-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HHluRbQqkO7KKlv2CpwKo/lIMfIUXVXQQlUtOE8/c3OfpT9Uypvpy9dQ/cAcZIAP CHaxj9xm4mv9fgWOngoSjA== 0000950131-99-001779.txt : 19990330 0000950131-99-001779.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950131-99-001779 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DADE BEHRING INC CENTRAL INDEX KEY: 0000942307 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 363949533 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-90462 FILM NUMBER: 99575146 BUSINESS ADDRESS: STREET 1: 1717 DEERFIELD RD CITY: DEERFIELD STATE: IL ZIP: 60115 BUSINESS PHONE: 7082675400 MAIL ADDRESS: STREET 1: 153 EAST 53RD ST CITY: NEWYORK STATE: NY ZIP: 600150778 FORMER COMPANY: FORMER CONFORMED NAME: DADE INTERNATIONAL INC DATE OF NAME CHANGE: 19950321 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ---------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from to Commission File No. 333-13523 DADE BEHRING INC. (Formerly Dade International Inc.) (Exact name of registrant as specified in its charter) Delaware 36-3949533 (State or other jurisdiction of (I.R.S. EmployerIdentification No.) incorporation or organization) 1717 Deerfield Road, Deerfield, 60015-0778 Illinois (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (847) 267-5300 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 19, 1999 was approximately zero. At March 19, 1999, there were 1,000 shares of Common Stock outstanding, all held by the registrant's parent, Dade Behring Holdings, Inc. Documents Incorporated by Reference NONE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I This information should be read in conjunction with the Consolidated Financial Statements included herein. Certain statements included in this discussion are forward-looking, such as statements relating to estimates of operating and capital expenditure requirements, future revenue and operating income levels, cash flow, Year 2000 remediation plans, and liquidity. Such forward-looking statements are based on Management's current expectations and are subject to a number of risks and uncertainties that could cause actual results in the future to differ significantly from the results expressed or implied in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to global economic and business conditions, governmental and regulatory policies, Year 2000 remediation actions of suppliers and others, and the competitive environment in which the Company operates. Item 1. Business. History The original predecessor company to Dade Behring Inc. ("Dade Behring" or the "Company", formerly Dade International Inc.), the Baxter Diagnostics division (the "Predecessor") of Baxter International Inc. ("Baxter"), was established in 1949 as part of the Dade County Blood Bank in Florida. The Predecessor initially distributed its blood products through American Hospital Supply Corporation ("AHS") and was subsequently acquired by AHS in 1956. Building upon its initial blood testing base, AHS initiated extensive research and development efforts in the routine chemistry/immunoassay markets of the emerging in vitro diagnostic testing industry. From 1983 to 1985, those R&D efforts culminated in the product introductions of the Stratus and Paramax instrument platform lines. AHS also expanded into the microbiology market and established the MicroScan product line through a series of acquisitions in the early 1980s. In 1985, Baxter acquired AHS. In December 1994, Bain Capital, Inc. ("Bain Capital") and GS Capital Partners, L.P. ("GS Capital") formed Dade Behring Holdings, Inc. ("Holdings", formerly Diagnostics Holding, Inc.) and acquired the Predecessor from Baxter (the "Dade Acquisition"), with the Company becoming a wholly-owned subsidiary of Holdings. The Company held established leadership positions in hemostasis and microbiology, strong routine chemistry/immunoassay market positions, and an extensive sales and service organization. In May 1996, the Company purchased (the "Chemistry Acquisition") the in vitro diagnostics business from DuPont, which had entered into the automated clinical chemistry market in 1968 with the introduction of the first random access automated chemistry analyzer in the world and whose installed base of routine chemistry instruments was and still is one of the largest in the world. The Chemistry Acquisition also provided the Company with world-class manufacturing capabilities, automation technology, and strong management processes for operations planning and product development. In October 1997, the Company acquired (the "Behring Combination") the in vitro diagnostics business ("Behring") of Hoechst A.G and was renamed Dade Behring. Behring was established in 1904 by Emil von Behring, the recipient of the first Nobel Prize in medicine. The Behring Combination provided complementary product lines for hemostasis and routine immunochemistry and significantly broadened the overall product line portfolio by adding leadership positions in plasma protein and drugs of abuse testing/therapeutic drug monitoring. Behring also provided expanded technology capabilities in platform development, assay development and the development of emerging technologies. The acquisition of Behring also extended the geographic scope of the Company's business. Dade Behring, a corporation organized under the laws of Delaware, has its principal executive offices located at 1717 Deerfield Road, Deerfield, Illinois 60015-0778; its telephone number is (847) 267-5300. 1 Industry--Overview In vitro (literally, "in glass") diagnostic ("IVD") tests are conducted outside the body and are used to identify and measure substances in patients' bodily fluids such as whole blood, blood plasma, serum, or urine, which enable physicians to diagnose, treat and monitor patients. The most common IVD tests are traditional routine clinical chemistry tests which measure glucose, cholesterol or sodium as part of routine blood checks. Other IVD tests measure bodily functions such as blood clotting ability and cardiac function, or measure the presence of infections or drugs. The wide range and important nature of these tests have established IVD testing as an integral part of the managed care environment, providing for accurate and timely patient diagnosis and treatment. Increasingly, IVD testing is being recognized as making a significant contribution to improving patient care and lowering total patient costs. IVD tests are performed in a number of different clinical settings including hospitals, reference laboratories, physicians' offices/ambulatory care centers and consumers' homes. The global IVD market is estimated at $18.4 billion, with the United States, Western Europe and Japan comprising approximately 41%, 33% and 13%, respectively. Management believes that the global IVD market will continue to grow due to a number of key favorable industry trends: 1) Demographic shifts resulting from the aging of the population and socio-economic improvements are expected to increase the overall level of demand for diagnostic testing. 2) Increased focus on lowering total healthcare expenditures will likely increase demand for diagnostic testing as an effective tool to improve patient outcomes and reduce the costs of misdiagnosis through earlier and more accurate diagnosis and patient monitoring. 3) Emerging markets will provide additional demand as economic improvements in these countries lead to increases in healthcare expenditures. 4) Technology improvements in new tests, pathogens and markers will result in the increased use of diagnostics to aid in the diagnosis of diseases. 5) Improvements in lower cost point-of-care/near-patient testing capabilities are expected to expand the application of diagnostic testing capabilities into non-laboratory settings (e.g. operating room, emergency room, acute care centers). 6) Increased automation of diagnostic instruments is expected to lower the overall cost of diagnostic testing and thereby increase accessibility and demand. IVD systems are composed of instruments, reagents, consumables, service and data management systems. Instruments typically have a five-year life and serve to automate repetitive manual tasks, improve test accuracy and speed results reporting. Reagents are liquid or powder chemical substances that react with the patient sample to produce measurable, objective results. The consumable accessories vary across application segments but are generally items such as tubes and stoppers used during test procedures. Both reagents and consumables are typically exclusive to their related instruments (thus, a "closed" system) and, therefore, generate significant ongoing revenues for suppliers. Sample handling and preparation devices, as well as data management systems are becoming increasingly important components of the IVD system. These system additions further reduce labor, improve safety and reduce cost through their automation benefits. Providing a total integrated system solution that is reliable and easy to use creates high switching costs and loyalty among customers who value consistency and accuracy in test results. Management believes that certain trends affecting the purchasers of IVD instruments, as well as the maturation of many IVD testing applications will drive further consolidation and globalization in the IVD industry. Over the past several years, an increasing number of domestic hospitals have formed into groups known as Integrated Health Systems in order to compete for patients, develop strategic alliances with suppliers and leverage specialized departments. The formation of these Integrated Health Systems, as well as the consolidation occurring among competitors in the independent reference lab market presents larger IVD suppliers with broad product and service offerings and multiple leadership positions with the opportunity to drive standardization of their products across all labs in a group. As testing applications mature in these and other laboratories, IVD suppliers will need to increase the scale of their operations and broaden the scope of their product lines in order to leverage worldwide sales, service and research and development infrastructures. Management believes that the Company, with its global reach and broad product portfolio, is well positioned to take advantage of these trends. 2 Industry--Served Markets The Company is the largest supplier of IVD products and services to clinical laboratories in the United States and the third largest IVD supplier to clinical laboratories in the world. Of the total estimated $18.4 billion global IVD market, the Company serves a $15.1 billion segment that consists of IVD instruments, reagents, consumables, service and data management systems targeted primarily at clinical laboratories and near-patient testing. Within the Company's served markets, the Company has global market leadership positions in six of the seven core product markets, which include routine chemistry/immunoassay, cardiac, hemostasis, plasma protein, microbiology, infectious disease diagnostics, and drugs of abuse testing /therapeutic drug monitoring ("DAT/TDM"). IVD tests are conducted primarily in clinical laboratories, which include primarily hospital-based laboratories and reference laboratories (independent from hospitals). The Company's customer base consists of approximately 24,000 customers worldwide. The Company provides products and services to over 90% of U.S. hospital-based clinical laboratories and to the majority of reference laboratories worldwide. The Company manufactures and markets a broad offering of IVD products and services which includes: (i) instruments (approximately 11% of sales); (ii) reagents and consumables (approximately 86% of sales); and (iii) services (approximately 3% of sales). In total, the Company has a worldwide installed base of approximately 38,400 instruments. With a typical instrument life of five years, the Company's installed base of instruments generates annual revenue of approximately $30,000 per instrument from ongoing sales of reagents, consumables and service. More importantly, over 73% of the Company's instrument systems are "closed" systems, which require the exclusive use of Company reagents and consumables in order to run tests. As a result, the Company generates an attractive, stable and recurring stream of revenue from reagents, consumables and service contracts. A description of the Company's served markets is as follows: Routine Chemistry/Immunoassay Routine chemistry tests measure substances found in large concentrations in patients' blood, tissue, urine or other bodily fluids. These substances include cholesterol, glucose, iron and sodium and their concentration levels provide information on a patient's basic bodily functions. Routine immunoassay testing relies upon the properties of antibodies and antigens in the immune system as its key detection mechanism. Immunoassays (immunochemistry tests) measure relatively low concentrations of these substances found in blood. These tests are performed for pre- and post-surgical procedures and to monitor a patient's response to treatment and therapy. Historically, analyzers had been developed separately for routine chemistry and immunoassay testing. Today, high-volume tests are rapidly being consolidated to a single, heterogeneous platform which significantly improves overall laboratory productivity and costs. On average, hospitals operate two to three routine chemistry/immunoassay analyzers, which serve such roles as routine, STAT and specialty testing. These instruments are considered the workhorse of the clinical laboratory, accounting for up to 40% of all IVD tests performed in such laboratories and are characterized by their high throughput capabilities. Dade Behring has a broad range of routine chemistry/immunoassay instrument platforms, including the Dimension(R), Opus(TM), aca(R) and Paramax(R) instruments. Dade Behring has been a leader in workstation consolidation with the introduction of the heterogeneous module for the Dimension(R) RxL instrument, which allows the integration of highly sensitive immunoassay testing with routine chemistry onto one platform. With the Company's leadership position in workstation consolidation, the continued consolidation of routine chemistry/immunoassay testing onto a single platform represents a significant growth opportunity for the Company. The Company has a comprehensive test menu of approximately 100 tests and is currently developing over 40 additional chemistry and immunoassay tests. 3 Cardiac The Company's cardiac business is focused on immunoassay platforms targeted at cardiac diagnostics. The cardiac market is one of the highest growth segments of the broader immunoassay market, growing at 22% annually. Dade Behring is the global market share leader in the high growth cardiac segment and was one of the first to introduce a widely adopted testing system for the cardiac enzymes Troponin I, CKMB and Myoglobin. The combination of rapid and accurate tests for Troponin I, CKMB and Myoglobin has allowed for rapid diagnosis of cardiac disease and has enhanced the physician's ability for triage and diagnosis of chest pain in patients. Through its 12-year research collaboration with one of the leading U.S. cardiac marker institutions, George Washington University, the Company continues to innovate and introduce new products in the cardiac segment. The Company's Stratus(R) CS Cardiac system, launched in late 1998, represents the industry's first quantitative near-patient cardiac instrument. The Stratus(R) CS system rapid result time (13 minutes), accuracy, test menu breadth and its direct correlation to central laboratory test results on the Dimension(R) and Opus(TM) instrument platforms creates a strong competitive advantage for the Company. The Stratus(R) CS system also offers significant cost savings for healthcare providers. Currently, the average cost to rule out myocardial infarction in a patient with chest pain ranges from $1,300 to $5,600. Stratus(R) CS can achieve a result in 13 minutes which saves significant time over conventional diagnostic measures, which reduces hospital lengths of stay, avoids unnecessary testing and thereby reduces healthcare costs significantly. Additionally, the Stratus(R) CS system also reduces expenses related to unstable angina, a very common form of cardiac disease, by offering testing for a new, second-generation Troponin I marker which is a highly sensitive marker of unstable angina. The new, second-generation Troponin I marker can serve as a rule-in diagnostic procedure which would expedite follow-up treatment. The Stratus(R) CS system positions the Company well in both the near-patient and central laboratory cardiac market. Plasma Protein Plasma protein instrument systems test serum, plasma, urine or cerebral spinal fluid to help both diagnose diseases such as coronary heart diseases and rheumatic diseases as well as to detect disorders such as tumors, renal failure and malnutrition. Plasma protein tests are conducted on two types of instrument platforms. The majority of plasma protein tests are run on dedicated nephelometers such as the Company's BN(TM)II instrument; some laboratories, however, also run tests on routine chemistry/immunoassay analyzers such as the Company's Dimension(R) instrument. The Company is the market leader in the worldwide plasma protein market. The Company offers four dedicated plasma protein instruments: the BN(TM)II and BN(TM)A instruments, targeted at large, high volume hospital and commercial laboratories; the BN100 instrument, sold to small to medium sized labs; and the TurbiTime(TM)System, a manual instrument sold to small hospitals and private labs. The BN(TM)II, a large, highly automated instrument, was released in late 1996 and has proven to be a successful upgrade path for former customers of the BN(TM)A and BN(TM)100 instruments who are striving to reduce lab costs and increase actual testing throughput. The Company's instruments offer up to 60 assays which cover the complete spectrum of plasma protein tests. The Company is launching a new instrument in the fourth quarter of 1999, the BN ProSpec(TM), which will be targeted at the small to medium size customer group. The Company's focus on expanding its plasma protein business has led to the development of the broadest portfolio of plasma protein products in the market, allowing it to target customers of all sizes and usage profiles. In addition, the Company has been able to further leverage its expertise in assay development on dedicated nephelometers by offering plasma protein assays for the routine chemistry/immunoassay analyzer market. The Company is also working to grow the plasma protein market by developing new markers for disorders such as malnutrition. 4 Microbiology Dade Behring's MicroScan business serves a market that consists of identification/antimicrobial susceptibility testing ("ID/AST") instruments, reagent panels, data management systems, disposable accessories and service. Microbiology laboratories use ID/AST products to identify infection-causing bacteria (e.g., strep and staph) and to determine the minimum concentration of antibiotic (e.g., erythromycin and ampicillin) necessary to inhibit or kill the bacteria. This information is critical to the optimum management of patient therapy. Microbiology systems are "closed," meaning that reagents and consumables can only be used on the instruments for which they were produced. Continued evolutions in the microbiology testing market have been driven primarily by advances in automation, new antibiotics, the complexity of various microbes, and the increasing resistance of microbes to antibiotics. The Company manufactures and markets both manual and automated ID/AST products. MicroScan's premier instruments are the WalkAway(R)-40 and the WalkAway(R)-96, fully automated instruments that use patented dry reagent panels to conduct bacterial identification and susceptibility testing at the same time. The Company is the global leader in automated ID/AST microbiology systems and has been able to maintain its leadership position in the microbiology market by focusing on continuous instrument and panel product enhancement and high growth international markets, as well as by upgrading its instruments to help laboratories reduce their overall costs. In the United States, the Company continues to secure business through the promotion of its conventional panels, testing devices which produce more accurate results than competitive systems, and through the placement of its pharmLINK(TM) systems, which provide pharmacists, microbiologists and physicians with better information for the management of antibiotic therapy. Because antibiotics represent approximately 30% of a typical hospital's drug budget, the potential for significant cost savings will continue to drive the use of the pharmLINK(TM) system as an important data management tool. In the future, the Company expects to continue to aggressively develop international markets. Many international markets rely predominately upon manual systems--creating a significant opportunity for MicroScan as customers move to more efficient automated systems. In addition, as hospitals outside the United States continue to build the necessary information systems infrastructure, the Company expects to develop new versions of the pharmLINK(TM) system that are specific to a country's needs. Infectious Disease Diagnostics Infectious disease instrument systems test serum, plasma or cerebral spinal fluid for the presence of infectious microorganisms. This segment of Dade Behring's business consists primarily of virology testing, including HIV and hepatitis testing. The Company is devoting significant R&D investments in infectious disease diagnostics in order to develop a next-generation infectious disease diagnostics platform which will have the capability of leveraging both immunoassay and nucleic acid diagnostic technology. Dade Behring has a strong niche position in infectious disease diagnostics as well as an aggressive ongoing development program in advanced diagnostics. Dade Behring has also built strong market share positions in key European markets. In addition, the Company possesses a strong intellectual property position for HIV-O, a new variant of HIV recently discovered. Due to the increased prevalence of HIV-O, any future HIV test platform will have to include HIV-O to offer full HIV testing capability. The Company continues to invest in expanded test menu capabilities on its existing instrument line and has launched the new Quadriga(TM) platform, that allows the Company to better serve the high volume customer segment. Finally, the Company has made significant investments in nucleic acid diagnostic technologies, including branch migration inhibition (BMI). Hemostasis Hemostasis testing measures a patient's ability to form and dissolve blood clots, a critical factor in the stabilization of the cardiovascular system. Hemostasis testing can be segmented into routine screening and specialty tests. Routine hemostasis tests are typically performed before and during surgical procedures. 5 Hemostasis testing is also essential in post-surgical treatments for patients with cardiovascular disorders (e.g., monitoring treatments to "thin" the blood) and for patients with coagulation disorders (e.g., hemophilia). Specialty tests are performed to further characterize congenital disease states. Market growth is expected to come from a continued growth in the number of surgeries performed as well as from new hemostasis tests which more accurately measure blood clotting and provide for improved patient treatment. The Company pioneered the field of hemostasis and continues to maintain a global leadership position through its commitment to innovation and its development of new and improved products and services. The Company offers the industry's broadest range of instrument platforms and tests, both routine and specialty, to meet the needs of customers from small hospitals to large reference labs. The Company has a strong history of instrument product development, and has introduced two new systems (the BCS and BCT) over the past three years. The Company is capitalizing on an emerging near-patient technology opportunity with the introduction of a novel system for monitoring platelet function, which is an essential component of primary hemostasis. Platelet testing today is performed manually, with Dade Behring offering the only automated system in the market. The Company believes this will be a high-growth market as new anti-platelet therapies are developed and introduced. Drugs of Abuse Testing/Therapeutic Drug Monitoring ("DAT/TDM") Drugs tests are used to measure the level of therapeutic drugs ("TDM") or drugs of abuse ("DAT") in either blood or urine. TDM tests assist physicians in ensuring that the level of therapeutic drugs patients receive do not exceed safe ranges in the bloodstream. An example of a TDM application is testing performed on transplant patients to monitor the level of immunosuppressive drugs that they are given. Drugs of abuse tests screen for the use of illicit substances such as cocaine and marijuana. Because of their range of application, drugs tests are used at a variety of sites, from clinical laboratories to employers' offices. Drugs tests are also conducted on multiple platform types, including the Company's ETS(R) dedicated immunoassay instrument platform, as well as its Dimension(R) clinical chemistry/immunoassay analyzers. The Company manufactures a wide range of products under the Syva(R) brand name in the drugs market, including both dedicated instruments, as well as a line of over 40 reagents, which it markets to both clinical and non-clinical laboratories. Syva(R) is the world leader in DAT testing and is also a leader in DAT innovation, with the broadest menu of assays available and a large pipeline of new tests. The Company's test for LSD was chosen over the competition for use by the United States military. In order to increase the convenience of testing for its customers, the Company is developing new DAT sample collection technologies, such as a patch that detects drugs from sweat rather than urine. In addition, the Company is taking advantage of the trend in diagnostics toward testing at the point-of-care by launching the Syva(R) Rapid Test(TM) product line, a self-contained, unitized test device. The Company also has a strong position in the TDM market with an especially strong position in the high growth immunosuppressives market. The Company has been successful at developing tests for immunosuppressive drugs; it was the first to market a research-use only test for MPA and acquired a license to test for FK506. The Company's plans for growth in the drugs market center on expanding the scope of its testing platforms and assays, as well as international expansion. In order to take advantage of the growing need for drug tests, the Company has been rapidly developing new sample collection methodologies and point-of-care devices. The Company is also taking advantage of the market potential for tests on non-dedicated platforms by extending its OEM relationships with manufacturers of routine chemistry/immunoassay analyzers. In addition, growth opportunities exist for the Company outside of the United States, where drug testing is currently less well penetrated. For example, the Company has had discussions with the governments of Germany and France to use its testing devices on people involved in car accidents. Other Served Markets Immunohematology. Dade Behring immunohematology and related products are typically used by hospital laboratories and blood donor centers to classify blood products for use in transfusion procedures. The 6 immunohematology line consists of immunohematology reagents and base laboratory equipment such as cell washers and automated centrifuges. Integrated Services(TM) Division. The Company believes its Integrated Services(TM) Division ("ISD") organization is one of the largest service organizations in the industry with over 1,200 product and service specialists worldwide. This organization provides in-warranty and out-of-warranty service on the Company's approximately 38,400 instruments and provides service on a third-party basis to other medical instrument companies. All of the Company's field service personnel are trained in the technical aspects of one or more of the Company's major instrument systems. In the United States, this field service organization provides rapid (usually within six hours), on-site service to the Company's entire customer base. In the United States, the Company also maintains a telephone-based, in-house technical support and customer service group of over 160 people to provide troubleshooting and other user help, which leverages the higher cost of on-site service. Third Party Product Distribution. The Company distributes various products for third party manufacturers in select markets where it can leverage its existing distribution network. Research and Development Overview Within the IVD industry, the Company has established a track record of innovation and timely product introduction. The Company maintains an active research and development program focused on the development and commercialization of products which both complement and update its existing product offerings. In each of its core product lines, research and development was instrumental in the development of key technologies which have helped to create strategic product advantages. At December 31, 1998, there were approximately 675 employees involved in the Company's product development efforts. Dade Behring spent an average of 10% of revenues over the last three years on R&D for its core product lines, with some product lines reaching 20% of sales. Furthermore, the Company's hemostasis instrument manufacturing partners have made considerable investments in instrument and technology upgrades in collaboration with the Company. The Company's project portfolio development process ensures that priority spending is matched with strategies and core competencies. The project development process employs a market-driven, milestone-based, phase gate process to support projects from concept to post-commercialization. In addition, the Company has a strong quality management system that is the foundation of its technical product development capabilities. To provide focus for growth and profit enhancement, research and development activities are grouped into two primary categories: platform development and test menu development across all product segments. In addition, Dade Behring has identified specific growth opportunities in near-patient/point-of-care testing and advanced diagnostics development. In addition to the product development areas described below, Dade Behring has an active program in place to seek and establish alliances. The Company has an alliance with Sysmex Corporation (formerly TOA Medical Electromics Co., Ltd.), a leading Japanese manufacturer of medical instruments, to produce a variety of hemostasis instruments. Central Lab Platform Development The Company is committed to continue investing in new platforms to maintain and enhance its competitive advantage. Management believes that clinical laboratories are increasingly looking to IVD suppliers to help them reduce labor costs, the largest cost component in the laboratory. Among the activities that drive labor costs are sample preparation, instrument setup, throughput and maintenance, manual data entry and manipulation, and the verification and reporting of results. The Company has been a leader in laboratory productivity and workstation 7 automation and is engaged in a broad range of platform development programs that will further automate the laboratory and reduce total laboratory costs. In the routine chemistry/immunoassay segment, the Company created the industry's first platform capable of performing highly sensitive heterogeneous immunoassays along with routine clinical chemistry, specialty tests, electrolytes and metabolites with the Dimension(R) RxL instrument platform. The Company is investing to maintain its leadership in laboratory productivity with additional platform enhancements including an integrated centrifugation technology to reduce excess sample handling and transportation time, sensor- based technology to enhance instrument efficiency and a number of additional features that will enhance the product offering. The Company also markets two new high-end automated platforms, one for the Plasma Protein product line, the second for the Hemostasis segment. Current new product initiatives include platform systems that are designed to meet the needs of the small to mid-size volume customer for the Plasma Protein and Hemostasis product lines. In addition to improvements in the existing portfolio of instruments, the Company continues to seek out new opportunities through the focused development of certain niche instruments. Such products include the recently introduced Platelet Function Analyzer (PFA-100) instrument, which automates the testing and quantifiable measurement of platelet function. Like most IVD instruments, the PFA-100(R) instrument uses proprietary reagents and consumables designed exclusively for this instrument. The Company has also developed and launched the Stratus CS(R) instrument, which is designed to address the need for rapid measurement of cardiac-specific markers in the emergency room and other near- patient care environments, as well as in the central laboratory. Test Menu Development Once the Company places an instrument, the development of new reagents to conduct additional tests represents a highly leveraged growth opportunity. The Company's large installed base of approximately 38,400 instruments thus represents significant potential for the Company's new reagent development efforts. The Company is currently developing a series of highly sensitive immunoassays for the Dimension(R) RxL instrument platform. It is also increasing the specialty tests on this system with incremental plasma protein methods as well as new drugs of abuse assays. For the specialty and niche platforms a number of new tests are under development. For example, additional acute care markers for the Stratus(R) CS instrument, new protein markers such as soluble transferrin receptor, an important new anemia test, for the plasma protein systems and new and updated identification and antibiotic susceptibility panels for the microbiology platforms are being developed. The Company also has a significant investment in assays for the new infectious disease diagnostics platform. The Syva group is developing a series of TDM assays for immunosuppressive drugs important for the ongoing treatment and maintenance of organ transplant patients. Near-Patient/Point-of-Care Development Dade Behring has identified near-patient testing and point-of-care testing as emerging growth opportunities in diagnostics. The Company invests significantly across various segments of the near-patient market and has the leadership position in the point-of-care cardiac segment today. Recent product introductions include the successful 1997 launches of the Syva(R) Rapid Test, the PFA-100(R) instrument and the recently launched next-generation Stratus(R) CS cardiac instrument. Furthermore, Dade Behring is evaluating alternatives to leverage its global hemostasis position in the point-of-care market. Customers The Company has a broad customer base that includes primarily hospital and reference laboratories. The Company sells its products worldwide and derives 47% of its revenue from outside the United States. No end-consumer represents more than 4% of the Company's sales. Sales to Allegiance Healthcare Corporation, the Company's U.S. distributor for certain product lines, represented 17% of the Company's sales. 8 Sales, Distribution and Marketing The Company maintains twelve sales offices in the U.S. and thirty-eight sales offices outside the U.S. and employs over 2,300 people in its worldwide sales group, comprised of field sales representatives, managers, clinical application specialists ("CASs") and field service representatives. Field sales representatives are the traditional salesforce and are organized by product line. The CASs provide troubleshooting in the field, customer training, and conduct workshops and seminars. The CASs are also organized by major product lines. Field service representatives install instruments at customer locations and provide maintenance and service work on the instruments. In addition, the Company utilizes twelve distributors outside of the U.S. The Company maintains a dedicated Health Systems sales team in the U.S. that is exclusively focused on leveraging the Company's broad product line capabilities with Integrated Health Systems. Integrated Health Systems are large hospital networks in integrated delivery systems and represent an increasingly important portion of the customer base. The Health Systems sales team is focused on the top Integrated Health System accounts and provide overlay support for the sales representatives. In the United States, this sales organization works closely with the Company's chief domestic distributor, Allegiance Healthcare Corporation ("Allegiance"). Allegiance provides routine distribution and delivery functions such as order entry, invoicing, customer service, database management and physical warehousing and delivery. Chemistry and Syva products are sold directly to customers in the U.S. without a distributor. In addition to its worldwide sales group, the Company employs approximately 350 marketing personnel worldwide with extensive knowledge and understanding of industry issues, market trends, customer needs and competitive dynamics. Instrument Placements The Company's instruments range in retail price from $20,000 to $175,000. Globally, approximately one-third of the Company's instrument placements in 1998 were sold to customers, approximately one-third were sold through third- party lessors and the remainder were financed directly by the Company. The Company offers customers a variety of financing options designed to offset the large up-front capital outlay necessary to purchase an IVD instrument. The two most common financing methods are (i) third-party leasing, and (ii) reagent rental agreements in which Dade Behring retains title to the instrument and recoups the cost via premiums on its reagents. Intellectual Property The Company owns over 3,750 United States and non-U.S. patents, and has hundreds of patent applications currently pending in the United States and abroad. These patents and patent applications cover a broad base of technology relating to the Company's MicroScan(R), Stratus(R), Syva(R), Dimension(R), Opus(TM), aca(R), Hemostasis and Plasma Protein product lines as well as technology which has yet to be commercialized. The Company also licenses certain patents and other intellectual property from third parties. In addition to its extensive patent portfolio, the Company possesses a wide array of unpatented proprietary technology and know-how. The Company owns over 2,000 United States and non-U.S. registered trademarks and service marks, including the Company's well known and respected Syva(R), MicroScan(R), Stratus(R), and Dimension(R) brand names. In addition, the Company has hundreds of applications for registration of trademarks and service marks pending in the United States and abroad. The Company also owns several United States copyright registrations. In the aggregate, these patents, patent applications, trademarks, copyrights and licenses are of material importance to the Company's business. However, the Company believes that no single patent, trademark or copyright (or related group of patents, trademarks or copyrights) is material in relation to the Company's business as a whole. 9 Employees As of December 31, 1998 the Company had approximately 6,600 full-time and part-time employees, 3,850 in the United States (including Puerto Rico), 2,200 in Europe, 250 in Japan and 300 in other locations around the world. The Company also contracted with approximately 600 temporary employees as of December 31, 1998. Environmental, Health and Safety Matters The Company is subject to Federal, state, local and foreign environmental laws and regulations and is subject to liabilities and compliance costs associated with the handling, processing, storing and disposing of hazardous substances and wastes. The Company's operations are also subject to federal, state, local and foreign occupational health and safety laws and regulations. The Company devotes resources to maintaining environmental compliance and managing environmental risk and believes that it conducts its operations in substantial compliance with applicable environmental and occupational health and safety laws and regulations. Nonetheless, from time to time, the operations of the Company may result in noncompliance with environmental or occupational health and safety laws or liability pursuant to such laws. The Company expects to incur approximately $0.2 million in capital expenditures for environmental controls in the current fiscal year to upgrade the heating plant at its Dudingen facility in Switzerland to conform to local air emission limits. The Company does not expect to incur material capital expenditures for environmental controls in the succeeding fiscal year. Item 2. Properties. The Company provides its customers with high quality products by controlling each stage of production. Below is an overview of the Company's manufacturing facilities including key products manufactured:
Floor No. of Area (Sq. Location Sites Ft.) Owned/Leased Products -------- ------ --------- ------------ ------------------------------ Duedingen, Switzerland.. 2 184,700 1 Owned Immunohematology 1 Leased Miami, Florida.......... 1 203,000 Owned Hemostasis, Routine Chemistry/Immunoassay Sacramento, California.. 2 236,900 1 Owned Microbiology 1 Leased Glasgow, Delaware....... 1 447,000 Owned Cardiac, Routine Chemistry/Immunoassay Brookfield, Connecticut. 1 100,000 Leased Cardiac, Routine Chemistry/Immunoassay Cupertino, California... 1 110,000 Leased Drugs of Abuse Testing, Therapeutic Drug Monitoring Marburg, Germany........ 3 320,000 1 Owned Hemostasis, Plasma Protein, 2 Leased Infectious Disease Diagnostics Kawagoe, Japan.......... 1 29,000 Leased Plasma Protein --- --------- 12 1,630,600 === =========
Item 3. Legal Proceedings. The Company is involved in a number of legal proceedings arising in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company's business or financial condition. Item 4. Submission of Matters to a Vote of Security Holders. None. 10 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters. None. Item 6. Selected Financial Data. Set forth below are selected historical financial data of the Predecessor and the Company as of the dates and for the periods shown. The selected historical financial data, except for the Predecessor's data, were derived from the Company's financial statements, which, except for data as of December 31, 1994, 1995 and 1996 and for the period from December 17, 1994 through December 31, 1994 and the year ended December 31, 1995, are included elsewhere in this Form 10-K. The selected historical financial data for the period from January 1, 1994 through December 16, 1994 were derived from the Predecessor's financial statements, which were audited and do not appear in this Form 10-K. The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Form 10-K.
The Predecessor(1) Company(1) -------------- --------------------------------------------------------------------- Period from -------------------------------------------- 1/1/94 to 12/17/94 to 1/1/94 to 12/16/94 12/31/94(2)(3) 12/31/94(2)(3) 1995(2)(3) 1996(6) 1997(7) 1998(8) -------------- -------------- -------------- ---------- -------- -------- -------- (dollars in millions) Net sales............... $650.6 $19.0 $669.6 $614.3 $ 795.8 $ 980.5 $1,285.2 Cost of goods sold...... $391.4 $18.6 $410.0 $368.6 $ 444.1 $ 654.1 $ 529.4 Gross profit............ $259.2 $ 0.4 $259.6 $245.7 $ 351.7 $ 326.4 $ 755.8 Marketing and administration expenses............... $173.2 $ 2.4 $175.6 $171.1 $ 255.5 $ 366.8 $ 513.9 Research and development expenses............... $ 33.4 $ 1.1 $ 34.5 $ 26.5 $ 138.0 $ 61.7 $ 88.2 Goodwill amortization expense (credit)....... $ 2.6 $(0.1) $ 2.5 $ (0.4) $ 3.3 $ 5.4 $ 5.4 Restructuring and downsizing costs (4)... $ -- $ -- $ -- $ -- $ 15.0 $ 40.1 $ (4.5) Income (loss) from operations............. $ 50.0 $(3.0) $ 47.0 $ 48.5 $ (60.1) $ (147.6) $ 152.8 Extraordinary items (5). $ -- $ -- $ -- $ -- $ (25.0) $ -- $ -- Net income (loss)....... $ 35.8 $(1.9) $ 33.9 $ 12.7 $ (105.3) $ (142.6) $ 43.5 December 31, ------------------------------------------------------ 1994 1995 1996 1997 1998 -------------- ---------- -------- -------- -------- Total assets.......................................... $696.2 $550.9 $1,005.1 $1,510.4 $1,533.4 Long-term liabilities................................. $300.3 $297.9 $ 807.9 $ 875.1 $ 815.6
- -------- (1) The financial data of the Predecessor and the Company were prepared on different bases of accounting. (2) Financial data for the period from December 17, 1994 to December 31, 1994 and for the year ended December 31, 1995 exclude the results of the Burdick & Jackson and Bartels product lines, which were reflected as "Net assets held for sale." 11 (3) The Company's stockholder's equity and net loss for the period December 17, 1994 through December 31, 1994 includes a non-recurring pre-tax charge relating to the application of purchase accounting for a partial write-off of $5.6 million to cost of goods sold related to the write-off of the $46.0 million of allocated purchase price made to record acquired finished goods and work-in-process inventory at fair market value. The Company's stockholder's equity and net income for the year ended December 31, 1995 include the non-recurring pre-tax write-off of the remaining $40.4 million of the inventory write-up discussed above. (4) In 1996, a $15.0 million restructuring charge was recorded related to a plan to eliminate redundancies and rationalize production capacity in connection with the Chemistry Acquisition. In 1997, the Company recorded a $40.1 million restructuring charge to consolidate manufacturing and distribution operations and eliminate redundant sales, service and administrative functions. In 1998, $4.5 million of the 1997 reserve was determined to be excess and was reversed. (5) Two extraordinary charges totaling $25.0 million after tax were made to record the costs associated with the repurchase of the original 13% senior subordinated notes due 2005 and the write-off of previously deferred financing fees. (6) The pre-tax loss for the year ended December 31, 1996 reflects the following pre-tax charges resulting from purchase accounting for the Chemistry Acquisition and other items: (i) a charge to cost of goods sold for $24.8 million of allocated purchase price to record work-in-process and finished goods inventories to fair market values, (ii) a $15.0 million restructuring charge designed to lower operating costs, increase efficiency, and eliminate redundant operations, (iii) a $98.1 million charge to research and development expense for acquired research and development projects which do not have alternative applications or separable economic value, and (iv) a $9.5 million charge to cost of goods sold to establish a reserve for excess spare parts inventories related to the Paramax(R) product line. (7) The net loss for the year ended December 31, 1997 reflects the following pre-tax charges resulting from application of purchase accounting for the Behring Combination related to the following: (i) a charge to cost of goods sold for $171.4 million of allocated purchase price to record acquired finished goods and work-in process inventories to fair market values, (ii) a $40.1 million restructuring charge to consolidate manufacturing and distribution operations and eliminate redundant sales, service and administrative functions, (iii) a $1.1 million charge to research and development expense for acquired research and development projects which do not have alternative applications or separable economic value, (iv) $33.5 million of charges related to distribution costs, increased inventory reserves resulting from plant closures and non-core product transition costs, (v) $11.4 million of stock-based compensation charges related to grants of stock options and purchase rights, and (vi) $2.0 million of integration costs associated with the Behring Combination. (8) Net income for the year ended December 31, 1998 reflects the following pre- tax charges: (i) $13.1 million of stock-based compensation charges related to grants of stock options and purchase rights, (ii) $24.6 million of integration costs associated with the Behring Combination, and (iii) $5.4 million in non-recurring Year 2000 ("Y2K") costs. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Comparability Comparisons drawn from the Company's Consolidated Financial Statements for 1996 through 1998 are impacted by the Chemistry Acquisition effective May 1, 1996 and the Behring Combination effective October 1, 1997. These transactions were accounted for under the purchase method of accounting and accordingly, their respective results have been included in the Consolidated Financial Statements from the date of acquisition. Certain significant purchase accounting-related and other items impacting comparability include, but may not be limited to: 1998 . $13.1 million of stock-based compensation charges were recorded related to grants of stock options and purchase rights. . $24.6 million of integration costs associated with the Behring Combination. . $5.4 million of non-recurring Year 2000 ("Y2K") costs. 12 1997 . A $171.4 million charge was recorded to cost of goods sold related to the step-up to fair value of work-in-process and finished goods inventory in connection with the purchase price allocation for the Behring Combination. . A $40.1 million restructuring charge was recorded to consolidate manufacturing and distribution operations and eliminate redundant sales, service and administrative functions. . $1.1 million was charged to research and development expense upon consummation of the Behring Combination pertaining to purchase price allocated to acquired research and development projects that have no alternative future use. . $33.5 million of charges were recorded including $12.2 million charged to cost of goods sold primarily for distribution costs and increased inventory reserves resulting from the Miami plant closure actions and $21.3 million charged to marketing and administrative expense related primarily to the transition of the Stratus(R) non-cardiac and Paramax(R) product lines. . $11.4 million of stock-based compensation charges were recorded related to grants of stock options and purchase rights. . $2.0 million of integration costs associated with the Behring Combination. 1996 . A $24.8 million charge was recorded to cost of goods sold related to the step-up to fair value of work-in-process and finished goods inventory in connection with the purchase price allocation for the Chemistry Acquisition. . A $15.0 million restructuring charge was recorded to operating expense in connection with a restructuring plan designed to lower operating costs, increase efficiency and eliminate redundant operations. . The Company recorded a $98.1 million charge to research and development expense upon consummation of the Chemistry Acquisition pertaining to purchase price allocated to in-process research and development projects that have no alternative future use. . Two extraordinary charges totaling $25.0 million after-tax were made to record the costs associated with the repurchase of the original 13% senior subordinated notes due 2005 and the write-off of previously deferred financing fees. . A $9.5 million charge to cost of goods sold was recorded to establish a reserve for excess spare parts inventories related to the Paramax(R) product line. This non-cash charge was a direct result of the Chemistry Acquisition and the decision to designate the Paramax(R) product line as non-core. . The elimination of the reporting period lag for the Company's international operations added $12.3 million to the sales for the year ended December 31, 1996. The change in reporting period did not significantly impact earnings. Results of Operations 1998 Compared to 1997 Net sales for 1998 totaled $1,285.2 million as compared to $980.5 million in 1997. The $304.7 million or 31.1% increase over 1997 was attributable primarily to the inclusion of a full year of sales from the Behring 13 Combination versus three months of sales in 1997. The strong U.S. dollar reduced sales outside of the U.S. by $5.2 million in 1998 versus 1997. Gross profit for 1998 totaled $755.8 million compared to $326.4 million in 1997. Excluding the $14.6 million of non-recurring costs related to the Behring integration, 1998 gross profit was $770.4 million. Gross profit for 1997 totaled $510.0 million, exclusive of the $171.4 million purchase accounting inventory step-up and the $12.2 million charge related primarily to distribution costs and to increased inventory reserves resulting from the Miami plant closure actions. Exclusive of the above impacts, gross profit increased $260.4 million or 51.1% over 1997, with gross margins improving to 59.9% as compared to 52.0% in 1997. This increase was attributable primarily to the inclusion of a full year of operations from the Behring Combination versus three months of operations in 1997, the ongoing realization of manufacturing cost reductions initiated as a result of the combination and a favorable shift toward higher margin products. Marketing and administrative expense for 1998 totaled $513.9 million as compared to $366.8 million in 1997. During 1998 $8.6 million of non-recurring costs related to the Behring integration were included in marketing and administrative expenses. Marketing and administrative expense for 1997 included $21.3 million of non-recurring charges primarily related to the transition of non-core product lines. Exclusive of the above impacts, the $159.8 million or 46.3% increase over 1997 was attributable primarily to the inclusion of a full year of operations from the Behring Combination versus three months of operations in 1997, offset by cost reduction programs initiated as a result of the combination. Research and development expense for 1998 totaled $88.2 million, or $86.9 million exclusive of $1.3 million of non-recurring costs related to the Behring integration. Research and development expense for 1997 totaled $60.6 million, exclusive of the $1.1 million purchase accounting write-off of in- process research and development projects related to the Behring Combination. Exclusive of the above impacts, the $26.3 million or 43.4% increase over 1997 was attributable primarily to the inclusion of a full year of operations from the Behring Combination versus three months of operations in 1997, and increased investment in new products offset by cost synergies related to eliminating overlapping or redundant R&D projects. Research and development expenditures are primarily focused on the development of new instrument platforms, expansion of test menus and investment in advanced diagnostics and point-of-care technologies. The restructuring credit of $4.5 million in 1998 related to the reversal of excess severance charges initially established in 1997, as a result of higher than projected levels of employee turnover at the Company's Miami facility (see also Note 10 to the Consolidated Financial Statements). Net interest expense for 1998 totaled $80.5 million as compared to $87.8 million in 1997. The $7.3 million or 8.3% decrease was attributable primarily to lower borrowing rates. Other income of $5.6 million in 1998 includes gains of $2.4 million for the sale of two non-strategic businesses and $2.9 million for the sale of a former manufacturing facility in Miami. Pre-tax net income for 1998 totaled $77.9 million as compared to a pre-tax net loss of $226.4 million in 1997. The pre-tax net loss in 1997 was attributable primarily to the effects of purchase accounting, restructuring charges, non-recurring operating charges, incremental and duplicative operating costs and integration costs. Income tax expense of $34.4 million (an effective rate of 44.2%) was recorded in 1998. At December 31, 1998, the Company had net deferred tax assets of $375.3 million. In assessing the realizability of the deferred tax asset, management has analyzed the Company's forecast of future taxable income by jurisdiction and other relevant factors and has concluded that recoverability of the net deferred tax asset is more likely to occur than not. 14 For the year ended December 31, 1998, the Company had net income of $43.5 million, as compared to a net loss of $142.6 million in 1997. The net loss in 1997 reflects the impacts of purchase accounting, restructuring charges, non- recurring operating charges, incremental and duplicative operating and integration costs. Earnings before interest, taxes, depreciation, amortization, non-cash stock-based compensation expense, non-recurring integration expenses, other non-recurring operating charges and other non-cash charges (EBITDA) for 1998 totaled $258.6 as compared to $176.0 million in 1997. The $82.6 million or 46.9% increase over 1997 was attributable primarily to the inclusion of a full year of operations from the Behring Combination versus three months of operations in 1997 and realization of cost synergies from the integration of Behring operations. EBITDA, which is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness, represents the sum of net income, depreciation and amortization, non-cash stock-based compensation expense, non-recurring integration expenses, and other non- recurring operating charges and other non-cash charges. EBITDA should not be considered as a substitute for net income as a measure of a Company's operating results or to cash flows as a measure of liquidity. 1997 Compared to 1996 Net sales for 1997 were $980.5 million, an increase of $184.7 million or 23.2% over 1996. The increase was attributable primarily to the inclusion of sales from the Behring Combination during the three months of ownership in 1997 and the inclusion of twelve months of sales from the Chemistry Acquisition (versus eight months of sales in 1996). The strong U.S. dollar reduced international sales by $45.3 million in 1997 versus 1996. Gross profit for 1997 totaled $510.0 million as compared to $386.0 million in 1996, after adjusting for the following items impacting comparability; in 1996, the $24.8 million purchase accounting inventory step-up impact, and the $9.5 million charge to establish a reserve for excess Paramax(R) spare parts inventories recorded and in 1997, the $171.4 million purchase accounting inventory step-up and the $12.2 million charge related primarily to distribution costs and to increased inventory reserves resulting from the Miami plant closure actions recorded in 1997. The $124.0 million increase in gross profit over 1996 exclusive of the above impact was due to the inclusion of twelve months of results of the Chemistry Acquisition, as compared to only eight months of activity in 1996, three months of results of the Behring Combination, as well as the ongoing realization of manufacturing cost reduction initiatives and a shift toward higher margin products. The strong U.S. dollar reduced gross profit by $24.9 million in 1997 versus 1996. Gross margins for 1997 improved to 52.0% as compared to 48.5% in 1996 exclusive of the above adjustments. Marketing and administrative expense for 1997 totaled $345.5 million, excluding $21.3 million of non-recurring charges primarily related to the transition of non-core product lines, as compared to $255.5 million in 1996. The increase is due to the inclusion of twelve months of activity from the Chemistry Acquisition as compared to only eight months of activity in 1996 and the inclusion for 1997 of three months of operations from the Behring Combination and non-recurring costs related to the integration of Behring, offset by cost reduction programs and lower international expenses resulting from the strength of the U.S. dollar. Research and development increased by $20.7 million or 51.9% in 1997 as compared to 1996 exclusive of $98.1 million purchase accounting write-off of in-process research and development projects related to the Chemistry Acquisition in 1996 and the $1.1 million purchase accounting write-off of in- process research and development projects related to the Behring Combination in 1997. The increase is attributable to twelve months of operations from the Chemistry Acquisition as compared to only eight months of activity in 1996, three months of operations from the Behring Combination, offset partially by realized cost synergies. Research and development expenditures are primarily focused on supporting projects that are expanding test menus, developing the next generation Dimension(R) RxL clinical chemistry instrument platform and developing a new point-of-care cardiac instrument platform. During 1997, the Company recorded a $40.1 million restructuring charge and allocated $77.7 million of the Behring Combination purchase price related to a restructuring plan to consolidate manufacturing and distribution 15 operations and eliminate redundant sales, service and administrative functions. The restructuring plans include actions to close the Miami and Westwood manufacturing facilities, consolidate and reorganize the global sales, marketing and R&D organizations and eliminate administrative redundancies. Net interest expense for the year ended December 31, 1997 was $87.8 million as compared to $65.6 million for 1996. The increase is attributable to a full year of Chemistry Acquisition debt service recorded (versus eight months in 1996), offset partially by lower borrowing rates. Other income of $9.0 million in 1997 includes a gain of $9.5 million for a settlement with a supplier for non-performance under a contractual agreement partially offset by foreign currency transaction losses. An income tax benefit of $83.8 million (an effective rate of 37%) was recorded in 1997. The Company's pre-tax loss of $226.4 million was caused by purchase accounting related adjustments of $171.4 million for inventory step- up and $1.1 million for the write-off of in-process research and development projects with no alternative future use, the restructuring charge of $40.1 million and the other non-recurring charges of $33.5 million. At December 31, 1997, the Company had a net deferred tax asset of $380.2 million. In assessing the realizability of the deferred tax asset, management has analyzed the Company's forecast of future taxable income by jurisdiction and other relevant factors and has concluded that recoverability of the net deferred tax asset is more likely to occur than not. The realization of the deferred tax asset is not dependent upon material improvement over the Company's forecast level of pre-tax income, significant changes in the current relationship between income reported for financial and tax purposes, or material asset sales or other transactions not in the normal course of business. For the year ended December 31, 1997, the Company had a net loss of $142.6 million as compared to a net loss of $105.3 million in 1996. The net loss in 1997 was due to the effects of purchase accounting, restructuring charges, increased interest expense related to a full year of Chemistry Acquisition debt service, non-recurring operating charges, incremental and duplicative operating costs and integration costs. For the year ended December 31, 1997, the Company's EBITDA was $176.0 million, as compared to $126.5 million for 1996. The increase over 1996 is attributable to the full year of operations from the Chemistry Acquisition and three months of operations from the Behring Combination and realization of cost synergies from the integration of the Chemistry and Behring operations. Foreign currency exchange rate fluctuations had an adverse impact of $9.2 million on EBITDA during 1997 versus 1996. EBITDA, which is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness, represents the sum of net loss, depreciation and amortization, the purchase accounting write-offs related to inventory step-up and in-process research and development with no alternative future use, non-cash stock-based compensation expense, integration expenses, restructuring and other non- recurring operating charges and other non-cash charges. EBITDA should not be considered as a substitute for net income as a measure of a Company's operating results or to cash flows as a measure of liquidity. Financial Condition and Liquidity The Company's primary liquidity requirements are for working capital, capital expenditures, restructuring expenditures and debt service. Working capital at December 31, 1998 totaled $260.8 million. At December 31, 1998, the Company had utilized $19.0 million of its $105.0 million revolving credit facility and had $151.6 million available under various non-U.S. credit lines. Capital expenditures, including instrument placements in customer locations, totaled $139.0 million in 1998 compared to $68.4 million in 1997. The increase reflects the impact of a full year of Behring operations, integration-related investments for stand-alone infrastructure of $8.8 million, and integration-related expenditures for information systems of $15.6 million. Capital expenditures in 1999 are expected to approximate 1998 levels. Management believes cash from operating activities and the Company's available credit facilities will be sufficient to permit the Company to meet its financial obligations and fund its operations and planned investments. 16 Inflation affects the cost of goods and services used by the Company. Inflation has been modest in recent years. Overall product prices have been relatively stable during the past three years and the Company continues to mitigate the adverse effects of inflation primarily through new product offerings, improved productivity and cost containment and improvement programs. Outlook Management expects sales and operating income growth in 1999, reflecting the impact of new product introductions and the continued realization of synergies from the integration of Behring operations into the Company, offset partially by managed declines in certain mature product lines. Management believes the Company's broad product line offering and extensive sales and service infrastructure position it well to compete globally. Sales results outside the United States are subject to significant influence by foreign currency exchange rates. Continued growth from new products is anticipated as the Company continues to benefit from new platform launches and continued expansion of test menus and investments in near-patient products. Key products include the Dimension(R), Stratus(R) CS, Hemostasis, Sysmex(R) CA-500, Sysmex(R) CA-1500, and BN ProSpec(TM) instruments, Infectious Disease Diagnostics Quadriga platform as well as a wide range of new assays. Management expects to continue to aggressively manage the decline across mature product lines (such as Paramax(R) and Stratus(R) non-cardiac) as the Company continues its successful strategy of migrating customers from these non-core product lines to newer platforms (e.g. Dimension(R)). The Company expects to achieve additional productivity gains in 1999 from the integration of the Behring Combination. Synergies will be achieved from the final closure of the Miami, Florida facility; closure of the Kawagoe, Japan manufacturing facility; elimination of certain transition services from Hoechst A.G. and Baxter as stand-alone systems and infrastructure projects are completed; achieving a full-year benefit from 1998 actions including the closure of the Westwood, Massachusetts facility; consolidation of country sales and service organizations; and elimination of duplicative administrative functions. Other Matters Year 2000 Readiness Certain information systems in use today may not be able to interpret dates after December 31, 1999 because such systems allow only two digits to indicate the year in a date. As a result, such systems are unable, for example, to distinguish January 1, 2000 from January 1, 1900. Such inability to properly distinguish between dates could have adverse consequences on the operations of a business and the integrity of information processing. This potential problem is commonly referred to as the "Year 2000" or "Y2K" issue. The Company has completed a review of substantially all of its information systems and product offerings for Year 2000 issues. The scope of this review included information technology infrastructure components (such as hardware, operating systems and communication equipment), business application software, production and research equipment, laboratory products and associated applications, buildings' and facilities' systems, personal computers, and the status of all key suppliers' Year 2000 remediation efforts. Based on the results of the review, a formal plan has been established by the Company to address Year 2000 issues. The Plan is monitored by the Company's Year 2000 Program Office, comprised of senior management in key functional areas, which reports on a regular basis to executive management on the plan's status. Although the identification and successful remediation of all Year 2000 issues cannot be assured with absolute certainty, the Company expects a successful execution of its Year 2000 plan. The inability of the Company or third parties on which it relies to resolve Year 2000 issues could have a material adverse effect on the Company's results of operations and financial condition. 17 The plan, which provides a process for periodic progress reporting on a site and region basis, prioritizes mission critical and urgent Year 2000 issues. Progress against the plan is meeting interim mileposts. As of December 31, 1998, remediation plans for 98% of our products have been developed, with the remaining 2% completed in the first quarter of 1999. Approximately 46% of all identified internal applications requiring remediation have been made ready as of December 31, 1998. The majority of mission critical and urgent Year 2000 product and internal systems issues are planned to be remedied by the end of the second quarter of 1999, and all are expected to be resolved no later than the end of the third quarter of 1999. Contingency plans, as necessary, will be fully established beginning in the first quarter of 1999. In connection with the resolution of Year 2000 issues, the Company incurred expenses of approximately $5.4 million in 1998 and expects to incur expenses of approximately $30.0 million in 1999; expenses in 2000 are expected to be immaterial. However, there can be no assurance that these costs will not be greater than anticipated. New Accounting Pronouncements On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of SFAS 133 will not have a significant effect on the Company's results of operations or its financial position. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The information below about the Company's market sensitive financial instruments constitutes a "forward-looking statement." Actual results in the future may differ materially from projected results due to actual developments in the global financial markets. The methods used by the Company to assess and mitigate risk should not be considered projections of future events or losses. The Company enters into contracts with major financial institutions, thereby minimizing the risk of credit loss. Although the Company does not anticipate nonperformance by counterparties, nonperformance would expose the Company to credit loss. In the ordinary course of business, the Company utilizes various financial instruments that inherently have some degree of market risk. The principle market risks to which the Company is exposed are changes in interest rates and foreign currency exchange rates. The Company does not enter into contracts for speculative or trading purposes. Contract periods are consistent with related underlying exposures and do not constitute positions independent of those exposures. The qualitative and quantitative information presented below summarizes the Company's market risks associated with debt obligations and other significant financial instruments outstanding at December 31, 1998. Fair values included herein have been determined based on quoted market prices. The information presented below should be read in conjunction with Note 3 to the Consolidated Financial Statements. Interest Rate Risk The Company is subject to interest rate risk on its long-term variable interest rate debt. The Company enters into debt obligations primarily to support general corporate purposes, including capital expenditures and working capital needs. To manage a portion of its exposure to interest rate increases on its outstanding debt, the Company uses purchased interest rate caps, for which the Company will receive cash payments from the counterparty if an indexed rate of interest is exceeded. These agreements effectively change the Company's exposure on its debt obligations with variable interest rates to a fixed interest rate ("strike price") of 8.5% to 9%, based on three-month LIBOR rates. Interest rates at December 31, 1998 were below the strike prices of these contracts. 18 At December 31, 1998, the Company had outstanding three interest rate cap agreements having notional principal amounts of $50 million each and one interest rate cap agreement having a notional principal amount of $80 million. The interest rate cap agreements mature on June 14, 1999, July 23, 1999, July 30, 1999, and August 6, 1999, respectively. The following table sets forth, as of December 31, 1998, the Company's principal cash flows for its long-term debt obligations under its bank credit agreement, related weighted average interest rates, and the notional amounts and weighted average interest rates of the Company's interest rate caps, by expected maturity dates (U.S. dollars in millions):
Expected Maturity Dates Estimated ---------------------------------------------- Fair Value at 1999 2000 2001 2002 2003 Thereafter Total December 31, 1998 ------ ----- ----- ----- ----- ---------- ------ ----------------- Long-term variable rate debt $ 13.0 $40.7 $84.8 $89.8 $87.4 $70.3 $386.0 $386.0 Weighted average interest rate 7.4% 7.4% 7.7% 7.5% 7.9% 8.2% Variable to fixed caps $230.0 $ -- $ -- $ -- $ -- $ -- $230.0 $ -- Weighted average receive rate 8.7% -- -- -- -- --
Foreign Currency Risk The Company is subject to foreign currency risk on certain short-term intercompany borrowing arrangements denominated in foreign currencies. The Company enters into these arrangements primarily to support the underlying working capital needs of non-U.S. subsidiaries. At December 31, 1998, the Company's non-U.S. short-term borrowings totaled $96.4 million. In addition, the Company is subject to foreign currency risk on trade accounts payable and receivable, primarily intercompany, where the receivable or payable is denominated in a currency other than the functional currency of the entity. To manage a portion of these exposures to foreign currency fluctuations, the Company uses forward currency exchange contracts. At December 31, 1998, the Company had outstanding 26 short-term forward currency exchange contracts denominated in Australian, Canadian, Dutch, Filipino, French, Italian, Japanese, Singapore, Swiss, and U.S. dollar currencies having a total notional contract amount of $89.7 million. The contracts mature between January and July, 1999. The cost to settle the contracts, which is not material to any individual contract, was $5.0 million at December 31, 1998. The following table sets forth, as of December 31, 1998, the contract amounts at the contract exchange rates as of the contract maturity dates for significant forward currency exchange contracts outstanding (U.S. dollars in millions). Due to the short-term nature of these contracts, contract amounts approximated fair values, and contract exchange rates approximated weighted average contract foreign currency exchange rates at December 31, 1998.
Contract Contract Estimated Fair Value Amount Rate at December 31, 1998 -------- -------------- -------------------- Receive U.S. Dollar/Pay: Australian Dollar.......... $ (2.6) 0.6415-0.64175 $ (2.5) Canadian Dollar............ $ (4.9) 1.54177-1.549 $ (4.9) Swiss Franc................ $(18.3) 1.3317-1.376 $(18.0) French Franc............... $(25.7) 5.526-5.687 $(25.5) Italian Lira............... $ (5.1) 1678.9 $ (5.1) Japanese Yen............... $(26.7) 125.53-134.15 $(30.3) Dutch Guilder.............. $ (1.4) 1.99009 $ (1.4) Philipine Peso............. * 49.85 * Singapore Dollar........... $ (2.2) 1.6433-1.608 $ (2.2) Pay U.S. Dollar/Receive: Swiss Franc................ $ 0.7 1.36 $ 0.7 French Franc............... $ 1.8 5.4968 $ 1.8 Singapore Dollar........... $ 0.3 1.594 $ 0.3
-------- *Less than $0.1 million 19 Item 8. Financial Statements. See the attached Consolidated Financial Statements (pages F-1 through F-29). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. Executive officers and directors of Dade Behring are as follows:
Name Age Position ---- --- -------- Steven W. Barnes.......... 38 President, Chief Executive Officer and Director James W. P. Reid-Anderson. 39 Chief Administrative Officer, Chief Financial Officer and Director Robert W. Brightfelt...... 56 Group President, Chemistry and Director Friedhelm Blobel.......... 50 Group President, Microbiology, Syva, and Advanced Diagnostics Donal Quinn............... 43 Group President, Biology Robert W. Kleinert........ 47 Executive Vice President, U.S. Region Marc N. Casper............ 31 Executive Vice President, Europe, Asia, and Intercontinental Region Thomas E. Hill............ 49 Senior Vice President, Human Resources Scott T. Garrett.......... 49 Director Mark E. Nunnelly.......... 40 Director Stephen G. Pagliuca....... 44 Director Adam Kirsch............... 37 Director John P. Connaughton....... 33 Director Joseph H. Gleberman....... 40 Director
Mr. Barnes was appointed President and Chief Executive Officer and Director in 1997. Prior to this assignment, he served as the Company's President of Global Products and Chief Operating Officer since 1996. In 1996 and 1997, Mr. Barnes was Executive Vice President of Bain Venture Capital, where he was responsible for several portfolio companies, including Dade Behring Inc., Miltex Inc. and Claricom Inc., where he served as President and Director. From 1988 to 1996, Mr. Barnes served in various positions, including President and Director of Holson Burnes Group Inc., a publicly traded consumer products company. From 1982 to 1988, Mr. Barnes served in various positions with Price Waterhouse. Mr. Barnes is also currently a Director of Miltex, Inc. Mr. Reid-Anderson was appointed Chief Administrative Officer and Chief Financial Officer in 1997 and is also a Director of the Company. In this role, he has global responsibility for all administrative functions, including Finance, Human Resources (HR), Legal, Business Development, Information Technology, Staff Operations, Bank/Investor/Analyst Relations, Staff Research and Development (R&D) and Regulatory Affairs/Quality Assurance (RA/QA). Prior to this assignment, Mr. Reid-Anderson was Executive Vice President and Chief Financial Officer for Dade International since 1996. Prior to joining the Company, he was Chief Operating Officer and Chief Administrative Officer of Wilson Sporting Goods in addition to running Wilson's international unit. Mr. Reid-Anderson also served in various financial positions of increasing responsibility for Pepsico Inc., Diageo PLC (formerly Grand Metropolitan PLC) and Mobil Oil Corporation in Europe, Asia and North America. Mr. Reid-Anderson is also currently a Director of Epoch Senior Living. 20 Mr. Brightfelt was appointed Group President, Chemistry in 1997 and is also a Director of the Company. In this role, he is responsible for the worldwide operations of Dade Behring's Chemistry business. Prior to this assignment, Mr. Brightfelt was Executive Vice President of Dade Behring Chemistry Systems since 1996. From 1967 to 1995, he served in a number of executive positions for the DuPont Company in a variety of areas, including Business Director of the Diagnostics Business; Worldwide Marketing Manager, IVD; IVD New Products Manager; Manager of Product Management and Strategic Planning; and Production Control and Planning. Mr. Brightfelt is also a Director of Molecular BioSystems and the Health Industry Manufacturing Association (HIMA). Dr. Blobel was appointed Group President, Microbiology, Syva, and Advanced Diagnostics in 1998. In this role, he is responsible for the Microbiology, Syva (DAT/TDM) and Infectious Disease Diagnostics businesses. In addition, he manages the Corporate Advanced Development R&D center. Prior to this assignment, Dr. Blobel was Group President, Biology since 1997. Previously, he was Chief Technology Officer and Head of Worldwide Product Supply for Dade Behring Diagnostics since 1995. From 1977 to 1995, he served in several executive capacities for Boehringer Mannheim GmbH Germany. Mr. Quinn was appointed Group President, Biology in 1998. In this role, he is responsible for the worldwide management of the Hemostasis and Plasma Protein product lines as well as for the Marburg site. Prior to joining the Company, Mr. Quinn was employed by Mallinckrodt Medical in a number of executive positions since 1982, including Vice President and General Manager for Anesthesiology, Europe; Vice President and Managing Director Europe and Hemocue; and Vice President and Managing Director, Critical Care Division. Mr. Kleinert was appointed Executive Vice President, U.S. Region in 1997. In this role, he is responsible for all commercial activities in the U.S., including sales, commercial marketing, service, national accounts and customer support. Prior to this assignment, he was Executive Vice President, Worldwide Field Operations for the Dade organization since 1994. Prior to joining the Company, Mr. Kleinert worked for Baxter Healthcare Corporation in a series of executive roles, including President, Clintec Nutrition; President, Baxter Diagnostics, Europe; and President, MicroScan Division. Mr. Casper was appointed Executive Vice President, Europe, Asia and Intercontinental Region in 1997. In this role, he is responsible for sales and operations outside the U.S. Prior to joining the Company, Mr. Casper was an associate of Bain Venture Capital and worked with the Company since 1995 as a member of Bain Venture Capital's Portfolio Management Group. Mr. Casper also worked as a strategic consultant for Bain and Company, where he held several positions of increasing responsibility. Dr. Hill was appointed Senior Vice President, Human Resources in 1994. In this role, he is responsible for all human resource activities, including corporate employee benefits, compensation, HR development and planning, and employee relations. Prior to joining the Company, Dr. Hill worked for Baxter Healthcare Corporation in several executive HR positions of increasing responsibility. These positions included Director of Corporate Compensation; Director of Compensation and Benefits for Global Businesses; Vice President, Human Resource Planning; Corporate Human Resource Planning and Staffing; and Vice President, Human Resources, Baxter Diagnostics, Inc. Mr. Garrett joined Baxter in 1975 as a product development engineer and served in a number of research, strategic planning and management positions. Mr. Garrett was named Vice President and General Manager of Baxter Diagnostics, Inc.'s European operations in 1987 and was named President of the Paramax(R) Systems Division in 1989. Mr. Garrett became Executive Vice President of Baxter Diagnostics, Inc. in 1990, with responsibility for all divisions and operations associated with manufactured product lines. Mr. Garrett served as Chief Executive Officer from 1994-1997. Mr. Garrett is a member of the American Association for Clinical Chemistry and also currently serves on the Health Industry Manufacturers Association Board of Directors. He is also a Director of Sunol Molecular Corporation. Mr. Garrett resigned from the Company effective October 31, 1997. 21 Mr. Nunnelly has been a Managing Director of Bain Venture Capital since May 1993 and a general partner of Bain Venture Capital since 1990. Prior to joining Bain Venture Capital, Mr. Nunnelly was a partner at Bain & Company, where he managed several relationships in the manufacturing sector and served with Procter and Gamble in product management. He is also a Director of Corporate Software and Technology, The Learning Company, SR Research and DoubleClick. Mr. Pagliuca has been a Managing Director of Bain Venture Capital since May 1993 and a general partner of Bain Venture Capital since 1989. Prior to joining Bain Venture Capital, Mr. Pagliuca was a partner at Bain & Company, where he worked extensively in the healthcare arena. Mr. Pagliuca also worked as a senior accountant and international tax specialist for Peat Marwick Mitchell & Company in the Netherlands. He is also a Director of Gartner Group, Coram Healthcare, Epoch Senior Living, Wesley Jessen and Vivra Specialty Partners. Mr. Kirsch has been a Managing Director of Bain Venture Capital since May 1993 and a general partner of Bain Venture Capital since 1990. Mr. Kirsch joined Bain Venture Capital in 1985 as an associate. Prior to joining Bain Venture Capital, Mr. Kirsch was a consultant at Bain & Company, where he worked in mergers and acquisitions. He is also a Director of Therma Wave, Wessley Jessen, Stage Stores and Brookstone. Mr. Connaughton has been a Managing Director of Bain Venture Capital since 1997 and a member of the firm since 1989. Prior to joining Bain Venture Capital, Mr. Connaughton was a consultant at Bain & Company, where he worked in consumer products and healthcare strategy consulting. Following the Chemistry Acquisition, Mr. Connaughton became a Director of the Company. Mr. Connaughton is also currently a Director of Epoch Senior Living. Mr. Gleberman is a Managing Director in the Principal Investment Area of Goldman, Sachs & Co. He joined Goldman Sachs in 1982 in the Mergers and Acquisitions Department. In 1990 he became head of Mergers and Acquisitions for Asia and moved to Tokyo. Mr. Gleberman joined the Principal Investment Area in 1993 and returned to New York. He is also a Director of Applied Analytical Industries Inc., Biofield Corporation and several privately held companies. 22 Item 11. Executive Compensation. Summary Compensation Table
Annual Compensation Long-Term Compensation ----------------------- ---------------------------------------- Name and Principal Options/SAR LTIP Payment All Other Position Year Salary($) Bonus($) (#)(1) ($)(8) Compensation($) ------------------ ---- --------- -------- ----------- ------------ --------------- Steven W. Barnes........ 1998 365,038 525,000 -- -- 100,000(10) President, Chief 180,000 652(3) Executive Officer 1997 -- -- -- -- and Director (6) Friedhelm Blobel........ 1998 270,000 180,000 -- 108,000 3,200(2) Group President, 4,990(3) Microbiology, 3,575(9) Syva, and Advanced 13,542(11) Diagnostics (7) -- 125,000(12) 7,500(13) 1997 -- -- 64,000 James W.P. Reid- 1998 352,132 450,000 -- -- 3,200(2) Anderson............... 13,001(3) Chief Administrative 1,385(4) Officer, 28,388(5) Chief Financial Officer 7,500(9) and Director 1997 330,000 178,500 49,850 -- 3,200(2) 5,506(3) 29,230(5) 1996 116,769 148,500 69,000 -- -- Robert W. Kleinert...... 1998 270,609 170,000 -- -- 3,200(2) Executive Vice 12,221(3) President, U.S. 8,080(4) Region 7,500(9) 1997 240,824 85,000 17,910 -- 3,200(2) 8,798(3) 7,756(4) 1996 202,862 32,680 -- -- 4,500(2) 11,836(3) 6,300(4) Marc N. Casper.......... 1998 262,239 240,000 -- -- 3,027(2) Executive Vice 5,777(3) President, Europe, 10,800(4) Asia, and 7,500(9) Intercontinental Region 1997 190,903 107,500 55,000 -- 9,969(4)
- -------- (1) The options were granted under Holdings' Executive Management Equity Plan. (2) Reflects amounts contributed by Dade Behring for the benefit of the named executive officers under the Savings Investment Plan. (3) Reflects amounts contributed by Dade Behring for the benefit of the named executive officers under the Deferred Compensation Plan and related interest. (4) Reflects amounts contributed by the company for an automobile allowance. (5) Reflects amounts provided by the company for a home leave allowance. (6) Mr. Barnes became CEO on November 1, 1997. Mr. Barnes did not receive any cash remuneration from the company during 1997. 23 (7) Mr. Blobel became an employee of the company on October 1, 1997. He continued to be paid by Hoechst for the balance of 1997. (8) Reflects amounts received by Mr. Blobel under the Hoechst BDI LTI plan. (9) Reflects amounts provided by the company for a personal financial planning allowance. (10) Reflects amounts received by Mr. Barnes as a sign on bonus when he became an employee of the company. (11) Reflects amounts received as cost of living allowance under the Hoechst relocation policy. (12) Reflects amounts received by Mr. Blobel under the Hoechst BDI Stay Bonus program. (13) Reflects amounts received by Mr. Blobel under the Hoechst BDI Executive Allowance program.
Individual Grants --------------------------------------------------- Potential Realizable Value Number of % of Total at Assumed Annual Rates Securities Options of Stock Price Appreciation Underlying Granted to Exercise or of Option Terms Options Employees in Base Price ---------------------------- Name Granted Fiscal Year ($/Sh) Expiration Date 5% 10% - ---- ---------- ------------ ----------- --------------- -- -------------- None
The following table sets forth information concerning the option grants by Holdings in 1998 to each of the named executive officers: Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values
Number of Securities Underlying Unexercised Value of Unexercised In- Company Options/SARs the-Money Options/SARs ------------------------ ------------------------- ------------------------- Shares Acquired Value Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- --------------- -------- ----------- ------------- ----------- ------------- Steven W. Barnes........ -- $-- Time options........... 135,000 45,000 $5,602,500 $1,867,500 Friedhelm Blobel........ -- -- Time options........... 12,800 51,200 294,400 1,177,600 James W.P. Reid- Anderson............... -- -- Time options........... 57,800 9,200 2,912,300 432,200 Performance options.... -- 51,850 -- 2,385,100 Robert W. Kleinert...... -- -- Time options........... 3,900 1,300 222,300 74,100 Performance options.... -- 40,910 -- 1,881,860 Marc N. Casper.......... -- $-- Time options........... 5,000 20,000 237,000 948,000 Performance options.... -- 30,000 -- 1,380,000
Pension Plan Benefits Dade Behring maintains a defined benefit pension plan (the "Plan") for the benefit of its U.S. employees. Under the Dade Behring cash balance formula design, credits to an eligible participant's account are posted to a notional account based on eligible compensation and service. Moreover, interest credits are posted to each notional account as of the end of each quarter at the prevailing rate of return for 10-year U.S. Treasury bills at the end of the previous quarter. Cash Balance Formula Design The cash balance formula design became effective January 1, 1997 when Dade Behring transitioned its pension plan from a final average pay formula design to a cash balance formula design. Employees with an accrued benefit under the final average pay formula design as of December 31, 1996 were credited with an opening cash balance based on the lump-sum present value of the final average pay formula accrued benefit. In addition, the present value of the aforementioned accrued benefit was increased by a transitional benefit supplement expressed as a percentage multiplier. This transitional benefit supplement recognized the sum of age and service as of December 31, 1996, as follows:
Transitional Benefit Points for Age Plus Service Supplement --------------------------- -------------------- less than 35......................................... 110% 35 to 44............................................. 115% 45 to 54............................................. 120% 55 or more........................................... 125%
24 As of January 1, 1997, the named executive officers had transitional benefit supplements as follows: Mr. Kleinert, $54,197. These transitional benefits include supplements to the qualified and non-qualified pension plans. Mr. Barnes, Mr. Blobel, Mr. Reid-Anderson, and Mr. Casper did not participate in the Plan as of December 31, 1996. The following table sets forth the annual credits posted to cash balance accounts:
Company Credits Points for Age plus Service as of as a Percent of December 31 of the Previous Plan Year Pay ------------------------------------- --------------- Less than 35.............................................. 4% 35 to 44.................................................. 5% 45 to 54.................................................. 6% 55 to 64.................................................. 7% 65 to 74.................................................. 8% 75 to 84.................................................. 9% 85 or more................................................ 10%
The named executive officers had 1998 company and interest credits as follows: Mr. Reid-Anderson, $27,537, Mr. Kleinert, $46,613, and Mr. Casper, $12,941. These credits were posted to the qualified and non-qualified pension plans. Mr. Barnes and Mr. Blobel did not participate in the Plan as of December 31, 1998. Final Average Pay Formula Design Individuals participating in the Plan under the final average pay formula design as of December 31, 1996 continue to accrue service and have their benefits calculated under both the final average pay formula and the cash balance formula through June 30, 1999. Of the named executive officers, one participated in the Plan as of December 31, 1996. The following table sets forth anticipated annual pension plan benefits under the final average pay formula of the Plan. PENSION PLAN TABLE
Years of Plan Participation -------------------------------------------- Remuneration 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- 125,000............................ $ 32,810 $ 43,750 $ 54,680 $ 65,620 $ 76,560 150,000............................ 39,370 52,500 65,620 78,750 91,870 175,000............................ 45,930 61,250 76,560 91,870 107,180 200,000............................ 52,500 70,000 87,500 105,000 122,500 225,000............................ 59,060 78,750 98,430 118,120 137,810 250,000............................ 65,620 87,500 109,370 131,250 153,120 300,000............................ 78,750 105,000 131,250 157,500 183,750 400,000............................ 105,000 140,000 175,000 210,000 245,000 450,000............................ 118,120 157,500 196,870 236,250 275,620 500,000............................ 131,250 175,000 218,750 262,500 306,250
The above estimated pension benefit amounts assume that benefit payments begin at age 65 under a single life annuity form. Such amounts do not reflect the social security offset incorporated by the pension benefit formula. The social security offset amount is determined by a participant's social security earnings history and normal retirement date of age 65. The estimated pension amounts include benefits payable from the qualified and non-qualified pension plans. The non-qualified pension plan provides benefits derived by the qualified plan's formula that exceed legal maximum benefit limitations. The pension benefit formula is: 25 1.75% of "final average pay" multiplied by the number of years of plan participation, minus 1.75% of "social security primary insurance amount ("PIA")" multiplied by the number of years of plan participation (social security offset not to exceed 60% of PIA) where "final average pay" is defined as a participant's five highest consecutive calendar year earnings (base salary and bonus) out of the last ten calendar years before retirement. As of January 1, 1999, the eligible named executive officers' years of plan participation and final average pay for purposes of calculating pension benefits payable under the Plan under the final average pay formula design are as follows: Mr. Kleinert, 24 years and $300,066. Mr. Barnes, Mr. Blobel, Mr. Reid-Anderson, and Mr. Casper did not participate in the former Plan as of December 31, 1996. Compensation of Directors Directors are not entitled to receive any compensation for serving on Dade Behring's Board of Directors. Directors are reimbursed for their out-of-pocket expenses incurred in connection with such services. Item 12. Security Ownership of Management and Directors. Dade Behring is a wholly owned subsidiary of Holdings. The common stock of Holdings consists of Common Stock, par value $.01 per share (the "Common Stock"), and Class L Common Stock, par value $.01 per share (the "Class L Common"). The holders of Class L Common have no voting rights except as required by law. The holders of the Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders of Holdings, including the election of directors. Bain Capital and its related investors, GS Capital and its related investors, and Hoechst A.G. own 35.9%, 17.9%, and 31.2%, respectively, of the Common Stock and are parties to a stockholder agreement regarding the ownership (including the voting) of such stock. By virtue of such stock ownership and stockholder agreement, Bain Capital, GS Capital, and Hoechst A.G. have the power to control all matters submitted to a vote of stockholders of, and to elect all directors of, Holdings and, indirectly, to elect all directors of Dade Behring. In 1996, 1997 and 1998, certain members of Dade Behring's management acquired voting common stock of Holdings, and members of Dade Behring's management are eligible to receive additional common stock of Holdings in part based upon the operating performance of Dade Behring. The following tables set forth certain information as of December 31, 1998 regarding the beneficial ownership of (i) voting common stock by each person (other than directors and executive officers of Dade Behring) known to Dade Behring to own more than 5% of the outstanding voting common stock of Holdings and (ii) voting and non-voting common stock by each director of Dade Behring, each named executive officer and all of Dade Behring's directors and executive officers as a group. To the knowledge of Dade Behring, each of such stockholders has sole voting and investment power as to the shares shown unless otherwise noted. Security Ownership of Certain Beneficial Owners
Common Stock (Voting) --------------------------------- Percentage Number of Percentage of Class-- Name and Address of Beneficial Owner Shares of Class(1) Undiluted(2) - ------------------------------------ --------- ---------- ----------- Bain Capital Entities (3)................... 5,960,000 35.9% 40.4% c/o Bain Capital Two Copley Place Boston, Massachusetts 02116 Hoechst A.G................................. 5,188,609 31.2% 35.2% Bruningstrasse 50 D-65929 Frankfurt a. M. Germany The Goldman Sachs Group, L.P. and related 2,980,000 17.9% 20.2% investors (4).............................. 85 Broad Street New York, New York 10004
26 - -------- (1) The percentages assume that all options held by Dade Behring's management have been exercised. Certain of the options held by Dade Behring's management are exercisable in accordance with certain time and performance criteria. Excludes warrant held by Hoechst A.G. to purchase 1,275,816 shares of voting Common Stock. (2) The percentages are based on ownership of outstanding shares as of December 31, 1998. (3) Amounts shown represent the aggregate number of shares held by Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP Trust Associates, L.P. (the "Bain Capital Entities"). (4) Includes shares beneficially owned by certain investment limited partnerships of which affiliates of the Goldman Sachs Group, L.P. ("GS Group") are the general partners or the managing general partners. GS Group disclaims beneficial ownership of shares held by such investment partnerships to the extent partnership interests in such partnerships are held by persons other than GS Group and its affiliates. Security Ownership of Management and Directors
Class L Common Stock Common Stock (Voting) (Non-voting) -------------------- ----------------------- Number of Percentage Number of Percentage Name of Beneficial Owner Shares of Class Shares of Class ------------------------ --------- ---------- ------------ ---------- Steven W. Barnes (1).............. 180,000 1.1% -- -- Robert W. Kleinert (1)............ 92,410 0.6% 5,000 0.3% James W.P. Reid-Anderson (1)...... 122,450 0.7% 400 -- Marc N. Casper (1)................ 66,250 0.4% 1,250 0.1% Friedhelm Blobel (1).............. 64,000 0.4% -- -- Scott T. Garrett (2).............. 253,876 1.5% 8,900 0.6% Mark E. Nunnelly (3).............. 5,960,000 35.9% 662,222.22 42.7% Stephen G. Pagliuca (3)........... 5,960,000 35.9% 662,222.22 42.7% Adam Kirsch (3)................... 5,960,000 35.9% 662,222.22 42.7% John P. Connaughton (3)........... 5,960,000 35.9% 662,222.22 42.7% Joseph H. Gleberman (4)........... 2,980,000 17.9% 331,111.11 21.3% All executive officers and directors of Dade Behring as a group (10 people)................ 9,718,986 58.5% 1,008,833.33 65.0%
- -------- (1) The number of shares held by management and the percentages assume that all options held by management have been exercised. Certain options held by management are exercisable in accordance with certain time and performance criteria. (2) The number of shares held by Scott T. Garrett and the percentages assume that all his options have been exercised. (3) All shares shown are held by the Bain Capital Entities. Messrs. Kirsch, Nunnelly, Connaughton and Pagliuca, who serve as directors of Dade Behring, and are managing directors of Bain Capital, which is the general partner of certain of the Bain Capital Entities, and are limited partners of Bain Capital Partners IV, L.P., the general partner of certain of the Bain Capital Entities. Accordingly, Messrs. Kirsch, Nunnelly, Connaughton and Pagliuca may be deemed to share voting and dispositive power as to the shares held by the Bain Capital Entities. Messrs. Kirsch, Nunnelly, Connaughton and Pagliuca disclaim beneficial ownership of such shares. (4) Mr. Gleberman is a general partner of Goldman, Sachs, & Co. The shares reported herein include shares beneficially owned by certain investment limited partnerships of which affiliates of GS Group are the general partners or the managing general partners. Mr. Gleberman disclaims beneficial ownership of such shares. 27 Item 13. Certain Relationships and Related Transactions. Management Services Agreements The Company and Holdings entered into five-year Management Services Agreements with Bain Capital and Goldman, Sachs & Co. (an affiliate of GS Capital). Pursuant to these agreements, they will pay Bain Capital and Goldman, Sachs & Co., subject to compliance with the terms of the indenture governing the 11 1/8% senior subordinated notes, an aggregate annual fee of up to $3.0 million plus their respective out-of-pocket expenses in return for management consulting in the areas of corporate finance; corporate strategy; investment analysis; market research and business development; advisory services and support, negotiation; analysis of financial alternatives, acquisitions and dispositions; and other services. The Company believes that the fees paid for the professional services rendered are at least as favorable to the Company as those that could be negotiated with an unaffiliated third party. For the year ended December 31, 1998, the Consolidated Statement of Operations and Comprehensive Income includes advisory fees and related expenses of $3.3 million incurred under these agreements. Stockholders Agreement On December 20, 1994, Holdings, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory thereto entered into a Stockholders Agreement (the "Stockholders Agreement") whereby prior to the fifth anniversary of the date of the Stockholders Agreement, if Holdings requires certain services of an investment banking firm, Holdings agrees to retain Goldman, Sachs & Co. to provide such services unless Holdings' Board of Directors determines that the retention of another investment banking firm would provide a material additional benefit to Holdings. On October 31, 1997, Holdings, Hoechst, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory thereto entered into an Amended and Restated Stockholders Agreement (the "Amended and Restated Stockholders Agreement"). The Amended and Restated Stockholders Agreement provides certain conditions in connection with the election of directors, transfer of stock, sale of the Company and certain restrictions on Dade Behring's activities. Transition Service Agreements Pursuant to Transition Services Agreements dated September 30, 1997, Hoechst provides the Company with certain support services including administrative support, warehousing and distribution services, human resource support, information systems support, accounting support and office space. The Transition Services Agreements have various terms from October 1, 1997 through December 31, 1999. The Company paid $12.1 million to Hoechst related to these agreements for the year ended December 31, 1998. Other Agreements Hoescht subleases office space to the Company pursuant to a sublease dated October 1, 1997. Rent expense related to this sublease totaled $3.5 million for the year ended December 31, 1998. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as a part of this report. (i) See "Index to Financial Statements and Schedule" on page F-1 hereof. (ii) See "Index to Exhibits" on page X-1 hereof. (b) Reports on Form 8-K. None. 28 DADE BEHRING INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page ---- Report of Independent Accountants......................................... F-2 Consolidated Balance Sheets as of December 31, 1997 and December 31, 1998. F-3 Consolidated Statements of Operations and Comprehensive Income for the three years ended December 31, 1998...................................... F-4 Consolidated Statements of Cash Flows for the three years ended December 31, 1998................................................................. F-5 Consolidated Statements of Changes in Stockholder's Equity (Deficit) for the three years ended December 31, 1998.................................. F-6 Notes to Consolidated Financial Statements................................ F-7 Financial Statements Schedule (Schedule II)............................... F-29
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Dade Behring Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of cash flows and of changes in stockholder's equity (deficit) present fairly, in all material respects, the financial position of Dade Behring Inc. (a wholly- owned subsidiary of Dade Behring Holdings, Inc.) and its subsidiaries (the Company) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois March 19, 1999 F-2 DADE BEHRING INC. CONSOLIDATED BALANCE SHEETS (Dollars in millions, except share-related data)
December 31, December 31, ASSETS 1997 1998 ------ ------------ ------------ Current assets: Cash and cash equivalents.......................... $ 20.5 $ 25.8 Restricted cash.................................... 3.7 -- Accounts receivable, net........................... 359.6 353.5 Inventories........................................ 272.5 265.9 Prepaid expenses and other current assets.......... 11.9 7.3 Deferred income taxes.............................. 97.0 76.8 -------- -------- Total current assets............................. 765.2 729.3 -------- -------- Property, plant and equipment, net................... 214.5 304.7 Debt issuance costs, net............................. 37.0 31.2 Goodwill, net........................................ 135.6 126.5 Deferred income taxes................................ 286.1 269.7 Other assets......................................... 72.0 72.0 -------- -------- Total assets..................................... $1,510.4 $1,533.4 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt.................. $ 3.7 $ 13.0 Short-term debt.................................... 54.4 96.4 Accounts payable................................... 89.2 130.7 Accrued liabilities................................ 283.9 228.4 -------- -------- Total current liabilities........................ 431.2 468.5 -------- -------- Long-term debt, less current portion................. 416.9 373.0 Senior subordinated notes............................ 350.0 350.0 Other liabilities.................................... 108.2 92.6 -------- -------- Total liabilities................................ 1,306.3 1,284.1 -------- -------- Commitments and contingencies (Note 18).............. -- -- Stockholder's equity: Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding................ -- -- Additional paid-in capital......................... 490.2 493.0 Unearned stock-based compensation.................. (21.8) (11.5) Notes receivable on capital contribution........... (0.7) (0.2) Accumulated deficit................................ (252.9) (209.4) Accumulated other comprehensive income (loss)...... (10.7) (22.6) -------- -------- Total stockholder's equity....................... 204.1 249.3 -------- -------- Total liabilities and stockholder's equity....... $1,510.4 $1,533.4 ======== ========
See accompanying notes to consolidated financial statements. F-3 DADE BEHRING INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Dollars in millions)
Years ended December 31, -------------------------- 1996 1997 1998 ------- ------- -------- Net sales.......................................... $ 795.8 $ 980.5 $1,285.2 ------- ------- -------- Operating costs and expenses: Cost of goods sold............................... 444.1 654.1 529.4 Marketing and administrative expenses............ 255.5 366.8 513.9 Research and development expenses................ 138.0 61.7 88.2 Goodwill amortization expense.................... 3.3 5.4 5.4 Restructuring expenses........................... 15.0 40.1 (4.5) ------- ------- -------- Income (loss) from operations...................... (60.1) (147.6) 152.8 Other income (expense): Interest expense, net............................ (65.6) (87.8) (80.5) Other............................................ -- 9.0 5.6 ------- ------- -------- Income (loss) before income taxes.................. (125.7) (226.4) 77.9 Income tax expense (benefit)....................... (45.4) (83.8) 34.4 ------- ------- -------- Income (loss) before extraordinary items........... (80.3) (142.6) 43.5 Extraordinary items (net of tax benefit of $14.7): Write-off of deferred financing fees............. (11.4) -- -- Premium on purchase of 13% senior subordinated notes........................................... (13.6) -- -- ------- ------- -------- Net income (loss).................................. $(105.3) $(142.6) $ 43.5 ------- ------- -------- Other comprehensive income (loss), before tax: Foreign currency translation adjustments......... (2.5) (8.6) (11.6) Unrealized gain (loss) on marketable securities.. 1.2 (0.2) (0.3) ------- ------- -------- Other comprehensive income (loss).................. (1.3) (8.8) (11.9) Income tax expense (benefit) related to items of comprehensive income.............................. -- -- -- ------- ------- -------- Other comprehensive income (loss), net of tax...... (1.3) (8.8) (11.9) ------- ------- -------- Comprehensive income (loss)........................ $(106.6) $(151.4) $ 31.6 ======= ======= ========
See accompanying notes to consolidated financial statements. F-4 DADE BEHRING INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions)
Years ended December 31, ---------------------------- 1996 1997 1998 -------- -------- -------- Operating Activities: Net income (loss)................................ $ (105.3) $ (142.6) $ 43.5 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-off of in-process research and development................................... 98.1 1.1 -- Depreciation and amortization expense.......... 44.1 56.6 56.7 Stock-based compensation expense............... -- 11.4 13.1 Other non-cash charges......................... -- 37.1 3.8 Write-off of deferred financing fees........... 18.1 -- -- Amortization of inventory step-up.............. 24.8 171.4 -- Restructuring expenses......................... 15.0 40.1 -- Non-cash write-off of excess spare parts....... 9.5 -- -- Loss on sale of "Net asset held for sale"...... 2.8 -- -- Loss on write-down of marketable equity securities.................................... 2.7 -- 0.3 Gain on sales of assets........................ -- -- (5.3) Premium on purchase of 13% senior subordinated notes......................................... 21.6 -- -- Deferred income taxes.......................... (48.2) (86.1) 29.6 Changes in balance sheet items: Accounts receivable, net..................... 1.0 (3.3) 1.5 Inventories.................................. (6.9) (6.3) (30.5) Accounts payable............................. 1.5 (11.0) 42.1 Accrued liabilities.......................... (34.2) (66.0) (21.3) Other liabilities............................ (0.4) 86.9 (63.9) Other, net................................... (11.4) (33.1) (2.3) -------- -------- ------- Net cash flow provided by operating activities................................. 32.8 56.2 67.3 -------- -------- ------- Investing Activities: Acquisitions and purchase price adjustments, net of acquired cash................................ (522.5) (0.9) 30.5 Capital expenditures............................. (57.3) (68.4) (139.0) Proceeds from sale of assets..................... -- 0.7 36.2 Proceeds from Baxter for purchase price adjustments..................................... 9.7 -- -- -------- -------- ------- Net cash flow utilized by investing activities................................. (570.1) (68.6) (72.3) -------- -------- ------- Financing Activities: Proceeds from sale of "Net assets held for sale". 54.8 -- -- Proceeds from issuance of short-term debt, net of repayments...................................... 15.7 (0.5) 44.3 Cash dividend to parent for Behring Combination.. -- (34.8) -- Proceeds from revolving credit facility.......... 205.0 259.4 94.0 Repayment of borrowings under revolving credit facility........................................ (205.0) (259.4) (75.0) Proceeds from issuance of 11 1/8% senior subordinated notes.............................. 350.0 -- -- Repayment of borrowings and premium paid on 13% senior subordinated notes....................... (141.6) -- -- Proceeds from issuance of long-term loans........ 460.0 50.0 -- Repayment of borrowings under long-term loans.... (183.5) (69.4) (53.6) Contribution from parent......................... 0.4 88.4 -- Debt issuance costs.............................. (46.2) (0.4) -- -------- -------- ------- Net cash flow provided by financing activities................................. 509.6 33.3 9.7 -------- -------- ------- Effect of foreign exchange rates on cash.......... (0.2) (0.4) 0.6 -------- -------- ------- Net increase (decrease) in cash and cash equivalents................................ (27.9) 20.5 5.3 Cash and Cash Equivalents: Beginning of period.............................. $ 27.9 $ -- $ 20.5 -------- -------- ------- End of period.................................... $ -- $ 20.5 $ 25.8 ======== ======== ======= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest......... $ 62.0 $ 92.2 $ 77.3 ======== ======== ======= Cash paid during the period for income taxes..... $ 2.4 $ 7.8 $ 4.6 ======== ======== ======= Non Cash Supplemental Disclosure of Cash Flow Information: Acquired company contributed by parent........... $ -- $ 316.0 $ -- ======== ======== =======
See accompanying notes to consolidated financial statements. F-5 DADE BEHRING INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT) (Dollars in millions)
Notes Accumulated Total Common Stock Additional Receivable Unearned Other Stockholder's ------------- Paid-in on Capital Stock-Based Accumulated Comprehensive Equity Shares Amount Capital Contribution Compensation Deficit Income (Loss) (Deficit) ------ ------ ---------- ------------ ------------ ----------- ------------- ------------- Balance at December 31, 1995................... 1,000 $-- $ 87.0 $(0.2) $ -- $ (5.0) $ (0.6) $ 81.2 ----- ---- ------ ----- ------ ------- ------ ------- Net loss................ (105.3) (105.3) Forgiveness of shareholder debt....... 0.1 0.1 Payments on notes receivable............. 0.1 0.1 Capital contribution from parent............ 0.4 0.4 Recognition of other than temporary impairment of marketable equity securities............. 1.1 1.1 Unrealized gain on marketable equity securities............. 0.1 0.1 Cash dividend to parent on common stock........ (0.2) (0.2) Cumulative translation adjustment............. (2.5) (2.5) ----- ---- ------ ----- ------ ------- ------ ------- Balance at December 31, 1996................... 1,000 -- 87.2 -- -- (110.3) (1.9) (25.0) ----- ---- ------ ----- ------ ------- ------ ------- Net loss................ (142.6) (142.6) Capital contribution from parent (Note 4)... 404.6 404.6 Notes receivable on capital contribution... (0.7) (0.7) Cash dividend to parent on common stock........ (34.8) (34.8) Issuance of unearned stock-based compensation........... 33.2 (33.2) -- Amortization of unearned stock-based compensation........... 11.4 11.4 Unrealized loss on marketable equity securities............. (0.2) (0.2) Cumulative translation adjustment............. (8.6) (8.6) ----- ---- ------ ----- ------ ------- ------ ------- Balance at December 31, 1997................... 1,000 -- 490.2 (0.7) (21.8) (252.9) (10.7) 204.1 ----- ---- ------ ----- ------ ------- ------ ------- Net income.............. 43.5 43.5 Payments on notes receivable............. 0.5 0.5 Issuance of unearned stock-based compensation........... 3.6 (3.6) -- Adjustment of unearned stock-based compensation........... (0.8) 0.8 -- Amortization of unearned stock-based compensation........... 13.1 13.1 Unrealized loss on marketable equity securities............. (0.3) (0.3) Cumulative translation adjustment............. (11.6) (11.6) ----- ---- ------ ----- ------ ------- ------ ------- Balance at December 31, 1998................... 1,000 $-- $493.0 $(0.2) $(11.5) $(209.4) $(22.6) $ 249.3 ===== ==== ====== ===== ====== ======= ====== =======
See accompanying notes to consolidated financial statements. F-6 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Business Dade Behring Inc. (the "Company"), formerly Dade International Inc., was incorporated in Delaware in 1994 and is a wholly-owned subsidiary of Dade Behring Holdings, Inc. ("Holdings"), formerly Diagnostics Holding Inc. Bain Capital, Inc., GS Capital Partners, L.P. (an affiliate of Goldman Sachs Group, L.P.), their respective related investors, Hoechst A.G. and certain of its affiliates ("Hoechst") and the management of the Company own substantially all of the capital stock of Holdings. The Company develops, manufactures and markets in vitro diagnostic equipment, reagents, consumable supplies and services worldwide. Effective December 16, 1994, the Company acquired (the "Dade Acquisition") the worldwide in vitro diagnostics products manufacturing and services businesses and net assets of Baxter Diagnostics Inc. and certain of its affiliates, from Baxter International Inc. and its affiliates ("Baxter"). The Dade Acquisition was accounted for as a purchase. Effective May 1, 1996, the Company acquired (the "Chemistry Acquisition") the worldwide in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont de Nemours and Company. The operating results and acquired assets and assumed liabilities of the Chemistry Acquisition, which was accounted for as a purchase, have been reflected in the Company's consolidated financial statements since May 1, 1996. Effective October 1, 1997, Holdings acquired (the "Behring Combination") the stock and beneficial interests of various subsidiaries of Hoechst that operated its worldwide in vitro diagnostic business ("Behring"). The stock and beneficial interest was contributed to the Company effective October 1, 1997. The operating results and acquired assets and assumed liabilities of the Behring Combination, which was accounted for as a purchase, have been reflected in the Company's consolidated financial statements since October 1, 1997. 2. Change in Non-U.S. Reporting Period Prior to 1996, the Company's non-U.S. operations reported financial results on a fiscal year ending November 30. Effective January 1, 1996, the Company's non-U.S. operations changed to a calendar year-end. As a consequence, the Company's results of operations for 1996 include 13 months of non-U.S. operations' results. The Company has designated the month of December 1995 as the "lag month" for purposes of comparability to future periods. Non-U.S. operations during the lag month reported net sales of approximately $12.3 million, thus increasing consolidated net sales by this amount for the year ended December 31, 1996. The impact on net income was not significant. 3. Summary of Significant Accounting Policies This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the accompanying consolidated financial statements. These policies are in conformity with generally accepted accounting principles and have been applied consistently unless otherwise noted. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include all majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. F-7 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue Recognition Revenues for products sold are recognized upon shipment of products to customers and are recorded on the basis of the sales price to such customers. Revenues for products that are subject to a distribution agreement in the United States are recognized upon shipment of products to the distributor or direct shipment of the products by the Company to third party customers. Such revenues are recorded on the basis of the estimated sales price to third party customers (i.e., generally the end consumer) less a contractual distribution discount to the distributor. The estimated discount recorded by the Company may be revised in the future as actual selling price information becomes available. Revenues under product service contracts, which are generally for one year, are deferred and recognized ratably over the term of the contract. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include demand deposits and cash equivalents which are highly liquid instruments with maturities of three months or less at the time of purchase and are held to maturity. Cash equivalents included $10.1 million invested in short-term money market investments at December 31, 1997. Cash equivalents were immaterial at December 31, 1998. Accounts Receivable Accounts receivable are net of bad debt reserves of $27.7 million and $18.0 million at December 31, 1997 and 1998, respectively. Accounts receivable are unsecured. Research and Development Expenses Expenditures by the Company for research and development are expensed as incurred. In 1997, in connection with the Behring Combination (Note 4), $1.1 million of the purchase price was allocated to acquired in-process research and development for projects which have no alternative future use. Such costs were expensed immediately following consummation of the Behring Combination. In conjunction with the Chemistry Acquisition in 1996 (Note 5), $98.1 million of the purchase price was allocated to acquired in-process research and development projects which have no alternative future use. Accordingly, such costs were expensed immediately following the consummation of the Chemistry Acquisition. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes materials, labor and manufacturing overhead costs. Market for raw materials is based on replacement costs and, for other inventory classifications, on net realizable value. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization are provided for financial reporting purposes principally on the straight-line method over the estimated useful lives of the assets as follows: Buildings................................................... 40 years Machinery and equipment..................................... 3 to 10 years Equipment placed with customers............................. 5 years
F-8 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Assets recorded under capital leases are amortized over the life of the lease. Leasehold improvements are capitalized and amortized over their estimated useful lives or over the terms of the related leases, if shorter. Goodwill Goodwill represents primarily the excess cost over the fair value of net assets acquired in connection with the Chemistry Acquisition. Goodwill at December 31, 1997 aggregated $135.6 million, net of $9.4 million of accumulated amortization, and reflects the finalization of the Chemistry Acquisition purchase price allocation. Goodwill at December 31, 1998 aggregated $126.5 million, net of $14.8 million of accumulated amortization. Goodwill is being amortized using the straight-line method over 25 years. Negative goodwill arising from the Behring Combination, aggregated $17.9 million at December 31, 1998, net of $0.7 of accumulated amortization, and is amortized on the straight-line basis over 25 years. Negative goodwill is classified in other long-term liabilities. The carrying value of goodwill and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying value of the asset may not be recoverable. This review compares projected future undiscounted cash flows before interest to the carrying value of the asset. Patents and Trademarks Patents and trademarks are being amortized over their legal or estimated useful lives, whichever is shorter (generally not exceeding 17 years). Patents and trademarks totaled $26.8 million and $23.5 million, net of accumulated amortization of $5.3 million and $8.6 million, at December 31, 1997 and 1998, respectively. Debt Issuance Costs Debt issuance costs, which are being amortized over the applicable terms of the Bank Credit Agreement (7 years weighted average) and 11 1/8% senior subordinated notes (10 years), totaled $37.0 million at December 31, 1997, net of accumulated amortization of $9.6 million, and $31.2 million at December 31, 1998, net of accumulated amortization of $15.4 million. Income Taxes Deferred tax assets and liabilities are recognized at current tax rates for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for the estimated future tax effects of deductible temporary differences and tax operating loss and credit carryforwards. Additionally, the Company provides deferred tax liabilities for the eventual tax effect of repatriating unremitted earnings of certain non-U.S. subsidiaries. The Company's operations are included in Holdings' consolidated United States Federal and state income tax returns. Foreign Currency Translation The Company has determined that the local currencies of its non-U.S. operations are their functional currencies. Assets and liabilities of the non- U.S. subsidiaries are translated at the year-end exchange rates. Revenues and expenses are translated at average rates of exchange in effect during the year. Derivative Financial Instruments The Company utilizes derivative financial instruments for purposes other than trading, specifically to manage its exposure to foreign currency and interest rate fluctuations. F-9 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company enters into forward currency exchange contracts with highly rated counterparties to manage its exposure to foreign currency fluctuations on short-term intercompany borrowing arrangements denominated in foreign currencies. The intercompany borrowing arrangements support the underlying working capital needs of non-U.S. subsidiaries. Premiums and discounts on forward rate option contracts are deferred and amortized to other income over the life of the contract. Gains and losses on forward contracts resulting from revaluations are recorded to other income. At the maturity of the forward contracts the currencies involved are exchanged based on the contracted exchange rate. At December 31, 1997 and December 31, 1998, the replacement value of "in-the-money" contracts was not significant. Total notional contract value of foreign currency exchange contracts outstanding were as follows (in millions):
December 31, ------------ 1997 1998 ------ ----- Forward purchases............................................ $ 79.0 $ 2.9 Forward sales................................................ $139.2 $87.2
The Company also utilizes purchased interest rate caps, for which the Company will receive cash payments from the counterparty if an indexed rate of interest is exceeded, to manage a portion of its exposure to interest rate increases on its outstanding debt. The notional value of these caps was $230.0 million at December 31, 1997 and 1998. Premiums paid for the purchase of the caps are recorded to interest expense over the life of the caps. Amounts received, if any, are recorded as a reduction of interest expense over the related period. As of December 31, 1997 and 1998, capitalized amounts relating to the caps are not material to the consolidated financial statements. Earnings (Loss) Per Share Earnings (loss) per share is not presented for the Company, as its common stock is not publicly traded. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. A large percentage of U.S. accounts receivable was generated by the Company's sales to Allegiance Healthcare Corporation ("Allegiance"). This credit risk is mitigated due to the large number of entities comprising Allegiance's worldwide customer base and their dispersion across different regional economies. A number of the Company's customers operate in the hospital and reference laboratory market, which may be subject to legislated healthcare reforms. Additionally, at December 31, 1997 and 1998, approximately $59.9 million or 17% and $68.0 million or 29%, respectively, of the Company's non-U.S. accounts receivable were geographically concentrated in Italy. The Company does not expect these risk factors to have a material adverse impact on its results of operations, financial position or liquidity. Fair Value of Financial Instruments The carrying values of cash equivalents and other current assets and liabilities approximate fair value at December 31, 1997 and 1998 because of the short maturity of these instruments. The excess of the fair values of derivative financial instruments over carrying values aggregated $1.7 million at December 31, 1997. The excess of the carrying values of derivative financial instruments over fair values aggregated $3.0 million at December 31, 1998. Fair values are based upon year- end published exchange rates. F-10 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The carrying value of the long-term debt of $416.9 million and $373.0 million at December 31, 1997 and 1998, respectively, approximates fair value as the interest rate on each instrument adjusts based upon market interest rate changes. The fair value of the $350.0 million 11 1/8% senior subordinated notes was $390.3 million and $379.2 million at December 31, 1997 and 1998, respectively, based on the trading value at that date. Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, the use of a fair value method for recording compensation expense for stock-based compensation plans. The Company has elected to continue to account for its stock-based compensation plans using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under the intrinsic value method, compensation cost for stock options is based on the excess, if any, of the fair value of the stock at the date of the grant over the amount the employee must pay to acquire the stock (see Note 14). Reclassifications Certain reclassifications have been made to prior period balances to conform to the current year presentation. 4. Behring Combination Effective October 1, 1997, Holdings completed its acquisition of Behring from Hoechst. As consideration for the acquisition, Holdings issued equity securities to Hoechst providing Hoechst with a 32.5% interest in Holdings and paid $0.1 million to Hoechst at closing. Subsequent to closing, Hoechst paid Holdings $54.8 million related to certain adjustments and changes in the Net Assets (as defined in the Agreement and Plan of Contribution related to the acquisition) of Behring, which were treated as a reduction to the final purchase price. The equity securities issued to Hoechst comprise 5,702,383 shares of Holdings' Common Stock and a warrant expiring October 1, 1999 to acquire 1,403,663 additional shares of Holdings' Common Stock for $80.0 million. The issued shares and warrant were valued by independent appraisal at $352.8 million and $16.1 million, respectively, as of October 1, 1997. Holdings contributed Behring to the Company effective October 1, 1997 and the Company recorded in 1997 a capital contribution of $404.6 million, representing the aforementioned appraised values and direct costs of the acquisition. The transaction was accounted for as a purchase and, accordingly, the operating results of Behring have been included in the consolidated operating results since October 1, 1997. The purchase price has been allocated to assets acquired and liabilities assumed based on fair market values at the date of acquisition. Since the estimated fair values of the net assets acquired exceeded total acquisition cost, the allocation of purchase price resulted in a pro rata write-off of non-current assets, including in-process research and development projects and the establishment of $18.6 million of negative goodwill, which is being amortized using the straight-line method over 25 years. The summary of assets acquired, liabilities assumed and the purchase price paid is as follows (in millions): Consideration: stock and warrant issued, net of purchase price adjustments..................................................... $314.1 Costs of acquisition............................................. 37.9 ------ 352.0 Liabilities assumed.............................................. 349.0 ------ Costs of assets acquired......................................... $701.0 ======
F-11 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following represents the unaudited pro forma results of operations of the Company as if the Behring Combination had occurred on January 1, 1996 and January 1, 1997, respectively, after giving effect to the following adjustments: write-off of in-process research and development, write-off of inventory step-up, decreased depreciation of property, plant and equipment, decreased amortization of intangibles, decreased amortization of goodwill, and related income tax effects of these adjustments (in millions):
Pro forma Year ended December 31, ---------------------- 1996 1997 ----------- ---------- (Unaudited) (Unaudited) Net sales......................................... $1,449.4 $1,412.1 ======== ======== Loss from operations.............................. $ (186.5) $ (109.4) ======== ======== Loss before extraordinary items................... $ (163.9) $ (116.9) ======== ======== Net loss.......................................... $ (188.9) $ (116.9) ======== ========
The unaudited pro forma results of operations presented above are not necessarily indicative of the results that would have been obtained if the Behring Combination had actually occurred on January 1, 1996 and January 1, 1997 and are not intended to be a projection of future results or trends. Loss from operations includes the following significant items:
Year ended December 31, ---------------------- 1996 1997 ----------- ---------- (Unaudited) (Unaudited) Write-off of in-process research and development.................................... $ 99.2 $ 1.1 Write-off of inventory step-up.................. 196.2 171.4 Restructuring costs............................. 55.5 51.1 Stock-based compensation expense................ -- 11.4 Behring transaction related employee expenses... -- 13.9 International lag month......................... (2.4) -- Non-cash charge for excess spare parts.......... 9.5 -- Other charges................................... -- 33.5 ------- ------- 358.0 282.4 Pro forma loss from operations, as above.... (186.5) (109.4) ------- ------- $ 171.5 $ 173.0 ======= =======
The pro forma results of operations excludes the $9.0 million of other income recorded in 1997 and includes incremental and duplicative expenses associated with the development of stand-alone infrastructure in the areas of information systems, finance and human resources as the Company prepares for the termination of the transition service agreements with Baxter, DuPont and Hoechst. Additionally, the Company was adversely impacted by foreign currency exchange rates during 1997. Moreover, the synergistic savings that are expected to be realized as a result of the Behring Combination are not reflected in the unaudited pro forma results presented above. F-12 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Dade Chemistry Acquisition Effective May 1, 1996, the Company completed the acquisition of Dade Chemistry from DuPont, which was accounted for as a purchase. Accordingly, the purchase price and the direct costs of the Chemistry Acquisition, which aggregated $585.9 million, were allocated to the assets acquired and the liabilities assumed based upon their fair market values at the date of the acquisition. The Chemistry Acquisition was financed principally by the issuance of $350.0 million of senior subordinated notes, a refinancing of bank debt and cash. Since the purchase price exceeded the fair market value of the net assets acquired, the residual, aggregating $145.0 million, was recorded as goodwill. During 1998, $5.0 million of remaining unused restructuring reserves were charged against goodwill and $7.3 million of liabilities established in purchase accounting were not ultimately funded and were reversed to income. The estimated fair values, which were finalized during 1997, are based on independent appraisals, management estimates and arms-length negotiations with DuPont. The summary of assets acquired, liabilities assumed and the purchase price paid is as follows (in millions): Cash consideration................................................ $504.1 Costs of acquisition.............................................. 19.3 ------ 523.4 Liabilities assumed............................................... 62.5 ------ Costs of assets acquired.......................................... $585.9 ======
The Company's allocation of the Dade Chemistry purchase price includes $98.1 million of costs attributed to in-process research and development projects that have no alternative future use. Accordingly, such costs were expensed upon the consummation of the Chemistry Acquisition. During the fourth quarter of 1996, the Company recorded a non-cash charge of $9.5 million to cost of goods sold to provide for excess spare parts for the Paramax(R) product line. This non-cash charge, which was a direct result of the designation of the Paramax(R) product line as non-core due to the Chemistry Acquisition, appropriately relates to the second quarter of 1996. The following represents the unaudited pro forma results of operations of the Company as if the Chemistry Acquisition had occurred on January 1, 1995 and January 1, 1996, respectively, after giving effect to the following adjustments: write-off of in-process research and development, write-off of inventory step-up, increased depreciation of property, plant and equipment, increased amortization of intangibles, increased amortization of goodwill, increased interest expense on acquisition debt, refinancing charges, and related income tax effects of these adjustments (in millions):
Pro forma Year ended December 31, ----------------------- 1995 1996 ----------- ----------- (Unaudited) (Unaudited) Net sales......................................... $ 959.0 $ 910.6 ======= ======= Loss before extraordinary items................... $ (89.2) $ (83.6) ======= ======= Net loss.......................................... $(114.2) $(108.6) ======= =======
The unaudited pro forma results of operations presented above are not necessarily indicative of the results that would have been obtained if the Chemistry Acquisition had actually occurred on January 1, 1995 and January 1, 1996 and are not intended to be a projection of future results or trends. The decline in net sales for the year ended December 31, 1996 is primarily due to the rationalization of overlapping product lines and product repositioning following the integration of Dade Chemistry. The losses for both periods include a $98.1 million charge related to the write-off of in-process research and development projects that have no alternative future use and the $24.8 million write-off of inventory step-up. In addition, results for 1996 include $15.0 million F-13 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of restructuring costs, a $9.5 million non-cash charge for excess spare parts as well as incremental and duplicative expenses associated with the development of stand-alone infrastructure in the areas of information systems, finance and human resources as the Company prepared for the termination of the transition service agreements with Baxter and DuPont. Moreover, the synergistic savings that are expected to be realized as a result of the Chemistry Acquisition and the adjustment for the differences in reporting periods for the Company's non-U.S. operations are not reflected in the unaudited pro forma results presented above. 6. Dade Acquisition Effective December 16, 1994, the Company, in separate transactions, acquired certain net assets and businesses of the Predecessor, including the stock of various non-U.S. subsidiaries. The Dade Acquisition was recorded in accordance with the purchase method of accounting. In January 1996, the Company received a $9.7 million purchase price adjustment from Baxter, which was charged against negative goodwill in the finalization of acquisition accounting. 7. Inventories Inventories consist of the following (in millions):
December 31, ------------- 1997 1998 ------ ------ Raw materials............................................... $ 59.5 $ 48.8 Work-in-process............................................. 64.0 52.3 Finished products........................................... 149.0 164.8 ------ ------ Total inventories....................................... $272.5 $265.9 ====== ======
8. Net Assets Held for Sale Baxter operated a business (Burdick & Jackson) which was identified, along with certain excess land and warehouse facilities at another location, as operations and assets to be sold. The Company recorded "Net assets held for sale," which represented the estimated proceeds to be received from the sale of this business and the excess land and warehouse facilities, plus expected operating cash flow during the holding period. The excess land facilities were sold during the first quarter of 1996 for the expected net proceeds of $10.8 million. Burdick & Jackson was sold during the fourth quarter of 1996 for cash proceeds of $44.0 million, which resulted in a pre-tax loss of $2.8 million. 9. Property, Plant and Equipment Property, plant and equipment consist of the following (in millions):
December 31, ------------------------- 1997 1998 ------- ------- Land........................................... $ 6.3 $ 6.8 Buildings and leasehold improvements........... 29.5 46.0 Machinery and equipment........................ 45.1 100.3 Equipment placed with customers................ 226.8 281.6 Construction in progress....................... 26.5 57.1 Capitalized software........................... 16.9 40.9 ------- ------- Total property, plant and equipment, at cost... 351.1 532.7 Accumulated depreciation and amortization...... (136.6) (228.0) ------- ------- Net property, plant and equipment.......... $ 214.5 $ 304.7 ======= =======
F-14 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Equipment placed with customers includes instruments provided at no charge in exchange for contractual commitments for ongoing reagent revenues. The net book value of this equipment was $82.9 million and $102.9 million at December 31, 1997 and 1998, respectively. Management believes the carrying value of this equipment is recoverable from the revenues anticipated from future reagent sales. 10. Restructuring In connection with the Behring Combination in 1997, the Company recorded a $40.1 million restructuring charge and allocated $74.3 million ($77.7 million was allocated in connection with the preliminary allocation of purchase price) of the Behring Combination purchase price for a restructuring plan to consolidate manufacturing and distribution operations and eliminate redundant sales, service and administrative functions. These restructuring actions include the closure of the Company's Miami, Florida and Behring's Westwood, Massachusetts manufacturing facilities, the exit from the San Jose administrative/research facility, the consolidation and reorganization of the global sales, marketing and research and development organizations and elimination of administrative redundancies. The actions are expected to be substantially completed within two years. A total of 1,528 employees were identified for termination resulting from these initiatives, 824 of which were employees of the Company prior to the Behring Combination. Of the $40.1 million restructuring charge, $26.4 million relates to employee severance and $13.0 million relates to lease terminations and facility dispositions with the remainder relating to other exit costs. The Behring Combination reserve includes $26.7 million related to employee severance and relocation and $47.6 million related to facility exit costs with the remainder relating to other exit costs. As of December 31, 1997, 69 of the 824 identified Company employees described above had been severed, while 58 of the 704 identified Behring employees had been severed. During 1997, an aggregate of $3.7 million was paid for severance and $9.0 million was paid for exit costs. The reserve as of December 31, 1997 for these restructuring actions was $105.1 million. As of December 31, 1998, 410 of the 824 identified Company employees described above had been severed, while 525 of the 704 identified Behring employees had been severed. During 1998, an aggregate of $26.6 million was paid for severance and relocation and $27.5 million was paid for facility exit and other exit costs. In 1998, excess severance reserves of $4.5 million, resulting from higher than projected employee turnover at the Miami facility, were identified and credited to income. The reserve as of December 31, 1998 for these restructuring actions was $43.2 million, $24.0 million of which is classified in other long-term liabilities. 11. Accrued Liabilities Accrued liabilities consist of the following (in millions):
December 31, ------------- 1997 1998 ------ ------ Salaries, wages, commissions, withholdings and other payroll taxes............................................ $ 64.7 $ 77.5 Restructuring............................................. 55.6 19.2 Property, sales and use and other taxes................... 12.2 22.0 Deferred service contract revenue/warranty................ 16.7 14.1 Interest payable.......................................... 11.1 10.6 Vendor lease obligations.................................. 42.7 -- Other..................................................... 80.9 85.0 ------ ------ $283.9 $228.4 ====== ======
F-15 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. Debt Long-term debt consists of the following (in millions):
December 31, -------------- 1997 1998 ------ ------ Revolver.................................................. $ -- $ 19.0 Bank Credit Agreement: A Term Loan............................................. 124.5 109.6 B Term Loan............................................. 104.8 91.1 C Term Loan............................................. 104.8 91.1 D Term Loan............................................. 86.5 75.2 11 1/8% Senior Subordinated Notes......................... 350.0 350.0 ------ ------ 770.6 736.0 Less current portion.................................. (3.7) (13.0) ------ ------ $766.9 $723.0 ====== ======
To fund the Chemistry Acquisition, the Company refinanced its then existing indebtedness by entering into a new credit agreement with a number of banks ("Bank Credit Agreement"), which provided for borrowing up to $585.0 million, issued $350.0 million of 11 1/8% senior subordinated notes, and repurchased its $120.0 million 13% senior subordinated notes. The Company filed a registration statement on Form S-1 in October 1996 under the Securities Act of 1933, to register $350.0 million of its Series B 11 1/8% senior subordinated notes due 2006, which were exchanged for its then outstanding 11 1/8% senior subordinated notes due 2006. Bank Credit Agreement The Bank Credit Agreement initially consisted of $460.0 million in term loans and $125.0 million in a revolving credit facility ("Revolver"). The borrowings are guaranteed by Holdings and the Company's domestic subsidiaries, and substantially all the domestic assets of the Company are pledged as collateral. At December 31, 1996, term-loan indebtedness under the Bank Credit Agreement bore interest at (i) the Base Rate (as defined) plus margins ranging from 1.75% to 2.75% or (ii) the Eurodollar Rate plus margins ranging from 2.75% to 3.75%. At December 31, 1996, the Company funded its borrowings using the Eurodollar Rate. The Eurodollar Rate in effect at December 31, 1996 was 5.94% in respect of A Term Loan, 5.56% in respect of B Term Loan, 5.56% in respect of C Term Loan, and 5.63% in respect of D Term Loan. In 1997, the Company amended the Bank Credit Agreement to consist of $460.0 million in term loans and $105.0 million in a Revolver. In addition, the term- loan interest rates were amended to (i) the Base Rate (as defined) plus margins ranging from 1.25% to 2.00% or (ii) the Eurodollar Rate plus margins ranging from 2.25% to 3.00%. At December 31, 1997, the Company funded the borrowings using the Eurodollar Rate. The Eurodollar Rate in effect at December 31, 1997 was 5.75% in respect of A Term Loan, 5.88% in respect of B Term Loan, 5.88% in respect of C Term Loan, and 5.88% in respect of D Term Loan. During 1998, the Company amended certain terms of the Bank Credit Agreement. Under the amended terms, term-loan borrowings between January 8 and October 31, 1998 bore interest at (i) the Base Rate (as defined) plus margins ranging from 1.00% to 2.00% or (ii) the Eurodollar Rates plus margins ranging from 2.00% to 3.00%. Effective November 1, 1998, term-loan interest rates reverted to rates in effect during 1997. At December 31, 1998, the Company funded the borrowings using the Eurodollar Rate. The Eurodollar Rate in effect at December 31, 1998 was 5.06% in respect of A Term Loan, 4.99% in respect of B Term Loan, 5.13% in respect of C Term Loan, and 5.19% in respect of D Term Loan. F-16 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Bank Credit Agreement contains various restrictive covenants including mandatory repayments under certain conditions, minimum levels of earnings before interest, taxes, depreciation and amortization (as defined therein), minimum interest coverage, maximum leverage ratios, and other covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset purchases and sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, (including the 11 1/8% Senior Subordinated Notes), liens and encumbrances and other matters customarily restricted in such agreements. Under the terms of the Bank Credit Agreement, the Company is required to maintain specified levels of interest rate protection. The Company has purchased a series of interest rate caps under which the Company will receive cash payment from the counterparties if certain indexed rates of interest are exceeded. Premiums paid for the purchase of the caps are capitalized and amortized to interest expense over the life of the cap. The Revolver may be repaid and reborrowed at any time and is due December 31, 2001. Borrowings bear interest at the Prime Rate plus a 1.25% margin; at December 31, 1998 the interest rate on the Revolver was 9.0%. The Company is required to pay to the lenders under the Bank Credit Agreement (as amended) a commitment fee equal to 1/2 of 1% per annum, payable on a quarterly basis, on the daily unused portions of the Revolving Credit Facility during such quarter. The A, B, C, and D Term Loans mature on December 31, 2001, 2002, 2003, and 2004, respectively. Senior Subordinated Notes Interest on the 11 1/8% senior subordinated notes due 2006 accrues from the date of issuance and is payable semi-annually on May 1 and November 1. The 11 1/8% senior subordinated notes are redeemable in whole or in part, at the Company's option commencing May 1, 2001. The 11 1/8% senior subordinated notes contain restrictive covenants that include, among others, the incurrence of additional debt, mergers and change of control. In connection with the 1996 debt refinancing and purchase of the 13% senior subordinated notes due 2005, $18.1 million ($11.4 million net of tax) and $21.6 million ($13.6 million net of tax) of premiums were recognized as extraordinary items. Other Credit Facilities At year-end December 31, 1998, the Company's non-U.S. subsidiaries had credit lines from various financial institutions totaling $248.0 million. These credit lines do not have significant commitment fees. These credit lines are principally to provide working capital financing for local operations. The Company had utilized $96.4 million of these credit lines at December 31, 1998 at the prevailing local market interest rates. Aggregate Maturities of Long-Term Debt The aggregate maturities of long-term debt at December 31, 1998 are as follows (in millions): 1999.............................. $ 13.0 2000.............................. 40.7 2001.............................. 84.8 2002.............................. 89.8 2003.............................. 87.4 Thereafter........................ 420.3 ------ $736.0 ======
F-17 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Income Taxes Income (loss) before income tax expense is as follows (in millions):
Years ended December 31, ----------------------- 1996 1997 1998 ------- ------- ----- U.S. (including Puerto Rico)..................... $(103.8) $(184.9) $45.3 Non-U.S.......................................... (21.9) (41.5) 32.6 ------- ------- ----- Income (loss) before income tax expense.......... $(125.7) $(226.4) $77.9 ======= ======= =====
Tax Expense (Benefit) Income tax expense (benefit) consists of the following (in millions):
Years ended December 31, --------------------- 1996 1997 1998 ------ ------ ----- Current U.S. Federal........................................ $ -- $ 0.2 $ -- State and local (including Puerto Rico)........ 2.6 0.9 0.3 Non-U.S.......................................... 0.2 1.2 4.5 ------ ------ ----- Current income tax expense..................... 2.8 2.3 4.8 ------ ------ ----- Deferred U.S. Federal........................................ (35.2) (58.2) 10.2 State and local (including Puerto Rico)........ (9.8) (14.7) 3.6 Non-U.S.......................................... (3.2) (13.2) 15.8 ------ ------ ----- Deferred income tax expense (benefit).......... (48.2) (86.1) 29.6 ------ ------ ----- Total income tax expense (benefit)........... $(45.4) $(83.8) $34.4 ====== ====== =====
Tax Rates Differences between income taxes computed using the U.S. Federal income tax statutory rate of 35% and income tax expense recorded by the Company are attributable to the following (in millions):
Years ended December 31, --------------------- 1996 1997 1998 ------ ------ ----- Income tax expense (benefit) at statutory rate.... $(44.0) $(79.3) $27.3 Tax exempt operations............................. (2.9) (3.0) -- Nondeductible (non-taxable) goodwill.............. 0.5 0.4 (0.2) Nondeductible items............................... 1.4 1.1 1.7 State and local taxes (net of Federal benefit).... (4.5) (8.3) 2.7 Valuation allowances.............................. 6.3 2.8 3.3 Tax on unremitted foreign earnings................ (0.1) 0.7 1.0 Excess foreign tax charge (benefit)............... (2.9) (1.1) 1.4 Adjustment for prior year items................... -- -- (3.1) Other factors..................................... 0.8 2.9 0.3 ------ ------ ----- Income tax expense (benefit)...................... $(45.4) $(83.8) $34.4 ====== ====== =====
F-18 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred Taxes Deferred tax assets (liabilities) are comprised of the following (in millions):
December 31, -------------- 1997 1998 ------ ------ Gross deferred tax liabilities........................... $(17.1) $(33.5) ------ ------ Property, plant and equipment basis differences.......... 76.4 53.5 Trade receivables basis difference....................... 17.1 10.5 Inventory basis difference............................... 28.5 30.5 Accrued liabilities not currently deductible............. 85.1 57.1 Intangible assets basis difference....................... 122.2 69.6 Net operating loss carryforwards......................... 123.8 202.2 Other.................................................... 9.4 8.1 ------ ------ Gross deferred tax assets................................ 462.5 431.5 Valuation allowance...................................... (65.2) (56.2) ------ ------ Net deferred tax assets.................................. 397.3 375.3 ------ ------ $380.2 $341.8 ====== ======
In assessing the realizability of the gross deferred tax assets at December 31, 1998, management analyzed the Company's forecast for future taxable earnings (and losses) by jurisdiction and other relevant factors and concluded that recoverability of the deferred tax asset of $375.3 million, net of a $56.2 million valuation allowance, was more likely than not. This analysis also supported the release in 1998 of $6.2 million and $1.0 million of valuation allowances previously established against deferred tax assets arising in France and Belgium, respectively. The Company received a tax exemption grant from Puerto Rico during 1996 which provided that its manufacturing operations be partially exempt from local Puerto Rico taxes until the year 2014. The tax benefit of this local grant was approximately $4.1 million for the year ended December 31, 1997. The Company has also filed an election to be taxed under Section 936 for its Puerto Rico operations for Federal income tax purposes. The total Federal income tax benefit of Section 936 treatment was approximately $3.0 million for the year ended December 31, 1997. The company ceased its manufacturing operations in Puerto Rico in the first quarter of 1998. Accordingly, no local or Federal tax benefits were recorded for these operations in 1998. Appropriate taxes have been provided for the cost of repatriation of all available earnings generated prior to the closing of these operations. At December 31, 1997 and 1998, the Company had net operating loss carryforwards available in the United States for Federal income tax return purposes of $254.5 million and $367.8 million, respectively, which expire during 2004 through 2013. United States tax rules impose limitations on the use of net operating losses and excess tax bases following certain changes in ownership. If such a change were to occur, the limitation could reduce the amount of these benefits that would be available to offset future taxable income, starting with the year of ownership change. The $367.8 million of net operating loss carryforward at December 31, 1998 includes $77.9 million of United States net operating loss carryforward from the pre-combination Behring entity. Since the use of these loss carryforwards is subject to the change in ownership limitation, a full deferred tax valuation has been recorded. Additionally, at December 31, 1998, the Company had net operating loss carryforwards available in countries outside of the United States of $126.6 million with various dates of expiration. Since a use of a portion of these benefits is subject to statutory carryforward limitations, valuation allowances on $57.0 million of net operating loss carryforwards from outside the U.S. have been recorded at December 31, 1998. Deferred United States Federal income taxes and non-U.S. withholding taxes have been provided on the undistributed earnings of certain subsidiaries deemed available for dividend repatriations, principally Puerto F-19 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Rico, Switzerland and the United Kingdom. In other foreign jurisdictions with accumulated earnings, it is management's intent to permanently reinvest earnings locally or use available cash to pay down local debt. No provision has been made for non-U.S. withholding taxes or U.S. Federal or state taxes on undistributed earnings of approximately $0.2 million and $1.7 million at December 31, 1997 and 1998, respectively. Should such earnings be remitted to the Company, there would be limited use of credits, if any, which could be used to offset the U.S. taxes due upon repatriation. 14. Stockholder's Equity Common Stock The Company's Common Stock consists of 1,000 authorized shares of $.01 par value stock with voting rights, of which 1,000 shares were issued and outstanding at December 31, 1997 and 1998. All outstanding shares at December 31, 1997 and 1998 were owned by Holdings. Stock Purchase and Option Plans Holdings has various stock purchase and option plans ("Plans") principally for the benefit of the Company's employees. The Plans provide for the sale of 53,594 shares of Holdings' Class L Common Stock and the sale or granting of options of 2,823,402 shares of Holdings' Common Stock. The stock options are exercisable either over time (Time Options) or upon the achievement of certain investment return levels by certain owners of Holdings (Performance Options). All stock options vest within ten years of the date of grants. During 1996 and 1997, 6,050 shares of Holdings' Class L Common Stock and 54,450 shares of Holdings' Common Stock were sold at $44.00 and $4.00 per share, respectively. Management believes the purchase prices for these stock purchases reasonably approximated the fair market value of the stock at the respective dates of sale. Additionally, during 1997, 24,000 shares of Holdings' Common Stock were acquired by certain executives of the Company at a price $32.50 below the fair market value of Holdings' Common Stock at that date, as established by an independent valuation. Stock compensation expense of $0.8 million was recorded by the Company in 1997 related to these stock purchases. No shares of Holdings' Class L Common Stock or of Holdings' Common Stock were sold during 1998. All stock options granted during 1996 have exercise prices that management believes equaled or exceeded the fair market value of the Holdings' Common Stock on the dates of the grants. During 1997 and 1998, certain option grants were made with exercise prices below fair market values of Holdings' Common Stock, based on independent valuations. Time Options generally vest ratably over a five-year period and have a ten-year term. Performance Options become exercisable at $7 or $16 per share either within ten years of grant or earlier if investment returns (as defined) of three times or five times, respectively, the total investment (as defined) of the original investors of the Company is achieved. Stock option activity during 1996, 1997, and 1998 was as follows:
1996 1997 1998 ------- --------- --------- Outstanding at January 1................... 629,170 684,170 1,782,450 Time Options Granted.................................. 84,000 994,400 182,000 Exercised................................ (54,900) (40,840) (15,100) Forfeited................................ (9,500) (59,340) (49,676) Performance Options Granted.................................. 60,400 262,574 -- Exercised................................ -- -- -- Forfeited................................ (25,000) (58,514) (18,076) ------- --------- --------- Outstanding at December 31................. 684,170 1,782,450 1,881,598 ======= ========= ========= Exercisable at December 31................. 62,740 114,080 632,033 Available for grant at December 31......... 22,500 336,912 222,664
F-20 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Weighted average option exercise price information for 1996, 1997 and 1998 is as follows:
1996 1997 1998 ------ ------ ------ Time Options Outstanding at January 1.......................... $ 0.50 $ 1.40 $15.97 Granted........................................... $ 4.00 $19.36 $37.72 Exercised......................................... $ 0.50 $ 1.35 $ 1.68 Forfeited......................................... $ 0.50 $ 1.25 $21.18 Outstanding at December 31........................ $ 1.40 $15.97 $18.96 Exercisable at December 31........................ $ 0.50 $ 1.94 $12.59 Performance Options Outstanding at January 1.......................... $11.50 $11.50 $11.50 Granted........................................... $11.50 $11.50 $ -- Exercised......................................... $ -- $ -- $ -- Forfeited......................................... $11.50 $11.50 $11.50 Outstanding at December 31........................ $11.50 $11.50 $11.50 Exercisable at December 31........................ $ -- $ -- $ --
Effective April 1, 1997, 46,500 Time Options with an exercise price of $4.00, 99,787 Performance Options with an exercise price of $7.00 and 99,787 Performance Options with an exercise price of $16.00 were granted, which represented discounts of $14.00, $11.00 and $2.00, respectively, below fair market value of Holdings' Common Stock at that date, as established by an independent valuation. Effective October 1, 1997, 860,900 Time Options with exercise prices of $0.50-$34.50 were granted, which represented a discount of $23.00-$57.00 from fair market value of Holding's Common Stock at that date, as established by an independent valuation. Accordingly, stock compensation expense of $10.6 million was recorded by the Company in 1997 related to these grants. Between March and October 1998, 182,000 Time Options with exercise prices of $34.50-$51.75 were granted, which represented a discount of $5.75- $23.00 from the approximate fair market value of Holdings' Common Stock at those dates. Accordingly, stock compensation expense of $1.5 million was recorded by the Company in 1998 related to these grants. Significant option groups outstanding at December 31, 1998 and related weighted average price and life information is as follows:
Exercisable Options Outstanding Options -------------------------------- ---------------- Weighted Average Weighted Weighted Number Remaining Average Number Average of Contractual Exercise of Exercise Grant Date Shares Life (in years) Price Shares Price ---------- ------- --------------- -------- ------- -------- Time Options--7/31/95..... 192,440 7 $ 1.35 145,500 $ 1.53 Time Options--7/31/96..... 54,000 8 $ 4.00 16,800 $ 4.00 Time Options--2/5/97- 8/25/97.................. 86,500 9 $ 4.00 17,300 $ 4.00 Time Options--10/1/97..... 823,304 9 $21.48 416,233 $15.19 Time Options--3/98-10/98.. 182,000 10 $37.72 36,200 $35.26 Performance Options-- 7/31/95.................. 130,950 7 $ 7.00 -- $ -- Performance Options-- 7/31/95.................. 130,950 7 $16.00 -- $ -- Performance Options-- 7/31/96.................. 23,200 8 $ 7.00 -- $ -- Performance Options-- 7/31/96.................. 23,200 8 $16.00 -- $ -- Performance Options-- 2/5/97-8/25/97........... 117,527 9 $ 7.00 -- $ -- Performance Options-- 2/5/97-8/25/97........... 117,527 9 $16.00 -- $ --
F-21 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As Holdings' Common Stock is not publicly traded, the fair value of options was estimated using the minimum value method as prescribed in SFAS No. 123, using the following assumptions:
1996 1997 1998 ---- ---- ---- Expected life (years): Time Options............................................ 5 5 5 Performance Options..................................... 3 2 -- Interest rate: Time Options............................................ 5.5% 5.7% 5.4% Performance Options..................................... 5.4% 5.6% -- Dividend yield: Time Options............................................ 0.0% 0.0% 0.0% Performance Options..................................... 0.0% 0.0% --
The fair values at the date of grant of the Time Options and Performance Options granted during 1996 were $0.1 million and $0.1 million, respectively. No stock-based compensation expense was recorded in 1996. Pro forma stock- based compensation would not have been significant in 1996 had the fair value of options granted in 1996 been recognized as compensation expense on a straight-line basis over the vesting of the grants. The fair values at the date of grant of the Time Options and Performance Options granted during 1997 were $36.1 million and $1.6 million, respectively. Pro forma stock-based compensation for 1997 would not be materially different from the recorded expense had the fair value of the options granted in 1996 and 1997 been recognized as compensation expense on a straight-line basis over the vesting of the grants. The fair values at the dates of grant of the Time Options granted during 1998 were $5.2 million. Pro forma stock-based compensation for 1998 would have been $2.2 million higher than the recorded expense had the fair value of the options granted in 1996 through 1998 been recognized as compensation expense on a straight-line basis over the vesting of the grants. 15. Transactions with Baxter and Allegiance Commencing in December 1994, the Company and Baxter entered into a distribution agreement within the United States. The U.S. Distribution Agreement, which became effective at the closing of the Dade Acquisition, gave Baxter's U.S. Distribution Division the right, generally on an exclusive basis, to sell the Predecessor's domestic products in the areas in which Baxter's U.S. Distribution Division previously sold the Predecessor's products. Effective October 1, 1996, Baxter "spun-off" its distribution business as Allegiance and Allegiance assumed the Company's Distribution Agreement. The term of this agreement, as amended, extends to December 31, 2000. Allegiance may terminate the agreement at any time after the four-year anniversary date by providing the Company with at least six months prior written notice. The Company may also terminate the agreement at any time after the eighteen-month anniversary with at least six months prior written notice. Net sales to Baxter's U.S. Distribution Division aggregated $221.8 million for the year ended December 31, 1996. Net sales to Allegiance totaled $72.2 million, $257.5 million, and $230.7 million for the years ended December 31, 1996, 1997, and 1998, respectively. At December 31, 1997 and 1998, receivables from Allegiance totaled $67.8 million and $51.0 million, respectively. 16. Related Party Transactions The Company and Holdings entered into five-year Management Services Agreements with Bain Capital and Goldman, Sachs & Co. (an affiliate of GS Capital). Pursuant to these agreements, they will pay Bain Capital and Goldman, Sachs & Co., subject to compliance with the terms of the indenture governing the 11 1/8% senior subordinated notes, an aggregate annual fee of up to $3.0 million plus their respective out-of-pocket expenses in return for management consulting in the areas of corporate finance; corporate strategy; investment analysis; F-22 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) market research and business development; advisory services and support, negotiation; analysis of financial alternatives, acquisitions and dispositions; and other services. In connection with the Chemistry Acquisition (Note 5), the Company paid $11.4 million for advisory fees and expenses to Bain Capital and $3.6 million to Goldman, Sachs & Co. The Company paid, in the aggregate, $18.8 million to Bain Capital, Goldman, Sachs & Co. and Hoechst in connection with the Behring Combination (Note 4). Included in marketing and administrative expense for the years 1996, 1997 and 1998 are advisory fees and expenses paid to Bain Capital and Goldman, Sachs & Co. totalling $3.0 million, $1.7 million and $3.3 million, respectively. Also in 1998, strategic consulting fees of $0.9 million were paid to Bain and Company, an affiliate of Bain Capital. Pursuant to Transition Services Agreements dated September 30, 1997, Hoechst provides the Company with certain support services including administrative support, warehousing and distribution services, human resource support, information systems support, accounting support and office space. The Transition Services Agreements have various terms from October 1, 1997 through December 31, 1999. The Company paid $7.9 million and $12.1 million to Hoechst related to these agreements for the three months ended December 31, 1997 and for the year ended December 31, 1998, respectively. Hoechst subleases office space to one of the Company's former Behring sites pursuant to a sublease dated October 1, 1997. Rent expense related to this sublease totaled $0.9 million and $3.5 million for the three months ended December 31, 1997 and for the year ended December 31, 1998, respectively. Net sales to Hoechst totaled $14.1 million and $52.7 million for the three months ended December 31, 1997 and for the year ended December 31, 1998, respectively. At December 31, 1997 and 1998, receivables from Hoechst totaled $21.3 million and $11.7 million, respectively. At December 31, 1997 and 1998, payables to Hoechst totaled $12.4 million and $13.9 million, respectively. 17. Retirement Programs Pension Plans The Company maintains non-contributory defined benefit pension plans covering substantially all employees in the United States and Puerto Rico ("U.S. Plans") and a combination of contributory and non-contributory plans in certain non-U.S. locations ("Non-U.S. Plans"). Through December 31, 1996, the U.S. Plans' benefits are based on years of service and the employees' compensation during five of the last ten years of employment as defined by the plans. Effective January 1, 1997, the Company amended its pension plan covering U.S. employees to change to a cash balance formula. The Company's funding policy is to make contributions to the trusts of the plans that meet or exceed the minimum requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Under the terms of the Behring Combination (Note 4), effective January 1, 1998, the employees' pension assets and liabilities of Behring were transferred into various Company Plans and the Company assumed responsibility for the liability for future benefits payable under the terms of the Company's Plans for those employees as of January 1, 1998. The Company reimbursed Hoechst for the service costs of those Plans for the period October 1, 1997 through December 31, 1997. F-23 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Under the terms of the Chemistry Acquisition (Note 5), the transferred DuPont employees' pension assets and liabilities were transferred directly into the existing Domestic Plans and the Company assumed responsibility for the liability for future benefits payable under the terms of the Company's plan for those employees as of the Chemistry Acquisition date. Under the terms of the Dade Acquisition (Note 6), Baxter retained liability for future benefits payable to existing retirees and non-transferred employees of the Predecessor as of the Dade Acquisition date, and the Company established new plans for retained active employees. During 1995, substantially all of the assets were transferred to the new plans. At December 31, 1997 and December 31, 1998, plan assets primarily consist of stocks, bonds and contracts with insurance companies.
1997 1998 ---------------- ----------------- U.S. Non-U.S. U.S. Non-U.S. ------ -------- ------- -------- Change in benefit obligation: Benefit obligation at beginning of year... $ 73.2 $ 23.9 $ 90.9 $ 52.0 Service cost.............................. 7.6 1.8 10.2 2.2 Interest cost............................. 6.7 1.2 7.6 1.7 Plan participants' contributions.......... -- -- -- -- Amendments................................ -- -- -- -- Actuarial (gain) loss..................... 7.0 1.1 6.8 (0.9) Acquisition............................... -- 22.7 -- -- Curtailments.............................. -- -- 0.2 (0.4) Benefits paid............................. (3.6) (1.1) (8.7) (1.4) Foreign currency changes.................. -- 2.4 -- 3.8 ------ ------ ------- ------ Benefit obligation at end of year........... $ 90.9 $ 52.0 $ 107.0 $ 57.0 ------ ------ ------- ------ Change in plan assets: Fair value of plan assets at beginning of year..................................... $104.1 $ 14.5 $ 112.0 $ 24.2 Actual return on plan assets.............. 11.6 1.1 5.0 0.3 Acquisition............................... -- 22.7 -- -- Employer contribution..................... -- -- -- 0.2 Plan participants' contributions.......... -- -- -- -- Benefits paid............................. (3.6) (0.7) (8.7) (0.6) Foreign currency changes.................. -- (13.4) -- 1.7 ------ ------ ------- ------ Fair value of plan assets at end of year.. $112.1 $ 24.2 $ 108.3 $ 25.8 ------ ------ ------- ------ Funded status at end of year: Accumulated benefit obligation............ $(87.2) $ 41.5 $(102.8) $ 49.0 ------ ------ ------- ------ Funded status............................. $ 20.9 $(27.1) $ 1.2 $(24.7) Unrecognized net actuarial (gain) loss.... 9.2 1.3 21.4 (0.7) Unrecognized prior service cost........... (8.7) -- (7.1) -- Foreign currency changes.................. -- 3.6 -- (5.0) ------ ------ ------- ------ Net amount recognized--(accrued) prepaid at end of year........................... $ 21.4 $(22.2) $ 15.5 $(30.4) ------ ------ ------- ------
F-24 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 1998 ------------- ------------- Non- Non- U.S. U.S. U.S. U.S. ----- ------ ----- ------ Amounts recognized in the statement of financial position consist of: Prepaid benefit cost (accrued benefit liability)................................... $21.0 $(23.7) $21.4 $(22.2) Net periodic pension cost..................... 3.6 (2.3) (6.0) (5.2) Intangible asset.............................. 0.3 -- -- (0.3) Accumulated other comprehensive income........ 0.1 -- -- -- Company contributions......................... -- -- -- 1.1 SFAS 88 adjustment............................ -- -- -- (0.7) Benefits paid................................. (3.6) -- 0.1 2.3 Foreign currency charges...................... -- 3.8 -- (5.4) ----- ------ ----- ------ Net amount recognized--(accrued) prepaid at end of year.................................. $21.4 $(22.2) $15.5 $(30.4) ----- ------ ----- ------
1996 1997 1998 ---------------- ---------------- ---------------- U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. ----- --------- ----- --------- ------ -------- Weighted-average assumptions as of December 31: Discount rate......... 7.75% 5.0% 7.75% 3.5%-6.5% 7.00% 3.5%-6.0% Expected return on plan assets.......... 9.50% 5.4% 9.50% 3.5%-5.5% 9.50% 3.0%-5.5% Rate of compensation increase............. 4.50% 3.25%-4.0% 4.50% 3.25%-4.0% 4.50% 2.5%-4.0% Components of net periodic benefit cost: Service cost.......... $ 5.6 $ 1.8 $ 7.6 $ 1.8 $ 10.2 $ 2.9 Interest cost......... 5.1 0.7 6.8 1.2 7.6 2.2 Expected return on plan assets.......... (8.0) (0.8) (9.7) (0.7) (10.4) (0.8) Amortization of prior service cost......... 1.5 -- (1.1) -- (1.1) 0.1 Recognized net actuarial loss....... -- -- -- -- -- -- ----- --------- ----- --------- ------ -------- SFAS 87 cost.......... 4.2 1.7 3.6 2.3 6.3 4.4 ----- --------- ----- --------- ------ -------- SFAS 88 charges: Curtailment charge (credit)............. (2.3) 0.2 -- -- (0.3) 0.8 ----- --------- ----- --------- ------ -------- Total net periodic benefit cost....... $ 1.9 $ 1.9 $ 3.6 $ 2.3 $ 6.0 $ 5.2 ===== ========= ===== ========= ====== ========
Savings Plan Most U.S. employees are eligible to participate in a Company sponsored qualified 401(k) plan. Participants may contribute up to 12% of their annual compensation, up to certain limits, to the 401(k) plan and the Company matches the participants' contributions, up to 2% of compensation. Matching contributions made by the Company were $3.2 million for the year ended December 31, 1996, $2.9 million for the year ended December 31, 1997, and $3.6 million for the year ended December 31, 1998. 18. Commitments and Contingencies Legal Proceedings The Company is a party in a number of legal proceedings. Based on the advice of legal counsel, management believes that any potential liability relative to the various legal proceedings pending against the Company will not have a material adverse effect on the Company's conduct of its business, its results of operations, its financial position or its liquidity. Letters of Credit As of December 31, 1998, the Company has letters of credit outstanding of approximately $8.5 million. F-25 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Operating Leases The Company leases certain facilities and equipment under operating leases expiring at various dates. Many of these operating leases contain renewal options. Future minimum lease payments under noncancelable operating leases at December 31, 1998 are as follows (in millions): 1999.............................. $ 43.7 2000.............................. 37.6 2001.............................. 34.2 2002.............................. 31.0 2003.............................. 25.9 Thereafter........................ 68.2 ------ Total......................... $240.6 ======
Total expense for all operating leases was $14.1 million for the year ended December 31, 1996, $22.9 million for the year ended December 31, 1997, and $43.9 million for the year ended December 31, 1998. 19. Business Segment and Geographic Information The business of the Company is in vitro diagnostic ("IVD") products. The operating segments derive substantially all their revenues from the manufacture and marketing of IVD products and services. The Company's operating structure includes the following operating segments: United States, Germany, Other Europe, Asia-Pacific, and All Other. Management evaluates the performance of its operating segments separately to individually monitor the different factors affecting financial performance. Management evaluates segment performance based upon EBITDA, which is a widely accepted measure of a company's ability to incur and/or service indebtedness. EBITDA represents the sum of net income, depreciation and amortization expense, non-cash stock-based compensation expense, non-recurring integration expenses, and other non-recurring operating charges and other non-cash charges. EBITDA includes substantially all cost of goods sold, marketing and administrative expenses, and research and development expenses. EBITDA for the U.S. and Germany includes research and development costs for products that are sold by all operating segments. F-26 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial information by segment for the years ended December 31, 1996, 1997 and 1998 is summarized as follows (in millions):
United States Germany Other Europe Asia-Pacific All Other(2) Total ------------- ------- ------------ ------------ ------------ -------- December 31, 1996 and the year then ended (1) Revenue from external customers. $ 559.5 $ 48.3 $100.8 $ 69.3 $ 17.9 $ 795.8 Intersegment revenues........... 61.0 -- 1.5 -- -- 62.5 Interest expense................ 66.1 0.1 0.5 0.2 -- 66.9 Segment EBITDA.................. 84.0 6.4 4.4 12.0 19.7 126.5 Segment assets.................. 1,491.9 27.4 162.1 52.2 0.5 1,734.1 December 31, 1997 and the year then ended Revenue from external customers. 649.1 71.7 145.8 82.6 31.3 980.5 Intersegment revenues........... 111.9 15.1 12.3 -- -- 139.3 Interest expense................ 86.6 -- 2.1 0.6 0.3 89.6 Segment EBITDA.................. 117.7 27.3 22.0 6.0 3.0 176.0 Segment assets.................. 1,482.3 189.6 243.8 74.5 34.4 2,024.6 Expenditures for segment assets. 39.9 4.0 19.5 4.3 0.7 68.4 December 31, 1998 and the year then ended Revenue from external customers. 687.2 158.6 293.9 111.7 33.8 1,285.2 Intersegment revenues........... 74.1 182.0 108.6 1.3 -- 366.0 Interest expense................ 78.0 3.1 0.9 0.8 0.8 83.6 Depreciation and amortization... 28.2 13.6 25.0 5.2 (13.2) 58.8 Segment EBITDA.................. 100.0 26.3 108.7 17.9 5.7 258.6 Segment assets.................. 2,048.5 491.7 233.3 90.0 (696.2) 2,167.3 Expenditures for segment assets. $ 57.6 $ 26.4 $ 42.8 $ 12.0 $ 0.2 $ 139.0
- -------- (1) Expenditures for segment assets for the year ended December 31, 1996 are not presented due to impracticality. (2) Includes the effects of purchase accounting which have not been reflected in segment accounting records. Consequently, asset write-downs resulting from bargain purchases are reflected in the All Other column. F-27 DADE BEHRING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
December 31, ---------------------------- 1996 1997 1998 -------- -------- -------- Reconciliation of reportable segments: Revenues Total revenue for reportable segments........... $ 840.4 $1,088.5 $1,617.4 Other revenues.................................. 17.9 31.3 33.8 Elimination of intersegment revenues............ (62.5) (139.3) (366.0) -------- -------- -------- Total consolidated revenues................. $ 795.8 $ 980.5 $1,285.2 -------- -------- -------- EBITDA Total EBITDA from reportable segments........... $ 106.8 $ 173.0 $ 252.9 Other EBITDA.................................... 19.7 3.0 5.7 -------- -------- -------- Total EBITDA................................ $ 126.5 $ 176.0 $ 258.6 -------- -------- -------- EBITDA to Income (Loss) Before Taxes Total EBITDA.................................... $ 126.5 $ 176.0 $ 258.6 Less: Depreciation and amortization............. (38.4) (50.7) (56.7) Interest expense, net........................ (65.6) (87.8) (80.5) Purchase accounting related charges.......... (122.9) (172.5) -- Restructuring (charges) credits.............. (15.0) (40.1) 4.5 Non-recurring charges and other.............. (10.3) (37.9) (10.3) Stock-based compensation..................... -- (11.4) (13.1) Integration costs............................ -- (2.0) (24.6) -------- -------- -------- Income (loss) before taxes...................... $ (125.7) $ (226.4) $ 77.9 ======== ======== ======== Assets Total assets for reportable segments............ $1,733.6 $1,990.2 $2,863.5 Other assets.................................... 0.5 34.4 (696.2) Elimination of intercompany receivables......... (729.0) (514.2) (633.9) -------- -------- -------- Total consolidated assets................... $1,005.1 $1,510.4 $1,533.4 ======== ======== ========
F-28 DADE BEHRING INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Dollars in millions)
Additions ----------------- Balance Charged Balance at to costs Charged at Beginning and to other End of of Period expenses accounts Deductions Period --------- -------- -------- ---------- ------- Year ended December 31, 1996 Allowance for bad debts.... $ 6.8 8.1 (5.3) $ 9.6 Income tax valuation allowance................. $ 13.6 6.3 (0.8)(1) $19.1 Year ended December 31, 1997 Allowance for bad debts.... $ 9.6 17.0 6.3 (2) (5.2) $27.7 Income tax valuation allowance................. $ 19.1 9.0 45.2 (2) (6.2) $65.2 (1.9)(1) Year ended December 31, 1998 Allowance for bad debts.... $ 27.7 4.0 1.3 (15.0) $18.0 Income tax valuation allowance................. $ 65.2 3.3 1.2 (1) (13.5)(3) $56.2
- -------- (1) Impact of foreign currency translation. (2) Acquired in the Behring combination. F-29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, in the City of Deerfield, State of Illinois, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 24, 1999. /s/ Steven W. Barnes By: _________________________________ Steven W. Barnes President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 24, 1999.
Signature Title --------- ----- /s/ Steven W. Barnes President, Chief Executive Officer and ___________________________________________ Director Steven W. Barnes (principal executive officer) /s/ James W. P. Reid-Anderson Chief Administrative Officer, Chief ___________________________________________ Financial Officer and Director (principal James W. P. Reid-Anderson financial officer) /s/ Glenn R. Richter Senior Vice President/Controller ___________________________________________ (principal accounting officer) Glenn R. Richter /s/ Robert W. Brightfelt Group President, Chemistry and Director ___________________________________________ Robert W. Brightfelt /s/ Mark E. Nunnelly Director ___________________________________________ Mark E. Nunnelly /s/ Stephen G. Pagliuca Director ___________________________________________ Stephen G. Pagliuca /s/ Adam Kirsch Director ___________________________________________ Adam Kirsch /s/ John P. Connaughton Director ___________________________________________ John P. Connaughton /s/ Joseph H. Gleberman Director ___________________________________________ Joseph H. Gleberman /s/ Scott T. Garrett Director ___________________________________________ Scott T. Garrett
INDEX TO EXHIBITS
Exhibit Number Document Description ------- -------------------- 3.1 Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 3.2 Amendment to Certificate of Incorporation of the Company. 3.3 Amended and Restated By-laws of the Company. Incorporated by reference to Exhibit 3.2 to the Company's Form 10-K under the Securities Exchange Act of 1934, as filed on March 31, 1998. 4.1 Indenture dated as of May 7, 1996 between the Company and IBJ Schroeder Bank & Trust Company. Incorporated by reference to Exhibit 4.1 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 4.2 Amended and Restated Registration Agreement dated as of October 1, 1997 among Dade Behring Holdings, Inc., Hoechst AG and other parties signatory thereto. 10.1 Amended and Restated Credit Agreement dated as of April 29, 1997 among Diagnostics Holding, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1997. 10.2 First Amendment to Credit Agreement dated as of September 11, 1997 among Diagnostics Holding, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on October 20, 1977. 10.3 Second Amendment to Credit Agreement dated as of December 12, 1997 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. 10.4 Third Amendment to Credit Agreement dated as of January 8, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1998. 10.5 Fourth Amendment and Waiver to Credit Agreement dated as of March 22, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1998. 10.6 Fifth Amendment to Credit Agreement dated as of April 30, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1998. 10.7 Sixth Amendment to Credit Agreement dated as of April 30, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1998. 10.8 Seventh Amendment to Credit Agreement dated as of July 8, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1998.
X-1
Exhibit Number Document Description ------- -------------------- 10.9 Eighth Amendment to Credit Agreement dated as of October 16, 1998 among Dade Behring Holdings, Inc., the Company, various lending institutions and Bankers Trust Company, as Agent. Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on November 16, 1998. 10.10 Security Agreement dated as of May 7, 1996 among Diagnostics Holding, Inc., the Company, certain subsidiaries of the Company and Bankers Trust Company, as Collateral Agent. Incorporated by reference to Exhibit 10.2 to the Company's Form S-1 Registration Statement under Securities Act of 1933, as filed on October 4, 1996. 10.11 Pledge Agreement dated as of May 7, 1996 among Diagnostics Holding, Inc., the Company, various subsidiaries of the Company and Bankers Trust Company, as Collateral Agent. Incorporated by reference to Exhibit 10.3 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 10.12 Asset Purchase and Sale Agreement dated December 11, 1995, as amended and restated on May 7, 1996, between E.I. du Pont de Nemours and Company and Dade Chemistry Systems Inc. Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on May 22, 1996 (No. 33-90462). 10.13 Agreement and Plan of Combination by and between Diagnostics Holding, Inc. and Hoechst A.G. dated as of June 24, 1997 and supplemented on July 2, 1997 and as further supplemented on September 29, 1997 and September 30, 1997. Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on October 20, 1997. 10.14 Cooperation and Collaboration Agreement executed as of October 1, 1997 between Dade Behring Holdings, Inc. and Hoechst AG. Incorporated by reference to Exhibit 10.18 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on October 20, 1997. 10.15 Transition Services Agreement dated as of September 30, 1997 between Diagnostics Holding, Inc. and Hoechst AG. 10.16 Amended and Restated Stockholders Agreement dated as of October 1, 1997 between Dade Behring Holdings, Inc. and the other parties signatory thereto. Incorporated by reference to Exhibit 10.7 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on October 20, 1997. 10.17 Management Services Agreement dated as of December 20, 1994 by and among the Company and Bain Capital, Inc. Incorporated by reference to Exhibit 10.7 to the Company's Form S-4 Registration Statement under the Securities Act of 1933, as filed on March 20, 1995 (No. 33-90462) as amended by Amendment No. 1 to Management Services Agreement dated as of May 7, 1996. Incorporated by reference to Exhibit 10.8 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 10.18 Management Services Agreement dated as of December 20, 1994 by and among the Company and Goldman, Sachs & Co. Incorporated by reference to Exhibit 10.8 to the Company's Form S-4 Registration Statement under the Securities Act of 1933, as filed on March 20, 1995 (No. 33-90462). 10.19 Tax Law Change Indemnification dated as of December 16, 1994 between Baxter International Inc. and Diagnostics Holding, Inc. Incorporated by reference to Exhibit 10.9 to the Company's Form S-4 Registration Statement under the Securities Act of 1933, as filed on March 20, 1995 (No. 33-90462).
X-2
Exhibit Number Document Description ------- -------------------- 10.20 Amended and Restated Exclusive Distribution Agreement dated as of September 15, 1995, by and between the Company and Baxter Healthcare Corporation as amended on September 26, 1996. Incorporated by reference to Exhibit 10.11 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 10.21 Second Amendment to Amended and Restated Exclusive Distribution Agreement made and entered into as of October 1, 1997 by and between the Company and Allegiance Healthcare Corporation. Incorporated by reference to Exhibit 10.11 to the Company's Form 8-K under the Securities Exchange Act of 1934, as filed on October 20, 1997. 10.22 Third Amendment to the Amended and Restated Exclusive Distribution Agreement dated as of May 27, 1998 between the Company and Allegiance Healthcare Corporation. 10.23 1995 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q Registration Statement under the Securities Exchange Act of 1934, as filed on August 14, 1995 (No. 33-90462). 10.24 1995 Management Stock Option Plan. Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1995 (No. 33-90462). 10.25 Form of Agreement under 1995 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1995 (No. 33-90462). 10.26 Form of Agreement under 1995 Management Stock Option Plan. Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on August 14, 1995 (No. 33-90462). 10.27 1996 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.16 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 10.28 Form of Agreement under 1996 Executive Stock Option Plan. Incorporated by reference to Exhibit 10.17 to the Company's Form S-1 Registration Statement under the Securities Act of 1933, as filed on October 4, 1996. 10.29 1997 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.1 to Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1997. 10.30 Form of Agreement under 1997 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1997. 10.31 1997 Management Stock Option Plan. Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1997. 10.32 Form of Agreement under 1997 Management Stock Option Plan. Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1997. 10.33 1997 Executive Stock Purchase and Option Plan. Incorporated by reference to Exhibit 10.23 to the Company's Form 10-K under the Securities Exchange Act of 1934, as filed on March 31, 1998.
X-3
Exhibit Number Document Description ------- -------------------- 10.34 Employment Agreement effective as of October 1, 1997 between the Company and Steve Barnes. Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q under the Securities Exchange Act of 1934, as filed on May 15, 1998. 10.35 Employment Agreement Addendum effective October 1, 1997 between the Company and Steve Barnes. Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q under the Securities Act of 1934, as filed on May 15, 1998. 10.36 Employment letter dated August 1, 1996 between the Company and James Reid-Anderson. 10.37 Managing Director-Employment Agreement dated August 19, 1998 between Dade Behring Holding GmbH and Friedhelm Blobel. 10.38 Employment letter dated January 8, 1997 between the Company and Marc Casper. 10.39 Separation Agreement dated July 20, 1998 between the Company and Marc Casper. 10.40 Executive Agreement dated as of October 1, 1997 between Dade Behring Holdings, Inc. and Steve Barnes. 10.41 Executive Agreement dated as of October 1, 1997 between Dade Behring Holdings, Inc. and James Reid-Anderson. 21.1 Subsidiaries of the Company. 23.1 Report of Independent Accountants on Financial Statement Schedule. 27.1 Financial Data Schedule.
X-4 EX-3.2 2 AMENDMENT TO CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF DADE INTERNATIONAL INC. ********************************* Adopted in accordance with the provisions of Section 242 of the State of Delaware ********************************* Steven W. Barnes, being the President of Dade International Inc., a corporation organized and existing under any and by virtue of the laws of the State of Delaware (the "Corporation"), does hereby certify as follows: FIRST: That the Board of Directors of the Corporation, by the unanimous written consent of its members, filed with the minutes of the board, duly adopted resolutions. The resolutions setting forth the proposed amendment is as follows: RESOLVED, effective January 1, 1998 and subject to the approval of the sole stockholder, Article 1 of the Certificate of Incorporation of Dade International Inc. be amended so that, as amended, Article I shall read as follows: "1. The Name by which the Corporation shall be known is Dade Behring Inc." FURTHER RESOLVED, that this amendment be submitted to the sole stockholder for approval and adoption; and SECOND: That thereafter, pursuant to resolution of its Board of Directors, and upon written consent of the sole stockholder of said Corporation, with notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, as required by statue was voted in favor of the amendments. 1 THIRD: That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned, being the President hereinabove named, for the purpose of amending the Certificate of Incorporation of the Corporation , pursuant to the General Corporation Law of the State of Delaware, under penalties of perjury does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true and accordingly have hereunto signed this Certificate of Amendment of Certificate of Incorporation this 18th day of December 1997. DADE INTERNATIONAL INC. a Delaware Corporation /s/ ------------------------------- Steven W. Barnes President 2 EX-4.2 3 AMENDED AND RESTATED REGISTRATION AGREEMENT Exhibit 4.2 AMENDED AND RESTATED REGISTRATION AGREEMENT ------------------------------------------- THIS AGREEMENT dated as of October 1, 1997, is made by and among Dade Behring Holdings, Inc., a Delaware corporation ("Holdings"), Hoechst AG, a German corporation ("Hoechst"), the Persons listed on Schedule A attached hereto (the "Bain Stockholders"), and the Persons listed on Schedule B attached hereto (the "GS Stockholders"). Hoechst, the Bain Stockholders and the GS Stockholders are collectively referred to herein as the "Stockholders," and individually as a "Stockholder." The Bain Stockholders, the GS Stockholders and Holdings are parties to a Stock Purchase Agreement dated December 20, 1994 (the "Purchase Agreement") and a Registration Agreement, dated December 20, 1994 (the "Old Registration Agreement"). Hoechst and Holdings are parties to an Agreement and Plan of Combination, dated as of June 24, 1997 (the "Combination Agreement"). The Bain Stockholders, the GS Stockholders, Hoechst and Holdings are parties to an Amended and Restated Stockholders Agreement, dated as of the date hereof (the "Stockholders Agreement"). The Bain Stockholders, the GS Stockholders and Holdings desire to amend and restate the Old Registration Agreement to provide the registration rights set forth in this Agreement. Unless otherwise provided in this Agreement, capitalized terms used herein shall have the meanings set forth in paragraph 9 hereof. The parties hereto agree as follows: 1. Demand Registrations. --------------------- (a) Requests for Registration. Subject to the covenants set forth in the following subparagraphs of this paragraph 1 and, if required by paragraph 10(a) of the Stockholders Agreement, subject, in the case of an Initial Public Offering, to the GS Stockholders' prior written consent to such offering, the holders of a majority of (i) the Bain Registrable Securities (ii) the GS Registrable Securities or (iii) the Hoechst Registrable Securities may each request registration under the Securities Act of all or part of their Registrable Securities on Form S-1 or any similar long-form registration ("Long- Form Registrations") or, if available, on Form S-2 or S-3 or any similar short- form registration ("Short-Form Registrations"). Each request for such registration (a "Demand Registration") shall specify the approximate number of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, Holdings will give written notice of such requested registration to all other holders of Registrable Securities and, subject to paragraph l(f) below, will include in such registration all Registrable Securities with respect to which Holdings has received written requests for inclusion therein within 15 days after the receipt of Holdings's notice. (b) Bain Registrations. The holders of a majority of the Bain Registrable Securities will be entitled to request three Long-Form Registrations in which Holdings will pay -1- all Registration Expenses (a "Bain Demand"). A registration will not count as a Bain Demand until it has become effective, and the last Bain Demand will not count as a Bain Demand unless the holders of Bain Registrable Securities requesting such registration have been able to register and sell at least 90% of the Bain Registrable Securities initially requested to be registered by such holders; provided that in any event Holdings will pay all Registration Expenses in connection with any registration initiated as a Bain Demand whether or not it has become effective. (c) Short-Form Registrations. In addition to the Bain Demands provided pursuant to paragraph 1(b), the holders of a majority of the Bain Registrable Securities will be entitled to request unlimited Short-Form Registrations in which Holdings will pay all Registration Expenses. Demand Registrations will be Short-Form Registrations whenever Holdings is permitted to use any applicable short form (unless the underwriter of such offering requests Holdings to use a Long-Form Registration in order to sell all of the Registrable Securities requested to be sold). After Holdings has become subject to the reporting requirements of the Securities Exchange Act, Holdings will use its best efforts to make Short-Form Registrations available for the sale of Registrable Securities provided that Holdings will not be obligated to effect such a Short-Form Registration unless holders of Bain Registrable Securities request to include at least the lesser of 1,500,000 Bain Registrable Securities (such number to be adjusted for equity securities (other than Non-Participating Securities) issued by way of stock dividend, stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization) or such number of Bain Registrable Securities then owned by the holders of the Bain Registrable Securities. (d) GS Demand Registrations. After the earlier of (i) Holdings's Initial Public Offering (as defined in Paragraph 9 below) and (ii) December 20, 2002, the holders of a majority of the GS Registrable Securities will be entitled to request two Demand Registrations (a "GS Demand"); provided that there will be no GS Demand prior to Holdings's Initial Public Offering if the GS Stockholders and their Affiliates (other than Holdings or its Subsidiaries) have received from Holdings, its Subsidiaries or the Persons who were not Affiliates of the GS Stockholders aggregate proceeds of at least $14.9 million with respect to the GS Registrable Securities initially purchased by the GS Stockholders pursuant to the Purchase Agreement (whether by dividend, distribution, redemption, repurchase, sale or otherwise). A registration will not count as one of the GS Demands until it has become effective, and the last GS Demand will not count as one of the GS Demands unless the holders of GS Registrable Securities requesting such registration have been able to register and sell at least 90% of the Registrable Securities initially requested to be registered by such holders; provided that in any event Holdings will pay all Registration Expenses in connection with any registration initiated as a GS Demand whether or not it has become effective. (e) Hoechst Demand Registrations. After Holdings's Initial Public Offering, the holders of a majority of the Hoechst Registrable Securities will be entitled to request unlimited Demand Registrations (an "Hoechst Demand"); provided that Holdings will not be obligated to effect an Hoechst Demand (i) unless the holders of Hoechst Registrable Securities -2- request to include at least the lesser of 1,500,000 Hoechst Registrable Securities or such number of Hoechst Registrable Securities then owned by Hoechst and its Affiliates (such number to be adjusted for equity securities (other than Non-Participating Securities) issued by way of stock dividend, stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization) and (ii) if within the twelve month period preceding such Hoechst Demand, Holdings has effected an Hoechst Demand. A registration will not count as one of the Hoechst Demands until it has become effective and unless the holders of Hoechst Registrable Securities requesting such registration have been able to register and sell at least 90% of the Hoechst Registrable Securities initially requested to be registered by such holders. Holdings will pay all Registration Expenses in connection with any registration initiated as an Hoechst Demand whether or not it has become effective. (f) Priority on Demand Registrations. Holdings will not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise Holdings in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, Holdings will include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder. (g) Restrictions on Demand Registrations. Holdings will not be obligated to effect any Demand Registration within six months after the effective date of a previous Demand Registration. Holdings may postpone for up to six months (from the date of the request) the filing or the effectiveness of a registration statement for a Demand Registration if and so long as Holdings determines that such Demand Registration would reasonably be expected to have an adverse effect on any proposal or plan by Holdings or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or similar transaction; provided, however, that in such event, the holders of a majority of the Registrable Securities requesting such Demand Registration will be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration will not count as one of the permitted Demand Registrations hereunder and Holdings will pay all Registration Expenses in connection with such registration. (h) Selection of Underwriters. Subject to the following provisions of this subparagraph (h), the holders of a majority of the Bain Registrable Securities included in any Demand Registration (or if none, Holdings) will have the right to select the investment banker(s) and manager(s) to administer the offering, subject to Holdings's approval which will not be unreasonably withheld. The lead investment bank and manager shall be a nationally-recognized, -3- New York-based investment banking firm with substantial expertise in offerings of the kind contemplated in connection with the Demand Registration (such kind of investment banking firm being referred to herein as a "Qualified Investment Bank"). Notwithstanding the foregoing, and subject to the terms of the Stockholders Agreement: (i) in the case of the first GS Demand Registration if the GS Registrable Securities included in such demand constitute at least a majority of the Registrable Securities being registered and in the case of the second GS Demand Registration without regard to the amount of GS Registrable Securities included in the demand, the holders of a majority of the GS Registrable Securities included in the demand will have the right to select one or more Qualified Investment Banks to serve as the investment banker(s) and manager(s) to administer the offering, subject to Holdings's approval which will not be unreasonably withheld; (ii) in the case of a Demand Registration where the Hoechst Registrable Securities included in such demand constitute at least a majority of the Registrable Securities being registered, Hoechst will have the right to approve the Qualified Investment Bank(s) selected to administer the offering which approval shall not be unreasonably withheld; and (iii) in the case of a Demand Registration where the Hoechst Registrable Securities included in such demand constitute at least 25% of the Registrable Securities being registered, Hoechst will have the right to select a Qualified Investment Bank to serve as a co-investment bank and co-manager to co-administer the offering, subject to Holdings's approval which will not be unreasonably withheld. In any registration in which GS Registrable Securities are included in such registration, subject to the Stockholders Agreement, Goldman, Sachs & Co. ("Goldman") will be appointed a manager in administering such offering. (i) Other Registration Rights. Except as provided in this Agreement, Holdings will not grant to any Persons the right to request Holdings to register any equity securities of Holdings, or any securities convertible or exchangeable into or exercisable for such securities; provided that Holdings may grant rights to other Persons to (i) participate in the Piggyback Registrations so long as such rights are subordinate to the rights of the holders of Registrable Securities with respect to such Piggyback Registrations, (ii) request registrations so long as the holders of Registrable Securities are entitled to participate in any such registrations with such Persons pro rata on the basis of the number of shares owned by each such holder and (iii) to otherwise request Holdings to register any such securities if the grant of such right affects equally and in the same manner the respective rights of holders of Registrable Securities hereunder. 2. Piggyback Registrations. ----------------------- (a) Right to Piggyback. Whenever Holdings proposes to register any of its securities under the Securities Act (other than in an Initial Public Offering or pursuant to a Demand Registration or a registration on Form S-4 or S-8 or any successor or similar forms) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), whether or not for sale for its own account, Holdings will give prompt written notice to all holders of Registrable Securities of its intention to effect such a -4- registration and, subject to paragraph 2(d) below, will include in such registration all Registrable Securities with respect to which Holdings has received written requests for inclusion therein within 30 days after the receipt of Holdings's notice. (b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities will be paid by Holdings in all Piggyback Registrations. (c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of Holdings, and the managing underwriters advise Holdings in writing (with a copy to each party hereto requesting registration of Registrable Securities) that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of such offering, Holdings will include in such registration (i) first, the securities Holdings proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. (d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of Holdings's securities and the managing underwriters advise Holdings in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, Holdings will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata among such holders and the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (ii) second, other securities requested to be included in such registration. (e) Other Registrations. If Holdings has previously filed a registration statement with respect to Registrable Securities pursuant to paragraph 1 or pursuant to this paragraph 2, and if such previous registration has not been withdrawn or abandoned, Holdings will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-4 or S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least six months has elapsed from the effective date of such previous registration. 3. Holdback Agreements. ------------------- (a) To the extent not inconsistent with applicable law, each holder of Registrable Securities agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of Holdings, or any securities, options or rights convertible into or exchangeable or exercisable for such securities, during the seven days prior to -5- and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. (b) Holdings agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-4 or S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from Holdings at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, Holdings will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof and pursuant thereto Holdings will as expeditiously as possible: (a) prepare and (within 60 days after the end of the period within which requests for inclusion in such registration may be given to Holdings) file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and thereafter use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, Holdings will furnish to the counsel(s) selected by the holders of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to review of such counsel); (b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of either (i) not less than six months (subject to extension pursuant to paragraph 7(b)) or, if such registration statement relates to an underwritten offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer or (ii) such shorter period as will terminate when all of the securities covered by such registration statement have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period required under the Securities Act), and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration -6- statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that Holdings will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in respect of doing business in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) promptly notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event as a result of which, the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and, at the request of any such seller, Holdings will prepare and furnish to such seller a reasonable number of copies of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by Holdings are then listed and, if not so listed, to be listed on the NASD automated quotation system; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities included in the registration (and in the case of a GS Demand, the holders of a majority of the GS Registrable Securities included in the registration; in the case of a Bain Demand, the holders of a majority of the Bain Registrable Securities included in the registration; and in the case of a Demand Registration in which Hoechst Registrable Securities constitute at least a -7- majority of the Registrable Securities being registered, the holders of a majority of the Hoechst Registrable Securities included in the registration) or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of Holdings, and cause Holdings's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the registration statement, an earnings statement covering the period of at least twelve months beginning with the first day of Holdings's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Securities included in such registration statement for sale in any jurisdiction, Holdings will use its reasonable best efforts promptly to obtain the withdrawal of such order; (1) obtain one or more comfort letters, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by Holdings's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request (and in the case of (i) a GS Demand, as the holders of a majority of the GS Registrable Securities included in the registration reasonably request, (ii) a Bain Demand, as the holders of a majority of the Bain Registrable Securities included in the registration reasonably request and (iii) a Demand Registration in which Hoechst Registrable Securities constitute at least a majority of the Registrable Securities being registered, as the holders of a majority of the Hoechst Registrable Securities included in the registration reasonably request); (m) provide a legal opinion of Holdings's outside counsel, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwvriting agreement), with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary -8- form and covering such matters of the type customarily covered by legal opinions of such nature (in a form reasonably acceptable to the holders of a majority of the Registrable Securities included in the registration); provided that in any registration made pursuant to (i) a GS Demand, such legal opinion shall be in a form reasonably acceptable to the holders of a majority of the GS Registrable Securities included in such registration, (ii) a Bain Demand, such legal opinion shall be in a form reasonably acceptable to the holders of a majority of the Bain Registrable Securities included in such registration and (iii) a Demand Registration in which Hoechst Registrable Securities constitute at least a majority of the Registrable Securities being registered, such legal opinion shall be in a form reasonably acceptable to the holders of a majority of the Hoechst Registrable Securities included in such registration; (n) cooperate with the sellers of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or such holders may request; (o) notify counsel for the sellers of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment prospectus shall have been filed, (ii) of the receipt of any comments from the Securities and Exchange Commission, (iii) of any request of the Securities and Exchange Commission to amend the registration statement or amend or supplement the prospectus or for additional information, and (iv) of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes; (p) make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment; (q) if requested by the managing underwriter or agent or any holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such holder reasonably requests to be included therein, including, without limitation, with respect to the number of Registrable Securities being sold by such holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus -9- supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post- effective amendment; and (r) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. Holdings may require each seller of Registrable Securities as to which any registration is being effected to furnish Holdings such information relating to the sale or registration of such Securities regarding such seller and the distribution of such securities as Holdings may from time to time reasonably request in writing. 5. Registration Expenses. ---------------------- (a) All expenses incident to Holdings's performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for Holdings and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by Holdings (all such expenses being herein called "Registration Expenses"), will be borne as provided in this Agreement, except that Holdings will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by Holdings are then listed or on the NASD automated quotation system. (b) In connection with each Demand Registration and each Piggyback Registration, Holdings will reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities included in such registration. In addition, in any registration made pursuant to (i) a GS Demand, Holdings will reimburse the holders of GS Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the GS Registrable Securities included in such registration, (ii) a Demand Registration in which Hoechst Registrable Securities constitute at least a majority of the Registrable Securities being registered, Holdings shall reimburse the holders of Hoechst Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Hoechst Registrable Securities included in such registration and (iii) a Bain Demand, Holdings shall reimburse the holders of Bain Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Bain Registrable Securities included in such registration. -10- (c) To the extent Registration Expenses are not required to be paid by Holdings, each holder of securities included in any registration hereunder will pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. 6. Indemnification. ---------------- (a) Holdings agrees to indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, its officers, directors, employees, stockholders and general and limited partners and each Person who controls such holder (within the meaning of the Securities Act) against any and all losses, claims, damages, liabilities, joint or several, to which such holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue or alleged untrue statement of material fact contained (A) in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, together with any documents incorporated therein by reference or, (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and Holdings will reimburse such holder and each such director, officers, employees, stockholders and general and limited partners and controlling person for any legal or any other expenses, including any amounts paid in any settlement effected with the consent of Holdings, which consent will not be unreasonably withheld or delayed, incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, however, that Holdings shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in such registration statement, any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information prepared and furnished to Holdings by such holder expressly for use therein. In connection with an underwritten offering, Holdings will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to Holdings in writing such information and affidavits as Holdings reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify and hold harmless Holdings, its directors, officers, employees, stockholders and general and limited partners and each other Person who controls Holdings (within the meaning of the Securities Act) against any losses, claims, damages, liabilities, joint or several, to which such holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, -11- whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or in any application, together with any documents incorporated therein by reference or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is made in such registration statement, any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any application, in reliance upon and in conformity with written information prepared and furnished to Holdings by such holder expressly for use therein, and such holder will reimburse Holdings and each such director, officer and controlling Person for any legal or any other expenses including any amounts paid in any settlement effected with the consent of such holder, which consent will not be unreasonably withheld or delayed, incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, however, that the obligation to indemnify will be individual (and not joint and several) to each holder and will be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided, however, that the failure of any indemnified party to give such notice shall not relieve the indemnifying party of its obligations hereunder, except to the extent that the indemnifying party is actually prejudiced by such failure to give such notice), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnifying party shall not, except with the approval of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without any payment or consideration provided by such indemnified party. (e) If the indemnification provided for in this Paragraph 6 is unavailable to or is insufficient to hold harmless an indemnified party under the provisions above in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, -12- claims, damages or liabilities (i) in such proportion as is appropriate to reflect not only the relative benefits received by Holdings on the one hand and the sellers of Registrable Securities and any other sellers participating in the registration statement on the other from the sale of Registrable Securities pursuant to the registered offering of securities as to which indemnity is sought but also the relative fault of the indemnified party and the indemnifying party as well as any other relevant equitable considerations or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of Holdings on the one hand and of the sellers of Registrable Securities and any other sellers participating in the registration statement on the other in connection with the statement or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by Holdings on the one hand and the sellers of Registrable Securities and any other sellers participating in the registration statement on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) to Holdings bear to the total net proceeds from the offering (before deducting expenses) to the sellers of Registrable Securities and any other sellers participating in the registration statement. The relative fault of Holdings on the one hand and of the sellers of Registrable Securities and any other sellers participating in the registration statement on the other shall be determined by reference to, among other things, whether the untrue or alleged omission to state a material fact relates to information supplied by Holdings or by the sellers of Registrable Securities or other sellers participating in the registration statement and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Holdings and the sellers of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Paragraph 6 were determined by pro rata allocation (even if the sellers of Registrable Securities were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Paragraph 6, no seller of Registrable Securities shall be required to contribute any amount in excess of the net proceeds received by such Seller from the sale of Registrable Securities covered by the registration statement filed pursuant hereto. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The indemnification and contribution by any such party provided for under this Agreement shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and will remain in full force and effect regardless of any investigation made or omitted by or on behalf of the indemnified party or -13- any officer, director or controlling Person of such indemnified party and will survive the transfer of securities. 7. Participation in Underwritten Registrations. -------------------------------------------- (a) No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to the terms of any over-allotment or "green shoe" option requested by the managing underwriter(s), provided that no holder of Registrable Securities will be required to sell more than the number of Registrable Securities that such holder has requested Holdings to include in any registration) and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. (b) Each Person that is participating in any registration hereunder agrees that, upon receipt of any notice from Holdings of the happening of any event of the kind described in paragraph 4(e) above, such Person will forthwith discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Person's receipt of the copies of a supplemented or amended prospectus as contemplated by such paragraph 4(e). In the event Holdings shall give any such notice, the applicable time period mentioned in paragraph 4(b) during which a Registration Statement is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this paragraph to and including the date when each seller of a Registrable Security covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by paragraph 4(e). 8. Current Public Information. --------------------------- At all times after Holdings has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, Holdings will timely file all reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will take such further action as any holder or holders of Registrable Securities may reasonably request, all to the extent required to enable such holders to sell Registrable Securities pursuant to Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. 9. Definitions. ------------ "Bain Registrable Securities" means (i) any share of Common or Class L Common issued to the Bain Stockholders (or their Affiliates) pursuant to the Purchase Agreement or otherwise acquired, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection -14- with a combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common or Class L Common held by Persons holding securities described in clause (i) or (ii) above; provided, however, that in the event that pursuant to such recapitalization or exchange Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting Bain Registrable Securities, such shares will cease to be Bain Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public pursuant to Rule 144 under the Securities Act. For purposes of this Agreement, a Person will be deemed to be a holder of Bain Registrable Securities whenever such Person has the right to acquire directly or indirectly such Bain Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Class L Common" means the Class L Common Stock, par value $.01 per share, of Holdings. "Class L Common, Series B," means the Class L Common Stock, Series B, par value $.01 per share, of Holdings. "Common" means the Common Stock, par value $.01 per share, of Holdings. "Common Stock" means both Class L Common, Class L Common, Series B, and Common. "GS Registrable Securities" means (i) any shares of Common or Class L Common issued to the GS Stockholders (or their Affiliates) pursuant to the Purchase Agreement or otherwise acquired, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common or Class L Common held by Persons holding securities described in clauses (i) or (ii) above; provided, however, that in the event that pursuant to such recapitalization or exchange Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting GS Registrable Securities, such shares will cease to be GS Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public pursuant to Rule 144 under the Securities Act. "Hoechst Registrable Securities" means (i) any shares of Common or Class L Common, Series B, issued to Hoechst (or its Affiliate) pursuant to the Combination Agreement, issued upon exercise of the Warrant (as defined in the Combination Agreement) or otherwise acquired, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a -15- combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common or Class L Common held by Persons holding securities described in clauses (i) or (ii) above; provided, however, that in the event that pursuant to such recapitalization or exchange Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting Hoechst Registrable Securities, such shares will cease to be Hoechst Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public pursuant to Rule 144 under the Securities Act. "Initial Public Offering" means a public offering and sale of Holdings's common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, if immediately thereafter Holdings has publicly held common stock listed on a national securities exchange or the NASD automated quotation system with a market value of at least $15 million. "Management Registrable Securities" means, so long as such holder has agreed to become bound by the terms and provisions of this Agreement, (i) any shares of Common Stock or securities convertible or exchangeable into Common Stock issued to the employees of Holdings or its Subsidiaries, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common Stock held by Persons holding securities described in clauses (i) or (ii) above; provided, however, that in the event that pursuant to such recapitalization or exchange Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting Management Registrable Securities, such shares will cease to be Management Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public pursuant to Rule 144 under the Securities Act. "Non-Participating Securities" means equity securities which do not participate in the residual equity of Holdings. "Person" means an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof. "Registrable Securities" means collectively Bain Registrable Securities, GS Registrable Securities, Hoechst Registrable Securities and Management Registrable Securities. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal law then in force. -16- "Securities and Exchange Commission" includes any governmental body or agency succeeding to the functions thereof. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal law then in force. 10. Miscellaneous ------------- (a) No Inconsistent Agreements. Holdings will not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Adjustments Affecting Registrable Securities. Holdings will not take any action, or permit any change to occur, with respect to its securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) Remedies. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto shall have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. (d) Amendment and Waiver. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of Holdings and the holders of a majority of the Bain Registrable Securities (provided such securities constitute at least 3% of the outstanding Common Stock on a fully diluted basis), the holders of a majority of the GS Registrable Securities (provided such securities constitute at least 3% of the outstanding Common Stock on a fully diluted basis) and the holders of a majority of the Hoechst Registrable Securities (provided such securities constitute at least 3% of the outstanding Common Stock on a fully diluted basis); provided, however, that in the event that such amendment or waiver would treat a holder or group of holders of Registrable Securities in a manner different from any other holders of Registrable Securities, then such amendment or waiver will require the consent of such holder or the holders of a majority of the Registrable Securities of such group adversely treated. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. (e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the holders of Registrable Securities (or -17- any portion thereof) as such shall be for the benefit of and enforceable by any subsequent holder of any Registrable Securities (or of such portion thereof), subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities (or of such portion thereof) required in order to be entitled to certain rights, or take certain actions, contained herein. (f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (g) Counterparts. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same Agreement. (h) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (i) Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when personally delivered, sent by telecopy (with receipt confirmed) on a Business Day during regular business hours of the recipient (or, if not, on the next succeeding Business Day) or two Business Days after sent by reputable overnight express courier (charges prepaid); provided that notice to the holders of the GS Registrable Securities shall be effective only if notice has been given to the GS Designee (as defined in the Stockholders Agreement) and notice to the GS Designee will not be deemed to have been given unless actually delivered in person or by telecopy, courier or mail. If to Holdings: Dade Behring Holdings, Inc 1717 Deerfield Road P.O. Box 778 Deerfield, Illinois 60015-0778 U.S.A. Attention: Chief Executive Officer General Counsel If to the Bain Stockholders: Bain Capital, Inc. Two Copley Place -18- Boston, Massachusetts 02116 U.S.A. Attention: John Connaughton With a copy to (which shall not constitute notice hereunder): Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 U.S.A. Attention: Jeffrey C. Hammes If to the GS Stockholders: Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 U.S.A. Attention: Joseph H. Gleberman Neal Moszkowski With a copy to (which shall not constitute notice hereunder): Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10014 U.S.A. Attention: Lee Parks If to Hoechst: Hoechst AG Bruningstrasse 50 D-65929 Germany Attention: Chairman of the Management Board With a copy to (which shall not constitute notice hereunder): Shearman & Sterling 599 Lexington Avenue New York, New York 10022 U.S.A. -19- Attention: Creighton O'M. Condon 11. Delivery by Facsimile. This Agreement and any signed agreement or instrument entered into in connection thereto or contemplated thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation of a contract and each such party forever waives any such defense. 12. GOVERNING LAW. THE CORPORATE LAW OF DELAWARE WILL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF HOLDINGS AND ITS STOCKHOLDERS. ALL OTHER ISSUES CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE COUNTY OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE CO-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY, OVER ANY LAWSUIT UNDER THIS AGREEMENT AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN. EACH PARTY HERETO HEREBY WAIVES THE NECESSITY FOR PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED), WITH A COPY ALSO BEING SENT BY FACSIMILE (WITH RECEIPT CONFIRMED), IN EACH CASE DIRECTED TO SUCH PARTY AT ITS ADDRESS SET FORTH IN, AND WITH COPIES SENT AS REQUIRED BY, PARAGRAPH 10(i) ABOVE, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED ON THE DATE OF ACTUAL RECEIPT. EACH PARTY HERETO HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING IN THIS PARAGRAPH 11 WILL PROHIBIT PERSONAL SERVICE IN LIEU OF THE SERVICE BY MAIL CONTEMPLATED HEREIN. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. DADE BEHRING HOLDINGS, INC. -20- By: /s/ ---------------------------------------------- Its: Vice President ---------------------------------------------- HOECHST AG By: /s/ ---------------------------------------------- Its: ---------------------------------------------- BAIN CAPITAL FUND IV, L.P. By: Bain Capital Partners IV, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ ---------------------------------------------- A Managing Director BAIN CAPITAL FUND IV-B, L.P. By: Bain Capital Partners IV, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ ---------------------------------------------- A Managing Director BCIP ASSOCIATES By: /s/ ---------------------------------------------- A General Partner -21- BCIP TRUST ASSOCIATES, L.P. By: /s/ ---------------------------------------------- A General Partner GS CAPITAL PARTNERS, L.P. By: GS Advisors, L.P. Its: General Partner By: GS Advisors, Inc. Its: General Partner By: /s/ ---------------------------------------------- BRIDGE STREET FUND 1994, L.P. By: Stone Street Funding Corp. Its: Managing General Partner By: /s/ ---------------------------------------------- STONE STREET FUND 1994, L.P. By: Stone Street Funding Corp. Its: General Partner By: /s/ ---------------------------------------------- RANDOLPH STREET PARTNERS By: /s/ ---------------------------------------------- A General Partner -22- SCHEDULE A ---------- Bain CapitaI Fund IV, L.P. Bain Capital Fund IV-B, L.P. BCIP Associates BCIP Trust Associates, L.P. Randolph Street Partners -23- SCHEDULE B ---------- GS Capital Partners, L.P. Bridge Street Fund 1994, L.P. Stone Street Fund 1994, L.P. -24- EX-10.3 4 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of December 12, 1997, among DADE BEHRING HOLDINGS, INC. ("Holdings"), DADE INTERNATIONAL INC. (the "Borrower"), the financial institutions party to the Credit Agreement referred to below (the "Banks") and BANKERS TRUST COMPANY, as Agent (the "Agent") for the Banks. All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : ------------------- WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of May 7, 1996 and amended and restated as of April 29, 1997 (as amended, modified, restated or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. ------------------------------ 1. Section 8.01 of the Credit Agreement is hereby amended by inserting at the end thereof the following new clause (d): "(d) Notwithstanding anything to the contrary contained in this Agreement, the Special Purpose VFP Subsidiary will not engage in any business other than acquiring instruments, accounts receivable related thereto and other accounts receivable related to consumable products and services of the Borrower and its Subsidiaries, and the related transactions pursuant to the Vendor Financing Program." 2. Section 8.02(dd) of the Credit Agreement is hereby amended to read in its entirety as follows: "(dd) the Borrower and any of its Subsidiaries may (x) effect Seeded Instrument Sales in connection with its Vendor Financing Program and effect other transactions contemplated by the definition of Vendor Financing Program and (y) effect Seeded Instrument Transactions in connection with its Alternate Vendor Financing Program, so long as the aggregate outstanding amount of Capitalized Lease Obligations of the Borrower and its Subsidiaries under Seeded Instrument Transactions shall not exceed $27,000,000 at any time;". -1- 3. Section 8.02(gg) of the Credit Agreement is hereby amended to read in its entirety as follows: "(gg) the Behring Transaction may be effected on or after the First Amendment Effective Date so long as (i) same is effected in accordance with the terms of the Behring Transaction Documents, (ii) the aggregate consideration for such transaction (excluding fees and expenses and excluding post-closing purchase price adjustments) consists solely of Holdings Common Stock and warrants to purchase Holdings Common Stock, (iii) no Change of Control Event results from such transaction and (iv) no Default or Event of Default then exists or would result therefrom." 4. Section 8.03(r) of the Credit Agreement is hereby amended to read in its entirety as follows: "(r) Liens on any interest of the Borrower or any of its Subsidiaries in the equipment subject to the Vendor Financing Program and Liens on accounts receivable and other current assets owned by the Special Purpose VFP Subsidiary, in each case securing the recourse obligations owing to a financial institution party to the Vendor Financing Program, so long as (x) such obligations are permitted under Section 8.04)(s) and (y) in the case of any Lien on any such accounts receivable and/or other current assets, the aggregate face amount of the accounts receivable and other current assets subject to such Lien does not exceed an amount equal to 120% of the outstanding recourse obligations permitted under Section 8.04(s)." 5. Section 8.04 of the Credit Agreement is hereby amended by (a) deleting the word "and" appearing at the end of clause (v) thereof, (b) deleting the period appearing at the end of clause (w) thereof and inserting "; and" in lieu thereof and (c) inserting at the end thereof the following new clause (x): "(x) Indebtedness of the Special Purpose VFP Subsidiary evidenced by the VFP Purchase Money Note." 6. Section 8.06 of the Credit Agreement is hereby amended by (a) deleting the word "and" appearing at the end of clause (x) thereof, (b) deleting the phrase "in addition to investments permitted by clauses (a) through (x) above" appearing in clause (y) thereof and inserting in lieu thereof the phrase "in addition to investments permitted by clauses (a) through (x) above and clause (z) below", (c) deleting the period appearing at the end of clause (y) thereof and inserting "; and" in lieu thereof and (d) inserting at the end thereof the following new clause (z): "(z) the Borrower and/or one or more of its Subsidiaries may hold one or more VFP Purchase Money Notes." 7. Section 8.08 of the Credit Agreement is hereby amended by (a) deleting the word "and" appearing at the end of clause (iv) of the first sentence thereof and (b) -2- inserting at the end of such sentence the following: "and (vi) the transactions contemplated by the documents governing the Vendor Financing Program." 8. Section 8.15 of the Credit Agreement is hereby amended by (a) deleting the word "and" appearing at the end of clause (vii) thereof and inserting a comma in lieu thereof and (b) inserting at the end thereof the following: "and (ix) the documents governing the Vendor Financing Program." 9. Section 10 of the Credit Agreement is hereby amended by deleting the definition of "Vendor Financing Program" appearing therein in its entirety and by inserting in lieu thereof the following new definition: "Vendor Financing Program" shall mean one or more vendor financial services programs between the Borrower and/or one or more of its Subsidiaries (including without limitation the Special Purpose VFP Subsidiary) and a financial institution pursuant to or in connection with which (x) (i) the Borrower and/or such Subsidiary effects Seeded Instrument Sales or otherwise sells instruments and the rights related thereto to such financial institution and (ii) such financial institution leases or sells the instruments so acquired to third party customers of the Borrower and/or such Subsidiary, (y) (i) the Borrower and/or one of its operating Subsidiaries sells or otherwise transfers instruments, accounts receivable related thereto and other accounts receivable related to consumable products or services of the Borrower or such Subsidiary to the Special Purpose VFP Subsidiary, (ii) the Special Purpose VFP Subsidiary effects Seeded Instrument Sales or otherwise sells instruments and the rights related thereto to a financial institution and (iii) such financial institution leases or sells the instruments so acquired to third party customers of the Borrower or its Subsidiaries, and/or (z) (i) the Borrower and/or such Subsidiary effects Seeded Instrument Sales or otherwise sells instruments and the rights related thereto to such financial institution, (ii) the Borrower and/or such Subsidiary sells or otherwise transfers accounts receivable related to instruments sold and other accounts receivable related to consumable products or services of the Borrower or such Subsidiary to the Special Purpose VFP Subsidiary, (iii) the Special Purpose VFP Subsidiary sells some or all of such accounts receivable to such financial institution and (iv) such financial institution leases or sells the instruments so acquired to third party customers of the Borrower or its Subsidiaries. 10. Section 10 of the Credit Agreement is hereby amended by inserting therein in appropriate alphabetical order the following new definitions: "Special Purpose VFP Subsidiary" shall mean DBI Funding, Inc., a special purpose bankruptcy remote Subsidiary of the Borrower. "VFP Purchase Money Note" shall mean one or more purchase money notes -3- issued by the Special Purpose VFP Subsidiary to the Borrower and/or one of its Subsidiaries pursuant to or in connection with the Vendor Financing Program. II. Consents and Agreements. ----------------------- 1. Notwithstanding anything to the contrary contained in Sections 7.11 and 8.16 of the Credit Agreement, in the Pledge Agreement or in the First Amendment, the Banks hereby agree that Holdings and its Subsidiaries shall not be required to pledge to the Pledgee under the Pledge Agreement the stock of any Foreign Subsidiary acquired pursuant to the Behring Acquisition and required to be pledged pursuant to the terms of the Pledge Agreement until April 30, 1998. 2. The Banks hereby agree that (i) so long as the Special Purpose VFP Subsidiary is in compliance with Section 8.01(d) of the Credit Agreement, the Banks will not commence any involuntary case against the Special Purpose VFP Subsidiary under the Bankruptcy Code and (ii) notwithstanding the terms of any of the Security Documents, neither the Banks nor the Collateral Agent will attempt to exercise remedies with respect to, or otherwise assert any interest in, accounts receivable and other current assets held by the Special Purpose VFP Subsidiary in an aggregate amount equal to 120% of the outstanding recourse obligations permitted under Section 8.04(s) minus any cash collateral deposited with any third party securing such recourse obligations (including cash used to collateralize any letter of credit supporting such recourse obligations). III. Miscellaneous Provisions. ------------------------ 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Second Amendment Effective Date, both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement or the other Credit Documents are true and correct in all material respects on and as of the Second Amendment Effective Date, both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when exe- -4- cuted and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when each of Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office. 6. From and after the Second Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. * * * -5- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. DADE BEHRING HOLDINGS, INC. By /s/ -------------------------------- Name: Title: DADE INTERNATIONAL INC. By /s/ -------------------------------- Name: Title: BANKERS TRUST COMPANY, Individually, as Agent and as Collateral Agent By /s/ -------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By /s/ -------------------------------- Name: Title: -6- BANK OF TOKYO-MITSUBISHI TRUST COMPANY By /s/ -------------------------------- Name: Title: BANKBOSTON, N. A. By /s/ -------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By /s/ -------------------------------- Name: Title: SANWA BUSINESS CREDIT By /s/ -------------------------------- Name: Title: -7- ABN AMRO BANK N.V., Chicago Branch By /s/ -------------------------------- Name: Title: By /s/ -------------------------------- Name: Title: CREDIT AGRICOLE INDOSUEZ By /s/ -------------------------------- Name: Title: OCTAGON CREDIT INVESTORS LOAN PORTFOLIO, a Unit of The Chase Manhattan Bank By /s/ -------------------------------- Name: Title: CITIBANK, N.A. By /s/ -------------------------------- Name: Title: -8- CRESCENT/MACH I PARTNERS, L.P. By TCW Asset Management Company, its Investment Manager By /s/ -------------------------------- Name: Title: STRATA FUNDING LTD. By /s/ -------------------------------- Name: Title: CERES FINANCE LTD. By /s/ -------------------------------- Name: Title: AERIES FINANCE LTD. By /s/ -------------------------------- Name: Title: CAPTIVA FINANCE LTD. By /s/ -------------------------------- Name: Title: -9- CAPTIVA II FINANCE LTD. By /s/ -------------------------------- Name: Title: CITY NATIONAL BANK By /s/ -------------------------------- Name: Title: ROYALTON COMPANY, By Pacific Investment Management Company, as its Investment Advisor By /s/ -------------------------------- Name: Title: -10- FIRST NATIONAL BANK OF CHICAGO By /s/ -------------------------------- Name: Title: FLOATING RATE PORTFOLIO By: Chancellor LGT - Senior Secured Management, Inc., as Attorney-in-Fact By /s/ -------------------------------- Name: Title: KEYPORT LIFE INSURANCE COMPANY By: Chancellor LGT - Senior Secured Management, Inc., as Investment Advisor By /s/ -------------------------------- Name: Title: DAI-ICHI KANGYO BANK LTD. By /s/ -------------------------------- Name: Title: PRIME INCOME TRUST By /s/ -------------------------------- Name: Title: -11- THE FUJI BANK, LIMITED By /s/ -------------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By /s/ -------------------------------- Name: Title: ML CBO IV (CAYMAN) LTD. c/o Senior Floating Rate Fund, Inc. By /s/ -------------------------------- Name: Title: NORTHWESTERN MUTUAL LIFE By /s/ -------------------------------- Name: Title: PILGRIM AMERICA PRIME RATE TRUST By /s/ -------------------------------- Name: Title: -12- SAKURA BANK LTD. By /s/ -------------------------------- Name: Title: SOCIETE GENERALE By /s/ -------------------------------- Name: Title: SOUTHERN PACIFIC THRIFT & LOAN ASSOCIATION By /s/ -------------------------------- Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ -------------------------------- Name: Title: IMPERIAL BANK By /s/ -------------------------------- Name: Title: -13- MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management L.P., as Investment Advisor By /s/ -------------------------------- Name: Title: SENIOR HIGH INCOME PORTFOLIO, INC. By /s/ -------------------------------- Name: Title: MERRILL LYNCH DEBT STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management L.P., as Investment advisor By /s/ -------------------------------- Name: Title: -14- EX-10.15 5 TRANSITION SERVICE AGREEMENT Exhibit 10.15 TRANSITION SERVICES AGREEMENT by and between HOECHEST AG (hereinafter referred to as "Hoechst") and The Companies listed in Annex A) (hereinafter referred to as the "Service Entities") - - on the one side - and DIAGNOSTICS HOLDING, INC. (hereafter referred to as "Dade") and The Companies listed in Annex B) (hereinafter referred to as the "Acquired Entities") - - on the other side) dated as of September 30, 1997 -1- CONTENTS
Directory of Annexes 2 Preamble 3 Article 1 - Service Provided 3 Article 2 - Remuneration for Services 3 Article 3 - Invoicing and Payment 9 Article 4 - Liability 10 Article 5 - Excusable Delay 12 Article 6 - Term and Termination 13 Article 7 - Confidentiality 15 Article 8 - Arbitration 16 Article 9 - Miscellaneous 18
DIRECTORY OF ANNEXES Annex 1.1 - Services Annex 1 4 - Service Coordinators -2- Preamble A. Hoechst and Dade have entered into an Agreement and Plan of Combination dated as of June 24, 1997 (the "Combination Agreement"). Under the Combination Agreement Hoechst and Dade have agreed to combine all of Dade's business and Hoechst's human in vitro diagnostic business (the "Business"). (Capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to them in the Combination Agreement); and B. As set forth in Section 2.1(g) of the Combination Agreement, Hoechst and Dade agreed that Dade and the Acquired Entities shall enter into one or more transition services agreements relating to certain transitional administrative and support services for the Business for a certain period after the completion of the transactions contemplated by the Combination Agreement in accordance with the terms of this Agreement; NOW, THEREFORE, subject to the terms, conditions, covenants and provisions of this Agreement, Hoechst and Dade mutually covenant and agree as follows: Article 1 Services Provided 1.1 Upon the terms and subject to the conditions set forth in this Agreement, Hoechst and the Service Entities will provide to the Acquired Entities for the Business each of those administrative and support services listed individually or included within a category of service listed in Annex 1.1, which is attached to and made part of this Agreement, in the countries set forth in that Annex (hereinafter referred to individually as a "Transitional Service", and collectively as the "Transitional Services"), during the period until December 31, 1999 unless terminated prior thereto (hereinafter referred to as the "Time Periods" for all of the Transitional Services, and the "Time Period" for each Transitional Service). The Acquired Entities shall purchase and off-take the Transitional Services during the term of each of such service in amounts of not less than fifty (50%) of the quantities as of the date hereof, provided that the Acquired Entities shall continue to lease all space leased as of the date hereof. 1.2 The parties have attempted to list on Annex 1.1 (i) each service rendered by Hoechst or a Hoechst Entity in 1996 and 1997 to the Business (except for services to be provided by InfraServ GmbH & Co. Marburg KG and HiServ GmbH) and (ii) which Hoechst and the Service Entities should provide for an interim period in order to enable the Acquired Entities to operate consistent with past practice on a stand-alone basis (collectively the "Required Services") but acknowledge that Annex 1.1 may be incomplete. Thus, if a service desired by Dade or an Acquired Entity is not listed in Annex 1.1 but is a Required Service, such Required Service -3- shall be added to Annex 1.1, upon the terms and conditions of this Agreement. Such Required Service shall be deemed to be a Transitional Service for the purpose of this Agreement. 1.3 ln providing the Transitional Services, Hoechst and the Service Entities may employ the services of third parties (the "Outside Service Providers") to the extent such Outside Service Providers are either routinely utilized to provide similar services to Hoechst enterprises or are reasonably necessary for the efficient performance of any Transitional Service or such Outside Service Provider is, in Hoechst's reasonable determination, otherwise qualified to render such Transitional Service at quality standards not lower than in 1996; provided that Hoechst and the Service Entities shall not employ for the purpose of this Article 1.3 any Outside Service Provider which is a competitor of Dade or any of the Acquired Entities. Whether or not an Outside Service Provider is employed, Hoechst and the Service Entities shall be responsible for the delivery of the Transitional Services in compliance with the terms of this Agreement. 1.4 Hoechst and Dade shall each nominate a representative to act as the primary contact person for the supervision of the implementation of this Agreement (collectively, the "Primary Coordinators") The initial Primary Coordinators shall be John Doherty for Dade and Derek Gribbin for Hoechst. The initial coordinators for specific Transitional Services in each country shall be the individuals named in the description of such Transitional Service in Annex 1.4 (the "Service Coordinators") with the name, address and phone number of each such Service Coordinator set forth on Annex 1.4. Hoechst and Dade shall advise each other in writing of any change in the Primary Coordinators and any Service Coordinator. Hoechst and Dade agree that a copy of all communications relating to the provision of the Transitional Services shall be directed to the Primary Coordinators. 1.5 Hoechst and each of the Service Entities represent and warrant to Dade that they have, and covenant with Dade that they shall maintain or have available through Outside Service Providers all necessary assets and personnel in order to fulfill their obligations hereunder. 1.6 To the extent reasonably required for the personnel to perform the Transitional Services, each of the parties shall provide personnel designated by the other with access to its equipment, office space, plants, telecommunications and computer equipment and systems, and any other areas and equipment, provided that such access does not include the use thereof in the provision of any Transitional Service and does not unreasonably interfere with such other party's conduct of its business. Any confidential information received by either party due to such access shall be subject to the provisions of Article 8 below. -4- 1.7 Hoechst hereby represents and warrants to Dade that the amount of consideration paid or to be paid by the Acquired Entities for each Transitional Service is not greater than the actual average purchase price per unit paid for such Transitional Service by the Business during the 1996 calendar year, subject to an increase of Service Costs as agreed in Article 2.2 below (the "1996 Historical Prices"). 1.8 Hoechst shall ensure that the Acquired Entities shall be neither assessed nor liable to pay any (i) termination or similar fee, expense or other liability of any kind whatsoever relating to, arising from or in connection with any reduction in the level of use, or deletion, of any Transitional Service by an Acquired Entity, or (ii) fee, expense or other liability of any kind whatsoever relating to, arising from or in connection with any remnant, residual or other similar costs relating to any Transitional Service. Nothing in this Article 1.8 shall give Dade or the Acquired Entities the right to assert that the 1996 Historical Prices should be lower because they include a component which could be regarded as a fee described above. 1.9 Hoechst promptly shall pay and shall indemnify and hold harmless the Acquired Entities from any damage (except loss of profit) from or in connection with any breach by Hoechst of any of the covenants, representations or warranties in Sections 1.5, 1.7 and 1.8 of this Agreement. All payments by Hoechst hereunder due to the Acquired Entity concerned shall be made in the relevant local currency. 1.10 In the event of any of Dade and the Acquired Entities makes a good faith argument that Hoechst is in breach of the representations and warranties set forth in Articles 1.7 and 1.8 above, and Hoechst disagrees, Hoechst and Dade shall make every reasonable effort to amicably resolve such difference (which reasonable effort shall include a reasonable disclosure of documents by Hoechst to Dade to permit verification of the actual 1996 prices). In the event Hoechst and Dade cannot resolve any difference connected therewith, Hoechst shall cause a qualified independent auditor subject to Dade's approval, which will not be unreasonably withheld, promptly to certify that no breach of Articles 1.7 and 1.8 has occurred. Such auditor's certification shall set forth in reasonable detail the rationale for the auditor's opinion. The costs for such audit shall be borne by the parties in accordance with Section 91 et seq. Civil Procedure Act (ZPO). 1.11 The Acquired Entity shall have no obligation to continue to use any of the Transitional Services and may delete any Transitional Service that Hoechst is providing to the Acquired Entities by giving Hoechst written notice of its desire to delete any or all Transitional Services. For this purpose a written termination notice having effect three (3) months to the end of a month must be provided by Dade for the deletion of a Transitional Service, provided that each Acquired Entity shall in good faith attempt to give an earlier notice to the Service Entity so that as much notice is given as possible. -5- 1.12 Hoechst shall use best efforts (utilizing all commercially feasible means including after consultation with Dade at Hoechst's free discretion the use of Outside Service Providers) to provide at the Acquired Entities' cost (unless such service was provided historically in which case Article 2 shall apply), on or prior to December 31, 1997, as part of the service set forth in Annex 1.1 as "Accounting-Finance," each and every financial reporting service set forth in Annex 1.1, (a) (the "Financial Reporting Services"). In addition, as part of the foregoing and also at the Acquired Entities' cost, Hoechst shall employ its best efforts to implement the steps as set forth in Annex 1.12(b). The costs to be borne by the Acquired Entities hereunder shall be based upon the incremental cost of providing the Financial Reporting Services above and beyond those provided on a historical basis. Prior to incurring such incremental cost in connection with providing such Financial Reporting Services Hoechst shall consult with Dade. For the avoidance of doubt: Article 1.7 does not apply to the Financial Reporting Services other than those services provided historically. Article 2 Remuneration for Services 2.1 The remuneration for the services delivered hereunder shall be as set forth in Annex 1.1 (the "Base Price"). V.A.T. or similar taxes are to be paid separately by the Acquired Entities. 2.2 Upon written request of either (i) Hoechst or the Service Entity concerned or (ii) Dade or the Acquired Entity concerned, as the case may be, the Base Price shall be adjusted for any change of Service Costs, as defined hereinafter. For purposes of this Agreement, "Service Costs" shall mean all (i) out-of-pocket expenses (including reasonable fees of Outside Service Providers and fifty percent (50%) of insurance fees to protect Hoechst and the Service Entities against liability hereunder (cf. Article 4), provided, that in no event shall Dade and the Acquired Entities be liable for any insurance fees hereunder in excess of DM 50,000 in the aggregate) paid to third parties by Hoechst or the relevant Service Entity in order to provide the Transitional Services, including actual expenses paid by Hoechst or the relevant Service Entity in order to comply with legal regulations applicable to the provision of Transitional Services which become effective after 1996, and (ii), costs relating to higher depreciation as a result of investments made by Hoechst or the relevant Service Entity in order to comply with legal regulations applicable to the provision of Transitional Services which became effective after 1996. 2.3 A change in the Base Price of a service which results from a Price Adjustment Event shall become effective for such service immediately following the occurrence of a Price Adjustment Event, provided that any change shall be deemed effective only if not disputed by any party concerned following the receipt of a written notice from the party requesting a price adjustment, which notice shall contain a reasonable explanation for the change of the Base Price in -6- accordance with Article 2.2 above. A decrease in the Base Price resulting from a Price Adjustment Event, however, shall have retroactive effect to such date on which Hoechst or the Hoechst Entity concerned knows or should have known of such change. On an annual basis, a responsible financial officer of the relevant Service Entity in their capacity as such without personal liability and, if requested by Dade, an independent auditing firm reasonably acceptable to Dade, shall certify that any changes in the Base Price in the preceding year were correct and in accordance with the terms of this Agreement. Unless the changes of the Base Price were incorrect, all costs connected with the employment of the independent auditors shall be borne by Dade. 2.4 In the event any party disputes the delivered evidence of any changes in Service Costs, information about such costs shall be disclosed to all parties concerned and Hoechst and Dade shall make on behalf of all parties concerned every reasonable effort to amicably determine the substantiated cost changes. If Hoechst and Dade cannot agree on an adjustment of the Base Price, then any adjustment of the Base Price shall be determined by an internationally recognized firm of auditors to be appointed by mutual agreement of Hoechst and Dade or, failing such agreement, upon request of either party by Deloitte & Touche after hearing both parties. Confidential information received by such firm of auditors shall, upon request of Hoechst or the Service Entity concerned, not be disclosed to Dade or the Acquired Entity concerned. Any changes agreed to or determined by the auditors shall be given retroactive effect. The firm of auditors shall act as appraiser (known as Schiedsgutachter) in the meaning of Sections 315 et seq. Civil Code (BGB) and not as arbitrator (known as Schiedsrichter), and its determination shall be final and binding on the parties. The costs of the appraisal proceeding, including the cost of the respective attorneys, witnesses and experts in connection with such arbitration shall be borne by the parties in accordance with Sections 91 et seq. German Civil Procedure Act (ZPO) as directed in the auditor's appraisal. Article 3 Invoicing and Payment 3.l Transitional Services shall be invoiced to the Acquired Entities by Hoechst or the relevant Service Entities in the month following the month in which the Transitional Services were rendered. Payment of invoices shall be made in the currency of the jurisdiction in which the Transitional Service which is the subject of the Invoice is received. Each invoice shall include a summary list of the previously agreed upon Transitional Services for which there are fixed fees, together with documentation supporting each of the invoiced amounts that are not covered by the fixed fee agreements. The total of this list and supporting detail -7- will equal the invoice total, and will be provided under separate cover apart from the Invoice. 3.2 Provided that the invoice is received at least ten (10) days prior to the due date, Invoices become due for payment on the 25th day after the end of the invoiced period. Payments by the Acquired Entities shall be effected free of charge to a bank account designated by Hoechst or the Service Entities. Delayed payments shall bear interest at 10 percentage points p.a. Article 4 Liability 4.l Hoechst and the Service Entities shall perform the Transitional Services hereunder exercising the greater of (i) the same degree of care they usually apply in their own matters, (ii) the same degree of care applied by a prudent business person or (iii) the same degree of care they exercised historically in performing the same or similar services for the Business during the 1996 calendar year, provided, however, that Hoechst and the Service Entities, as the case may be, may be held contractually or legally liable only for claims with regard to the fulfillment of this Agreement (a) if the relevant management (Vorstand; Geschaftsfuhrung) has negligently or willfully violated the obligation of due care as stated above, or (b) if a person, including employees of Hoechst or a Service Entity performing contractual tasks hereunder (Erfullungsgehilfe) other than the management of such company, has grossly negligently or willfully caused a damage to an Acquired Entity. Notwithstanding anything to the contrary contained herein, in the event Hoechst or a Service Entity commits an error with respect to, or incorrectly performs or fails to perform, any service, Hoechst or the Service Entity, at the Acquired Entity's request, shall use reasonable best efforts to promptly correct such error, or to reperform or perform such service. 4.2 To the extent that Hoechst or a Service Entity, as the case may be, is responsible for damages as set forth in Article 4.1 lit. (a) and lit. (b) above, Hoechst or the responsible Service Entity shall fully indemnify and hold harmless the Acquired Entity concerned against any damages (excluding damages for loss of profit). Unless such damages were caused by willful misconduct of Hoechst or the Service Entities, Hoechst's or the Service Entities', as the case may be, indemnification obligation hereunder shall only apply to the extent that in each incident (or series of related incidents) such damages exceed DM 25,000 (in words: Deutsche Mark twenty five thousand). -8- The liability limitations referred to in this Article 4.2 shall not apply in cases of willful misconduct. 4.3 To the extent that the parties submit to each other information or give advice without remuneration outside of their duties under this Agreement, neither party shall assume any liability for the correctness of such information or advice. 4.4 Subject to the terms and conditions stated hereinafter Hoechst guarantees that each of the Service Entities will (a) always have sufficient capital to make the expenditures necessary to maintain the quantity and the quality of the Transitional Services which the Service Entities are obligated to provide under this Agreement; and (b) make all payments due to the Acquired Entities under this Agreement, including payments due to breach of contract (hereinafter the "Performance Guarantee"). Any Service Entity can call Hoechst liable under the Performance Guarantee, if (i) the relevant Service Entity has been liquidated and the delivery of the services under this Agreement will not be continued by a successor, or (ii) if the relevant Service Entity's assets become subject of a bankruptcy procedure and the trustee in bankruptcy or an successor is not prepared to fully continue to provide the services under the terms of this Agreement, or (iii) the enforcement of a final arbitration award against the relevant Service Entity in favor of the Acquired Entity on the basis of this Agreement is fruitless. Hoechst hereby agrees to join and be bound by any arbitration proceeding brought by the Acquired Entity against any Service Entity relating to this Agreement and to resolve, to the extent possible, any dispute with respect to Hoechst's liability under the Performance Guarantee in such proceeding. Upon request by any Acquired Entity and with a view to prevent or limit any material non-performance or mal-performance of any Service Entity under this Agreement, Hoechst shall cause (if legally possible, otherwise Hoechst shall use its best efforts to cause) the Service Entity concerned to fully comply with the terms of this Agreement (unless the Service Entity concerned is excused from so complying under the terms of this Agreement). Such request of any Acquired Entity shall be set forth in a written notice stating in reasonable detail why and that the Service Entity concerned does not comply or may be reasonably expected not to comply in a material way with the terms of this Agreement. -9- Article 5 Excusable Delay 5.1 Except as otherwise expressly provided in this Agreement, neither party hereto shall be liable for a failure to perform hereunder for reasons of force majeure, including acts of God, acts of a public enemy, acts of the governments of any state or political subdivision or any department or regulatory agency thereof or entity created thereby, quotas, embargoes, acts of any person engaged in subversive activity or sabotage, fires, floods, explosions, or other catastrophes, epidemics, or quarantine restrictions, strikes or other labor stoppages, slowdowns or disputes, or any other cause beyond the control of the parties ("Reasons of Force Majoure"). Each party shall use its best efforts to cure any such cause preventing its performance and to resume performance. 5.2 In the event Hoechst or a Hoechst Entity reasonably believes that delivery of Transitional Services may be delayed, impaired or prevented by Reasons of Force Majeure, it shall (a) immediately notify the Acquired Entity concerned of the possibility of such cause, (b) immediately notify the Acquired Entity of such actual cause, and (c) use its best efforts to keep this Agreement operative. 5.3 In the event an Acquired Entity reasonably believes that receiving of Transitional Services may be delayed due to a Reason of Force Majeure, such Acquired Entity shall (a) immediately notify the Hoechst Entity concerned of the possibility of such cause, (b) immediately notify the Hoechst Entity of such actual cause, and (c) use its best efforts to keep this Agreement operative. 5.4 If and to the extent any Acquired Entity shall be unable to off-take a Transitional Service as a result of a Reason of Force Majoure, such Acquired Entity shall pay any actual damage incurred by Hoechst or the Service Entity thereof, provided that Hoechst or the Service Entity concerned shall use its best efforts to mitigate any such damage. Article 6 Term and Termination 6.1 This Agreement shall become effective on the Closing Date and shall remain in force until the expiration of the longest Time Period unless all of the Transitional Services are deleted by the parties in accordance with Article 6.2 below. This Agreement shall in any event terminate on December 31, 1999. 6.2 If either party (hereafter called the "Defaulting Party") shall fail to perform or default in the performance of any of its obligations under this Agreement, the other party receiving or rendering Transitional Services hereunder (hereinafter called the "Non-Defaulting Party") may give written notice to the Defaulting Party specifying the nature of such failure or default and stating that the Non- -10- Defaulting Party intends to terminate this Agreement if such failure or default is not cured within fifteen (15) days of such written notice. If any failure or default so specified is not cured within such fifteen (15) day period, the Non-Defaulting Party may elect to immediately terminate this Agreement; provided, however, that if the failure or default relates to a dispute made in good faith by the Defaulting Party, the Non-Defaulting Party may not terminate this Agreement pending the resolution of such dispute. Such termination shall be effective upon giving a written notice of termination from the Non-Defaulting Party to the Defaulting Party and shall be without prejudice to any other remedy which may be available to the Non-Defaulting Party against the Defaulting Party. Furthermore, the Non-Defaulting Party shall be entitled to immediately terminate either this Agreement or any of the Transitional Services provided hereunder if the Defaulting Party is not able to cure within thirty (30) days a Reason of Force Majeure as set forth in Article 5 hereunder. 6.3 Dade specifically agrees and acknowledges that all obligations of Hoechst and the Service Entities to provide each Transitional Service shall immediately cease upon the expiration of the Time Period for such Transitional Service, and Hoechst's obligations to provide all of the Transitional Services shall immediately cease upon the termination of this Agreement. 6.4 Without prejudice to the survival of the other agreements of the parties, the following obligations shall survive the termillatioll of this Agreement: (i) for the period set forth therein, the obligations of each party under Articles 4 (Liability), 7 (Confidentiality) (ii) Hoechst's or the Service Entities' right to receive the compensation for the Transitional Services provided prior to the effective date of termination. 6.5 Within ten (10) days of the earlier of (i) notice by Dade to Hoechst of termination of any of the Transitional Services set forth in Annex 1.1, or (ii) Dade's earlier request at any time more than sixty (60) days after the 15 date of this Agreement, Hoechst and the Service Entities shall, at Hoechst's sole expense transfer and deliver to Dade all master and transaction files necessary and desirable, in Dade's sole discretion, for Dade's conversion to new data processing systems. Such files shall be delivered in the form they exist in Hoechst's or the Service Entities' data processing systems. Article 7 Confidentiality 7.1 Each party shall regard as confidential and proprietary all of the information communicated to it by the other party from and after the date hereof in connection with this Agreement (including but not limited to the Specifications and any and all documents or other information relating thereto, whether or not marked "confidential") (which information shall, subject to the exception set forth in -11- Article 8.4 hereof, at all times remain the property of the disclosing party), referred to herein as "Confidential Information". Confidential Information includes such information disclosed by a party orally or visually, directly or indirectly. Confidential Information of a party is also deemed to include identification of problems to be solved, areas for process, product and equipment improvements, and Confidential Information of third parties, which are observed, identified or disclosed under or as a result of this Agreement. 7.2 During the term of this Agreement and for a period of ten (10) years following termination, neither party shall, without the other's prior written consent, at any time (a) use such Confidential Information for any purpose other than in connection with the performance of its obligations under this Agreement, or (b) disclose any portion of such Confidential Information to third parties. Each party shall promptly at the termination of this Agreement return to the disclosing party all such Confidential Information which is in written or tangible form (including all copies, summaries and notes of the contents thereof), but its counsel may retain a single copy thereof for record purposes. 7.3 Each party shall disseminate Confidential Information of the other party to its employees, agents and subcontractors only on a need-to-know" basis, and shall use the same degree of care in protecting such Confidential Information of the other party as it does for its own information of like kind. Each party shall cause each of its employees, agents and subcontractors who has access to such Confidential Information to comply with the terms and provisions of this Article 7 in the same manner as it is bound hereby, with it remaining responsible for the actions and disclosures of any such employees, agents and subcontractors. 7.4 Notwithstanding the foregoing, a party's obligations pursuant to the above paragraph shall not apply to (i) information that, at the time of disclosure, is, or after disclosure becomes part of, the public domain other than as a consequence of a breach of this Agreement, (ii) information that was known or otherwise available to the receiving party prior to the disclosure by the disclosing party, (iii) information disclosed by a third party to the receiving party after the disclosure by the disclosing party, if such third party's disclosure does not violate any obligation of the third party to the disclosing party, (iv) information that is independently developed by the receiving party, or (v) which is required to be disclosed by law or governmental order. 7.5 With respect to any confidential information. each party agrees that upon the discovery of any inadvertent disclosure or unauthorized use of said information, or upon obtaining notice of such a disclosure or use from the other party, it shall take all necessary actions to prevent any further inadvertent disclosure or unauthorized use, and such other party shall be entitled to pursue any other remedy which may be available to it. -12- Article 8 Arbitration 8.1 In the event of any dispute or disagreement between the parties as to the interpretation of any provision of this Agreement (or the performance of any obligations hereunder), except pursuant to Article 2.4, the matter, upon written request of either party, shall be referred to representatives of the parties for decision, each party being represented by one senior officer who has no direct operational responsibility for the matters contemplated by this Agreement and who is authorized to settle the dispute without further consultation with any other officer (the "Representatives"). The Representatives shall promptly meet in a good faith effort to resolve the dispute. If the Representatives do not agree upon a decision within thirty (30) days after reference of the matter to them, each of the parties shall be free to exercise the remedies available to it under Article 8.2. 8.2 Except as provided in Article 2.4, any controversy, dispute or claim arising out of or relating in any way to this Agreement or the other agreements contemplated hereby that cannot be resolved by negotiation shall be settled exclusively by arbitration in Frankfurt am Main, Germany. The arbitration shall be conducted in the English language. Such arbitration shall be administered by the German Institution for Arbitration (the "Arbitral Body") in accordance with the then prevailing Arbitration Rules of the German Institution for Arbitration e.V. (DIS) (except as otherwise provided herein), by three independent and impartial arbitrators, one of whom shall be appointed by Hoechst and one of whom shall be appointed by Dade. The fees and expenses of the Arbitral Body and the arbitrators shall be shared equally by the parties and advanced by them from time to time as required; provided that at the conclusion of the arbitration, the arbitrators shall award costs and expenses (including the costs of the arbitration previously advanced and the reasonable fees and expenses of attorneys, accountants and other experts) and interest (at the rate of eight per cent (8%) per annum) in accordance with Article 8.3 below. No pre-arbitration discovery shall be permitted, except that the arbitrators shall have the power in their sole discretion, on application by either party, to order pre-arbitration examination of the witnesses and documents that the other party intends to introduce in its case-in-chief at the arbitration hearing. The arbitrators shall render their award within ninety (90) days of the conclusion of the arbitration hearing. The arbitrators shall not be empowered to award either party any punitive damages in connection with any dispute between them arising out of or relating in any way to this Agreement or the transactions arising hereunder, and each party hereby irrevocably waives any right to recover such damages. Notwithstanding anything to the contrary provided in this Article 8 and without prejudice to the above procedures, either party may apply to any court of competent jurisdiction for temporary injunctive or other provisional judicial relief if such action is necessary to avoid irreparable damage or to preserve the status quo until such time as the arbitration panel is convened and available to hear such party's request for temporary relief. The -13- award rendered by the arbitrators shall be final and not subject to judicial review and judgment thereon may be entered in any court of competent jurisdiction. 8.3 The costs of the arbitration, including the cost of the respective attorneys, witnesses and experts in connection with such arbitration shall be borne by the parties in accordance with Sections 91 et seq. German Civil Procedure Act (ZPO) as directed by the arbitrators. Article 9 Miscellaneous 9.1 This Agreement shall replace all existing agreements, understandings or other arrangements between the Acquired Entities on the one side and Hoechst and the Service Entities on the other side relating to the subject matter of this Agreement, but it shall not affect any existing agreements with third parties. In addition, any agreements by and among the Acquired Entities are neither affected hereby. 9.2 All notices, reports, and consents required or permitted to be given under this Agreement shall be in writing and deemed given when hand delivered or delivered by documented overnight delivery service, or sent by telecopy, telefax, or other electronic transmission service, provided a confirmation copy is also sent no later than the next business day by first class mail, return receipt requested, to the party to whom the same is directed at its address whereby Hoechst shall receive a copy of all notices to the Service Entities to the address as set forth below and Dade shall receive a copy of all notices to the Acquired Entities to the address as also set forth below, or with respect to both, to such other address as such party shall designate by notice under this Article 9.2: Notices to Hoechst: ------------------- Hoechst Aktiengesellschaft Bruningstrasse 50 65926 Frankfurt a. M. GERMANY Attention: Contract Controlling Facsimile No.: (+49-69) 305-16 404 -14- Notices to Dade: ---------------- Dade International Inc. 1717 Deerfield Road P.O. Box 778 Deerfield, Illinois 60015 U.S.A. Attention: General Counsel Facsimile No.: (+1-847) 267-5376 with a copy (which shall not constitute notice hereunder) to: ------------------------------------------------------------- Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 U.S.A. Attention: Steven G. Pagliuca John Connaughton Facsimile No.: (++1-617) 572-3274 and: --- Kirkland & Ellis 199 Bishopsgate London EC2M 3TY ENGLAND Attention: Karl S. Okamoto David Patrick Eich Facsimile No.: (+44-171) 814-6623 9.3 This Agreement may not be assigned by either party without the consent of the other and any assignment without such consent shall be void, provided that (a) the Service Entities may assign this Agreement (including their obligations hereunder) to (i) any of their subsidiaries, affiliates or by means of their merger with or into any other company whether or not they will be the surviving company or (ii) any entity with which they establish a joint venture or similar business relationship; and (b) the Acquired Entities may assign this Agreement under the same circumstances as Hoechst or the Service Entities (cf. lit. (a) above), provided that any such assignment does not materially alter the scope or the nature of the Transition Services. It is understood that the Acquired Entities are entitled to pass through to third parties which assume or operate assets of the Acquired Entities the right to receive Transitional -15- Services. Furthermore, the Acquired Entities may assign their rights pursuant to this Agreement (including their rights to indemnification) to any of their or their affiliates' lenders as collateral security. 9.4 The construction, performance, and completion of this Agreement shall be governed by the substantive law (and not the law of conflicts) of Germany. Place of venue shall be Frankfurt a.M. 9.5 Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. The determination by any court of competent jurisdiction that one or more of the sections or provisions of this Agreement are unenforceable shall not invalidate this Agreement, and the decision of such court shall be given effect so as to (i) limit, to the extent possible, the sections or provisions of this Agreement which are deemed unenforceable and (ii) replace any such sections or provisions with a section or provision which accomplishes, to the extent possible, the original business purpose of such provision in an enforceable manner. To the extent such determination has a material impact upon the economic expectations of the parties hereto, the parties agree to make appropriate modifications to this Agreement to take such impact into account. 9.6 Except as required by law or compelled by legal process, neither party shall, without the prior written consent of the other, disclose any of the material terms or conditions contained herein. 9.7 Any amendment of or supplement to this Agreement, including this provision and the Annexes, must be in writing to be valid and must be at least signed by Hoechst and Dade. 9.8 Attached hereto as Annex 1.1 is a description of the Transitional Services and related terms and conditions. Dade and Hoechst acknowledge and agree that Annex 1.1 may not reflect the understanding of the parties hereto and may, in particular, not be consistent with the representations and warranties made by Hoechst pursuant to Articles 1.1. 1.6, 1.8, 1.9 and 4.1 herein. Dade and Hoechst agree that to the extent that Annex 1.1 is inconsistent with the terms of this Agreement, the terms of this Agreement shall govern. Dade and Hoechst shall amend Annex 1.1 such that the terms and conditions set forth therein shall be consistent with the terms and conditions set forth in this Agreement. Dade and Hoechst acknowledge and agree that nothing in Annex 1.1 shall modify, amend or otherwise effect the representations and warranties of Hoechst and the Service Entities set forth in this Agreement or the rights or remedies of Dade or any Acquired Entity hereunder. -16- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. HOECHST AKTIENGESELLSCHAFT also acting on behalf of the companies listed in Annex A By: /s/ By: ----------------------------- --------------------------- Name: -------------------------- Name:-------------------------- Title:-------------------------- Title:------------------------- DIAGNOSTICS HOLDING, INC. also acting on behalf of the companies listed in Annex B By: /s/ ----------------------------- Name----------------------------- Title:--------------------------- -17- EX-10.22 6 THIRD AMENDMENT TO THE DISTRIBUTION AGREEMENT THIRD AMENDMENT TO THE AMENDED AND RESTATED EXCLUSIVE DISTRIBUTION AGREEMENT This Agreement ("Agreement"), made and entered into as of May 27, 1998 (to be effective in accordance with Section 5 hereof), by and between Dade Behring Inc., a Delaware corporation ("Dade" or "Supplier"), and Allegiance Healthcare Corporation, a Delaware corporation ("Allegiance" or "Distributor"). Witnesseth that: A. Whereas, Dade and Allegiance, as assignee of Baxter Healthcare Corporation ("Baxter"), are parties to that certain Amended and Restated Exclusive Distribution Agreement dated as of September 15, 1995 (the "Distribution Agreement"), as amended by that certain Amendment to Amended and Restated Exclusive Distribution Agreement executed on and effective as of September 26, 1996 (the "First Amendment"), and as further amended by that certain Second Amendment to Amended and Restated Exclusive Distribution Agreement executed on and effective as of October 1, 1997 (the "Second Amendment" and, together with the Distribution Agreement and the First Amendment, the "Amended Distribution Agreement"); and, B. Whereas, Dade represents and warrants that, effective January 1, 1998, it changed its corporate name from Dade International Inc. to Dade Behring Inc.; C. Whereas, Dade and Allegiance desire to further amend the Amended Distribution Agreement in order to add certain Dade Behring products; Now, therefore, in consideration of the premises, the mutual covenants contained herein, the representations of the parties, the benefits expected to be derived hereunder and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties, intending to be legally bound, agree, subject to the conditions, terms and provisions hereof and notwithstanding any contrary provisions in the Amended Distribution Agreement except as expressly provided herein, to further amend the Amended Distribution Agreement as follows: Section 1. Products and Gross Profit Margin. a. The following definition is hereby added to Section 1 of the Distribution Agreement: "Dade Behring Hemostasis Products" means the hemostasis products formerly manufactured or sold by Behring Diagnostics GmbH which are now sold by Supplier, including without limitation all of those products bearing the Supplier's part number or catalog number indicated on Exhibit A-1 hereof. b. The following sentence is hereby added as the second sentence in the definition of "Products" in Section 1 of the Distribution Agreement: From June 1, 1998 forward the Dade Behring Hemostasis Products shall be considered a part of the Hemostasis class of Products for all purposes under this Agreement, except as otherwise stated herein. Section 2. Distributor's Duties. a. The following sentence shall be added as the second from last sentence of Section 5(c) of the Distribution Agreement: Notwithstanding the immediately preceding sentence, with respect to the Dade Behring Hemostasis Products, a single lot QAP inventory program shall be any single lot of control or single lot of reagent Products purchased for a specific customer or group of customers and maintained in inventory by Distributor in order to meet customer requirements for maintaining consistent manufacturing lot usage. [Section 5(c) then continues: "Distributor shall pay..."] b. The following sentence shall be added as the second sentence of Section 5(e)(8) of the Distribution Agreement: Notwithstanding the foregoing, Distributor shall administer the single lot program with respect to the Dade Behring Hemostasis Products in the same manner and to the same extent as that program was conducted by Distributor for Hemostasis Products immediately prior to the execution of the Third Amendment to this Agreement. [Section 5(e)(8) then continues: "If at any time..."] 2 Section 3. Supplier's Duties. The first sentence of Section 6(i) of the Distribution Agreement is hereby amended to read in its entirety as follows: Reimburse Distributor at Distributor's cost for all outdated Products shipped after the date of this Agreement included within the Dade QAP and College of American Pathologists ("CAP") programs and the single lot reagents associated with those programs; in addition to the foregoing, Supplier shall reimburse Distributor at Distributor's cost for all single lot controls associated with the foregoing programs with respect to outdated Dade Behring Hemostasis Products. Section 4. Sales Plan and DIOH Plan. The last two sentences of the first paragraph of Section 8(d) of the Distribution Agreement are hereby amended to read in their entirety as follows: Distributor and Supplier shall prepare an annual DIOH Plan presenting data on a quarterly basis considering the Sales Plan, and an analysis of past trends and planned process changes agreed upon by both parties; provided that the Dade Behring Hemostasis Products shall not be included in any such DIOH Plan. Exhibit B reflects guidelines for DIOH Plans; provided, however, that for purposes of Exhibit B the Dade Behring Hemostasis Products shall not be considered part of the Hemostasis class of Products. Section 5. Effective Date. This provisions of this Agreement shall become effective on June 1, 1998 (the "Effective Date"); provided, however, that the parties hereto acknowledge that Distributor has ordered and Supplier has delivered and may deliver certain Dade Behring Hemostasis Products to Distributor prior to June 1, 1998 with respect to which the pricing and payment terms of the Amended Distribution Agreement, as amended by this Agreement, will apply. Section 6. Defined Terms. Terms not defined but used herein which are defined in the Amended Distribution Agreement have the meaning ascribed to such terms therein. Section 7. Entire Agreement. This Agreement together with the Amended Distribution Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous 3 negotiations, commitments and writings with respect to such subject matter. Section 8. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Illinois applicable to contracts made and to be performed in that state and the federal laws of the United States of America applicable therein. Any lawsuit arising from or related to this Agreement shall be brought before the United States District Court for the Northern District of Illinois or an Illinois state court sitting in Lake County, Illinois, or Cook County, Illinois. The parties hereby consent to the jurisdiction of such courts. Nothing in this Section is intended to alter the arbitration provisions of Section 16 of the Distribution Agreement. Section 9. Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. Section 10. Counterparts. For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes, but all of which together shall constitute one and the same instrument. Section 11. Confirmation. Except as expressly provided herein, the provisions of the Amended Distribution Agreement remain in effect. 4 IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute and deliver this Agreement as of the date first above written. DADE BEHRING INC. By: /s/ -------------------------------- Name: Title: ALLEGIANCE HEALTHCARE CORPORATION By: /s/ ------------------------------- Name: Title: 5 EX-10.36 7 EMPLOYMENT LETTER August 1, 1996 James Reid-Anderson 1160 North Sheridan Road Lake Forest, IL 60045 Dear Jim: I am pleased to offer you the position of Executive Vice President and Chief Financial Officer for Dade International Inc. In this position, you will report directly to me and will be responsible for the corporate-wide management of the financial function as well as serve as a member of Dade's leadership team. My careful consideration of your requests and suggestions is reflected in the terms of employment offered here: 1) Your annual salary will be $330,000 per year. Your start date will be as soon as possible and mutually agreed upon. It will not be later than September 15, 1996. 2) You will participate in the 1996 Management Incentive Compensation Plan. Your target bonus will be 45% of your annual salary ($148,500). For 1996 a minimum of $148,500 will be paid. The maximum payout in future years under this plan is 230% of your target bonus or $341,550. Overachievement is based on both company and individual performance. Your overachievement for 1996 will be prorated based on months of service. Specific details and a plan document will be available following the Board of Directors' approval of the 1996 Management Incentive Compensation Plan which is in process. 3) You and your dependents will be eligible to participate in the various Dade employee benefit plans. You will also be eligible to participate in the Dade retirement plans consistent with Dade policy. 4) As a senior executive of the Company, you will also be eligible to participate in Dade's supplemental pension and 401 (K) programs. 5) You will be eligible for Dade's executive physical and vacation programs as defined in corporate policy. 6) Your office will be in the headquarters building located at 1717 Deerfield Road, Deerfield, Illinois. 7) You will be eligible to participate in Dade's Long-Term Incentive Plan ("LTI"). This is the equity plan established by the Board of Directors for the senior executives of Dade International. As we have discussed, and as I hope has been echoed by the team and our shareholders, we truly believe the Dade platform offers the opportunity for substantial rewards. As a senior executive, your participation in the LTI will include the opportunity to invest directly in Dade stock instruments as follows: I. Purchased Equity
Grant Price/Share Cost ------------------------------------------------- Common L 400 $44.00 $17,600 Common 3,600 $ 4.00 $14,400 Up Front Investment $32,000
II. Stock Options
Grant Price/Share ------------------------------------------------- Time Options 47,000 $ 4.00 Performance Options Tranche I 11,000 $ 7.00 Tranche II 11,000 $16.00
Notes: A. 40,000 time options vest on 12/31/96, or upon the sale of the company before a public offering. B. 7,000 time options vest 20% per year starting on May 7, 1997. C. If there is no public market for the shares, and employment is terminated for any reason other than cause, all vested stock will be subject to policy as stated in the Dade Long-Term Incentive Plan. 8) Should you be involuntarily terminated for any reason other than material dishonesty or material gross misconduct, the company will provide to you salary continuation for a period of either 18 months or until you secure another position, whichever comes first. Consistent with Dade's employment policies, this offer is contingent upon you completing the formal application of employment, appropriate background check and passing a drug screening test. Jim, I am delighted by the prospect of having you as a part of my management team. We have a once in a lifetime opportunity to build a truly great company while achieving significant personal rewards. Your talents and energy will make a significant difference for Dade International. I look forward to you joining the team. Best regards, /s/Scott T. Garrett - -------------------------- Scott T. Garrett P.S.: Your early response and commitment would be greatly appreciated. I would like to inform the Board of your decision on Friday. I will make sure that confidentiality is maintained. I accept this offer: /s/James Reid-Anderson August 2, 1996 - -------------------------------- ------------------------------------- James Reid-Anderson Date EX-10.37 8 EMPLOYMENT AGREEMENT MANAGING DIRECTOR - EMPLOYMENT AGREEMENT Dade Behring Holding GmbH, Frankfurt am Main, Germany, ("the Company"), represented by its sole shareholder Dade Behring, Inc. Deerfield, Illinois USA and Mr. Friedhelm Blobel 754 Ashby Palo Alto, California USA Preamble 1. The Company is part of the Dade Behring Group (Dade Behring Holdings, Inc., and its subsidiaries). 2. Friedhelm Blobel has been employed with companies of the former Behring Group since January 1996, most recently with Behring Diagnostics, Inc., (now named Syva Company), San Jose, California, USA. 3. Effectively October 5, 1998, (the "Effective Date") Friedhelm Blobel (the "Managing Director") shall be appointed Managing Director of the Company. Friedhelm Blobel shall also be responsible for the global Microbiology business which has major operations in the USA and Germany. 4. All prior employment and service agreements of the Managing Director with the Company, with other companies of the former Behring Group and of the present Dade Behring Group shall terminate as of the Effective Date, including the employment contract Behring Diagnostics, Inc. 5. As of the Effective Date, the Company and the Managing Director enter into the following Managing Director Employment Agreement, of which this Preamble is an integral part: I. Position and Scope of Duties 1. The Managing Director shall be appointed managing director of the Company. 2. The Managing Director shall conduct the business of the Company in accordance with statutory law, the provisions of the Articles of the Company and in accordance with the general or specific directives and instructions of the shareholders meeting. 3. In connection with this Agreement and without additional remuneration, the Managing Director shall, upon request of the Company, also assume functions in other enterprises which are affiliated with the Company ((S) Stock Companies Act). This applies accordingly with respect to honorary functions in associations and professional organizations, in which the Company is a member. The Managing Director shall act as Group, President. II. Other Activities 1. The Managing Director will devote all his working time, knowledge and skills to the business of the Company. Any other activity which is for remuneration or which normally would be for remuneration, considering its type and scope, and the direct or indirect participation in a business having the same or similar business purposes, or any activity in the supervisory board of such business, or the participation as general partner in any commercial partnership, regardless of its purpose, requires in each specific instance the prior written approval of the shareholders' meeting. This provision shall also apply to activities and to the assumption of positions in associations and professional organizations. 2. Scientific and literary activity is permitted, provided that it does not adversely affect the working capacity and time of the Managing Director and does not divulge confidential information. 3. Publications and lectures affecting the interests of the Company or any of its affiliated companies ((S) Stock Companies Act) require the prior approval of the shareholders meeting. III. Compensation and Expenses, Relocation l. The Managing Director shall be remunerated as follows: (a) He shall receive an annual fixed salary at a rate of $270,000 gross (in words: two hundred seventy thousand US dollars) (the "Base Salary"). In the year in which this Agreement commences, as well as the year it terminates, the Fixed Salary shall be paid pro rata temporis. The Base Salary shall be paid in 26 equal installments. The Base Salary shall be regularly reviewed, in line with Company's practices. (b) The Managing Director shall be eligible to participate in the Dade Behring Management Incentive Compensation Plan ("MICP"), as amended each fiscal year. For fiscal year 1998, the full year 1998 incentive target is 50% of the Base Salary which represents US $135,000. Payments under MICP shall be made only if and to the extent that the requirements specified in the respective MICP have been met. 2. The Managing Director shall be eligible to participate in the Dade Behring Holdings, Inc., Management Stock Option Plan, as established by the Board of Directors of Dade Behring Holdings, Inc., for the senior executives of the Dade Behring Group companies. In particular, the Managing Director shall be offered a grant of stock options of 64,000 with a strike price of US $34.50 per share, subject and pursuant to the Dade Behring Holdings, Inc. Management Stock Option Plan. These options will vest over a five year period in 20% increments. The first 20% - 12,800 shares will vest on October 1, 1998. 3. The payment of the Base Salary is full compensation for all activities of the Managing Director including such out of the usual office hours. 4. The Company shall reimburse the Managing Director for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's prevailing policies with respect to travel, entertainment, and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 5. As a US based employee, the Managing Director shall be eligible to participate in the US Dade Behring employee benefit programs. 6. The Managing Director's participation in the German Pensionskasse shall be grandfathered for the duration of this contract. 7. The Company shall pay for the relocation costs according to the Company's relocation policy for the Managing Director to relocate back from the U.S. to Germany upon termination of this contract. IV. Inventions, Copyright Protected Works With respect to inventions, proposals for technical improvements an copyright protected works of the Managing Director, the regulations applicable to employees shall apply accordingly. V. Vacation The Managing Director is entitled to an annual vacation of 4 weeks. The scheduling of the vacation shall be agreed upon by the Managing Director and the Chief Executive Officer of Dade Behring Inc. taking into consideration the personal wishes of the Managing Director and the interests of the Company. Vacation not taken within three months after the end of a calendar year shall be forfeited without any right of compensation unless otherwise agreed in writing. VI. Payment in Case of Illness In the case of incapacity to work due to illness or accidental disability, the Company shall continue to pay the Managing Director the remuneration hereunder for a period of up to 12-months. VII. Secrecy 1. The Managing Director shall not, during the term of his employment and thereafter, disclose to any third party any of the business or operational secrets of the Company or any affiliated company which have been entrusted or otherwise become known to him, and he shall not utilize such Buenos or operational secrets himself. The term "business and operational secrets" includes all business, operational, organizational and technical knowledge, transactions and information which is known only to a limited number of persons and which according to the intentions of the Company is not supplied to become known to the public. 2. Business records of any kind, including private notes concerning the company's affairs and activities shall be used only for business purposes. 3. Business and operational records which are in the possession of the Managing Director within the scope of his employment shall be carefully kept and shall be returned to the Company at any time upon request, at the latest upon termination of the employment. The same applies to any other items owned or controlled by the Company. The assertion of any right of retention is excluded. VIII. Term of Employment 1. The Employment agreement shall commence on the Effective Date and shall be for a two-year period. This contract is subject to renewal one year prior to the contract expiration. The Managing Director may terminate this Agreement with a twelve months notice period. 2. The Company may at any time temporarily or permanently release the Managing Director from his duties and/or remove him from his office as managing director. The remuneration claims of the Managing Director remain unaffected. 3. The right to termination with immediate effect for a compelling reason remains unaffected. IX. Miscellaneous 1. This Agreement embodies the entire understanding between the parties relating to the employment. There are no ancillary agreements. Any amendments or additions to this Agreement shall be in writing to be effective. 2. Should any provision of this Agreement be or become void, the validity of the other provision shall not be affected thereby. 3. This Agreement shall be governed by German law. However, Clause III.2 - Stock Option Grant-shall be governed by the laws applicable to the Dade Behring Holdings, Inc. management Stock Option Plan. On behalf of the Company: Place: Marburg, Germany ---------------------------------------- Date: August 19th 1998 ------------------------------------------ Signature: /s/Thomas E. Hill -------------------------------------- Thomas E. Hill Senior Vice President Human Resources of Dade Behring, Inc. Managing Director: Place: Marburg, Germany ---------------------------------------- Date: August 19th 1998 ------------------------------------------ Signature: /s/Friedhelm Blobel ------------------------------------- Friedhelm Blobel EX-10.38 9 EMPLOYMENT LETTER Exhibit 10.38 January 8, 1997 Marc Casper 56 St. Botolph St. #404 Boston, MA 02116 Dear Marc: I am pleased to confirm an employment offer on behalf of Dade International Inc., as Executive Vice President-International effective January 14, 1997. In this position, you will report directly to the Chief Executive Officer and will be responsible for all aspects of the Company's international business. You will be a member of Dade's Executive Committee and a Corporate Officer of Dade International Inc. The terms of employment are as follows: 1. Your annual base salary will be $ 180,000 per year. 2. You will participate in the 1997 Management Incentive Compensation Plan (MICP). Your target bonus will be 45% of your annual base salary ($81,000). Overachievement is based on both company and individual performance. Enclosed for your reference is a copy of the 1996 MICP brochure. The 1997 MICP brochure will be provided to you as soon as it becomes available. 3. You and your dependents will be eligible to participate in the various Dade employee benefit plans. A benefits overview brochure is enclosed for your review. You will receive Dade Employee Benefit Program enrollment information from the Employee Benefits Center within one month of your start date. Should you choose to elect health insurance coverage, it will be effective the first of the month following thirty (30) days of employment. Our Human Resources staff is available to assist you with any questions you may have in the interim. 4. Your office will be in the headquarters building located at 1717 Deerfield Road, Deerfield, Illinois. 5. The company will reimburse you for rental cost of a temporary executive apartment and a Company leased car in Chicago consistent with company policy. You will be provided coach airfare tickets for two trips per month from Chicago to Boston (or vice versa). This will be applicable for you to fly back to Boston, or for your wife to fly to Chicago. There may be tax implication for you if we reimburse the airfare for your wife because the reimbursement amount will be considered as imputed income to you. The duration of this arrangement will be one year and we will re-evaluate the situation after such time. 6. You will be eligible to participate in Dade's Long-Term Incentive Plan ("LTI"). This is the equity plan establish by the Board of Directors for the senior executives of Dade International. Upon your acceptance of this employment offer, Dade will recommend to the Board of Directors that you be granted the following:
Purchased Equity Grant Cost Common L @ $44.00 1,250 $55,000 Common @ $4.00 11,250 $45,000 Upfront Investment $100,000 Stock Options Grant Time Options @ $4.00 20,000 Performance Options - Tranche I @ $7.00 15,000 Performance Options - Tranche II @ $16.00 15,000
We truly believe the Dade platform offers the opportunity for substantial rewards, dependent upon the ultimate cash return to original investors as expressed as a multiple of the original equity investment. Summary details of the DMEP are available in the enclosed brochure. Should you have further questions regarding DMEP, please call me directly. 7. Should you be involuntarily terminated for any reason other than material dishonesty or material gross misconduct, the company will provide you salary continuation for a period of either 6 months or until you secure another position, whichever comes first. The employment offer, if accepted, would create an employment-at-will relationship between you and Dade International. It is not intended nor should it be construed as a contract of continued employment. The employment offer is also subject to your compliance with the following requirements. Please read these carefully and contact me at 847-267-5330 if you need further clarification. I. Employment Agreement - We are offering you a position of trust that requires the maintenance of confidence. Therefore, it will be necessary for you to execute an employment agreement prior to commencing employment. Please review the attached employment agreement and return a signed copy on or before your start date. II. Employment Eligibility Verification (Form I-9) - All employees are required to prove their eligibility to work in the United States as required by the U.S. Immigration Law. Please complete section I of the enclosed form I-9, and return it with either one document from list A or one document each from list B or C. III. Pre-employment Drug Screening - Your employment offer is contingent upon passing a confidential urine drug screening. Enclosed is information on where you should go to have this done and what information will be requested of you. Take the chain of custody form provided and a picture ID with you to the clinic. Please complete your drug screen at least one week prior to your start date. If you have any questions regarding this, please contact Sue Canar, Human Resource Manager at 847-267-7010. IV. Employment Application - A completed Dade International application is required of every employee. Please complete the enclosed application, and return it on or before your start date. Marc, I am delighted by the prospect of having you as a part of the management team. We have a once in a lifetime opportunity to build a truly great company while achieving significant personal rewards. Your talents and energy will make a significant difference for Dade International. I look forward to you joining the team. Best regards, /s/ Thomas E. Hill Thomas E. Hill Senior VP Human Resources Dade International Inc. enclosures I acknowledge and accept this offer: /s/ Marc Casper 1/13/97 076 50 9829 - ----------------------- -------------- ---------------- Marc Casper (signature) Date Social Security No. EX-10.39 10 SEPARATION AGREEMENT Exhibit 10.39 Date: July 20, 1998 Subject: Separation Arrangement To: Marc Casper From: Steve Barnes /s/ Personal & Confidential ----------------------- Dear Marc: In consideration for your continued commitment to Dade Behring, the following separation arrangement will be provided to you in the event you are involuntarily terminated, except for material dishonesty: . The company will provide you with salary and benefits continuation for a period of six months from your termination date. If you have not secured employment with another employer after the first six months, you will receive up to an additional six months salary and benefits continuation until you secure employment with another employer, whichever occurs first. . You will be entitled to any other separation arrangements provided by company policy such as full executive outplacement services to assist you in securing new employment. Upon an event of termination, Dade Behring or a successor employer will initiate the above separation arrangement. EX-10.40 11 EXECUTIVE AGREEMENT Exhibit 10.40 EXECUTIVE AGREEMENT ------------------- EXECUTIVE AGREEMENT (this "Agreement") effective as of October 1, 1997, by and between Dade Behring Holdings, Inc., a Delaware corporation (the "Company") and Steve Barnes ("Executive"). Capitalized terms used in this Agreement without definition herein shall have the meaning given to such terms in the Plan (as defined below). Pursuant to the Company's 1997 Executive Stock Purchase and Option Plan (the "Plan"), the Company and Executive desire to enter into an agreement pursuant to which the Company will grant to Executive options to acquire 180,000 shares of Common, which options will be subject to time vesting (the "Time Options"). The Time Options are sometimes hereinafter referred to individually as an "Option" and collectively as the "Options." All shares of Common Stock now or hereafter acquired by Executive pursuant to the Plan are referred to herein as the "Executive Stock". The parties hereto agree as follows: 1. Stock Options. (a) Time Option Grants. The Company hereby grants to Executive, pursuant to the Plan, the Time Options to purchase 180,000 shares of Common (the "Time Options") with an exercise price per share of $16.00 (the "Option Price"). The shares issued upon exercise of the Time Options are referred to herein as the "Time Option Shares". The number of Time Option Shares and the Option Price will be equitably adjusted for any stock split, stock dividend, reclassification or recapitalization of the Company which occurs subsequent to the date of this Agreement. (b) Exercisability. Notwithstanding any provision to the contrary in the Plan, on each date set forth below, the Time Options will vest, and thus become exercisable with respect to the cumulative percentage of Time Option Shares set forth opposite such date if Executive is, and has been, continuously employed by the Company or any of its Subsidiaries from the date of this Agreement through such date: Cumulative Percentage Date of Time Options Vested ---- ---------------------- June 30, 1998 50% December 31, 1998 75% December 31, 1999 100% ; provided that upon any Change in Control (as defined below) or the consummation of an Approved Sale of the Company (as defined in paragraph 6 below), so long as Executive was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control or consummation of the Approved Sale, as the case may be, 100% of the Time Options granted to Executive shall become vested and immediately exercisable (including any Time Options previously vested pursuant to this paragraph 1(b)). For purposes hereof, a "Change in Control" shall be deemed to occur upon the first date that the Investors and their affiliates collectively cease to own at least 50% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). (c) Securities Laws Restrictions. Executive represents that when Executive exercises the Options he will be purchasing Executive Stock for Executive's own account and not on behalf of others. Executive understands and acknowledges that federal and state securities laws govern and restrict Executive's right to offer, sell or otherwise dispose of any Executive Stock unless Executive's offer, sale or other disposition thereof is registered under the Securities Act of 1933, as amended (the "1933 Act") and state securities laws or, in the opinion of the Company's counsel, such offer, sale or other disposition is exempt from registration thereunder. Executive agrees that he will not offer, sell or otherwise dispose of any Executive Stock in any manner which would: (i) require the Company to file any registration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. Executive further understands that the certificates for any Executive Stock Executive purchases will bear the legend set forth in paragraph 4 hereof or such other legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws. (d) Expiration. The Options will expire on the earlier of the tenth anniversary of the date hereof or the date of termination of Executive's employment with the Company or any of its Subsidiaries for any reason (the "Termination Date"); provided that any portion of the Options which has not vested and become exercisable prior to the Termination Date shall expire on the Termination Date and may not be exercised under any circumstance; provided further that any portion of the Options which has vested and become exercisable prior to the Termination Date pursuant to the terms of the Plan and this Agreement will expire on the earlier of (i) (A) 30 days after the Termination Date if Executive's employment with the Company or any of its Subsidiaries is terminated for Cause or without Good Reason (as each such term is defined in that certain Employment Agreement dated as of the date hereof between Dade International Inc. and Executive) and (B) three years after the Termination Date if Executive's employment with the Company or any of its Subsidiaries is terminated for any reason other than as specified in clause (A) above and (ii) the tenth anniversary of the date hereof. In the event of Executive's death or Disability (as defined in Executive's employment agreement with the Company of even date herewith) the portion of the unvested Options which would have -2- vested pursuant to paragraph 1(b) on the next succeeding vesting date after the date of such death or Disability had Executive still been employed by the Company on such date shall be deemed to have vested. (e) Non-Transferability of Option. The Options are personal to Executive and are not transferable by Executive. Only Executive or his estate or heirs is entitled to exercise the Options. (f) Payment of Cash Dividends. If the Company pays any cash dividends with respect to the Common prior to the Termination Date, then with respect to Time Options which have not been exercised and have not expired, the Company shall provide Executive with a substantially equivalent economic package (which substantially equivalent economic package shall be determined in the sole discretion of the Board, and may consist of a reduction in the Option Price, a payment in cash, the grant of additional employee benefits or otherwise) as if Executive had been a holder of the Common issuable upon exercise of the Time Options at the time such cash dividends are paid. Notwithstanding the foregoing, if any such Time Options have not vested at the time the Company pays any such cash dividends, the Company's obligation to provide the aforementioned substantially equivalent economic package shall arise if, and only if, such Time Options become vested. 2. Repurchase Option. (a) In the event that Executive is no longer employed by the Company or any of its Subsidiaries for any reason, the Executive Stock, whether held by Executive, or one or more transferees, will be subject to repurchase by the Company and the Investors (solely at their option) pursuant to the terms and conditions set forth in the Plan (the "Repurchase Option"). (b) Notwithstanding any limitation in the Plan to the contrary, in the event that the Company and/or the Investors exercise the Repurchase Option, in addition to those procedures set forth in the Plan, the procedures set forth in this Section 2(b) shall apply to any repurchase of Executive Stock pursuant to the Repurchase Option. If, within 15 days after the delivery of a Determination Notice to the holder(s) of the Executive Stock, Executive delivers to the Board a written notice stating that he objects to the Fair Market Value stated in the Determination Notice (an "Objection Notice"), Fair Market Value shall mean a fair market value selected by either a New York Stock Exchange member firm, the business valuation group of any "Big 6" accounting firm or either of the valuation firms of Houlihan Lokey or Murray Devine selected by the Board (provided that any such firm or business valuation group is an Independent Third Party) (the "Independent Valuation Expert") which is equal to the midpoint of the range of fair market values for the Company, divided by the number of shares of stock of the Company then outstanding on a fully diluted basis, as determined by the Independent Valuation Expert; provided that Executive will not be permitted to deliver an Objection Notice in connection with a Determination Notice which states a fair market value which -3- is greater than or equal to any previous fair market value determination by an Independent Valuation Expert delivered to the Company no more than one (1) year prior to the delivery of the Repurchase Notice. If Executive delivers an Objection Notice objecting to the Fair Market Value set forth in a Repurchase Notice which also constitutes a Determination Notice, the Company may elect to revoke the Repurchase Notice by delivering written notice thereof (a "Revocation Notice") to such holder(s) within ten (10) days of receipt of the valuation by the Independent Valuation Expert. If the Company does not deliver a Revocation Notice, the repurchase of such Executive Stock shall be effected on the basis of the Fair Market Value (to the extent applicable) determined pursuant to the Plan and this Section 2(b). 3. Restrictions on Transfer. (a) Transfer of Executive Stock. Executive will not sell, pledge or otherwise transfer any interest in any shares of Executive Stock, except pursuant to (i) the provisions of paragraphs 2, 3(b), 6 or 7 hereof or (ii) pursuant to the provisions of the Plan. (b) Certain Permitted Transfers. The restrictions contained in this paragraph 3 will not apply with respect to transfers of Executive Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Executive's Family Group (as defined below), provided that the restrictions contained in this paragraph 3 will continue to be applicable to the Executive Stock after any such transfer and the transferees of such Executive Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means Executive's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Executive and/or Executive's spouse and/or descendants. Any transferee of Executive Stock pursuant to a transfer in accordance with the provisions of this subparagraph 3(b) is herein referred to as a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to this paragraph 3(b), the Executive will deliver a written notice thereof (the "Transfer Notice") to the Company. The Transfer Notice will disclose in reasonable detail the identity of the Permitted Transferee(s). -4- 4. Additional Restrictions on Transfer. (a) The certificates representing the Executive Stock will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND A CERTAIN EMPLOYEE OF THE COMPANY DATED AS OF OCTOBER 1, 1997, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Executive Stock may sell, transfer or dispose of any Executive Stock (except pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 5. Definition of Executive Stock. For all purposes of this Agreement, Executive Stock will continue to be Executive Stock in the hands of any holder other than Executive (except for the Company and purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of an Initial Public Offering (as defined in Section 7 below)), and each such other holder of Executive Stock will succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock will also include shares of the Company's capital stock issued with respect to shares of Executive Stock by way of a stock split, stock dividend or other recapitalization. -5- 6. Sale of the Company. (a) In the event of an Approved Sale (as such term is defined in that certain Amended and Restated Stockholders Agreement dated as of October 1, 1997, by and among the Company and its stockholders listed therein, as the same may be amended or otherwise modified from time to time (the "Stockholders Agreement")), each holder of Executive Stock will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Executive Stock will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) a sale of stock, each holder of Executive Stock will agree to sell all of his shares of Executive Stock and rights to acquire shares of Executive Stock on the terms and conditions approved by the Board and the holders of a majority of the Common Stock then outstanding. Each holder of Executive Stock will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given a reasonable opportunity upon reasonable prior notice to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Executive Stock will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Executive Stock appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Executive Stock declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. -6- (d) Executive and the other holders of Executive Stock (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Executive Stock pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Executive and the other holders of Executive Stock on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 6 will terminate upon the closing of an Initial Public Offering (as defined below). 7. Public Offering. In the event that an Initial Public Offering (as defined in the Stockholders Agreement) is approved pursuant to Section 6 of the Stockholders Agreement, the holders of Executive Stock will take all necessary or desirable actions in connection with the consummation of the Initial Public Offering. In the event that such Initial Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Executive Stock will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Board and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange; provided that the resulting securities reflect and are consistent with the rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such Initial Public Offering. 8. Termination of Provisions Relating to Executive Stock. The provisions of paragraphs 2 and 3, and the rights of Executive under paragraphs 7 and 8 of the Plan, will terminate upon the first to occur of (i) an Approved Sale and (ii) (A) an Initial Public Offering and (B) the Investors and their affiliates collectively ceasing to own at least 50% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). MISCELLANEOUS PROVISIONS ------------------------ 9. Notices. Any notice provided for in this Agreement must be in writing and must be personally delivered, received by certified mail, return receipt requested, or sent by guaranteed overnight delivery service, to the Investors at the addresses indicated in the Company's records and to the other recipients at the address indicated below: -7- To the Company: Dade Behring Holdings, Inc. c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attn: Stephen G. Pagliuca John Connaughton With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. To Executive: Steve Barnes One Jackson Circle Franklin, MA 02038 With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Attn: Steven P. Rosenthal, Esq. or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or mailed. 10. Representations and Warranties. In connection with the grant of the Options hereunder, Executive represents and warrants to the Company that: (a) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (b) As an inducement to the Company to grant the Options to Executive, as a condition thereto, Executive acknowledges and agrees that neither the grant of the Options to Executive nor any provision contained herein shall entitle Executive to remain -8- in the employment of the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate Executive's employment at any time for any reason. (c) The Company and Executive acknowledge and agree that this Agreement has been executed and delivered and the Options have been granted hereunder, in connection with and as part of the compensation and incentive arrangements among the Company, Dade International Inc. and Executive and, that except as otherwise expressly provided in this Agreement, the issuance of the Options and the issuance of any Executive Stock upon the exercise of any of the Options is subject to all of the terms and conditions contained in the Plan. 11. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 12. Complete Agreement. This Agreement embodies the complete agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 13. Counterparts. This Agreement may be executed in separate counterparts (any one of which may be by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 14. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company, the Investors and their respective successors and assigns, provided that Executive may not assign any of his rights or obligations, except as expressly provided by the terms of this Agreement. 15. Governing Law. The corporate law of Delaware will govern all issues concerning the relative rights of the Company and its stockholders. All other issues concerning the enforceability, validity and binding effect of this Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Illinois. 16. Remedies. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and -9- that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 17. Effect of Transfers in Violation of Agreement. The Company will not be required (a) to transfer on its books any shares of Executive Stock which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. 18. Amendments and Waivers. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company, Executive and the Investors who hold 70% of the Common Stock held by the Investors. 19. Third Party Beneficiaries. The parties hereto acknowledge and agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. 20. Dade Behring Holdings, Inc. 1997 Executive Stock Purchase and Option Plan. Except as otherwise expressly set forth in this Agreement, the grant of Options and issuance of Executive Stock hereunder is pursuant to, and subject to all the terms and conditions of, the Plan, attached hereto as Exhibit A. * * * * * IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. DADE BEHRING HOLDINGS, INC. By: /s/ ------------------------------------- Title: ---------------------------------- /s/ ---------------------------------------- STEVE BARNES -10- EX-10.41 12 EXECUTIVE AGREEMENT Exhibit 10.41 EXECUTIVE AGREEMENT ------------------- EXECUTIVE AGREEMENT (this "Agreement") effective as of October 1, 1997, by and between Dade Behring Holdings, Inc., a Delaware corporation (the "Company") and Jim Reid-Anderson ("Executive"). Capitalized terms used in this Agreement without definition herein shall have the meaning given to such terms in the Plan (as defined below). Pursuant to the Company's 1997 Executive Stock Purchase and Option Plan (the "Plan"), the Company and Executive desire to enter into an agreement pursuant to which the Company will grant to Executive options to acquire 20,000 shares of Common, which options will be subject to time vesting (the "Time Options"). The Time Options are sometimes hereinafter referred to individually as an "Option" and collectively as the "Options." All shares of Common Stock now or hereafter acquired by Executive pursuant to the Plan are referred to herein as the "Executive Stock". The parties hereto agree as follows: 1. Stock Options. (a) Time Option Grants. The Company hereby grants to Executive, pursuant to the Plan, the Time Options to purchase 20,000 shares of Common (the "Time Options") with an exercise price per share of $16.00 (the "Option Price"). The shares issued upon exercise of the Time Options are referred to herein as the "Time Option Shares". The number of Time Option Shares and the Option Price will be equitably adjusted for any stock split, stock dividend, reclassification or recapitalization of the Company which occurs subsequent to the date of this Agreement. (b) Exercisability. Notwithstanding any provision to the contrary in the Plan, on each date set forth below, the Time Options will vest, and thus become exercisable with respect to the cumulative percentage of Time Option Shares set forth opposite such date if Executive is, and has been, continuously employed by the Company or any of its Subsidiaries from the date of this Agreement through such date:
Cumulative Percentage Date of Time Options Vested ---- ---------------------- June 30, 1998 50% December 31, 1998 75% December 31, 1999 100%
; provided that upon any Change in Control (as defined below) or the consummation of an Approved Sale of the Company (as defined in paragraph 6 below), so long as Executive was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control or consummation of the Approved Sale, as the case may be, 100% of the Time Options granted to Executive shall become vested and immediately exercisable (including any Time Options previously vested pursuant to this paragraph 1(b)). For purposes hereof, a "Change in Control" shall be deemed to occur upon the first date that the Investors and their affiliates collectively cease to own at least 50% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). (c) Securities Laws Restrictions. Executive represents that when Executive exercises the Options he will be purchasing Executive Stock for Executive's own account and not on behalf of others. Executive understands and acknowledges that federal and state securities laws govern and restrict Executive's right to offer, sell or otherwise dispose of any Executive Stock unless Executive's offer, sale or other disposition thereof is registered under the Securities Act of 1933, as amended (the "1933 Act") and state securities laws or, in the opinion of the Company's counsel, such offer, sale or other disposition is exempt from registration thereunder. Executive agrees that he will not offer, sell or otherwise dispose of any Executive Stock in any manner which would: (i) require the Company to file any registration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. Executive further understands that the certificates for any Executive Stock Executive purchases will bear the legend set forth in paragraph 4 hereof or such other legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws. (d) Expiration. The Options will expire on the earlier of the tenth anniversary of the date hereof or the date of termination of Executive's employment with the Company or any of its Subsidiaries for any reason (the "Termination Date"); provided that any portion of the Options which has not vested and become exercisable prior to the Termination Date shall expire on the Termination Date and may not be exercised under any circumstance; provided further that any portion of the Options which has vested and become exercisable prior to the Termination Date pursuant to the terms of the Plan and this Agreement will expire on the earlier of (i) (A) 30 days after the Termination Date if Executive's employment with the Company or any of its Subsidiaries is terminated for Cause (as defined in subparagraph (g) below) or due to Executive's resignation and (B) three years after the Termination Date if Executive's employment with the Company or any of its Subsidiaries is terminated for any reason other than as specified in clause (A) above and (ii) the tenth anniversary of the date hereof. In the event of Executive's death or Disability (as defined in subparagraph (h) below) the portion of the unvested Options which would have vested pursuant to paragraph 1(b) on the next succeeding vesting date -2- after the date of such death or Disability had Executive still been employed by the Company on such date shall be deemed to have vested. (e) Non-Transferability of Option. The Options are personal to Executive and are not transferable by Executive. Only Executive or his estate or heirs is entitled to exercise the Options. (f) Payment of Cash Dividends. If the Company pays any cash dividends with respect to the Common prior to the Termination Date, then with respect to Time Options described in paragraph 1(a) of this Agreement which have not been exercised and have not expired, the Company shall provide Executive with a substantially equivalent economic package (which substantially equivalent economic package shall be determined in the sole discretion of the Board, and may consist of a reduction in the Option Price, a payment in cash, the grant of additional employee benefits or otherwise) as if Executive had been a holder of the Common issuable upon exercise of the Time Options described in paragraph 1(a) of this Agreement at the time such cash dividends are paid. Notwithstanding the foregoing, if any such Time Options have not vested at the time the Company pays any such cash dividends, the Company's obligation to provide the aforementioned substantially equivalent economic package shall arise if, and only if, such Time Options become vested. (g) For purposes of this Agreement, "Cause" shall mean (i) the intentional disregard of a written direction from the Board to Executive to which Executive has not objected within ten (10) days of receiving such written direction, which intentional disregard is materially injurious to the Company or any of its affiliates, (ii) the knowing and intentional theft by Executive of property of the Company or any of its affiliates, which property has a substantial value, (iii) the commission by Executive of an act of moral turpitude which is materially injurious to the Company or any of its affiliates or (iv) any material breach of this Agreement or any material breach of the Executive's employment agreement (as the same may be amended, modified or restated from time to time) with Dade Behring Inc. (h) For purposes of this Agreement, "Disability" (i) shall mean any physical or mental incapacitation which results in Executive's inability to perform his duties and responsibilities for the Company for a total of 180 days during any twelve-month period, as determined by the Board in its good faith judgment and (ii) shall be deemed to have occurred on the 180th day of such inability to perform. 2. Repurchase Option. (a) In the event that Executive is no longer employed by the Company or any of its Subsidiaries for any reason, the Executive Stock, whether held by Executive, or one or more transferees, will be subject to repurchase by the Company and the Investors (solely at their option) pursuant to the terms and conditions set forth in the Plan (the "Repurchase Option"). -3- (b) Notwithstanding any limitation in the Plan to the contrary, in the event that the Company and/or the Investors exercise the Repurchase Option, in addition to those procedures set forth in the Plan, the procedures set forth in this Section 2(b) shall apply to any repurchase of Executive Stock pursuant to the Repurchase Option. If, within 15 days after the delivery of a Determination Notice to the holder(s) of the Executive Stock, Executive delivers to the Board a written notice stating that he objects to the Fair Market Value stated in the Determination Notice (an "Objection Notice"), Fair Market Value shall mean a fair market value selected by either a New York Stock Exchange member firm, the business valuation group of any "Big 6" accounting firm or either of the valuation firms of Houlihan Lokey or Murray Devine selected by the Board (provided that any such firm or business valuation group is an Independent Third Party) (the "Independent Valuation Expert") which is equal to the midpoint of the range of fair market values for the Company, divided by the number of shares of stock of the Company then outstanding on a fully diluted basis, as determined by the Independent Valuation Expert; provided that Executive will not be permitted to deliver an Objection Notice in connection with a Determination Notice which states a fair market value which is greater than or equal to any previous fair market value determination by an Independent Valuation Expert delivered to the Company no more than one (1) year prior to the delivery of the Repurchase Notice. If Executive delivers an Objection Notice objecting to the Fair Market Value set forth in a Repurchase Notice which also constitutes a Determination Notice, the Company may elect to revoke the Repurchase Notice by delivering written notice thereof (a "Revocation Notice") to such holder(s) within ten (10) days of receipt of the valuation by the Independent Valuation Expert. If the Company does not deliver a Revocation Notice, the repurchase of such Executive Stock shall be effected on the basis of the Fair Market Value (to the extent applicable) determined pursuant to the Plan and this Section 2(b). 3. Restrictions on Transfer. (a) Transfer of Executive Stock. Executive will not sell, pledge or otherwise transfer any interest in any shares of Executive Stock, except pursuant to (i) the provisions of paragraphs 2, 3(b), 6 or 7 hereof or (ii) pursuant to the provisions of the Plan. (b) Certain Permitted Transfers. The restrictions contained in this paragraph 3 will not apply with respect to transfers of Executive Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Executive's Family Group (as defined below), provided that the restrictions contained in this paragraph 3 will continue to be applicable to the Executive Stock after any such transfer and the transferees of such Executive Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means Executive's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Executive and/or Executive's spouse and/or descendants. Any transferee of Executive Stock pursuant to a transfer in accordance with the provisions of this subparagraph 3(b) is herein referred to as a "Permitted Transferee." Upon the -4- transfer of Executive Stock pursuant to this paragraph 3(b), the Executive will deliver a written notice thereof (the "Transfer Notice") to the Company. The Transfer Notice will disclose in reasonable detail the identity of the Permitted Transferee(s). 4. Additional Restrictions on Transfer. (a) The certificates representing the Executive Stock will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND A CERTAIN EMPLOYEE OF THE COMPANY DATED AS OF OCTOBER 1, 1997, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Executive Stock may sell, transfer or dispose of any Executive Stock (except pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 5. Definition of Executive Stock. For all purposes of this Agreement, Executive Stock will continue to be Executive Stock in the hands of any holder other than Executive (except for the Company and purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of an Initial Public Offering (as defined in Section 7 below)), and each such other holder of Executive Stock will succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock will also include shares of the Company's capital stock issued with respect to shares of Executive Stock by way of a stock split, stock dividend or other recapitalization. -5- 6. Sale of the Company. (a) In the event of an Approved Sale (as such term is defined in that certain Amended and Restated Stockholders Agreement dated as of October 1, 1997, by and among the Company and its stockholders listed therein, as the same may be amended or otherwise modified from time to time (the "Stockholders Agreement")), each holder of Executive Stock will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Executive Stock will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) a sale of stock, each holder of Executive Stock will agree to sell all of his shares of Executive Stock and rights to acquire shares of Executive Stock on the terms and conditions approved by the Board and the holders of a majority of the Common Stock then outstanding. Each holder of Executive Stock will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given a reasonable opportunity upon reasonable prior notice to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Executive Stock will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Executive Stock appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Executive Stock declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. -6- (d) Executive and the other holders of Executive Stock (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Executive Stock pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Executive and the other holders of Executive Stock on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 6 will terminate upon the closing of an Initial Public Offering (as defined below). 7. Public Offering. In the event that an Initial Public Offering (as defined in the Stockholders Agreement) is approved pursuant to Section 6 of the Stockholders Agreement, the holders of Executive Stock will take all necessary or desirable actions in connection with the consummation of the Initial Public Offering. In the event that such Initial Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Executive Stock will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Board and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange; provided that the resulting securities reflect and are consistent with the rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such Initial Public Offering. 8. Termination of Provisions Relating to Executive Stock. The provisions of paragraphs 2 and 3, and the rights of Executive under paragraphs 7 and 8 of the Plan, will terminate upon the first to occur of (i) an Approved Sale and (ii) (A) an Initial Public Offering and (B) the Investors and their affiliates collectively ceasing to own at least 50% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). MISCELLANEOUS PROVISIONS ------------------------ 9. Notices. Any notice provided for in this Agreement must be in writing and must be personally delivered, received by certified mail, return receipt requested, or sent by guaranteed overnight delivery service, to the Investors at the addresses indicated in the Company's records and to the other recipients at the address indicated below: -7- To the Company: Dade Behring Holdings, Inc. c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attn: Stephen G. Pagliuca John Connaughton With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. To Executive: Jim Reid-Anderson 1160 North Sheridan Road Lake Forest, Illinois 60045 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or mailed. 10. Representations and Warranties. In connection with the grant of the Options hereunder, Executive represents and warrants to the Company that: (a) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (b) As an inducement to the Company to grant the Options to Executive, as a condition thereto, Executive acknowledges and agrees that neither the grant of the Options to Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate Executive's employment at any time for any reason. (c) The Company and Executive acknowledge and agree that this Agreement has been executed and delivered and the Options have been granted hereunder, in connection with and as part of the compensation and incentive arrangements among the Company, Dade International Inc. and Executive and, that except as otherwise expressly -8- provided in this Agreement, the issuance of the Options and the issuance of any Executive Stock upon the exercise of any of the Options is subject to all of the terms and conditions contained in the Plan. 11. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 12. Complete Agreement. This Agreement embodies the complete agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, including, without limitation, any bonus arrangements upon a consummation of a sale of the Company or any of its subsidiaries. 13. Counterparts. This Agreement may be executed in separate counterparts (any one of which may be by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 14. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company, the Investors and their respective successors and assigns, provided that Executive may not assign any of his rights or obligations, except as expressly provided by the terms of this Agreement. 15. Governing Law. The corporate law of Delaware will govern all issues concerning the relative rights of the Company and its stockholders. All other issues concerning the enforceability, validity and binding effect of this Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Illinois. 16. Remedies. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 17. Effect of Transfers in Violation of Agreement. The Company will not be required (a) to transfer on its books any shares of Executive Stock which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to -9- treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. 18. Amendments and Waivers. Any provision of this Agreement may be amended or waived only with the prior written consent of the Company, Executive and the Investors who hold 70% of the Common Stock held by the Investors. 19. Third Party Beneficiaries. The parties hereto acknowledge and agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. 20. Dade Behring Holdings, Inc. 1997 Executive Stock Purchase and Option Plan. Except as otherwise expressly set forth in this Agreement, the grant of Options and issuance of Executive Stock hereunder is pursuant to, and subject to all the terms and conditions of, the Plan, attached hereto as Exhibit A. * * * * * IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. DADE BEHRING HOLDINGS, INC. By: /s/ --------------------------------- Title: ------------------------------ /s/ ------------------------------------ JIM REID-ANDERSON -10- EX-21.1 13 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SUBSIDIARIES OF DADE BEHRING INC.
State or Jurisdiction of Incorporation or Subsidiary Organization - ---------- --------------------- Dade Microscan Inc. Delaware Dade Behring Export Corporation Delaware Dade Finance, Inc. Delaware Dade Foreign Sales Corporation Barbados Syva Diagnostics Holding Company Delaware Syva Company Delaware Syva Childcare Inc. Delaware Dade Behring B.V. Netherlands Dade Behring S.A. Belgium D. Diagnosticos Lda. Portugal Dade Behring S.A. France Dade Behring Vertriebs GmbH Germany Dade Behring AG Switzerland Dade Diagnostics AG Switzerland Dade Behring Canada Inc. Canada Dade Behring, S.A. de C.V. Mexico Dade Behring Ltd. Japan Dade Behring Ltda. Brazil Dade Behring de Venezuela C.A. Venezuela Dade Behring Argentina, S.A. Argentina Dade Behring Diagnostics Pty., Ltd. Australia Dade Behring Holding GmbH Germany Dade Behring Marburg GmbH Germany Dade Behring Grundstrucks GmbH Germany Dade Behring Vertriebs GmbH & Co. Germany Dade Behring Austria Ges.m.b.H Austria Behring Diagnostics Benelux S.A. Belgium Dade Behring A/S Denmark Dade Behring OY Finland Dade Behring Hellas ABEE Greece Dade Behring Diagnostica S.p.A. Italy Instituto Behring S.p.A. Italy Dade Behring S.p.A. Italy Syva Diagnostica B.V. Netherlands Syva European Distribution B.V. Netherlands Dade Behring Diagnostika Norway AS Norway Dade Behring Polska Sp.z.o.o. Poland Behring Diagnostios Portugal-Meios de Diagnostico Medico, Lda. Portugal Dade Behring Diagnostics S.A. Spain Dade Behring AB Sweden Dade Behring Diagnostik Ticaret Ltd. Sirketi Turkey Dade Behring Ltd. U.K. Behring Diagnostika AG Switzerland Dade Behring Diagnostics Pty. Ltd. Australia Dade Behring Diagnostics Ltd., NZ New Zealand Dade Behring Diagnostics Asia Pte. Ltd. Singapore Dade Behring Diagnostics S.A.E. Egypt
X-5 EX-23.1 14 REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Dade Behring Inc. Our audits of the consolidated financial statements of Dade Behring Inc. referred to in our report dated March 19, 1999 (which report and consolidated financial statements are listed in the "Index to Financial Statements and Schedule" of this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(i) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Chicago, Illinois March 19, 1999 X-6 EX-27.1 15 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the 1998 Annual Report of Dade Behring Inc. and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 25,800 0 401,200 18,000 265,900 729,300 532,700 228,000 1,533,400 468,500 350,000 0 0 0 249,300 1,533,400 1,285,200 1,285,200 529,400 1,132,400 (5,600) 0 80,500 77,900 34,400 43,500 0 0 0 43,500 0 0
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