þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2007 | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
(STATE OR OTHER JURISDICTION OF | 51-0317849 (I.R.S. EMPLOYER | |
INCORPORATION OR ORGANIZATION) | IDENTIFICATION NO.) | |
311 ENTERPRISE DRIVE | 08536 | |
PLAINSBORO, NEW JERSEY | (ZIP CODE) | |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |
Title of Each Class | Name of Exchange on Which Registered | |
| Common Stock, Par Value $.01 Per Share | The Nasdaq Stock Market LLC |
Large accelerated filer | Accelerated filer | Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting company |
ITEM 1. BUSINESS
| ITEM 1. | BUSINESS |
2006.
In 2006, we added approximately 75 new field-based representatives to our sales and marketing organizations in the United States and 10 in Europe. We now have approximately 400 sales and marketing employees, who sell our products in 120 countries.
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Our distribution channels include two
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NEUROSURGICAL
Highlights include:
Biomaterials
Ifwith the FDA approves the DuraGen Plus® matrixin 2011 for use as an adhesion barrier the commercial successin spinal surgery.
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in spinal and trauma surgery, total joint replacements and dental applications. By integrating the IsoTis products with Integra’s own osteoconductive scaffold and integrating the Integra spine specialist sales team into the IsoTis distributor network, one unified selling organization was created, now known as Integra OrthoBiologics. The combined activity strengthens our position as a global leader in orthobiologics. We are now one of the largest companies in the world focused on advanced technology in orthobiologics and have a product portfolio encompassing some of the largest and most trusted orthobiologic brands, such as Integra Mozaiktm Osteoconductive Scaffold, the Accell® family of demineralized bone matrix products, and DynaGraft® II and OrthoBlast® II.
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Certain intracranial brain lesions may not be surgical candidates, and neurosurgeons may use our XKnife® system in the non-invasive treatment of these lesions.
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The Mobiustm system allows the clinician to monitor the multiple clinical measurements that are critical for the treatment of neurological condition at the bedside.
arm.
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Through our Newdeal line, we have become
In 2006,
These products include the Universal 2™Universal2tm Total Wrist Implant System, which is recognized as the premier implant for wrist replacement, a procedure that restores the function of the arthritic wrist. Other leading products offered include the Katalysttm Bipolar Radial Head System for elbow reconstruction, Spidertm Limited Wrist Fusion System for intercarpal arthrodesis, Vipertm Distal Radius Plate for fracture fixation, Kompressortm Compression Screw System for small bone fixation, and SafeGuard® Mini Carpal Tunnel Release System for treatment of carpal tunnel syndrome.
In the reconstruction of lower extremities, our leading brands include Newdeal®, ICOS™, the Bold® Cannulated Compression Screw, the Uni-Clip®, Hallu®-Fix System and the PANTA® Nail. For upper extremity reconstruction, we offer the Universal 2™, Katalyst, Spider, Safeguard and Kompressor implant products.
specialty surgical lighting systems.
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With
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adoption of Financial Accounting Standards Board (“FASB”) Statement No. 141(R), Business Combinations, a replacement of FASB Statement No. 141 on January 1, 2009, after which in-process research and development expenditures will be booked as a capitalized asset.
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See “Item 1A. Risk Factors — Regulatory Oversight Of The Medical Device Industry Might Affect The Manner In Which We May Sell Medical Devices.”
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AccuDrain™
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cycles.
| • | general economic and business conditions, both nationally and in our international markets; | |
| • | our expectations and estimates concerning future financial performance, financing plans and the impact of competition; | |
| • | anticipated trends in our business; | |
| • | existing and future regulations affecting our business; | |
| • | our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions; | |
| • | physicians’ willingness to adopt our recently launched and planned products, third-party payors’ willingness to provide reimbursement for these products and our ability to secure regulatory approval for products in development; | |
| • | initiatives launched by our competitors; | |
| • | our ability to protect our intellectual property, including trade secrets; | |
| • | our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities; | |
| • | work stoppages at our facilities; and | |
| • | other risk factors described in the section entitled “Risk Factors” in this report. |
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You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “might,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions in this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
ITEM 1A. RISK FACTORS
| ITEM 1A. | RISK FACTORS |
Business
| • | the impact of acquisitions; | |
| • | the impact of our restructuring activities; | |
| • | the timing of significant customer orders, which tend to increase in the second and fourth quarters to coincide with the end of budget cycles for many hospitals; | |
| • | market acceptance of our existing products, as well as products in development; | |
| • | the timing of regulatory approvals; | |
| • | changes in the rates of exchange between the U.S. dollar and other currencies of foreign countries in which we do business, such as the euro and the British pound; | |
| • | expenses incurred and business lost in connection with product field corrections or recalls; | |
| • | increases in the cost or decreases in the supply of raw materials, including energy and steel; | |
| • | our ability to manufacture our products efficiently; | |
| • | the timing of our research and development expenditures; and | |
| • | reimbursement for our products by third-party payors such as Medicare, Medicaid and private health insurers. |
The Industry And Market Segments in Which We Operate Are Highly Competitive, And We May Be Unable To Compete Effectively With Other Companies.
In general, there is intense competition among medical device companies. We compete with established medical technology companies in many of our product areas. Competition also comes from early-stage companies that have alternative technological solutions for our primary clinical targets, as well as universities, research institutions and other non-profit entities. Many of our competitors have access to greater financial, technical, research and development, marketing, manufacturing, sales, distribution services and other resources than we do. Our competitors may be more effective at implementing their technologies to develop commercial products. Our competitors may be able to gain market share by offering lower-cost products or by offering products that enjoy better reimbursement methodologies from third-party payors, such as Medicare.
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Competitors have also been developing products to compete with our extremity reconstruction implants, neuro critical care monitors and ultrasonic tissue ablation devices, among others.
current strategy involves growth through acquisitions, which requires us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits.
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if we fail to comply with the extensive governmental regulations that affect our business, we could be subject to penalties and could be precluded from marketing our products.
We are facing an increasing amount of scrutiny and compliance costs as more states are implementing regulations governing medical devices, pharmaceuticalsand/or biologics which affect many of our products. As a result, we are implementing additional procedures, controls and tracking and reporting processes, as well as paying additional permit and license fees, where required.
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For example, our orthobiologics products, acquired in connection with the IsoTis transaction, are subject to FDA and certain state regulations regarding human cells, tissues, and cellular or tissue-based products, which include requirements for establishment registration and listing, donor eligibility, current good tissue practices, labeling, adverse-event reporting, and inspection and enforcement. Some states have their own tissue banking regulation. We are licensed or have permits as a tissue bank in California, Florida, New York and Maryland. In addition, tissue banks may undergo voluntary accreditation by the American Association of Tissue Banks, or the AATB. The AATB has issued operating standards for tissue banking. Compliance with these standards is a requirement in order to become a licensed tissue bank.
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of our products contain materials derived from animal sources and may become subject to additional regulation.
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of market acceptance for our products or market preference for technologies that compete with our products could reduce our revenues and profitability.
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intellectual property rights may not provide meaningful commercial protection for our products, potentially enabling third parties to use our technology or very similar technology and could reduce our ability to compete in the market.
competitive position depends, in part, upon unpatented trade secrets which we may be unable to protect.
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success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others.
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may be involved in lawsuits relating to our intellectual property rights and promotional practices, which may be expensive.
may be difficult to replace some of our suppliers.
| • | our collagen-based products, such as the Integra® Dermal Regeneration Template and wound dressing products, the DuraGen® family of products, and our Absorbable Collagen Sponges; |
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| • | our products made from silicone, such as our neurosurgical shunts and drainage systems and hemodynamic shunts; and | |
| • | products which use many different electronic parts from numerous suppliers, such as our intracranial monitors and catheters. |
any of our manufacturing facilities were damaged and/or our manufacturing or business processes interrupted, we could experience lost revenues and our business could be seriously harmed.
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are exposed to a variety of risks relating to our international sales and operations, including fluctuations in exchange rates, local economic conditions and delays in collection of accounts receivable.
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Because
require that we exercise care in structuring our sales and marketing practices in foreign countries.
in the healthcare industry may require us to decrease the selling price for our products or may reduce the size of the market for our products, either of which could have a negative impact on our financial performance.
| • | major third-party payors of hospital services and hospital outpatient services, including Medicare, Medicaid and private healthcare insurers, annually revise their payment methodologies, which can result in stricter standards for reimbursement of hospital charges for certain medical procedures; | |
| • | Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products; | |
| • | recently effected local Medicare coverage determinations will eliminate reimbursement for certain of our matrix wound dressing products in most regions, negatively affecting our market for these products, and future determinations could eliminate reimbursement for these products in other regions and could eliminate reimbursement for other products; | |
| • | potential legislative proposals have been considered that would result in major reforms in the U.S. healthcare system that could have an adverse effect on our business; | |
| • | there has been a consolidation among healthcare facilities and purchasers of medical devices in the United States who prefer to limit the number of suppliers from whom they purchase medical products, and these entities may decide to stop purchasing our products or demand discounts on our prices; | |
| • | we are party to contracts with group purchasing organizations, which negotiate pricing for many member hospitals, that require us to discount our prices for certain of our products and limit our ability to raise prices for certain of our products, particularly surgical instruments; |
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| • | there is economic pressure to contain healthcare costs in domestic and international markets; | |
| • | there are proposed and existing laws, regulations and industry policies in domestic and international markets regulating the sales and marketing practices and the pricing and profitability of companies in the healthcare industry; | |
| • | proposed laws or regulations that will permit hospitals to provide financial incentives to doctors for reducing hospital costs (known as gainsharing) and to award physician efficiency (known as physician profiling) could reduce prices; and | |
| • | there have been initiatives by third-party payors to challenge the prices charged for medical products that could affect our ability to sell products on a competitive basis. |
Both the pressures to reduce prices for our products in response to these trends and the decrease in the size of the market as a result of these trends could adversely affect our levels of revenues and profitability of sales.
oversight of the medical device industry might affect the manner in which we may sell medical devices.
| • | government officials charged with responsibility for enforcing those laws will not assert that our sales and marketing practices or customer discount arrangements are in violation of those laws or regulations; or | |
| • | government regulators or courts will interpret those laws or regulations in a manner consistent with our interpretation. |
For example, proposed federal legislation would require detailed disclosure of gifts made to health care professionals. In addition, prosecutorial scrutiny and governmental oversight over some major device companies regarding the retention of healthcare professionals as consultants has affected and may continue to affect the manner in which medical device companies may retain healthcare professionals as consultants. We have in place policies to govern how we may retain healthcare professionals as consultants that reflect the current climate on this issue and are providing training on these policies.
private-label business depends significantly on key relationships with third parties, which we could be unable to establish and maintain.
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may have significant product liability exposure and our insurance may not cover all potential claims.
are subject to requirements relating to hazardous materials which may impose significant compliance or other costs on us.
loss of key personnel could harm our business.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
| ITEM 2. | PROPERTIES |
All of our
ITEM 3. LEGAL PROCEEDINGS
| ITEM 3. | LEGAL PROCEEDINGS |
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On June 13, 2005, the Supreme Court vacated the June 2003 judgment of the Circuit Court. The SupremeUnited States District Court and held that the Circuit Court applied an erroneous interpretation of 35 U.S.C. §271(e)(1) when it rejected the challenge of Merck KGaA toevidence did not support the jury’s findingverdict that Merck KGaA failedinfringed on the Company’s patents. In October 2007, the parties entered into a stipulation that concluded the case after the Company’s payment to show that its activities were exempt from claimsMerck of patent infringement under that statute. On remand, the Circuit Court wasfees relating to have reviewed the evidence under a reasonableness test thatcertain expenses of Merck. The disposition of this case does not provide categorical exclusions of certain types of activities. The hearing before the Circuit Court occurred in June 2006, and a ruling is expected in 2007. Further enforcementaffect any of the trial court’s order has been stayed. We have not recorded any gain in connection with this matter, pending final resolution and completion of the appeals process.
Company’s products or development projects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
contingencies.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
ADDITIONAL INFORMATION
The following information is furnished in this Part I pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Executive Officers of the Company
Our executive officers are appointed annually and serve at the discretion of the Board of Directors. The following information indicates the position and age of our executive officers as of the date of this report and their previous business experience.
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Stuart M. Essigis Integra’s President and Chief Executive Officer and a director. He joined Integra in December 1997. Before joining Integra, Mr. Essig supervised the medical technology practice at Goldman, Sachs & Co. as a managing director. Mr. Essig had ten years of broad health care experience at Goldman Sachs serving as a senior merger and acquisitions advisor to a broad range of domestic and international medical technology, pharmaceutical and biotechnology clients. Mr. Essig also serves on the Board of Directors of St. Jude Medical Corporation, Zimmer Holdings, Inc. and ADVAMED, the Advanced Medical Technology Association. Mr. Essig received an A.B. degree from the Woodrow Wilson School of Public and International Affairs at Princeton University and an M.B.A. and a Ph.D. degree in Financial Economics from the University of Chicago, Graduate School of Business.
Maureen B. Bellantoniis Integra’s Executive Vice President and Chief Financial Officer, and is responsible for the company’s finance department, including the corporate controller, financial reporting, budgeting, internal audit, tax, logistics, customer service and treasury functions of the Company. Ms. Bellantoni joined Integra in January 2006. Ms. Bellantoni served as Senior Vice President and Chief Financial Officer of CP Kelco, a global leader in the hydrocolloids market from 2003 through its sale to J.M. Huber in October 2004. From 2000 to 2002, Ms. Bellantoni served as Chief Financial Officer North America and Senior Vice President of Finance of Burger King. During 1999 to 2000, she served as Executive Vice President Finance, for Rohn Industries Inc. a publicly traded telecommunications company. From 1993 to 1998, she served at Sara Lee Corporation as President and Chief Operating Officer for their Bil Mar Foods division, Vice President, Finance and Chief Financial Officer for Sara Lee Meats, and Vice President, Finance and Chief Financial Officer for PYA/Monarch, Inc. From 1985 to 1993, Ms. Bellantoni was with Emerson Electric Company, as Vice President, Finance and Chief Financial Officer for their Automatic Switch Division and Vice President, Far East and Vice President, Finance and Chief Financial Officer for the Branson Ultrasonics Corporation. Ms. Bellantoni received a B.S. degree from the University of Bridgeport and an M.B.A. from the University of Connecticut.
Gerard S. Carlozziis Integra’s Executive Vice President and Chief Operating Officer, and is responsible for the Company’s marketing, sales, manufacturing, information technology and research and development functions. Mr. Carlozzi joined Integra in September 2003, after serving as a consultant to the Company from March 2003 to September 2003. Prior to joining Integra, Mr. Carlozzi had spent over 25 years in the medical device industry. From 1999 to 2003, he was President, Chief Executive Officer and a director of Bionx Implants, a company focused on the development of novel biomaterial devices for various surgical specialties. Prior to 1999, he held various management positions with Synthes USA, Acufex microsurgical and Infusaid Corporation. Mr. Carlozzi also serves on the Board of Directors of Cascade Medical Corporation and Scandius Biomedical, Inc., privately held companies. Mr. Carlozzi received a B.S. degree and an M.B.A. from Northeastern University.
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John B. Henneman, IIIis Integra’s Executive Vice President and Chief Administrative Officer, and is responsible for regulatory affairs, corporate quality systems, clinical affairs, clinical education, business development, human resources, the law department, investor relations and Miltex. Mr. Henneman was our General Counsel from September 1998 until September 2000 and our Senior Vice President, Chief Administrative Officer and Secretary from September 2000 until February 2003. Prior to joining Integra in August 1998, Mr. Henneman served Neuromedical Systems, Inc., a public company developer and manufacturer of in vitro diagnostic equipment, in various capacities for more than four years. Mr. Henneman received an A.B. degree from Princeton University and a J.D. from the University of Michigan Law School.
Judith E. O’Gradyis Integra’s Senior Vice President of Regulatory Affairs, Quality Assurance and Clinical Affairs. Ms. O’Grady joined Integra in 1985. Ms. O’Grady has worked in the areas of medical devices and collagen technology for over 20 years. Prior to joining Integra, Ms. O’Grady worked for Colla-Tec, Inc., a Marion Merrell Dow Company. During her career she has held positions with Surgikos, a Johnson & Johnson Company, and was on the faculty of Boston University College of Nursing and Medical School. Ms. O’Grady led the team that obtained the FDA approval for Integra® Dermal Regeneration Template, the first regenerative product approved by the FDA, and has led teams responsible for approvals of the Company’s other regenerative product lines as well as more than 500 FDA and international submissions. Ms. O’Grady received a B.S. degree from Marquette University and M.S.N. in Nursing from Boston University.
Jerry E. Corbinis Integra’s Vice President and Corporate Controller. Mr. Corbin joined Integra in June 2006. Prior to joining Integra, Mr. Corbin held key finance positions in corporate accounting, sales and marketing and, most recently, research and development for sanofi-aventis and its predecessors from 1989 to 2006. Prior to that, he held management positions with Sigma-Aldrich Corporation and Edward D. Jones & Company. Mr. Corbin received a B.S. degree from Illinois State University and is a certified public accountant.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders and Dividends
| HIGH | LOW | HIGH | LOW | |||||||||||||
| 2006 | 2005 | |||||||||||||||
| Fourth Quarter | $ | 43.57 | $ | 36.36 | $ | 38.89 | $ | 32.00 | ||||||||
| Third Quarter | $ | 39.51 | $ | 34.56 | $ | 38.26 | $ | 28.74 | ||||||||
| Second Quarter | $ | 42.90 | $ | 36.27 | $ | 37.31 | $ | 28.69 | ||||||||
| First Quarter | $ | 41.72 | $ | 35.00 | $ | 39.87 | $ | 34.75 | ||||||||
2007 2006 High Low High Low Fourth Quarter $ 49.74 $ 39.44 $ 43.57 $ 36.36 Third Quarter $ 51.46 $ 46.08 $ 39.51 $ 34.56 Second Quarter $ 52.85 $ 44.99 $ 42.90 $ 36.27 First Quarter $ 46.08 $ 40.15 $ 41.72 $ 35.00
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| Approximate Dollar | ||||||||||||||||
| Total Number of | Value of Shares | |||||||||||||||
| Shares Purchased as | that May Yet be | |||||||||||||||
| Total Number of | Average Price Paid | Part of Publicly | Purchased Under the | |||||||||||||
| Shares Purchased | per Share | Announced Program | Program | |||||||||||||
| October 1, 2006 – October 31, 2006 | — | — | — | $ | 75,000,000 | |||||||||||
| November 1, 2006 – November 30, 2006 | 460,855 | $ | 40.88 | 460,855 | 56,161,030 | |||||||||||
| December 1, 2006 – December 31, 2006 | 461,771 | (1) | 42.10 | 459,750 | 36,807,629 | |||||||||||
| Total | 922,626 | $ | 41.49 | 920,605 | $ | 36,807,629 | ||||||||||
| Total Number | Approximate | |||||||||||||||
| of Shares | Dollar Value of | |||||||||||||||
| Purchased as | Shares that | |||||||||||||||
| Total | Part of | May Yet be | ||||||||||||||
| Number | Average | Publicly | Purchased | |||||||||||||
| of Shares | Price Paid | Announced | Under the | |||||||||||||
| Purchased | per Share | Program | Program | |||||||||||||
| October 1, 2007 — October 31, 2007 | — | — | — | $ | 75,000,000 | |||||||||||
| November 1, 2007 — November 30, 2007 | 374,248 | $ | 41.14 | 374,248 | 59,605,204 | |||||||||||
| December 1, 2007 — December 31, 2007 | 125,752 | 40.33 | 125,752 | 54,533,276 | ||||||||||||
| Total | 500,000 | $ | 40.93 | 500,000 | $ | 54,533,276 | ||||||||||
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| ITEM 6. | SELECTED FINANCIAL DATA |
ITEM 6. SELECTED FINANCIAL DATA
| Years Ended December 31, | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Operating Results: | ||||||||||||||||||||
| Total revenues, net (1) | $ | 419,297 | $ | 277,935 | $ | 229,825 | $ | 185,599 | $ | 117,822 | ||||||||||
| Costs and expenses (2) | 360,553 | 221,830 | 205,046 | 145,952 | 98,635 | |||||||||||||||
| Operating income | 58,744 | 56,105 | 24,779 | 39,647 | 19,187 | |||||||||||||||
| Interest income (expense), net | (8,426 | ) | (265 | ) | 555 | 471 | 3,535 | |||||||||||||
| Other income (expense), net (3) | (2,010 | ) | (739 | ) | 2,674 | 3,071 | 3 | |||||||||||||
| Income before income taxes | 48,308 | 55,101 | 28,008 | 43,189 | 22,725 | |||||||||||||||
| Provision for income taxes (4) | 18,901 | 17,907 | 10,811 | 16,328 | (12,552 | ) | ||||||||||||||
| Net income | $ | 29,407 | $ | 37,194 | $ | 17,197 | $ | 26,861 | $ | 35,277 | ||||||||||
| Diluted net income per share | $ | 0.97 | $ | 1.15 | $ | 0.55 | $ | 0.86 | $ | 1.14 | ||||||||||
| Weighted average shares outstanding | 32,747 | 34,565 | 31,102 | 33,104 | 30,720 | |||||||||||||||
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| December 31, | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Financial Position: | ||||||||||||||||||||
| Cash, cash equivalents, and marketable securities (5) | $ | 22,697 | $ | 143,384 | $ | 195,982 | $ | 206,743 | $ | 132,311 | ||||||||||
| Total assets | 613,618 | 448,432 | 456,713 | 412,526 | 274,668 | |||||||||||||||
| Long-term debt (5) | 508 | 118,378 | 118,900 | 119,427 | — | |||||||||||||||
| Retained earnings / (accumulated deficit) | 66,336 | 36,929 | (265 | ) | (17,462 | ) | (44,323 | ) | ||||||||||||
| Stockholders’ equity | 296,162 | 289,818 | 307,823 | 268,530 | 247,597 | |||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Operating Results: | ||||||||||||||||||||
| Total revenues, net(1) | $ | 550,459 | $ | 419,297 | $ | 277,935 | $ | 229,825 | $ | 185,599 | ||||||||||
| Costs and expenses(2) | 483,171 | 360,553 | 221,830 | 205,046 | 145,952 | |||||||||||||||
| Operating income | 67,288 | 58,744 | 56,105 | 24,779 | 39,647 | |||||||||||||||
| Interest income (expense), net | (10,197 | ) | (8,426 | ) | (265 | ) | 555 | 471 | ||||||||||||
| Other income (expense), net(3) | 2,971 | (2,010 | ) | (739 | ) | 2,674 | 3,071 | |||||||||||||
| Income before income taxes | 60,062 | 48,308 | 55,101 | 28,008 | 43,189 | |||||||||||||||
| Provision for income taxes | 26,591 | 18,901 | 17,907 | 10,811 | 16,328 | |||||||||||||||
| Net income | $ | 33,471 | $ | 29,407 | $ | 37,194 | $ | 17,197 | $ | 26,861 | ||||||||||
| Diluted net income per share | $ | 1.13 | $ | 0.97 | $ | 1.15 | $ | 0.55 | $ | 0.86 | ||||||||||
| Weighted average shares outstanding | 29,578 | 32,747 | 34,565 | 31,102 | 33,104 | |||||||||||||||
| December 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Financial Position: | ||||||||||||||||||||
| Cash, cash equivalents, and marketable securities(4) | $ | 57,339 | $ | 22,697 | $ | 143,384 | $ | 195,982 | $ | 206,743 | ||||||||||
| Total assets | 818,012 | 613,618 | 448,432 | 456,713 | 412,526 | |||||||||||||||
| Long-term debt(4) | 330,000 | 508 | 118,378 | 118,900 | 119,427 | |||||||||||||||
| Retained earnings / (accumulated deficit) | 98,175 | 66,336 | 36,929 | (265 | ) | (17,462 | ) | |||||||||||||
| Stockholders’ equity | 260,429 | 296,162 | 289,818 | 307,823 | 268,530 | |||||||||||||||
| (1) | In 2003, we recorded $11.0 million of other revenue related to the acceleration of the recognition of unused minimum purchase payments and deferred license fee revenue from ETHICON, Inc., a division of Johnson & Johnson, following the termination of the supply distribution and collaboration agreement with ETHICON in December 2003. |
| (2) | In 2004, we recorded $23.9 million in share-based compensation charges incurred in connection with the extension of the employment agreement of our President and Chief Executive Officer. |
| (3) | In 2004, we recorded a $1.4 million gain in other income related to an unrealized gain on a foreign currency collar which was used to reduce our exposure to fluctuations in the exchange rate between the euro and the US dollar as a result of our commitment to acquire Newdeal Technologies SAS for 38.5 million euros. The collar contract expired on January 3, 2005, concurrent with our acquisition of Newdeal Technologies. In 2003, we recorded a $2.0 million gain in other income (expense) associated with a termination payment received from ETHICON. |
| (4) |
| In 2003, we issued $120.0 million of 2.5% contingent convertible subordinated notes due 2008. The net proceeds generated by the notes, after expenses, were $115.9 million. |
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| March 2008, these notes matured and we repaid the principal amount in cash and issued 768,000 shares of our common stock. |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for the use of certain non-GAAP financial information. In Management’s Discussion and Analysis of Financial Condition and Results of Operations, we provide information regarding growth in revenues excluding recently acquired product lines, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most comparable GAAP measure is provided in this annual report.
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This non-GAAP financial measure should not be relied upon to the exclusion of GAAP financial measures. Management believes that this non-GAAP financial measure constitutes important supplemental information to investors which reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations, provides a more complete understanding of factors and trends affecting our ongoing business and operations. Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.
Our distribution channels include two direct sales organizations (Integra NeuroSciences and Integra Reconstructive Surgery), a network managed by a direct sales organization (Jarit/Miltex Surgical Instruments) and strategic alliances. We have direct sales forces in the United States. Outside of
In 2006, we revised the manner in which we present our revenues. This change better aligns our product categories by functional product characteristic and intended use.
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On
| • | Luxtec — The market-leading manufacturer of fiber optic headlight systems for the medical industry through its Luxtec® brand. The Luxtec products are manufactured in a 31,000 square foot leased facility located in West Boylston. | |
| • | LXU Medical — A leading specialty surgical products distributor with a sales force calling on surgeons and key clinical decision makers, covering 18,000 operating rooms in the southeastern, midwestern and mid-Atlantic United States. LXU Medical is the exclusive distributor of the Luxtec fiber optic headlight systems in these territories. | |
| • | Bimeco — A critical care products distributor with direct sales coverage in the southeastern United States. |
On
Onbusiness, including $0.7 million paid in 2007.
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In May 2004, we acquired the MAYFIELD® Cranial Stabilization and Positioning Systems and the BUDDE® Halo Retractor System business from Schaerer Mayfield USA, Inc. (formerly Ohio Medical Instrument Company) for $20.0 million in cash paid at closing, a $0.3 million working capital adjustment and $0.3 million of acquisition related expenses. The MAYFIELD® and BUDDE® lines include skull clamps, headrests, reusable and disposable skull pins, blades, retractor systems and spinal implants. MAYFIELD® systems are the market leader in the United States, and neurosurgeons have used them for over thirty years. The products are sold in the United States through our Integra NeuroSciences direct sales organization and in international markets through distributors.
In May 2004, we acquired all of the capital stock of Berchtold Medizin-Elektronik GmbH, now named Integra ME GmbH, from Berchtold Holding GmbH for $5.0 million in cash. Integra ME manufactured and sold the ELEKTROTOM® line of electrosurgery generators and the SONOTOM™ ultrasonic surgical aspirator, as well as a broad line of related handpieces, instruments and disposables used in many surgical procedures, including neurosurgery. We closed the Integra ME production facility at the end of 2005 and integrated the manufacturing and distribution of the products into other Integra operations.
In January 2004, we acquired two small instruments businesses: the R&B instrument business of R&B Surgical Solutions, LLC for $2.0 million in cash and the Sparta disposable critical care devices and surgical instruments business from Fleetwood Medical, Inc. for $1.6 million in cash. The R&B instrument line is a complete line of high-quality handheld surgical instruments used in neuro- and spinal surgery. The Sparta product line includes products used in plastic and reconstructive, ear, nose and throat (ENT), neuro, ophthalmic and general surgery.
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In October 2006, we We also announced plans to further restructure our French sales and marketing organization. One plan includesorganization, including the elimination of nine positions at our Biot, France facility. Another plan includesfacility and the closing of our facility in Nantes, France and the elimination of three positions. These activities will bewere transferred to the European sales and marketing headquarters in Lyon, France and should be completed in 2007.
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In 2007 we reversed $0.5 million of previously recorded employee termination costs because our initial estimates exceeded actual costs.
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands) | ||||||||||||
| CHARGES | ||||||||||||
| Involuntary employee termination costs | $ | 1,034 | $ | 3,861 | $ | — | ||||||
| Facility consolidation, acquisition integration, manufacturing transfer, enterprise business system integration and related costs | 1,299 | 2,340 | — | |||||||||
| Acquired in-process research and development | 5,875 | 500 | — | |||||||||
| Impairment of inventory and fixed assets related to discontinued product lines | 1,578 | 478 | — | |||||||||
| Inventory fair market value purchase accounting adjustments | 4,640 | 466 | 270 | |||||||||
| Charges associated with convertible debt exchange offer | 1,879 | — | — | |||||||||
| Charges associated with termination of interest rate swap | 1,425 | — | — | |||||||||
| Cash donation to the Integra Foundation | 1,000 | 250 | — | |||||||||
| Acquired technology licensing and milestone payments | — | — | 1,855 | |||||||||
| Tax charge incurred in connection with the reorganization of certain European operations | — | — | 1,300 | |||||||||
| Total | $ | 18,730 | $ | 7,895 | $ | 3,425 | ||||||
2007 2006 2005 (In thousands) CHARGES Involuntary employee termination costs $ (388 ) $ 1,035 $ 3,861 Facility consolidation, acquisition integration, manufacturing transfer, enterprise business system integration and related costs 1,969 1,299 2,340 Acquired in-process research and development 4,600 5,875 500 Impairment of inventory and fixed assets related to discontinued product lines 2,806 1,578 478 Inventory fair market value purchase accounting adjustments 4,238 4,640 466 Charges associated with convertible debt exchange offer — 1,879 — Charges associated with termination of interest rate swap — 1,425 — Intangible asset impairment charges 1,014 — — Tax and other charges incurred in connection with the reorganization of certain European operations 335 — — Total $ 14,574 $ 17,731 $ 7,645
In 2004, we recognized $1.4 million of other income related to an unrealized gain on a foreign currency collar, which was used to reduce our exposure to fluctuations in the exchange rate between the euroexpenses and the US dollar as a result of our commitment to acquire Newdeal Technologies for 38.5 million euros. The foreign currency collar expired in January 2005, concurrent with our acquisition of Newdeal Technologies.
amortization expense.
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In 2005,
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In 2004, we recognized a $23.9 million non-cash compensation charge related to the renewal of our President and Chief Executive Officer’s employment agreement.
These amounts represent revenues, gains and charges resulting from facts and circumstances that, based on our recent history and future expectations, are not expected to recur with similar materiality or effect on continuing operations with the exception of compensation expense under SFAS 123R. SFAS 123R was noted because of the lack of comparability with 2005 and 2004. We believe that the identification of these revenues, charges and gains that meet these criteria promotes comparability of reported financial results for the periods presented.
periods.
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Neurosurgical and Orthopedic Implants | $ | 166,432 | $ | 134,598 | $ | 101,791 | ||||||
| Medical Surgical Equipment and other | 252,865 | 143,337 | 128,034 | |||||||||
| Total revenues | 419,297 | 277,935 | 229,825 | |||||||||
| Cost of product revenues | 168,314 | 107,052 | 88,496 | |||||||||
| Gross margin | 250,983 | 170,883 | 141,329 | |||||||||
| Gross margin as a percentage of revenues | 60 | % | 61 | % | 61 | % | ||||||
2007 2006 2005 (In thousands) Neurosurgical and Orthopedic Implants $ 207,536 $ 166,432 $ 134,598 Medical Surgical Equipment and other 342,923 252,865 143,337 Total revenues 550,459 419,297 277,935 Cost of product revenues 214,674 168,314 107,052 Gross margin 335,785 250,983 170,883 Gross margin as a percentage of revenues 61 % 60 % 61 %
| 2006 | 2005 | |||||||||||
| Revenues | Revenues | % Change | ||||||||||
| (in thousands) | ||||||||||||
| Total Revenues | ||||||||||||
| Products acquired during 2006 | $ | 98,110 | $ | 0 | N/M | |||||||
| Products acquired during 2005 | 23,050 | 17,033 | 35 | % | ||||||||
| All other revenues | 298,137 | 260,902 | 14 | % | ||||||||
| Total revenues | 419,297 | 277,935 | 51 | % | ||||||||
All 2007 2006 Revenues Revenues % Change (In thousands) Total Revenues Products acquired during 2007 $ 37,760 $ — — Products acquired during 2006 151,277 98,110 54 % All other revenues 361,422 321,187 13 % Total revenues 550,459 419,297 31 %
Revenues excluding 2006 and 2005 acquisitions grew at 14.3% in 2006 as compared2007 revenue growth is attributable to 2005. Increased sales of the following products accounted for a significant portion of this growth: ourdural repair implant products, used for skin replacement and wound dressings; dural repair and repair and protection of peripheral nerves; ourintracranial monitoring systems, Jarit-branded surgical instrumentation, cranial stabilization systems, orthopedic implants, and ultrasonic surgery systems for tissue ablation;private-label infection control and our Absorbable Collagen Sponge product sold to Wyeth. absorbable collagen sponge products.
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| 2006 | 2005 | 2004 | ||||||||||
| Research and development | 6 | % | 4 | % | 6 | % | ||||||
| Selling, general and administrative | 38 | % | 35 | % | 43 | % | ||||||
| Intangible asset amortization | 2 | % | 2 | % | 2 | % | ||||||
The increase 2007 2006 2005 Research and development 6 % 6 % 4 % Selling, general and administrative 41 % 38 % 35 % Intangible asset amortization 2 % 2 % 2 %
Research and development expenses in 2006 increased by $14 million compared to 2005, to $26 million. Included in research and development costs during 2006 were a $5.9 million in-process research and development charge related to the KMI acquisition, a $0.5 million charge related to an up-front payment pursuant to a new product development alliance and $0.6 million of stock-based compensation expense associated with the adoption of SFAS 123R. In addition to these charges, research and development expenses increased by $3.0 millionacquisition. Additionally, in 2006 as a result of the acquisitions of Radionics and KMI. Wewe recognized a $1.6 million impairment of inventory and fixed assets associated with a discontinued project for the development of an ultrasonic aspirator system. This project was discontinued in June 2006 following our review of our existing technology and the ultrasonic aspirator technology acquired in the Radionics acquisition. We determined that there was no future, alternative use for the inventory or fixed assets in any other development project. There
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2008.
In 2004, our selling, general and administrative expenses included a $23.9 million share-based compensation charge related to the renewal of our President and Chief Executive Officer’s employment agreement. Excluding the impact of this charge, selling, general and administrative expenses increased in 2005 because of the continued expansion of our direct sales and marketing organizations in our direct selling platforms, increased corporate staff to support the growth in our business and costs associated with our restructuring, acquisition integration and systems implementation activities. Since 2004, we have been investing resources in the continued implementation of a new global enterprise business system. In 2004 and 2005, we relocated and expanded most of our domestic and international distribution capabilities through third-party service providers.
Amortization expenseProduct Revenues) increased to $11.6$16.8 million in 2006 because of amortization on intangible assets acquired through our business acquisitions and $1.0 million of impairment charges recorded against certain intangible assets. In 2006, amortization expense (including $2.8 million reported in Cost of Product Revenues) increased to $11.6 million because of amortization on intangible assets acquired through our business acquisitions.
Non-Operating Income and Expenses
cash equivalents.
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In 2003, we received approximately $115.9 million of net proceeds from the sale of $120.0 million of our 21/2% contingent convertible subordinated notes due in March 2008. In 2006, 2005, and 2004 we recorded interest expense of $3.0 million, $3.0 million, and $3.0 million, respectively, in connection with these notes. In addition, we recorded interest income on our invested cash and marketable debt securities of $1.3 million, $3.9 million and $4.0 million in 2006, 2005 and 2004, respectively.
We will pay additional interest (“contingent interest”) on our convertible notes if, at thirty days prior to maturity, our common stock price is greater than $37.56 per share.
obligation was $1.8 million. We paid this $1.8 million of additional interest in March 2008 upon maturity of the notes.
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands) | ||||||||||||
| Interest rate swap | $ | (690 | ) | $ | 690 | $ | 287 | |||||
| Contingent convertible notes | 343 | (821 | ) | (430 | ) | |||||||
| Net increase (decrease) in liabilities | $ | (347 | ) | $ | (131 | ) | $ | (143 | ) | |||
2007 2006 2005 Interest rate swap $ — $ (690 ) $ 690 Contingent convertible notes 373 343 (821 ) Net increase (decrease) in liabilities $ 373 $ (347 ) $ (131 )
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valuation allowances.
2007.
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| United States | Europe | Asia Pacific | Other Foreign | Consolidated | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| 2006 | $ | 317,503 | $ | 77,100 | $ | 12,315 | $ | 12,379 | $ | 419,297 | ||||||||||
| 2005 | 207,409 | 48,645 | 11,403 | 10,478 | 277,935 | |||||||||||||||
| 2004 | 182,168 | 30,994 | 8,535 | 8,128 | 229,825 | |||||||||||||||
United States Europe Asia Pacific Other Foreign Consolidated (In thousands) 2007 $ 417,035 $ 85,764 $ 21,399 $ 26,261 $ 550,459 2006 317,503 77,100 12,315 12,379 419,297 2005 207,409 48,645 11,403 10,478 277,935
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In 2004, revenues from customers outside the United States totaled $47.6 million, or 21% of consolidated revenues, of which approximately 65% were sales to European customers. Revenues from customers outside the United States included $33.6 million of revenues generated in foreign currencies.
currencies
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levels more consistent with prior trends.
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In 2004, we generated $6.1 million from the issuance of common stock under employee benefit plans. We used $29.3 million of cash for acquisitions, $50.6 million for the net purchases of marketable debt securities, $14.2 million for the repurchase of 500,000 shares of our common stock and $8.5 million for capital expenditures.
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Convertible Debt
accrued and unpaid interest under the Notes, as well as any accrued and unpaid additional amounts owed.
The notes are general, unsecured obligations of Integra and will be subordinatethe 2008 Notes to any future senior indebtedness. We cannot redeemconvert the notes prior to their maturity, and the noteholders may compel us to repurchase the notes upon a change of control.maturity. There arewere no financial covenants associated with the convertible notes.
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On September 27,
On October 20, 2006 an additional $4.3 million of old notes were tendered, bringing the total amount of exchanges to $119.5 million, or 99.6% of the original $120 million principal amount. We paid approximately $11,000 of exchange fees to tendering holders of these notes in connection with this exchange.
On
In May 2005, our Board of Directors authorized us to repurchase shares of our commonoptions and stock for an aggregate purchase price not to exceed $40 million through December 31, 2006. We were authorized to repurchase no more than 1.5 million shares under this program. awards.
In February 2006, our Board of Directors authorized us to repurchase shares of our common stock for an aggregate purchase price not to exceed $50$75 million thoughthrough December 31, 20062007 and terminated our prior repurchase program.
In October 2006, We purchased 264,000 shares of our common stock for $11.1 million during the first three months of 2007 under this program. On May 17, 2007, our Board of Directors terminated the repurchase program approvedauthorization it adopted in FebruaryOctober 2006 and adopted a new program that authorizesauthorized us to repurchase shares orof our common stock for an aggregate purchase price not to exceed $75 million thoughthrough December 31, 2007. We did not repurchase any shares of its common stock under this program. On October 30, 2007, our Board of Directors terminated the repurchase authorization it adopted on May 17, 2007 and authorized us to repurchase shares of our common stock for an aggregate purchase price not to
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We purchased 500,000 shares of our common stock for $20.5 million under this repurchase program during the three months ended December 31, 2007. As of December 31, 2007, there remained $54.5 million available for share repurchases under this authorization.
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June 2007 with a portion of the proceeds from the issuance of our $330 million of senior convertible notes. As of December 31, 2007, we had no outstanding borrowings under the credit facility. See Note 17, Subsequent Event, for a further discussion of borrowings under the credit facility.
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| Less than | 1-3 | 3-5 | More than | |||||||||||||||||
| Total | 1 year | Years | Years | 5 years | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Convertible Securities — Short Term | $ | 119.5 | $ | 119.5 | $ | — | $ | — | $ | — | ||||||||||
| Convertible Securities — Long Term | 0.5 | — | 0.5 | — | — | |||||||||||||||
| Interest on Convertible Securities | 4.5 | 3.0 | 1.5 | — | — | |||||||||||||||
| Employment Agreements | 5.5 | 3.1 | 2.4 | — | — | |||||||||||||||
| Operating Leases | 18.4 | 4.1 | 5.2 | 1.9 | 7.2 | |||||||||||||||
| Purchase Obligations | 1.0 | 1.0 | — | — | — | |||||||||||||||
| Warranty Obligations | 1.3 | 1.1 | 0.2 | — | — | |||||||||||||||
| Pension Contributions | 0.3 | 0.3 | — | — | — | |||||||||||||||
| Total | $ | 151.0 | $ | 132.1 | $ | 9.8 | $ | 1.9 | $ | 7.2 | ||||||||||
Less than 1-3 3-5 More than Total 1 year Years Years 5 years (In millions) Convertible Securities — Short Term $ 120.0 $ 120.0 $ — $ — $ — Convertible Securities — Long Term 330.0 — 165.0 165.0 — Interest on Convertible Securities 31.6 11.0 18.6 2.0 — Employment Agreements* 3.2 3.2 — — — Operating Leases 17.2 5.0 6.3 1.9 4.0 Purchase Obligations 22.7 17.4 5.3 — — Minimum Royalty 1.3 0.4 0.5 0.2 0.2 Warranty Obligations 0.8 0.8 — — Pension Contributions 0.5 0.5 — — — Total $ 527.3 $ 158.3 $ 195.7 $ 169.1 $ 4.2
| * | Amounts shown under Employment Agreements do not include executive compensation or compensation resulting from a change in control relating to our executive officers. This is covered in the section related to Potential Payments Upon Termination or Change in Control. |
such businesses after the acquisition.
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production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory. To the extent that we determine there are excess or obsolete quantities or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we record valuation reserves against all or a portion of the value of the related products to adjust their carrying value to estimated net realizable value. If future demand or market conditions are different from our projections, or if we are unable to rework excess or obsolete quantities into other products, we may change the recorded amount of inventory valuation reserves through a charge or reduction in cost of product revenues in the period the revision is made.
Amortization Periods
We provide for amortization using the straight-line method over the estimated useful lives of acquired intangible assets. We base the determination of these useful lives on the period over which we expect the related assets to contribute to our cash flows or a shorter period such that recognition of the amortization better corresponds with the distribution of expected revenues. If our assessment of the useful lives of intangible assets changes, we may change future amortization expense.
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operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 –Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,or SAB 108. SAB 108 was issued in order to reduce the diversity in practice in how public companies quantify misstatements of financial statements, including misstatements that were not material to prior years’ financial statements. SAB 108 is effective for fiscal year 2006. The implementation of SAB 108 did not have a material impact on the Company’s financial position or results of operations.
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ITEM 7A. Quantitative
liabilities and requires that the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. It also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”)No. FAS-157-2, “Effective Date of FASB Statement No. 157.” FSPNo. FAS 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal year beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our financial condition or results of operations.
| ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk |
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In November 2004, we entered into a collar contract that expired on January 3, 2005 for 38.5 million euros to reduce our exposure to fluctuations in the exchange rate between the euro and the US dollar as a result of our commitment to acquire Newdeal in January 2005 for 38.5 million euros. The collar contract did not qualify as a hedge under SFAS No. 133. Accordingly, the collar contract was recorded at fair value and changes in fair value were recorded in other income (expense), net. In 2004, we recorded a $1.4 million unrealized gain related to the change in the fair value of the collar contract as of December 31, 2004. The foreign currency collar expired in January 2005, concurrent with our acquisition of Newdeal.
Other than this foreign currency collar, we
the investments in available-for-sale marketable debt securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. CONTROLS AND PROCEDURES
| ITEM 9A. | CONTROLS AND PROCEDURES |
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material weaknesses discussed below. Notwithstanding the material weaknesses discussed below, our management has concluded that the consolidated financial statements included in this Annual Report on Form10-K fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.
Our management
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| • | On September 6, 2007, we accepted the resignation of our Chief Financial Officer. | |
| • | Reassigned our former corporate controller from the business development department to the finance organization to assist with the quarterly close and process improvements. |
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| • | Recruited additional accounting and tax professionals who can provide the adequate experience and knowledge to improve the timeliness and effectiveness of our account reconciliations and ultimately the financial reporting processes. Several individuals have been hired within the finance organization and management continues to recruit additional personnel. We have utilized our internal audit group and outside consultants as needed to assist with executing the preparationand/or reviews of reconciliations under our direction. Training for current and new personnel is being addressed. We also have developed a group that is solely dedicated to developing and administrating training materials to departmental personnel as well as enhancing communication channels among departments and organizations within the company. | |
| • | Enhancements to the reconciliation process have been made during the 2007 fiscal year. Reconciliations are being reviewed by several levels of management prior to finalization. In addition, during the first quarter of 2008, management developed reconciliation policies and procedures that will be administered to all departments in 2008. | |
| • | Management continues to address the control weaknesses around intercompany accounting transactions. Detailed intercompany reconciliations will be prepared each period and analyzed by several levels of management. Process changes are being identified and implemented, which enforce compliance with existing and revised processes for intercompany transactions and allow for easier accounting and monitoring of such transactions. Process improvements are still being analyzed and addressed by management. | |
| • | Several individuals have been hired in the tax department. These individuals have been working on assessing the current tax structure and reviewing the transactions in the tax accounts. Management will continue working on addressing the control weaknesses as it relates to assessing and recording tax transactions. | |
| • | The Company performed a detailed study related to its controls associated with the use of its primary financial reporting system and has a working group in place focused on implementing the key findings from that assessment. The Business Process Management team was established and has been recruiting IT and project management professionals with the necessary knowledge and experience to continue the optimization efforts around the Company’s Enterprise Resource Planning system (ERP) and supporting business processes. The team continues its planning around additional phases of ERP rollouts in international locations and the integration of acquired businesses. We expect the remediation in this area to continue for a number of months. |
In conductingsubject to certain limitations, and, as a result, there can be no assurance that our evaluationcontrols and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the effectiveness ofcontrol system will be attained.
Internal control over financial reporting, cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligenceas well as our disclosure controls and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
procedures.
No
ITEM 9B. OTHER INFORMATION
| ITEM 9B. | OTHER INFORMATION |
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Name | Age | Position | ||||
| Stuart M. Essig | 46 | President, Chief Executive Officer and Director | ||||
| Gerard S. Carlozzi | 52 | Executive Vice President and Chief Operating Officer | ||||
| John B. Henneman, III | 46 | Executive Vice President, Finance and Administration and Chief Financial Officer | ||||
| Judith E. O’Grady | 58 | Senior Vice President, Regulatory, Quality Assurance and Clinical Affairs | ||||
| Jerry E. Corbin | 48 | Vice President and Corporate Controller | ||||
| Richard E. Caruso, PH.D. | 65 | Chairman of the Board | ||||
| Thomas J. Baltimore, Jr. | 44 | Director | ||||
| Keith Bradley, PH.D. | 63 | Director | ||||
| Neal Moszkowski | 42 | Director | ||||
| Christian S. Schade | 47 | Director | ||||
| James M. Sullivan | 64 | Director | ||||
| Anne M. VanLent | 60 | Director | ||||
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INCORPORATED BY REFERENCE
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| ITEM 11. | EXECUTIVE COMPENSATION |
| • | Stuart M. Essig, our President and Chief Executive Officer; | |
| • | John B. Henneman, III, our Executive Vice President, Finance and Administration and Chief Financial Officer; | |
| • | Gerard S. Carlozzi, our Executive Vice President and Chief Operating Officer; | |
| • | Maureen B. Bellantoni, our former Executive Vice President and Chief Financial Officer; | |
| • | Judith E. O’Grady, our Senior Vice President, Regulatory, Quality Assurance and Clinical Affairs; and | |
| • | Jerry E. Corbin, our Vice President and Corporate Controller. |
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| • | leadership; | |
| • | leveraging and maintaining high quality relationships with the investment community and key customers; | |
| • | keeping the Board informed and consulted on appropriate matters; | |
| • | ensuring corporate governance and ethical responsibilities are met; | |
| • | employee development; | |
| • | business development; | |
| • | aligning and motivating the organization; | |
| • | recruiting high quality executives and developing succession planning for critical positions; | |
| • | supporting and guiding the strengthening of organization development and planning efforts; | |
| • | maintaining corporate environment for continuous improvement; | |
| • | supporting the development of business opportunities; | |
| • | achieving operating synergies projected in operating plans; | |
| • | improving diversity; | |
| • | encouraging employee equity ownership; | |
| • | reviewing and enhancing compliance programs; | |
| • | improving the timeliness and effectiveness of the finance function (for Messrs. Essig and Henneman); | |
| • | improving and enhancing commitment to quality systems; | |
| • | continuing to enhance evaluation process by tying compliance initiatives with performance evaluations; and | |
| • | participating in the development of the industry and public policy positions and action plans. |
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| 2007 | Percentage | |||||||
Name | Base Salary | Increase from 2006 | ||||||
| Stuart M. Essig | $ | 550,000 | 10.0 | % | ||||
| John B. Henneman, III | $ | 420,000 | N/A | |||||
| Gerard S. Carlozzi | $ | 420,000 | 5.0 | % | ||||
| Maureen B. Bellantoni | $ | 325,000 | 8.3 | % | ||||
| Judith E. O’Grady | $ | 235,000 | 2.2 | % | ||||
| Jerry E. Corbin | $ | 210,000 | 8.8 | % | ||||
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| Change in | ||||||||||||||||||||||||||||||||||||
| Pension | ||||||||||||||||||||||||||||||||||||
| Value and | ||||||||||||||||||||||||||||||||||||
| Non-Equity | Nonqualified Deferred | |||||||||||||||||||||||||||||||||||
| Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
| Salary | Bonus | Awards(1) | Awards(1) | Compensation(2) | Earnings | Compensation(3) | Total | |||||||||||||||||||||||||||||
| Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Stuart M. Essig | 2007 | 550,000 | — | — | 3,421,373 | 550,000 | — | 3,875 | 4,525,248 | |||||||||||||||||||||||||||
| President and Chief Executive Officer | 2006 | 500,000 | — | — | 2,531,090 | 500,000 | — | 3,750 | 3,534,840 | |||||||||||||||||||||||||||
| Maureen B. Bellantoni | 2007 | 220,673 | — | (117,091 | ) | — | — | — | 349,213 | (4) | 452,795 | |||||||||||||||||||||||||
| Former Executive Vice President and Chief Financial Officer(6) | 2006 | 293,077 | — | 117,091 | — | 120,000 | — | 118,411 | (5) | 648,579 | ||||||||||||||||||||||||||
| John B. Henneman, III | 2007 | 420,000 | — | 1,233,430 | 617,287 | 168,000 | — | 3,875 | 2,442,592 | |||||||||||||||||||||||||||
| Executive Vice President, Finance and Administration and Chief Financial Officer(7) | 2006 | 420,000 | — | 1,169,462 | 785,907 | 168,000 | — | 3,750 | 2,547,119 | |||||||||||||||||||||||||||
| Gerard S. Carlozzi | 2007 | 416,538 | — | 1,233,430 | 878,020 | 168,000 | — | — | 2,695,988 | |||||||||||||||||||||||||||
| Executive Vice President and Chief Operating Officer | 2006 | 400,000 | — | 1,169,462 | 973,568 | 160,000 | — | — | 2,703,030 | |||||||||||||||||||||||||||
| Judith E. O’Grady | 2007 | 234,135 | — | 87,260 | 155,088 | 69,619 | — | 3,875 | 549,977 | |||||||||||||||||||||||||||
| Senior Vice President, Regulatory, Quality Assurance and Clinical Affairs | 2006 | 227,577 | — | 37,411 | 167,828 | 44,112 | — | 3,750 | 480,678 | |||||||||||||||||||||||||||
| Jerry E. Corbin | 2007 | 207,058 | — | 48,388 | — | 51,844 | — | 3,875 | 311,165 | |||||||||||||||||||||||||||
| Vice President and Corporate Controller(8) | 2006 | 97,242 | — | 6,320 | — | 32,191 | — | 1,821 | 137,574 | |||||||||||||||||||||||||||
| (1) | The amounts in Columns (e) and (f) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with FAS 123R of awards pursuant to the Company’s equity incentive plans and therefore may include amounts from awards granted in 2007 and prior periods. Assumptions used in the calculation of these amounts for awards granted in fiscal years ended December 31, 2007, 2006, 2005 and 2004 are included in Note 2, Summary of Significant Accounting Policies, in the Company’s audited financial statements for the fiscal year ended December 31, 2007, included in Item 15 of this Annual Report. Assumptions used in the calculation of these amounts for the fiscal years ended December 31, 2003 and 2002 are included in Note 2, Summary of Significant Accounting Policies, in the Company’s audited financial statements for the fiscal year ended December 31, 2003, included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on March 12, 2004. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. | |
| (2) | The amounts in column (g) reflect cash awards earned under the MICP and/or as a discretionary bonus or pursuant to employment agreements. | |
| (3) | Except with respect to Ms. Bellantoni, (a) the amounts in this column consist of matching contributions made by the Company under the Company’s 401(k) plan and (b) the aggregate amount of perquisites and other personal benefits for each executive officer was less than $10,000. |
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| (4) | This amount consists of (a) $325,000 of severance payments made pursuant to Ms. Bellantoni’s separation agreement, (b) $9,708 of COBRA payments made or to be made by the Company on Ms. Bellantoni’s behalf for the twelve months in connection with the termination of her employment on September 6, 2007, (c) $11,563 of accrued personal time paid to Ms. Bellantoni in connection with the termination of her employment, (d) $2,642 of Company matching contributions made by the Company under the Company’s 401(k) plan and (e) $300 paid by the Company for the annual fee for a corporate credit card provided only to certain employees. | |
| (5) | This amount consists of (a) $116,380 for moving and relocation expenses paid by the Company, (b) $1,731 of Company matching contributions made by the Company under the Company’s 401(k) plan, and (c) $300 paid by the Company for the annual fee for a corporate credit card provided only to certain employees. | |
| (6) | Ms. Bellantoni was the Company’s principal financial officer from January 10, 2006 until September 6, 2007. Ms. Bellantoni’s last day with the Company was September 6, 2007. | |
| (7) | Mr. Henneman was appointed Acting Chief Financial Officer on September 6, 2007 and Chief Financial Officer on May 13, 2008. | |
| (8) | Mr. Corbin joined the Company in June 2006 as Vice President and Corporate Controller. |
| All Other | All Other | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock | Option | Grant | ||||||||||||||||||||||||||||||||||||||||||||||
| Awards: | Awards: | Exercise | Date Fair | |||||||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts | Number of | Number of | or Base | Value of | ||||||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts | Under Equity Incentive Plan | Shares of | Securities | Price of | Stock and | |||||||||||||||||||||||||||||||||||||||||||
| Date of | Under Non-Equity Incentive Plan Awards(1) | Awards(2) | Stock or | Underlying | Option | Option | ||||||||||||||||||||||||||||||||||||||||||
| Grant | Comp. | Threshold | Target | Maximum | Threshold | Target | Maximum | Units(3) | Options | Awards | Awards(4) | |||||||||||||||||||||||||||||||||||||
| Name | Date | Committee | ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | ($) | ||||||||||||||||||||||||||||||||||||
(a) | (b) | Action | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||||||||||||||||||||
| Stuart M. Essig | 12-18-07 | 12-18-07 | — | — | — | — | — | — | — | 200,000 | (6) | 40.34 | 3,366,000 | |||||||||||||||||||||||||||||||||||
| 01-02-07 | 07-21-04 | (5) | — | 550,000 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Maureen B. Bellantoni | 04-02-07 | 03-15-07 | — | — | — | — | — | — | 4,366 | (7) | — | — | 200,006 | |||||||||||||||||||||||||||||||||||
| 01-02-07 | 01-08-06 | (5) | — | 130,000 | (7) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| John B. Henneman, III | 04-02-07 | 03-15-07 | — | — | — | — | 4,366 | — | — | — | — | 200,006 | ||||||||||||||||||||||||||||||||||||
| 01-02-07 | 12-19-05 | (5) | — | 168.000 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Gerard S. Carlozzi | 04-02-07 | 03-15-07 | — | — | — | — | 4,366 | — | — | — | — | 200,006 | ||||||||||||||||||||||||||||||||||||
| 01-02-07 | 12-19-05 | (5) | — | 168,000 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Judith E. O’Grady | 01-02-07 | 03-15-07 | 56,400 | 70,500 | 105,750 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 04-02-07 | 03-15-07 | — | — | — | — | — | — | 3,612 | — | — | 165,466 | |||||||||||||||||||||||||||||||||||||
| Jerry E. Corbin | 01-02-07 | 03-15-07 | 42,000 | 52,500 | 78,750 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 04-02-07 | 03-15-07 | — | — | — | — | — | — | 2,636 | — | — | 120,755 | |||||||||||||||||||||||||||||||||||||
| (1) | The amounts shown in these columns represent each executive’s annual incentive opportunity under the MICP or pursuant to an employment agreement. See “— Compensation Discussion and Analysis — Elements of Compensation — Annual Cash Incentives” for more information regarding the MICP and applicable employment agreement. The “Target” is calculated by multiplying the officer’s base salary by the executive’s target award percentages provided in the applicable employment agreement for Messrs. Essig, Henneman and Carlozzi and Ms. Bellantoni and under the MICP for Ms. O’Grady and Mr. Corbin. Under the MICP, the “Maximum” is calculated by multiplying the “Target” by 150%. The “Threshold” shows the amount payable if the performance goals under the MICP are achieved at the minimum required 90% level. | |
| (2) | The amounts shown in these columns represent shares of performance stock granted under the Company’s 2003 Equity Incentive Plan. See “— Compensation Discussion and Analysis — Elements of Compensation — Long-Term Equity-Based Incentives” for a description of the material terms of these performance stock awards. | |
| (3) | The amounts shown in this column represent shares of restricted stock granted under the Company’s 2003 Equity Incentive Plan. See “— Compensation Discussion and Analysis — Elements of Compensation — Long-Term Equity-Based Incentives” for a description of the material terms of these restricted stock awards. | |
| (4) | This column reflects the full grant date fair value of the restricted stock, performance stock and stock options under FAS 123R granted to each named executive officer in 2007. Generally, the full grant date fair value is the amount that the Company would expense in its financial statements over the award’s vesting schedule. For |
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| restricted stock and performance stock, fair value is calculated using the closing price of the Company’s common stock on the grant date noted, which was $45.81 on April 2, 2007. For the stock options granted to Mr. Essig, fair value is calculated using the binomial distribution value on the grant date. The fair value shown for stock awards and option awards are accounted for in accordance with FAS 123R. For additional information on the valuation assumptions, refer to Note 2 of the Company’s financial statements in Item 15 of this Annual Report. These amounts reflect the Company’s accounting expense and do not correspond to the actual value that will be recognized by the named executive officers. | ||
| (5) | The Compensation Committee approved the terms of the executive’s employment agreement, including the bonus opportunity, on this date. | |
| (6) | This amount represents the annual stock option grant to Mr. Essig. 25% of the award vests one year after the grant date and the remaining 75% vests monthly thereafter over 36 months. The option has a term of 10 years. | |
| (7) | Ms. Bellantoni forfeited this award in connection with the termination of her employment with the Company. |
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| Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||||||||||
| Incentive | ||||||||||||||||||||||||||||||||
| Equity | Plan Awards: | |||||||||||||||||||||||||||||||
| Incentive | Market or | |||||||||||||||||||||||||||||||
| Plan Awards: | Payout | |||||||||||||||||||||||||||||||
| Number of | Value of | |||||||||||||||||||||||||||||||
| Market | Unearned | Unearned | ||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Value of | Shares, | Shares, | |||||||||||||||||||||||||||
| Securities | Securities | Shares or | Shares or | Units or | Units or | |||||||||||||||||||||||||||
| Underlying | Underlying | Units of | Units of | Other | Other | |||||||||||||||||||||||||||
| Unexercised | Unexercised | Option | Stock | Stock | Rights | Rights | ||||||||||||||||||||||||||
| Options | Options | Exercise | Option | That Have | That Have | That Have | That Have | |||||||||||||||||||||||||
| (#) | (#) | Price(2) | Expiration | Not Vested | Not Vested(3) | Not Vested | Not Vested(4) | |||||||||||||||||||||||||
| Name | Exercisable | Unexercisable | ($) | Date | (#) | ($) | (#) | ($) | ||||||||||||||||||||||||
(a) | (b) | (c) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||
| Stuart M. Essig | 282,086 | — | 11.00 | 12/22/2010 | ||||||||||||||||||||||||||||
| 36,208 | — | 17.65 | 12/31/2008 | |||||||||||||||||||||||||||||
| 24,479 | 521 | 28.78 | 1/2/2010 | |||||||||||||||||||||||||||||
| 150,000 | 50,000 | 34.49 | 12/17/2014 | |||||||||||||||||||||||||||||
| 213,541 | 36,459 | 31.38 | 7/27/2014 | |||||||||||||||||||||||||||||
| 100,000 | 100,000 | 35.57 | 12/19/2015 | |||||||||||||||||||||||||||||
| 50,000 | 150,000 | 42.53 | 12/19/2016 | |||||||||||||||||||||||||||||
| — | 200,000 | 40.34 | 12/18/2017 | — | (5) | — | (5) | — | — | |||||||||||||||||||||||
| Maureen B. Bellantoni | — | — | — | — | — | (6) | — | (6) | — | (6) | — | (6) | ||||||||||||||||||||
| John B. Henneman, III | 10,000 | — | 14.87 | 8/2/2008 | ||||||||||||||||||||||||||||
| 5,000 | — | 17.72 | 11/21/2008 | |||||||||||||||||||||||||||||
| 1,000 | — | 17.60 | 12/16/2008 | |||||||||||||||||||||||||||||
| 19,062 | — | 17.65 | 12/31/2008 | |||||||||||||||||||||||||||||
| 20,000 | — | 18.63 | 2/24/2009 | |||||||||||||||||||||||||||||
| 20,000 | — | 22.78 | 4/7/2009 | |||||||||||||||||||||||||||||
| 5,000 | — | 32.39 | 11/3/2009 | |||||||||||||||||||||||||||||
| 24,479 | 521 | 28.78 | 1/2/2010 | |||||||||||||||||||||||||||||
| 17,500 | 2,500 | 32.32 | 6/1/2010 | |||||||||||||||||||||||||||||
| 19,261 | 5,739 | 35.52 | 11/15/2010 | |||||||||||||||||||||||||||||
| 5,312 | 2,188 | 38.72 | 2/1/2011 | |||||||||||||||||||||||||||||
| 50,000 | 50,000 | 30.25 | 7/26/2011 | — | — | 4,366 | (7) | 183,066 | ||||||||||||||||||||||||
| — | — | 100,000 | (8) | 4,193,000 | ||||||||||||||||||||||||||||
| Gerard S. Carlozzi | 12,500 | — | 27.32 | 9/26/2009 | ||||||||||||||||||||||||||||
| 834 | — | 32.39 | 11/3/2009 | |||||||||||||||||||||||||||||
| 4,688 | 522 | 28.78 | 1/2/2010 | |||||||||||||||||||||||||||||
| 2,500 | 2,500 | 32.32 | 6/1/2010 | |||||||||||||||||||||||||||||
| 4,687 | 5,730 | 35.52 | 11/15/2010 | |||||||||||||||||||||||||||||
| 1,406 | 2,188 | 38.72 | 02/01/2011 | |||||||||||||||||||||||||||||
| 25,000 | 50,000 | 30.25 | 07/26/2011 | — | — | 4,366 | (7) | 183,066 | ||||||||||||||||||||||||
| — | — | 100,000 | (8) | 4,193,000 | ||||||||||||||||||||||||||||
| Judith E. O’Grady | 1,875 | — | 14.87 | 08/02/2008 | ||||||||||||||||||||||||||||
| 500 | — | 17.60 | 12/16/2008 | |||||||||||||||||||||||||||||
| 9,583 | — | 17.65 | 12/31/2008 | |||||||||||||||||||||||||||||
| 500 | — | 22.78 | 04/07/2009 | |||||||||||||||||||||||||||||
| 2,000 | — | 32.39 | 11/03/2009 | |||||||||||||||||||||||||||||
| 14,687 | 313 | 28.78 | 01/02/2010 | |||||||||||||||||||||||||||||
| 4,375 | 625 | 32.32 | 06/01/2010 | |||||||||||||||||||||||||||||
| 1,732 | 518 | 32.02 | 11/01/2010 | |||||||||||||||||||||||||||||
| 11,435 | 3,565 | 35.52 | 11/15/2010 | |||||||||||||||||||||||||||||
| 3,750 | 3,750 | 33.48 | 11/01/2011 | |||||||||||||||||||||||||||||
| 7,394 | (9) | 310,030 | — | — | ||||||||||||||||||||||||||||
| Jerry E. Corbin | — | — | — | — | 4,090 | (10) | 171,494 | — | — | |||||||||||||||||||||||
| (1) | For option awards made to Mr. Essig and option awards made prior to July 26, 2005 to other officers, 25% of the award vests one year after the grant date and the remaining 75% vests monthly thereafter over 36 months. |
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| Option awards made on or after July 26, 2005 to employees other than Mr. Essig vest in four equal annual installments beginning on the first anniversary of the grant date. Options issued to Mr. Essig have a term of 10 years. Options issued to other officers have a term of six years. | ||
| (2) | The option exercise price is equal to the closing price of our common stock as reported by the NASDAQ Global Select Market on the date of grant. | |
| (3) | Market value is calculated by multiplying the number of shares in column (g) by $41.93, the closing price of the Company’s common stock as reported by the NASDAQ Global Select Market on December 31, 2007. | |
| (4) | Market value is calculated by multiplying the number of shares in column (i) by $41.93, the closing price of the Company’s common stock as reported by the NASDAQ Global Select Market on December 31, 2007. | |
| (5) | 500,000 and 750,000 shares of common stock underlying restricted stock units granted to Mr. Essig in 2000 and 2004, respectively, were vested as of the grant date. However, Mr. Essig is not entitled to receive such underlying shares until after December 31, 2007. Therefore, they are shown in the Nonqualified Deferred Compensation Table. | |
| (6) | As of September 6, 2007, all outstanding awards held by Ms. Bellantoni were forfeited as a result of her termination of employment with the Company on that date. | |
| (7) | Consists of 4,366 shares of common stock underlying a performance stock award. The terms of the award provide that these shares will be deliverable as soon as practicable after December 31, 2009 if the performance condition is met. The performance condition was met in 2007. | |
| (8) | Consists of 100,000 shares of common stock underlying a performance stock award. The terms of the award provide that these shares will be deliverable as soon as practicable after December 31, 2008 if the performance condition is met. The performance condition was met in 2006. | |
| (9) | Consists of 2,500 shares of restricted stock that will vest on January 3, 2009, 1,282 shares of restricted stock that will vest on July 3, 2009, and 3,612 shares of restricted stock that will vest on April 2, 2010 (in each case subject to continued employment). | |
| (10) | Consists of 769 shares of restricted stock that will vest on July 3, 2009, 685 shares of restricted stock that will vest on November 1, 2009, and 2,636 shares of restricted stock that will vest on April 2, 2010 (in each case subject to continued employment). |
| Option Awards | Stock Awards | |||||||||||||||
| Number of Shares | Value Realized | Number of Shares | Value Realized | |||||||||||||
| Acquired on Exercise | on Exercise(1) | Acquired on Vesting | on Vesting | |||||||||||||
| Name | (#) | ($) | (#) | ($) | ||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
| Stuart M. Essig | 31,565 | 681,804 | — | — | ||||||||||||
| Maureen B. Bellantoni | — | — | — | — | ||||||||||||
| John B. Henneman, III | 152,000 | 2,954,311 | — | — | ||||||||||||
| Gerard S. Carlozzi | 41,613 | 744,317 | — | — | ||||||||||||
| Judith E. O’Grady | 7,500 | 117,757 | — | — | ||||||||||||
| Jerry E. Corbin | — | — | — | — | ||||||||||||
| (1) | Value realized is calculated on the basis of the difference between the per share exercise price and the market price of the Company’s common stock as reported by the NASDAQ Global Select Market on the date of exercise, multiplied by the number of shares of common stock underlying the options exercised. |
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| Aggregate | ||||||||||||||||||||
| Executive | Registrant | Aggregate | Aggregate | Balance at | ||||||||||||||||
| Contributions in | Contributions in | Earnings | Withdrawals/ | Last Fiscal | ||||||||||||||||
| Last Fiscal Year | Last Fiscal Year | in Last | Distributions | Year-End(1) | ||||||||||||||||
| Name | ($) | ($) | Fiscal Year | ($) | ($) | |||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
| Stuart M. Essig | — | — | — | — | 52,412,500 | |||||||||||||||
| (1) | This represents the year-end value of 500,000 shares of common stock underlying restricted stock units granted in 2000 and 750,000 shares of common stock underlying restricted stock units granted in 2004. These restricted units vested as of the grant date, but Mr. Essig did not have the right to receive the underlying shares of common stock as of December 31, 2007. The 500,000 shares underlying the 2000 grant were delivered to Mr. Essig on March 4, 2008. The 750,000 shares underlying the 2004 grant are deliverable as soon as administratively practicable on or after the first business day that occurs immediately following the6-month period after the date of Mr. Essig’s separation from service from the Company. Mr. Essig has the right to defer the delivery of these shares until June 20, 2029 if certain conditions are met. The aggregate balance shown above is based on the $41.93 closing price of our common stock on December 31, 2007. |
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75
76
77
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| Termination | ||||||||||||||||||||||||
| Without | ||||||||||||||||||||||||
| Cause or | Termination | |||||||||||||||||||||||
| With Good | Without Cause | |||||||||||||||||||||||
| Reason | Upon a | or With Good | ||||||||||||||||||||||
| (Before a | Change in | Reason (After | ||||||||||||||||||||||
| Change in | Non-Renewal | Control (No | a Change in | |||||||||||||||||||||
Named Executive Officer | Control) | of Agreement | Death | Disability | Termination) | Control) | ||||||||||||||||||
Stuart M. Essig | ||||||||||||||||||||||||
| Cash Severance | $ | 1,250,000 | — | $ | 550,000 | $ | 1,100,000 | — | $ | 3,839,000 | ||||||||||||||
| Continued Health & Other Benefits(1) | $ | 29,400 | — | $ | 14,700 | $ | 14,700 | — | $ | 29,400 | ||||||||||||||
| Acceleration of Stock Options | $ | 1,716,973 | $ | 1,716,973 | $ | 1,716,973 | $ | 1,716,973 | $ | 1,716,973 | $ | 1,716,973 | ||||||||||||
| Acceleration of Other Grants(2) | $ | 31,447,500 | $ | 31,447,500 | $ | 31,447,500 | $ | 31,447,500 | $ | 52,412,500 | $ | 52,412,500 | ||||||||||||
| Fees/Interest(3) | — | — | — | — | — | $ | 74,301 | |||||||||||||||||
280GGross-up Amount | — | — | — | — | — | — | ||||||||||||||||||
| Total | $ | 34,443,873 | $ | 33,164,473 | $ | 33,729,173 | $ | 34,279,173 | $ | 54,129,473 | $ | 58,072,174 | ||||||||||||
John B. Henneman, III | ||||||||||||||||||||||||
| Cash Severance | $ | 588,000 | $ | 588,000 | $ | 420,000 | — | — | $ | 1,758,120 | ||||||||||||||
| Continued Health & Other Benefits(1) | $ | 14,700 | $ | 14,700 | $ | 14,700 | — | — | $ | 44,100 | ||||||||||||||
| Acceleration of Stock Options | $ | 658,687 | $ | 658,687 | $ | 658,687 | $ | 658,687 | $ | 658,687 | $ | 658,687 | ||||||||||||
| Acceleration of Other Grants | $ | 4,376,066 | $ | 2,832,404 | $ | 4,376,066 | $ | 4,376,066 | $ | 4,376,066 | $ | 4,376,066 | ||||||||||||
| Fees/Interest(3) | — | — | — | — | — | — | ||||||||||||||||||
280GGross-up Amount | — | — | — | — | — | — | ||||||||||||||||||
| Total | $ | 5,637,453 | $ | 4,093,791 | $ | 5,469,453 | $ | 5,034,753 | $ | 5,034,753 | $ | 6,836,973 | ||||||||||||
Gerard S. Carlozzi | ||||||||||||||||||||||||
| Cash Severance | $ | 588,000 | $ | 588,000 | $ | 420,000 | — | — | $ | 1,758,120 | ||||||||||||||
| Continued Health & Other Benefits(1) | $ | 14,700 | $ | 14,700 | $ | 14,700 | — | — | $ | 44,100 | ||||||||||||||
| Acceleration of Stock Options | $ | 658,642 | $ | 658,642 | $ | 658,642 | $ | 658,642 | $ | 658,642 | $ | 658,642 | ||||||||||||
| Acceleration of Other Grants | $ | 4,376,066 | $ | 2,832,404 | $ | 4,376,066 | $ | 4,376,066 | $ | 4,376,066 | $ | 4,376,066 | ||||||||||||
| Fees/Interest(3) | — | — | — | — | — | — | ||||||||||||||||||
280GGross-up Amount | — | — | — | — | — | $ | 961,373 | |||||||||||||||||
| Total | $ | 5,637,408 | $ | 4,093,746 | $ | 5,469,408 | $ | 5,034,708 | $ | 5,034,708 | $ | 7,798,301 | ||||||||||||
Judith O’Grady | ||||||||||||||||||||||||
| Cash Severance | — | — | — | — | — | $ | 555,433 | |||||||||||||||||
| Continued Health & Other Benefits(1) | — | — | — | — | — | $ | 14,700 | |||||||||||||||||
| Acceleration of Stock Options | — | — | — | — | $ | 69,795 | $ | 69,795 | ||||||||||||||||
| Acceleration of Other Grants | — | — | — | — | $ | 310,030 | $ | 310,030 | ||||||||||||||||
| Fees/Interest | — | — | — | — | — | — | ||||||||||||||||||
280GGross-up Amount | — | — | — | — | — | — | ||||||||||||||||||
| Total | — | — | — | — | $ | 379,825 | $ | 949,958 | ||||||||||||||||
| (1) | The cost of continued participation in the Company’s health and other employee benefit plans for each executive is assumed to be $1,225 per month. | |
| (2) | Includes the value of certain vested and deferred restricted stock units. | |
| (3) | The Essig, Henneman and Carlozzi Agreements provide for reasonable legal fees and expenses that may be incurred by each executive as a result of his termination of employment related to a change in control. However, the table does not include a value for these fees and expenses because they would be incurred only if there is a |
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| dispute under these Agreements. Thus, these amounts are undeterminable. For Mr. Essig only, the $74,301 value represents the interest on his cash severance payment if it is required to be delayed for six months because of the application of section 409A of the Code, with such interest applied at the rate of 3.84% compounded monthly. |
| Fees Earned or | Stock | Option | ||||||||||||||
| Paid in Cash(1) | Awards(2) | Awards(2)(3) | Total | |||||||||||||
| Name | ($) | ($) | ($) | ($) | ||||||||||||
(a) | (b) | (c) | (d) | (h) | ||||||||||||
| Thomas J. Baltimore, Jr.(4) | — | 147,497 | — | 147,497 | ||||||||||||
| Keith Bradley | — | 147,497 | — | 147,497 | ||||||||||||
| Richard E. Caruso | — | 178,328 | — | 178,328 | ||||||||||||
| Neal Moszkowski | — | — | 208,224 | 208,224 | ||||||||||||
| Christian Schade | 26,549 | 27,477 | 130,575 | 184,601 | ||||||||||||
| James M. Sullivan | 9,511 | 147,497 | — | 157,008 | ||||||||||||
| Anne M. VanLent | 19,022 | — | 208,224 | 227,246 | ||||||||||||
| (1) | Includes amounts earned for 2007, but not paid until 2008. | |
| (2) | Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with FAS 123R. Assumptions used in the calculation of these amounts are included in Note 2 of the Company’s financial statements in Item 15 of this Annual Report. However, as required, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. | |
| (3) | The aggregate number of options held by each director as of December 31, 2007 was as follows: Thomas J. Baltimore, Jr. — 0; Keith Bradley — 30,000; Richard E. Caruso — 55,000; Neal Moszkowski — 24,460; Christian Schade - 15,000; James M. Sullivan — 40,000 and Anne M. VanLent — 39,460. All of these options had vested as of such date. No shares of restricted stock were held by any director as of such date. | |
| (4) | Mr. Baltimore joined the Board of Directors on March 5, 2007. |
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| Number of Securities | Weighted-Average | |||||||||||
| to be Issued Upon | Exercise Price of | Number of Securities | ||||||||||
| Exercise of | Outstanding | Remaining Available for | ||||||||||
| Outstanding Options, | Options, Warrants | Future Issuance Under | ||||||||||
Plan Category | Warrants and Rights | and Rights | Equity Compensation Plans(1) | |||||||||
| Equity compensation plans approved by stockholders | 4,391,695 | (2) | $ | 30.81 | (3) | 2,116,168 | (4)(5) | |||||
| Equity compensation plans not approved by stockholders | — | — | — | |||||||||
| Total | 4,391,695 | $ | 30.81 | 2,116,168 | ||||||||
| (1) | Excludes securities to be issued upon the exercise of outstanding options, warrants and rights. | |
| (2) | Consists of (a) 1,251,310 shares of common stock underlying Restricted Stock Units of which 500,000 were converted to shares and distributed on March 4, 2008, (b) 208,732 shares of common stock underlying outstanding performance stock, (c) 13,198 shares of common stock underlying outstanding contract stock and (d) 2,918,455 shares of common stock underlying outstanding options. Of these amounts, the following securities are issuable under the 2003 Plan, (a) 753,518 shares of common stock underlying Restricted Stock Units, (b) 208,732 shares of common stock underlying outstanding performance stock, (c) 10,990 shares of common stock underlying outstanding contract stock and (d) 2,666,091 shares of common stock underlying outstanding options. | |
| (3) | Excluding the Restricted Units, performance stock and contract stock, the weighted average exercise price is $30.81. | |
| (4) | Consists of 1,093,443 shares of common stock which remain available for issuance under the Employee Stock Purchase Plan and 1,022,725 shares which remain available for issuance under the other Approved Plans, including 993,220 shares under the 2003 Plan. The 1998 Stock Option Plan expired on February 26, 2008. Although 2,310 shares remained available for issuance under that plan as of December 31, 2007, no grants were made or shares issued after December 31, 2007 under that plan. | |
| (5) | This number does not include the 750,000 additional shares proposed to be authorized for issuance under the 2003 Equity Incentive Plan as proposed by the Board to be amended, subject to stockholder approval. |
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
| Amount and Nature of | ||||||||
| Beneficial Ownership | ||||||||
| Percent | ||||||||
Name and Address of Beneficial Owner | Shares(1) | of Class | ||||||
| Thomas J. Baltimore, Jr. | 3,293 | * | ||||||
| Keith Bradley, Ph.D. | 36,197 | (2) | * | |||||
| Richard E. Caruso, Ph.D. | 6,711,614 | (3) | 24.6 | % | ||||
| Stuart M. Essig | 2,217,813 | (4) | 7.8 | % | ||||
| Neal Moszkowski | 27,971 | (5) | * | |||||
| Christian S. Schade | 16,223 | (6) | * | |||||
| James M. Sullivan | 69,796 | (7) | * | |||||
| Anne M. VanLent | 40,708 | (8) | * | |||||
| Maureen B. Bellantoni | 0 | * | ||||||
| John B. Henneman, III | 231,775 | (9) | * | |||||
| Gerard S. Carlozzi | 61,785 | (10) | * | |||||
| Jerry E. Corbin | 6,385 | * | ||||||
| Judith E. O’Grady | 79,225 | (11) | * | |||||
| All directors, nominees for director and executive officers as a group (13 persons) | 9,502,785 | (12) | 33.1 | % | ||||
| FMR LLC and Edward C. Johnson 3d | 3,425,735 | (13) | 12.6 | % | ||||
| 82 Devonshire Street | ||||||||
| Boston, MA 02109 | ||||||||
| Provco Leasing Corporation | 6,614,543 | (14) | 24.2 | % | ||||
| 209B Bayard Building | ||||||||
| 3411 Silverside Road | ||||||||
| Wilmington, DE 19810 | ||||||||
| TRU ST PARTNERSHIP, L.P. | 6,591,205 | (15) | 24.1 | % | ||||
| 795 E. Lancaster Avenue, Suite 200 | ||||||||
| Villanova, PA 19085 | ||||||||
| Neuberger Berman Inc., Neuberger Berman, LLC, Neuberger | 2,852,195 | (16) | 10.4 | % | ||||
| Berman Management Inc, and Neuberger Berman Equity Funds | ||||||||
| 605 Third Avenue | ||||||||
| New York, NY 10158 | ||||||||
| T. Rowe Price Associates, Inc. | 2,224,300 | (17) | 8.1 | % | ||||
| 100 E. Pratt Street | ||||||||
| Baltimore, MD 21202 | ||||||||
| William Blair & Company, L.L.C | 1,993,280 | (18) | 7.3 | % | ||||
| 222 W. Adams Street | ||||||||
| Chicago, IL 60606 | ||||||||
| Oz Management LP, Och-Ziff Holding Corporation, Och-Ziff | 1,437,962 | (19) | 5.3 | % | ||||
| Capital Management Group LLC, Daniel S. Och and Oz | ||||||||
| Master Fund, Ltd. | ||||||||
| * | Represents beneficial ownership of less than 1%. |
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| (1) | Shares not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days of May 1, 2008 upon the exercise of an option or other convertible security are treated as outstanding for purposes of determining beneficial ownership and the percentage beneficially owned by such individual. | |
| (2) | Consists of 30,000 shares that Dr. Bradley has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (3) | Includes 6,591,205 shares held by TRU ST PARTNERSHIP, L.P., a Pennsylvania general partnership (“TRU ST”) (also see footnote 15 below). Also includes 23,338 shares held by Provco Leasing Corporation (“Provco”), of which Dr. Caruso is President and sole director and 19,000 shares held by The Uncommon Individual Foundation, of which Dr. Caruso is the Chief Executive Officer. Provco is the corporate general partner of TRU ST. Dr. Caruso may be deemed to have shared voting and dispositive power over the shares held by TRU ST and Provco. Also includes 38,071 shares owned by Dr. Caruso and 40,000 shares that Dr. Caruso has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. Dr. Caruso disclaims beneficial ownership of the shares held by TRU ST, except to the extent of his pecuniary interest therein. Dr. Caruso’s address isc/o TRU ST PARTNERSHIP, L.P, 795 E. Lancaster Avenue, Suite 200, Villanova, PA 19085. | |
| (4) | Includes 963,085 shares that Mr. Essig has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. Excludes outstanding Restricted Units awarded to Mr. Essig in 2004, which entitle him to receive an aggregate of 750,000 shares of common stock. These 750,000 Restricted Units held by Mr. Essig vested on the grant date, but are not yet deliverable and do not give him the right to acquire any shares within 60 days of May 1, 2008. Pursuant to the terms of a forward sale contract entered into with Credit Suisse First Boston Capital LLC on December 14, 2004, Mr. Essig is obligated to deliver to Credit Suisse First Boston Capital LLC on March 28, 2013 between 264,550 and 500,000 shares of common stock (or, at the election of Mr. Essig, the cash equivalent of such shares). Mr. Essig retains voting power over these shares pending the settlement of the forward sale contract. | |
| (5) | Includes 24,460 shares that Mr. Moszkowski has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (6) | Includes 15,000 shares that Mr. Schade has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (7) | Includes 30,000 shares that Mr. Sullivan has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (8) | Includes 39,460 shares that Ms. VanLent has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by her. | |
| (9) | Includes 203,703 shares that Mr. Henneman has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (10) | Includes 58,700 shares that Mr. Carlozzi has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by him. | |
| (11) | Includes 53,600 shares that Ms. O’Grady has the right to acquire within 60 days of May 1, 2008 upon the exercise of options held by her. | |
| (12) | See footnotes 2 through 11 above. | |
| (13) | FMR LLC, a holding company of investment companies, and Edward C. Johnson 3d each report beneficially owning and having sole dispositive power over 3,425,735 shares of which FMC LLC has sole voting power over 864,558 shares. Of the 3,425,735 shares, Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 (the “1940 Act”), is the beneficial owner of 2,499,717 shares as a result of acting as such an investment advisor, Edward C. Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole dispositive power over 2, 499,717 shares owned by the funds. Members of the family of Mr. Johnson, Chairman of FMR LLC, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all |
83
| Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the voting agreement, members of the Johnson family group may be deemed under the 1940 Act to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Mr. Johnson has the sole power to vote or direct the voting of the shares owned directly by the Fidelity funds, which power resides with the fund’s board of trustees. Pyramis Global Advisors, LLC (“PGALLC”), an indirect wholly-owned subsidiary of FMR LLC and an investment advisor registered under the 1940 Act, is the beneficial owner of 120,200 shares as a result of its serving as an investment advisor. Mr. Johnson and FMR LLC, through its control of PGALLC, each has sole dispositive power and sole voting power over 120,200 shares. Pyramis Global Advisors Trust Company (“PGATC”), an indirect wholly-owned subsidiary of FMR LLC and a bank as defined under Section 3(a)(6) of the Exchange Act, is the beneficial owner of 731,609 shares as a result of its serving as an investment manager. Mr. Johnson and FMR LLC, through its control of PGATC, each has sole dispositive power over 731,609 shares and sole voting power over 670,149 shares. Fidelity International Limited (“FIL”) is the beneficial owner of 74,209 shares. Partnerships controlled predominately by members of the family of Mr. Johnson and FIL, or trusts for their benefit, own shares of FIL stock with the right to cast approximately 47% of the total votes which may be cast by all holders of FIL voting stock. FMR LLC and FIL are of the view that they are not acting as a “group” for purposes of Section 13(d) under the Exchange Act. However, FMR LLC made the filing of its Schedule 13G/A on a voluntary basis as if all the shares are beneficially owned by FMR LLC and FIL on a joint basis. The foregoing information has been included solely in reliance upon, and without independent investigation of, the disclosures contained in the Schedule 13G/A filed by FMR LLC with the Securities and Exchange Commission on February 13, 2008. | ||
| (14) | Includes 6,591,205 shares held by TRU ST (see footnote 15 below), of which Provco is the general corporate partner. Provco may be deemed to have shared voting and dispositive power over these shares. | |
| (15) | Pursuant to the terms of a forward sale contract entered into with Credit Suisse First Boston Capital LLC on November 23, 2004, TRU ST is obligated to deliver to Credit Suisse First Boston Capital LLC on January 15, 2013 between 322,581 and 600,000 shares of common stock (or, at the election of TRU ST, the cash equivalent of such shares). TRU ST retains voting power over these shares pending the settlement of the forward sale contract. | |
| (16) | Neuberger Berman Inc. and Neuberger Berman, LLC each have shared dispositive power over all of these shares, shared voting power over 2,415,402 of these shares and sole voting power over 1,600 of these shares Neuberger Berman Management Inc has shared dispositive power over and shared voting power over 2,415,402 of these shares. Neuberger Berman Equity Funds has shared dispositive power over and shared voting power over 2,398,802 of these shares The foregoing information has been included solely in reliance upon, and without independent investigation of, the disclosures contained in the Schedule 13G/A filed by Neuberger Berman Inc., Neuberger Berman, LLC, Neuberger Berman Management Inc, and Neuberger Berman Equity Funds with the Securities and Exchange Commission on February 8, 2008. | |
| (17) | T. Rowe Price Associates, Inc. (“T. Rowe Price”) has sole dispositive power over all of these shares and has sole voting power over 255,200 of these shares. These securities are owned by various individual and institutional investors which T. Rowe Price Associates, Inc. (“Price Associates”) serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The foregoing information has been included solely in reliance upon, and without independent investigation of, the disclosures contained in the Schedule 13G/A filed by T. Rowe Price with the Securities and Exchange Commission on February 14, 2008. | |
| (18) | William Blair & Company, L.L.C. (“William Blair”) has sole dispositive and voting power over all of these shares. The foregoing information has been included solely in reliance upon, and without independent investigation of, the disclosures contained in the Schedule 13G/A filed by William Blair with the Securities and Exchange Commission on January 9, 2008. | |
| (19) | Oz Management LP, Och-Ziff Holding Corporation, Och-Ziff Capital Management Group LLC and Daniel S. Och. have shared dispositive voting power and shared voting power over these shares. Oz Master Fund, Ltd. |
84
| has shared dispositive power and shared voting power over 1,421,231 of these shares. For purposes of the reporting requirements of the Exchange, Oz Management LP, Och-Ziff Holding Corporation, Och-Ziff Capital Management Group LLC, Daniel S. Och and Oz Master Fund, Ltd. may be deemed to be a beneficial owner of such securities; however, each of them expressly disclaims that it or he is, in fact, the beneficial owner of such securities. The foregoing information has been included solely in reliance upon, and without independent investigation of, the disclosures contained in the Schedule 13G filed by Oz Management LP, Och-Ziff Holding Corporation, Och-Ziff Capital Management Group LLC, Daniel S. Och and Oz Master Fund, Ltd with the Securities and Exchange Commission on March 10, 2008. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTONS, AND DIRECTOR INDEPENDENCE |
85
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
| Actual Fees | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
| Audit Fees | $ | 3,805 | $ | 2,174 | ||||
| Audit-Related Fees | 773 | 284 | ||||||
| Total Audit and Audit-Related Fees | $ | 4,578 | $ | 2,458 | ||||
| Tax Fees | 194 | 377 | ||||||
| Total Fees | $ | 4,772 | $ | 2,835 | ||||
43
43
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| 3 | .1(a) | Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1(a) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 3 | .1(b) | Certificate of Amendment to Amended and Restated Certificate of Incorporation dated May 22, 1998 (Incorporated by reference to Exhibit 3.1(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 1998) | ||
44
87
| 3 | .1(c) | Certificate of Amendment to Amended and Restated Certificate of Incorporation dated May 17, 1999 (Incorporated by reference to Exhibit 3.1(c) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 3 | .2 | Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K filed on November 3, 2006) | ||
| 4 | .1 | Indenture, dated as of March 31, 2003, between the Company and Wells Fargo Bank Minnesota, National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2003) | ||
| 4 | .2 | Registration Rights Agreement, dated as of March 31, 2003, between the Company and Credit Suisse First Boston, LLC, Banc of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement onForm S-3 filed on June 30, 2003 (FileNo. 333-106625)) | ||
| 4 | .3(a) | Credit Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on December 29, 2005) | ||
| 4 | .3(b) | First Amendment, dated as of February 15, 2006, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.3(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .3(c) | Second Amendment, dated as of February 23, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on February 27, 2007) | ||
| 4 | .3(d) | Third Amendment, dated as of June 4, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank, N.A., successor by merger to Citibank, FSB, as Syndication Agent and JPMorgan Chase Bank, N.A., Deutsche Bank Trust Company Americas and Royal Bank of Canada, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on June 6, 2007) | ||
| 4 | .3(e) | Fourth Amendment, dated as of September 5, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank, N.A., successor by merger to Citibank FSB, as Syndication Agent and JPMorgan Chase Bank, N.A., Deutsche Bank Trust Company Americas and Royal Bank of Canada, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on September 6, 2007) | ||
| 4 | .4 | Security Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation and the additional grantors party thereto in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .5 | Pledge Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation and the additional grantors party thereto in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .6 | Subsidiary Guaranty Agreement, dated as of December 22, 2005, among the guarantors party thereto and individually as a “Guarantor”), in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.6 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .7 | Indenture, dated as of September 29, 2006, between the Company and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on October 5, 2006) |
4588
| 4 | .8 | Indenture, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Integra LifeSciences Corporation and Wells Fargo Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .9 | Form of 2.75% Senior Convertible Note due 2010 (included in Exhibit 4.8) (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .10 | Indenture, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Integra LifeSciences Corporation and Wells Fargo Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .11 | Form of 2.375% Senior Convertible Note due 2012 (included in Exhibit 4.10) (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .12 | Registration Rights Agreement, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Banc of America Securities LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co., Incorporated, as representatives of the several initial purchasers (Incorporated by reference to Exhibit 4.5 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .13 | Registration Rights Agreement, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Banc of America Securities LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co., Incorporated, as representatives of the several initial purchasers (Incorporated by reference to Exhibit 4.6 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .1(a) | Lease between Plainsboro Associates and American Biomaterials Corporation dated as of April 16, 1985, as assigned to Colla-Tec, Inc. on October 24, 1989 and as amended through November 1, 1992 (Incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form 10/A (FileNo. 0-26224) which became effective on August 8, 1995) | ||
| 10 | .1(b) | Lease Modification #2 entered into as of the 28th day of October, 2005, by and between Plainsboro Associates and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 2, 2005) | ||
| 10 | .2 | Equipment Lease Agreement between Medicus Corporation and the Company, dated as of June 1, 2000 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2000) | ||
| 10 | .3 | Form of Indemnification Agreement between the Company and [ ] dated August 16, 1995, including a schedule identifying the individuals that are a party to such Indemnification Agreements (Incorporated by reference to Exhibit 10.37 to the Company’s Registration Statement onForm S-1 (FileNo. 33-98698) which became effective on January 24, 1996)* | ||
| 10 | .4 | 1993 Incentive Stock Option and Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form 10/A (FileNo. 0-26224) which became effective on August 8, 1995)* | ||
| 10 | .5 | 1996 Incentive Stock Option and Non-Qualified Stock Option Plan (as amended through December 27, 1997) (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .6 | 1998 Stock Option Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .7 | 1999 Stock Option Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .8(a) | Employee Stock Purchase Plan (as amended on May 17, 2004) (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (RegistrationNo. 333-127488) filed on August 12, 2005)* | ||
| 10 | .8(b) | First Amendment to the Company’s Employee Stock Purchase Plan, dated October 26, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 1, 2005)* | ||
| 10 | .9 | 2000 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* |
4689
| 10 | .10 | 2001 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .11 | 2003 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .12(a) | Second Amended and Restated Employment Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2004)* | ||
| 10 | .12(b) | Amendment2006-1, dated as of December 19, 2006, to the Second Amended and Restated Employment Agreement, between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on December 22, 2006)* | ||
| 10 | .12(c) | Amendment2008-1, dated as of March 6, 2008, to the Second Amended and Restated Employment Agreement, between the Company and Stuart M. Essig* | ||
| 10 | .13 | Indemnity letter agreement dated December 27, 1997 from the Company to Stuart M. Essig (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .14(a) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit B of Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .14(b) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .14(c) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit B of Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2004)* | ||
| 10 | .15(a) | Amended and Restated 2005 Employment Agreement between John B. Henneman, III and the Company dated December 19, 2005 (Incorporated by reference to Exhibit 10.16 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .15(b) | Amendment2008-1, dated as of January 2, 2008, to the Amended and Restated 2005 Employment Agreement between John B. Henneman, III and the Company* | ||
| 10 | .16(a) | Amended and Restated 2005 Employment Agreement between Gerard S. Carlozzi and the Company dated December 19, 2005 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .16(b) | Amendment2008-1, dated as of January 2, 2008, to the Amended and Restated 2005 Employment Agreement between Gerard S. Carlozzi and the Company* | ||
| 10 | .17(a) | Severance Agreement between Judith O’Grady and the Company dated as of January 1, 2007 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2006)* | ||
| 10 | .17(b) | Severance Agreement between Judith O’Grady and the Company dated as of January 1, 2008* | ||
| 10 | .18 | Lease Contract, dated April 1, 2005, between the Puerto Rico Industrial Development Company and Integra CI, Inc. (executed on September 15, 2006) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2006) | ||
| 10 | .19(a) | Industrial Real Estate Triple Net Sublease dated July 1, 2001 between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(a) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(b) | First Amendment to Sublease dated as of July 1, 2003 by and between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(c) | Second Amendment to Sublease dated as of June 1, 2004 by and between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(c) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) |
4790
| 10 | .19(d) | Third Amendment to Sublease dated as of June 15, 2004 by and between Sorrento Montana, L.P. and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.24(d) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(e) | Fourth Amendment to Sublease, dated as of August 15, 2006, by and between Sorrento Montana, L.P. and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on August 17, 2006) | ||
| 10 | .20 | Restricted Units Agreement dated December 27, 1997 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .21 | Stock Option Grant and Agreement dated December 22, 2000 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .22 | Stock Option Grant and Agreement dated December 22, 2000 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .23(a) | Restricted Units Agreement dated December 22, 2000 Between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .23(b) | Amendment2006-1, dated as of October 30, 2006, to the Stuart M. Essig Restricted Units Agreement dated as of December 22, 2000 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 3, 2006)* | ||
| 10 | .24 | Stock Option Grant and Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .25(a) | Contract Stock/Restricted Units Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .25(b) | Amendment2006-1, dated as of October��30, 2006, to the Stuart M. Essig Contract Stock/Restricted Units Agreement dated as of July 27, 2004 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on November 3, 2006)* | ||
| 10 | .25(c) | Amendment2008-1, dated as of March 6, 2008, to the Stuart M. Essig Contract Stock/Restricted Units Agreement dated as of July 27, 2004* | ||
| 10 | .26 | Form of Stock Option Grant and Agreement between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .27 | Form of Notice of Grant of Stock Option and Stock Option Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on July 29, 2005)* | ||
| 10 | .28 | Form of Non-Qualified Stock Option Agreement(Non-Directors) (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .29 | Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .30 | Form of Non-Qualified Stock Option Agreement (Directors) (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .31 | Compensation of Directors of the Company (Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2006)* | ||
| 10 | .32 | Form of Restricted Stock Agreement for Non-Employee Directors under the Integra LifeSciences Holdings Corporation 2003 Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on May 17, 2005)* | ||
| 10 | .33 | Form of Restricted Stock Agreement for Executive Officers (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on January 9, 2006)* |
4891
| 10 | .34 | Asset Purchase Agreement, dated as of September 7, 2005, by and between Tyco Healthcare Group LP and Sherwood Services, AG and Integra LifeSciences Corporation and Integra LifeSciences (Ireland) Limited (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on September 13, 2005) | ||
| 10 | .35(a) | Performance Stock Agreement by and between John B. Henneman, III and the Company dated January 3, 2006 (Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .35(b) | Amendment2008-1, dated as of January 2, 2008, to the John B. Henneman, III Performance Stock Agreement, dated as of January 3, 2006* | ||
| 10 | .36(a) | Performance Stock Agreement by and between Gerard S. Carlozzi and the Company dated January 3, 2006 (Incorporated by reference to Exhibit 10.43 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .36(b) | Amendment2008-1, dated as of January 2, 2008, to the Gerard S. Carlozzi Performance Stock Agreement, dated as of January 3, 2006* | ||
| 10 | .37(a) | Form of Performance Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on March 21, 2007)* | ||
| 10 | .37(b) | New Form of Performance Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III* | ||
| 10 | .38 | Employment Agreement by and between Maureen B. Bellantoni and the Company dated January 10, 2006 (Incorporated by reference to Exhibit 10.44 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .39 | Performance Stock Agreement by and between Maureen B. Bellantoni and the Company dated January 10, 2006 (Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .40 | Separation Agreement between Maureen B. Bellantoni and Integra LifeSciences Holdings Corporation dated as of September 6, 2007 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on September 7, 2007) | ||
| 10 | .41 | Stock Purchase Agreement, dated as of April 19, 2006, by and between ASP/Miltex LLC and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on April 25, 2006) | ||
| 10 | .42 | Stock Agreement and Plan of Merger, dated as of June 30, 2006, by and between Integra LifeSciences Corporation, Integra California, Inc., Kinetikos Medical, Inc., Telegraph Hill Partners Management LLC, as Shareholders Representative, and the Shareholders party thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on July 7, 2006) | ||
| 10 | .43(a) | Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2006)* | ||
| 10 | .43(b) | First Amendment to Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2007)* | ||
| 10 | .43(c) | Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan, as amended and restated as of January 1, 2008* | ||
| 10 | .44 | Form of Restricted Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on February 27, 2007)* | ||
| 10 | .45 | Form of 2010 Convertible Bond Hedge Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .46 | Form of 2012 Convertible Bond Hedge Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .47 | Form of 2010 Amended and Restated Issuer Warrant Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report onForm 8-K filed on June 12, 2007) |
92
| 10 | .48 | Form of 2012 Amended and Restated Issuer Warrant Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .49 | Agreement and Plan of Merger among Integra LifeSciences Holdings Corporation, ICE Mergercorp, Inc. and IsoTis, Inc., dated as of August 6, 2007 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on August 7, 2007) | ||
| 21 | Subsidiaries of the Company | |||
| 31 | .1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1 | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2 | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| * | Indicates a management contract or compensatory plan or arrangement. |
4993
| By: /s/ Stuart M. Essig | ||||
Signature | Title | Date | ||||
/s/ Stuart M. Essig Stuart M. Essig | President, Chief Executive Officer and Director (Principal Executive Officer) | |||||
/s/ | Executive Vice President, Finance and Administration and Chief Financial Officer (Principal Financial Officer) | |||||
/s/ Jerry E. Corbin Jerry E. Corbin | Vice President and Corporate Controller (Principal Accounting Officer) | |||||
/s/ Richard E. Caruso, Ph.D. Richard E. Caruso, Ph.D. | Chairman of the Board | |||||
/s/ | Director | |||||
/s/ Keith Bradley, Ph.D. Keith Bradley, Ph.D. | Director | May 16, 2008 | ||||
/s/ Neal Moszkowski Neal Moszkowski | Director | |||||
/s/ Christian Schade Christian Schade | Director | |||||
/s/ James M. Sullivan James M. Sullivan | Director | |||||
/s/ Anne M. VanLent Anne M. VanLent | Director | |||||
50
94
F-1
F-1
F-2
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| In thousands, except per share amounts | ||||||||||||
| Total revenue, net | $ | 550,459 | $ | 419,297 | $ | 277,935 | ||||||
| COSTS AND EXPENSES | ||||||||||||
| Cost of product revenues | 214,674 | 168,314 | 107,052 | |||||||||
| Research and development | 30,658 | 25,732 | 11,960 | |||||||||
| Selling, general and administrative | 225,187 | 157,706 | 98,273 | |||||||||
| Intangible asset amortization | 12,652 | 8,801 | 4,545 | |||||||||
| Total costs and expenses | 483,171 | 360,553 | 221,830 | |||||||||
| Operating income | 67,288 | 58,744 | 56,105 | |||||||||
| Interest income | 3,552 | 2,194 | 3,900 | |||||||||
| Interest expense | (13,749 | ) | (10,620 | ) | (4,165 | ) | ||||||
| Other income (expense), net | 2,971 | (2,010 | ) | (739 | ) | |||||||
| Income before income taxes | 60,062 | 48,308 | 55,101 | |||||||||
| Provision for income taxes | 26,591 | 18,901 | 17,907 | |||||||||
| Net income | $ | 33,471 | $ | 29,407 | $ | 37,194 | ||||||
| Basic net income per share | $ | 1.21 | $ | 1.00 | $ | 1.23 | ||||||
| Diluted net income per share | $ | 1.13 | $ | .97 | $ | 1.15 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 27,712 | 29,300 | 30,195 | |||||||||
| Diluted | 29,578 | 32,747 | 34,565 | |||||||||
| Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Total revenue, net | $ | 419,297 | $ | 277,935 | $ | 229,825 | ||||||
| COSTS AND EXPENSES | ||||||||||||
| Cost of product revenues | 168,314 | 107,052 | 88,496 | |||||||||
| Research and development | 25,732 | 11,960 | 14,121 | |||||||||
| Selling, general and administrative | 157,706 | 98,273 | 99,360 | |||||||||
| Intangible asset amortization | 8,801 | 4,545 | 3,069 | |||||||||
| Total costs and expenses | 360,553 | 221,830 | 205,046 | |||||||||
| Operating income | 58,744 | 56,105 | 24,779 | |||||||||
| Interest income | 2,194 | 3,900 | 4,030 | |||||||||
| Interest expense | (10,620 | ) | (4,165 | ) | (3,475 | ) | ||||||
| Other income (expense), net | (2,010 | ) | (739 | ) | 2,674 | |||||||
| Income before income taxes | 48,308 | 55,101 | 28,008 | |||||||||
| Provision for income taxes | 18,901 | 17,907 | 10,811 | |||||||||
| Net income | $ | 29,407 | $ | 37,194 | $ | 17,197 | ||||||
| Basic net income per share | $ | 1.00 | $ | 1.23 | $ | 0.57 | ||||||
| Diluted net income per share | $ | .97 | $ | 1.15 | $ | 0.55 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 29,300 | 30,195 | 30,064 | |||||||||
| Diluted | 32,747 | 34,565 | 31,102 | |||||||||
F-3
| Year Ended | ||||||||
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| In thousands | ||||||||
ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 57,339 | $ | 22,697 | ||||
| Trade accounts receivable, net of allowances of $7,816 and $4,114 | 103,539 | 85,018 | ||||||
| Inventories, net | 144,535 | 94,387 | ||||||
| Deferred tax assets | 22,254 | 10,010 | ||||||
| Prepaid expenses and other current assets | 12,264 | 9,649 | ||||||
| Total current assets | 339,931 | 221,761 | ||||||
| Property, plant, and equipment, net | 61,730 | 42,559 | ||||||
| Intangible assets, net | 195,766 | 179,716 | ||||||
| Goodwill | 207,438 | 162,414 | ||||||
| Other assets | 13,147 | 7,168 | ||||||
| Total assets | $ | 818,012 | $ | 613,618 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Borrowings under senior credit facility | $ | — | $ | 100,000 | ||||
| Convertible securities | 119,962 | 119,542 | ||||||
| Accounts payable, trade | 23,232 | 20,329 | ||||||
| Deferred revenue | 2,901 | 4,319 | ||||||
| Accrued compensation | 16,877 | 12,454 | ||||||
| Accrued expenses and other current liabilities | 28,699 | 17,373 | ||||||
| Total current liabilities | 191,671 | 274,017 | ||||||
| Long-term convertible securities | 330,000 | 508 | ||||||
| Deferred tax liabilities | 16,052 | 31,356 | ||||||
| Other liabilities | 19,860 | 11,575 | ||||||
| Total liabilities | 557,583 | 317,456 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock; no par value; 15,000 authorized shares; none outstanding | — | — | ||||||
| Common stock; $.01 par value; 60,000 authorized shares; 32,252 and 31,464 issued | 323 | 315 | ||||||
| Additional paid-in capital | 395,266 | 367,277 | ||||||
| Treasury stock, at cost; 6,354 and 4,147 shares | (252,380 | ) | (145,846 | ) | ||||
| Accumulated other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 19,768 | 10,045 | ||||||
| Pension liability adjustment, net of tax | (723 | ) | (1,965 | ) | ||||
| Retained earnings | 98,175 | 66,336 | ||||||
| Total stockholders’ equity | 260,429 | 296,162 | ||||||
| Total liabilities and stockholders’ equity | $ | 818,012 | $ | 613,618 | ||||
| Year Ended | ||||||||
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 22,697 | $ | 46,889 | ||||
| Investments in marketable securities | — | 80,327 | ||||||
| Trade accounts receivable, net of allowances of $4,114 and $3,508 | 85,018 | 49,007 | ||||||
| Inventories, net | 94,387 | 67,476 | ||||||
| Deferred tax assets | 10,010 | 10,842 | ||||||
| Prepaid expenses and other current assets | 9,649 | 11,411 | ||||||
| Total current assets | 221,761 | 265,952 | ||||||
| Investments in marketable securities, non-current | — | 16,168 | ||||||
| Property, plant, and equipment, net | 42,559 | 27,451 | ||||||
| Intangible assets, net | 179,716 | 64,569 | ||||||
| Goodwill | 162,414 | 68,364 | ||||||
| Other assets | 7,168 | 5,928 | ||||||
| Total assets | $ | 613,618 | $ | 448,432 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Borrowings under senior credit facility | $ | 100,000 | $ | — | ||||
| Convertible securities | 119,542 | — | ||||||
| Accounts payable, trade | 20,329 | 8,978 | ||||||
| Income taxes payable | — | 715 | ||||||
| Deferred revenue | 4,319 | 88 | ||||||
| Accrued compensation | 12,454 | 8,761 | ||||||
| Accrued expenses and other current liabilities | 17,373 | 12,745 | ||||||
| Total current liabilities | 274,017 | 31,287 | ||||||
| Long-term convertible securities | 508 | 118,378 | ||||||
| Deferred tax liabilities | 31,356 | 2,520 | ||||||
| Other liabilities | 11,575 | 6,429 | ||||||
| Total liabilities | 317,456 | 158,614 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock; no par value; 15,000,000 authorized shares; none outstanding | — | — | ||||||
| Common stock; $.01 par value; 60,000 authorized shares; 31,464 and 29,823 issued | 315 | 298 | ||||||
| Additional paid-in capital | 367,277 | 333,179 | ||||||
| Treasury stock, at cost; 4,147 and 2,368 shares | (145,846 | ) | (75,815 | ) | ||||
| Accumulated other comprehensive income (loss): | ||||||||
| Unrealized gain (loss) on available-for-sale securities, net of tax | — | (801 | ) | |||||
| Foreign currency translation adjustment | 10,045 | (2,300 | ) | |||||
| Pension liability adjustment, net of tax | (1,965 | ) | (1,672 | ) | ||||
| Retained earnings | 66,336 | 36,929 | ||||||
| Total stockholders’ equity | 296,162 | 289,818 | ||||||
| Total liabilities and stockholders’ equity | $ | 613,618 | $ | 448,432 | ||||
F-4
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| In thousands | ||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 33,471 | $ | 29,407 | $ | 37,194 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 25,627 | 19,018 | 11,313 | |||||||||
| In-process research and development | 4,600 | 5,875 | 500 | |||||||||
| (Gain) loss on sale of assets/investments | (111 | ) | 755 | — | ||||||||
| Amortization of bond issuance costs | 1,412 | 2,096 | 820 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | (1,224 | ) | (1,335 | ) | — | |||||||
| Deferred income tax (benefit) provision | (12,720 | ) | 3,235 | 9,895 | ||||||||
| Amortization of discount/premium on investments | — | 364 | 1,908 | |||||||||
| Share-based compensation | 15,394 | 14,115 | 146 | |||||||||
| Other, net | 791 | 336 | (41 | ) | ||||||||
| Changes in assets and liabilities, net of business acquisitions: | ||||||||||||
| Accounts receivable | (2,841 | ) | (26,131 | ) | 491 | |||||||
| Inventories | (18,591 | ) | 3,461 | (9,984 | ) | |||||||
| Prepaid expenses and other current assets | 616 | (2,465 | ) | 30 | ||||||||
| Other non-current assets | 364 | (799 | ) | (66 | ) | |||||||
| Accounts payable, accrued expenses and other current liabilities | 118 | 14,011 | (1,494 | ) | ||||||||
| Income taxes payable | 1,235 | 7,496 | 6,294 | |||||||||
| Deferred revenue | (3,071 | ) | 2,409 | (158 | ) | |||||||
| Other liabilities | 1,956 | (146 | ) | — | ||||||||
| Net cash provided by operating activities | 47,026 | 71,702 | 56,848 | |||||||||
| INVESTING ACTIVITIES: | ||||||||||||
| Proceeds from the sales of investments | — | 109,872 | 93,315 | |||||||||
| Proceeds from sales of property and equipment | 411 | 689 | — | |||||||||
| Purchases of available for sale investments | — | (13,074 | ) | (65,499 | ) | |||||||
| Purchases of property and equipment | (22,572 | ) | (11,520 | ) | (8,053 | ) | ||||||
| Cash used in acquisitions, net of cash acquired | (100,810 | ) | (228,662 | ) | (50,602 | ) | ||||||
| Net cash (used in) investing activities | (122,971 | ) | (142,695 | ) | (30,839 | ) | ||||||
| FINANCING ACTIVITIES: | ||||||||||||
| Borrowings under senior credit facility | 75,000 | 162,000 | — | |||||||||
| Repayment of loans and credit facility | (175,045 | ) | (63,530 | ) | (245 | ) | ||||||
| Proceeds from issuance of convertible notes | 330,000 | — | — | |||||||||
| Proceeds from sale of stock purchase warrants | 21,662 | — | — | |||||||||
| Purchase option hedge on convertible notes | (46,771 | ) | — | — | ||||||||
| Convertible note issuance and other financing costs | (9,832 | ) | — | (1,132 | ) | |||||||
| Proceeds from exercised stock options and warrants | 18,781 | 15,867 | 9,382 | |||||||||
| Purchases of treasury stock | (106,534 | ) | (70,031 | ) | (56,341 | ) | ||||||
| Excess tax benefits from stock-based compensation arrangements | 1,224 | 1,335 | — | |||||||||
| Net cash provided by (used in) financing activities | 108,485 | 45,641 | (48,336 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | 2,102 | 1,160 | (639 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents | 34,642 | (24,192 | ) | (22,966 | ) | |||||||
| Cash and cash equivalents at beginning of period | 22,697 | 46,889 | 69,855 | |||||||||
| Cash and cash equivalents at end of period | $ | 57,339 | $ | 22,697 | $ | 46,889 | ||||||
| Cash paid during the year for interest | $ | 10,870 | $ | 8,060 | $ | 3,275 | ||||||
| Cash paid during the year for income taxes | 38,664 | 16,395 | 7,721 | |||||||||
| Supplemental non-cash disclosure: | ||||||||||||
| Acquisition fees included in liabilities | $ | 1,478 | $ | — | $ | 1,123 | ||||||
| Property and equipment purchases included in liabilities | 294 | 765 | 199 | |||||||||
| Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 29,407 | $ | 37,194 | $ | 17,197 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 19,018 | 11,313 | 9,087 | |||||||||
| In-process research and development | 5,875 | 500 | — | |||||||||
| Loss on sale of assets/investments | 755 | — | (55 | ) | ||||||||
| Amortization of bond issuance costs | 2,096 | 820 | 821 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | (1,335 | ) | — | — | ||||||||
| Deferred income tax provision | 3,235 | 9,895 | 6,101 | |||||||||
| Amortization of discount/premium on investments | 364 | 1,908 | 2,505 | |||||||||
| Share-based compensation | 14,115 | 146 | 23,572 | |||||||||
| Other, net | 336 | (41 | ) | (70 | ) | |||||||
| Changes in assets and liabilities, net of business acquisitions: | ||||||||||||
| Accounts receivable | (26,131 | ) | 491 | (13,287 | ) | |||||||
| Inventories | 3,461 | (9,984 | ) | (9,738 | ) | |||||||
| Prepaid expenses and other current assets | (2,465 | ) | 30 | (1,949 | ) | |||||||
| Other non-current assets | (799 | ) | (66 | ) | (169 | ) | ||||||
| Accounts payable, accrued expenses and other liabilities | 14,011 | (1,494 | ) | 2,118 | ||||||||
| Income taxes payable | 7,496 | 6,294 | 3,911 | |||||||||
| Deferred revenue | 2,409 | (158 | ) | (110 | ) | |||||||
| Other liabilities | (146 | ) | — | (959 | ) | |||||||
| Net cash provided by operating activities | 71,702 | 56,848 | 38,975 | |||||||||
| INVESTING ACTIVITIES: | ||||||||||||
| Proceeds from the sales of investments | 109,872 | 93,315 | 241,440 | |||||||||
| Proceeds from sales of property and equipment | 689 | — | — | |||||||||
| Purchases of available for sale investments | (13,074 | ) | (65,499 | ) | (190,888 | ) | ||||||
| Purchases of property and equipment | (11,520 | ) | (8,053 | ) | (8,508 | ) | ||||||
| Cash used in acquisitions, net of cash acquired | (228,662 | ) | (50,602 | ) | (29,302 | ) | ||||||
| Net cash (used in)/provided by investing activities | (142,695 | ) | (30,839 | ) | 12,742 | |||||||
| FINANCING ACTIVITIES: | ||||||||||||
| Borrowings under senior credit facility | 162,000 | — | — | |||||||||
| Fees paid in connection with bank line of credit | — | (1,132 | ) | — | ||||||||
| Repayment of bank loans | (63,530 | ) | (245 | ) | — | |||||||
| Proceeds from exercised stock options and warrants | 15,867 | 9,382 | 6,123 | |||||||||
| Purchases of treasury stock | (70,031 | ) | (56,341 | ) | (14,238 | ) | ||||||
| Excess tax benefits from stock-based compensation arrangements | 1,335 | — | — | |||||||||
| Net cash provided by (used in) financing activities | 45,641 | (48,336 | ) | (8,115 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,160 | (639 | ) | 199 | ||||||||
| Net (decrease) increase in cash and cash equivalents | (24,192 | ) | (22,966 | ) | 43,801 | |||||||
| Cash and cash equivalents at beginning of period | 46,889 | 69,855 | 26,054 | |||||||||
| Cash and cash equivalents at end of period | $ | 22,697 | $ | 46,889 | $ | 69,855 | ||||||
| Cash paid during the year for interest | $ | 8,060 | $ | 3,275 | $ | 2,331 | ||||||
| Cash paid during the year for income taxes | 16,395 | 7,721 | 1,789 | |||||||||
| Supplemental non-cash disclosure: | ||||||||||||
| Acquisition fees included in liabilities | $ | — | $ | 1,123 | $ | — | ||||||
| Property and equipment purchases included in liabilities | 765 | 199 | 969 | |||||||||
F-5
| Accumulated | ||||||||||||||||||||||||||||
| Other | Retained | |||||||||||||||||||||||||||
| Additional | Comprehensive | Earnings / | ||||||||||||||||||||||||||
| Preferred | Common | Treasury | Paid-In | Income | (Accumulated | Total | ||||||||||||||||||||||
| Stock | Stock | Stock | Capital | (Loss) | Deficit) | Equity | ||||||||||||||||||||||
| In thousands | ||||||||||||||||||||||||||||
| Balance, December 31, 2004 | $ | — | $ | 292 | $ | (19,474 | ) | $ | 320,602 | $ | 6,668 | $ | (265 | ) | $ | 307,823 | ||||||||||||
| Net income | 37,194 | 37,194 | ||||||||||||||||||||||||||
| Realized gains on investments | 18 | 18 | ||||||||||||||||||||||||||
| Unrealized losses on investments, net of tax | (1 | ) | (1 | ) | ||||||||||||||||||||||||
| Foreign currency translation | (11,375 | ) | (11,375 | ) | ||||||||||||||||||||||||
| Minimum pension liability adjustment, net of tax | (83 | ) | (83 | ) | ||||||||||||||||||||||||
| Total comprehensive income | $ | 25,753 | ||||||||||||||||||||||||||
| Issuance of 621 shares of common stock through employee benefit plans | 6 | 9,170 | 9,176 | |||||||||||||||||||||||||
| Share-based compensation | 146 | 146 | ||||||||||||||||||||||||||
| Tax benefit related to stock option exercises and issuance of restricted stock | 3,261 | 3,261 | ||||||||||||||||||||||||||
| Repurchase 1,650 shares of common stock | (56,341 | ) | (56,341 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2005 | $ | — | $ | 298 | $ | (75,815 | ) | $ | 333,179 | $ | (4,773 | ) | $ | 36,929 | $ | 289,818 | ||||||||||||
| Net income | 29,407 | 29,407 | ||||||||||||||||||||||||||
| Realized gains on investments | 254 | 254 | ||||||||||||||||||||||||||
| Reversal of Unrealized losses on investments, net of tax | 547 | 547 | ||||||||||||||||||||||||||
| Foreign currency translation | 12,345 | 12,345 | ||||||||||||||||||||||||||
| Minimum pension liability adjustment, net of tax | (293 | ) | (293 | ) | ||||||||||||||||||||||||
| Total comprehensive income | $ | 42,260 | ||||||||||||||||||||||||||
| Issuance of 1,649 shares of common stock through employee benefit plans | 17 | 15,888 | 15,905 | |||||||||||||||||||||||||
| Tax benefit related to stock option exercises and issuance of restricted stock | 3,237 | 3,237 | ||||||||||||||||||||||||||
| Share-based compensation | 14,973 | 14,973 | ||||||||||||||||||||||||||
| Repurchase 1,779 shares of common stock | (70,031 | ) | (70,031 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2006 | $ | — | $ | 315 | $ | (145,846 | ) | $ | 367,277 | $ | 8,080 | $ | 66,336 | $ | 296,162 | |||||||||||||
| Accumu- | |||||||||||||||||||||||||||||||||
| lated | Retained | ||||||||||||||||||||||||||||||||
| Other | Earnings / | ||||||||||||||||||||||||||||||||
| Additional | Compre- | (Accumu- | |||||||||||||||||||||||||||||||
| Preferred | Common | Treasury | Paid-In | hensive | lated | Total | |||||||||||||||||||||||||||
| Stock | Stock | Stock | Capital | Other | Income (Loss) | Deficit) | Equity | ||||||||||||||||||||||||||
| Balance, December 31, 2003 | $ | — | $ | 286 | $ | (5,236 | ) | $ | 286,716 | $ | (5 | ) | $ | 4,231 | $ | (17,462 | ) | $ | 268,530 | ||||||||||||||
| Net income | 17,197 | 17,197 | |||||||||||||||||||||||||||||||
| Realized gains on investments | 88 | 88 | |||||||||||||||||||||||||||||||
| Unrealized losses on investments, net of tax | (969 | ) | (969 | ) | |||||||||||||||||||||||||||||
| Foreign currency translation | 3,683 | 3,683 | |||||||||||||||||||||||||||||||
| Minimum pension liability adjustment, net of tax | (365 | ) | (365 | ) | |||||||||||||||||||||||||||||
| Total comprehensive income | $ | 19,634 | |||||||||||||||||||||||||||||||
| Issuance of 592 shares of common stock through employee benefit plans | 6 | 6,492 | 6,498 | ||||||||||||||||||||||||||||||
| Issuance of contract stock unit award for 750 shares of common stock | 23,535 | 23,535 | |||||||||||||||||||||||||||||||
| Other share-based compensation | 30 | 5 | 35 | ||||||||||||||||||||||||||||||
| Tax benefit related to stock option exercises | 3,829 | 3,829 | |||||||||||||||||||||||||||||||
| Repurchase 500 shares of common stock | (14,238 | ) | (14,238 | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2004 | $ | — | $ | 292 | $ | (19,474 | ) | $ | 320,602 | $ | — | $ | 6,668 | $ | (265 | ) | $ | 307,823 | |||||||||||||||
| Net income | 37,194 | 37,194 | |||||||||||||||||||||||||||||||
| Realized gains on investments | 18 | 18 | |||||||||||||||||||||||||||||||
| Unrealized losses on investments, net of tax | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||
| Foreign currency translation | (11,375 | ) | (11,375 | ) | |||||||||||||||||||||||||||||
| Minimum pension liability adjustment, net of tax | (83 | ) | (83 | ) | |||||||||||||||||||||||||||||
| Total comprehensive income | $ | 25,753 | |||||||||||||||||||||||||||||||
| Issuance of 621 shares of common stock through employee benefit plans | 6 | 9,170 | 9,176 | ||||||||||||||||||||||||||||||
| Share-based compensation | 146 | 146 | |||||||||||||||||||||||||||||||
| Tax benefit related to stock option exercises | 3,261 | 3,261 | |||||||||||||||||||||||||||||||
| Repurchase 1,650 shares of common stock | (56,341 | ) | (56,341 | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2005 | $ | — | $ | 298 | $ | (75,815 | ) | $ | 333,179 | $ | — | $ | (4,773 | ) | $ | 36,929 | $ | 289,818 | |||||||||||||||
| Net income | 29,407 | 29,407 | |||||||||||||||||||||||||||||||
| Realized gains on investments | 254 | 254 | |||||||||||||||||||||||||||||||
| Reversal of unrealized losses on investments, net of tax | 547 | 547 | |||||||||||||||||||||||||||||||
| Foreign currency translation | 12,345 | 12,345 | |||||||||||||||||||||||||||||||
| Pension liability adjustment, net of tax | (293 | ) | (293 | ) | |||||||||||||||||||||||||||||
| Total comprehensive income | $ | 42,260 | |||||||||||||||||||||||||||||||
| Issuance of 1,649 shares of common stock through employee benefit plans | 17 | 15,888 | 15,905 | ||||||||||||||||||||||||||||||
| Tax benefit related to stock option exercises | 3,237 | 3,237 | |||||||||||||||||||||||||||||||
| Share-based compensation | 14,973 | 14,973 | |||||||||||||||||||||||||||||||
| Repurchase 1,779 shares of common stock | (70,031 | ) | (70,031 | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2006 | $ | — | $ | 315 | $ | (145,846 | ) | $ | 367,277 | $ | — | $ | 8,080 | $ | 66,336 | $ | 296,162 | ||||||||||||||||
F-6
| Accumulated | ||||||||||||||||||||||||||||
| Other | Retained | |||||||||||||||||||||||||||
| Additional | Comprehensive | Earnings / | ||||||||||||||||||||||||||
| Preferred | Common | Treasury | Paid-In | Income | (Accumulated | Total | ||||||||||||||||||||||
| Stock | Stock | Stock | Capital | (Loss) | Deficit) | Equity | ||||||||||||||||||||||
| In thousands | ||||||||||||||||||||||||||||
| Balance, December 31, 2006 | $ | — | $ | 315 | $ | (145,846 | ) | $ | 367,277 | $ | 8,080 | $ | 66,336 | $ | 296,162 | |||||||||||||
| Net income | 33,471 | 33,471 | ||||||||||||||||||||||||||
| Foreign currency translation | 9,723 | 9,723 | ||||||||||||||||||||||||||
| Minimum pension liability adjustment, net of tax | 1,242 | 1,242 | ||||||||||||||||||||||||||
| Total comprehensive income | $ | 44,436 | ||||||||||||||||||||||||||
| Issuance of 788 shares of common stock through employee benefit plans | 8 | 18,528 | 18,536 | |||||||||||||||||||||||||
| Tax benefit related to call options on convertible notes | 17,542 | 17,542 | ||||||||||||||||||||||||||
| Tax benefit related to stock option exercises and issuance of restricted stock | 3,087 | 3,087 | ||||||||||||||||||||||||||
| Share-based compensation | 15,478 | 15,478 | ||||||||||||||||||||||||||
| Repurchase 2,207 shares of common stock | (106,534 | ) | (106,534 | ) | ||||||||||||||||||||||||
| Purchase option hedge on convertible notes | (46,771 | ) | (46,771 | ) | ||||||||||||||||||||||||
| Sale of stock purchase warrants | 21,662 | 21,662 | ||||||||||||||||||||||||||
| Equity portion of debt issuance costs | (1,573 | ) | (1,573 | ) | ||||||||||||||||||||||||
| Cumulative effect of the adoption of FIN 48 | (1,632 | ) | (1,632 | ) | ||||||||||||||||||||||||
| Convertible note share conversion | 36 | 36 | ||||||||||||||||||||||||||
| Balance, December 31, 2007 | $ | — | $ | 323 | $ | (252,380 | ) | $ | 395,266 | $ | 19,045 | $ | 98,175 | $ | 260,429 | |||||||||||||
F-7
| 1. | BUSINESS |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-8
F-7
| Unrealized | ||||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| 2005 | ||||||||||||||||
| Marketable Securities, current | ||||||||||||||||
| Corporate Debt Securities | $ | 37,248 | $ | — | $ | (372 | ) | $ | 36,876 | |||||||
| Auction Rate Securities | 2,650 | — | — | 2,650 | ||||||||||||
| U.S. Government Debt Securities | 39,201 | — | (427 | ) | 38,774 | |||||||||||
| Other Securities | 2,054 | — | (27 | ) | 2,027 | |||||||||||
| Total marketable securities, current | $ | 81,153 | $ | — | $ | (826 | ) | $ | 80,327 | |||||||
| Marketable Securities, non-current | ||||||||||||||||
| Corporate Debt Securities | $ | 10,330 | $ | — | $ | (277 | ) | $ | 10,053 | |||||||
| U.S. Government Debt Securities | 6,252 | — | (137 | ) | 6,115 | |||||||||||
| Total marketable securities, non-current | $ | 16,582 | $ | — | $ | (414 | ) | $ | 16,168 | |||||||
F-8
| December 31, | ||||||||||||||||
| December 31, | 2007 | 2006 | ||||||||||||||
| 2006 | 2005 | (In thousands) | ||||||||||||||
| (in thousands) | ||||||||||||||||
| Finished goods | $ | 74,324 | $ | 51,970 | $ | 103,172 | $ | 74,324 | ||||||||
| Work in process | 14,416 | 9,895 | 27,812 | 14,416 | ||||||||||||
| Raw materials | 20,433 | 15,379 | 37,639 | 20,433 | ||||||||||||
| Less: reserves | (14,786 | ) | (9,768 | ) | (24,088 | ) | (14,786 | ) | ||||||||
| Total inventories, net | $ | 94,387 | $ | 67,476 | $ | 144,535 | $ | 94,387 | ||||||||
F-9
F-9
| December 31 | ||||||||||||||||||||||||
| December 31 | 2007 | 2006 | Lives | |||||||||||||||||||||
| 2006 | 2005 | Lives | (In thousands) | |||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Land | $ | 1,405 | $ | 890 | $ | 1,861 | $ | 1,405 | ||||||||||||||||
| Buildings | 3,762 | 3,433 | 30-40 years | 6,187 | 3,762 | 30-40 years | ||||||||||||||||||
| Leasehold improvements | 18,364 | 11,775 | 2-22 years | 24,035 | 18,364 | 2-22 years | ||||||||||||||||||
| Machinery and equipment | 26,108 | 20,732 | 2-15 years | 31,950 | 26,108 | 2-15 years | ||||||||||||||||||
| Furniture, fixtures and information systems | 25,279 | 15,310 | 3-10 years | 33,671 | 25,279 | 3-10 years | ||||||||||||||||||
| Construction in progress | 5,818 | 2,007 | 11,061 | 5,818 | ||||||||||||||||||||
| Total | 80,736 | 54,147 | 108,765 | 80,736 | ||||||||||||||||||||
| Less: Accumulated depreciation | (38,177 | ) | (26,696 | ) | (47,035 | ) | (38,177 | ) | ||||||||||||||||
| $ | 42,559 | $ | 27,451 | $ | 61,730 | $ | 42,559 | |||||||||||||||||
F-10
| 2006 | 2005 | |||||||
| (in thousands) | ||||||||
| Goodwill, beginning of year | $ | 68,364 | $ | 39,237 | ||||
| Radionics acquisition | 21,054 | — | ||||||
| Newdeal working capital adjustment | 694 | — | ||||||
| Miltex acquisition | 43,018 | — | ||||||
| Kinetikos Medical acquisition | 23,089 | — | ||||||
| Newdeal acquisition | — | 35,668 | ||||||
| Foreign currency translation and other | 6,195 | (6,541 | ) | |||||
| Goodwill, end of year | $ | 162,414 | $ | 68,364 | ||||
F-10
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
| Goodwill, beginning of year | $ | 162,414 | $ | 68,364 | ||||
| Denlite acquisition | 207 | — | ||||||
| Luxtec/LXU acquisition | 8,667 | — | ||||||
| Physician Industries acquisition | 1,218 | — | ||||||
| IsoTis acquisition | 27,547 | — | ||||||
| Precision Dental acquisition | 4,468 | — | ||||||
| Miltex working capital adjustments | 1,028 | — | ||||||
| CML earnout payment adjustment | 682 | — | ||||||
| Radionics working capital adjustment | (2,132 | ) | — | |||||
| Radionics acquisition | — | 21,054 | ||||||
| Newdeal working capital adjustment | — | 694 | ||||||
| Miltex acquisition | — | 43,018 | ||||||
| Kinetikos Medical acquisition | — | 23,089 | ||||||
| Foreign currency translation and other | 3,339 | 6,195 | ||||||
| Goodwill, end of year | $ | 207,438 | $ | 162,414 | ||||
| Weighted | December 31, 2007 | December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted | December 31, 2006 | December 31, 2005 | Average | Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Accumulated | Accumulated | Life | Cost | Amortization | Net | Cost | Amortization | Net | |||||||||||||||||||||||||||||||||||||||||||||||
| Life | Cost | Amortization | Net | Cost | Amortization | Net | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Completed technology | 13 years | $ | 35,632 | $ | (8,573 | ) | $ | 27,059 | $ | 18,921 | $ | (5,691 | ) | $ | 13,230 | 13 years | $ | 51,673 | $ | (11,663 | ) | $ | 40,010 | $ | 35,632 | $ | (8,573 | ) | $ | 27,059 | ||||||||||||||||||||||||||
| Customer relationships | 12 years | 67,872 | (10,671 | ) | 57,201 | 22,550 | (4,823 | ) | 17,727 | 12 years | 75,719 | (17,548 | ) | 58,171 | 67,872 | (10,671 | ) | 57,201 | ||||||||||||||||||||||||||||||||||||||
| Trademarks/brand names | 34 years | 35,350 | (4,029 | ) | 31,321 | 31,175 | (2,802 | ) | 28,373 | 34 years | 40,769 | (5,202 | ) | 35,567 | 35,350 | (4,029 | ) | 31,321 | ||||||||||||||||||||||||||||||||||||||
| Trademarks/brand names | Indefinite | 31,600 | — | 31,600 | — | — | — | Indefinite | 31,600 | — | 31,600 | 31,600 | — | 31,600 | ||||||||||||||||||||||||||||||||||||||||||
| Noncompetition agreement | 5 years | 7,151 | (4,079 | ) | 3,072 | 6,943 | (2,607 | ) | 4,336 | 5 years | 6,504 | (4,486 | ) | 2,018 | 7,151 | (4,079 | ) | 3,072 | ||||||||||||||||||||||||||||||||||||||
| Supplier relationships | 30 years | 29,300 | (620 | ) | 28,680 | 30 years | 29,300 | (1,595 | ) | 27,705 | 29,300 | (620 | ) | 28,680 | ||||||||||||||||||||||||||||||||||||||||||
| All other | 15 years | 1,620 | (837 | ) | 783 | 2,233 | (1,330 | ) | 903 | 15 years | 1,531 | (836 | ) | 695 | 1,620 | (837 | ) | 783 | ||||||||||||||||||||||||||||||||||||||
| $ | 208,525 | $ | (28,809 | ) | $ | 179,716 | $ | 81,822 | $ | (17,253 | ) | $ | 64,569 | $ | 237,096 | $ | (41,330 | ) | $ | 195,766 | $ | 208,525 | $ | (28,809 | ) | $ | 179,716 | |||||||||||||||||||||||||||||
F-11
F-11
F-12
F-12
F-13
| December 31, | ||||||||||||||||
| December 31, | 2007 | 2006 | ||||||||||||||
| 2006 | 2005 | (In thousands) | ||||||||||||||
| (in thousands) | ||||||||||||||||
| Beginning balance | $ | 696 | $ | 748 | $ | 1,325 | $ | 696 | ||||||||
| Liability acquired through acquisition | 358 | — | 21 | 358 | ||||||||||||
| Charged to expense | 300 | 191 | ||||||||||||||
| Change in estimate | (323 | ) | 300 | |||||||||||||
| Deductions | (29 | ) | (243 | ) | (253 | ) | (29 | ) | ||||||||
| $ | 1,325 | $ | 696 | $ | 770 | $ | 1,325 | |||||||||
F-13
F-14
F-14
| �� | ||||||||||||
| Year Ended | Year Ended | |||||||||||
| Year ended December 31, 2006 | December 31, 2007 | December 31, 2006 | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Research and development expense | $ | 639 | $ | 732 | $ | 639 | ||||||
| Selling, general and administrative | 13,161 | 14,341 | 13,161 | |||||||||
| Amortization of amounts previously capitalized to inventory | 315 | 321 | 315 | |||||||||
| Total employee stock-based compensation expense | 14,115 | 15,394 | 14,115 | |||||||||
| Total tax benefit related to employee stock-based compensation expense | 5,376 | 4,550 | ||||||||||
| Tax benefit related to employee stock-based compensation expense | 4,550 | |||||||||||
| Net effect on net income | $ | 9,565 | $ | 10,018 | $ | 9,565 | ||||||
| Effect on earnings per share: | ||||||||||||
| Basic | $ | 0.33 | ||||||||||
| Diluted | $ | 0.29 | ||||||||||
F-15
| Fiscal year ended December 31, | ||||||||
| 2005 | 2004 | |||||||
| (in thousands, except per share amounts) | ||||||||
| Net income: | ||||||||
| As reported | $ | 37,194 | $ | 17,197 | ||||
| Add back: Total share-based employee compensation expense determined under the intrinsic value-based method for all awards, net of related tax effects | 103 | 15,372 | ||||||
| Less: Total share-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects | (7,264 | ) | (21,799 | ) | ||||
| Pro forma | $ | 30,033 | $ | 10,770 | ||||
| Net income per share: | ||||||||
| Basic | ||||||||
| As reported | $ | 1.23 | $ | 0.57 | ||||
| Pro forma | $ | 0.99 | $ | 0.36 | ||||
| Diluted | ||||||||
| As reported | $ | 1.15 | $ | 0.55 | ||||
| Pro forma | $ | 0.94 | $ | 0.35 | ||||
F-15
| Fiscal Year Ended | ||||
| December 31, 2005 | ||||
| (In thousands, except | ||||
| per share amounts) | ||||
| Net income: | ||||
| As reported | $ | 37,194 | ||
| Add back: Total share-based employee compensation expense determined under the intrinsic value-based method for all awards, net of related tax effects | 103 | |||
| Less: Total share-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects | (7,264 | ) | ||
| Pro forma | $ | 30,033 | ||
| Net income per share: | ||||
| Basic | ||||
| As reported | $ | 1.23 | ||
| Pro forma | $ | 0.99 | ||
| Diluted | ||||
| As reported | $ | 1.15 | ||
| Pro forma | $ | 0.94 | ||
F-16
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||||
| Expected volatility | 39 | %(1) | 43 | % | 48 | % | 32 | % | 39 | %(1) | 43 | % | ||||||||||||
| Risk free interest rate | 4.3 to 5.1 | %(2) | 3.8 | % | 3.2 | % | ||||||||||||||||||
| Risk free interest rate(2) | 3.19 to 5.20 | % | 4.3 to 5.1 | % | 3.8 | % | ||||||||||||||||||
| Expected life of option from grant date | 6.1 years | 5.4 years | 4.7 years | 6.6 years | 6.1 years | 5.4 years | ||||||||||||||||||
| (1) | A volatility rate of 39% in 2006 that decreases 1% in each subsequent year for the length of the term was used. | |
| (2) | Risk free interest rates ranged based on the duration of the grant. |
F-16
F-17
F-18
F-17
| 3. | ACQUISITIONS |
F-19
| Cash | $ | 25 | ||||
| Inventory | 3,243 | |||||
| Accounts receivable | 820 | |||||
| Other current assets | 65 | |||||
| Property, plant and equipment | 603 | |||||
| Other assets | 10 | |||||
| Intangible assets: | Wtd. Avg. Life | |||||
| Technology | 421 | 15 years | ||||
| Customer relationships | 2,971 | 15 years | ||||
| Noncompetition agreements | 100 | 5 years | ||||
| Trade name | 285 | 20 years | ||||
| Goodwill | 4,468 | |||||
| Total assets acquired | 13,011 | |||||
| Accounts payable and other current liabilities | 594 | |||||
| Deferred tax liability | 1,625 | |||||
| Total liabilities assumed | 2,219 | |||||
| Net assets acquired | $ | 10,792 | ||||
F-20
| Cash | $ | 10,666 | ||||
| Inventory | 17,796 | |||||
| Other current assets | 10,502 | |||||
| Property and equipment, net | 3,841 | |||||
| Intangible assets: | Wtd. Avg. Life | |||||
| Developed product technology — Generation I | 3,400 | 10 years | ||||
| Developed product technology — Generation II | 11,000 | 15 years | ||||
| In-process research and development | 4,600 | Expensed immediately | ||||
| Goodwill | 27,547 | |||||
| Other assets | 500 | |||||
| Total assets acquired | 89,852 | |||||
| Current liabilities | 16,209 | |||||
| Deferred revenue and other liabilities | 5,256 | |||||
| Total liabilities | 21,465 | |||||
| Net assets acquired | $ | 68,387 | ||||
F-21
| Inventory | $ | 1,063 | ||||
| Accounts receivable | 926 | |||||
| Property, plant and equipment | 81 | |||||
| Intangible assets: | Wtd. Avg. Life | |||||
| Customer relationships | 1,191 | 10 years | ||||
| Noncompetition agreements | 100 | 5 years | ||||
| Trade name | 57 | <1 year | ||||
| Goodwill | 1,218 | |||||
| Total assets acquired | 4,636 | |||||
| Accounts payable and other current liabilities | 538 | |||||
| Total liabilities assumed | 538 | |||||
| Net assets acquired | $ | 4,098 | ||||
| • | Luxtec — The market-leading manufacturer of fiber optic headlight systems for the medical industry through its Luxtec® brand. The Luxtec products are manufactured in a 31,000 square foot leased facility located in West Boylston. | |
| • | LXU Medical — A leading specialty surgical products distributor with a sales force calling on surgeons and key clinical decision makers, covering 18,000 operating rooms in the southeastern, midwestern and mid-Atlantic United States. LXU Medical is the exclusive distributor of the Luxtec fiber optic headlight systems in these territories. | |
| • | Bimeco — A critical care products distributor with direct sales coverage in the southeastern United States. |
F-22
| Inventory | $ | 7,700 | ||||
| Accounts receivable | 4,932 | |||||
| Cash | 1,059 | |||||
| Other current assets | 322 | |||||
| Property, plant and equipment | 1,600 | |||||
| Intangible assets: | Wtd. Avg. Life | |||||
| Customer relationships | 3,100 | 15 years | ||||
| Trade name (Luxtec) | 4,700 | Indefinite | ||||
| Technology | 1,700 | 5 years | ||||
| Goodwill | 8,666 | |||||
| Other assets | 1,448 | |||||
| Total assets acquired | 35,227 | |||||
| Accounts payable and other current liabilities | 4,938 | |||||
| Other non-current liabilities | 224 | |||||
| Total liabilities assumed | 5,162 | |||||
| Net assets acquired | $ | 30,065 | ||||
| Inventory | $ | 454 | ||||
| Property, plant and equipment | 339 | |||||
| Intangible assets: | Wtd. Avg. Life | |||||
| Trade name | 642 | 20 years | ||||
| Customer relationships | 450 | 10 years | ||||
| Patents | 143 | 5 years | ||||
| Goodwill | 207 | |||||
| Total assets acquired | $ | 2,235 | ||||
F-23
| Inventory | $ | 8,201 | ||||||
| Property, plant and equipment | 1,365 | |||||||
| Wtd. Avg. Life | ||||||||
| Intangible Assets: | ||||||||
| Tradename | 18,100 | Indefinite | ||||||
| Customer relationships | 20,900 | 7 years | ||||||
| Technology | 10,000 | 10 years | ||||||
| Goodwill | 21,054 | �� | ||||||
| Other Assets | 72 | |||||||
| Total assets acquired | 79,692 | |||||||
| Accrued expenses and other current liabilities | 425 | |||||||
| Deferred revenue | 1,605 | |||||||
| Total liabilities assumed | 2,030 | |||||||
| Net assets acquired | $ | 77,662 | ||||||
F-18
| Inventory | $ | 16,775 | ||||||
| Other current assets | 8,049 | |||||||
| Property, plan and equipment | 7,699 | |||||||
| Wtd. Avg. Life | ||||||||
| Intangible Assets: | ||||||||
| Customer relationships | 13,100 | 15 years | ||||||
| Tradename (Miltex) | 13,500 | Indefinite | ||||||
| Tradename (Moyco, Union Broach, Thompson) | 300 | 4 years | ||||||
| Tradename (other product lines) | 600 | 15 years | ||||||
| Technology | 1,100 | 10 years | ||||||
| Supplier relationships | 29,300 | 30 years | ||||||
| Goodwill | 43,018 | |||||||
| Other Assets | 219 | |||||||
| Total assets acquired | 133,660 | |||||||
| Accrued expenses and other current liabilities | 3,988 | |||||||
| Deferred tax liabilities | 20,674 | |||||||
| Other non-current liabilities | 5,667 | |||||||
| Total liabilities assumed | 30,329 | |||||||
| Net assets acquired | $ | 103,331 | ||||||
F-24
F-19
| Inventory | $ | 1,576 | ||||||
| Other current Assets | 1,121 | |||||||
| Wtd. Avg. Life | ||||||||
| Intangible Assets: | ||||||||
| Customer relationships | 4,722 | 10 years | ||||||
| Tradename | 2,756 | 15 years | ||||||
| Non-compete | 90 | 5 years | ||||||
| Goodwill | — | |||||||
| Other Assets | 21 | |||||||
| Total assets acquired | 10,286 | |||||||
| Accrued expenses and other current liabilities | 730 | |||||||
| Deferred liabilities | 671 | |||||||
| Deferred tax liabilities | 2,737 | |||||||
| Total liabilities assumed | 4,138 | |||||||
| Net assets acquired | $ | 6,148 | ||||||
F-20
| Inventory | $ | 2,208 | ||||||
| Other current Assets | 2,801 | |||||||
| Property, plant and equipment | 1,646 | |||||||
| Wtd. Avg. Life | ||||||||
| Intangible Assets: | ||||||||
| Customer relationships | 6,100 | 3.5 years | ||||||
| Tradename (MBA, UNI2) | 300 | 5 years | ||||||
| Developed technology patents | 4,350 | 15 years | ||||||
| In-process research and development | 5,875 | Expensed immediately | ||||||
| Goodwill | 23,089 | |||||||
| Other Assets | 1,260 | |||||||
| Total assets acquired | 47,629 | |||||||
| Accrued expenses and other current liabilities | 1,933 | |||||||
| Deferred tax liabilities | 3,953 | |||||||
| Total liabilities assumed | 5,886 | |||||||
| Net assets acquired | $ | 41,743 | ||||||
F-25
F-21
F-22
| Newdeal | Canada | Kinetikos | ||||||||||||||||||
| (All amounts in thousands) | Radionics | Miltex | Microsurgical Ltd | Medical Inc | ||||||||||||||||
| 2005 Acquisitions | ||||||||||||||||||||
| (All amounts in thousands) | ||||||||||||||||||||
| 2006 Acquisitions | ||||||||||||||||||||
| Current assets | $ | 10,925 | $ | 8,201 | $ | 24,824 | $ | 2,697 | $ | 5,009 | ||||||||||
| Property, plant and equipment | 1,026 | 1,365 | 7,699 | — | 1,646 | |||||||||||||||
| Intangible assets | 13,090 | 49,000 | 57,900 | 7,568 | 16,625 | |||||||||||||||
| Goodwill | 35,668 | 18,961 | 44,046 | 632 | 23,089 | |||||||||||||||
| Other assets | 38 | 72 | 219 | 21 | 1,260 | |||||||||||||||
| Total assets acquired | 60,747 | 77,599 | 134,688 | 10,918 | 47,629 | |||||||||||||||
| Liabilities assumed, excluding debt | 7,560 | |||||||||||||||||||
| Debt assumed | 530 | |||||||||||||||||||
| Current liabilities | 425 | 3,988 | 730 | 1,933 | ||||||||||||||||
| Deferred tax liabilities | — | 21,049 | 2,737 | 3,953 | ||||||||||||||||
| Other non-current liabilities | 1,605 | 5,667 | 671 | — | ||||||||||||||||
| Total liabilities assumed | 2,030 | 30,704 | 4,138 | 5,886 | ||||||||||||||||
| Net assets acquired | $ | 52,657 | $ | 75,569 | $ | 103,984 | $ | 6,780 | $ | 41,743 | ||||||||||
F-26
| Amount | Estimated useful life | |||||||
| Tradename | $ | 2,926 | 37 years | |||||
| Customer relationships | 6,032 | 10 years | ||||||
| Technology | 3,387 | 10 years | ||||||
| Non-competition agreement | 745 | 5 years | ||||||
| MAYFIELD / BUDDE | Integra ME | R&B / Sparta | ||||||||||
| 2004 Acquisitions | ||||||||||||
| Current assets | $ | 3,489 | $ | 3,151 | $ | 817 | ||||||
| Property, plant and equipment | 1,400 | 78 | 10 | |||||||||
| Intangible assets | 8,030 | 1,320 | 1,639 | |||||||||
| Goodwill | 8,397 | 1,775 | 1,478 | |||||||||
| Total assets acquired | 21,316 | 6,324 | 3,944 | |||||||||
| Current liabilities | 768 | 837 | 340 | |||||||||
| Deferred tax liabilities | — | 240 | — | |||||||||
| Other non-current liabilities | — | 265 | — | |||||||||
| Total liabilities assumed | 768 | 1,342 | 340 | |||||||||
| Net assets acquired | $ | 20,548 | $ | 4,982 | $ | 3,604 | ||||||
F-23
2007 2006 (In thousands, except per share amounts) Total revenue, net $ 607,337 $ 571,437 Net income 18,914 16,809 Basic net income per share $ 0.68 $ 0.57 Diluted net income per share $ 0.64 $ 0.51
| 2006 | 2005 | |||||||
| (in thousands, except per share amounts) | ||||||||
| Total revenue, net | $ | 462,593 | $ | 414,785 | ||||
| Net income | 32,903 | 35,312 | ||||||
| Basic net income per share | $ | 1.12 | $ | 1.17 | ||||
| Diluted net income per share | $ | 1.07 | $ | 1.09 | ||||
| 4. | RESTRUCTURING ACTIVITIES |
F-24
F-27
| Research and | Selling, General | Research | Selling, General | |||||||||||||||||||||||||||||
| Cost of Sales | Development | and Administrative | Total | Cost of | and | and | ||||||||||||||||||||||||||
| (in thousands) | Sales | Development | Administrative | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| 2007 | ||||||||||||||||||||||||||||||||
| Involuntary employee termination costs | $ | (24 | ) | $ | — | $ | (364 | ) | $ | (388 | ) | |||||||||||||||||||||
| Facility exit costs | — | — | — | — | ||||||||||||||||||||||||||||
| 2006 | ||||||||||||||||||||||||||||||||
| Involuntary employee termination costs | $ | 290 | $ | — | $ | 745 | $ | 1,035 | $ | 290 | $ | — | $ | 745 | $ | 1,035 | ||||||||||||||||
| Facility exit costs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| 2005 | ||||||||||||||||||||||||||||||||
| Involuntary employee termination costs | $ | 2,596 | $ | 183 | $ | 1,082 | $ | 3,861 | $ | 2,596 | $ | 183 | $ | 1,082 | $ | 3,861 | ||||||||||||||||
| Facility exit costs | — | — | 155 | 155 | — | — | 155 | 155 | ||||||||||||||||||||||||
| Employee | Employee | |||||||||||||||||||||||
| Termination | Facility Exit | Termination | Facility Exit | |||||||||||||||||||||
| Costs | Costs | Total | Costs | Costs | Total | |||||||||||||||||||
| (in thousands) | (In thousands) | |||||||||||||||||||||||
| Balance at December 31, 2005 | $ | — | $ | — | $ | — | ||||||||||||||||||
| Additions | 4,010 | 155 | 4,165 | |||||||||||||||||||||
| Reversal of prior accruals | (149 | ) | — | (149 | ) | |||||||||||||||||||
| Payments | (1,398 | ) | (31 | ) | (1,429 | ) | ||||||||||||||||||
| Effects of foreign exchange | (43 | ) | — | (43 | ) | |||||||||||||||||||
| Balance at December 31, 2005 | 2,420 | 124 | 2,544 | $ | 2,420 | $ | 124 | $ | 2,544 | |||||||||||||||
| Additions | 1,035 | — | 1,035 | 1,035 | — | 1,035 | ||||||||||||||||||
| Acquired through acquisition | 220 | 155 | 375 | 220 | 155 | 375 | ||||||||||||||||||
| Reversal of prior accruals | (116 | ) | — | (116 | ) | (116 | ) | — | (116 | ) | ||||||||||||||
| Payments | (2,107 | ) | (118 | ) | (2,225 | ) | (2,107 | ) | (118 | ) | (2,225 | ) | ||||||||||||
| Effects of foreign exchange | 104 | 9 | 113 | 104 | 9 | 113 | ||||||||||||||||||
| Balance at December 31, 2006 | $ | 1,556 | $ | 170 | $ | 1,726 | $ | 1,556 | $ | 170 | $ | 1,726 | ||||||||||||
| Additions | 103 | — | 103 | |||||||||||||||||||||
| Acquired through acquisition | 578 | 616 | 1,194 | |||||||||||||||||||||
| Reversal of prior accruals | (491 | ) | — | (491 | ) | |||||||||||||||||||
| Payments | (1,231 | ) | (170 | ) | (1,401 | ) | ||||||||||||||||||
| Effects of foreign exchange | 100 | 9 | 109 | |||||||||||||||||||||
| Balance at December 31, 2007 | $ | 615 | $ | 625 | $ | 1,240 | ||||||||||||||||||
F-28
| 5. | DEBT |
F-25
F-29
F-26
F-30
F-31
| 6. | DERIVATIVE INSTRUMENTS |
F-27
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands) | ||||||||||||
| Interest rate swap | $ | (690 | ) | $ | 690 | $ | 287 | |||||
| Contingent convertible notes | 343 | (821 | ) | (430 | ) | |||||||
| Net increase (decrease) in liabilities | 347 | $ | (131 | ) | $ | (143 | ) | |||||
| 2007 | 2006 | 2005 | ||||||||||
| (In thousands) | ||||||||||||
| Interest rate swap | $ | — | $ | (690 | ) | $ | 690 | |||||
| Contingent convertible notes | 373 | 343 | (821 | ) | ||||||||
| Net increase (decrease) in liabilities | $ | 373 | $ | (347 | ) | $ | (131 | ) | ||||
F-32
| 7. | TREASURY STOCK |
| 8. | STOCK PURCHASE AND AWARD PLANS |
F-33
F-28
| Shares | Weighted Average | Weighted Average | ||||||||||||||
| Stock Options | (in thousands) | Exercise Price | Shares | Exercise Price | ||||||||||||
| Outstanding at December 31, 2003 | 2,884 | $ | 16.19 | |||||||||||||
| Granted | 1,473 | 31.81 | ||||||||||||||
| Exercised | (547 | ) | 9.80 | |||||||||||||
| Forfeited or Expired | (127 | ) | 21.97 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Outstanding at December 31, 2004 | 3,683 | 23.42 | 3,683 | $ | 23.42 | |||||||||||
| Granted | 1,089 | 34.53 | 1,089 | 34.53 | ||||||||||||
| Exercised | (576 | ) | 13.83 | (576 | ) | 13.83 | ||||||||||
| Forfeited or Expired | (195 | ) | 30.28 | (195 | ) | 30.28 | ||||||||||
| Outstanding at December 31, 2005 | 4,001 | 27.50 | 4,001 | 27.50 | ||||||||||||
| Granted | 273 | 40.75 | 273 | 40.75 | ||||||||||||
| Exercised | (705 | ) | 22.20 | (705 | ) | 22.20 | ||||||||||
| Forfeited or Expired | (131 | ) | 33.27 | (131 | ) | 33.27 | ||||||||||
| Outstanding at December 31, 2006 | 3,438 | $ | 29.41 | 3,438 | 29.41 | |||||||||||
| Granted | 231 | 41.56 | ||||||||||||||
| Exercised | (682 | ) | 27.08 | |||||||||||||
| Forfeited or Expired | (63 | ) | 34.97 | |||||||||||||
| Outstanding at December 31, 2007 | 2,924 | $ | 30.82 | |||||||||||||
F-29
F-34
| Options Outstanding | ||||||||||||||||||||
| Weighted Avg. | Options Exercisable | |||||||||||||||||||
| Shares (in | Weighted Avg. | Remaining | Shares (in | Weighted Avg. | ||||||||||||||||
| Range of Exercise Prices | thousands) | Exercise Price | Contractual Life | thousands) | Exercise Price | |||||||||||||||
| $11.00 to $16.07 | 348 | $ | 11.81 | 3.43 | 348 | $ | 11.81 | |||||||||||||
| $16.13 to $22.95 | 346 | 18.90 | 1.98 | 337 | 18.83 | |||||||||||||||
| $23.80 to $27.32 | 349 | 26.58 | 1.11 | 329 | 26.54 | |||||||||||||||
| $27.47 to $29.24 | 363 | 28.65 | 2.95 | 261 | 28.58 | |||||||||||||||
| $29.32 to $31.38 | 481 | 30.86 | 5.98 | 226 | 31.03 | |||||||||||||||
| $31.89 to $34.49 | 497 | 33.57 | 5.73 | 260 | 33.52 | |||||||||||||||
| $34.62 to $35.57 | 492 | 35.48 | 6.01 | 190 | 35.46 | |||||||||||||||
| $35.76 to $38.20 | 347 | 36.65 | 4.25 | 150 | 36.63 | |||||||||||||||
| $38.72 to $42.53 | 216 | 42.25 | 9.54 | 7 | 38.72 | |||||||||||||||
| Amounts as of December 31, 2006 | 3,438 | $ | 29.41 | 2,108 | $ | 26.04 | ||||||||||||||
| Amounts as of December 31, 2005 | 4,001 | $ | 27.50 | 2,023 | $ | 22.74 | ||||||||||||||
| Amounts as of December 31, 2004 | 3,683 | $ | 23.42 | 1,641 | $ | 17.61 | ||||||||||||||
| Options Exercisable | ||||||
| Weighted | ||||||
| Avg. | ||||||
| Exercise | ||||||
| Shares | Price | |||||
| (In thousands) | ||||||
| 298 | $ | 11.20 | ||||
| 317 | 19.93 | |||||
| 339 | 29.28 | |||||
| 288 | 31.57 | |||||
| 274 | 33.96 | |||||
| 243 | 35.48 | |||||
| 202 | 36.61 | |||||
| 50 | 42.53 | |||||
| 31 | 49.33 | |||||
| 2,044 | $ | 28.24 | ||||
F-35
| Performance Stock and Contract | ||||||||||||||||||||||||||||||||||||
| Restricted Stock Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Performance Stock and Contract | Wtd. Avg. Fair | Wtd. Avg. Fair | ||||||||||||||||||||||||||||||||||
| Restricted Stock Awards | Stock Awards | Value per | Value per | |||||||||||||||||||||||||||||||||
| Wtd. Avg. Fair | Wtd. Avg. Fair | Shares | Share | Shares | Share | |||||||||||||||||||||||||||||||
| Shares | Value Per Share | Shares | Value Per Share | |||||||||||||||||||||||||||||||||
| Unvested, December 31, 2005 | 19 | $ | 35.08 | — | $ | — | 19 | $ | 35.08 | — | $ | — | ||||||||||||||||||||||||
| Granted | 194 | 38.38 | 218 | 35.41 | 194 | 38.38 | 218 | 35.41 | ||||||||||||||||||||||||||||
| Cancellations | (11 | ) | 38.18 | — | — | (11 | ) | 38.18 | — | — | ||||||||||||||||||||||||||
| Released | (17 | ) | 41.46 | — | — | |||||||||||||||||||||||||||||||
| Unvested, December 31, 2006 | 185 | 38.08 | 218 | 35.41 | ||||||||||||||||||||||||||||||||
| Granted | 153 | 46.42 | 15 | 45.81 | ||||||||||||||||||||||||||||||||
| Cancellations | (40 | ) | 41.19 | (10 | ) | 35.82 | ||||||||||||||||||||||||||||||
| Released | (14 | ) | 40.65 | — | — | |||||||||||||||||||||||||||||||
| Unvested, December 31, 2006 | 202 | $ | 38.08 | 218 | $ | 35.41 | ||||||||||||||||||||||||||||||
| Unvested, December 31, 2007 | 284 | $ | 42.29 | 223 | $ | 36.10 | ||||||||||||||||||||||||||||||
F-30
F-36
| 9. | RETIREMENT BENEFIT PLANS |
| 2006 | 2005 | 2004 | ||||||||||||||
| (in thousands) | ||||||||||||||||
| Non-U.S. | Non-U.S. | Non-U.S. | ||||||||||||||
| U.S. Plan | Plans | Plans | Plans | |||||||||||||
| Service cost | $ | — | $ | 182 | $ | 178 | $ | 179 | ||||||||
| Interest cost | 25 | 585 | 567 | 522 | ||||||||||||
| Expected return on plan assets | (24 | ) | (483 | ) | (464 | ) | (434 | ) | ||||||||
| Recognized net actuarial loss | 28 | 337 | 215 | 203 | ||||||||||||
| Net periodic benefit cost, before settlement expenses | 29 | 621 | 496 | 470 | ||||||||||||
| Settlement expense | 53 | — | — | — | ||||||||||||
| Net periodic benefit cost | $ | 82 | $ | 621 | $ | 496 | $ | 470 | ||||||||
F-31
| 2007 | 2006 | 2005 | ||||||||||||||||||
| Non U.S. | Non U.S. | Non U.S | ||||||||||||||||||
| U.S. Plan | Plans | U.S. Plan | Plans | Plans | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Service cost | $ | — | $ | 160 | $ | — | $ | 182 | $ | 178 | ||||||||||
| Interest cost | 24 | 715 | 25 | 585 | 567 | |||||||||||||||
| Expected return on plan assets | (30 | ) | (600 | ) | (24 | ) | (483 | ) | (464 | ) | ||||||||||
| Recognized net actuarial loss | 23 | 382 | 28 | 337 | 215 | |||||||||||||||
| Net periodic benefit cost, before settlement expenses | 17 | 657 | 29 | 621 | 496 | |||||||||||||||
| Settlement expense | — | — | 53 | — | — | |||||||||||||||
| Net periodic benefit cost | $ | 17 | $ | 657 | $ | 82 | $ | 621 | $ | 496 | ||||||||||
| 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||
| Non-U.S. | Non-U.S. | Non-U.S. | ||||||||||||||||||||||||||||||||||
| 2006 | 2005 | 2004 | U.S. Plan | Plans | U.S. Plan | Plans | Plans | |||||||||||||||||||||||||||||
| U.S. Plan | Non-U.S. Plans | Non-U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||||||||||
| Discount rate | 5.5 | % | 5.2 | % | 4.7 | % | 5.2 | % | 5.5 | % | 5.5 | % | 5.5 | % | 5.2 | % | 4.7 | % | ||||||||||||||||||
| Expected return on plan assets | 7.0 | % | 5.7 | % | 4.9 | % | 5.8 | % | 7.0 | % | 5.7 | % | 7.0 | % | 5.7 | % | 4.9 | % | ||||||||||||||||||
| Rate of compensation increase | N/A | 3.1 | % | 3.5 | % | 3.3 | % | 3.0 | % | 3.5 | % | N/A | 3.1 | % | 3.5 | % | ||||||||||||||||||||
F-37
| December 31, | ||||||||||||
| 2006 | 2005 | |||||||||||
| U.S. Plan | Non-U.S. Plans | Non-U.S. Plans | ||||||||||
| (in thousands) | ||||||||||||
| CHANGE IN PROJECTED BENEFIT OBLIGATION | ||||||||||||
| Projected benefit obligation, beginning of year | $ | — | $ | 11,647 | $ | 11,367 | ||||||
| Service cost | 182 | 178 | ||||||||||
| Interest cost | 25 | 585 | 567 | |||||||||
| Participant contributions | 33 | 36 | ||||||||||
| Benefits paid | (425 | ) | (317 | ) | ||||||||
| Actuarial (gain) loss | 13 | 211 | 1,133 | |||||||||
| Settlements | (104 | ) | — | — | ||||||||
| Acquisitions | 503 | — | — | |||||||||
| Effect of foreign currency exchange rates | — | 1,637 | (1,315 | ) | ||||||||
| Projected benefit obligation, end of year | $ | 437 | $ | 13,870 | $ | 11,649 | ||||||
F-32
December 31, 2007 2006 U.S. Plan Non-U.S. Plans U.S. Plan Non-U.S. Plans (In thousands) CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of year $ 437 $ 13,870 $ — $ 11,647 Service cost — 160 182 Interest cost 24 715 25 585 Participant contributions — 28 33 Benefits paid — (384 ) (425 ) Actuarial (gain) loss — (1,172 ) 13 211 Settlements — — (104 ) — Acquisitions — — 503 — Effect of foreign currency exchange rates — 48 — 1,637 �� Projected benefit obligation, end of year $ 461 $ 13,265 $ 437 $ 13,870
| December 31, | ||||||||||||||||||||||||||||
| December 31, | 2007 | 2006 | ||||||||||||||||||||||||||
| 2006 | 2005 | U.S. Plan | Non-U.S. Plans | U.S. Plan | Non-U.S. Plans | |||||||||||||||||||||||
| U.S. Plan | Non-U.S. Plans | Non-U.S. Plans | (In thousands) | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| CHANGE IN PLAN ASSETS | ||||||||||||||||||||||||||||
| Plan assets at fair value, beginning of year | $ | — | $ | 8,673 | $ | 8,379 | $ | 340 | $ | 10,315 | $ | — | $ | 8,673 | ||||||||||||||
| Actual return on plan assets | 24 | 440 | 1,277 | 33 | 835 | 24 | 440 | |||||||||||||||||||||
| Employer contributions | 57 | 278 | 264 | 150 | 443 | 57 | 278 | |||||||||||||||||||||
| Participant contributions | — | 33 | 36 | — | 28 | — | 33 | |||||||||||||||||||||
| Benefits paid | (104 | ) | (333 | ) | (315 | ) | — | (336 | ) | (104 | ) | (333 | ) | |||||||||||||||
| Acquisitions | 363 | — | — | — | — | 363 | — | |||||||||||||||||||||
| Effect of foreign currency exchange rates | — | 1,224 | (968 | ) | — | (60 | ) | — | 1,224 | |||||||||||||||||||
| Plan assets at fair value, end of year | $ | 340 | $ | 10,315 | $ | 8,673 | $ | 523 | $ | 11,225 | $ | 340 | $ | 10,315 | ||||||||||||||
| RECONCILIATION OF FUNDED STATUS | ||||||||||||||||||||||||||||
| Funded status, projected benefit obligation in excess of plan assets | $ | (97 | ) | $ | (3,555 | ) | $ | (2,976 | ) | $ | 62 | $ | (2,040 | ) | $ | (97 | ) | $ | (3,555 | ) | ||||||||
| Unrecognized net actuarial loss | 223 | 2,584 | 2,504 | |||||||||||||||||||||||||
| Unrecognized net actuarial (gain) loss | 198 | 1,384 | 223 | 2,584 | ||||||||||||||||||||||||
| Additional minimum liability | — | — | (2,390 | ) | — | — | — | — | ||||||||||||||||||||
| Accumulated other comprehensive income under FAS 158 | (223 | ) | (2,584 | ) | — | |||||||||||||||||||||||
| Accumulated other comprehensive income (loss) under FAS 158 | (198 | ) | (1,384 | ) | (223 | ) | (2,584 | ) | ||||||||||||||||||||
| Accrued benefit cost | $ | (97 | ) | $ | (3,555 | ) | $ | (2,862 | ) | $ | 62 | $ | (2,040 | ) | $ | (97 | ) | $ | (3,555 | ) | ||||||||
F-38
| December 31, | December 31, | |||||||||||||||||||||||||||
| 2006 | 2005 | 2007 | 2006 | |||||||||||||||||||||||||
| U.S. Plan | Non-U.S. Plans | Non-U.S. Plans | U.S. Plan | Non-U.S. Plans | U.S. Plan | Non-U.S. Plans | ||||||||||||||||||||||
| Equity securities | 61 | % | 46 | % | 47 | % | 60 | % | 21 | % | 61 | % | 46 | % | ||||||||||||||
| Corporate bonds | — | 32 | % | 26 | % | — | 33 | % | — | 32 | % | |||||||||||||||||
| Government bonds | 36 | % | 18 | % | 20 | % | 37 | % | 43 | % | 36 | % | 18 | % | ||||||||||||||
| Insurance contracts | — | 3 | % | 2 | % | — | — | — | 3 | % | ||||||||||||||||||
| Cash | 3 | % | 1 | % | 5 | % | 3 | % | 3 | % | 3 | % | 1 | % | ||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| 2007 | $ | 506,000 | ||
| 2008 | 529,000 | |||
| 2009 | 553,000 | |||
| 2010 | 629,000 | |||
| 2011 | 677,000 | |||
| 2012-2016 | $ | 4,223,000 |
F-33
| 2008 | $ | 427,000 | ||
| 2009 | 447,000 | |||
| 2010 | 481,000 | |||
| 2011 | 521,000 | |||
| 2012 | 593,000 | |||
| 2013-2017 | 3,557,000 |
| 10. | LEASES |
F-39
| Related Parties | Third Parties | Total | Related | |||||||||||||||||||||
| (in thousands) | Parties | Third Parties | Total | |||||||||||||||||||||
| 2007 | $ | 324 | $ | 3,772 | $ | 4,096 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| 2008 | 341 | 2,654 | 2,995 | $ | 341 | $ | 4,632 | $ | 4,973 | |||||||||||||||
| 2009 | 341 | 1,896 | 2,237 | 341 | 3,940 | 4,281 | ||||||||||||||||||
| 2010 | 296 | 729 | 1,025 | 326 | 1,646 | 1,972 | ||||||||||||||||||
| 2011 | 251 | 621 | 872 | 281 | 938 | 1,219 | ||||||||||||||||||
| 2012 | 254 | 417 | 671 | |||||||||||||||||||||
| Thereafter | 4,525 | 2,664 | 7,189 | 1,316 | 2,700 | 4,016 | ||||||||||||||||||
| Total minimum lease payments | $ | 6,078 | $ | 12,336 | $ | 18,414 | $ | 2,859 | $ | 14,273 | $ | 17,132 | ||||||||||||
F-34
| 11. | INCOME TAXES |
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands) | ||||||||||||
| Current: | ||||||||||||
| Federal | $ | 7,454 | $ | 2,547 | $ | 1,899 | ||||||
| State | 1,332 | 2,038 | 1,670 | |||||||||
| Foreign | 6,880 | 3,427 | 1,141 | |||||||||
| Total current | 15,666 | 8,012 | 4,710 | |||||||||
| Deferred: | ||||||||||||
| Federal | $ | 2,049 | $ | 13,706 | $ | 5,802 | ||||||
| State | (256 | ) | (409 | ) | 53 | |||||||
| Foreign | 1,442 | (3,402 | ) | 246 | ||||||||
| Total deferred | 3,235 | 9,895 | 6,101 | |||||||||
| Provision for income taxes | $ | 18,901 | $ | 17,907 | $ | 10,811 | ||||||
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | (In thousands) | |||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| United States operations | $ | 20,000 | $ | 46,111 | $ | 17,074 | $ | 36,598 | $ | 20,000 | $ | 46,111 | ||||||||||||
| Foreign operations | 28,308 | 8,990 | 10,934 | 23,464 | 28,308 | 8,990 | ||||||||||||||||||
| Total | $ | 48,308 | $ | 55,101 | $ | 28,008 | $ | 60,062 | $ | 48,308 | $ | 55,101 | ||||||||||||
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (in thousands) | ||||||||
| Net operating loss and tax credit carryforwards | $ | 1,258 | $ | 4,622 | ||||
| Inventory reserves and capitalization | 7,242 | 4,781 | ||||||
| Deferred compensation | 14,582 | 14,053 | ||||||
| Deferred income | 961 | 3,831 | ||||||
| Total deferred tax assets before valuation allowance | 24,043 | 27,287 | ||||||
| Valuation allowance | (1,632 | ) | (5,126 | ) | ||||
| Depreciation and amortization | (35,506 | ) | (9,694 | ) | ||||
| Other | (8,251 | ) | (4,145 | ) | ||||
| Net deferred tax assets (liability) | $ | (21,346 | ) | $ | 8,322 | |||
F-35
F-40
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||||||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||||||
| Increase (reduction) in income taxes resulting from: | ||||||||||||||||||||||||
| State income taxes, net of federal tax benefit | 1.9 | % | 2.0 | % | 4.0 | % | 1.1 | % | 1.9 | % | 2.0 | % | ||||||||||||
| Foreign taxes booked at different rates | (1.6 | %) | (3.7 | %) | (4.2 | %) | ||||||||||||||||||
| Foreign losses | — | (0.9 | %) | — | ||||||||||||||||||||
| Tax on asset transfer | — | — | 4.5 | % | ||||||||||||||||||||
| Foreign operations | (4.2 | )% | (1.6 | )% | (4.6 | )% | ||||||||||||||||||
| In-process research and development | 4.3 | % | — | — | 2.7 | % | 4.3 | % | — | |||||||||||||||
| Incentive Stock Option expense | 1.4 | % | — | — | 0.9 | % | 1.4 | % | — | |||||||||||||||
| Adjustments to net operating losses | (1.8 | %) | — | — | ||||||||||||||||||||
| Compensation in excess of IRS deductible limits | 2.5 | % | — | — | — | 2.5 | % | — | ||||||||||||||||
| Decrease in valuation allowances | (2.5 | %) | — | — | ||||||||||||||||||||
| Change in valuation allowances | 3.8 | % | (2.5 | )% | — | |||||||||||||||||||
| Other | (0.1 | %) | 0.1 | % | (0.7 | %) | 5.0 | % | (1.9 | )% | 0.1 | % | ||||||||||||
| Effective tax rate | 39.1 | % | 32.5 | % | 38.6 | % | 44.3 | % | 39.1 | % | 32.5 | % | ||||||||||||
F-36
F-41
| 2007 | 2006 | 2005 | ||||||||||
| (In thousands) | ||||||||||||
| Current: | ||||||||||||
| Federal | $ | 24,635 | $ | 7,454 | $ | 2,547 | ||||||
| State | 5,138 | 1,332 | 2,038 | |||||||||
| Foreign | 9,538 | 6,880 | 3,427 | |||||||||
| Total current | 39,311 | 15,666 | 8,012 | |||||||||
| Deferred: | ||||||||||||
| Federal | $ | (5,369 | ) | $ | 2,049 | $ | 13,706 | |||||
| State | (2,113 | ) | (256 | ) | (409 | ) | ||||||
| Foreign | (5,238 | ) | 1,442 | (3,402 | ) | |||||||
| Total deferred | (12,720 | ) | 3,235 | 9,895 | ||||||||
| Provision for income taxes | $ | 26,591 | $ | 18,901 | $ | 17,907 | ||||||
F-42
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
Current assets: | ||||||||
| Doubtful accounts | $ | 2,317 | $ | 1,103 | ||||
| Inventories | 15,485 | 7,242 | ||||||
| Tax credits | 3,129 | 256 | ||||||
| Other | 6,200 | 1,454 | ||||||
| Total current assets | 27,131 | 10,055 | ||||||
Current liabilities: | ||||||||
| Other | (593 | ) | (45 | ) | ||||
| Inventory step up | (1,531 | ) | — | |||||
| Total current (liabilities) | (2,124 | ) | (45 | ) | ||||
| Less valuation allowance | (2,753 | ) | — | |||||
| Net current deferred tax assets/(liabilities) | 22,254 | 10,010 | ||||||
Non current assets: | ||||||||
| Benefits and compensation | 11,023 | 6,108 | ||||||
| Stock compensation | 8,848 | 4,032 | ||||||
| Deferred revenue | 2,167 | 961 | ||||||
| Net operating loss carryforwards | 45,148 | 4,713 | ||||||
| Financing costs | 17,897 | — | ||||||
| Federal & state tax credits | 10 | 731 | ||||||
| Other | 4,142 | 1,714 | ||||||
| Total non current assets | 89,235 | 18,259 | ||||||
Non current liabilities: | ||||||||
| Intangible & fixed assets | (44,224 | ) | (35,506 | ) | ||||
| Contingent interest | (19,632 | ) | (11,977 | ) | ||||
| Other | (548 | ) | (500 | ) | ||||
| Total non current liabilities | (64,404 | ) | (47,983 | ) | ||||
| Less valuation allowance | (40,883 | ) | (1,632 | ) | ||||
| Net non current deferred tax assets/(liabilities) | (16,052 | ) | (31,356 | ) | ||||
Total net deferred tax assets (liabilities) | $ | 6,202 | $ | (21,346 | ) | |||
F-43
| Balance at January 1, 2007 | $ | 6,792 | ||
| Additions based on tax positions related to the current year | — | |||
| Additions for tax positions of prior years | 1,826 | |||
| Additions for tax positions of prior years — Current year acquisitions | 714 | |||
| Reductions for tax positions of prior years | (165 | ) | ||
| Settlement | (9 | ) | ||
| Lapse of statute | (325 | ) | ||
| Balance at December 31, 2007 | $ | 8,833 | ||
F-44
| 12. | NET INCOME PER SHARE |
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | (In thousands, except per share amounts) | |||||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||||||
| Basic: | ||||||||||||||||||||||||
| Net income | $ | 29,407 | $ | 37,194 | $ | 17,197 | $ | 33,471 | $ | 29,407 | $ | 37,194 | ||||||||||||
| Basic net income per share | $ | 1.00 | $ | 1.23 | $ | 0.57 | $ | 1.21 | $ | 1.00 | $ | 1.23 | ||||||||||||
| Weighted average common shares outstanding — Basic | 29,300 | 30,195 | 30,064 | 27,712 | 29,300 | 30,195 | ||||||||||||||||||
| Diluted: | ||||||||||||||||||||||||
| Net income | $ | 29,407 | $ | 37,194 | $ | 17,197 | $ | 33,471 | $ | 29,407 | $ | 37,194 | ||||||||||||
| Add back: Interest expense and other income related to convertible notes payable, net of tax | 2,254 | 2,440 | — | 9 | 2,254 | 2,440 | ||||||||||||||||||
| Net income applicable to common stock | $ | 31,661 | $ | 39,634 | $ | 17,197 | $ | 33,480 | $ | 31,661 | $ | 39,634 | ||||||||||||
| Diluted net income per share | $ | 0.97 | $ | 1.15 | $ | 0.55 | $ | 1.13 | $ | 0.97 | $ | 1.15 | ||||||||||||
| Weighted average common shares outstanding — Basic | 29,300 | 30,195 | 30,064 | 27,712 | 29,300 | 30,195 | ||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||
| Restricted stock and stock options | 710 | 856 | 1,038 | 938 | 710 | 856 | ||||||||||||||||||
| Shares issuable upon conversion of notes payable | 2,737 | 3,514 | — | 928 | 2,737 | 3,514 | ||||||||||||||||||
| Weighted average common shares outstanding | 32,747 | 34,565 | 31,102 | 29,578 | 32,747 | 34,565 | ||||||||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (in thousands) | ||||||||||||
| Stock options and restricted stock | 1,551 | 570 | 155 | |||||||||
| Shares issuable upon conversion of notes payable | — | — | 3,514 | |||||||||
| Total | 1,551 | 570 | 3,669 | |||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (In thousands) | ||||||||||||
| Stock options and restricted stock | 267 | 1,551 | 570 | |||||||||
| 13. | DEVELOPMENT, DISTRIBUTION, AND LICENSE AGREEMENTS |
F-45
| 14. | COMMITMENTS AND CONTINGENCIES |
F-37
F-46
| 15. | SEGMENT AND GEOGRAPHIC INFORMATION |
F-38
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| 2006 | 2005 | 2004 | (In thousands) | |||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Neurosurgical and Orthopedic Implants | $ | 166,432 | $ | 134,598 | $ | 101,791 | $ | 207,536 | $ | 166,432 | $ | 134,598 | ||||||||||||
| Medical/Surgical Equipment | 252,865 | 143,337 | 128,034 | 342,923 | 252,865 | 143,337 | ||||||||||||||||||
| Total revenue, net | $ | 419,297 | $ | 277,935 | $ | 229,825 | $ | 550,459 | $ | 419,297 | $ | 277,935 | ||||||||||||
| United States | Europe | Asia Pacific | Other Foreign | Consolidated | ||||||||||||||||||||||||||||||||||||
| United States | Europe | Asia Pacific | Other Foreign | Consolidated | (In thousands) | |||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Total revenue, net: | ||||||||||||||||||||||||||||||||||||||||
| 2007 | $ | 417,035 | $ | 85,764 | $ | 21,399 | $ | 26,261 | $ | 550,459 | ||||||||||||||||||||||||||||||
| 2006 | $ | 317,503 | $ | 77,100 | $ | 12,315 | $ | 12,379 | $ | 419,297 | 317,503 | 77,100 | 12,315 | 12,379 | 419,297 | |||||||||||||||||||||||||
| 2005 | 207,409 | 48,645 | 11,403 | 10,478 | 277,935 | 207,409 | 48,645 | 11,403 | 10,478 | 277,935 | ||||||||||||||||||||||||||||||
| 2004 | 182,168 | 30,994 | 8,535 | 8,128 | 229,825 | |||||||||||||||||||||||||||||||||||
| Long-lived assets: | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2007 | $ | 50,953 | $ | 23,923 | $ | — | $ | — | $ | 74,876 | ||||||||||||||||||||||||||||||
| December 31, 2006 | 33,646 | 16,081 | — | — | 49,727 | 33,646 | 16,081 | — | $ | — | 49,727 | |||||||||||||||||||||||||||||
| December 31, 2005 | $ | 23,938 | $ | 9,441 | $ | — | $ | — | $ | 33,379 | ||||||||||||||||||||||||||||||
| Fourth | Third | Second | First | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| 2006: | ||||||||||||||||
| Total revenue, net: | ||||||||||||||||
| 2006 | $ | 125,394 | $ | 116,647 | $ | 100,121 | $ | 77,135 | ||||||||
| 2005 | $ | 72,985 | $ | 69,333 | $ | 69,778 | $ | 65,839 | ||||||||
| Gross margin: | ||||||||||||||||
| 2006 | 73,949 | 69,088 | 58,748 | 49,198 | ||||||||||||
| 2005 | 44,355 | 42,940 | 42,260 | 41,328 | ||||||||||||
| Net income: | ||||||||||||||||
| 2006 | 10,131 | 2,594 | 7,977 | 8,705 | ||||||||||||
| 2005 | 10,615 | 10,481 | 7,655 | 8,443 | ||||||||||||
| Basic net income per share: | ||||||||||||||||
| 2006 | $ | 0.35 | $ | 0.09 | $ | 0.27 | $ | 0.29 | ||||||||
| 2005 | $ | 0.36 | $ | 0.35 | $ | 0.25 | $ | 0.28 | ||||||||
| Diluted net income per share: | ||||||||||||||||
| 2006 | $ | 0.34 | $ | 0.09 | $ | 0.26 | $ | 0.28 | ||||||||
| 2005 | $ | 0.33 | $ | 0.33 | $ | 0.23 | $ | 0.26 | ||||||||
F-39
F-47
| 16. | SELECTED QUARTERLY INFORMATION — UNAUDITED |
| Fourth | Third | Second | First | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| 2007: | ||||||||||||||||
| Total revenue, net: | ||||||||||||||||
| 2007 | $ | 157,645 | $ | 135,015 | $ | 134,767 | $ | 123,032 | ||||||||
| 2006 | $ | 125,394 | $ | 116,647 | $ | 100,121 | $ | 77,135 | ||||||||
| Gross margin: | ||||||||||||||||
| 2007 | 95,219 | 84,152 | 81,959 | 74,455 | ||||||||||||
| 2006 | 73,949 | 69,088 | 58,748 | 49,198 | ||||||||||||
| Net income: | ||||||||||||||||
| 2007 | 5,383 | 9,673 | 9,341 | 9,074 | ||||||||||||
| 2006 | 10,131 | 2,594 | 7,977 | 8,705 | ||||||||||||
| Basic net income per share: | ||||||||||||||||
| 2007 | $ | 0.20 | $ | 0.36 | $ | 0.33 | $ | 0.32 | ||||||||
| 2006 | $ | 0.35 | $ | 0.09 | $ | 0.27 | $ | 0.29 | ||||||||
| Diluted net income per share: | ||||||||||||||||
| 2007 | $ | 0.19 | $ | 0.33 | $ | 0.31 | $ | 0.30 | ||||||||
| 2006 | $ | 0.34 | $ | 0.09 | $ | 0.26 | $ | 0.28 | ||||||||
| Fourth | Third | Second | First | |||||||||||||||||||||||||||||
| Fourth | Third | Second | First | Quarter | Quarter | Quarter | Quarter | |||||||||||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | (In thousands) | ||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
| Involuntary employee termination costs | ||||||||||||||||||||||||||||||||
| 2007 | $ | (127 | ) | $ | — | $ | (331 | ) | $ | 70 | ||||||||||||||||||||||
| 2006 | $ | 693 | $ | 63 | $ | 199 | $ | 80 | 693 | 63 | 199 | 80 | ||||||||||||||||||||
| 2005 | 1,120 | 667 | 2,074 | — | 1,120 | 667 | 2,074 | — | ||||||||||||||||||||||||
| Facility exit costs | ||||||||||||||||||||||||||||||||
| 2007 | — | — | — | — | ||||||||||||||||||||||||||||
| 2006 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| 2005 | 155 | — | — | — | 155 | — | — | — | ||||||||||||||||||||||||
| 17. | SUBSEQUENT EVENT |
F-40
F-48
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| Beginning of | Costs and | Other | End of | |||||||||||||||||
Description | Period | Expenses | Accounts(1) | Deductions | Period | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Year ended December 31, 2007: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 4,114 | $ | 4,858 | $ | — | $ | (1,156 | ) | $ | 7,816 | |||||||||
| Inventory reserves | 14,786 | 10,627 | 4,455 | (5,780 | ) | 24,088 | ||||||||||||||
| Deferred tax asset valuation allowance | 1,632 | 2,302 | 39,702 | — | 43,636 | |||||||||||||||
| Year ended December 31, 2006: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 3,508 | $ | 650 | $ | 350 | $ | (394 | ) | $ | 4,114 | |||||||||
| Inventory reserves | 9,768 | 4,706 | 2,862 | (2,550 | ) | 14,786 | ||||||||||||||
| Deferred tax asset valuation allowance | 5,126 | — | (3,494 | ) | — | 1,632 | ||||||||||||||
| Year ended December 31, 2005: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 2,749 | $ | 1,279 | $ | 34 | $ | (554 | ) | $ | 3,508 | |||||||||
| Inventory reserves | 7,600 | 2,191 | 247 | (270 | ) | 9,768 | ||||||||||||||
| Deferred tax asset valuation allowance | 5,360 | — | — | (234 | ) | 5,126 | ||||||||||||||
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| Beginning of | Costs and | Other | End of | |||||||||||||||||
| Description | Period | Expenses | Accounts(1) | Deductions | Period | |||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Year ended December 31, 2006: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 3,508 | $ | 650 | $ | 350 | $ | (394 | ) | $ | 4,114 | |||||||||
| Inventory reserves | 9,768 | 4,706 | 2,862 | (2,550 | ) | 14,786 | ||||||||||||||
| Deferred tax asset valuation allowance | 5,126 | — | (3,494 | ) | — | 1,632 | ||||||||||||||
| Year ended December 31, 2005: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 2,749 | $ | 1,279 | $ | 34 | $ | (554 | ) | $ | 3,508 | |||||||||
| Inventory reserves | 7,600 | 2,191 | 247 | (270 | ) | 9,768 | ||||||||||||||
| Deferred tax asset valuation allowance | 5,360 | — | — | (234 | ) | 5,126 | ||||||||||||||
| Year ended December 31, 2004: | ||||||||||||||||||||
| Allowance for doubtful accounts and sales returns and allowances | $ | 2,025 | $ | 802 | $ | 249 | $ | (327 | ) | $ | 2,749 | |||||||||
| Inventory reserves | 6,204 | 1,210 | 1,056 | (870 | ) | 7,600 | ||||||||||||||
| Deferred tax asset valuation allowance | 5,360 | — | — | — | 5,360 | |||||||||||||||
| (1) | All amounts shown were recorded to goodwill in connection with acquisitions except for the $3.5 million reduction in the deferred tax asset valuation allowance in 2006, which was written off against the gross deferred tax |
F-41
F-49
| 3 | .1(a) | Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1(a) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 3 | .1(b) | Certificate of Amendment to Amended and Restated Certificate of Incorporation dated May 22, 1998 (Incorporated by reference to Exhibit 3.1(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 1998) | ||
| 3 | .1(c) | Certificate of Amendment to Amended and Restated Certificate of Incorporation dated May 17, 1999 (Incorporated by reference to Exhibit 3.1(c) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 3 | .2 | Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K filed on November 3, 2006) | ||
| 4 | .1 | Indenture, dated as of March 31, 2003, between the Company and Wells Fargo Bank Minnesota, National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2003) | ||
| 4 | .2 | Registration Rights Agreement, dated as of March 31, 2003, between the Company and Credit Suisse First Boston, LLC, Banc of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement onForm S-3 filed on June 30, 2003 (FileNo. 333-106625)) | ||
| 4 | .3(a) | Credit Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on December 29, 2005) | ||
| 4 | .3(b) | First Amendment, dated as of February 15, 2006, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.3(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .3(c) | Second Amendment, dated as of February 23, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on February 27, 2007) | ||
| 4 | .3(d) | Third Amendment, dated as of June 4, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank, N.A., successor by merger to Citibank, FSB, as Syndication Agent and JPMorgan Chase Bank, N.A., Deutsche Bank Trust Company Americas and Royal Bank of Canada, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on June 6, 2007) | ||
| 4 | .3(e) | Fourth Amendment, dated as of September 5, 2007, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Citibank, N.A., successor by merger to Citibank FSB, as Syndication Agent and JPMorgan Chase Bank, N.A., Deutsche Bank Trust Company Americas and Royal Bank of Canada, as Co-Documentation Agents (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on September 6, 2007) | ||
| 4 | .4 | Security Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation and the additional grantors party thereto in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .5 | Pledge Agreement, dated as of December 22, 2005, among Integra LifeSciences Holdings Corporation and the additional grantors party thereto in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) |
| 4 | .6 | Subsidiary Guaranty Agreement, dated as of December 22, 2005, among the guarantors party thereto and individually as a “Guarantor”), in favor of Bank of America, N.A., as administrative and collateral agent (Incorporated by reference to Exhibit 4.6 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005) | ||
| 4 | .7 | Indenture, dated as of September 29, 2006, between the Company and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on October 5, 2006) | ||
| 4 | .8 | Indenture, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Integra LifeSciences Corporation and Wells Fargo Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .9 | Form of 2.75% Senior Convertible Note due 2010 (included in Exhibit 4.8) (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .10 | Indenture, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Integra LifeSciences Corporation and Wells Fargo Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .11 | Form of 2.375% Senior Convertible Note due 2012 (included in Exhibit 4.10) (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .12 | Registration Rights Agreement, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Banc of America Securities LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co., Incorporated, as representatives of the several initial purchasers (Incorporated by reference to Exhibit 4.5 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 4 | .13 | Registration Rights Agreement, dated June 11, 2007, among Integra LifeSciences Holdings Corporation, Banc of America Securities LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co., Incorporated, as representatives of the several initial purchasers (Incorporated by reference to Exhibit 4.6 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .1(a) | Lease between Plainsboro Associates and American Biomaterials Corporation dated as of April 16, 1985, as assigned to Colla-Tec, Inc. on October 24, 1989 and as amended through November 1, 1992 (Incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form 10/A (FileNo. 0-26224) which became effective on August 8, 1995) | ||
| 10 | .1(b) | Lease Modification #2 entered into as of the 28th day of October, 2005, by and between Plainsboro Associates and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 2, 2005) | ||
| 10 | .2 | Equipment Lease Agreement between Medicus Corporation and the Company, dated as of June 1, 2000 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2000) | ||
| 10 | .3 | Form of Indemnification Agreement between the Company and [ ] dated August 16, 1995, including a schedule identifying the individuals that are a party to such Indemnification Agreements (Incorporated by reference to Exhibit 10.37 to the Company’s Registration Statement onForm S-1 (FileNo. 33-98698) which became effective on January 24, 1996)* | ||
| 10 | .4 | 1993 Incentive Stock Option and Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form 10/A (FileNo. 0-26224) which became effective on August 8, 1995)* | ||
| 10 | .5 | 1996 Incentive Stock Option and Non-Qualified Stock Option Plan (as amended through December 27, 1997) (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .6 | 1998 Stock Option Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .7 | 1999 Stock Option Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .8(a) | Employee Stock Purchase Plan (as amended on May 17, 2004) (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement onForm S-8 (RegistrationNo. 333-127488) filed on August 12, 2005)* |
| 10 | .8(b) | First Amendment to the Company’s Employee Stock Purchase Plan, dated October 26, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 1, 2005)* | ||
| 10 | .9 | 2000 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .10 | 2001 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .11 | 2003 Equity Incentive Plan (amended and restated as of July 26, 2005) (Incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2005)* | ||
| 10 | .12(a) | Second Amended and Restated Employment Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2004)* | ||
| 10 | .12(b) | Amendment2006-1, dated as of December 19, 2006, to the Second Amended and Restated Employment Agreement, between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on December 22, 2006)* | ||
| 10 | .12(c) | Amendment2008-1, dated as of March 6, 2008, to the Second Amended and Restated Employment Agreement, between the Company and Stuart M. Essig* | ||
| 10 | .13 | Indemnity letter agreement dated December 27, 1997 from the Company to Stuart M. Essig (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .14(a) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit B of Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .14(b) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .14(c) | Registration Rights Provisions for Stuart M. Essig (Incorporated by reference to Exhibit B of Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2004)* | ||
| 10 | .15(a) | Amended and Restated 2005 Employment Agreement between John B. Henneman, III and the Company dated December 19, 2005 (Incorporated by reference to Exhibit 10.16 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .15(b) | Amendment2008-1, dated as of January 2, 2008, to the Amended and Restated 2005 Employment Agreement between John B. Henneman, III and the Company* | ||
| 10 | .16(a) | Amended and Restated 2005 Employment Agreement between Gerard S. Carlozzi and the Company dated December 19, 2005 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .16(b) | Amendment2008-1, dated as of January 2, 2008, to the Amended and Restated 2005 Employment Agreement between Gerard S. Carlozzi and the Company* | ||
| 10 | .17(a) | Severance Agreement between Judith O’Grady and the Company dated January 1, 2007 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2006)* | ||
| 10 | .17(b) | Severance Agreement between Judith O’Grady and the Company dated as of January 1, 2008* | ||
| 10 | .18 | Lease Contract, dated April 1, 2005, between the Puerto Rico Industrial Development Company and Integra CI, Inc. (executed on September 15, 2006) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2006) | ||
| 10 | .19(a) | Industrial Real Estate Triple Net Sublease dated July 1, 2001 between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(a) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(b) | First Amendment to Sublease dated as of July 1, 2003 by and between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(b) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) |
| 10 | .19(c) | Second Amendment to Sublease dated as of June 1, 2004 by and between Sorrento Montana, L.P. and Camino NeuroCare, Inc. (Incorporated by reference to Exhibit 10.24(c) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(d) | Third Amendment to Sublease dated as of June 15, 2004 by and between Sorrento Montana, L.P. and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.24(d) to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004) | ||
| 10 | .19(e) | Fourth Amendment to Sublease, dated as of August 15, 2006, by and between Sorrento Montana, L.P. and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on August 17, 2006) | ||
| 10 | .20 | Restricted Units Agreement dated December 27, 1997 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report onForm 8-K filed on February 3, 1998)* | ||
| 10 | .21 | Stock Option Grant and Agreement dated December 22, 2000 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .22 | Stock Option Grant and Agreement dated December 22, 2000 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .23(a) | Restricted Units Agreement dated December 22, 2000 Between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report onForm 8-K filed on January 8, 2001)* | ||
| 10 | .23(b) | Amendment2006-1, dated as of October 30, 2006, to the Stuart M. Essig Restricted Units Agreement dated as of December 22, 2000 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on November 3, 2006)* | ||
| 10 | .24 | Stock Option Grant and Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .25(a) | Contract Stock/Restricted Units Agreement dated July 27, 2004 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .25(b) | Amendment2006-1, dated as of October 30, 2006, to the Stuart M. Essig Contract Stock/Restricted Units Agreement dated as of July 27, 2004 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on November 3, 2006)* | ||
| 10 | .25(c) | Amendment2008-1, dated as of March 6, 2008, to the Stuart M. Essig Contract Stock/Restricted Units Agreement dated as of July 27, 2004* | ||
| 10 | .26 | Form of Stock Option Grant and Agreement between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .27 | Form of Notice of Grant of Stock Option and Stock Option Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on July 29, 2005)* | ||
| 10 | .28 | Form of Non-Qualified Stock Option Agreement(Non-Directors) (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .29 | Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .30 | Form of Non-Qualified Stock Option Agreement (Directors) (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004)* | ||
| 10 | .31 | Compensation of Directors of the Company (Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2006)* | ||
| 10 | .32 | Form of Restricted Stock Agreement for Non-Employee Directors under the Integra LifeSciences Holdings Corporation 2003 Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on May 17, 2005)* | ||
| 10 | .33 | Form of Restricted Stock Agreement for Executive Officers (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on January 9, 2006)* |
| 10 | .34 | Asset Purchase Agreement, dated as of September 7, 2005, by and between Tyco Healthcare Group LP and Sherwood Services, AG and Integra LifeSciences Corporation and Integra LifeSciences (Ireland) Limited (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on September 13, 2005) | ||
| 10 | .35(a) | Performance Stock Agreement by and between John B. Henneman, III and the Company dated January 3, 2006 (Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .35(b) | Amendment2008-1, dated as of January 2, 2008, to the John B. Henneman, III Performance Stock Agreement, dated as of January 3, 2006* | ||
| 10 | .36(a) | Performance Stock Agreement by and between Gerard S. Carlozzi and the Company dated January 3, 2006 (Incorporated by reference to Exhibit 10.43 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .36(b) | Amendment2008-1, dated as of January 2, 2008, to the Gerard S. Carlozzi Performance Stock Agreement, dated as of January 3, 2006* | ||
| 10 | .37(a) | Form of Performance Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on March 21, 2007)* | ||
| 10 | .37(b) | New Form of Performance Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III* | ||
| 10 | .38 | Employment Agreement by and between Maureen B. Bellantoni and the Company dated January 10, 2006 (Incorporated by reference to Exhibit 10.44 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .39 | Performance Stock Agreement by and between Maureen B. Bellantoni and the Company dated January 10, 2006 (Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005)* | ||
| 10 | .40 | Separation Agreement between Maureen B. Bellantoni and Integra LifeSciences Holdings Corporation dated as of September 6, 2007 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on September 7, 2007) | ||
| 10 | .41 | Stock Purchase Agreement, dated as of April 19, 2006, by and between ASP/Miltex LLC and Integra LifeSciences Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on April 25, 2006) | ||
| 10 | .42 | Stock Agreement and Plan of Merger, dated as of June 30, 2006, by and between Integra LifeSciences Corporation, Integra California, Inc., Kinetikos Medical, Inc., Telegraph Hill Partners Management LLC, as Shareholders Representative, and the Shareholders party thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on July 7, 2006) | ||
| 10 | .43(a) | Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2006)* | ||
| 10 | .43(b) | First Amendment to Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2007)* | ||
| 10 | .43(c) | Integra LifeSciences Holdings Corporation Management Incentive Compensation Plan, as amended and restated as of January 1, 2008* | ||
| 10 | .44 | Form of Restricted Stock Agreement for Gerard S. Carlozzi and John B. Henneman, III (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on February 27, 2007)* | ||
| 10 | .45 | Form of 2010 Convertible Bond Hedge Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .46 | Form of 2012 Convertible Bond Hedge Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .47 | Form of 2010 Amended and Restated Issuer Warrant Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report onForm 8-K filed on June 12, 2007) |
| 10 | .48 | Form of 2012 Amended and Restated Issuer Warrant Transaction Confirmation, dated June 6, 2007, between Integra LifeSciences Holdings Corporation and dealer (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K filed on June 12, 2007) | ||
| 10 | .49 | Agreement and Plan of Merger among Integra LifeSciences Holdings Corporation, ICE Mergercorp, Inc. and IsoTis, Inc., dated as of August 6, 2007 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on August 7, 2007) | ||
| 21 | Subsidiaries of the Company | |||
| 31 | .1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1 | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2 | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| * | Indicates a management contract or compensatory plan or arrangement. |