UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE INNOVATIONS
INCENTIVE PLANS.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of Inverness common stock at the close of business
on --, 2001, the record date for the special meeting, are entitled to notice of,
and to vote at, the special meeting or any adjournment or postponement of it. On
the record date, -- shares of Inverness common stock were issued and outstanding
and held by approximately -- holders of record. A quorum will be present at the
special meeting if a majority of all the shares of Inverness common stock issued
and outstanding on the record date and entitled to vote at the special meeting
are represented at the special meeting in person or by proxy. Holders of record
of Inverness common stock on the record date are entitled to one vote per share
on each matter submitted to a vote at the special meeting.
VOTE REQUIRED
The adoption of the split-off and merger agreement requires the affirmative
vote of stockholders holding a majority of the shares of Inverness common stock
outstanding on the record date. Because the required vote of Inverness
stockholders is based upon the number of outstanding shares of Inverness common
stock, rather than upon the shares actually voted, the failure by the holder of
any such shares to
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submit a proxy or to vote in person at the special meeting, including
abstentions and broker non-votes, will have the same effect as a vote against
the adoption of the split-off and merger agreement.
The approval of the Innovations incentive plans requires the affirmative
vote of stockholders holding a majority of the shares of Inverness common stock
present in person or represented by proxy at the special meeting and entitled to
vote on those matters. Abstentions will be counted as present and entitled to
vote and, accordingly, will have the effect of votes against the approval of the
Innovations incentive plans. Broker non-votes will not be considered as present
and entitled to vote and, accordingly, will have no effect on the proposals
relating to the Innovations incentive plans.
SHARES OWNED BY INVERNESS DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES
At the close of business on the record date, directors and executive
officers of Inverness and their affiliates beneficially owned and were entitled
to vote -- shares of Inverness common stock, which represented approximately --%
of the shares of Inverness common stock outstanding on that date.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. Properly executed proxies that do not contain voting
instructions will be voted "FOR" the adoption of the split-off and merger
agreement and "FOR" the approval of the Innovations incentive plans.
Shares of Inverness common stock represented at the special meeting but not
voting, including shares representing abstentions or broker non-votes, will be
treated as present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business.
Brokers who hold shares of Inverness common stock in "street name" for
customers who are the beneficial owners of such shares may not give a proxy to
vote those customers' shares without specific instructions from those customers.
These non-voted shares are referred to as "broker non-votes" and will have the
same effect as votes against the adoption of the split-off and merger agreement.
ACCORDINGLY, IF YOUR SHARES ARE HELD IN THE NAME OF A BANK OR BROKER, PLEASE
FOLLOW THE INSTRUCTIONS YOU RECEIVE ON YOUR PROXY CARD TO ENSURE YOUR SHARES ARE
PROPERLY VOTED AT THE MEETING. Broker non-votes will have no effect on the
proposals relating to the Innovations incentive plans.
Inverness does not expect that any matter other than the proposal to adopt
the split-off and merger agreement and the proposals to approve the Innovations
incentive plans will be brought before the special meeting. If, however, the
Inverness board of directors properly presents other matters, the persons named
as proxies will vote in accordance with their judgment.
REVOCATION OF PROXIES
The grant of a proxy pursuant to this solicitation does not preclude a
stockholder from voting in person at the special meeting. A stockholder may
revoke a proxy at any time prior to its exercise by submitting a new proxy
bearing a later date, including a proxy given by telephone or Internet, by
notifying the Secretary of Inverness in writing that the proxy has been revoked,
or by appearing at the special meeting and voting in person. Attendance at the
special meeting will not in and of itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
Inverness will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Inverness may solicit proxies from stockholders by telephone or
other electronic means or in person. Inverness will cause brokerage houses and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of stock held of record by such persons. Inverness will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
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-- will assist in the solicitation of proxies by Inverness. Inverness will
pay -- a fee of $--, plus reimbursement of certain out-of-pocket expenses, and
will indemnify -- against any losses arising out of its proxy solicitation
services on behalf of Inverness.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
A transmittal form with instructions for the surrender of Inverness common stock
certificates will be mailed to Inverness stockholders shortly after completion
of the split-off and merger.
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THE COMPANIES
JOHNSON & JOHNSON
Johnson & Johnson, with approximately 100,000 employees, is the world's
most comprehensive and broadly-based manufacturer of health care products, as
well as a provider of related services, for the consumer, pharmaceutical and
medical devices and diagnostics markets. Johnson & Johnson has more than 195
operating companies in 51 countries around the world, selling products in more
than 175 countries.
Johnson & Johnson's worldwide business is divided into three segments:
consumer, pharmaceutical and medical devices and diagnostics. The consumer
segment's principal products are personal care and hygienic products, including
oral and baby care products, first aid products, nonprescription drugs, sanitary
protection products and adult skin and hair care products. These products are
marketed principally to the general public and distributed both to wholesalers
and directly to independent and chain retail outlets.
The pharmaceutical segment's principal worldwide franchises are in the
anti-infective, anti-fungal, anti-anemia, central nervous system, contraceptive,
dermatology, gastrointestinal and pain management fields. These products are
distributed both directly and through wholesalers for use by health care
professionals and the general public.
The medical devices and diagnostics segment includes suture and mechanical
wound closure products, minimally invasive surgical instruments, diagnostic
products, cardiology products, disposable contact lenses, surgical instruments,
orthopaedic joint replacements and products for wound management and infection
prevention and other medical equipment and devices. These products are used
principally in the professional fields by physicians, nurses, therapists,
hospitals, diagnostic laboratories and clinics. Distribution to these markets is
done both directly and through surgical supply and other dealers.
Johnson & Johnson was organized in the State of New Jersey in 1887. The
address of its principal executive offices is One Johnson & Johnson Plaza, New
Brunswick, New Jersey, and the telephone number at that address is (732)
524-0400.
INVERNESS
Inverness develops, manufactures and markets innovative products focused
primarily on diabetes self-management. Inverness' principal products are
advanced electrochemical blood glucose monitoring systems that are used by
people with diabetes to determine their blood glucose levels in order to manage
their disease. In addition to its diabetes products, Inverness sells products
for the women's health market and, to a lesser extent, the infectious disease
market.
Inverness was incorporated in the State of Delaware on August 25, 1992
under the name Selfcare, Inc. Inverness changed its name to Inverness Medical
Technology, Inc. in May 2000. The address of its principal executive offices is
51 Sawyer Road, Suite 200, Waltham, Massachusetts 02453, and its telephone
number is (781) 647-3900.
INNOVATIONS
Following the restructuring and the split-off, Innovations will develop,
manufacture and sell products for the women's health market, and, to a lesser
extent, clinical diagnostic products for the infectious disease market. Its
self-test products for the women's health market will include home pregnancy
detection tests and ovulation prediction tests. Innovations will also sell a
line of nutritional supplements targeted primarily at the women's health market.
Innovations' clinical diagnostic products will consist of test kits used by
smaller laboratories, small blood banks, physicians' offices, and other patient
point-of-care sites for the detection of certain infectious diseases.
Innovations was incorporated in Delaware on May 11, 2001 under the name New
IMT Corporation. Innovations changed its name to Inverness Medical Innovations,
Inc. on July 19, 2001. The address of its
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principal executive offices is 51 Sawyer Road, Suite 200, Waltham, MA 02453, and
its telephone number is (781) 647-3900.
For more complete information concerning Innovations, please see the
Innovations prospectus portion of this proxy statement/prospectus beginning on
page X-i.
MATERIAL CONTRACTS BETWEEN JOHNSON & JOHNSON AND INVERNESS
Beginning in 1995, Inverness entered into development and global
distribution agreements with Johnson & Johnson Development Corporation and
LifeScan, Inc., both of which are subsidiaries of Johnson & Johnson. These
agreements were amended in June 1999 and again in February 2001, effective as of
January 1, 2001. Under these agreements, Inverness develops and manufactures,
and LifeScan markets as Inverness' sole distributor, electrochemical blood
glucose monitoring systems. Under the terms of the agreements, LifeScan is not
prohibited from selling other blood glucose monitoring systems, including
electrochemical systems. However, if LifeScan either (1) introduces such a
system not sourced from Inverness prior to December 31, 2002 or (2) fails to
purchase specified minimum annual levels of test strips, Inverness is released
from a restriction under the agreements prohibiting it from selling complete
electrochemical blood glucose monitoring systems to parties other than LifeScan.
As part of these agreements, LifeScan loaned Inverness an aggregate of
8,281,250 British Pounds Sterling (approximately $12,800,000) to fund the
increased costs related to anticipated production levels. All such loans have
been repaid in full through incremental deductions from the invoice price of
test strips sold to LifeScan. Under these agreements, Inverness has the right to
receive additional loans from LifeScan upon the accomplishment of certain
milestones relating to new products Inverness is to develop for LifeScan.
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THE SPLIT-OFF AND MERGER AND RELATED TRANSACTIONS
BACKGROUND TO THE SPLIT-OFF AND MERGER AND RELATED TRANSACTIONS
In pursuing strategies for enhancing stockholder value, Inverness regularly
considers opportunities for acquisitions, dispositions and other strategic
alliances and alternatives. As part of that process, during the course of its
relationship with Johnson & Johnson, representatives of Inverness have from time
to time had discussions with representatives of Johnson & Johnson regarding ways
in which the companies could expand and enhance their existing relationship.
On March 26 and 27, 2001, Ron Zwanziger, Chairman, Chief Executive Officer
and President of Inverness, and David Scott, Chairman of Inverness Medical
Limited, met with Eric P. Milledge, Company Group Chairman of LifeScan, and
Robert Coradini, President of LifeScan, in Milpitas, California to discuss the
Inverness/LifeScan commercial relationship in general. In connection with those
discussions, the possibility of a business combination between Inverness and
Johnson & Johnson, several alternative structures for such a transaction and the
potential strategic, commercial and financial benefits of such a transaction
were also discussed. Following this meeting, Mr. Zwanziger conferred with
several members of the Inverness board of directors and senior management
regarding the potential benefits of a business combination with Johnson &
Johnson.
On April 2, 2001, Mr. Milledge sent a letter to Mr. Zwanziger indicating
Johnson & Johnson's continued interest in exploring a business combination with
Inverness. The letter contemplated the complete acquisition of Inverness by
Johnson & Johnson and stated that such a proposal assumed that the parties would
be able to reach mutually satisfactory arrangements for the retention of key
people and for appropriate non-competition provisions. The letter also stated
that in order to make a final proposal, Johnson & Johnson would have to conduct
customary due diligence.
On April 5, 2001, Mr. Zwanziger sent a letter to Mr. Milledge in response
to Mr. Milledge's letter of April 2, 2001. In the letter, Mr. Zwanziger
indicated that, depending on the proposed purchase price, he would support an
acquisition of all of Inverness. He indicated that he would also support a
possible two-step transaction in which, among other things, Johnson & Johnson
would acquire the current glucose business and all future developments of those
products and Inverness would retain the rights to new products under development
(including diabetes-related products), as well as the women's health,
nutritional supplements and clinical diagnostics businesses.
On April 9, 2001, Mr. Milledge sent a letter to Mr. Zwanziger in response
to Mr. Zwanziger's letter of April 5, 2001. In response to the two-step
transaction suggested by Mr. Zwanziger in his letter of April 5, 2001, Mr.
Milledge indicated that Johnson & Johnson was open to discussing alternatives to
a complete acquisition, but noted that a number of complex issues would need to
be addressed. The letter suggested that the parties meet later that week to
continue discussions.
On April 10, 2001, the Inverness board of directors held a regularly
scheduled meeting. At that meeting, Mr. Zwanziger consulted with the Inverness
board on his discussions with Johnson & Johnson regarding a potential business
combination and outlined some of the major issues. A representative of
Inverness' financial advisor, Covington Associates, also participated in this
regularly scheduled board meeting.
On April 12, 2001, Mr. Zwanziger and Dr. Scott met with Mr. Milledge and
James T. Lenehan, Vice Chairman of Johnson & Johnson and Worldwide Chairman,
Medical Devices and Diagnostics Group, at Johnson & Johnson's facilities in New
Brunswick, New Jersey to continue discussions regarding a potential business
combination. At that meeting, Johnson & Johnson again discussed the possibility
and potential terms for an acquisition of all of Inverness. Johnson & Johnson
also requested an opportunity to begin a full due diligence review.
At a special meeting of the Inverness board of directors held on April 13,
2001, Mr. Zwanziger again consulted with the Inverness board on his and Dr.
Scott's meeting with Mr. Lenehan and Mr. Milledge and the status of discussions
with Johnson & Johnson regarding a potential business combination.
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On April 18, 2001, Inverness and LifeScan entered into a confidential
disclosure agreement. Thereafter, over the course of the next few weeks,
representatives of Johnson & Johnson and its legal advisors conducted a due
diligence review of Inverness, focusing their efforts on Inverness' diabetes
care products business. During this period, Inverness' representatives and
advisors continued to discuss the possible terms of a proposed transaction with
Johnson & Johnson's representatives and legal advisors, including a split-off
and merger transaction in which Inverness' women's health, nutritional
supplements and clinical diagnostics businesses would be separated from the rest
of its businesses and split-off as a new publicly traded company to be owned by
Inverness stockholders.
In late April 2001, Inverness retained ABN AMRO Incorporated to act as one
of its financial advisors in connection with the Inverness board of directors'
evaluation and review of a possible transaction with Johnson & Johnson.
On April 24, 2001, a draft merger agreement was circulated to Inverness'
legal advisor, Goodwin Procter LLP, by Cravath, Swaine & Moore, Johnson &
Johnson's legal advisor. Drafts of the related agreements, including those
necessary to effect the split-off of Innovations and to license certain
intellectual property rights to Innovations after the split-off and merger, were
circulated during the first week of May 2001. Thereafter, Inverness, Johnson &
Johnson and their respective representatives and advisors had numerous meetings
and conference calls to review and negotiate the terms of the split-off and
merger agreement and the related agreements.
On April 25, 2001, Mr. Zwanziger and Dr. Scott met with Messrs. Milledge
and Coradini in Boston, Massachusetts to discuss the proposed transaction. At
that meeting, the participants discussed the proposed transaction, including
potential terms and conditions for the acquisition of the diabetes care products
business in exchange for Johnson & Johnson common stock, the split-off of
Inverness businesses other than its diabetes care products business, the
licensing of intellectual property rights between Johnson & Johnson and
Inverness and non-competition agreements with specified Inverness executives.
On April 26, 2001, the Johnson & Johnson board of directors held a meeting
at which the Johnson & Johnson board considered the potential terms and
conditions of the proposed transaction with Inverness and authorized the Finance
Committee of the Johnson & Johnson board to approve, in their sole discretion,
the final terms of a transaction with Inverness.
On April 27, 2001, a special meeting of the Inverness board of directors
was held to discuss the proposed transaction with Johnson & Johnson. At that
meeting, Mr. Zwanziger updated the Inverness board on the status of the
discussions with Johnson & Johnson and the proposed transaction structure, which
involved Johnson & Johnson's acquisition of the diabetes care products business
and the simultaneous split-off of the women's health, nutritional supplements
and clinical diagnostics businesses to the existing stockholders of Inverness.
Mr. Zwanziger and a representative of Covington Associates then reviewed the
principal terms of the proposed transaction. Goodwin Procter LLP advised the
Inverness board on legal issues related to the proposed transaction and reviewed
with the Inverness board a possible schedule for completing such a transaction.
On May 3 and 4, 2001, representatives of Inverness and Johnson & Johnson
met at Inverness' headquarters in Waltham, Massachusetts to continue the due
diligence process and to review business and organizational issues relating to
the proposed split-off and merger, including transition services that would be
necessary for both Innovations and Johnson & Johnson after completion of the
split-off and merger.
On May 6, 2001, representatives of Inverness and Johnson & Johnson and
their respective advisors met at Johnson & Johnson's facilities in New
Brunswick, New Jersey to negotiate the major terms of the proposed transaction
and the related agreements. Further negotiations occurred between
representatives of Inverness and Johnson & Johnson on May 7 and May 8, 2001.
On May 7, 2001, the Inverness board of directors met to discuss the status
of the proposed transaction with Johnson & Johnson. At that meeting, Mr.
Zwanziger updated the Inverness board on the status of the discussions and
negotiations about the proposed transaction and the related agreements.
Inverness' financial and legal advisors also participated in the meeting,
updating the Inverness board on the
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open issues and the status of negotiations regarding those issues. ABN AMRO also
updated the Inverness board on the status of its financial review of the
proposed transaction.
On May 8, 2001, a special meeting of the Inverness board of directors was
held to review the status of the proposed transaction. Inverness' financial and
legal advisors also participated in the meeting. At that meeting, Mr. Zwanziger
and the advisors again updated the Inverness board on the status of the
discussions and negotiations about the proposed transaction and the related
agreements, including the license of intellectual property rights to Innovations
after the split-off and merger and the consulting and non-competition agreements
to be entered into by Mr. Zwanziger, Dr. Scott and Dr. Jerry McAleer, Vice
President of Research and Development of Inverness Medical Ltd. Mr. Zwanziger
informed the Inverness board that Inverness had reached a preliminary
understanding with Johnson & Johnson regarding a structure for the proposed
transaction in which Johnson & Johnson would acquire the diabetes care products
business, and the women's health, nutritional supplements and clinical
diagnostics businesses would be split-off to the existing stockholders of
Inverness. At the request of the Inverness board, representatives of Johnson &
Johnson were present during portions of the meeting. After the meeting,
negotiations between representatives and advisors of Inverness and Johnson &
Johnson continued throughout the night and into the following morning.
On May 9, 2001, Inverness and Johnson & Johnson issued a joint press
release announcing that the companies were in advanced discussions regarding a
definitive agreement, whereby Johnson & Johnson would acquire Inverness,
excluding certain businesses, in a stock-for-stock exchange. The press release
indicated that, at the time of the acquisition, Inverness would split-off its
businesses in women's health, nutritional supplements and clinical diagnostics
to form a new publicly traded company owned by the existing stockholders of
Inverness, and that, under the terms being discussed, Inverness stockholders
would receive Johnson & Johnson common stock with a value of $35.00 per share,
plus a common stock interest in the new company, for each share of Inverness
common stock.
On May 9 and May 10, 2001, representatives of Inverness and Johnson &
Johnson and their respective legal advisors and Inverness' financial advisors
continued negotiating the terms of the proposed transaction and the related
agreements. During this time, Inverness also retained UBS Warburg to assist the
Inverness board of directors in its evaluation and review of the consideration
to be received in the proposed transaction.
On May 11, 2001, the Inverness board of directors held a special meeting to
review and discuss the status of the proposed transaction. Inverness' legal and
financial advisors also participated in that meeting. At the meeting, Mr.
Zwanziger updated the Inverness board on the status of negotiations. In
addition, Goodwin Procter LLP reviewed with the Inverness board the remaining
open issues, as well as various legal matters. ABN AMRO and UBS Warburg also
reviewed with the Inverness board financial aspects of the proposed transaction.
Between May 14, 2001 and May 21, 2001, Johnson & Johnson, Inverness, their
respective legal advisors and representatives of Covington Associates held
numerous discussions and negotiations regarding the terms of the proposed
transaction and the related agreements.
At a regularly scheduled meeting held on May 21, 2001, the Inverness board
of directors discussed the proposed split-off and merger. Inverness' legal and
financial advisors also participated in the meeting. At that meeting, Mr.
Zwanziger and the advisors reviewed with the Inverness board the status of
negotiations, including the resolution of previously open issues and the
principal terms of the proposed transaction and the related agreements. ABN AMRO
and UBS Warburg reviewed with the Inverness board their respective financial
analysis of the aggregate consideration to be received by holders of Inverness
common stock in the transaction. Based on the assumption that the terms of the
definitive transaction agreements would remain substantially the same as those
contained in the drafts of the agreements provided to them, ABN AMRO and UBS
Warburg rendered separate oral opinions, subsequently confirmed by delivery of
written opinions dated May 23, 2001, the date of the definitive split-off and
merger agreement, to the effect that, as of the date of the opinion and based on
and subject to the matters described in its opinion, the aggregate consideration
to be received in the split-off and merger was
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fair, from a financial point of view, to the holders of Inverness common stock.
After further review and discussion, the Inverness board approved the split-off
and merger and all related agreements, declared their advisability and
authorized management to execute and deliver such agreements.
Prior to the execution of the split-off and merger agreement on May 23,
2001, the Finance Committee of the Johnson & Johnson board authorized the
execution and delivery of the split-off and merger agreement and all related
agreements.
Between May 21, 2001 and May 23, 2001, Johnson & Johnson and Inverness
finalized the transaction agreements and completed due diligence.
On May 23, 2001, the parties executed the definitive split-off and merger
agreement and related agreements and issued a joint press release announcing the
execution of the split-off and merger agreement.
REASONS FOR THE SPLIT-OFF AND MERGER AND RELATED TRANSACTIONS
REASONS FOR THE TRANSACTION. In reaching its decision to approve the
split-off and merger agreement, the related agreements and the transactions
contemplated by those agreements, and to recommend that Inverness stockholders
adopt the split-off and merger agreement, the Inverness board of directors
consulted with its management team, financial advisors, legal counsel and other
advisors and considered the short-term and long-term interests of Inverness. In
particular, the Inverness board of directors considered the following factors,
all of which it deemed favorable, in reaching its decision to approve the
split-off and merger agreement, the related agreements, the merger, including
the split-off, and the other transactions contemplated by the split-off and
merger agreement and the related agreements:
- Inverness' dependency on Johnson & Johnson as its primary customer and
the risk that Johnson & Johnson could in the future develop its own
electrochemical test strip technology, acquire another electrochemical
test strip manufacturer or change the technology underlying its diabetes
monitoring systems
- the Inverness board of directors' view that maintaining and building
market share within the rapidly growing diabetes care products industry
will require large investments in management and other resources, and the
fact that the merger with Johnson & Johnson would result in a combined
entity with the resources necessary to fund and manage a substantial
escalation of Inverness' diabetes care products business
- the Inverness board of directors' view that maintaining and building
market share as a stand-alone entity within the rapidly growing diabetes
care products industry would require large investments in management and
other infrastructure that could alter Inverness' entrepreneurial
management and development environments and negatively impact the pace of
innovation and adaptation that have, in the Inverness board's view, been
critical to Inverness' success to date
- the transaction allows Inverness stockholders to receive interests in
Johnson & Johnson, a more diversified entity with greater size and
financial strength, in exchange for their interest in Inverness' diabetes
care products business, while retaining their interest in Inverness'
women's health, nutritional supplements and clinical diagnostics
businesses
- the value of the Johnson & Johnson common stock to be received for each
share of Inverness common stock is set at $35.00 and is not subject to
change, with the exact exchange ratio to be based on an average trading
price of Johnson & Johnson common stock prior to the completion of the
split-off and merger
- following the split-off, based upon the proposed transaction agreements,
Innovations will be virtually free from debt and will have net cash of
$40 million
- Innovations will retain rights to utilize Inverness' electrochemical and
interstitial technology platform for certain diagnostic applications
outside the field of diabetes
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- the separate financial presentations of ABN AMRO and UBS Warburg to the
Inverness board of directors, including the opinions of each of ABN AMRO
and UBS Warburg as to the fairness, from a financial point of view, of
the aggregate consideration to be received by the holders of Inverness
common stock in the split-off and merger, as described in more detail in
"Opinions of ABN AMRO Incorporated and UBS Warburg LLC"
- the expected tax treatment of the split-off and merger to Inverness
stockholders and
- the terms and conditions of the split-off and merger agreement and the
related agreements, including the provisions that permit Inverness to
continue to receive unsolicited inquiries and proposals regarding other
potential business combinations, negotiate and provide information to
third parties making such inquiries or proposals, and, subject to the
satisfaction of certain conditions, in the exercise of its fiduciary
duties, withdraw or modify its recommendation to the Inverness
stockholders regarding the split-off and merger, or terminate the
split-off and merger agreement, and enter into a more favorable
transaction with a third party, subject to the payment of a $28 million
termination fee to Johnson & Johnson.
The Inverness board of directors also considered a number of potentially
negative factors in its deliberations concerning the split-off and merger
agreement and related agreements, including:
- the risk that the benefits sought to be achieved in the split-off and
merger will not be achieved
- the risks inherent in Johnson & Johnson's health care products business,
including risks associated with potential changes in the health care
industry generally, and the effect that negative changes in Johnson &
Johnson's valuation would have on stockholders after completion of the
transaction
- the fact that it was and is difficult to estimate what the value of the
shares of Innovations common stock will be at the time they are issued in
the split-off and the fact that the value of the shares of Johnson &
Johnson stock to be issued in the merger was close to the price of
Inverness common stock prior to the announcement that Inverness and
Johnson & Johnson were in advanced discussions regarding the proposed
split-off and merger on May 9, 2001 and prior to the announcement of the
execution of the split-off and merger agreement on May 23, 2001 and
- the risks to Inverness' business that might result from constraints
imposed by interim operating covenants contained in the split-off and
merger agreement.
The Inverness board of directors also considered the financial viability of
Innovations as an independent company. Set forth below are the material factors
considered by the Inverness board of directors in analyzing the split-off:
- the financial condition, results of operation, business and prospects of
Innovations as an independent company
- the non-competition obligations that would be imposed on Innovations by
certain of the transaction agreements which prohibit Innovations from
engaging in the diabetes care products business
- the current women's health, nutritional supplements and clinical
diagnostics industries and market conditions and
- the indemnification rights and obligations of Innovations following the
split-off.
The Inverness board of directors was aware of certain potential benefits to
the members of Inverness' management and the Inverness board of directors,
discussed below in "-- Interests of Inverness Directors and Executive Officers
in the Split-off and Merger and Related Transactions." The Inverness board of
directors was also aware of the proposed consulting and non-competition
agreements to be entered into between Johnson & Johnson and each of Mr.
Zwanziger, Dr. Scott and Dr. McAleer, none of which included lump-sum payments
or overall compensation materially in excess of each of their current
compensation and that, in the case of Mr. Zwanziger, contained only limited
compensatory provisions. The
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Inverness board of directors determined that these potential benefits were such
that they would not affect the ability of the members of the Inverness board of
directors to discharge their duties.
In view of the wide variety of factors considered by the Inverness board of
directors, the board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered.
The Inverness board of directors viewed its position and recommendation as being
based on the totality of the information presented to and considered by it.
After taking into consideration all of the factors set forth above, the
Inverness board of directors determined that the potential benefits of the
proposed split-off and merger outweighed the potential detriments associated
with the proposed transaction.
RECOMMENDATION OF THE INVERNESS BOARD OF DIRECTORS. After careful
consideration, the Inverness board of directors has unanimously approved the
split-off and merger agreement and the transactions contemplated by the
split-off and merger agreement, and has determined that the split-off and merger
and the other transactions contemplated by the split-off and merger agreement
are advisable and in the best interests of Inverness and its stockholders.
ACCORDINGLY, THE INVERNESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
INVERNESS STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE SPLIT-OFF AND MERGER
AGREEMENT.
OPINIONS OF ABN AMRO INCORPORATED AND UBS WARBURG LLC
OPINION OF ABN AMRO INCORPORATED. The Inverness board of directors
retained ABN AMRO Incorporated to act as one of its financial advisors in
connection with the Inverness board of directors' review of the proposed
split-off and merger. At the meeting of the Inverness board of directors held on
May 21, 2001, ABN AMRO delivered its oral opinion to the effect that, as of the
date of the opinion and based on and subject to the matters described in the
opinion, including a review of the definitive agreements for the transaction,
the consideration to be received in the proposed split-off and merger was fair,
from a financial point of view, to the holders of Inverness common stock. All of
the directors were present at this meeting and were given the opportunity to ask
questions. The opinion was subsequently confirmed by delivery of a written
opinion dated May 23, 2001, the date of execution of the split-off and merger
agreement.
The following summary of the ABN AMRO opinion is qualified in its entirety
by reference to the full text of the opinion. The full text of the ABN AMRO
opinion sets forth the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken and is attached as Annex 7
to this proxy statement/prospectus. We encourage you to carefully read the ABN
AMRO opinion in its entirety.
The ABN AMRO opinion:
- relates to the fairness, from a financial point of view, of the
consideration to be received in the proposed split-off and merger by
holders of Inverness common stock
- addresses only the financial terms of the consideration to be received in
the proposed split-off and merger by the holders of Inverness common
stock and
- does not constitute a recommendation to any holder of Inverness common
stock as to how such holder should vote with respect to the adoption of
the split-off and merger agreement.
In arriving at its opinion, ABN AMRO, among other things:
- reviewed Inverness' Annual Report on Form 10-K for each of the fiscal
years ended December 31, 1998, December 31, 1999 and December 31, 2000,
Inverness' Quarterly Reports on Form 10-Q for each of the quarters ended
March 31, 2000 and March 31, 2001 and other business information relating
to Inverness and Johnson & Johnson
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- reviewed unaudited, pro forma income statements, balance sheets and other
financial and operating data concerning Inverness, Inverness after giving
effect to the proposed split-off and merger and Innovations, prepared by
management of Inverness
- analyzed unaudited, pro forma financial projections, relating to
Inverness, Inverness after giving effect to the proposed split-off and
merger and Innovations, for the fiscal years ended December 31, 2000
through 2005, prepared by management of Inverness
- discussed the past and current operations and financial condition and the
prospects of Inverness, Inverness after giving effect to the proposed
split-off and merger and Innovations, including information relating to
certain strategic, financial and operational benefits anticipated from
the proposed split-off and merger, with senior executives of Inverness
- reviewed the reported prices and trading activity for Inverness common
stock for the last 12 months and Johnson & Johnson common stock for the
last three years, respectively
- compared the pro forma financial and operating performance of Inverness
after giving effect to the proposed split-off and merger and Innovations
with that of certain publicly-traded companies that ABN AMRO considered
to be relevant
- compared the proposed financial terms of the merger with the financial
terms of certain other public transactions that ABN AMRO considered to be
relevant
- reviewed and discussed with the senior management of Inverness the
strategic rationale for, and the potential benefits of, the proposed
split-off and merger
- reviewed the amended and restated Sales Distribution Agreement for
Testing System for Glucose in Humans between LifeScan and Inverness dated
June 7, 1999 and as amended as of January 1, 2001
- reviewed the executed split-off and merger agreement dated May 23, 2001,
including certain exhibits and schedules
- reviewed the form of restructuring agreement dated May 23, 2001 and
certain related documents, which ABN AMRO had been advised were in
substantially final form and
- reviewed the form of license agreement dated May 23, 2001, including
certain exhibits thereto, which ABN AMRO had been advised was in
substantially final form.
In connection with its review, ABN AMRO:
- assumed and relied upon the accuracy and completeness of the financial
and other information reviewed by ABN AMRO and did not obtain, nor made
or assumed responsibility for undertaking, any independent verification
of such information
- assumed that financial data have been reasonably prepared on bases
reflecting the best currently available estimates and judgment of
Inverness management as to the future financial performance of Inverness
- relied upon, without independent verification, the assessment by
management of Inverness of the strategic and other benefits expected to
result from the split-off and merger
- assumed, with Inverness' consent, that the merger will be consummated in
accordance with the terms set forth in the split-off and merger agreement
and that the merger shall qualify as a tax-free reorganization or
exchange pursuant to Section 368(a) of the Internal Revenue Code of 1986,
as amended
- assumed, with Inverness' consent, that the restructuring and the
split-off will be consummated in accordance with the terms set forth in
the restructuring agreement and the split-off and merger agreement
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- assumed that the final forms of each of the restructuring agreement and
the license agreement would be consistent with the last draft reviewed by
ABN AMRO in all material respects and
- did not make an independent evaluation or appraisal of the assets and
liabilities of Inverness or any of its subsidiaries or of the licensed
technology pursuant to the license agreement, nor was furnished with such
evaluations or appraisals.
ABN AMRO's opinion:
- is necessarily based on the economic, monetary, market and other
conditions as in effect on, and the information made available to ABN
AMRO on or prior to, the date of its opinion
- does not address Inverness' underlying business decision to enter into
the split-off and merger agreement or to effect the split-off and
- does not express any opinion as to the prices at which the Johnson &
Johnson common stock has or will trade following the announcement or
consummation of the proposed split-off and merger or the price at which
the common stock of Innovations will trade following the split-off.
In connection with this engagement, ABN AMRO was not authorized to solicit,
and did not solicit, indications of interest from third parties with respect to
a possible transaction with Inverness.
In preparing its opinion, ABN AMRO performed a variety of financial and
comparative analyses. The material analyses are described below. The summary of
these analyses is not a complete description of the analyses underlying ABN
AMRO's opinion. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, is not susceptible to partial analysis
or summary descriptions. In arriving at its opinion, ABN AMRO made qualitative
judgments as to the significance and relevance of each analysis and factor
considered by it. Accordingly, ABN AMRO believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, or focusing on information presented in tabular format
without considering all analyses and factors, could create an incomplete view of
the processes underlying the analyses set forth in its opinion.
In its analyses, ABN AMRO made numerous assumptions with respect to
industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of Inverness
or Johnson & Johnson. No company, transaction or business used in those analyses
as a comparison is identical to Inverness or Johnson & Johnson or their
businesses or the merger, nor is an evaluation of the results entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed.
The estimates contained in the analyses performed by ABN AMRO and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than suggested by these analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which a business might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
The following is a summary of each of the material financial analyses
prepared and presented by ABN AMRO in connection with the rendering of its
opinion. The financial analyses summarized below include information presented
in tabular format. In order to fully understand the financial analyses of ABN
AMRO, the tables must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial analyses.
Considering the data set forth below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the financial analyses of the financial advisor.
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Selected Companies Analysis. ABN AMRO reviewed and compared selected
financial information and public market multiples of the following five selected
high-growth companies in the medical technology and diagnostics industry:
- Advanced Neuromodulation Systems, Inc.
- Integra Lifesciences Holdings Corp.
- i-STAT Corporation
- MiniMed Inc.
- ResMed Inc.
ABN AMRO chose the selected companies because they were publicly-traded
companies that, for purposes of the analysis, ABN AMRO considered reasonably
similar to Inverness' diabetes business after giving effect to the restructuring
and split-off in that these companies operate in the medical technology and
diagnostics industry. The selected companies may significantly differ from
Inverness based on, among other things, the size of the companies, the
geographic coverage of the companies' operations, and the particular specialties
within the medical technology and diagnostics industry that the companies focus
on.
ABN AMRO reviewed, among other things, enterprise values, calculated as the
market value of equity securities plus indebtedness and minority interests less
cash and marketable securities, as of May 17, 2001, as a multiple of actual
trailing 12 months and estimated calendar 2001 revenues, earnings before
interest, taxes, depreciation and amortization, commonly referred to as EBITDA,
and earnings before interest and taxes, commonly referred to as EBIT. ABN AMRO
then compared the implied multiples derived for the selected companies with the
multiples implied in the merger for Inverness, excluding the Innovations
businesses, based on the estimated transaction value of the merger. For purposes
of determining the estimated transaction value of the merger, ABN AMRO assumed
merger consideration of $35.00 per share of Inverness common stock and
approximately $24.6 million net in Inverness indebtedness to be assumed by
Johnson & Johnson. Actual trailing 12 months data for Inverness, excluding the
Innovations businesses, were based on pro forma financial statements provided by
Inverness management. Estimated financial data for the selected companies were
based on publicly available research analysts' estimates. Estimated financial
data for Inverness, excluding the Innovations businesses, were based on
estimates provided by Inverness management. This analysis indicated the
following implied multiples for the selected companies, as compared to the
multiples implied in the merger for Inverness, excluding the Innovations
businesses, based on the estimated transaction value of the merger:
IMPLIED RANGE
OF MULTIPLES
OF SELECTED IMPLIED MULTIPLES OF INVERNESS,
COMPANIES EXCLUDING THE INNOVATIONS
------------- BUSINESSES, BASED ON
ENTERPRISE VALUE AS A MULTIPLE OF: LOW HIGH TRANSACTION VALUE OF MERGER
---------------------------------- ---- ----- -------------------------------
Actual trailing 12 months revenues.......... 4.18x 13.03x 11.31x
Estimated calendar 2001 revenues............ 3.93 11.87 6.75
Actual trailing 12 months EBITDA............ 29.5 50.5 78.9
Estimated calendar 2001 EBITDA.............. 31.0 42.2 64.9
Actual trailing 12 months EBIT.............. 45.6 66.5 102.4
Estimated calendar 2001 EBIT................ 41.0 88.6 88.0
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Selected Transactions Analysis. ABN AMRO reviewed and compared publicly
available information relating to the following 18 selected transactions in the
medical technology and diagnostics industry announced since 1998:
ACQUIROR TARGET
-------- ------
- Boston Scientific Interventional Technologies, Inc.
- Johnson & Johnson Heartport Inc.
- Royal Philips Electronics NV ADAC Laboratories
- Tyco International InnerDyne Inc.
- Thermo Cardiosystems Inc. Thoratec Corp.
- Siemens Medical Acuson Corp.
- Jomed NV EndoSonics Corp.
- Alcon Holdings (Nestle SA) Summit Autonomous Inc.
- Biomet Implant Innovations Inc.
- Medtronic, Inc. Xomed Surgical Products
- GE Medical Systems OEC Medical Systems
- Abbot Laboratories Perclose Inc.
- Kimberly-Clark Ballard Medical Products
- Maxxim Medical Circon Corp.
- GE Medical Systems Marquette Medical Systems
- Royal Philips Electronics NV ATL Ultrasound Inc.
- Johnson & Johnson DePuy Inc.
- Medtronic, Inc. Physio-Control International, Inc.
ABN AMRO chose the selected transactions because they were business
combination transactions that, for purposes of the analysis, ABN AMRO considered
reasonably similar to the merger in that these transactions involved companies
in the medical technology and diagnostics industry. The selected transactions
may significantly differ from the merger based on, among other things, the size
of the transactions, the form of consideration paid in the transactions, the
structure of the transactions, and the date the transactions were consummated.
ABN AMRO reviewed, among other things, implied enterprise values in the
transactions as a multiple of actual trailing 12 months revenues, EBITDA, and
EBIT. ABN AMRO then compared the implied multiples derived for the selected
transactions with the multiples implied in the merger for Inverness, excluding
the Innovations businesses, based on the estimated transaction value of the
merger. All multiples for the selected transactions were based on publicly
available information at the time of the announcement of the particular selected
transaction. Actual trailing 12 months data for Inverness, excluding the
Innovations businesses, were based on pro forma financial statements provided by
Inverness management. This analysis indicated the following implied multiples
for the selected transactions, as compared to the multiples implied in the
merger for Inverness, excluding the Innovations businesses, based on the
estimated transaction value of the merger:
IMPLIED RANGE
OF MULTIPLES
OF SELECTED IMPLIED MULTIPLES OF INVERNESS,
TRANSACTIONS EXCLUDING THE INNOVATIONS
------------- BUSINESSES, BASED ON
ENTERPRISE VALUE AS A MULTIPLE OF: LOW HIGH TRANSACTION VALUE OF MERGER
---------------------------------- ---- ----- -------------------------------
Actual trailing 12 months revenues.......... 1.28x 11.95x 11.31x
Actual trailing 12 months EBITDA............ 10.6 68.6 78.9
Actual trailing 12 months EBIT.............. 15.2 84.2 102.4
Discounted Cash Flow Analysis. ABN AMRO performed a discounted cash
flow analysis, using estimates provided by Inverness management, with respect to
Inverness' businesses and operations other than the Innovations businesses in
order to derive an implied equity value per share reference range for
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those businesses and operations as if such businesses and operations were to
continue on a stand-alone basis. This analysis was based on:
- the present value of the estimated unlevered, after-tax free cash flows
that those businesses could generate over the five-year period 2001
through 2005 and
- the terminal value of those businesses and operations based on a range of
multiples applied to estimated 2005 EBITDA.
For purposes of this analysis, ABN AMRO used discount rates of 12.0% to
14.0%, which were based on ABN AMRO's judgement of the estimated weighted
average cost of capital, including debt, of Inverness and terminal 2005 EBITDA
multiples of 20.0x to 30.0x, which were derived by reference to the implied
public market trading multiples of enterprise value to EBITDA of selected
companies in the medical technology and diagnostics industry. This analysis
indicated an implied equity value per share reference range for Inverness'
businesses and operations other than the Innovations businesses of approximately
$22.62 to $38.48, as compared to the proposed offer price of $35.00 per share.
Other Factors. In rendering its opinion, ABN AMRO considered other
factors for informational purposes, including:
- a business, financial and shareholder profile of Johnson & Johnson
- selected published analysts' reports on Johnson & Johnson, including
calendar years 2001 and 2002 EPS estimates of those analysts, the
recommendations of those analysts and the implied P/E estimates for
calendar years 2001 and 2002
- Johnson & Johnson's Annual Report on Form 10-K for each of the fiscal
years ended January 3, 1999, January 2, 2000 and December 31, 2000,
Johnson & Johnson's Quarterly Report on Form 10-Q for each of the
quarters ended April 2, 2000 and April 1, 2001 and other business
information relating to Johnson & Johnson
- the recent trading history of shares of Johnson & Johnson common stock
- implied multiples for selected transactions comparable to the Innovations
businesses
- implied trading multiples for selected women's health, nutritional
supplements and clinical diagnostics businesses and
- historical and projected financial information for the Innovations
businesses prepared by the management of Inverness.
OPINION OF UBS WARBURG LLC. On May 21, 2001, at a meeting of the Inverness
board of directors held to evaluate the terms of the proposed restructuring and
split-off and merger, UBS Warburg delivered to the Inverness board an oral
opinion, which opinion was confirmed by delivery of a written opinion dated May
23, 2001, the date of execution of the split-off and merger agreement, to the
effect that, as of the date of the opinion and based on and subject to various
assumptions, matters considered and limitations described in the opinion, the
aggregate consideration provided for in the split-off and merger was fair, from
a financial point of view, to the holders of Inverness common stock.
The full text of UBS Warburg's opinion describes the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by UBS Warburg. This opinion is attached as Annex 8 and is incorporated into
this proxy statement/prospectus by reference. UBS WARBURG'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE AGGREGATE
CONSIDERATION PROVIDED FOR IN THE SPLIT-OFF AND MERGER AND DOES NOT ADDRESS ANY
OTHER ASPECT OF THE RESTRUCTURING, SPLIT-OFF AND MERGER OR ANY RELATED
TRANSACTION. THE OPINION DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF
INVERNESS TO EFFECT THE RESTRUCTURING, SPLIT-OFF AND MERGER OR CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE WITH RESPECT TO ANY MATTERS
RELATING TO THE PROPOSED SPLIT-OFF AND MERGER. HOLDERS OF INVERNESS COMMON STOCK
ARE ENCOURAGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY. The summary of
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UBS Warburg's opinion described below is qualified in its entirety by reference
to the full text of its opinion.
In arriving at its opinion, UBS Warburg:
- reviewed current and historical market prices and trading volumes of
Inverness common stock and Johnson & Johnson common stock
- reviewed publicly available business and historical financial information
relating to Inverness and Johnson & Johnson
- reviewed internal financial information and other data relating to the
businesses and financial prospects of Inverness and Innovations,
including estimates and financial forecasts prepared by the management of
Inverness, that were provided to or discussed with UBS Warburg by
Inverness and were not publicly available
- reviewed publicly available financial forecasts relating to Johnson &
Johnson
- conducted discussions with members of the senior management of Inverness
- reviewed publicly available financial and stock market data with respect
to other companies in lines of businesses that UBS Warburg believed to be
generally comparable to those of Inverness, Innovations and Johnson &
Johnson
- compared the financial terms of the merger with the publicly available
financial terms of other transactions which UBS Warburg believed to be
generally relevant
- reviewed the split-off and merger agreement and forms of the
restructuring agreement and other related documents attached as annexes
to the merger agreement and
- conducted other financial studies, analyses and investigations, and
considered other information, as UBS Warburg deemed necessary or
appropriate.
In connection with its review, with the consent of Inverness, UBS Warburg
did not assume any responsibility for independent verification of any of the
information that UBS Warburg was provided or reviewed for the purpose of its
opinion and, with the consent of Inverness, UBS Warburg relied on that
information being complete and accurate in all material respects. In addition,
at the direction of Inverness, UBS Warburg did not make any independent
evaluation or appraisal of any of the assets or liabilities, contingent or
otherwise, of Inverness (including those to be transferred to Innovations) or
Johnson & Johnson, and was not furnished with any evaluation or appraisal of any
such assets or liabilities.
With respect to the financial forecasts and estimates that it reviewed
relating to Inverness and Innovations, UBS Warburg assumed, at the direction of
Inverness, that they were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Inverness as to
the future financial performance of Inverness and Innovations. With respect to
publicly available forecasts that it reviewed relating to Johnson & Johnson, UBS
Warburg assumed, with the consent of Inverness, that they represented reasonable
estimates and judgments as to the future financial performance of Johnson &
Johnson. In connection with its engagement, UBS Warburg was not requested to,
and it did not, solicit third party indications of interest in the acquisition
of all or a part of Inverness. UBS Warburg's opinion was necessarily based on
economic, monetary, market and other conditions existing, and information
available to UBS Warburg, on the date of its opinion.
At the direction of Inverness, UBS Warburg was not requested to, and it did
not, participate in the negotiation or structuring of the restructuring or
split-off and merger. At the direction of Inverness, UBS Warburg was not asked
to, and it did not, offer any opinion as to the terms of, or the obligations
under, the split-off and merger agreement or related documents or the form of
the restructuring or split-off and merger. UBS Warburg expressed no opinion as
to the value of Johnson & Johnson common stock and Innovations common stock when
issued in the split-off and merger or the prices at which Johnson & Johnson
common stock and Innovations common stock will trade or otherwise be
transferable at any time.
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In rendering its opinion, UBS Warburg assumed, at the direction of
Inverness, that each of Inverness, Johnson & Johnson, Sunrise Acquisition Corp.
and Innovations would comply with all material covenants and agreements
contained in, and other material terms of, the split-off and merger agreement
and related documents and that the restructuring, split-off and merger would be
consummated in accordance with their terms without waiver, modification or
amendment of any material term, condition or agreement. UBS Warburg also relied,
in rendering its opinion, on the representations and warranties of Inverness and
Johnson & Johnson contained in the split-off and merger agreement and assumed,
at the direction of Inverness, that the restructuring, split-off and merger
would be consummated in compliance with all applicable laws, including, with
respect to the restructuring and split-off, laws relating to insolvency and
fraudulent conveyance. Representatives of Inverness advised UBS Warburg, and UBS
Warburg therefore assumed, that the final terms of the restructuring agreement
and related documents in the forms attached as annexes to the split-off and
merger agreement would not vary materially from the forms reviewed by it. Except
as described above, Inverness imposed no other instructions or limitations on
UBS Warburg with respect to the investigations made or the procedures followed
by UBS Warburg in rendering its opinion.
In connection with rendering its opinion to the Inverness board of
directors, UBS Warburg performed a variety of financial and comparative analyses
which are summarized below. The following summary is not a complete description
of all of the analyses performed and factors considered by UBS Warburg in
connection with its opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analysis or summary description. With respect to the analysis of
selected publicly traded companies and the analysis of selected transactions
summarized below, no company or transaction used as a comparison is either
identical or directly comparable to Inverness, Innovations, Johnson & Johnson or
the restructuring, split-off and merger. These analyses necessarily involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the public trading or
acquisition values of the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was assigned
greater significance by UBS Warburg than any other. UBS Warburg arrived at its
ultimate opinion based on the results of all analyses undertaken by it and
assessed as a whole. UBS Warburg did not draw, in isolation, conclusions from or
with regard to any one factor or method of analysis.
The estimates of the future performance of Inverness, Innovations and
Johnson & Johnson provided by the management of Inverness or derived from public
sources in or underlying UBS Warburg's analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than those estimates. In performing its analyses, UBS Warburg considered
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Inverness and Johnson &
Johnson. Estimates of the financial value of companies do not necessarily
purport to be appraisals or reflect the prices at which companies actually may
be sold.
The consideration provided for in the merger was determined through
negotiation between Inverness and Johnson & Johnson and the decision to enter
into the restructuring, split-off and merger was solely that of the Inverness
board of directors. UBS Warburg's opinion and financial analyses were only one
of many factors considered by the Inverness board of directors in its evaluation
of the restructuring, split-off and merger and should not be viewed as
determinative of the views of the Inverness board of directors or management
with respect to the restructuring or split-off and merger or the consideration
provided for in the split-off and merger.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with the Inverness board of directors in
connection with its opinion relating to the proposed restructuring, split-off
and merger. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND UBS WARBURG'S
FINANCIAL ANALYSES, THE TABLES
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MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT
CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE
DATA BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF UBS WARBURG'S FINANCIAL
ANALYSES.
Inverness: Analysis of Selected Public Companies. UBS Warburg compared
selected financial information and operating statistics for Inverness, excluding
the Innovations businesses, with corresponding financial information and
operating statistics of the following nine selected publicly held companies:
- MiniMed Inc. - IMPATH, Inc.
- Cytyc Corporation - Wilson Greatbatch Technologies, Inc.
- Disetronic Group - i-STAT Corporation
- IDEXX Laboratories, Inc. - Regeneration Technologies, Inc.
- Biosite Diagnostics Incorporated
UBS Warburg reviewed enterprise values, calculated as fully diluted equity
value, plus total debt and minority interests, less cash, as multiples of latest
12 months sales, earnings before interest, taxes, depreciation and amortization,
commonly known as EBITDA, and earnings before interest and taxes, commonly known
as EBIT. UBS Warburg also reviewed equity values as a multiple of latest 12
months and one-year and two-year forward net income. UBS Warburg then compared
the multiples derived from the selected companies with corresponding multiples
for Inverness, excluding the Innovations businesses, based on the merger
consideration. Multiples for the selected companies were based on closing stock
prices on May 18, 2001. Estimated financial data for the selected companies were
based on publicly available research analysts' consensus estimates and estimated
financial data for Inverness were based on internal estimates of the management
of Inverness. This analysis indicated the following implied low, mean, median
and high enterprise value and equity value multiples for the selected companies,
as compared to the multiples for Inverness, excluding the Innovations
businesses, implied by the merger consideration:
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF
SELECTED COMPANIES INVERNESS, EXCLUDING
---------------------------- INNOVATIONS BUSINESSES, BASED
ENTERPRISE VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH ON MERGER CONSIDERATION
--------------------------------- ---- ---- ------ ----- -----------------------------
Latest 12 Months Sales.............. 1.4x 7.8x 6.2x 16.9x 11.2x
Latest 12 Months EBITDA............. 13.3 35.6 24.9 64.9 78.4
Latest 12 Months EBIT............... 18.3 48.1 36.6 99.6 101.7
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF
SELECTED COMPANIES INVERNESS, EXCLUDING
---------------------------- INNOVATIONS BUSINESSES, BASED
EQUITY VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH ON MERGER CONSIDERATION
----------------------------- ---- ---- ------ ----- -----------------------------
Latest 12 Months Net Income......... 28.5x 73.8x 58.4x 141.7x 115.3x
One-Year Forward Net Income......... 23.7 58.7 57.1 95.2 92.2
Two-Year Forward Net Income......... 19.5 36.6 34.3 63.7 40.3
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Inverness: Analysis of Selected Precedent Transactions. UBS Warburg
reviewed transaction and equity values in the following 15 selected
transactions:
ACQUIROR TARGET
-------- ------
- Medtronic, Inc. Xomed Surgical Products, Inc.
- Abbott Laboratories Perclose, Inc.
- Medtronic, Inc. Arterial Vascular Engineering, Inc.
- Medtronic, Inc. Sofamor Danek Group, Inc.
- Stryker Corporation Howmedica, a division of Pfizer Inc.
- Johnson & Johnson DePuy, Inc.
- Tyco International Ltd. U. S. Surgical Corporation
- Tyco International Ltd. Sherwood-Davis & Geck, a division of American Home
Products Corporation
- Johnson & Johnson Biopsys Medical, Inc.
- St. Jude Medical, Inc. Ventritex, Inc.
- Boston Scientific Corporation Target Therapeutics, Inc.
- Abbot Laboratories MediSense, Inc.
- Medtronic, Inc. InStent Inc.
- Boston Scientific Corporation Heart Technology, Inc.
- Boston Scientific Corporation SCIMED Life Systems, Inc.
UBS Warburg reviewed transaction values, calculated as fully diluted equity
value, plus total debt and minority interests, less cash, as multiples of latest
12 months sales, EBITDA and EBIT. UBS Warburg also reviewed equity values as a
multiple of one-year forward earnings per share, commonly known as EPS. UBS
Warburg then compared the implied multiples derived from the selected
transactions with corresponding multiples for Inverness, excluding the
Innovations businesses, based on the merger consideration. All multiples were
based on publicly available information at the time of announcement of the
relevant transaction. This analysis indicated the following implied mean and
median transaction value and equity value multiples for the selected
transactions, as compared to the multiples for Inverness, excluding the
Innovations businesses, implied by the merger consideration:
IMPLIED MULTIPLES
OF SELECTED IMPLIED MULTIPLES OF
TRANSACTIONS INVERNESS, EXCLUDING
------------------ INNOVATIONS BUSINESSES, BASED
ENTERPRISE VALUE AS MULTIPLES OF: MEAN MEDIAN ON MERGER CONSIDERATION
--------------------------------- ------ -------- ------------------------------
Latest 12 months Sales..................... 11.3x 6.0x 12.2x
Latest 12 months EBITDA.................... 25.6 17.4 78.4
Latest 12 months EBIT...................... 33.4 22.7 101.7
IMPLIED MULTIPLES
OF SELECTED IMPLIED MULTIPLES OF
TRANSACTIONS INVERNESS, EXCLUDING
------------------ INNOVATIONS BUSINESSES, BASED
EQUITY VALUE AS MULTIPLES OF: MEAN MEDIAN ON MERGER CONSIDERATION
----------------------------- ------ -------- ------------------------------
One-year Forward Earnings Per Share........ 40.4x 37.2x 92.2x
Inverness: Discounted Cash Flow Analysis. UBS Warburg performed an
analysis of the present value of the estimated unlevered, after-tax free cash
flows that Inverness, excluding the Innovations businesses, could generate over
the last six months of 2001 and calendar years 2002 through 2005 based on
internal estimates of the management of Inverness. UBS Warburg applied terminal
value multiples ranging from 16.0x to 20.0x to the estimated calendar year 2005
EBITDA of Inverness, excluding the New Inverness businesses, using discount
rates ranging from 12% to 16%. This analysis indicated the following
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implied per share equity reference range for Inverness, excluding the
Innovations businesses, as compared to the per share equity value for Inverness
implied by the merger consideration:
IMPLIED INVERNESS PER SHARE
IMPLIED INVERNESS PER EQUITY VALUE, EXCLUDING INNOVATIONS
SHARE EQUITY REFERENCE RANGE BUSINESSES, BASED ON MERGER CONSIDERATION
---------------------------- -----------------------------------------
$22.31 - $31.45 $35.00
Innovations: Discounted Cash Flow Analysis. UBS Warburg performed an
analysis of the present value of the estimated unlevered, after-tax free cash
flows that Innovations could generate over the last six months of 2001 and
calendar years calendar years 2002 through 2005 based on internal estimates of
the management of Inverness. UBS Warburg applied terminal value multiples
ranging from 7.0x to 11.0x to the estimated calendar year 2005 EBITDA of
Innovations, using discount rates ranging from 10% to 14%. This analysis
indicated an implied per share equity reference range for Innovations of
approximately $2.68 to $3.56 per share.
Innovations: Analysis of Selected Public Companies. UBS Warburg compared
selected financial information and operating statistics for Innovations with
corresponding financial information and operating statistics of the following
six selected publicly held companies:
- Arrow International, Inc. - PolyMedica Corp.
- Datascope Corp. - Vital Signs, Inc.
- ICU Medical, Inc. - Young Innovations, Inc.
UBS Warburg reviewed enterprise values as multiples of latest 12 months
sales, EBITDA and EBIT. UBS Warburg also reviewed equity values as a multiple of
latest 12 months and one-year and two-year forward net income. UBS Warburg then
compared the multiples derived from the selected companies with corresponding
multiples for Innovations based on an illustrative range of trading prices for
Innovations common stock of $2.00 to $5.00 per share. Multiples for the selected
companies were based on closing stock prices on May 18, 2001. Estimated
financial data for the selected companies were based on publicly available
research analysts' consensus estimates and estimated financial data for
Innovations were based on internal estimates of the management of Inverness.
This analysis indicated the following implied low, mean, median and high
enterprise value and equity value multiples for the selected companies, as
compared to the multiples implied for Innovations based on an illustrative range
of trading prices for Innovations common stock of $2.00 to $5.00 per share:
IMPLIED MULTIPLES OF IMPLIED MULTIPLE RANGES OF
SELECTED COMPANIES INNOVATIONS BASED ON ILLUSTRATIVE
--------------------------- RANGE OF INNOVATIONS TRADING
ENTERPRISE VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH PRICES OF $2.00 TO $5.00 PER SHARE
--------------------------------- ---- ---- ------ ---- ----------------------------------
Latest 12 months Sales............ 1.9x 3.0x 2.7x 5.8x 0.6x - 2.6x
Latest 12 months EBITDA........... 6.2 10.5 10.3 15.4 3.7 - 15.9
Latest 12 months EBIT............. 9.4 13.4 13.0 19.7 4.8 - 20.7
IMPLIED MULTIPLES OF IMPLIED MULTIPLE RANGES OF
SELECTED COMPANIES INNOVATIONS BASED ON ILLUSTRATIVE
--------------------------- RANGE OF INNOVATIONS TRADING
ENTERPRISE VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH PRICES OF $2.00 TO $5.00 PER SHARE
--------------------------------- ---- ---- ------ ---- ----------------------------------
Latest 12 months Net Income....... 15.5x 19.7x 19.1x 28.1x 20.9x - 52.3x
One-Year Forward Net Income....... 12.3 16.9 16.3 23.6 10.0 - 25.0
Two-Year Forward Net Income....... 9.6 14.6 14.6 19.8 10.1 - 25.2
Johnson & Johnson: Analysis of Selected Public Companies. UBS Warburg
compared selected financial information and operating statistics for Johnson &
Johnson with corresponding financial information and operating statistics of the
following seven selected publicly held companies:
- Abbott Laboratories
- Baxter International Inc.
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- The Gillette Company
- Guidant Corporation
- Medtronic, Inc.
- Pfizer Inc.
- The Procter & Gamble Company
UBS Warburg reviewed enterprise values as multiples of latest 12 months
sales, EBITDA and EBIT. UBS Warburg also reviewed equity value as multiples of
latest 12 months and one-year and two-year forward net income. UBS Warburg then
compared the multiples derived from the selected companies with corresponding
multiples implied for Johnson & Johnson based on the closing price of Johnson &
Johnson common stock on May 18, 2001. Multiples for the selected companies also
were based on closing stock prices on May 18, 2001. Estimated financial data for
the selected companies and Johnson & Johnson were based on publicly available
research analysts' estimates. This analysis indicated the following implied low,
mean, median and high enterprise value and equity value multiples for the
selected companies, as compared to the multiples implied for Johnson & Johnson
based on the closing price of Johnson & Johnson common stock on May 18, 2001:
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF
SELECTED COMPANIES JOHNSON & JOHNSON BASED ON
--------------------------- CLOSING PRICE OF JOHNSON & JOHNSON
ENTERPRISE VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH COMMON STOCK ON MAY 18, 2001
--------------------------------- ---- ---- ------ ---- ----------------------------------
Latest 12 months Sales........ 2.6x 5.9x 4.8x 10.0x 4.9x
Latest 12 months EBITDA....... 13.0 19.2 18.6 29.2 18.0
Latest 12 months EBIT......... 16.3 23.3 24.6 32.4 22.2
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF
SELECTED COMPANIES JOHNSON & JOHNSON BASED ON
--------------------------- CLOSING PRICE OF JOHNSON & JOHNSON
ENTERPRISE VALUE AS MULTIPLES OF: LOW MEAN MEDIAN HIGH COMMON STOCK ON MAY 18, 2001
--------------------------------- ---- ---- ------ ---- ----------------------------------
Latest 12 months Net Income.... 23.4x 31.4x 29.8x 44.0x 29.5x
One-Year Forward Net Income.... 19.3 27.5 27.5 37.5 26.3
Two-Year Forward Net Income.... 17.7 23.5 23.6 31.2 23.2
Johnson & Johnson: Accretion/Dilution Analysis. UBS Warburg analyzed the
potential pro forma financial effect of the merger on Johnson & Johnson's
estimated EPS for calendar years 2001 through 2004, without taking into account
potential cost savings and other synergies from the merger. Estimated data for
this analysis were based on, in the case of Johnson & Johnson, publicly
available research analysts' estimates and Johnson & Johnson's public guidance
and, in the case of Inverness, internal estimates of the management of
Inverness. Based on the merger consideration and under accounting rules in
effect until June 30, 2001, and under newly enacted accounting rules in effect
since June 30, 2001, this analysis suggested that the merger could be dilutive
to, or represent a decrease in, Johnson & Johnson's estimated EPS in calendar
years 2001 through 2004. The actual results achieved by the combined company may
vary from projected results and the variations may be material.
MISCELLANEOUS. Inverness has agreed to pay ABN AMRO and UBS Warburg for
their opinion services fees of $1,000,000 in the aggregate. In addition,
Inverness has agreed to reimburse ABN AMRO and UBS Warburg for their reasonable
expenses, including reasonable fees and disbursements of counsel, and to
indemnify ABN AMRO and UBS Warburg and related parties against liabilities,
including liabilities under federal securities laws, relating to, or arising out
of, their engagement.
Inverness selected ABN AMRO and UBS Warburg because ABN AMRO and UBS
Warburg are internationally recognized investment banking firms with substantial
experience in similar transactions and are familiar with Inverness and its
business. ABN AMRO and UBS Warburg are continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
leveraged
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buyouts, negotiated underwritings, competitive bids, secondary distributions of
listed and unlisted securities and private placements.
UBS Warburg and its affiliates in the past have provided services to
Inverness and Johnson & Johnson unrelated to the proposed restructuring and
merger, for which services UBS Warburg and its affiliates have received
compensation. In the past, ABN AMRO and its affiliates and predecessors have
provided financial services for Inverness and have received customary fees for
the rendering of those services.
In the ordinary course of business, ABN AMRO and UBS Warburg, their
successors and affiliates may actively trade Inverness common stock, Johnson &
Johnson common stock and other securities of Inverness and Johnson & Johnson for
their own accounts and the accounts of their customers and, accordingly, may at
any time hold a long or short position in those securities.
INTERESTS OF INVERNESS DIRECTORS AND EXECUTIVE OFFICERS IN THE SPLIT-OFF AND
MERGER AND RELATED TRANSACTIONS
In considering the recommendation of the Inverness board of directors that
the holders of Inverness common stock vote in favor of the adoption of the
split-off and merger agreement, Inverness stockholders should be aware that the
members of the Inverness board of directors and Inverness' executive officers
have personal interests in the split-off and merger and the related transactions
that are or may be different from, or in addition to, the interests of other
Inverness stockholders. These interests are summarized below. In approving the
split-off and merger agreement and the transactions contemplated by the
split-off and merger agreement, the Inverness board of directors was aware of,
and considered, the interests of the Inverness directors and executive officers,
other than certain officers' interests as executive officers of Innovations
which arose subsequent to the execution of the split-off and merger agreement.
ACCELERATION OF STOCK OPTIONS. Under the terms of the restructuring
agreement, immediately prior to the completion of the split-off and merger and
as part of the restructuring, each outstanding option to purchase shares of
Inverness common stock, including those held by executive officers and directors
of Inverness, will be converted into (1) a new option to purchase shares of
Inverness common stock, referred to in this section as a replacement Inverness
option, and (2) an option to purchase shares of Innovations common stock. For a
more complete description of the terms of these new options, including with
respect to the number of shares subject to such options and the related exercise
prices of such options, see "--Effect on Options and Warrants Relating to
Inverness Common Stock." Whether or not the original Inverness options are
vested at the time of the restructuring, all replacement Inverness options and
Innovations options will be fully vested and immediately exercisable at and
following the completion of the split-off and merger. In addition, all
replacement Inverness options which will be held by persons who are not going to
be employees or directors of Inverness or its subsidiaries immediately following
the split-off and merger and all Innovations options which will be held by
persons who are not going to be employees or directors of Innovations or its
subsidiaries immediately following the split-off and merger will remain
exercisable for the remainder of the originally stated term of the original
Inverness options irrespective of employment by or service to Johnson & Johnson,
Inverness, Innovations or any subsidiaries of those companies. Based upon
options outstanding as of --, 2001, options held by Inverness' executive
officers and directors relating to -- shares of Inverness common stock will be
subject to the conversion and accelerated vesting provisions described above.
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The following table sets forth, as of --, 2001, the number of shares
subject to unvested options held by Inverness' directors and the average
exercise prices of those options:
NUMBER OF SHARES AVERAGE EXERCISE PRICE
NAME OF DIRECTOR SUBJECT TO UNVESTED OPTIONS PER SHARE ($)
---------------- --------------------------- ----------------------
Ernest A. Carabillo, Jr........................... -- --
Carol K. Goldberg................................. -- --
John F. Levy...................................... -- --
Peter Townsend.................................... -- --
Willard L. Umphrey................................ -- --
Ron Zwanziger..................................... -- --
The exercise price of each outstanding option issued under the Inverness
stock plans is equal to the fair market value of Inverness common stock on the
date of the option grant.
INDEMNIFICATION AND INSURANCE. The split-off and merger agreement provides
that all rights to indemnification, advancement of expenses and exculpation from
liabilities for acts or omissions occurring at or prior to the completion of the
split-off and merger existing in favor of current or former directors or
officers of Inverness under the Inverness certificate of incorporation, bylaws
or indemnification agreements, if any, will be assumed by the surviving
corporation in the merger and will continue in full force and effect in
accordance with their terms for not less than six years following completion of
the split-off and merger. The split-off and merger agreement also provides that
Johnson & Johnson will cause the surviving corporation to reimburse each current
director of Inverness for such person's reasonable expenses, including legal
fees and expenses, incurred in connection with the investigation and defense of
any claim arising out of or related to the transactions contemplated by the
split-off and merger agreement or the other transaction agreements to the extent
(1) such fees and expenses are not paid pursuant to Inverness' insurance
coverage or statutory indemnification obligations within 30 days after the
receipt by the surviving corporation of an invoice for such fees and expenses
and (2) it is permitted by Delaware law for a party to reimburse another party
for such fees and expenses.
The split-off and merger agreement also provides that for six years after
the completion of the split-off and merger, Johnson & Johnson will maintain
directors' and officers' liability insurance for acts or omissions occurring at
or prior to the time when the split-off and merger are completed, covering each
person who was, as of the date of the split-off and merger agreement, covered by
Inverness' directors' and officers' liability insurance, on terms no less
favorable than those in effect as of the date of the split-off and merger
agreement, and the limit of coverage will be increased to $20 million. Johnson &
Johnson's obligation to provide this insurance coverage is subject to a cap of
$250,000 in annual premiums. If Johnson & Johnson cannot maintain the existing
or equivalent insurance coverage without exceeding $250,000, Johnson & Johnson
is required to maintain only that amount of insurance coverage that can be
obtained by paying an annual premium equal to $250,000. In lieu of requiring
Johnson & Johnson to maintain such insurance, Inverness has the right to
purchase an extended reporting period endorsement under Inverness' existing
directors' and officers' liability insurance, and/or under one or more other
policies which provide such coverage, in order to provide such directors and
executive officers with $20 million of coverage for six years after the
completion of the split-off and merger, provided that the aggregate premiums for
such coverage may not exceed $500,000.
CONSULTING AND NONCOMPETITION AGREEMENTS. Each of Ron Zwanziger, Jerry
McAleer and David Scott has entered into a consulting and noncompetition
agreement with Johnson & Johnson and Inverness.
The consulting and noncompetition agreements provide that upon the
completion of the split-off and merger, Ron Zwanziger, Jerry McAleer and David
Scott will end their employment with Inverness and become consultants to
Inverness, Johnson & Johnson and their subsidiaries.
The term of Ron Zwanziger's consulting relationship will be for a period of
36 months commencing on the completion of the split-off and merger. He has
agreed to provide part-time consulting services during that time (up to three
days per calendar quarter). The term of each of Jerry McAleer's and David
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Scott's consulting relationship will be for a period of 42 months commencing on
the completion of the split-off and merger. Jerry McAleer and David Scott are
required to serve as consultants on a full-time basis for the first six months
of their consulting relationships, except that each may be employed by
Innovations during that period if Innovations temporarily assigns him to Johnson
& Johnson or Inverness on a full time basis for the remainder of those six
months. After that initial six month period, Jerry McAleer and David Scott will
only provide consulting services on a part-time basis (up to three days per
calendar quarter). Each consultant has the right to terminate his consulting
relationship with 90 days advance written notice, except that in the case of
Jerry McAleer and David Scott, any such termination will not be effective until
after the initial six months period. Inverness has the right to terminate each
of the consulting relationships for cause, and Johnson & Johnson and Inverness
may terminate the consulting relationships at any time other than for cause with
90 days advance written notice.
Ron Zwanziger's role as a consultant will be to provide general consulting
services related to new products and business opportunities in the diabetes
field. Jerry McAleer's role as a consultant will be to develop specific diabetes
product development plans, profiles and prototypes and work with research and
development vendors and teams. David Scott's role as a consultant will be to
develop and implement manufacturing processes for diabetes products, formalize
supplier and contractor relationships and provide assistance with respect to
employee matters.
During the term of his consulting relationship, Ron Zwanziger will be paid
a fee for each day actually worked. Jerry McAleer and David Scott will each be
paid $165,000 for the first six months of the consulting relationship, and will
be paid a fee for each day actually worked for the remainder of the consulting
relationship.
Ron Zwanziger, Jerry McAleer and David Scott are also required to maintain
the confidentiality of product and corporate information regarding Inverness,
Johnson & Johnson and their affiliates, in the case of Ron Zwanziger for a
period of seven years, and in the cases of Jerry McAleer and David Scott for a
period of five years, from the completion of the split-off and merger.
Each of Ron Zwanziger, Jerry McAleer and David Scott has agreed that,
commencing upon the completion of the split-off and merger and continuing until
the later of six months from the termination of his consulting relationship and
the date that is, in the case of Ron Zwanziger five years, and in the cases of
Jerry McAleer and David Scott three years, from the completion of the split-off
and merger, subject to limited exceptions similar to those applicable to
Innovations contained in the post-closing covenants agreement, he will not:
- compete with Johnson & Johnson, Inverness or any of their affiliates in
the diabetes field
- engage in any activity in the diabetes field or
- actively participate in, control, manage, own any interest in or share in
the earnings of, finance or invest in the capital stock of any person who
is engaged in any activity in the diabetes field or consult with any
person on matters in the diabetes field.
See "Post-Closing Arrangements -- Post-Closing Covenants
Agreement -- Agreements Not to Compete and Not to Solicit or Hire Employees" for
a description of the applicable portions of that agreement.
Each of Ron Zwanziger, Jerry McAleer and David Scott also has agreed that
for a period of three years from the completion of the split-off and merger,
subject to limited exceptions similar to those applicable to Innovations
contained in the post-closing covenants agreement, he will not:
- induce an employee of any of Inverness and its post-closing subsidiaries
to leave the employ of Inverness and its post-closing subsidiaries
- recommend to any other person that they employ that employee or
- hire any such employee.
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Each of Ron Zwanziger, Jerry McAleer and David Scott has agreed that,
commencing upon the completion of the split-off and merger and continuing until
the later of six months from the termination of his consulting relationship and
the date that is, in the case of Ron Zwanziger five years, and in the cases of
Jerry McAleer and David Scott three years, from the completion of the split-off
and merger, subject to limited exceptions similar to those applicable to
Innovations contained in the post-closing covenants agreement, he will not:
- solicit any customer or supplier of Johnson & Johnson, Inverness or any
of their affiliates to (1) transact business in the diabetes field with a
business or enterprise that competes with Johnson & Johnson, Inverness or
any affiliates in the diabetes field or (2) reduce or refrain from doing
any business with Johnson & Johnson, Inverness or any of their respective
affiliates in the diabetes field or
- disparage Johnson & Johnson or Inverness or any of their products or
activities in the diabetes field.
Nothing mentioned above prevents Ron Zwanziger, Jerry McAleer or David
Scott from participating, directly or indirectly, in physician practice
management activities in the diabetes field, as described under "Post-Closing
Arrangements -- Post-Closing Covenants Agreement," including competing,
engaging, controlling, managing, owning, investing, consulting and soliciting
customers.
BENEFITS AS EXECUTIVE OFFICERS OF INNOVATIONS. Subsequent to the execution
of the split-off and merger agreement, Innovations adopted the Innovations stock
option plan and the Innovations executive bonus plan, and each of Ron Zwanziger,
David Scott and Jerry McAleer agreed to become executive officers of
Innovations. As executive officers of Innovations, Mr. Zwanziger, Dr. Scott and
Dr. McAleer will be entitled to the compensation and benefits described under
the "Management" section of the Innovations prospectus portion of this proxy
statement/prospectus beginning on page X-59.
Mr. Zwanziger, Dr. Scott and Dr. McAleer have also received benefits under
the Innovations stock option plan. For a more detailed description of the terms
of these benefits, see "Other Proposals -- Approval of the Inverness Medical
Innovations, Inc. 2001 Stock Option and Incentive Plan."
In addition to the annual cash bonuses described under the "Management"
section of the Innovations prospectus portion of this proxy
statement/prospectus, each of Mr. Zwanziger, Dr. McAleer and Dr. Scott are also
eligible to receive cash bonuses under the Innovations executive bonus plan.
Under the Innovations executive bonus plan, these executives will receive cash
bonuses if the Innovations common stock achieves specified stock price targets
following completion of the split-off and merger. For a more detailed
description of the terms of the executive bonus plan, see "Other
Proposals -- Approval of the Inverness Medical Innovations, Inc. Executive Bonus
Plan."
PRE-MERGER RESTRUCTURING TRANSACTIONS
It is contemplated that immediately prior to the completion of the
split-off and merger and pursuant to the terms of the restructuring agreement
and the other transaction agreements, Inverness and its subsidiaries will
complete the restructuring of Inverness upon the terms and subject to the
conditions set forth in the restructuring agreement. In connection with this
restructuring, Inverness recently organized Innovations, a wholly-owned
subsidiary of Inverness. The purpose and effect of the restructuring of
Inverness is to facilitate the split-off and merger by separating Inverness'
diabetes care products business from its other principal businesses. Inverness
will effect this separation by transferring the assets and liabilities of its
women's health, nutritional supplements and clinical diagnostics businesses to
Innovations immediately prior to the split-off. As a result, at the time of the
split-off and merger, Inverness will own only those businesses not transferred
to Innovations, including the related assets and liabilities, which will consist
principally of the diabetes care products business. Completion of the
restructuring of Inverness is a condition to the merger. Inverness will not
proceed with the split-off and merger unless the restructuring is complete. For
a more complete description of the terms of the restructuring agreement, see
"Pre-Merger Restructuring Transactions" on page 49.
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ACCOUNTING TREATMENT OF THE MERGER
Johnson & Johnson intends to treat the merger as a purchase for accounting
and financial reporting purposes, which means that Inverness will be treated as
a separate entity for periods prior to the completion of the merger and,
thereafter, the financial results of Inverness' post-restructuring business,
including its diabetes care products business, will be consolidated with Johnson
& Johnson's financial results.
FORM OF THE MERGER
Subject to the terms and conditions of the split-off and merger agreement
and in accordance with Delaware law, at the effective time of the split-off and
merger, Sunrise Acquisition Corp., a wholly-owned subsidiary of Johnson &
Johnson and a party to the split-off and merger agreement, will merge with and
into Inverness. Inverness will survive the merger as a wholly-owned Delaware
subsidiary of Johnson & Johnson.
MERGER AND SPLIT-OFF CONSIDERATION
At the effective time of the split-off and merger, each outstanding share
of Inverness common stock will be converted into the right to receive: (1) 0.20
of a share of Innovations common stock, and (2) a fraction of a share of Johnson
& Johnson common stock based on an exchange ratio intended to value that
fractional share at $35.00, except that treasury stock and stock held by Johnson
& Johnson and Sunrise Acquisition Corp. will be canceled. The exchange ratio
will be determined by dividing $35.00 by the average of the volume weighted
averages of the trading prices of Johnson & Johnson common stock on the New York
Stock Exchange for each of the 20 consecutive trading days ending with the third
trading day immediately preceding the date on which the split-off and merger are
completed. Inverness stockholders will receive cash for any fractional shares of
Johnson & Johnson common stock and Innovations common stock they would otherwise
receive in the split-off and merger. The amount of cash for any fractional
shares that each Inverness stockholder will receive will be calculated by
multiplying the fractional share interest to which he or she is entitled by, in
the case of Johnson & Johnson common stock, the closing price of Johnson &
Johnson common stock on the date on which the split-off and merger are completed
as reported on the New York Stock Exchange Composite Transactions Tape, and, in
the case of Innovations common stock, the closing price of Innovations common
stock as reported on the American Stock Exchange, on the first full trading day
following the date on which the split-off and merger are completed. The
consideration to be received in the merger was determined through arms'-length
negotiations between Johnson & Johnson and Inverness.
OWNERSHIP OF JOHNSON & JOHNSON AND INNOVATIONS FOLLOWING THE SPLIT-OFF AND
MERGER
Based on the number of outstanding shares of Inverness common stock and the
closing price of Johnson & Johnson common stock, each as of the record date, we
anticipate that Inverness stockholders will receive approximately -- shares of
Johnson & Johnson common stock in the merger. Based on that number and on the
number of outstanding shares of Johnson & Johnson common stock on the record
date, Inverness stockholders will own approximately --% of the outstanding
shares of Johnson & Johnson common stock immediately following the split-off and
merger.
Based on the number of outstanding shares of Inverness common stock on the
record date, we anticipate that Inverness stockholders will receive
approximately -- shares of Innovations common stock in the split-off.
Immediately following the split-off and merger, Inverness stockholders and
members of Innovations' management will own 100% of the outstanding shares of
Innovations common stock. For a more detailed description of the capitalization
of Innovations following completion of the split-off and merger, see
"Capitalization" beginning on page X-31 of the Innovations prospectus portion of
this proxy statement/prospectus.
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CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Inverness common stock into the right to receive
Innovations common stock and Johnson & Johnson common stock will occur
automatically at the effective time of the split-off and merger. As soon as
reasonably practicable after the completion of the split-off and merger,
EquiServe Trust Company, the exchange agent in the split-off and merger, will
send a letter of transmittal to each former Inverness stockholder. The
transmittal letter will contain instructions for obtaining shares of Innovations
common stock and Johnson & Johnson common stock and cash for any fractional
shares of Innovations common stock and Johnson & Johnson common stock in
exchange for shares of Inverness common stock.
INVERNESS STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
After the completion of the split-off and merger, each certificate that
previously represented shares of Inverness common stock will no longer be
outstanding, will be automatically canceled and retired, will cease to exist and
will represent only the right to receive the Johnson & Johnson common stock and
Innovations common stock into which such shares are converted in the split-off
and merger and the right to receive cash for any fractional shares of Johnson &
Johnson common stock and Innovations common stock as described below.
Until holders of certificates previously representing Inverness common
stock have surrendered those certificates to the exchange agent for exchange,
those holders will not receive any dividends or distributions on the Johnson &
Johnson common stock and Innovations common stock into which such shares have
been converted with a record date after the date on which the split-off and
merger are completed and will not receive cash for any fractional shares of
Johnson & Johnson common stock and Innovations common stock. When holders
surrender such certificates, they will receive any dividends with a record date
after the date on which the split-off and merger are completed and a payment
date on or prior to the date of surrender and any cash for fractional shares of
Johnson & Johnson common stock and Innovations common stock, in each case
without interest.
In the event of a transfer of ownership of Inverness common stock that is
not registered in the transfer records of Inverness, a certificate representing
the proper number of shares of Innovations common stock and a certificate
representing the proper number of shares of Johnson & Johnson common stock may
be issued to a person other than the person in whose name the certificate so
surrendered is registered if:
- the certificate is properly endorsed or otherwise is in proper form for
transfer and
- the person requesting the exchange pays any transfer or other taxes
resulting from the issuance of shares of Innovations common stock and
Johnson & Johnson common stock to a person other than the registered
holder of the certificate.
All shares of Johnson & Johnson common stock and Innovations common stock
issued in exchange for shares of Inverness common stock, including any cash paid
instead of any fractional shares of Johnson & Johnson common stock and
Innovations common stock, will be issued in full satisfaction of all rights
relating to such shares of Inverness common stock.
No fractional shares of Johnson & Johnson common stock or Innovations
common stock will be issued to any Inverness stockholder upon surrender of
certificates previously representing Inverness common stock. Each Inverness
stockholder who would otherwise have been entitled to receive a fraction of a
share of Johnson & Johnson common stock or Innovations common stock will receive
cash in an amount equal to the product obtained by multiplying (1) the
fractional share interest to which such holder would otherwise be entitled by
(2) in the case of Johnson & Johnson common stock, the closing price for a share
of Johnson & Johnson common stock on the closing date of the split-off and
merger as reported on the New York Stock Exchange Composite Transactions Tape,
and in the case of Innovations common stock, the closing price for a share of
Innovations common stock, as reported on the American Stock Exchange, on the
first full trading day following the date on which the split-off and merger are
completed.
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EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the certificate of
merger with the Secretary of State of the State of Delaware or such later time
as is agreed upon by Johnson & Johnson and Inverness and specified in the
certificate of merger. The filing of the certificate of merger will occur as
soon as practicable after satisfaction or waiver of the conditions to the
completion of the merger described in the split-off and merger agreement.
POST-CLOSING ARRANGEMENTS BETWEEN JOHNSON & JOHNSON, INVERNESS AND INNOVATIONS
The terms of the post-closing covenants agreement will govern the terms of
the relationship between Johnson & Johnson and Inverness, on the one hand, and
Innovations, on the other hand, after the completion of the split-off and merger
with respect to, among other things, indemnification rights, payment of
restructuring, split-off and merger expenses, an agreement by Innovations not to
compete with Inverness in the diabetes field or solicit Inverness employees and
adjustments to the net cash position of Innovations. These terms are described
in greater detail under "Post-Closing Arrangements -- The Post-Closing Covenants
Agreement" on page 70. The terms of the tax allocation agreement will govern the
relationship of the same parties with respect to, among other things, the
preparation of tax returns, the responsibility of the parties for the payment of
taxes for each of Innovations and its post-closing subsidiaries, on the one
hand, and Inverness and its post-closing subsidiaries, on the other hand, and
indemnification for certain tax liabilities. These terms are described in
greater detail under "Post-Closing Arrangements -- The Tax Allocation Agreement"
on page 69.
STOCK EXCHANGE LISTING OF JOHNSON & JOHNSON AND INNOVATIONS COMMON STOCK
It is a condition to the completion of the merger that the Johnson &
Johnson common stock issuable to Inverness stockholders in the merger are
approved for listing on the New York Stock Exchange, subject to official notice
of issuance. It is also a condition to the completion of the merger that the
Innovations common stock issuable to Inverness stockholders in the split-off are
approved for listing on a national securities exchange, or approved for
quotation on NASDAQ, in either case subject only to official notice of issuance.
The American Stock Exchange, on which Innovations has applied to list its common
stock, constitutes such a national securities exchange.
DELISTING AND DEREGISTRATION OF INVERNESS COMMON STOCK
If the split-off and merger are completed, Inverness common stock will be
delisted from the American Stock Exchange and will be deregistered under the
Securities Exchange Act of 1934.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SPLIT-OFF AND
MERGER
The following discussion summarizes the material federal income tax
consequences of the split-off and the merger to holders of Inverness common
stock who are citizens or residents of the United States. This discussion does
not include tax consequences to Inverness stockholders entitled to special
treatment under the Internal Revenue Code of 1986, such as insurance companies,
dealers in securities, tax exempt organizations or foreign persons, or to
Inverness stockholders who acquired their shares of Inverness common stock
pursuant to the exercise of employee stock options or otherwise in compensatory
transactions. In addition, this discussion does not address any state, local or
foreign tax considerations and does not address any federal estate, gift,
employment, excise or other non-income tax considerations. This discussion is
based upon provisions of the Internal Revenue Code, regulations, administrative
rulings and judicial decisions presently in effect, all of which are subject to
change (possibly with retroactive effect) and to different interpretations.
INVERNESS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE SPLIT-OFF AND THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
LAWS.
Goodwin Procter LLP, counsel to Inverness, has provided to Inverness an
opinion letter regarding certain of the federal income tax consequences of the
split-off and merger. No ruling from the Internal
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Revenue Service has been or will be sought with respect to any of the tax
matters relating to the split-off and merger. The conclusions of counsel in its
opinion letter are based upon certain assumptions and representations (including
representations made by Inverness and Johnson & Johnson) and are counsel's best
legal judgment. The opinion letter does not bind the IRS, any tax authority or
any court. Accordingly, there can be no assurance that the IRS will agree with
the conclusions set forth in the opinion letter, and it is possible that the IRS
or another tax authority could adopt a position contrary to one or all of those
conclusions and that a court could sustain that contrary position.
TWO SEPARATE TRANSACTIONS. Counsel concludes in its opinion letter that
the deemed redemption of a portion of a stockholder's shares of Inverness common
stock in exchange for Innovations common stock in the split-off and the exchange
of a portion of such stockholder's shares of Inverness common stock for Johnson
& Johnson common stock in the merger will be two separate transactions for
federal income tax purposes.
THE SPLIT-OFF. Counsel concludes in its opinion letter that, subject to
certain assumptions and representations, it is more likely than not that the
split-off qualifies, as to the Inverness stockholders, as a transaction
described in Section 355 of the Internal Revenue Code. For this purpose, the
phrase "more likely than not" means that if counsel's conclusion is challenged
by the IRS, counsel believes that there is a greater than 50% likelihood that
counsel's conclusion would be sustained by a court of law.
If counsel is correct that the split-off qualifies, as to the Inverness
stockholders, as a transaction described in Section 355 of the Internal Revenue
Code, then:
- an Inverness stockholder will not recognize any gain or loss when shares
of its Inverness common stock are redeemed in exchange for Innovations
common stock in the split-off
- cash, if any, that an Inverness stockholder receives instead of a
fractional share of Innovations common stock will be treated as received
in exchange for that fractional share. The stockholder will recognize
gain or loss to the extent of the difference between its tax basis in
that fractional share and the cash that the stockholder receives for that
fractional share. Provided that the stockholder holds the Innovations
common stock that it receives in the split-off as a capital asset, the
gain or loss will be capital gain or loss
- an Inverness stockholder's tax basis in its Inverness common stock will
be divided between the Innovations common stock that it receives in the
split-off and the Johnson & Johnson common stock that it receives in the
merger in proportion to the relative fair market values of such
Innovations common stock and Johnson & Johnson common stock at the time
that the split-off and merger occur and
- an Inverness stockholder's holding period for the Innovations common
stock that it receives in the split-off will include the stockholder's
holding period for its Inverness common stock that is redeemed in the
split-off, provided that the stockholder holds its Inverness common stock
as a capital asset.
Inverness stockholders should be aware that counsel's conclusion that the
split-off qualifies, as to the Inverness stockholders, as a transaction
described in Section 355 of the Internal Revenue Code is based on counsel's
interpretation of how various requirements of Section 355 of the Internal
Revenue Code apply to the split-off. According to counsel, with respect to some
of these interpretations there is no controlling legal authority, and no
published rulings or cases squarely address the application of Section 355 of
the Internal Revenue Code to a transaction identical to the split-off.
If certain representations and assumptions relied upon by counsel in
rendering its opinion letter are inaccurate, or if the IRS successfully
challenges counsel's conclusions regarding the federal income tax treatment of
the split-off, then:
- an Inverness stockholder will recognize gain or loss when shares of its
Inverness common stock are redeemed in exchange for Innovations common
stock in the split-off. Such gain or loss will be capital gain or loss if
the stockholder holds its Inverness common stock as a capital asset
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- the amount of the gain or loss that an Inverness stockholder will
recognize will be equal to the difference between its tax basis in its
redeemed Inverness common stock and the fair market value of the
Innovations common stock that the stockholder receives in the split-off.
The stockholder's tax basis in its redeemed Inverness common stock will
be a percentage of its tax basis in all of its Inverness stock. In
general, that percentage will be equal to the percentage that the fair
market value of the Innovations common stock that the stockholder
receives in the split-off is of the fair market value of the total
consideration that the stockholder receives in the split-off and merger
- an Inverness stockholder's tax basis in the Innovations common stock that
it receives in the split-off will be equal to the fair market value of
that Innovations common stock and
- an Inverness stockholder's holding period for the Innovations common
stock that it receives in the split-off will begin on the day after the
split-off occurs.
Even if the split-off qualifies, as to the Inverness stockholders, as a
transaction described in Section 355 of the Internal Revenue Code, Inverness
stockholders should be aware that the split-off will be taxable to Inverness.
The amount of Inverness' taxable gain will depend on both the difference between
the fair market value of the women's health business assets and Inverness' tax
basis in those assets immediately before the pre-split-off restructuring, and on
the difference between the fair market value and tax basis of the Innovations
common stock after the restructuring but before the split-off. Under the tax
allocation agreement, Inverness is solely responsible for the payment of
Inverness' tax liability arising from the restructuring and the split-off and is
not entitled to reimbursement from Innovations or Johnson & Johnson.
THE MERGER. Counsel also concludes in its opinion letter that, subject to
certain assumptions and representations, the merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Accordingly:
- an Inverness stockholder will not recognize any gain or loss when shares
of its Inverness common stock are exchanged for Johnson & Johnson common
stock in the merger
- cash, if any, that an Inverness stockholder receives instead of a
fractional share of Johnson & Johnson common stock will be treated as
received in exchange for that fractional share. The stockholder will
recognize gain or loss to the extent of the difference between its tax
basis in that fractional share and the cash that the stockholder receives
for that fractional share. Provided that the stockholder holds the
Johnson & Johnson common stock that it receives in the merger as a
capital asset, the gain or loss will be capital gain or loss
- an Inverness stockholder's tax basis in the Johnson & Johnson common
stock that it receives in the merger will equal its tax basis in the
Inverness common stock that the stockholder exchanges in the merger for
that Johnson & Johnson common stock and
- an Inverness stockholder's holding period for the Johnson & Johnson
common stock that it receives in the merger will include the
stockholder's holding period for the Inverness common stock that the
stockholder exchanges in the merger for that Johnson & Johnson common
stock, provided that the stockholder holds its Inverness common stock as
a capital asset.
The foregoing discussion is only a summary of the material federal income
tax consequences of the split-off and merger and is included for general
information only. The foregoing discussion may not address federal income tax
consequences relevant to an Inverness stockholder's particular circumstances.
INVERNESS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE SPLIT-OFF AND THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
LAWS.
REGULATORY MATTERS
UNITED STATES ANTITRUST. Under the Hart-Scott-Rodino Antitrust
Improvements Act and related rules, certain transactions, including the merger,
may not be completed unless certain notification and
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waiting period requirements have been satisfied. On June 27, 2001, Johnson &
Johnson and Inverness each filed a Notification and Report Form with the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and requested an early termination of the required waiting period. On July 16,
2001, Johnson & Johnson and Inverness were granted an early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. At any
time before or after the completion of the split-off and merger, the Antitrust
Division, the Federal Trade Commission or others could take action under the
antitrust laws, including seeking to prevent the merger, to rescind the merger
or to conditionally approve the merger upon the divestiture of substantial
assets of Johnson & Johnson or Inverness. There can be no assurance that a
challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful.
EUROPE. In addition, both Johnson & Johnson and Inverness conduct business
in member states of the European Union. Council Regulation 4064/89 requires
notification to and approval by the European Commission of mergers or
acquisitions involving parties with aggregate worldwide sales and individual
European Union sales exceeding specified thresholds. The split-off and merger is
not notifiable to the European Commission because it lacks the requisite
European Community dimension. However, filings have been made in Germany and
Italy seeking approval of the split-off and merger. On July 19, 2001, Johnson &
Johnson received clearance from the German competition authority to complete the
transaction. Johnson & Johnson believes that the Italian regulatory approval
process will not materially delay or impede the completion of the split-off and
merger.
GENERAL. It is possible that any of the governmental entities with which
filings are made may seek, as conditions for granting approval of the merger,
various regulatory concessions. There can be no assurance that:
- Johnson & Johnson or Inverness will be able to satisfy or comply with
such conditions
- compliance or non-compliance will not have adverse consequences on
Johnson & Johnson after completion of the split-off and merger or
- the required regulatory approvals will be obtained within the time frame
contemplated by Johnson & Johnson and referred to in this proxy
statement/prospectus or on terms that will be satisfactory to Johnson &
Johnson and Inverness.
See "The Split-off and Merger Agreement -- Conditions to the Completion of the
Merger."
APPRAISAL RIGHTS
Under Delaware law, holders of Inverness common stock are not entitled to
appraisal rights in connection with the split-off and merger because, on the
record date, Inverness common stock was listed on the American Stock Exchange
and will be converted into (1) shares of Johnson & Johnson common stock, which
on the date on which the split-off and merger are completed will be listed on
the New York Stock Exchange, and (2) Innovations common stock, which on the date
on which the split-off and merger are completed will be listed on the American
Stock Exchange or another national securities exchange or quoted on NASDAQ.
LITIGATION
Inverness and its directors are defendants in an action brought by an
individual stockholder of Inverness who allegedly owns 15,000 shares of
Inverness common stock. The complaint alleges that the transaction between
Inverness and Johnson & Johnson that is the subject of this proxy
statement/prospectus is unfair to the Inverness stockholders. That action, which
is styled Bruce Katz v. Ernest A. Carabillo, Jr., Carol Goldberg, John F. Levy,
Peter Townsend, Willard L. Umphrey, Ron Zwanziger, and Inverness Medical
Technology, Inc., Civil Action No. 18913NC, was filed on May 23, 2001, and is
pending in the Chancery Court of New Castle County, Delaware. Specifically, the
complaint alleges that the Inverness directors did not engage in a sales process
that would have yielded the highest price for Inverness' diabetes care business,
that the exchange value agreed upon does not reflect the value
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of the diabetes care business, and that the split-off and merger agreement
should, but does not, include a "collar" or other price protection mechanism.
The complaint also alleges that Inverness and its directors entered into this
transaction in breach of their fiduciary duties to the plaintiff and the
Inverness stockholders. The action seeks damages in an unspecified amount and
seeks to enjoin completion of this transaction "without adequate safeguards."
Although the complaint is styled as a class action complaint, no class has been
certified at this time. Inverness and its directors believe that these claims
are without merit and are defending the action by, among other things, asking
the court to dismiss the complaint.
INVERNESS EMPLOYEE BENEFITS MATTERS
Johnson & Johnson and Inverness have agreed that:
- for a period ending not earlier than December 31, 2002, all employees and
consultants of Inverness to be retained by Inverness following the
split-off and merger, other than employees located in Ireland, will be
provided pension and welfare benefits that are substantially comparable
in the aggregate to the pension and welfare benefits provided to such
employees and consultants immediately prior to the completion of the
split-off and merger
- except as described below, (1) for a period ending not earlier than
December 31, 2002, the employees and consultants to be retained by
Inverness following the split-off and merger will be provided base salary
or hourly wage rates that are at least equal to those being received by
them immediately prior to the completion of the split-off and merger and
(2) for a period ending not earlier than December 31, 2001, those
employees and consultants will be provided other employee benefits that
are substantially comparable in the aggregate to the employee benefits
provided immediately prior to the completion of the split-off and merger.
Except as provided in the transaction agreements, neither Johnson &
Johnson nor Inverness, as the surviving corporation in the merger, will
have any obligation to issue, or adopt any plans or arrangements
providing for the issuance of, shares of capital stock, warrants,
options, stock appreciation rights or other rights in respect of any
shares of capital stock of any entity or any securities convertible or
exchangeable into such shares pursuant to any such plans or arrangement.
Any plans or arrangements of Inverness or any of its subsidiaries
providing for such issuance will be disregarded in determining whether
employee benefits provided after completion of the split-off and merger
are substantially comparable in the aggregate to pre-split-off and merger
benefits
- with respect to those employees and consultants to be retained by
Inverness following the split-off and merger who are employed in the
United States or are covered by Inverness' benefit plans that are subject
to the Employee Retirement Income Security Act of 1974, or ERISA, Johnson
& Johnson will recognize the service of each such employee and consultant
upon the completion of the split-off and merger with his or her service
through that time as if such service had been performed with Johnson &
Johnson (1) for purposes of eligibility and vesting (but not benefit
accrual) under Johnson & Johnson's defined benefit pension plan and (2)
for purposes of eligibility for vacation under Johnson & Johnson's
vacation program, in each case only to the extent Johnson & Johnson makes
such plan or program available to employees of Inverness, as the
surviving corporation in the merger, but not for purposes of any other
benefit plan of Johnson & Johnson. With respect to those employees and
consultants to be retained by Inverness who are employed outside of the
United States, Johnson & Johnson will comply with all applicable local
laws in respect of any requirement to credit service of those employees
prior to the completion of the split-off and merger for employee benefit
plan purposes and
- Inverness will take all actions necessary to cause the Inverness employee
stock purchase plan to terminate immediately prior to the completion of
the split-off and merger, and in accordance with the terms of the
Inverness employee stock purchase plan refund to each participant under
the plan the accumulated contributions made by the participant through
the completion of the split-off and merger.
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For additional information regarding the treatment of Inverness employees, see
"Pre-Merger Restructuring Transactions -- Employee Matters."
EFFECT ON OPTIONS AND WARRANTS RELATING TO INVERNESS COMMON STOCK
OPTIONS. Under the terms of the restructuring agreement, each outstanding
option to purchase shares of Inverness common stock is to be converted, as part
of the restructuring, into:
- an option to purchase the same number of shares of Inverness common
stock, referred to in this description as the replacement Inverness
option and
- an option to purchase the number of shares of Innovations common stock
equal to the number of shares of Inverness common stock subject to the
original Inverness option multiplied by 0.20.
The exercise prices of the replacement Inverness option and the Innovations
option will be set so that the combined exercise prices of the new options will
equal the exercise price of each original Inverness option to purchase Inverness
common stock. For additional information regarding the treatment of outstanding
Inverness options in the restructuring, see "Pre-Merger Restructuring
Transactions -- Conversion of Options and Warrants."
The split-off and merger agreement provides that upon the completion of the
split-off and merger, each outstanding replacement Inverness option will be
converted into an option to purchase, on the same terms and conditions as are
applicable under that option, the number of shares of Johnson & Johnson common
stock determined by multiplying:
- the number of shares of Inverness common stock subject to the replacement
Inverness option by
- the same exchange ratio used to convert Inverness common stock into
Johnson & Johnson common stock in the merger.
The exercise price per share of Johnson & Johnson common stock issuable
under the converted option will be determined by dividing:
- the aggregate exercise price for the shares of Inverness common stock
issuable under the replacement Inverness option by
- the aggregate number of shares of Johnson & Johnson common stock that may
be purchased pursuant to the replacement Inverness option following the
conversion.
WARRANTS. Under the terms of the restructuring agreement, each outstanding
warrant to acquire shares of Inverness common stock is to be converted (with, if
necessary, the consent of the warrant holder), as part of the restructuring,
into:
- a warrant to acquire the same number of shares of Inverness common stock,
referred to in this description as the replacement Inverness warrant and
- a warrant to acquire the number of shares of Innovations common stock
equal to the number of shares of Inverness common stock subject to the
original Inverness warrant multiplied by 0.20.
The exercise prices of the replacement Inverness warrant and the
Innovations warrant will be set so that the combined exercise prices of the new
warrants will equal the exercise price of each original warrant to acquire
Inverness common stock. For additional information regarding the treatment of
outstanding Inverness warrants in the restructuring, see "Pre-Merger
Restructuring Transactions -- Conversion of Options and Warrants."
The split-off and merger agreement provides that upon the completion of the
split-off and merger, each outstanding replacement Inverness warrant will be
converted into a warrant to acquire, on the same terms and conditions as are
applicable under that warrant, the number of shares of Johnson & Johnson common
stock determined by multiplying:
- the number of shares of Inverness common stock subject to the replacement
Inverness warrant by
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- the same exchange ratio used to convert Inverness common stock into
Johnson & Johnson common stock in the merger.
The exercise price per share of Johnson & Johnson common stock issuable
under the converted warrant will be determined by dividing:
- the aggregate exercise price for the shares of Inverness common stock
issuable under the replacement Inverness warrant by
- the aggregate number of shares of Johnson & Johnson common stock that may
be purchased pursuant to the replacement Inverness warrant following the
conversion.
RESALE OF JOHNSON & JOHNSON COMMON STOCK
Johnson & Johnson common stock issued in the merger will not be subject to
any restrictions on transfer arising under the Securities Act of 1933, except
for shares issued to any Inverness stockholder who may be deemed to be an
"affiliate" of Inverness or Johnson & Johnson for purposes of Rule 145 under the
Securities Act. It is expected that each affiliate will agree not to transfer
any Johnson & Johnson common stock received in the merger except in compliance
with the resale provisions of Rule 144 or 145 under the Securities Act or as
otherwise permitted under the Securities Act. The split-off and merger agreement
requires Inverness to use commercially reasonable efforts to cause its
affiliates to enter into such agreements. This proxy statement/prospectus does
not cover resales of Johnson & Johnson common stock received by any person upon
completion of the merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any such resale.
RESALE OF INNOVATIONS COMMON STOCK
For a discussion of the restrictions and limitations on resales of
Innovations common stock, see "Shares Eligible for Future Sale" on page X-76 of
the Innovations prospectus portion of this proxy statement/prospectus.
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PRE-MERGER RESTRUCTURING TRANSACTIONS
This is a summary of the material terms of the restructuring agreement. The
restructuring agreement, which is attached as Annex 3 to this proxy
statement/prospectus, contains the complete terms of that agreement. You should
read the entire restructuring agreement carefully.
GENERAL
Innovations, a subsidiary of Inverness, was recently organized for purposes
of the split-off and merger. Prior to the completion of the split-off and
merger, Inverness, Innovations and certain subsidiaries of Inverness will enter
into the restructuring agreement. Completion of the restructuring of Inverness,
as contemplated by the restructuring agreement, is a condition to the merger.
Inverness will not proceed with the split-off and merger unless the
restructuring is completed.
The purpose and effect of the restructuring of Inverness is to facilitate
the split-off and merger by separating Inverness' diabetes care products
business from its other principal businesses. Inverness will effect this
separation by transferring the assets and liabilities of its women's health,
nutritional supplements and clinical diagnostics businesses to Innovations
immediately prior to the split-off and merger. As a result, at the time of the
split-off and merger, Inverness will own only those businesses not transferred
to Innovations, including the related assets and liabilities, which will consist
principally of the diabetes care products business. Unless otherwise indicated,
references to the post-restructuring business of Inverness refer to the
businesses of Inverness and its subsidiaries not transferred to Innovations.
THE RESTRUCTURING AND TRANSFER OF ASSETS
The restructuring agreement provides that prior to the completion of the
split-off and merger, Inverness will contribute or cause to be contributed to
Innovations any of its or any of its subsidiaries' right, title and interest in
and to (1) all of the assets of Inverness that are used or held for use
primarily in the operation or conduct of the women's health, nutritional
supplements and clinical diagnostics businesses, referred to as the Innovations
businesses and (2) other specified assets, including cash in an amount necessary
to ensure that at the time of the split-off Innovations will have $40 million of
net cash, defined as cash and marketable securities less debt for borrowed money
(other than debt outstanding under any revolving line of credit). The
restructuring will be effected through a series of stock and asset transfers
from Inverness and its subsidiaries to Innovations. Under the restructuring
agreement, Inverness will retain and will not contribute to Innovations any of
its or its subsidiaries' right, title and interest to the assets that are not
used or held for use primarily in the operation of the Innovations businesses
and certain other specified assets. The restructuring agreement further provides
that the parties will cooperate in good faith to provide for the use or shared
ownership of any asset that is material to the operation of either the
Innovations businesses or the post-restructuring Inverness businesses that is
primarily related to the businesses of the other company.
ASSUMPTION OF LIABILITIES
The restructuring agreement provides that at or prior to the completion of
the split-off and merger, Innovations and/or one of its subsidiaries will
unconditionally assume (1) all liabilities of Inverness and its subsidiaries to
the extent primarily related to or arising out of the Innovations businesses and
(2) other specified liabilities. Under the restructuring agreement, Inverness
will retain, assume, or cause one of its subsidiaries (other than Innovations)
to assume all liabilities of Inverness that Innovations is not otherwise
obligated to assume, as well as other specified liabilities.
USE OF NAME
The restructuring agreement provides that Innovations will have all rights
in and use of the names "Inverness" and "Inverness Medical" and all derivatives
of those names and that Inverness will take actions as are reasonably necessary
to vest such rights in Innovations or any of its subsidiaries. However,
Inverness will retain the right to use the "Inverness" and "Inverness Medical"
names on signs and other
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displays at its manufacturing facilities in Inverness, Scotland, and Inverness
and its suppliers and distributors will retain the right to use those names and
applicable trademarks and trade dress on product packaging and related materials
for a one year period after completion of the split-off and merger.
ANCILLARY AGREEMENTS
The restructuring agreement provides that prior to the completion of the
split-off and merger, Inverness, or another of its subsidiaries (other than
Innovations), and Innovations, or another of its subsidiaries, will enter into:
- a transition services agreement relating to the women's health business
of Can-Am Care Corporation and Inverness Medical Europe GmbH, and the
kitting services and secondary packaging services provided at the Galway,
Ireland facility
- the license agreement attached as Annex 6 to this proxy
statement/prospectus and described under "Post-Closing
Arrangements -- The License Agreement" and
- a sublease from Inverness to Innovations of Inverness' corporate
headquarters currently subleased by Inverness at 51 Sawyer Road, Waltham,
Massachusetts on the same terms as those of the sublease currently held
by Inverness.
EMPLOYEE MATTERS
The restructuring agreement provides that:
- specified employees and consultants of Inverness and its subsidiaries and
employees of Inverness hired after the date of the split-off and merger
agreement and prior to the completion of the split-off and merger and who
are engaged primarily in a business other than an Innovations business
will remain or become employees of Inverness and its subsidiaries in the
same capacities as then held by those employees (or in such other
capacities and upon such terms and conditions as Inverness determines in
its sole discretion)
- other specified employees and consultants and employees of Inverness
hired after the date of the split-off and merger agreement and prior to
the completion of the split-off and merger and who are engaged primarily
in an Innovations business will remain or become employees of Innovations
and its subsidiaries in the same capacities as then held by those
employees (or in such other capacities and upon such terms and conditions
as Innovations determines in its sole discretion) and
- a third category of specified employees who will perform transition
services under the transition services agreement will be deemed
transition employees and will be employed by Innovations, which will
provide compensation and benefits to those employees, although Inverness
will be responsible for any retention bonuses and severance costs
associated with those employees.
Upon completion of the split-off and merger, Innovations will assume and be
responsible for all liabilities related to the designated Innovations employees
and the former employees of Inverness and its subsidiaries whose primary
responsibilities related to an Innovations business, and Inverness will assume
and be responsible for all liabilities and obligations related to the designated
Inverness employees and the former employees of Inverness and its subsidiaries
whose primary responsibilities related to the businesses of Inverness and its
subsidiaries other than the Innovations businesses. The restructuring agreement
provides that, to the extent permitted by applicable law, the transactions
contemplated by the restructuring agreement will not constitute a termination of
employment that would entitle an employee to receive severance or similar
compensation and benefits and that Inverness and Innovations will use their
reasonable best efforts to amend, if necessary, any benefit plans to achieve
that result. The restructuring agreement does not confer on any employee any
right to continued employment after the completion of the split-off and merger.
Innovations will assume sponsorship of each employee benefit, welfare
benefit, employment, personal services, compensation, change in control,
severance, time-off, perquisite and other benefit plan, policy or
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agreement relating exclusively to one or more Innovations employees. In
addition, to the extent any Innovations employee participates prior to the
completion of the split-off and merger in benefit plans that do not relate
exclusively to Innovations employees, Innovations will establish and maintain,
upon the completion of the split-off and merger, benefit plans (not including
equity plans) that provide substantially comparable benefits to those provided
to the Innovations employee prior to the completion of the split-off and merger.
If specified Inverness employees or former employees of Inverness whose
primary responsibilities related to a business of Inverness other than an
Innovations business participate in a benefit plan that is a defined benefit
pension plan that is maintained by Innovations or its subsidiaries, the
liabilities in respect of those participants, together with assets equal to such
liabilities, will be transferred from that defined benefit pension plan to a
benefit plan established or maintained by Inverness or Johnson & Johnson or one
of their respective subsidiaries. Similarly, if Innovations employees or former
employees of Inverness whose primary responsibilities related to a Innovations
business participate in a benefit plan that is a defined benefit pension plan
that is maintained by Inverness or its subsidiaries, the liabilities in respect
of those participants, together with assets equal to such liabilities, will be
transferred from that defined benefit pension plan to a benefit plan established
or maintained by Innovations or one of its subsidiaries.
Upon the completion of the split-off and merger, with respect to collective
bargaining agreements to which Inverness or its subsidiaries is a party,
Innovations will assume those agreements covering Innovations employees and
Inverness will assume those agreements covering its continuing employees.
Innovations and Inverness also will take all other actions necessary to ensure
that Innovations and Inverness remain solely responsible for the liabilities and
obligations under those collective bargaining agreements covering their
respective employees.
CONVERSION OF OPTIONS AND WARRANTS
OPTIONS. Under the terms of the restructuring agreement, each outstanding
option to purchase shares of Inverness common stock is to be converted, as part
of the restructuring, into:
- an option to purchase the same number of shares of Inverness common
stock, referred to in this description as the replacement Inverness
option, and
- an option to purchase the number of shares of Innovations common stock
equal to the number of shares of Inverness common stock subject to the
original Inverness option multiplied by 0.20.
The exercise prices of the replacement Inverness option and the Innovations
option will be set so that the combined exercise prices of the new options will
equal the exercise price of each original Inverness option to purchase Inverness
common stock. The aggregate exercise price of each original Inverness option
will be allocated between the replacement Inverness option and the Innovations
option in proportion to the deemed fair market value of the shares of Johnson &
Johnson common stock and Innovations common stock, in each case, to be received
for one share of Inverness common stock in the split-off and merger. The deemed
fair market value of such shares will be determined with reference to the
closing prices of Johnson & Johnson common stock on the New York Stock Exchange
and the Innovations common stock on the American Stock Exchange on the first
full trading day following the completion of the split-off and merger.
The exercise price per share of Inverness common stock issuable under the
replacement Inverness option will be determined by dividing:
- the aggregate exercise price allocated to the replacement Inverness
option by
- the aggregate number of shares of Inverness common stock that may be
purchased under the replacement Inverness option.
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The exercise price per share of Innovations common stock issuable under the
Innovations option will be determined by dividing:
- the aggregate exercise price allocated to the Innovations option by
- the aggregate number of shares of Innovations common stock that may be
purchased under the Innovations option.
All other terms of the original Inverness options will continue to apply to
the replacement Inverness options and the Innovations options, except that (1)
all replacement Inverness options and Innovations options will be fully vested
and immediately exercisable at and following the completion of the split-off and
merger and (2) all replacement Inverness options which will be held by persons
who are not going to be employees or directors of Inverness or its subsidiaries
immediately following the split-off and merger and all Innovations options which
will be held by persons who are not going to be employees or directors of
Innovations or its subsidiaries immediately following the split-off and merger
will, in each case, remain exercisable for the remainder of the originally
stated term of the original Inverness options irrespective of employment by or
service to Johnson & Johnson, Inverness, Innovations or any subsidiaries of
those companies.
WARRANTS. Under the terms of the restructuring agreement, each outstanding
warrant to acquire shares of Inverness common stock is to be converted, as part
of the restructuring, into:
- a warrant to acquire the same number of shares of Inverness common stock,
referred to in this description as the replacement Inverness warrant and
- a warrant to acquire the number of shares of Innovations common stock
equal to the number of shares of Inverness common stock subject to the
original Inverness warrant multiplied by 0.20.
The exercise prices of the replacement Inverness warrant and the
Innovations warrant will be set so that the combined exercise prices of the
replacement warrants will equal the exercise price of each original Inverness
warrant to acquire Inverness common stock. The aggregate exercise price of each
original Inverness warrant will be allocated between the replacement Inverness
warrant and the Innovations warrant in proportion to the deemed fair market
value of the shares of Johnson & Johnson common stock and Innovations common
stock, in each case, to be received for one share of Inverness common stock in
the split-off and merger. The deemed fair market value of such shares will be
determined with reference to the closing prices of Johnson & Johnson common
stock on the New York Stock Exchange and the Innovations common stock on the
American Stock Exchange on the first full trading day following the completion
of the split-off and merger.
The exercise price per share of Inverness common stock issuable under the
replacement Inverness warrant will be determined by dividing:
- the aggregate exercise price allocated to the replacement Inverness
warrant by
- the aggregate number of shares of Inverness common stock that may be
purchased under the replacement Inverness warrant.
The exercise price per share of Innovations common stock issuable under the
Innovations warrant will be determined by dividing:
- the aggregate exercise price allocated to the Innovations warrant by
- the aggregate number of shares of Innovations common stock that may be
purchased under the Innovations warrant.
All other terms of the original Inverness warrants will continue to apply
to the replacement Inverness warrants and the Innovations warrants.
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CONDITIONS
The obligations of Inverness and Innovations to complete the restructuring
are subject to the fulfillment of each of the following conditions:
- each of (1) the tax allocation agreement attached to this proxy
statement/prospectus as Annex 4, (2) the transition services agreement
described above, (3) the license agreement attached as Annex 6 to this
proxy statement/prospectus and (4) the sublease of Inverness' current
corporate headquarters have been executed and delivered by each of
Inverness, Innovations and Johnson & Johnson
- each condition to the closing of the merger in the split-off and merger
agreement, other than the condition to each party's obligation as to the
consummation of the transactions contemplated by the restructuring
agreement, has been satisfied or waived
- liens on assets contributed, or to be contributed, to Innovations and
capital stock of any Innovations subsidiaries, in each case arising
pursuant to Inverness' credit agreement dated as of February 18, 1998,
with Chase Manhattan Bank have been released, and there are no liens on
Innovations assets or the capital stock of any Innovations subsidiaries
imposed in connection with the financing required by the split-off and
merger agreement and
- the Inverness board of directors is reasonably satisfied that, after
giving effect to the restructuring, Innovations will not be insolvent and
will not have unreasonably small capital with which to engage in its
business.
MUTUAL RELEASE
Effective upon the completion of the split-off and merger and except as
otherwise specifically set forth in the transaction agreements, each of
Inverness and its subsidiaries, on the one hand, and Innovations and its
subsidiaries, on the other hand, will release and discharge the other and its
affiliates, and their directors, officers, employees and agents of and from all
debts, demands, actions, causes of action, suits, accounts, covenants,
contracts, agreements, damages, and any and all claims, demands and liabilities
whatsoever of every name and nature, both in law and in equity, against such
other person or any of its assigns, which the releasing person has or ever had
(other than those based on fraud, gross negligence or wilful misconduct by such
other person) which arise out of or relate to events, circumstances or actions
taken by such other person prior to the completion of the split-off and merger.
This release does not apply to any transaction agreement or the transactions
contemplated by those agreements and does not affect any person's right to
enforce any transaction agreement or any other agreement contemplated in
accordance with its terms.
TERMINATION
In the event the split-off and merger agreement is terminated pursuant to
its terms, the restructuring agreement will automatically and simultaneously
terminate and the restructuring and split-off will automatically and
simultaneously be abandoned without the approval of Innovations or the
stockholders of Inverness.
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THE SPLIT-OFF AND MERGER AGREEMENT
This is a summary of the material provisions of the split-off and merger
agreement. The split-off and merger agreement, which is attached as Annex 1 to
this proxy statement/prospectus and is incorporated herein by reference,
contains the complete terms of that agreement. You should read the entire
split-off and merger agreement carefully.
CONDITIONS TO THE COMPLETION OF THE MERGER
CONDITIONS TO JOHNSON & JOHNSON'S AND INVERNESS' OBLIGATIONS TO COMPLETE
THE MERGER. Each party's obligation to effect the merger is subject to the
satisfaction or waiver of various conditions that include, in addition to other
customary closing conditions, the following:
- the split-off and merger agreement has been adopted by the affirmative
vote of stockholders representing a majority of the shares of Inverness
common stock outstanding and entitled to vote at the special meeting
- the shares of Johnson & Johnson common stock to be issued to Inverness
stockholders upon completion of the split-off and merger have been
approved for listing on the New York Stock Exchange, subject only to
official notice of issuance
- the shares of Innovations common stock to be issued to Inverness
stockholders upon completion of the split-off and merger have been
approved for listing on a national securities exchange, or approved for
quotation on NASDAQ, in either case subject only to official notice of
issuance
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act has expired or has been terminated
- no temporary restraining order, injunction or other court order or
statute, law, rule, legal restraint or prohibition is in effect that
prevents the completion of the merger
- the Johnson & Johnson registration statement on Form S-4 and the
Innovations registration statement on Form S-4, in each case, of which
this proxy statement/prospectus forms a part, have been declared
effective by the Securities and Exchange Commission and are not the
subject of any stop order or proceedings seeking a stop order and
- the pre-merger transactions, including the restructuring of Inverness and
the delivery of the executed transaction agreements, have been completed
in all material respects in accordance with the terms of the split-off
and merger agreement and the restructuring agreement.
CONDITIONS TO JOHNSON & JOHNSON'S OBLIGATION TO COMPLETE THE
MERGER. Johnson & Johnson's obligation to effect the merger is further subject
to satisfaction or waiver of the following additional conditions:
- the representations and warranties of Inverness set forth in the
split-off and merger agreement relating to aspects of its capital
structure, increases in compensation and benefits, noncompetition and
long-term sale contracts, employee severance arrangements, benefits
plans, parachute payments, its hypothetical tax basis in Innovations
common stock, properties and assets retained by Inverness after the
restructuring, particular aspects of its intellectual property and
product recalls and related governmental proceedings to the extent that
they are qualified as to materiality are true and correct, and such
representations and warranties of Inverness to the extent that they are
not so qualified are true and correct in all material respects, in each
case as of the date of the split-off and merger agreement and as of the
closing date of the split-off and merger as though made on the closing
date, except to the extent that such representations and warranties
expressly relate to a specified date, in which case as of that specified
date
- all the other representations and warranties of Inverness set forth in
the split-off and merger agreement are true and correct as of the date of
the split-off and merger agreement and as of the closing date of the
merger as though made on the closing date, or if such representations and
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warranties expressly relate to a specified date, then as of that
specified date, and except to the extent that the facts or matters as to
which such representations and warranties are not so true and correct as
of such dates, without giving effect to any qualifications or limitations
as to materiality or material adverse effect set forth in such
representations and warranties, individually or in the aggregate, have
not had and are not reasonably expected to have a material adverse effect
on Inverness
- Inverness has performed in all material respects all obligations required
to be performed by it under the split-off and merger agreement on or
prior to the date on which the split-off and merger are to be completed
- there is no pending suit, action or proceeding by any governmental entity
relating to any of the transactions contemplated by the split-off and
merger agreement and the other transaction agreements:
- challenging the acquisition by Johnson & Johnson or Sunrise Acquisition
Corp. of any shares of Inverness common stock, seeking to restrain or
prohibit the completion of the merger or any other transactions
contemplated by the transaction agreements, or seeking to place
limitations on the ownership of shares of Inverness common stock (or
shares of common stock of the surviving corporation in the merger) by
Johnson & Johnson or Sunrise Acquisition Corp. or seeking to obtain from
Johnson & Johnson, Inverness or Sunrise Acquisition Corp. any damages
that are material in relation to Inverness' post-restructuring business
- seeking to prohibit or materially limit the ownership or operation by
Inverness or any of its post-closing subsidiaries or Johnson & Johnson
or any of its subsidiaries of any portion of any post-restructuring
business of Inverness or of the business or assets of Johnson & Johnson
and its subsidiaries, or to compel Inverness or any of its
post-restructuring subsidiaries or Johnson & Johnson or any of its
subsidiaries to divest or hold separate any portion of the
post-restructuring business of Inverness or of the business or assets of
Johnson & Johnson or any of its subsidiaries as a result of the
transactions contemplated by the transaction agreements or
- seeking to prohibit Johnson & Johnson or any of its subsidiaries from
effectively controlling in any material respect any portion of the
post-restructuring business of Inverness
- there is no order, ruling, judgment or other similar restraint in effect
that is reasonably expected to result in any of the effects referred to
in the previous paragraph
- Johnson & Johnson has received evidence, in form and substance reasonably
satisfactory to it, that (1) Inverness has obtained consents of holders
of particular warrants to acquire shares of Inverness common stock to
amend their respective warrant agreements to add provisions that will
facilitate the conversion of the warrants in the manner contemplated by
the transaction agreements and (2) all consents, approvals,
authorizations, qualifications and order of governmental entities
required in connection with the split-off and merger agreement, the other
transaction agreements and the transactions contemplated by those
agreements under any applicable competition, merger control, antitrust or
similar law or regulation of Switzerland or any country that is part of
the European Union have been obtained, except, in the case of the
consents, approvals, authorizations, qualifications and orders listed in
this clause (2), where the failure to obtain them are not reasonably
expected to restrain or prohibit the consummation of the merger or the
other transactions contemplated by the transactions agreements or
prohibit or limit in any material respect the ownership or operation by
Johnson & Johnson of any portion of the post-restructuring business of
Inverness
- the consulting and non-competition agreements with Ron Zwanziger, David
Scott and Jerry McAleer and all other transaction agreements are in full
force and effect and none of the parties to those agreements (other than
Johnson & Johnson) have breached or threatened to breach any material
covenants contained in those agreements and
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- Inverness has received at least $50,000,000 of proceeds from financings
on terms and conditions no less favorable to it than those set forth in a
commitment letter dated May 18, 2001.
CONDITIONS TO INVERNESS' OBLIGATION TO COMPLETE THE MERGER. Inverness'
obligation to effect the merger is further subject to satisfaction or waiver of
the following additional conditions:
- the representations and warranties of Johnson & Johnson and Sunrise
Acquisition Corp. set forth in the split-off and merger agreement and the
other transaction agreements that are qualified as to materiality are
true and correct, and the representations and warranties of Johnson &
Johnson and Sunrise Acquisition Corp. that are not so qualified are true
and correct in all material respects, in each case as of the date of the
split-off and merger agreement and as of the closing date of the
split-off and merger as though made on the closing date, or if such
representations and warranties expressly relate to a specified date, then
as of such specified date
- Johnson & Johnson and Sunrise Acquisition Corp. have performed in all
material respects all obligations required to be performed by them under
the split-off and merger agreement on or prior to the date on which the
split-off and merger are to be completed and
- Inverness has received from Goodwin Procter LLP, counsel to Inverness, on
the date on which the registration statements on Form S-4 are filed with
the SEC and on the closing date of the split-off and merger, an opinion,
in form and substance reasonably satisfactory to Inverness, to the effect
that (1) the merger will be treated for United States Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and (2) Johnson & Johnson and Inverness will each
be a party to that reorganization within the meaning of Section 368(b) of
the Internal Revenue Code.
The split-off and merger agreement provides that a "material adverse
effect" or "material adverse change" means, when used with respect to Inverness,
any change, effect, event, occurrence or state of facts (or any development or
developments which individually or in the aggregate are reasonably expected to
result in any change or effect) that is materially adverse to the business,
properties, assets, liabilities (contingent or otherwise), financial condition
or results of operations of the post-restructuring business of Inverness, other
than any change, effect, event, occurrence, state of facts or development:
- relating to the economy in general
- relating to the industries in which Inverness operates in general
- resulting from changes in foreign currency rates
- resulting from the effects of the pendency of the transactions
contemplated by the split-off and merger agreement on current or
prospective customers or suppliers
- resulting from any action required to be taken by Inverness or any other
party pursuant to the transaction agreements in order to effect the
restructuring of Inverness and the other contemplated transactions and
- resulting from any unjustified action, including the cancellation or
extension of any orders for products, taken by Johnson & Johnson or any
of its affiliates in respect of the business relationship between Johnson
& Johnson or such affiliate, on the one hand, and Inverness and its
subsidiaries, on the other hand.
The split-off and merger agreement provides a "material adverse effect" or
"material adverse change" means, when used with respect to Johnson & Johnson,
any change, effect, event, occurrence or state of facts (or any development or
developments which individually or in the aggregate are reasonably expected to
result in any change or effect) that is materially adverse to the business,
properties, assets, liabilities (contingent or otherwise), financial condition,
results of operations or prospects of Johnson & Johnson or that could reasonably
be expected to impair the ability of Johnson & Johnson to consummate the
transactions contemplated by, or satisfy its obligations under, the split-off
and merger agreement and the
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other transaction agreements, other than any change, effect, event, occurrence,
state of facts or development:
- relating to the economy in general
- relating to the industries in which Inverness operates in general
- resulting from changes in foreign currency rates and
- resulting from the effects of the pendency of the transactions
contemplated by the split-off and merger agreement on current or
prospective customers or suppliers.
NO SOLICITATION
The split-off and merger agreement provides that Inverness will not, nor
will it authorize or permit any of its subsidiaries, any of its or their
respective directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other advisor, agent or representative retained
by it or any of its subsidiaries to, directly or indirectly through another
person:
- solicit, initiate or encourage, or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or could
reasonably be expected to lead to, a takeover proposal, as described
below or
- participate in any discussions or negotiations regarding, or furnish to
any person any information, or otherwise cooperate in any way with, any
takeover proposal.
The split-off and merger agreement provides that the term "takeover
proposal" means:
- any inquiry, proposal or offer from any person relating to, or that is
reasonably likely to lead to, any direct or indirect acquisition or
purchase, in one transaction or a series of transactions, of assets or
businesses of Inverness or its subsidiaries that constitute 20% or more
of the revenues, net income or assets of Inverness and its subsidiaries,
taken as a whole, or 20% or more of Inverness' common stock
- any tender offer or exchange offer that if consummated would result in
any person beneficially owning 20% or more of Inverness common stock or
- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution, joint venture, binding share exchange or
similar transaction involving Inverness pursuant to which any person or
the shareholders of any person would own 20% or more of Inverness or any
resulting parent company of Inverness, other than the transactions
contemplated by the split-off and merger agreement or the other
transaction agreements.
The split-off and merger agreement provides further that, notwithstanding
the restrictions described above, if, at any time prior to the time Inverness
stockholders have adopted the split-off and merger agreement with Johnson &
Johnson:
- Inverness receives a bona fide written takeover proposal that the
Inverness board of directors determines in good faith, after consultation
with outside counsel and a financial advisor of nationally recognized
reputation, constitutes or is reasonably likely to lead to a superior
proposal, as described below, and
- the takeover proposal was unsolicited and made after the date of the
split-off and merger agreement and did not otherwise result from a breach
by Inverness of the no solicitation provisions described above,
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Inverness may, if the Inverness board of directors determines in good faith,
after consultation with outside counsel, that it is required to do so in order
to comply with its fiduciary duties to the Inverness stockholders under
applicable law, subject to providing prior notice to Johnson & Johnson:
- furnish information about Inverness to the person making the takeover
proposal under a customary confidentiality agreement and
- participate in discussions or negotiations with the person making the
takeover proposal regarding the takeover proposal.
The split-off and merger agreement provides that the term "superior
proposal" means any bona fide offer made by a third party that if completed
would result in that person (or its shareholders) owning, directly or
indirectly, all or substantially all of the shares of Inverness common stock
then outstanding (or of the surviving entity in a merger or the direct or
indirect parent of the surviving entity in a merger) or all or substantially all
the assets of Inverness and its subsidiaries, taken as a whole, which the
Inverness board of directors determines in good faith, after consultation with a
financial advisor of nationally recognized reputation, to be more favorable to
the Inverness stockholders from a financial point of view than the merger,
taking into account all the terms and conditions of such proposal, including its
financial terms and the likelihood of the proposal being completed, and the
split-off and merger agreement with Johnson & Johnson, including any changes to
the financial terms of the split-off and merger agreement proposed by Johnson &
Johnson in response to such proposal or otherwise.
The split-off and merger agreement provides further that neither the
Inverness board of directors nor any committee of the Inverness board of
directors may:
- withdraw or modify in a manner adverse to Johnson & Johnson, or propose
to withdraw or modify in a manner adverse to Johnson & Johnson, the
approval, recommendation or declaration of advisability by the Inverness
board of directors or committee of the Inverness board of directors of
the split-off and merger agreement
- recommend, adopt or approve, or propose publicly to recommend, adopt or
approve, any takeover proposal or
- approve or recommend, or propose to approve or recommend, or allow
Inverness or any of its subsidiaries to execute or enter into, any letter
of intent, memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint venture
agreement, partnership agreement or other similar agreement constituting
or related to, or that is intended to or is reasonably likely to lead to,
any takeover proposal.
However, at any time before Inverness stockholders have adopted the
split-off and merger agreement with Johnson & Johnson, the Inverness board of
directors may, in response to an unsolicited superior proposal that was made
after the date of the split-off and merger agreement and that did not otherwise
result from a breach of the no solicitation provisions of the split-off and
merger agreement, if the board of directors determines in good faith, after
consultation with outside counsel, that it is required to do so in order to
comply with its fiduciary duties to Inverness' stockholders under applicable
law, withdraw or modify its recommendation of the split-off and merger agreement
or recommend the approval of the superior proposal and/or cause Inverness to
terminate the split-off and merger agreement. No withdrawal of the Inverness
board of directors' recommendation of the split-off and merger agreement or
recommendation of the superior proposal may be made, and no such termination by
Inverness may be made, until after the fourth business day following Johnson &
Johnson's receipt of written notice from Inverness advising Johnson & Johnson
that the Inverness board of directors intends to take such action and specifying
the terms and conditions of such superior proposal. In determining whether to
take such action, the Inverness board of directors must take into account any
changes to the financial terms of the split-off and merger agreement proposed by
Johnson & Johnson in response to its receipt of such written notice from
Inverness or otherwise.
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In addition to the no solicitation provisions described above, the
split-off and merger agreement provides that Inverness must promptly advise
Johnson & Johnson orally and in writing of any takeover proposal, the material
terms and conditions of any takeover proposal and the identity of the person
making any takeover proposal. Inverness must keep Johnson & Johnson fully
informed of the status and material details, including any changes to the
material terms, of any such takeover proposal and must provide to Johnson &
Johnson, as soon as practicable after receipt or delivery, with copies of all
correspondence and other written material sent or provided to Inverness from any
person in connection with any takeover proposal or sent or provided by Inverness
to any person in connection with any takeover proposal, except for
correspondence and materials previously provided to Johnson & Johnson by
Inverness.
Nothing in the split-off and merger agreement prohibits Inverness from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Securities
Exchange Act or from making any required disclosure to Inverness' stockholders
if, in the good faith judgment of the Inverness board of directors, after
consultation with outside counsel, failure to make such a disclosure would
constitute a violation of applicable law. Neither Inverness nor its board of
directors or any committee of the board of directors may withdraw its
recommendation of the split-off and merger agreement, recommend a takeover
proposal or enter into an agreement regarding a takeover proposal in a manner
prohibited by the no solicitation provisions described above.
TERMINATION OF THE SPLIT-OFF AND MERGER AGREEMENT
The split-off and merger agreement may be terminated at any time prior to
the completion of the split-off and merger, even if the split-off and merger
agreement has been adopted by the Inverness stockholders:
- by mutual written consent of Johnson & Johnson, Sunrise Acquisition Corp.
and Inverness
- by either Johnson & Johnson or Inverness, if the merger has not been
completed by January 31, 2002, except that this right to terminate the
split-off and merger agreement will not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the merger to be completed on or before that date
- by either Johnson & Johnson or Inverness, if there exists a restraining
order, injunction or other court order or statute, law, rule, legal
restraint or prohibition, in each case that has become final and cannot
be appealed and which prevents the completion of the merger
- by either Johnson & Johnson or Inverness, if the Inverness stockholders
do not adopt the split-off and merger agreement at the special meeting
- by either Johnson & Johnson or Inverness, if the other party has breached
or failed to perform any of its representations, warranties, covenants or
agreements set forth in the split-off and merger agreement, which breach
or failure to perform would give rise to the failure of a condition to
the merger and has not been or cannot be cured within 30 calendar days
following receiving written notice from the other party of such breach or
failure to perform
- by Johnson & Johnson if there exists a final, non-appealable order,
ruling, judgment or other similar legal restraint that is reasonably
expected to (1) prohibit or materially limit the direct or indirect
acquisition or ownership of Inverness common stock by Johnson & Johnson,
(2) restrain or prohibit the completion of the merger or any of the other
transactions contemplated by the transaction agreements, (3) obtain from
Inverness, Johnson & Johnson or Sunrise Acquisition Corp. any damages
that are material in relation to the post-restructuring business of
Inverness, (4) prohibit or materially limit the ownership or operation by
Inverness or any of its post-closing subsidiaries or Johnson & Johnson or
any of its subsidiaries of any portion of the post-restructuring business
of Inverness or the business or assets of Johnson & Johnson and its
subsidiaries, (5) compel Inverness or any of its post-closing
subsidiaries or Johnson & Johnson or any of its subsidiaries to divest or
hold separate any portion of the post-restructuring business of Inverness
or of the business or assets of Johnson & Johnson or any of its
subsidiaries as a result of the transactions contemplated by the
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transaction agreements or (6) prohibit Johnson & Johnson or any of its
subsidiaries from effectively controlling in any material respect any
portion of the post-restructuring business of Inverness
- by Johnson & Johnson, if the Inverness board of directors or any
committee of the Inverness board of directors withdraws, or modifies in a
manner adverse to Johnson & Johnson, or proposes to withdraw, or modify
in a manner adverse to Johnson & Johnson, its approval, recommendation or
declaration of advisability of the split-off and merger agreement or
recommends, adopts or approves, or proposes publicly to recommend, adopt
or approve, any takeover proposal or
- by Inverness in response to a superior proposal and in accordance with
the no solicitation provisions described above.
FEES AND EXPENSES
GENERAL. The split-off and merger agreement provides that each party will
pay its own fees and expenses in connection with the split-off and merger
agreement and the transactions contemplated by the split-off and merger
agreement, whether or not the split-off and merger are completed. See
"Post-Closing Arrangements -- Post-Closing Covenants Agreement -- Expenses" for
further information on how Inverness and Innovations will allocate their
expenses directly related to the restructuring, split-off and merger.
TERMINATION FEE. Inverness must pay to Johnson & Johnson a termination fee
of $28 million in each of the following circumstances:
- the split-off and merger agreement is terminated by Johnson & Johnson
pursuant to its right described in the second to last bullet point under
"--Termination of the Split-off and Merger Agreement"
- the split-off and merger agreement is terminated by Inverness pursuant to
its right described in the last bullet point under "--Termination of the
Split-off and Merger Agreement" or
- a takeover proposal is made to Inverness or directly to the Inverness
stockholders generally or otherwise becomes publicly known or any person
publicly announces an intention, whether or not conditional, to make a
takeover proposal, the split-off and merger agreement is terminated by
either Johnson & Johnson or Inverness pursuant to their right to
terminate if the merger has not been consummated on or before January 31,
2002 without a vote at the Inverness stockholder's meeting having been
taken or pursuant to their right to terminate if stockholder approval has
not been obtained at the Inverness stockholders' meeting, and within 12
months after such termination, Inverness enters into a definitive
agreement for, or completes, the transactions contemplated by any
takeover proposal (involving the acquisition or purchase of assets or
businesses of Inverness constituting 35% or more, rather than 20%, of
Inverness' revenues, net income, assets or stock).
CONDUCT OF BUSINESS PENDING THE SPLIT-OFF AND MERGER
Under the split-off and merger agreement, Inverness has agreed that,
subject to specified exceptions, during the period from the date of the
split-off and merger agreement to the time when the split-off and merger are
completed, it will, and will cause each of its subsidiaries to, carry on its
business in the ordinary course of business consistent with past practice,
including in respect of research and development activities and programs and
making capital expenditures as described in Inverness' 2001 budget with respect
to the post-restructuring business of Inverness, and in compliance in all
material respects with all applicable laws and regulations and, to the extent
consistent with such laws and regulations, will use all commercially reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them with the intention that their goodwill
and ongoing businesses will be unimpaired at the time the split-off and merger
are completed. In addition, without limiting the generality of the foregoing,
during the period from the date of the split-off and merger agreement to the
time the split-off and merger are completed, Inverness has agreed that,
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subject to specified exceptions, it will not, and will not permit any of its
subsidiaries to, without Johnson & Johnson's prior written consent:
- declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its capital stock
- split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock
- purchase, redeem or otherwise acquire any shares of its capital stock or
any other securities of Inverness or any rights, warrants or options to
acquire any such shares or other securities
- issue, deliver, sell, grant, pledge or otherwise encumber or subject to
any lien any shares of its capital stock, any other voting securities,
equity interests or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities, or any "phantom" stock, "phantom" stock rights,
stock appreciation rights or stock based performance units, other than:
- the issuance of shares of Inverness common stock upon the exercise of
stock options, warrants or rights under Inverness' employee stock
purchase plan to acquire Inverness common stock outstanding on the date
of the split-off and merger agreement and
- the issuance of stock options (and shares of Inverness common stock upon
the exercise of these options) to any employee of Inverness hired after
the date of the split-off and merger agreement in connection with that
hiring, provided that the issuance is in the ordinary course of business
consistent with past practice and that the stock options have an
exercise price per share at least equal to the market value of Inverness
common stock on the date of issuance and with other material terms no
more favorable to such employee than the terms of the existing Inverness
stock options issued under similar circumstances
- amend or propose to amend the Inverness certificate of incorporation or
the Inverness by-laws or other comparable organizational documents of any
of Inverness' subsidiaries
- directly or indirectly acquire (1) by merging or consolidating with, or
by purchasing assets of, or by any other manner, any person or division,
business or equity interest of any person or (2) any assets that,
individually, have a purchase price in excess of $50,000 or, in the
aggregate, have a purchase price in excess of $250,000, except for
purchases of raw materials, components or supplies in the ordinary course
of business consistent with past practice
- sell, lease, license, mortgage, sell and leaseback or otherwise encumber
or subject to any lien or otherwise dispose of any of its properties or
other assets or any interests therein (including securitizations), except
for sales of inventory and used equipment in the ordinary course of
business consistent with past practice
- incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Inverness,
guarantee any debt securities of another person, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect
of any of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice not to exceed
$250,000 at any time outstanding
- make any loans, advances or capital contributions to, or investments in,
any other person, other than to employees in the ordinary course of
business consistent with past practice
- except for projects specifically identified in Inverness' 2001 budget,
make any new capital expenditure or expenditures which, individually, is
in excess of $50,000 or, in the aggregate, are in excess of $250,000
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- pay, discharge, settle or satisfy any claims, liabilities, obligations or
litigation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities disclosed, reflected or
reserved against in the most recent audited financial statements of
Inverness (or the notes thereto) filed with the Securities and Exchange
Commission or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice, cancel any
indebtedness for borrowed money, waive or assign any claims or rights of
substantial value, waive any benefits of, or agree to modify in any
respect, any confidentiality, standstill or similar agreements to which
Inverness or any of its post-closing subsidiaries is a party
- except in the ordinary course of business consistent with past practice,
modify, amend or terminate any material contract or agreement to which
Inverness or any of its subsidiaries is a party or waive, release or
assign any material rights or claims thereunder
- enter into any contracts, agreements, binding arrangements or
understandings relating to the supply of components for the research,
development, distribution, manufacturing and assembling by third parties
of, and the training, license and marketing of, products of Inverness or
any of its subsidiaries or products licensed by Inverness or any of its
subsidiaries, other than under any contracts, agreements, arrangements or
understandings currently in place, that have been disclosed in writing to
Johnson & Johnson prior to the date of the split-off and merger
agreement, in accordance with their terms as of the date of the split-off
and merger agreement
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, adopt, enter into, terminate
or amend in any material respect any collective bargaining agreement,
benefit plan or any benefit agreement involving Inverness or any of its
subsidiaries and their current or former directors, officers, employees
or consultants
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, increase in any manner the
compensation, bonus or fringe or other benefits of, any current or former
officer, director, employee or consultant of Inverness or any of its
subsidiaries, except for normal increases in cash compensation in the
ordinary course of business consistent with past practice
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, pay any benefit or amount not
required under any benefit plan or benefit agreement or any other benefit
arrangement of Inverness or any of its subsidiaries as in effect on the
date of the split-off and merger agreement
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, increase in any manner the
severance or termination pay of any current or former director, officer,
employee or consultant of Inverness or any of its subsidiaries
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, make any material
determinations not in the ordinary course of business consistent with
past practice, under any collective bargaining agreement, benefit plan or
benefit agreement of Inverness or any of its subsidiaries as in effect on
the date of split-off and merger agreement
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement
or benefit plan, except for the issuance of stock options to any employee
of Inverness hired after the date of the split-off and merger agreement
and otherwise in compliance with the terms of the split-off and merger
agreement
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- except as otherwise contemplated by the split-off and merger agreement,
the restructuring agreement or as required to comply with applicable law,
amend or modify any stock option or warrant
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, take any action to fund or in
any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or benefit plan
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, take any action to accelerate
the vesting or payment of any compensation or benefit under any benefit
plan or benefit agreement, other than non-discretionary actions required
by the terms of any existing benefit plans or benefit agreement as in
effect on the date of the split-off and merger agreement
- except as otherwise contemplated by the split-off and merger agreement or
as required to comply with applicable law, change any actuarial or other
assumption used to calculate funding obligations with respect to any
pension plan or change the manner in which contributions to any pension
plan are made or the basis on which such contributions are determined
- except as otherwise contemplated by the split-off and merger agreement,
enter into any agreement of a nature that would be required to be filed
as an exhibit to Form 10-K under the Securities Exchange Act, other than
contracts for the sale of Inverness' products in the ordinary course of
business consistent with past practice
- revalue any material assets of Inverness or any of its subsidiaries or,
except as required by generally accepted accounting principles, make any
change in accounting methods, principles or practices
- except in the ordinary course of business consistent with past practice,
extend, accelerate, discount, compromise or settle any account payable or
account receivable
- sell, transfer or license to any person or otherwise extend, amend or
modify any rights to the intellectual property rights of Inverness or any
of its subsidiaries or
- authorize any of, or commit, propose or agree to take any of, the
foregoing actions.
Despite the prohibitions listed above, prior to the completion of the
split-off and merger, Innovations is entitled to enter into contractual and
other arrangements and understandings with third parties related solely to the
Innovations businesses, subject to specified limitations.
REPRESENTATIONS AND WARRANTIES
The split-off and merger agreement contains representations and warranties
relating to, among other things:
- corporate organization and similar corporate matters of Johnson &
Johnson, Sunrise Acquisition Corp. and Inverness
- capital structure of Inverness
- obligations with respect to the capital stock of Inverness
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the split-off and merger agreement
and other transaction agreements of Johnson & Johnson, Sunrise
Acquisition Corp. and Inverness
- approval by the Inverness board of directors of the split-off and merger
agreement, the other transaction agreements and related transactions
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- documents filed by each of Johnson & Johnson and Inverness with the
Securities and Exchange Commission and the accuracy of information
contained in such documents
- absence of undisclosed liabilities of Johnson & Johnson and Inverness
- accuracy of information supplied by each of Johnson & Johnson, Sunrise
Acquisition Corp. and Inverness in connection with this proxy
statement/prospectus and the registration statement of which it is a part
- absence of material changes or events concerning Inverness
- pending or threatened material litigation of Inverness
- accuracy of financial statements of Inverness Medical Limited, a
subsidiary of Inverness
- certain contracts and agreements of Inverness, including agreements that
relate to the research, development, distribution, training, sale,
license, marketing and supply of components for, and manufacturing of by
third parties of, the products of Inverness or products licensed by
Inverness
- compliance with applicable laws, including environmental laws, the
Federal Food, Drug and Cosmetic Act of 1938 and the regulations of the
Food and Drug Administration, by Inverness
- absence of changes in benefit plans and labor relations matters of
Inverness
- matters relating to the Employee Retirement Income Security Act for
Inverness
- absence of excess parachute payments to any director, officer, employee
or consultant of Inverness or its affiliates
- filing of tax returns and payment of taxes by Inverness
- the hypothetical tax basis of Inverness in Innovations common stock, the
tax basis of the assets held by Inverness Medical Inc., a subsidiary of
Inverness, and the net operating loss carryovers of Inverness
- title to Inverness' properties and Inverness' compliance with the terms
of its material leases
- the property and assets of the post-restructuring business of Inverness
- intellectual property rights of Inverness
- required stockholder vote of Inverness and no required stockholder vote
of Johnson & Johnson
- satisfaction of the requirements of certain state takeover statutes and
provisions of the Inverness certificate of incorporation and the
Inverness by-laws by Inverness
- engagement and payment of fees of brokers, investment bankers, finders
and financial advisors of Johnson & Johnson and Inverness
- receipt by Inverness of opinions from ABN AMRO and UBS Warburg
- absence of actions by Johnson & Johnson, Sunrise Acquisition Corp. and
Inverness that would prevent the merger from qualifying as a tax-free
reorganization for Federal income tax purposes
- compliance by Inverness with applicable regulatory and governmental
requirements
- solvency of Innovations
- organization and operations of Sunrise Acquisition Corp. and
- Johnson & Johnson common stock to be issued in the merger.
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CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
The split-off and merger agreement provides that (1) the amended and
restated certificate of incorporation of Inverness, as in effect immediately
prior to the completion of the split-off and merger, will be the certificate of
incorporation of the surviving corporation until thereafter changed or amended,
except that the name of Inverness will be changed to Sunrise Acquisition Corp,
and (2) the by-laws of Sunrise Acquisition Corp., as in effect immediately prior
to the completion of the split-off and merger, will be the by-laws of the
surviving corporation until thereafter changed or amended.
AMENDMENT
The split-off and merger agreement may be amended by the parties to it at
any time before or after the stockholders of Inverness adopt the split-off and
merger agreement with, if necessary, the approval of their respective boards of
directors, except that after the Inverness stockholders adopt the split-off and
merger agreement, no amendment may be made that by law requires further approval
by the stockholders of Inverness or the approval of the stockholders of Johnson
& Johnson without such approval. The split-off and merger agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties to it. At any time prior to the adoption of the split-off and merger
agreement by the Inverness stockholders, Inverness may, in its sole discretion,
unilaterally change the number of shares of Innovations common stock to be
received in exchange for each share of Inverness common stock in the split-off
and merger with, if necessary, approval of its board of directors.
EXTENSION; WAIVER
At any time prior to the completion of the split-off and merger, a party
may, by written instrument signed on behalf of such party:
- extend the time for performance of any of the obligations or other acts
of any other party to the split-off and merger agreement
- waive inaccuracies in representations and warranties of any other party
contained in the split-off and merger agreement or in any related
document or
- waive compliance with any of the agreements or conditions in the
split-off and merger agreement, except that no such waiver may be made
after the split-off and merger agreement has been adopted by the
stockholders of Inverness which by law requires further approval by the
stockholders of Inverness or the approval of the stockholders of Johnson
& Johnson unless such approval is obtained.
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THE STOCK OPTION AGREEMENT
This is a summary of the material provisions of the stock option agreement
between Johnson & Johnson and Inverness. The stock option agreement, which is
attached as Annex 2 to this proxy statement/prospectus and is incorporated
herein by reference, contains the complete terms of that agreement. You should
read the entire stock option agreement carefully.
GENERAL
Concurrently with the execution and delivery of the split-off and merger
agreement, Johnson & Johnson and Inverness entered into a stock option agreement
under which Inverness granted Johnson & Johnson an option to purchase up to
6,417,689 shares of Inverness common stock, at a purchase price of $38.00 per
share.
EXERCISE OF THE OPTION
Except as described below, the option is exercisable by Johnson & Johnson
at any time after the occurrence of any event as a result of which Johnson &
Johnson is entitled to receive the termination fee under the split-off and
merger agreement. The right to purchase shares under the Inverness stock option
agreement will expire upon the first to occur of:
- the completion of the split-off and merger
- 12 months after the first occurrence of any event as a result of which
Johnson & Johnson is entitled to receive the termination fee under the
split-off and merger agreement and
- termination of the split-off and merger agreement prior to the occurrence
of any event as a result of which Johnson & Johnson is entitled to
receive the termination fee, unless Johnson & Johnson has the right to
receive such termination fee upon the occurrence of certain events, in
which case the option will not terminate until the later of (1) ten
business days following the time such termination fee becomes payable and
(2) the expiration of the period during which Johnson & Johnson has the
right to receive a termination fee.
Any purchase of shares upon the exercise of the option is subject to
compliance with the Hart-Scott-Rodino Antitrust Improvements Act and the
obtaining or making of any governmental or regulatory consents, approvals,
orders, notifications, filings or authorizations, the failure of which to have
obtained or made would make the issuance of shares subject to the option
illegal. If the option has been exercised before its termination, Johnson &
Johnson will be entitled to purchase the option shares and the termination of
the option will not affect any rights under the stock option agreement. If
Johnson & Johnson receives notice that a regulatory approval required for the
purchase of any option shares under the option will not be issued or granted or
such regulatory approval has not been issued or granted within six months of the
date of the exercise notice, Johnson & Johnson will have the right to exercise
its cash-out right with respect to the option shares for which such regulatory
approval will not be issued or granted or has not been issued or granted.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The number and type of securities subject to the option and the purchase
price will be adjusted for any change in the common stock subject to the option
by reason of a stock dividend, split-up, merger, recapitalization, combination,
exchange of shares or similar transaction, such that Johnson & Johnson will
receive, upon exercise of the option, the number and type of securities that it
would have received if the option had been exercised immediately before the
occurrence of such event, or the record date of such event. If any additional
shares of Inverness common stock are issued after the date of the stock option
agreement, or if the number of outstanding shares of Inverness common stock is
reduced, the number of shares of Inverness common stock subject to the option
will be adjusted so that, after such issuance or reduction, it equals the same
percentage of the aggregate number of issued and outstanding shares of Inverness
common stock as it did prior to such issuance or reduction. The stock option
agreement provides
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further that in no event may the number of shares of Inverness common stock
subject to the option exceed 19.9% of the issued and outstanding shares of
Inverness common stock at the time of exercise of the option, without giving
effect to the issuance of shares pursuant to such exercise.
If Inverness agrees to (1) consolidate with or merge into any person other
than Johnson & Johnson or one of its subsidiaries, (2) permit any person other
than Johnson & Johnson or one of its subsidiaries to merge into it or (3) sell
or otherwise transfer all or substantially all of its assets to any person other
than Johnson & Johnson or one of its subsidiaries, then the agreement governing
that transaction must provide that the option will, upon the completion of such
transaction, be converted into or exchanged for an option to acquire the number
and class of shares or other securities or property Johnson & Johnson would have
received in respect of Inverness common stock if the option had been exercised
immediately prior to such consolidation, merger, sale or transfer, or the record
date of such event.
CASH PAYMENTS FOR THE OPTION
Instead of purchasing shares of common stock under the option, Johnson &
Johnson may exercise its right to have Inverness pay to Johnson & Johnson an
amount per share of Inverness common stock equal to the number of shares of
Inverness common stock subject to the option multiplied by the difference
between:
- the average closing price on the American Stock Exchange of shares of
Inverness common stock for the 10 trading days commencing on the 12th
trading day immediately preceding the date on which Johnson & Johnson
notifies Inverness of its exercise of the option and
- the per share exercise price of the option.
LIMITATION ON TOTAL PROFIT
In addition, the stock option agreement provides that in no event will
Johnson & Johnson's total profit from the option exceed in the aggregate $28
million minus any termination fee actually received by Johnson & Johnson
pursuant to the terms of the split-off and merger agreement and, if Johnson &
Johnson's total profit under the stock option agreement or as part of the
termination fee would otherwise exceed such amount, Johnson & Johnson is
required to:
- reduce the number of shares of common stock subject to the option
- deliver to Inverness for cancellation shares of Inverness common stock
previously purchased by Johnson & Johnson under the option
- pay cash to Inverness or
- do any combination of the foregoing, so that Johnson & Johnson's total
profit from the option does not exceed such amount.
REGISTRATION RIGHTS AND LISTING
Johnson & Johnson has certain rights to require registration by Inverness
of any shares purchased under the option under the securities laws if necessary
for Johnson & Johnson to be able to sell such shares and to require the listing
of such shares on the American Stock Exchange or other national securities
exchange or national securities quotation system.
ASSIGNABILITY; TRANSFER RESTRICTIONS
The stock option agreement may not be assigned or delegated by Johnson &
Johnson or Inverness without the prior written consent of the other. Shares of
Inverness common stock received by Johnson & Johnson pursuant to an exercise of
the option may not be sold, assigned, transferred or otherwise disposed of
except (1) in an underwritten public offering pursuant to its registration
rights or (2) to a purchaser or transferee who would not, immediately after such
sale, assignment, transfer or disposal, beneficially own
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more than 5.0% of the outstanding voting power of Inverness stockholders.
However, Johnson & Johnson is permitted to sell any shares if the sale is made
in connection with a tender or exchange offer that has been approved or
recommended by a majority of the members of the Inverness board of directors.
EFFECT OF STOCK OPTION AGREEMENT
The stock option agreement is intended to increase the likelihood that the
split-off and merger will be completed on the terms set forth in the split-off
and merger agreement. Consequently, certain aspects of the stock option
agreement may discourage persons who might now or prior to the completion of the
split-off and merger be interested in acquiring all or a significant interest in
Inverness from considering or proposing such an acquisition, even if such
persons were prepared to offer higher consideration per share for Inverness
common stock than that the aggregate consideration offered to Inverness common
stock holders as part of the split-off and merger agreement.
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POST-CLOSING ARRANGEMENTS
This is a summary of material post-closing arrangements with respect to,
among other things, tax allocation, indemnification, noncompetition,
solicitation and hiring of employees and the licensing of intellectual property
rights to Innovations. The tax allocation agreement, which is attached as Annex
4 to this proxy statement/prospectus and is incorporated herein by reference,
contains the complete terms of that agreement. The post-closing covenants
agreement, which is attached as Annex 5 to this proxy statement/prospectus and
is incorporated herein by reference, contains the complete terms of that
agreement. The license agreement, which is attached as Annex 6 to this proxy
statement/prospectus and is incorporated herein by reference, contains the
complete terms of that agreement. You should read those agreements carefully.
THE TAX ALLOCATION AGREEMENT
Prior to the restructuring, Inverness, Innovations and Johnson & Johnson
will enter into a tax allocation agreement which sets forth each party's rights
and obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the split-off and merger and
related matters such as the filing of tax returns and the conduct of audits and
other tax proceedings.
PREPARATION AND FILING OF TAX RETURNS. Innovations is responsible for
preparing and filing (or causing to be prepared and filed) all separate state,
local or foreign tax returns of Innovations and its post-closing subsidiaries,
referred to as the Innovations group, and any consolidated, combined, unitary or
aggregate state, local, or foreign tax returns that do not include Inverness or
any of its post-closing subsidiaries, referred to as the Inverness group.
Johnson & Johnson is responsible for preparing and filing (or causing to be
prepared and filed), with the cooperation of Innovations and the members of the
Innovations group, all other tax returns.
PAYMENTS WITH RESPECT TO TAXES. For all taxes with respect to which
Johnson & Johnson, Inverness or any other member of the Inverness group is
required to file a tax return as described above, Innovations will pay Inverness
the amount of the taxes attributable to the Innovations business within ten
business days after receipt from Johnson & Johnson or Inverness of a copy of the
tax return (or a copy of the decision or agreement with respect to any final
determination regarding the period to which the tax return relates), together
with a statement showing in reasonable detail the calculation of any taxes
attributable to the Innovations business. The tax allocation agreement provides
specific guidelines for calculating the amount of taxes attributable to the
Innovations business.
For all taxes with respect to which Innovations or any other member of the
Innovations group is required to file a tax return as described above, Inverness
will pay Innovations the amount of the taxes attributable to the Inverness
group's business within ten days after receipt from Innovations of a copy of the
tax return (or a copy of the decision or agreement with respect to any final
determination regarding the period to which the tax return relates), together
with a statement showing in reasonable detail the calculation of any taxes
attributable to the Inverness group's business. The tax allocation agreement
provides specific guidelines for calculating the amount of taxes attributable to
the Inverness group's business.
INDEMNIFICATION. Inverness and each other member of the Inverness group
will indemnify and hold Innovations and each member of the Innovations group
harmless from and against:
- any liability for taxes attributable to the Inverness group's business as
calculated pursuant to the tax allocation agreement and
- any liability for taxes directly or indirectly attributable to the
split-off or merger or any related transaction.
Innovations and each other member of the Innovations group will indemnify
and hold Johnson & Johnson, Inverness and each other member of the Inverness
group harmless from and against any liability for taxes attributable to the
Innovations businesses as calculated pursuant to the tax allocation agreement.
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COOPERATION. Johnson & Johnson and Inverness, on the one hand, and
Innovations, on the other hand, will, and will cause the members of the
Inverness group and the Innovations group, respectively, to, cooperate with each
other in the preparation and filing of tax returns and the conduct of any audit
or other proceeding, and will deliver powers of attorney and make available
other documents as are necessary to carry out the intent of the tax allocation
agreement. Johnson & Johnson, Inverness and Innovations will use reasonable
efforts to reduce any transfer, sales or other similar taxes that may be
incurred with respect to the transactions contemplated by the transaction
agreements.
THE POST-CLOSING COVENANTS AGREEMENT
Prior to the completion of the split-off and merger, Johnson & Johnson,
Inverness, certain subsidiaries of Inverness, Innovations and certain
subsidiaries of Innovations will enter into the post-closing covenants
agreement. The post-closing covenants agreement will govern the terms of the
relationship between Johnson & Johnson and Inverness, on the one hand, and
Innovations, on the other hand, after the completion of the split-off and merger
with respect to, among other things, indemnification rights, payment of
restructuring, split-off and merger expenses, non-compete and nonsolicitation
agreements and adjustments to the net cash position of Innovations.
INDEMNIFICATION BY INNOVATIONS AND ITS SUBSIDIARIES. The post-closing
covenants agreement provides that Innovations and its post-closing subsidiaries,
referred to as the Innovations companies, will jointly and severally indemnify,
defend and hold harmless Johnson & Johnson and its affiliates, subsidiaries and
representatives, referred to as the Johnson & Johnson indemnitees, from and
against, and pay or reimburse the Johnson & Johnson indemnities for all losses,
as incurred:
- relating to or arising from the Innovations businesses or the assets or
liabilities transferred to and assumed by Innovations in the
restructuring, whether such losses relate to or arise from events,
occurrences, action, omissions, facts or circumstances occurring,
existing or asserted before, at or after the completion of the split-off
and merger
- relating to or arising from any untrue statement or alleged untrue
statement of a material fact relating to any Innovations company,
contained in any of the filings made or required to be made with the SEC
in connection with the transactions contemplated by the split-off and
merger agreement and the other transaction agreements, or any omission or
alleged omission to state in any of the filings a material fact relating
to any Innovations company required to be stated in the filings or
necessary to make the statements in the filings, in light of the
circumstances under which they were made, not misleading, but only with
respect to statements made in the filings or incorporated by reference in
the filings based upon information supplied by any Innovations company
specifically for inclusion or incorporation by reference in the filings
- relating to or arising from the breach by any Innovations company of any
agreement or covenant contained in any transaction agreement which is to
be performed or complied with after the completion of the split-off and
merger or
- relating to or arising from the failure of Inverness to obtain, prior to
the completion of the split-off and merger, the consent of particular
holders of warrants to purchase Inverness common stock to amend the terms
of those warrants to permit their conversion into warrants to purchase
Johnson & Johnson common stock and Innovations common stock as
contemplated by the transaction agreements.
Notwithstanding the joint and several nature of the indemnification
obligations described above, each Innovations subsidiary will only be liable for
losses:
- in the case of the losses described in the first bullet point of this
subsection, relating to or arising from (1) the Innovations business
conducted by that Innovations subsidiary, (2) the assets used, held for
use or intended for use in the Innovations business conducted by that
Innovations subsidiary and (3) the liabilities of or attributable to the
Innovations business of that Innovations subsidiary and
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- in the case of the losses described in the third bullet point of this
subsection, relating to or arising from a breach by that Innovations
subsidiary.
INDEMNIFICATION BY INVERNESS AND ITS POST-CLOSING SUBSIDIARIES. The
post-closing covenants agreement provides that Inverness and its post-closing
subsidiaries will jointly and severally indemnify, defend and hold harmless
Innovations, its affiliates, subsidiaries and representatives, referred to as
the Innovations indemnitees, from and against, and pay or reimburse the
Innovations indemnitees for:
- all losses, as incurred, relating to or arising from Inverness'
post-restructuring business or the assets or liabilities retained by
Inverness in the restructuring, whether such losses related to or arise
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the completion of the
split-off and merger or
- all losses, as incurred (together with interest on those losses at a rate
equal to 15% per annum calculated from the date written notice of a claim
for indemnification relating to such losses is delivered to Inverness
after the completion of the split-off and merger), relating to or arising
from the breach by Inverness or its post-closing subsidiaries of any
agreement or covenant contained in any transaction agreement which is to
be performed or complied with after the completion of the split-off and
merger.
Notwithstanding the joint and several nature of the indemnification
obligations described above, each post-closing subsidiary of Inverness will only
be liable for losses:
- in the case of the losses described in the first bullet point of this
subsection, relating to or arising from (1) the assets used, held for use
or intended for use in the post-restructuring business conducted by that
subsidiary and (2) the liabilities of or attributable to the
post-restructuring business of that subsidiary and
- in the case of the losses described in the second bullet point of this
subsection, relating to or arising from a breach by that subsidiary.
In the event that Inverness transfers any material portion of its assets in
a single transaction or in a series of transactions, Johnson & Johnson promptly
will either guarantee the indemnification obligations referred to in the first
bullet point of this subsection or take such other action to insure that the
ability of Inverness, legal and financial, to satisfy such indemnification
obligations will not be diminished in any material respect.
INDEMNIFICATION BY JOHNSON & JOHNSON. The post-closing covenants agreement
provides that Johnson & Johnson will indemnify, defend and hold harmless the
Innovations indemnitees from and against, and pay or reimburse the Innovations
indemnitees for:
- all losses, as incurred, relating to or arising form any untrue statement
or alleged untrue statement of a material fact contained in any of the
filings made or required to be made with the SEC in connection with the
transactions contemplated by the split-off and merger agreement and the
other transaction agreements, or any omission or alleged omission to
state in any of the filings a material fact required to be stated in the
filings or necessary to make the statements in the filings, in light of
the circumstances under which they were made, not misleading, but only
with respect to statements made in the filings or incorporated by
reference in the filings based upon information supplied by Johnson &
Johnson specifically for inclusion or incorporation by reference in the
filings or
- all losses, as incurred (together with interest on those losses at a rate
equal to 15% per annum calculated from the date written notice of a claim
for indemnification relating to such losses is delivered to Inverness
after the completion of the split-off and merger), relating to or arising
from the breach by Inverness or any of its post-restructuring
subsidiaries of any agreement or covenant contained in any transaction
agreement which is to be performed or complied with after the completion
of the split-off and merger.
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EXPENSES. Notwithstanding anything to the contrary in the split-off and
merger agreement, Inverness will be responsible for:
- all expenses of Inverness, its subsidiaries and Innovations and its
subsidiaries directly related to the restructuring, the split-off and the
merger in an amount of up to $12 million plus
- all fees and expenses incurred in connection with any litigation to the
extent arising out of or related in any way to the transaction
contemplated by the transaction agreements and
- all fees and expenses up to $2 million in connection with securing
financing required as a closing condition to the split-off and merger.
Innovations will be responsible for all such expenses in excess of those
amounts.
AGREEMENTS NOT TO COMPETE AND NOT TO SOLICIT OR HIRE EMPLOYEES. For a
period of ten years from the completion of the split-off and merger, Innovations
will not, and will not permit any of its affiliates, in any manner, directly or
indirectly, alone or in association with any person, to:
- subject to limited exceptions, compete with Johnson & Johnson, Inverness
or any of their affiliates in the field of diabetes generally, including
the testing, monitoring, diagnosing, prognostication, treatment,
management or cure of diabetes and diabetes symptoms and conditions,
referred to as the diabetes field
- engage in any activity in the diabetes field or
- actively participate in, control, manage, own any interest in or share in
the earnings of, finance or invest in the capital stock of any person who
is engaged in any activity in the diabetes field or, with the exception
of Ernest Carabillo, consult with any person on matters in the diabetes
field, except physician practice management activities, as described
below, and except that Innovations and its subsidiaries in the aggregate,
and each other affiliate of Innovations, may acquire:
- an entity which participates in the diabetes field if at the time of the
acquisition and during the ten year period referred to above, (1) the
entity's activity in the diabetes field is limited to the sale of
products and services and (2) the revenues derived from the sale of the
products and services constitute no more than 3% of the entity's total
revenues, and the entity does not receive any royalty revenue from the
diabetes field and
- up to 2% of the equity or voting interest in an entity that is engaged
in activities in the diabetes field, so long as none of Ron Zwanziger,
David Scott or Jerry McAleer is actively involved, whether directly or
indirectly, in the management of the entity during the period of the
applicable non-competition covenants contained in his consulting and
noncompetition agreement with Johnson & Johnson and Inverness.
Despite the noncompetition provisions described above, Innovations will not
be prohibited from participating, directly or indirectly, in physician practice
management activities in the diabetes field, including competing, engaging,
controlling, managing, owning, investing, consulting and soliciting customers.
For the purposes of the post-closing covenants agreement, "physician practice
management activities" means and is limited to the following:
- owning physician practices
- providing back office management services to physicians and
practitioners, such as billing, collections, scheduling and reimbursement
- compiling data from physicians and practitioners for the purposes of
establishing disease management best practices and
- providing group-buying services for physicians and practitioners,
excluding any and all products and services in the diabetes field and
excluding particular testing system applications, including diabetes
tests, involving multiple analytes.
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For a period of three years from the completion of the split-off and
merger, Innovations will not, and will cause its affiliates not to, in any
manner, directly or indirectly:
- induce any person that has been an employee of any of Inverness and its
post-closing subsidiaries at any time between January 1, 2001 and the
time when the split-off and merger are completed, to leave the employ of
Inverness and its post-closing subsidiaries
- except in response to a good faith request by a person that is not an
affiliate of Innovations for a recommendation regarding the employment
qualifications of an employee, recommend to any other person that such
person employ that employee or
- subject to limited exceptions, hire any such employee.
For a period of five years from the completion of the split-off and merger,
Innovations will not, and will cause its affiliates not to, in any manner,
directly or indirectly:
- solicit, either directly or indirectly, any customer or supplier of
Johnson & Johnson, Inverness or any of their affiliates to (1) transact
business in the diabetes field with a business or enterprise that
competes with Johnson & Johnson, Inverness or any affiliates in the
diabetes field or (2) reduce or refrain from doing any business with
Johnson & Johnson, Inverness or any of their respective affiliates in the
diabetes field except with respect to physician practice management
activities or
- disparage, including by relative comparison, Johnson & Johnson or
Inverness or any of their products or activities in the diabetes field,
except good faith comparative assessment with respect to physician
practice management activities.
NET CASH ADJUSTMENT. As part of the restructuring, Innovations and its
subsidiaries are to be funded by Inverness with $40 million of net cash, defined
as cash and marketable securities less debt for borrowed money (other than debt
outstanding under any revolving line of credit). Under the terms of the post-
closing covenants agreement, if upon the completion of the split-off and merger,
Innovations and its subsidiaries have more than $40 million in net cash,
Innovations will pay any excess amount to Inverness.
THE LICENSE AGREEMENT
Prior to the completion of the split-off and merger, Inverness and
Innovations will enter into the license agreement. Under the terms of the
license agreement, Inverness will grant Innovations a paid-up, royalty-free
license with respect to certain of Inverness' intellectual property and
Innovations will grant Inverness a paid-up, royalty-free license with respect to
certain of Innovations' intellectual property, each as described in more detail
below.
DIVISION OF FIELDS. The license agreement defines the various fields in
which the parties may use the intellectual property rights granted to them under
that agreement.
Inverness' Field. For purposes of the license agreement, Inverness' field
is defined as the field of diabetes generally, including the testing,
monitoring, diagnosing, prognosticating, treatment, management and cure of
diabetes. Inverness' field does not include certain testing systems involving
multiple analytes, referred to as multi-analyte systems, nor does it include the
testing, monitoring, diagnosing, prognosticating, treatment, or management of
cholesterol, creatinine and similar analytes.
Innovations' Field. For purposes of the license agreement, Innovations'
field is defined as the manufacture, marketing, licensing, support, performance
and use of products and services that are not included in Inverness' field and
fall within any of the following categories, referred to as Innovations'
subfields:
- point of care applications
- prothrombin applications
- multi-analyte system applications
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- immunodiagnostic applications, including products for the detection or
measurement of cardiac markers
- pregnancy, ovulation or osteoporosis applications and
- pain management applications
Shared Field. For purposes of the license agreement, the shared field is
defined as all fields outside of Innovations' field and Inverness' field.
LICENSE GRANTS RELATING TO ELECTROCHEMICAL INTELLECTUAL PROPERTY. For
purposes of the license agreement, electrochemical intellectual property refers
to all technology that relates to the design, manufacture or use of devices
useful for the detection of analytes by applying a current or voltage potential
to a fluid containing the analyte, and all related intellectual property rights,
but excluding intellectual property pertaining to the sampling of interstitial
fluids. The license agreement provides for the grant of the following rights
with respect to Inverness' electrochemical intellectual property:
- for use in Innovations' field, Inverness grants Innovations a perpetual,
irrevocable, worldwide, paid-up, royalty-free, exclusive license to use
Inverness' electrochemical intellectual property and all technology
developed by or for Inverness during the first three years of the license
relating to certain methods and apparatus for coating or infusing strips
with chemicals for use in testing and all related intellectual property.
Although this license is perpetual and irrevocable, Innovations' right to
use the licensed intellectual property rights in a Innovations subfield
will terminate in ten years if, by that time, Innovations has not
commercialized a product in that subfield. Innovations has certain rights
to transfer its licensed rights with respect to one or more of its
subfields, subject to specified limitations
- for use in the shared field, Inverness grants Innovations a perpetual,
irrevocable, worldwide, paid-up, royalty-free, co-exclusive license to
use Inverness' electrochemical intellectual property and all technology
developed by or for Inverness during the first three years of the license
relating to certain methods and apparatus for coating or infusing strips
with chemicals for use in testing and all related intellectual property
and
- for use in Inverness' field, Innovations grants Inverness a perpetual,
irrevocable, worldwide, paid-up, royalty-free, exclusive license to use
all electrochemical technology developed by or for Innovations during the
first three years of the license using the electrochemical technology and
intellectual property licensed to Innovations from Inverness under the
license agreement.
LICENSE GRANTS RELATING TO INTERSTITIAL INTELLECTUAL PROPERTY AND WIRELESS
INTELLECTUAL PROPERTY. For purposes of the license agreement, interstitial
intellectual property refers to intellectual property pertaining to the sampling
of interstitial fluid, and wireless intellectual property refers to intellectual
property pertaining to the wireless transmission of information. The license
agreement provides for the grant of the following rights with respect to
Inverness' interstitial intellectual property and wireless intellectual
property:
- for use in Innovations' field and the shared field, Inverness grants
Innovations a perpetual, irrevocable, worldwide, paid-up, royalty-free,
co-exclusive license to use its interstitial intellectual property and
- for use in Inverness' field, Innovations grants Inverness a perpetual,
irrevocable, worldwide, paid-up, royalty-free, exclusive license to use
all electrochemical technology developed by or for Innovations during the
first three years of the license using the interstitial intellectual
property and wireless intellectual property licensed to Innovations from
Inverness under the license agreement.
CONFIDENTIALITY AND OWNERSHIP. The license agreement provides that,
subject to certain limited exceptions, each party will not use any confidential
information of the other party except as authorized by the agreement and only
for the purposes of the license agreement, and will not disclose such
confidential information to anyone, except to its employees, contractors,
consultants, agents and sublicensees who have a need to know such information in
connection with their activities pursuant to the licenses granted under
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the license agreement. These confidentiality obligations will extend for a
period of five years following the date of disclosure of any such confidential
information.
The license agreement also provides that, as between the parties, any new
technology that is invented, developed or created by or on behalf of a party,
and all related intellectual property, will be the property of such party. Any
new technology that is invented, developed or created jointly by or on behalf of
both parties, and all related intellectual property, will be jointly owned by
the parties.
RIGHTS OF FIRST REFUSAL AND SHARING OF PROFITS ON DIABETES TESTS. The
license agreement provides that if Innovations commercializes a multi-analyte
system, and the system includes one or more diabetes tests, Innovations must pay
Inverness an amount equal to Innovations' gross profits from sales of that
system multiplied by the ratio of the number of diabetes tests in the system to
the total number of tests in the system.
The license agreement also provides that if Innovations develops a product,
process, or service in its subfield of prothrombin applications that it wishes
to commercialize, Innovations will notify Inverness of such development and
offer Inverness the right to become the exclusive distributor of that product,
process, or service on terms substantially similar to the distribution agreement
between Inverness and LifeScan, Inc. dated as of June 7, 1999, but with pricing
specific to the applicable product, process, or service which is commercially
reasonable. Inverness will then have a period of time to accept such terms or
object that the pricing terms are not commercially reasonable. If Inverness
fails to timely make an election to become the exclusive distributor of such a
product, process or service, it will lose its rights under the license agreement
to become such an exclusive distributor.
The license agreement further provides that Innovations will not grant any
exclusive sublicense of any intellectual property licensed to Innovations under
the license agreement or enter into any exclusive distribution agreement with
respect to products manufactured by Innovations using any such licensed
intellectual property without first delivering to Inverness a written term sheet
outlining the terms of such a transaction. Inverness will then have a period of
30 days in which to agree to enter into that transaction with Innovations on the
proposed terms. If Inverness fails to exercise this right, Innovations may enter
into the transaction with any other person, but only if the transaction is
consummated by a written agreement within 6 months from the end of the 30-day
response period and the final terms of the transaction, taken as a whole, are
not substantially more favorable to the other person than the terms proposed in
the written term sheet delivered by Innovations to Inverness.
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COMPARATIVE STOCK PRICES AND DIVIDENDS
Johnson & Johnson common stock is listed for trading on the New York Stock
Exchange under the trading symbol "JNJ" and Inverness common stock is listed for
trading on the American Stock Exchange under the trading symbol "IMA." The
following table sets forth, for the periods indicated, dividends declared and
the high and low sales prices per share of Johnson & Johnson common stock and of
Inverness common stock as reported by Dow Jones & Company, Inc. The prices and
dividend information for the Johnson & Johnson common stock have been adjusted
to reflect a two-for-one stock split effected in June 2001. For current price
information, Inverness stockholders are urged to consult publicly available
sources.
JOHNSON & JOHNSON INVERNESS
COMMON STOCK COMMON STOCK
----------------------------- -----------------------------
DIVIDENDS DIVIDENDS
CALENDAR PERIOD HIGH LOW DECLARED HIGH LOW DECLARED
--------------- ------ ------ --------- ------ ------ ---------
1999 --
First Quarter................... $47.00 $38.50 $0.125 $ 5.94 $ 2.00 --
Second Quarter.................. 51.50 43.91 0.14 5.19 2.75 --
Third Quarter................... 52.94 45.00 0.14 3.88 2.38 --
Fourth Quarter.................. 53.44 45.06 0.14 4.69 2.56 --
2000 --
First Quarter................... 48.47 33.06 0.14 11.38 3.19 --
Second Quarter.................. 50.94 35.00 0.16 9.75 4.13 --
Third Quarter................... 50.72 45.13 0.16 22.44 8.56 --
Fourth Quarter.................. 52.97 44.59 0.16 41.00 16.56 --
2001 --
First Quarter................... 52.35 40.25 0.16 39.00 16.87 --
Second Quarter.................. 54.20 42.60 0.18 57.75 22.60 --
Third Quarter (through --,
2001)........................ -- -- -- -- -- --
The following table sets forth the high, low and last reported sales prices
per share of Johnson & Johnson common stock and of Inverness common stock as
reported by Dow Jones & Company, Inc. on (1) May 8, 2001, the last full trading
day prior to the public announcement that Johnson & Johnson and Inverness were
in advanced discussions regarding the proposed transaction, (2) May 22, 2001,
the last full trading day prior to the public announcement that Johnson &
Johnson and Inverness had signed the definitive split-off and merger agreement
and (3) --, 2001, the last practicable trading day before the date of this proxy
statement/prospectus. The price information for Johnson & Johnson common stock
has been adjusted to reflect a two-for-one stock split effected in June 2001.
The equivalent price per share data for Inverness common stock has been
determined by multiplying the last reported sale price of a share of Johnson &
Johnson common stock on each of these dates by an exchange ratio determined by
dividing $35.00 by the average of the volume weighted averages of the trading
prices of Johnson & Johnson common stock for each of the 20 consecutive trading
days ending with the third trading day immediately preceding the calculation
date. Because there is currently no public trading market for shares of
Innovations common stock, the 0.20 shares of Innovations common stock to be
issued in respect of each outstanding share of Inverness common stock were not
factored into the calculation of the equivalent price per share of Inverness
common stock.
JOHNSON & JOHNSON INVERNESS EQUIVALENT PRICE
COMMON STOCK COMMON STOCK PER SHARE OF
-------------------------- -------------------------- INVERNESS
HIGH LOW CLOSE HIGH LOW CLOSE COMMON STOCK
------ ------ ------ ------ ------ ------ ----------------
May 8, 2001................... $49.05 $48.50 $48.98 $35.99 $33.40 $35.91 $36.67
May 22, 2001.................. 50.32 49.38 49.50 35.23 34.54 34.95 35.82
--, 2001...................... -- -- -- -- -- -- --
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DESCRIPTION OF JOHNSON & JOHNSON CAPITAL STOCK
The following summary of the capital stock of Johnson & Johnson is subject
in all respects to applicable New Jersey law, the Johnson & Johnson restated
certificate of incorporation, as amended, and the Johnson & Johnson by-laws. See
"Comparison of Rights of Common Stockholders of Johnson & Johnson and Inverness"
on page 78 and "Where You Can Find More Information" on page 96.
The total authorized shares of capital stock of Johnson & Johnson consist
of (1) 4,320,000 shares of common stock, par value $1.00 per share, and (2)
2,000,000 shares of preferred stock, without par value. At the close of business
on --, 2001, approximately -- shares of Johnson & Johnson common stock were
issued and outstanding and no shares of Johnson & Johnson preferred stock were
issued and outstanding.
The Johnson & Johnson board of directors is authorized to provide for the
issuance from time to time of Johnson & Johnson preferred stock in series and,
as to each series, to fix the designation, the dividend rate and the
preferences, if any, which dividends on that series will have compared to any
other class or series of capital stock of Johnson & Johnson, the voting rights,
if any, the voluntary and involuntary liquidation prices, the conversion or
exchange privileges, if any, applicable to that series and the redemption price
or prices and the other terms of redemption, if any, applicable to that series.
Cumulative dividends, dividend preferences and conversion, exchange and
redemption provisions, to the extent that some or all of these features may be
present when shares of Johnson & Johnson preferred stock are issued, could have
an adverse effect on the availability of earnings for distribution to the
holders of Johnson & Johnson common stock or for other corporate purposes.
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COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS
OF JOHNSON & JOHNSON AND INVERNESS
Johnson & Johnson is a New Jersey corporation subject to the provisions of
the New Jersey Business Corporation Act, which we refer to as New Jersey law.
Inverness is a Delaware corporation subject to the provisions of the General
Corporation Law of the State of Delaware, which we refer to as Delaware law.
Inverness stockholders, whose rights are currently governed by the Inverness
certificate of incorporation, the Inverness by-laws and Delaware law, will, upon
completion of the split-off and merger, become stockholders of Johnson & Johnson
and their rights with respect to Johnson & Johnson common stock will be governed
by the Johnson & Johnson certificate of incorporation, the Johnson & Johnson
by-laws and New Jersey law.
The following description summarizes the material differences that may
affect the rights of stockholders of Johnson & Johnson and Inverness but does
not purport to be a complete statement of all those differences, or a complete
description of the specific provisions referred to in this summary. The
identification of specific differences is not intended to indicate that other
equally or more significant differences do not exist. Stockholders should read
carefully the relevant provisions of New Jersey law, Delaware law, the Johnson &
Johnson certificate of incorporation, the Johnson & Johnson by-laws, the
Inverness certificate of incorporation and the Inverness by-laws.
CAPITALIZATION
JOHNSON & JOHNSON
Johnson & Johnson's authorized capital stock is described under
"Description of Johnson & Johnson Capital Stock".
INVERNESS
The total authorized shares of capital stock of Inverness consist of (1)
70,000,000 shares of common stock, par value $0.001 per share, and (2) 5,000,000
shares of preferred stock, par value $0.001 per share. On the close of business
on --, 2001, approximately -- shares of Inverness common stock were issued and
outstanding and no shares of Inverness preferred stock were issued and
outstanding.
The Inverness certificate of incorporation provides that the Inverness
board of directors is authorized to provide for the issuance from time to time
of shares of Inverness preferred stock in one or more series. The Inverness
board of directors is expressly authorized to fix the designations, powers,
including voting powers, preferences, rights, qualifications, limitations,
restrictions and other terms of any series of Inverness preferred stock. The
Inverness board of directors may also increase or decrease the number of shares
of any series subsequent to the issuance of shares of such series, but not below
the number of shares of such series then outstanding.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
JOHNSON & JOHNSON
The Johnson & Johnson certificate of incorporation and the Johnson &
Johnson by-laws provide that the total number of Johnson & Johnson directors
will be not less than nine nor more than 18, as determined by the Johnson &
Johnson board of directors from time to time. Johnson & Johnson currently has 15
directors. All directors are elected at each annual meeting of stockholders to
serve until the next annual meeting. The Johnson & Johnson by-laws do not
provide for cumulative voting in the election of directors. The Johnson &
Johnson by-laws provide that vacancies on the Johnson & Johnson board of
directors will be filled by appointment made by a majority vote of the remaining
directors. The Johnson & Johnson certificate of incorporation and the Johnson &
Johnson by-laws provide that directors may be removed, with cause, by a majority
vote of the stockholders.
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INVERNESS
The Inverness certificate of incorporation and by-laws provide that the
number of directors of Inverness shall be fixed by a resolution duly adopted
from time to time by the Inverness board of directors. The Inverness board of
directors currently consists of six directors. The Inverness certificate of
incorporation provides that the Inverness board of directors will be divided
into three classes, which shall be as nearly equal in number as possible. Each
director serves for a term ending on the date of the third annual meeting of
stockholders following the annual meeting at which the director was elected.
Holders of Inverness common stock are not entitled to vote cumulatively for the
election of directors. The Inverness certificate of incorporation provides that
any director may be removed from office, only with cause and only by an
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote in an election of directors. The Inverness certificate of incorporation and
by-laws provide that in the event of any increase or decrease in the authorized
number of directors, the board of directors will determine the class or classes
to which the newly-created or eliminated directorships resulting from such
increase or decrease will be apportioned. No decrease in the number of directors
constituting the board of directors may shorten the term of any incumbent
director. Newly-created directorships resulting from any increase in the number
of directors and any vacancies on the Inverness board of directors resulting
from death, resignation, disqualification or removal shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even if the remaining directors do not constitute a quorum. Any director elected
to a vacant or newly-created directorship shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected or qualified.
AMENDMENTS TO CHARTER DOCUMENTS
JOHNSON & JOHNSON
Under New Jersey law, a proposed amendment to a corporation's certificate
of incorporation requires approval by its board of directors and an affirmative
vote of a majority of the votes cast by the holders of shares entitled to vote
on the amendment, unless a specific provision of New Jersey law or the
corporation's certificate of incorporation provides otherwise. The Johnson &
Johnson certificate of incorporation provides that if any class or series of
shares is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class is required. The Johnson & Johnson
certificate of incorporation also provides that the affirmative vote of the
holders of not less than 80% of the votes entitled to be cast by the holders of
all then outstanding shares of voting stock, voting together as a single class,
and the affirmative vote of a majority of the combined votes entitled to be cast
by "disinterested stockholders" voting together as a single class is required to
amend, repeal or adopt provisions inconsistent with Article Eight of the Johnson
& Johnson certificate of incorporation which relates to business combinations
with interested parties, unless the amendment, repeal or adoption is unanimously
recommended by the Johnson & Johnson board of directors if none of its directors
are affiliates or associates of any interested stockholder.
INVERNESS
Under Delaware law, an amendment to the certificate of incorporation of a
corporation requires the approval of the board of directors and the approval of
the holders of a majority of the outstanding stock entitled to vote upon the
proposed amendment. The holders of the outstanding shares of a class are
entitled to vote as a separate class on a proposed amendment that would:
- increase or decrease the aggregate number of authorized shares of the
class
- increase or decrease the par value of the shares of the class or
- alter or change the powers, preferences or special rights of the shares
of the class, so as to affect them adversely.
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If any proposed amendment would alter or change the powers, preferences or
special rights of one or more series of any class so as to affect them
adversely, but would not so affect the entire class, then only the shares of the
series so affected by the amendment will be considered a separate class.
The Inverness certificate of incorporation provides that Inverness reserves
the right to amend and repeal any provision contained in the Inverness
certificate of incorporation in the manner prescribed by Delaware law and the
certificate of incorporation. The Inverness certificate of incorporation
provides that whenever any vote of the holders of voting stock is required to
amend or repeal any provision of the certificate of incorporation, the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon, and the affirmative vote of a majority of the outstanding shares of
each class entitled to vote thereon as a class, shall be required to amend or
repeal any provision, except that the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote thereon, and the
affirmative vote of not less than two-thirds of the outstanding shares of each
class entitled to vote thereon as a class, is required to amend or repeal any
provisions of the articles of the Inverness certificate of incorporation
relating to stockholder action, directors, limitation of liability and amendment
of the certificate of incorporation.
AMENDMENTS TO BY-LAWS
JOHNSON & JOHNSON
Under New Jersey law, the Johnson & Johnson certificate of incorporation
and the Johnson & Johnson by-laws, the Johnson & Johnson by-laws generally may
be amended or repealed in whole or in part by the stockholders at a regular or
special meeting of the stockholders or by the Johnson & Johnson board of
directors at a regular or special meeting of the board of directors, if notice
of the proposed amendment is contained in the notice of such meeting, except
that a by-law adopted or amended by the Johnson & Johnson board of directors may
be superseded by stockholder action and that stockholder action may preempt any
further action by the Johnson & Johnson board of directors with respect to that
by-law provision.
INVERNESS
Under Delaware law, unless a corporation's certificate of incorporation
provides otherwise, the stockholders entitled to vote have the power to adopt,
amend or repeal the corporation's by-laws. The Inverness certificate of
incorporation and by-laws provide that the Inverness board of directors and
Inverness stockholders are each expressly authorized to amend or repeal the
Inverness by-laws. Such action by the Inverness stockholders requires the
affirmative vote of at least two-thirds of the shares present in person or
represented by proxy at the stockholders' meeting voting as a single class,
unless the Inverness board of directors recommends that the stockholders approve
such amendment or repeal, in which case such amendment or repeal only requires
the affirmative vote of a majority of the shares present in person or
represented by proxy at the stockholders' meeting.
ACTION BY WRITTEN CONSENT
JOHNSON & JOHNSON
Under New Jersey law, any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, upon the written consent of stockholders who would have been
entitled to cast the minimum number of votes which would be necessary to
authorize the action at a meeting at which all stockholders entitled to vote
thereon were present and voting; provided, however, that in case of an annual
meeting of stockholders for the election of directors, any consent in writing
must be unanimous.
INVERNESS
Under the Inverness certificate of incorporation, any action required or
permitted to be taken by the stockholders at any annual or special meeting of
stockholders must be effected at a duly called meeting of stockholders and may
not be effected by a written consent of stockholders.
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NOTICE OF STOCKHOLDER ACTIONS
JOHNSON & JOHNSON
New Jersey law and the Johnson & Johnson by-laws provide that written
notice of the time, place and purpose or purposes of every meeting of
stockholders must be given not less than 10 nor more than 60 days before the
date of the meeting, either personally or by mail, telegram or telex, to each
stockholder of record entitled to vote at the meeting. The Johnson & Johnson
by-laws further provide that the only matters that may be considered and acted
upon at an annual meeting of stockholders are those matters brought before the
meeting:
- through the notice of meeting
- by the Johnson & Johnson board of directors or
- by a stockholder of record entitled to vote at the meeting.
Generally, the Johnson & Johnson by-laws require a stockholder who intends to
bring matters before an annual meeting to provide advance notice of such
intended action not less than 120 days prior to the date of the proxy statement
relating to the prior year's annual meeting. The notice must contain a brief
description of the business desired to be brought before the meeting and must
identify any personal or other material interest of the stockholder in such
proposed business. The person presiding at the meeting will have the discretion
to determine whether any item of business was brought before such meeting in
compliance with the above procedures.
INVERNESS
The Inverness by-laws provide that a written notice of the place, date and
time of all meetings of stockholders shall be given not less than 10 days nor
more than 60 days before the date of the meeting by delivering the notice
personally or mailing it to each stockholder entitled to vote at the meeting. In
the case of a stockholder meeting where stockholders will vote on a merger of
Inverness, Delaware law requires notice to be provided to each stockholder not
less than 20 days prior to the meeting. The Inverness by-laws further provide
that the only matters that may be considered and acted upon at an annual meeting
of stockholders are those matters brought before the meeting:
- through the notice of meeting
- by the Inverness board of directors or
- by a stockholder of Inverness upon proper written notice.
Under the Inverness by-laws, a stockholder of Inverness may submit
proposals, including director nominations, before an annual meeting of the
stockholders by giving timely notice and by being present at the meeting either
in person or by a representative. The stockholder's notice must set forth, among
other things, a brief description of the business the stockholder desires to
bring before the annual meeting and the reasons for doing so, the name and
address of the stockholder advancing the proposal, any material interest of such
person in the proposal and any other information concerning the person making
such proposal and the proposal itself that is required by the appropriate rules
and regulations of the Securities and Exchange Commission to be included in a
proxy statement soliciting proxies for the proposal. If the proposal relates to
a director nomination, the notice must also include information regarding the
nominee. In order to be timely, notice of the proposal must be delivered by the
stockholder to the Secretary of Inverness not later than 75 days nor more than
120 days prior to the anniversary of the preceding year's annual meeting of
stockholders, except that if the date of the current year's annual meeting is
advanced by more than 30 days prior to, or delayed by more than 60 days after,
the anniversary of the preceding year's annual meeting, the notice must be
delivered not later than the close of business on the later of the 75th day
prior to the annual meeting or the 15th day following the date on which the date
of the current year's annual meeting was first publicly announced in order to be
timely.
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SPECIAL STOCKHOLDER MEETINGS
JOHNSON & JOHNSON
Under the Johnson & Johnson by-laws, a special meeting of the stockholders
may be called at any time by the chairman of the Johnson & Johnson board of
directors, a vice-chairman of the Johnson & Johnson board of directors, the
chairman of the executive committee, a vice-chairman of the executive committee,
the president or by a majority of the Johnson & Johnson board of directors, and
may be held on the business day and place stated in the notice of the meeting.
In addition, New Jersey law provides that holders of not less than 10% of
all shares entitled to vote at a meeting may apply to the New Jersey Superior
Court to request that a special meeting of the stockholders be called for good
cause shown. At such a meeting, the stockholders present in person or by proxy
will constitute a quorum for the transaction of business described in such
order.
INVERNESS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by other persons authorized by the certificate of
incorporation or the by-laws. The Inverness by-laws provide that special
meetings of the stockholders may only be called by the Inverness board of
directors. Only matters set forth in the notice of the special meeting may be
considered or acted upon at the special meeting, unless otherwise provided by
law.
STOCKHOLDER INSPECTION RIGHTS; STOCKHOLDER LISTS
JOHNSON & JOHNSON
Under New Jersey law, a stockholder who has been a stockholder for at least
six months or who holds, or is authorized in writing by holders of, at least 5%
of the outstanding shares of any class or series of stock of a corporation has
the right, for any proper purpose and upon at least five days' written notice,
to inspect in person or by agent or attorney the minutes of the proceedings of
the corporation's stockholders and its record of stockholders. Irrespective of
the period such stockholder has held his, her or its stock or the amount of
stock such stockholder holds, a court may, upon proof of proper purpose, compel
production for examination by the stockholder of the books and records of
account, minutes and record of stockholders of Johnson & Johnson.
INVERNESS
Under Delaware law, any stockholder, in person or by attorney or other
agent, may inspect for any proper purpose Inverness' stock ledger, a list of its
stockholders and its other books and records by serving the corporation with a
written demand, given under oath, that states his purpose for doing so. A proper
purpose is a purpose reasonably related to such person's interest as a
stockholder. A complete list of stockholders entitled to vote at any meeting of
stockholders must be open to the examination of any stockholder, for any purpose
germane to the meeting, for a period of at least 10 days prior to such meeting.
The list must also be kept at the place of the meeting during the whole time of
the meeting and may be inspected by any stockholder who is present at the
meeting.
LIMITATION OF PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
JOHNSON & JOHNSON
Under New Jersey law, a corporation may indemnify a director or officer
against his or her expenses and liabilities in connection with any proceeding
involving the director or officer by reason of his or her being or having been a
director or officer, other than a proceeding by or in the right of the
corporation, if:
- the director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and
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- with respect to any criminal proceeding, the director or officer had no
reasonable cause to believe his or her conduct was unlawful.
The Johnson & Johnson certificate of incorporation provides that, to the
full extent permitted under New Jersey law, no director or officer of Johnson &
Johnson will be personally liable to Johnson & Johnson or its stockholders for
damages for breach of any duty owed to Johnson & Johnson or its stockholders.
The Johnson & Johnson by-laws provide that to the full extent permitted
under New Jersey law, Johnson & Johnson will indemnify any person who was or is
involved in any manner in any threatened, pending or completed investigation,
claim, action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, legislative or investigative, or who is threatened with being so
involved, by reason of the fact that he or she is or was a director or officer
of Johnson & Johnson or, while serving as a director or officer of Johnson &
Johnson, is or was at the request of Johnson & Johnson also serving as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including attorneys'
fees), judgments, fines, penalties, excise taxes and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding.
Johnson & Johnson enters into indemnification agreements with its directors
and officers and enters into insurance agreements on its own behalf.
INVERNESS
The Inverness certificate of incorporation provides that no director shall
be held personally liable to Inverness or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
- for any breach of a director's duty of loyalty to Inverness or its
stockholders
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
- under appropriate Delaware statutory provisions for any unlawful payment
of dividends or unlawful stock purchase or redemption or
- for any transaction from which the director derived an improper personal
benefit.
The Inverness by-laws provide that, to the fullest extent authorized by
Delaware law, Inverness will indemnify any director or officer who was or is
made a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, because he or she is or
was a director or officer of Inverness or is or was serving at the request of
Inverness as a director, officer, employee or agent of another corporation or of
a partnership, joint venture, trust, employee benefit plan or other enterprise,
against all expenses (including attorneys' fees), judgments, penalties, fines
and amounts reasonably paid in settlement that are incurred by the director or
officer in connection with such proceeding, except that Inverness will indemnify
any such person seeking indemnification in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Inverness
board of directors. Such indemnification shall continue as to a person who has
ceased to be a director or officer and will inure to the benefit of his or her
heirs, executors and administrators.
The by-laws of Inverness also permit the board of directors, in its
discretion, to allow Inverness to indemnify, to the fullest extent authorized by
Delaware law, any non-officer employee of Inverness. The indemnification can be
for any expenses or other costs incurred by the employee in connection with any
proceeding in which he or she is involved as a result of serving or having
served as an employee of Inverness or, at the request of Inverness, as a
director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
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However, the Inverness by-laws also provide that no indemnification will be
provided by Inverness to any person unless a determination shall have been made
that the person acted in good faith and in a manner that the person reasonably
believed to be in or not opposed to the best interests of Inverness and, with
respect to any criminal proceeding, where the person had no reasonable cause to
believe his conduct was unlawful. This determination shall be made (1) by a
majority vote of the disinterested directors, (2) by the Inverness stockholders
or (3) at the direction of a majority of the disinterested directors, or if
there are no disinterested directors, by independent legal counsel in a written
opinion.
Inverness is also required to advance all expenses incurred by a director
in connection with any proceeding in which a director is involved by reason of
such director's status as a director, provided that the director delivers to
Inverness an undertaking, by or on behalf of the director, to repay all advanced
expenses in the event it is ultimately determined that the director is not
entitled to be indemnified against such expenses. Inverness may, in the
discretion of the Inverness board of directors, advance expenses to a person
that is or was an officer or employee of Inverness on the same terms and
conditions upon which it is required to advance expenses to a director.
The right to indemnification and advancement of expenses conferred by the
Inverness by-laws is a contractual right, and any repeal or modification of the
related provisions shall not affect any rights or obligations then existing. The
Inverness by-laws further provide that the rights to indemnification and
advancement of expenses set forth in the Inverness by-laws are not exclusive of
any other right which any person may have or acquire under any statute,
provision of the Inverness certificate of incorporation, by-laws, agreement,
vote of stockholders or disinterested directors or otherwise.
The Inverness by-laws also provide that Inverness may maintain insurance,
at its expense, to protect itself and any director, officer or employee of
Inverness against any liability whether or not Inverness would have the power to
indemnify that person against liability under Delaware law or the by-laws.
DIVIDENDS
JOHNSON & JOHNSON
The Johnson & Johnson certificate of incorporation provides that the
Johnson & Johnson board of directors may from time to time declare dividends on
its outstanding shares in accordance with New Jersey law.
INVERNESS
The Inverness certificate of incorporation provides that, subject to
applicable law, the Inverness board of directors may from time to time declare
dividends on its outstanding shares. Holders of common stock will share ratably
in any dividends declared by the Inverness board of directors, subject to the
preferential rights of any preferred stock then outstanding.
CONVERSION
JOHNSON & JOHNSON
Holders of Johnson & Johnson common stock have no rights to convert their
shares into any other securities.
INVERNESS
Holders of Inverness common stock have no rights to convert their shares
into any other securities.
VOTING RIGHTS; REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
JOHNSON & JOHNSON
Each holder of Johnson & Johnson common stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors.
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Merger or Consolidation. Under New Jersey law, the consummation of a
merger or consolidation of a New Jersey corporation organized prior to January
1, 1969, such as Johnson & Johnson, requires the approval of such corporation's
board of directors and the affirmative vote of two-thirds of the votes cast by
the holders of shares of the corporation entitled to vote thereon; however, no
such approval and vote are required if such corporation is the surviving
corporation and
- such corporation's certificate of incorporation is not amended
- the stockholders of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will hold
the same number of shares, with identical designations, preferences,
limitations, and rights, immediately after and
- the number of voting shares and participation shares outstanding after
the merger will not exceed by 40% the total number of voting or
participating shares of the surviving corporation before the merger.
Similarly, a sale of all or substantially all of such corporation's assets other
than in the ordinary course of business, or a voluntary dissolution of such
corporation, requires the approval of such corporation's board of directors and
the affirmative vote of two-thirds of the votes cast by the holders of shares of
such corporation entitled to vote thereon.
Business Combinations. Under New Jersey law, no New Jersey corporation may
engage in any "business combination" with any interested stockholder (generally,
a 10% or greater stockholder) for a period of five years following such
interested stockholder's stock acquisition, unless such business combination is
approved by the board of directors of such corporation prior to the stock
acquisition.
Under New Jersey law, "business combination" includes:
- any merger or consolidation of a resident domestic corporation or one of
its subsidiaries:
- with an interested stockholder or
- with any corporation which is, or would be after such merger or
consolidation, an affiliate or associate of an interested stockholder
- any transfer or other disposition to or with an interested stockholder or
any affiliate or associate of an interested stockholder of at least 10%
of (1) the assets, (2) the outstanding shares or (3) the earning power or
income, on a consolidated basis, of such resident domestic corporation
and
- other specified self-dealing transactions between such resident domestic
corporation and an interested stockholder or any affiliate or associate
thereof.
In addition, no resident domestic corporation may engage, at any time, in
any business combination with any interested stockholder of such corporation
other than:
- a business combination approved by the board of directors of such
corporation prior to the stock acquisition
- a business combination approved by the affirmative vote of the holders of
two-thirds of the voting stock not beneficially owned by such interested
stockholder at a meeting called for such purpose or
- a business combination in which the interested stockholder meets certain
fair price criteria.
In addition to the requirement under New Jersey law regarding business
combinations with an interested stockholder, the Johnson & Johnson certificate
of incorporation prohibits Johnson & Johnson from engaging in any "business
combination" with any interested stockholder (generally, a 10% or greater
stockholder) without (1) the affirmative vote of at least 80% of the votes
entitled to be cast by the holders of all then outstanding shares of Johnson &
Johnson voting stock, voting together as a single class, and (2) the affirmative
vote of a majority of the combined votes entitled to be cast by "disinterested
stockholders" (as defined in the all then outstanding shares of Johnson &
Johnson restated certificate of incorporation), voting together as a single
class; provided that any business combination will require only
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the approval required under New Jersey law if, among other things, such business
combination has been approved at any time by a majority of the "continuing
directors" (as defined in the Johnson & Johnson restated certificate of
incorporation) and certain fair price requirements are met.
The Johnson & Johnson certificate of incorporation defines "business
combination" to include:
- any merger or consolidation of Johnson & Johnson
- with an interested stockholder or
- with any other corporation which is, or after such merger or
consolidation would be, an affiliate or associate of an interested
stockholder
- any transfer or other disposition to or with any interested stockholder
or any affiliate or associate of an interested stockholder of any assets
or securities of Johnson & Johnson or any of its subsidiaries having an
aggregate fair market value of 5% of the total assets of Johnson &
Johnson and its subsidiaries
- the adoption of a plan of liquidation of Johnson & Johnson proposed by an
interested stockholder or any affiliate or associate of an interested
stockholder and
- any transaction which increases the capital stock beneficially owned by
an interested stockholder or any affiliate or associate of an interested
stockholder.
INVERNESS
Each holder of Inverness common stock is entitled to one vote for each
share held of record and may not cumulate votes for the election of directors.
Merger or Consolidation. Under Delaware law, mergers or consolidations or
sales or exchanges of all or substantially all of a corporation's assets or a
dissolution of the corporation require the affirmative vote of the board of
directors and the affirmative vote of a majority of outstanding shares of the
corporation's capital stock entitled to vote on the matter (except in certain
limited circumstances).
Under Delaware law, no vote of the stockholders of a constituent
corporation surviving a merger shall be necessary to authorize a merger if:
- the merger agreement does not amend in any respect such constituent
corporation's certificate of incorporation
- each share of stock of such constituent corporation outstanding
immediately prior to the merger remains an identical outstanding share of
the surviving corporation after the merger and
- such constituent corporation does not issue in the merger more than 20%
of its outstanding shares immediately prior to the merger.
Business Combinations. Inverness is subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination
- upon the closing of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who are also
officers of the corporation and shares held by employee stock plans or
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- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a corporation's outstanding voting stock.
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to
effect various business combinations with a corporation for a three-year period.
A Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither the
Inverness certificate of incorporation nor the Inverness by-laws contain any
such provision.
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OTHER PROPOSALS
APPROVAL OF THE INVERNESS MEDICAL INNOVATIONS, INC. 2001 STOCK OPTION AND
INCENTIVE PLAN
The Innovations board of directors has adopted, and Inverness, as the sole
stockholder of Innovations prior to the sale of restricted stock described
below, has approved the Inverness Medical Innovations, Inc. 2001 Stock Option
and Incentive Plan. The Inverness board of directors is recommending the
Innovations stock option plan to the stockholders for approval because the board
believes that the stock options and stock-based awards allowed by the plan will
help Innovations attract, motivate and retain the caliber of directors,
officers, employees and other key persons necessary for its future growth and
success.
The Innovations stock option plan would authorize Innovations to issue up
to -- shares of its common stock pursuant to various stock incentive awards. The
number of shares of Innovations common stock reserved for issuance under the
stock option plan is subject to adjustment for stock splits, stock dividends and
similar events.
Section 162(m) of the Internal Revenue Code generally would disallow a
federal income tax deduction to Innovations for compensation in excess of $1
million paid in any year to any executive officer included in the summary
compensation table who is employed by Innovations on the last day of its fiscal
year, referred to as "covered employees." However, this limitation on
compensation expense does not apply to payments of "performance-based
compensation," the material terms of which have been approved by stockholders.
To satisfy the performance-based compensation requirements of Section 162(m) of
the Internal Revenue Code, stock options with respect to no more than -- shares
of Innovations common stock, subject to adjustment for stock splits and similar
events, may be granted to any one individual during any one calendar year.
SUMMARY OF THE INNOVATIONS STOCK OPTION PLAN. The following description of
material terms of the Innovations stock option plan is intended to be a summary
only. This summary is qualified in its entirety by the full text of the
Innovations stock option plan which is attached as Annex 9 to this proxy
statement/prospectus.
Administration. The Innovations stock option plan provides for
administration by the Innovations board of directors or by a committee of not
fewer than two independent directors, referred to as the "administrator," as
appointed by the Innovations board of directors from time to time.
The administrator has full power to select, from among the individuals
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the Innovations stock
option plan. The administrator may permit Innovations common stock, and other
amounts payable pursuant to an award, to be deferred. In such instances, the
administrator may permit interest, dividends or deemed dividends to be credited
to the amount of deferrals.
Eligibility and Limitations on Grants. All officers, employees, directors,
consultants and other key persons of Innovations are eligible to participate in
the Innovations stock option plan, subject to the discretion of the
administrator. In no event may any one participant receive options to purchase
more than -- shares of Innovations common stock, subject to adjustment for stock
splits and similar events, during any one calendar year, as stated above.
Approximately -- individuals are potentially eligible to participate in the
Innovations stock option plan.
Stock Options. Options granted under the Innovations stock option plan may
be either incentive stock options, referred to as "incentive options," (within
the definition of Section 422 of the Internal Revenue Code), or non-qualified
stock options, referred to as "non-qualified options." Options granted under the
Innovations stock option plan will be non-qualified options if they (i) fail to
meet the Internal Revenue Code definition of incentive options, (ii) are granted
to a person not eligible to receive incentive options under the Internal Revenue
Code or (iii) otherwise so provide. Incentive options may be granted only to
officers or other employees of Innovations or its subsidiaries. Non-qualified
options may be granted to persons eligible to receive incentive options and to
non-employee directors and other key persons.
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Other Option Terms. The administrator has authority to determine the terms
of options granted under the Innovations stock option plan. Generally, options
are granted with an exercise price that is not less than the fair market value
of the shares of Innovations common stock on the date of the option grant.
The life of each option will be fixed by the administrator and may not
exceed ten years from date of grant. The administrator will determine at what
time or times each option may be exercised and the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the administrator. In general,
unless otherwise permitted by the administrator, no option granted under the
Innovations stock option plan is transferable by the optionee other than by will
or by the laws of descent and distribution, and options may be exercised during
the optionee's lifetime only by the optionee, or by the optionee's legal
representative or guardian in the case of the optionee's incapacity.
Options granted under the Innovations stock option plan may be exercised
for cash or by transfer to Innovations (either actually or by attestation) of
shares of Innovations common stock which are not then subject to restrictions
under any Innovations stock plan, which have been held by the optionee for at
least six months or were purchased on the open market, and which have a fair
market value equivalent to the option exercise price of the shares being
purchased, or by compliance with certain provisions pursuant to which a
securities broker delivers the purchase price for the shares to Innovations.
At the discretion of the administrator, stock options granted under the
Innovations stock option plan may include a "reload" feature pursuant to which
an optionee exercising an option by the delivery of shares of Innovations common
stock would automatically be granted an additional stock option (with an
exercise price equal to the fair market value of the Innovations common stock on
the date the additional stock option is granted) to purchase that number of
shares of Innovations common stock equal to the number delivered to exercise the
original stock option. The purpose of this feature is to enable participants to
maintain any equity interest in Innovations without dilution.
To qualify as incentive options, options must meet additional federal tax
requirements, including a $100,000 limit on the value of shares subject to
incentive options which first become exercisable in any one calendar year, and a
shorter term and higher minimum exercise price in the case of certain large
stockholders.
Restricted Stock Awards. The administrator may grant or sell shares (at
par value or for a higher purchase price determined by the administrator) of
Innovations common stock to any participant subject to such conditions and
restrictions as the administrator may determine. These conditions and
restrictions may include the achievement of pre-established performance goals
and/or continued employment with Innovations through a specified vesting period.
The vesting period shall be determined by the administrator but shall be at
least one year for attainment of pre-established performance goals or at least
three years for other conditions and restrictions. If the applicable performance
goals and other restrictions are not attained, the participant will forfeit his
or her award of restricted stock.
Unrestricted Stock Awards. The administrator may also grant shares of
Innovations common stock which are free from any restrictions under the
Innovations stock option plan. Unrestricted stock may be granted to any
participant in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation due to such participant.
Deferred Stock Awards. The administrator may also award phantom stock
units as deferred stock awards to participants. The deferred stock awards are
ultimately payable in the form of shares of Innovations common stock and may be
subject to such conditions and restrictions as the administrator may determine.
These conditions and restrictions may include the achievement of certain
performance goals and/or continued employment with Innovations through a
specified vesting period. During the deferral period, subject to terms and
conditions imposed by the administrator, the deferred stock awards may be
credited with dividend equivalent rights. Subject to the consent of the
administrator, a participant may make an advance election to receive a portion
of his compensation or restricted stock award otherwise due in the form of a
deferred stock award.
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Performance Share Awards. The administrator may grant performance share
awards to any participant which entitle the recipient to receive shares of
Innovations common stock upon the achievement of individual or company
performance goals and such other conditions as the administrator shall
determine.
Dividend Equivalent Rights. The administrator may grant dividend
equivalent rights, which entitle the recipient to receive credits for dividends
that would be paid if the grantee had held specified shares of common stock.
Dividend equivalent rights may be granted as a component of another award or as
a freestanding award.
Change of Control Provisions. The Innovations stock option plan provides
that in the event of a "change of control" as defined in the Innovations stock
option plan, all stock options will automatically become fully exercisable. The
restrictions and conditions on all other awards will automatically be deemed
waived.
Adjustments for Stock Dividends, Mergers, etc. The Innovations stock
option plan authorizes the administrator to make appropriate adjustments to the
number of shares of Innovations common stock that are subject to the Innovations
stock option plan and to any outstanding stock options to reflect stock
dividends, stock splits and similar events. In the event of certain
transactions, such as a merger, consolidation, dissolution or liquidation of
Innovations, the plan and all awards will terminate unless the parties to the
transaction, in their discretion, provide for appropriate substitutions or
adjustments of outstanding stock options or awards. Before any outstanding stock
options and awards will terminate, the option holder will have an opportunity to
exercise all outstanding options, and holders of other awards will receive a
cash or in kind payment of such appropriate consideration as determined by the
administrator in its sole discretion after taking into account the consideration
payable per share of Innovations common stock pursuant to the business
combination.
Repricing Awards. The exercise price of an award may be reduced only upon
a finding by the administrator that the value of such awards has been
jeopardized by extreme circumstances beyond the control of management, and, in
such a case, not more than 10% of the shares authorized for grant under the plan
may be repriced.
Amendments and Termination. The Innovations board of directors may at any
time amend or discontinue the Innovations stock option plan and the
administrator may at any time amend or cancel any outstanding award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect the rights under any outstanding awards
without the holder's consent. To the extent required by the Internal Revenue
Code to ensure that options granted under the Innovations stock option plan
qualify as incentive options or that compensation earned under Innovations stock
options granted under the stock option plan qualify as performance-based
compensation under the Internal Revenue Code, plan amendments shall be subject
to approval by Innovations stockholders.
NEW PLAN BENEFITS -- RESTRICTED STOCK SALE. Pursuant to the Innovations
stock option plan, on August --, 2001, Innovations sold 1,168,191 shares of
restricted stock to Ron Zwanziger, Chairman and Chief Executive Officer of
Innovations, at a price of $9.13 per share. Mr. Zwanziger paid for the shares
using the proceeds of a five-year promissory note from Mr. Zwanziger to
Innovations. The note accrues interest which compounds annually at the rate of
4.99% per year. Both principal and interest are payable at the end of the
five-year term, unless repaid earlier. The promissory note is 75% non-recourse
as to principal and full recourse as to the remaining principal and all
interest. Two-thirds of these shares of restricted stock, or 778,794 shares,
vest in 36 equal monthly installments beginning on the last day of the calendar
month in which the split-off occurs. Vesting on these 778,794 shares will also
accelerate in the event of death, disability or actual or constructive
termination without cause. One-third of these shares of restricted stock, or
389,397 shares, vests in 48 equal monthly installments beginning on the last day
of the calendar month in which the split-off occurs. Any non-vested shares
forfeited by Mr. Zwanziger will be subject to repurchase by Innovations at cost.
If Inverness stockholders do not approve the Innovations stock option plan or
the Innovations executive bonus plan, all shares sold will be repurchased by
Innovations at cost.
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NEW PLAN BENEFITS -- OPTION GRANTS. Pursuant to the Innovations stock
option plan, on August --, 2001, Innovations granted options to purchase shares
of Innovations common stock to certain executive officers of Innovations. It is
anticipated that these options will be exercised within a few months after the
split-off. The following table sets forth certain information regarding these
options.
NEW PLAN BENEFITS
NUMBER OF SHARES
ISSUABLE ON EXERCISE EXERCISE
NAME AND POSITION OF OPTIONS PRICE
----------------- -------------------- --------
David Scott, Ph.D. ......................................... 399,381 $6.20
Chief Scientific Officer
Jerry McAleer, Ph.D. ....................................... 379,413 $6.20
Vice President, Research and Development
These options will expire on January 31, 2002. The exercise price of these
options may be paid using the proceeds of a five-year promissory note from the
optionee to Innovations. Each note will accrue interest which compounds annually
at the applicable federal rate for a five-year note for the month in which the
option is exercised. Both principal and interest will be payable at the end of
the five-year term, unless repaid earlier. The promissory note of each executive
will be 75% non-recourse as to principal and full recourse as to the remaining
principal and all interest. Upon exercise, the shares of Innovations common
stock purchased will vest in 36 equal monthly installments beginning on the last
day of the calendar month in which the option is exercised. Vesting on these
shares will also accelerate in the event of death, disability or actual or
constructive termination without cause. Upon termination of employment, any
non-vested shares will be subject to repurchase by Innovations at their then
fair market value. In the event that the executive has not purchased all of the
shares underlying the option by the expiration date, Innovations will grant the
executive a new option for the number, if any, of unpurchased shares underlying
the original option. This new option will have a ten-year term, will become
exercisable in 36 equal monthly installments and will have a per share exercise
price equal to the greater of the per share exercise price of the original
option or the fair market value of a share of Innovations common stock on the
date of the grant. Exercisability of these options will accelerate in the event
of death, disability or actual or constructive termination without cause. The
exercise price of the new option may be paid using the proceeds of a five-year
promissory note which will have terms similar to those discussed above.
Innovations has also agreed to grant additional options to these executive
officers immediately following the split-off. The following table sets forth
certain information regarding these options.
NEW PLAN BENEFITS
NUMBER OF SHARES
ISSUABLE ON EXERCISE EXERCISE
NAME OF OPTIONS PRICE
---- -------------------- --------
David Scott, Ph.D. ......................................... 199,691 $15.00
Jerry McAleer, Ph.D. ....................................... 189,706 $15.00
These options will have a ten-year term and will become exercisable in 48
equal monthly installments. The exercise price of these options may be paid
using the proceeds of a five-year promissory note which will have terms similar
to those discussed above.
If Inverness stockholders do not approve the Innovations stock option plan
or the Innovations executive bonus plan, the options granted on August --, 2001
will be canceled and the additional options will not be granted immediately
following the split-off.
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the
principal federal income tax consequences of transactions under the Innovations
stock option plan. It does not describe all federal tax consequences under the
Innovations stock option plan, nor does it describe state or local tax
consequences.
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Incentive options. No taxable income is generally realized by the optionee
upon the grant or exercise of an incentive option. If shares of Innovations
common stock issued to an optionee pursuant to the exercise of an incentive
option are sold or transferred after two years from the date of grant and after
one year from the date of exercise, then (i) upon sale of such shares, any
amount realized in excess of the option price (the amount paid for the shares)
will be taxed to the optionee as a long-term capital gain, and any loss
sustained will be a long-term capital loss, and (ii) there will be no deduction
for Innovations for federal income tax purposes. The exercise of an incentive
option will give rise to an item of tax preference that may result in
alternative minimum tax liability for the optionee.
If shares of Innovations common stock acquired upon the exercise of an
incentive option are disposed of prior to the expiration of the two-year and
one-year holding periods described above, a "disqualifying disposition",
generally (i) the optionee will realize ordinary income in the year of
disposition in an amount equal to the excess, if any, of the fair market value
of the shares of Innovations common stock at exercise (or, if less, the amount
realized on a sale of such shares of Innovations common stock) over the option
price thereof, and (ii) Innovations will be entitled to deduct such amount.
Special rules will apply where all or a portion of the exercise price of the
incentive option is paid by tendering shares of Innovations common stock.
If an incentive option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a non-qualified
option. Generally, an incentive option will not be eligible for the tax
treatment described above if it is exercised more than three months following
termination of employment (or one year in the case of termination of employment
by reason of disability). In the case of termination of employment by reason of
death, the three-month rule does not apply.
Non-Qualified Options. With respect to non-qualified options under the
Innovations stock option plan, no income is realized by the optionee at the time
the option is granted. Generally (i) at exercise, ordinary income is realized by
the optionee in an amount equal to the difference between the option price and
the fair market value of the shares of Innovations common stock on the date of
exercise, and Innovations receives a tax deduction for the same amount, and (ii)
at disposition, appreciation or depreciation after the date of exercise is
treated as either short-term or long-term capital gain or loss depending on how
long the shares of Innovations common stock have been held. Special rules will
apply where all or a portion of the exercise price of the non-qualified option
is paid by tendering shares of Innovations common stock.
Parachute Payments. The vesting or exercisability of any portion of any
option or other award that is accelerated due to the occurrence of a change of
control may cause a portion of the payments with respect to such accelerated
awards to be treated as "parachute payments" as defined in the Internal Revenue
Code. Any such parachute payments may be non-deductible to Innovations, in whole
or in part, and may subject the recipient to a non-deductible 20% federal excise
tax on all or a portion of such payment (in addition to other taxes ordinarily
payable).
Limitation on Innovations Deductions. As a result of Section 162(m) of the
Internal Revenue Code, Innovations' deduction for certain awards under the stock
option plan may be limited to the extent that a covered employee receives
compensation in excess of $1,000,000 in such taxable year of Innovations (other
than performance-based compensation that otherwise meets the requirements of
Section 162(m) of the Internal Revenue Code).
VOTE REQUIRED FOR APPROVAL. Approval of this proposal requires the
affirmative vote of stockholders holding a majority of the shares of Inverness
common stock present in person or represented by proxy at the special meeting
and entitled to vote on this proposal. Abstentions will be counted as present
and entitled to vote and, accordingly, will have the effect of votes against the
approval of the stock option plan. Broker non-votes will not be considered
present and entitled to vote and, accordingly, will not have any effect on this
proposal. Properly executed proxies that do not contain voting instructions will
be voted "FOR" the approval of this proposal.
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THE INVERNESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE INNOVATIONS STOCK OPTION PLAN.
APPROVAL OF THE INVERNESS MEDICAL INNOVATIONS, INC. EXECUTIVE BONUS PLAN
The Innovations board of directors has adopted the Innovations executive
bonus plan pursuant to which certain key executives of Innovations may be
entitled to annual cash bonuses if shares of Innovations common stock attain
certain targeted prices per share.
The Innovations board of directors believes the Innovations executive bonus
plan will advance the interest of Innovations and its stockholders by enabling
Innovations to align the long-term financial incentives of its executive
officers with increases in stockholder value. If stockholders do not approve the
Innovations executive bonus plan, the Innovations executive bonus plan will be
rescinded and no payments will be made under the Innovations executive bonus
plan. However, Innovations reserves the right to provide other forms of
incentive payments to its key executives which may not be deductible to
Innovations.
Section 162(m) of the Internal Revenues Code generally would disallow
Innovations a federal tax deduction for compensation in excess of $1 million
paid in any fiscal year to any executive officer included in the summary
compensation table who is employed by Innovations on the last day of its fiscal
year. This limitation on deductibility does not apply to payments of
"performance-based compensation," the material terms of which have been approved
by the stockholders. As stated above, the bonus plan is designed to align the
long-term financial incentives of its executive officers with increases in
stockholder value, while assuring that bonus payments to the executive officers
from the bonus plan each year constitute "performance-based compensation" under
Section 162(m) of the Internal Revenue Code.
SUMMARY OF THE INNOVATIONS EXECUTIVE BONUS PLAN. The primary features of
the Innovations executive bonus plan are summarized below:
The Innovations executive bonus plan will be administered by the
Innovations compensation committee, which is composed of "outside directors"
within the meaning of Section 162(m) of the Internal Revenue Code. Three key
executives. Ron Zwanziger, David Scott and Jerry McAleer, are eligible to
receive bonuses under the Innovations executive bonus plan.
The Inverness compensation committee has established certain stock price
targets, which may be adjusted to reflect stock splits. The key executives will
be eligible to receive the performance bonuses set forth in Table I below if the
Innovations common stock achieves specified stock price targets. The key
executives will be eligible to receive the additional performance bonuses set
forth in Table II below if the Innovations common stock achieves higher
specified stock price targets. With respect to each cash bonus listed in the
tables below, each key executive will be entitled to receive that bonus if the
average closing price of Innovations common stock during any 30-day period
exceeds:
- the price per share target for a particular cash bonus on or prior to its
target date or
- any higher price per share target for any other cash bonus having a later
target date on or prior to said later target date.
At the end of each calendar year, the Innovations compensation committee
will certify in writing whether the price per share target has been achieved. If
the price per share target or targets have been
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achieved, bonuses earned will be paid in cash in January of the following year
pursuant to the following tables:
TABLE I
MAXIMUM CASH BONUSES PAYABLE
IF PRICE PER SHARE TARGET IS ACHIEVED
TARGET PRICE -----------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.................. $28.125 $2,400,000 $850,000 $800,000
December 31, 2003.................. 33.75 2,400,000 850,000 800,000
December 31, 2004.................. 39.375 2,400,000 850,000 800,000
TABLE II
MAXIMUM CASH BONUSES PAYABLE
IF PRICE PER SHARE TARGET IS ACHIEVED
TARGET PRICE -----------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.................. $ 33.75 $ 900,000 $750,000 $725,000
December 31, 2003.................. 45.00 900,000 750,000 725,000
December 31, 2004.................. 56.25 900,000 750,000 725,000
December 31, 2005.................. 67.50 900,000 750,000 725,000
The Innovations compensation committee has the right to amend the
Innovations executive bonus plan, but any amendment that would (i) increase the
maximum bonus that might be payable to any key executive, or (ii) establish
different performance targets, is subject to further stockholder approval in
order for the bonus payments to the key executives to constitute
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code.
VOTE REQUIRED FOR APPROVAL. Approval of this proposal requires the
affirmative vote of stockholders holding a majority of the shares of Inverness
common stock present in person or represented by proxy at the special meeting
and entitled to vote on this proposal. Abstentions will be counted as present
and entitled to vote and, accordingly, will have the effect of votes against the
approval of the Innovations executive bonus plan. Broker non-votes will not be
considered present and entitled to vote and, accordingly, will not have any
effect on this proposal. Properly executed proxies that do not contain voting
instructions will be voted "FOR" the approval of this proposal.
THE INVERNESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE INNOVATIONS EXECUTIVE BONUS PLAN.
LEGAL MATTERS
The legality of Johnson & Johnson common stock offered by this proxy
statement/prospectus will be passed upon for Johnson & Johnson by Joseph S.
Orban, Esq., Associate General Counsel of Johnson & Johnson. Joseph S. Orban is
paid a salary by Johnson & Johnson, is a participant in various employee benefit
plans offered to employees of Johnson & Johnson generally and owns and has
options to purchase shares of Johnson & Johnson common stock.
Certain United States Federal income tax consequences of the split-off and
merger will be passed upon for Inverness by its counsel, Goodwin Procter LLP.
Goodwin Procter LLP from time to time acts as counsel for Inverness and its
subsidiaries. The owners and presidents of two professional corporations which
are partners in the firm of Goodwin Procter LLP beneficially own an aggregate of
approximately 50,142 shares of Inverness common stock and 3,995 shares of
Inverness common stock, respectively.
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EXPERTS
The supplemental consolidated financial statements as of December 31, 2000
and January 2, 2000, and for each of the three fiscal years in the period ended
December 31, 2000 of Johnson & Johnson and subsidiaries incorporated in this
proxy statement/prospectus by reference to the Johnson & Johnson Current Report
on Form 8-K filed on August 7, 2001, and the historical consolidated financial
statements and financial statement schedule of Johnson & Johnson and
subsidiaries as of December 31, 2000 and January 2, 2000, and for each of the
three fiscal years in the period ended December 31, 2000, which are included in
or incorporated by reference in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, which has also been incorporated by reference in
this proxy statement/prospectus, have been so incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Inverness Medical Technology, Inc.
(formerly Selfcare, Inc.) and its subsidiaries as of December 31, 2000 and 1999,
and for each of the three years in the period ended December 31, 2000,
incorporated by reference in this proxy statement/prospectus and elsewhere in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference in this proxy statement/prospectus in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of Integ Incorporated as of December 31, 2000 and
1999, and for each of the years in the three-year period ended December 31,
2000, incorporated in this proxy statement/ prospectus and elsewhere in this
registration statement by reference to Inverness Medical Technology, Inc.'s
Current Report on Form 8-K/A filed on April 9, 2001, have been audited by Ernst
& Young LLP, independent auditors, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The financial statements of LXN Corporation as of and for the year ended
December 31, 2000, incorporated by reference in this proxy statement/prospectus
and elsewhere in this registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The financial statements of LXN Corporation as of and for the year ended
December 31, 1999, incorporated in this proxy statement/prospectus and elsewhere
in this registration statement by reference to Inverness Medical Technology,
Inc.'s Current Report on Form 8-K/A filed on June 11, 2001, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Inverness board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
FUTURE STOCKHOLDER PROPOSALS
Inverness' 2001 annual meeting of stockholders was held on May 21, 2001.
Inverness will hold a 2002 annual meeting of Inverness stockholders only if the
split-off and merger are not completed before the time of such meeting.
Inverness stockholders who wish to present proposals pursuant to Rule 14a-8
promulgated under the Securities Exchange Act for consideration at the 2002
annual meeting, if one is held, must submit the proposals in proper form to
Inverness at its address set forth in this proxy
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statement/prospectus not later than December 19, 2001 in order for the proposals
to be considered for inclusion in Inverness' proxy statement and form of proxy
relating to the 2002 annual meeting.
Stockholder proposals intended to be presented at Inverness' 2002 annual
meeting submitted outside the processes of Rule 14a-8 must be received in
writing by Inverness no later than March 7, 2002, nor earlier than January 21,
2002, together with all supporting documentation required by Inverness' amended
and restated by-laws.
WHERE YOU CAN FIND MORE INFORMATION
Johnson & Johnson and Inverness file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that Johnson & Johnson and Inverness file with the Securities and Exchange
Commission at the Securities and Exchange Commission's public reference rooms at
the following locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the website maintained by the Securities and Exchange
Commission at "http://www.sec.gov". Reports, proxy statements and other
information concerning Johnson & Johnson may also be inspected at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
Reports, proxy statements and other information concerning Inverness may also be
inspected at the offices of the American Stock Exchange, which are located at
1735 K Street, N.W., Washington, D.C. 20006.
Johnson & Johnson filed a registration statement on Form S-4 on August 13,
2001 to register with the Securities and Exchange Commission the Johnson &
Johnson common stock to be issued to Inverness stockholders in the merger.
Innovations filed a registration statement on Form S-4 on August 13, 2001 to
register with the Securities and Exchange Commission the Innovations common
stock to be issued to Inverness stockholders in the split-off. This proxy
statement/prospectus is a part of each of those registration statements and
constitutes a prospectus of Johnson & Johnson and a prospectus of Innovations in
addition to being a proxy statement of Inverness. As allowed by Securities and
Exchange Commission rules, this proxy statement/prospectus does not contain all
the information you can find in Johnson & Johnson's or Innovations' registration
statement or the exhibits to those registration statements.
The Securities and Exchange Commission allows Johnson & Johnson and
Inverness to "incorporate by reference" information into this proxy
statement/prospectus, which means that the companies can disclose important
information to you by referring you to other documents filed separately with the
Securities and Exchange Commission. The information incorporated by reference is
considered part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus
or in later filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that Johnson & Johnson and Inverness have previously filed with the
Securities and Exchange Commission. These documents contain important business
and financial information about Johnson & Johnson and Inverness that is not
included in or delivered with this proxy statement/prospectus.
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JOHNSON & JOHNSON FILINGS PERIOD
(FILE NO. 001-03215)
Annual Report on Form 10-K.................. Fiscal Year ended December 31, 2000, as
amended by Amendment No. 1 thereto filed on
Form 10-K/A on June 28, 2001
Quarterly Report on Form 10-Q............... Quarter ended April 1, 2001
Current Report on Form 8-K.................. Filed on August 7, 2001
INVERNESS FILINGS PERIOD
(FILE NO. 000-20871)
Annual Report on Form 10-K.................. Fiscal Year ended December 31, 2000
Quarterly Report on Form 10-Q............... Quarter ended March 31, 2001
Current Reports on Form 8-K................. Filed on February 7, 2001 (and amendments
thereto), April 12, 2001 (and amendments
thereto) and June 18, 2001
Proxy Statement for 2001 annual meeting of
stockholders.............................. Dated April 18, 2001
The description of Inverness common stock
contained in its Registration Statement on
Form 8-A, and all amendments and reports
updating the description.................... Filed on July 24, 1996
Johnson & Johnson and Inverness also incorporate by reference additional
documents that may be filed with the Securities and Exchange Commission under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this
proxy statement/prospectus and, in the case of Johnson & Johnson, the date of
the completion of the split-off and merger, and, in the case of Inverness, the
date of the special meeting of Inverness' stockholders. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Johnson & Johnson has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Johnson & Johnson and
Inverness has supplied all such information relating to Inverness and
Innovations.
Inverness stockholders should not send in their Inverness certificates
until they receive the transmittal materials from the exchange agent. Inverness
stockholders of record who have further questions about their share certificates
or the exchange of their Inverness common stock for Johnson & Johnson common
stock and Innovations common stock should contact the exchange agent at the
address or telephone number that will be included in the transmittal materials.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through the companies,
the Securities and Exchange Commission or the Securities and Exchange
Commission's website as described above. Documents incorporated by reference are
available from the companies without charge, excluding all exhibits, except that
if the companies have specifically incorporated by reference an exhibit in this
proxy statement/prospectus, the exhibit will also be provided without charge.
Stockholders may obtain documents incorporated by reference in this proxy
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statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
Johnson & Johnson Inverness Medical Technology, Inc.
One Johnson & Johnson Plaza 51 Sawyer Road, Suite 200
New Brunswick, NJ 08933 Waltham, MA 02453
Attention: Corporate Secretary's Office Attention: Investor Relations
Telephone: (732) 524-2455 Telephone: (781) 647-3900
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated --, 2001.
You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this proxy statement/prospectus to stockholders nor the issuance
of Johnson & Johnson common stock or Innovations common stock in the split-off
and merger creates any implication to the contrary.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business strategies,
operating efficiencies or synergies, competitive positions, growth opportunities
for existing products, plans and objectives of management, markets for stock of
Johnson & Johnson and Inverness and other matters. Statements in this proxy
statement/prospectus that are not historical facts are hereby identified as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the Securities Act. Such
forward-looking statements, including, without limitation, those relating to the
future business prospects, revenues and income, in each case relating to Johnson
& Johnson and Inverness, wherever they occur in this proxy statement/prospectus,
are necessarily estimates reflecting the best judgment of the senior management
of Johnson & Johnson (with regard to matters relating to Johnson & Johnson) and
Inverness (with regard to matters relating to Inverness) and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this proxy statement/prospectus. Important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include without
limitation:
- competitive factors, including technological advances achieved and
patents attained by competitors and generic competition as patents on
Johnson & Johnson's and Inverness' products expire
- government laws and regulations affecting domestic and foreign
operations, including those relating to trade, monetary and fiscal
policies, taxes, price controls, regulatory approval of new products and
licensing and
- risks and uncertainties described in Johnson & Johnson's and Inverness'
reports filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, including those risks and uncertainties
described in each company's Annual Report on Form 10-K for the year ended
December 31, 2000, as amended.
Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated by reference,
including, but not limited to, the Annual Report on Form 10-K for the year ended
December 31, 2000 of Johnson & Johnson, including any amendments, and the Annual
Report on Form 10-K for the year ended December 31, 2000 of Inverness, including
any amendments. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. Neither
Johnson & Johnson nor Inverness undertakes any obligation to publicly update or
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this proxy statement/ prospectus or to reflect
the occurrence of unanticipated events.
The foregoing list sets forth some, but not all, of the factors that could
impact upon Johnson & Johnson's and Inverness' ability to achieve results
described in any forward-looking statements. Investors are cautioned not to
place undue reliance on such statements, which speak only as of the date made.
Investors also should understand that it is not possible to predict or identify
all such factors and that this list should not be considered a complete
statement of all potential risks and uncertainties. Investors should also
realize that if underlying assumptions prove inaccurate or unknown risks or
uncertainties materialize, actual results could vary materially from Johnson &
Johnson's and Inverness' projections. Johnson & Johnson and Inverness undertake
no obligation to update any forward-looking statements as a result of future
events or developments.
For information regarding forward-looking statements relating to
Innovations, see "Special Statement Regarding Forward-Looking Statements" on
page X-18 of the Innovations prospectus portion of this proxy
statement/prospectus.
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This Inverness Medical Innovations, Inc. prospectus should be attached to the
proxy statement/prospectus and is a part of the proxy statement/prospectus.
The offer or sale of our common stock in those states where the offer is
required by state laws to be made by a licensed broker or dealer are deemed to
be made to Inverness Medical Technology, Inc.'s stockholders residing in those
states by --, a registered broker or dealer licensed under the laws of those
states, as an accommodation to, and on behalf of, Inverness Medical Technology,
Inc. and Inverness Medical Innovations, Inc. Questions and requests for
assistance or for additional copies of this prospectus and related materials may
be directed to Investor Relations, Inverness Medical Technology, Inc., 51 Sawyer
Road, Suite 200, Waltham, MA 02453, or by telephone at (781) 647-3900.
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INVERNESS MEDICAL INNOVATIONS, INC. PROSPECTUS
The information in this Innovations prospectus, which is a part of the
proxy statement/prospectus, relates to Innovations and the shares of Innovations
common stock to be issued to holders of Inverness common stock in connection
with the split-off.
PROSPECTUS SUMMARY
This summary highlights selected information regarding Innovations and the
issuance of Innovations common stock to the holders of Inverness common stock,
which we refer to as the split-off. You should read this entire prospectus,
including our financial statements and the notes to our financial statements,
for more detailed information relating to the split-off and Innovations. Unless
otherwise indicated, references in this prospectus to "Innovations," "us," "we,"
and "our" refer to Inverness Medical Innovations, Inc. and its subsidiaries and
assume the completion of (1) the restructuring of Inverness, involving the
separation of the women's health, nutritional supplements and clinical
diagnostics businesses of Inverness from the other businesses of Inverness,
which consist primarily of its diabetes care products business, and (2) the
merger, including the split-off. Unless otherwise indicated, references to
"Inverness" refer to Inverness Medical Technology, Inc. and its subsidiaries
prior to the restructuring, split-off and merger.
This prospectus contains forward-looking statements. You can identify these
statements by forward-looking words such as "may," "could," "should," "would,"
"intend," "will," "expect," "anticipate," "believe," "estimate," "continue" or
similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial condition or state other
"forward-looking" information. There may be events in the future that we are not
able to predict accurately or control and that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. We caution investors that all forward-looking statements involve
risks and uncertainties, and actual results may differ materially from those we
discuss in this prospectus as a result of various factors, including those
factors described in the sections of this prospectus entitled "Risk Factors" and
"Special Statement Regarding Forward-Looking Statements." Readers should not
place undue reliance on our forward-looking statements. Before you invest in our
common stock, you should be aware that the occurrence of the events described in
the "Risk Factors" section and elsewhere in this prospectus could harm our
business, prospects, operating results and financial condition. We do not
undertake or intend to update any forward-looking statements after the date of
this prospectus.
INNOVATIONS
We are currently a majority-owned subsidiary of Inverness. Upon completion
of the restructuring, we will operate the women's health, nutritional
supplements and clinical diagnostics businesses of Inverness, which we refer to
as the Innovations business. After the split-off, we will be an independent,
publicly owned company. As noted above, except where otherwise indicated,
discussions in this prospectus regarding Innovations' business and operations
assume the completion of the restructuring and the split-off.
We develop, manufacture and market self-test diagnostic and other products
for the women's health market and, to a lesser extent, clinical diagnostic
products for the infectious disease market. Self-test diagnostic products allow
individuals to obtain accurate information regarding various medical conditions
on a confidential, non-prescription basis, without the expense, inconvenience
and delay associated with physician visits or laboratory testing. This
information gives individuals greater control over their health and their lives,
allowing them to make informed decisions and take action to protect their
health, alone or in consultation with healthcare professionals. Our existing
self-test products are targeted at the women's health market, one of the two
largest existing markets for self-care diagnostics, and include home pregnancy
detection tests and ovulation prediction tests. We also sell a line of
nutritional supplements targeted primarily at the women's health market. Our
products for the infectious disease market include test kits used by smaller
laboratories, physicians' offices and other point-of-care sites for the
detection of certain diseases and agents such as HIV-1, HIV-2, hepatitis and
chlamydia. The products are based on
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proprietary technologies centered on unique platforms which utilize in-vitro
antigen antibody reactions that enable users to obtain a rapid and reliable
result.
Our principal executive offices are located at 51 Sawyer Road, Suite 200,
Waltham, MA 02453 and our telephone number is (781) 647-3900.
THE TRANSACTION
Inverness and Johnson & Johnson have entered into a split-off and merger
agreement which provides that Inverness will merge with and become a
wholly-owned subsidiary of Johnson & Johnson. As a condition to, and immediately
prior to, the merger, Inverness will undertake a corporate restructuring in
order to separate its women's health, nutritional supplements and clinical
diagnostics businesses from its other businesses, which consist primarily of its
diabetes care products business. As part of the merger, we will split-off from
Inverness and Inverness will deliver all of the shares of our common stock held
by Inverness to its stockholders. The split-off will not be completed unless the
merger is completed. A restructuring agreement, together with a post-closing
covenants agreement, a tax allocation agreement and other related agreements
referred to in the restructuring agreement, will govern the terms of the
separation of the women's health, nutritional supplements and clinical
diagnostics businesses from the other businesses of Inverness and the
relationship among us, Inverness and Johnson & Johnson before and after the
split-off.
Subject to the split-off and merger agreement, at the time of the merger
each share of Inverness common stock held by an Inverness stockholder will be
exchanged for:
- shares of our common stock, par value $0.001 per share and cash in
lieu of fractional shares, which constitute the split-off
consideration and
- shares of Johnson & Johnson common stock, and cash in lieu of
fractional shares, which constitute the merger consideration.
SUMMARY OF THE SPLIT-OFF
Purpose of transaction........ The split-off is an integral part of the merger
of Inverness and Johnson & Johnson and it will
occur only if the merger is completed. The
purpose of the split-off is to separate
Inverness' women's health, nutritional
supplements and clinical diagnostics businesses
from its other businesses, primarily related to
diabetes care products, so that Johnson &
Johnson will not acquire the women's health,
nutritional supplements or clinical diagnostics
businesses through the merger.
Parent corporation prior to
the split-off................. Inverness Medical Technology, Inc.
Split-off corporation......... Inverness Medical Innovations, Inc., a newly
formed company which, following the
restructuring, will operate the women's health,
nutritional supplements and clinical
diagnostics businesses of Inverness. The assets
to be transferred to us in the restructuring
and before the split-off generally consist of
tangible and intangible assets used primarily
in the women's health, nutritional supplements
and clinical diagnostics businesses of
Inverness. Liabilities to be assigned to and
assumed by us include liabilities related to
the women's health, nutritional supplements and
clinical diagnostics businesses of Inverness,
as described more fully under the heading "The
Restructuring and the Split-off." After the
split-off, we will become an independent,
publicly owned company.
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Split-off ratio............... .20 of a share of our common stock for each
share of Inverness common stock owned of record
on the date of the split-off.
Fractional shares of our
common stock.................. Instead of receiving any fraction of a share of
our common stock, you will receive cash in an
amount equal to the fraction of a share of our
common stock you would have received in the
split-off multiplied by the closing price of
our common stock as reported on a national
securities exchange or the Nasdaq National
Market, as the case may be, on the first full
trading day after the split-off.
Securities to be issued to
Inverness Stockholders........ In the split-off, we expect to issue a total of
approximately -- shares of our common stock,
based on the number of issued and outstanding
shares of Inverness common stock as of --
multiplied by .20. The actual number of shares
of our common stock which will be issued to
Inverness stockholders in the split-off will be
determined based on the number of issued and
outstanding shares of Inverness common stock as
of the effective time of the merger.
Appraisal rights.............. Under Delaware law, Inverness stockholders will
not have appraisal rights in connection with
the split-off.
Listing of our common stock... We have applied for our common stock to be
approved for listing on the American Stock
Exchange at the time of the split-off.
Tax consequences.............. The material tax consequences of the split-off
and merger are described under the heading
"Material Tax Consequences."
Indemnification obligations
after the split-off........... We have agreed to indemnify Inverness and
Johnson & Johnson, and Inverness and Johnson &
Johnson have agreed to indemnify us, after the
split-off with respect to various losses,
damages, claims and liabilities arising out of
the pre-split-off operation of each of our
businesses. We have also agreed to indemnify
Inverness and Johnson & Johnson for other
liabilities more fully described under the
heading "Post-Closing Arrangements -- The
Post-Closing Covenants Agreement."
Relationship with Inverness
after the split-off........... After the split-off, we and Inverness will
operate as independent companies. For up to
nine months after the split-off, we and
Inverness have agreed to provide each other
with some transitional services. The terms of
the ongoing relationship between us and
Inverness are more fully described under the
heading "The Restructuring and the Split-off."
Risk factors.................. You should carefully read the section entitled
"Risk Factors" beginning on page X-6 for a
discussion of risks related to the split-off
and our business.
THE INFORMATION ABOVE IS A SUMMARY OF SOME OF THE TERMS OF THE SPLIT-OFF. THE
SPLIT-OFF, THE RESTRUCTURING AGREEMENT, AND THE RELATED AGREEMENTS ARE MORE
FULLY DESCRIBED IN THIS PROSPECTUS UNDER THE HEADING "THE RESTRUCTURING AND THE
SPLIT-OFF."
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SUMMARY FINANCIAL DATA OF INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
-------------------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------- ------- ------- -------
Consolidated Statement of Operations:
Net revenues.............................. $14,024 $50,606 $74,645 $79,294 $84,529 $20,952 $18,662
Cost of sales............................. 10,592 24,725 40,563 45,534 48,183 11,620 10,860
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 3,432 25,881 34,082 33,760 36,346 9,332 7,802
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development................ 6,011 7,001 2,869 1,428 1,359 362 299
Selling, general and administrative..... 6,518 21,070 28,484 25,275 26,519 6,615 6,154
Other expenses.......................... -- 81 5,372 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 12,529 28,152 36,725 26,703 27,878 6,977 6,453
------- ------- ------- ------- ------- ------- -------
Operating (loss) income............. (9,097) (2,271) (2,643) 7,057 8,468 2,355 1,349
Interest and other expenses, net.......... (443) (2,377) (4,314) (3,724) (3,377) (824) (641)
------- ------- ------- ------- ------- ------- -------
(Loss) income before income taxes... (9,540) (4,648) (6,957) 3,333 5,091 1,531 708
Provision for income taxes................ -- 1,456 2,103 2,793 2,909 992 579
------- ------- ------- ------- ------- ------- -------
Net (loss) income................... $(9,540) $(6,104) $(9,060) $ 540 $ 2,182 $ 539 $ 129
======= ======= ======= ======= ======= ======= =======
Net (loss) income per common and potential
common share:(1)
Basic and diluted....................... $(9,540) $(6,104) $(9,060) $ 540 $ 2,182 $ 539 $ 129
======= ======= ======= ======= ======= ======= =======
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- ---------
Balance Sheet Data:
Cash and cash equivalents...................... 2,113 5,099 1,120 695 3,090 3,404
Working capital................................ (2,226) (1,882) (3,924) (1,092) (2,224) (2,082)
Total assets................................... 17,518 67,663 89,771 90,092 89,541 90,656
Debt obligations(2)............................ 2,542 26,595 38,994 31,948 22,257 19,698
Total stockholders' equity..................... 3,053 18,442 28,932 34,953 41,812 44,936
---------------
(1) Computed as described in our historical financial statements and related
notes included in this prospectus.
(2) Excludes amounts due to related parties.
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PRO FORMA SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA(1)
-------------------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------- ------- ------- -------
Consolidated Statement of Operations:
Net revenues.............................. $14,024 $50,606 $54,685 $50,584 $51,051 $13,455 $11,812
Cost of sales............................. 10,592 24,725 26,720 26,890 25,075 6,547 5,826
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 3,432 25,881 27,965 23,694 25,976 6,908 5,986
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development................ 5,853 6,210 2,322 1,395 1,360 362 299
Selling, general and administrative..... 6,518 21,070 22,769 18,350 17,763 4,563 4,172
Other expenses.......................... -- 81 4,969 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 12,371 27,361 30,060 19,745 19,123 4,925 4,471
------- ------- ------- ------- ------- ------- -------
Operating (loss) income............. (8,939) (1,480) (2,095) 3,949 6,853 1,983 1,515
Interest and other (expenses) income,
net..................................... 136 846 (651) (562) (388) (53) (79)
------- ------- ------- ------- ------- ------- -------
(Loss) income from continuing
operations before income taxes... (8,803) (634) (2,746) 3,387 6,465 1,930 1,436
Provision for income taxes................ -- 1,456 1,115 1,007 1,781 609 354
------- ------- ------- ------- ------- ------- -------
(Loss) income from continuing
operations....................... (8,803) (2,090) (3,861) 2,380 4,684 1,321 1,082
(Loss) income from discontinued
operations....................... (158) (791) (2,882) 183 (598) (296) (581)
------- ------- ------- ------- ------- ------- -------
Net (loss) income................... $(8,961) $(2,881) $(6,743) $ 2,563 $ 4,086 $ 1,025 $ 501
======= ======= ======= ======= ======= ======= =======
PRO FORMA (LOSS) INCOME FROM CONTINUING
OPERATIONS PER COMMON SHARE -- BASIC AND
DILUTED................................. $ (9.23) $ (1.31) $ (1.58) $ 0.71 $ 0.99 $ 0.34 $ 0.18
PRO FORMA (LOSS) INCOME FROM DISCONTINUED
OPERATIONS PER COMMON SHARE -- BASIC AND
DILUTED................................. (.17) (.49) (1.18) 0.05 (0.13) (0.08) (0.10)
------- ------- ------- ------- ------- ------- -------
Net (loss) income per common and potential
common share:(1)
Basic and diluted....................... $ (9.40) $ (1.80) $ (2.76) $ 0.76 $ 0.86 $ 0.26 $ 0.08
======= ======= ======= ======= ======= ======= =======
PRO FORMA
------------------------
DECEMBER 31, MARCH 31,
------------ ---------
2000(3) 2001(4)
------------ ---------
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents................................. 3,071 40,000
Working capital........................................... 16,090 44,721
Total assets.............................................. 75,774 93,276
Debt obligations(2)....................................... 12,830 --
Total stockholders' equity................................ 41,812 81,565
---------------
(1) Reflects the reclassification of diabetes operations as discontinued
operations and elimination of third-party and related-party interest
expense.
(2) Excludes amounts due to related parties.
(3) Reflects the reclassification of net diabetes assets as net assets of
discontinued operations.
(4) Reflects the assumption or discharge of all third-party and related party
debt by Inverness, the contribution of $40 million of net cash by Inverness
and the transfer of the diabetes operations of our subsidiaries to
Inverness.
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RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following risk factors with respect to the split-off and
our business.
RISKS RELATED TO THE SPLIT-OFF
OUR BUSINESSES WILL FACE CHALLENGES AS PART OF A STAND-ALONE COMPANY THAT THEY
DID NOT EXPERIENCE AS PART OF INVERNESS.
As an independent, publicly owned company, we will face new issues and
challenges that we did not experience when we were part of Inverness. If we are
unable to resolve these issues or overcome these challenges, our results of
operations and financial position may be adversely affected. Examples of
potential issues include:
- our inability to rely on the long term financial strength of Inverness
- our inability to rely on the earnings, cash flow, assets and goodwill of
Inverness' diabetes business
- our inability to rely on the experience and business relationships of
some personnel who will not be continuing employment with our company
- greater difficulty in obtaining financing on terms satisfactory to us, if
needed, and
- greater difficulty in obtaining and maintaining insurance on terms that
are acceptable to us.
Our results of operations and prospects, as well as stock price, may be
affected by factors that are different from those that have affected Inverness
in the past. After the split-off, we will be a smaller and less diversified
company than Inverness was prior to the split-off. Our results of operations
will be more affected by competitive and market factors specific to the women's
health, nutritional supplements and clinical diagnostics industries. In
addition, our sources of revenue will be less diversified than those of
Inverness prior to the split-off.
OUR BUSINESSES HAVE TRADITIONALLY RELIED ON INVERNESS FOR FINANCIAL ASSISTANCE
AND MAY HAVE DIFFICULTY WITH LIQUIDITY AND CAPITAL REQUIREMENTS WITHOUT THIS
ASSISTANCE.
Our businesses have historically relied on the earnings, assets and cash
flow of Inverness for liquidity, capital requirements and administrative
services. In the past, when the liquidity needs of our businesses exceeded their
cash flow, Inverness provided the necessary funds. Our inability to rely on
Inverness in the future for financial assistance may adversely affect our
financial condition.
WE HAVE NOT FULLY ESTABLISHED THE CORPORATE INFRASTRUCTURE THAT IS REQUIRED FOR
A STAND-ALONE COMPANY.
After the split-off, we may or may not be able to establish the departments
and services necessary to conduct our business as an independent, publicly owned
company in an efficient and timely manner or on favorable terms. Inverness has
agreed to provide to us certain services on a cost basis for up to nine months
after the split-off. We will, however, need to establish our company as a
stand-alone entity and will not be able to rely on Inverness other than for
these limited transitional services. In establishing these departments and
services, we may face issues and challenges, including:
- increased costs of hiring and retaining employees in departments
previously shared by all the businesses of Inverness, including the
legal, risk management, tax, treasury, human resources and public
relations departments and
- generally increased overhead and administrative costs as a result of
establishing a stand-alone company.
If we are unable to establish the required departments and services in a
timely or cost effective manner, it could adversely affect our operations.
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OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.
The historical financial information we have included in this prospectus
may not reflect what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone company during the
periods presented. This information may not reflect what our results of
operations, financial position and cash flows will be in the future. This is not
only related to the various risks associated with the fact that we have not been
a stand-alone company, but also because:
- various adjustments and allocations were made to the historical financial
statements in this prospectus because Inverness did not account for us as
a single stand-alone business for any period presented and
- the historical information does not reflect many significant changes that
will occur in our financial condition, capital structure and operations
as a result of our separation from Inverness.
We cannot assure you that the adjustments and allocations we made in
preparing our historical financial statements appropriately reflect our
operations during the periods presented as if we had operated as a stand-alone
company, nor can we predict what the actual effect of our separation from
Inverness will be.
THE CHANGE OF SOME PERSONNEL IN OUR COMPANY MAY HAVE AN ADVERSE EFFECT ON OUR
SUCCESS.
In conjunction with the split-off, it is expected that some of the
personnel of Inverness will become our initial employees, while others will not.
In particular, certain significant employees who have been engaged primarily in
the diabetes care products business will remain with that business and will not
be our employees after the split-off. In addition, some members of Inverness'
management who currently work substantially for Inverness' diabetes care
products business will become our employees. Finally, some Inverness personnel
who have provided services beneficial to our businesses through their work in
Inverness' accounting, sales, marketing, operations, quality assurance,
regulatory compliance and other areas will not become part of our company after
the split-off or, in certain cases, their services may only be available to us
on a transitional basis for up to nine months. We cannot assure you that the
loss of certain significant employees, the transition of personnel from
Inverness' diabetes business to our company and the loss of other Inverness
personnel who will not become our employees will not disrupt the operations of
our business. Any disruption in our business could have a material adverse
effect on our results of operations. We cannot predict with certainty the
financial impact any potential disruption might have on our business.
THERE IS NO EXISTING TRADING MARKET FOR OUR COMMON STOCK.
There is no existing trading market for our common stock and there can be
no assurance that an active trading market will be established. We have applied
for approval for listing of our common stock on the American Stock Exchange and
expect to receive approval for quotation on the American Stock Exchange at the
time of the split-off. Our common stock may experience volatility until trading
values become established. As a result, it could be difficult to make purchases
or sales of our common stock in the market at any particular time. We do not
know what price our common stock will trade at after the split-off.
VARIOUS FACTORS MAY DEPRESS THE TRADING VALUE OF OUR COMMON STOCK.
Inverness stockholders immediately prior to the split-off will become
stockholders of our company immediately after the split-off. Some stockholders
who receive our common stock in the split-off may decide that they do not want
to maintain an investment in a company involved primarily in women's health
products or in a public company that does not have a proven track record as a
stand-alone company. If these stockholders decide to sell all or some of their
shares or if the market perceives that those sales could occur the trading value
of your shares may decline. In addition, because we will be a smaller and less
diversified company than Inverness, our common stock may not be followed as
closely by
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market analysts or the investment community as Inverness common stock has been
in the past. If there is only a limited following by market analysts or the
investment community, the amount of market activity in our common stock may be
reduced, making it more difficult for you to sell your shares.
WE ARE OBLIGATED TO INDEMNIFY INVERNESS AND OTHERS FOR LIABILITIES WHICH COULD
REQUIRE US TO PAY INVERNESS AMOUNTS THAT WE MAY NOT HAVE.
The restructuring agreement, post-closing covenants agreement and related
agreements provide that we will indemnify Inverness and other related persons
after the split-off for specified liabilities related to our businesses,
statements in the proxy statement/prospectus, including this prospectus, about
our businesses and breaches of our obligations under the restructuring
agreement, post-closing covenants agreement and related agreements. We are also
required to indemnify Inverness for particular losses arising from the failure,
if any, to amend some outstanding warrants for the purchase of Inverness common
stock.
In addition, under our tax allocation agreement with Inverness and Johnson
& Johnson, we will indemnify Johnson & Johnson and Inverness for any unpaid tax
liabilities attributable to the pre-split-off operation of our women's health,
nutritional supplements and clinical diagnostics businesses.
We are unable to predict the amount, if any, that may be required for us to
satisfy our indemnification obligations under the restructuring agreement and
related agreements. However, the amount could be substantial. We cannot assure
you that we will have sufficient funds available to satisfy our potential
indemnification obligations or that we will be able to obtain the funds on terms
satisfactory to us, if at all. If we are unable to obtain the necessary funds,
we may be forced to consider other alternatives, including sales of assets, to
raise necessary funds.
WE MAY BE SUBJECT TO LIABILITIES RESULTING FROM LAWS THAT PROTECT OUR AND
INVERNESS' CREDITORS.
Under United States federal and state fraudulent transfer laws, a court in
a lawsuit by an unpaid creditor or a representative of creditors of ours or
Inverness could determine that, after giving effect to the split-off and merger,
we or Inverness:
- were or would be rendered insolvent
- had unreasonably small capital to carry on our business and all
businesses in which we or Inverness intended to engage or
- intended to incur, or believed we or Inverness would incur, debts beyond
our or Inverness' ability to repay as they would mature.
If that determination is made, the court could invalidate, in whole or in part,
the split-off and merger, as a fraudulent transfer and order Inverness
stockholders to return the value of the split-off and merger consideration,
including any shares of our common stock and any dividends paid or require us to
pay various liabilities of Inverness for the benefit of creditors or require
Inverness to pay various liabilities of ours for the benefit of creditors.
Generally, an entity is considered insolvent if the present fair saleable
value of its assets is less than
- the amount of its liabilities, including contingent liabilities, or
- the amount that will be required to pay its probable liabilities on its
existing debts as they become due.
We do not know what standard a court would apply in determining insolvency
or whether a court would determine that we or Inverness were "insolvent" at the
time of or after giving effect to the merger. If we or Inverness became a debtor
in a bankruptcy case, the bankruptcy court would apply the standards of United
States federal bankruptcy law to determine whether a transfer that occurred
within a year before the commencement of the bankruptcy case would qualify as a
fraudulent transfer. For transfers that occurred more than one year prior to the
bankruptcy case, the bankruptcy court would apply applicable state law
standards, which may vary among states. If we or Inverness did not become a
debtor in a
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bankruptcy case, creditors who sought to recover or void transfers as fraudulent
transfers would look to the state law standards. It is possible that the
standards for determining whether a fraudulent transfer occurred may vary
between state and federal law, on the one hand, and between various state laws,
on the other.
WE MAY HAVE DIFFICULTY MAINTAINING OUR HEADQUARTERS OR ENTERING INTO NEW LEASES
FOR REAL PROPERTY ON TERMS THAT ARE SATISFACTORY OR IN A TIMELY FASHION.
Our businesses are currently based out of Inverness' headquarters. The
restructuring agreement states that Inverness' current headquarters will become
our headquarters at the time of the split-off and requires Inverness to assist
us in securing an assignment of the sublease covering its current headquarters.
We cannot assure you that we will obtain an assignment of that sublease in a
timely manner or that the terms of the assignment will be satisfactory to us.
Any difficulty we may experience in acquiring Inverness' rights under the
sublease of our headquarters may affect the operations of our business if we do
not have sufficient office space in which to operate. The result of these
difficulties may involve a disruption in our business, including:
- an inability to continue to provide the level of activity we have in the
past at those locations and, in turn, generate the historical revenue
from those locations
- a delay in collection of accounts receivable
- difficulties in retaining personnel and
- an inability to manage day to day operations.
Any of these difficulties could have a material adverse effect on our business
until we relocate.
RISKS RELATED TO OUR BUSINESS
WE MAY HAVE DIFFICULTY OBTAINING FINANCING, IF NECESSARY, ON SATISFACTORY TERMS.
After the split-off, we will no longer benefit from any financing
arrangements with, or cash advances from, Inverness. We may have difficulty
obtaining financing, if necessary, on terms that are acceptable to us, if at
all. If we fail to obtain the financing we need, it would have a material
adverse effect on our business and financial condition. In addition, although we
will commence operations after the split-off with approximately $40 million in
net cash, we may chose to seek financing for purchases and other expenditures
rather than using some or all of this cash reserve. If we fail to obtain
financing that we choose to seek, we will use some or all of our cash reserve
and will have a smaller cash reserve available to us on a going forward basis.
WE WILL NEED TO DEVOTE CASH FLOW FROM OUR OPERATIONS TO MEET OUR FUTURE DEBT AND
OTHER OBLIGATIONS.
We cannot assure you that we will generate sufficient cash flow to meet our
future debt and other obligations. If cash flow from operations fall below
expectations, we may be forced to delay planned capital expenditures, reduce
operating expenses or consider additional alternatives designed to enhance
liquidity, such as selling assets or expending some or all of our cash reserves,
if not previously expended.
WE MAY NOT BE ABLE TO REALIZE SOME OR ALL OF THE BENEFITS UNDER THE LICENSE
AGREEMENT.
In connection with the merger and split-off, we negotiated a license to use
certain of Inverness' technology that Johnson & Johnson is acquiring. The
license agreement imposes limitations on our use of this technology. In
addition, we have some exclusive rights under the license agreement to use the
licensed technology in specified fields which we will lose if, within ten years
from the date of the split-off and merger, we do not commercialize products or
services using the licensed technology. Depending on the decisions we will make
with respect to future product and technology development efforts, and the
success of those efforts, we may be unable to realize the potential benefits
under the license agreement.
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NON-COMPETITION OBLIGATIONS AND OTHER RESTRICTIONS WILL LIMIT OUR ABILITY TO
TAKE FULL ADVANTAGE OF OUR MANAGEMENT TEAM, THE TECHNOLOGY WE OWN OR LICENSE AND
OUR RESEARCH AND DEVELOPMENT CAPABILITIES.
Members of our management team have had significant experience in the
diabetes field, technology we own or license may have potential applications to
this field, and our research and development capabilities could be applied to
this field. In conjunction with the merger and split-off, however, we agreed in
the post-closing covenants agreement not to compete with Inverness and Johnson &
Johnson in the field of diabetes generally. In addition, Mr. Zwanziger and two
of Inverness' senior scientists, Dr. David Scott and Dr. Jerry McAleer, have
entered into consulting agreements with Inverness that impose similar
obligations. Further, the license agreement prevents us from using any of the
licensed technology in the field of diabetes generally. As a result of these
restrictions, we will be unable to pursue opportunities in the field of diabetes
generally.
WE RELY UPON OUR MANUFACTURING FACILITIES AS WELL AS CONTRACT MANUFACTURING
ARRANGEMENTS, AND MANUFACTURING PROBLEMS OR DELAYS COULD SEVERELY AFFECT OUR
BUSINESS.
We produce our pregnancy detection and ovulation prediction tests in our
manufacturing facilities located in Galway, Ireland and our clinical diagnostic
tests in our manufacturing facilities located in Yavne, Israel. Our production
processes are complex and require specialized and expensive equipment. In
addition, we rely upon third parties to manufacture our nutritional products.
Any event impacting our Galway or Yavne facilities or our contract manufacturers
could have a significant negative impact on our operations, and our revenues
from the affected products would decline until such time as we are able to put
in place alternative contract manufacturers. Even though we carry business
interruption insurance policies, we may suffer losses as a result of business
interruptions that exceed the coverage available under our insurance policies.
IF WE FAIL TO MEET STRICT REGULATORY REQUIREMENTS, WE COULD BE REQUIRED TO PAY
FINES OR EVEN CLOSE OUR FACILITIES.
Our facilities and manufacturing techniques generally must conform to
standards that are established by government agencies, including those of
European governments, as well as the United States Food and Drug Administration.
These regulatory agencies may conduct periodic inspections of our facilities to
monitor our compliance with applicable regulatory standards. If a regulatory
agency finds that we fail to comply with the appropriate regulatory standards,
it may impose fines on us or if such a regulatory agency determines that our
non-compliance is severe, it may close our facilities. Any adverse action by an
applicable regulatory agency would have a negative impact on our operations.
IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY MAY BE HARMED, MARKET
ACCEPTANCE OF OUR PRODUCTS MAY DECREASE AND WE MAY BE EXPOSED TO LIABILITY IN
EXCESS OF OUR PRODUCT LIABILITY INSURANCE COVERAGE.
The manufacturing and marketing of women's health products and clinical
diagnostic products involve an inherent risk of product liability claims. In
addition, our product development and production are extremely complex and could
expose our products to defects. Any defects could harm our credibility and
decrease market acceptance of our products. In addition, our marketing of
nutritional supplements may cause us to be subjected to various product
liability claims, including, among others, claims that the nutritional
supplements have inadequate warnings concerning side effects and interactions
with other substances. Potential product liability claims may exceed the amount
of our insurance coverage or may be excluded from coverage under the terms of
the policy. In the event that we are held liable for a claim for which we are
not indemnified, or for damages exceeding the limits of our insurance coverage,
that claim could materially damage our business and our financial condition.
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OUR SALES OF NUTRITIONAL SUPPLEMENTS HAVE DECLINED EACH YEAR SINCE 1998 DUE TO
THE MATURITY OF THE MARKET SEGMENTS WE CURRENTLY SERVE AND THE AGE OF OUR
PRODUCT LINE.
Our sales of nutritional products have declined each year since 1998 and we
have budgeted for future sale declines. We believe that our products have
under-performed the overall market because most growth in the industry is
attributed to new products that generate attention in the marketplace. Most of
our nutritional supplements products serve well-established market segments and,
absent unforeseen new developments or trends, are not expected to benefit from
rapid growth. In addition, most of our nutritional supplements products are
aging brands with limited brand retention that are increasingly subject to
private label competition. The age of our product line means that we are subject
to future distribution loss for under-performing brands, while our opportunities
for new distribution on the existing product lines are limited.
INDIVIDUAL SEGMENTS OF THE NUTRITIONAL SUPPLEMENTS MARKET ARE SUBJECT TO
SIGNIFICANT FLUCTUATIONS BASED UPON MEDIA ATTENTION AND NEW DEVELOPMENTS.
The market for nutritional supplements is highly sensitive to media
commentary regarding the quality and efficacy of nutritional supplements.
Positive media attention resulting from new scientific studies or announcements
can spur rapid growth in individual segments of the market, and also impact
individual brands. Conversely, news that challenges individual segments or
products can have a negative impact on the industry overall as well as on sales
of the challenged segments or products.
OUR CLINICAL DIAGNOSTICS BUSINESS IS FOCUSED ON A NICHE MARKET OF SMALL AND
MEDIUM SIZED LABORATORIES.
From its inception, Inverness' Orgenics subsidiary has sold clinical
diagnostics products targeted at a niche market of small and medium sized
decentralized laboratories operating in the field of infectious disease. To the
extent that trends or changes in the health care industry favor economies of
scale and centralized laboratory testing, sales of our clinical diagnostics
products could suffer.
TRENDS IN THE OVERALL MARKET FAVOR DIRECT DISEASE DETECTION OVER IMMUNE RESPONSE
TESTING.
New technologies have made it possible to directly identify the presence of
disease rather than detecting the presence of antibodies produced through an
immune response. The trend of the overall market currently favors direct
detection over antibody detection. Virus detection through nucleic acid testing,
or NAT, is already mandatory for hepatitis C virus and other markers in France,
Australia and certain other developed nations. While we believe that the threat
from direct detection technology in our core market of small and medium sized
decentralized laboratories, small blood banks, physicians and other point of
care facilities, particularly in under developed nations, is several years away,
this trend poses a risk to our core clinical diagnostics business in the long
term.
OUR CLINICAL DIAGNOSTICS PRODUCTS ARE MARKETED TO SMALL AND MEDIUM SIZED
CUSTOMERS IN MORE THAN 92 COUNTRIES AT CONSIDERABLE COST THAT REDUCES OUR
MARGINS.
Because small and medium sized laboratories are the principal customers for
our clinical diagnostic products, we sell these products worldwide in order to
maintain sufficient sales volume. Our clinical diagnostics products are marketed
in more than 92 countries, including many third world and developing nations
where smaller laboratories are the norm, where more expensive technologies are
not affordable and where infectious diseases are often more prevalent. This
worldwide sales strategy is expensive and results in lower margins than would be
possible if we could generate sufficient sales volume by operating in fewer
markets.
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WE ARE INVOLVED IN VARIOUS LITIGATION MATTERS.
Inverness and its subsidiaries have been involved in various litigations
arising out of the women's health, nutritional supplements and clinical
diagnostics business. The current material litigation matters are:
- a lawsuit by Abbott Laboratories against Inverness and Princeton
BioMeditech Corporation, which manufactured products for Inverness'
women's health business, claiming, among other things, that some of our
products relating to pregnancy detection and ovulation prediction
infringe patents to which Abbott asserts it is the exclusive licensee
- a lawsuit by Becton, Dickinson and Company against Inverness alleging
that pregnancy and ovulation test kits sold by Inverness, and which we
will continue to sell through our women's health business, infringe U.S.
Patent No. 4,703,017
- a complaint by Cambridge Biotech Corporation (CBC) and Cambridge
Affiliate Corporation (CAC) against Inverness, Ron Zwanziger, the
president of Inverness prior to the split-off, Cambridge Diagnostics
Ireland, Ltd. (CDIL), our subsidiary in Ireland, Trinity Biotech plc
(Trinity) and Pasteur Sanofi Diagnostics (Pasteur). The complaint
alleges, among other things, that actions taken by Mr. Zwanziger as
President of CAC in connection with the sale by CDIL of its diagnostics
business to Trinity in 1998 were not properly authorized and that, as a
result of the actions, CBC may lose the benefit of certain valuable
patent licenses from Pasteur which were transferred from CDIL to Trinity
with CDIL's diagnostics business and
- a complaint by Intervention, Inc. against Inverness, four of its private
label customers, whom Inverness is defending under agreement, and certain
other parties alleging that under Section 17200 of the California
Business and Professions Code the defendants' labeling on their home
pregnancy tests is misleading as to the level of accuracy under certain
conditions.
Because the above claims each seek damages and reimbursement for costs and
expenses without specific amounts, we are unable to assess the probable outcome
or potential liability arising from the lawsuits.
In connection with the split-off, we have agreed to assume, to the extent
permitted by law, and indemnify Inverness for, its liability in these lawsuits
together with any other liabilities arising out of the women's health,
nutritional supplements and clinical diagnostics businesses before or after the
split-off to the extent such liabilities are not otherwise retained by
Inverness. We are unable to assess the materiality or costs associated with
these lawsuits at this time. We cannot assure you that these lawsuits or any
future lawsuits relating to the health services business will not have a
material adverse effect on the health services business.
WE ARE DEPENDENT ON RELATIONSHIPS WITH THIRD PARTIES.
The profitability of our business depends in part on our ability to
establish and maintain close working relationships with suppliers, distributors
and customers. For example, J.W.S. Delavau Co., Inc. manufactures most of our
nutritional supplements under a one-year contract with automatic renewal
provisions. In addition, customers of our branded and private label businesses
purchase products through purchase orders only and are not obligated to make
future purchases. In calendar year 2000, both Walgreen Co. and Wal-Mart Stores,
Inc. accounted for approximately 10%, of our net sales. We cannot assure you
that we will be successful in maintaining and improving our relationships or
that additional relationships will be successfully developed and maintained in
existing or future markets. The loss of any existing relationships or the
failure to continue to develop such relationships in the future could have a
material adverse effect on our business, financial condition and results of
operations.
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RETAILER CONSOLIDATION POSES A THREAT TO EXISTING RETAILER RELATIONSHIPS AND CAN
RESULT IN LOST REVENUE.
Recent years have witnessed rapid consolidation within the mass retail
industry. Drug store chains, grocery stores and mass merchandisers, the primary
purchasers of our women's health and nutritional supplements products, have all
been subject to this trend. Because these customers purchase through purchase
orders, consolidation can interfere with existing retailer relationships,
especially private label relationships, and result in the loss of major
customers and significant revenue streams.
OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY
INTERNATIONAL BUSINESS RISKS.
A significant number of our employees, including sales, support and
research and development personnel, are located outside of the United States.
Conducting business outside of the United States is subject to numerous risks,
including:
- decreased liquidity resulting from longer accounts receivable collection
cycles typical of foreign countries
- decreased revenues on foreign sales resulting from possible foreign
currency exchange and conversion issues
- lower productivity resulting from difficulties managing our sales,
support and research and development operations across many countries
- lost revenues resulting from difficulties associated with enforcing
agreements and collecting receivables through foreign legal systems
- lost revenues resulting from the imposition by foreign governments of
trade protection measures and
- higher cost of sales resulting from import or export licensing
requirements.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE OR LIMIT OUR ABILITY TO
INCREASE MARKET SHARE, WHICH COULD IMPAIR THE SALES OF OUR PRODUCTS AND HARM OUR
FINANCIAL PERFORMANCE.
The medical products industry is rapidly evolving and developments are
expected to continue at a rapid pace. Competition in this industry is intense
and expected to increase as new products and technologies become available and
new competitors enter the market. Our competitors in the United States and
abroad are numerous and include, among others, diagnostic testing and medical
products companies, universities and other research institutions. Our future
success depends upon our maintaining a competitive position in the development
of products and technologies in our areas of focus. Competitors may be more
successful in:
- developing technologies and products that are more effective than our
products or that render our technologies or products obsolete or
noncompetitive
- obtaining patent protection or other intellectual property rights that
would prevent us from developing our potential products or
- obtaining regulatory approval for the commercialization of their products
more rapidly or effectively than we are in doing so.
Also, the possibility of patent disputes with competitors holding foreign
patent rights may limit or delay expansion possibilities for our women's health
products business in certain foreign jurisdictions. In addition, many of our
existing or potential competitors have or may have substantially greater
research and development capabilities, clinical, manufacturing, regulatory and
marketing experience and financial and managerial resources.
The market for the sale of nutritional supplements is also highly
competitive. This competition is based principally upon price, quality of
products, customer service and marketing support. There are numerous companies
in the nutritional supplement industry selling products to retailers such as
mass merchandisers, drug store chains, independent drug stores, supermarkets and
health food stores. As most of
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these companies are privately held, we are unable to obtain the information
necessary to assess precisely the size and success of these competitors.
However, we believe that a number of our competitors, particularly manufacturers
of nationally advertised brand name products, are substantially larger than we
are and have greater financial resources.
THE RIGHTS WE RELY UPON TO PROTECT THE INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
Our success will depend in part on our ability to develop or acquire
commercially valuable patent rights and to protect our intellectual property.
Our patent position is generally uncertain and involves complex legal and
factual questions. The degree of future protection for our proprietary rights is
uncertain.
The risks and uncertainties that we face with respect to our patents and
other proprietary rights include the following:
- the pending patent applications we have filed or to which we have
exclusive rights may not result in issued patents or may take longer than
we expect to result in issued patents
- the claims of any patents which are issued may not provide meaningful
protection
- we may not be able to develop additional proprietary technologies that
are patentable
- the patents licensed or issued to us or our customers may not provide a
competitive advantage
- other companies may challenge patents licensed or issued to us or our
customers
- patents issued to other companies may harm our ability to do business and
- other companies may design around technologies we have licensed or
developed.
In addition to patents, we rely on a combination of trade secrets,
nondisclosure agreements and other contractual provisions and technical measures
to protect our intellectual property rights. Nevertheless, these measures may
not be adequate to safeguard the technology underlying our products. If they do
not protect our rights, third parties could use our technology and our ability
to compete in the market would be reduced. In addition, employees, consultants
and others who participate in the development of our products may breach their
agreements with us regarding our intellectual property and we may not have
adequate remedies for the breach. We also may not be able to effectively protect
our intellectual property rights in some foreign countries. For a variety of
reasons, we may decide not to file for patent, copyright or trademark protection
or prosecute potential infringements of our patents. We also realize that our
trade secrets may become known through other means not currently foreseen by us.
Despite our efforts to protect our intellectual property, our competitors or
customers may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies.
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE ON THEIR PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.
Substantial litigation over intellectual property rights exists in our
industry. Our products are currently the subject of litigation alleging that we
are infringing on the intellectual property rights of others. We expect that our
products and products in our industry may increasingly be subject to third party
infringement claims as the number of competitors grows and the functionality of
products and technology in different industry segments overlaps. Third parties
may currently have, or may eventually be issued, patents on which our products
or technology may infringe. Any of these third parties might make a claim of
infringement against us. Any litigation could result in the expenditure of
significant financial resources and the diversion of management's time and
resources. In addition, litigation in which we are accused of infringement may
cause negative publicity, have an impact on prospective customers, cause product
shipment delays, require us to develop non-infringing technology or enter into
royalty or license
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agreements, which may not be available on acceptable terms, or at all. If a
successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed and
we could be exposed to legal actions by our customers.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS AND OTHER
INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD BE EXPENSIVE AND, IF WE LOSE, COULD
CAUSE US TO LOSE SOME OF OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD REDUCE
OUR ABILITY TO COMPETE IN THE MARKET.
We rely on patents to protect a portion of our intellectual property and
our competitive position. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as infringement suits
or interference proceedings. Litigation may be necessary to:
- assert claims of infringement
- enforce our patents
- protect our trade secrets or know-how or
- determine the enforceability, scope and validity of the proprietary
rights of others.
Lawsuits could be expensive, take significant time and divert management's
attention from other business concerns. Litigation would put our patents at risk
of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing. We may also provoke third parties to assert claims against us.
Patent law relating to the scope of claims in the technology fields in which we
operate is still evolving and, consequently, patent positions in our industry
are generally uncertain. We cannot assure you that we will prevail in any of
these suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these results to be negative, our stock price could decline.
IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR
TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE
THESE ACQUISITIONS OR TO SUCCESSFULLY INTEGRATE AN ACQUIRED BUSINESS OR
TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. Accordingly, from time to time we have acquired
complementary businesses, products or technologies instead of developing them
ourselves and may choose to do so in the future. We do not know if we will be
able to complete any acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we acquire could be
expensive and time consuming, disrupt our ongoing businesses and distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of equity financing, that may result in
dilution to our shareholders. If we are unable to integrate any acquired
entities, products or technologies effectively, our business will suffer. In
addition, any amortization of goodwill or other assets or charges resulting from
the costs of acquisitions could harm our business and operating results.
WE MAY BE UNABLE TO HIRE, RETAIN OR MOTIVATE KEY PERSONNEL, UPON WHOM THE
SUCCESS OF OUR BUSINESS WILL DEPEND.
We are highly dependent upon certain members of our management and
scientific staff. We believe that our future success will depend in large part
upon our ability to attract and retain highly skilled scientific, managerial and
marketing personnel. We face significant competition for such personnel from
other companies, research and academic institutions, government entities and
other organizations. We cannot assure you that we will be able to retain our key
employees or attract, assimilate, retain or train
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other needed qualified employees in the future. We do not have employment
agreements with all of our key employees. The loss of any of our key employees,
including our scientists, may have an adverse effect on our business.
WE MAY BE LIABLE FOR CONTAMINATION OR OTHER HARM CAUSED BY HAZARDOUS MATERIALS
THAT WE USE.
Our research and development processes involve the use of hazardous
materials. We are subject to federal, state and local regulation governing the
use, manufacture, handling, storage and disposal of hazardous materials. We
cannot completely eliminate the risk of contamination or injury resulting from
hazardous materials and we may incur liability as a result of any contamination
or injury. We may also incur expenses relating to compliance with environmental
laws. Such expenses or liability could have a significant negative impact on our
financial condition.
VARIOUS FACTORS MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE.
Factors relating to our business make our future operating results
uncertain and may cause them to fluctuate from period to period. Such factors
include:
- the timing of new product announcements and introductions by us and our
competitors
- market acceptance of new or enhanced versions of our products
- changes in manufacturing costs or other expenses
- competitive pricing pressures
- the gain or loss of significant distribution outlets or customers
- the availability and extent of reimbursement for our products
- increased research and development expenses or
- general economic conditions.
OUR SHARE PRICE MAY BE VOLATILE DUE TO OUR OPERATING RESULTS, AS WELL AS FACTORS
BEYOND OUR CONTROL.
Our share price may be volatile due to our operating results, as well as
factors beyond our control. In addition, it is possible that in some future
periods the results of our operations will be below the expectations of the
public market. In any such event, the market price of our common stock could be
materially and adversely affected. Furthermore, the stock market may experience
significant price and volume fluctuations, which may affect the market price of
our common stock for reasons unrelated to our operating performance. The market
price of our common stock may be highly volatile and may be affected by factors
such as:
- our quarterly operating results
- changes in general conditions in the economy, the financial markets or
the health care industry
- government regulation in the health care industry
- changes in other areas such as tax laws
- sales of substantial amounts of common stock or the perception that such
sales could occur or
- other developments affecting us or our competitors.
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THE MARKET PRICE OF OUR COMMON STOCK WILL LIKELY FLUCTUATE IN RESPONSE TO A
NUMBER OF FACTORS, INCLUDING THE FOLLOWING:
- our failure to meet the performance estimates of securities analysts
- changes in financial estimates of our revenues and operating results or
buy/sell recommendations by securities analysts
- the timing of announcements by us or our competitors of significant
products, contracts or acquisitions or publicity regarding actual or
potential results or performance thereof and
- general stock market conditions, other economic or external factors.
THE ABILITY OF OUR STOCKHOLDERS TO CONTROL OUR POLICIES AND EFFECT A CHANGE OF
CONTROL OF OUR COMPANY IS LIMITED, WHICH MAY NOT BE IN YOUR BEST INTERESTS.
There are provisions in our certificate of incorporation and by-laws which
may discourage a third party from making a proposal to acquire us, even if some
of our stockholders might consider the proposal to be in their best interests.
These provisions include the following:
- our certificate of incorporation provides for three classes of directors
with the term of office of one class expiring each year, commonly
referred to as a staggered board. By preventing stockholders from voting
on the election of more than one class of directors at any annual meeting
of stockholders, this provision may have the effect of keeping the
current members of our board of directors in control for a longer period
of time than stockholders may desire and
- our certificate of incorporation authorizes our board of directors to
issue shares of preferred stock without stockholder approval and to
establish the preferences and rights of any preferred stock issued, which
would allow the board to issue one or more classes or series of preferred
stock that could discourage or delay a tender offer or change in control.
Additionally, we are subject to Section 203 of the Delaware General
Corporation Law, which, in general, imposes restrictions upon acquirors of 15%
or more of our stock.
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF OUR INITIAL CASH RESERVE AND MAY
USE THE CASH RESERVE IN A MANNER WITH WHICH YOU DISAGREE.
At the time of the split-off we will have an initial cash reserve of
approximately $40 million. We have not yet identified uses for this initial cash
reserve and our board of directors and management will have broad discretion
over its use. You may disagree with the judgment of our board of directors and
management regarding the uses to which we put our initial cash reserve.
BECAUSE WE DO NOT INTEND TO PAY DIVIDENDS, YOU WILL BENEFIT FROM AN INVESTMENT
IN OUR COMMON STOCK ONLY IF IT APPRECIATES IN VALUE.
We currently intend to retain our future earnings, if any, to finance the
expansion of our business and do not expect to pay any cash dividends in the
foreseeable future. As a result, the success of your investment in our common
stock will depend entirely upon any future appreciation. There is no guarantee
that our common stock will appreciate in value after the offering or even
maintain the price at which you purchased your shares.
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SPECIAL STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. You can identify these
statements by forward-looking words such as "may," "could," "should," "would,"
"intend," "will," "expect," "anticipate," "believe," "estimate," "continue" or
similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial condition or state other
"forward-looking" information. There may be events in the future that we are not
able to predict accurately or control and that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. We caution investors that all forward-looking statements involve
risks and uncertainties, and actual results may differ materially from those we
discuss in this prospectus as a result of various factors, including those
factors described in the "Risk Factors" section of this prospectus. Some
important additional factors that could cause our actual results to differ
materially from those projected in any such forward-looking statements are as
follows:
- economic factors, including inflation and fluctuations in interest rates
and foreign currency exchange rates, and the potential effect of such
fluctuations on revenues, expenses and resulting margins
- competitive factors, including technological advances achieved and
patents attained by competitors and generic competition
- domestic and foreign healthcare changes resulting in pricing pressures,
including the continued consolidation among healthcare providers, trends
toward managed care and healthcare cost containment and government laws
and regulations relating to sales and promotion, reimbursement and
pricing generally
- government laws and regulations affecting domestic and foreign
operations, including those relating to trade, monetary and fiscal
policies, taxes, price controls, regulatory approval of new products and
licensing
- manufacturing interruptions, delays or capacity constraints or lack of
availability of alternative sources for components for our products, that
we may experience
- difficulties inherent in product development, including the potential
inability to successfully continue technological innovation, complete
clinical trials, obtain regulatory approvals in the United States and
abroad, gain and maintain market approval of products and the possibility
of encountering infringement claims by competitors with respect to patent
or other intellectual property rights which can preclude or delay
commercialization of a product
- significant litigation adverse to us including product liability claims,
patent infringement claims and antitrust claims
- product efficacy or safety concerns resulting in product recalls or
declining sales
- the impact of business combinations, including acquisitions and
divestitures, and organizational restructuring consistent with evolving
business strategies and
- the issuance of new or revised accounting standards by the American
Institute of Certified Public Accountants, the Financial Accounting
Standards Board or the Securities and Exchange Commission.
Readers should not place undue reliance on our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in the "Risk Factors" section and elsewhere in this
prospectus could harm our business, prospects, operating results and financial
condition. We undertake no obligation to update any forward-looking statements
after the date of this prospectus.
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THE RESTRUCTURING AND THE SPLIT-OFF
This is a summary of the material terms of the restructuring agreement and
a description of the split-off. The restructuring agreement, which is attached
as Annex 3 to this proxy statement/prospectus, contains the complete terms of
that agreement. You should read the entire restructuring agreement carefully.
GENERAL
We were recently organized as a subsidiary of Inverness for purposes of the
split-off and merger. Prior to the completion of the split-off and merger, we,
Inverness and certain subsidiaries of Inverness will enter into the
restructuring agreement. Completion of the restructuring of Inverness, as
contemplated by the restructuring agreement, is a condition to the merger.
Inverness will not proceed with the split-off and merger unless the
restructuring is completed.
The purpose and effect of the restructuring of Inverness is to facilitate
the split-off and merger by separating Inverness' diabetes care products
business from its other principal businesses. Inverness will effect this
separation by transferring the assets and liabilities of its women's health,
nutritional supplements and clinical diagnostics businesses to Innovations
immediately prior to the split-off and merger. As a result, at the time of the
split-off and merger, Inverness will own only those businesses not transferred
to us, including the related assets and liabilities, which will consist
principally of the diabetes care products business. Unless otherwise indicated,
references to the post-restructuring business of Inverness refer to the
businesses of Inverness and its subsidiaries not transferred to us.
THE RESTRUCTURING AND TRANSFER OF ASSETS
The restructuring agreement provides that prior to the completion of the
split-off and merger, Inverness will contribute or cause to be contributed to us
any of its or any of its subsidiaries' right, title and interest in and to (1)
all of the assets of Inverness that are used or held for use primarily in the
operation or conduct of the women's health, nutritional supplements and clinical
diagnostics businesses, referred to as the Innovations businesses or our
businesses and (2) other specified assets, including cash in an amount necessary
to ensure that at the time of the split-off we will have $40 million of net
cash, defined as cash and marketable securities less debt for borrowed money
(other than debt outstanding under any revolving line of credit). The
restructuring will be effected through a series of stock and asset transfers
from Inverness and its subsidiaries to us. Under the restructuring agreement,
Inverness will retain and will not contribute to Innovations any of its or its
subsidiaries' right, title and interest to the assets that are not used or held
for use primarily in the operation of our businesses and certain other specified
assets. The restructuring agreement further provides that the parties will
cooperate in good faith to provide for the use or shared ownership of any asset
that is material to the operation of either our businesses or the post-
restructuring Inverness businesses that is primarily related to the businesses
of the other company.
ASSUMPTION OF LIABILITIES
The restructuring agreement provides that at or prior to the completion of
the split-off and merger, we and/or one of our subsidiaries will unconditionally
assume (1) all liabilities of Inverness and its subsidiaries to the extent
primarily related to or arising out of our businesses and (2) other specified
liabilities. Under the restructuring agreement, Inverness will retain, assume,
or cause one of its subsidiaries (other than our company) to assume all
liabilities of Inverness that we are not otherwise obligated to assume, as well
as other specified liabilities.
USE OF NAME
The restructuring agreement provides that we will have all rights in and
use of the names "Inverness" and "Inverness Medical" and all derivatives of
those names and that Inverness will take actions as are reasonably necessary to
vest such rights in us or any of our subsidiaries. However, Inverness will
retain the right to use the "Inverness" and "Inverness Medical" names on signs
and other displays at its
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manufacturing facilities in Inverness, Scotland, and Inverness and its suppliers
and distributors will retain the right to use those names and applicable
trademarks and trade dress on product packaging and related materials for a one
year period after completion of the split-off and merger.
ANCILLARY AGREEMENTS
The restructuring agreement provides that prior to the completion of the
split-off and merger, Inverness, or another of its subsidiaries (other than us),
and we, or another of our subsidiaries, will enter into:
- a transition services agreement relating to the women's health business
of Can-Am Care Corporation and Inverness Medical Europe GmbH, and the
kitting services and secondary packaging services provided at the Galway,
Ireland facility
- the license agreement attached as Annex 6 to this proxy statement/
prospectus and described under "Post-Closing Arrangements -- The License
Agreement" and
- a sublease from Inverness to us of Inverness' corporate headquarters
currently subleased by Inverness at 51 Sawyer Road, Waltham,
Massachusetts on the same terms as those of the sublease currently held
by Inverness.
EMPLOYEE MATTERS
The restructuring agreement provides that:
- specified employees and consultants of Inverness and its subsidiaries and
employees of Inverness hired after the date of the split-off and merger
agreement and prior to the completion of the split-off and merger and who
are engaged primarily in a business other than an Innovations business
will remain or become employees of Inverness and its subsidiaries in the
same capacities as then held by those employees (or in such other
capacities and upon such terms and conditions as Inverness determines in
its sole discretion)
- other specified employees and consultants and employees of Inverness
hired after the date of the split-off and merger agreement and prior to
the completion of the split-off and merger and who are engaged primarily
in an Innovations business will remain or become employees of Innovations
and its subsidiaries in the same capacities as then held by those
employees (or in such other capacities and upon such terms and conditions
as we determine in our sole discretion) and
- a third category of specified employees who will perform transition
services under the transition services agreement will be deemed
transition employees and will be employed by us and receive compensation
and benefits from us, although Inverness will be responsible for any
retention bonuses and severance costs associated with those employees.
Upon completion of the split-off and merger, we will assume and be
responsible for all liabilities related to the designated Innovations employees
and the former employees of Inverness and its subsidiaries whose primary
responsibilities related to an Innovations business, and Inverness will assume
and be responsible for all liabilities and obligations related to the designated
Inverness employees and the former employees of Inverness and its subsidiaries
whose primary responsibilities related to the businesses of Inverness and its
subsidiaries other than the Innovations businesses. The restructuring agreement
provides that, to the extent permitted by applicable law, the transactions
contemplated by the restructuring agreement will not constitute a termination of
employment that would entitle an employee to receive severance or similar
compensation and benefits and that Inverness and we will use our reasonable best
efforts to amend, if necessary, any benefit plans to achieve that result. The
restructuring agreement does not confer on any employee any right to continued
employment after the completion of the split-off and merger.
We will assume sponsorship of each employee benefit, welfare benefit,
employment, personal services, compensation, change in control, severance,
time-off, perquisite and other benefit plan, policy or agreement
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relating exclusively to one or more Innovations employees. In addition, to the
extent any Innovations employee participates prior to the completion of the
split-off and merger in benefit plans that do not relate exclusively to
Innovations employees, we will establish and maintain, upon the completion of
the split-off and merger, benefit plans (not including equity plans) that
provide substantially comparable benefits to those provided to the Innovations
employee prior to the completion of the split-off and merger.
If specified Inverness employees or former employees of Inverness whose
primary responsibilities related to a business of Inverness other than an
Innovations business participate in a benefit plan that is a defined benefit
pension plan that is maintained by us or our subsidiaries, the liabilities in
respect of those participants, together with assets equal to such liabilities,
will be transferred from that defined benefit pension plan to a benefit plan
established or maintained by Inverness or Johnson & Johnson or one of their
respective subsidiaries. Similarly, if Innovations employees or former employees
of Inverness whose primary responsibilities related to an Innovations business
participate in a benefit plan that is a defined benefit pension plan that is
maintained by Inverness or its subsidiaries, the liabilities in respect of those
participants, together with assets equal to such liabilities, will be
transferred from that defined benefit pension plan to a benefit plan established
or maintained by us or one of our subsidiaries.
Upon the completion of the split-off and merger, with respect to collective
bargaining agreements to which Inverness or its subsidiaries is a party, we will
assume those agreements covering Innovations employees and Inverness will assume
those agreements covering its continuing employees. We and Inverness also will
take all other actions necessary to ensure that we and Inverness remain solely
responsible for the liabilities and obligations under those collective
bargaining agreements covering our respective employees.
CONVERSION OF OPTIONS AND WARRANTS
Options. Under the terms of the restructuring agreement, each outstanding
option to purchase shares of Inverness common stock is to be converted, as part
of the restructuring, into:
- an option to purchase the same number of shares of Inverness common
stock, referred to in this description as the replacement Inverness
option, and
- an option to purchase the number of shares of our common stock equal to
the number of shares of Inverness common stock subject to the original
Inverness option multiplied by 0.20.
The exercise prices of the replacement Inverness option and the Innovations
option will be set so that the combined exercise prices of the new options will
equal the exercise price of each original Inverness option to purchase Inverness
common stock. The aggregate exercise price of each original Inverness option
will be allocated between the replacement Inverness option and the Innovations
option in proportion to the deemed fair market value of the shares of Johnson &
Johnson common stock and Innovations common stock, in each case, to be received
for one share of Inverness common stock in the split-off and merger. The deemed
fair market value of such shares will be determined with reference to the
closing prices of Johnson & Johnson common stock on the New York Stock Exchange
and our common stock on the American Stock Exchange on the first full trading
day following the completion of the split-off and merger.
The exercise price per share of Inverness common stock issuable under the
replacement Inverness option will be determined by dividing:
- the aggregate exercise price allocated to the replacement Inverness
option by
- the aggregate number of shares of Inverness common stock that may be
purchased under the replacement Inverness option.
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The exercise price per share of our common stock issuable under the
Innovations option will be determined by dividing:
- the aggregate exercise price allocated to the Innovations option by
- the aggregate number of shares of our common stock that may be purchased
under the Innovations option.
All other terms of the original Inverness options will continue to apply to
the replacement Inverness options and the Innovations options, except that (1)
all replacement Inverness options and Innovations options will be fully vested
and immediately exercisable at and following the completion of the split-off and
merger and (2) all replacement Inverness options which will be held by persons
who are not going to be employees of Inverness or its subsidiaries immediately
following the split-off and merger and all Innovations options which will be
held by persons who are not going to be employees of our company or our
subsidiaries immediately following the split-off and merger will, in each case,
remain exercisable for the remainder of the originally stated term of the
original Inverness options irrespective of employment by or service to Johnson &
Johnson, Inverness, our company or any subsidiaries of those companies.
Warrants. Under the terms of the restructuring agreement, each outstanding
warrant to acquire shares of Inverness common stock is to be converted, as part
of the restructuring, into:
- a warrant to acquire the same number of shares of Inverness common stock,
referred to in this description as the replacement Inverness warrant and
- a warrant to acquire the number of shares of our common stock equal to
the number of shares of Inverness common stock subject to the original
Inverness warrant multiplied by 0.20.
The exercise prices of the replacement Inverness warrant and the
Innovations warrant will be set so that the combined exercise prices of the
replacement warrants will equal the exercise price of each original Inverness
warrant to acquire Inverness common stock. The aggregate exercise price of each
original Inverness warrant will be allocated between the replacement Inverness
warrant and the Innovations warrant in proportion to the deemed fair market
value of the shares of Johnson & Johnson common stock and our common stock, in
each case, to be received for one share of Inverness common stock in the split-
off and merger. The deemed fair market value of such shares will be determined
with reference to the closing prices of Johnson & Johnson common stock on the
New York Stock Exchange and the our common stock on the American Stock Exchange
on the first full trading day following the completion of the split-off and
merger.
The exercise price per share of Inverness common stock issuable under the
replacement Inverness warrant will be determined by dividing:
- the aggregate exercise price allocated to the replacement Inverness
warrant by
- the aggregate number of shares of Inverness common stock that may be
purchased under the replacement Inverness warrant.
The exercise price per share of our common stock issuable under the
Innovations warrant will be determined by dividing:
- the aggregate exercise price allocated to the Innovations warrant by
- the aggregate number of shares of our common stock that may be purchased
under the Innovations warrant.
All other terms of the original Inverness warrants will continue to apply
to the replacement Inverness warrants and the Innovations warrants.
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CONDITIONS
The obligations of Inverness and our company to consummate the
restructuring are subject to the fulfillment of each of the following
conditions:
- each of (1) the tax allocation agreement attached to this proxy
statement/prospectus as Annex 4, (2) the transition services agreement
described above, (3) the license agreement attached as Annex 6 to this
proxy statement/prospectus and (4) the sublease of Inverness' current
corporate headquarters have been executed and delivered by each of
Inverness, our company and Johnson & Johnson
- each condition to the closing of the merger in the split-off and merger
agreement, other than the condition to each party's obligation as to the
consummation of the transactions contemplated by the restructuring
agreement, has been satisfied or waived
- liens on assets contributed, or to be contributed, to us and capital
stock of any of our subsidiaries, in each case arising pursuant to
Inverness' credit agreement dated as of February 18, 1998, with Chase
Manhattan Bank have been released, and there are no liens on our assets
or the capital stock of any of our subsidiaries imposed in connection
with the financing required by the split-off and merger agreement and
- the Inverness board of directors is reasonably satisfied that, after
giving effect to the restructuring, we will not be insolvent and will not
have unreasonably small capital with which to engage in our business.
MUTUAL RELEASE
Effective upon the completion of the split-off and merger and except as
otherwise specifically set forth in the transaction agreements, each of
Inverness and its subsidiaries, on the one hand, and we and our subsidiaries, on
the other hand, will release and discharge the other and its affiliates, and
their directors, officers, employees and agents of and from all debts, demands,
actions, causes of action, suits, accounts, covenants, contracts, agreements,
damages, and any and all claims, demands and liabilities whatsoever of every
name and nature, both in law and in equity, against such other person or any of
its assigns, which the releasing person has or ever had (other than those based
on fraud, gross negligence or wilful misconduct by such other person) which
arise out of or relate to events, circumstances or actions taken by such other
person prior to the completion of the split-off and merger. This release does
not apply to any transaction agreement or the transactions contemplated by those
agreements and does not affect any person's right to enforce any transaction
agreement or any other agreement contemplated in accordance with its terms.
TERMINATION
In the event the split-off and merger agreement is terminated pursuant to
its terms, the restructuring agreement will automatically and simultaneously
terminate and the restructuring and split-off will automatically and
simultaneously be abandoned without our approval or that of the Inverness
stockholders.
THE SPLIT-OFF AND MERGER
At the effective time of the split-off and merger, each outstanding share
of Inverness common stock will be converted into the right to receive: (1) 0.20
of a share of our common stock, and (2) a fraction of a share of Johnson &
Johnson common stock based on an exchange ratio intended to value that
fractional share at $35.00, except that treasury stock and stock held by Johnson
& Johnson and Sunrise Acquisition Corp. will be canceled. Inverness stockholders
will receive cash for any fractional shares of Johnson & Johnson common stock
and our common stock they would otherwise receive in the split-off and merger.
For a more complete description of the terms of the split-off and merger, see
"The Split-off and Merger Agreement" on page 54 of this proxy
statement/prospectus.
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POST-CLOSING ARRANGEMENTS
This is a summary of material post-closing arrangements with respect to,
among other things, tax allocation, indemnification, noncompetition,
solicitation and hiring of employees and the licensing of intellectual property
rights to us. The tax allocation agreement, which is attached as Annex 4 to this
proxy statement/prospectus and is incorporated herein by reference, contains the
complete terms of that agreement. The post-closing covenants agreement, which is
attached as Annex 5 to this proxy statement/prospectus and is incorporated
herein by reference, contains the complete terms of that agreement. The license
agreement, which is attached as Annex 6 to this proxy statement/prospectus and
is incorporated herein by reference, contains the complete terms of that
agreement. You should read those agreements carefully.
THE TAX ALLOCATION AGREEMENT
Prior to the restructuring, we, Inverness and Johnson & Johnson will enter
into a tax allocation agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the split-off and merger and
related matters such as the filing of tax returns and the conduct of audits and
other tax proceedings.
Preparation and Filing of Tax Returns. We are responsible for preparing
and filing (or causing to be prepared and filed) all separate state, local or
foreign tax returns of Innovations and our post-closing subsidiaries, referred
to as the Innovations group, and any consolidated, combined, unitary or
aggregate state, local, or foreign tax returns that do not include Inverness or
any of its post-closing subsidiaries, referred to as the Inverness group.
Johnson & Johnson is responsible for preparing and filing (or causing to be
prepared and filed), with our cooperation and that of the members of the
Innovations group, all other tax returns.
Payments with Respect to Taxes. For all taxes with respect to which
Johnson & Johnson, Inverness or any other member of the Inverness group is
required to file a tax return as described above, we will pay Inverness the
amount of the taxes attributable to the Innovations business within ten business
days after receipt from Johnson & Johnson or Inverness of a copy of the tax
return (or a copy of the decision or agreement with respect to any final
determination regarding the period to which the tax return relates), together
with a statement showing in reasonable detail the calculation of any taxes
attributable to the Innovations business. The tax allocation agreement provides
specific guidelines for calculating the amount of taxes attributable to the
Innovations business.
For all taxes with respect to which we or any other member of the
Innovations group is required to file a tax return as described above, Inverness
will pay us the amount of the taxes attributable to the Inverness group's
business within ten days after receipt from us of a copy of the tax return (or a
copy of the decision or agreement with respect to any final determination
regarding the period to which the tax return relates), together with a statement
showing in reasonable detail the calculation of any taxes attributable to the
Inverness group's business. The tax allocation agreement provides specific
guidelines for calculating the amount of taxes attributable to the Inverness
group's business.
Indemnification. Inverness and each other member of the Inverness group
will indemnify and hold us and each member of the Innovations group harmless
from and against:
- any liability for taxes attributable to the Inverness group's business as
calculated pursuant to the tax allocation agreement and
- any liability for taxes directly or indirectly attributable to the
split-off or merger or any related transaction.
We and each other member of the Innovations group will indemnify and hold
Johnson & Johnson, Inverness and each other member of the Inverness group
harmless from and against any liability for taxes attributable to the
Innovations businesses as calculated pursuant to the tax allocation agreement.
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Cooperation. Johnson & Johnson and Inverness, on the one hand, and we, on
the other hand, will, and will cause the members of the Inverness group and the
Innovations group, respectively, to, cooperate with each other in the
preparation and filing of tax returns and the conduct of any audit or other
proceeding, and will deliver powers of attorney and make available other
documents as are necessary to carry out the intent of the tax allocation
agreement. Johnson & Johnson, Inverness and we will use reasonable efforts to
reduce any transfer, sales or other similar taxes that may be incurred with
respect to the transactions contemplated by the transaction agreements.
THE POST-CLOSING COVENANTS AGREEMENT
Prior to the completion of the split-off and merger, Johnson & Johnson,
Inverness, certain subsidiaries of Inverness, we and certain of our subsidiaries
will enter into the post-closing covenants agreement. The post-closing covenants
agreement will govern the terms of the relationship between Johnson & Johnson
and Inverness, on the one hand, and us, on the other hand, after the completion
of the split-off and merger with respect to, among other things, indemnification
rights, payment of restructuring, split-off and merger expenses, non-compete and
nonsolicitation agreements and adjustments to our net cash position.
Indemnification by Innovations and Our Subsidiaries. The post-closing
covenants agreement provides that we and our post-closing subsidiaries, referred
to as the Innovations companies, will jointly and severally indemnify, defend
and hold harmless Johnson & Johnson and its affiliates, subsidiaries and
representatives, referred to as the Johnson & Johnson indemnitees, from and
against, and pay or reimburse the Johnson & Johnson indemnities for all losses,
as incurred:
- relating to or arising from the Innovations businesses or the assets or
liabilities transferred to and assumed by us in the restructuring,
whether such losses relate to or arise from events, occurrences, action,
omissions, facts or circumstances occurring, existing or asserted before,
at or after the completion of the split-off and merger
- relating to or arising from any untrue statement or alleged untrue
statement of a material fact relating to any Innovations company,
contained in any of the filings made or required to be made with the SEC
in connection with the transactions contemplated by the split-off and
merger agreement and the other transaction agreements, or any omission or
alleged omission to state in any of the filings a material fact relating
to any Innovations company required to be stated in the filings or
necessary to make the statements in the filings, in light of the
circumstances under which they were made, not misleading, but only with
respect to statements made in the filings or incorporated by reference in
the filings based upon information supplied by any Innovations company
specifically for inclusion or incorporation by reference in the filings
- relating to or arising from the breach by any Innovations company of any
agreement or covenant contained in any transaction agreement which is to
be performed or complied with after the completion of the split-off and
merger or
- relating to or arising from the failure of Inverness to obtain, prior to
the completion of the split-off and merger, the consent of particular
holders of warrants to purchase Inverness common stock to amend the terms
of those warrants to permit their conversion into warrants to purchase
Johnson & Johnson common stock and our common stock as contemplated by
the transaction agreements.
Notwithstanding the joint and several nature of the indemnification
obligations described above, each subsidiary of ours will only be liable for
losses:
- in the case of the losses described in the first bullet point of this
subsection, relating to or arising from (1) the Innovations business
conducted by that subsidiary, (2) the assets used, held for use or
intended for use in the Innovations business conducted by that subsidiary
and (3) the liabilities of or attributable to the Innovations business of
that subsidiary and
- in the case of the losses described in the third bullet point of this
subsection, relating to or arising from a breach by that subsidiary.
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Indemnification by Inverness and Its Post-Closing Subsidiaries. The
post-closing covenants agreement provides that Inverness and its post-closing
subsidiaries will jointly and severally indemnify, defend and hold harmless us,
our affiliates, subsidiaries and representatives, referred to as the Innovations
indemnitees, from and against, and pay or reimburse the Innovations indemnitees
for:
- all losses, as incurred, relating to or arising from Inverness'
post-restructuring business or the assets or liabilities retained by
Inverness in the restructuring, whether such losses related to or arise
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the completion of the
split-off and merger or
- all losses, as incurred (together with interest on those losses at a rate
equal to 15% per annum calculated from the date written notice of a claim
for indemnification relating to such losses is delivered to Inverness
after the completion of the split-off and merger), relating to or arising
from the breach by Inverness or its post-closing subsidiaries of any
agreement or covenant contained in any transaction agreement which is to
be performed or complied with after the completion of the split-off and
merger.
Notwithstanding the joint and several nature of the indemnification
obligations described above, each post-closing subsidiary of Inverness will only
be liable for losses:
- in the case of the losses described in the first bullet point of this
subsection, relating to or arising from (1) the assets used, held for use
or intended for use in the post-restructuring business conducted by that
subsidiary and (2) the liabilities of or attributable to the
post-restructuring business of that subsidiary and
- in the case of the losses described in the second bullet point of this
subsection, relating to or arising from a breach by that subsidiary.
In the event that Inverness transfers any material portion of its assets in
a single transaction or in a series of transactions, Johnson & Johnson promptly
will either guarantee the indemnification obligations referred to in the first
bullet point of this subsection or take such other action to insure that the
ability of Inverness, legal and financial, to satisfy such indemnification
obligations will not be diminished in any material respect.
Indemnification by Johnson & Johnson. The post-closing covenants agreement
provides that Johnson & Johnson will indemnify, defend and hold harmless the
Innovations indemnitees from and against, and pay or reimburse the Innovations
indemnitees for:
- all losses, as incurred, relating to or arising form any untrue statement
or alleged untrue statement of a material fact contained in any of the
filings made or required to be made with the SEC in connection with the
transactions contemplated by the split-off and merger agreement and the
other transaction agreements, or any omission or alleged omission to
state in any of the filings a material fact required to be stated in the
filings or necessary to make the statements in the filings, in light of
the circumstances under which they were made, not misleading, but only
with respect to statements made in the filings or incorporated by
reference in the filings based upon information supplied by Johnson &
Johnson specifically for inclusion or incorporation by reference in the
filings or
- all losses, as incurred (together with interest on those losses at a rate
equal to 15% per annum calculated from the date written notice of a claim
for indemnification relating to such losses is delivered to Inverness
after the completion of the split-off and merger), relating to or arising
from the breach by Inverness or any of its post-restructuring
subsidiaries of any agreement or covenant contained in any transaction
agreement which is to be performed or complied with after the completion
of the split-off and merger.
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Expenses. Notwithstanding anything to the contrary in the split-off and
merger agreement, Inverness will be responsible for:
- all expenses of Inverness, its subsidiaries and us and our subsidiaries
directly related to the restructuring, the split-off and the merger in an
amount of up to $12 million plus
- all fees and expenses incurred in connection with any litigation to the
extent arising out of or related in any way to the transaction
contemplated by the transaction agreements and
- all fees and expenses up to $2 million in connection with securing
financing required as a closing condition to the split-off and merger.
We will be responsible for all such expenses in excess of those amounts.
Agreements Not to Compete and Not to Solicit or Hire Employees. For a
period of ten years from the completion of the split-off and merger, we will
not, and will not permit any of our affiliates, in any manner, directly or
indirectly, alone or in association with any person, to:
- subject to limited exceptions, compete with Johnson & Johnson, Inverness
or any of their affiliates in the field of diabetes generally, including
the testing, monitoring, diagnosing, prognostication, treatment,
management or cure of diabetes and diabetes symptoms and conditions,
referred to as the diabetes field
- engage in any activity in the diabetes field or
- actively participate in, control, manage, own any interest in or share in
the earnings of, finance or invest in the capital stock of any person who
is engaged in any activity in the diabetes field or, with the exception
of Ernest Carabillo, consult with any person on matters in the diabetes
field, except physician practice management activities, as described
below, and except that we and our subsidiaries in the aggregate, and each
other affiliate of ours, may acquire:
- an entity which participates in the diabetes field if at the time of the
acquisition and during the ten year period referred to above, (1) the
entity's activity in the diabetes field is limited to the sale of
products and services and (2) the revenues derived from the sale of the
products and services constitute no more than 3% of the entity's total
revenues, and the entity does not receive any royalty revenue from the
diabetes field and
- up to 2% of the equity or voting interest in an entity that is engaged
in activities in the diabetes field, so long as none of Ron Zwanziger,
David Scott or Jerry McAleer is actively involved, whether directly or
indirectly, in the management of the entity during the period of the
applicable non-competition covenants contained in his consulting and
noncompetition agreement with Johnson & Johnson and Inverness.
Despite the noncompetition provisions described above, we will not be
prohibited from participating, directly or indirectly, in physician practice
management activities in the diabetes field, including competing, engaging,
controlling, managing, owning, investing, consulting and soliciting customers.
For the purposes of the post-closing covenants agreement, "physician practice
management activities" means and is limited to the following:
- owning physician practices
- providing back office management services to physicians and
practitioners, such as billing, collections, scheduling and reimbursement
- compiling data from physicians and practitioners for the purposes of
establishing disease management best practices and
- providing group-buying services for physicians and practitioners,
excluding any and all products and services in the diabetes field and
excluding particular testing system applications, including diabetes
tests, involving multiple analytes.
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For a period of three years from the completion of the split-off and
merger, we will not, and will cause our affiliates not to, in any manner,
directly or indirectly:
- induce any person that has been an employee of any of Inverness and its
post-closing subsidiaries at any time between January 1, 2001 and the
time when the split-off and merger are completed, to leave the employ of
Inverness and its post-closing subsidiaries
- except in response to a good faith request by a person that is not an
affiliate of ours for a recommendation regarding the employment
qualifications of an employee, recommend to any other person that such
person employ that employee or
- subject to limited exceptions, hire any such employee.
For a period of five years from the completion of the split-off and merger,
we will not, and will cause our affiliates not to, in any manner, directly or
indirectly:
- solicit, either directly or indirectly, any customer or supplier of
Johnson & Johnson, Inverness or any of their affiliates to (1) transact
business in the diabetes field with a business or enterprise that
competes with Johnson & Johnson, Inverness or any affiliates in the
diabetes field or (2) reduce or refrain from doing any business with
Johnson & Johnson, Inverness or any of their respective affiliates in the
diabetes field except with respect to physician practice management
activities or
- disparage, including by relative comparison, Johnson & Johnson or
Inverness or any of their products or activities in the diabetes field,
except good faith comparative assessment with respect to physician
practice management activities.
Net Cash Adjustment. As part of the restructuring, we and our subsidiaries
are to be funded by Inverness with $40 million of net cash, defined as cash and
marketable securities less debt for borrowed money (other than debt outstanding
under any revolving line of credit). Under the terms of the post-closing
covenants agreement, if upon the completion of the split-off and merger, we and
our subsidiaries have more than $40 million in net cash, we will pay any excess
amount to Inverness.
THE LICENSE AGREEMENT
Prior to the completion of the split-off and merger, we and Inverness will
enter into the license agreement. Under the terms of the license agreement,
Inverness will grant us a paid-up, royalty-free license with respect to certain
of Inverness' intellectual property and we will grant Inverness a paid-up,
royalty-free license with respect to certain of our intellectual property, each
as described in more detail below.
Division of Fields. The license agreement defines the various fields in
which the parties may use the intellectual property rights granted to them under
that agreement.
Inverness' Field. For purposes of the license agreement, Inverness' field
is defined as the field of diabetes generally, including the testing,
monitoring, diagnosing, prognosticating, treatment, management and cure of
diabetes. Inverness' field does not include certain testing systems involving
multiple analytes, referred to as multi-analyte systems, nor does it include the
testing, monitoring, diagnosing, prognosticating, treatment, or management of
cholesterol, creatinine and similar analytes.
Innovations' Field. For purposes of the license agreement, our field is
defined as the manufacture, marketing, licensing, support, performance and use
of products and services that are not included in Inverness' field and fall
within any of the following categories, referred to as Innovations' subfields:
- point of care applications
- prothrombin applications
- multi-analyte system applications
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- immunodiagnostic applications, including products for the detection or
measurement of cardiac markers
- pregnancy, ovulation or osteoporosis applications and
- pain management applications
Shared Field. For purposes of the license agreement, the shared field is
defined as all fields outside of Innovations' field and Inverness' field.
License Grants Relating to Electrochemical Intellectual Property. For
purposes of the license agreement, electrochemical intellectual property refers
to all technology that relates to the design, manufacture or use of devices
useful for the detection of analytes by applying a current or voltage potential
to a fluid containing the analyte, and all related intellectual property rights,
but excluding intellectual property pertaining to the sampling of interstitial
fluids. The license agreement provides for the grant of the following rights
with respect to Inverness' electrochemical intellectual property:
- for use in Innovations' field, Inverness grants us a perpetual,
irrevocable, worldwide, paid-up, royalty-free, exclusive license to use
Inverness' electrochemical intellectual property and all technology
developed by or for Inverness during the first three years of the license
relating to certain methods and apparatus for coating or infusing strips
with chemicals for use in testing and all related intellectual property.
Although this license is perpetual and irrevocable, our right to use the
licensed intellectual property rights in an Innovations subfield will
terminate in ten years if, by that time, we have not commercialized a
product in that subfield. We have certain rights to transfer our licensed
rights with respect to one or more of our subfields, subject to specified
limitations
- for use in the shared field, Inverness grants us a perpetual,
irrevocable, worldwide, paid-up, royalty-free, co-exclusive license to
use Inverness' electrochemical intellectual property and all technology
developed by or for Inverness during the first three years of the license
relating to certain methods and apparatus for coating or infusing strips
with chemicals for use in testing and all related intellectual property
and
- for use in Inverness' field, we grant Inverness a perpetual, irrevocable,
worldwide, paid-up, royalty-free, exclusive license to use all
electrochemical technology developed by or for us during the first three
years of the license using the electrochemical technology and
intellectual property licensed to us from Inverness under the license
agreement.
License Grants Relating to Interstitial Intellectual Property and Wireless
Intellectual Property. For purposes of the license agreement, interstitial
intellectual property refers to intellectual property pertaining to the sampling
of interstitial fluid, and wireless intellectual property refers to intellectual
property pertaining to the wireless transmission of information. The license
agreement provides for the grant of the following rights with respect to
Inverness' interstitial intellectual property and wireless intellectual
property:
- for use in Innovations' field and the shared field, Inverness grants us a
perpetual, irrevocable, worldwide, paid-up, royalty-free, co-exclusive
license to use its interstitial intellectual property and
- for use in Inverness' field, we grant Inverness a perpetual, irrevocable,
worldwide, paid-up, royalty-free, exclusive license to use all
electrochemical technology developed by or for us during the first three
years of the license using the interstitial intellectual property and
wireless intellectual property licensed to us from Inverness under the
license agreement.
Confidentiality and Ownership. The license agreement provides that,
subject to certain limited exceptions, each party will not use any confidential
information of the other party except as authorized by the agreement and only
for the purposes of the license agreement, and will not disclose such
confidential information to anyone, except to its employees, contractors,
consultants, agents and sublicensees who have a need to know such information in
connection with their activities pursuant to the licenses granted under the
license agreement. These confidentiality obligations will extend for a period of
five years following the date of disclosure of any such confidential
information.
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The license agreement also provides that, as between the parties, any new
technology that is invented, developed or created by or on behalf of a party,
and all related intellectual property, will be the property of such party. Any
new technology that is invented, developed or created jointly by or on behalf of
both parties, and all related intellectual property, will be jointly owned by
the parties.
RIGHTS OF FIRST REFUSAL AND SHARING OF PROFITS ON DIABETES TESTS. The
license agreement provides that if we commercialize a multi-analyte system, and
the system includes one or more diabetes tests, we must pay Inverness an amount
equal to our gross profits from sales of that system multiplied by the ratio of
the number of diabetes tests in the system to the total number of tests in the
system.
The license agreement also provides that if we develop a product, process,
or service in our subfield of prothrombin applications that we wish to
commercialize, we will notify Inverness of such development and offer Inverness
the right to become the exclusive distributor of that product, process, or
service on terms substantially similar to the distribution agreement between
Inverness and LifeScan, Inc. dated as of June 7, 1999, but with pricing specific
to the applicable product, process, or service which is commercially reasonable.
Inverness will then have a period of time to accept such terms or object that
the pricing terms are not commercially reasonable. If Inverness fails to timely
make an election to become the exclusive distributor of such a product, process
or service, it will lose its rights under the license agreement to become such
an exclusive distributor.
The license agreement further provides that we will not grant any exclusive
sublicense of any intellectual property licensed to us under the license
agreement or enter into any exclusive distribution agreement with respect to
products manufactured by us using any such licensed intellectual property
without first delivering to Inverness a written term sheet outlining the terms
of such a transaction. Inverness will then have a period of 30 days in which to
agree to enter into that transaction with us on the proposed terms. If Inverness
fails to exercise this right, we may enter into the transaction with any other
person, but only if the transaction is consummated by a written agreement within
6 months from the end of the 30-day response period and the final terms of the
transaction, taken as a whole, are not substantially more favorable to the other
person than the terms proposed in the written term sheet delivered by us to
Inverness.
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CAPITALIZATION
The following table sets forth our historical and pro forma capitalization
as of March 31, 2001 on an actual basis and as adjusted to give effect to the
split-off and merger. You should read this table in conjunction with the
consolidated financial statements and notes included herein and the information
under "Selected Historical Consolidated Financial Data of Inverness Medical
Innovations, Inc. and Subsidiaries."
MARCH 31, 2001
------------------------
ACTUAL PRO FORMA(1)
-------- ------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
Current Portion of Notes Payable............................ $ 7,944 --
Long-Term Liabilities:
Other long-term liabilities............................... 1,286 1,286
Notes payable, net of current portion..................... 15,811 --
-------- --------
Total long-term liabilities............................ 17,097 1,286
-------- --------
Stockholders' equity:
Common stock, $0.001 par value:........................... 1 7
Authorized -- 1,000 shares
Issued and outstanding -- 1,000 shares actual,
6,550,852 shares pro forma............................
Additional paid-in capital................................ 53,226 93,563
Net parent Company investment............................. 3,714 --
Accumulated deficit....................................... (13,191) (13,191)
Accumulated other comprehensive income.................... 1,186 1,186
-------- --------
Total Stockholders' equity............................. 44,936 81,565
-------- --------
Total Capitalization................................... $ 62,033 $ 82,851
======== ========
---------------
(1) Reflects the assumption or discharge of all third-party and related-party
debt by Inverness, the contribution of $40 million of net cash by Inverness
and the transfer of the diabetes care products operations to Inverness.
Following completion of the split-off and merger there will be
approximately -- shares of our common stock issued and outstanding. This amount
includes:
- -- shares of our common stock issued to Inverness stockholders in the
split-off
- -- shares of restricted stock sold to an executive officer of Innovations
prior to the split-off and
- -- shares of common stock issuable upon the exercise of Innovations
options granted to certain executive officers of Innovations prior to the
split-off, which options are expected to be exercised within a few months
after the split-off.
The information above is based on the number of shares of Inverness common
stock outstanding as of --, 2001, assumes that this number will not change prior
to the split-off and merger, and excludes:
- -- shares of our common stock issuable upon exercise of Inverness options
outstanding as of --, 2001, which options will partially convert into
Innovations options in the split-off
- -- shares of our common stock issuable upon exercise of Inverness
warrants outstanding as of --, 2001, which warrants will partially
convert into Innovations warrants in the split-off
- -- shares reserved for issuance in connection with future grants under
our 2001 stock option and incentive plan, including options to purchase
-- shares which will be granted to certain executive officers immediately
after the split-off, and
- -- shares reserved for issuance under our employee stock purchase plan.
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DIVIDEND POLICY
We do not intend to pay any dividends on our common stock in the
foreseeable future. Any future payments of dividends and the amount of the
dividend will be determined by our board of directors from time to time based on
our:
- results of operations
- financial condition
- cash requirements
- applicable legal requirements
- contractual restrictions on the payment of dividends, such as
restrictions that are often present in financing documents
- future prospects and
- other factors deemed relevant by our board of directors.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements, related notes and the
other information contained in this prospectus. The following table provides
selected historical consolidated financial data of Innovations as of and for
each of the fiscal years in the five-year period ended December 31, 2000 and as
of and for each of the three-month periods ended March 31, 2000 and March 31,
2001. The data as of and for each of the fiscal years in the three-year period
ended December 31, 2000 have been derived from our consolidated financial
statements that have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this prospectus. The consolidated
financial data as of and for each of the fiscal years in the two-year period
ended December 31, 1997 and as of and for the three months ended March 31, 2000
and March 31, 2001 have been derived from our unaudited financial statements.
The unaudited consolidated financial statements for the three-month periods have
been prepared on a basis consistent with our audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our consolidated financial position and consolidated results of
operations for these periods. The historical consolidated financial information
presents our results of operations and financial position as if we had been a
separate entity for all periods presented. The historical financial information
may not be indicative of our future performance and may not necessarily reflect
what our financial position and results of operations would have been if we had
been a separate stand-alone entity during the periods covered.
The discontinuation of the diabetes businesses of our subsidiaries is one
of a number of events that will occur upon the closing of the split-off and
merger and related transactions that will have a significant impact on our
financial statements. Under the terms of the split-off and merger agreement and
related agreements, Inverness is obligated to capitalize us with $40 million in
net cash. Inverness is also obligated to assume or discharge all of the
third-party debt associated with our businesses and forgive all amounts due from
us to Inverness as of the closing date. The unaudited pro forma combined
financial statements reflect these transactions.
At closing, Inverness expects to distribute to its stockholders one share
of our common stock for every five shares of Inverness common stock held. In
order for Inverness to do so, we will declare a stock split, to be effected as a
dividend. Accordingly, in addition to the presentation of historical earnings
per share information using for all periods the actual number of shares of
Innovations common stock outstanding as of the date of our incorporation, we
have also presented unaudited pro forma earnings per share reflecting the
planned distribution ratio and estimated stock split that would have been
necessary had the transactions contemplated in the split-off and merger
agreement and related agreements been completed on March 31, 2001.
Our combined financial statements reflect the allocation of Inverness'
common expenditures. Such allocations have been made in accordance with Staff
Accounting Bulletin (SAB) No. 55, Allocation of Expenses and Related Disclosure
in Financial Statements of Subsidiaries, Divisions or Lesser Business Components
of Another Entity.
When you read this selected financial data, it is important that you also
read the historical financial statement and related notes included in this
prospectus, as well as the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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HISTORICAL
-------------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net revenues.............................. $14,024 $50,606 $74,645 $79,294 $84,529 $20,952 $18,662
Cost of sales............................. 10,592 24,725 40,563 45,534 48,183 11,620 10,860
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 3,432 25,881 34,082 33,760 36,346 9,332 7,802
------- ------- ------- ------- ------- ------- -------
Operating Expenses:
Research and development................ 6,011 7,001 2,869 1,428 1,359 362 299
Selling, general and administrative..... 6,518 21,070 28,484 25,275 26,519 6,615 6,154
Other operating expenses................ -- 81 5,372 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses................ 12,529 28,152 36,725 26,703 27,878 6,977 6,453
------- ------- ------- ------- ------- ------- -------
Operating (loss) income............... (9,097) (2,271) (2,643) 7,057 8,468 2,355 1,349
Interest expense, including amortization
of original issue discount.............. (579) (3,223) (3,682) (3,158) (2,988) (772) (557)
Interest and other (expense) income,
net..................................... 3 707 (721) (567) (389) (52) (84)
------- ------- ------- ------- ------- ------- -------
(Loss) income before minority interest.... (9,673) (4,787) (7,046) 3,332 5,091 1,531 708
Minority interest in Orgenics............. 133 139 89 1 -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes......... (9,540) (4,648) (6,957) 3,333 5,091 1,531 708
Provision for income taxes................ -- 1,456 2,103 2,793 2,909 992 579
------- ------- ------- ------- ------- ------- -------
Net (loss) income......................... $(9,540) $(6,104) $(9,060) $ 540 $ 2,182 $ 539 $ 129
======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per common and
potential common share(1)
Basic and diluted......................... $(9,540) $(6,104) $(9,060) $ 540 $ 2,182 $ 539 $ 129
======= ======= ======= ======= ======= ======= =======
HISTORICAL
-----------------------------------------------------------
DECEMBER 31, MARCH 31,
----------------------------------------------- ---------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................ 2,113 5,099 1,120 695 3,090 3,404
Working capital.................................. (2,226) (1,882) (3,924) (1,092) (2,224) (2,082)
Total assets..................................... 17,518 67,663 89,771 90,092 89,541 90,656
Debt obligations(2).............................. 2,542 26,595 38,994 31,948 22,257 19,698
Total stockholders' equity....................... 3,053 18,442 28,932 34,953 41,812 44,936
---------------
(1) Computed as described in our historical financial statements and reflected
notes included in this prospectus.
(2) Excludes amounts due to related parties.
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PRO FORMA(1)
-------------------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Consolidated Statement of
Operations:
Net revenues.............................. $14,024 $50,606 $54,685 $50,584 $51,051 $13,455 $11,812
Cost of sales............................. 10,592 24,725 26,720 26,890 25,075 6,547 5,826
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 3,432 25,881 27,965 23,694 25,976 6,908 5,986
------- ------- ------- ------- ------- ------- -------
Operating Expenses:
Research and development................ 5,853 6,210 2,322 1,395 1,360 362 299
Selling, general and administrative..... 6,518 21,070 22,769 18,350 17,763 4,563 4,172
Other operating expenses................ -- 81 4,969 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 12,371 27,361 30,060 19,745 19,123 4,925 4,471
------- ------- ------- ------- ------- ------- -------
Operating (loss) income............. (8,939) (1,480) (2,095) 3,949 6,853 1,983 1,515
Interest expense, including amortization
of original issue discount Interest and
other (expense) income, net............. 3 707 (740) (563) (388) (53) (79)
------- ------- ------- ------- ------- ------- -------
(Loss) income before minority interest
and discontinued operations........... (8,936) (773) (2,835) 3,386 6,465 1,930 1,436
Minority interest in Orgenics............. 133 139 89 1 -- -- --
Income (loss) from discontinued
operations.............................. (158) (791) (2,882) 183 (598) (296) (581)
------- ------- ------- ------- ------- ------- -------
(Loss) income before income taxes....... (8,961) (1,425) (5,628) 3,570 5,867 1,634 855
Provision for income taxes................ -- 1,456 1,115 1,007 1,781 609 354
------- ------- ------- ------- ------- ------- -------
Net (loss) income....................... $(8,961) $(2,881) $(6,743) $ 2,563 $ 4,086 $ 1,025 $ 501
======= ======= ======= ======= ======= ======= =======
PRO FORMA (LOSS) INCOME FROM CONTINUING
OPERATIONS PER COMMON SHARE -- BASIC AND
DILUTED................................. $ (9.23) $ (1.31) $ (1.58) $ 0.71 $ 0.99 $ 0.34 $ 0.18
PRO FORMA (LOSS) INCOME FROM DISCONTINUED
OPERATIONS PER COMMON SHARE -- BASIC AND
DILUTED................................. (.17) (.49) (1.18) 0.05 (0.13) (0.08) (0.10)
------- ------- ------- ------- ------- ------- -------
Net (loss) income per common and potential
common share:(1)
Basic and diluted....................... $ (9.40) $ (1.80) $ (2.76) $ 0.76 $ 0.86 $ 0.26 $ 0.08
======= ======= ======= ======= ======= ======= =======
PRO FORMA
-------------------------
DECEMBER 31, MARCH 31,
2000(3) 2001(4)
------------ ---------
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents................................. 3,071 40,000
Working capital........................................... 16,090 44,721
Total assets.............................................. 75,774 93,276
Debt obligations(2)....................................... 12,830 --
Total stockholders' equity................................ 41,812 81,565
---------------
(1) Reflects the reclassification of diabetes operations as discontinued
operations and elimination of third-party and related-party interest
expense.
(2) Excludes amounts due to related parties.
(3) Reflects the reclassification of net diabetes assets as net assets of
discontinued operations.
(4) Reflects the assumption of all third-party and related-party debt by
Inverness, the contribution of $40 million of net cash by Inverness and the
transfer of the diabetes operations of our subsidiaries to Inverness.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis with the selected
historical consolidated financial data and consolidated financial statements,
including the notes to the financial statements, appearing in this prospectus.
The following discussion and analysis contains certain forward-looking
statements which are subject to risks, uncertainties and contingencies,
including those set forth under the headings "Risk Factors" and "Special
Statement Regarding Forward-Looking Statements," which could cause our actual
business, results of operations or financial condition to differ materially from
those expressed in, or implied by, those statements.
GENERAL
We are, and until the split-off will continue to be, a majority-owned
subsidiary of Inverness. Upon completion of the restructuring, we will operate
all of the women's health, nutritional supplements and clinical diagnostics
businesses of Inverness. As part of the merger of Inverness and Johnson &
Johnson, we will be split-off from Inverness and all of the shares of our common
stock held by Inverness will be delivered to Inverness' stockholders. At that
time we will become an independent, publicly owned company. The split-off will
not occur unless the merger is completed.
As an independent company, we expect to incur additional legal, risk
management, tax, treasury, human resources, administrative and other expenses
that we did not experience as a subsidiary of Inverness. We also expect that
these expenses will initially constitute a higher percentage of our revenues as
we enhance our administrative and corporate overhead structure. The historical
consolidated financial information includes our results of operations and
financial position as if we had been an independent company operating the
women's health, nutritional supplements and clinical diagnostics businesses of
Inverness for all periods presented. The historical consolidated financial
information also includes the allocation of Inverness common expenditures.
However, generally accepted accounting principals require that the historical
consolidated financial information also include all revenues and costs
historically generated by any entity that was a subsidiary of any entity
transferred to Innovations as of the time of the split-off, even where such a
subsidiary will ultimately be transferred to Johnson & Johnson through the
merger. For this reason, the historical consolidated financial statements must
include all revenues and costs of Can-Am Care Corporation, a subsidiary of
Innovations until immediately prior to the split-off, even though Can-Am
operates a diabetes care products business that will be transferred to Inverness
immediately prior to the split-off and acquired by Johnson & Johnson in the
merger. For these and other reasons, the historical financial information likely
does not reflect what our financial position and results of operations would
have been if we were a separate stand-alone entity during the periods covered
and is likely not indicative of our future performance. In addition, unless and
until there has been an affirmative vote by the Inverness stockholders adopting
the split-off and merger agreement, we cannot report Can-Am's results as
discontinued operations in our historical financial statements. Accordingly, the
discussion that follows will include a discussion not only of the historical
financial statements for Innovations, but also the pro forma financial
statements that reflect our continuing operations. The basis of presentation for
the pro forma information is discussed beginning on page X-43.
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HISTORICAL RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AS A PERCENTAGE OF NET REVENUE
The following table summarizes our consolidated financial statements of
income as a percentage of net revenue.
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1998 1999 2000 2000 2001
------ ------ ------ ----- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 54.3 57.4 57.0 55.5 58.2
----- ----- ----- ----- -----
Gross profit....................................... 45.7 42.6 43.0 44.5 41.8
----- ----- ----- ----- -----
Operating expenses:
Research and development......................... 3.8 1.8 1.6 1.7 1.6
Selling, general and administrative.............. 38.2 31.9 31.4 31.6 33.0
Other expenses................................... 7.2 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses......................... 49.2 33.7 33.0 33.3 34.6
----- ----- ----- ----- -----
Operating income (loss)....................... (3.5) 8.9 10.0 11.2 7.2
----- ----- ----- ----- -----
Interest expense, including amortization of
original issue discount.......................... (4.9) (4.0) (3.5) (3.7) (3.0)
Interest and other income (expense), net........... (1.0) (0.7) (0.5) (0.2) (0.4)
Minority interest in Orgenics...................... 0.1 -- -- -- --
----- ----- ----- ----- -----
(Loss) income before income taxes................ (9.3) 4.2 6.0 7.3 3.8
Provision for income taxes......................... 2.8 3.5 3.4 4.7 3.1
----- ----- ----- ----- -----
Net (loss) income................................ (12.1)% 0.7% 2.6% 2.6% 0.7%
===== ===== ===== ===== =====
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
The following table sets forth our unaudited quarterly combined operating
results for each of the nine quarters ending March 31, 2001. We have prepared
this information on a basis consistent with our audited combined financial
statements. These quarterly results are not necessarily indicative of future
results of our operations. This information should be read in conjunction with
our consolidated financial statements and notes included in this prospectus.
1999 2000 2001
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue....................... $18,866 $18,842 $19,813 $21,773 $20,952 $20,684 $22,072 $20,821 $18,662
Gross profit...................... 8,188 7,934 8,127 9,512 9,332 9,049 9,260 8,705 7,802
Operating income.................. 947 1,905 1,404 2,801 2,355 2,020 2,209 1,884 1,349
Net income (loss)................. (774) 533 (178) 959 539 619 586 438 129
Earnings (loss) per share -- basic
and diluted(1).................. $ (774) $ 533 $ (178) $ 959 $ 539 $ 619 $ 586 $ 438 $ 129
---------------
(1) Basic and diluted earnings (loss) per share are computed as described in
Note 2j of the "Notes to Combined Financial Statements".
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Net Revenues. Net revenues in the three months ended March 31, 2001
decreased $2.3 million or 11% to $18.7 million from $21.0 million in the three
months ended March 31, 2000. The largest decrease was in the sales of our
nutritional supplements. Net sales of nutritional supplements decreased by $2.1
million to $3.2 million in the three months ended March 31, 2001 as compared to
$5.3 million in the three months ended March 31, 2000. Despite past sales and
marketing efforts, which were limited due to the size of Inverness, sales of our
nutritional supplements have declined each year since 1998. We anticipate that
sales of our nutritional supplements will continue to decline as a result of
strong competition and reduced spending on sales and marketing (see below).
Also, our subsidiary, Can-Am Care Corporation (Can-Am), which is a unit that
sells diabetes care products and is one of the units being acquired by Johnson &
Johnson as part of the merger, had a volume-related decrease in sales. Can-Am's
net sales decreased by $714,000 to $6.8 million in the three months ended March
31, 2001 as compared to $7.5 million in the three months ended March 31, 2000.
Net sales from our women's health products, primarily branded and private label
pregnancy and ovulation tests, were $6.0 million in the first quarter of 2001,
an increase of $439,000 or 8%, as compared to $5.6 million in the first quarter
of 2000. Our goal is to increase our market share of women's health products by
introducing new or improved products and business combinations. Net sales of the
clinical diagnostic products for the three months ended March 31, 2001 were $2.7
million, an increase of $88,000 or 3% from net sales of $2.6 million in the
three months ended March 31, 2000. Our clinical diagnostics products are
targeted at a niche market of small and medium sized decentralized laboratories
operating in the field of infectious disease. To the extent that trends or
changes in the health care industry favor economies of scale and centralized
laboratory testing, sales of our clinical diagnostic products could suffer.
Gross Profit. Total gross profit for the three months ended March 31, 2001
decreased $1.5 million or 16% to $7.8 million from $9.3 million in the three
months ended March 31, 2000. The decrease in gross profit was primarily due to
lower sales of nutritional supplements. Gross margin for the three months ended
March 31, 2001 was 42% as compared to 45% for the three months ended March 31,
2000. The decline in gross margin resulted primarily from lower sales of
nutritional supplements, which are higher margin products compared to our
women's health and clinical diagnostics products.
Research and Development Expense. Research and development expense for the
first quarter of 2001 decreased $63,000 or 17% to $299,000 from $362,000 in the
first quarter of 2000. Most of the research and development expense was related
to our clinical diagnostics business. We expect to significantly increase our
spending on new product development and to improve existing products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $461,000 or 7% to $6.2 million for the first
quarter of 2001 from $6.6 million in the first quarter of 2000. The decrease was
primarily attributable to a reduction in selling and marketing expenses
associated with the sales of nutritional supplements. Selling, general and
administrative expense as a percentage of net revenues increased to 33% of net
sales for the three months ended March 31, 2001 from 32% of net sales for the
three months ended March 31, 2000.
Interest Expense. Interest expense decreased $215,000 to $557,000 in the
first quarter of 2001 from $772,000 in the first quarter of 2000. The decrease
in interest expense primarily resulted from a lower total average outstanding
debt balance during the first quarter of 2001.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income increased by $37,000 to $43,000 in the three months ended March 31, 2001
from $6,000 in the three months ended March 31, 2000, primarily due to the
increase in cash balances. In the three months ended March 31, 2001, we
recognized $121,000 in realized and unrealized foreign exchange transaction
losses as compared to a loss of $53,000 related to foreign exchange transactions
in the three months ended March 31, 2000.
Income Taxes. In the first quarter of 2001, we recorded provisions of
$580,000 for income taxes compared to $992,000 in the first quarter of 2000. Our
effective tax rate is substantially higher than the
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149
combined federal and statutory rate due to foreign and divisional losses for
which we have not recorded a tax benefit and the non-deductibility of goodwill
amortization associated with the 1998 acquisition of Can-Am (see Note 12 of the
"Notes to Combined Financial Statements").
Net (Loss) Income. Net income for the three months ended March 31, 2001
was $129,000 or $129 per basic and diluted common share as compared to net
income of 539,000 or $539 per basic and diluted common share for the three
months ended March 31,2000 (see Note 2j of the "Notes to Combined Financial
Statements").
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Revenues. Net revenues in 2000 increased $5.2 million or 7% to $84.5
million from $79.3 million in 1999. The primary reason for the increase in
revenues was the increased sales of our women's health products, primarily
pregnancy tests in the United States. Net sales of the women's health products,
excluding nutritional supplements, were $21.7 million in 2000, an increase of
$3.2 million or 17% as compared to $18.5 million in 1999. Another major factor
was the increase in sales by Can-Am of a low-cost alternative electrochemical
blood glucose monitoring test strip, Excel(R) G, which we introduced in the
fourth quarter of 1999 for use with Glucometer Elite(R) meters sold by Bayer
Diagnostics. The aforementioned increases were partially offset by decreases in
the sales of our nutritional supplements and clinical diagnostic products. The
net sales of our nutritional supplements decreased by $2.1 million or 10% to
$18.9 million in 2000 compared to $21.0 million in 1999. Net sales of our
clinical diagnostics products in 2000 decreased $399,000 or 4% to $10.7 million
from $11.1 million in 1999.
Gross Profit. Gross profit for 2000 increased $2.5 million or 8% to $36.3
million from $33.8 million in 1999. The gross profit increased primarily as a
result of increased sales of pregnancy tests combined with reduced unit costs of
those tests. Gross profit on diabetes products increased by $228,000,
principally as a result of the increased sales of Excel G test strips. These
increases were partially offset by a lower gross profit on the sales of
nutritional supplements. Gross margin was 43% for both 1999 and 2000.
Research and Development Expense. Research and development expense
remained basically flat (decrease of $68,000 from 1999 to 2000) at $1.4 million
for both years. Most of the research and development expense was related to
clinical diagnostic products.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $1.2 million or 5% to $26.5 million from $25.3
million in 1999. The increase in selling, general and administrative expense
resulted from higher marketing expenditures related to Excel G strips and
women's health products. Selling, general and administrative expense as a
percentage of net revenues decreased to 31% of net sales for 2000 from 32% of
net sales for 1999.
Interest Expense. Interest expense decreased $170,000 to $3.0 million in
2000 from $3.2 million in 1999. The decrease in interest expense primarily
resulted from a lower total average outstanding debt balance during 2000.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income in 2000 decreased by $2,000 to $28,000 from $30,000 in 1999. The other
portions of other income and expense generally represent foreign currency
exchange gains and losses. In 2000, we recognized $389,000 in realized and
unrealized foreign exchange transaction losses as compared to $531,000 of such
losses in 1999.
Income Taxes. In 2000, we recorded provisions of $2.9 million for income
taxes compared to $2.8 million in 1999. Our effective tax rate is substantially
higher than the combined federal and statutory rate due to foreign and
divisional losses for which we have not recorded a tax benefit and the
non-deductibility of goodwill amortization associated with the 1998 acquisition
of Can-Am (see Note 12 of the "Notes to Combined Financial Statements").
Net (Loss) Income. Net income for 2000 was $2.2 million as compared to net
income of $540,000 for 1999. The basic and diluted earnings per common share for
2000 were $2,182 compared to a basic and
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150
diluted earnings per common share of $540 for 1999 (see Note 2j of the "Notes to
Combined Financial Statements").
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Revenues. Net revenues in 1999 increased $4.7 million or 6% to $79.3
million from $74.6 million in 1998. The largest increase came from Can-Am.
Can-Am's net sales increased by $9.1 million. Can-Am was acquired in February
1998 and therefore our results included only a partial year of Can-Am's sales in
1998. Also, in the fourth quarter of 1999, Can-Am introduced a new product,
Excel G(R) test strips, for use with Glucometer Elite(R) meters sold by Bayer
Diagnostics. Net sales from our women's health products, primarily branded and
private label pregnancy and ovulation tests, were $18.5 million in 1999, an
increase of $2.8 million or 18%, as compared to $15.7 million in 1998. Net sales
of nutritional supplements decreased by $1.8 million or 8% to $21.0 million in
1999 from $22.9 million in 1998. Net sales of the clinical diagnostic products
for 1999 were $11.1 million, a decrease of $4.8 million or 30% from net sales of
$15.9 million in 1998. The decrease in diagnostic product sales was primarily
due to our sale of the diagnostics business line of our wholly owned subsidiary
in Ireland, Cambridge Diagnostics Ireland, Ltd. (Cambridge Diagnostics), in
September 1998. Additionally, a decline in sales of our wholly owned subsidiary
in Israel, Orgenics Ltd. (Orgenics), accounted for $2.1 million of the decline
in clinical diagnostic product revenues. This was due primarily to a one-time
non-recurring sale of HIV test kits for $1.6 million during 1998.
Gross Profit. Gross profit for 1999 decreased $323,000 or 1% to $33.8
million from $34.1 million in 1998. The decrease in gross profit was primarily
due to lower sales of nutritional supplements and clinical diagnostic products.
Gross profit from the sales of nutritional supplements decreased by $2.6 million
or 18% to $12.1 million in 1999 from $14.7 million in 1998. Gross profit from
the sales of clinical diagnostics products decreased by $2.7 million or 31% to
$6.2 million in 1999 compared to $8.9 million in 1998. The decrease was
attributable to the sale of Cambridge Diagnostics' diagnostics business in
September 1998 and lower sales of Orgenics' products. These decreases were
partially offset by the gross profits on higher sales of diabetes products sold
by Can-Am, as well as an increase in sales of pregnancy and ovulation tests. The
gross profit from the sales of diabetes products sold by Can-Am increased by
$3.7 million or 58% to $10.1 million in 1999 compared to $6.4 million in 1998.
The gross profit from the sales of women's health products, primarily pregnancy
tests, increased by $771,000 or 20% to $4.6 million in 1999 compared to $3.8
million in 1998. Gross margin was 43% in 1999 compared to 46% in 1998. The
decline in gross margin primarily resulted from lower sales of the higher margin
nutritional supplements.
Research and Development Expense. Research and development expense for
1999 decreased $1.5 million or 50% to $1.4 million from $2.9 million in 1998.
The decrease was primarily due to our sale of the diagnostics business line of
Cambridge Diagnostics in September 1998 and a reduction in research and
development expenses of Orgenics' clinical diagnostics products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $3.2 million or 11% to $25.3 million from $28.5
million in 1998. The decrease was primarily attributable to a reduction in
expenses associated with the clinical diagnostics business. Selling, general and
administrative expense as a percentage of net revenues decreased to 32% of net
sales for 1999 from 38% of net sales for 1998.
Net Charge for Business Disposition, Asset Impairment and Restructuring
Activities. There were no charges for business disposition, asset impairment or
restructuring activities in 1999. On September 30, 1998, we sold the clinical
diagnostics business of Cambridge Diagnostics to Trinity Biotech plc (Trinity)
for consideration of 555,731 shares of Inverness common stock, which were then
owned by Trinity, $230,000 in cash and other consideration valued at
approximately $43,000. We recorded a gain of approximately $1.2 million as a
result of the sale of the assets. In the fourth quarter of 1998, we also
recorded impairment and restructuring charges totaling $6.6 million reflecting
the impairment of certain assets and severance and related costs (see Note 7 of
the "Notes to Combined Financial Statements").
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151
Interest Expense. Interest expense decreased $524,000 to $3.2 million in
1999 from $3.7 million in 1998. The decrease in interest expense primarily
resulted from a lower total average outstanding debt balance during 1999.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income decreased by $124,000 to $30,000 in 1999 from $154,000 in 1998, primarily
due to the decrease in cash balances. In 1999, we recognized $531,000 in
realized and unrealized foreign exchange transaction losses as compared to a
gain of $21,000 related to foreign exchange transactions in 1998. In 1998,
Orgenics wrote off fixed assets amounting to $658,000.
Income Taxes. In 1999, we recorded provisions of $2.8 million for income
taxes compared to $2.1 million in 1998 Our effective tax rate is substantially
higher than the combined federal and statutory rate due to foreign and
divisional losses for which we have not recorded a tax benefit and the non-
deductibility of goodwill amortization associated with the 1998 acquisition of
Can-Am (see Note 12 of the "Notes to Combined Financial Statements").
Net (Loss) Income. Net income for 1999 was $540,000 or $540 per basic and
diluted common share as compared to a net loss of $9.1 million or $9,060 per
basic and diluted common share for 1998 (see Note 2j of the "Notes to Combined
Financial Statements").
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash and cash equivalents of $3.1 million, a
$2.4 million increase from December 31, 1999. We have historically funded our
business through operating cash flows and proceeds from borrowings. Cash
generated from our operating activities in 2000 was $11.2 million due largely to
net income of $8.3 million adjusted for noncash expenses, primarily amortization
of intangible assets. During 2000, we used cash of $837,000 for our investing
activities, consisting mostly of capital expenditures. During 2000, we used $7.8
million for financing activities. We made $9.7 million in principal repayments
on loans from Chase Manhattan Bank and for the refinancing of certain
subordinated notes. We had a working capital deficit of $2.2 million at December
31, 2000 compared to a deficit of $1.1 million at December 31, 1999.
At March 31, 2001, we had cash and cash equivalents of $3.4 million, a
$314,000 increase from December 31, 2000. Cash generated from our operating
activities in the first quarter of 2001 was $2.2 million due largely to net
income of $1.3 million adjusted for noncash expenses, primarily amortization of
intangible assets. During the three months ended March 31, 2001, we used cash of
$387,000 to purchase property and equipment. During the three months ended March
31, 2001, we also used $2.1 million for financing activities. We made $2.5
million in principal repayments on loans from Chase Manhattan Bank and for the
refinancing of certain notes. We had a working capital deficit of $2.1 million
at March 31, 2001.
In February 1998, we acquired Can-Am, a leading supplier of diabetes care
products, for a combination of cash, notes and shares of Inverness common stock.
At the time, we entered into a $42 million credit agreement with Chase Manhattan
Bank to fund the cash portion of the purchase price and to repay outstanding
indebtedness under a prior credit facility. The Chase credit agreement consists
of a $37 million term loan and a $5 million revolving line of credit. Borrowings
under the Chase credit agreement are secured by the capital stock of one of our
subsidiaries, our assets and the assets of certain of our subsidiaries. Our
subsidiary is required to make quarterly principal payments on the term portion
of the loan ranging from $1.2 million to $1.7 million through December 31, 2003.
Our subsidiary must also make mandatory prepayments on the term loan if it meets
certain cash flow thresholds, sells assets outside of the ordinary course of
business, issues or sells indebtedness or issues stock. During 2000, our
subsidiary made quarterly principal payments and mandatory prepayments totaling
$5.5 million. At December 31, 2000 and March 31, 2001, the entire balance of the
revolving line of credit was unused.
As of December 31, 2000, we had approximately $23.3 million of foreign net
operating loss carryforwards. These losses are available to reduce foreign
taxable income in future years, if any. We have
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recorded a valuation allowance against the portion of the deferred tax assets
related to foreign net operating losses and other foreign deferred tax assets to
reflect uncertainties that might affect the realization of the deferred tax
assets, as these assets can only be realized via profitable foreign operations.
Based upon our operating plans, we believe that our existing capital
resources will be adequate to fund our operations and scheduled debt obligations
for at least the next 12 months. We may expand our research and development of,
and may pursue the acquisition of, new products and technologies, whether
through licensing arrangements, business acquisitions or otherwise. We cannot
assure you that additional capital will be available to finance such activities,
or, if available, that it will be available on acceptable terms. If we raise
additional funds by issuing equity securities, dilution to then existing
stockholders will result.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities (as amended by SFAS No. 138),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 has subsequently been amended by SFAS No. 137,
issued in June 1999, which delays the effective date for implementation of SFAS
No. 133 until fiscal quarters of fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 has not had a material effect on our consolidated
financial statements because we do not presently utilize derivative investments
or engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. SAB 101 summarizes certain of the SEC's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. We are required to adopt SAB 101 as of the
fourth quarter of 2000. The adoption of SAB 101 has not had a material effect on
our financial condition or results of operations.
In March 2000, the FASB issued FASB Interpretation (FIN) No. 44, Accounting
for Certain Transactions Involving Stock Compensation -- an Interpretation of
APB Opinion No. 25. FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a non-compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000 but certain conclusions in FIN 44
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The application of FIN 44 has not had a material impact on our
financial position or results of operations.
In May 2000, the Emerging Issues Task Force (EITF) reached consensus on
Issue No. 00-14, Accounting for Certain Sales Incentives, which is effective for
the quarter ended June 30, 2001. EITF Issue No. 00-14 establishes accounting and
reporting standards for the cost of certain sales incentives. Inverness offers
certain sales incentives that fall within the scope of EITF Issue No. 00-14,
such as coupons and free products, to some of its customers. The adoption of the
consensus will require Inverness to reclassify $3,250,000, $3,086,000 and
$1,762,000 in 2000, 1999 and 1998, respectively, from selling, general and
administrative expenses to net product sales. This reclassification will have no
impact on net income, and these adjustments are already reflected in our
historical consolidated financial statements.
In June 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 addresses changes in the financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, Business Combinations and SFAS
No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises.
Effective July 1, 2001 all business combinations should be accounted for using
only the purchase method of accounting. Innovations does not believe the
adoption of this statement will have a material effect on its financial
position, results of operation or cash flows.
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In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses changes in the financial accounting and reporting
for acquired goodwill and other intangible assets. Effective January 1, 2002,
all existing acquired goodwill and other intangible assets will no longer be
amortized to expense, with early adoption required for all goodwill and other
intangible assets acquired subsequent to June 30, 2001. The statement also
provides specific guidance for determining and measuring impairment of all
goodwill and other intangible assets. Innovations recorded goodwill amortization
of approximately 3,182,000, 1,960,000, 1,717,000, 452,000 and 434,000 for the
years ended December 31, 1998, 1999, 2000 and the three months ended March 31,
2000 and 2001, respectively. Innovations has not yet made an assessment as to
whether the impairment measurements required by SFAS No. 142 will have an impact
on its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. We are exposed to market risks
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
Interest Rate Risk. We are exposed to market risks from changes in
interest rates primarily through our investing and borrowing activities. In
addition, our ability to finance future acquisition transactions, research and
development and other capital expenditures may be impacted if we are not able to
obtain appropriate financing at acceptable rates. In order to manage interest
rate exposure we intend to invest our initial cash reserve, as well as cash from
future operations, in accordance with the same investment policy currently in
place at Inverness. That policy requires investment in approved instruments with
an initial maximum allowable maturity of 18 months and an average maturity of
our portfolio that should not exceed 6 months, with at least $500,000 cash
available at all times.
Foreign Currency Risk. We face exposure to movements in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and could have a material adverse effect on our business, financial
condition and results of operation. For the three months ended March 31, 2001,
the net impact of foreign currency changes on our businesses was a loss of
$121,000. Historically, our primary exposures have been related to the
operations of our European and South American subsidiaries. The Euro was
introduced as a common currency for members of the European Monetary Union in
1999. We believe that in the near term the Euro will have minimal impact on
foreign exposure. We intend to hedge against fluctuations in the Euro if this
exposure becomes material. At March 31, 2001, the assets of our women's health,
nutritional supplements and clinical diagnostics businesses related to
non-dollar-denominated currencies amounted to approximately $9.3 million.
PRO FORMA RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following management's discussion and analysis of financial condition
and results of operations refers to Innovations' unaudited pro forma combined
financial statements. The unaudited pro forma combined financial statements
reflect the following transactions, as described in Note 1 of the "Notes to
Combined Financial Statements":
Unaudited pro forma statements of operations:
- Amounts related to discontinued diabetes operations have been shown as a
single line item in accordance with APB Opinion No. 30 (see "Notes to
Combined Financial Statements" for summarized results from discontinued
operations) and
- All third-party and related-party interest expense pertaining to debt to
be assumed or discharged by Johnson & Johnson has been eliminated. Total
interest expense eliminated was $2,316,879,
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$2,022,974, $1,904,696, $486,305 and $372,524 in 1998, 1999, 2000 and the three
months ended March 31, 2000 and 2001, respectively.
Unaudited pro forma balance sheets:
December 31, 2000:
- The balance sheet has been restated pursuant to APB Opinion No. 30 to
present the net assets of the diabetes businesses as a single line item
(see "Notes to Combined Financial Statements" for summarized net assets
of discontinued operations).
March 31, 2001:
- Assets and liabilities relating to diabetes operations have been removed
and shown as a transfer to Inverness via a reduction of additional
paid-in capital (see "Notes to Combined Financial Statements" for
summarized net assets of discontinued operations)
- Cash has been increased to $40 million with an offsetting increase to
additional paid-in-capital and
- All third-party and related-party debt to be assumed or discharged by
Inverness has been removed and shown as an increase to additional paid-in
capital. Total debt eliminated was $18,831,044 at March 31, 2001.
RESULTS OF OPERATIONS AS A PERCENTAGE OF NET REVENUE
The following table summarizes our pro forma combined financial statements
of operations as a percentage of net revenues.
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------
1998 1999 2000 2000 2001
----- ----- ----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 48.9 53.2 49.1 48.7 49.3
----- ----- ----- ----- -----
Gross profit............................................... 51.1 46.8 50.9 51.3 50.7
----- ----- ----- ----- -----
Operating expenses:
Research and development................................. 4.2 2.7 2.7 2.7 2.6
Selling, general and administrative...................... 41.6 36.3 34.8 33.9 35.3
Other expenses........................................... 9.1 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses................................. 54.9 39.0 37.5 36.6 37.9
----- ----- ----- ----- -----
Operating (loss) income............................... (3.8) 7.8 13.4 14.7 12.8
Interest and other income (expense), net................... (1.2) (1.1) (0.7) (0.4) (0.7)
----- ----- ----- ----- -----
(Loss) income from continuing operations before income
taxes.................................................... (5.0) 6.7 12.7 14.3 12.1
Provision for income taxes................................. 2.0 2.0 3.5 4.5 3.0
----- ----- ----- ----- -----
(Loss) income from continuing operations................... (7.0) 4.7 9.2 9.8 9.1
(Loss) income from discontinued operations................. (5.3) 0.4 (1.2) (2.2) (4.9)
Net (loss) income..................................... (12.3)% 5.1% 8.0% 7.6% 4.2%
===== ===== ===== ===== =====
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SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
The following table sets forth our unaudited pro forma quarterly combined
operating results for each of the nine quarters ending March 31, 2001. We have
prepared this information on a basis consistent with our audited combined
financial statements. These quarterly results are not necessarily indicative of
future results of our operations. This information should be read in conjunction
with our combined financial statements and notes included in this prospectus.
1999 2000 2001
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue.............. $13,292 $11,900 $12,648 $12,743 $13,455 $12,743 $12,519 $12,334 $11,812
Gross profit............. 6,302 5,590 5,793 6,010 6,908 6,856 6,026 6,186 5,986
Operating income......... 454 1,308 937 1,249 1,983 1,952 1,327 1,591 1,515
Income (loss) from
continuing
operations............. (1) 1,037 614 729 1,321 1,559 783 1,021 1,082
(Loss) income from
discontinued
operations............. (276) 58 (285) 687 (296) (449) 269 (122) (581)
Net income (loss)........ (277) 1,095 329 1,416 1,025 1,110 1,052 899 501
Earnings (loss) per
share -- basic and
diluted(1)............. $ (0.09) $ 0.33 $ 0.09 $ 0.42 $ 0.26 $ 0.24 $ 0.21 $ 0.19 $ 0.08
---------------
(1) Basic and diluted earnings (loss) per share are computed as described in
Notes 1 and 2j of the "Notes to Combined Financial Statements".
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Net Revenues. Net revenues in the three months ended March 31, 2001
decreased $1.7 million or 12% to $11.8 million from $13.5 million in the three
months ended March 31, 2000. The largest decrease was in the sales of our
nutritional supplements. Net sales of nutritional supplements decreased by $2.1
million to $3.2 million in the three months ended March 31, 2001 as compared to
$5.3 million in the three months ended March 31, 2000. The decrease in the sales
of nutritional supplements was partially offset by the increase in sales of our
women's health products, primarily branded and private label pregnancy and
ovulation tests which were $6.0 million in the first quarter of 2001, an
increase of $439,000 or 8%, as compared to $5.6 million in the first quarter of
2000. Net sales of the clinical diagnostic products for the three months ended
March 31, 2001 were $2.7 million, an increase of $88,000 or 3% from net sales of
$2.6 million in the three months ended March 31, 2000.
Gross Profit. Total gross profit for the three months ended March 31, 2001
decreased $922,000 or 13% to $6.0 million from $6.9 million in the three months
ended March 31, 2000. The decrease in gross profit was primarily due to lower
sales of nutritional supplements.
Research and Development Expense. Research and development expense for the
first quarter of 2001 decreased $63,000 or 17% to $299,000 from $362,000 in the
first quarter of 2000. Most of the research and development expense was related
to clinical diagnostic products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $391,000 or 9% to $4.2 million for the first
quarter of 2001 from $4.6 million in the first quarter of 2000. The decrease was
primarily attributable to a reduction in selling and marketing expenses
associated with the sales of nutritional supplements. Selling, general and
administrative expense as a percentage of net revenues increased to 35% of net
sales for the three months ended March 31, 2001 from 34% of net sales for the
three months ended March 31, 2000.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income increased by $37,000 to $43,000 in the three months ended March 31, 2001
from $6,000 in the three months ended March 31, 2000, primarily due to the
decrease in cash balances. In the three months ended March 31, 2001, we
recognized $121,000 in
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realized and unrealized foreign exchange transaction losses as compared to a
loss of $53,000 related to foreign exchange transactions in the three months
ended March 31, 2000.
Income Taxes. In the first quarter of 2001, we recorded provisions of
$354,000 for income taxes compared to $609,000 in the first quarter of 2000. Our
effective tax rate is substantially higher than the combined federal and
statutory rate due to foreign and divisional losses for which we have not
recorded a tax benefit and the non-deductibility of goodwill amortization
associated with the 1998 acquisition of Can-Am (see Note 12 of the "Notes to
Combined Financial Statements").
(Loss) Income from Continuing Operations. Income from continuing
operations was $1.1 million or $0.18 per basic and diluted common share for the
three months ended March 31, 2001 compared to income from continuing operations
of $1.3 million or $0.34 per basic and diluted common share for the three months
ended March 31, 2000. The decrease in income was due to lower income on sales of
nutritional supplements partially offset by increased income on sales of
pregnancy and ovulation tests.
(Loss) Income from Discontinued Operations. In the three months ended
March 31, 2001, we had a loss from discontinued operations of $581,000 compared
to a loss from discontinued operations of $296,000 in the three months ended
March 31, 2000. The discontinued operations are the diabetes-related segments
that are to be acquired by Johnson & Johnson but historically have been part of
entities to be transferred to us as part of the restructuring preceding the
split-off and merger.
Net (Loss) Income. Net income for the three months ended March 31, 2001
was $501,000 or $.08 per basic and diluted common share as compared to net
income of 1.0 million or $0.26 per basic and diluted common share for the three
months ended March 31,2000 (see Notes 1 and 2j of the "Notes to Combined
Financial Statements").
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Revenues. Net revenues in 2000 increased $467,000 or 1% to $51.1
million from $50.6 million in 1999. The primary reason for the increase in
revenues was the increased sales of our women's health products, primarily
pregnancy tests in the United States. Net sales of the women's health products,
excluding nutritional supplements, were $21.7 million in 2000, an increase of
$3.2 million or 17% as compared to $18.5 million in 1999. The aforementioned
increase was partially offset by decreases in the sales of our nutritional
supplements and clinical diagnostic products. The net sales of our nutritional
supplements decreased by $2.1 million or 10% to $18.9 million in 2000 compared
to $21.0 million in 1999. Net sales of our clinical diagnostics products in 2000
decreased $399,000 or 4% to $10.7 million from $11.1 million in 1999.
Gross Profit. Total gross profit for 2000 increased $2.3 million or 10% to
$26.0 million from $23.7 million in 1999. Gross margin of net product sales was
51% in 2000 compared to 47% in 1999. The gross profit increased primarily as a
result of increased sales of pregnancy tests combined with reduced unit costs of
those tests. This increase was partially offset by a lower gross profit on the
sales of nutritional supplements.
Research and Development Expense. Research and development expense
remained basically flat (decrease of $36,000 from 1999 to 2000) at $1.4 million
for both years. Most of the research and development expense was related to
clinical diagnostic products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $587,000 or 3% to $17.8 million from $18.3
million in 1999. The decrease in selling, general and administrative expense
resulted primarily from lower selling and marketing expenditures related to our
nutritional supplements. Selling, general and administrative expense as a
percentage of net revenues decreased to 35% of net sales for 2000 from 36% of
net sales for 1999.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income in 2000 decreased by $3,000 to $27,000 from $30,000. The other portions
of other income and expense generally represent foreign currency exchange
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gains and losses. In 2000, we recognized $389,000 in realized and unrealized
foreign exchange transaction losses as compared to $531,000 of such losses in
1999.
Income Taxes. In 2000, we recorded provisions of $1.8 million for income
taxes compared to $1.0 million in 1999. Our effective tax rate is substantially
higher than the combined federal and statutory rate due to foreign and
divisional losses for which we have not recorded a tax benefit and the non-
deductibility of goodwill amortization associated with the 1998 acquisition of
Can-Am (see Note 12 of the "Notes to Combined Financial Statements").
(Loss) Income from Continuing Operations. Income from continuing
operations was $4.7 million or $0.99 per basic and diluted common share for 2000
compared to income from continuing operations of $2.4 million or $0.71 per basic
and diluted common share for 1999. The increase in income was due to greater
income on sales of pregnancy and ovulation tests partially offset by a decrease
in the income on nutritional supplements.
(Loss) Income from Discontinued Operations. In 2000, we had a loss from
discontinued operations of $598,000 compared to income from discontinued
operations of $183,000 in 1999. The discontinued operations are the diabetes
related segments that are to be acquired by Johnson & Johnson but historically
have been part of entities to be transferred to us as part of the restructuring
preceding the split-off and merger.
Net (Loss) Income. Net income for 2000 was $4.1 million as compared to net
income of $2.6 million for 1999. The basic and diluted earnings per common share
for 2000 were $0.86 compared to a basic and diluted earnings per common share of
$0.76 for 1999 (see Notes 1 and 2j of the "Notes to Combined Financial
Statements").
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Revenues. Net revenues in 1999 decreased $4.1 million or 7% to $50.6
million from $54.7 million in 1998. Net sales of nutritional supplements
decreased by $1.8 million or 8% to $21.0 million in 1999 from $22.9 million in
1998. Net sales of the clinical diagnostic products for 1999 were $11.1 million,
a decrease of $4.8 million or 30% from net sales of $15.9 million in 1998. The
decrease in diagnostic product sales is primarily due to our sale of the
diagnostics business line of Cambridge Diagnostics, in September 1998.
Additionally, a decline in sales of our wholly owned subsidiary Orgenics
accounted for $2.1 million of the decline in clinical diagnostic product
revenues. This was due primarily to a one-time non-recurring sale of HIV test
kits for $1.6 million during 1998. Net sales from our women's health products,
primarily branded and private label pregnancy and ovulation tests, were $18.5
million in 1999, an increase of $2.8 million or 18%, as compared to $15.7
million in 1998.
Gross Profit. Total gross profit for 1999 decreased $4.3 million or 15% to
$23.7 million from $28.0 million in 1998. The decrease in gross profit was
primarily due to lower sales of nutritional supplements and clinical diagnostic
products. Gross profit from the sales of nutritional supplements decreased by
$2.6 million or 18% to $12.1 million in 1999 from $14.7 million in 1998. Gross
profit from the sales of clinical diagnostics products decreased by $2.7 million
or 31% to $6.2 million in 1999 compared to $8.9 million in 1998. The decrease
was attributable to the sale of Cambridge Diagnostics' diagnostics business in
September 1998 and lower sales of Orgenics' products. These decreases were
partially offset by the gross profits on increased sales of pregnancy and
ovulation tests. The gross profit from the sales of women's health products,
primarily pregnancy tests, increased by $771,000 or 20% to $4.6 million in 1999
compared to $3.8 million in 1998.
Research and Development Expense. Research and development expense for
1999 decreased $927,000 or 40% to $1.4 million from $2.3 million in 1998. The
decrease was primarily due to our sale of the diagnostics business line of
Cambridge Diagnostics in September 1998 and a reduction in research and
development expenses of Orgenics' clinical diagnostics products.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $4.4 million or 19% to $18.3 million from $22.7
million in 1998. The decrease was primarily attributable to
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a reduction in expenses associated with the clinical diagnostics business.
Selling, general and administrative expense as a percentage of net revenues
decreased to 36% of net sales for 1999 from 42% of net sales for 1998.
Net Charge for Business Disposition, Asset Impairment and Restructuring
Activities. There were no charges for business disposition, asset impairment or
restructuring activities in 1999. On September 30, 1998, we sold the clinical
diagnostics business of Cambridge Diagnostics to Trinity Biotech plc (Trinity)
for consideration of 555,731 shares of Inverness common stock, which were then
owned by Trinity, $230,000 in cash and other consideration valued at
approximately $43,000. We recorded a gain of approximately $1.2 million as a
result of the sale of the assets. In the fourth quarter of 1998, we recorded
impairment charges totaling $6.2 million reflecting the change in the fair value
of certain assets that were no longer expected to contribute to our
profitability.
Other Expense, Net. Other expense, net, includes interest income and other
income and expenses, primarily foreign exchange gains and losses. Interest
income decreased by $118,000 to $30,000 in 1999 from $148,000 in 1998, primarily
due to the decrease in cash balances. In 1999, we recognized $531,000 in
realized and unrealized foreign exchange transaction losses as compared to a
gain of $21,000 related to foreign exchange transactions in 1998. In 1998,
Orgenics wrote off fixed assets and other investments amounting to $838,000.
Income Taxes. In 1999, we recorded provisions of $1.0 million for income
taxes compared to $1.1 million in 1998. Our effective tax rate is substantially
higher than the combined federal and statutory rate due to foreign and
divisional losses for which we have not recorded a tax benefit and the
non-deductibility of goodwill amortization associated with the 1998 acquisition
of Can-Am (see Note 12 of the "Notes to Combined Financial Statements").
(Loss) Income from Continuing Operations. Income from continuing
operations was $2.4 million or $0.71 per basic and diluted common share for 1999
compared to a loss from continuing operations of $3.9 million or ($1.58) per
basic and diluted common share for 1998. The improvement was due to greater
income related to pregnancy and ovulation tests and a reduction in operating
costs associated with the clinical diagnostics business, partially offset by a
decrease in the income on nutritional supplements.
(Loss) Income from Discontinued Operations. In 1999, we had income from
discontinued operations of $183,000 compared to a loss from discontinued
operations of $2.9 million in 1998. The discontinued operations are the diabetes
related segments that are to be sold to Johnson & Johnson but historically have
been part of entities to be retained by us.
Net (Loss) Income. Net income for 1999 was $2.6 million or $0.76 per basic
and diluted common share as compared to a net loss of $6.7 million or ($2.76)
per basic and diluted common share for 1998 (see Notes 1 and 2j of the "Notes to
Combined Financial Statements").
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash and cash equivalents of $3.1 million, a
$2.4 million increase from December 31, 1999. We had working capital of $16.1
million at December 31, 2000.
At March 31, 2001, we had net cash and cash equivalents on a pro forma
basis of $40.0 million. We had working capital of $44.7 million at March 31,
2001. Pursuant to the split-off and merger agreement and related agreements, we
will have $40.0 million in net cash upon the consummation of the split-off and
merger. In addition, at the completion of the split-off and merger, we will have
no third-party or related-party debt.
Based upon our operating plans, we believe that our existing capital
resources will be adequate to fund our operations for at least the next 12
months. We may expand our research and development, and may pursue the
acquisition of new products and technologies, whether through licensing
arrangements, business acquisitions or otherwise. We cannot assure you that
additional capital will be available to finance such activities, or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, dilution to then existing stockholders
will result.
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BUSINESS
We are currently a majority-owned subsidiary of Inverness. After the
split-off, we will be an independent, publicly owned company. Except where
otherwise indicated, the discussions below and elsewhere in this prospectus
regarding our business and operations assume the completion of the restructuring
and the split-off.
OVERVIEW
We develop, manufacture and sell products for the women's health market,
and, to a lesser extent, clinical diagnostic products for the infectious disease
market. Our self-test products for the women's health market include home
pregnancy detection tests and ovulation prediction tests. We also sell a line of
nutritional supplements targeted primarily at the women's health market. Our
clinical diagnostic products consist of test kits used by smaller laboratories,
small blood banks, physicians' offices and other patient point-of-care sites for
the detection of certain infectious diseases such as HIV, hepatitis A, B and C,
chlamydia, as well as the congenital and perinatal infections toxoplasmosis,
rubella, cytomegalovirus and herpes, commonly referred to collectively as TORCH.
DEVELOPMENT OF BUSINESS
The history of our businesses began when Inverness was incorporated as
Selfcare, Inc. in Delaware on August 25, 1992 and acquired its predecessor
company, Superior Sensors, Inc., by merger on September 15, 1992. In 1994,
Inverness acquired Cambridge Diagnostic Ireland Ltd, an Irish corporation. In
1997, Inverness formed our wholly-owned subsidiary, Inverness Medical, Inc.
(formerly known as Selfcare Consumer Products, Inc.), for the sole purpose of
purchasing and selling acquired consumer products. These products included a
line of nutritional supplements to which Inverness acquired the U.S. rights in
1997. Also in 1997, Inverness acquired Orgenics Ltd., an Israeli corporation
that develops, manufactures and markets clinical diagnostics products for
infectious diseases. Effective May 11, 2000, Inverness changed its name to
Inverness Medical Technology, Inc.
Our company was incorporated as New IMT Corporation in Delaware on May 11,
2001. We changed our name to Inverness Medical Innovations, Inc. on July 19,
2001. As part of the restructuring and split-off, we will acquire Inverness'
women's health, nutritional supplements and clinical diagnostics businesses and
will operate those businesses as a new, independent public company.
OUR PRODUCTS
Women's Health
Women's health is the second largest self-test market in the U.S. for
medical diagnostic products. In the women's health market, we manufacture and
market home pregnancy and ovulation prediction tests under our Inverness Medical
label and under various private labels. The U.S. market for over-the-counter
pregnancy and ovulation prediction products is estimated to be $278 million. We
are the largest supplier (measured in total units sold) of both pregnancy and
ovulation diagnostic self-test kits in the United States, accounting for
approximately one-third of total unit sales.
Pregnancy Test Products -- We market our pregnancy self-test kits in both
stick and cassette versions. The stick version has an exposed wick which absorbs
urine when placed in the urine stream, while the cassette version requires the
user to first collect a urine sample in a cup and then use an enclosed dropper
to place the urine sample in the test well. Both versions employ identical
technology enabling the display of visual results in approximately three
minutes. We manufacture our pregnancy test kits at our facility in Galway,
Ireland and sell them over-the-counter through drug store chains, grocery chains
and mass merchandisers under their own store brand label as well as under our
own name. While sales of our own
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brand now account for 65% of our volume, we remain the largest supplier of
private label products to this segment.
Ovulation Prediction Products -- We market our ovulation prediction
self-test kits in stick and cassette versions, each of which operates in a
manner similar to the comparable version of our pregnancy self-test kits. We
market our ovulation prediction test kits under our own name and under various
store brand labels of retail drugstore chains, grocery stores and mass
merchandisers. Our ovulation prediction test kit provides 24 to 48 hours notice
of when ovulation is likely to occur. By identifying the days when a woman is
most fertile, these products assist couples in their family planning. Clinically
accurate results are available in approximately three minutes. All of our
ovulation prediction tests are manufactured at our facility in Galway, Ireland.
Nutritional Supplements
We market a line of nutritional supplements through retail drug store
chains and mass merchandisers. In 1997, Inverness acquired the U.S. rights to a
line of nutritional supplements from American Home Products Corporation. This
product line includes the following products, which we target primarily at the
women's health market:
- Stresstabs(R) (a B-complex vitamin with added antioxidants)
- Ferro-Sequels(R) (a time release iron supplement)
- Protegra(R) (an antioxidant vitamin and mineral supplement)
- Posture(R) (a calcium supplement)
- ALLBEE(R) (a line of B-complex vitamins) and
- Z-BEC(R) (a zinc supplement with B-complex vitamins and added
antioxidants).
In subsequent years, Inverness strengthened this line by adding strategic
line extensions, adjusting tablet counts to enhance consumer value and
developing the Soy Care(TM) brand. Soy Care is a line of soy-based supplements
that we market to senior women. Also, in 1999 Inverness debuted the SmartCare(R)
program, which assists consumers in matching their health concerns to the
appropriate Inverness supplement products. SmartCare provides the supplement
line with a means of linking the various products, allowing for greater
efficiencies in advertising, promotion and merchandising. We intend to augment
this program with additional products as they are developed.
Many companies in this market are substantially larger than we are and,
therefore, may possess greater resources for advertising and promotion.
Stresstabs, Ferro-Sequels, Posture, Protegra, ALLBEE and Z-BEC are registered
trademarks of Inverness Medical, Inc., the subsidiary through which we market
our nutritional supplement products.
Clinical Diagnostics for Infectious Diseases
We manufacture and market professional diagnostic products based on several
proprietary technological platforms through our wholly-owned subsidiary,
Orgenics Ltd., which is located in Yavne, Israel. These platforms are used to
detect a wide variety of infectious diseases, including HIV-1, HIV-2, hepatitis,
chlamydia and TORCH. The products are designed to enable small to medium-sized
laboratories to economically analyze low volumes of tests specimens.
Our clinical diagnostic products are based on three primary platforms:
ImmunoComb(TM), DoubleCheck(TM) and ImmunoGold(TM). ImmunoComb is our main
platform and currently serves as the basis for 25 diagnostic products. The
platform is based upon a plastic "comb" with twelve projections upon which
antigens or antibodies are applied and which is inserted into a vessel
containing a patient's
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specimen. This manual testing platform provides the sensitivity, accuracy and
versatility of more expensive automated testing platforms at lower prices.
DoubleCheck is a single test device through which a specimen migrates to a
reaction zone where it filters through and subsequently binds to immobilized
antigens or antibodies. DoubleCheck produces results in less than 15 minutes.
ImmunoGold consists of a strip containing antigens or antibodies immobilized
along a line to which a pad containing gold conjugate is attached. When
rehydrated by the liquid specimen the gold particles migrate laterally along the
strip where they react with immobilized reagents to produce a sharp red line.
ImmunoGold produces results in about 5 minutes and has the advantages of not
requiring refrigerated storage or addition of reagents during the test
procedure. ImmunoComb, DoubleCheck and ImmunoGold are trademarks of Orgenics
Ltd.
INDUSTRY
Women's Health. The market for women's health self-test products is
comprised mostly of home pregnancy detection tests, which represent
approximately 90% of the market, and ovulation prediction tests, which represent
approximately 10% of the market. We believe that the market for ovulation
prediction products is growing steadily because of increased awareness of the
incidence of infertility, as well as a desire on the part of couples to plan
conception with more certainty. The pregnancy test products market is growing
also, but at a slower pace due to the relative maturity of the market.
There are numerous pregnancy self-tests on the market, which are typically
urine-based tests and provide results in less than five minutes. Pregnancy
self-tests are sensitive enough to indicate pregnancy within one or two days of
a missed menstrual period. Determinations of fertility are generally made using
ovulation prediction tests, most notably those based on the luteinizing hormone.
Ovulation prediction urine-based tests are generally easy to use and are
becoming widely accepted by professional fertility care providers and the
general public.
Nutritional Supplements. The Dietary Supplement Information Bureau
estimates the total mass retail market for nutritional supplements at $5.7
billion in sales. Growth in the industry is driven by media commentary regarding
the quality and efficacy of nutritional supplements. Positive media attention
resulting from new scientific studies or announcements can spur rapid growth in
individual segments of the market, and also impact individual brands.
Conversely, news that challenges individual segments or products can have a
negative impact on the industry overall as well as on sales of the challenged
segments or products. These dramatic positive and negative changes generally
affect new products and new product segments. Well established market segments,
where competition is greater and media commentary less frequent, generally
experience relatively slow and stable growth. There has been little or no growth
in the overall nutritional supplements industry over the last year, as the
decline of the herbal supplement segment, which was extremely active in the
past, has offset the growth in particular new mineral and non-herbal
supplements. The resulting retailer reduction of shelf space for nutritional
supplements has forced many under-performing items out of distribution,
including several broad product lines.
Clinical Diagnostics. The clinical diagnostics market consists of products
designed to assist laboratories in analyzing human body fluids for markers of
human disease. This market can be divided based on customer, disease and
technology.
Customers in this market can be divided into two increasingly polarized
market segments. One market segment consists of centralized laboratories that
increasingly benefit from computerization and automation. The second market
segment, which is our primary target, consists of small and medium-sized non-
centralized laboratories and testing locations, including small blood banks,
doctors' offices and some rapid response laboratories in larger medical centers.
These decentralized sites do not benefit from computerization or automation, do
not have state-of-the-art laboratory equipment and, particularly in the
developing world, may not be able to rely on refrigeration of test samples.
Clinical diagnostics for infectious diseases represent approximately 20% of
the overall clinical diagnostics market. We believe that this market is growing
faster than other market segments due to the
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increasing incidence of certain diseases or groups of diseases, including viral
hepatitis, acquired immuno deficiency syndrome (AIDS), tuberculosis, as well as
chlamydia and other sexually transmitted diseases.
We also believe there is a growing demand in the clinical diagnostics
market for fast, high-quality, inexpensive, self-contained diagnostic kits for
infectious diseases resulting in part from efforts in many nations to control
health care expenditures.
MARKETING AND SALES
Women's Health Products. We market and sell our women's health products
under our own brand names as well as under store brands. Our customers include
retail drug store chains, drug wholesalers, grocery retailers and mass
merchandisers in North America and Europe. Our three largest customers are
Walgreen Co., CVS Corporation and Rite Aid Corporation, each of which sells our
products under its own store brands.
Nutritional Supplements. We market and sell our nutritional supplements
under our own brand names to retail drug store chains, drug wholesalers, grocery
retailers and mass merchandisers in the United States and Canada. Our three
largest customers are Walgreen Co., Wal-Mart Stores, Inc. and McKesson
Corporation. Our rights to the trademarks Stresstabs, Ferro-Sequals, Posture,
Protegra, ALLBEE and Z-BEC are limited to use in North America, but we are not
restricted from marketing the formulations sold under those brand names in North
America under other brand names outside of North America.
Clinical Diagnostics Products. We have sales offices in Israel, France,
Russia, Brazil and Colombia which market our clinical diagnostics products to
smaller laboratories, blood banks, physicians' offices and other patient
point-of-care sites in more than 90 countries, principally in Europe, Latin
America, Africa and Asia. We are in the process of establishing additional sales
offices in Nigeria, Kenya and Argentina.
MANUFACTURING
Women's Health Products. We produce nearly all of our pregnancy detection
and ovulation prediction tests at our facility in Galway, Ireland. Our Galway
facility is an FDA registered establishment which employs modern production
techniques to produce consistent, high-quality components that are assembled
on-site and subsequently packaged by a third party in the United States. We
purchase a small number of low cost women's health products from third party
suppliers for distribution in Europe.
Nutritional Supplements. Our nutritional supplement products are
manufactured domestically under third party manufacturing contracts. All of our
nutritional supplement products other than Protegra, Ferro-Sequals and Gevrabon
(or approximately 80% of our sales volume of nutritional supplement products)
are manufactured by a single third party.
Clinical Diagnostics Products. Our clinical diagnostic products are
manufactured at our facility in Yavne, Israel. The Yavne manufacturing facility
is ISO 9001 and 9002 certified, as well as Good Manufacturing Practices
certified by the Israeli Ministry of Health.
RESEARCH AND DEVELOPMENT
We intend to focus our research and development efforts on the development
of new products and enhanced features for our lines of women's health and
clinical diagnostics products, as well as the development of product lines
targeting new markets. Most of our research and development activities are
carried out in Galway, Ireland and Yavne, Israel. We supplement our internal
research and development efforts with third parties' efforts either through
co-development or licensing arrangements, or through product or technology
acquisitions. In connection with our co-development or licensing activities, we
may provide financial development assistance to these parties and may also
utilize our own research and development resources to design certain portions of
such products.
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FOREIGN OPERATIONS
Our business relies heavily on our foreign operations. Our two
manufacturing facilities are both outside the United States, one in Galway,
Ireland and the other in Yavne, Israel. Although sales of our women's health
products are primarily in the United States, in 2000 roughly 7%, and in the
first quarter of 2001 roughly 4%, of these sales were outside the United States,
primarily in Europe and, to a much lesser extent, in Israel. Substantially all
of our sales of clinical diagnostic test kits are outside the United States,
with the largest percentage of sales attributable to our operations in France,
26% and Brazil, 16%.
COMPETITIVE POSITION
General. We have existing competitors, as well as a number of potential
new competitors, who have greater name recognition, and significantly greater
financial, technical and marketing resources than we do. These strengths may
allow them to devote greater resources than we can to the development, marketing
and sales of their products. These competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns and
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees and clients.
We expect that industry forces will impact us and our competitors. Our
competitors will likely strive to improve their product offerings and price
competitiveness. We also expect our competitors to develop new strategic
relationships with providers, referral sources and payors, which could result in
increased competition. The introduction of new and enhanced services,
acquisitions and industry consolidation and the development of strategic
relationships by our competitors could cause a decline in sales or loss of
market acceptance of our products or price competition, or make our products
less attractive. We cannot assure you that we will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on our business, financial condition and
results of operations.
Women's Health Products. Competition in the pregnancy detection and
ovulation prediction market is intense. Our competitors in the United States are
numerous and include, among others, large medical and consumer products
companies as well as private label manufacturers. For consumer products
companies, competition principally centers around brand name recognition. For
private label manufacturers, competition is based primarily on the delivery of
products with substantially the same features and performance as brand name
products at lower prices. Many of our competitors have substantially greater
financial, production, marketing and distribution resources than we do. In the
women's health market, we believe that we have developed a significant market
penetration with our private label and branded pregnancy detection and ovulation
prediction tests. We believe that we can continue to compete effectively in the
women's health market based on our research and development capabilities,
advanced manufacturing expertise and established wholesale and retail
distribution networks. In addition, the possibility of patent disputes with
competitors holding foreign patent rights may limit or delay expansion
possibilities for our women's health products business in certain foreign
jurisdictions.
Nutritional Supplements. In the nutritional supplements industry,
competition is based principally upon brand name recognition, price, quality of
products, customer service and marketing support. There are numerous companies
in this industry selling products to retailers. A number of these companies,
particularly manufacturers of nationally advertised brand name products, are
substantially larger than us and have greater financial resources. We are within
the nutritional supplement market. Among our major competitors are American Home
Products, Pharmavite, Leiner Health Products, Royal Numico and SmithKline
Beecham. There are also several manufacturers that produce store brand
nutritional supplements with formulations very similar to those of nationally
marketed brands, including ours.
Clinical Diagnostic Products. The main competitors of our ImmunoComb
products are standard enzyme linked immuno sorbent assay, or ELISA, systems,
such as those produced by Organon, Inc., Bio-Rad, Abbott, Ortho, Roche and
others. ELISA tests are generally used by high-volume batch
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processors such as blood banks and other centralized laboratories. The primary
competitors of our rapid test platforms include multinational corporations with
much greater resources and more extensive sales networks than we have. These
companies tend to concentrate their efforts on sales of automated diagnostic
systems to centralized laboratories. Other competitors include Trinity Biotech,
Savyon, Gull Laboratories and SDS, which are smaller companies operating
primarily in our niche market. Some of these companies do not have the
international sales network or the number of products that we have.
PATENTS AND PROPRIETARY TECHNOLOGY; TRADEMARKS
The medical products industry, including the diagnostic testing industry,
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. Our success will depend, in part,
on our ability to obtain patent protection for our products and manufacturing
processes to preserve our trade secrets and to avoid infringing the proprietary
rights of third parties.
We hold certain patent rights and expect to seek patents in the future.
However, we cannot assure you as to the success or timeliness in obtaining any
such patents or as to the breadth or degree of protection that any such patents
might afford us. The patent position of medical products and diagnostic testing
firms is often highly uncertain and usually involves complex legal and factual
questions. There is a substantial backlog of patents at the United States Patent
and Trademark Office. No consistent policy has emerged regarding the breadth of
claims covered in medical product patents. Accordingly, we cannot assure you
that patent applications relating to our products or technology will result in
patents being issued, that, if issued, such patents will afford adequate
protection to our products or that our competitors will not be able to design
around such patents.
The medical products industry, including the diagnostic testing industry,
historically has been characterized by extensive litigation regarding patents,
licenses and other intellectual property rights. We could and have incurred
substantial costs in defending ourselves against patent infringement claims and
in asserting such claims against others. To determine the priority of
inventions, we may also have to participate in interference proceedings declared
by the United States Patent and Trademark Office, which could also result in
substantial costs to us. If the outcome of any such litigation is adverse to us,
our business could be materially adversely affected.
In addition, we are sometimes required to obtain licenses to patents or
other proprietary rights of third parties to market their products. We cannot
assure you that licenses required under any such patents or proprietary rights
would be made available on terms acceptable to us, if at all. If we do not
obtain such licenses, we may encounter delays in product market introductions
while we attempt to design around such patents or other rights, or we may be
unable to develop, manufacture or sell such products in certain countries, or at
all.
We also seek to protect our proprietary technology, including technology
that may not be patented or patentable, in part through confidentiality
agreements and, if applicable, inventors' rights agreements with collaborators,
advisors, employees and consultants. We cannot assure you that these agreements
will not be breached, that we will have adequate remedies for any breach or that
our trade secrets will not otherwise be disclosed to, or discovered by,
competitors or potential competitors. Moreover, we may from time to time conduct
research through academic advisors and collaborators who are prohibited by their
academic institutions from entering into confidentiality or inventors' rights
agreements.
Finally, we believe that certain of our trademarks in the nutritional
supplements product line are valuable assets and are important to the marketing
of the nutritional supplements. Substantially all of these trademarks have been
registered with the United States Patent and Trademark Office. We cannot assure
you, however, that registrations will afford us adequate protection and will not
be challenged as unenforceable or invalid, or will not be infringed. In
addition, we could incur substantial costs in defending suits brought against us
or in prosecuting suits in which we assert rights under such registrations.
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EMPLOYEES
As of June 30, 2001, Inverness had 297 full-time employees (42 located in
the United States) who are expected to become our employees in conjunction with
the split-off. In addition, we utilize the services of a number of consultants
specializing in research and development in our targeted markets, regulatory
compliance, strategic planning, marketing and legal matters.
PROPERTIES
Our principal corporate administrative office, together with the
administrative office of our U.S. businesses, will be housed in approximately
20,600 square feet of leased space located at 51 Sawyer Road, Waltham,
Massachusetts at a monthly rent of approximately $74,000. Inverness currently
subleases this space and we expect that Inverness will obtain the lessor's and
sublessor's approval to assign the sublease to us at the time of the split-off
and merger. That lease expires on May 30, 2003. For transitional purposes, we
have agreed to provide Johnson & Johnson with a limited license to occupy a
portion of our principal office for up to 12 months following the split-off and
merger. We also have leases to smaller facilities for office space in Brussels,
Belgium and Quebec, Canada. We believe that these facilities are adequate for
our operations in the foreseeable future.
We have manufacturing operations in Ireland and Israel. Our facility in
Galway, Ireland consists of a 40,000 square foot space. We own half of the
Galway facility and lease the other half from a private developer under a lease
that expires in 2026. The Galway facility houses the manufacturing, warehousing
and research and development of our pregnancy detection and ovulation prediction
test products. Additionally, the Galway facility will for a limited period of
time continue to perform certain diabetes-related packaging work for Inverness
in accordance with our transition services agreement with Inverness. Aggregate
annual mortgage and lease payments for our Galway facility total approximately
$197,000.
The FDA regulates companies that manufacture commercial medical devices and
requires that such companies manufacture such devices in a properly designed
environment. Our Galway facility is designed and constructed to comply with the
FDA's regulations and requirements necessary for approvals and commercial sales
within the United States. As required by the regulations, this facility has been
registered with the FDA, ensuring that it is in compliance prior to commercial
sales in the United States. A registered facility is required to submit to an
FDA inspection not less than once every two years. The Galway facility has
maintained ISO 9002 certification since August 1996.
We also house administrative offices, development and manufacturing
operations of our clinical diagnostics business in a leased facility of
approximately 10,000 square feet in Yavne, Israel. The lease for this facility
expires in 2006 and carries rent of approximately $25,000 per month. The
facility includes a number of specialized features and equipment, including
environmentally controlled areas, customized production equipment, and
computerized systems for purchasing, inventory management and materials
tracking. Our Israeli subsidiary also maintains small sales offices in Paris,
France, Sao Paulo, Brazil, St. Petersburg, Russia and Bogota, Columbia, and is
the process of establishing additional sales offices in Nigeria, Kenya and
Argentina. We believe these facilities are adequate for our clinical diagnostics
business operations in the foreseeable future. Our Yavne facility is ISO 9001,
9002 and Good Manufacturing Practices certified.
We have insurance coverage for the properties and equipment that we own or
lease.
REGULATION
Our research, development and clinical programs, as well as our
manufacturing and marketing operations, are subject to extensive regulation by
numerous governmental authorities in the United States and other countries. Most
of our self-test products require governmental approvals for commercialization.
New products may require pre-clinical and clinical trials. Manufacturing and
marketing of many of our
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products are subject to the rigorous testing and approval process of the FDA and
corresponding foreign regulatory authorities. The regulatory process, which
includes pre-clinical and clinical testing of many of our products to establish
their safety and effectiveness, can take many years and require the expenditure
of substantial financial and other resources. Data obtained from pre-clinical
and clinical activities are susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. In addition, delays or rejection
may be encountered based upon changes in, or additions to, regulatory policies
for device marketing authorization during the period of product development and
regulatory review. Delays in obtaining such approvals could adversely affect our
marketing of products developed and our ability to generate commercial product
revenues.
In addition, we are required to meet regulatory requirements in countries
outside the United States, which can change rapidly with relatively short
notice, resulting in our products being banned in certain countries and an
associated loss of revenues and income. Foreign regulatory agencies can also
introduce test format changes which, if we do not quickly address, can result in
restrictions on sales of our products. Such changes are not uncommon due to
advances in basic research.
The manufacturing, processing, formulation, packaging, labeling and
advertising of our nutritional supplements is subject to regulation by one or
more federal agencies, including the FDA, the Federal Trade Commission (FTC) and
the Consumer Product Safety Commission. These activities are also regulated by
various agencies of the states, localities and foreign countries in which our
nutritional supplements are now sold or may be sold in the future. In
particular, the FDA regulates the safety, manufacturing, labeling and
distribution of dietary supplements, including vitamins, minerals and herbs, as
well as food additives, over-the-counter (OTC) and prescription drugs and
cosmetics. The Good Manufacturing Practices promulgated by the FDA are different
for nutritional supplement, drug and device products. In addition, the FTC has
overlapping jurisdiction with the FDA to regulate the promotion and advertising
of dietary supplements, OTC drugs, cosmetics and foods.
PRODUCT LIABILITY AND LIMITED INSURANCE COVERAGE
The testing, manufacturing and marketing of medical diagnostic devices
entail an inherent risk of product liability claims. In addition, the marketing
of the nutritional supplements may cause us to be subjected to various product
liability claims, including, among others, claims that our nutritional
supplements have inadequate warnings concerning side effects and interactions
with other substances. Potential product liability claims may exceed the amount
of our insurance coverage or may be excluded from coverage under the terms of
the policy. We cannot be assured that existing insurance can be renewed at a
cost and level of coverage comparable to that presently in effect, if at all. In
the event that we are held liable for a claim, against which we are not
indemnified or for damages exceeding the limits of our insurance coverage, such
claim could have a material adverse effect on our business, financial condition
and results of operations.
LEGAL PROCEEDINGS
In connection with the split-off, we have agreed to assume, to the extent
permitted by law and the terms of the liabilities, and indemnify Inverness for
all liabilities, whether or not pending at the time of the split-off, of the
businesses that were split-off from Inverness to form our company. Plaintiffs in
these matters may seek to add us as a defendant or substitute us a defendant in
place of Inverness, and we expect that any injunctive relief awarded in these
matters which affects our women's health, nutritional supplements or clinical
diagnostics businesses would ultimately apply to us. These liabilities include,
among other things, the following legal proceedings.
Abbott Laboratories v. Selfcare, Inc. and Princeton Biomeditech
Corporation. In April 1998, Abbott commenced a lawsuit in the United States
District Court for the District of Massachusetts (District Court) against
Inverness and Princeton BioMeditech Corporation (PBM), which manufactured
certain products for our businesses, asserting patent infringement arising from
Inverness' and PBM's manufacture, use and sale of products that Abbott claims
are covered by one or more of the claims of U.S. Patent
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Nos. 5,073,484 and 5,654,162 (the Pregnancy Test Patents), to which Abbott
asserts that it is the exclusive licensee. Abbott claims that certain of
Inverness' products relating to pregnancy detection and ovulation prediction
infringe the Pregnancy Test Patents. Abbott is seeking an order finding that
Inverness and PBM infringe the Pregnancy Test Patents, an order permanently
enjoining Inverness and PBM from infringing the Pregnancy Test Patents,
compensatory damages to be determined at trial, treble damages, costs,
prejudgment and post-judgment interest on Abbott's compensatory damages,
attorneys' fees and a recall of all of our existing products found to infringe
the Pregnancy Test Patents. On August 5, 1998, the court denied Abbott's motion
for a preliminary injunction. On March 31, 1999, the District Court granted a
motion by Inverness, PBM and PBM-Selfcare LLC (the LLC), the joint venture
between the two companies, filed to amend Inverness' counterclaim against
Abbott, asserting that Abbott is infringing U.S. Patent Nos. 5,559,041 (the 041
patent) and 5,728,587 (the 587 patent), which are owned by the LLC, and seeking
a declaration that Abbott infringes the patents and that Inverness is entitled
to permanent injunctive relief, money damages and attorneys' fees. On November
5, 1998, Abbott filed suit in the United States District Court for the Northern
District of Illinois seeking a declaratory judgment of non-infringement,
unenforceability and invalidity of the 041 patent and the 587 patent. The
Illinois court granted Inverness' motion to transfer the aforementioned Illinois
action to Massachusetts. Inverness and its co-defendant moved for summary
judgment on their defense that the Abbott patents are invalid, and on September
29, 2000, the court granted partial summary judgment, holding that certain key
claims in Abbott's patents are invalid as a matter of law. The court refused to
grant summary judgment on Abbott's claims of infringement or Inverness'
remaining claims of invalidity, which will now go forward to trial. As successor
to Inverness in this matter, we believe that we have strong defenses against
Abbott's claims and will continue to defend the case vigorously after the
split-off closes; however, a final ruling against us would have a material
adverse impact on our sales, operations or financial performance.
Becton, Dickinson and Company v. Selfcare, Inc. et. al. On January 3,
2000, Becton, Dickinson and Company (Becton Dickinson) filed suit against
Inverness in the U.S. District Court for the District of Delaware (Case No:
00-001) alleging that certain pregnancy and ovulation test kits sold by
Inverness infringe U.S. Patent Nos. 4,703,017 and 5,591,645. Inverness was
served with Becton Dickinson's complaint in April 2000 and filed its answer on
May 30, 2000. Becton Dickinson has since lost its rights to U.S. Patent No.
5,591,645 and is no longer asserting claims for infringement of that patent; the
case will now go forward to trial. While a final ruling against us, as successor
to Inverness, could have a material adverse impact on our sales, operations or
financial performance, we believe that we have strong defenses and intend to
defend this litigation vigorously.
Cambridge Biotech Corporation and Cambridge Affiliate Corporation v. Ron
Zwanziger, Selfcare, Inc., Cambridge Diagnostics Ireland, Ltd., Trinity Biotech,
Plc and Pasteur Sanofi Diagnostics. On January 22, 1999, Cambridge Biotech
Corporation (CBC) and Cambridge Affiliate Corporation (CAC) filed suit (Civil
Action No. 99-378) in the Middlesex County Massachusetts Superior Court against
Inverness, its president (and our Chief Executive Officer), Ron Zwanziger,
Cambridge Diagnostics Ireland, Ltd., Inverness' (and, after the split-off, our)
subsidiary in Ireland (Cambridge Diagnostics), Trinity Biotech plc (Trinity) and
Pasteur Sanofi Diagnostics (Pasteur). The complaint alleges, among other things,
that actions taken by Mr. Zwanziger as president of CAC in connection with the
sale by Cambridge Diagnostics of its diagnostics business to Trinity were not
properly authorized and that, as a result of the actions, CBC may lose the
benefit of valuable patent licenses from Pasteur. CBC's requested relief is to
have the CAC/Trinity manufacturing and sales agreements declared null and void,
the license between Pasteur and CBC declared to be in full force, to recover
damages allegedly caused by Inverness and Mr. Zwanziger and to recover damages
due to Pasteur's actions. CBC moved for a preliminary injunction, seeking to
enjoin Inverness, Cambridge Diagnostics, Mr. Zwanziger, and Trinity from acting
pursuant to the CAC/Trinity agreements and to enjoin Pasteur from terminating
its license agreements with CBC. Following a hearing on January 25, 1999, the
Court denied CBC's motion. Thereafter, Pasteur successfully moved for dismissal
on grounds that the issues between it and CBC should be litigated in France.
Trinity has moved for dismissal on grounds that the issues between it and CBC
should be litigated in Ireland or, in the alternative, should be arbitrated. The
Court denied Trinity's motion. The parties are currently
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conducting discovery. Inverness filed an answer denying the material allegations
of the complaint along with a counterclaim to declare its actions lawful and
valid and to redress harm that may result if the court invalidates the sale of
Cambridge Diagnostics' diagnostics business to Trinity, despite CBC's
representations to Inverness that it had the right to make such a sale. We have
agreed to assume Inverness' liabilities under this litigation after the
split-off. While a final ruling against Inverness, Mr. Zwanziger, or Cambridge
Diagnostics could have a material adverse impact on our sales, operations or
financial performance, we believe that we have strong defenses and intend to
defend this litigation vigorously.
Intervention, Inc. v. Selfcare, Inc. and Companion Cases. In May 1999,
Intervention, Inc., a California corporation, filed separate suits in California
Contra Costa County Superior Court against Inverness, four of our private label
customers and our major competitors and their private label customers alleging
that, under Section 17200 of the California Business and Professions Code, the
defendants' labeling on their home pregnancy tests is misleading as to the level
of accuracy under certain conditions. The plaintiff seeks restitution of profits
on behalf of the general public, injunctive relief and attorneys' fees.
Inverness is defending its private label customers under agreement and we have
agreed to assume this obligation upon closing of the split-off. The matter is
scheduled for trial in the fall of 2001. We believe that the actions are without
merit and intend to continue Inverness' vigorous defense against them. We do not
believe that an adverse ruling against us or the private label customers would
have a material adverse impact on our sales, operations or financial
performance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain available information regarding our
directors and executive officers immediately following the split-off. None of
our directors or executive officers will serve as directors or executive
officers of Inverness or Johnson & Johnson after the split-off.
NAME AGE POSITION
---- --- --------
Directors and Executive Officers
Ron Zwanziger............................. 47 Chairman of the Board and Chief Executive Officer
David Scott, Ph.D. ....................... 44 Director and Chief Scientific Officer
Anthony J. Bernardo....................... 49 President and Chief Operating Officer
Kenneth D. Legg, Ph.D. ................... 58 Executive Vice President
Jerry McAleer, Ph.D. ..................... 46 Vice President, Research and Development
David Toohey.............................. 44 Vice President, New Products
Duane L. James............................ 41 Vice President, Finance and Treasurer
John Yonkin............................... 42 Vice President, U.S. Sales & Marketing
Doug Shaffer.............................. 43 Vice President, U.S. Operations
Paul T. Hempel............................ 52 General Counsel and Secretary
Ernest A. Carabillo, Jr. ................. 63 Director
Carol R. Goldberg......................... 70 Director
Robert P. Khederian....................... 48 Director
John F. Levy.............................. 54 Director
Peter Townsend............................ 66 Director
Alfred M. Zeien........................... 71 Director
RON ZWANZIGER, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Mr.
Zwanziger has served as President, Chief Executive Officer and Chairman of
Inverness since its inception. From 1981 to 1991, he was chairman and chief
executive officer of MediSense, a medical device company.
DAVID SCOTT, PH.D., DIRECTOR AND CHIEF SCIENTIFIC OFFICER. Dr. Scott
served as Managing Director of Inverness Medical Limited, a subsidiary of
Inverness, from June 1995 to July 1999, when he assumed the position of Chairman
of Inverness Medical Limited. Dr. Scott has been a member of the Innovations
board of directors since July 31, 2001 and is expected to be Chief Scientific
Officer of Innovations. Dr. Scott served as Managing Director of Great Alarm
Limited, a consulting company, from October 1993 to April 1995. Between October
1984 and September 1993, he held several positions at MediSense UK, most
recently as managing director where he was responsible for managing product
development, as well as the mass manufacture of one of its principal products,
ExacTech.
ANTHONY J. BERNARDO, PRESIDENT AND CHIEF OPERATING OFFICER. Mr. Bernardo
has served as Inverness' Vice President of New Business Development since April
2000. Prior to joining Inverness, Mr. Bernardo served as Vice President and
Senior Director of Operations for a division of Polaroid Corporation from April
1997. From 1991 to 1997, he held several executive management positions with
Dade International Inc., most recently as Vice President of Site Operations for
the Paramax Chemistry unit where he was responsible for the integration of the
in-vitro diagnostics business unit acquired from DuPont.
KENNETH D. LEGG, PH.D., EXECUTIVE VICE PRESIDENT. Dr. Legg joined
Inverness as Secretary and Vice President in charge of U.S. Operations in
November 1991, and was appointed its Executive Vice President in May 2000.
JERRY MCALEER, PH.D., VICE PRESIDENT, RESEARCH AND DEVELOPMENT. Dr.
McAleer joined Inverness as Director of Development of Inverness Medical Limited
in 1995 and headed the development of Inverness' electrochemical glucose strips.
In 1999, he became Vice President of Research and Development for
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Inverness and Inverness Medical Limited. Prior to joining Inverness, Dr. McAleer
held senior research and development positions at MediSense from 1985 to 1993
and more recently, at Ecossensors, Inc., an environmental research company,
where he was responsible for the development of electrochemically based assay
systems.
DAVID TOOHEY, VICE PRESIDENT, NEW PRODUCTS. David Toohey joined Inverness
in May 2001 with the understanding that he would serve as Chairman and Managing
Director of a yet to be formed entity focused on new product development. Mr.
Toohey is expected to serve in the same capacity for us, and until such an
entity is formed he will serve as our Vice President, New Products. Prior to
joining Inverness, Mr. Toohey served as Vice President of Operations at Boston
Scientific Corporation's Galway, Ireland facility, Boston Scientific's largest
and most complex manufacturing facility with 2500 employees. Between 1995 and
2001 he oversaw the growth of that facility from a 100 person start-up initially
as General Manager, later as Managing Director and finally as Vice President of
Operations. Prior to that time he held various executive positions at Bausch &
Lomb, Inc., Digital Equipment Corp. and Mars, Inc.
DUANE L. JAMES, VICE PRESIDENT OF FINANCE AND TREASURER. Mr. James served
as Inverness' Corporate Controller beginning in February 1996 and its Chief
Accounting Officer beginning in August 1998. He became Inverness' Vice President
of Finance and Treasurer in October 2000. From June 1991 to February 1996, he
held positions at Aquila Biopharmaceuticals, Inc. ranging from accounting
manager to corporate controller.
JOHN YONKIN, VICE PRESIDENT, U.S. SALES & MARKETING. Mr. Yonkin joined
Inverness in October 1997 as Manger of Product Development. In October 1998, he
was appointed Vice President of U.S. Sales and, in January 2000, General
Manager. From January 1995 to September 1998, Mr. Yonkin was Director of
National Accounts for Genzyme Genetics, a subsidiary of Genzyme, Inc., a leader
in Genetic testing services for hospitals, physicians and managed healthcare
companies. Previously, he worked for MediSense, a medical device company, in a
number of marketing and sales capacities.
DOUGLAS SHAFFER, VICE PRESIDENT, U.S. OPERATIONS. Mr. Shaffer became
Inverness' Vice President, U.S. Operations in January 2001 where he oversees the
operations of Inverness' subsidiary Inverness Medical Inc. Prior to that he
served as Inverness' Controller, U.S. Operations since December 1996. Before
joining Inverness, Mr. Shaffer served as a division controller for several
different divisions of MKS Instruments, Inc., a leading producer of gas
management instrumentation.
PAUL T. HEMPEL, GENERAL COUNSEL AND SECRETARY. Mr. Hempel joined Inverness
on October 1, 2000 as General Counsel and Assistant Secretary. He was a founding
stockholder and managing director of Erickson Schaffer Peterson Hempel & Israel
PC from 1996 to 2000. Prior to 1996, Mr. Hempel was a partner and managed the
business practice at Bowditch & Dewey LLP.
ERNEST A. CARABILLO, JR., DIRECTOR. Mr. Carabillo has served on the board
of directors of Inverness since May 2000 and on the board of directors of
Innovations since May 30, 2001. He is the founder and president of EXPERTech
Associates, Inc., which provides regulatory, clinical and quality management
consulting services to medical device companies, where he has served as
president since 1990. He has also served in management positions at Baxter
Healthcare, C.R. Bard and the medical device/pharmaceutical division of Union
Carbide. Mr. Carabillo has served as the head of three different divisions of
the Food and Drug Administration and Department of Justice and as Associate
Director of Regulatory Affairs for the President's office of Drug Abuse Policy.
CAROL R. GOLDBERG, DIRECTOR. Mrs. Goldberg has served on the board of
directors of Inverness since August 1992 and on the board of directors of
Innovations since May 30, 2001. Since December 1989, she has served as president
of The AVCAR Group, Ltd., an investment and management consulting firm in
Boston, Massachusetts. Ms. Goldberg is a director of America Service Group,
Inc., a managed healthcare company, The Gillette Company, a consumer products
company, and Konover Property Trust, Inc., a real estate investment trust. Ms.
Goldberg is a member of our board's compensation committee.
ROBERT P. KHEDERIAN, DIRECTOR. Mr. Khederian has served on the board of
directors of Innovations since July 31, 2001. Mr. Khederian is the Chairman of
Belmont Capital, a venture capital firm he founded
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in 1996. From 1984 through 1996, he was founder and Chairman of Medical
Specialties Group, Inc., a nationwide distributor of medical products which was
acquired by Bain Capital. Since 1998, Mr. Khederian has also served as the
Managing Partner of Provident Capital and First Healthcare Partners, both of
which are investment banking firms based in Boston, Massachusetts. Mr. Khederian
is a member of our board's audit committee.
JOHN F. LEVY, DIRECTOR. Mr. Levy has served on the board of directors of
Inverness since August 1996 and on the board of directors of Innovations since
May 30, 2001. Since 1993, he has been an independent consultant. Mr. Levy served
as president and chief executive officer of Waban, Inc., a warehouse
merchandising company, from 1989 to 1993. Mr. Levy is a member of our board's
audit committee.
PETER TOWNSEND, DIRECTOR. Mr. Townsend has served on the board of
directors of Inverness since August 1996 and on the board of directors of
Innovations since May 30, 2001. From 1991 to 1995, when he retired, Mr. Townsend
served as chief executive officer and a director of Enviromed plc, a medical
products company currently known as Theratase plc. Mr. Townsend is a member of
our board's audit committee.
ALFRED M. ZEIEN, DIRECTOR. Mr. Zeien has served on the board of directors
of Innovations since July 31, 2001. From 1991 until his retirement in 1999, Mr.
Zeien served as Chairman of the Board and Chief Executive Officer of The
Gillette Company, a consumer products company. Mr. Zeien currently serves on the
boards of EMC Corporation, Massachusetts Mutual Life Insurance Company, Raytheon
Company, Polaroid Corporation and Bernard Technologies. Mr. Zeien is a member of
our board's compensation committee.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes. --, will be the class
1 directors with an initial term expiring at our first annual stockholders
meeting for election of directors. --, will be the class 2 directors with an
initial term expiring at our second annual stockholders meeting for election of
directors. --, will be the class 3 directors with an initial term expiring at
the third annual stockholders meeting for the election of directors. After their
initial terms, directors will generally serve for three years.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has a compensation committee and an audit committee.
The compensation committee, consisting of Carol Goldberg and Alfred Zeien, makes
recommendations concerning salaries and incentive compensation for our employees
and consultants, establishes and approves salaries and incentive compensation
for certain senior officers and employees, and administers our stock option
plans. The audit committee, consisting of Robert Khederian, John Levy and Peter
Townsend, reviews the results and scope of the financial audit and other
services provided by our independent public accountants.
DIRECTOR COMPENSATION
Employee directors are not entitled to cash compensation in their
capacities as directors. [We have not yet determined the cash compensation, if
any, to be paid to non-employee directors.] All of the directors are reimbursed
for their expenses incurred in connection with their attendance at board and
committee meetings. In addition, options and other awards may be granted to
directors in the sole discretion of the administrator of the 2001 Stock Option
and Incentive Plan.
EXECUTIVE COMPENSATION
Set forth below is information regarding the compensation for fiscal year
2000 of our chief executive officer, while serving as the chief executive
officer of Inverness, and for our four other executive officers who received the
highest compensation during fiscal year 2000 as executive officers of Inverness,
collectively referred to as our "named executive officers". After the split-off,
all of the named executive
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officers will be our employees and their compensation as well as the
compensation of our other executive officers will be determined by our
compensation committee. We anticipate that the annual salary for each of the
named executive officers, as well as our other executive officers, will
initially be comparable to fiscal year 2000 salaries received by them. As
described in "Annual Fixed Bonuses," and "Executive Bonus Plan" below, Mr.
Zwanziger, Dr. Scott and Dr. McAleer are entitled to both annual fixed cash
bonuses and performance-based cash bonuses. We can not assure you, however, that
changes will not be made to the compensation practices and policies if our
compensation committee deems them appropriate.
Summary Compensation Table. The following summary compensation table
contains information regarding the compensation from Inverness for the last
three completed fiscal years for the named executive officers:
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
----------------- UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS(1) COMPENSATION
---- -------- ----- ------------ ------------
Ron Zwanziger......................... 2000 $350,000 -- -- --
Chief Executive Officer and Chairman 1999 271,273 -- 500,000(2) --
1998 193,536 -- 6,491 --
David Scott(3)........................ 2000 218,026 -- -- --
Chief Scientific Officer 1999 193,040 -- 250,000(2) --
1998 133,826 -- 124,183(4) --
Kenneth D. Legg, Ph.D. ............... 2000 203,066 -- -- --
Executive Vice President 1999 180,980 -- 150,000(2) --
1998 135,360 -- 74,438(4) --
Jerry McAleer, Ph.D.(3)............... 2000 189,588 -- -- --
Vice President, R&D 1999 175,337 -- 200,000(2) --
1998 126,783 -- 124,183(4) --
John Yonkin........................... 2000 155,577 -- 8,000 --
Vice President, U.S. Sales &
Marketing 1999 136,667 -- 12,000 --
1998 95,000 -- 23,019 --
---------------
(1) Upon closing of the split-off and merger, each option to acquire one share
of Inverness common stock will be replaced with an option to purchase .20
shares of our common stock and an option to purchase a number of shares of
Johnson & Johnson common stock to be determined pursuant to the terms of the
split-off and merger agreement.
(2) These options were granted on August 16, 1999 and were to become exercisable
on August 15, 2006 subject to certain accelerated vesting provisions.
Because the Company achieved certain market price goals these options vested
in their entirety on December 31, 2000. The option exercise price for such
options is $5.00.
(3) Salary paid in LStg and reported in U.S. dollars using the average exchange
rate for each year.
(4) Of the options granted to Messrs. Scott, Legg and McAleer during 1998, each
executive retains 70,000. The remaining options granted to those executives
during 1998 have been cancelled.
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Option Grants. The following table sets forth certain information
concerning grants of stock options made to the named executive officers by
Inverness during fiscal year 2000:
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ---------------------
OPTIONS GRANTED FISCAL YEAR PER SHARE DATE(1) 5% 10%
--------------- ------------- --------- ---------- --------- ---------
John Yonkin(2)................. 6,000 $3.4375 1/7/10 $12,971 $32,871
John Yonkin(3)................. 2,000 $ 6.875 3/20/10 $ 8,647 $21,914
---------------
(1) The exercisability of these options is accelerated upon the occurrence of a
change of control (as defined in the 1996 Option Plan).
(2) These incentive stock options were granted by Inverness on January 7, 2000
and are exercisable in four equal annual installments commencing on January
7, 2001 at a price of $3.4375 per share, the closing market price of
Inverness common stock on the grant date. Upon closing of the split-off and
merger, these options will be replaced with fully-vested, non-qualified
options to purchase 1,200 shares of our common stock and an option to
purchase a number of shares of Johnson & Johnson common stock to be
determined pursuant to the terms of the split-off and merger agreement.
(3) These incentive stock options were granted by Inverness on March 20, 2000
and are exercisable in four equal annual installments commencing on March
20, 2001 at a price of $6.875 per share, the closing market price of
Inverness common stock on the grant date. Upon closing of the split-off and
merger, these options will be replaced with fully-vested, non-qualified
options to purchase 400 shares of our common stock and an option to purchase
a number of shares of Johnson & Johnson common stock to be determined
pursuant to the terms of the split-off and merger agreement.
Year End Option Values. The following table sets forth certain information
concerning exercises of stock options during fiscal year 2000 by each of the
named executive officers and the number and value of unexercised options held by
each of the named executive officers on December 31, 2000:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
NUMBER OF YEAR-END AT FISCAL YEAR-END(1)
SHARES ----------------- ---------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE(2) UNEXERCISABLE(2)
---- ----------- ---------- ----------------- ---------------------
Ron Zwanziger.................. 300,000 $6,819,000 1,262,425/0 $49,158,830/$0
David Scott, Ph.D. ............ 53,992 1,266,652 530,008/35,000 20,638,512/1,362,900
Kenneth D. Legg, Ph.D. ........ -- -- 371,446/35,000 14,464,107/1,362,900
Jerry McAleer, Ph.D. .......... 45,000 1,036,890 376,500/35,000 14,660,910/1,362,900
John Yonkin.................... -- -- 22,519/26,500 876,890/1,031,910
---------------
(1) Based on the fair market value of Inverness common stock as of December 29,
2000 ($38.94 per share), the closing price of Inverness common stock as
reported on the American Stock Exchange on such date, less the option
exercise price, multiplied by the number of shares underlying the options.
(2) All options to acquire shares of Inverness common stock will become fully
exercisable upon closing of the split-off and merger.
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CHANGE-IN-CONTROL ARRANGEMENTS
There are no compensatory plans or arrangements with any named executive
officer in connection with a change in control of Innovations or a change in
such officer's responsibilities, except that the 2001 stock option and incentive
plan proposed for ratification by the Inverness stockholders along with their
consent and approval of the split-off and merger provides that in the event of a
"change of control" (as defined in the plan) of Innovations, all stock options
will automatically become fully exercisable and all other stock awards will
automatically become vested and non-forfeitable.
2001 STOCK OPTION AND INCENTIVE PLAN
General. We have adopted the 2001 stock option and incentive plan,
referred to as the stock option plan, which allows for the issuance of up to --
shares of common stock and other awards. Any shares forfeited from awards under
the stock option plan will also be available for future awards under the plan.
The stock option plan permits us to:
- grant incentive stock options
- grant non-qualified stock options
- issue or sell common stock with vesting or other restrictions, or without
restrictions
- grant rights to receive common stock in the future with or without
vesting
- grant common stock upon the attainment of specified performance goals
- grant deferred stock units and
- grant dividend rights in respect of common stock.
These grants may be made to officers, employees, non-employee directors,
consultants, advisors and other key persons of Innovations.
Our board of directors or a committee of independent directors appointed by
the board, referred to as the administrator, will administer the stock option
plan. Subject to the provisions of the plan, the administrator may select the
individuals eligible to receive awards, determine or modify the terms and
conditions of the awards granted, accelerate the vesting schedule of any award
and generally administer and interpret the plan.
The administrator may determine the exercise price of options granted under
the stock option plan, which may not be less than the fair market value of the
stock on the date of the option grant. Under present law, incentive stock
options and options intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code may not be granted at an exercise
price less than the fair market value of the common stock on the date of grant,
or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding more than 10% of the voting power of
Innovations. Options granted under the plan will typically be subject to vesting
schedules, terminate ten years from the date of grant, may be exercised for
specified periods after the termination of the optionee's employment or other
service relationship with us, and will generally be non-transferable. Upon the
exercise of options, the option exercise price must be paid in full:
- in cash or by certified or bank check or other instrument acceptable to
the administrator
- in the sole discretion of the administrator, by delivery of shares of
common stock that have been owned by the optionee free of restrictions
for at least six months and
- by a broker under irrevocable instructions to the broker selling all or
some of the underlying shares from the optionee.
Upon certain events, including a merger, reorganization or consolidation,
the sale of all or substantially all of our assets or all of our outstanding
capital stock or a liquidation or other similar transaction, all outstanding
awards issued under the stock option plan will become fully vested and
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exercisable upon the closing of the transaction. The stock option plan and all
awards issued under the plan will terminate upon any of the transactions
described above, unless we and the other parties to such transactions have
agreed otherwise. All participants under the stock option plan will be
permitted, for a period of time to be determined by the administrator, to
exercise before any termination all awards held by them that are then
exercisable or will become exercisable upon the closing of the transaction.
New Plan Benefits -- Restricted Stock Sale. Pursuant to the Innovations
stock option plan, on August --, 2001, Innovations sold 1,168,191 shares of
restricted stock to Ron Zwanziger, Chairman and Chief Executive Officer of
Innovations, at a price of $9.13 per share. Mr. Zwanziger paid for the shares
using the proceeds of a five-year promissory note from Mr. Zwanziger to
Innovations. The note accrues interest which compounds annually at the rate of
4.99% per year. Both principal and interest are payable at the end of the
five-year term, unless repaid earlier. The promissory note is 75% non-recourse
as to principal and full recourse as to the remaining principal and all
interest. Two-thirds of these shares of restricted stock, or 778,794 shares,
vest in 36 equal monthly installments beginning on the last day of the calendar
month in which the split-off occurs. Vesting on these 778,794 shares will also
accelerate in the event of death, disability or actual or constructive
termination without cause. One-third of these shares of restricted stock, or
389,397 shares, vest in 48 equal monthly installments beginning on the last day
of the calendar month in which the split-off occurs. Any non-vested shares
forfeited by Mr. Zwanziger will be subject to repurchase by Innovations at cost.
If Inverness stockholders do not approve the Innovations stock option plan or
the Innovations executive bonus plan, all shares sold will be repurchased by
Innovations at cost.
New Plan Benefits -- Option Grants. Pursuant to the Innovations stock
option plan, on August --, 2001, Innovations granted options to purchase shares
of common stock to certain executive officers of Innovations. It is anticipated
that these options will be exercised within a few months after the split-off.
The following table sets forth certain information regarding these options.
NEW PLAN BENEFITS
NUMBER OF SHARES
ISSUABLE ON EXERCISE EXERCISE
NAME AND POSITION OF OPTIONS PRICE
----------------- -------------------- --------
David Scott, Ph.D. ......................................... 399,381 $6.20
Chief Scientific Officer
Jerry McAleer, Ph.D. ....................................... 379,413 $6.20
Vice President, Research and Development
These options will expire on January 31, 2002. The exercise price of these
options may be paid using the proceeds of a five-year promissory note from the
optionee to Innovations. Each note will accrue interest which compounds annually
at the applicable federal rate for a five-year note for the month in which the
option is exercised. Both principal and interest will be payable at the end of
the five-year term, unless repaid earlier. The promissory note of each executive
will be 75% non-recourse as to principal and full recourse as to the remaining
principal and all interest. Upon exercise, the shares of common stock purchased
will vest in 36 equal monthly installments beginning on the last day of the
calendar month in which the option is exercised. Vesting on these shares will
also accelerate in the event of death, disability or actual or constructive
termination without cause. Upon termination of employment, any non-vested shares
will be subject to repurchase by Innovations at their then fair market value. In
the event that the executive has not purchased all of the shares underlying the
option by the expiration date, Innovations will grant the executive a new option
for the number, if any, of unpurchased shares underlying the original option.
This new option will have a ten-year term, will become exercisable in 36 equal
monthly installments and will have a per share exercise price equal to the
greater of the per share exercise price of the original option or the fair
market value of a share of Innovations common stock on the date of grant.
Exercisability of these options will accelerate in the event of death,
disability or actual or constructive termination without cause. The exercise
price of the new option may be paid using the proceeds of a five-year promissory
note which will have terms similar to those discussed above.
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Innovations has also agreed to grant additional options to these executive
officers immediately following the split-off. The following table sets forth
certain information regarding these options.
NEW PLAN BENEFITS
NUMBER OF SHARES
ISSUABLE ON EXERCISE EXERCISE
NAME OF OPTIONS PRICE
---- -------------------- --------
David Scott, Ph.D. ......................................... 199,691 $15.00
Jerry McAleer, Ph.D. ....................................... 189,706 $15.00
These options will have a ten-year term and will become exercisable in 48
equal monthly installments. The exercise price of these options may be paid
using the proceeds of a five-year promissory note which will have terms similar
to those discussed above.
If Inverness stockholders do not approve the Innovations stock option plan
or the Innovations executive bonus plan, the options granted on August --, 2001
will be canceled and the additional options will not be granted immediately
following the split-off.
ANNUAL FIXED BONUSES
During the years 2001 through 2006, each of the following key executives
will receive, in addition to his base salary, the following bonus during the
month of January of the following year:
ANNUAL FIXED BONUS ANNUAL FIXED BONUS
KEY EXECUTIVE (2001) (2002-2006)
------------- ------------------ ------------------
Ron Zwanziger.................... $225,000 $550,000
David Scott...................... 55,000 125,000
Jerry McAleer.................... 50,000 120,000
EXECUTIVE BONUS PLAN
Our board of directors has adopted the executive bonus plan, referred to as
the bonus plan. The bonus plan will be administered by our compensation
committee, which is composed of "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code. Three key executives, Ron
Zwanziger, David Scott and Jerry McAleer, are eligible to receive bonuses under
the bonus plan.
The Inverness compensation committee has established certain stock price
targets, which may be adjusted to reflect stock splits. The key executives will
be eligible to receive the performance bonuses set forth in Table I below if our
stock achieves specified stock price targets. The key executives will be
eligible to receive the additional performance bonuses set forth in Table II
below if our stock achieves higher specified stock price targets. With respect
to each cash bonus listed in the tables below, each key executive will be
entitled to receive that bonus if the average closing price of our common stock
during any 30-day period exceeds:
- the price per share target for a particular cash bonus on or prior to its
target date or
- any higher price per share target for any other cash bonus having a later
target date on or prior to said later target date.
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At the end of each calendar year, our compensation committee will certify
in writing whether the price per share target has been achieved. If the price
per share target or targets have been achieved, bonuses earned will be paid in
cash in January of the following year pursuant to the following tables:
TABLE I
MAXIMUM CASH BONUSES PAYABLE
IF PRICE PER SHARE TARGET IS ACHIEVED
---------------------------------------------------------
TARGET PRICE
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.......................... $28.125 $2,400,000 $850,000 $800,000
December 31, 2003.......................... 33.75 2,400,000 850,000 800,000
December 31, 2004.......................... 39.375 2,400,000 850,000 800,000
TABLE II
MAXIMUM CASH BONUSES PAYABLE
IF PRICE PER SHARE TARGET IS ACHIEVED
---------------------------------------------------------
TARGET PRICE
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.......................... $ 33.75 $900,000 $$750,000 $725,000
December 31, 2003.......................... 45.00 900,000 750,000 725,000
December 31, 2004.......................... 56.25 900,000 750,000 725,000
December 31, 2005.......................... 67.50 900,000 750,000 725,000
Our compensation committee has the right to amend the plan, but any
amendment that would (i) increase the maximum bonus that might be payable to any
key executive, or (ii) establish different performance targets, is subject to
further stockholder approval in order for the bonus payments to the key
executives to constitute "performance-based compensation" under Section 162(m)
of the Internal Revenue Code.
2001 EMPLOYEE STOCK PURCHASE PLAN
We have adopted the 2001 employee stock purchase plan, referred to as the
stock purchase plan, under which employees will be eligible to purchase shares
of our common stock at a discount through periodic payroll deductions. We
adopted the stock purchase plan in order to provide eligible employees the
opportunity to purchase our common stock, enhance our ability to attract and
retain highly qualified personnel, and better enable such persons to participate
in our long-term success and growth. Our board of directors will appoint an
administrator for the stock purchase plan. The stock purchase plan is intended
to meet the requirements of Section 423 of the Internal Revenue Code. After the
initial period, purchases will occur at the end of six month offering periods at
a purchase price equal to 85% of the market value of our common stock at either
the beginning of the offering period or the end of the offering period,
whichever is lower. The first offering period under the stock purchase plan will
begin on the first day of the month following the split-off and merger and will
end on August 31, 2002. Subsequent six-month offerings will begin on each March
1 and September 1. Participants may elect to have from 1% to 10% of their pay
withheld for purchase of common stock at the end of the offering period, up to a
maximum of $25,000 within any calendar year (valued at the beginning of each
offering period). We have reserved -- shares of common stock for issuance under
this stock purchase plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH EXPERTECH ASSOCIATES, INC.
Ernest J. Carabillo, Jr., one of our directors, is President and a major
shareholder (approximately 50%) of EXPERTech Associates, Inc., a regulatory and
quality systems consulting firm. EXPERTech has assisted Inverness, and its
subsidiary Inverness Medical Limited, on an "as required basis" since its
inception. EXPERTech's services have been rendered primarily in connection with
Inverness' diabetes products business, and at least 85% of such services were
rendered on behalf of Inverness Medical Limited, which will be acquired by
Johnson & Johnson through the merger. During fiscal year 2000, EXPERTech billed
Inverness and Inverness Medical Limited $576,098 for services rendered, and
through July 20, 2001 EXPERTech billed Inverness and Inverness Medical Limited
an additional $512,780.
PARTICIPATION IN PUBLIC OFFERING
On November 27 and 28, 2000, Inverness sold a total of 3,500,000 shares of
its common stock pursuant to a Form S-3 Registration Statement filed with the
Securities and Exchange Commission on November 20, 2000. A total of nine
executive officers and significant employees of Inverness participated in that
public offering by selling a total of 640,000 shares of Inverness common stock
at $25.00 per share and receiving, after underwriting discounts and commissions,
aggregate consideration of $15,160,000. Seven of the participating executive
officers and significant employees are or expected to be executive officers and
significant employees of Innovations. Those persons (and the number of Inverness
shares sold by each) were Ron Zwanziger (300,000), Kenneth D. Legg (123,100),
Duane L. James (7,600), Jerry MacAleer (75,000), David Scott (90,000), Douglas
Shaffer (7,500) and John Yonkin (6,800).
PRIVATE PLACEMENT OF "UNITS"
In June 2000, Inverness entered into an agreement pursuant to which it sold
units consisting of (1) a $25,000 one-year subordinated promissory note and (2)
a warrant to acquire 123 shares of Inverness common stock for the aggregate
purchase price of $19,349,195. The units were sold primarily for the purpose of
retiring Inverness' then outstanding $10,200,000 two-year subordinated
promissory notes and $7,500,000 subordinated revenue royalty notes. Among the
purchasers of the units were two of our current directors, John F. Levy and
Ernest A. Carabillo, Jr.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the amount of our common stock expected to
be beneficially owned by (i) each person or entity known by us to beneficially
own more than five percent of Inverness common stock, (ii) each of our
directors, (iii) each of our named executive officers and (iv) all of our
directors and executive officers as a group upon completion of the split-off.
Unless otherwise stated, our expected beneficial ownership is calculated based
upon beneficial ownership of Inverness common stock as of July 1, 2001. Because
all of the shares of our common stock held by Inverness will be issued to
stockholders of Inverness, the number of shares of our common stock shown below
to be owned beneficially by the persons or entities listed below will depend on
the number of shares of Inverness stock held by the person or entity at the time
of the split-off. We will be a majority-owned subsidiary of Inverness until the
split-off.
In estimating the beneficial ownership of our common stock, we assumed that
the persons or entities listed in the table will receive .20 of a share of our
common stock for each share of Inverness common stock owned (in accordance with
the exchange ratio provided for by the split-off and merger agreement). We also
assumed that all options to purchase shares of Inverness common stock held as of
July 1, 2001 constitute beneficially owned shares of Inverness common stock
because all such options, if not already vested, will vest on the date of the
split-off.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PERCENT(3)
--------------------------------------- ----------------------- ----------
Ron Zwanziger............................................... --(4) --%
David Scott, Ph.D. ......................................... -- --%
Anthony J. Bernardo......................................... 11,954 *
Kenneth D. Legg, Ph.D. ..................................... 104,885 --%
Jerry McAleer, Ph.D. ....................................... -- --%
David Toohey................................................ 10,000 *
Duane L. James.............................................. 8,547 *
John Yonkin................................................. 16,487 *
Doug Shaffer................................................ 8,386 *
Paul T. Hempel.............................................. 5,811 *
Ernest A. Carabillo, Jr. ................................... 5,550 *
Carol R. Goldberg........................................... 48,574 *
Robert P. Khederian......................................... 77,160(5) --%
John F. Levy................................................ 110,239 --%
Peter Townsend.............................................. 10,285 *
Alfred M. Zeien............................................. 0 *
All executive officers and directors (16 persons)........... -- --%
---------------
* Represents less than 1%
(1) The address of each director or executive officer beneficially owning more
than 5% of our common stock is c/o Innovations at our principal office.
(2) Includes the number of our shares that may be acquired by each listed
individual pursuant to Inverness options or warrants held as of July 1, 2001
and the subsequent exchange of Inverness shares, options and warrants for
our shares, options and warrants pursuant to the merger agreement, in the
following aggregate amounts: Mr. Zwanziger, 283,935 shares; Dr. Scott,
137,183 shares; Mr. Bernardo, 10,054 shares; Dr. Legg, 88,572 shares; Dr.
McAleer, 96,500 shares; Mr. Toohey, 10,000 shares; Mr. James, 8,183 shares;
Mr. Yonkin, 13,830 shares; Mr. Shaffer, 8,221 shares; Mr. Hempel, 5,811
shares; Mr. Carabillo, 5,550 shares; Ms. Goldberg, 27,348 shares; Mr. Levy,
9,261 shares; and Mr. Townsend, 10,285 shares.
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(3) The number of shares outstanding used in calculating the percentage for each
person, group or entity listed includes the number of shares underlying all
Inverness options and warrants held by such person, group or entity because
all such warrants or options are either currently exercisable or will become
exercisable through the split-off and merger, but excludes shares of
Inverness common stock underlying options, warrants or convertible
securities held by any other person.
(4) Mr. Zwanziger disclaims beneficial ownership of (1) -- shares of our common
stock owned by his spouse, (2) -- shares of our common stock held in trust
for the benefit of his children where he, his spouse and an unrelated
individual serve as co-trustees, and (3) -- shares of our common stock held
in trust for the benefit of Mr. Zwanziger's children where his spouse is the
sole trustee.
(5) Mr. Khederian disclaims beneficial ownership of a total of -- shares of our
common stock held as custodian for his minor children.
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DESCRIPTION OF INNOVATIONS CAPITAL STOCK
The following summary describes the material terms of our capital stock. To
fully understand the actual terms of our capital stock you should refer to our
certificate of incorporation and by-laws, forms of which are filed as exhibits
to the registration statement of which this prospectus is a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Immediately after the split-off, our authorized capital stock will consist
of -- shares of common stock, par value $-- per share, and -- shares of
undesignated preferred stock, par value $-- per share, issuable in one or more
series designated by our board of directors. Based on the number of shares of
Inverness common stock outstanding at --, 2001 and assuming no other shares of
Inverness common stock are issued prior to the date of the split-off,
approximately -- shares of our common stock will be issued to the Inverness
stockholders on the date of the split-off. Other than -- shares of restricted
stock sold to an executive officer of Innovations prior to the split-off and --
shares of common stock that are expected to be issued to certain executive
officers of Innovations shortly after the split-off upon the exercise of
Innovations options granted prior to the split-off, those shares of our common
stock will be the only shares of our common stock issued and outstanding on the
date of the split-off, which shares will be held by approximately -- holders of
record. No shares of our preferred stock will be issued and outstanding on the
date of the split-off.
In addition, based on the options and warrants to purchase Inverness common
stock outstanding at --, 2001, immediately after the split-off there will be
outstanding options to purchase -- shares of our common stock, all of which will
be immediately exercisable, and outstanding warrants to purchase -- shares of
our common stock, all of which will be immediately exercisable. Furthermore,
immediately following the split-off, options to purchase -- shares of our common
stock will be granted to certain of our executive officers.
COMMON STOCK
Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of the election of directors, by
a plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class, subject to any voting rights granted to holders of
any then outstanding preferred stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common stock
may be paid to holders of shares of common stock.
Other Rights. Upon the liquidation, dissolution or winding up of our
company, all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock, subject to the
preferential rights of any preferred stock then outstanding. No shares of common
stock are subject to redemption or have preemptive rights to purchase additional
shares of common stock.
PREFERRED STOCK
Our certificate of incorporation provides that shares of preferred stock
may be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock with voting and other rights that could adversely affect the
voting power and other rights of the holders of the common stock and could have
anti-takeover effects, including preferred stock or rights to acquire preferred
stock in connection with implementing a shareholder rights plan. We have no
present plans to issue any shares of preferred stock. The ability of our board
of directors to issue preferred stock without stockholder
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approval could have the effect of delaying, deferring or preventing a change of
control of our company or the removal of existing management.
INDEMNIFICATION MATTERS
We have entered into indemnification agreements with each of our directors
and certain of our executive officers. The form of indemnification agreement
provides that we will indemnify our directors and certain of our executive
officers for expenses incurred because of their status as a director or
executive officer, to the fullest extent permitted by Delaware law, our
certificate of incorporation and our by-laws.
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director has
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation Law
or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our by-laws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by us to the fullest extent authorized by Delaware law, as it
now exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of us. Our
by-laws also provide for the advancement of expenses to directors and, in the
discretion of our board of directors, officers and non-officer employees. In
addition, our by-laws provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities. We believe that the indemnification
agreements, together with the limitation of liability and indemnification
provisions of our certificate of incorporation and by-laws and directors' and
officers' insurance will assist us in attracting and retaining qualified
individuals to serve as our directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be provided to our directors or officers, or persons controlling our
company as described above, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. At present,
there is no pending material litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS THAT MAY HAVE
ANTI-TAKEOVER EFFECTS
Certain provisions of our certificate of incorporation and by-laws
described below, as well as the ability of our board of directors to issue
shares of preferred stock and to set the voting rights, preferences and other
terms thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by our board of directors, including
takeovers which particular stockholders may deem to be in their best interests.
These provisions also could have the effect of discouraging open market
purchases of our common stock because they may be considered disadvantageous by
a stockholder who desires subsequent to such purchases to participate in a
business combination transaction with us or elect a new director to our board.
Classified Board of Directors. Our board of directors is divided into
three classes serving staggered three-year terms, with one-third of the board
being elected each year. Our classified board, together with certain other
provisions of our certificate of incorporation authorizing the board of
directors to fill vacant directorships or increase the size of the board, may
prevent a stockholder from removing, or delay the removal of, incumbent
directors and simultaneously gaining control of the board of directors by
filling vacancies created by such removal with its own nominees.
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Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our board of directors shall be filled only by the affirmative
vote of a majority of the remaining directors. Our certificate of incorporation
provides that directors may be removed from office only with cause and only by
the affirmative vote of holders of at least seventy-five percent of the shares
then entitled to vote in an election of directors.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that any action required or permitted to be taken by our stockholders
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders.
Special Meetings of Stockholders. Our certificate of incorporation and
by-laws provide that a special meeting of stockholders may be called only by our
board of directors. Our by-laws provide that only those matters included in the
notice of the special meeting may be considered or acted upon at that special
meeting unless otherwise provided by law.
Advance Notice of Director Nominations and Stockholder Proposals. Our
by-laws include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders. For the first annual
meeting following the completion of the split-off, a stockholder's notice of a
director nomination or proposal will be timely if delivered to our corporate
secretary at our principal executive offices not later than the close of
business on the later of the 90th day prior to the scheduled date of such annual
meeting or the 10th day following the day on which we publicly announce the date
of such annual meeting.
Amendment of the Certificate of Incorporation. As required by Delaware
law, any amendment to our certificate of incorporation must first be approved by
a majority of our board of directors and, if required by law, thereafter
approved by a majority of the outstanding shares entitled to vote with respect
to such amendment, except that any amendment to the provisions relating to
stockholder action by written consent, directors, limitation of liability and
the amendment of our certificate of incorporation must be approved by not less
than seventy-five percent of the outstanding shares entitled to vote with
respect to such amendment.
Amendment of By-laws. Our certificate of incorporation and by-laws provide
that our by-laws may be amended or repealed by our board of directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least seventy-five percent of
the shares present in person or represented by proxy at an annual meeting of
stockholders or a special meeting called for such purpose unless our board of
directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal only requires the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting.
STATUTORY BUSINESS COMBINATION PROVISION
Following the split-off, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from completing a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination
- upon the closing of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who are also
officers of the corporation and shares held by employee stock plans or
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- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a corporation's outstanding voting stock.
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.
TRADING ON THE AMERICAN STOCK EXCHANGE
We have applied to have our common stock approved for listing on the
American Stock Exchange under the symbol "--."
NO PREEMPTIVE RIGHTS
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be EquiServe
Trust Company.
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MATERIAL DIFFERENCES IN THE RIGHTS OF
OUR STOCKHOLDERS AND INVERNESS STOCKHOLDERS
Both we and Inverness are corporations formed under and governed by the
laws of the State of Delaware. Accordingly, any differences in the rights of our
stockholders and Inverness' stockholders are based on the provisions set forth
in the certificate of incorporation and by-laws of each company. The material
differences between the rights of the stockholders of each company are described
below.
CAPITALIZATION
Inverness
Inverness is authorized to issue 75,000,000 shares of capital stock, of
which 70,000,000 shares are common stock, par value $0.001 per share, and
5,000,000 shares are preferred stock, par value $0.001 per share.
Innovations
We are authorized to issue -- shares of capital stock, of which -- shares
are common stock, par value $-- per share, and -- shares are preferred stock,
par value $-- per share.
NOTICE OF STOCKHOLDER ACTIONS
Inverness
In order to be timely, notice of a stockholder proposal, including one
relating to director nominations, must be delivered by the stockholder to the
Secretary of Inverness not later than 75 days nor more than 120 days prior to
the anniversary of the preceding year's annual meeting of stockholders, except
that if the date of the current year's annual meeting is advanced by more than
30 days prior to, or delayed by more than 60 days after, the anniversary of the
preceding year's annual meeting, the notice must be delivered not later than the
close of business on the later of the 75th day prior to the annual meeting or
the 15th day following the date on which the date of the current year's annual
meeting was first publicly announced in order to be timely.
Innovations
In order to be timely, notice of a stockholder proposal, including one
relating to director nominations, must be delivered by the stockholder to our
Secretary not later than 90 days nor more than 120 days prior to the anniversary
of the preceding year's annual meeting of stockholders, except that if the date
of the current year's annual meeting is advanced by more than 30 days prior to,
or delayed by more than 60 days after, the anniversary of the preceding year's
annual meeting, the notice must be delivered not later than the close of
business on the later of the 75th day prior to the annual meeting or the 10th
day following the date on which the date of the current year's annual meeting
was first publicly announced in order to be timely. In the event that the number
of directors to be elected to our board of directors at the annual meeting is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased board at least 85 days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice with respect to nominees for newly-created positions on our board of
directors created by the increase will be timely if delivered to our secretary
not later than the close of business on the 10th day following the day on which
the public announcement described above is first made.
AMENDMENTS TO CHARTER DOCUMENTS
Inverness
The affirmative vote of not less than two-thirds of the outstanding shares
entitled to vote thereon, and the affirmative vote of not less than two-thirds
of the outstanding shares of each class entitled to vote
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thereon as a class, is required to amend or repeal provisions relating to
stockholder action, directors, limitation of liability and amendment of the
certificate of incorporation.
Innovations
The affirmative vote of not less than 75% of the outstanding shares
entitled to vote thereon, and the affirmative vote of not less than 75% of the
outstanding shares of each class entitled to vote thereon as a class, is
required to amend or repeal provisions relating to stockholder action,
directors, limitation of liability, amendment of the by-laws by our stockholders
and amendment of the certificate of incorporation.
AMENDMENTS OF THE BY-LAWS
Inverness
Amendment or repeal of the Inverness by-laws by the stockholders of
Inverness requires the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at the stockholders' meeting voting as
a single class, unless the Inverness board of directors recommends that the
stockholders approve such amendment or repeal, in which case such amendment or
repeal only requires the affirmative vote of a majority of the shares present in
person or represented by proxy at the stockholders' meeting.
Innovations
Amendment or repeal of our by-laws by our stockholders requires the
affirmative vote of at least 75% of the shares present in person or represented
by proxy at the stockholders' meeting voting as a single class, unless our board
of directors recommends that the stockholders approve such amendment or repeal,
in which case such amendment or repeal only requires the affirmative vote of a
majority of the shares present in person or represented by proxy at the
shareholders' meeting.
SHARES ELIGIBLE FOR FUTURE SALE
We estimate that -- shares of our common stock will be issued in the
split-off, based on the number of shares of Inverness common stock outstanding
on --, 2001 and the .20 ratio for the exchange of outstanding Inverness common
stock. All of these shares of common stock will be freely tradable without
restriction or further registration under the Securities Act, except to the
extent such shares are held by our "affiliates" (within the meaning of Rule 144
or Rule 145 promulgated under the Securities Act). Our affiliates will be
subject to the limitations of Rule 144 or Rule 145, as applicable, promulgated
under the Securities Act. In general, under Rule 144 as currently in effect,
persons who may be deemed our affiliates or affiliates of Inverness prior to the
split-off, as that term is defined in the Securities Act, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1 percent of the then outstanding shares of our common stock
(approximately -- shares immediately after the split-off) or the average weekly
trading volume during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and availability of current public information about
us. In general, under Rule 145 as currently in effect, our affiliates (which
generally is defined to include affiliates of Inverness prior to the split-off)
would also be subject to the above restrictions on sales of our common stock.
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MATERIAL TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the split-off and the merger to holders of Inverness common
stock who are citizens or residents of the United States. This discussion does
not include tax consequences to Inverness stockholders entitled to special
treatment under the Internal Revenue Code, such as insurance companies, dealers
in securities, tax exempt organizations or foreign persons, or to Inverness
stockholders who acquired their shares of Inverness common stock pursuant to the
exercise of employee stock options or otherwise in compensatory transactions. In
addition, this discussion does not address any state, local or foreign tax
considerations and does not address any federal estate, gift, employment, excise
or other non-income tax considerations. This discussion is based upon provisions
of the Internal Revenue Code, regulations, administrative rulings and judicial
decisions presently in effect, all of which are subject to change (possibly with
retroactive effect) and to different interpretations. INVERNESS STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE SPLIT-OFF AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Goodwin Procter LLP, counsel to Inverness, has provided to Inverness an
opinion letter regarding certain of the federal income tax consequences of the
split-off and merger. No ruling from the Internal Revenue Service has been or
will be sought with respect to any of the tax matters relating to the split-off
and merger. The conclusions of counsel in its opinion letter are based upon
certain assumptions and representations (including representations made by
Inverness and Johnson & Johnson) and are counsel's best legal judgment. The
opinion letter does not bind the IRS, any tax authority or any court.
Accordingly, there can be no assurance that the IRS will agree with the
conclusions set forth in the opinion letter, and it is possible that the IRS or
another tax authority could adopt a position contrary to one or all of those
conclusions and that a court could sustain that contrary position.
TWO SEPARATE TRANSACTIONS
Counsel concludes in its opinion letter that the deemed redemption of a
portion of a stockholder's shares of Inverness common stock in exchange for
Innovations common stock in the split-off and the exchange of a portion of such
stockholder's shares of Inverness common stock for Johnson & Johnson common
stock in the merger will be two separate transactions for federal income tax
purposes.
THE SPLIT-OFF
Counsel concludes in its opinion letter that, subject to certain
assumptions and representations, it is more likely than not that the split-off
qualifies, as to the Inverness stockholders, as a transaction described in
Section 355 of the Internal Revenue Code. For this purpose, the phrase "more
likely than not" means that if counsel's conclusion is challenged by the IRS,
counsel believes that there is a greater than 50% likelihood that counsel's
conclusion would be sustained by a court of law.
If counsel is correct that the split-off qualifies, as to the Inverness
stockholders, as a transaction described in Section 355 of the Internal Revenue
Code, then:
- an Inverness stockholder will not recognize any gain or loss when shares
of its Inverness common stock are redeemed in exchange for Innovations
common stock in the split-off
- cash, if any, that an Inverness stockholder receives instead of a
fractional share of Innovations common stock will be treated as received
in exchange for that fractional share. The stockholder will recognize
gain or loss to the extent of the difference between its tax basis in
that fractional share and the cash that the stockholder receives for that
fractional share. Provided that the stockholder holds the Innovations
common stock that it receives in the split-off as a capital asset, the
gain or loss will be capital gain or loss
- an Inverness stockholder's tax basis in its Inverness common stock will
be divided between the Innovations common stock that it receives in the
split-off and the Johnson & Johnson common stock that it receives in the
merger in proportion to the relative fair market values of such
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188
Innovations common stock and Johnson & Johnson common stock at the time
that the split-off and merger occur and
- an Inverness stockholder's holding period for the Innovations common
stock that it receives in the split-off will include the stockholder's
holding period for its Inverness common stock that is redeemed in the
split-off, provided that the stockholder holds its Inverness common stock
as a capital asset.
Inverness stockholders should be aware that counsel's conclusion that the
split-off qualifies, as to the Inverness stockholders, as a transaction
described in Section 355 of the Internal Revenue Code is based on counsel's
interpretation of how various requirements of Section 355 of the Internal
Revenue Code apply to the split-off. According to counsel, with respect to some
of these interpretations there is no controlling legal authority, and no
published rulings or cases squarely address the application of Section 355 of
the Internal Revenue Code to a transaction identical to the split-off.
If certain representations and assumptions relied upon by counsel in
rendering its opinion letter are inaccurate, or if the IRS successfully
challenges counsel's conclusions regarding the federal income tax treatment of
the split-off, then:
- an Inverness stockholder will recognize gain or loss when shares of its
Inverness common stock are redeemed in exchange for Innovations common
stock in the split-off. Such gain or loss will be capital gain or loss if
the stockholder holds its Inverness common stock as a capital asset
- the amount of the gain or loss that an Inverness stockholder will
recognize will be equal to the difference between its tax basis in its
redeemed Inverness common stock and the fair market value of the
Innovations common stock that the stockholder receives in the split-off.
The stockholder's tax basis in its redeemed Inverness common stock will
be a percentage of its tax basis in all of its Inverness stock. In
general, that percentage will be equal to the percentage that the fair
market value of the Innovations common stock that the stockholder
receives in the split-off is of the fair market value of the total
consideration that the stockholder receives in the split-off and merger
- an Inverness stockholder's tax basis in the Innovations common stock that
it receives in the split-off will be equal to the fair market value of
that Innovations common stock and
- an Inverness stockholder's holding period for the Innovations common
stock that it receives in the split-off will begin on the day after the
split-off occurs.
Even if the split-off qualifies, as to the Inverness stockholders, as a
transaction described in Section 355 of the Internal Revenue Code, Inverness
stockholders should be aware that the split-off will be taxable to Inverness.
The amount of Inverness' taxable gain will depend on both the difference between
the fair market value of the women's health business assets and Inverness' tax
basis in those assets immediately before the pre-split-off restructuring, and on
the difference between the fair market value and tax basis of the Innovations
common stock after the restructuring but before the split-off. Under the tax
allocation agreement, Inverness is solely responsible for the payment of
Inverness' tax liability arising from the restructuring and the split-off and is
not entitled to reimbursement from Innovations or Johnson & Johnson.
THE MERGER
Counsel also concludes in its opinion letter that, subject to certain
assumptions and representations, the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. Accordingly:
- an Inverness stockholder will not recognize any gain or loss when shares
of its Inverness common stock are exchanged for Johnson & Johnson common
stock in the merger
- cash, if any, that an Inverness stockholder receives instead of a
fractional share of Johnson & Johnson common stock will be treated as
received in exchange for that fractional share. The
X-78
189
stockholder will recognize gain or loss to the extent of the difference
between its tax basis in that fractional share and the cash that the
stockholder receives for that fractional share. Provided that the
stockholder holds the Johnson & Johnson common stock that it receives in
the merger as a capital asset, the gain or loss will be capital gain or
loss
- an Inverness stockholder's tax basis in the Johnson & Johnson common
stock that it receives in the merger will equal its tax basis in the
Inverness common stock that the stockholder exchanges in the merger for
that Johnson & Johnson common stock and
- an Inverness stockholder's holding period for the Johnson & Johnson
common stock that it receives in the merger will include the
stockholder's holding period for the Inverness common stock that the
stockholder exchanges in the merger for that Johnson & Johnson common
stock, provided that the stockholder holds its Inverness common stock as
a capital asset.
The foregoing discussion is only a summary of the material federal income
tax consequences of the split-off and merger and is included here for general
information only. The foregoing discussion may not address federal income tax
consequences relevant to an Inverness stockholder's particular circumstances.
INVERNESS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE SPLIT-OFF AND THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
LAWS.
X-79
190
LEGAL MATTERS
The validity of the common stock we are issuing will be passed upon for us
by Goodwin Procter LLP, Boston, Massachusetts. The owners and presidents of two
professional corporations which are partners in the firm of Goodwin Procter LLP
beneficially own an aggregate of approximately 50,142 shares of Inverness common
stock and 3,995 shares of Inverness common stock, respectively. Assuming these
professional corporations still own these shares as of the date of the
split-off, then, immediately following the split-off, they will own an aggregate
of approximately 10,028 shares of our common stock and 799 shares of our common
stock, respectively.
EXPERTS
The consolidated financial statements of Inverness Medical Innovations,
Inc. and subsidiaries as of December 31, 2000 and 1999, and for each of the
years in the three-year period ended December 31, 2000 included in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing giving said
reports.
ABOUT THIS PROSPECTUS AND WHERE YOU MAY FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended, with respect
to the shares of common stock offered under this prospectus. This prospectus is
part of the registration statement. This prospectus does not contain all of the
information contained in the registration statement because we have omitted
parts of the registration statement in accordance with the rules and regulations
of the Securities and Exchange Commission. For further information, we refer you
to the registration statement, which you may read and copy at the public
reference facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Securities and Exchange Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain
copies at the prescribed rates from the Public Reference Section of the
Securities and Exchange Commission at its principal office in Washington, D.C.
You may call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about public reference rooms. The Securities and Exchange
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants, including Inverness
Medical Innovations, Inc., that file electronically with the Securities and
Exchange Commission. You may access the Securities and Exchange Commission's web
site at http://www.sec.gov.
After the split-off, we will be subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and we will be required to
file reports, proxy statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of these materials
can be obtained by mail from the Public Reference Section of the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. We have applied for approval for
listing of our common stock on the American Stock Exchange under the symbol
"--."
X-80
191
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
Report of Independent Public Accountants.................... XF-1
Combined Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 and the Three Months
Ended March 31, 2000 and 2001 (unaudited)................. XF-2
Unaudited Pro Forma Combined Statements of Operations for
the Years Ended December 31, 1998, 1999 and 2000 and the
Three Months Ended March 31, 2000 and 2001................ XF-3
Combined Balance Sheets as of December 31, 1999 and 2000 and
March 31, 2001 (unaudited)................................ XF-4
Unaudited Pro Forma Combined Balance Sheets as of December
31, 2000 and March 31, 2001............................... XF-5
Combined Statements of Stockholders' Equity and Net Parent
Company Investment for the Years Ended December 31, 1998,
1999 and 2000 and the Three Months Ended March 31, 2001
(unaudited)............................................... XF-6
Combined Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000 and the Three Months
Ended March 31, 2000 and 2001 (unaudited)................. XF-7
Notes to Combined Financial Statements...................... XF-9
XF-i
192
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Inverness Medical Innovations, Inc.:
We have audited the accompanying combined balance sheets of Inverness
Medical Innovations, Inc., (a Delaware corporation) a subsidiary of Inverness
Medical Technology, Inc., and subsidiaries as of December 31, 1999 and 2000, and
the related combined statements of operations, stockholders' equity and net
parent company investment and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Inverness Medical
Innovations, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 8, 2001
XF-1
193
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1998 1999 2000 2000 2001
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Net product sales.................... $74,645,142 $79,293,848 $84,529,140 $20,951,715 $18,661,909
Cost of sales........................ 40,562,912 45,534,338 48,182,950 11,620,038 10,859,820
----------- ----------- ----------- ----------- -----------
Gross profit....................... 34,082,230 33,759,510 36,346,190 9,331,677 7,802,089
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development............. 2,869,363 1,427,690 1,359,500 361,891 298,791
Selling, general and
administrative..................... 28,483,439 25,274,348 26,518,517 6,614,702 6,154,120
Net charge for business dispositions,
asset impairments and restructuring
activities (Note 7)................ 5,372,337 -- -- -- --
----------- ----------- ----------- ----------- -----------
36,725,139 26,702,038 27,878,017 6,976,593 6,452,911
----------- ----------- ----------- ----------- -----------
Operating (loss) income............ (2,642,909) 7,057,472 8,468,173 2,355,084 1,349,178
Interest expense..................... (3,682,291) (3,158,086) (2,988,149) (771,994) (557,041)
Other expense, net................... (631,646) (566,189) (388,419) (52,522) (84,049)
----------- ----------- ----------- ----------- -----------
(Loss) income before income
taxes........................... (6,956,846) 3,333,197 5,091,605 1,530,568 708,088
Provision for income taxes........... 2,102,833 2,793,493 2,909,783 991,743 579,554
----------- ----------- ----------- ----------- -----------
Net (loss) income.................. $(9,059,679) $ 539,704 $ 2,181,821 $ 538,825 $ 128,534
=========== =========== =========== =========== ===========
Net (loss) income per common share --
Basic and diluted.................. $ (9,060) $ 540 $ 2,182 $ 539 $ 129
=========== =========== =========== =========== ===========
Weighted average shares --
Basic and diluted.................. 1,000 1,000 1,000 1,000 1,000
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-2
194
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1998 1999 2000 2000 2001
----------- ----------- ----------- ----------- -----------
Net product sales................... $54,684,972 $50,583,854 $51,050,574 $13,455,025 $11,811,933
Cost of sales....................... 26,719,991 26,890,187 25,074,536 6,546,599 5,825,969
----------- ----------- ----------- ----------- -----------
Gross profit...................... 27,964,981 23,693,667 25,976,038 6,908,426 5,985,964
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development.......... 2,322,472 1,395,401 1,359,500 361,891 298,791
Selling, general and
administrative................. 22,769,187 18,349,671 17,763,109 4,563,118 4,172,398
Net charge for business
dispositions, asset impairments
and restructuring activities
(Note 7)....................... 4,968,816 -- -- -- --
----------- ----------- ----------- ----------- -----------
30,060,475 19,745,072 19,122,609 4,925,009 4,471,189
----------- ----------- ----------- ----------- -----------
Operating (loss) income........... (2,095,494) 3,948,595 6,853,429 1,983,417 1,514,775
Other expense, net.................. (650,365) (562,298) (387,884) (53,383) (78,744)
----------- ----------- ----------- ----------- -----------
(Loss) income from continuing
operations before income
taxes.......................... (2,745,859) 3,386,297 6,465,545 1,930,034 1,436,031
Provision for income taxes.......... 1,114,633 1,006,709 1,781,244 609,001 353,769
----------- ----------- ----------- ----------- -----------
(Loss) income from continuing
operations..................... (3,860,492) 2,379,588 4,684,301 1,321,033 1,082,262
(Loss) income from discontinued
operations (net of provision for
income taxes of approximately
$988,000, $1,787,000, $1,129,000,
$383,000 and $226,000,
respectively)..................... (2,882,308) 183,089 (597,784) (295,900) (581,203)
----------- ----------- ----------- ----------- -----------
Net (loss) income................. $(6,742,800) $ 2,562,677 $ 4,086,517 $ 1,025,133 $ 501,059
=========== =========== =========== =========== ===========
Unaudited pro forma (loss) income
from continuing operations per
common share -- Basic and
diluted........................... $ (1.58) $ 0.71 $ 0.99 $ 0.34 $ 0.18
Unaudited pro forma (loss) income
from discontinued operations per
common share -- Basic and
diluted........................... (1.18) 0.05 (0.13) (0.08) (0.10)
----------- ----------- ----------- ----------- -----------
Unaudited pro forma net (loss)
income per common share -- Basic
and diluted....................... $ (2.76) $ 0.76 $ 0.86 $ 0.26 $ 0.08
=========== =========== =========== =========== ===========
Unaudited pro forma weighted average
shares -- Basic................... 2,442,997 3,363,946 4,726,390 3,920,635 6,061,888
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-3
195
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
DECEMBER 31,
------------------------- MARCH 31,
1999 2000 2001
----------- ----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 695,080 $ 3,090,192 $ 3,404,397
Accounts receivable, net of reserves of
approximately $2,520,000 and $2,802,000 at
December 31, 1999 and 2000, respectively, and
$2,593,000 at March 31, 2001..................... 12,307,795 13,398,302 11,252,533
Inventories......................................... 8,734,781 7,461,717 8,797,225
Deferred tax asset.................................. 1,365,637 2,259,908 2,259,908
Prepaid expenses and other current assets........... 907,212 389,555 826,216
----------- ----------- -----------
Total current assets............................. 24,010,505 26,599,674 26,540,279
----------- ----------- -----------
Property, plant and equipment, net.................. 3,212,459 3,182,600 3,131,000
Goodwill, trademarks and other intangible assets,
net.............................................. 61,635,821 58,667,132 59,908,348
Deferred financing costs and other assets, net...... 1,233,498 1,091,499 1,075,953
----------- ----------- -----------
$90,092,283 $89,540,905 $90,655,580
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
AND NET PARENT COMPANY INVESTMENT
CURRENT LIABILITIES:
Current portion of notes payable.................... $ 6,864,104 $ 8,850,888 $ 7,943,846
Accounts payable.................................... 8,003,258 7,423,880 7,084,074
Accrued expenses and other current liabilities...... 5,002,699 7,251,637 6,986,766
Due to Inverness Medical Technology, Inc. and
affiliated companies (Note 8(a))................. 5,232,865 5,297,327 6,608,054
----------- ----------- -----------
Total current liabilities........................ 25,102,926 28,823,732 28,622,740
----------- ----------- -----------
LONG-TERM LIABILITIES:
Note payable to Inverness Medical Technology, Inc.
(Note 8(b))...................................... 4,043,609 4,208,274 4,057,315
Deferred tax liability.............................. 719,436 1,120,674 1,120,674
Other long-term liabilities......................... 189,568 170,000 165,000
Notes payable, net of current portion............... 25,083,728 13,406,175 11,754,153
----------- ----------- -----------
Total long-term liabilities...................... 30,036,341 18,905,123 17,097,142
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY AND NET PARENT COMPANY
INVESTMENT:
Common stock, $0.001 par value......................
Authorized, issued and outstanding
shares -- 1,000................................ 1 1 1
Additional paid-in capital.......................... 48,592,560 51,151,077 53,226,077
Net parent company investment....................... 3,994,757 3,693,975 3,714,267
Accumulated deficit................................. (18,250,540) (13,798,883) (13,190,596)
Accumulated other comprehensive income.............. 616,238 765,880 1,185,949
----------- ----------- -----------
Total stockholders' equity and net parent company
investment..................................... 34,953,016 41,812,050 44,935,698
----------- ----------- -----------
$90,092,283 $89,540,905 $90,655,580
=========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-4
196
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2000 2001
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,071,477 $40,000,000
Accounts receivable, net of reserves of approximately
$1,742,000 at December 31, 2000 and $1,600,000 at March
31, 2001............................................... 8,606,144 8,306,404
Inventories............................................... 4,297,626 4,570,113
Deferred tax asset........................................ 1,539,489 1,539,489
Prepaid expenses and other current assets................. 356,141 731,241
Net assets of discontinued operations..................... 19,161,070 --
------------ -----------
Total current assets................................... 37,031,947 55,147,247
------------ -----------
Property, plant and equipment, net........................ 3,122,681 2,997,372
Goodwill, trademarks and other intangible assets, net..... 34,845,522 34,367,024
Deferred financing costs and other assets, net............ 773,526 764,450
------------ -----------
$ 75,773,676 $93,276,093
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 5,309,666 $ --
Accounts payable.......................................... 5,418,893 4,345,885
Accrued expenses and other current liabilities............ 6,157,309 6,079,977
Due to Inverness Medical Technology, Inc. and affiliated
companies.............................................. 4,056,323 --
------------ -----------
Total current liabilities.............................. 20,942,191 10,425,862
------------ -----------
LONG-TERM LIABILITIES:
Note payable to Inverness Medical Technology, Inc......... 4,208,274 --
Deferred tax liability.................................... 1,120,674 1,120,674
Other long-term liabilities............................... 170,000 165,000
Notes payable, net of current portion..................... 7,520,487 --
------------ -----------
Total long-term liabilities............................ 13,019,435 1,285,674
------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value
Authorized, issued and outstanding 5,976,451 shares at
December 31, 2000 and 6,550,852 shares at March 31,
2001................................................. 5,976 6,551
Additional paid-in capital................................ 54,839,077 93,562,653
Accumulated deficit....................................... (13,798,883) (13,190,596)
Accumulated other comprehensive income.................... 765,880 1,185,949
------------ -----------
Total stockholders' equity............................. 41,812,050 81,564,557
------------ -----------
$ 75,773,676 $93,276,093
============ ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-5
197
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
AND NET PARENT COMPANY INVESTMENT
ACCUMULATED
COMMON STOCK OTHER
--------------------- ADDITIONAL NET PARENT COMPREHENSIVE
NUMBER $0.001 PAID-IN COMPANY ACCUMULATED (LOSS)
OF SHARES PAR VALUE CAPITAL INVESTMENT DEFICIT INCOME
--------- --------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1997......... 1,000 $1 $29,870,146 $ 895,693 $(12,301,235) $ (22,620)
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... -- -- 2,037,543 -- -- --
Capital contribution from Inverness
related to acquisition of Can-Am
Care Corporation................. -- -- 12,598,434 -- -- --
Capital contribution from Inverness
related to acquisition of
minority interest in Orgenics,
Ltd. ............................ -- -- 94,001 -- -- --
Capital contribution from Inverness
related to acquisition of Core
Immuno-Assay technology.......... -- -- -- 5,037,132 -- --
Net cash distributed to
Inverness........................ -- -- -- (80,274) -- --
Changes in cumulative translation
adjustment....................... -- -- -- -- -- (137,226)
Net loss........................... -- -- -- (1,007,524) (8,052,155) --
----- -- ----------- ----------- ------------ ----------
Total comprehensive loss.........
BALANCE, DECEMBER 31, 1998......... 1,000 1 44,600,124 4,845,027 (20,353,390) (159,846)
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... -- -- 2,796,851 -- -- --
Capital contribution from Inverness
related to transfer of Women's
Health division.................. -- -- 1,151,326 (1,151,326) -- --
Capital contribution from Inverness
related to acquisition of
minority interest in Orgenics,
Ltd. ............................ -- -- 44,259 -- -- --
Net cash contributed by
Inverness........................ -- -- -- 1,864,202 -- --
Changes in cumulative translation
adjustment....................... -- -- -- -- -- 776,084
Net (loss) income.................. -- -- -- (1,563,146) 2,102,850 --
----- -- ----------- ----------- ------------ ----------
Total comprehensive income.......
BALANCE, DECEMBER 31, 1999......... 1,000 1 48,592,560 3,994,757 (18,250,540) 616,238
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... -- -- 2,558,517 -- -- --
Net cash contributed by
Inverness........................ -- -- -- 1,969,054 -- --
Changes in cumulative translation
adjustment....................... -- -- -- -- -- 149,642
Net (loss) income.................. -- -- -- (2,269,836) 4,451,657 --
----- -- ----------- ----------- ------------ ----------
Total comprehensive income.......
BALANCE, DECEMBER 31, 2000......... 1,000 1 51,151,077 3,693,975 (13,798,883) 765,880
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc.
(unaudited)...................... -- -- 75,000 -- -- --
Capital contribution from Inverness
related to contingent payment to
former Can-Am shareholders
(unaudited)...................... -- -- 2,000,000 -- -- --
Net cash contributed by Inverness
(unaudited)...................... -- -- -- 500,045 -- --
Changes in cumulative translation
adjustment (unaudited)........... -- -- -- -- -- 420,069
Net (loss) income (unaudited)...... -- -- -- (479,753) 608,287 --
----- -- ----------- ----------- ------------ ----------
Total comprehensive income
(unaudited)....................
BALANCE, MARCH 31, 2001
(unaudited)...................... 1,000 $1 $53,226,077 $ 3,714,267 $(13,190,596) $1,185,949
===== == =========== =========== ============ ==========
TOTAL COMPREHENSIVE
STOCKHOLDERS' (LOSS)
EQUITY INCOME
------------- -------------
BALANCE, DECEMBER 31, 1997......... $18,441,985 $ --
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... 2,037,543 --
Capital contribution from Inverness
related to acquisition of Can-Am
Care Corporation................. 12,598,434 --
Capital contribution from Inverness
related to acquisition of
minority interest in Orgenics,
Ltd. ............................ 94,001 --
Capital contribution from Inverness
related to acquisition of Core
Immuno-Assay technology.......... 5,037,132 --
Net cash distributed to
Inverness........................ (80,274) --
Changes in cumulative translation
adjustment....................... (137,226) (137,226)
Net loss........................... (9,059,679) (9,059,679)
----------- -----------
Total comprehensive loss......... (9,196,905)
===========
BALANCE, DECEMBER 31, 1998......... 28,931,916
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... 2,796,851 --
Capital contribution from Inverness
related to transfer of Women's
Health division.................. -- --
Capital contribution from Inverness
related to acquisition of
minority interest in Orgenics,
Ltd. ............................ 44,259 --
Net cash contributed by
Inverness........................ 1,864,202 --
Changes in cumulative translation
adjustment....................... 776,084 776,084
Net (loss) income.................. 539,704 539,704
----------- -----------
Total comprehensive income....... 1,315,788
===========
BALANCE, DECEMBER 31, 1999......... 34,953,016
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc. ......... 2,558,517 --
Net cash contributed by
Inverness........................ 1,969,054 --
Changes in cumulative translation
adjustment....................... 149,642 149,642
Net (loss) income.................. 2,181,821 2,181,821
----------- -----------
Total comprehensive income....... 2,331,463
===========
BALANCE, DECEMBER 31, 2000......... 41,812,050
Capital contribution from Inverness
related to income taxes for
Inverness Medical, Inc.
(unaudited)...................... 75,000 --
Capital contribution from Inverness
related to contingent payment to
former Can-Am shareholders
(unaudited)...................... 2,000,000 --
Net cash contributed by Inverness
(unaudited)...................... 500,045 --
Changes in cumulative translation
adjustment (unaudited)........... 420,069 420,069
Net (loss) income (unaudited)...... 128,534 128,534
----------- -----------
Total comprehensive income
(unaudited).................... $ 548,603
===========
BALANCE, MARCH 31, 2001
(unaudited)...................... $44,935,698
===========
The accompanying notes are an integral part of these combined financial
statements.
XF-6
198
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1998 1999 2000 2000 2001
------------ ----------- ----------- ----------- -----------
UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................... $ (9,059,679) $ 539,704 $ 2,181,821 $ 538,825 $ 128,534
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Noncash portion of net charge on
business dispositions, asset
impairments and restructuring
activities............................ 5,119,713 -- -- -- --
Loss on disposal of property, plant and
equipment............................. 838,000 20,218 -- -- --
Amortization of deferred revenue........ (56,667) -- -- -- --
Depreciation and amortization........... 6,954,372 4,187,299 4,043,281 1,036,662 1,097,645
Deferred income taxes................... (234,392) (7,180) (493,033) -- --
Capital contribution from Inverness
related to income taxes for Inverness
Medical, Inc. ........................ 2,037,543 2,796,851 2,558,517 415,000 75,000
Other noncash gains..................... (75,019) (538) -- -- --
Changes in current assets and
liabilities, net of acquisitions:
Accounts receivable, net.............. (721,954) (1,989,052) (1,167,203) (735,452) 1,951,548
Inventories........................... 662,767 (1,281,232) 1,258,240 (1,836,134) (1,435,478)
Prepaid expenses and other current
assets.............................. 39,579 (72,870) 843,191 34,799 (350,753)
Accounts payable...................... (1,779,867) 341,203 (539,935) 1,035,433 (179,530)
Due to Inverness and affiliated
companies........................... (5,246,069) 2,264,643 229,127 (5,102) 1,159,768
Accrued expenses and other current
liabilities......................... 1,762,964 (1,121,805) 2,283,153 1,875,350 (217,594)
------------ ----------- ----------- ----------- -----------
Net cash provided by operating
activities............................ 241,291 5,677,241 11,197,159 2,359,381 2,229,140
------------ ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................... (555,265) (1,526,246) (840,350) (170,376) (386,549)
(Increase) decrease in other assets....... (210,395) (18) 3,569 3,300 --
Cash paid for purchase of Can-Am Care
Corporation............................. (15,317,628) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net cash used in investing activities... (16,083,288) (1,526,264) (836,781) (167,076) (386,549)
------------ ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for deferred financing costs.... (1,224,609) -- (103,750) (103,750) (47,524)
Proceeds from borrowings under notes
payable................................. 41,196,381 873,381 12,000 12,000 --
Repayments of notes payable............... (28,040,527) (7,775,410) (9,701,279) (2,445,265) (2,531,219)
Contribution (to) from Inverness, net..... (80,274) 1,864,202 1,969,054 673,993 500,045
------------ ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 11,850,971 (5,037,827) (7,823,975) (1,863,022) (2,078,698)
------------ ----------- ----------- ----------- -----------
FOREIGN EXCHANGE EFFECT ON CASH AND CASH
EQUIVALENTS............................. 12,129 461,986 (141,291) 107,166 550,312
------------ ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................. (3,978,897) (424,864) 2,395,112 436,449 314,205
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................... 5,098,841 1,119,944 695,080 695,080 3,090,192
------------ ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.... $ 1,119,944 $ 695,080 $ 3,090,192 $ 1,131,529 $ 3,404,397
============ =========== =========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-7
199
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ----------------------
1998 1999 2000 2000 2001
------------ ---------- ---------- -------- -----------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid For
Interest................................... $ 2,801,486 $3,020,608 $2,630,666 $649,907 $ 411,495
============ ========== ========== ======== ===========
Income taxes............................... $ 192,950 $ 71,926 $ 30,000 $ 10,000 $ 5,000
============ ========== ========== ======== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
On February 18, 1998, Innovations acquired
Can-Am Care Corporation:
Accounts receivable..................... $ 2,812,000 $ -- $ -- $ -- $ --
Inventories............................. 3,766,000 -- -- -- --
Other current assets.................... 313,000 -- -- -- --
Property, plant and equipment........... 32,000 -- -- -- --
Goodwill................................ 26,916,062 -- -- -- 2,000,000
Cash paid for acquisition............... (15,317,628) -- -- -- (2,000,000)
------------ ---------- ---------- -------- -----------
Noncash consideration paid............ 18,521,434 -- -- -- --
Assumed accounts payable................ (5,923,000) -- -- -- --
Note payable to Can-Am shareholders by
Inverness............................. (2,000,000) -- -- -- --
------------ ---------- ---------- -------- -----------
Issuance of common stock by Inverness... $(10,598,434) $ -- $ -- $ -- $ --
============ ========== ========== ======== ===========
Shares Issued by Inverness in Connection with
Purchase of Core Immuno-Assay Technology... $ 4,565,778 $ -- $ -- $ -- $ --
============ ========== ========== ======== ===========
Capital contribution from Inverness related
to acquisition of minority interest in
Orgenics, Ltd.............................. $ 94,001 $ -- $ 44,259 $ -- $ --
============ ========== ========== ======== ===========
Capital contribution from Inverness related
to transfer of Women's Health division..... $ -- $1,151,326 $ -- $ -- $ --
============ ========== ========== ======== ===========
The accompanying notes are an integral part of these combined financial
statements.
XF-8
200
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
DECEMBER 31, 2000
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On May 23, 2001, Inverness Medical Technology, Inc. (Inverness) entered
into an Agreement and Plan of Split-Off and Merger (the Agreement) pursuant to
which Johnson & Johnson (Johnson & Johnson) will acquire Inverness' diabetes
care products business and Inverness will simultaneously split-off its women's
health, nutritional supplements and clinical diagnostics businesses as part of
an independent, publicly owned company. As a part of the transaction, Inverness
will restructure its operations, so that all non-diabetes businesses (women's
health, nutritional supplements and clinical diagnostics) will be held by a
subsidiary, Inverness Medical Innovations, Inc. (Innovations or the Company). At
the closing of the transaction, all of the shares of Innovations common stock
held by Inverness will be split-off from Inverness in a pro rata distribution to
Inverness stockholders and Inverness will merge with and become a wholly-owned
subsidiary of Johnson & Johnson.
Innovations was incorporated on May 11, 2001 for the purpose of receiving
Inverness' contribution of its women's health, nutritional supplements and
clinical diagnostics businesses in connection with the transactions described in
the Agreement and related agreements. Innovations' combined financial statements
consist of Inverness subsidiaries and businesses that are to be initially
contributed to Innovations for all periods presented as if such subsidiaries and
businesses were historically organized in a manner consistent with the
restructuring set forth in the Agreement and related agreements. The primary
subsidiaries and businesses that comprise the combined entity are as follows:
- Inverness Medical, Inc. (IMI), a U.S. corporation, and its wholly owned
subsidiary, Can-Am Care Corporation (Can-Am), a U.S. corporation
- Cambridge Diagnostics Ireland Ltd. (CDIL), an Irish corporation
- Orgenics, Ltd. (Orgenics), an Israeli corporation
- The women's health business of Inverness Medical Europe GmbH (IME), a
German corporation
- Inverness Medical Benelux Bvba (IMB), a Belgian corporation
- The women's health assets held by Inverness, plus allocations to
Innovations of Inverness common expenditures
- Jmar Ames, Inc. (Jmar), a majority owned U.S. corporation, for the period
prior to its bankruptcy and liquidation
Innovations has combined the financial statements of the individual legal
entities, along with the assets, liabilities, revenues and expenses of the
businesses, in a manner consistent with consolidated financial statements. All
material intercompany transactions have been eliminated. Amounts due to or due
from Inverness and Inverness subsidiaries that are not part of Innovations are
reflected as amounts due to or from affiliates (see below and Note 8).
Innovations' equity accounts reflect the par value of Innovations' stock at the
date of incorporation, the historical equity accounts of the legal entities that
comprise Innovations and a "Net Parent Company Investment" representing the net
assets of the businesses that will be contributed to Innovations.
Pursuant to the Agreement and related agreements, Innovations will transfer
to Inverness those entities or businesses that conduct business in the diabetes
segment, principally the Can-Am subsidiary of IMI and the diabetes business of
IMB. Because Inverness has solicited a shareholder vote for the transactions
contemplated by the Agreement, including the restructuring of its subsidiaries'
businesses, Innovations cannot present the historical diabetes operations of its
subsidiaries as discontinued operations
XF-9
201
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
in the historical combined financial statements under Accounting Principles
Board (APB) Opinion No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, unless or until the shareholders
vote in favor of the transaction.
The discontinuation of the diabetes businesses is one of a number of
transactions that will occur upon the closing of transactions set forth in the
Agreement that will have a significant impact on Innovation's financial
statements. Under the terms of the Agreement and related agreements, Inverness
is obligated to capitalize Innovations with $40 million in net cash. Inverness
is also obligated to assume or discharge all of Innovations' third-party and
related party debt. The unaudited pro forma combined financial statements
reflect these transactions as follows:
Unaudited pro forma statements of operations:
- Amounts related to discontinued diabetes operations have been shown as a
single line item in accordance with APB Opinion No. 30 (see Note 15 for
summarized results from discontinued operations) and
- All third-party and related-party interest expense pertaining to debt to
be assumed or discharged by Inverness has been eliminated. Total interest
expense eliminated was $2,316,879, $2,022,974, $1,904,696, $486,305 and
$372,524 in 1998, 1999, 2000 and the three months ended March 31, 2000
and 2001, respectively.
Unaudited pro forma balance sheets:
December 31, 2000:
- The balance sheet has been restated pursuant to APB Opinion No. 30 to
present the net assets of the diabetes businesses as a single line item
(see Note 15 for summarized net assets of discontinued operations).
March 31, 2001:
- Assets and liabilities relating to diabetes operations have been removed
and shown as a distribution to Inverness via a reduction of additional
paid-in capital (see Note 15 for summarized net assets of discontinued
operations)
- Cash has been increased to $40 million with an offsetting increase to
additional paid-in capital and
- All third-party and related-party debt to be assumed or discharged by
Inverness has been removed and shown as an increase to additional paid-in
capital. Total debt eliminated was $18,831,044 at March 31, 2001.
At closing, Inverness expects to distribute to its stockholders one
Innovations share for every five Inverness shares held. In order for Inverness
to do so, Innovations will declare a stock split, to be effected as a dividend.
Accordingly, in addition to the presentation of historical earnings per share
information using for all periods the actual number of shares of Innovations
common stock outstanding as of the date of its incorporation, Innovations has
also presented unaudited pro forma earnings per share reflecting the planned
distribution ratio and estimated stock split that would have been necessary had
the transactions contemplated in the Agreement and related agreements been
completed on March 31, 2001.
Innovations' combined financial statements reflect the allocation of
Inverness' common expenditures. Such allocations have been made in accordance
with Staff Accounting Bulletin (SAB) No. 55, Allocation of Expenses and Related
Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business
Components of Another Entity.
XF-10
202
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Costs that are clearly identifiable as being applicable to an Innovations
subsidiary or business have been allocated to Innovations. The most significant
costs included in this category include salary and benefits of certain employees
and legal and other professional fees. Costs of centralized departments that
serve all operations have been allocated using relevant allocation measures,
such as estimated percentage of time worked for salary and benefits of certain
employees and square feet occupied for occupancy costs in shared facilities.
Costs associated with corporate-level activities, such as executive salary and
benefits and investor relations, have not been allocated to Innovations.
Innovations will incur such costs in the future as a standalone company. As
discussed more thoroughly in Note 2g and 11, Innovations accounts for income
taxes using the separate return method, pursuant to Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. Inverness has
historically charged interest on loans made to its subsidiaries. Accordingly,
Innovations' combined statements of operations reflect interest expense on
amounts due to entities not included in Innovations' combined historical
financial statements (primarily to Inverness) (see Note 8). Interest expense
also reflects amounts recorded on third-party notes payable when such notes
relate specifically to Innovations' operations. Interest expense does not
include amounts recorded on general corporate borrowings of Inverness.
Innovations believes that the allocation methods described herein are reasonable
and fairly reflect its financial position and results of operations.
As part of the Agreement and related agreements, all Inverness options and
warrants will be split such that all holders will receive an Inverness option or
warrant and an Innovations option or warrant. The option or warrant split will
be accomplished in such a manner that the aggregate intrinsic value of the two
options or warrants will equal the intrinsic value of the Inverness option or
warrant before the split. The option or warrant split also requires that the
ratio of intrinsic value to market value for each option or warrant be the same.
Concurrent with the option split, Innovations' Board of Directors will exercise
its ability to (1) accelerate the vesting for all Innovations options and (2)
extend the period of exercisability for existing Inverness employees that will
not become Innovations employees. Such action is deemed to be award
modifications pursuant to Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 44, Accounting for Certain Transactions Involving Stock
Compensation. Under FIN No. 44, Innovations will measure compensation at the
date of the award modifications based on the intrinsic value of the option and
will recognize such compensation if, absent the modifications, the award would
have been forfeited pursuant to the award's original terms. For Inverness
employees who will not become employees of Innovations, the recognition of this
charge will be immediate and may be significant. Innovations is not yet able to
estimate the amount of this charge.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Foreign Currencies
Innovations follows the provisions of SFAS No. 52, Foreign Currency
Translation. All assets and liabilities of Innovations' foreign subsidiaries are
translated into U.S. dollars using the exchange rate at each balance sheet date
while income and expense accounts are translated using the average rates of
exchange during each period. Cumulative translation gains or losses on deemed
permanent intercompany investments are reflected as a separate component of
stockholders' equity. Foreign currency exchange transaction gains (losses) of
approximately $21,000, $(531,000) and $(389,000) in 1998, 1999 and 2000,
XF-11
203
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, and approximately $(53,000) and $(122,000) for the three months
ended March 31, 2000 and 2001, respectively, are reflected as a component of
interest income and other (expense), net, in the accompanying combined
statements of operations.
(c) Cash and Cash Equivalents
Innovations considers all highly liquid investments purchased with original
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash equivalents consisted of money market funds as of December 31,
1999 and 2000 and March 31, 2001.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(e) Depreciation and Amortization
Innovations records property, plant and equipment at historical cost.
Depreciation and amortization are computed using the straight-line method based
on the following estimated useful lives of the related assets: machinery,
laboratory equipment and tooling (3-16 years), buildings (20 years), leasehold
improvements (lesser of term of lease or useful life of asset), furniture and
fixtures (3-10 years) and computer equipment (1-6 years).
(f) Goodwill, Trademarks and Other Intangible Assets
Innovations is amortizing its goodwill and trademarks related to the
acquisitions of certain nutritional supplement lines and Can-Am using the
straight-line method over their estimated useful lives of 25 years. The
intangible asset pertaining to Innovations' acquired core immuno-assay
technology (used in the women's health business) is being amortized over 15
years. Innovations recorded amortization expense of approximately $4,415,000,
$3,095,000, $2,966,000, $754,000 and $759,000 in 1998, 1999, 2000, and the three
months ended March 31, 2000 and 2001, respectively, related to goodwill,
trademarks and other intangible assets. This amortization expense is allocated
to research and development and general and administrative expenses in the
accompanying combined statements of operations.
Innovations periodically examines the carrying value of its long-lived and
intangible assets to determine whether there are any impairment losses. If
indicators of impairment were present in long-lived and intangible assets used
in operations and undiscounted future cash flows were not expected to be
sufficient to recover the assets' carrying amount, an impairment loss would be
charged to expense in the period identified based on the fair value of the
asset. During 1998, Innovations recorded an impairment charge associated with
certain goodwill and trademarks pertaining to a specific nutritional supplement,
the goodwill associated with Orgenics and certain other long-lived assets held
by CDIL (see Note 7). Innovations believes that the remaining carrying value of
these assets were realizable as of December 31, 1999 and 2000 and March 31,
2001.
(g) Income Taxes
Innovations provides for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. Innovations' income tax provisions
mainly represent those recorded by its U.S. subsidiary, IMI. Most of
Innovations' foreign subsidiaries have been in net loss positions and,
accordingly, have paid virtually no income taxes in their jurisdictions. For
federal and some state income tax filing purposes, the results of IMI's
operations are consolidated with Inverness. IMI has stand-alone tax filing
responsibilities in some states. The tax accounts of Innovations have been
computed using the separate return method. Accordingly, a deferred tax asset or
liability is determined based on the difference between
XF-12
204
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the financial statement and tax bases of assets and liabilities, as measured by
the enacted tax rates expected to be in effect when these differences reverse.
Innovations' primary temporary differences which give rise to the deferred tax
asset and liability are nondeductible reserves and accruals and different lives
assigned to the goodwill and trademarks (see Note 11).
(h) Revenue Recognition
Innovations' revenues are derived from product sales. Product revenue is
recognized upon shipment to customers, at which time title is transferred, less
a reserve for estimated product returns and allowances. The Securities and
Exchange Commission issued SAB No. 101, Revenue Recognition, in December 1999,
which sets forth provisions for revenue recognition on multiple-element
arrangements and acceptance and delivery criteria, among other items. The
adoption of SAB No. 101 did not have a material impact on Innovations' operating
results.
(i) Employee Stock Compensation Arrangements
Innovations has adopted an employee stock option plan. Innovations will
account for its employee stock compensation arrangements under the provisions of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and FIN No. 44.
Innovations will use the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.
(j) Net Earnings (Loss) per Common Share
Net earnings (loss) per common share, computed in accordance with SFAS No.
128, Earnings per Share, is based upon the actual number of common shares issued
upon incorporation of Innovations, for all periods presented. As discussed in
Note 1, unaudited pro forma earnings per share was computed assuming the
consummation of a planned distribution ratio and stock split. There were no
dilutive securities outstanding during 1998, 1999, 2000 and the three months
ended March 31, 2000 and 2001.
(k) Postretirement Benefits
Innovations does not have any obligations for postretirement or
postemployment benefits, as defined by SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, as it does not currently offer such
benefits. However, its subsidiary, Orgenics, does provide certain severance
benefits (see Note 10(g)).
(l) Concentration of Credit Risk
Financial instruments that potentially subject Innovations to concentration
of credit risk primarily consist of cash and cash equivalents and accounts
receivable. Innovations invests its excess cash primarily in high quality
securities and limits the amount of credit exposure to any one financial
institution. Innovations does not require collateral or other securities to
support customer receivables; however, it performs ongoing credit evaluations of
its customers and maintains allowances for potential credit losses.
Innovations had the following significant customers:
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ----------------
1998 1999 2000 2000 2001
---- ---- --------- ----- -----
Net revenues --
Customer A.................................. -- -- 10% -- 10%
Customer B.................................. -- 10% 10% 12% 11%
XF-13
205
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
-------------- MARCH 31,
1999 2000 2001
---- ---- ---------
Gross Accounts Receivable --
Customer A.................................. -- 12% 9%
Customer B.................................. 14% 6% 9%
Innovations has no significant off-balance-sheet or other concentration of
credit risks such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. See Note 12 for financial information by
geographic area and business segment.
(m) Financial Instruments and Fair Value of Financial Instruments
Innovations' financial instruments consist of cash equivalents, accounts
receivable and debt. The estimated fair value of these financial instruments
approximates their carrying value at December 31, 1999 and 2000, and March 31,
2001. The estimated fair values have been determined through information
obtained from market sources and Innovations does not have any material
derivative or other financial instruments.
(n) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. As amended by SFAS No. 137 in June 1999, the
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which is a
significant amendment to SFAS No. 133. SFAS No. 133 and its amendments establish
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively, the
derivatives) and for hedging activities. The Emerging Issues Task Force (EITF)
has also issued a number of derivative-related tentative and final consensus.
The adoption of these statements did not have a material impact on Innovations'
combined financial position or results of operations.
In May 2000, the EITF reached a consensus on Issue No. 00-14, Accounting
for Certain Sales Incentives, which is effective for the quarter ended December
15, 2001. EITF Issue No. 00-14 establishes accounting and reporting standards
for the cost of certain sales incentives. Innovations offers certain sales
incentives that fall within the scope of EITF Issue No. 00-14, such as coupons
and free products, to some of its customers. Innovations adopted this consensus
in 2001, resulting in reclassifications of approximately $1,860,000, $3,288,000,
$3,447,000, $609,000 and $680,000 in 1998, 1999, 2000, and the three months
ended March 31, 2000 and 2001, respectively, from selling, general and
administrative expenses to net product sales.
In June 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 addresses changes in the financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, Business Combinations, and SFAS
No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises.
Effective July 1, 2001, all business combinations should be accounted for using
only the purchase method of accounting. Innovations does not believe the
adoption of this statement will have a material effect on its financial
position, results of operations or cash flows.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses changes in the financial accounting and reporting
for acquired goodwill and other intangible assets with indefinite lives.
Effective January 1, 2002, all existing acquired goodwill and other intangible
assets with indefinite lives will no longer be amortized to expense, with early
adoption required for all goodwill and other intangible assets with indefinite
lives acquired subsequent to June 30, 2001. The statement also provides specific
guidance for determining and measuring impairment of all goodwill and other
intangible assets. Innovations recorded goodwill amortization of approximately
3,182,000, 1,960,000, 1,717,000, 452,000 and 434,000 for the years ended
December 31, 1998, 1999, 2000, and the three months
XF-14
206
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ended March 31, 2000 and 2001, respectively. Innovations has not yet made an
assessment as to whether the required impairment measurements required by SFAS
No. 142 will have an impact on its financial statements.
(3) OTHER BALANCE SHEET INFORMATION
Components of other selected captions in the Combined Balance Sheets
consisted of:
DECEMBER 31,
------------------------ MARCH 31,
1999 2000 2001
---------- ---------- ----------
INVENTORIES:
Raw materials.................................. $1,851,230 $2,205,402 $2,738,857
Work-in-process................................ 181,029 204,579 182,922
Finished goods................................. 6,702,522 5,051,736 5,875,446
---------- ---------- ----------
$8,734,781 $7,461,717 $8,797,225
========== ========== ==========
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery, laboratory equipment and tooling.... $3,546,981 $3,706,142 $3,838,506
Buildings...................................... 672,061 628,812 585,826
Leasehold improvements......................... 618,778 674,490 641,659
Furniture and fixtures......................... 389,460 660,743 650,399
Computer equipment............................. 1,159,953 1,472,676 1,518,515
---------- ---------- ----------
6,387,233 7,142,863 7,234,905
Less: Accumulated depreciation and
amortization................................. 3,174,774 3,960,263 4,103,905
---------- ---------- ----------
$3,212,459 $3,182,600 $3,131,000
========== ========== ==========
DECEMBER 31,
-------------------------- MARCH 31,
1999 2000 2001
----------- ----------- -----------
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE
ASSETS:
Goodwill.................................... $45,322,469 $45,322,469 $47,322,469
Trademarks.................................. 21,059,405 21,059,405 21,059,405
Other intangible assets..................... 5,757,465 5,757,465 5,757,465
----------- ----------- -----------
72,139,339 72,139,339 74,139,339
Less: Accumulated amortization.............. 10,503,518 13,472,207 14,230,991
----------- ----------- -----------
$61,635,821 $58,667,132 $59,908,348
=========== =========== ===========
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES:
Compensation and compensation-related....... $ 843,389 $ 1,585,481 $ 1,117,915
Professional fees........................... 336,923 869,283 853,484
Advertising and marketing................... 1,828,928 2,755,762 2,634,239
Accrued royalties........................... 742,699 475,058 864,132
Other....................................... 1,250,760 1,566,053 1,516,996
----------- ----------- -----------
$ 5,002,699 $ 7,251,637 $ 6,986,766
=========== =========== ===========
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACQUISITION AND FINANCING OF CAN-AM
(a) Can-Am Acquisition
On February 18, 1998, Innovations purchased all of Can-Am's outstanding
stock and entered into a bank lending agreement (see Note 4(b)). The aggregate
purchase price of approximately $27,900,000 consisted of $13,600,000 in cash,
1,108,333 shares of Inverness common stock with a fair value of $10,600,000, a
$2,000,000 subordinated note payable by Inverness to former Can-Am shareholders
and closing costs of approximately $1,700,000. The aggregate purchase price was
allocated to the acquired assets and assumed liabilities approximately as
follows:
Accounts receivable......................................... $ 2,812,000
Inventory................................................... 3,766,000
Other current assets........................................ 313,000
Fixed assets................................................ 32,000
Goodwill.................................................... 26,900,000
Liabilities assumed......................................... (5,923,000)
-----------
$27,900,000
===========
In connection with the purchase of Can-Am, Can-Am's shareholders granted a
right of first refusal to Inverness to purchase the assets or stock of an entity
under the common control of the Can-Am shareholders and A.M.G. Medical, Inc.
(AMG). AMG historically performed certain administrative, management and
manufacturing functions for Can-Am and, concurrent with the purchase of Can-Am,
Can-Am and AMG entered into formal management services and supply agreements.
Under the terms of the management services agreement, AMG agreed to continue
providing such administrative and management services to Can-Am on an
arm's-length basis. The management services agreement provides a mechanism to
adjust charges for services based on the needs of Can-Am and an arbitration
provision in the event the parties cannot agree on such charges. Under the terms
of the supply agreement, Can-Am must purchase 100% of its requirements for
monolet compatible lancets from AMG unless AMG is unable to meet Can-Am's
requirements.
Innovations recorded amounts owed of approximately $1,397,000, $616,000 and
$1,304,000 at December 31, 1999 and 2000 and March 31, 2001, respectively, under
these agreements. Further, Can-Am's president entered into an employment
agreement with Inverness to continue serving Inverness and Innovations for three
years at an annual salary of $150,000, which expired in February 2001.
The principal amount of the promissory note issued by Inverness was subject
to adjustment based on the performance of Inverness common stock within 90
trading days prior to the maturity of such note. Subsequent to December 31,
2000, Inverness computed the value of this contingent payment to be $2,000,000,
which Innovations recorded as additional goodwill contributed by Inverness.
Inverness paid the entire $4,000,000 balance of the promissory note in February
2001.
(b) Financing
Concurrent with the acquisition of Can-Am, IMI entered into a $42,000,000
credit agreement (IMI Credit Agreement) with a bank; Inverness is the guarantor
of all obligations due under the IMI Credit Agreement. The IMI Credit Agreement
consists of a $37,000,000 term loan and a $5,000,000 revolving line of credit.
Of the proceeds from this term loan, IMI used $32,000,000 to finance the cash
portion of the Can-Am purchase price and refinance the then existing bank debt
that resulted from the earlier acquisition of certain nutritional supplement
lines. The remaining $5,000,000 was used for working capital purposes.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The term loan and revolving line of credit allow IMI to borrow funds at
varying rates, including options to borrow at an alternate base rate, as
defined, plus a spread from 0.50% to 2.00%, or the London Interbank Offered Rate
(LIBOR) (6.71% at December 31, 2000) plus a spread from 2.00% to 3.50%. The
spreads depend on IMI's ratio of senior-funded debt to earnings before interest
expense, taxes, depreciation and amortization (EBITDA). Borrowings are secured
by IMI's stock and the assets of IMI and Can-Am. Inverness's guarantee is
secured by certain of Inverness and its other subsidiaries' assets. Borrowings
under the revolving line of credit are based on certain percentages of eligible
assets, as defined. IMI is required to pay an annual fee of 0.375% for the
unused portion of the revolving line of credit. At December 31, 2000, there was
no outstanding balance under the revolving line of credit. The revolving line of
credit expires on February 18, 2002. IMI is required to make quarterly principal
payments against the term loan ranging from $1,200,000 to $1,700,000 through
December 31, 2003, with payments of $1,433,333 that began on June 30, 1998. IMI
must also make mandatory prepayments on the term loan if it meets certain cash
flow thresholds, sells assets not in the ordinary course of business, issues or
sells indebtedness or issues stock, as defined. At December 31, 2000, IMI
estimates that it will make such mandatory prepayments in the amount of
approximately $1,056,000 in 2001.
The IMI Credit Agreement requires compliance with various financial and
nonfinancial covenants for both IMI and Inverness. The primary financial
covenants pertain to, among other things, interest coverage, debt services
coverage, leverage and EBITDA. Both IMI and Inverness were in compliance with
such covenants at December 31, 2000 and March 31, 2001.
As discussed in Note 1, upon the closing of the transactions contemplated
in the Agreement and related agreements, Inverness will assume or discharge all
third-party debt of Innovations and its subsidiaries, including the IMI Credit
Agreement.
(5) TRANSACTIONS BETWEEN CDIL AND CAMBRIDGE AFFILIATE CORPORATION
Concurrent with Inverness' 1994 acquisition of CDIL, CDIL entered into a
series of agreements with Cambridge Affiliate Corporation (Cambridge Affiliate).
Cambridge Affiliate is 49%-owned by Inverness and 51%-owned by the successor
corporation of the company that sold CDIL to Inverness in 1994. Cambridge
Affiliate was formed to allow CDIL access to certain non-assignable
technologies, pursuant to the terms of the 1994 acquisition. CDIL accounts for
its investment in Cambridge Affiliate under the equity method. Under the terms
of the agreements mentioned above, CDIL manufactured and sold products on behalf
of and managed the affairs of Cambridge Affiliate. During 1998, CDIL paid
royalties of $62,000 and earned total sales, manufacturing and management fees
of $2,211,000 under the terms of these agreements. Following the disposition of
certain assets pertaining to its infectious disease diagnostic business and
subsequent reorganizations in 1998 (see Note 7(b)), CDIL has not conducted and
will not conduct any significant business with Cambridge Affiliate.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) TRANSFER OF WOMEN'S HEALTH DIVISION
Effective January 1, 1999, Inverness contributed its Women's Health (WH)
division to IMI. The transfer of WH's net assets of approximately $1,151,000 was
accounted for at book value as a capital contribution to IMI by agreement
between the parties. The contribution of assets and liabilities was as follows:
Accounts receivable, net.................................... $ 2,650,000
Inventories................................................. 472,000
Other current assets........................................ 20,000
Property, plant and equipment, net.......................... 390,000
Accounts payable............................................ (1,584,000)
Accrued expenses............................................ (797,000)
-----------
Total contribution.......................................... $ 1,151,000
===========
(7) NET CHARGE FOR BUSINESS DISPOSITIONS, ASSET IMPAIRMENTS AND RESTRUCTURING
ACTIVITIES
The components of the net charge for business dispositions, asset
impairments and restructuring activities in 1998 are as follows:
Bankruptcy of majority-owned subsidiary..................... $ (64,408)
Gain on sale of CDIL product line........................... (1,232,492)
Asset impairments and restructuring activities at CDIL...... 810,486
Impairment of Orgenics' goodwill............................ 5,000,000
Impairment of intangible assets relating to certain
nutritional supplement lines.............................. 858,751
-----------
$ 5,372,337
===========
(a) Bankruptcy of Majority-Owned Subsidiary
As of December 31, 1998, Inverness owned a 61.7% interest in Jmar, a
distributor of certain consumer products. In December 1998, the Jmar Board of
Directors (with Inverness' approval) voted to file for Chapter 7 bankruptcy. In
February 1999, the bankruptcy petition was filed. Innovations recorded income of
approximately $64,000 in 1998, representing the extinguishment of certain Jmar
liabilities, net of assets written-off.
(b) Sale of CDIL Product Line
On September 30, 1998, CDIL signed an agreement with Trinity Biotech, Ltd.
(Trinity) whereby CDIL agreed to sell certain assets pertaining to its
infectious disease diagnostic business, primarily inventories, equipment and its
ongoing business. In return for these assets, CDIL received consideration of
approximately $2,300,000 consisting of 555,731 shares of Inverness common stock,
300,000 shares of Theratase plc stock and $230,000 in cash. Innovations recorded
a gain on the sale of the business of approximately $1,232,000 in 1998.
After the sale of these assets, Innovations reorganized the remaining
business conducted by CDIL during the fourth quarter of 1998. As a result of
this strategic reorganization, CDIL's activities consist of manufacturing
certain consumer products for other Innovations subsidiaries, primarily IMI.
CDIL's activities no longer include the manufacture of disease diagnostic
products for unrelated customers. In connection with this strategic
reorganization, CDIL incurred expenses of approximately $268,000
XF-18
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
pertaining to severance, outplacement and related obligations, of which $69,000
and $199,000 were paid during 1998 and 1999, respectively. CDIL also wrote off
the net book value of certain fixed assets and leasehold improvements relating
to the discontinued activities for which it has no alternative future use. The
total asset impairment charge was approximately $437,000. The balance of this
charge relates to legal and advisory fees related to the reorganization.
(c) Impairment of Orgenics' Goodwill
During the fourth quarter of 1998, Innovations determined that Orgenics'
goodwill had suffered an impairment of value (see Note 2(f)). Orgenics'
declining financial performance and short-term outlook (both earnings and gross
cash flows) suggested that impairment had occurred. Innovations performed an
impairment test using a discounted future cash flow model and recorded an
impairment charge of $5,000,000 in 1998, which fully eliminated the Orgenics'
goodwill balance.
(d) Impairment of Intangible Assets Related to Certain Nutritional Supplement
Lines
Goodwill and trademarks acquired in connection with the purchase of the
nutritional supplement lines are being amortized over 25 years. During 1998,
Innovations recorded an impairment charge of approximately $859,000 relating to
the intangible assets of one discontinued nutritional supplement line (see Note
2(f)). The impairment charge represents the remaining net book value of the
goodwill and trademark values assigned to this product line.
(8) RELATED PARTY TRANSACTIONS
(a) Due to Inverness and Affiliated Companies
The amounts for "Due to Inverness and affiliated companies" are comprised
of the following:
DECEMBER 31,
------------------------ MARCH 31,
1999 2000 2001
---------- ---------- ----------
Due to Inverness............................... $2,767,857 $3,295,182 $4,324,918
Due to IME, an Inverness subsidiary............ 1,016,871 913,022 785,320
Due to Inverness Medical Limited (IML), an
Inverness subsidiary......................... 1,448,137 1,089,123 1,497,816
---------- ---------- ----------
$5,232,865 $5,297,327 $6,608,054
========== ========== ==========
The amounts "Due to Inverness" and "Due to IME" mostly represent funding,
net of repayments, from the respective affiliated entities to Innovations
entities or businesses. The amount due to IML relates to product purchases.
Innovations purchased products from IML in Scotland totaling approximately
$1,256,202, $3,215,106, $1,626,000 and $880,000 in 1999, 2000, and the three
months ended March 31, 2000 and 2001, respectively. There were no products
purchased from IML during 1998.
The combined statements of operations include expenses, which are allocated
to IMI by Inverness. These allocations include, among other things, support
services such as financial, computer, legal, sales, marketing, customer support
and accounting, as well as rent and administrative costs (see Note 1). IMI
recorded expenses of approximately $2,443,000, $4,176,000, $3,976,000,
$1,027,000 and $1,071,000 relating to these allocations in 1998, 1999, 2000 and
the three months ended March 31, 2000 and 2001, respectively, which it believes
approximates arm's-length costs. The allocated expenses, which are included
XF-19
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
in the respective captions in the accompanying combined statements of
operations, are made up of the following:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ----------
Cost of sales.................... $ 85,000 $ 200,000 $ 261,000 $ 62,000 $ 85,000
Selling, general and
administrative................. 2,266,000 3,860,000 3,678,000 935,000 976,000
Research and development......... 92,000 116,000 37,000 30,000 10,000
---------- ---------- ---------- ---------- ----------
Total allocated expenses....... $2,443,000 $4,176,000 $3,976,000 $1,027,000 $1,071,000
========== ========== ========== ========== ==========
At December 31, 1999 and 2000 and March 31, 2001, IMI owed Inverness
approximately $535,000, $1,802,000 (including a dividend payable of $1,187,000;
see Note 11) and $2,316,000, respectively, relating to Inverness services and
expenses, which are included in the amounts for "Due to Inverness".
(b) Notes Payable to Inverness
On February 19, 1997, in connection with the purchase of the nutritional
supplement product line from American Home Products, IMI borrowed $2,000,000
from Inverness. Interest is payable at an annual rate of 6.5%. Interest expense
on this note was $129,000, $130,000, $130,000, $32,000 and $32,000 during 1998,
1999, 2000, and the three months ended March 31, 2000 and 2001, respectively.
This note is subordinate to all bank debt and cannot be repaid until all bank
debt is repaid in December 2003.
At December 31, 1999 and 2000 and March 31, 2001, CDIL had note payable
balances plus accrued interest totaling $2,044,000, $2,208,000 and $2,057,000,
respectively, due to Inverness under a note payable agreement dated July 1,
1997. Interest is accrued at an annual rate of 9%. Interest expense on this note
was $180,000, $119,000, $165,000, $31,000 and $49,000 during 1998, 1999, 2000,
and the three months ended March 31, 2000 and 2001, respectively. This note is
subordinate to all bank debt and cannot be repaid until all bank debt is repaid.
(c) Transition Services Agreement with Inverness
Prior to the closing of the Agreement, Inverness and Innovations will enter
into a transition services agreement (the Transition Services Agreement),
whereby each party will provide transition services to the other for an
agreed-upon period of time and service fee. Transition services will include,
but will not be limited to, operational services provided by IMI and CDIL to
Inverness related to certain diabetes products and by IME to Innovations related
to women's health products.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) NOTES PAYABLE
Innovations had the following debt outstanding:
DECEMBER 31,
-------------------------- MARCH 31,
1999 2000 2001
----------- ----------- -----------
Term loan -- IMI (Note 4(b))................ $26,500,000 $21,023,862 $18,789,362
Revolving line of credit -- IMI (Note
4(b))..................................... 3,226,050 -- --
Bank debt -- Orgenics....................... 1,716,000 868,000 621,000
Mortgage loan............................... 505,782 365,201 287,637
----------- ----------- -----------
31,947,832 22,257,063 19,697,999
Less: Current portion....................... 6,864,104 8,850,888 7,943,846
----------- ----------- -----------
$25,083,728 $13,406,175 $11,754,153
=========== =========== ===========
As discussed in Note 1, upon the closing of the transaction contemplated in
the Agreement and related agreements, Inverness will assume or discharge all
third-party debt outstanding, as reflected in the accompanying unaudited pro
forma balance sheet as of March 31, 2001. Each of the debt instruments listed is
discussed in the notes to the combined financial statements as referenced,
except for the following:
(a) Bank Debt -- Orgenics
The outstanding balance of Orgenics' bank debt is collateralized by certain
of Orgenics' assets. The notes bear interest at rates ranging from 5.6% to 8.6%
and are payable monthly through 2002.
(b) Mortgage Loan
During 1999, CDIL financed the purchase of one of its manufacturing
buildings through a mortgage loan (the CDIL Mortgage) with the seller. The
outstanding balance of the CDIL Mortgage is collateralized by the building. The
CDIL Mortgage bears interest at 6% and is payable semiannually through 2003.
(c) Maturities of Long-term Debt
Maturities of long-term debt and obligations at December 31, 2000 are as
follows:
2001........................................................ $ 8,850,888
2002........................................................ 6,313,935
2003........................................................ 7,092,240
-----------
$22,257,063
===========
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
Innovations has operating lease commitments for certain of its facilities
and equipment that expire through 2026. The following schedule outlines future
minimum annual rental payments under these leases at December 31, 2000:
2001........................................................ $ 558,000
2002........................................................ 565,000
2003........................................................ 383,000
2004........................................................ 270,000
2005........................................................ 270,000
Thereafter.................................................. 1,922,000
----------
$3,968,000
==========
Rent expense relating to these operating leases was approximately $775,000,
$688,000, $610,000, $169,000 and $155,000 in 1998, 1999, 2000, and the three
months ended March 31, 2000 and 2001, respectively.
(b) Industrial Development Authority of Ireland Grants
Prior to the acquisition of CDIL, CDIL received certain grants from the
Industrial Development Authority of Ireland (the IDA). As a condition to
retaining the grants, the IDA requires CDIL to maintain a certain number of
employees in Ireland. The IDA also prohibits CDIL from disposing of assets or
terminating business activities that were funded by the grants within 10 years
of such grants. Due to the sale of its infectious disease diagnostic business
(see Note 7(b)), CDIL may not be in compliance with the IDA requirements. As a
result, the IDA could require CDIL to repay capital expenditure and revenue
grants totaling 307,770 Irish pounds (approximately $368,000 at December 31,
2000). The IDA historically has not pursued its right to recoup these grants
from CDIL and, as of December 31, 2000, CDIL management believes that the IDA is
unlikely to do so, provided that CDIL does not terminate its operations in
Ireland. Accordingly, as management believes that repayment is not probable,
CDIL has not provided for a potential liability for the repayment of these
grants. If the IDA did pursue its rights to recoup these grants, it would not
have a material adverse effect on Innovations or CDIL.
(c) Legal Proceedings
Because of the nature of its business, Innovations may from time to time be
subject to consumer product claims or various other lawsuits arising in the
ordinary course of its business and expects that this will continue to be the
case in the future. These lawsuits generally seek damages, sometimes in
substantial amounts, for personal injuries or other commercial claims. As part
of the Agreement and related agreements, Inverness will retain liability arising
from litigation pertaining to diabetes-related matters and Innovations will
assume liabilities relating to the following legal proceedings:
On January 3, 2000, Becton, Dickinson and Company (Becton Dickinson) (see
Note 10(e)) filed suit against Inverness alleging that certain pregnancy and
ovulation test kits sold by Innovations infringe two U.S. patents. Becton
Dickinson has since lost its rights to one of the two U.S. patents and is no
longer asserting claims for infringement of that patent. The case is now going
forward to trial. While a final ruling against Innovations, as successor to
Inverness, could have a material adverse impact on its sales, operations or
financial performance, Innovations believes that it has strong defenses and
intends to defend this litigation vigorously.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1998, Abbott Laboratories (Abbott) commenced a patent infringement
lawsuit against Inverness and Princeton BioMeditech Corporation (PBM) (see Note
10(d)). Abbott claims that certain of Inverness' pregnancy detection and
ovulation prediction products infringe patents that Abbott claims to have rights
to in the United States. Abbott is seeking an order finding that Inverness and
PBM infringe the patents and enjoining such infringement, reimbursement of
certain damages and a recall of all of Inverness' existing products found to
infringe such patents. Inverness and PBM moved for summary judgment on their
defense that the Abbott patents are invalid, and the court granted partial
summary judgment, holding that certain key claims in Abbott's patents are
invalid as a matter of law. The court refused to grant summary judgment on
Abbott's claims of infringement or Inverness' remaining claims of invalidity,
which will now go forward to trial. As a successor to Inverness, Innovations
believes that Abbott's claims will be proven to be without merit and will
continue to defend the case vigorously. A final ruling of this suit against
Innovations could have a material adverse impact on Innovations' sales,
operations or financial performance.
In May 1999, Intervention, Inc., a California corporation, filed separate
suits against Inverness and certain of its private label customers and
competitors alleging that the defendants' labeling on their home pregnancy tests
is misleading as to the level of accuracy under certain conditions. The
plaintiff seeks restitution of profits on behalf of the general public,
injunctive relief and attorneys' fees. Inverness is defending its private label
customers under its agreements with these customers and Innovations has agreed
to assume this obligation upon closing of the split-off and merger. The matter
is scheduled for trial in the fall of 2001. Innovations believes that the
actions are without merit and intends to continue Inverness' vigorous defense.
Innovations does not believe that an adverse ruling against it would have a
material adverse impact on its sales, operations or financial performance.
On January 22, 1999, in connection with CDIL's sale of its infectious
disease business (see Note 7(b)), Cambridge Biotech Corporation (CBC) and
Cambridge Affiliate (see Note 5) filed suit against Inverness, Inverness' chief
executive officer, CDIL, Trinity and Pasteur Sanofi Diagnostic (Pasteur)
alleging, among other things, that the sale of the business was not properly
authorized and, as a result, CBC may lose the benefit of certain patent licenses
from Pasteur. CBC is requesting that the sale agreement be declared null and
void, the license between Pasteur and CBC be declared to be in full force and
that it be awarded damages caused by the actions of Inverness, its chief
executive officer and Pasteur. On January 25, 1999, the Court denied CBC's
motion. The parties are currently conducting discovery. Inverness filed an
answer denying the material allegations of the complaint along with a
counterclaim to declare its actions lawful and valid and to redress harm that
may result if the court invalidates the sale of CDIL's diagnostics business to
Trinity, despite CBC's representations to Inverness that it had the right to
make such a sale. Innovations has agreed to assume Inverness' liabilities under
this litigation after the closing of the split-off and merger. While a final
ruling against Inverness or CDIL could have a material adverse impact on its
sales, operations or financial performance, Innovations believes that it has
strong defenses and intends to defend the action vigorously.
(d) Agreement with PBM
On August 6, 1997, Innovations and PBM, along with wholly owned
subsidiaries of each, formed a limited liability company, PBM-Selfcare LLC (the
LLC), in which each party owns a 50% interest, and entered into a joint venture
and a series of related technology transfer and licensing agreements to develop
a comprehensive strategy to commercially exploit products and related
intellectual property in the area of pregnancy detection and ovulation
prediction (collectively, the Joint Venture Agreement). Under the Joint Venture
Agreement, PBM contributed intellectual property and Innovations agreed to fund
up to $2,000,000 on an as-needed basis to cover expenses incurred by the LLC in
enforcing the rights of the LLC in the intellectual property. To date,
Innovations has not incurred material costs pursuant to the Joint Venture
Agreement.
XF-23
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(e) License Agreements with Becton Dickinson
Innovations entered into two women's health-related patent license
agreements with Becton Dickinson, effective from April 1, 1998 until the date on
which the last of the patents expire. The agreements grant Innovations the right
to manufacture and sell products incorporating certain patented technology as
set forth in the agreement. Innovations was to pay royalties on the net sales of
products incorporating the licensed technology at a rate of 6% until December
31, 1998, 6.25% on the first $108,000,000 of net sales beginning January 1,
1999, and 5.25% thereafter, extending through the expiration of the patents.
During 1999 and 2000, Innovations paid royalties of approximately $1,001,000 and
$576,000, respectively, under this agreement and had approximately $416,000
accrued at December 31, 2000. In December 1999, Innovations gave Becton
Dickinson a written notice to terminate these license agreements effective
January 1, 2000, prior to the expiration of the patents. As a result of this
early termination, Becton Dickinson has filed suit against Innovations (see Note
10(c)).
(f) Orgenics Royalty Commitment
Orgenics has received funding under programs sponsored by the Chief
Scientist of the Ministry of Industry and Commerce of Israel (the Chief
Scientist) for the support of its research and development projects. In the
event that development of the products in which the Chief Scientist participates
is successful, Orgenics will be obligated to pay royalties at the rate of 2.0%
to 3.5% of the sales of products developed with funds provided by the Chief
Scientist, up to an amount equal to 100% of the Chief Scientist's research and
development grants to such projects. The balance of the maximum contingent
royalty as of December 31, 2000 and March 31, 2001 was approximately $2,200,000.
Orgenics does not have any liability to the State of Israel for amounts received
in support of unsuccessful programs or unsaleable products. During 1998, 1999,
2000, and the three months ended March 31, 2000 and 2001, Orgenics paid
approximately $170,000, $196,000, $206,000, $43,000 and $44,000, respectively,
in royalties to the Chief Scientist.
(g) Orgenics Severance Obligations
Israeli law provides that employers have certain severance obligations to
employees in Israel. Orgenics' liability for severance pay pursuant to such law
is provided by managers' insurance policies and by severance pay funds.
Severance expenses were approximately $166,000, $156,000, $68,000, $33,000 and
$48,000 in 1998, 1999, 2000, and the three months ended March 31, 2000 and 2001,
respectively. The balance of accrued severance was approximately $170,000 and
$165,000 at December 31, 2000 and March 31, 2001, respectively.
France has a government-run mandatory pension plan to which contributions
are made monthly by both the employee and employer based on the employee's gross
monthly salary. Orgenics' liability for its employees in France is fully covered
by these contributions. In addition, pursuant to industry employment agreements,
a lump-sum severance is payable upon retirement to employees still in the
service of Orgenics' French subsidiary at the date of retirement. There were no
such obligations outstanding as of December 31, 2000 and March 31, 2001.
(h) Purchase Agreement with Kendall Sherwood
Can-Am has an exclusive purchase agreement with Kendall Sherwood, a syringe
and a lancet manufacturer, through the year 2002. Pursuant to the terms of the
agreement and associated amendments, Can-Am has minimum purchase commitments of
$9,777,000 and $10,948,000 in 2001 and 2002, respectively. Can-Am did not meet
the minimum purchase requirements during 2000, but received a waiver from
Kendall Sherwood.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY
(a) Stock Options
In 2001, subject to Inverness stockholder approval, Innovations adopted the
2001 Stock Option and Incentive Plan (the 2001 Plan) which will allow for the
issuance of -- shares of common stock and other awards. The 2001 Plan would be
administered by a compensation committee in order to select the individuals
eligible to receive awards, determine or modify the terms and conditions of the
awards granted, accelerate the vesting schedule of any award and generally
administer and interpret the 2001 Plan. The key terms of the 2001 Plan permit
the granting of incentive stock options or nonqualified stock options with a
term of up to ten years and the granting of stock appreciation rights,
restricted stock awards, unrestricted stock awards, performance share awards and
dividend equivalent rights. The 2001 Plan also provides for option grants to
nonemployee directors and automatic vesting acceleration of all options and
stock appreciation rights upon a change in control, as will be defined by the
2001 Plan.
In the following three paragraphs, all amounts pertaining to shares and
share prices, for both the restricted stock sale and option grants, have been
presented on an unaudited pro forma basis, assuming the estimated stock split
described in Note 1.
On July 31, 2001 Innovations agreed to sell its Chief Executive Officer
1,168,191 shares of restricted common stock at a price of $9.13 per share.
Two-thirds of the restricted stock will vest ratably over 36 months, the
remaining one-third will vest ratably over 48 months. The Chief Executive
Officer will pay for the restricted stock using the proceeds of a five-year
promissory note which, for accounting purposes, will be treated as a
non-recourse note. The note will bear interest at an annual rate of 4.99%; all
interest will be full recourse. In certain circumstances, Innovations may
repurchase unvested shares at cost. Innovations will account for this
arrangement under EITF Issue No. 95-19 Accounting for Stock Compensation
Arrangements with Employee Loan Features under APB Opinion No. 25. (EITF 95-19).
Innovations has also agreed to grant options to purchase 778,794 shares of
common stock at an exercise price of $6.20 per share to two other key executive
officers. The options expire on January 31, 2002 and permit exercise for cash or
with proceeds from a promissory note which, for accounting purposes, would be
treated as a non-recourse note. The notes would bear interest at the applicable
federal rate for a five-year note in effect during the month of exercise; all
interest would be full recourse. Shares issued upon exercise would vest ratably
over 36 months. Under certain circumstances, Innovations may repurchase unvested
shares at the then fair value. In the event that the executives exercise part,
but not all, of the option prior to expiration of such options, Innovations will
grant a new option with an exercise price of the greater of the then fair value
or that of the original option for the number of unexercised shares from the
original option. Innovations will account for this arrangement under EITF 95-16,
FASB Interpretation No. 44 Accounting for Certain Transactions Involving Stock
Compensation and EITF Issue No. 00-23 Issues Related to Accounting for Stock
Compensation under APB Opinion No. 25 and FASB Interpretation No. 44.
Innovations has also agreed to grant immediately after the effective date
of the split-off options to purchase an additional 389,397 shares of common
stock to these key executive officers. These options will become exercisable
ratably over four years and will have a life of 10 years. The exercise price
will be $15.00 per share. The options will permit exercise for cash or with
proceeds from a promissory note which will contain terms that are substantially
the same as those described above.
(b) Employee Stock Purchase Plan
In 2001 Innovations adopted the 2001 Employee Stock Purchase Plan (the 2001
Stock Purchase Plan) under which eligible employees will be allowed to purchase
shares of Innovations common stock at a discount through periodic payroll
deductions. Purchases may occur at the end of six month offering periods
XF-25
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
at a purchase price equal to 85% of the market value of Innovations common stock
at either the beginning or end of the offering period, whichever is lower.
Innovations may issue up to -- shares of common stock for issuance under this
plan.
(c) Executive Bonus Plan
In 2001, Innovations adopted, subject to Inverness stockholder approval,
the Executive Bonus Plan pursuant to which certain key executives of Innovations
may be entitled to receive annual cash bonuses if shares of Innovations common
stock attain certain targeted prices per share. Performance determinations will
be made at the end of each calendar year. Payments under the Executive Bonus
Plan, if any, will be paid in cash in January of the following year. The maximum
amount that may be earned under the Executive Bonus Plan is $21,650,000.
(12) INCOME TAXES
Innovations' income tax provisions mainly represent those recorded by its
U.S. subsidiary, IMI. For federal and some state income tax filing purposes, the
results of IMI's operations are consolidated with Inverness. IMI has stand-alone
tax filing responsibilities in some states. The tax accounts maintained by IMI
and other Innovations subsidiaries have been computed using the separate return
method. To date, Inverness has been in a net loss position and, accordingly, has
paid virtually no income taxes in any jurisdiction. IMI has a tax sharing
agreement with Inverness, under which Inverness agreed to pay all of IMI's tax
liabilities (or offset these liabilities via Inverness' net operating loss
carryforwards) until IMI's cumulative taxable income (beginning January 1, 1998)
exceeds $15,500,000. Once IMI's cumulative taxable income passes this threshold,
IMI is required to pay a dividend to Inverness equal to 40% of the amount that
exceeds the threshold. During 2000, IMI surpassed the threshold and IMI has
accrued a dividend to Inverness of approximately $1,187,000. Pursuant to this
agreement, IMI records a capital contribution from Inverness for taxes paid by
Inverness or offset via Inverness' net operating loss carryforward.
The Company provides for income taxes in accordance with the provisions of
SFAS No. 109. Accordingly, a deferred tax asset or liability is determined based
on the difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates expected to be in effect when
these differences reverse. The Company's primary temporary differences that give
rise to the deferred asset and liability are nondeductible reserves and accruals
and different lives assigned to the goodwill and trademarks. The income tax
effect of these temporary differences are as follows:
DECEMBER 31,
---------------------------
1999 2000
------------ -----------
Current deferred tax assets:
Net operating loss (NOL) carryforwards................. $ 4,242,018 $ 4,703,240
Nondeductible accruals................................. 1,557,797 2,474,120
Other temporary differences............................ 107,840 85,788
Valuation allowance.................................... (4,542,018) (5,003,240)
------------ -----------
1,365,637 2,259,908
Long-term deferred tax liabilities:
Difference between book and tax bases of intangibles... 719,436 1,120,674
------------ -----------
Net deferred tax asset................................... $ 646,201 $ 1,139,234
============ ===========
At December 31, 2000, Innovations has available foreign net operating loss
carryforwards of approximately $23,322,000 to reduce future foreign taxable
income, if any. These carryforwards are subject
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to review and possible adjustment by the appropriate taxing authorities. The
valuation allowance related to Innovations' net operating losses and other
foreign deferred tax assets is due to uncertainty surrounding their
realizeability, as these assets can only be realized via profitable foreign
operations.
The following tables present the components of Innovations' provision for
income taxes and a reconciliation from the statutory tax rate to Innovations'
effective tax rate:
1998 1999 2000
---------- ---------- ----------
Current --
Federal...................................... $1,435,439 $2,215,149 $2,533,692
State........................................ 640,945 683,910 851,125
Foreign...................................... 260,841 (98,386) 18,000
---------- ---------- ----------
2,337,225 2,800,673 3,402,817
---------- ---------- ----------
Deferred --
Federal...................................... (178,725) (5,486) (377,165)
State........................................ (55,667) (1,694) (115,868)
---------- ---------- ----------
(234,392) (7,180) (493,033)
---------- ---------- ----------
Total tax provision............................ $2,102,833 $2,793,493 $2,909,784
========== ========== ==========
The 1998 tax provision included foreign taxes of approximately $261,000, of
which $214,000 represented capital gains taxes due in Ireland upon the business
disposition described in Note 7(b).
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
Statutory rate.................................... (34)% 34% 34% 34% 34%
Foreign and divisional losses not benefited....... 20 22 10 11 23
Rate differential on foreign losses............... -- -- (6) (8) (10)
State income taxes, net of federal benefit........ 4 10 7 6 9
Non-deductible goodwill........................... 39 11 6 8 13
Other............................................. 1 7 6 14 13
--- -- -- -- ---
30% 84% 57% 65% 82%
=== == == == ===
(13) FINANCIAL INFORMATION BY SEGMENT
Under SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Innovations' chief operating
decision making group is composed of the chief executive officer and members of
senior management. Innovations' reportable operating segments are Diabetes
(comprised of the historical diabetes care products businesses of Innovations'
subsidiaries), Women's Health (including the nutritional supplements business),
Clinical Diagnostics and Other.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Innovations evaluates
performance based on EBITDA. Revenues are attributed to
XF-27
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
geographic areas based on where the customer is located. Segment information for
the years ended December 31, 1998, 1999, 2000, and the three months ended March
31, 2000 and 2001 is as follows:
WOMEN'S CLINICAL
DIABETES HEALTH DIAGNOSTICS OTHER TOTAL
----------- ----------- ----------- ----------- -----------
1998
Net product sales to external
customers..................... $19,604,667 $38,569,362 $15,852,391 $ 618,722 $74,645,142
EBITDA.......................... 775,900 8,457,622 937,193 (1,161,595) 9,009,120
Depreciation and amortization... 1,018,954 1,901,075 3,498,170 536,173 6,954,372
Interest income:
External...................... 6,360 44,534 103,238 -- 154,132
Interest expense:
External...................... 1,368,050 1,705,981 241,000 56,951 3,371,982
To Inverness.................. 90,155 220,154 -- -- 310,309
----------- ----------- ----------- ----------- -----------
Total interest expense........ 1,458,205 1,926,135 241,000 56,951 3,682,291
Provision for income taxes...... 988,200 853,792 260,841 -- 2,102,833
Net charge on business
dispositions, asset
impairments and restructuring
activities.................... -- 858,751 4,577,994 (64,408) 5,372,337
Assets.......................... 32,163,480 46,582,536 6,301,200 4,723,255 89,770,471
Expenditures for property, plant
and equipment................. 35,068 122,497 238,931 158,769 555,265
1999
Net product sales to external
customers..................... $28,694,439 $39,518,146 $11,079,702 $ 1,561 $79,293,848
EBITDA.......................... 4,354,578 6,146,997 902,006 (727,092) 10,676,489
Depreciation and amortization... 1,123,247 2,124,388 545,379 394,285 4,187,299
Interest income:
External...................... 332 10,417 15,000 -- 25,749
Interest expense:
External...................... 1,135,112 1,518,055 252,000 (457) 2,904,710
To Inverness.................. -- 192,973 -- 60,403 253,376
----------- ----------- ----------- ----------- -----------
Total interest expense........ 1,135,112 1,711,028 252,000 59,946 3,158,086
Provision for income taxes...... 1,786,784 956,709 50,000 -- 2,793,493
Assets.......................... 35,555,719 44,585,518 5,698,263 4,252,783 90,092,283
Expenditures for property, plant
and equipment................. 50,147 1,317,709 127,000 31,390 1,526,246
2000
Net product sales to external
customers..................... $33,211,109 $40,612,891 $10,681,000 $ 24,140 $84,529,140
EBITDA.......................... 2,448,363 9,690,493 1,239,000 (1,254,821) 12,123,035
Depreciation and amortization... 1,144,171 2,121,718 398,000 379,392 4,043,281
XF-28
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
WOMEN'S CLINICAL
DIABETES HEALTH DIAGNOSTICS OTHER TOTAL
----------- ----------- ----------- ----------- -----------
Interest income:
External...................... 868 12,442 15,000 -- 28,310
Interest expense:
External...................... 1,083,453 1,344,675 265,000 -- 2,693,128
To Inverness.................. -- 130,356 -- 164,665 295,021
----------- ----------- ----------- ----------- -----------
Total interest expense........ 1,083,453 1,475,031 265,000 164,665 2,988,149
Provision for income taxes...... 1,128,540 1,763,244 18,000 -- 2,909,784
Assets.......................... 32,727,300 46,440,591 6,423,591 3,949,423 89,540,905
Expenditures for property, plant
and equipment................. 16,179 500,657 246,000 77,514 840,350
THREE MONTHS ENDED MARCH 31,
2000
Net product sales to external
customers..................... $ 7,496,690 $10,888,025 $ 2,567,000 $ -- $20,951,715
EBITDA.......................... 572,824 2,936,569 26,000 (196,169) 3,339,224
Depreciation and amortization... 286,979 521,528 133,000 95,155 1,036,662
Interest income:
External...................... 122 602 5,000 -- 5,724
Interest expense:
External...................... 287,095 362,765 59,000 -- 708,860
To Inverness.................. -- 32,411 -- 30,723 63,134
----------- ----------- ----------- ----------- -----------
Total interest expense........ 287,095 395,176 59,000 30,723 771,994
Provision for income taxes...... 382,742 598,001 11,000 -- 991,743
Assets.......................... 35,549,425 46,809,470 5,604,526 4,173,542 92,136,963
Expenditures for property, plant
and equipment................. -- 147,400 15,000 7,976 170,376
THREE MONTHS ENDED MARCH 31,
2001
Net product sales to external
customers..................... $ 6,814,542 $ 9,192,367 $ 2,655,000 $ -- $18,661,909
EBITDA.......................... 43,907 2,535,287 118,000 (334,420) 2,362,774
Depreciation and amortization... 299,452 536,450 115,000 146,743 1,097,645
Interest income:
External...................... 27 39,538 -- 3,000 42,565
Interest expense:
External...................... 184,517 227,113 -- 64,000 475,630
To Inverness.................. -- 32,055 -- 49,356 81,411
----------- ----------- ----------- ----------- -----------
Total interest expense........ 184,517 259,168 -- 113,356 557,041
Income taxes.................... 225,785 352,769 1,000 -- 579,554
Assets.......................... 33,814,020 47,455,050 5,477,208 3,909,302 90,655,580
Expenditures for property, plant
and equipment................. 6,118 259,299 102,000 19,132 386,549
XF-29
221
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1998 1999 2000 2000 2001
----------- ----------- ----------- ----------- -----------
RECONCILIATION OF EBITDA TO NET
(LOSS) INCOME
EBITDA.......................... $ 9,009,120 $10,676,489 $12,123,035 $ 3,339,224 $ 2,362,774
Depreciation and amortization
expense....................... (6,954,372) (4,187,299) (4,043,281) (1,036,662) (1,097,645)
Interest expense................ (3,682,291) (3,158,086) (2,988,149) (771,994) (557,041)
Income taxes.................... (2,102,833) (2,793,493) (2,909,784) (991,743) (579,554)
Other noncash items............. (5,329,303) 2,093 -- -- --
----------- ----------- ----------- ----------- -----------
Net (loss) income............. $(9,059,679) $ 539,704 $ 2,181,821 $ 538,825 $ 128,534
=========== =========== =========== =========== ===========
REVENUE BY GEOGRAPHIC AREA
United States................... $57,421,719 $66,301,776 $71,650,682 $17,876,175 $15,638,825
France.......................... 4,362,890 3,247,000 2,778,000 789,000 734,000
Other........................... 12,860,533 9,745,072 10,100,458 2,286,540 2,289,084
----------- ----------- ----------- ----------- -----------
$74,645,142 $79,293,848 $84,529,140 $20,951,715 $18,661,909
=========== =========== =========== =========== ===========
DECEMBER 31,
------------------------ MARCH 31,
1999 2000 2001
---------- ---------- ----------
LONG-LIVED TANGIBLE ASSETS BY GEOGRAPHIC AREA
Ireland................................................ $1,396,123 $1,568,506 $1,555,844
Israel................................................. 1,164,000 1,135,000 1,161,750
United States.......................................... 480,300 345,331 291,467
Other.................................................. 172,036 133,763 121,939
---------- ---------- ----------
$3,212,459 $3,182,600 $3,131,000
========== ========== ==========
(14) VALUATION AND QUALIFYING ACCOUNTS
The Company has established reserves against accounts receivable for
doubtful accounts, product returns, discounts and other allowances. The activity
in the table below includes all accounts receivable reserves. Provisions for
doubtful accounts are recorded as a component of selling, general and
administrative expenses. Provisions for returns, discounts and other allowances
are charged against net product sales. The following table sets forth activity
in the Company's accounts receivable reserve account:
BALANCE AT AMOUNTS BALANCE AT
BEGINNING OF CHARGED END OF
PERIOD PROVISION AGAINST RESERVES PERIOD
------------ ---------- ---------------- ----------
Year ended December 31, 1998... $1,550,469 $3,431,024 $(3,044,635) $1,936,858
Year ended December 31, 1999... 1,936,858 8,742,899 (8,159,587) 2,520,170
Year ended December 31, 2000... 2,520,170 7,602,943 (7,320,930) 2,802,183
Three months ended March 31,
2001......................... 2,802,183 1,942,849 (2,152,096) 2,592,936
(15) DISCONTINUED OPERATIONS (UNAUDITED)
Pursuant to the Agreement and related agreements, Innovations will transfer
to Inverness those entities or businesses that conduct business in the diabetes
segment, principally the Can-Am subsidiary of IMI and the diabetes business of
IMB. As discussed in Note 1, the accompanying unaudited pro forma
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements reflect the transfer of the diabetes businesses by
Innovations as discontinued operations.
The net assets of the discontinued operations in the accompanying unaudited
pro forma balance sheets are composed of the following:
DECEMBER 31, 2000 MARCH 31, 2001
----------------- --------------
Current assets........................................ $ 8,853,747 $ 8,096,639
Property, plant and equipment, net.................... 59,919 133,628
Other non-current assets.............................. 24,139,583 25,852,827
------------ ------------
33,053,249 34,083,094
------------ ------------
Current liabilities................................... (8,006,491) (9,345,402)
Long-term liabilities................................. (5,885,688) (5,322,361)
------------ ------------
(13,892,179) (14,667,763)
------------ ------------
Net assets of discontinued operations................. $ 19,161,070 $ 19,415,331
============ ============
The accompanying unaudited pro forma statements of operations include
(losses) income from discontinued operations as follows:
DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1998 1999 2000 2000 2001
----------- ----------- ----------- ---------- ----------
Net product sales......... 19,960,170 28,709,993 33,478,566 7,496,691 6,849,976
Cost of sales............. 13,842,920 18,644,151 23,108,414 5,073,439 5,033,851
----------- ----------- ----------- ---------- ----------
Gross profit......... 6,117,250 10,065,842 10,370,152 2,423,252 1,816,125
Operating expenses........ 6,664,664 6,956,967 8,755,407 2,051,582 1,981,722
----------- ----------- ----------- ---------- ----------
Operating (loss)
income............. (547,414) 3,108,875 1,614,745 371,670 (165,597)
Other expenses, net....... (1,346,694) (1,139,002) (1,083,989) (284,828) (189,821)
----------- ----------- ----------- ---------- ----------
(Loss) income before
income taxes....... (1,894,108) 1,969,873 530,756 86,842 (355,418)
Provision for income
taxes................... 988,200 1,786,784 1,128,540 382,742 225,785
----------- ----------- ----------- ---------- ----------
Net (loss) income
from discontinued
operations......... $(2,882,308) $ 183,089 $ (597,784) $ (295,900) $ (581,203)
=========== =========== =========== ========== ==========
XF-31
223
Until 25 days after the date of the split-off all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
INVERNESS MEDICAL INNOVATIONS, INC.
224
ANNEX 1
AGREEMENT AND PLAN OF SPLIT-OFF AND MERGER
DATED AS OF MAY 23, 2001
AMONG
JOHNSON & JOHNSON,
SUNRISE ACQUISITION CORP.
AND
INVERNESS MEDICAL TECHNOLOGY, INC.
225
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE SPLIT-OFF AND THE MERGER
SECTION 1.01. The Merger.................................................. 2
SECTION 1.02. Closing..................................................... 2
SECTION 1.03. Effective Time.............................................. 2
SECTION 1.04. Effects of the Merger....................................... 2
SECTION 1.05. Certificate of Incorporation and By-laws.................... 2
SECTION 1.06. Directors................................................... 2
SECTION 1.07. Officers.................................................... 2
ARTICLE II
EFFECT OF THE SPLIT-OFF AND THE MERGER
ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock..................................... 3
SECTION 2.02. Exchange of Certificates.................................... 3
ARTICLE III
RELATED TRANSACTIONS
SECTION 3.01. Reorganization Agreements................................... 6
SECTION 3.02. Ancillary Agreements........................................ 6
SECTION 3.03. Restructuring of Assets and Assumption of Liabilities....... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Company............... 7
SECTION 4.02. Representations and Warranties of Parent and Sub............ 22
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business......................................... 25
SECTION 5.02. No Solicitation............................................. 28
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Preparation of the Parent Form S-4, the Newco Form S-4, the
Form 8-A and the Parent Proxy Statement; Stockholders'
Meeting..................................................... 30
SECTION 6.02. Access to Information; Confidentiality...................... 31
SECTION 6.03. Commercially Reasonable Efforts............................. 31
SECTION 6.04. Sunrise Options; Sunrise Warrants........................... 32
SECTION 6.05. Indemnification, Exculpation and Insurance.................. 33
SECTION 6.06. Fees and Expenses........................................... 34
SECTION 6.07. Public Announcements........................................ 35
SECTION 6.08. Affiliates.................................................. 35
SECTION 6.09. Securities Listings......................................... 35
SECTION 6.10. Tax Treatment............................................... 35
SECTION 6.11. Stockholder Litigation...................................... 36
1-i
226
PAGE
----
SECTION 6.12. Employee Matters............................................ 36
SECTION 6.13. Restructuring Agreement..................................... 36
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
Split-Off and the Merger.................................... 37
SECTION 7.02. Conditions to Obligations of Parent and Sub................. 37
SECTION 7.03. Conditions to Obligation of the Company..................... 38
SECTION 7.04. Frustration of Closing Conditions........................... 39
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination................................................. 39
SECTION 8.02. Effect of Termination....................................... 40
SECTION 8.03. Amendment................................................... 40
SECTION 8.04. Extension; Waiver........................................... 40
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Nonsurvival of Representations and Warranties............... 40
SECTION 9.02. Notices..................................................... 40
SECTION 9.03. Definitions................................................. 41
SECTION 9.04. Interpretation.............................................. 42
SECTION 9.05. Counterparts................................................ 43
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries.............. 43
SECTION 9.07. Governing Law............................................... 43
SECTION 9.08. Assignment.................................................. 43
SECTION 9.09. Specific Enforcement........................................ 43
SECTION 9.10. Severability................................................ 43
Appendix Index of Defined Terms
Exhibit A Form of Affiliate Letter
Annex A Form of Restructuring Agreement
Annex B Form of Tax Allocation Agreement
Annex C Form of Post-Closing Covenants Agreement
Annex D Form of License Agreement
Annex E Form of Settlement Agreement and Release of Claims
1-ii
227
AGREEMENT AND PLAN OF SPLIT-OFF AND MERGER (this "Agreement") dated as of
May 23, 2001, among JOHNSON & JOHNSON, a New Jersey corporation ("Parent"),
SUNRISE ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), and INVERNESS MEDICAL TECHNOLOGY, INC., a Delaware
corporation (the "Company").
WHEREAS Parent and Company wish to effect Parent's acquisition of the
Sunrise Business of the Company through a merger of the Company with Sub (the
"Merger") on the terms and conditions set forth herein;
WHEREAS the Board of Directors of the Company has approved an Agreement and
Plan of Restructuring in the form of Annex A attached hereto with such changes
as may be permitted under Section 6.13 (the "Restructuring Agreement"), which
will be entered into prior to the Effective Time (as defined in Section 1.03),
pursuant to which, prior to the Effective Time, (a) all the assets of the
Company primarily related to the Clinical Diagnostics Business, the Nutritional
Supplements Business and the Women's Health Business (each as defined in the
Restructuring Agreement) will be transferred to a wholly owned subsidiary of the
Company ("Newco") or one or more of Newco's subsidiaries and (b) Newco or one or
more of the Subsidiaries will assume the Assumed Liabilities (as defined in the
Restructuring Agreement);
WHEREAS upon the Split-Off (as defined below) it is intended that the
Company will own only the Sunrise Business;
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, the holders of shares of common stock, par
value $.001 per share, of the Company ("Company Common Stock") will receive a
distribution of all the shares of common stock, par value $.001 per share, of
Newco ("Newco Common Stock") in consideration for the redemption of a portion of
their shares of Company Common Stock (the "Split-Off");
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time Sub will merge with and into the Company and
each issued and outstanding share of Company Common Stock, other than Company
Common Stock owned by Parent, Sub or the Company, will be converted into the
right to receive (a) shares of common stock, par value $1.00 per share, of
Parent ("Parent Common Stock") and (b) shares of Newco Common Stock;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable this Agreement and the transactions
contemplated hereby, and the sole stockholder of Sub has approved this Agreement
and the transactions contemplated hereby;
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to Parent's willingness to enter into this
Agreement, certain Company executives have entered into separate consulting and
non-competition agreements with Parent (collectively, the "Non-Competition
Agreements");
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to Parent's willingness to enter into this
Agreement, Parent and the Company will enter into a stock option agreement (the
"Option Agreement"), pursuant to which the Company will grant Parent the option
to purchase shares of Company Common Stock, upon the terms and subject to the
conditions set forth therein;
WHEREAS, for Federal income tax purposes, it is intended (a) by the Company
that the distribution of Newco Common Stock in connection with the transactions
contemplated by this Agreement shall qualify, as to the stockholders of the
Company, as a transaction described in Section 355 of the Internal Revenue Code
of 1986, as amended (the "Code") (it being understood and agreed that such
qualification shall not be a condition to the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements and that
Parent shall have no obligation to cause such distribution to so qualify) and
(b) by the parties that (i) the Merger shall qualify as a "reorganization"
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within the meaning of Section 368(a) of the Code, as amended (the "Code") and
(ii) this Agreement constitutes a plan of reorganization; and
WHEREAS Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Split-Off and the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE SPLIT-OFF AND THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Sub shall be merged with and into the
Company at the Effective Time. Following the Effective Time, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Sub in accordance with
the DGCL.
SECTION 1.02. Closing. The closing of the Split-Off and the Merger (the
"Closing") will take place at 10:00 a.m. on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than those
conditions that by their terms are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions), at the offices of Goodwin
Procter LLP, 53 State Street, Boston, MA 02109, unless another time, date or
place is agreed to in writing by the parties hereto. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date".
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties shall file a certificate
of merger (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and, as soon as practicable on or after the Closing Date,
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Secretary of State of the State of Delaware, or at such other time, if
any, as Parent and the Company shall agree and specify in the Certificate of
Merger (the time the Merger becomes effective being the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The Amended
and Restated Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law, except that the first sentence of
paragraph 1 thereof shall be amended to read in its entirety as follows: "The
name of the Corporation is Sunrise Acquisition Corp." Notwithstanding any
provisions herein to the contrary, Parent may cause the Certificate of
Incorporation of Sub to be amended to increase the number of shares of
authorized capital stock.
(b) The By-laws of Sub, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.06. Directors. The directors of Sub immediately prior to the
effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
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ARTICLE II
EFFECT OF THE SPLIT-OFF AND THE MERGER
ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $.001 per
share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock that is owned by the Company as treasury stock, or
by Parent or Sub, shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
(c) Conversion of Company Common Stock. Subject to Section 2.02(e),
each issued and outstanding share of Company Common Stock (other than
shares to be canceled in accordance with Section 2.01(b)) shall be
converted into the right to receive (x) from the Company, 0.20 (the "Newco
Exchange Ratio") of a validly issued, fully paid and nonassessable shares
of Newco Common Stock (the "Split-Off Consideration") and (y) from Parent,
a number of validly issued, fully paid and nonassessable share of Parent
Common Stock equal to the Parent Exchange Ratio (the "Merger
Consideration"). The Split-Off Consideration and the Merger Consideration
are collectively referred to as the "Closing Consideration". For purposes
of this Agreement, "Parent Exchange Ratio" means the quotient (rounded to
the nearest 1/10,000) determined by dividing $35.00 by the average (rounded
to the nearest 1/10,000) of the volume weighted averages (rounded to the
nearest 1/10,000) of the trading prices of Parent Common Stock on the New
York Stock Exchange (the "NYSE"), as reported by Bloomberg Financial
Markets (or such other source to which Parent and the Company may agree),
for each of the 20 consecutive trading days ending with the third trading
day immediately preceding the Effective Time. As of the Effective Time, all
such shares of Company Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate which immediately prior to the Effective Time
represented any such shares of Company Common Stock (each, a "Certificate")
shall cease to have any rights with respect thereto, except the right to
receive the Closing Consideration, any dividends or other distributions to
which such holder is entitled pursuant to Section 2.02(c) and any cash in
lieu of fractional shares of Parent Common Stock and Newco Common Stock to
be issued or paid in consideration therefor upon surrender of such
Certificate in accordance with Section 2.02(e), without interest.
Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time (i) the outstanding shares of Parent Common Stock shall
have been changed into a different number of shares or a different class,
by reason of the occurrence of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares
or similar transaction or (ii) Parent shall have established the record
date for such a change and such record date occurs prior to the Effective
Time, the Parent Exchange Ratio shall be appropriately adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange of shares or similar transaction.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time (i) the Company shall deposit with EquiServe Trust Company or
such other bank or trust company of similar size as may be designated by the
Company and Parent (the "Exchange Agent"), for the benefit of the holders of
shares of Company Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of Newco Common
Stock issuable pursuant to Section 2.01 in exchange for outstanding shares of
Company Common Stock and the Company and Newco shall deposit any dividends or
distributions with respect thereto with a record date after the
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Effective Time and an amount of cash representing any cash payments in lieu of
any fractional shares of Newco Common Stock determined in accordance with
Section 2.02(e) and (ii) Parent shall deposit with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing the shares of Parent Common Stock issuable pursuant to Section 2.01
in exchange for outstanding shares of Company Common Stock, together with any
dividends or distributions with respect thereto with a record date after the
Effective Time and an amount of cash representing any cash payments in lieu of
any fractional shares of Parent Common Stock determined in accordance with
Section 2.02(e) (such shares of Newco Common Stock and Parent Common Stock,
together with the amounts of cash described above, are collectively referred to
as the "Exchange Fund"). The Exchange Agent shall be required to keep all cash
deposited by the Company and Newco, on the one hand, and all cash deposited by
Parent, on the other hand, pursuant to this Section 2.02 in separate accounts.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a Certificate whose shares were converted into the right to receive
the Closing Consideration pursuant to Section 2.01(c) (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for certificates representing the
Closing Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly completed and
validly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Parent Common Stock and a certificate representing that number of whole shares
of Newco Common Stock that such holder has the right to receive pursuant to the
provisions of this Article II after taking into account all the shares of
Company Common Stock then held by such holder under all such Certificates so
surrendered, cash in lieu of fractional shares of Parent Common Stock and Newco
Common Stock to which such holder is entitled pursuant to Section 2.02(e) and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.02(c), and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock and a
certificate representing the proper number of shares of Newco Common Stock may
be issued to a person other than the person in whose name the Certificate so
surrendered is registered, if, upon presentation to the Exchange Agent, such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or other
taxes required by reason of the issuance of shares of Parent Common Stock and
Newco Common Stock to a person other than the registered holder of such
Certificate or establish to the reasonable satisfaction of Parent that such tax
has been paid or is not applicable. No interest will be paid or will accrue on
any cash payable to holders of Certificates pursuant to Section 2.02(c) or
2.02(e).
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock or Newco Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock and
Newco Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.02(e),
in each case, until the holder of record of such Certificate shall surrender
such Certificate in accordance with this Article II. Following surrender of any
such Certificate, there shall be paid to the record holder of the certificate
representing whole shares of Parent Common Stock and the certificate
representing whole shares of Newco Common Stock distributed in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock and a
fractional share of Newco Common Stock to which such holder is entitled pursuant
to Section 2.02(e) (such amount to be paid out of the appropriate accounts in
the Exchange Fund) and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock and to such whole shares of Newco Common Stock
(such amount to be paid out of the appropriate accounts
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in the Exchange Fund) and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of Parent Common Stock and such whole shares
of Newco Common Stock (such amount to be paid by Parent or Newco, as
applicable).
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock and Newco Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Article II
(including any cash paid pursuant to Section 2.02(c) or 2.02(e)) shall be deemed
to have been issued (and paid) in full satisfaction of all rights pertaining to
the shares of Company Common Stock previously represented by such Certificates,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be canceled and exchanged as provided
in this Article II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock or fractional shares of Newco Common
Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution of Parent or Newco, as applicable, shall relate to such
fractional share interests and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Parent or Newco,
as applicable.
(ii) In lieu of such fractional share interests, each former holder of
Company Common Stock as of the Effective Time shall be entitled to receive from
Parent or the Company, as applicable, an amount in cash equal to the product
obtained by multiplying (A) the fractional share interest in Parent Common Stock
and the fractional share interest in Newco Common Stock to which such former
holder (after taking into account all shares of Company Common Stock held at the
Effective Time by such holder) would otherwise be entitled by (B) (x) in the
case of Parent Common Stock, the per share closing price of Parent Common Stock
on the Closing Date, as reported on the NYSE Composite Transactions Tape, and
(y) in the case of Newco Common Stock, the per share closing price of Newco
Common Stock, as reported on a national securities exchange or The Nasdaq
National Market ("Nasdaq"), as the case may be, on the first full trading day
following the Effective Time. Cash payments are being made to holders of Company
Common Stock in lieu of fractional shares of Newco Common Stock and Parent
Common Stock for the purpose of saving Newco and Parent the expense and
inconvenience of issuing and transferring fractional shares. Such cash payments
do not represent separately bargained-for consideration.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Certificates for 18 months after the
Effective Time shall be delivered (x) in the case of shares of Newco Common
Stock and cash deposited in the Exchange Fund by the Company or Newco, to Newco
and (y) in the case of shares of Parent Common Stock and cash deposited in the
Exchange Fund by Parent, to Parent, in each case upon demand, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter (A) look only to Newco for, and Newco shall remain liable for,
payment of their claim for Split-Off Consideration, any cash in lieu of
fractional shares of Newco Common Stock and any dividends or distributions with
respect to Newco Common Stock and (B) look only to Parent for, and Parent shall
remain liable for, payment of their claim for Merger Consideration, any cash in
lieu of fractional shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock, in each case in accordance
with this Article II. If any Certificates shall not have been surrendered prior
to two years after the Effective Time (or immediately prior to such earlier date
on which any Closing Consideration would otherwise escheat to or became the
property of any Governmental Entity), any such Closing Consideration in respect
thereof shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation (with respect to any remaining Merger Consideration
and cash related thereto) and the property of Newco (with respect to any
remaining Split-Off Consideration and cash related thereto), free and clear of
all claims or interest of any person previously entitled thereto.
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(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common Stock or
Newco Common Stock (or dividends or distributions with respect thereto) or cash
in lieu of fractional shares of Parent Common Stock or Newco Common Stock or
cash from the Exchange Fund, in each case delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent and Newco on a pro rata basis based upon the amount of cash deposited
into the Exchange Fund by Parent, on the one hand, and the Company and Newco, on
the other hand.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent or
the Company, the posting by such person of a bond in such reasonable amount as
Parent or the Company may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Closing
Consideration and any cash in lieu of fractional shares and unpaid dividends and
distributions on shares of Parent Common Stock and Newco Common Stock
deliverable in respect thereof, in each case pursuant to this Agreement.
(j) Withholding Rights. The Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable to any holder of Company
Common Stock pursuant to this Agreement such amounts as may be required to be
deducted and withheld with respect to the making of such payment under the Code,
or under any provision of state, local or foreign tax law. To the extent that
amounts are so withheld and paid over to the appropriate taxing authority, the
Exchange Agent will be treated as though it withheld an appropriate amount of
the type of consideration otherwise payable pursuant to this Agreement to any
holder of Company Common Stock, sold such consideration for an amount of cash
equal to the fair market value of such consideration at the time of such deemed
sale and paid such cash proceeds to the appropriate taxing authority.
ARTICLE III
RELATED TRANSACTIONS
SECTION 3.01. Reorganization Agreements. Prior to the Effective Time, the
Company shall (a) execute and deliver the Restructuring Agreement, the Tax
Allocation Agreement in the form of Annex B attached hereto with such changes as
may be mutually agreed upon by the Company and Parent (the "Tax Allocation
Agreement"), the Post-Closing Covenants Agreement in the form of Annex C
attached hereto with such changes as may be mutually agreed upon by the Company
and Parent (the "Post-Closing Covenants Agreement"), the License Agreement in
the form of Annex D attached hereto with such changes as may be mutually agreed
upon by the Company and Parent (the "License Agreement") and the Settlement
Agreement and Release of Claims in the form of Annex E attached hereto with such
changes as may be mutually agreed upon by the Company and Parent (the
"Settlement Agreement"), (b) cause Newco to execute and deliver the
Restructuring Agreement, the Tax Allocation Agreement, the Post-Closing
Covenants Agreement, the License Agreement and the Settlement Agreement and (c)
cause certain of the Company's subsidiaries (as mutually determined by Parent
and the Company) that are necessary to effect the Restructuring to execute and
deliver the Restructuring Agreement and each such subsidiary that Parent shall
reasonably designate to execute and deliver the Post-Closing Covenants
Agreement. Prior to the Effective Time, Parent shall (x) execute and deliver the
Tax Allocation Agreement, the Post-Closing Covenants Agreement and the
Settlement Agreement and (y) cause LifeScan, Inc. to execute and deliver the
Settlement Agreement.
SECTION 3.02. Ancillary Agreements. Prior to the Effective Time, Parent
and the Company shall, and the Company shall cause Newco (and, if applicable,
one or more of Newco subsidiaries) to, execute
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and deliver the Ancillary Agreements (as defined in the Restructuring Agreement,
and, together with this Agreement, the Option Agreement, the Restructuring
Agreement, the Tax Allocation Agreement, the Post-Closing Covenants Agreement
and the License Agreement, the "Transaction Agreements") (other than the
Transition Services Agreement). For purposes of this Agreement, the Transition
Services Agreement (as defined in the Restructuring Agreement) shall not be
included in the definitions of "Ancillary Agreements" and "Transaction
Agreements". The parties shall use commercially reasonable efforts to cause the
Transition Services Agreement to be executed and delivered prior to the
Effective Time.
SECTION 3.03. Restructuring of Assets and Assumption of
Liabilities. Immediately prior to the Effective Time and pursuant to the terms
of the Restructuring Agreement, the Company and its subsidiaries shall
consummate the Restructuring upon the terms and subject to the conditions set
forth in the Restructuring Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Company. Except as (i)
disclosed or set forth in the Company SEC Documents filed and publicly available
prior to the date of this Agreement (the "Filed Company SEC Documents") or (ii)
disclosed or set forth on the disclosure schedule (with specific reference to
the particular subsection of this Agreement to which the information set forth
in such disclosure schedule relates; provided, however, that an item included on
the disclosure schedule with respect to any subsection of this Section 4.01
shall be deemed to relate to each other subsection of this Section 4.01 to the
extent such relationship is reasonably apparent) delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule"), the Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company
and its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to own, lease or otherwise hold and operate
its properties and other assets and to carry on its business as presently
conducted. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of
its properties or other assets makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed individually or in the aggregate has not had and is
not reasonably be expected to have a Material Adverse Effect. The Company
has delivered to Parent prior to the execution of this Agreement true and
correct copies of its Amended and Restated Certificate of Incorporation
(the "Company Certificate") and Amended and Restated By-laws (the "Company
By-laws"), in each case as amended through the date hereof. The Company has
made available to Parent and its representatives true and complete copies
of the minutes of all meetings of the stockholders of the Company and each
of its subsidiaries, the Board of Directors of the Company and each of its
subsidiaries and the committees of each of such Board of Directors, in each
case held since January 1, 1999.
(b) Subsidiaries. As of the date of this Agreement, Section 4.01(b)
of the Company Disclosure Schedule contains a true and complete list of all
the Company's subsidiaries (whether or not such subsidiaries are engaged in
the Sunrise Business). All the outstanding shares of capital stock or other
voting securities or equity interests of each subsidiary of the Company are
owned by the Company, by another wholly owned subsidiary of the Company or
by the Company and another wholly owned subsidiary of the Company, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"), and are
duly authorized, validly issued, fully paid and nonassessable.
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(c) Capital Structure. The authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock and 5,000,000 shares
of preferred stock, par value $.001 per share ("Preferred Stock"). At the
close of business on May 17, 2001, (i) 32,249,698 shares of Company Common
Stock were issued and outstanding, (ii) 743,678 shares of Company Common
Stock were held by the Company in its treasury, (iii) 4,624,969 shares of
Company Common Stock were reserved for issuance pursuant to the Company's
1992 Stock Plan, 1994 Incentive and Non-Qualified Stock Option Plan,
Amended and Restated 1996 Stock Option, Grant Plan, 2000 Stock Option and
Grant Plan, the INOMET, Inc. 1990 Incentive and Stock Option Plan, the
INOMET, Inc. 1991 Incentive and Stock Option, the Integ Incorporated 1994
Long-Term Incentive and Stock Option Plan and the Integ Incorporation 1996
Director's Stock Option Plan (such plans, collectively, the "Company Stock
Plans") (of which 4,511,235 shares of Company Common Stock were subject to
outstanding options to purchase shares of Company Common Stock granted
under the Company Stock Plans and 650,000 shares of Company Common Stock
were subject to outstanding options to purchase shares of Company Common
Stock granted outside the Company Stock Plans (the "Non-Plan Stock
Options") (collectively, "Stock Options")), (iv) 575,663 shares of Company
Common Stock were reserved for issuance pursuant to the Employee Stock
Purchase Plan (the "Company ESPP"), of which as of the date of this
Agreement the Company expects that approximately 25,000 shares of Company
Common Stock will be subject to outstanding purchase rights under the
Company ESPP on June 30, 2001, (v) warrants to acquire 692,399 shares of
Company Common Stock from the Company pursuant to the warrant agreements
set forth on Section 4.01(c) of the Company Disclosure Schedule (the
"Warrants") were outstanding and (vi) no shares of Preferred Stock were
issued and outstanding or were held by the Company as treasury shares.
Except as set forth above in this Section 4.01(c), at the close of business
on May 17, 2001, no shares of capital stock or other voting securities or
equity interest of the Company were issued, reserved for issuance or
outstanding. Except as set forth above in this Section 4.01(c), there are
no outstanding stock appreciation rights, rights to receive shares of
Company Common Stock on a deferred basis or other rights that are linked to
the value of Company Common Stock, granted under the Company Stock Plans,
the Warrants, the Company ESPP or otherwise. Section 4.01(c) of the Company
Disclosure Schedule sets forth a complete and accurate list, as of May 17,
2001, of all outstanding Warrants, Stock Options or other rights to
purchase or receive Company Common Stock granted under the Company Stock
Plans or otherwise, the number of shares of Company Common Stock subject
thereto, the grant dates, expiration dates and exercise prices thereof and
the names of the holders thereof. No stock option agreement evidencing the
grant of Stock Options pursuant to any Company Stock Plan provides
additional or more favorable benefits in any material respect to the holder
of such Stock Options than the benefits provided under the applicable
Company Stock Plans. Attached as an exhibit to Section 4.01(c) of the
Company Disclosure Schedule are true and complete copies of all stock
option agreements pursuant to which Non-Plan Stock Options have been
issued. All outstanding shares of capital stock of the Company are, and all
shares that may be issued pursuant to the Company Stock Plans, the Non-Plan
Stock Options, the Warrants or the Company ESPP will be, when issued in
accordance with the terms thereof, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no
bonds, debentures, notes or other indebtedness of the Company having the
right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of the Company may
vote. Except as set forth above in this Section 4.01(c) or resulting from
the issuance of shares of Company Common Stock pursuant to Stock Options or
the Warrants outstanding as of the date hereof or rights that may have
arisen under the Company ESPP, (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities or equity interests of the Company, (B) any securities of the
Company convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities or equity interests of the Company
or (C) any warrants, calls, options or other rights to acquire from the
Company or any of its subsidiaries, or any obligation of the Company or any
of its subsidiaries to issue, any capital stock, voting securities, equity
interests or securities convertible into or exchangeable or exercisable for
capital stock, voting securities or equity interests of the Company and (y)
there are not any outstanding obligations of the Company or any of its
subsidiaries to
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repurchase, redeem or otherwise acquire any such securities or to issue,
deliver or sell, or cause to be issued, delivered or sold, any such
securities. None of the Company or any of its subsidiaries is a party to
any voting agreement with respect to the voting of any such securities.
There are no outstanding (1) securities of the Company or any of its
subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities or equity interests in any
subsidiary of the Company, (2) warrants, calls, options or other rights to
acquire from the Company or any of its subsidiaries, and no obligation of
the Company or any of its subsidiaries to issue, any capital stock, or
other voting securities or equity interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock, or
other voting securities or equity interests in, any subsidiary of the
Company or (3) obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any such outstanding securities of
any subsidiary of the Company or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities.
(d) Authority; Noncontravention. The Company has the requisite power
and authority to enter into each Transaction Agreement to which it is or
will be a party and to consummate the transactions contemplated thereby,
subject, in the case of the consummation of the Merger by the Company, to
receipt of the Stockholder Approval. Each of the Company's subsidiaries
has, or prior to the execution and delivery of the Restructuring Agreement
will have, the requisite corporate power and authority to enter into each
Transaction Agreement to which it is or will be a party and to consummate
the transactions contemplated thereby. The execution and delivery by the
Company of each Transaction Agreement to which it is or will be a party and
the consummation by the Company of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part of
the Company and no other corporate proceedings on the part of the Company
are necessary to authorize such Transaction Agreements or to consummate the
transactions contemplated thereby, subject, in the case of the consummation
of the Merger, to receipt of the Stockholder Approval. The execution and
delivery by each of the Company's subsidiaries of the Transaction
Agreements to which it is or will be a party and the consummation by it of
the transactions contemplated thereby have been, or prior to the execution
and delivery of the Restructuring Agreement will be, duly authorized by all
necessary action on the part of such entity and no other proceedings on the
part of such entity are or will be necessary to authorize the Transaction
Agreements or to consummate the transactions contemplated thereby. This
Agreement has been duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by each of the other parties
hereto, constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. Each
Transaction Agreement (other than this Agreement) to which the Company or
any of its subsidiaries will be a party will, when executed and delivered
by such entity, and, assuming the due authorization, execution and delivery
by Parent, constitute a legal, valid and binding obligation of such entity,
enforceable against such entity in accordance with its terms. The Board of
Directors of the Company, at a meeting duly called and held at which all
directors of the Company were present, duly and unanimously adopted
resolutions (i) approving and declaring advisable this Agreement and each
other Transaction Agreement, the Merger and the other transactions
contemplated hereby and thereby, (ii) declaring that it is in the best
interests of the stockholders of the Company that the Company enter into
this Agreement and consummate the Merger and the other transactions
contemplated hereby on the terms and subject to the conditions set forth in
this Agreement, (iii) declaring that it is in the best interest of the
stockholders of the Company that each of the Company and its subsidiaries
enter into each other Transaction Agreement to which it is a party and
consummate the transactions contemplated thereby on the terms and subject
to the conditions set forth therein, (iv) directing that this Agreement be
submitted to a vote at a meeting of the stockholders of the Company and (v)
recommending that the stockholders of the Company adopt this Agreement. The
execution and delivery by each of the Company and its subsidiaries of the
Transaction Agreements to which it is or will be a party do not, and the
consummation of the transactions contemplated thereby and compliance with
the provisions thereof will not, conflict with, or result in any violation
or breach of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of
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a benefit under, or result in the creation of any Lien in or upon any of
the properties or assets of the Company or any of its subsidiaries under,
(x) the Company Certificate or Company By-laws or the Certificate of
Incorporation or by-laws (or similar organizational documents) of any of
its subsidiaries, (y) any loan or credit agreement, bond, debenture, note,
mortgage, indenture, lease or other contract, agreement, obligation,
commitment, arrangement, understanding, instrument, permit or license,
whether oral or written (excluding any such items between the Company or
any of its subsidiaries, on the one hand, and Parent or any of its
Affiliates, on the other hand) (each, including all amendments thereto, a
"Contract"), to which the Company or any of its subsidiaries is a party or
any of their respective properties or other assets is subject or (z)
subject to the governmental filings and other matters referred to in the
following sentence, any (A) statute, law, ordinance, rule or regulation or
(B) order, writ, injunction, decree, judgment or stipulation, in each case
applicable to the Company or any of its subsidiaries or their respective
properties or other assets, other than, in the case of clauses (y) and (z),
any such conflicts, violations, breaches, defaults, rights, losses or Liens
that individually or in the aggregate have not had and are not reasonably
expected to have a Material Adverse Effect. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration
or filing with, any Federal, state, local or foreign government, any court,
administrative, regulatory or other governmental agency, commission or
authority or any non-governmental self-regulatory agency, commission or
authority (each, a "Governmental Entity") is required by or with respect to
the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the execution and delivery of
the other Transaction Agreements by the Company or any of its subsidiaries
or the consummation of the transactions contemplated hereby or thereby,
except for (1) the filing of a premerger notification and report form by
the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), or any other applicable competition, merger
control, antitrust or similar law or regulation, (2) the filing with the
Securities and Exchange Commission (the "SEC") of (A) a proxy statement
relating to the adoption by the stockholders of the Company of this
Agreement (as amended or supplemented from time to time, the "Proxy
Statement"), (B) a registration statement on Form S-4 to be filed with the
SEC by Newco in connection with the distribution of Newco Common Stock in
the Split-Off (as amended or supplemented from time to time, the "Newco
Form S-4"), (C) a registration statement on Form 8-A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
the distribution of Newco Common Stock in the Split-Off (the "Form 8-A")
and (D) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Exchange Act, as may be required in connection with this Agreement, the
other Transaction Agreements and the transactions contemplated hereby or
thereby, (3) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do
business, (4) such filings with and approvals of a national securities
exchange or Nasdaq to permit the shares of Newco Common Stock that are to
be distributed in the Split-Off to be approved for listing on such national
securities exchange, or approved for quotation on Nasdaq, as the case may
be, in either case subject to official notice of issuance and (5) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate has not had and are not reasonably
expected to have a Material Adverse Effect.
(e) Company SEC Documents. The Company has filed all reports,
schedules, forms, statements and other documents (including exhibits and
other information incorporated therein) with the SEC required to be filed
by the Company since January 1, 1999 (together with all voluntary filings
made by the Company with the SEC during such time period, the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and except to the
extent that information contained in any Company SEC Document has been
revised, superseded or updated by a later-filed Company SEC Document, none
of the Company SEC Documents contains any untrue statement of a material
fact or omits to
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state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the Company SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles in the United
States ("GAAP") (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present the financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements set forth in the Company's Form 10-K
for the year ended December 31, 2000, or in the most recent financial
statements included in the Filed Company SEC Documents and except for
liabilities or obligations incurred in connection with this Agreement or
any of the other Transaction Agreements, neither the Company nor any of its
subsidiaries has any liabilities or obligations (other than to Parent or
any of its Affiliates) of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, have had or are
reasonably expected to have a Material Adverse Effect.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) each of the Newco Form S-4 and the Parent Form S-4 will,
at the time it is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading or (ii) the Proxy Statement will, at the date the
Proxy Statement is first mailed to the Company's stockholders and at the
time of the Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation or warranty is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in such documents. The Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder. The Newco Form S-4 will comply as to form
in all material respects with the requirements of the Securities Act and
the rules and regulations thereunder.
(g) Inverness Medical Limited Financial Statements. Section 4.01(g)
of the Company Disclosure Schedule sets forth for Inverness Medical Limited
("IML") (x) (i) the audited balance sheet as of December 31, 1999 (the
"Audited IML Balance Sheet") and (ii) an audited statement of operations
and an audited statement of cash flows for the year ended December 31, 1999
(together, the "Audited IML Financial Statements"), together with the
report of IML's independent accountants thereon, and (y) (i) the unaudited
balance sheet as of March 31, 2001 (the "Interim IML Balance Sheet") and
(ii) an unaudited statement of operations and an unaudited statement of
cash flows for the three months ended, March 31, 2001 (together, the
"Interim IML Financial Statements") and (z) (i) the unaudited balance sheet
as of December 31, 2000 (the "Unaudited IML Balance Sheet") and (ii) an
unaudited statement of operations and an unaudited statement of cash flows
for the year ended December 31, 2000 (together, the "Unaudited IML
Financial Statements"). There has been no material change in the financial
position of IML since March 31, 2001. Each of the Audited IML Balance
Sheet, the Interim IML Balance Sheet and the Unaudited IML Balance Sheet
(including any related notes and schedules) fairly presents in all material
respects the financial position of IML as of its date, and each of the
statements of operations and statements of cash flows included in the
Audited IML Financial Statements and the Unaudited IML Financial Statements
(including any related notes and schedules) fairly presents in all material
respects the results of operations and cash flows, as the case may be, of
IML for the periods set forth therein (subject in the case of unaudited
statements to normal year end adjustments) (i) in the case of the
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Audited IML Balance Sheet and the Audited IML Financial Statements, in
accordance with accounting principles generally accepted in the United
Kingdom applied on a consistent basis, and (ii) in the case of the
Unaudited IML Balance Sheet, the Unaudited IML Financial Statements, the
Interim IML Balance Sheet and the Interim IML Financial Statements, in
accordance with GAAP. All of the adjustments necessary to convert in all
material respects the Audited IML Balance Sheet and the Audited IML
Financial Statements into GAAP have been recorded in the appropriate
periods on the books and records of the Company, and after the application
of such adjustments all the financial statements referred to in this
Section 4.01(i) have been prepared on a consistent basis.
(h) Absence of Certain Changes or Events. Except (i) for liabilities
incurred in connection with this Agreement or any of the other Transaction
Agreements, and (ii) the transactions described in the Transaction
Agreements, since March 31, 2001, the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course
consistent with past practice, and there has not been (i) any Material
Adverse Change, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of the Company's or any of its subsidiaries' capital stock,
other than the payment of dividends by any wholly owned subsidiary of the
Company to its parent (which parent is a Sunrise Company), (iii) any split,
combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of such capital stock, (iv) prior to the date of
this Agreement (A) any granting by the Company or any of its subsidiaries
to any current or former director, officer, employee or consultant of any
increase in compensation, bonus or other benefits, except as was required
under employment agreements in effect as of the date of the most recent
audited financial statements included in the Filed Company SEC Documents
and except for increases in cash compensation in the ordinary course of
business consistent with past practice, (B) any granting by the Company or
any of its subsidiaries to any current or former director, officer,
employee or consultant of any increase in severance or termination pay,
except as was required under any employment, severance or termination
agreements in effect as of the date of the most recent audited financial
statements included in the Filed Company SEC Documents, (C) any entry by
the Company or any of its subsidiaries into, or any amendment of, (1) any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement, arrangement or understanding with any current or
former director, officer, employee or consultant or (2) any agreement with
any current or former director, officer, employee or consultant the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company of a
nature contemplated by this Agreement or any of the other Transaction
Agreements (all such agreements under this clause (C), collectively,
"Benefit Agreements"), (D) any amendment to, or modification of, any Stock
Option or Warrant or (E) any adoption of, or amendment to, a Benefit Plan,
(v) any damage, destruction or loss, whether or not covered by insurance,
that individually or in the aggregate has had or are reasonably expected to
have a Material Adverse Effect, (vi) any change in accounting methods,
principles or practices by the Company or its subsidiaries materially
affecting the Company's assets, liabilities or businesses, except insofar
as may have been required by a change in GAAP, or (vii) any material tax
election or any settlement or compromise of any material income tax
liability.
(i) Litigation. Except as disclosed in the Filed Company SEC
Documents, there is no suit, action or proceeding pending or, to the
Knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries or any of their respective properties or assets
that individually or in the aggregate has had or are reasonably expected to
have a Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against, or, to the Knowledge of the Company, investigation by
any Governmental Entity involving, the Company or any of its subsidiaries
that individually or in the aggregate has had or are reasonably expected to
have a Material Adverse Effect.
(j) Contracts. Except as disclosed in the Filed Company SEC
Documents, none of the Company or any of its subsidiaries is a party to,
and none of its properties or other assets are subject
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to, any contract or agreement that are of a nature required to be filed as
an exhibit to a report or filing under the Securities Act or the Exchange
Act and the rules and regulations promulgated thereunder. None of the
Company or any of its subsidiaries is in violation of or in default under
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default under)
any Contract to which the Company or any of its subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their respective
properties or other assets is bound, except for violations or defaults that
individually or in the aggregate have not had and are not reasonably
expected to have a Material Adverse Effect. None of the Company or any of
its subsidiaries has entered into any Contract with any Affiliate of the
Company that is currently in effect other than agreements that are
disclosed in the Filed Company SEC Documents. Except as set forth in the
Post-Closing Covenants Agreement and except for agreements or covenants
which do not affect the Sunrise Business and would not be binding on Parent
or any of its Affiliates (other than the Company or any of its
subsidiaries) as a result of the Merger, none of the Company or any of its
subsidiaries is a party to or otherwise bound by any agreement or covenant
not to compete or by any agreement or covenant restricting in any respect
the development, marketing or distribution of the Company's or any of its
subsidiaries products or services. Other than contracts relating solely to
the Newco Business, none of the Company or any of its subsidiaries is a
party to or is otherwise bound by any continuing contract for the future
sale by the Company or any of its subsidiaries of materials, supplies or
equipment that (i) is not terminable at will by the Company or such
subsidiary upon not more than 30 days' notice without any obligation of the
Company or any of its subsidiaries to pay a termination fee, penalty or
similar payment or (ii) imposes any continuing obligation for the sale of
materials, supplies or equipment following termination thereof.
(k) Compliance with Laws. (i) Each of the Company and its
subsidiaries is in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders and decrees of any Governmental Entity
applicable to it, its properties or other assets or its business or
operations (collectively, "Legal Provisions"), except for instances of
noncompliance or possible noncompliance that individually or in the
aggregate have not had and are not reasonably expected to have a Material
Adverse Effect. Each of the Company and its subsidiaries has in effect all
material approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights of or with all Governmental Entities,
including all authorizations under the Federal Food, Drug, and Cosmetic Act
of 1938, as amended ("FDCA"), and the regulations of the Federal Food and
Drug Administration (the "FDA") promulgated thereunder, and under
Environmental Laws (collectively, "Permits"), necessary for it to own,
lease or operate its properties and assets and to carry on its business and
operations as presently conducted, except for failures to have in effect
such Permits that individually or in the aggregate have not had and are not
reasonably expected to have a Material Adverse Effect. There has occurred
no default under, or violation of, any such Permit, except individually or
in the aggregate as has not had and are not reasonably expected to have a
Material Adverse Effect. The Merger and the other transactions contemplated
by the Transaction Agreements, in and of themselves, will not cause the
revocation or cancellation of any Permit that individually or in the
aggregate are reasonably expected to have a Material Adverse Effect. No
action, demand, requirement or investigation by any Governmental Entity and
no suit, action or proceeding by any other person, in each case with
respect to the Company or any of its subsidiaries or any of their
respective properties or other assets under any Legal Provision, is pending
or, to the Knowledge of the Company, threatened, other than, in each case,
those the outcome of which individually or in the aggregate has not had and
are not reasonably expected to have a Material Adverse Effect.
(ii) Except for those matters disclosed in the Filed Company SEC
Documents or those matters that individually or in the aggregate have not
had and are not reasonably expected to have a Material Adverse Effect: (A)
each of the Company and its subsidiaries is, and has been, in compliance
with all applicable Environmental Laws; (B) during the period of ownership
or operation by each of the Company and its subsidiaries of any of its
currently or previously owned, leased or operated properties, there have
been no Releases or threatened Releases of Hazardous Material in, on, under
or
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affecting such properties or any surrounding sites; (C) there is no
investigation, suit, claim, action or proceeding pending, or to the
Knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries, relating to or arising under Environmental Laws,
and none of the Company or any of its subsidiaries has received any notice
of, or entered into or assumed by contract or operation of law or
otherwise, any obligation, liability, order, settlement, judgment,
injunction or decree relating to or arising under Environmental Laws; and
(D) to the Knowledge of the Company, there are no facts, circumstances or
conditions which could reasonably be expected to form the basis for a suit,
investigation, claim, action or proceeding against or affecting the Company
or any of its subsidiaries relating to or arising under Environmental Laws.
The term "Environmental Laws" means all laws (including the common law),
rules, regulations, codes, ordinances, orders, decrees, judgments,
injunctions, notices, Permits, or binding agreements issued, promulgated or
entered into by any Governmental Entity, relating in any way to the
environment, preservation or reclamation of natural resources, the
presence, management, Release or threat of Release of, or exposure to,
Hazardous Materials, or to human health and safety. The term "Hazardous
Material" means (A) petroleum products and byproducts, asbestos, urea
formaldehyde foam insulation, asbestos or asbestos-containing materials,
medical or infectious wastes, polychlorinated biphenyls, radon gas,
chlorofluorocarbons and all other ozone-depleting substances or (B) any
chemical, material, substance, waste, pollutant or contaminant that is
prohibited, limited or regulated by or pursuant to any Environmental Law.
The term "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing or
migrating into or through the environment or any natural or man-made
structure.
(l) Absence of Changes in Benefit Plans; Labor Relations. Except as
disclosed in the Filed Company SEC Documents, since the date of the most
recent audited financial statements included in the Filed Company SEC
Documents, there has not been any adoption or amendment by the Company or
any of its subsidiaries of any collective bargaining agreement or any
employment, bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock
appreciation, restricted stock, stock option, phantom stock, performance,
retirement, thrift, savings, stock bonus, paid time off, perquisite, fringe
benefit, vacation, severance, disability, death benefit, hospitalization,
medical, welfare benefit or other plan, program, policy, arrangement or
understanding (whether or not legally binding) maintained, contributed to
or required to be maintained or contributed to by the Company, any of its
subsidiaries or any other person or entity that, together with the Company,
is treated as a single employer under Section 414(b), (c), (m) or (o) of
the Code (each, a "Commonly Controlled Entity"), in each case providing
benefits to any current or former officer, director, employee or consultant
of the Company or any of its subsidiaries (collectively, the "Benefit
Plans"), or any material change in any actuarial or other assumption used
to calculate funding obligations with respect to any Pension Plans, or any
change in the manner in which contributions to any Pension Plans are made
or the basis on which such contributions are determined. Except for any
Benefit Agreements under which the sole obligations of the Company or any
of its subsidiaries are (x) to pay no more than $100,000 under each such
Benefit Agreement and $500,000 in the aggregate under all such Benefit
Agreements and (y) to provide other items that may be purchased for a de
minimis monetary value and except as disclosed in the Filed Company SEC
Documents, there exist no currently binding Benefit Agreements. There are
no collective bargaining or other labor union agreements to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound. Since January 1, 1999, none of the
Company or any of its subsidiaries has encountered any labor union
organizing activity or had any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts.
(m) Benefit Plan Compliance. (i) Section 4.01(m)(i) of the Company
Disclosure Schedule contains a complete and accurate list of each Benefit
Plan that is an "employee pension benefit plan" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as a "Pension Plan"), an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) and all other
Benefit Plans. The Company has delivered to Parent true, complete and
correct copies of (A) each Benefit Plan and Benefit Agreement (or, in the
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case of any unwritten Benefit Plan or Benefit Agreement, descriptions
thereof), (B) the two most recent annual reports on Form 5500 required to
be filed with the Internal Revenue Service (the "IRS") with respect to each
Benefit Plan (if any such report was required), (C) the most recent summary
plan description for each Benefit Plan for which such summary plan
description is required and (D) each trust agreement and insurance or group
annuity contract relating to any Benefit Plan. Each Benefit Plan has been
administered in all material respects in accordance with its terms. The
Company, its subsidiaries and all the Benefit Plans are all in compliance
in all material respects with the applicable provisions of ERISA, the Code
and all other applicable laws, including laws of foreign jurisdictions, and
the terms of all collective bargaining agreements.
(ii) All Pension Plans intended to be tax-qualified have received
favorable determination letters from the IRS with respect to "TRA" (as
defined in Section 1 of Rev. Proc. 93-39) to the effect that such Pension
Plans are qualified and exempt from United States Federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code; no such
determination letter has been revoked (or, to the Knowledge of the Company,
has revocation been threatened) nor, to the Knowledge of the Company, has
any event occurred since the date of the most recent determination letter
or application therefor relating to any such Pension Plan that would
adversely affect the qualification of such Pension Plan or materially
increase the costs relating thereto or require security under Section 307
of ERISA. All Benefit Plans maintained or contributed to by the Company or
any of its subsidiaries required to have been approved by any foreign
Governmental Entity have been so approved; no such approval has been
revoked (or, to the Knowledge of the Company, has revocation been
threatened) nor, to the Knowledge of the Company, has any event occurred
since the date of the most recent approval or application therefor relating
to any such Benefit Plan that would materially affect any such approval
relating thereto or materially increase the costs relating thereto or
result in the loss of any intended favorable tax treatment for such Benefit
Plan. The Company has delivered to Parent a true and complete copy of the
most recent determination letter received with respect to each Pension
Plan, as well as a true and complete copy of each pending application for a
determination letter, if any. The Company has also provided to Parent a
true and complete list of all Pension Plan amendments as to which a
favorable determination letter has not yet been received.
(iii) Neither the Company nor any Commonly Controlled Entity has (A)
maintained, contributed or been obligated to contribute to any Benefit Plan
that is subject to Title IV of ERISA or (B) any unsatisfied liability under
Title IV of ERISA.
(iv) All material reports, returns and similar documents with respect
to all Benefit Plans required to be filed with any Governmental Entity or
distributed to any Benefit Plan participant have been duly and timely filed
or distributed. None of the Company or any of its subsidiaries has received
notice of, and to the Knowledge of the Company, there are no investigations
by any Governmental Entity with respect to, termination proceedings or
other claims (except claims for benefits payable in the normal operation of
the Benefit Plans), suits or proceedings against or involving any Benefit
Plan or asserting any rights or claims to benefits under any Benefit Plan
that could give rise to any material liability, and, to the Knowledge of
the Company, there are not any facts that could give rise to any material
liability in the event of any such investigation, claim, suit or
proceeding.
(v) All contributions, premiums and benefit payments under or in
connection with the Benefit Plans that are required to have been made as of
the date hereof in accordance with the terms of the Benefit Plans have been
timely made or have been reflected on the most recent consolidated balance
sheet filed or incorporated by reference into the Filed Company SEC
Documents. No Pension Plan has an "accumulated funding deficiency" (as such
term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived.
(vi) With respect to each Benefit Plan, (A) there has not occurred any
prohibited transaction in which the Company or any of its subsidiaries or
any employee of the Company or any of its subsidiaries has engaged that
could subject the Company or any of its subsidiaries or any such employee,
or, to the Knowledge of the Company, a trustee, administrator or other
fiduciary of any
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trust created under any Benefit Plan to any material tax or penalty on
prohibited transactions imposed by Section 4975 of ERISA or the sanctions
imposed under Title I of ERISA and (B) none of the Company, any of its
subsidiaries or to the Knowledge of the Company, any trustee, administrator
or other fiduciary of any Benefit Plan or any agent of any of the foregoing
has engaged in any transaction or acted in a manner that could, or failed
to act so as to, subject the Company, any of its subsidiaries or, to the
Knowledge of the Company, any trustee, administrator or other fiduciary to
any material liability for breach of fiduciary duty under ERISA or any
other applicable law. No Benefit Plan or related trust has been terminated,
nor has there been any "reportable event" (as that term is defined in
Section 4043 of ERISA) for which the 30-day reporting requirement has not
been waived with respect to any Pension Plan during the last five years,
and no notice of a reportable event will be required to be filed in
connection with the transactions contemplated hereby.
(vii) Section 4.01(m)(vii) of the Company Disclosure Schedule
discloses whether each Benefit Plan that is an employee welfare benefit
plan is (A) unfunded, (B) funded through a "welfare benefit fund", as such
term is defined in Section 419(e) of the Code, or other funding mechanism
or (C) insured. Each such employee welfare benefit plan may be amended or
terminated (including with respect to benefits provided to retirees and
other former employees) without material liability to the Company or any of
its subsidiaries at any time after the Effective Time. The Company and its
subsidiaries comply in all material respects with the applicable
requirements of Section 4980B(f) of the Code with respect to each Benefit
Plan that is a group health plan, as such term is defined in Section
5000(b)(1) of the Code. The Company does not have any obligations for
retiree health or life insurance benefits under any Benefit Plan or Benefit
Agreement that has a present value calculated as of the date of this
Agreement exceeding $100,000 in the aggregate.
(viii) None of the execution and delivery of this Agreement or any of
the other Transaction Agreements, the obtaining of the Stockholder Approval
or the consummation of the Merger or any other transaction contemplated by
this Agreement or any of the other Transaction Agreements (including as a
result of any termination of employment following the Effective Time) will
(A) entitle any current or former director, officer, employee or consultant
of the Company or any of its subsidiaries to severance or termination pay,
(B) accelerate the time of payment or vesting or trigger any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any Benefit Plan or Benefit Agreement or (C) result in any
breach or violation of, or a default under, any Benefit Plan or Benefit
Agreement. Section 4.01(m)(viii) of the Company Disclosure Schedule sets
forth, as of the date of this Agreement, the estimated aggregate amount of
all payments and the fair market value of all non-cash benefits (exclusive
of any benefits or payments related to Stock Options) that may become
payable or provided to employees, officers, directors or consultants of the
Company or any of its subsidiaries under the Benefit Agreements who as a
result of such individuals' employment being terminated immediately
following the Effective Time would individually receive such payments and
benefits in a total amount exceeding $100,000.
(ix) None of the Company nor any of its subsidiaries has any material
liability or obligations, including under or on account of a Benefit Plan,
arising out of the hiring of persons to provide services to the Company or
any of its subsidiaries and treating such persons as consultants or
independent contractors and not as employees of the Company or any of its
subsidiaries.
(n) No Excess Parachute Payments. Other than payments or benefits
that may be made or provided to the persons listed in Section 4.01(n) of
the Company Disclosure Schedule ("Primary Company Individuals"), no amount
or other entitlement or economic benefit that could be received (whether in
cash or property or the vesting of property) as a result of any transaction
contemplated by this Agreement or any of the other Transaction Agreements
(including as a result of termination of employment on or following the
Effective Time) by or for the benefit of any officer, director, employee or
consultant of the Company or any of its Affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any Benefit Plan, Benefit Agreement or otherwise
would be characterized as an "excess parachute payment" (as such
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term is defined in Section 280G(b)(1) of the Code). No disqualified
individual is entitled to receive any additional payment from the Company,
the Surviving Corporation or any other person (a "Parachute Gross Up
Payment") in the event that the excise tax required by Section 4999(a) of
the Code is imposed on such person. None of the Board of Directors of the
Company or any of its subsidiaries has granted to any officer, director,
employee or consultant of the Company or any of its subsidiaries any right
to receive any Parachute Gross Up Payment. Section 4.01(n) of the Company
Disclosure Schedule sets forth the estimated aggregate amount of "excess
parachute payments" that could be paid or provided to the Primary Company
Individuals under all Benefit Plans and Benefit Agreements as a result of
the Merger or the other transactions contemplated by this Agreement
(including as a result of any termination of employment on or following the
Effective Time).
(o) Taxes. (i) Each of the Company and its subsidiaries has timely
filed all material tax returns (as defined below in clause (xiii)) required
to be filed by it. Each of the Company and its subsidiaries has timely paid
or caused to be timely paid all material taxes due and payable with respect
to the taxable periods covered by such tax returns and all other material
taxes as are due, and the most recent financial statements contained in the
Filed Company SEC Documents reflect an adequate reserve (in addition to any
reserve for deferred taxes established to reflect timing differences
between book and tax income) for all material taxes payable by the Company
and its subsidiaries for all taxable periods and portions thereof through
the date of such financial statements.
(ii) No tax return of the Company or any of its subsidiaries is under
audit or examination by any taxing authority, and no notice of such an
audit or examination has been received by the Company or any of its
subsidiaries. There is no deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any material taxes due
and owing by the Company or any of its subsidiaries. Each deficiency
resulting from any completed audit or examination relating to material
taxes by any taxing authority has been timely paid. No issues relating to
material taxes were raised by the relevant taxing authority in any
completed audit or examination that could reasonably be expected to recur
in a later taxable period. The United States Federal income tax returns of
the Company and its subsidiaries have either been examined and settled with
the IRS or closed by virtue of the expiration of the applicable statute of
limitations for all years through 1997.
(iii) There is no currently effective agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any material taxes of the Company or its subsidiaries and no
power of attorney (other than powers of attorney authorizing employees of
the Company to act on behalf of the Company) with respect to any material
taxes has been executed or filed with any taxing authority.
(iv) No Liens for material taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
Liens for taxes not yet due.
(v) None of the Company or any of its subsidiaries will be required to
include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued (for purposes of the financial
statements of the Company included in the Filed Company SEC Documents) in a
prior taxable period but was not recognized for tax purposes in any prior
taxable period as a result of the installment method of accounting, the
completed contract method of accounting, the long-term contract method of
accounting, the cash method of accounting or Section 481 of the Code or
comparable provisions of any other, domestic or foreign (whether national,
Federal, state, provincial, local or otherwise) tax laws.
(vi) The Company and its subsidiaries have complied with all
applicable statutes, laws, ordinances, rules and regulations relating to
the withholding of taxes (including withholding of taxes pursuant to
Sections 1441, 1442, 3121 and 3402 of the Code and similar provisions under
any other domestic or foreign (whether national, federal, state,
provincial, local or otherwise) tax laws) and have, within the time and the
manner prescribed by law, withheld from and paid over to the proper
Governmental Entities all amounts required to be so withheld and paid over
under applicable laws in all material respects.
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(vii) Other than the distribution of Newco Common Stock in connection
with the transactions contemplated by this Agreement, none of the Company
or any of its subsidiaries has constituted either a "distributing
corporation" or a "controlled corporation" (in each case, within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355(e) of the Code (A) in
the two years prior to the date of this Agreement or (B) in a distribution
that could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(viii) The Company was not, at any time during the period specified in
Section 897(c)(1)(A)(ii) of the Code, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.
(ix) None of the Company or any of its subsidiaries has made with
respect to any of the Sunrise Assets (as defined in the Restructuring
Agreement), any consent under Section 341 of the Code.
(x) None of the Sunrise Assets is "tax exempt use property" within the
meaning of Section 168(h) of the Code.
(xi) None of the Sunrise Assets is a lease made pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954.
(xii) None of the Company or any of its subsidiaries has taken any
action, or failed to take any action, or has knowledge of any fact,
agreement, plan or other circumstance that could reasonably prevent the
Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
(xiii) As used in this Agreement, (A) "taxes" shall include (1) all
forms of taxation, whenever created or imposed, and whether domestic or
foreign, and whether imposed by a national, Federal, state, provincial,
local or other Governmental Entity, including all interest, penalties and
additions imposed with respect to such amounts, (2) liability for the
payment of any amounts of the type described in clause (1) as a result of
being a member of an affiliated, consolidated, combined or unitary group
and (3) liability for the payment of any amounts as a result of being party
to any tax sharing agreement or as a result of any express or implied
obligation to indemnify any other person with respect to the payment of any
amount described in clause (1) or (2) and (B) "tax returns" shall mean all
domestic or foreign (whether national, Federal, state, provincial, local or
otherwise) returns, declarations, statements, reports, schedules, forms and
information returns relating to taxes and any amended tax return.
(xiv) If all the transactions described in Section 4.1 of the
Restructuring Agreement (excluding (i) the transfer by Inverness Medical
Inc. ("IMI") of certain assets to Newco described in Section 4.1(m) of the
Restructuring Agreement and (ii) any payments or contributions contemplated
by Section 4.1(n) of the Restructuring Agreement) had occurred on December
31, 2000, the aggregate tax basis for federal income tax purposes that the
Company would have had in its Newco Common Stock immediately after such
transactions had occurred (the "Newco Basis") would have been not less than
the amount set forth in Section 4.01(o)(xiv) of the Company Disclosure
Schedule. For purposes of computing the Newco Basis, it has been assumed
that the fair market value of the stock of Can-Am Care Corporation held by
IMI at the time of the transaction described in Section 4.1(g) of the
Restructuring Agreement is equal to IMI's basis (for federal income tax
purposes) in such stock. The Company is not currently aware of any facts or
circumstances that would result in the Newco Basis being materially less
than the amount set forth in Section 4.01(o)(xiv) of the Company Disclosure
Schedule immediately after the transactions referred to in the second
preceding sentence if such transactions (excluding (i) the transfer by IMI
of certain assets to Newco described in Section 4.1(m) of the Restructuring
Agreement and (ii) any payments or contributions contemplated by Section
4.1(n) of the Restructuring Agreement) occurred on the Closing Date instead
of December 31, 2000, except for reductions occurring in the ordinary
course of business.
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(xv) As of December 31, 2000, the aggregate tax basis for federal
income tax purposes that IMI has in the assets that it holds that are used
or held for use primarily in the operation or conduct of the Women's Health
Business (as such term is defined in the Restructuring Agreement) is not
less than the amount set forth in Section 4.01(o)(xv) of the Company
Disclosure Schedule.
(xvi) The amount of "net operating loss carryovers" (as defined in
Section 172 of the Code) allowable to the Company as a deduction under
Section 172 of the Code as of January 1, 2001, after taking into account
any limitations to which such net operating loss carryovers are subject
under Section 382 or any other provision of the Code is not less than the
amount set forth in Section 4.01(o)(xvi) of the Company Disclosure
Schedule.
(p) Title to Properties. (i) Each of the Company and its subsidiaries
has good and marketable title to, or valid leasehold interests in, all its
material properties and assets except for such as are no longer used or
useful in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances that individually or in the
aggregate would not materially interfere with its ability to conduct its
business as presently conducted. All such material assets and properties,
other than assets and properties in which the Company or any of its
subsidiaries has a leasehold interest, are free and clear of all Liens,
except for Liens that individually or in the aggregate would not materially
interfere with the ability of the Company or any of its subsidiaries to
conduct their respective businesses as presently conducted.
(ii) Each of the Company and its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a
party and under which it is in occupancy, and all such leases are in full
force and effect in all material respects. Each of the Company and its
subsidiaries enjoys peaceful and undisturbed possession under all such
leases in all material respects.
(iii) At the Effective Time, the properties and assets of the Sunrise
Companies (collectively, the "Sunrise Assets") will compose all the
material assets of the Company and its subsidiaries primarily used or held
for use in the Sunrise Business (including such material assets primarily
used or held for use in the Sunrise Business in connection with research
and development activities and programs). Assuming that (i) the Sunrise
Companies (A) continue to employ all of the employees of the Sunrise
Companies set forth on Schedules 1.1(b) and 1.1(c) of the Restructuring
Agreement and (B) retain as consultants those current executives of the
Company who have entered into the Non-Competition Agreements and (ii) the
existing agreements, contracts and other relationships of the Sunrise
Companies remain in effect, at the Effective Time there will be no other
assets of the Company or any of its subsidiaries, other than the Sunrise
Assets and assets and services contemplated as of the date of this
Agreement to be provided pursuant to the Restructuring Agreement or the
Transition Services Agreement, that are material to the conduct of the
Sunrise Business as currently conducted. For the avoidance of doubt, the
Sunrise Assets shall include all Intellectual Property Rights (other than
trademarks, trademark applications, registrations and other rights, trade
names and trade dress, trade name rights, service marks, service mark
rights and service names which shall be allocated as set forth in the
Restructuring Agreement) related to the Diabetes Field (as defined in the
Post-Closing Covenants Agreement).
(q) Intellectual Property. (i) Each of the Company and its
subsidiaries owns, or is validly licensed or otherwise has the right to use
(without any obligation to make any material fixed or contingent payments,
including royalty payments) all patents, patent applications, trademarks,
trademark applications, registrations and other rights, trade names and
trade dress, trade name rights, domain names, service marks, service mark
rights, service names, copyrights, copyright applications and
registrations, technical information including engineering, production and
other designs, drawings, specifications, formulae, technology, computer and
electronic data processing programs and software, inventions, processes,
trade secrets, know-how, confidential information and other proprietary
property, rights and interests and Documentation (as defined in the License
Agreement)(collectively,
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"Intellectual Property Rights") which are material to the conduct of the
Sunrise Business free and clear of all material Liens.
(ii) No claims are pending or, to the Knowledge of the Company,
threatened that the Company or any of its subsidiaries is infringing
(including with respect to the manufacture, use or sale by the Company or
any of its subsidiaries of its commercial products) the rights of any
person with regard to any Intellectual Property Right. To the Knowledge of
the Company, no person or persons are infringing the rights of the Company
or any of its subsidiaries with respect to any Intellectual Property Right.
(iii) No claims are pending or, to the Knowledge of the Company,
threatened with regard to the Company's or any of its subsidiaries'
ownership of any of its Intellectual Property Rights.
(iv) Section 4.01(q)(iv) of the Company Disclosure Schedule sets
forth, as of the date hereof, a complete and accurate list of all patents,
trademarks and applications therefor owned by or licensed to the Company or
any of its subsidiaries. All patents and patent applications listed in
Section 4.01(q)(iv) of the Company Disclosure Schedule are owned by the
Company or its subsidiaries free and clear of all material Liens. The
patent applications listed in Section 4.01(q)(iv) of the Company Disclosure
Schedule are pending and have not been abandoned, and have been and
continue to be prosecuted by patent counsel. All patents, trademarks and
applications therefor owned by or licensed to the Company or any of its
subsidiaries have been duly registered and/or filed with or issued by each
appropriate Governmental Entity in the jurisdiction indicated in Section
4.01(q)(iv) of the Company Disclosure Schedule, all necessary affidavits of
continuing use have been filed, and all necessary maintenance fees have
been timely paid to continue all such rights in effect. None of the patents
listed in Section 4.01(q)(iv) of the Company Disclosure Schedule has
expired or has been declared invalid, in whole or in part, by any
Governmental Entity. There are no ongoing interferences, oppositions,
reissues, reexaminations or other proceedings involving any of the patents
or patent applications listed in Section 4.01(q)(iv) of the Company
Disclosure Schedule, including ex parte and post-grant proceedings, in the
United States Patent and Trademark Office or in any foreign patent office
or similar administrative agency. To the Knowledge of the Company, there
are no published patents, patent applications, articles or other prior art
references that are reasonably expected to invalidate any patent listed in
Section 4.01(q)(iv) of the Company Disclosure Schedule. To the Knowledge of
the Company, each of the patents and patent applications listed in Section
4.01(q)(iv) of the Company Disclosure Schedule properly identifies each and
every inventor of the claims thereof as determined in accordance with the
laws of the jurisdiction in which such patent is issued or such patent
application is pending. Each inventor named on the patents and patent
applications listed in Section 4.01(q)(iv) of the Company Disclosure
Schedule has executed an agreement assigning his, her or its entire right,
title and interest in and to such patent or patent application, and the
inventions embodied and claimed therein, to the Company or any of its
subsidiaries. Each such inventor has executed an agreement with the Company
or any of its subsidiaries obligating such inventor to assign the entire
right, title and interest in and to such patent or patent application, and
inventions embodied and claimed therein, to the Company or any of its
subsidiaries, and, to the Knowledge of the Company, no such inventor has
any contractual or other obligation that would preclude any such assignment
or otherwise conflict with the obligations of such inventor to the Company
or any of its subsidiaries under such agreement with the Company or such
subsidiary.
(v) Section 4.01(q)(v) of the Company Disclosure Schedule sets forth a
complete and accurate list of all options, rights, licenses or interests of
any kind relating to Intellectual Property granted to the Company or any of
its subsidiaries, other than software licenses for generally available
software, or granted by the Company or any of its subsidiaries to any other
person.
(vi) No material trade secret of the Company or any of its
subsidiaries has been published or disclosed by the Company or any of its
subsidiaries or, to the Knowledge of the Company, by any other person to
any person except pursuant to licenses or contracts requiring such other
persons to keep such trade secrets confidential.
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(r) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
at the Stockholders' Meeting or any adjournment or postponement thereof in
favor of adopting this Agreement (the "Stockholder Approval") is the only
vote of the holders of any class or series of the Company's capital stock
necessary to adopt this Agreement and approve the Merger. The affirmative
vote of the holders of the Company Common Stock is not necessary to approve
any transaction contemplated by this Agreement or the other Transaction
Agreements (other than the consummation of the Merger).
(s) State Takeover Statutes. The Board of Directors of the Company
has unanimously approved the terms of this Agreement and the other
Transaction Agreements and the consummation of the Merger, the
Restructuring and the other transactions contemplated hereby or thereby,
and such approval represents all the action necessary to render
inapplicable to this Agreement, the other Transaction Agreements, the
Merger, the Restructuring and the other transactions contemplated hereby or
thereby, the provisions of Section 203 of the DGCL to the extent, if any,
such Section would otherwise be applicable to this Agreement, the other
Transaction Agreements, the Merger, the Restructuring and the other
transactions contemplated hereby or thereby. To the Knowledge of the
Company, no other state takeover statute or similar statute or regulation
applies or purports to apply to this Agreement, the other Transaction
Agreements, the Merger, the Restructuring or the other transactions
contemplated hereby or thereby.
(t) Brokers. No broker, investment banker, financial advisor or other
person, other than ABN AMRO Incorporated, UBS Warburg LLC and Covington
Associates, the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement or the other Transaction Agreements based upon arrangements made
by or on behalf of the Company. The Company has delivered to Parent true
and complete copies of all agreements under which any such fees or expenses
are payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(u) Opinions of Financial Advisors. The Company has received the
opinions of ABN AMRO Incorporated and UBS Warburg LLC to the effect that,
as of the date thereof, the Closing Consideration is fair from a financial
point of view to the holders of shares of Company Common Stock, signed
copies of which opinions will be delivered to Parent promptly after receipt
thereof by the Company.
(v) Development, Distribution, Marketing, Supply and Manufacturing
Agreements. Section 4.01(v) of the Company Disclosure Schedule sets forth a
complete and accurate list of all material contracts or agreements (whether
or not in written form), other than contracts or agreements with Parent or
any of its Affiliates, to which the Company or any of its subsidiaries is a
party as of the date hereof or with respect to which the Company or any of
its subsidiaries has any ongoing obligations as of the date hereof, in each
case relating to the research, development, distribution, training, sale,
license, marketing and supply of components for, and manufacturing by third
parties of, the Company's or any of its subsidiaries' products or products
licensed by the Company or any of its subsidiaries. The Company has made
available to Parent true and complete copies of all material contracts or
agreements, other than contracts or agreements with Parent or any of its
Affiliates, to which the Company or any of its subsidiaries is a party
relating to the research, development, distribution, training, sale,
license, marketing and supply of components for, and manufacturing by third
parties of, the Company's or any of its subsidiaries' products or products
licensed by the Company or any of its subsidiaries.
(w) Regulatory Compliance. (i) As to each product subject to the FDCA
and the FDA regulations promulgated thereunder or similar Legal Provisions
in any foreign jurisdiction (each such product, a "Medical Device") that is
manufactured, tested, distributed and/or marketed by the Company or any of
its subsidiaries, such Medical Device is being manufactured, tested,
distributed and/or marketed by the Company or any of its subsidiaries in
compliance with all applicable
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requirements under FDCA, the FDA regulations promulgated thereunder, and
such similar Legal Provisions, including those relating to investigational
use, premarket clearance, good manufacturing practices, labeling,
advertising, record keeping, filing of reports and security, except for
failures to be in compliance which, individually or in the aggregate, have
not had and are not reasonably expected to have a Material Adverse Effect.
Excluding any notices given directly to Parent or any of its Affiliates,
none of the Company or any of its subsidiaries has received any notice or
other communication from the FDA or any other Governmental Entity (A)
contesting the premarket clearance or approval of, the uses of or the
labeling and promotion of any of the Company's products or (B) otherwise
alleging any violation of any Legal Provision by the Company or any of its
subsidiaries, which, in the case of clause (A) or (B), individually or in
the aggregate, has not had and is not reasonably expected to have a
Material Adverse Effect.
(ii) No Medical Devices have been recalled, withdrawn, suspended or
discontinued by the Company or any of its subsidiaries in the United States
or outside the United States (whether voluntarily or otherwise) by order of
the FDA or any other Governmental Entity. No proceedings in the United
States and outside of the United States of which the Company has Knowledge
(whether completed or pending) seeking the recall, withdrawal, suspension
or seizure of any Medical Devices are pending against the Company or any of
its subsidiaries, nor have any such proceedings been pending at any prior
time.
(iii) Except for instances that individually or in the aggregate have
not had and are not reasonably expected to have a Material Adverse Effect,
(A) none of the Company, any of its subsidiaries or, to the Knowledge of
the Company, any of their respective officers, employees or agents has made
an untrue statement of a material fact or fraudulent statement to the FDA
or any other Governmental Entity, failed to disclose a material fact
required to be disclosed to the FDA or any other Governmental Entity, or
committed an act, made a statement, or failed to make a statement that, at
the time such disclosure was made, could reasonably be expected to provide
a basis for the FDA to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities", set forth
in 56 Fed. Reg. 46191 (September 10, 1991) or for any other Governmental
Entity to invoke any similar policy; and (B) none of the Company, any of
its subsidiaries or, to the Knowledge of the Company, any of their
respective officers, employees or agents, has been convicted of any crime
or engaged in any conduct for which debarment is mandated by 21 U.S.C. sec.
335a(a) or any similar Legal Provision or authorized by 21 U.S.C. sec.
335a(b) or any similar Legal Provision.
(iv) Excluding any notices given directly to Parent or any of its
Affiliates, none of the Company or any of its subsidiaries has received any
written notice that the FDA or any other Governmental Entity has commenced,
or threatened to initiate, any action to withdraw its approval or request
the recall of any product of the Company or any of its subsidiaries, or
commenced, or threatened to initiate, any action to enjoin production at
any facility of the Company or any of its subsidiaries which has had or are
reasonably expected to have a Material Adverse Effect.
(x) Solvency of Newco. To the Company's Knowledge, immediately
following the Effective Time, and after giving effect to the Restructuring
and the Merger, (i) the fair value of the assets of each of Newco and its
subsidiaries will exceed its debts and liabilities, contingent or
otherwise, (ii) the present fair saleable value of the assets of each of
Newco and its subsidiaries will be greater than the amount that will be
required to pay its then existing debts and other liabilities, contingent
or otherwise, as such debts and other liabilities become absolute and
matured, (iii) each of Newco and its subsidiaries will be able to pay its
then existing debts and other liabilities, contingent or otherwise, as such
debts and liabilities become absolute and matured, and (iv) Newco and its
subsidiaries will not have an unreasonably small amount of capital with
which to conduct the businesses in which they will be engaged.
SECTION 4.02. Representations and Warranties of Parent and Sub. Except as
(i) disclosed or set forth in the Parent SEC Documents filed and publicly
available prior to the date of this Agreement (the
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"Filed Parent SEC Documents") or (ii) disclosed or set forth on the disclosure
schedule (with specific reference to the particular subsection of this Agreement
to which the information set forth in such disclosure schedule relates;
provided, however, that an item included on the disclosure schedule with respect
to any subsection of this Section 4.02 shall be deemed to relate to each other
subsection of this Section 4.02 to the extent such relationship is obvious)
delivered by Parent to the Company prior to the execution of this Agreement (the
"Parent Disclosure Schedule"), Parent and Sub represent and warrant to the
Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has all
requisite corporate power and authority to carry on its business as now
being conducted. Each of Parent and Sub is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed individually
or in the aggregate has not had and is not reasonably expected to have a
Parent Material Adverse Effect. Parent has made available to the Company
complete and correct copies of its Restated Certificate of Incorporation
and By-laws and the Certificate of Incorporation and By-laws of Sub, in
each case as amended to the date hereof.
(b) Authority; Noncontravention. Each of Parent and Sub has the
requisite power and authority to enter into each Transaction Agreement to
which it is or will be a party and to consummate the transactions
contemplated thereby. The execution and delivery of each Transaction
Agreement to which it is or will be a party and the consummation of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub and no other
corporate proceedings on the part of Parent or Sub are necessary to
authorize any such Transaction Agreement or to consummate the transactions
contemplated thereby. All outstanding shares of Parent Common Stock are,
and all shares of Parent Common Stock which may be issued pursuant to this
Agreement shall when issued be, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. This Agreement has
been duly executed and delivered by Parent and Sub, and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Parent and Sub, enforceable against Parent
and Sub, in accordance with its terms. Each Transaction Agreement (other
than this Agreement) to which Parent will be a party will, when executed
and delivered by Parent, and, assuming the due authorization, execution and
delivery by each of the other parties thereto, constitute a legal, valid
and binding obligation of Parent, enforceable against such entity in
accordance with its terms. The execution and delivery by Parent of each
Transaction Agreement to which it is a party does not, and the consummation
of the Merger and the other transactions contemplated thereby and
compliance with the provisions thereof will not, conflict with, or result
in any violation or breach of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Parent or Sub under (i) the Restated Certificate of Incorporation
or By-laws of Parent or the Certificate of Incorporation or By-laws of Sub,
(ii) any Contract to which Parent or Sub is a party or any of their
respective properties or other assets is subject or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, any (A) statute, law, ordinance, rule or regulation or (B) order,
writ, injunction, decree, judgment or stipulation, in each case applicable
to Parent or Sub or their respective properties or other assets, other
than, in the case of clauses (ii) and (iii), any such conflicts,
violations, breaches, defaults, rights, losses or Liens that individually
or in the aggregate have not had and are not reasonably expected to have a
Parent Material Adverse Effect. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration
or filings with, any Governmental Entity is required by or with respect to
Parent or Sub in connection with the execution and delivery of this
Agreement or the other Transaction Agreements by Parent and Sub or the
consummation by Parent and Sub of the Merger or the other transactions
contemplated hereby or thereby, except for (1) the filing of a premerger
notification and report form by Parent under the
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HSR Act or any other applicable competition, merger control, antitrust or
similar law or regulation, (2) the filing with the SEC of (A) a
registration statement on Form S-4 by Parent in connection with the
distribution of Parent Common Stock in the Merger (as amended or
supplemented from time to time, the "Parent Form S-4") and (B) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated by this Agreement, (3) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (4) filings with the
NYSE and (5) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made, individually or in the aggregate, has not had and are not
reasonably expected to have a Parent Material Adverse Effect.
(c) Parent SEC Documents. Parent has filed all reports, schedules,
forms, statements and other documents (including exhibits and other
information incorporated therein) with the SEC required to be filed by
Parent since January 1, 1999 (together with all voluntary filings made by
Parent with the SEC during such period, the "Parent SEC Documents"). As of
their respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Parent SEC Documents, and except to the
extent that information contained in any Parent SEC Document has been
revised, superseded or updated by a later-filed Parent SEC Document, none
of the Parent SEC Documents contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present the financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the most recent financial statements
included in the Filed Parent SEC Documents and except for liabilities or
obligations incurred in connection with this Agreement or any of the other
Transaction Agreements, neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, have had
or are reasonably expected to have a Material Adverse Effect.
(d) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in (i) each of the Parent Form S-4 and the Newco Form S-4 will,
at the time it is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement will, at the date it is
first mailed to the Company's stockholders and at the time of the
Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, except that no representation or
warranty is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the
Company specifically for inclusion or incorporation by reference in the
Parent Form S-4. The Parent Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations thereunder.
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(e) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby.
(f) Tax Matters. Neither Parent, Sub nor any Affiliate of Parent has
taken or agreed to take any action or knows of any fact or circumstance
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(g) Parent Shareholder Approval. This Agreement and the transactions
contemplated hereby, including the issuance of shares of Parent Common
Stock pursuant to Article II hereof, do not require the approval of the
holders of any shares of capital stock of Parent.
(h) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business. (a) Conduct of Business by the
Company. During the period from the date of this Agreement to the Effective
Time, except (x) as set forth in Section 5.01(a) of the Company Disclosure
Schedule, (y) as specifically permitted or contemplated by any other provision
of this Agreement or the other Transaction Agreements or (z) to the extent
Parent shall otherwise consent in advance in writing, the Company shall, and
shall cause its subsidiaries to, carry on their respective businesses in the
ordinary course consistent with past practice (including (x) in respect of
research and development activities and programs and (y) making capital
expenditures with respect to the Sunrise Companies as described in the Company
Capital Budget) and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use all
commercially reasonable efforts to preserve intact their respective current
business organizations, keep available the services of their respective current
officers and employees and preserve the relationships with their respective
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them with the intention that their respective goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, the Company agrees that, except for the
transactions specifically permitted or contemplated by the Transaction
Agreements or as set forth in Section 5.01(a) of the Company Disclosure
Schedule, it shall not, and shall not permit any of its subsidiaries to, without
Parent's prior written consent:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property), in respect of, any of
its capital stock, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (z)
purchase, redeem or otherwise acquire any shares of its capital stock or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(ii) issue, deliver, sell, grant, pledge or otherwise encumber or
subject to any Lien any shares of its capital stock, any other voting
securities or equity interests or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities,
equity interests or convertible securities, or any "phantom" stock,
"phantom" stock rights, stock appreciation rights or stock based
performance units (other than (x) the issuance of shares of Company Common
Stock upon the exercise of Stock Options, Warrants or rights under the
Company ESPP, in each case, outstanding on the date hereof and in
accordance with their terms on the date hereof and (y) the issuance of
Stock Options (and shares of Company Common Stock thereunder) to any
employee of the Company hired after the date of this Agreement in
connection with such hiring, provided that such issuance is in the ordinary
course of business consistent with past practice and that such Stock
Options have an exercise price per share at least equal to the market value
of the Company Common Stock on the date of
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issuance (and with other material terms no more favorable to such employee
than the terms of the Stock Options outstanding on the date of this
Agreement that were issued under similar circumstances));
(iii) amend or propose to amend the Company Certificate or the Company
By-laws or the certificate of incorporation or by-laws (or similar
organizational documents) of any of the Company's subsidiaries;
(iv) directly or indirectly acquire (x) by merging or consolidating
with, or by purchasing assets of, or by any other manner, any person or
division, business or equity interest of any person or (y) any assets that,
individually, have a purchase price in excess of $50,000 or, in the
aggregate, have a purchase price in excess of $250,000, except for
purchases of raw materials, components or supplies in the ordinary course
of business consistent with past practice;
(v) sell, lease, license, mortgage, sell and leaseback or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or other assets or any interests therein (including
securitizations), except sales of inventory and used equipment in the
ordinary course of business consistent with past practice;
(vi) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice not to exceed $250,000 at
any time outstanding or (y) make any loans, advances or capital
contributions to, or investments in, any other person, other than to
employees in the ordinary course of business consistent with past practice;
(vii) except for projects specifically identified in the Company's
budget for 2001 (the "Company Capital Budget"), a true and complete copy of
which has been provided to Parent, make any new capital expenditure or
expenditures which, individually, is in excess of $50,000 or, in the
aggregate, are in excess of $250,000;
(viii) (w) pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities disclosed,
reflected or reserved against in the most recent audited financial
statements (or the notes thereto) of the Company included in the Filed
Company SEC Documents or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice, (x) cancel any indebtedness for borrowed money, (y) waive or
assign any claims or rights of substantial value or (z) waive any benefits
of, or agree to modify in any respect, any confidentiality, standstill or
similar agreements to which the Company or any of the other Sunrise
Companies is a party;
(ix) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which the Company or any of its subsidiaries is a party or waive, release
or assign any material rights or claims thereunder;
(x) enter into any contracts, agreements, binding arrangements or
understandings relating to the supply of components for the research,
development, distribution, manufacturing and assembling by third parties
of, and the training, license and marketing of, products of the Company or
any of its subsidiaries or products licensed by the Company or any of its
subsidiaries, other than pursuant to any such contracts, agreements,
arrangements or understandings currently in place (that have been disclosed
in writing to Parent prior to the date hereof) in accordance with their
terms as of the date hereof;
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(xi) except as otherwise contemplated by this Agreement or as required
to comply with applicable law, (A) adopt, enter into, terminate or amend in
any material respect any collective bargaining agreement, Benefit Plan or
Benefit Agreement, (B) increase in any manner the compensation, bonus or
fringe or other benefits of, any current or former officer, director,
employee or consultant of the Company or any of its subsidiaries (subject
to and except as set forth in Section 5.01(a)(xi) of the Company Disclosure
Schedule, except for normal increases in cash compensation in the ordinary
course of business consistent with past practice), (C) pay any benefit or
amount not required under any Benefit Plan or Benefit Agreement or any
other benefit plan or arrangement of the Company or any of its subsidiaries
as in effect on the date of this Agreement, (D) increase in any manner the
severance or termination pay of any current or former director, officer,
employee or consultant of the Company or any of its subsidiaries, (E) make
any material determinations not in the ordinary course of business
consistent with past practice, under any collective bargaining agreement,
Benefit Plan or Benefit Agreement, (F) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit
Plan (including the grant of stock options, "phantom" stock, stock
appreciation rights, "phantom" stock rights, stock based or stock related
awards, performance units or restricted stock or the removal of existing
restrictions in any Benefit Plans or agreements or awards made thereunder),
except as permitted by Section 5.01(a)(ii) (G) amend or modify any Stock
Option or Warrant, except as specifically provided in Section 6.04 hereof
or in the Restructuring Agreement, (H) take any action to fund or in any
other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or Benefit Plan, (I) take any
action to accelerate the vesting or payment of any compensation or benefit
under any Benefit Plan or Benefit Agreement, other than non-discretionary
actions required by the terms of any existing Benefit Plans or Benefit
Agreement as in effect on the date of this Agreement, or (J) change any
actuarial or other assumption used to calculate funding obligations with
respect to any Pension Plan or change the manner in which contributions to
any Pension Plan are made or the basis on which such contributions are
determined;
(xii) except as otherwise contemplated by this Agreement, enter into
any Contract of a nature that would be required to be filed as an exhibit
to Form 10-K under the Exchange Act, other than contracts for the sale of
the Company's products in the ordinary course of business consistent with
past practice;
(xiii) revalue any assets of the Company or any of its subsidiaries
or, except as required by GAAP, make any change in accounting methods,
principles or practices;
(xiv) except in the ordinary course of business consistent with past
practice, extend, accelerate, discount, compromise or settle any account
payable or account receivable;
(xv) sell, transfer or license to any person or otherwise extend,
amend or modify any rights to the Intellectual Property Rights of the
Company or any of its subsidiaries; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Other Actions. The Company, Parent and Sub shall not take any action
that would, or that are reasonably expected to, result in (i) any of the
representations and warranties of such party set forth in any Transaction
Agreement that are qualified by materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Split-Off and the Merger
set forth in Article VII not being satisfied.
(c) Advice of Changes; Filings. The Company and Parent shall promptly
advise the other party orally and in writing of (i) any breach of its
representations or warranties that would give rise to the failure of a condition
set forth in Section 7.02(a) or 7.03(a), as the case may be, or (ii) the failure
of it (and, in the case of Parent, Sub) to comply with or satisfy in any
material respect any covenant or agreement to be complied with or satisfied by
it under this Agreement at or prior to the Closing Date; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the
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parties under this Agreement; provided, further, however, that the failure to
provide such notification shall not give rise to a failure of a condition set
forth in Section 7.02(b) or 7.03(b), if any such breach or failure described in
clauses (i) or (ii) above shall have been cured on or prior to the Effective
Time or no longer exists immediately prior to the Effective Time. The Company
and Parent shall promptly provide the other copies of all filings made by such
party or its subsidiaries with any Governmental Entity in connection with any
Transaction Agreement and the transactions contemplated thereby, other than the
portions of such filings that include confidential information not directly
related to the transactions contemplated by the Transaction Agreements.
(d) Certain Tax Matters. From the date hereof until the Effective Time,
(i) the Company and its subsidiaries (including Newco) will file all material
tax returns and reports ("Post-Signing Returns") required to be filed by such
entity (after taking into account any applicable extensions); (ii) the Company
and its subsidiaries (including Newco) will timely pay all material taxes due
and payable with respect to the taxable periods covered by such Post-Signing
Returns that are so filed; (iii) the Company and its subsidiaries (including
Newco) will make reasonable provision for all taxes payable by the Company and
its subsidiaries (including Newco) for which no Post-Signing Return is due prior
to the Effective Time; (iv) the Company will promptly notify Parent of any
action, suit, proceeding, claim or audit (collectively, "Actions") pending
against or with respect to the Company or any of its subsidiaries (including
Newco) in respect of any material tax and will not settle or compromise any such
Action without Parent's prior written consent, which consent shall not be
unreasonably withheld; and (v) the Company will not make any material tax
election without Parent's prior written consent, which consent shall not be
unreasonably withheld.
SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of the Company or any of its subsidiaries or any investment
banker, financial advisor, attorney, accountant or other advisor, agent or
representative retained by the Company or any of its subsidiaries (collectively,
"Representatives") to, directly or indirectly through another person (i)
solicit, initiate or encourage, or take any other action designed to, or which
could reasonably be expected to, facilitate, any inquiries or the making of any
proposal that constitutes or could reasonably be expected to lead to a Takeover
Proposal or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information, or otherwise cooperate in any way with,
any Takeover Proposal. Without limiting the foregoing, it is agreed that any
violation of the restrictions set forth in the preceding sentence by any
Representative of the Company, whether or not such person is purporting to act
on behalf of the Company or otherwise, shall be a breach of this Section 5.02(a)
by the Company. The Company shall immediately cease and cause to be terminated
all existing discussions or negotiations with any person conducted heretofore
with respect to any Takeover Proposal and request the prompt return or
destruction of all confidential information previously furnished.
Notwithstanding the foregoing, at any time prior to obtaining the Stockholder
Approval, in response to a bona fide written Takeover Proposal that the Board of
Directors of the Company determines in good faith (after consultation with
outside counsel and a financial advisor of nationally recognized reputation)
constitutes or is reasonably likely to lead to a Superior Proposal, and which
Takeover Proposal was unsolicited and made after the date hereof and did not
otherwise result from a breach of this Section 5.02(a), the Company may, if its
Board of Directors determines in good faith (after consultation with outside
counsel) that it is required to do so in order to comply with its fiduciary
duties to the Company's stockholders under applicable law, and subject to
compliance with Section 5.02(c) and after giving Parent written notice of such
determination, (x) furnish information with respect to the Company to the person
making such Takeover Proposal (and its Representatives) pursuant to a customary
confidentiality agreement and (y) participate in discussions or negotiations
with the person making such Takeover Proposal (and its Representatives)
regarding such Takeover Proposal.
The term "Takeover Proposal" means any inquiry, proposal or offer from any
person relating to, or that is reasonably likely to lead to, any direct or
indirect acquisition or purchase, in one transaction or a series of
transactions, of assets or businesses of the Company or its subsidiaries that
constitute 20% or more of the revenues, net income, or the assets of the Company
and its subsidiaries, taken as a whole, or
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20% or more of the Company Common Stock, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 20% or more of the
Company Common Stock, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution, joint venture, binding share
exchange or similar transaction involving the Company pursuant to which any
person or the shareholders of any person would own 20% or more of the Company or
any resulting parent company of the Company, other than the transactions
contemplated by this Agreement or the other Transaction Agreements.
The term "Superior Proposal" means any bona fide offer made by a third
party that if consummated would result in such person (or its shareholders)
owning, directly or indirectly, all or substantially all the shares of Company
Common Stock then outstanding (or of the surviving entity in a merger or the
direct or indirect parent of the surviving entity in a merger) or all or
substantially all the assets of the Company and its subsidiaries, taken as a
whole, which the Board of Directors of the Company determines in good faith
(after consultation with a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders from a financial
point of view than the Merger (taking into account all the terms and conditions
of such proposal (including the financial terms thereof and the likelihood of
such proposal being completed) and this Agreement (including any changes to the
financial terms of this Agreement proposed by Parent in response to such offer
or otherwise)).
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i)(A) withdraw (or modify in a manner adverse to Parent), or propose to
withdraw (or modify in a manner adverse to Parent), the approval,
recommendation, or declaration of advisability by such Board of Directors or any
such committee thereof of this Agreement or the Merger, or (B) recommend, adopt
or approve, or propose publicly to recommend, adopt or approve, any Takeover
Proposal (any action described in this clause (i) being referred to as a
"Company Adverse Recommendation Change") or (ii) approve or recommend, or
propose to approve or recommend, or allow the Company to execute or enter into,
any letter of intent, memorandum of understanding, agreement in principle,
merger agreement, acquisition agreement, option agreement, joint venture
agreement, partnership agreement or other similar agreement (each, an
"Acquisition Agreement") constituting or related to, or that is intended to or
is reasonably likely to lead to, any Takeover Proposal (other than a
confidentiality agreement referred to in Section 5.02(a)). Notwithstanding the
foregoing, at any time prior to obtaining the Stockholder Approval, the Board of
Directors of the Company may, in response to a Superior Proposal that was
unsolicited and made after the date hereof and that did not otherwise result
from a breach of this Section 5.02, if such Board of Directors determines in
good faith (after consultation with outside counsel) that it is required to do
so in order to comply with its fiduciary duties to the Company's stockholders
under applicable law (i) make a Company Adverse Recommendation Change and/or
(ii) cause the Company to terminate this Agreement(and concurrently with or
after such termination, if it so chooses, cause the Company to enter into any
Acquisition Agreement with respect to any Superior Proposal); provided, however,
that (i) no Company Adverse Recommendation Change may be made and (ii) no such
termination by the Company may be made, until after the fourth business day
following Parent's receipt of written notice (a "Notice of Adverse
Recommendation") from the Company advising Parent that the Board of Directors of
the Company intends to make a Company Adverse Recommendation Change and/or
terminate this Agreement pursuant to this Section 5.02(b) and specifying the
terms and conditions of such Superior Proposal (it being understood and agreed
that any amendment to the financial terms or any other material term of such
Superior Proposal shall require a new Notice of Adverse Recommendation and a new
four business day period). In determining whether to make a Company Adverse
Recommendation Change or to terminate this Agreement pursuant to this Section
5.02(b), the Board of Directors of the Company shall take into account any
changes to the financial terms of this Agreement proposed by Parent in response
to a Notice of Adverse Recommendation or otherwise.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 5.02, the Company shall promptly advise Parent
orally and in writing of any Takeover Proposal, the material terms and
conditions of any such Takeover Proposal (including any material changes
thereto) and the identity of the person making any such Takeover Proposal. The
Company shall (i) keep Parent
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fully informed of the status and material details (including any change to the
material terms thereof) of any such Takeover Proposal and (ii) provide to Parent
as soon as practicable after receipt or delivery thereof with copies of all
correspondence and other written material sent or provided to the Company from
any person in connection with any Takeover Proposal or sent or provided by the
Company to any person in connection with any Takeover Proposal, except for such
correspondence and materials previously provided to Parent by the Company.
(d) Nothing contained in this Section 5.02 shall prohibit the Company from
(x) taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or
(y) making any required disclosure to the Company's stockholders if, in the good
faith judgment of the Board of Directors of the Company (after consultation with
outside counsel) failure so to disclose would constitute a violation of
applicable law; provided, however, that in no event shall the Company or its
Board of Directors or any committee thereof take, or agree or resolve to take,
any action prohibited by Section 5.02(b).
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Preparation of the Parent Form S-4, the Newco Form S-4, the
Form 8-A and the Parent Proxy Statement; Stockholders' Meeting. (a) As soon as
practicable following the date of this Agreement, the Company and Parent shall
prepare and the Company shall file with the SEC the Proxy Statement, the Newco
Form S-4 and the Form 8-A and Parent shall prepare and file with the SEC the
Parent Form S-4. The Proxy Statement will be included as a prospectus in the
Newco Form S-4 and the Parent Form S-4. Each of the Company and Parent shall use
its commercially reasonable efforts to have the Newco Form S-4 and the Parent
Form S-4 declared effective under the Securities Act as promptly as practicable
after such filing. The Company shall use its commercially reasonable efforts to
cause the Proxy Statement to be mailed to the Company's stockholders as promptly
as practicable after the Newco Form S-4 and the Parent Form S-4 are declared
effective under the Securities Act. Each of Parent and the Company shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with, in the case of Parent, the issuance of Parent Common Stock in
the Merger and, in the case of the Company, the issuance of Newco Common Stock
in the Split-Off. The Company shall furnish all information concerning the
Company and the holders of Company Common Stock, and Parent shall furnish all
information concerning Parent, as may be reasonably requested in connection with
any such action and the preparation, filing and distribution of the Proxy
Statement, the Newco Form S-4 and the Parent Form S-4. No filing of, or
amendment or supplement to, the Parent S-4 will be made by Parent, and no filing
of, or amendment or supplement to, the Newco S-4 or the Proxy Statement will be
made by the Company, in each case without providing the other party a reasonable
opportunity to review and comment thereon. If at any time prior to the Effective
Time any information relating to the Company or Parent, or any of their
respective Affiliates, officers or directors, should be discovered by the
Company or Parent which should be set forth in an amendment or supplement to any
of the Parent Form S-4, the Newco Form S-4 or the Proxy Statement, so that any
such document would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of the Company. The parties shall notify each other promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Statement, the Newco
Form S-4, the Form 8-A or the Parent Form S-4 or for additional information and
shall supply each other with copies of all correspondence between it or any of
its Representatives, on the one hand, and the SEC or its staff on the other
hand, with respect to the Proxy Statement, the Newco Form S-4, the Parent
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Form S-4, the Form 8-A, the Merger or the other transactions contemplated by the
Transaction Agreements.
(b) The Company shall, as soon as practicable following the date of this
Agreement (taking into account any delays reasonably required as a result of the
occurrence of any event described in the last sentence of this clause (b)),
establish a record date following the date of this Agreement for, duly call,
give notice of, convene and hold a meeting of its stockholders (the
"Stockholders' Meeting") solely for the purpose of obtaining the Stockholder
Approval. Subject to Section 5.02(b), the Company shall, through its Board of
Directors, recommend to its stockholders approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby (and, if
required, the other Transaction Agreements and the transactions contemplated
thereby) and shall include such recommendation in the Proxy Statement. Without
limiting the generality of the foregoing, the Company's obligations pursuant to
the first sentence of this Section 6.01(b) shall not be affected by (i) the
commencement, public proposal, public disclosure or communication to the Company
of any Takeover Proposal or (ii) the withdrawal or modification by the Board of
Directors of the Company or any committee thereof of such Board of Directors' or
such committee's approval or recommendation of the Merger or this Agreement.
SECTION 6.02. Access to Information; Confidentiality. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, accountants, counsel, financial advisors and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, personnel and records relating to the Sunrise Business and, during
such period, the Company shall, and shall cause each of its subsidiaries to,
furnish reasonably promptly to Parent (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws, (b) a copy of
all of the working papers of the Company, its subsidiaries and its independent
auditors relating to the determination and calculation of the tax basis in the
Newco Assets (subject, in the case of such independent auditors, to the
execution and delivery by Parent of a reasonable and customary release and
indemnity agreement requested by such independent auditors) and (c) all other
information relating to the Sunrise Business as Parent may reasonably request.
Except for disclosures expressly permitted by the terms of the Confidentiality
Agreement dated as of April 18, 2001, between Parent and the Company (as it may
be amended from time to time, the "Confidentiality Agreement"), Parent shall
hold, and shall cause it officers, employees, accountants, counsel, financial
advisors and other representatives and controlled Affiliates to hold, all
information received from the Company, directly or indirectly, in confidence in
accordance with the Confidentiality Agreement. No investigation pursuant to this
Section 6.02 or information provided or received by any party hereto pursuant to
this Agreement will affect any of the representations or warranties of the
parties hereto contained in this Agreement or the conditions hereunder to the
obligations of the parties hereto.
SECTION 6.03. Commercially Reasonable Efforts. Upon the terms and subject
to the conditions set forth in this Agreement, each of the parties agrees to use
its commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger, the
Restructuring and the other transactions contemplated by this Agreement and the
other Transaction Agreements, including using commercially reasonable efforts to
accomplish the following: (i) the taking of all acts necessary to cause the
conditions to Closing to be satisfied as promptly as practicable, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by any Governmental Entity, (iii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iv) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the other Transaction
Agreements, or the consummation of the transactions contemplated hereby or
thereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution and delivery of any additional
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instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the other Transaction
Agreements. In addition, the Company shall assist Parent with Parent's
evaluation of the transactions to be completed in order to effect the
Restructuring. In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (1) take all action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, the other Transaction Agreements, the Merger or
any of the other transactions contemplated hereby or thereby and (2) if any
state takeover statute or similar statute becomes applicable to this Agreement,
the other Transaction Agreements, the Merger or any other transaction
contemplated hereby or thereby, take all action necessary to ensure that the
Merger, the Restructuring and the other transactions contemplated by this
Agreement and the other Transaction Agreements may be consummated as promptly as
practicable on the terms contemplated hereby or thereby and otherwise to
minimize the effect of such statute or regulation on this Agreement, the other
Transaction Agreement, the Merger, the Restructuring and the other transactions
contemplated hereby or thereby. Nothing in this Agreement shall be deemed to
require Parent to agree to, or proffer to, divest or hold separate any assets or
any portion of any business of Parent or its subsidiaries or the Sunrise
Business.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.03(a) to obtain all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities necessary to
consummate the transactions contemplated hereby under the HSR Act or any other
applicable competition, merger control, antitrust or similar law or regulation,
use commercially reasonable efforts to (i) cooperate with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, and (ii) keep the other party reasonably informed of communications
received by such party from, or given by such party to, the Antitrust Division
of the Department of Justice, the Federal Trade Commission or any other
Governmental Entity and of material communications received or given in
connection with proceedings by a private party, in each case regarding any of
the transactions contemplated hereby.
SECTION 6.04. Sunrise Options; Sunrise Warrants. (a) Prior to the
Effective Time, and in addition to and after giving effect to the conversion of
the Stock Options into Sunrise Options and Newco Options (each as defined in the
Restructuring Agreement) and the amendment of each such option as and to the
extent set forth in the Restructuring Agreement, the Board of Directors of the
Company (or, if appropriate, any committee of the Board of Directors of the
Company administering the Company Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Sunrise Options granted under
the Company Stock Plans, whether or not exercisable, as necessary to
provide that, at the Effective Time, each Sunrise Option outstanding
immediately prior to the Effective Time shall be amended and converted into
an option to acquire, on the same terms and conditions as were applicable
under the Sunrise Option, the number of shares of Parent Common Stock
(rounded down to the nearest whole share) determined by multiplying the
number of shares of Company Common Stock subject to such Sunrise Option by
the Parent Exchange Ratio, at a price per share of Parent Common Stock
equal to (A) the aggregate exercise price for the shares of Company Common
Stock otherwise purchasable pursuant to such Sunrise Option divided by (B)
the aggregate number of shares of Parent Common Stock deemed purchasable
pursuant to such Sunrise Option (each, as so adjusted, an "Adjusted
Option"); provided that such exercise price shall be rounded up to the
nearest whole cent; and
(ii) make such other changes to the Company Stock Plans with respect
to the Sunrise Options and to the agreements evidencing the grants with
respect to Sunrise Options that are Non-Plan Stock Options (the "Non-Plan
Stock Option Agreements") as Parent and the Company may agree are
appropriate to give effect to the Split-Off and the Merger.
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(b) The adjustments provided herein with respect to any Sunrise Options
held by Sunrise Employees that are "incentive stock options" as defined in
Section 422 of the Code shall be and are intended to be effected in a manner
which is consistent with Section 424(a) of the Code.
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Parent shall assume the Company Stock Plans and
the obligations of the Company under all Sunrise Options, with the result that
all obligations of the Company (including under the applicable Non-Plan Stock
Option Agreements) with respect to Sunrise Options outstanding at the Effective
Time, shall be obligations of Parent following the Effective Time.
(d) As soon as practicable but in any event within five business days
following the Effective Time, Parent shall prepare and file with the SEC a
registration statement on Form S-8 (or another appropriate form) registering a
number of shares of Parent Common Stock equal to the number of shares of Parent
Common Stock subject to the Adjusted Options. Such registration statement shall
be kept effective (and the current status of the prospectus or prospectuses
required thereby shall be maintained) at least for so long as any Adjusted
Options or any unsettled awards granted under the Company Stock Plans after the
Effective Time, may remain outstanding.
(e) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Sunrise Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Stock Plans and the
agreements evidencing the grants of such Sunrise Options and that such Sunrise
Options and agreements have been assumed by Parent and shall continue in effect
on the same terms and conditions (subject to the adjustments required by this
Section 6.04 after giving effect to the Merger).
(f) Except as otherwise contemplated by this Section 6.04 and by Section
6.7 of the Restructuring Agreement, and except to the extent required under the
respective terms of the Sunrise Options, all restrictions or limitations on
transfer and vesting with respect to Sunrise Options awarded under the Company
Stock Plans or any other plan, program or arrangement of the Company or any of
its Subsidiaries, to the extent that such restrictions or limitations shall not
have already lapsed, shall remain in full force and effect with respect to such
Sunrise Options after giving effect to the Merger and the assumption by Parent
as set forth above.
(g) At the Effective Time and after giving effect to the conversion of
warrants pursuant to Section 7.1 of the Restructuring Agreement, each Sunrise
Warrant outstanding immediately prior to the Effective Time shall be amended and
converted into a warrant to acquire, on the same terms and conditions as were
applicable under the Sunrise Warrant, the number of shares of Parent Common
Stock (rounded down to the nearest whole share) determined by multiplying the
number of shares of Company Common Stock subject to such Sunrise Warrant by the
Parent Exchange Ratio, at a price per share of Parent Common Stock equal to (A)
the aggregate exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Sunrise Warrant divided by (B) the aggregate number
of shares of Parent Common Stock deemed purchasable pursuant to such Sunrise
Warrant (each, as so amended, the "Adjusted Warrants"), provided that such
exercise price shall be rounded up to the nearest whole cent. The Company shall
use its commercially reasonable efforts to cause each Warrant to be amended
prior to the Effective Time so as to comply with this Section.
SECTION 6.05. Indemnification, Exculpation and Insurance. (a) Parent
agrees that all of the Company's obligations with respect to rights to
indemnification, advancement of expenses and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors or officers of the Company as provided
in the Company Certificate, the Company By-laws or any indemnification agreement
between such directors or officers and the Company (in each case, as in effect
on the date hereof) shall be assumed by the Surviving Corporation in the Merger,
without further action, as of the Effective Time and shall survive the Merger
and shall continue in full force and effect in accordance with their terms for
not less than six years, and Parent shall cause the Surviving Corporation to
fulfill such indemnification obligations. Without limiting the obligations of
Parent and the Surviving Corporation pursuant to the foregoing sentence, Parent
will cause the Surviving Corporation to reimburse each current director of the
Company for such person's reasonable expenses
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(including legal fees and expenses) incurred in connection with the
investigation and defense of any claim arising out of or related to the
transactions contemplated hereby or by the Transaction Agreements to the extent
(i) such fees and expenses are not paid pursuant to the Company's insurance
coverage or statutory indemnification obligations within 30 days after the
receipt by the Surviving Corporation of an invoice therefor and (ii) it is
permitted by Delaware law for a party to reimburse another for such expenses (as
opposed to the more limiting provisions of Section 145 of the DGCL applicable to
the indemnification of directors by a corporation). If such insurance coverage
or statutory indemnification is paid to such person after reimbursement is made
pursuant to this paragraph 6.05(a), the director receiving such reimbursement
shall promptly repay the Company therefor to the extent payment therefor has
been made to the director under such insurance coverage or statutory
indemnification.
(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, Parent shall cause proper provision
to be made so that the successors and assigns of the Surviving Corporation shall
expressly assume the obligations set forth in this Section 6.05. In the event
the Surviving Corporation transfers any material portion of its assets, in a
single transaction or in a series of transactions, Parent will either guarantee
the indemnification and reimbursement obligations referred to in Section 6.05(a)
or take such other action to insure the ability of the Surviving Corporation,
legal and financial, to satisfy such indemnification obligations will not be
diminished in any material respect.
(c) For six years after the Effective Time, Parent shall maintain in effect
the Company's current officers' and directors' liability insurance in respect of
acts or omissions occurring at or prior to the Effective Time, covering each
person currently covered by the Company's officers' and directors' liability
insurance policy (a true and complete copy of which has been heretofore
delivered to Parent), on terms with respect to such coverage and amount no less
favorable than those of such policy in effect on the date hereof; provided,
however, that the limit of coverage of such insurance shall be increased to $20
million; provided, further, however, that Parent may substitute therefor
policies of Parent containing terms with respect to coverage and amount no less
favorable in any material respect to such directors and officers; provided,
further, however, that in satisfying its obligation under this Section 6.05(c)
Parent shall not be obligated to pay annual premiums in excess of $250,000, it
being understood and agreed that Parent shall nevertheless be obligated to
provide such coverage as may be obtained for such amount. Prior to the Effective
Time, the Company shall have the right to purchase an extended reporting period
endorsement under the Company's existing directors' and officers' liability
insurance coverage for the Company's directors and officers, and/or under one or
more other policies which provide such coverage, that in the aggregate provide
such directors and officers with coverage for six years following the Effective
Time of not more than $20 million in coverage and has other terms not materially
less favorable on the whole to the insured persons than the directors' and
officers' liability insurance coverage presently maintained by the Company;
provided, however, that the aggregate premiums for such coverage do not exceed
$500,000. The Company agrees that its purchase of the extended reporting period
endorsement described in the immediately preceding sentence shall be deemed to
satisfy Parent's obligations pursuant to this Section 6.05(c).
(d) The provisions of this Section 6.05 (d) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 6.06. Fees and Expenses. (a) Except as provided in paragraph (b)
of this Section 6.06, all fees and expenses incurred in connection with this
Agreement, the Merger and the other transactions contemplated by this Agreement
shall be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated.
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(b) In the event that (i) this Agreement is terminated by Parent pursuant
to Section 8.01(e), (ii) this Agreement is terminated by the Company pursuant to
Section 8.01(f) or (iii) (A) a Takeover Proposal shall have been made to the
Company or shall have been made directly to the stockholders of the Company
generally or shall have otherwise become publicly known or any person shall have
publicly announced an intention (whether or not conditional) to make a Takeover
Proposal, (B) thereafter this Agreement is terminated by either Parent or the
Company pursuant to Section 8.01(b)(i) without a vote at the Stockholders'
Meeting having been taken or Section 8.01(b)(iii) and (C) within 12 months after
such termination, the Company enters into an Acquisition Agreement with respect
to, or consummates, transactions contemplated by any Takeover Proposal (for
purposes of this clause (iii)(C), the term "Takeover Proposal" shall have the
meaning assigned to such term in Section 5.02(a) except that references to 20%
therein shall be deemed to be references to 35%), then the Company shall pay
Parent a fee equal to $28,000,000 (the "Termination Fee") by wire transfer of
same-day funds (x) in the case of a payment required by clause (i) or clause
(ii) above, on the date of termination of this Agreement and (y) in the case of
a payment required by clause (iii) above, on the date of the first to occur of
such events referred to in clause (iii)(C).
(c) The Company acknowledges and agrees that the agreements contained in
Section 6.06(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if to obtain payment of the Termination Fee, Parent
commences a suit that results in a judgment against the Company for the
Termination Fee, the Company shall pay to Parent its costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amount of the Termination Fee from the date such payment
was required to be made until the date of payment at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made.
SECTION 6.07. Public Announcements. Parent and the Company will consult
with each other before issuing, and give each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement and the other Transaction
Agreements, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or national securities
quotation system. The parties agree that the initial press release to be issued
with respect to the transactions contemplated by this Agreement shall be in the
form heretofore agreed to by the parties.
SECTION 6.08. Affiliates. As soon as practicable after the date hereof,
the Company shall deliver to Parent a letter identifying all persons who are at
the time this Agreement is submitted for adoption by the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its commercially reasonable efforts to
cause each such person to deliver to Parent prior to the Closing Date a written
agreement substantially in the form attached as Exhibit A hereto.
SECTION 6.09. Securities Listings. (a) To the extent Parent does not issue
treasury shares in the Merger that are already listed, Parent shall use its
commercially reasonable efforts to cause the shares of Parent Common Stock to be
issued in the Merger or upon exercise of the Sunrise Options or Sunrise Warrants
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
(b) The Company shall use its commercially reasonable efforts to cause the
shares of Newco Common Stock to be distributed in the Split-Off to be approved
for listing on a national securities exchange, or approved for quotation on
Nasdaq, in each case subject to official notice of issuance, prior to the
Closing Date.
SECTION 6.10. Tax Treatment. (a) Each of Parent and the Company shall use
commercially reasonable efforts to cause the Merger to qualify as a
reorganization within the meaning of Section 368(a) of the Code, and Parent will
not take any action that would breach the representations made by Parent in
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the Parent Representation Letter (as defined below). The Company shall use its
commercially reasonable efforts to obtain the opinion of counsel referred to in
Section 7.03(c). Parent shall provide Goodwin Procter LLP, counsel to the
Company, with a duly executed letter in the form of the letter set forth in
Section 6.10 of the Company Disclosure Schedule (the "Parent Representation
Letter") (i) executed and dated on the date on which the Form S-4 is filed with
the SEC and (ii) executed and dated on the Closing Date.
(b) Parent shall, and shall cause the Surviving Corporation to, report the
Split-off for federal income tax purposes in a manner consistent with its
treatment for such purposes as integrated with the Merger and as a redemption of
a number of shares of Company Common Stock equal in value to the value of the
Newco Common Stock distributed in the Split-Off.
SECTION 6.11. Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and/or its directors relating to the transactions
contemplated by the Transaction Agreements; provided, however, that no such
settlement shall be agreed to without Parent's prior written consent, which
consent shall not be unreasonably withheld or delayed.
SECTION 6.12. Employee Matters. (a) For a period ending not earlier than
December 31, 2002, the Sunrise Employees (other than those employees located in
Ireland) shall be provided pension and welfare benefits that are substantially
comparable in the aggregate to the pension and welfare benefits provided to such
employees immediately prior to the Effective Time. Except as provided above, (i)
for a period ending not earlier than December 31, 2002, the Sunrise Employees
shall be provided base salary or hourly wage rates that are at least equal to
those being received by them immediately prior to the Effective Time and (ii)
for a period ending not earlier than December 31, 2001, the Sunrise Employees
shall be provided other employee benefits that are substantially comparable in
the aggregate to the employee benefits provided to the Sunrise Employees
immediately prior to the Effective Time; provided, that neither Parent nor the
Surviving Corporation shall have any obligation to issue, or adopt any plans or
arrangements providing for the issuance of, shares of capital stock, warrants,
options, stock appreciation rights or other rights in respect of any shares of
capital stock of any entity or any securities convertible or exchangeable into
such shares pursuant to any such plans or arrangements; provided, further, that
no plans or arrangements of the Company or any of its subsidiaries providing for
such issuance shall be taken into account in determining whether employee
benefits are substantially comparable in the aggregate.
(b) With respect to Sunrise Employees employed in the United States or
covered by the Company's Benefit Plans that are subject to ERISA, Parent shall
recognize the service of each Sunrise Employee at the Effective Time with his or
her service through the Effective Time as if such service had been performed
with Parent (i) for purposes of eligibility and vesting (but not benefit
accrual) under Parent's defined benefit pension plan and (ii) for purposes of
eligibility for vacation under Parent's vacation program (in the case of each of
clauses (i) and (ii), solely to the extent that Parent makes such plan or
program available to employees of the Surviving Corporation but not for purposes
of any other employee benefit plan of Parent). With respect to Sunrise Employees
employed outside the United States, Parent shall comply with all applicable
local laws in respect of any requirement to credit service of such Sunrise
Employees prior to the Effective Time for employee benefit plan purposes.
(c) The Company shall take all actions necessary to cause the Company ESPP
to terminate immediately prior to the Effective Time, and in accordance with the
terms of the Company ESPP refund to each participant thereunder the accumulated
contributions through the Effective Time.
SECTION 6.13. Restructuring Agreement. The Company shall not, prior to the
Effective Time, amend, waive or fail to enforce any provision of the
Restructuring Agreement without the prior written consent of Parent.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Each Party's Obligation to Effect the Split-Off
and the Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Stockholder Approval shall have been
obtained.
(b) Antitrust. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Restraints. No temporary restraining order, preliminary or
permanent injunction or other judgment or order issued by any court of
competent jurisdiction or other statute, law, rule, regulation, legal
restraint or prohibition (collectively, "Restraints") shall be in effect
preventing the consummation of the Merger; provided, however, that each of
the parties shall have used its commercially reasonable efforts to prevent
the entry of any such Restraints and to appeal as promptly as possible any
such Restraints that may be entered.
(d) Securities Listing. (i) The shares of Parent Company Stock
issuable to the Company's stockholders as contemplated by this Agreement
shall have been approved for listing on the NYSE, subject only to official
notice of issuance.
(ii) The shares of Newco Common Stock issuable to the Company's
stockholders as contemplated by this Agreement shall have been approved for
listing on a national securities exchange, or approved for quotation on
Nasdaq, in either case subject only to official notice of issuance.
(e) Form S-4. Each of the Parent Form S-4 and the Newco Form S-4
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
(f) Pre-Merger Transactions. The transactions contemplated by Article
III, including the Restructuring and the execution and delivery of the
Transaction Agreements not executed on the date hereof, shall have been
consummated in accordance with the terms of this Agreement and the
Restructuring Agreement (including the satisfaction of all conditions to
the Restructuring set forth in the Restructuring Agreement) in all material
respects.
SECTION 7.02. Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to the satisfaction
or waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of the Company contained in Sections 4.01(c), 4.01(h)(iv),
4.01(j) (but only with respect to the last two sentences thereof),
4.01(m)(viii) (but only with respect to the last sentence thereof), 4.01(n)
(but only with respect to the last sentence thereof), 4.01(o)(xiv),
4.01(p)(iii), 4.01(q) (but only with respect to clauses (i) and (iv) (other
than, in the case of clause (iv), the fourth, fifth, sixth and seventh
sentences thereof)) and 4.01(w)(ii) to the extent that they are qualified
as to materiality shall be true and correct, and such representations and
warranties of the Company to the extent that they are not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Closing Date as though made on the
Closing Date, except to the extent such representations and warranties
expressly relate to a specified date, in which case as of such specified
date and (ii) all other representations and warranties of the Company
contained in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on the Closing
Date, except to the extent such representations and warranties expressly
relate to a specified date, in which case as of such specified date, and
except further, in the case of this clause (ii), to the extent that the
facts or matters as to which such representations and warranties
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are not so true and correct as of such dates (without giving effect to any
qualifications or limitations as to materiality or Material Adverse Effect
set forth therein), individually or in the aggregate, have not had and are
not reasonably expected to have a Material Adverse Effect. Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the vice president of finance and treasurer of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the vice president of finance and treasurer of
the Company to such effect.
(c) No Litigation. There shall not be pending any suit, action or
proceeding by any Governmental Entity relating to any of the transactions
contemplated by the Transaction Agreements (i) challenging the acquisition
by Parent or Sub of any shares of Company Common Stock, seeking to restrain
or prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or the other Transaction Agreements, or
seeking to place limitations on the ownership of shares of Company Common
Stock (or shares of common stock of the Surviving Corporation) by Parent or
Sub or seeking to obtain from the Company, Parent or Sub any damages that
are material in relation to the Sunrise Business, (ii) seeking to prohibit
or materially limit the ownership or operation by any Sunrise Company,
Parent or any of Parent's subsidiaries of any portion of the Sunrise
Business or of the business or assets of Parent or any of Parent's
subsidiaries, or to compel any Sunrise Company or Parent or any of Parent's
subsidiaries to divest or hold separate any portion of the Sunrise Business
or of the business or assets of Parent or any of Parent's subsidiaries as a
result of the transactions contemplated by the Transaction Agreements or
(iii) seeking to prohibit Parent or any of Parent's subsidiaries from
effectively controlling in any material respect any portion of the Sunrise
Business.
(d) Orders. No order, ruling, judgment or other similar legal
restraint (collectively, "Orders") that is reasonably expected to result,
directly or indirectly, in any of the effects referred to in clauses (i)
through (iii) of paragraph (c) of this Section 7.02 shall be in effect.
(e) Consents. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that (i) the Company shall have
obtained all consents, waivers and approvals referred to on Section 7.02(e)
of the Company Disclosure Schedule and (ii) all consents, approvals,
authorizations, qualifications and orders of Governmental Entities required
in connection with this Agreement, the other Transaction Agreements and the
transactions contemplated hereby or thereby under any applicable
competition, merger control, antitrust or similar law or regulation of
Switzerland or any country that is part of the European Union shall have
been obtained, except in the case of this clause (ii) for those the failure
of which to be obtained are not reasonably expected to (A) restrain or
prohibit the consummation of the Merger or the other transactions
contemplated by the Transaction Agreements or (B) prohibit or limit in any
material respect the ownership or operation or effective control by Parent
of any portion of the Sunrise Business.
(f) Other Agreements. The Non-competition Agreements and the other
Transaction Agreements shall be in full force and effect and none of the
parties thereto (other than Parent) shall have breached or threatened to
breach any of its material covenants thereunder.
(g) Financing. The Company shall have received at least $50,000,000
of proceeds from financings on terms and conditions no less favorable to
the Company than those set forth in the commitment letter dated May 18,
2001.
SECTION 7.03. Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in the Transaction Agreements that
are qualified as to materiality shall be true and correct,
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and the representations and warranties of Parent and Sub contained in the
Transaction Agreements that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and
as of the Closing Date as though made on the Closing Date, except to the
extent such representations and warranties expressly relate to a specified
date, in which case as of such specified date. The Company shall have
received a certificate signed on behalf of Parent by an executive officer
of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
(c) Tax Opinion. The Company shall have received from Goodwin Procter
LLP, counsel to the Company, on the date on which the Form S-4 is filed
with the SEC and on the Closing Date, an opinion, in form and substance
reasonably satisfactory to the Company, in each case dated as of such date
and to the effect that (i) the Merger will be treated for United States
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and (ii) Parent and the Company will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code. In rendering such opinions, such counsel shall be entitled to rely
upon representations reasonably requested by such counsel and made by the
Company and upon the Parent Representation Letter.
SECTION 7.04. Frustration of Closing Conditions. None of the Company,
Parent or Sub may rely on the failure of any condition set forth in Section
7.01, 7.02 or 7.03, as the case may be, to be satisfied if such failure was
caused by such party's failure to use commercially reasonable efforts to
consummate the Merger and the other transactions contemplated by this Agreement,
as required by and subject to Section 6.03.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after receipt of the Stockholder
Approval:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated on or before
January 31, 2002; provided, however, that the right to terminate this
Agreement under this Section 8.01(b)(i) shall not be available to any
party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to be consummated on or before
such date;
(ii) if any Restraint having any of the effects set forth in
Section 7.01(c) shall be in effect and shall have become final and
nonappealable;
(iii) if the Stockholder Approval shall not have been obtained at
the Stockholders' Meeting duly convened therefor or at any adjournment
or postponement thereof;
(c) by Parent (i) if the Company shall have breached or failed to
perform any of its representations, warranties, covenants or agreements set
forth in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 7.02(a) or 7.02(b),
and (B) is incapable of being cured by the Company within 30 calendar days
following
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receipt of written notice of such breach or failure to perform from Parent;
or (ii) if any Order having the effects referred to in clauses (i) through
(iv) of Section 7.02(c) shall be in effect and shall have become final and
nonappealable;
(d) by the Company, if Parent shall have breached or failed to perform
any of its representations, warranties, covenants or agreements set forth
in this Agreement, which breach or failure to perform (i) would give rise
to the failure of a condition set forth in Section 7.03(a) or 7.03(b), and
(ii) is incapable of being cured by Parent within 30 calendar days
following receipt of written notice of such breach or failure to perform
from the Company;
(e) by Parent, in the event that a Company Adverse Recommendation
Change shall have occurred; or
(f) by the Company in accordance with Section 5.02(b).
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
provisions of Section 4.01(t), the penultimate sentence of Section 6.02, Section
6.06, this Section 8.02 and Article IX, which provisions shall survive such
termination, and except to the extent that such termination results from the
wilful and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto at any time before or after the Stockholder Approval with, if necessary,
the approval of their respective Boards of Directors; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by the stockholders of the Company or the approval of the
stockholders of Parent without such approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Notwithstanding the foregoing, at any time prior to the Stockholder
Approval, the Company may, in its sole discretion, unilaterally change the Newco
Exchange Ratio with, if necessary, approval of its Board of Directors.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto or (c) subject to the proviso of Section 8.03, waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, telecopied (which is
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confirmed) or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Parent or Sub, to:
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Telecopy No.: (732)524-2788
Attention: Office of General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Robert I. Townsend, III, Esq.
if to the Company, to:
Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453
Telecopy No.: (781)647-3939
Attention: Chief Executive Officer
with a copy to:
Goodwin Procter LLP
53 State Street
Boston, MA 02109
Telecopy No.: (617) 523-1231
Attention: Stephen W. Carr, P.C.
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "Knowledge" of any person that is not an individual means, with
respect to any matter in question, the knowledge of such person's executive
officers and other employees having primary responsibility for such matter;
(c) "Material Adverse Change" or "Material Adverse Effect" means any
change, effect, event, occurrence or state of facts (or any development or
developments which, individually or in the aggregate, are reasonably
expected to result in any change or effect) that is materially adverse to
the business, properties, assets, liabilities (contingent or otherwise),
financial condition or results of operations of the Sunrise Business, other
than any change, effect, event, occurrence, state of facts or development
(i) relating to the economy in general, (ii) relating to the industries in
which the Company operates in general, (iii) resulting from changes in
foreign currency rates, (iv) resulting from the effects of the pendency of
the transactions contemplated hereby on current or prospective customers or
suppliers, (v) resulting from any action required to be taken by the
Company or any other party pursuant to the Transaction Agreements in order
to effect the Restructuring and the other transactions contemplated thereby
and (vi) resulting from any unjustified action, including the cancellation
or extension of any orders for products, taken by Parent or any of its
Affiliates in respect
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of the business relationship between Parent or such Affiliate, on the one
hand, and the Company and its subsidiaries, on the other hand;
(d) "Parent Material Adverse Effect" means any change, effect, event,
occurrence or state of facts (or any development or developments which,
individually or in the aggregate, could reasonably be expected to result in
any change or effect) that is materially adverse to the business,
properties, assets, liabilities (contingent or otherwise, financial
condition, results of operations or prospects of Parent or that could
reasonably be expected to impair the ability of Parent to consummate the
transactions contemplated by, or satisfy its obligations under, the
Transaction Agreements, other than any change, effect, event, occurrence,
state of facts or development (i) relating to the economy in general, (ii)
relating to the industries in which the Company operates in general, (iii)
resulting from changes in foreign currency rates and (iv) resulting from
the effects of the pendency of the transactions contemplated hereby on
current or prospective customers or suppliers;
(e) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(f) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting rights or voting partnership interests
of which is sufficient to elect at least a majority of its board of
directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
SECTION 9.04. Interpretation. (a) As used in Section 4.01 (other than
clauses (c), (d), (e), (l), (m) and (o) thereof), and Section 7.02(a), unless
the context otherwise requires, (i) any reference to the Company and its
subsidiaries shall be to the Company and the subsidiaries of the Company if and
only to the extent that they are engaged in, or own, lease or otherwise control
properties or other assets used in, any part of the Sunrise Business, (ii) any
reference to the properties or other assets of the Company and its subsidiaries,
including Intellectual Property Rights, shall be to the properties and other
assets that are included in the Sunrise Assets, (iii) any reference to the
businesses or products of the Company and its subsidiaries shall be to the
businesses or products of such subsidiaries if and only to the extent that they
are part of the Sunrise Business and (iv) any reference to the directors,
officers, employees and consultants of the Company and its subsidiaries shall be
to the directors, officers, employees and consultants who will be Sunrise
Employees (as defined in the Restructuring Agreement). In addition, (A) any
reference to the "Sunrise Business" means all the businesses and operations of
the Company and its subsidiaries other than the Clinical Diagnostics Business,
the Nutritional Supplement Business and the Women's Health Business, (B) any
reference to the "Sunrise Companies" means the Company and its subsidiaries,
other than Newco and its subsidiaries (determined after giving effect to the
Restructuring) and (C) any reference to Newco and its subsidiaries means Newco
and its subsidiaries (determined after giving effect to the Restructuring).
(b) When a reference is made in this Agreement to an Article, a Section, an
Exhibit, an Annex or a Schedule, such reference shall be to an Article of, a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and
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references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
SECTION 9.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the other Transaction Agreements and the Confidentiality Agreement
(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, the other Transaction Agreements and the
Confidentiality Agreement and (b) except for the provisions of Article II and
Section 6.05, are not intended to confer upon any person other than the parties
any rights or remedies.
SECTION 9.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.09. Specific Enforcement. The parties agree that irreparable
damage would occur and that the parties would not have any adequate remedy at
law in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware in any state court in the State of Delaware, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
of any state court located in the State of Delaware in the event any dispute
arises out of this Agreement or the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or the transactions
contemplated by this Agreement in any court other than a Federal court located
in the State of Delaware or a state court located in the State of Delaware.
SECTION 9.10. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
JOHNSON & JOHNSON,
by: /s/ JOHN A. PAPA
------------------------------------
Name: John A. Papa
Title: Treasurer
SUNRISE ACQUISITION CORP.,
by: /s/ ERIC P. MILLEDGE
------------------------------------
Name: Eric. P. Milledge
Title: President
INVERNESS MEDICAL TECHNOLOGY, INC.,
by: /s/ RON ZWANZIGER
------------------------------------
Name: Ron Zwanziger
Title: CEO
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APPENDIX
TO THE MERGER AGREEMENT
INDEX OF DEFINED TERMS
TERM
----
Acquisition Agreement....................................... Section 5.02(b)
Actions..................................................... Section 5.01(d)
Adjusted Options............................................ Section 6.049a)(i)
Adjusted Warrants........................................... Section 6.04(g)
Affiliate................................................... Section 9.03(a)
Agreement................................................... Preamble
Audited IML Balance Sheet................................... Section 4.01(g)
Adjusted IML Financial Statements........................... Section 4.01(g)
Average Closing Price....................................... Section 2.01(c)
Benefit Agreements.......................................... Section 4.01(h)
Benefit Plans............................................... Section 4.01(l)
Certificate................................................. Section 2.01(c)
Certificate of Merger....................................... Section 1.03
Closing..................................................... Section 1.02
Closing Consideration....................................... Section 2.01(c)
Closing Date................................................ Section 1.02
Code........................................................ Recitals
Commonly Controlled Entity.................................. Section 4.01(l)
Company..................................................... Preamble
Company Adverse Recommendation Change....................... Section 5.02(b)
Company By-laws............................................. Section 4.01(a)
Company Capital Budget...................................... Section 5.01
Company Certificate......................................... Section 4.01(a)
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. Section 4.01
Company ESPP................................................ Section 4.01(c)
Company SEC Documents....................................... Section 4.01(e)
Company Stock Plans......................................... Section 4.01(c)
Confidentiality Agreement................................... Section 6.02
Contracts................................................... Section 4.01(d)
DGCL........................................................ Section 1.01
Effective Time.............................................. Section 1.03
Environmental Laws.......................................... Section 4.01(k)
ERISA....................................................... Section 4.01(m)
Exchange Act................................................ Section 4.01(d)
Exchange Agent.............................................. Section 2.02(a)
Exchange Fund............................................... Section 2.02(a)
FDA......................................................... Section 4.01(k)
FDCA........................................................ Section 4.01(k)
Filed Company SEC Documents................................. Section 4.01(e)
Form 8-A.................................................... Section 4.01(d)
GAAP........................................................ Section 4.01(e)
Governmental Entity......................................... Section 4.01(d)
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TERM
----
Hazardous Material.......................................... Section 4.01(j)
HSR Act..................................................... Section 4.01(d)
IMI......................................................... Section 4.01(o)(xiv)
IML......................................................... Section 4.01(g)
Intellectual Property Rights................................ Section 4.01(q)
Interim IML Balance Sheet................................... Section 4.01(g)
Interim IML Financial Statements............................ Section 4.01(g)
IRS......................................................... Section 4.01(l)
Knowledge................................................... Section 9.03(b)
Legal Provisions............................................ Section 4.01(k)
Liens....................................................... Section 4.01(b)
Material Adverse Change..................................... Section 9.03(c)
Material Adverse Effect..................................... Section 9.03(c)
Medical Device.............................................. Section 4.01(w)
Merger...................................................... Recitals
Merger Consideration........................................ Section 2.01(c)
Nasdaq...................................................... Section 2.02(e)(ii)
Newco....................................................... Recitals
Newco Assets................................................ Section 4.01(o)(xiv)
Newco Basis................................................. Section 4.01(o)(xiv)
Newco Common Stock.......................................... Recitals
Newco Exchange Ratio........................................ Section 2.01(c)
Newco Form S-4.............................................. Section 4.01(d)
Non-Competition Agreements.................................. Preamble
Non-Plan Stock Option Agreements............................ Section 6.04(a)(ii)
Non-Plan Stock Options...................................... Section 4.01(c)
Notice of Adverse Recommendation............................ Section 5.02(b)
NYSE........................................................ Section 2.02(c)
Officers.................................................... Section 6.10(c)
Officer's Opinion........................................... Section 6.10(c)
Order....................................................... Section 7.02
Parachute Gross Up Payment.................................. Section 4.01(n)
Parent...................................................... Recitals
Parent Common Stock......................................... Preamble
Parent Disclosure Schedule.................................. Section 4.02
Parent Form S-4............................................. Section 4.02(b)
Parent Material Adverse Effect.............................. Section 9.03(d)
Parent Representation Letter................................ Section 6.10
Parent SEC Documents........................................ Section 4.02(c)
Pension Plan................................................ Section 4.01(m)
Permits..................................................... Section 4.01(k)
person...................................................... Section 9.03(e)
Post-Closing Covenants Agreement............................ Section 3.01
Post-Signing Returns........................................ Section 5.01(d)
Preferred Stock............................................. Section 4.01(c)
Primary Company Individuals................................. Section 4.01(n)
Principal Stockholders...................................... Recitals
Proxy Statement............................................. Section 4.01(d)
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TERM
----
Release..................................................... Section 4.01(k)
Representatives............................................. Section 5.02(a)
Restraints.................................................. Section 7.01(c)
Restructuring Agreement..................................... Recitals
Retained.................................................... Section 4.01(t)
SEC......................................................... Section 4.01(d)
Securities Act.............................................. Section 4.01(e)
Settlement Agreement........................................ Section 3.01
Split-Off................................................... Recitals
Split-Off Consideration..................................... Section 2.01(c)
Split-Off Opinion........................................... Section 6.10(c)
Stockholder Agreement....................................... Recitals
Stockholder Approval........................................ Section 4.01(r)
Stockholders' Meeting....................................... Section 6.01(b)
Stock Options............................................... Section 4.01(c)
Sub......................................................... Preamble
subsidiary.................................................. Section 9.03(f)
Sunrise Assets.............................................. Section 4.01(p)(iii)
Sunrise Business............................................ Section 9.04
Sunrise Companies........................................... Section 9.04
Sunrise Employee............................................ Section 9.04
Sunrise Liabilities......................................... Recitals
Superior Proposal........................................... Section 5.02(a)
Surviving Corporation....................................... Section 1.01
Takeover Proposal........................................... Section 5.02(a)
Tax Allocation Agreement.................................... Section 3.01
taxes....................................................... Section 4.01(o)
Termination Fee............................................. Section 6.06
Transaction Agreements...................................... Section 3.02
Transition Services Agreement............................... Section 3.02
Warrants.................................................... Section 4.01(c)
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EXHIBIT A
TO THE MERGER AGREEMENT
FORM OF AFFILIATE LETTER
Dear Sirs:
The undersigned, a holder of shares of common stock, par value $.001 per
share ("Company Common Stock"), of Inverness Medical Technology, Inc., a
Delaware corporation (the "Company"), acknowledges that the undersigned may be
deemed an "affiliate" of the Company within the meaning of Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
by the Securities and Exchange Commission (the "SEC"), although nothing
contained herein should be construed as an admission of either such fact.
Pursuant to the terms of the Agreement and Plan of Merger dated as of May 23,
2001, among Johnson & Johnson, a New Jersey corporation ("Parent"), Sunrise
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and the Company, Sub will be merged with and into the Company
(the "Merger"), and in connection with the Merger, the undersigned is entitled
to receive common stock, par value $1.00 per share ("Parent Common Stock"), of
Parent.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Parent Common Stock
received by the undersigned in exchange for any shares of Company Common Stock
in connection with the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such registration is
available. The undersigned understands that such exemptions are limited and the
undersigned has obtained or will obtain advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and 145(d) promulgated
under the Securities Act. The undersigned understands that Parent will not be
required to maintain the effectiveness of any registration statement under the
Securities Act for the purposes of resale of Parent Common Stock by the
undersigned.
The undersigned hereby represents to and covenants with Parent that the
undersigned will not sell, assign or transfer any of the Parent Common Stock
received by the undersigned in exchange for shares of Company Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and other
limitations, if applicable, of Rule 145 or (iii) in a transaction which, in the
opinion of counsel to Parent or the undersigned or as described in a "no-action"
or interpretive letter from the Staff of the SEC specifically issued with
respect to a transaction to be engaged in by the undersigned, is not required to
be registered under the Securities Act.
In the event of a sale or other disposition by the undersigned of Parent
Common Stock pursuant to Rule 145, the undersigned will supply Parent with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto or no-action letter referred to above. The undersigned
understands that Parent may instruct its transfer agent to withhold the transfer
of any such Parent Common Stock disposed of by the undersigned, but that upon
receipt of such evidence of compliance, Parent shall cause the transfer agent to
effectuate the transfer of the Parent Common Stock sold as indicated in such
letter.
Parent covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of Parent Common Stock
by the undersigned under Rule 145 in accordance with the terms thereof.
The undersigned acknowledges and agrees that the legends set forth below
will be placed on certificates representing Parent Common Stock received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to Parent from counsel
reasonably satisfactory to Parent to the effect that such legends are no longer
required for purposes of the Securities Act.
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There will be placed on the certificates for Parent Common Stock issued to
the undersigned in connection with the Merger, or any substitutions therefor, a
legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies. The shares have not been acquired by the holder with a view to, or
for resale in connection with, any distribution thereof within the meaning
of the Securities Act of 1933. The shares may not be sold, pledged or
otherwise transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Parent Common
Stock and (ii) the receipt by Parent of this letter is an inducement to Parent's
obligations to consummate the Merger.
Very truly yours,
Dated:
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ANNEX I
TO EXHIBIT A
[Name] [Date]
On , the undersigned sold the securities of Johnson & Johnson
("Parent") described below in the space provided for that purpose (the
"Securities"). The Securities were received by the undersigned in connection
with the merger of Sunrise Acquisition Corp., a Delaware corporation, with and
into Inverness Medical Technology, Inc.
Based upon the most recent report or statement filed by Parent with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Securities Act
or in transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the offer or sale of the
Securities to any person other than to the broker who executed the order in
respect of such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
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ANNEX 2
STOCK OPTION AGREEMENT dated as of May 23, 2001 (this "Agreement"), by and
between INVERNESS MEDICAL TECHNOLOGY, INC., a Delaware corporation ("Issuer"),
and JOHNSON & JOHNSON, a New Jersey corporation ("Grantee").
RECITALS
A. Grantee, Sunrise Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Grantee ("Sub"), and Issuer have entered into an Agreement
and Plan of Split-Off and Merger dated as of the date hereof (the "Merger
Agreement"), providing for, among other things, the merger of Sub with and into
Issuer, with Issuer as the surviving corporation in the Merger and becoming a
wholly owned subsidiary of Grantee; and
B. As a condition and inducement to Grantee's willingness to enter into the
Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 1,202,271 shares of common stock, par value
$0.001 per share, of Issuer (the "Issuer Common Stock") (which amount shall
be increased to 6,417,689 upon the filing with the Secretary of State of
the State of Delaware of the amendment to the Issuer's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Issuer Common Stock from 40,000,000 to 70,000,000 (the "Certificate
Amendment") which was adopted by the stockholders of the Issuer on May 21,
2001, which the Issuer will do promptly after the date of this Agreement
(as such total number may be adjusted pursuant to Section 6, the "Option
Shares")) at a purchase price of $38.00 per Option Share (as such price may
be adjusted pursuant to Section 6, the "Purchase Price"); provided,
however, that in no event may the number of Option Shares exceed 19.9% of
the issued and outstanding shares of Issuer Common Stock at the time of
exercise without giving effect to the Option Shares.
2. Exercise of Option. (a) Subject to the provisions of Section 2(c),
Grantee may exercise the Option, with respect to any or all of the Option
Shares, at any time or times after the occurrence of any event as a result
of which Grantee is entitled to receive the Termination Fee pursuant to
Section 6.06(b) of the Merger Agreement (a "Purchase Event"); provided,
however, that (i) except as provided in the last sentence of this Section
2(a), the Option will terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Time, (B) 12 months after the
first occurrence of a Purchase Event, and (C) termination of the Merger
Agreement in accordance with its terms prior to the occurrence of a
Purchase Event, unless, in the case of clause (C), Grantee has the right to
receive the Termination Fee following such termination upon the occurrence
of certain events, in which case the Option will not terminate until the
later of (x) 10 business days following the time such Termination Fee
becomes payable and (y) the expiration of the period in which Grantee has
such right to receive the Termination Fee, and (ii) any purchase of Option
Shares upon exercise of the Option will be subject to compliance with the
HSR Act and the obtaining or making of any consents, approvals, orders,
notifications, filings or authorizations, the failure of which to have
obtained or made would have the effect of making the issuance of Option
Shares to Grantee violate any law or regulation to which Issuer is subject
(the "Regulatory Approvals"). Notwithstanding the termination of the
Option, Grantee will be entitled to purchase the Option Shares if it has
exercised the Option in accordance with the terms hereof prior to the
termination of the Option and the termination of the Option will not affect
any rights hereunder which by their terms do not terminate or expire prior
to or as of such termination.
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(b) In the event that Grantee is entitled to and wishes to exercise
the Option, Grantee shall send to Issuer a written notice (an "Exercise
Notice"; the date of which being herein referred to as the "Notice Date")
to that effect, which Exercise Notice shall specify the number of Option
Shares, if any, Grantee wishes to purchase pursuant to this Section 2(b),
the number of Option Shares, if any, with respect to which Grantee wishes
to exercise its Cash-Out Right (as defined below) pursuant to Section 6(c),
the denominations of the certificate or certificates evidencing the Option
Shares which Grantee wishes to purchase pursuant to this Section 2(b) and a
date (an "Option Closing Date"), which, subject to the following sentence,
shall not be earlier than three business days nor later than 10 business
days from the Notice Date for the closing of such purchase (an "Option
Closing"). Any Option Closing shall be at an agreed location and time in
New York, New York on the applicable Option Closing Date or at such later
date as may be necessary so as to comply with clause (ii) of the proviso to
the first sentence of Section 2(a).
(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the Exercise Notice without
first obtaining or making certain Regulatory Approvals. In such event, if
the Option is otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with Section 2(b) and
Grantee shall acquire the maximum number of Option Shares specified in the
Exercise Notice that Grantee is then permitted to acquire under the
applicable laws and regulations, and if Grantee thereafter obtains the
Regulatory Approvals to acquire the remaining balance of the Option Shares
specified in the Exercise Notice, then Grantee shall be entitled to acquire
such remaining balance. Issuer agrees to use its commercially reasonable
efforts to assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives notice that a Regulatory Approval
required for the purchase of any Option Shares will not be issued or
granted or (ii) such Regulatory Approval has not been issued or granted
within six months of the date of the Exercise Notice, Grantee shall have
the right to exercise its Cash-Out Right pursuant to Section 6(c) with
respect to the Option Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Grantee will pay to Issuer in immediately available funds by wire transfer
to a bank account designated in writing by Issuer an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will
deliver to Grantee a certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which Option Shares will be
free and clear of all Liens. If at the time of issuance of Option Shares
pursuant to an exercise of the Option hereunder, Issuer shall have issued
any securities similar to rights under a stockholder rights plan, then each
Option Share issued pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as and at least as
favorable to Grantee as are provided under any such stockholder rights plan
then in effect.
(c) Certificates representing the Option Shares delivered at an Option
Closing will have typed or printed thereon a restrictive legend which will
read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF MAY
23, 2001, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF
INVERNESS MEDICAL TECHNOLOGY, INC., AT ITS PRINCIPAL EXECUTIVE OFFICES."
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It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have
been sold in reliance on and in accordance with Rule 144 under the
Securities Act or Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the Securities Act and (ii) the
reference to restrictions pursuant to this Agreement in the above legend
will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of
such reference.
4. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act or any
other applicable Federal, state or foreign competition, anti-trust or
similar law or regulation, to permit it to issue, and, at all times from
the date hereof until the obligation to deliver Option Shares upon an
exercise of the Option terminates, shall have reserved for issuance,
upon exercise of the Option, shares of Issuer Common Stock necessary for
Grantee to exercise the Option (subject, in the case of those shares of
Issuer Common Stock to be authorized for issuance pursuant to the
Certificate Amendment, to the filing of the Certificate Amendment with
Secretary of State of the State of Delaware) and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Issuer Common Stock or other securities which may
be issuable pursuant to Section 6 upon exercise of the Option. The
shares of Issuer Common Stock to be issued upon due exercise of the
Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable upon exercise of the Option or any
other securities which may be issuable pursuant to Section 6, upon
issuance pursuant hereto, will be duly and validly issued, fully paid
and nonassessable, and will be delivered free and clear of all Liens,
including without limitation any preemptive rights of any stockholder of
Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will be
acquired for Grantee's own account for investment only and not with a
view towards their distribution, and will not be transferred or
otherwise disposed of except in a transaction registered, or exempt from
registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event
of any change in Issuer Common Stock by reason of a stock dividend,
split-up, merger, recapitalization, combination, exchange of shares, or
similar transaction, the type and number of shares or securities subject to
the Option, and the Purchase Price thereof, will be adjusted appropriately,
and proper provision will be made in the agreements governing such
transaction, so that Grantee will receive upon exercise of the Option the
number and class of shares or other securities or property that Grantee
would have received in respect of Issuer Common Stock if the Option had
been exercised immediately prior to such event or the record date therefor,
as applicable. Subject to Section 1, and without limiting the parties'
relative rights and obligations under the Merger Agreement, if any
additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to this Agreement or an event described in
the first sentence of this Section 6(a)) or if the number of outstanding
shares of Issuer Common Stock is reduced, the number of shares of Issuer
Common Stock subject to the Option will be adjusted so that, after such
issuance or reduction, it equals the same percentage of the aggregate
number of shares of Issuer Common Stock issued and outstanding after giving
effect to
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such issuance or reduction as immediately prior to such issuance or
reduction, in each case without giving effect to any shares subject to the
Option.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an
agreement (i) to consolidate with or merge into any person, other than
Grantee or one of its subsidiaries, and Issuer will not be the continuing
or surviving corporation in such consolidation or merger, (ii) to permit
any person, other than Grantee or one of its subsidiaries, to merge into
Issuer and Issuer will be the continuing or surviving corporation, but in
connection with such merger, the shares of Issuer Common Stock outstanding
immediately prior to the consummation of such merger will be changed into
or exchanged for stock or other securities of Issuer or any other person or
cash or any other property, or the shares of Issuer Common Stock
outstanding immediately prior to the consummation of such merger will,
after such merger, represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or
one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provision so that the Option
will, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class
of shares or other securities or property that Grantee would have received
in respect of Issuer Common Stock if the Option had been exercised in full
with respect to all Option Shares then purchasable immediately prior to
such consolidation, merger, sale, or transfer, or the record date therefor,
as applicable, and make any other necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event
and ending on the termination of the Option in accordance with Section 2,
Grantee sends to Issuer an Exercise Notice indicating Grantee's election to
exercise its right (the "Cash-Out Right") pursuant to this Section 6(c),
then Issuer shall pay to Grantee, on the Option Closing Date, in exchange
for the cancellation of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an amount in cash equal
to such number of Option Shares multiplied by the difference between (i)
the average closing price, for the 10 trading days commencing on the 12th
trading day immediately preceding the Notice Date, per share of Issuer
Common Stock as reported on the American Stock Exchange ("AMEX"), (or, if
not listed on AMEX, as reported on any other national securities exchange
or national securities quotation system on which the Issuer Common Stock is
listed or quoted, as reported in The Wall Street Journal (Northeast
edition), or, if not reported therein, as reported in any other
authoritative source) (the "Closing Price") and (ii) the Purchase Price.
Notwithstanding the termination of the Option, Grantee will be entitled to
exercise its rights under this Section 6(c) if Grantee has exercised such
rights in accordance with the terms hereof prior to the termination of the
Option.
7. Profit Limitations. (a) Notwithstanding any other provision of
this Agreement, in no event shall the Total Option Profit (as defined
below) exceed in the aggregate $28,000,000 minus any Termination Fee
actually received by Grantee pursuant to the terms of the Merger Agreement
(such net amount, the "Profit Limit") and, if any payment to be made to
Grantee hereunder or as part of the Termination Fee otherwise would cause
the Profit Limit to be exceeded, Grantee, at its sole election and in its
sole discretion, shall (i) reduce the number of shares of Issuer Common
Stock subject to the Option, (ii) deliver to Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to Issuer or (iv)
take any combination of the foregoing actions, so that the Total Option
Profit shall not exceed the Profit Limit after taking into account all the
foregoing actions taken by Grantee. For the avoidance of doubt, Grantee
shall not receive any amounts under the terms of this Agreement or as a
Termination Fee which aggregate more than $28,000,000 and will cause any
excess above such amount to be repaid to Issuer promptly.
(b) Notwithstanding any other provision of this Agreement, the Option
may not be exercised for a number of shares of Issuer Common Stock as
would, as of the date of exercise, result in a Notional Total Option Profit
(as defined below) that would exceed in the aggregate the Profit Limit and,
if the
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Notional Total Option Profit otherwise would exceed such amount, Grantee,
at its sole election and in its sole discretion, shall on or prior to the
date of exercise (i) reduce the number of shares of Issuer Common Stock
subject to such exercise, (ii) deliver to Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to Issuer or (iv)
take any combination of the foregoing actions, so that the Notional Total
Option Profit shall not exceed the Profit Limit after taking into account
all the foregoing actions taken by Grantee, provided that this paragraph
(b) shall not be construed as to restrict any exercise of the Option that
is not prohibited hereby on any subsequent date.
(c) As used herein, the term "Total Option Profit" shall mean the
aggregate amount (before taxes) of the following: (i) any amount received
by Grantee pursuant to the Cash-Out Right and (ii)(x) the net
consideration, if any, received by Grantee pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted
or exchanged) to any unaffiliated party, valuing any non-cash consideration
at its fair market value (as defined below), less (y) the Purchase Price of
such Option Shares and any cash paid by Grantee to Issuer pursuant to
Section 7(a)(iii) or Section 7(b)(iii), as the case may be.
(d) As used herein, the term "Notional Total Option Profit" with
respect to any number of shares of Issuer Common Stock as to which Grantee
may propose to exercise the Option shall be the aggregate of (i) the Total
Option Profit determined under paragraph (c) above with respect to prior
exercises of the Option and (ii) Total Option Profit determined under
paragraph (c) above with respect to (x) such number of shares of Issuer
Common Stock as to which Grantee proposes to exercise the Option and (y)
all other Option Shares held by Grantee and its affiliates as of such date,
assuming that all such shares were sold for cash at the closing market
price for the Issuer Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions or underwriting
discounts).
(e) As used herein, the "fair market value" of any non-cash
consideration consisting of:
(i) securities listed on a national securities exchange or traded
on The Nasdaq National Market ("Nasdaq") shall be equal to the average
closing price per share of such security as reported on such exchange or
Nasdaq for the five trading days after the date of determination; and
(ii) consideration which is other than cash or securities of the
form specified in clause (i) above shall be agreed upon in good faith by
the parties or, in the absence of such agreement, determined by a
nationally recognized independent investment banking firm mutually
agreed upon by the parties within five business days of the event
requiring selection of such banking firm, provided that if the parties
are unable to agree within two business days after the date of such
event as to the investment banking firm, then the parties shall each
select one investment banking firm, and those firms shall select a third
nationally recognized independent investment banking firm, which third
firm shall make such determination.
8. Registration Rights. Issuer will, if requested by Grantee at any
time and from time to time within two years of the exercise of the Option,
as promptly as practicable (but in no event later than 90 days after
receipt of such request) prepare and file up to three registration
statements ("demand registration statements") under the Securities Act if
such registration is necessary in order to permit the sale or other
disposition of any or all shares of securities that have been acquired by
or are issuable to Grantee upon exercise of the Option in accordance with
the intended method of sale or other disposition stated by Grantee,
including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer will use its best
efforts to qualify such shares or other securities under any applicable
state securities laws; provided, however, that the Issuer shall have no
obligation to prepare and file a demand registration statement hereunder
unless such registration statement will cover at least 25% of the Option
Shares. Grantee agrees to use its commercially reasonable efforts to cause,
and to cause any underwriters of any sale or other disposition to cause,
any sale or other disposition pursuant to such registration statement to be
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effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than 5% of the
then-outstanding voting power of Issuer. Issuer will use its commercially
reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are
required therefor, and to keep such registration statement effective for
such period not in excess of 180 calendar days from the day such
registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. The obligations of
Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 90 calendar days in the aggregate
if the Board of Directors of Issuer shall have determined that the filing
of such registration statement or the maintenance of its effectiveness
would require premature disclosure of material nonpublic information that
would materially and adversely affect Issuer or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Issuer
or any other material transaction involving Issuer. Any registration
statement prepared and filed under this Section 8, and any sale covered
thereby, will be at Issuer's expense except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Grantee's
counsel related thereto. Grantee will provide all information reasonably
requested by Issuer for inclusion in any registration statement to be filed
hereunder. If, during the time periods referred to in the first sentence of
this Section 8, Issuer effects a registration under the Securities Act of
Issuer Common Stock for its own account or for any other stockholders of
Issuer (other than on Form S-4 or Form S-8, or any successor form), it will
allow Grantee the right to participate in such registration, and such
participation will not affect the obligation of Issuer to effect demand
registration statements for Grantee under this Section 8; provided that, if
the managing underwriters of such offering advise Issuer in writing that in
their opinion the number of shares of Issuer Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Issuer will include only that portion of the shares requested to
be included therein by Grantee that may, in the written opinion of the
managing underwriters, be included therein without adversely affecting the
success of the offering. In connection with any registration pursuant to
this Section 8, Issuer and Grantee will provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution in connection with such
registration.
9. Transfers. Shares of Issuer Common Stock acquired by Grantee
pursuant to an exercise of the Option may not be sold, assigned,
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 8 or (ii) to any purchaser or transferee
who would not, to the knowledge of Grantee after reasonable inquiry,
immediately following such sale, assignment, transfer or disposal,
beneficially own more than 5% of the then-outstanding voting power of the
Issuer; provided, however, that Grantee shall be permitted to sell any
shares of Issuer Common Stock acquired pursuant to an exercise of the
Option if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended by a majority of the members of the Board of
Directors of Issuer (which majority shall include a majority of directors
who were directors as of the date hereof).
10. Listing. If the Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then listed on AMEX (or any other
national securities exchange or approved for quotation on any national
securities quotation system), Issuer, upon the request of Grantee, shall
promptly file an application to list the shares of Issuer Common Stock or
other securities to be acquired upon exercise of the Option on AMEX (or any
such other national securities exchange or file an application to have
approved for quotation on any such national securities quotation system)
and will use its commercially reasonable efforts to obtain approval of such
listing (or quotation) as promptly as practicable.
11. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date.
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12. Miscellaneous. (a) Expenses. Except as otherwise provided in
this Agreement or in the Merger Agreement, each of the parties hereto will
bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants,
and counsel.
(b) Amendment. This Agreement may not be amended, except by an
instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
any provision of this Agreement, or to extend the time for performance,
will be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not constitute a
waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement,
the other Transaction Agreements (including the documents and instruments
attached thereto as exhibits or schedules or delivered in connection
therewith) and the Confidentiality Agreement (i) constitute the entire
agreement, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement, and (ii) except as provided in Section 9.06 of the Merger
Agreement, are not intended to confer upon any person other than the
parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws thereof.
(f) Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be sent in the manner and to the
addresses set forth in the Merger Agreement.
(g) Assignment. Neither this Agreement, the Option nor any of the
rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by Issuer
or Grantee without the prior written consent of the other, except that
Grantee may assign, in its sole discretion, any of or all its rights,
interests and obligations under this Agreement to any direct or indirect
wholly owned subsidiary of Grantee, but no such assignment shall relieve
Grantee of any of its obligations hereunder. Any assignment or delegation
in violation of the preceding sentence shall be void. Subject to the first
and second sentences of this Section 12(g), this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents
and instruments and take all other actions that may be reasonably necessary
in order to consummate the transactions provided for by such exercise.
(i) Specific Enforcement; Consent to Jurisdiction. The parties agree
that irreparable damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware or in any
state court located in the State of Delaware, the foregoing being in
addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any Federal court located in the
State of Delaware or any state court located in the State of Delaware in
the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court
sitting in the State of Delaware or a state court located in the State of
Delaware.
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(j) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
(k) Defined Terms. All terms used but not defined herein shall have
the meanings ascribed to such terms in the Merger Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
INVERNESS MEDICAL TECHNOLOGY, INC.,
by /s/ RON ZWANZIGER
------------------------------------
Name: Ron Zwanziger
Title: CEO
JOHNSON & JOHNSON,
by /s/ JOHN A. PAPA
------------------------------------
Name: John A. Papa
Title: Treasurer
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ANNEX 3
ANNEX A TO
THE MERGER AGREEMENT
RESTRUCTURING AGREEMENT, dated as of [DATE], [YEAR] (this "Restructuring
Agreement"), among INVERNESS MEDICAL TECHNOLOGY, INC., a Delaware corporation
(the "Company"), [NAME OF NEWCO], a Delaware corporation and a direct wholly
owned subsidiary of the Company ("Newco"), and the subsidiaries of the Company
party hereto.
WHEREAS the Company, JOHNSON & JOHNSON, a New Jersey Corporation
("Parent"), and SUNRISE ACQUISITION CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), have entered into an Agreement and Plan of
Split-Off and Merger, dated as of May 23, 2001 (the "Merger Agreement"),
providing for the Split-Off and the Merger (each as defined in the Merger
Agreement) of Sub with and into the Company, with the Company as the surviving
corporation;
WHEREAS the respective Boards of Directors of the Company, Newco and each
of the Company's subsidiaries party hereto have approved this Restructuring
Agreement, which is being entered into prior to the Effective Time (as defined
in the Merger Agreement), pursuant to which the Restructuring (as defined below)
will be consummated;
WHEREAS the purpose of the Restructuring is to make possible the Split-Off
and the Merger by separating from the Assets and Liabilities of the Company and
its subsidiaries those Assets and Liabilities that Parent will not acquire;
WHEREAS in the Restructuring, all the Assets primarily related to the
Clinical Diagnostics Business, the Nutritional Supplements Business and the
Women's Health Business (collectively, the "Newco Business") will be transferred
to Newco or one or more of its subsidiaries, which will thereafter conduct such
businesses, and Newco or one or more of its subsidiaries will assume the Assumed
Liabilities (as defined below);
WHEREAS, the Company and Newco have entered into a License Agreement, dated
as of [DATE], [YEAR] (the "License Agreement"), pursuant to which the Company
has granted to Newco the right to use the Licensed Intellectual Property (as
defined in the License Agreement) upon the terms and subject to the conditions
set forth therein; and
WHEREAS it is the intention of the parties to this Restructuring Agreement
that the transfer of Assets and Liabilities pursuant to this Restructuring
Agreement shall qualify as a transaction described in Section 351 or Section 368
of the Code.
NOW, THEREFORE in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Terms used but not defined in this Restructuring
Agreement shall have the meanings set forth in the Merger Agreement. In
addition, the following terms shall have the following meanings:
"Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person; provided, however, that
for the purposes of this Restructuring Agreement, from and after the
Effective Time, none of the Sunrise Companies shall be deemed to be an
Affiliate of any Newco Company and none of the Newco Companies shall be
deemed to be an affiliate of any Sunrise Company.
"Ancillary Agreements" shall mean the documents described in Section
5.1 hereof.
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"Assets" shall mean any and all assets, properties and rights, whether
tangible or intangible, whether real, personal or mixed, whether fixed,
contingent or otherwise, and wherever located, including, without
limitation, the following:
(i) real property interests (including leases), land, plants,
buildings, improvements and fixtures;
(ii) machinery, equipment, tooling, vehicles, furniture and
fixtures, leasehold improvements, repair parts, tools, plant, laboratory
and office equipment and other tangible personal property, together with
any rights or claims arising out of the breach of any express or implied
warranty by the manufacturers or sellers of any of such assets or any
component part thereof;
(iii) inventories, including raw materials, work-in-process,
finished goods, parts, accessories and supplies (including items in
transit, on consignment or in the possession of any third party);
(iv) cash, bank accounts, notes, loans and accounts receivable
(whether current or not current), interests as beneficiary under letters
of credit, advances and performance and surety bonds;
(v) certificates of deposit, banker's acceptances, shares of stock,
bonds, debentures, evidences of indebtedness, certificates of interest
or participation in profit-sharing agreements, collateral-trust
certificates, reorganization certificates or subscriptions, transferable
shares, investment contracts, voting trust certificates, puts, calls,
straddles, options, swaps, collars, caps and other securities or hedging
arrangements of any kind;
(vi) financial, accounting and operating data and records
including, without limitation, books, records, notes, sales and sales
promotional data, advertising materials, credit information, cost and
pricing information, customer and supplier lists, reference catalogs,
payroll and personnel records, minute books, stock ledgers, stock
transfer records and other similar property, rights and information;
(vii) patents, patent applications, trademarks, trademark
applications, registrations and other rights, trade names and trade
dress, domain names, trade name rights, service marks, service mark
rights, service names, copyrights and copyright applications and
registrations, commercial and technical information including
engineering, production and other designs, drawings, notebooks and other
recording methods, specifications, formulae, technology, computer and
electronic data processing programs and software, inventions, processes,
trade secrets, know-how, confidential information and other proprietary
property, rights and interests;
(viii) agreements, leases, contracts, sale orders, purchase orders,
open bids and other commitments and all rights therein;
(ix) prepaid expenses, deposits and receipts held by third parties;
(x) claims, causes of action, choses in action, rights under
insurance policies, rights under express or implied warranties, rights
of recovery, rights of set-off, rights of subrogation and all other
rights of any kind;
(xi) licenses, franchises, permits, authorizations and approvals;
and
(xii) goodwill and going concern value.
"Assumed Liabilities" shall have the meaning set forth in Section 4.3
hereof.
"Benefit Plan" shall have the meaning set forth in Section 6.3(a)
hereof.
"Business Stationery" shall have the meaning set forth in Section 5.2
hereof.
"Clinical Diagnostics Business" shall mean the businesses of the
Company or any of its subsidiaries and their respective predecessors, at or
at any time prior to the Effective Time, of researching and developing,
manufacturing, marketing, selling and/or distributing diagnostic test kits
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and related products for the infectious disease and genetic marker markets,
including, without limitation, the business conducted at or at any time
prior to the Effective Time by Orgenics, Ltd., Cambridge Diagnostics
Ireland Ltd., Cambridge Affiliate Corporation and each of their respective
subsidiaries.
"Company" shall have the meaning set forth in the Preamble.
"Diabetes Business" shall mean the businesses of the Company or any of
its subsidiaries and their respective predecessors, at or at any time prior
to the Effective Time, of developing, manufacturing, marketing, selling
and/or distributing diabetes management and related products and providing
related services.
"Estimated Net Cash" shall have the meaning set forth in Section
4.1(l) hereof.
"Information" of a person shall mean any and all information,
technical data or know-how, including, but not limited to, that which
relates to research, product plans, products, services, employees,
suppliers, customers, markets, software, know-how, developments,
inventions, processes, designs, drawings, engineering, hardware
configuration information, marketing or finances, that such person or any
of its Representatives furnish or have furnished to the receiving party or
any of its Representatives whether furnished orally or in writing or by any
other means or gathered by inspection and regardless of whether the same is
specifically marked or designated as "confidential" or "proprietary",
together with any and all notes, memoranda, analyses, compilations, studies
or other documents (whether in hard copy or electronic media) prepared by
the receiving person or any of its Representatives which contain or
otherwise reflect such Information, together with any and all copies,
extracts or other reproductions of any of the same; provided, however, that
for the purposes hereof all information relating to the Sunrise Companies
and the Sunrise Business in the possession of any Newco Company at the
Effective Time shall be deemed to have been furnished by the Sunrise
Companies and all information relating to the Newco Companies and all
businesses of the Newco Companies in the possession of any Sunrise Company
at the Effective Time shall be deemed to have been furnished by the Newco
Companies; provided, further, however, that the term "Information" does not
include information that:
(a) is or becomes generally available to the public through no
wrongful act of the receiving person or its Representatives;
(b) is or becomes available to the receiving person on a
non-confidential basis from a source other than the providing person or
its Representatives, provided that such source is not known by the
receiving person to be subject to a confidentiality agreement with the
providing person; or
(c) has been independently acquired or developed by the receiving
person without violation of any of the obligations of the receiving
person or its Representatives under this Restructuring Agreement.
"Initial Statement" shall have the meaning set forth in Section 4.1(l)
hereof.
"Intercompany Arrangements" shall have the meaning set forth in
Section 4.7 hereof.
"Liabilities" shall mean any and all debts, liabilities, commitments
and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or not accrued, known or
unknown, whenever or however arising and whether or not the same would be
required by generally accepted accounting principles to be reflected in
financial statements or disclosed in the notes thereto.
"Merger Agreement" shall have the meaning set forth in the Recitals.
"Net Cash" shall mean, as of the Effective Time, cash and marketable
securities less debt for borrowed money (other than debt outstanding under
any revolving line of credit) of the Newco Companies on a consolidated
basis calculated in accordance with GAAP.
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"Net Cash Adjustment Amount" shall have the meaning set forth in
Section 4.1(l) hereof.
"Newco" shall have the meaning set forth in the Preamble.
"Newco Assets" shall have the meaning set forth in Section 4.1 hereof.
"Newco Benefit Plan" shall have the meaning set forth in Section
6.3(a) hereof.
"Newco Business" shall have the meaning set forth in the Recitals.
"Newco Companies" shall mean Newco and its subsidiaries (determined
after giving effect to the transactions contemplated by Article IV of this
Restructuring Agreement).
"Newco Employees" shall mean all current employees and consultants of
the Company and its subsidiaries listed on Schedule 1.1(a) hereto and
employees and consultants hired after the date of the Merger Agreement and
prior to the Effective Time engaged primarily in the Newco Business.
"Newco Replacement Benefit Plans" shall have the meaning set forth in
Section 6.3(a) hereof.
"Nutritional Supplements Business" shall mean the businesses of the
Company or any of its subsidiaries and their respective predecessors, at or
at any time prior to the Effective Time, of researching and developing,
manufacturing, marketing, selling and/or distributing nutritional
supplements (including without limitation, the Allbee, Benimal, Z-Bec,
Ferro-Sequels, Gevral-T, Gevrabon, Protregra, Stresstabs, SoyCare and
Posture brands) and related products and providing related services.
"Parent" shall have the meaning set forth in the Recitals.
"Replacement Welfare Plans" shall have the meaning set forth in
Section 6.2(c) hereof.
"Representatives" of a person shall mean such person's affiliates,
directors, officers, partners, employees, agents or other representatives
(including attorneys, accountants and financial advisors).
"Restructuring" shall have the meaning set forth in Section 4.1
hereof.
"Restructuring Agreement" shall have the meaning set forth in the
Preamble.
"Sunrise Assets" shall have the meaning set forth in Section 4.2
hereof.
"Sunrise Business" shall mean all the businesses of the Company or any
of its subsidiaries and their respective predecessors, at or at any time
prior to the Effective Time, other than the Newco Business.
"Sunrise Companies" shall mean the Company and its subsidiaries,
excluding the Newco Companies (determined after giving effect to the
transactions contemplated by Article IV of this Restructuring Agreement).
"Sunrise Employees" shall mean all current employees and consultants
of the Company and its subsidiaries listed on Schedule 1.1(b) hereto and
employees and consultants hired after the date of the Merger Agreement and
prior to the Effective Time engaged primarily in a business other than the
Newco Business.
"Sunrise Liabilities" shall have the meaning set forth in Section 4.3
hereof.
"Sub" shall have the meaning set forth in the Recitals.
"Tax Allocation Agreement" shall have the meaning set forth in Section
3.1 hereof.
"Taxes" shall have the meaning set forth in the Tax Allocation
Agreement.
"Transition Employees" shall mean those employees set forth on
Schedule 1.1(c) hereto and employees (including temporary employees) hired
after the date of the Merger Agreement and prior to the expiration of the
Transition Services Agreement with the consent of the Company (such consent
not to be unreasonably withheld) to replace employees listed on Schedule
1.1(c) hereto
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whose employment with the Company or its subsidiaries or Newco or its
subsidiaries terminates after the date of the Merger Agreement.
"Women's Health Business" shall mean the businesses of the Company or
any of its subsidiaries and their respective predecessors, at or at any
time prior to the Effective Time, of researching and developing,
manufacturing, marketing, selling and/or distributing pregnancy tests,
ovulation self-test products, feminine hygiene products, and all related
products and providing related services.
ARTICLE II
CAPITALIZATION OF NEWCO
2.1 Prior to the Effective Time, the Company shall cause Newco to amend its
Certificate of Incorporation to, among other things, increase the authorized
shares of Newco Common Stock such that there are sufficient shares of Newco
Common Stock to consummate the transactions contemplated by the Merger
Agreement.
ARTICLE III
TAX MATTERS
3.1 Tax Allocation Agreement. Prior to the Restructuring, the Company,
Newco and Parent shall enter into an agreement relating to past and future tax
sharing and certain issues associated therewith in the form attached to the
Merger Agreement as Annex B (the "Tax Allocation Agreement").
3.2 Tax Matters. Notwithstanding anything to the contrary in this
Restructuring Agreement, Liabilities of the parties for Taxes are subject to the
terms of the Tax Allocation Agreement. All obligations of Newco under the Tax
Allocation Agreement shall be treated as Assumed Liabilities and not as Sunrise
Liabilities under this Restructuring Agreement and all obligations of the
Company under the Tax Allocation Agreement shall be treated as Sunrise
Liabilities and not as Assumed Liabilities under this Restructuring Agreement.
ARTICLE IV
RESTRUCTURING AND ASSUMED LIABILITIES
4.1 Restructuring. Prior to the Effective Time, as described below, the
Company shall contribute or cause to be contributed to Newco any of the
Company's or any of its subsidiaries' right, title and interest in and to (i)
all Assets that are used or held for use primarily in the operation or conduct
of the Newco Business (other than those set forth on Schedule 4.2)) and (ii) all
Assets that are set forth on Schedule 4.1 (collectively, the "Newco Assets"). In
that connection, prior to the Effective Time, the Company shall cause the
following transactions, elections and filings to occur in the order set forth
below (the "Restructuring"):
(a) Inverness Medical Benelux Bvba ("IMB"), a wholly owned subsidiary
of Inverness Medical Europe GmbH ("IME"), which is itself a wholly owned
subsidiary of the Company, shall file on United States Treasury Form 8832,
Entity Classification Election, an election to be disregarded as a separate
entity, effective on a date that is on or prior to the Closing Date, and on
or prior to the effective date of the election described in Section 4.1(b).
(b) IME shall file on United States Treasury Form 8832, Entity
Classification Election, an election to be disregarded as a separate
entity, effective on a date that is on or prior to the Closing Date.
(c) IMB shall transfer to IME all of IMB's right, title and interest
in and to all of the Sunrise Assets held by IMB, and IME shall transfer to
IMB all of IME's right, title and interest in and to all of the Newco
Assets held by IME.
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(d) IME shall transfer to the Company all of IME's right, title and
interest in and to the issued and outstanding capital stock of IMB.
(e) Inverness Medical Canada Inc. ("IMC") shall transfer to Inverness
Medical Inc. ("IMI") all of IMC's right, title and interest in and to all
of the Sunrise Assets held by IMC.
(f) IMI shall transfer to Can-Am Care Corporation ("Can-Am") all of
IMI's right, title and interest in and to all of the Sunrise Assets held by
IMI (including the Sunrise Assets formerly held by IMC), and Can-Am shall
transfer to IMI all of Can-Am's right, title and interest in and to all of
the Newco Assets held by Can-Am.
(g) IMI shall transfer to the Company all of IMI's right, title and
interest in and to the issued and outstanding capital stock of Can-Am.
(h) Cambridge Diagnostics Ireland Ltd. ("CDIL") shall transfer to the
Company all of CDIL's right, title and interest in and to all of the
Sunrise Assets held by CDIL.
(i) Inverness Medical Ltd. ("IML") shall transfer to the Company all
of IML's right, title and interest in and to all of the Newco Assets held
by IML.
(j) Inverness Medical Asia Pty ("IMA") shall transfer to the Company
all of IMA's right, title and interest in and to all of the Newco Assets
held by IMA.
(k) Selfcare Europe Ltd. ("SEL") shall be liquidated.
(l) The Company shall transfer to Newco (i) all of the Company's
right, title and interest in and to all of the Newco Assets held by the
Company (including the Newco assets formerly held by IML, IMA and SEL), and
(ii) all of the Company's right, title and interest in and to the issued
and outstanding capital stock of IMB, IMI, CDIL, Selfcare Technology, Inc.,
Orgenics International Holdings B.V., Selfhelp Israel, Ltd., Orgenics, Ltd.
and Cambridge Affiliate Corporation.
(m) IMI shall transfer to Newco all of the assets held by IMI that are
used or held for use primarily in the operation or conduct of the Women's
Health Business, which assets shall be valued in accordance with the
formula set forth in Schedule 4.1(m).
(n) not less than four business days prior to the Closing Date, Newco
shall prepare and deliver to Parent a statement (the "Initial Statement")
setting forth a good faith estimate of 90% of the Net Cash (the "Estimated
Net Cash") and (ii) on the Closing Date the Company shall contribute, or
cause to be contributed, as a capital contribution to Newco, cash in an
amount (the "Net Cash Adjustment Amount") equal to (x) $40,000,000, minus
(y) the Estimated Net Cash set forth on the Initial Statement.
4.2 Assets Not Transferred. Notwithstanding anything to the contrary set
forth in Section 4.1, the Company hereby retains and does not contribute to
Newco any of the Company's or any of its subsidiaries' right, title and interest
in and to all Assets that (x) are not used or held for use primarily in the
operation or conduct of the Newco Business (other than those set forth on
Schedule 4.1) or (y) are set forth on Schedule 4.2 hereto (it being understood
and agreed that such Assets shall include all Intellectual Property Rights
(other than trademarks, trademark applications, registrations and other rights,
trade names and trade dress, trade name rights, service marks, service mark
rights and service names) of the Company and its subsidiaries related to the
Diabetes Field) (collectively, the "Sunrise Assets"); provided, that if
necessary to retain or control any such Sunrise Assets, the Company, prior to
effecting any of the contributions of the capital stock of its subsidiaries to
Newco as described in Section 4.1, will cause its subsidiaries to contribute,
grant, convey, assign, transfer and deliver, to the Company or any of its other
subsidiaries, all the subsidiaries' right, title and interest in and to all such
Sunrise Assets; provided, further, that if necessary to retain, control or
temporarily use any Asset material to the operation or conduct of the Sunrise
Business that is primarily used in the conduct of the Newco Business, the
parties shall cooperate in good faith to provide, as appropriate, for the use or
shared ownership of such Asset pursuant to the Transition Services Agreement or
the timely transfer of such Asset to the Company or any of its
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subsidiaries; provided, further, that if necessary to retain, control or
temporarily use any Asset material to the operation or conduct of the Newco
Business that is primarily used in the conduct of the Sunrise Business, the
parties shall cooperate in good faith to provide, as appropriate, for the use or
shared ownership of such Asset pursuant to the Transition Services Agreement or
the timely transfer of such Asset to Newco or any of its subsidiaries.
4.3 Assumed Liabilities. Notwithstanding Section 4.1, the parties agree
that, except as otherwise specifically set forth in any Transaction Agreement
(including the treatment of Tax Liabilities as set forth in Section 3.2 or
employee related Liabilities as set forth in Section 6.2), at or prior to the
Effective Time, (a) Newco shall, or shall cause the appropriate Newco subsidiary
to, unconditionally assume and undertake to pay, satisfy and discharge (x) all
Liabilities (whether arising before or after the Restructuring) of the Company
and its subsidiaries to the extent primarily related to or arising out of the
Newco Business and (y) all Liabilities set forth on Schedule 4.3(a) hereto
(clauses (x) and (y) are collectively referred to as the "Assumed Liabilities"),
in each case when such Assumed Liabilities become due in accordance with their
terms, and (b) the Company shall retain, or shall assume, or shall cause the
appropriate Sunrise Company to assume, and undertake to pay, satisfy and
discharge (x) all Liabilities (whether arising before or after the
Restructuring) of the Company and its subsidiaries other than the Assumed
Liabilities and (y) all Liabilities set forth on Schedule 4.3(b) hereto (clauses
(x) and (y) are collectively referred to as the "Sunrise Liabilities"), in each
case when such Sunrise Liabilities become due in accordance with their terms.
4.4 Transfer and Assumption Documentation. In furtherance of the
contribution, grant, conveyance, assignment, transfer and delivery of the Assets
and the assumption of the Liabilities set forth in this Article IV (i) the
transferor shall execute and deliver, and cause its subsidiaries to execute and
deliver, such deeds, bills of sale, stock powers, certificates of title,
assignments of leases and contracts and other instruments of contribution,
grant, conveyance, assignment, transfer and delivery necessary to evidence such
contribution, grant, conveyance, assignment, transfer and delivery and (ii) the
transferee shall execute and deliver such instruments of assumption as and to
the extent necessary to evidence such assumption.
4.5 Nonassignable Contracts. Anything contained herein to the contrary
notwithstanding, this Restructuring Agreement shall not constitute an agreement
to assign any lease, license agreement, contract, agreement, sales order,
purchase order, open bid or other commitment if an assignment or attempted
assignment of the same without the consent of the other party or parties thereto
would constitute a breach thereof or in any way impair the rights of the Newco
Companies or the Sunrise Companies thereunder. All such items that are material
are set forth on Schedule 4.5. The Company or Newco, as the case may be, shall,
or shall cause its applicable subsidiary to, use its commercially reasonable
efforts (it being understood that such efforts shall not include any requirement
of Newco or the Sunrise Companies to expend money or offer or grant any
financial accommodation), to obtain all consents and waivers and to resolve all
impracticalities of assignments or transfers necessary to convey to the other
party the Assets so to be conveyed pursuant to Section 4.1. If and when such
consents and approvals are obtained, the transfer of the applicable Asset shall
be effected in accordance with the terms of this Restructuring Agreement.
4.6 Tax Election. The Company represents and warrants that (i) in
connection with the Restructuring, IME will not transfer Newco Assets to any
entity other than IMB, and (ii) Newco has no plan or intention to take any
action (or cause any action to be taken) after the effective date of the
election described in Section 4.1(a) which would cause IMB to be treated as a
corporation for federal tax purposes.
4.7 Intercompany Arrangements. All agreements, contracts, arrangements and
commitments (other than the Transaction Agreements) between the Newco Companies
or any operating unit of any Newco Company, on the one hand, and the Sunrise
Companies or any operating unit of any Sunrise Company (other than the Newco
Companies or any operating unit of any Newco Company), on the other hand,
entered into prior to the Closing Date and set forth on Schedule 4.7 for the
purchase or sale of goods or services ("Intercompany Arrangements") shall
terminate on the Closing Date. All amounts under such
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Intercompany Arrangements which are unbilled and have not been charged to the
related contract as of the Closing Date shall be billed and payable on the
Closing Date. At or before the Closing, the Company shall cause all intercompany
indebtedness (which shall include payables and receivables) between the Newco
Companies or any operating unit of any Newco Company, on the one hand, and the
Sunrise Companies or any operating unit of any Sunrise Company (other than the
Newco Companies or any operating unit thereof), on the other hand, including
without limitation any indebtedness under the intercompany arrangements set
forth on Schedule 4.7, to be settled or otherwise eliminated.
ARTICLE V
OTHER AGREEMENTS
5.1 Ancillary Agreements. Prior to the Effective Time, the Company, or
another of the Sunrise Companies, and Newco, or another of the Newco Companies,
shall enter into (a) a transition services agreement relating to the Women's
Health Business of Can-Am and IME, and the kitting services and secondary
packaging services provided at the Galway, Ireland facility (the "Transition
Services Agreement"), and (b) the License Agreement and (c) a sublease from the
Company to Newco of the premises currently subleased by the Company at 51 Sawyer
Road, Waltham, Massachusetts on the same terms as those of the sublease
currently held by the Company (collectively, the "Ancillary Agreements").
5.2 Use of Name. Except as provided below, from and after the Effective
Time, Newco shall have all rights in and use of the names "Inverness" and
"Inverness Medical" and all derivatives thereof and the Company and its
subsidiaries shall take such actions as are reasonably necessary to vest such
rights in Newco or any of its subsidiaries. As a result, promptly after the
Effective Time, the Company shall take or cause to be taken all action necessary
to (a) change the name of any of the Sunrise Companies to eliminate therefrom
the names "Inverness" and "Inverness Medical" and all respective derivatives
thereof, including any names confusingly similar to "Inverness" or "Inverness
Medical" and (b) promptly deliver to Newco all stationery, business cards,
brochures and other documents (collectively, "Business Stationery"), including,
without limitation, invoices and purchase orders, bearing the names "Inverness"
or "Inverness Medical" and all derivatives thereof. Except as provided below,
within 90 days following the Effective Time, the Company shall cause to be
removed from display from all of its facilities all demountable displays which
contain the names "Inverness" or "Inverness Medical" and all respective
derivatives thereof or any corporate symbol related thereto and shall cause the
removal of all signs displaying such name and all derivatives thereof.
Notwithstanding the foregoing, (i) the Sunrise Companies shall retain and have
the right to display on their facilities located in Inverness, Scotland the
names "Inverness", "Inverness Medical" and "Inverness Medical, Ltd." and
derivatives thereof, including on any sign located at such facilities and (ii)
the Sunrise Companies and their suppliers and distributors shall retain and have
the right to use the names "Inverness" and "Inverness Medical" and derivatives
thereof and applicable trademarks and trade dress on product packaging and
related materials for a period of 365 days following the Effective Time.
5.3 Books and Records. Prior to or as promptly as practicable after the
Effective Time, the Company shall deliver to Newco all corporate books and
records of the Newco Companies in the possession of the Sunrise Companies and
the relevant portions (or copies thereof) of all corporate books and records of
the Sunrise Companies relating to the Newco Companies, the businesses of the
Newco Companies or the Assumed Liabilities, including, in each case, all active
agreements, active litigation files and government filings. From and after the
Effective Time, all such books, records and copies shall be the property of
Newco. The Company may retain copies of all such corporate books and records.
Prior to or as promptly as practicable after the Effective Time, Newco and its
subsidiaries shall deliver to the Company all corporate books and records of the
Sunrise Companies in the possession of any of the Newco Companies and relevant
portions (or copies thereof) of all corporate books and records of the Newco
Companies relating to the Sunrise Companies, the Sunrise Business or the Sunrise
Liabilities, including, in each case, all active agreements, active litigation
files and government filings. From and after the Effective
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Time, all such books, records and copies shall be the property of the Company.
Newco may retain copies of all such corporate books and records.
5.4 Access. From and after the Effective Time, each of the Company and its
subsidiaries, on the one hand, and Newco and its subsidiaries, on the other
hand, shall afford to the other and to the other's Representatives reasonable
access and duplicating rights (at the requesting person's expense), during
normal business hours and upon reasonable advance notice, to all information
within the possession or control of any of the Sunrise Companies or any of the
Newco Companies, as the case may be, to the extent directly relating to the
business, Assets or Liabilities of the other as they existed prior to the
completion of the Restructuring or to the extent relating to or arising in
connection with the relationship between any of the Sunrise Companies or the
Newco Companies, as the case may be, prior to the Restructuring insofar as such
access is reasonably required for a reasonable purpose. Without limiting the
foregoing, information may be requested under this Section 5.4 for audit,
accounting, claims, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations.
5.5 Retention of Records. Except as provided in any of the Transaction
Agreements, if any information relating to the businesses, Assets or Liabilities
of a Sunrise Company or a Newco Company is retained by a Newco Company or
Sunrise Company, respectively, each of the Company and Newco shall, and shall
cause the other Sunrise Companies and Newco Companies, respectively, to, retain
all such information in the Sunrise Companies' or Newco Companies' possession or
under their respective control until such information is at least six years old
(or for such longer period as may be required by law) except that if, prior to
the expiration of such period, any Sunrise Company or Newco Company wishes to
destroy or dispose of any such information that is at least three years old,
then prior to destroying or disposing of any of such information, (a) the
Company or Newco, on behalf of the Sunrise Company or the Newco Company that is
proposing to dispose of or destroy any such information, shall provide no less
than 45 days' prior written notice to the other person, specifying the
information proposed to be destroyed or disposed of, and (b) if, prior to the
scheduled date of such destruction or disposal, the other person requests in
writing that any of the information proposed to be destroyed or disposed of be
delivered to such other person, the Company or Newco, as applicable, promptly
shall arrange for the delivery of the requested information to a location
specified by, and at the expense of, the requesting person.
5.6 Confidentiality. (a) Each party hereto shall keep, and shall cause its
Representatives to keep, the other party's Information strictly confidential and
will disclose such Information only to such of its Representatives who need to
know such Information and who agree to be bound by this Section 5.6 and not to
disclose such Information to any other Person. Without the prior written consent
of the other party, each party and its Representatives shall not disclose the
other party's Information to any person or entity except as may be required by
law or judicial process and in accordance with this Section 5.6.
(b) In the event that any party or any of its Representatives receives a
request or is required by law or judicial process to disclose to a court or
other tribunal all or any part of the disclosing party's Information, the
receiving party or its Representatives shall promptly notify the disclosing
party of the request in writing, and consult with and assist the disclosing
party in seeking a protective order or request for other appropriate remedy. In
the event that such protective order or other remedy is not obtained or the
disclosing party waives compliance with the terms hereof, such receiving party
or its Representatives, as the case may be, shall disclose only that portion of
the Information or facts which, in the written opinion of the receiving party's
outside counsel, is legally required to be disclosed, and will exercise its
respective commercially reasonable efforts to assure that confidential treatment
will be accorded such Information or facts by the Persons or entities receiving
the same. The providing party will be given an opportunity to review the
Information or facts prior to disclosure.
5.7 Further Assurances. The parties agree that if, after the completion of
the Restructuring, either party holds Assets which by the terms hereof or of the
Merger Agreement were intended to be assigned and transferred to, or retained
by, the other party, such party shall, at its expense, promptly assign and
transfer or cause to be assigned and transferred such Assets to the other party,
and the parties agree that the transferring party will hold such Assets as
trustee of the transferee party and all income and risk of
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loss of the transferred Assets to the completion of the Restructuring shall be
for the account of the intended owner. Each of the parties hereto, at its own
cost and expense, promptly shall execute such documents and other instruments
and take such further actions as may be reasonably required or desirable to
carry out the provisions hereof and to consummate the transactions contemplated
hereby.
5.8 Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure (a) that the Restructuring and the assumption of
the Sunrise Liabilities and the Assumed Liabilities are consummated in
accordance with the terms hereof, (b) the retention by the Company of the
Sunrise Business, including, without limitation, allocation of rights and
obligations under Contracts, if any, of the Sunrise Companies or the Newco
Companies that relate to the Sunrise Business, (c) the transfer to Newco of all
the Newco Assets, including, without limitation, allocation of rights and
obligations under Contracts, if any, of the Newco Companies or the Sunrise
Companies that relate to the Newco Business and (d) the allocation of employee
liabilities and provision of employee benefits in accordance with the provisions
of Article VI.
ARTICLE VI
EMPLOYEE MATTERS
6.1 Employment of Newco Employees and Sunrise Employees. Effective as of
the Effective Time, (a) Sunrise Employees shall remain or become employees of
the Sunrise Companies in the same capacities as then held by such employees (or
in such other capacities and upon such terms and conditions as the Company shall
determine in its sole discretion) and (b) Newco Employees shall remain or become
employees of the Newco Companies in the same capacities as then held by such
employees (or in such other capacities and upon such terms and conditions as
Newco shall determine in its sole discretion). Nothing contained in this Section
6.1 shall confer on any Sunrise Employee or any Newco Employee any right to
continued employment after the Effective Time, and such employees shall continue
to be employed "at-will" subject to any requirements under applicable foreign
law to the contrary. Newco or a subsidiary thereof shall employ the Transition
Employees to perform, among other things, the services contemplated by the
Transition Services Agreement. The compensation to be paid, and benefits to be
provided, to such Transition Employees shall be borne by Newco, subject to the
reimbursement and expense payment provisions of the Transition Services
Agreement. Notwithstanding the foregoing, the Sunrise Companies shall be
responsible for all retention bonuses paid to and severance costs associated
with such Transition Employees.
6.2 Liabilities and Obligations Generally. Without limiting the generality
of Section 4.3, effective as of the Effective Time, Newco shall assume and be
solely responsible for all Liabilities including, without limitation, any
Liabilities in respect of the failure to maintain the favorable tax status of
any Newco Benefit Plan or Newco Replacement Benefit Plan and obligations related
to (i) the Newco Employees and (ii) the former employees of the Company and its
subsidiaries whose primary responsibilities related to the Newco Business.
Without limiting the generality of Section 4.3, effective as of the Effective
Time, the Company shall assume (if applicable) and be solely responsible for all
Liabilities and obligations related to (i) the Sunrise Employees and (ii) the
former employees of the Company and its subsidiaries whose primary
responsibilities related to the businesses of the Company and its subsidiaries
other than the Newco Business. To the extent permitted by applicable law, the
Company and Newco agree (i) that the transactions contemplated by this
Restructuring Agreement shall not constitute a termination of employment of any
Sunrise Employee or any Newco Employee that would entitle such employee to
receive severance or similar compensation and benefits and (ii) to use their
reasonable best efforts to amend, if necessary, any applicable Benefits Plans to
so provide.
6.3 Employee Benefits. Without limiting the generality of Section 6.2
above:
(a) Effective as of the Effective Time, Newco shall assume sponsorship
of each employee benefit, welfare benefit, employment, personal services,
compensation, change in control, severance, time-off, perquisite and other
benefit plan, policy or agreement ("Benefit Plans") relating exclusively
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to one or more Newco Employees (the "Newco Benefit Plans") and any trusts
related thereto; provided, however, that notwithstanding any other
provision herein to the contrary, any defined benefit pension plan for the
benefit of employees in Ireland shall be deemed to be a Newco Benefit Plan.
To the extent any Newco Employee participates prior to the Effective Time
in Benefit Plans that are not a Newco Benefit Plans, Newco shall establish
and maintain or cause to be established or maintained for the benefit of
Newco Employees, as of the Effective Time, Benefit Plans (which, for
purposes of this Section 6.3(a), shall not include equity plans) that
provide substantially comparable benefits to those provided to such Newco
Employee immediately prior to the Effective Time (the "Newco Replacement
Benefit Plans"). As of the Effective Time, except as required by applicable
law, Newco Employees shall cease to participate in any Benefit Plan that is
not a Newco Benefit Plan and shall commence participation in the
Replacement Benefit Plans.
(b) In the event the Sunrise Employees or former employees of the
Company and its subsidiaries whose primary responsibilities related to the
businesses of the Company and its subsidiaries other than the Newco
Business participate in a Benefit Plan that is a defined benefit pension
plan that is maintained by Newco or its subsidiaries, Newco and the Company
shall cause to be transferred from such Benefit Plan to a Benefit Plan
established or maintained by the Company or Parent or any of their
respective subsidiaries the liabilities in respect of such participants,
and assets in an amount, subject to applicable law, equal to such
liabilities, determined on a projected benefit basis based on actuarial
assumptions mutually agreed by Newco and Parent. In addition, in the event
the Newco Employees or former employees of the Company and its subsidiaries
whose primary responsibilities related to the Newco Business participate in
a Benefit Plan that is a defined benefit pension plan that is maintained by
the Company or its subsidiaries, Newco and the Company shall cause to be
transferred from such Benefit Plan to a Benefit Plan established or
maintained by Newco or any of its subsidiaries the liabilities in respect
of such participants, and assets in an amount, subject to applicable law,
equal to such liabilities, determined on a projected benefit basis based on
actuarial assumptions mutually agreed by Newco and Parent.
(c) Effective as of the Effective Time, with respect to those
collective bargaining agreements to which the Company or its subsidiaries
is a party, Newco shall assume the collective bargaining agreements
covering Newco Employees, and the Company shall assume the collective
bargaining agreements covering the Sunrise Employees, and each of Newco and
the Company shall take all other actions necessary to ensure that Newco and
the Company remain solely responsible for the Liabilities and obligations
under such collective bargaining agreements covering the Newco Employees
and the Sunrise Employees, respectively.
6.4 Preservation of Rights to Amend or Terminate Plans. Except as
otherwise provided in the Merger Agreement or this Restructuring Agreement, no
provision of this Restructuring Agreement shall be construed as a limitation on
the right of the Company or Newco to amend or terminate any Benefit Plan which
right the Company or Newco would otherwise have under the terms of such Benefit
Plan or otherwise, and no provision of this Restructuring Agreement shall be
construed to create a right in any employee or beneficiary of such Benefit Plan
that such employee or beneficiary would not otherwise have under the terms of
the Benefit Plan itself.
6.5 Reimbursement; Indemnification. Newco and the Company acknowledge that
the Company, on the one hand, and Newco, on the other hand, may incur costs and
expenses (including, without limitation, contributions to plans and the payment
of insurance, or other similar premiums) pursuant to any of the Benefit Plans
which are, as set forth in this Restructuring Agreement, the responsibility of
the other party. Accordingly, the Company and Newco agree to reimburse each
other, as soon as practicable but in any event within 30 days of receipt from
the other party of appropriate verification, for all such costs and expenses
reasonably incurred. If applicable foreign laws require that (i) the Company
incur Liabilities in respect of Newco Employees or (ii) Newco incur Liabilities
in respect of Sunrise Employees, notwithstanding the terms of this Agreement,
then Newco or the Company, respectively, shall fully indemnify and hold harmless
the Company or Newco, as applicable, to the extent of such Liabilities. All
Liabilities retained, assumed or indemnified by Newco pursuant to this Article
VI shall in each case be
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deemed to be Assumed Liabilities, and all Liabilities retained, assumed or
indemnified by the Company pursuant to this Article VI shall in each case be
deemed to be Sunrise Liabilities, and, in each case, shall be subject to the
indemnification provisions set forth in Article II of the Post-Closing Covenants
Agreement.
6.6 Employment, Consulting and Severance Agreements. Effective as of the
Effective Time and except as set forth in Section 6.7 hereof, Newco and the
Company shall take all actions necessary (including assignments, if applicable)
to ensure that with respect to any employment, consulting, deferred
compensation, indemnification, termination, severance or any other agreements
with a Newco Employee or a Sunrise Employee, to which any of the Sunrise
Companies or Newco Companies is a party, as the same are in effect immediately
prior to such time, any such agreement with a Newco Employee shall be assumed by
Newco, and that any such agreement with a Sunrise Employee shall be assumed by
the Company, and in respect of which Newco or the Company, as the case may be,
becomes solely responsible for the obligations and Liabilities (and solely
entitled to the rights) under such agreements.
6.7 Equity Awards. Prior to the Effective Time, and immediately prior to
the conversion of Sunrise Options (as defined below) into Adjusted Options,
Newco and the Company shall take all actions necessary to cause each outstanding
option to purchase Company Common Stock (each an "Original Option") to be
converted into an option to purchase Company Common Stock and an option to
purchase Newco Common Stock ("Sunrise Options" and "Newco Options",
respectively). The number of shares of Newco Common Stock subject to a Newco
Option shall equal the number of shares of Company Common Stock subject to the
Original Option multiplied by the Newco Exchange Ratio (rounded down to the
nearest whole share), and the number of shares of Company Common Stock subject
to a Sunrise Option shall equal the number of shares of Company Common Stock
subject to the Original Option. The exercise price of the Sunrise Option, and
the exercise price of the Newco Option shall each be set, so that the combined
exercise price of such options to purchase Company Common Stock and Newco Common
Stock equals that of the existing Original Option, and shall be allocated
between the Sunrise Option and the Newco Option as set forth below, such that a
holder of an Original Option will pay the same aggregate exercise price and will
receive the same number of shares of Parent Common Stock and Newco Common Stock
that such holder would have received as Merger Consideration and Split-Off
Consideration, respectively, if such holder had exercised the Original Option
immediately prior to the Split-Off and Merger. The aggregate exercise price of
an Original Option shall be allocated to the Sunrise Option and the Newco Option
issuable upon conversion thereof in proportion to the deemed fair market value
of the Split-Off Consideration and the Merger Consideration which would be
issued upon conversion of one share of Company Common Stock pursuant to Section
2.01(c) of the Merger Agreement, which deemed fair market value shall be
determined with reference to the closing prices of Parent Common Stock on the
NYSE and Newco Common Stock on a national securities exchange or Nasdaq, on the
first full trading day following the Effective Time, as reported by Bloomberg
Financial Markets (or such other source to which Parent, the Company and Newco
may agree).
The exercise price per share of Company Common Stock issuable upon exercise
of a Sunrise Option shall be equal to (A) the aggregate exercise price allocated
to such Sunrise Option in accordance with the foregoing for the shares of
Company Common Stock otherwise purchasable pursuant to such Sunrise Option
divided by (B) the aggregate number of shares of Company Common Stock deemed
purchasable pursuant to such Sunrise Option in accordance with the foregoing
provided that such per share exercise price shall be rounded up to the nearest
whole cent. The exercise price per share of Newco Common Stock issuable upon
exercise of a Newco Option shall be equal to (A) the aggregate exercise price
allocated to such Newco Option in accordance with the foregoing for the shares
of Newco Common Stock otherwise purchasable pursuant to such Newco Option
divided by (B) the aggregate number of shares of Newco Common Stock deemed
purchasable pursuant to such Newco Option in accordance with the foregoing
provided that such per share exercise price shall be rounded up to the nearest
whole cent.
All other terms of the Original Options will continue to apply to the
Sunrise Options and the Newco Options (and the Adjusted Options, following the
conversion of the Sunrise Options in accordance with Section 6.04 of the Merger
Agreement) except that (i) all Sunrise Options will be fully vested and
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immediately exercisable at and after the Effective Time, (ii) all Sunrise
Options (and the Adjusted Options issuable upon conversion of such Sunrise
Options pursuant to Section 6.04 of the Merger Agreement) which will be held by
persons other than persons who are Sunrise Employees will remain exercisable for
the remainder of the originally stated term of such Sunrise Option irrespective
of employment by or service to, or continued employment by or service to,
Parent, any Sunrise Company (including the Company), Newco or any Newco Company
and (iii) all Newco Options will be fully vested and immediately exercisable at
and after the Effective Time. Each of the Company's and Newco's Board of
Directors (or, if appropriate, any committee of such Board of Directors
administering the applicable stock plans) shall take such action, if any, as is
necessary to effect the matters set forth in the foregoing sentence. Newco will
be responsible for the delivery of shares of Newco Common Stock upon exercise of
a Newco Option, and the Company will be responsible for the delivery of shares
of Company Common Stock upon exercise of a Sunrise Option. Newco shall take such
action (including adopting, if appropriate, equity award plans) as is necessary
or appropriate to effect the foregoing.
6.8 Actions By Newco. Any action required to be taken under this Article
VII may be taken by one or more of the Newco Companies.
6.9 No Termination. The Company and Newco shall take such actions as are
required to provide that for purposes of the Sunrise Options and the Newco
Options and for severance benefits, each Newco Employee shall be deemed not to
have incurred a termination of employment as a result of the transactions
contemplated by this Restructuring Agreement and the Merger Agreement. If under
applicable law, any Sunrise Employee or Newco Employee employed outside the U.S.
is deemed to have incurred a termination of employment as a result of the
transactions contemplated by this Restructuring Agreement, which entitles such
individual to receive any payment or benefit under any non-U.S. Benefit Plan,
governmental plan or arrangement or pursuant to any law or regulation, including
severance benefits, notwithstanding such individual's continued employment by
Newco or the Company then notwithstanding any other provision hereof, to the
extent Legally Permitted, appropriate adjustments shall be made to the treatment
of such individual during such continued employment, including not giving such
individual credit for prior service and/or treating such individual as having
been newly hired immediately after such deemed termination, for purposes of all
applicable non-U.S. Plans. For purposes of this Agreement, "Legally Permitted"
shall mean permitted under the laws of the country, the labor union, works
council, or collective agreement, including mandated waiting periods before
which working conditions (including benefits) cannot be changed, and upon
receiving required agreement from individual employees and/or Benefit Plan
trustees, foundation boards and members, and any other organizations having a
recognized right to determine or affect benefits and/or funding of the Benefit
Plan.
ARTICLE VII
WARRANTS
7.1 Warrants. Prior to the Effective Time, and immediately prior to the
conversion of Sunrise Warrants (as defined below) pursuant to Section 6.04(g) of
the Merger Agreement, Newco and the Company shall use their commercially
reasonable efforts to take all necessary actions to cause each outstanding
warrant to purchase Company Common Stock (each an "Original Warrant") to be
converted into a warrant to purchase Company Common Stock and a warrant to
purchase Newco Common Stock ("Sunrise Warrants" and "Newco Warrants",
respectively). The number of shares of Newco Common Stock subject to a Newco
Warrant shall equal the number of shares of Company Common Stock subject to the
Original Warrant multiplied by the Newco Exchange Ratio (rounded to the nearest
whole share), and the number of shares of Company Common Stock subject to a
Sunrise Warrant shall equal the number of shares of Company Common Stock subject
to the Original Warrant. The exercise price of the Sunrise Warrant, and the
exercise price of the Newco Warrant shall each be set, so that the combined
exercise price of such warrants to purchase Company Common Stock and Newco
Common Stock equals that of the existing Original Warrant, and shall be
allocated between the Sunrise Warrant and the Newco Warrant as set forth below,
such that a holder of an Original Warrant will pay the same aggregate exercise
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price and will receive the same number of shares of Parent Common Stock and
Newco Common Stock that such holder would have received as Merger Consideration
and Split-Off Consideration, respectively if such holder had exercised the
Original Warrant immediately prior to the Split-Off and Merger. The aggregate
exercise price of an Original Warrant shall be allocated to the Sunrise Warrant
and the Newco Warrant issuable upon conversion thereof in proportion to the
deemed fair market value of the Split-off Consideration and the Merger
Consideration which would be issued upon conversion of one share of Company
Common stock pursuant to Section 2.01(c) of the Merger Agreement, which deemed
fair market value shall be determined with reference to the closing prices of
Parent Common Stock on the NYSE and Newco Common Stock on a national securities
exchange or Nasdaq on the first full trading day following the Effective Time,
as reported by Bloomberg Financial Markets (or such other source to which
Parent, the Company and Newco may agree).
The exercise price per share of Company Common Stock issuable upon exercise
of a Sunrise Warrant shall be equal to (A) the aggregate exercise price
allocated to such Sunrise Warrant in accordance with the foregoing for the
shares of Company Common Stock otherwise purchasable pursuant to such Sunrise
Warrant divided by (B) the aggregate number of shares of Company Common Stock
deemed purchasable pursuant to such Sunrise Warrant in accordance with the
foregoing provided that such per share exercise price shall be rounded up to the
nearest whole cent. The exercise price per share of Newco Common Stock issuable
upon exercise of a Newco Warrant shall be equal to (A) the aggregate exercise
price allocated to such Newco Warrant in accordance with the foregoing for the
shares of Newco Common Stock otherwise purchasable pursuant to such Newco
Warrant divided by (B) the aggregate number of shares of Newco Common Stock
deemed purchasable pursuant to such Newco Warrant in accordance with the
foregoing provided that such per share exercise price shall be rounded up to the
nearest whole cent. All other terms of the Original Warrants will continue to
apply to the Sunrise Warrants and the Newco Warrants (and the Adjusted Warrants,
following the conversion of the Sunrise Warrants in accordance with Section 6.04
of the Merger Agreement). Newco will be responsible for the delivery of shares
of Newco Common Stock upon exercise of a Newco Warrant, and the Company will be
responsible for the delivery of shares of Company Common Stock upon exercise of
a Sunrise Warrant.
ARTICLE VIII
CONDITIONS
The obligations of the Company and Newco to consummate the Restructuring
shall be subject to the fulfillment of each of the following conditions:
8.1 Other Agreements. Each of the Tax Allocation Agreement in the
form attached to the Merger Agreement as Annex B and the Ancillary
Agreements shall have been executed and delivered by each of the Company,
Newco and Parent.
8.2 Conditions to Merger Satisfied. Each condition to the closing of
the Merger set forth in Article VII of the Merger Agreement, other than the
condition to each party's obligation set forth in Section 7.01(f) thereof
as to the consummation of the transactions contemplated by this
Restructuring Agreement, shall have been satisfied or waived.
8.3 Release of Liens. Liens on Newco Assets and capital stock of the
Newco Subsidiaries, in each case, arising pursuant to the Credit Agreement,
dated as of February 18, 1998, among Selfcare Consumer Products, Inc.,
Selfcare, Inc., and Chase Manhattan Bank as Agent for the Lenders
thereunder, as amended, shall have been released, and there shall not be
any Liens on Newco Assets and such capital stock imposed in connection with
the financing contemplated by Section 7.02(g) of the Merger Agreement.
8.4 Adequate Surplus. The Board of Directors of the Company shall be
reasonably satisfied that, after giving effect to the Restructuring, Newco
will not be insolvent and will not have unreasonably small capital with
which to engage in its businesses.
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ARTICLE IX
RELEASES
9.1 Mutual Release. Effective as of the Effective Time and except as
otherwise specifically set forth in the Transaction Agreements, each of the
Company and its subsidiaries, on the one hand, and Newco and its subsidiaries,
on the other hand, releases and forever discharges the other and its affiliates,
and its and their directors, officers, employees and agents of and from all
debts, demands, actions, causes of action, suits, accounts, covenants,
contracts, agreements, damages, and any and all claims, demands and liabilities
whatsoever of every name and nature, both in law and in equity, against such
other person or any of its assigns, which the releasing person has or ever had
(other than those based on fraud, gross negligence or wilful misconduct by such
other person) which arise out of or relate to events, circumstances or actions
taken by such other person prior to the Effective Time; provided, however, that
the foregoing general release shall not apply to any Transaction Agreement or
the transactions contemplated thereby and shall not affect either person's right
to enforce any Transaction Agreement or any other agreement contemplated thereby
in accordance with its terms.
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Termination. In the event the Merger Agreement is terminated pursuant
to its terms prior to the Effective Time, this Restructuring Agreement shall
automatically and simultaneously terminate and the Restructuring and Split-Off
shall automatically and simultaneously be abandoned without the approval of
Newco or the stockholders of the Company. In the event of such termination, no
party shall have any liability to any other party pursuant to this Agreement. It
is understood that completion of the Merger shall not constitute a termination
of this Restructuring Agreement.
10.2 Modification or Amendment. The parties hereto may modify or amend
this Restructuring Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties.
10.3 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties or (b) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Restructuring Agreement to assert any of its rights under this
Restructuring Agreement or otherwise shall not constitute a waiver of such
rights.
10.4 Counterparts. This Restructuring Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
10.5 Governing Law. This Restructuring Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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10.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, telecopied (which is confirmed) or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to the Company (after the Effective Time), to:
c/o Johnson & Johnson
One Johnson Plaza
New Brunswick, NJ 08933
Telecopy No.: (732)524-2788
Attention: Office of the General Counsel
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Robert I. Townsend, III
if to Newco or to the Company
(prior to the Effective Time):
Newco
c/o Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453
Telecopy No.: (781)647-3939
Attention: Chief Executive Officer
with a copy to:
Goodwin Procter LLP
53 State Street
Boston, MA 02109
Telecopy No.: (617) 523-1231
Attention: Stephen W. Carr, P.C.
Paul Schwartz, P.C.
10.7 Captions. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Restructuring
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
10.8 Assignment. Neither this Restructuring Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Restructuring Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
10.9 Third-Party Beneficiaries. Parent shall be a third-party beneficiary
of this Restructuring Agreement. Except as set forth in the immediately
preceding sentence, nothing contained in this Restructuring Agreement is
intended to confer upon any person or entity other than the parties hereto and
their respective successors and permitted assigns (other than Parent), any
benefit, right or remedy under or by reason of this Restructuring Agreement,
except that the provisions of Section 6.1 hereof shall inure to the benefit of
the Persons referred to therein.
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10.10 Certain Obligations. Whenever this Restructuring Agreement requires
any of the subsidiaries of any party to take any action, this Restructuring
Agreement will be deemed to include an undertaking on the part of such party to
cause such subsidiary to take such action; provided, however, that for this
purpose, at any time after the Restructuring has been completed, the Newco
Companies shall not be considered to be subsidiaries of the Company.
10.11 Specific Enforcement; Jurisdiction. The parties agree that
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Restructuring
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Restructuring
Agreement and to enforce specifically the terms and provisions of this
Restructuring Agreement in any Federal court located in the State of Delaware in
any state court in the State of Delaware, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
Federal court located in the State of Delaware or of any state court located in
the State of Delaware in the event any dispute arises out of this Restructuring
Agreement or the transactions contemplated by this Restructuring Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Restructuring Agreement or the
transactions contemplated by this Restructuring Agreement in any court other
than a Federal court located in the State of Delaware or a state court located
in the State of Delaware.
10.12 Severability. If any term or other provision of this Restructuring
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Restructuring
Agreement shall nevertheless remain in full force and effect. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Restructuring Agreement so as to effect the original intent of the parties
as closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
10.13 Entire Agreement. The Transaction Agreements (including the
documents and the instruments referred to herein and in the Merger Agreement,
the Annexes hereto and to the Merger Agreement, the Parent Disclosure Schedule
and the Company Disclosure Schedule), and the Confidentiality Agreement (as
defined in the Merger Agreement) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Restructuring Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first herein above written.
INVERNESS MEDICAL TECHNOLOGY, INC.,
By:
------------------------------------
Name:
Title:
[NEWCO]
By:
------------------------------------
Name:
Title:
[NAME OF COMPANY SUBSIDIARY],
By:
------------------------------------
Name:
Title:
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ANNEX 4
ANNEX B TO
THE MERGER AGREEMENT
TAX ALLOCATION AGREEMENT dated as of [DATE], [YEAR] (this "Agreement"),
among JOHNSON & JOHNSON, a New Jersey corporation ("Parent"), INVERNESS MEDICAL
TECHNOLOGY, INC., a Delaware corporation (the "Company"), and [NAME OF NEWCO], a
Delaware corporation and a direct wholly owned subsidiary of the Company
("Newco").
WHEREAS the Company is the common parent of the group of affiliated
corporations (the "Company Consolidated Group"), within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), with
which the Company filed a consolidated federal income Tax Return (as defined
herein) at any time prior to the Split-Off (as defined herein);
WHEREAS, pursuant to the Agreement and Plan of Split-Off and Merger, dated
as of May 23, 2001 (the "Merger Agreement"), among Parent, Sunrise Acquisition
Corp. ("Sub") and the Company, the Company will, on the Effective Date (as
defined herein) (i) effect the restructuring transactions (the "Restructuring")
described in the Restructuring Agreement, dated as of [DATE], [YEAR], among the
Company, Newco and certain subsidiaries of the Company (the "Restructuring
Agreement") and (ii) distribute to the holders of Company Common Stock all the
outstanding shares of Newco Common Stock in consideration of the redemption of a
portion of their shares of Company Common Stock (the "Split-Off");
WHEREAS, on the Effective Date, Sub will merge with and into the Company
with the Company surviving (the "Merger") as contemplated by the Merger
Agreement, pursuant to which the holders of Company Common Stock will receive
solely common stock of Parent in exchange for their Company Common Stock not
exchanged in the Split-Off;
WHEREAS Parent, the Company and Newco intend that, after the Split-Off,
neither Newco nor any of its Subsidiaries will be a member of the Company
Consolidated Group for federal income tax purposes;
WHEREAS, for Federal income tax purposes, it is intended (a) by the Company
that the distribution of Newco Common Stock in connection with the transactions
contemplated by the Merger Agreement shall qualify, as to the stockholders of
the Company, as a transaction described in Section 355 of the Code (it being
understood and agreed that such qualification shall not be a condition to the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements and that Parent shall have no obligation to cause such
distribution to so qualify) and (b) by Parent, the Company and Newco that the
Merger qualify as a "reorganization" within the meaning of Section 368(a) of the
Code; and
WHEREAS Parent, the Company and Newco desire on behalf of themselves, their
Subsidiaries and their successors to set forth their rights and obligations with
respect to Taxes relating to taxable periods before and after the Split-Off.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. For purposes of this Agreement:
"Agreement" shall have the meaning set forth in the Preamble.
"Code" shall have the meaning set forth in the Recitals.
"Company" shall have the meaning set forth in the Preamble.
"Company Consolidated Group" shall have the meaning set forth in the
Recitals.
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"Company Group" shall mean the Company and each of its direct and
indirect Subsidiaries, other than members of the Newco Group.
"Dispose" (and, with correlative meaning, "Disposition") shall mean
pay, discharge, settle or otherwise dispose.
"Due Date" shall mean, with respect to any Tax Return or payment, the
date on which such Tax Return is due to be filed with, or such payment is
due to be made to, the appropriate Tax Authority pursuant to applicable
law, giving effect to any applicable extensions of the time for such filing
or payment.
"Effective Date" shall mean the date on which the Effective Time
occurs.
"Effective Time" shall have the meaning set forth in the Merger
Agreement.
"Final Determination" shall mean (1) the entry of a decision of a
court of competent jurisdiction at such time as an appeal may no longer be
taken from such decision or (2) the execution of a closing agreement or its
equivalent between the particular taxpayer and the relevant Tax Authority.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Agreement" shall have the meaning set forth in the Recitals.
"Newco" shall have the meaning set forth in the Preamble.
"Newco Business" shall have the meaning set forth in the Restructuring
Agreement.
"Newco Group" shall mean Newco and each corporation that is,
immediately after the Split-Off, a direct or indirect Subsidiary of Newco.
"Parent" shall have the meaning set forth in the Preamble.
"Payee" shall have the meaning set forth in Section 4.6 hereof.
"Payor" shall have the meaning set forth in Section 4.6 hereof.
"Post-Distribution Period" shall mean any taxable period beginning
after the Effective Date and, in the case of any Straddle Period, that
portion of such Straddle Period that begins on the day immediately
following the Effective Date.
"Pre-Distribution Period" shall mean any taxable period that ends on
or prior to the Effective Date and, in the case of any Straddle Period,
that portion of such Straddle Period ending on and including the Effective
Date.
"Restructuring" shall have the meaning set forth in the Recitals.
"Split-Off" shall have the meaning set forth in the Recitals.
"Sunrise Business" shall have the meaning set forth in the
Restructuring Agreement.
"Straddle Period" shall mean any taxable period that begins before or
on and ends after the Effective Date.
"Subsidiary" shall mean a subsidiary, as defined in the Merger
Agreement, that is a corporation.
"Tax Authority" shall mean the Internal Revenue Service and any other
state, local or foreign governmental authority responsible for the
administration of Taxes.
"Tax Claim" shall mean a notice of deficiency, proposed adjustment,
assessment, audit, examination, suit, dispute or other claim with respect
to Taxes or a Tax Return.
"Taxes", as used in this Agreement, shall include (1) all forms of
taxation, whenever created or imposed, and whether domestic or foreign, and
whether imposed by a national, federal, state, provincial, local or other
Governmental Entity, including all interest, penalties and additions
imposed
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with respect to such amounts; (2) liability for the payment of any amounts
of the type described in clause (1) as a result of being a member of an
affiliated, consolidated, combined or unitary group; and (3) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement (other than this Agreement) or as a result of any express or
implied obligation to indemnify any other person with respect to the
payment of any amount described in clause (1) or (2) (other than an
obligation to indemnify under this Agreement).
"Tax Return" shall mean all domestic or foreign (whether national,
federal, state, provincial, local or otherwise) returns, declarations,
statements, reports, schedules, forms and information returns relating to
Taxes and any amended return relating to Taxes.
"Transaction Taxes" shall have the meaning set forth in Section
3.03(a) hereof.
"Underpayment Rate" shall mean the interest rate specified under
Section 6621(a)(2) of the Code.
Any capitalized term not defined herein shall have the meaning set forth in
the Merger Agreement or the Restructuring Agreement, as the case may be.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
SECTION 2.01. Preparation of Pre-Distribution Period Tax Returns and
Straddle Period Tax Returns. (a) Parent or the Company shall, with the
cooperation of Newco and each member of the Newco Group (as provided for in
Article VI hereof), prepare (or cause to be prepared) and file (or cause to be
filed) all Tax Returns with respect to the Company Consolidated Group for any
Pre-Distribution Period or Straddle Period. Parent and the Company shall have
sole discretion as to the positions taken in any such Tax Returns except as
otherwise provided in this Agreement. Similar provisions shall apply with
respect to any consolidated, combined, unitary, or aggregate state, local, or
foreign income Tax Return for any Pre-Distribution Period or Straddle Period
that includes any member of the Company Group.
(b) Newco shall, with respect to any Pre-Distribution Period or Straddle
Period, prepare (or cause to be prepared) and file (or cause to be filed) all
separate state, local or foreign Tax Returns of each member of the Newco Group
and any consolidated combined, unitary or aggregate state, local, or foreign Tax
Returns that do not include any member of the Company Group.
SECTION 2.02. Preparation and Filing of Post-Distribution Period Tax
Returns. With respect to Post-Distribution Periods, Newco shall not have any
responsibility for preparing (or causing to be prepared) or filing (or causing
to be filed) any Tax Return with respect to any member of the Company Group, and
Parent and the Company shall not have any responsibility for preparing (or
causing to be prepared) or filing (or causing to be filed) any Tax Return with
respect to any member of the Newco Group.
SECTION 2.03. Consistent Treatment. Each Tax Return described in this
Article II (including Tax Returns with respect to Post-Distribution Periods)
shall be prepared (i) in a manner consistent with the opinion of counsel
obtained in connection with the Merger pursuant to the provisions of the Merger
Agreement, (ii) in a manner consistent with the representations, warranties,
statements and covenants set forth in the Transaction Agreements and (iii) in a
manner consistent with prior methods, practices and procedures (except to the
extent that departure from such methods, practices and procedures would not
materially adversely affect another party to this Agreement). Notwithstanding
the previous sentence, Tax Returns shall be prepared in the manner required by
any applicable Final Determination.
SECTION 2.04. Amended Returns and Claims for Refund. No member of the
Newco Group (or any entity that directly or indirectly controls Newco) shall
amend a Tax Return or file a claim for Tax refund with respect to any
Pre-Distribution Period subject to a Tax Return described in Section 2.01(a)
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hereof without the prior written consent of Parent or the Company, which consent
shall not be unreasonably withheld or delayed.
ARTICLE III
PAYMENTS WITH RESPECT TO TAXES
SECTION 3.01. Payment of Taxes. (a) For all Taxes with respect to which
Parent, the Company or any other member of the Company Group is required to file
a Tax Return pursuant to Section 2.01(a) hereof, Newco shall pay the Company the
amount of such Taxes attributable to the Newco Business within 10 business days
after receipt from Parent or the Company of a copy of such Tax Return (or a copy
of the decision or agreement with respect to any Final Determination regarding
the period to which such Tax Return relates), together with a statement showing
in reasonable detail the calculation of any Taxes attributable to the Newco
Business.
(b) For all Taxes with respect to which Newco or any other member of the
Newco Group is required to file a Tax Return pursuant to Section 2.01(b) hereof,
the Company shall pay Newco the amount of such Taxes attributable to the Sunrise
Business within 10 days after receipt from Newco of a copy of such Tax Return
(or a copy of the decision or agreement with respect to any Final Determination
regarding the period to which such Tax Return relates), together with a
statement showing in reasonable detail the calculation of any Taxes attributable
to the Sunrise Business.
SECTION 3.02. Remittance of Taxes to a Tax Authority. The Company and
Newco shall remit or cause to be remitted in a timely manner to the appropriate
Tax Authority all Taxes due in respect of any Tax for which (i) in the case of
the Company, the Company or Parent is required to file a Tax Return pursuant to
Section 2.01(a) hereof, and (ii) in the case of Newco, Newco is required to file
a Tax Return pursuant to Section 2.01(b) hereof.
SECTION 3.03. Calculation of Federal Income Taxes Attributable to the Newco
Business and the Sunrise Business. (a) For purposes of this Article III, the
"Newco Business Tentative Tax" for any taxable period shall equal the excess of
(i) the actual liability for federal income Taxes of the Company Consolidated
Group for such period (the "Consolidated Group Tentative Tax"), over (ii) the
Consolidated Group Tentative Tax for such period assuming that the Newco
Business (and any assets used or held for use primarily in connection therewith)
had not been held, used or operated by the Company Consolidated Group, provided,
however, that the calculations required by this Section 3.03 shall be made
without regard to (x) any "net operating loss carryovers" (as defined in Section
172 of the Code) of the Company Consolidated Group (the "Consolidated Group NOL
Carryovers"), and (y) any liability for taxes directly or indirectly
attributable to the Restructuring, the Split-Off and all related transactions,
including any taxes imposed as a result of the application of Section 355(e) of
the Code (collectively the "Transaction Taxes").
(b) For purposes of this Article III, the "Newco Business NOL Carryovers"
for the relevant taxable period shall be the Consolidated Group NOL Carryovers
available for such period multiplied by a fraction, the numerator of which is
the Newco Business Tentative Tax for such period and the denominator of which is
the Consolidated Group Tentative Tax for such period.
(c) For purposes of this Agreement, the amount of federal income Taxes
attributable to the Newco Business for the relevant taxable period shall equal
the excess of (i) the actual liability for federal income Taxes of the Company
Consolidated Group for such period over (ii) the actual liability for federal
income Taxes of the Company Consolidated Group for such period assuming for
purposes of this clause (ii) that (x) the Newco Business (and any assets used or
held for use primarily in connection therewith) had not been held, used or
operated by the Company Consolidated Group, and (y) the Consolidated Group NOL
Carryovers for such period had been reduced by an amount equal to the Newco
Business NOL Carryovers for such period, provided, however, that the
calculations required by this Section 3.03(c) shall be made without regard to
the Transaction Taxes.
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(d) For purposes of this Agreement, the amount of federal income Taxes
attributable to the Sunrise Business shall equal the excess of (i) the actual
liability for federal income Taxes of the Company Consolidated Group for the
such period over (ii) the amount of federal income Taxes attributable to the
Newco Business for such period.
SECTION 3.04. Calculation of Taxes (Other Than Federal Income Taxes
Attributable to the Newco Business and the Sunrise Business. For purposes of
this Agreement, with respect to Taxes other than federal income Taxes, the
amount of such Taxes attributable to the Newco Business and the Sunrise Business
shall be determined in a manner similar to and consistent with the provisions of
Section 3.03 hereof.
SECTION 3.05. Tax Refunds. Newco shall be entitled to its pro rata share
of any refund of Tax subject to a Tax Return described in Section 2.01 hereof to
the extent of any amount paid by Newco under this Agreement with respect to such
Tax Return. Parent or the Company shall be entitled to any refund of Tax subject
to a Tax Return described in Section 2.01 in excess of the amount described in
the previous sentence. Any refund of Tax received by one party shall, no later
than three business days after receipt, be paid to the other party to the extent
of the other party's entitlement thereto under this Section 3.05, together with
a statement showing in reasonable detail the calculation of such payment.
SECTION 3.06. Calculation of Pro Rata Share of Tax Refunds. Newco's pro
rata share of any Tax refund shall be equal to the excess, if any, of (i) the
amount of federal income Taxes attributable to the Newco Business as originally
calculated under this Agreement over (ii) the amount of federal income Taxes
attributable to the Newco Business as recalculated under this Agreement taking
into account the facts and circumstances giving rise to such refund.
SECTION 3.07. Alternative Minimum Tax. The purpose of this Article III is
to allocate tax liability in proportion to the respective tax liabilities
attributable to the Sunrise Business and the Newco Business, exclusive of "net
operating loss carryovers" (as defined in Section 172 of the Code) and without
regard to the Split-Off, the Restructuring and all related transactions. In the
case of any Company Consolidated Group alternative minimum tax under Section 55
of the Code, the respective portions of such tax attributable to the Sunrise
Business and the Newco Business shall be determined in a manner similar to and
consistent with the provisions of Section 3.03 hereof.
ARTICLE IV
INDEMNIFICATION
SECTION 4.01. Obligations of the Company. The Company and each other
member of the Company Group shall indemnify and hold Newco and each other member
of the Newco Group harmless from and against the following:
(a) any liability for Taxes attributable to the Sunrise Business as
calculated pursuant to Article III hereof;
(b) any liability for Transaction Taxes; and
(c) any liability for Taxes attributable to the Company or any other
member of the Company Group to the extent that Newco has made a payment to
the Company with respect thereto pursuant to Section 3.01 hereof.
SECTION 4.02. Obligations of Newco. Newco and each other member of the
Newco Group shall indemnify and hold Parent, the Company and each other member
of the Company Group harmless from and against the following:
(a) any liability for Taxes attributable to the Newco Business as
calculated pursuant to Article III hereof; and
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(b) any liability for Taxes attributable to Newco or any other member
of the Newco Group or Transaction Taxes, to the extent that the Company has
made a payment to Newco with respect thereto pursuant to Section 3.01
hereof; and
SECTION 4.03. Straddle Periods. (a) To the extent permitted by law or
administrative practice, the taxable year of any member of the Company Group
which includes the Effective Date shall be treated as closing on (and including)
the Effective Date.
(b) Where it is necessary pursuant to this Agreement to apportion between
Newco, on the one hand, and the Company, on the other hand, the Tax liability of
an entity for a Straddle Period which is not treated under Section 4.03(a)
hereof as closing on the Effective Date, such liability shall be apportioned
between the Pre-Distribution Period and the Post-Distribution Period on the
basis of an interim closing of the books, except that Taxes (such as real
property Taxes) imposed on a periodic basis shall be allocated on a daily basis.
SECTION 4.04. Tax Obligations Arising Under a Pre-Distribution Period Tax
Sharing Agreement. Except as set forth in this Agreement, any and all existing
Tax sharing agreements and practices regarding Taxes and their payment,
allocation, or sharing between any member of the Company Group and any member of
the Newco Group shall be terminated as of the Effective Date and no remaining
liabilities thereunder shall exist thereafter. This Section 4.04 does not
address tax sharing agreements (if any) solely among members of the Newco Group
or solely among members of the Company Group.
SECTION 4.05. Indemnification Payments. To the extent that a party (the
"Payor") is required to make an indemnification payment to another party (the
"Payee") pursuant to Section 4.01, 4.02 or 4.03 hereof, the Payor shall pay the
Payee no later than 10 business days prior to the Due Date of the relevant Tax
Return or 10 business days after the Payor receives the Payee's calculations of
the Payor's indemnification obligation hereunder, whichever occurs last, the
amount of such indemnification obligation.
ARTICLE V
TAX CLAIMS
SECTION 5.01. General. Newco, on the one hand, shall have sole control
over all Tax Claims with respect to any Tax Return which Newco is responsible
for preparing (or causing to be prepared) pursuant to this Agreement, and Parent
and the Company, on the other hand, shall have sole control over all Tax Claims
with respect to any Tax Return which Parent or the Company is responsible for
preparing (or causing to be prepared) pursuant to this Agreement. The party
controlling a Tax Claim pursuant to the preceding sentence shall have the sole
right to contest, litigate and Dispose of such Tax Claim and to employ counsel
of its choice at Newco's sole expense in the case of a Tax Claim controlled by
Newco, and at the Company's sole expense in the case of a Tax Claim controlled
by the Company or Parent; provided, however, that the other party may, at its
own expense, participate in (but not control) the defense of any such Tax Claim,
but only if such Tax Claim may result in a payment by such other party pursuant
to the terms of this Agreement. If a Tax Claim may result in a payment by such
other party pursuant to the terms of this Agreement or presents an issue that
affects both the Newco Business and the Sunrise Business, the party controlling
such Tax Claim shall not litigate or Dispose of such Tax Claim without the prior
written consent of such other party, which consent shall not be unreasonably
withheld or delayed.
SECTION 5.02. Tax Claim Management. (a) Parent or the Company, on the one
hand, and Newco, on the other hand, shall promptly notify the other party in
writing of any Tax Claim that may result in liability of the other party to make
a payment under this Agreement or that affects both the Newco Business and the
Sunrise Business. With respect to any such Tax Claim, the party controlling such
Tax Claim shall (i) not make any submission to any Tax Authority without
offering the other party the opportunity to review it, (ii) keep the other party
informed as to any information that it receives regarding the progress of such
Tax Claim, and (iii) provide the other party with any information that it
receives regarding the nature and amounts of any proposed Disposition of the Tax
Claim.
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ARTICLE VI
COOPERATION
Parent and the Company, on the one hand, and Newco, on the other hand,
shall (and shall cause the members of the Company Group and the Newco Group,
respectively, to) cooperate with each other in the preparation and filing of Tax
Returns and the conduct of any audit or other proceeding and each shall execute
and deliver such powers of attorney and make available such other documents as
are necessary to carry out the intent of this Agreement. Such cooperation shall
include, without limitation, (a) making employees available on a mutually
convenient basis to provide such assistance as might reasonably be required and
(b) providing such information as might reasonably be required in connection
with any such Tax Return or proceeding, including, without limitation, records,
returns, schedules, documents, work papers or other relevant materials.
The parties hereto shall use reasonable efforts to reduce any transfer,
sales or other similar Taxes that may be incurred with respect to the
transactions contemplated by the Transaction Agreements.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The Company Group and the Newco Group shall (a) retain all records,
documents, accounting data and other information (including computer data) which
may contain information or provide evidence relevant to any taxable period that
is the subject of a Tax Return for which a member of the other group is
responsible under this Agreement, until such time as a Final Determination
occurs with respect to such taxable period, provided, however, that such records
need not be retained longer than 15 years after the end of the latest taxable
period to which they relate and such records do not relate to an ongoing
contest; and (b) give to the other group reasonable access to such records,
documents, accounting data and other information (including computer data) and
to its personnel (ensuring their cooperation) and premises, with reimbursement
by the requesting group of reasonable out-of-pocket costs incurred in connection
therewith, to the extent relevant to any obligation or liability of the
requesting party under this Agreement.
ARTICLE VIII
DISPUTES
If the parties disagree as to the calculation of any Tax or the amount of
(but not liability for) any payment to be made under this Agreement, the parties
shall cooperate in good faith to resolve any such dispute, and any agreed-upon
amount shall be promptly paid to the appropriate party. If the parties are
unable to resolve such dispute within 10 business days thereafter, such dispute
shall be resolved by a law firm or accounting firm acceptable to both Parent and
the Company, on the one hand, and Newco, on the other hand. The decision of such
firm shall be final and binding. The fees and expenses incurred in connection
with such decision shall be shared by the Company and Newco in proportion to the
final allocation of the Tax liability in dispute. Following the decision of such
firm, the parties shall each take (or cause to be taken) any action that is
necessary or appropriate to implement such decision, including, without
limitation, the filing of amended Tax Returns.
ARTICLE IX
SURVIVAL
Notwithstanding any provision in any other Transaction Agreement to the
contrary, all covenants, obligations and rights under this Agreement shall
survive indefinitely, except to the extent otherwise provided herein.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Consistent Reporting. (a) Parent, the Company and Newco
agree to report the transactions set forth in Section 4.1 of the Restructuring
Agreement, for federal income tax purposes, as follows:
(i) the transaction described in Section 4.1(a) of the Restructuring
Agreement is a liquidation under Section 332 of the Code;
(ii) the transaction described in Section 4.1(b) of the Restructuring
Agreement is a liquidation under Section 332 of the Code;
(iii) the transactions described in Section 4.1(c) of the
Restructuring Agreement are transfers between divisions of a single
corporation;
(iv) the transaction described in Section 4.1(d) of the Restructuring
Agreement is a transfer between divisions of a single corporation;
(v) the transaction described in Section 4.1(e) of the Restructuring
Agreement is a distribution under Section 301 of the Code;
(vi) the transactions described in Section 4.1(f) of the Restructuring
Agreement are, respectively (I) a contribution under Section 351 of the
Code, and (II) a distribution under Section 301 of the Code;
(vii) the transaction described in Section 4.1(g) of the Restructuring
Agreement is a distribution under Section 301 of the Code;
(viii) the transaction described in Section 4.1(h) of the
Restructuring Agreement is a distribution under Section 301 of the Code;
(ix) the transaction described in Section 4.1(i) of the Restructuring
Agreement is a distribution under Section 301 of the Code;
(x) the transaction described in Section 4.1(j) of the Restructuring
Agreement is a distribution under section 301 of the Code;
(xi) the transaction described in Section 4.1(k) of the Restructuring
Agreement is a liquidation under Section 332 of the Code;
(xii) the transaction described in Section 4.1(1) of the Restructuring
Agreement is a transfer in connection with a reorganization under Section
368(a)(1)(D) of the Code; and
(xiii) the transaction described in Section 4.1(m) of the
Restructuring Agreement is a distribution under Section 301 of the Code.
For purposes of determining the federal income tax consequences of such
transaction, the fair market value of the assets transferred in such
transaction shall be computed in accordance with the formula set forth in
Schedule 4.1(m) to the Restructuring Agreement.
(b) Parent, the Company and Newco agree to report the Split-Off, for
federal income tax purposes, as integrated with the Merger and as a redemption
of a number of shares of Company Common Stock equal in value to the value of the
Newco Common Stock distributed in the Split-Off, with such redemption
qualifying, as to the stockholders of the Company, as a transaction described in
Section 355 of the Code; provided that Goodwin Procter LLP, counsel to the
Company, shall have issued (i) an opinion to the Company to the effect that,
more likely than not, the Split-Off qualifies, as to the stockholders of the
Company, as a transaction described in Section 355 of the Code (the "Split-Off
Opinion"), and (ii) an opinion to the officers of the Company and the officers
of Parent (collectively, the "Officers") substantially to the effect that the
Officers will not incur any liability under the Code for Taxes (including fees
and other monetary and non-monetary penalties) solely as a result of causing
Parent and the
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Company to report the Split-Off as a transaction qualifying, as to the
stockholders of the Company, as a transaction described in Section 355 of the
Code (the "Officer's Opinion"). In rendering the Split-Off Opinion and the
Officer's Opinion, such counsel shall be entitled to rely upon representations
reasonably requested by such counsel, including but not limited to the
representations in the Parent Representation Letter.
SECTION 10.02. Overpayments and Interest on Late Payments. Any payment
required by this Agreement which is not made on or before the date required to
be made hereunder shall bear interest after such date at the Underpayment Rate.
Any payment made under this Agreement the amount of which is subsequently
determined to be in excess of the amount due under this Agreement shall be
refunded to the payor within 10 business days of such subsequent determination,
together with interest at the Underpayment Rate calculated from the date of
original payment.
SECTION 10.03. Determination and Characterization of Payments. (a) All
indemnification payments under this Agreement shall be determined on an
after-Tax basis, i.e., taking into account the Tax consequences to the
indemnified party (and each other member of the indemnified party's Group) of
making a payment that is indemnified by another party under this Agreement or of
receiving a payment under this Agreement as indemnification therefor, but only
to the extent such Tax consequences are not otherwise taken into account in
determining the amount of an indemnification payment hereunder.
(b) The payments made pursuant to this Agreement shall be treated as
occurring immediately before the Split-Off, and no member of the Newco Group or
the Company Group shall take any position inconsistent with such treatment
before any Tax Authority, except to the extent that a Final Determination
requires otherwise.
SECTION 10.04. Notices and Governing Law. All notices required or
permitted to be given pursuant to this Agreement shall be given, and the
applicable law governing the interpretation of this Agreement shall be
determined, in accordance with the applicable provisions of the Merger
Agreement.
SECTION 10.05. Amendments. This Agreement may not be amended except by an
agreement in writing, signed by the parties.
SECTION 10.06. Binding Effect; No Assignment; Third Party
Beneficiaries. This Agreement shall be binding on, and shall inure to the
benefit of, the parties and their respective successors, assigns, and persons
controlling any of the corporations bound hereby. Parent and the Company, on the
one hand, and Newco, on the other hand, hereby guarantee the performance of all
actions, agreements and obligations provided for under this Agreement of the
Company's Subsidiaries and Newco's Subsidiaries, respectively. The Company and
Newco shall, upon the written request of any other party, cause any of their
respective Subsidiaries to execute this Agreement. No party to this Agreement
shall assign any of its rights or delegate any of its duties under this
Agreement without the prior written consent of Newco, in the case of Parent or
the Company, or without the prior written consent of Parent or the Company, in
the case of Newco, except that the Company may assign, in its sole discretion,
any or all of its rights, interests and obligations under this Agreement (other
than tax payment obligations and other payment obligations) to Parent or to any
direct or indirect wholly owned Subsidiary of Parent, but no such assignment
shall relieve the Company of any of its obligations hereunder. Nothing contained
in this Agreement is intended to confer upon any person or entity other than the
parties hereto and their respective successors and permitted assigns, any
benefit, right or remedy under or by reason of this Agreement.
SECTION 10.07. Entire Agreement. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes all
prior agreements, whether or not written, concerning such subject matter. To the
extent that the provisions of this Agreement are inconsistent with the
provisions of any other Transaction Agreement, the provisions of this Agreement
shall prevail.
SECTION 10.08. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute together the same document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Johnson & Johnson,
By:
------------------------------------
Name:
Title:
Inverness Medical Technology, Inc.,
By:
------------------------------------
Name:
Title:
[Name of NEWCO],
By:
------------------------------------
Name:
Title:
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ANNEX 5
ANNEX C TO
THE MERGER AGREEMENT
POST-CLOSING COVENANTS AGREEMENT dated as of [DATE], [YEAR], among JOHNSON
& JOHNSON, a New Jersey corporation ("Parent"), INVERNESS MEDICAL TECHNOLOGY,
INC., a Delaware corporation (the "Company"), the subsidiaries of the Company
party hereto (together with the Company, the "Sunrise Companies"), [NEWCO], a
Delaware corporation ("Newco"), and the subsidiaries of Newco party hereto (the
"Newco Subsidiary Indemnitors").
WHEREAS, Parent, SUNRISE ACQUISITION CORP., a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and the Company have entered into an
Agreement and Plan of Split-Off and Merger dated as of May 23, 2001 (the "Merger
Agreement"), providing for the Merger (as defined in the Merger Agreement) of
Sub with and into the Company, with the Company as the surviving corporation;
WHEREAS, the Board of Directors of the Company has approved a Restructuring
Agreement in the form of Annex A to the Merger Agreement (the "Restructuring
Agreement"), which will be entered into prior to the Effective Time (as defined
in the Merger Agreement), pursuant to which prior to the Effective Time, among
other things (a) all the assets of the Company primarily related to the Newco
Business (as defined in the Restructuring Agreement) will be transferred to
Newco or one or more of Newco's subsidiaries and (b) Newco or one or more of its
subsidiaries will assume the Assumed Liabilities (as defined in the
Restructuring Agreement);
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger; and
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern certain matters
that may arise following the Effective Time.
NOW, THEREFORE, in consideration of the foregoing, and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Terms used but not defined in this Agreement
shall have the meanings set forth in the Merger Agreement or, if not set forth
in the Merger Agreement, in the Restructuring Agreement. In addition, the
following terms shall have the following meanings:
"Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person; provided, however, that
for the purposes of this Agreement, from and after the Effective Time, none
of the Sunrise Companies shall be deemed to be an Affiliate of any Newco
Company and none of the Newco Companies shall be deemed to be an affiliate
of any Sunrise Company.
"Filings" shall mean the Parent Form S-4, the Newco Form S-4, the Form
8-A and any other document filed or required to be filed with the SEC in
connection with the transactions contemplated by the Transaction
Agreements, or any preliminary or final form thereof or any amendment or
supplement thereto.
"Indemnifiable Losses" shall mean, subject to Section 2.04, all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements,
whether or not resulting from Third Party Claims, including interest and
penalties recovered by a third party with respect thereto and out-of-pocket
expenses and reasonable attorneys' and accountants' fees and expenses
incurred in the investigation or defense of any of the same or in
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asserting, preserving or enforcing any of the Indemnitee's rights
hereunder, suffered or incurred by an Indemnitee.
"Indemnitee" shall mean any of the Parent Indemnitees or the Newco
Indemnitees, as the case may be, who or which may seek indemnification
under this Agreement.
"Newco Indemnitees" shall mean Newco, each Affiliate of Newco,
including any of its direct or indirect subsidiaries, each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
"Newco Subsidiary Indemnitors" shall have the meaning set forth in the
preamble hereto.
"Newco Recourse Right" shall have the meaning set forth in Section
3.07(a) hereto.
"Parent Indemnitees" shall mean Parent, each Affiliate of Parent,
including any of its direct or indirect subsidiaries (including, after the
Effective Time, the Sunrise Companies), each of their respective
Representatives and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Sunrise Recourse Right" shall have the meaning set forth in Section
3.07(b) hereto.
"Third Party Claims" shall have the meaning set forth in Section
2.04(a).
ARTICLE II
INDEMNIFICATION
SECTION 2.01. Indemnification by Newco and the Newco Subsidiary
Indemnitors. Subject to the provisions of this Article II, Newco and the
applicable Newco Subsidiary Indemnitors, as described below, shall jointly and
severally indemnify, defend and hold harmless the Parent Indemnitees from and
against, and pay or reimburse the Parent Indemnitees for, all Indemnifiable
Losses, as incurred:
(i) relating to or arising from the Newco Business, the Newco Assets
or the Assumed Liabilities (including the failure by Newco or any Newco
Company to pay, perform or otherwise discharge any of the Assumed
Liabilities in accordance with their terms), whether such Indemnifiable
Losses relate to or arise from events, occurrences, actions, omissions,
facts or circumstances occurring, existing or asserted before, at or after
the Effective Time;
(ii) relating to or arising from any untrue statement or alleged
untrue statement of a material fact relating to any Newco Company contained
in any of the Filings, or any omission or alleged omission to state therein
a material fact relating to any Newco Company required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, but only with respect to
statements made therein or incorporated by reference therein based upon
information supplied by Newco or any Newco Company specifically for
inclusion or incorporation by reference therein;
(iii) relating to or arising from the breach by any Newco Company of
any agreement or covenant contained in any Transaction Agreement which is
to be performed or complied with after the Effective Time; or
(iv) relating to or arising from the matters set forth on Schedule
2.01(iv) hereto;
provided, however, that notwithstanding the foregoing each Newco Subsidiary
Indemnitor shall only be liable for Indemnifiable Losses (A) in the case of
clause (i) of this Section 2.01, relating to or arising from (x) the Newco
Business conducted by such Newco Subsidiary Indemnitor before, at or after the
Effective Time, (y) the assets used, held for use or intended for use in the
Newco Business conducted by such Newco Subsidiary Indemnitor and (z) the
liabilities of or attributable to the Newco Business of such Newco Subsidiary
Indemnitor or such Newco Subsidiary Indemnitor and (B) in the case of clause
(iii) of this Section 2.01, relating to or arising from a breach by such Newco
Subsidiary Indemnitor.
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SECTION 2.02. Indemnification by the Sunrise Companies. Subject to the
provisions of this Article II, the Sunrise Companies shall jointly and severally
indemnify, defend and hold harmless the Newco Indemnitees from and against, and
pay or reimburse the Newco Indemnitees for:
(i) all Indemnifiable Losses, as incurred, relating to or arising from
the Sunrise Business, the Sunrise Assets or the Sunrise Liabilities
(including the failure by any Sunrise Company to pay, perform or otherwise
discharge any of the Sunrise Liabilities in accordance with their terms),
whether such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring, existing
or asserted before, at or after the Effective Time; or
(ii) all Indemnifiable Losses, as incurred (together with interest
thereon at a rate equal to 15% per annum calculated from the date written
notice of a claim for indemnification relating to such Indemnifiable Losses
is delivered to the Company, but in no event prior to the Effective Time),
relating to or arising from the breach by any Sunrise Company of any
agreement or covenant contained in any Transaction Agreement which is to be
performed or complied with after the Effective Time;
provided, however, that notwithstanding the foregoing each Sunrise Company that
is a subsidiary of the Company shall only be liable for Indemnifiable Losses (A)
in the case of clause (i) of this Section 2.02, relating to or arising from (x)
the assets used, held for use or intended for use in the Sunrise Business
conducted by such Sunrise Company and (y) the liabilities of or attributable to
the Sunrise Business of such Sunrise Company and (B) in the case of clause (ii)
of this Section 2.02, relating to or arising from a breach relating to such
Sunrise Company.
In the event the Company transfers any material portion of its assets, in a
single transaction or in a series of transactions, Parent promptly will either
guarantee the indemnification obligations referred to in Section 2.02(i) or take
such other action to insure that the ability of the Company, legal and
financial, to satisfy such indemnification obligations will not be diminished in
any material respect.
SECTION 2.03. Indemnification by Parent. Subject to the provisions of this
Article II, Parent shall indemnify, defend and hold harmless the Newco
Indemnitees from and against, and pay or reimburse the Newco Indemnitees for:
(i) all Indemnifiable Losses, as incurred, relating to or arising from
any untrue statement or alleged untrue statement of a material fact
contained in any of the Filings, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, but only with respect to statements made therein
or incorporated by reference therein based upon information supplied by
Parent specifically for inclusion or incorporation by reference therein; or
(ii) all Indemnifiable Losses, as incurred (together with interest
thereon at a rate equal to 15% per annum calculated from the date written
notice of a claim for indemnification relating to such Indemnifiable Losses
is delivered to the Company, but in no event prior to the Effective Time),
relating to or arising from the breach by any Sunrise Company of any
agreement or covenant contained in any Transaction Agreement which is to be
performed or complied with after the Effective Time.
SECTION 2.04. Procedures Relating to Indemnification. (a) In order for an
Indemnitee to be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made by any Person
who is not an Indemnitee against the Indemnitee (a "Third Party Claim"), such
Indemnitee must notify the party who may become obligated to provide
indemnification hereunder (the "Indemnifying Party") in writing, and in
reasonable detail, of the Third Party Claim reasonably promptly, and in any
event within 20 business days after receipt by such Indemnitee of written notice
of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure; provided further, however, that with
respect to any Third Party Claim for which Newco or any Newco Subsidiary
Indemnitor is the Indemnifying Party, such
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Indemnifying Party shall be deemed to have received notice with respect to such
Third Party Claim by or against any Sunrise Company for which the Company
received notice prior to the Effective Time. After any required notification (if
applicable), the Indemnitee shall deliver to the Indemnifying Party, promptly
after the Indemnitee's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third Party
Claim.
(b) If a Third Party Claim is made against an Indemnitee, the Indemnifying
Party will be entitled to participate in the defense thereof and, if it so
chooses, to assume the defense thereof (at the expense of the Indemnifying
Party) with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnitee. Should the Indemnifying Party so elect to assume
the defense of a Third Party Claim, the Indemnifying Party will not be liable to
the Indemnitee for any legal expenses subsequently incurred by the Indemnitee in
connection with the defense thereof. If the Indemnifying Party assumes such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by the Indemnifying Party, it being understood that the Indemnifying
Party shall control such defense. The Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnifying Party has not assumed the defense thereof
(other than during any period in which the Indemnitee shall have failed to give
notice of the Third Party Claim as provided above). Notwithstanding the
foregoing, the Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and expenses
of counsel incurred by the Indemnitee in defending such Third Party Claim) if
the Third Party Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against the Indemnitee which the Indemnitee
reasonably determines, after conferring with its counsel, cannot be separated
from any related claim for money damages. The indemnification required by
Section 2.01, 2.02 or 2.03, as the case may be, shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or the Indemnifiable Loss is incurred.
If the Indemnifying Party chooses to defend or prosecute a Third Party Claim,
all the parties hereto reasonably necessary for such defense or prosecution
shall cooperate in the defense or prosecution thereof, which cooperation shall
include the retention in accordance with the Restructuring Agreement and (upon
the Indemnifying Party's request) the provision to the Indemnifying Party of
records and information which are reasonably relevant to such Third Party Claim,
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. If
the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the
Indemnitee will agree to any settlement, compromise or discharge of such Third
Party Claim which the Indemnifying Party may recommend and which by its terms
obligates the Indemnifying Party to pay the full amount of liability in
connection with such Third Party Claim; provided, however, that, without the
Indemnitee's consent, the Indemnifying Party shall not consent to entry of any
judgment or enter into any settlement (x) that provides for injunctive or other
nonmonetary relief affecting the Indemnitee or (y) that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to such
Indemnitee of a release from all liability with respect to such claim. If the
Indemnifying Party shall have assumed the defense of a Third Party Claim, the
Indemnitee shall not admit any liability with respect to, or settle, compromise
or discharge, such Third Party Claim without the Indemnifying Party's prior
written consent (which consent shall not be unreasonably withheld).
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not involve a
Third Party Claim, the Indemnitee shall deliver notice of such claim (in
reasonably sufficient detail to enable the Indemnifying Party to evaluate such
claim) with reasonable promptness to the Indemnifying Party. The failure by any
Indemnitee so to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which it may have to such Indemnitee under
this Agreement, except to the extent that the Indemnifying Party shall have been
actually and materially prejudiced by such failure. If the Indemnifying Party
does not notify the Indemnitee within 20 business days following its receipt of
such notice that the Indemnifying Party disputes its liability with respect to
such claim under Section 2.01, 2.02 or 2.03, as the case may be, the claim shall
be conclusively deemed a liability of the Indemnifying Party under Section 2.01,
2.02 or 2.03, as the case may be, and the Indemnifying Party shall pay the
amount of such liability to the Indemnitee
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on demand or, in the case of any notice in which the amount of the claim (or any
portion thereof) is estimated, on such later date when the amount of such claim
(or such portion thereof) becomes finally determined. If the Indemnifying Party
has timely disputed its liability with respect to such claim, as provided above,
the Indemnifying Party and the Indemnitee shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
(d) The parties hereto agree that Newco shall be the representative of the
Newco Subsidiary Indemnitors for all purposes of this Section 2.04, and as such
all deliveries, notices and other communications made or delivered to Newco
shall also be deemed to have been made or delivered to the Newco Subsidiary
Indemnitors, and all elections, selections of counsel, choices, agreements and
consents made or delivered by Newco shall be deemed to have also been made or
delivered by the applicable Newco Subsidiary Indemnitors, and shall be binding
thereon. Notwithstanding the foregoing, the parties hereto agree that nothing
contained in this Section 2.04(d) shall in any manner affect, limit or impair
the rights of the Parent Indemnitees to indemnification from Newco or any Newco
Subsidiary Indemnitor pursuant to Section 2.01.
(e) The parties hereto agree that the Company shall be the representative
of the Sunrise Companies for all purposes of this Section 2.04, and as such all
deliveries, notices and other communications made or delivered to the Company
shall also be deemed to have been made or delivered to the Sunrise Companies,
and all elections, selections of counsel, choices, agreements and consents made
or delivered by the Company shall be deemed to have also been made or delivered
by the applicable Sunrise Company, and shall be binding thereon. Notwithstanding
the foregoing, the parties hereto agree that nothing contained in this Section
2.04(e) shall in any manner affect, limit or impair the rights of the Newco
Indemnitees to indemnification from any Sunrise Company pursuant to Section
2.02.
SECTION 2.05. Certain Limitations. (a) The amount of any Indemnifiable
Losses or other liability for which indemnification is provided under this
Agreement shall be net of any amounts actually recovered by the Indemnitee from
third parties (including, without limitation, amounts actually recovered under
insurance policies) with respect to such Indemnifiable Losses.
(b) All indemnification payments under this Agreement shall be (i)
increased to take account of any net tax cost incurred by the Indemnitee arising
from the receipt of indemnification payments hereunder (grossed up for such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnitee arising from the incurrence or payment of any Indemnifiable Loss.
In computing the amount of any such tax cost or tax benefit, the Indemnitee
shall be deemed to recognize all other items of income, gain, loss deduction or
credit before recognizing any item arising from the receipt of any
indemnification payment hereunder or the incurrence or payment of any
Indemnifiable Loss.
SECTION 2.06. Exclusivity of Tax Allocation Agreement. Notwithstanding
anything in this Agreement to the contrary, the Tax Allocation Agreement shall
be the exclusive agreement among the parties with respect to all Tax matters,
including indemnification in respect of Tax matters.
SECTION 2.07. Production of Witnesses; Records; Cooperation. After the
Effective Time, except (i) in the case of a dispute between Parent or a Sunrise
Company, on the one hand, and a Newco Company, on the other hand, and (ii) for
Third Party Claims that the Indemnifying Party participates in the defense or
prosecution of pursuant to Section 2.04(b) hereof (in which case the relevant
provisions of such Section will apply), each party hereto shall use commercially
reasonable efforts to make available to each other party, upon written request,
the former, current and future directors, officers, employees, other personnel
and agents of such party as witnesses and any books, records or other documents
within its control or which it otherwise has the ability to make available, to
the extent that any such person (giving consideration to business demands of
such directors, officers, employees, other personnel and agents) or books,
records or other documents may reasonably be required in connection with any
demand, action, suit, countersuit, arbitration, inquiry, proceeding or
investigation by or before any federal, state, local, foreign or international
governmental authority or any arbitration or mediation tribunal ("Action") in
which the requesting party may from time to time be involved, regardless of
whether such Action is a
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matter with respect to which indemnification may be sought hereunder. The
requesting party shall bear all reasonable costs and expenses (including
reasonable allocated costs of in-house personnel) in connection therewith unless
such costs and expenses are otherwise subject to indemnification of the
requesting party by the producing party.
ARTICLE III
OTHER AGREEMENTS
SECTION 3.01. Insurance. (a) In the event that any Sunrise Asset suffers
any damage, destruction or other casualty loss, Newco shall, or shall cause a
Newco Company to, surrender to Parent (i) all insurance proceeds received with
respect to such damage, destruction or loss and (ii) all rights of the Newco
Companies with respect to any causes of action in connection with such damage,
destruction or loss. Newco shall, and shall cause each Newco subsidiary to, make
available to the Sunrise Companies the benefit of any workers' compensation,
general liability, product liability, automobile liability, umbrella (excess)
liability or crime or other insurance policy covering or relating to the Sunrise
Business, the Sunrise Assets or the Sunrise Liabilities. The Newco Companies
shall promptly pay to Parent all insurance proceeds relating to the Sunrise
Business, the Sunrise Assets or the Sunrise Liabilities received by any Newco
Company under any insurance policy. Nothing in this Section 3.01 shall reduce,
limit or otherwise affect the right of Newco to seek or obtain insurance
proceeds with respect to any damage, destruction or loss to or of a Newco Asset,
nor shall anything in this Section 3.01 reduce, limit or otherwise affect any of
the rights of Parent or any Parent Indemnitee set forth in Article II.
(b) In the event that any Newco Asset suffers any damage, destruction or
other casualty loss, the Company shall, or shall cause a Sunrise Company to,
surrender to Newco (i) all insurance proceeds received with respect to such
damage, destruction or loss and (ii) all rights of the Sunrise Companies with
respect to any causes of action in connection with such damage, destruction or
loss. The Company shall, and shall cause each of its subsidiaries to, make
available to the Newco Companies the benefit of any workers' compensation,
general liability, product liability, automobile liability, umbrella (excess)
liability or crime or other insurance policy covering or relating to the Newco
Business, the Newco Assets or the Assumed Liabilities. The Sunrise Companies
shall promptly pay to Newco all insurance proceeds relating to the Newco
Business, the Newco Assets or the Assumed Liabilities received by any Sunrise
Company under any insurance policy. Nothing in this Section 3.01 shall reduce,
limit or otherwise affect the right of the Company to seek or obtain insurance
proceeds with respect to any damage, destruction or loss to or of a Sunrise
Asset, nor shall anything in this Section 3.01 reduce, limit or otherwise affect
the right of the Company to seek or obtain insurance proceeds with respect to
any damage, destruction or loss to or of a Sunrise Asset, nor shall anything in
this Section 3.01 reduce, limit or otherwise affect any of the rights of Newco
or any Newco Indemnitee set forth in Article II.
SECTION 3.02. Expenses. Notwithstanding anything to the contrary set forth
in the Merger Agreement, the Company (and not Newco) shall be responsible for
and agrees to pay all expenses of the Company and its subsidiaries (before
giving effect to the Restructuring) directly related to the Restructuring, the
Split-Off and the Merger up to the amount set forth on Schedule 3.02(a) hereto,
and Newco (and not the Company) shall be responsible for and agrees to pay all
expenses of the Company and its subsidiaries (before giving effect to the
Restructuring) in excess of such amount.
SECTION 3.03. Characterization of Payments. The payments made pursuant to
this Agreement shall be treated as occurring immediately before the Effective
Time, and none of the Newco Companies, the Sunrise Companies and Parent and its
subsidiaries shall take any position inconsistent with such treatment before any
Taxing Authority, except to the extent that a Final Determination (as defined in
the Tax Allocation Agreement) with respect to the recipient party causes any
such payment to not be so treated.
SECTION 3.04. Agreement Not to Compete; Agreement Not to Solicit or Hire
Employees. (a) Newco understands that Parent shall be entitled to protect and
preserve the going concern value of the
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Sunrise Business to the extent permitted by law and that Parent would not have
entered into the Merger Agreement absent the provisions of this Section 3.04.
Newco acknowledges and agrees that the purpose of this Section 3.04 is to
exclude it, except as expressly provided below, from the field of diabetes
generally and specifically from competing with the businesses of the Company and
Parent's LifeScan franchise relating to the research, development,
manufacturing, marketing and sale of test strips, pumps and meters for a period
of ten (10) years. Therefore, Newco agrees that, commencing at the Effective
Time and continuing until the date that is ten years from the Effective Time, it
shall not, and shall not permit any of its Affiliates, in any manner, directly
or indirectly, alone or in association with any person, to:
(i) compete with Parent, the Company or any of their respective
Affiliates in the field of diabetes generally (including without limitation
the testing, monitoring, diagnosing, prognostication, treatment, management
or cure of diabetes and diabetes symptoms and conditions) (the "Diabetes
Field")(it being acknowledged that the following shall not be deemed to be
in the Diabetes Field: (x) such activities with respect to cholesterol,
creatinine and other similar analytes used primarily with respect to
diseases other than diabetes, (y) the development and subsequent
manufacture of prescription pharmaceutical products (meaning products that
are therapeutically active in vivo) (other than insulin) and the sale of
such products (including the conversion of pharmaceutical products
developed by Newco to over-the-counter status), and (z) development,
manufacture, sale, servicing, use and licensing of Multi-Analyte Systems as
defined in the License Agreement);
(ii) engage in any activity in the Diabetes Field (including without
limitation researching, developing, manufacturing, marketing, selling,
distributing or licensing (to or from third parties) of technology or
products or providing services for the testing, monitoring, diagnosing,
prognostication, treatment, management or cure of diabetes and diabetes
symptoms and conditions); or
(iii) actively participate in, control, manage, own any interest in or
share in the earnings of, finance or invest in the capital stock of any
person who is engaged in any activity in the Diabetes Field or, with the
exception of Ernest Carabillo, consult with any person on matters in the
Diabetes Field except PPM Activities; except that Newco and its
subsidiaries in the aggregate, and each other Affiliate of Newco may
acquire:
(A) an entity which participates in the Diabetes Field if and only
if at the time of the acquisition and during the 10 year period referred
to above, (x) such entity's activity in the Diabetes Field is limited to
the sale of products and services (as distinguished from the licensing,
distribution, manufacture, design, research or development of products,
technologies and services) and (y) the revenues derived from the sale of
such products and services (it being understood that such entity shall
not receive any royalty revenue from the Diabetes Field) constitute no
more than 3% of such entity's total revenues; and
(B) up to 2% of the equity or voting interest in an entity that is
engaged in activities in the Diabetes Field so long as none of Ron
Zwanziger, David Scott or Jerry McAleer is actively involved, whether
directly or indirectly, in the management of such entity during the
period of the applicable non-competition covenants set forth in those
certain Consulting and Noncompetition Agreements each dated the same
date as the Merger Agreement among Parent, the Company and such
individual.
For purposes of this Section 3.04, "actively involved" includes, without
limitation, acting directly or indirectly as an officer, director, proprietor,
employee, partner, lender, or, on matters in the Diabetes Field, as a
consultant, advisor, agent or representative. Notwithstanding anything to the
contrary herein, Ernest Carabillo may serve as a director of Boston Medical
Technologies, Inc. and the successors to its business.
(b) Newco agrees that for a period of three years from the Effective Time,
it shall not, and shall cause its Affiliates not to, in any manner, directly or
indirectly, (i) induce any person that has been an employee of any of the
Sunrise Companies at any time between January 1, 2001 and the Effective Time, to
leave the employ of any Sunrise Company, (ii) except in response to a good faith
request by a person that is not an Affiliate of Newco for a recommendation
regarding the employment qualifications of such
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employee, recommend to any other person that they employ any such employee, or
(iii) hire any such employee, except as set forth on Schedule 3.04.
(c) Newco agrees that for a period of five years from the Effective Time,
it shall not, and shall cause its Affiliates not to, in any manner, directly or
indirectly, (i) solicit by mail, by telephone, by personal meeting or by any
other means, either directly or indirectly, any customer or supplier of Parent,
the Company or any of their respective Affiliates to transact business in the
Diabetes Field with a business or enterprise that competes with Parent, the
Company or any of their respective Affiliates in the Diabetes Field or reduce or
refrain from doing any business with Parent, the Company or any of their
respective Affiliates in the Diabetes Field except PPM Activities, or (ii)
disparage (including by relative comparison) Parent or the Company or any of
their products or activities in the Diabetes Field except good faith comparative
assessment with respect to PPM Activities.
(d) Notwithstanding the termination of this Agreement for any reason, and
irrespective of the time, manner or cause of termination, Newco's obligations
under this Section 3.04 run with the business of Newco and shall survive and
remain in full force and effect for the periods therein provided, and the
provisions for equitable relief against Newco shall continue in full force and
effect. Notwithstanding the foregoing, the provisions of Section 3.04(a) and (c)
shall not be applicable to an acquirer (including any of its Affiliates other
than Newco and its subsidiaries) of all or any part of the Newco Business if (x)
such acquiror acquired Newco in a bona fide, arms-length transaction and (y)
none of Ron Zwanziger, David Scott or Jerry McAleer are actively involved,
whether directly or indirectly, in the management of such acquirer's business in
the Diabetes Field during the period of the applicable non-competition covenants
set forth in those certain Consulting and Noncompetition Agreements each dated
the same date as the Merger Agreement among Parent, the Company and such
individual.
(e) The foregoing notwithstanding, nothing in Section 3.04(a) - (d) shall
prevent Newco, or Affiliates of Newco, from participating, directly or
indirectly, in any manner whatsoever in PPM Activities in the Diabetes Field,
including, without limitation, competing, engaging, controlling, managing,
owning, investing, consulting, soliciting customers. For purposes of this
Agreement, "PPM Activities" shall mean and be limited to the following:
1. Owning physician practices;
2. Providing "back office" management services to physicians and
practitioners (both physicians and practitioners are collectively referred
to as "members") (such as billing, collections, scheduling, reimbursement
etc.);
3. Compiling data from its members for the purposes of establishing
disease management best practices; and
4. Providing group-buying services for its members, excluding any and
all products and services in the Diabetes Field and excluding Multi-Analyte
Systems which include Diabetes Tests as defined in the License Agreement;
it being agreed and acknowledged that Newco shall not in any way direct or
influence the purchasing decisions of members with respect to products and
services in the Diabetes Field or with respect to Multi-Analyte Systems which
include Diabetes Tests as defined in the License Agreement.
SECTION 3.05. Net Cash Adjustment. (a) Not less than four business days
prior to the Closing Date and in accordance with the Restructuring Agreement,
Newco shall prepare and deliver to Parent the Initial Statement setting forth
the Estimated Net Cash. Within 10 days after the Closing Date, Newco shall
prepare and deliver to Parent a statement (the "Closing Statement" and, together
with the Initial Statement, the "Statements") setting forth Net Cash (which
amount shall not include the Net Cash Adjustment Amount) ("Closing Net Cash").
During the 10 day period following Parent's receipt of the Closing
Statement, Parent and its independent auditors will be permitted to review
Newco's working papers relating to the Statements. The Statements shall become
final and binding upon the parties on the tenth day following receipt of the
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Closing Statement, unless Parent gives written notice of its disagreement with
either Statement ("Notice of Disagreement") to Newco prior to such date. Any
Notice of Disagreement shall (i) specify in reasonable detail the nature of any
disagreement so asserted and (ii) only include disagreements based on Estimated
Net Cash or Closing Net Cash, as the case may be, not being calculated in
accordance with this Section 3.05. If a Notice of Disagreement is received by
Newco in a timely manner, then the Statements (as revised in accordance with
clauses (A) or (B) below) shall become final on the earlier of (A) the date
Parent and Newco resolve in writing any differences they have with respect to
the matters specified in the Notice of Disagreement or (B) the date any disputed
matters are finally resolved in writing by the Accounting Firm (as defined
below).
During the 20 day period following delivery of a Notice of Disagreement,
Parent and Newco shall seek in good faith to resolve in writing any differences
that they may have with respect to the matters specified in the Notice of
Disagreement. During such period Newco and its independent auditors shall have
access to the working papers relating to the Notice of Disagreement. At the end
of such 20 day period, Parent and Newco shall submit to an independent
accounting firm (the "Accounting Firm") for review and resolution any and all
matters that remain in dispute and which were properly included in the Notice of
Disagreement. The Accounting Firm shall be a nationally recognized independent
public accounting firm agreed upon by Parent and Newco in writing, other than
Arthur Andersen LLP or PricewaterhouseCoopers LLP. Parent and Newco shall
jointly use all reasonable efforts to cause the Accounting Firm to render a
decision within 20 days following submission. Parent and Newco agree that
judgment may be entered upon the determination of the Accounting Firm in any
court having jurisdiction over the party against which such determination is to
be enforced. The cost of any dispute resolution (including the fees and expenses
of the Accounting Firm and reasonable attorney fees and expenses of the parties)
pursuant to this Section 3.05 shall be borne by Parent and Newco in inverse
proportion as they may prevail on matters resolved by the Accounting Firm, which
proportionate allocations shall also be determined by the Accounting Firm at the
time the determination of the Accounting Firm is rendered on the merits of the
matters submitted. The fees and disbursements of Newco's independent auditors in
connection with their review of any Notice of Disagreement shall be borne by
Newco and the fees and disbursements of Parent's independent auditors incurred
in connection with their review of the Statements shall be borne by Parent.
(b) If the sum of (x) Closing Net Cash and (y) the Net Cash Adjustment
Amount exceeds $40,000,000, Newco shall, within 10 days after the Statements
become final and binding on the parties, make payment to the Company by wire
transfer of immediately available funds of such excess, together with interest
thereon at a rate equal to the rate of interest from time to time announced
publicly by Citibank, N.A. as its prime rate, calculated on the basis of the
actual number of days elapsed divided by 365, from the Closing Date to the date
of payment.
(c) The scope of the disputes to be resolved by the Accounting Firm is
limited to whether the Statements were prepared in compliance with the
requirements of this Section 3.05, and the Accounting Firm is not to make any
other determination.
(d) During the period of time from and after the delivery of the Closing
Statement to Parent through the date the Statements becomes final and binding on
the parties, Newco shall cause the Newco Companies to afford to Parent and any
accountants, counsel or financial advisors retained by Parent in connection with
the adjustment contemplated by this Section 3.05 reasonable access during normal
business hours to the Newco Companies' books and records to the extent relevant
to the adjustment contemplated by this Section 3.05.
SECTION 3.06. Successors. None of Newco or any of the Newco Subsidiary
Indemnitors shall consolidate with or merge with or into, or sell, convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all of its assets to, any person, unless the resulting, surviving
or transferee person (the "Successor Company") shall expressly assume, by an
instrument in form and substance reasonably satisfactory to Parent, all the
obligations of such Newco Indemnitor under this Agreement. The Successor Company
shall be the successor to Newco or such Newco Indemnitor, as applicable, and
shall
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succeed to, and be substituted for, such Newco or Newco Indemnitor, as
applicable, under this Agreement, but, in the case of a sale, conveyance,
transfer or lease, Newco or such Newco Indemnitor, as applicable, shall not be
released from its obligations hereunder.
SECTION 3.07. Third Party Rights. (a) In the event that after the
Effective Time any of the Newco Companies holds any right to indemnification
other than a right to indemnification under this Agreement or any other
contractual or other right (collectively, a "Newco Recourse Right") with respect
to any Sunrise Liability or any Assumed Liability for which any of the Sunrise
Companies are held responsible, then (i) to the extent possible such Newco
Recourse Right shall be deemed to be held as a shared right of the applicable
Newco Companies and the applicable Sunrise Companies to the extent necessary to
protect the Sunrise Companies against such Sunrise Liability or such Assumed
Liability, and (ii) to the extent not so possible, Newco shall, or shall cause a
Newco Company to, assert or otherwise make available to the Sunrise Companies
the full benefit of such Newco Recourse Right by making a claim on behalf of the
Sunrise Companies or taking other steps reasonably requested by the Sunrise
Companies.
(b) In the event that after the Effective Time any of the Sunrise Companies
holds any right to indemnification or any other contractual or other right
(collectively, a "Sunrise Recourse Right") with respect to any Assumed Liability
or any Sunrise Liability for which any of the Newco Companies are held
responsible, then (i) to the extent possible such Sunrise Recourse Right shall
be deemed to be held as a shared right of the applicable Sunrise Companies and
the applicable Newco Companies to the extent necessary to protect the Newco
Companies against such Assumed Liability or such Sunrise Liability, and (ii) to
the extent not so possible, the Company shall, or shall cause a Sunrise Company
to, assert or otherwise make available to the Newco Companies the full benefit
of such Sunrise Recourse Right by making a claim on behalf of the Newco
Companies or taking other steps reasonably requested by the Newco Companies.
ARTICLE IV
MISCELLANEOUS AND GENERAL
SECTION 4.01. Effectiveness; Modification or Amendment. The parties hereto
agree that this Agreement will become effective at the Effective Time. The
parties hereto may modify or amend this Agreement only by written agreement
executed and delivered by duly authorized officers of the respective parties.
SECTION 4.02. Extension; Waiver. At any time the parties may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties or (b) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
SECTION 4.03. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 4.04. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 4.05. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is
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confirmed) or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or the Sunrise Companies (including, after the Effective
Time, the Company), to
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Telecopy No.: (732) 524-2788
Attention: Office of General Counsel
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Robert I. Townsend, III
(b) if to the Company (prior to the Effective Time), to
Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453
Telecopy No.: (781) 647-3939
Attention: Chief Executive Officer
with a copy to:
Goodwin Procter LLP
53 State Street
Boston, MA 02109
Telecopy No.: (617) 523-1231
Attention: Paul D. Schwartz, P.C.
Stephen W. Carr, P.C.
(c) if to Newco or the Newco Companies, to
Newco
51 Sawyer Road, Suite 200
Waltham, MA 02453
Telecopy No.: (781) 647-3939
Attention: Chief Executive Officer
with a copy to:
Goodwin Procter LLP
53 State Street
Boston, MA 02109
Telecopy No.: (617) 523-1231
Attention: Paul D. Schwartz, P.C.
Stephen W. Carr, P.C.
SECTION 4.06. Captions. All the Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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SECTION 4.07. Assignment. Except as provided in Section 3.06, neither this
Agreement nor any of the rights, interests or obligations under this Agreement
shall be assigned, in whole or in part, by operation of law or otherwise by any
of the parties without the prior written consent of the other parties. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 4.08. Entire Agreement. The Transaction Agreements (including the
documents and instruments referred to therein, the Annexes thereto, the Parent
Disclosure Schedule and the Company Disclosure Schedule) and the Confidentiality
Agreement constitute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
SECTION 4.09. Certain Obligations. Whenever this Agreement requires any of
the subsidiaries of any party to take any action, this Agreement will be deemed
to include an undertaking on the part of such party to cause such subsidiary to
take such action; provided, however, that for this purpose, after the Effective
Time, the Newco Companies shall not be considered to be subsidiaries of the
Company unless specifically included.
SECTION 4.10. Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 4.11. No Third Party Beneficiaries. Nothing contained in this
Agreement is intended to confer upon any person or entity other than the parties
hereto and their respective successors and permitted assigns, any benefit, right
or remedies under or by reason of this Agreement, except that the provisions of
Article II hereof shall inure to the benefit of Indemnitees.
SECTION 4.12 Specific Enforcement; Jurisdiction. The parties agree that
irreparable damage would occur and that the parties would not have any adequate
remedy either pursuant to the indemnification provisions of Section 2.01, 2.02
or 2.03, as the case may be, or at law in the event that any of the provisions
of this Agreement, including, but not limited to Section 3.04, were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware in any state court in the State of Delaware, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
of any state court located in the State of Delaware in the event any dispute
arises out of this Agreement or the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or the transactions
contemplated by this Agreement in any court other than a Federal court located
in the State of Delaware or a state court located in the State of Delaware.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
JOHNSON & JOHNSON,
by:
--------------------------------------
Name:
Title:
INVERNESS MEDICAL TECHNOLOGY, INC.,
by:
--------------------------------------
Name:
Title:
[SUNRISE COMPANIES],
by:
--------------------------------------
Name:
Title:
[NEWCO],
by:
--------------------------------------
Name:
Title:
[NEWCO SUBSIDIARY INDEMNITORS],
by:
--------------------------------------
Name:
Title:
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ANNEX 6
ANNEX D TO THE MERGER AGREEMENT
LICENSE AGREEMENT
LICENSE AGREEMENT (the "Agreement") dated as of [to be dated as of the
effective date of the Merger] , 2001 (the "Effective Date") by and
between INVERNESS MEDICAL TECHNOLOGY, INC., a corporation, ,
a corporation, , and , and a
corporation, [to be filled in with each IMT sub which owns technology]
(collectively, "IMT"), a corporation, and [Spinoff Company]
("SpinCo"), a corporation.
WHEREAS, SpinCo is a wholly-owned subsidiary of IMT;
[This background description is subject to change as the structure for
forming and capitalizing the new company is refined.]
WHEREAS, IMT desires, as a contribution to the capital of SpinCo, to grant
to SpinCo a paid-up, royalty-free license with respect to certain Intellectual
Property of IMT, on the terms and subject to the conditions of this Agreement,
and SpinCo is willing to accept said license on such terms and subject to such
conditions; and
WHEREAS, SpinCo desires, as a condition to its obtaining a license to
certain Intellectual Property of IMT, to grant to IMT a paid-up, royalty-free
license with respect to certain Intellectual Property of SpinCo, on the terms
and subject to the conditions of this Agreement, and IMT is willing to accept
said license on such terms and subject to such conditions;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficient of which is hereby acknowledged, IMT and SpinCo
hereby agree as follows.
1. Definitions.
"Affiliate" of a person means any person that controls, is controlled by,
or is under common control with such person.
"Co-exclusive" with respect to any license granted under this Agreement
means a sole license pursuant to which the licensor grants to the licensee a
non-exclusive license to make, have made, use, import, sell or have sold in the
stated field, and the licensor retains the non-exclusive right the make, have
made, use, import, sell or have sold in the stated field. For such Co-exclusive
licenses, (i) both licensor and licensee may grant a single Unique Product Field
License for each Unique Product Field (ii) the licensor may grant sublicenses to
settle litigation where the licensor concludes in good faith that such a
sublicense is necessary to avoid a risk of loss to the licensed Intellectual
Property, and (iii) neither licensor or licensee shall otherwise sublicense.
"Confidential Information" means, subject to the exclusions below, all
information communicated by one party (the "Disclosing Party") to the other or
an Affiliate of the other or any of their respective officers, employees, agents
or representatives (collectively, the "Receiving Party"), considered by the
Disclosing Party to be confidential and proprietary and, if disclosed in
writing, marked "Confidential," or, if disclosed orally or visually by the
Disclosing Party, identified by it as being confidential at the time of
disclosure and confirmed in writing within thirty (30) days thereof.
Confidential Information of a Disclosing Party shall not include information
that (i) is shown by written record to have been known to the Receiving Party at
or prior to the time of receipt from the Disclosing Party, (ii) is generally
known to the public or in the trade at the time of such disclosure, or becomes
so generally known thereafter, provided that such public knowledge was not the
result of any breach of this Agreement attributable to the Receiving Party,
(iii) is received on a non-confidential basis from a third person who is not
known by the Receiving Party to be in breach of a duty of confidentiality to the
Disclosing Party in disclosing such
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information, or (iv) is shown by written record to have been independently
developed by the Receiving Party, without use of Confidential Information of the
Disclosing Party.
"Diabetes Tests" means tests which are primarily useful for testing,
monitoring, diagnosing, prognosticating, treating, managing, or curing diabetes.
Such tests include, without limitation, the measurement and management of: (i)
glucose or glucose derivatives, (ii) glycated hemoglobin, (iii) insulin, (iv)
drugs which are specific to diabetes, (v) fructosamine, and (vi) any genetic
markers which are used primarily for diabetes. Such tests shall not include,
without limitation, the measurement and management of cholesterol, creatinine,
and similar analytes primarily used with respect to diseases other than
diabetes.
"Documentation" with respect to any Technology means any and all documents,
manuals and other tangible materials, in written, electronic or any other form,
that embody such Technology or provide information with respect to such
Technology or its use.
"EC Intellectual Property" means all EC Technology, and Intellectual
Property related thereto, excluding Interstitial Intellectual Property, that is
owned or controlled or licensed in by IMT and in existence on the date of this
Agreement, including without limitation all rights with respect to those U.S.
and foreign patents and patent applications listed in Exhibit A attached hereto
and any divisionals, continuations, continuations-in-part, and re-examinations
with respect thereto and any foreign counterparts of any of the foregoing and
letters patent issued with respect to any such patent applications, but
excluding Intellectual Property licensed to IMT on terms that do not permit IMT
to sublicense to SpinCo pursuant to this Agreement.
"EC Technology" means all Technology that relates to the design,
manufacture or use of devices useful for the detection of analytes by applying a
current or voltage potential to a fluid containing the analyte.
"Exclusive Field" of a Party means IMT's Field or SpinCo's Field, as the
context requires.
"IMT's Field" means, except as provided below in this paragraph, the field
of diabetes generally, including, without limitation, the testing, monitoring,
diagnosing, prognosticating, treatment, management, and cure of diabetes. Such
field includes, without limitation, the measurement and management of: (i)
glucose or glucose derivatives, (ii) glycated hemoglobin, (iii) insulin, (iv)
drugs which are specific to diabetes, (v) fructosamine, and (vi) any genetic
markers which are used primarily for diabetes. IMT's field shall not include
Multi-Analyte Systems and the testing, monitoring, diagnosing, prognosticating,
treatment, management of cholesterol, creatinine, and similar analytes.
"IMT Improvements" means all Technology developed by or for IMT, alone or
jointly with the any other person, during the Technology Sharing Period that
pertains or relates to methods and apparatus for coating or infusing strips with
chemicals for use in testing based on either IMT's web process or IMT's other
screen printing processes and all Intellectual Property pertaining to such
Technology. For this purpose, any such Technology that is reduced to practice
within one year following the expiration of the Technology Sharing Period shall
be deemed to have been conceived during the Technology Sharing Period unless
shown to the contrary by documentary evidence.
"Interstitial Intellectual Property" means Intellectual Property owned or
controlled or licensed in by IMT, in existence as of the date of this Agreement,
pertaining to the sampling of interstitial fluid, including without limitation,
the Intellectual Property owned by Integ Incorporated, now a subsidiary of IMT,
including those U.S. and foreign patents and patent applications listed in
Exhibit B attached hereto and any divisionals, continuations,
continuations-in-part, and re-examinations with respect thereto and any foreign
counterparts of any of the foregoing and letters patent issued with respect to
any such patent applications.
"Intellectual Property" means all patents, copyrights, pending patent
applications, copyright registrations, rights in trade secrets and other
confidential information, and all other intellectual or
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proprietary property throughout the world, but excluding trademarks, service
marks, trade names and logos, and rights therein.
"Jointly Owned Intellectual Property" means any Intellectual Property that
is jointly owned by the Parties as provided in Section 5.4.
"Licensed Intellectual Property" means all EC Intellectual Property, all
Interstitial Intellectual Property, all IMT Improvements, all SpinCo
Improvements, and all Wireless Intellectual Property.
"Multi-Analyte System" means a testing system that tests two (2) or more
analytes concurrently if there are no Diabetes Tests, and, if any Diabetes Tests
are included, a minimum of five (5) analytes not more than twenty percent (20%)
of which are Diabetes Tests. Multi-Analyte System specifically excludes products
which include Diabetes Tests which are designed, manufactured, approved, and/or
marketed for patient self-testing.
"Party" means either IMT or SpinCo.
"Point-of-Care Applications" means, except as provided in the following
sentence, products and services that are designed and marketed for use in so
called "point-of-care" applications; that is, used at the site where a patient
is treated whether at home or in a medical facility, and whether used by the
patient or a medical professional. Point-of-Care Applications specifically
excludes Diabetes Tests other than might be incorporated into Multi-Analyte
Systems. For clarity, the Parties acknowledge that Point-of-Care Applications
excludes products which include Diabetes Tests which are designed, manufactured,
approved, and/or marketed for patient self-testing.
"Shared Field" means all fields outside of IMT's Field and SpinCo's Field.
"Significant Transaction" means, except as provided in the following
sentence, the grant by SpinCo of any exclusive sublicense of any Licensed
Intellectual Property licensed to SpinCo under this Agreement and/or the entry
by SpinCo into any exclusive distribution agreement with respect to products
manufactured by SpinCo which practice any Licensed Intellectual Property
licensed to SpinCo under this Agreement.
"SpinCo Subfield" means any one of the categories listed in clause (1),
(2), (3), (4), (5) or (6) of the definition of "SpinCo's Field."
"SpinCo's Field" means the manufacture, marketing, sale, licensing,
support, performance and use of products and services that (i) are not included
in IMT's Field, and (ii) fall within any of the following categories:
(1) Point-of-Care Applications;
(2) Prothrombin applications;
(3) Multi-Analyte System applications;
(4) immunodiagnostic applications, including without limitation
products for the detection or measurement of cardiac markers;
(5) pregnancy, ovulation or osteoporosis applications; and
(6) pain management applications.
"SpinCo Improvements" means all EC Technology developed by or for SpinCo,
alone or jointly with the other Party or any other person, in either case,
during the Technology Sharing Period and all Intellectual Property pertaining to
such EC Technology. For this purpose, any such Technology that is reduced to
practice within one year following the expiration of the Technology Sharing
Period shall be deemed to have been conceived during the Technology Sharing
Period unless shown to the contrary by documentary evidence.
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"Technology" means inventions, discoveries, improvements, technical data
and research results, software and other works of authorship, confidential
information, and other useful or potentially useful technology of any
description whatsoever, whether or not patentable or copyrightable.
"Technology Sharing Period" means the period commencing on the date of this
Agreement and expiring three years after the date of this Agreement.
"Unique Product Field " means a field of use defined by one or more unique
products.
"Unique Product Field License" means a license for a Unique Product Field
whereby the licensor grants a license to the Licensed Intellectual Property for
the unique products in such Unique Product Field, and whereby the licensee takes
such license with all obligations the licensor may have under this License
Agreement. Further, under such a license, the licensor does not receive any
grantbacks to improvements in the field of the license.
"Wireless Intellectual Property" means Intellectual Property owned or
controlled or licensed in by IMT, in existence as of the date of this Agreement,
pertaining to all Technology relating to the wireless transmission of
information, including those U.S. and foreign patents and patent applications
listed in Exhibit C attached hereto and any divisionals, continuations,
continuations-in-part, and re-examinations with respect thereto and any foreign
counterparts of any of the foregoing and letters patent issued with respect to
any such patent applications.
2. License Grants.
2.1 EC Intellectual Property and IMT Improvements.
(a) In SpinCo's Field. IMT hereby grants to SpinCo a perpetual,
irrevocable (subject to the following paragraph), worldwide, paid-up,
royalty-free, exclusive license, to make, have made, use, import, sell and
have sold products and services under the EC Intellectual Property and the
IMT Improvements in SpinCo's Field.
The license granted under this Section 2.1(a) shall terminate as to
each SpinCo Subfield for which, within ten (10) years of the Effective
Date, SpinCo fails to commercialize a product in such SpinCo Subfield.
As long as the license granted to SpinCo under this Section 2.1(a) has
not terminated according to the previous paragraph, SpinCo may grant a
single license transferring all rights and obligations to the EC
Intellectual Property and the IMT Improvements for each SpinCo Subfield
provided SpinCo does not retain any rights in that SpinCo Subfield and
SpinCo does not receive any grantbacks to improvements in that SpinCo
Subfield, in each case, except insofar as portions of such SpinCo Subfield
overlap with another SpinCo Subfield with respect to which SpinCo has not
so sublicensed or assigned its rights.
For all SpinCo Improvements made as a result of the license granted to
SpinCo under this Section 2.1(a), SpinCo grants to IMT a perpetual,
worldwide, paid-up, irrevocable, royalty-free, exclusive license to make,
have made, use, and sell products, processes and services in IMT's Field.
(b) In the Shared Field. IMT hereby grants to SpinCo a perpetual,
irrevocable, worldwide, paid-up, royalty-free, Co-exclusive license, to
make, have made, use, import, sell and have sold products and services
under the EC Intellectual Property and the IMT Improvements in the Shared
Field.
For all SpinCo Improvements made as a result of the license granted to
SpinCo under this Section 2.1(b), SpinCo grants to IMT a perpetual,
worldwide, paid-up, irrevocable, royalty-free, exclusive license to make,
have made, use, and sell products, processes and services in IMT's Field.
2.2 Interstitial Intellectual Property and Wireless Intellectual
Property. IMT hereby grants to SpinCo a perpetual, irrevocable, worldwide,
paid-up, royalty-free, Co-exclusive license to make, have
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made, use, import, sell and have sold products and services under the
Interstitial Intellectual Property and under the Wireless Intellectual Property
in SpinCo's Field and the Shared Field.
For all SpinCo Improvements made as a result of the license granted to
SpinCo under this Section 2.2, SpinCo grants to IMT a perpetual, worldwide,
paid-up, irrevocable, royalty-free, exclusive license to make, have made, use,
and sell products, processes and services in IMT's Field.
2.3 IMT Affiliate Activity. The Parties acknowledge that the exclusive
licenses granted to SpinCo under this Article 2 pertain to the EC Intellectual
Property in place as of the Effective Date and to IMT Improvements that are
created by either IMT or IMT's Affiliate, LifeScan, Inc. Should any other
Affiliate of IMT conduct research, development, engineering, manufacturing, or
sales activities on any EC Technology obtained by a third party or developed
without reliance on the EC Intellectual Property, such EC Technology shall be
considered separate and apart from this Agreement, and no restrictions or
obligations shall be placed on such IMT Affiliate. Further, IMT and its
Affiliates shall be able to compete in SpinCo's Field as long as it and its
Affiliates honor the licenses granted herein.
2.4 Disclosure and Technology Transfer.
(a) Each Party will promptly disclose to the other Party any new
Technology invented, discovered, developed or licensed by such Party or any
Affiliate of such Party that is subject to a license to the other Party
under this Article 2.
(b) Until one year after the expiration of the Technology Sharing
Period, each Party shall provide the other Party access to any and all
Documentation possessed by such Party or any Affiliate of such Party with
respect to any Technology that is subject to a license to the other Party
under Article 2 and will permit such other Party to make copies and
extracts therefrom at such other Party's expense. All Documentation
provided to a Party under this Section 2.4(b) may be retained, reproduced,
and used by such Party, subject to the provisions of Article 5, in
connection with such Party's activities under any of the licenses granted
under this Agreement.
(c) In addition to Documentation delivered under Section 2.4(b), each
Party shall from time to time during the Technology Sharing Period, upon
reasonable request and at the expense of the requesting Party (including
payment of reasonable compensation on a time-and-materials basis for
services provided by personnel of such Party), provide reasonable advice
and instruction with respect to Technology included in the Licensed
Intellectual Property of such Party, to the end that the requesting Party
may be fully informed with respect to the fundamental principles and manner
of use applicable to such Technology.
2.5 Further Assurances. Each Party hereby agrees, upon request of the
other Party and at the other Party's expense, to execute and deliver such
instruments, agreements and other documents and take such other actions as may
be reasonably necessary or appropriate to grant, confirm and give full effect to
the licenses granted and agreed to be granted herein.
2.6 Marking. In the case of any Licensed Intellectual Property consisting
of a U.S. or foreign patent, each Party shall mark, and shall contractually
require its sublicensees to mark, in accordance with 35 U.S.C. sec.287, and any
similar corresponding foreign regulations, all products and services that are
manufactured or sold by such Party that are covered by a license granted under
this Article 2 with respect to such Licensed Intellectual Property.
2.7 No Trademark License. This Agreement does not confer upon either Party
any right to use any trademarks, service marks or trade names of the other
Party. Neither Party shall use any such trademark, service mark or trade name of
the other Party in any way in connection with the manufacture, marketing, sale
or performance of products or services under any of the licenses granted under
this Agreement without the prior written consent of such other Party.
2.8 Research and Development. For purposes of this License Agreement, a
grant of a license under Licensed Intellectual Property shall allow the licensee
the right to contract with third-parties to conduct
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research and development with such Intellectual Property which research and
development is for the sole use of the licensee and its permitted licensees.
3. Patent Applications.
3.1 Right to Patent Improvements. Subject to the limitation in the
following sentence, each Party shall have the right to file and prosecute patent
applications in any and all jurisdictions relating to improvements made by such
Party, either alone or jointly with the other Party or other persons, with
respect to Licensed Intellectual Property. No such application may disclose
Confidential Information of the other Party without the prior written consent of
such other Party, which consent shall not unreasonably be withheld. Each Party
shall cooperate as reasonably requested by the other Party in connection with
the preparation, filing, prosecution and maintenance of any patent application
for Jointly Owned Intellectual Property.
3.2 Right to Request Amendment or New Application. In the case of Licensed
Intellectual Property of either Party which is the subject of a pending patent
application in any jurisdiction or for which no patent application has been
filed in a particular jurisdiction, the Party that owns such Licensed
Intellectual Property will, subject to the limitation in the following sentence,
upon request by the other Party, amend such patent application or file a new
application in a jurisdiction designated by such other Party, as appropriate and
if possible, to provide patent protection useful in any field in which such
other Party is permitted to practice such Licensed Intellectual Property. The
Party owning such Licensed Intellectual Property shall prosecute such amended or
new patent application with the same degree of care it would its own patent
applications. Further, the Party that owns such Licensed Intellectual Property
shall not be required to make an amendment or file a new application that would
disclose Confidential Information of such Party without such Party's consent,
which consent shall not unreasonably be withheld. The cost of prosecuting any
such new application requested by such other Party, and the cost of prosecuting
any such new or amended application, to the extent attributable to such
amendment, shall be borne by such other Party.
3.3 Cooperation. In any case where a Party is pursuing a patent
application or owns a patent with respect to Licensed Intellectual Property that
is applicable or potentially applicable in any field in which the other Party is
permitted to practice such Licensed Intellectual Property, the Party pursuing a
patent application shall keep such other Party informed with respect to the
progress of such patent application and developments related thereto, and shall
cooperate reasonably with such other Party, at the expense of such other Party,
in all actions reasonably requested by such other Party relating to the
prosecution and maintenance of such patent application or patent to achieve and
maintain broad protection with respect to any field in which such other Party is
permitted to practice Licensed Intellectual Property. Neither Party shall
intentionally abandon or dedicate to the public domain any patent or patent
application included in the Licensed Intellectual Property and owned by such
Party that is applicable or potentially applicable in any field in which the
other Party is permitted to practice Licensed Intellectual Property without the
written consent of such other Party.
4. Enforcement and Protection of Licensed Intellectual Property.
4.1 Infringement.
(a) Exclusive Field of a Party. In the event that there is
infringement on a substantial commercial scale by a third party of any
exclusively Licensed Intellectual Property licensed by one Party
("Licensor") to the other Party ("Licensee") hereunder, Licensee may notify
the Licensor in writing to that effect, including with said written notice
evidence establishing a prima facie case of infringement by such third
party. The Licensor shall have one hundred eighty (180) days from the date
of such notification to bring suit, in its own name, against such
infringer. Licensor shall bear all the expenses of any suit brought by it
and shall retain that portion of any damages or other monies awarded or
received in settlement of such suit equal to the amount of its expenses.
Licensee will cooperate with the Licensor in any such suit and shall have
the right to consult with the Licensor
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with regard to the handling of such suit and to participate in and be
represented in such suit by its own counsel at its own expense.
If, after the expiration of said one hundred and eighty (180) days
from the date of said notice, Licensor has not (i) overcome the prima facie
case of infringement, (ii) obtained a discontinuance of such infringement,
or (iii) brought suit against the infringer, Licensee, as the exclusive
licensee under the patent being infringed, shall have the right, but not
the obligation, to bring suit against such infringer and join Licensor as a
party plaintiff, provided that Licensee shall bear all its expenses of such
suit. Licensor will cooperate with Licensee in any suit for infringement of
a licensed patent brought by Licensee against a third party, and shall have
the right to consult with Licensee with regard to the handling of such suit
and to participate in and be represented by independent counsel in such
litigation at its own expense.
(b) Shared Field. If a third party infringes Licensed Intellectual
Property in the Shared Field, only the Licensor may initiate a suit for
infringement.
4.2 Cooperation and Right to Participate. In any case where, under Section
4.1, a Party has the right to take legal action to enforce Licensed Intellectual
Property of the other Party, such other Party shall cooperate with such
enforcing Party, including without limitation joining in such action as a party
plaintiff if required, and executing such pleadings and other documents as may
reasonably be requested by such enforcing Party for the purpose of enabling such
enforcing Party to prosecute such action to the fullest possible extent, all at
the expense of such enforcing Party. In the case of any such legal action
undertaken by an enforcing Party to enforce Licensed Intellectual Property, or
in the case of a legal action for declaratory judgment or other comparable
remedies undertaken against an enforcing Party, the other Party shall have the
right, at its own expense, through legal counsel reasonably acceptable to the
enforcing Party, to participate in the prosecution or defense and settlement of
any such action to the extent that such prosecution or defense and settlement
relates to any affirmative defense, claim or counterclaim asserted in such
action based on an allegation that any patent included in the Licensed
Intellectual Property is invalid or unenforceable, any trade secret has not been
adequately safeguarded or any other type of Intellectual Property right is
invalid or unenforceable.
4.3 Limitation on Settlement. Without the prior written consent of the
other Party, which consent shall not unreasonably be withheld, neither Party may
enter into any settlement of any claim or action subject to the provisions of
this Article 4 that (i) imposes any obligation or liability on the other Party;
(ii) admits the invalidity or unenforceability of Licensed Intellectual
Property; (iii) admits the absence of infringement of any Licensed Intellectual
Property by the products, services or other activities of any person in the
Exclusive Field of the other Party; (iv) otherwise impairs the value or
usefulness of any Licensed Intellectual Property to the other Party in an
Exclusive Field; or (v) in any way restricts the rights of the other Party with
respect to any Licensed Intellectual Property.
4.4 Entitlement to Damages. Each Party shall be entitled to retain damages
and other collections resulting from such prosecution, including any settlements
entered into as a result of such prosecution to reimburse or pay litigation
expense. Any remaining damages and other collections resulting from the
prosecution of infringement of Licensed Intellectual Property in a Party's
Exclusive Field shall be paid to such Party. In the case of action undertaken by
either Party to prosecute infringement of Licensed Intellectual Property in the
Shared Field, damages and other collections resulting from such prosecution,
including any settlements entered into as a result of such prosecution, shall
first be applied pro rata to the costs of the respective Parties incurred in
connection with such prosecution and, after such costs have been fully paid,
shall be divided equally between the Parties or apportioned on such other basis
as the Parties may reasonably agree. Royalties, license fees or other
collections from nonexclusive licenses entered into in settlement of enforcement
actions in accordance with the provisions of Section 4.1 shall be deemed to
constitute "damages and other collections" subject to this Section 4.4.
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5. Confidentiality and Ownership.
5.1 Confidentiality Obligations. Subject to the limitations below in this
Article 5, each Party agrees (i) not to use any Confidential Information of the
other Party except as authorized herein and only for the purposes of this
Agreement; (ii) to hold all Confidential Information of the other Party in
confidence and not to make any disclosure of any of such Confidential
Information to anyone, except to its employees, contractors, consultants, agents
and sublicensees who have a need to know in connection with its activities
pursuant to the licenses granted under this Agreement or otherwise under this
Agreement; (iii) to require its employees, contractors, consultants, agents and
sublicensees who have access to Confidential Information of the other Party to
agree in writing to comply with its obligations under this Section 5.1, and
appropriately to notify each person to whom any such disclosure is made that
such disclosure is made in confidence and required to be kept in confidence by
such person; (iv) not, without the other Party's express written permission, to
make or have made, or permit to be made, more copies of any of the furnished
Confidential Information than are reasonably necessary for its use hereunder,
and that each such copy shall contain the same proprietary notices or legends
that appear on the furnished Confidential Information being copied; and (v) that
all of the other Party's Confidential Information shall remain the property of
the other Party.
5.2 Legally Required Disclosure. Either Party may make such disclosure of
Confidential Information of the other Party as may be required by order of a
court, or other requirement of law, provided that the disclosing Party shall use
its reasonable efforts to give the other Party prior notice of any such legally
required disclosure and to cooperate with such other Party, at the expense of
such other Party, in its efforts to protect its interest in such Confidential
Information, through a protective order or other appropriate means.
5.3 Term of Confidentiality Obligation. The obligations of each Party
under Sections 5.1 and 5.2 with respect to any Confidential Information
disclosed to such Party shall extend for a period of five (5) years following
the date of such disclosure.
5.4 Ownership of New Inventions and Developments. As between the Parties,
any new Technology that is invented, developed or created by or on behalf of a
Party, and all Intellectual Property with respect thereto, shall be the property
of such Party. Neither Party shall be under any obligation to assign to the
other Party any rights of ownership with respect to any such Technology or
Intellectual Property. Any new Technology that is invented, developed or created
jointly by or on behalf of both Parties and all Intellectual Property with
respect thereto shall be jointly owned by the Parties. Except as otherwise
provided in Article 2, neither Party shall be subject to any restrictions on its
use of any such jointly owned Technology or Intellectual Property, or to any
obligation to account to the other Party with respect thereto. The Parties
acknowledge that any Intellectual Property developed by Ron Zwanziger, David
Scott or Jerry McAleer which under the terms of their consulting agreements with
IMT belongs to IMT, belongs to IMT and is not jointly owned.
6. Disclaimer of Warranties. Neither Party makes any representation or warranty
of any description whatsoever, either express or implied, with respect to the
Intellectual Property of such Party licensed under this Agreement or any
products or services that may be manufactured or provided through the use of
such Intellectual Property. Without limitation of the foregoing, neither Party
makes any representation or warranty with respect to merchantability, fitness
for a particular use, or noninfringement; with respect to the validity,
enforceability or scope of any such Intellectual Property; or that any
manufacture, sale, offer of sale, use or importation of products covered by such
Intellectual Property or other use of such Intellectual Property will be free
from infringement of patents or other intellectual property rights, other than
the patents licensed hereunder and the other intellectual property rights
granted herein, but only to the extent to which licenses or rights remain in
force hereunder.
7. First Refusal and Profits on Diabetes Tests.
7.1 Profits on Diabetes Tests. If SpinCo, or an subsidiaries of SpinCo,
commercializes a Multi-Analyte System which includes one or more Diabetes Tests,
SpinCo shall pay to IMT that portion of
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SpinCo's gross profits (defined as sales price less manufacturing costs) from
such Multi-Analyte System equal to the number of Diabetes Tests included in such
Multi-Analyte System divided by the total number of tests included in such
Multi-Analyte System. SpinCo shall keep accurate books and records necessary to
calculate the payment due IMT. Within thirty (30) days of the end of each
calendar quarter, SpinCo shall deliver to IMT a written report of the gross
profit and include with such report any payment that is due. IMT shall have the
right, at its own expense, to nominate an independent accountant acceptable to
and approved by SpinCo (which approval shall not be unreasonably withheld) who
shall have access to SpinCo's records during reasonable business hours for the
sole purpose of verifying the payment due as provided for in this Agreement, and
said accountant shall disclose to IMT only information relating solely to the
accuracy of the report and payment due. The information received by the
accountant shall be held confidential except for information necessary for
disclosure to IMT to establish the accuracy of the report and payment.
7.2 Rights to Prothrombin Applications. Upon development of a product,
process, or services in the SpinCo Subfield of Prothrombin Applications which
SpinCo wishes to commercialize, and prior to granting any exclusive license with
respect to any such product, process, or services, SpinCo shall notify IMT of
such development and offer IMT the right to become the exclusive distributor of
such product, process or services on terms substantially similar to the
distribution agreement between IMT and LifeScan, Inc. dated as of June 7, 1999
but with pricing specific to the applicable product, process or services which
is commercially reasonable. IMT shall have a period of ninety (90) days in which
to accept such terms or object that the pricing terms proposed are not
commercially reasonable. If IMT so objects, the matter shall be determined by
arbitration pursuant to Section 8.13, and the period during which IMT shall have
to accept SpinCo's proposal shall be extended until 30 days after the
determination of pricing terms in such arbitration or by agreement of the
parties. If IMT fails timely to elect to become the exclusive distributor of a
product, process, or service offered under this Section 7.2, its rights under
this Section 7.2 shall terminate.
7.3 Right of First Refusal. SpinCo agrees not to enter into a Significant
Transaction without first delivering to IMT a written term sheet (an "Offer")
outlining the terms under which SpinCo is prepared to enter into such
Significant Transaction with IMT. IMT shall have a period of 30 days (the
"Response Period") following the delivery of an Offer during which to deliver
written notice to SpinCo agreeing to enter into such Significant Transaction on
the terms specified in such Offer. In the event that IMT accepts an Offer within
the Response Period, the Offer and such acceptance shall constitute a binding
agreement between the parties on the terms set forth in the Offer. Any dispute
between the Parties with regard to the terms of such agreement shall be resolved
by arbitration as provided in this Agreement. In the event that IMT fails to
accept an Offer in writing within the Response Period, SpinCo may enter into a
Significant Transaction with respect to the applicable Licensed Intellectual
Property or products with any person, provided that (i) such Significant
Transaction is consummated by a written agreement within 6 months following the
expiration of the Response Period, and (ii) such Significant Transaction is on
terms not substantially more favorable to the other person, taken as a whole,
than the terms proposed in the Offer. SpinCo may not enter into a Significant
Transaction with respect to the applicable Licensed Intellectual Property or
products after the expiration of such 6-month period, or on terms more favorable
to the other person, taken as a whole, than the terms proposed in the Offer,
without renewed compliance with this Section 7.3. In the event that an agreement
between SpinCo and IMT entered into pursuant to this Section 7.3 is terminated
without breach by IMT, SpinCo may enter into a Significant Transaction with
respect to the applicable Licensed Intellectual Property or products without
further compliance with the provisions of this Section so long as the terms
thereof are not materially more favorable to SpinCo's counterparty in such
Significant Transaction than the terms of the terminated Significant Transaction
with IMT. If, however, SpinCo offers terms that are materially improved, SpinCo
shall offer such terms to IMT pursuant to this Section 7.3. If an agreement
between SpinCo and IMT entered into pursuant to this Section 7.3 is terminated
following or as a result of a breach by IMT, SpinCo may enter into a Significant
Transaction with respect to the applicable Licensed Intellectual Property or
products without further compliance with the provisions of this Section 7.3
regardless of the terms thereof.
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8. General.
8.1 Term. This Agreement shall continue for so long as any of the
Intellectual Property subject to the licenses granted hereunder remains valid.
8.2 Entire Agreement. This Agreement is the complete and exclusive
statement of the agreement of the Parties with respect to the subject matter
hereof, and supersedes and merges all prior proposals, understandings and other
agreements, oral and written, between the Parties relating to such subject
matter. This Agreement may not be modified or altered except by a written
instrument duly executed by authorized officers of both Parties.
8.3 Relationship of Parties. Each Party is an independent contractor and
not the employee or agent of the other Party. Neither Party has any authority to
bind the other Party, nor will it represent itself as anything other than an
independent contractor to the other Party.
8.4 Waiver. The failure of a Party to exercise any right provided for
herein shall not be deemed a waiver of such right. The waiver by a Party of any
such right shall not be deemed a waiver of any other right, or of the same right
on any other occasion.
8.5 Rights and Remedies. The rights and remedies of a Party set forth in
this Agreement are in addition to any rights or remedies that Party may
otherwise have at law or in equity.
8.6 Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby, and
the invalid, illegal or unenforceable provision shall be enforced to the extent
possible in accordance with the intent of the parties.
8.7 Assignment. Either Party may assign or delegate its rights, duties and
obligations under this Agreement without restriction, provided that the assignee
assumes such Party's obligations under this Agreement by an instrument in
writing.
8.8 Governing Law. This Agreement and performance hereunder is governed by
the laws of The Commonwealth of Massachusetts without regard to its conflicts of
laws provisions.
8.9 Joint and Several Liability. Each of the entities comprising IMT shall
be jointly and severally liable for all of the obligations of each of them under
this Agreement.
8.10 Export Control. The Parties acknowledge that any commodities and/or
technical data provided under this Agreement are subject to the Export
Administration Regulations (the "EARs") administered by the U.S. Department of
Commerce, Washington, D.C. 20230, United States of America, and that any export
or re-export thereof must be in compliance with the EARs. Each Party agrees that
it shall not export or re-export, directly or indirectly, any commodities and/or
technical data (or direct products thereof) provided under this Agreement in any
form except in full compliance with the EARs, and that it shall require such
compliance by any person to which it may grant any sublicense any of its rights
under any licenses conferred hereunder.
8.11 Notices. Any notice provided pursuant to this Agreement shall be in
writing and shall be effective upon receipt or, if mailed, postage prepaid,
certified mail return receipt requested, or sent via courier, upon refusal of
delivery. All notices to a Party shall be addressed to that Party as follows:
If to IMT:
c/o LifeScan, Inc.
1000 Gibraltar Drive
Milpitas, CA 95035
Attention: President
Telephone: (408) 956-4700
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with a copy to:
Johnson & Johnson, Inc.
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Attention: Office of General Counsel
Telephone: (732) 524-2440
If to SpinCo:
, Inc.
51 Sawyer Road
Suite 200
Waltham, MA 02154
Attention: President
Telephone No: (617) 647-3900
with a copy to:
Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Attention: Paul D Schwartz, P.C.
Telephone No: (617) 570-1422
Either Party may change its address by giving written notice to the other Party
in accordance with the terms of this Section 8.11.
8.12 Transfer of IMT Intellectual Property. IMT shall not transfer any
Licensed Intellectual Property without first requiring the transferee to assume
the obligations of IMT under this Agreement.
8.13 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the validity, inducement, or breach thereof, shall be settled
by arbitration before a single arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") then
pertaining, except where those rules conflict with this provision, in which case
this provision controls. The parties hereby consent to the jurisdiction of the
federal district court for the district in which the arbitration is held for the
enforcement of this provision and the entry of judgment on any award rendered
hereunder. Should such court for any reason lack jurisdiction, any court with
jurisdiction shall enforce this clause and enter judgment on any award. The
arbitrator shall be an attorney who has at least 15 years of experience with a
law firm or corporate law department of over 25 lawyers or was a judge of a
court of general jurisdiction. The arbitration shall be held in New York, New
York in the case of an arbitration initiated by SpinCo or an Affiliate of
SpinCo, or in Boston, Massachusetts in the case of an arbitration initiated by
IMT or an Affiliate of IMT. In rendering the award the arbitrator must apply the
substantive law of the state in which the arbitration is located (except where
that law conflicts with this clause), except that the interpretation and
enforcement of this arbitration provision shall be governed by the Federal
Arbitration Act. The arbitrator shall be neutral, independent, disinterested,
impartial and shall abide by The Code of Ethics for Arbitrators in Commercial
Disputes approved by the AAA. Within 45 days of initiation of arbitration, the
parties shall reach agreement upon and thereafter follow procedures assuring
that the arbitration will be concluded and the award rendered within no more
than eight months from selection of the arbitrator. Failing such agreement, the
AAA will design and the parties will follow procedures that meet such a time
schedule. Each party has the right before or, if the arbitrator cannot hear the
matter within an acceptable period, during the arbitration to seek and obtain
from the appropriate court provisional remedies such as attachment, preliminary
injunction, replevin, etc., to avoid irreparable harm, maintain the status quo
or preserve the subject matter of the arbitration. THE ARBITRATOR SHALL NOT
AWARD ANY PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSE-
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QUENTIAL DAMAGES, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK
SUCH DAMAGES. NO PARTY MAY SEEK OR OBTAIN PREJUDGMENT INTEREST OR ATTORNEYS'
FEES OR COSTS.
[Signatures on following page]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as an instrument under seal by their respective officers thereunto duly
authorized.
Inverness Medical Technology, Inc.
By:
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Name:
Title:
By:
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Name:
Title:
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
[SPINOFF COMPANY]
By:
--------------------------------------
Name:
Title:
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ANNEX 7
[LETTERHEAD OF ABN AMRO INCORPORATED]
May 23, 2001
Board of Directors
Inverness Medical Technology, Inc.
51 Sawyer Road
Suite 200
Waltham, Massachusetts 02453
Members of the Board:
We understand that pursuant to (i) an Agreement and Plan of Split-Off and
Merger, dated as of May 23, 2001 (the "Merger Agreement"), by and among
Inverness Medical Technology, Inc. ("Inverness" or the "Company"), Johnson and
Johnson ("JNJ") and Sunrise Acquisition Corp., a wholly owned subsidiary of JNJ
("Acquisition Sub"), immediately following the Restructuring (as defined below),
Acquisition Sub will merge with and into the Company (the "Merger") and each
issued and outstanding share of the common stock of the Company, par value $.001
per share ("Company Common Stock"), will be converted into the right to receive
(a) from the Company, 0.20 validly issued, fully paid and nonassessable shares
of Newco common stock (the "Split-Off Consideration") and (b) from JNJ, a number
of validly issued, fully paid and nonassessable shares of JNJ common stock, par
value $1.00 per share (the "Merger Consideration") equal to the quotient
determined by dividing $35.00 by the average of the volume weighted averages of
the trading prices of JNJ common stock for each of the 20 consecutive trading
days ending with the third trading day immediately preceding the Merger (the
"Transaction") and (ii) a Restructuring Agreement (the "Restructuring
Agreement"), to be entered into between the Company and a wholly owned
subsidiary of the Company ("Newco") prior to the effective time of the Merger,
the Company proposes to transfer all of the assets and certain of the
liabilities primarily related to the Clinical Diagnostics Business, the
Nutritional Supplements Business and the Women's Health Business to Newco (the
"Restructuring"). The distribution of the shares of Newco common stock to the
holders of Company Common Stock is referred to herein as the "Split-Off". All
outstanding options of the Company will be converted into options of JNJ and
Newco. Additionally, in connection with the Transaction, the Company and Newco
will enter into a license agreement for Newco's use of the Company's technology
for non-diabetes related applications ("the License Agreement"). For the
purposes of this opinion, the Split-Off shall be deemed to have occurred
immediately prior to the Merger. The Split-Off Consideration and the Merger
Consideration are collectively referred to as the "Closing Consideration".
You have asked us whether, in our opinion, the Closing Consideration is
fair from a financial point of view to the holders of Company Common Stock.
In connection with this opinion, we have, among other things:
i. reviewed the Company's Annual Report on Form 10-K for each of the
fiscal years ended December 31, 1998, December 31, 1999 and December 31,
2000, the Company's Quarterly reports on Form 10-Q for each of the quarters
ended March 31, 2000 and March 31, 2001 and other business information
relating to the Company and JNJ;
ii. reviewed unaudited, pro forma income statements, balance sheets
and other financial and operating data concerning the Company, the Company
after giving effect to the Split-Off and Newco, prepared by management of
the Company;
iii. analyzed unaudited, pro forma financial projections, relating to
the Company, the Company after giving effect to the Split-Off and Newco,
for the fiscal years ended December 31, 2000 through 2005, prepared by
management of the Company;
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iv. discussed the past and current operations and financial condition
and the prospects of the Company, the Company after giving effect to the
Split-Off and Newco, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger and
Split-Off, with senior executives of the Company;
v. reviewed the reported prices and trading activity for the Company
Common Stock for the last twelve months and JNJ common stock for the last
three years, respectively;
vi. compared the pro forma financial and operating performance of the
Company after giving effect to the Split-Off and Newco with that of certain
publicly-traded companies that we considered to be relevant;
vii. compared the proposed financial terms of the Merger with the
financial terms of certain other public transactions that we considered to
be relevant;
viii. reviewed and discussed with the senior management of the Company
the strategic rationale for, and the potential benefits of, the Merger and
the Split-Off;
ix. reviewed the amended and restated Sales Distribution Agreement for
Testing System for Glucose in Humans between LifeScan and the Company dated
June 7, 1999 and as amended on January 1, 2001;
x. reviewed the executed Merger Agreement dated May 23, 2001,
including certain exhibits and schedules thereto;
xi. reviewed the form of Restructuring Agreement dated May 23, 2001
and certain related documents, which you have advised us is in
substantially final form; and
xii. reviewed the form of License Agreement dated May 23, 2001,
including certain exhibits thereto, which you advised us is in
substantially final form.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by us and we have
not obtained, nor have we made or assumed responsibility for undertaking, any
independent verification of such information. We have assumed that financial
data have been reasonably prepared on bases reflecting the best currently
available estimates and judgment of the Company as to the future financial
performance of the Company. We have also relied upon, without independent
verification, the assessment by management of the Company of the strategic and
other benefits expected to result from the Split-Off and Merger. In addition, we
have assumed, with your consent, that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement and that the Merger
shall qualify as a tax-free reorganization or exchange, pursuant to Section
368(a) of the Internal Revenue Code of 1986, as amended. We have also assumed,
with your consent, that the Restructuring and the Split-Off will be consummated
in accordance with the terms set forth in the Restructuring Agreement and the
Merger Agreement. We have further assumed that the final forms of each of the
Restructuring Agreement and the License Agreement would be consistent with the
last draft reviewed by us in all material respects.
We have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries or of the licensed
technology pursuant to the License Agreement, nor have we been furnished with
such evaluations or appraisals. Our opinion is necessarily based on the
economic, monetary, market and other conditions as in effect on, and the
information made available to us, as of the date hereof. We reserve, however,
the right to withdraw, revise or modify our opinion based upon additional
information which may be provided to or obtained by us after the issuance of the
opinion which suggests, in our judgement, a material change in the assumptions
upon which our opinion is based.
In connection with our engagement, we were not authorized to solicit, and
did not solicit, indications of interest from third parties with respect to a
possible transaction with the Company. Prices obtained in an actual transaction
if bids had been solicited may be higher or lower than the Closing
Consideration.
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We have been retained by the Board of Directors of the Company to render
this opinion and will receive a fee for our services. In the past, ABN AMRO
Incorporated and its affiliates have provided financial advisory and financing
services for the Company and have received customary fees for the rendering of
these services.
In addition, in the ordinary course of our business, we may actively trade
the Company Common Stock and other securities of the Company, as well as the JNJ
common stock and other securities of JNJ, for our own account and for the
accounts of customers and may, therefore, at any time hold a long or short
position in such securities. Furthermore, certain ABN AMRO Incorporated
employees own the Company Common Stock.
It is understood that this letter is for the information and assistance of
the Board of Directors of the Company in its consideration of the transaction
contemplated by the Merger Agreement and may not be used for any other purpose
or reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose without our prior written consent, except that the Company may
use this letter in its entirety as part of any filing made by the Company in
respect of the Merger with the Securities and Exchange Commission and except as
otherwise required by law or any regulatory agency or commission.
This letter does not address the Company's underlying business decision to
enter into the Merger Agreement or to effect the Split-Off nor does it
constitute a recommendation to any holder of the Company Common Stock as to how
such holder should vote with respect to the proposed Merger and Split-Off.
Furthermore, we are not expressing any opinion as to the prices at which the JNJ
common stock will trade following the announcement or consummation of the
Transaction or the price at which the Newco Common Stock will trade following
the Split-Off.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Closing Consideration is fair from a financial point of
view to the holders of Company Common Stock.
Very truly yours,
/s/ ABN AMRO Incorporated
ABN AMRO Incorporated
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ANNEX 8
[LETTERHEAD OF UBS WARBURG LLC]
May 23, 2001
The Board of Directors
Inverness Medical Technology, Inc.
200 Prospect Street
Waltham, Massachusetts 02453
Dear Members of the Board:
We understand that Inverness Medical Technology, Inc. ("Inverness")
proposes to enter into (i) an Agreement and Plan of Split-Off and Merger, dated
as of May 23, 2001 (the "Merger Agreement"), among Johnson & Johnson ("J&J"),
Sunrise Acquisition Corp., a wholly owned subsidiary of J&J ("Merger Sub"), and
Inverness, and (ii) a Restructuring Agreement among Inverness, a newly formed
wholly owned subsidiary of Inverness ("Newco"), and certain other subsidiaries
of Inverness (the "Restructuring Agreement" and, together with the Merger
Agreement, the "Agreements"). As more fully described in the Agreements and
certain related documents, (A) all of the assets and associated liabilities of
Inverness primarily related to its Clinical Diagnostics, Nutritional Supplements
and Women's Health businesses will be transferred to Newco or one or more of its
subsidiaries (the "Restructuring" and, such businesses, the "Newco Business")
and (B) following the Restructuring, (i) Merger Sub will merge with and into
Inverness pursuant to which J&J will acquire the businesses of Inverness other
than the Newco Business (the "Merger" and, together with the Restructuring, the
"Transaction") and (ii) each outstanding share of the common stock, par value
$0.001 per share, of Inverness ("Inverness Common Stock") will be converted into
the right to receive (x) from Inverness, 0.20 of a share (the "Split-off
Consideration") of the common stock, par value $0.001 per share, of Newco
("Newco Common Stock") and (y) from J&J, a number of shares of the common stock,
par value $1.00 per share, of J&J ("J&J Common Stock") equal to the quotient of
$35.00 divided by the average of the volume weighted averages of the trading
prices of J&J Common Stock on the New York Stock Exchange ("NYSE") for each of
the 20 consecutive trading days ending with the third trading day immediately
preceding the effective time of the Merger (the number of shares of J&J Common
Stock into which shares of Inverness Common Stock will be so converted, the
"Merger Consideration" and, together with the Split-Off Consideration, the
"Aggregate Consideration"). The terms and conditions of the Transaction are more
fully set forth in the Agreements and related documents.
You have requested our opinion as to the fairness, from a financial point
of view, of the Aggregate Consideration to be received in the Transaction by the
holders of Inverness Common Stock.
UBS Warburg LLC ("UBSW") has been retained by Inverness solely for purposes
of rendering this opinion and will receive a fee for its services upon delivery
of this opinion. UBSW and its affiliates in the past have provided services to
Inverness and J&J unrelated to the proposed Transaction, for which services UBSW
and its affiliates have received compensation. In the ordinary course of
business, UBSW, its successors and affiliates may trade securities of Inverness
and J&J for their own accounts and accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
Our opinion does not address the underlying business decision of Inverness
to effect the Transaction and does not constitute a recommendation to any
stockholder of Inverness as to how such stockholder should vote on the Merger or
with respect to any other matters relating to the Transaction. At your
direction, we were not requested to, and we did not, participate in the
negotiation or structuring of the Transaction. In addition, at your direction,
we have not been asked to, nor do we, offer any opinion as to the terms of the
Agreements or related documents and the obligations thereunder, or the form of
the Transaction. We express no opinion as to what the value of Newco Common
Stock or J&J Common
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[UBS WARBURG LLC LOGO]
The Board of Directors
Inverness Medical Technology, Inc.
May 23, 2001
Page 2
Stock will be when issued pursuant to the Transaction or the prices at which
Newco Common Stock or J&J Common Stock will trade or otherwise be transferable
at any time. In rendering this opinion, we have assumed, at your direction, that
each of Inverness, J&J, Merger Sub and Newco will comply with all material
covenants and agreements set forth in, and other material terms of, the
Agreements and related documents and that the Transaction will be consummated in
accordance with its terms, without waiver, modification or amendment of any
material term, condition or agreement. We also have relied, in rendering this
opinion, upon the representations and warranties of Inverness and J&J as set
forth in the Merger Agreement and have assumed, at your direction, that the
Transaction will be consummated in compliance with all applicable laws
(including, with respect to the Restructuring, laws relating to insolvency and
fraudulent conveyance). Representatives of Inverness have advised us, and we
therefore have assumed, that the final terms of the Restructuring Agreement and
related documents in the forms attached as annexes to the Merger Agreement will
not vary materially from the forms reviewed by us.
In arriving at our opinion, we have, among other things: (i) reviewed
current and historical market prices and trading volumes of Inverness Common
Stock and J&J Common Stock; (ii) reviewed certain publicly available business
and historical financial information relating to Inverness and J&J; (iii)
reviewed certain internal financial information and other data relating to the
businesses and financial prospects of Inverness and Newco, including estimates
and financial forecasts prepared by the management of Inverness, that were
provided to or discussed with us by Inverness and not publicly available; (iv)
reviewed publicly available financial forecasts relating to J&J; (v) conducted
discussions with members of the senior management of Inverness; (vi) reviewed
publicly available financial and stock market data with respect to certain
companies in lines of businesses we believe to be generally comparable to those
of Inverness and J&J; (vii) compared the financial terms of the Transaction with
the publicly available financial terms of certain other transactions which we
believe to be generally relevant; (viii) considered the pro forma financial
impact of the Merger on J&J; (ix) reviewed the Merger Agreement, and forms of
the Restructuring Agreement and certain related documents attached as annexes to
the Merger Agreement; and (x) conducted such other financial studies, analyses
and investigations, and considered such other information, as we deemed
necessary or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the information provided
to or reviewed by us for the purpose of this opinion and have, with your
consent, relied on such information being complete and accurate in all material
respects. In addition, at your direction, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Inverness (including those to be transferred to Newco) or J&J, nor
have we been furnished with any such evaluation or appraisal. With respect to
the financial forecasts and estimates referred to above relating to Inverness
and Newco, we have assumed, at your direction, that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Inverness as to the future financial performance
of Inverness and Newco. As you are aware, we were not provided with internal
forecasts for J&J but reviewed publicly available forecasts relating to J&J and
assumed, with your consent, that such forecasts represent reasonable estimates
and judgments as to the future financial performance of J&J. In connection with
our engagement, we were not requested to, and we did not, solicit third party
indications of interest in the acquisition of all or a part of Inverness. Our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date of
this letter.
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[UBS WARBURG LLC LOGO]
The Board of Directors
Inverness Medical Technology, Inc.
May 23, 2001
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Aggregate Consideration to be received in the Transaction by
the holders of Inverness Common Stock is fair, from a financial point of view,
to such holders.
Very truly yours,
/s/ UBS WARBURG LLC
UBS WARBURG LLC
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ANNEX 9
INVERNESS MEDICAL INNOVATIONS, INC.
2001 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. General Purpose of the Plan; Definitions
The name of the plan is the Inverness Medical Innovations, Inc. 2001 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers, employees, Independent Directors and other key persons
(including consultants) of Inverness Medical Innovations, Inc. (the "Company")
and its Subsidiaries upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Covered Employee" means an employee who is a "Covered Employee" within the
meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 7.
"Dividend Equivalent Right" means Awards granted pursuant to Section 10.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Fair Market Value" of the Stock on any given date means the fair market
value of the Stock determined in good faith by the Administrator; provided,
however, that if the Stock is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or a national
securities exchange, the determination shall be made by reference to market
quotations. If there are no market quotations for such date, the determination
shall be made by reference to the last date preceding such date for which there
are market quotations.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
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"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Stock" means the Common Stock, par value $0.001 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in which the Company has a controlling interest, either directly or indirectly.
"Unrestricted Stock Award" means any Award granted pursuant to Section 8.
SECTION 2. Administration of Plan; Administrator Authority to Select
Grantees and Determine Awards
(a) Committee. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").
(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Dividend Equivalent Rights or any combination of the foregoing,
granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and grantees, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all or
any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under what
circumstances distribution or the receipt of Stock and other amounts
payable with respect to an Award shall be deferred either automatically or
at the election of the grantee and whether and to what extent the Company
shall pay or credit amounts constituting interest (at rates determined by
the Administrator) or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be
binding on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with
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respect to the granting of Awards at Fair Market Value, to individuals who are
not subject to the reporting and other provisions of Section 16 of the Exchange
Act or Covered Employees. Any such delegation by the Administrator shall include
a limitation as to the amount of Awards that may be granted during the period of
the delegation and shall contain guidelines as to the determination of the
exercise price of any Stock Option, the conversion ratio or price of other
Awards and the vesting criteria. The Administrator may revoke or amend the terms
of a delegation at any time but such action shall not invalidate any prior
actions of the Administrator's delegate or delegates that were consistent with
the terms of the Plan.
(d) Indemnification. Neither the Board nor the Committee, nor any member
of either or any delegatee thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan, and the members of the Board and the Committee (and any delegatee
thereof) shall be entitled in all cases to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including, without
limitation, reasonable attorneys' fees) arising or resulting therefrom to the
fullest extent permitted by law and/or under any directors' and officers'
liability insurance coverage which may be in effect from time to time.
SECTION 3. Stock Issuable Under the Plan; Mergers; Substitution
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be -- shares, subject to adjustment
as provided in Section 3(b). For purposes of this limitation, the shares of
Stock underlying any Awards which are forfeited, canceled, reacquired by the
Company, satisfied without the issuance of Stock or otherwise terminated (other
than by exercise) shall be added back to the shares of Stock available for
issuance under the Plan. Subject to such overall limitation, shares of Stock may
be issued up to such maximum number pursuant to any type or types of Award;
provided, however, Stock Options with respect to no more than ? shares of Stock
may be granted to any one individual grantee during any one calendar year
period. The shares available for issuance under the Plan may be authorized but
unissued shares of Stock or shares of Stock reacquired by the Company and held
in its treasury.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of
any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such shares
of Stock or other securities, or, if, as a result of any merger or
consolidation, sale of all or substantially all of the assets of the Company,
the outstanding shares of Stock are converted into or exchanged for a different
number or kind of securities of the Company or any successor entity (or a parent
or subsidiary thereof), the Administrator shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options that can be granted to
any one individual grantee, (iii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan, (iv) the
repurchase price per share subject to each outstanding Restricted Stock Award,
and (v) the price for each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options) as to which such Stock
Options remain exercisable. The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the grantee, if it would constitute a modification, extension or
renewal of the Option within the meaning of Section 424(h) of the Code.
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(c) Mergers and Other Transactions. In the case of and subject to the
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the outstanding shares of Stock are converted into or
exchanged for a different kind of securities of the successor entity and the
holders of the Company's outstanding voting power immediately prior to such
transaction do not own a majority of the outstanding voting power of the
successor entity immediately upon completion of such transaction, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Sale Event"), upon the effective time of the Sale Event, the Plan
and all outstanding Awards granted hereunder shall terminate, unless provision
is made in connection with the Sale Event in the sole discretion of the parties
thereto for the assumption or continuation of Awards theretofore granted by the
successor entity, or the substitution of such Awards with new Awards of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and, if appropriate, the per share exercise prices, as such
parties shall agree (after taking into account any acceleration hereunder). In
the event of such termination, each grantee shall be permitted, within a
specified period of time prior to the consummation of the Sale Event as
determined by the Administrator, to exercise all outstanding Options held by
such grantee, including those that will become exercisable upon the consummation
of the Sale Event; provided, however, that the exercise of Options not
exercisable prior to the Sale Event shall be subject to the consummation of the
Sale Event.
Notwithstanding anything to the contrary in this Section 3(c), in the event
of a Sale Event pursuant to which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the Sale Event, the Company shall have the right, but not the obligation, to
make or provide for a cash payment to the grantees holding Options, in exchange
for the cancellation thereof, in an amount equal to the difference between (A)
the value as determined by the Administrator of the consideration payable per
share of Stock pursuant to the Sale Event (the "Sale Price") times the number of
shares of Stock subject to outstanding Options (to the extent then exercisable
at prices not in excess of the Sale Price) and (B) the aggregate exercise price
of all such outstanding Options.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
in substitution for stock and stock based awards held by employees, directors or
other key persons of another corporation in connection with the merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Administrator may direct that the substitute awards
be granted on such terms and conditions as the Administrator considers
appropriate in the circumstances. Any substitute Awards granted under the Plan
shall not count against the share limitation set forth in Section 3(a).
SECTION 4. Eligibility
Grantees under the Plan will be such full or part-time officers and other
employees, Independent Directors and key persons (including consultants and
prospective employees) of the Company and its Subsidiaries as are selected from
time to time by the Administrator in its sole discretion.
SECTION 5. Stock Options
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a
Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after August --,
2011.
(a) Stock Options. Stock Options granted pursuant to this Section 5(a)
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent
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with the terms of the Plan, as the Administrator shall deem desirable. If the
Administrator so determines, Stock Options may be granted in lieu of cash
compensation at the optionee's election, subject to such terms and conditions as
the Administrator may establish.
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less
than 100 percent of the Fair Market Value on the date of grant (other than
options granted in lieu of cash compensation). If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110 percent of the Fair
Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the term of such Stock
Option shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
become exercisable at such time or times, whether or not in installments,
as shall be determined by the Administrator at or after the grant date. The
Administrator may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option Award agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that have been purchased by the optionee on the open
market or that have been beneficially owned by the optionee for at least
six months and are not then subject to restrictions under any Company
plan. Such surrendered shares shall be valued at Fair Market Value on
the exercise date;
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company for the purchase price; provided that in the event the
optionee chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter into such
agreements of indemnity and other agreements as the Administrator shall
prescribe as a condition of such payment procedure; or
(D) Any other method permitted by the Administrator.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to the
exercise of a Stock Option will be contingent upon receipt from the optionee (or
a purchaser acting in his stead in accordance with the provisions of the Stock
Option) by the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Option Award agreement or
applicable provisions of laws. In the event an optionee chooses to pay the
purchase price by previously-owned shares of Stock through the attestation
method, the number of shares of Stock transferred to the optionee upon the
exercise of the Stock Option shall be net of the number of shares attested to.
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(v) Annual Limit on Incentive Stock Options. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
Option.
(b) Reload Options. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) Non-transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee, or by the optionee's legal representative or
guardian in the event of the optionee's incapacity. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may transfer his Non-
Qualified Stock Options to members of his immediate family, to trusts for the
benefit of such family members, or to partnerships in which such family members
are the only partners, provided that the transferee agrees in writing with the
Company to be bound by all of the terms and conditions of this Plan and the
applicable Option.
(d) Form of Settlement. Shares of Stock issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as otherwise
provided in the Plan.
SECTION 6. Restricted Stock Awards
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at such purchase price as determined
by the Administrator, shares of Stock subject to such restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Restricted Stock Award is contingent on the grantee
executing the Restricted Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a grantee shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below, and the grantee shall be required,
as a condition of the grant, to deliver to the Company a stock power endorsed in
blank.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock Award agreement. If a grantee's employment (or
other service relationship) with the Company and its Subsidiaries terminates for
any reason, the Company shall have the right to repurchase Restricted Stock that
has not vested at the time of termination at its original purchase price, from
the grantee or the grantee's legal representative.
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(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 13 below, in writing after the Award agreement is issued, a grantee's
rights in any shares of Restricted Stock that have not vested shall
automatically terminate upon the grantee's termination of employment (or other
service relationship) with the Company and its Subsidiaries and such shares
shall be subject to the Company's right of repurchase as provided in Section
6(c) above.
(e) Restriction Period. Restricted Stock vesting upon the attainment of
performance goals or objectives shall vest after a restriction period of not
less than one (1) year. All other Restricted Stock shall vest after a
restriction period of not less than three (3) years.
(f) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock
Award agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.
SECTION 7. Deferred Stock Awards
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award of
phantom stock units to a grantee, subject to restrictions and conditions as the
Administrator may determine at the time of grant. Conditions may be based on
continuing employment (or other service relationship) and/or achievement of
pre-established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the grantee executing the Deferred Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and grantees. At the end of the deferral period, the Deferred Stock Award, to
the extent vested, shall be paid to the grantee in the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation. The
Administrator may, in its sole discretion, permit a grantee to elect to receive
a portion of the cash compensation or Restricted Stock Award otherwise due to
such grantee in the form of a Deferred Stock Award. Any such election shall be
made in writing and shall be delivered to the Company no later than the date
specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a grantee shall
have no rights as a stockholder; provided, however, that the grantee may be
credited with Dividend Equivalent Rights with respect to the phantom stock units
underlying his Deferred Stock Award, subject to such terms and conditions as the
Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the Administrator
either in the Award agreement or, subject to Section 13 below, in writing after
the Award agreement is issued, a grantee's right in all Deferred Stock Awards
that have not vested shall automatically terminate upon the grantee's
termination of employment (or cessation of service relationship) with the
Company and its Subsidiaries for any reason.
SECTION 8. Unrestricted Stock Awards
(a) Grant or Sale of Unrestricted Stock. The Administrator may, in its
sole discretion, grant (or sell at a purchase price determined by the
Administrator) an Unrestricted Stock Award to any grantee,
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pursuant to which such grantee may receive shares of Stock free of any
restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards
may be granted or sold as described in the preceding sentence in respect of past
services or other valid consideration, or in lieu of any cash compensation due
to such participant.
(b) Elections to Receive Unrestricted Stock in Lieu of Compensation. Upon
the request of a grantee and with the consent of the Administrator, each grantee
may, pursuant to an advance written election delivered to the Company no later
than the date specified by the Administrator, receive a portion of the cash
compensation otherwise due to such grantee in the form of shares of Unrestricted
Stock (valued at Fair Market Value on the date or dates the cash compensation
would otherwise be paid) either currently or on a deferred basis.
(c) Restrictions on Transfers. The right to receive shares of Unrestricted
Stock on a deferred basis may not be sold, assigned, transferred, pledged or
otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 9. Performance Share Awards
(a) Nature of Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
(b) Restrictions of Transfer. Performance Share Awards, and all rights
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Stockholder. A grantee receiving a Performance Share Award
shall have the rights of a stockholder only as to shares actually received by
the grantee under the Plan and not with respect to shares subject to the Award
but not actually received by the grantee. A grantee shall be entitled to receive
a stock certificate evidencing the acquisition of shares of Stock under a
Performance Share Award only upon satisfaction of all conditions specified in
the Performance Share Award agreement (or in a performance plan adopted by the
Administrator).
(d) Termination. Except as may otherwise be provided by the Administrator
either in the Award agreement or, subject to Section 13 below, in writing after
the Award agreement is issued, a grantee's rights in all Performance Share
Awards shall automatically terminate upon the grantee's termination of
employment (or cessation of service relationship) with the Company and its
Subsidiaries for any reason.
(e) Acceleration, Waiver, Etc. At any time prior to the grantee's
termination of employment (or other service relationship) by the Company and its
Subsidiaries, the Administrator may in its sole discretion accelerate, waive or,
subject to Section 14, amend any or all of the goals, restrictions or conditions
applicable to a Performance Share Award.
SECTION 10. Dividend Equivalent Rights
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Stock specified in the Dividend Equivalent Right (or other
award to which it relates) if such shares were held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any participant, as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment or such other price as may then apply under a
dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent
Rights may be settled in cash or shares of Stock or a combination thereof, in a
single installment or installments. A Dividend Equivalent Right granted as a
component of
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another Award may provide that such Dividend Equivalent Right shall be settled
upon exercise, settlement, or payment of, or lapse of restrictions on, such
other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
SECTION 11. Tax Withholding
(a) Payment by Grantee. Each grantee shall, no later than the date as of
which the value of an Award or of any Stock or other amounts received thereunder
first becomes includable in the gross income of the grantee for Federal income
tax purposes, pay to the Company, or make arrangements satisfactory to the
Administrator regarding payment of, any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Company and
its Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the grantee. The
Company's obligation to deliver stock certificates to any grantee is subject to
and conditioned on tax obligations being satisfied by the grantee. The Company's
obligation to deliver stock certificates to any grantee is subject to and is
conditioned on tax obligations being satisfied by the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, a grantee
may elect to have the minimum required tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the grantee with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 12. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 13. Amendments and Termination
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the Code, if and to the extent intended to so qualify, Plan amendments
shall be subject to approval by the Company stockholders entitled to vote at a
meeting of stockholders. Nothing in this Section 13 shall limit the
Administrator's authority to take any action permitted pursuant to Section 3(c).
[The Administrator may, at any time, amend or cancel any outstanding award,
PROVIDED THAT the Administrator may only reprice outstanding Awards or provide
substitute Awards at a reduced exercise or purchase price or with no exercise or
purchase price upon finding, in its reasonable discretion, that the
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value of such outstanding Awards has been jeopardized by extreme circumstances
beyond management's control, and then only with respect to Awards representing
no more than ten percent (10%) of the shares authorized for grant under the
Plan; AND FURTHER PROVIDED THAT the terms of such repriced or substitute Awards
satisfy the requirements that would apply to such Awards if they were then
initially granted under this Plan.]
SECTION 14. Status of Plan
With respect to the portion of any Award that has not been exercised and
any payments in cash, Stock or other consideration not received by a grantee, a
grantee shall have no rights greater than those of a general creditor of the
Company unless the Administrator shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Administrator
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 15. Change of Control Provisions
Upon the occurrence of a Change of Control as defined in this Section 15:
(a) Each outstanding Stock Option shall automatically become fully
exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award,
Deferred Stock Award and Performance Share Award will be removed.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d) and 14(d)
of the Act (other than the Company, any of its Subsidiaries, or any
trustee, fiduciary or other person or entity holding securities under
any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing in excess of 50% of either (A) the combined
voting power of the Company's then outstanding securities having the
right to vote in an election of the Company's Board of Directors
("Voting Securities") or (B) the then outstanding shares of Stock of the
Company (in either such case other than as a result of an acquisition of
securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Effective Date shall be considered an
Incumbent Director if such person's election was approved by or such
person was nominated for election by either (A) a vote of at least a
majority of the Incumbent Directors or (B) a vote of at least a majority
of the Incumbent Directors who are members of a nominating committee
comprised, in the majority, of Incumbent Directors; but provided
further, that any such person whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of members of the Board of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board, including by reason of agreement intended
to avoid or settle any such actual or threatened contest or
solicitation, shall not be considered an Incumbent Director; or
(iii) the consummation of a consolidation, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Corporate Transaction"); excluding, however, a
Corporate Transaction in which the stockholders of the Company
immediately prior to the Corporate Transaction, would, immediately after
the Corporate
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Transaction, beneficially own (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, shares representing in the
aggregate more than 80% of the voting shares of the corporation issuing
cash or securities in the Corporate Transaction (or of its ultimate
parent corporation, if any); or
(iv) the approval by the stockholders of any plan or proposal for
the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person in excess of 50% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company) and immediately thereafter beneficially owns in excess of 50% of the
combined voting power of all then outstanding Voting Securities, then a "Change
of Control" shall be deemed to have occurred for purposes of the foregoing
clause (i).
SECTION 16. General Provisions
(a) No Distribution; Compliance with Legal Requirements. The Administrator
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under
this Plan shall be deemed delivered for all purposes when the Company or a stock
transfer agent of the Company shall have mailed such certificates in the United
States mail, addressed to the grantee, at the grantee's last known address on
file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under
the Plan shall be subject to such Company's insider trading policy, as in effect
from time to time.
(e) Loans to Grantees. The Company shall have the authority to make loans
to grantees of Awards hereunder (including to facilitate the purchase of shares)
and shall further have the authority to issue shares for promissory notes
hereunder.
(f) Designation of Beneficiary. Each grantee to whom an Award has been
made under the Plan may designate a beneficiary or beneficiaries to exercise any
Award or receive any payment under any Award payable on or after the grantee's
death. Any such designation shall be on a form provided for that purpose by the
Administrator and shall not be effective until received by the Administrator. If
no beneficiary has been designated by a deceased grantee, or if the designated
beneficiaries have predeceased the grantee, the beneficiary shall be the
grantee's estate.
SECTION 17. Effective Date of Plan
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders at which a quorum
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is present or by written consent of the stockholders. Subject to such approval
by the stockholders, Stock Options and other Awards may be granted hereunder on
and after adoption of this Plan by the Board.
SECTION 18. Governing Law
This Plan and all Awards and actions taken thereunder shall be governed by,
and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS:
DATE APPROVED BY STOCKHOLDERS:
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Jersey Business Corporation Act (the "NJBCA") provides that a New
Jersey corporation has the power to indemnify a director or officer against his
or her expenses and liabilities in connection with any proceeding involving the
director or officer by reason of his or her being or having been such a director
or officer, other than a proceeding by or in the right of the corporation, if
such director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; and with respect to any criminal proceeding, such director or
officer had no reasonable cause to believe his or her conduct was unlawful.
The indemnification and advancement of expenses shall not exclude any other
rights, including the right to be indemnified against liabilities and expenses
incurred in proceedings by or in the right of the corporation, to which a
director or officer may be entitled under a certificate of incorporation,
by-law, agreement, vote of shareholders, or otherwise; provided, that no
indemnification shall be made to or on behalf of a director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his or her acts or omissions (a) were in breach of his or her
duty of loyalty to the corporation or its shareholders, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in receipt by the
director or officer of an improper personal benefit.
The registrant's restated certificate of incorporation provides that, to
the full extent that the laws of the State of New Jersey permit the limitation
or elimination of the liability of directors or officers, no director or officer
of the registrant shall be personally liable to the registrant or its
stockholders for damages for breach of any duty owed to the registrant or its
stockholders.
The by-laws of the registrant provide that to the full extent permitted by
the laws of the State of New Jersey, the registrant shall indemnify any person
(an "Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or witness) in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, legislative or investigative (including, without
limitation, any action, suit or proceeding by or in the right of the registrant
to procure a judgment in its favor) (a "Proceeding"), or who is threatened with
being so involved, by reason of the fact that he or she is or was a director or
officer of the registrant or, while serving as a director or officer of the
registrant, is or was at the request of the registrant also serving as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, any employee
benefit plan), against all expenses (including attorneys' fees), judgments,
fines, penalties, excise taxes and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection with such Proceeding,
provided that, there shall be no indemnification under such by-laws with respect
to any settlement or other nonadjudicated disposition of any threatened or
pending Proceeding unless the registrant has given its prior consent to such
settlement or disposition. The right of indemnification created by the by-laws
shall be a contract right enforceable by an Indemnitee against the registrant,
and it shall not be exclusive of any other rights to which an Indemnitee may
otherwise be entitled. The indemnification provisions of the by-laws shall inure
to the benefit of the heirs and legal representatives of an Indemnitee and shall
be applicable to Proceedings commenced or continuing after the adoption of the
by-laws, whether arising from acts or omissions occurring before or after such
adoption. No amendment, alteration, change, addition or repeal of or to the
by-laws shall deprive any Indemnitee of any rights under the by-laws with
respect to any act or omission of such Indemnitee occurring prior to such
amendment, alteration, change, addition or repeal.
The registrant enters into indemnification agreements with its directors
and officers and enters into insurance agreements on its own behalf. The
indemnification agreements provide that the registrant agrees to hold harmless
and indemnify its directors and officers to the fullest extent authorized or
permitted by the NJBCA, or any other applicable law, or by any amendment thereof
or other statutory provisions authorizing or permitting such indemnification
that is adopted after the date hereof. Without limiting the
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generality of the foregoing, the registrant agrees to hold harmless and
indemnify its directors and officers to the fullest extent permitted by
applicable law against any and all expenses, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by its directors and officers in
connection with the defense of any present or future threatened, pending, or
completed claim, action, suit, or proceeding by reason of the fact that they
were, are, shall be, or shall have been a director or officer of the registrant,
or are or were serving, shall serve, or shall have served, at the request of the
registrant, as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index.
(b) Not applicable.
(c) Not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of
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Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New Brunswick, New Jersey on the 13th
day of August, 2001.
JOHNSON & JOHNSON,
By: /s/ R. S. LARSEN
------------------------------------
Name: R. S. Larsen
Title: Chairman, Board of
Directors; Chief
Executive Officer and
Chairman, Executive
Committee
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POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
S. M. Rosenberg and J. J. Bergin, and each of them, as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement and all documents
relating thereto, including any subsequent Registration Statements pursuant to
Rule 462 promulgated under the Securities Act of 1933, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ R. S. LARSEN Chairman, Board of Directors; Chief August 13, 2001
------------------------------------------ Executive Officer and Chairman,
(R. S. Larsen) Executive Committee (Principal
Executive Officer)
/s/ R. J. DARRETTA Member, Executive Committee; Vice August 13, 2001
------------------------------------------ President, Finance (Principal
(R. J. Darretta) Financial Officer)
/s/ C. E. LOCKETT Controller (Principal Accounting August 13, 2001
------------------------------------------ Officer)
(C. E. Lockett)
/s/ G. N. BURROW Director August 7, 2001
------------------------------------------
(G. N. Burrow)
/s/ J. G. COONEY Director August 6, 2001
------------------------------------------
(J. G. Cooney)
/s/ J. G. CULLEN Director August 8, 2001
------------------------------------------
(J. G. Cullen)
/s/ M. J. FOLKMAN Director August 5, 2001
------------------------------------------
(M. J. Folkman)
Director August 13, 2001
------------------------------------------
(A. D. Jordan)
/s/ A. G. LANGBO Director August 8, 2001
------------------------------------------
(A. G. Langbo)
/s/ J. T. LENEHAN Director August 13, 2001
------------------------------------------
(J. T. Lenehan)
/s/ J. S. MAYO Director August 3, 2001
------------------------------------------
(J. S. Mayo)
II-5
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SIGNATURE TITLE DATE
--------- ----- ----
/s/ L. F. MULLIN Director August 13, 2001
------------------------------------------
(L. F. Mullin)
/s/ H. B. SCHACHT Director August 13, 2001
------------------------------------------
(H. B. Schacht)
/s/ M. F. SINGER Director August 3, 2001
------------------------------------------
(M. F. Singer)
/s/ J. W. SNOW Director August 13, 2001
------------------------------------------
(J. W. Snow)
/s/ W. C. WELDON Director August 13, 2001
------------------------------------------
(W. C. Weldon)
/s/ R. N. WILSON Director August 13, 2001
------------------------------------------
(R. N. Wilson)
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EXHIBIT INDEX
EXHIBITS
--------
2.1 Agreement and Plan of Split-off and Merger dated as of May
23, 2001, among Johnson & Johnson, Sunrise Acquisition Corp.
and Inverness Medical Technology, Inc. (included as Annex 1
to the proxy statement/prospectus which is a part of this
Registration Statement).
4.1* Provisions of the Restated Certificate of Incorporation of
Johnson & Johnson dated May 21, 1996, that define the rights
of security holders of Johnson & Johnson (incorporated by
reference to Exhibit 3(a)(iii) to Johnson & Johnson's Annual
Report on Form 10-K for the year ended December 29, 1996).
4.2* Provisions of the By-laws of Johnson & Johnson, as amended
effective June 11, 2001, that define the rights of security
holders of Johnson & Johnson (incorporated by reference to
Exhibit 3(b) to Johnson & Johnson's Amendment to its Annual
Report on Form 10-K/A, filed June 28, 2001, for the year
ended December 31, 2000).
5.1 Opinion of Joseph S. Orban, Esq., Associate General Counsel
of Johnson & Johnson, regarding the legality of the
securities being issued.
8.1 Opinion of Goodwin Procter LLP regarding certain tax
matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.3 Consent of Ernst & Young LLP, Independent Auditors.
23.4 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.5 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.6 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.7 Consent of Joseph S. Orban, Esq., Associate General Counsel
of Johnson & Johnson (included in Exhibit 5.1).
23.8 Consent of Goodwin Procter LLP (included in Exhibit 8.1).
24.1 Power of Attorney (included on the signature page of this
Registration Statement).
99.1** Form of Proxy Card of Inverness Medical Technology, Inc.
99.2 Stock Option Agreement dated as of May 23, 2001, between
Johnson & Johnson and Inverness Medical Technology, Inc.
(included as Annex 2 to the proxy statement/prospectus which
is a part of this Registration Statement).
99.3 Form of Restructuring Agreement among Inverness Medical
Technology, Inc., Inverness Medical Innovations, Inc. and
certain subsidiaries of Inverness Medical Technology, Inc.
(included as Annex 3 to the proxy statement/prospectus which
is a part of this Registration Statement).
99.4 Form of Tax Allocation Agreement among Johnson & Johnson,
Inverness Medical Technology, Inc. and Inverness Medical
Innovations, Inc. (included as Annex 4 to the proxy
statement/ prospectus which is a part of this Registration
Statement).
99.5 Form of Post-Closing Covenants Agreement among Johnson &
Johnson, Inverness Medical Technology, Inc., certain
subsidiaries of Inverness Medical Technology, Inc.,
Inverness Medical Innovations, Inc. and certain subsidiaries
of Inverness Medical Innovations, Inc. (included as Annex 5
to the proxy statement/prospectus which is a part of this
Registration Statement).
99.6 Form of License Agreement among Inverness Medical
Technology, Inc., certain subsidiaries of Inverness Medical
Technology, Inc. and Inverness Medical Innovations, Inc.
(included as Annex 6 to the proxy statement/prospectus which
is a part of this Registration Statement).
99.7 Consent of ABN AMRO Incorporated.
99.8 Consent of UBS Warburg LLC.
---------------
* Incorporated by reference.
** To be filed by amendment.