HOLDINGS CORPORATION (NASDAQ:ADHCD) Files An 8-K Entry into a Material Definitive Agreement
ITEM1.01 Entry into a Material Definitive Agreement
On January10, 2017, Integra LifeSciences Holdings Corporation, a
Delaware corporation, (the Company) entered into an Agreement and
Plan of Merger (the Merger Agreement), by and among the Company,
Integra Derma, Inc., a newly formed, indirect wholly owned
subsidiary of the Company (Merger Sub), and Derma Sciences, Inc.,
a Delaware corporation (Derma). to the Merger Agreement, Merger
Sub will commence a tender offer (the Offer) to purchase any and
all of the issued and outstanding shares of:
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Common stock, par value $0.01 per share, of Derma (the Common Shares), at a price of $7.00 per Common Share (the Common Share Offer Price); |
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Series A Preferred Stock (as defined in the Merger Agreement) at a price of $32.00 per share of Series A Preferred Stock, which represents the Series A Liquidation Preference per share of Series A Preferred Stock (the Series A Offer Price); and |
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Series B Preferred Stock (as defined in the Merger Agreement) at price of $48.00 per share of Series B Preferred Stock (the Series B Offer Price and, together with the Common Share Offer Price and the Series A Offer Price, as applicable, the Offer Price). |
As soon as practicable following acceptance for payment of the
Common Shares, Series A Preferred Stock and Series B Preferred
Stock to the Offer, Merger Sub will be merged with and into the
Company, on the terms and subject to the conditions set forth in
the Merger Agreement (the Merger), to Section251(h) of the
General Corporation Law of the State of Delaware (the DGCL), with
Derma surviving the Merger as a wholly owned subsidiary of the
Company. At the effective time of the Merger (the Effective
Time), each Common Share or share of Company Preferred Stock (as
defined in the Merger Agreement) not purchased in the Offer
(other than Common Shares or shares of Company Preferred Stock
for which the holder thereof has properly demanded the appraisal
of such shares in accordance with, and has complied in all
respects with, the DGCL) will be converted into the right to
receive an amount, in cash and without interest, equal to the
applicable Offer Price.
to the Merger Agreement, and upon terms and conditions thereof,
Merger Sub has agreed to commence the Offer as promptly as
reasonably practicable (but in no event later than 10 business
days) after the date of the Merger Agreement. Completion of the
Offer is subject to various conditions, including there being
validly tendered in the Offer (in the aggregate) and not properly
withdrawn prior to the expiration of the Offer: (a)that number of
Common Shares and shares of Company Preferred Stock that equals
at least a majority in voting power of the Common Shares and
shares of Company Preferred Stock then issued and outstanding,
voting together as a single class, (b)that number of shares of
Series A Preferred Stock that equals at least a majority of the
shares of SeriesA Preferred Stock then issued and outstanding,
and (c)that number of shares of Series B Preferred Stock that
equals at least a majority of the shares of Series B Preferred
Stock then issued and outstanding. The Offer will expire in
accordance with the Merger Agreement, unless extended in
accordance with the terms of the Offer, the Merger Agreement and
the applicable rules and regulations of the SEC. The consummation
of the Offer is subject to certain other customary conditions,
including the expiration or termination of the applicable
Hart-Scott-Rodino waiting period and the absence of any Company
Material Adverse Effect (as defined in the Merger Agreement), and
is expected to close in the late First Quarter 2017. The Company
intends to fund the transaction with a combination of cash on
hand and money borrowed under the Companys existing revolving
credit facility.
At the Effective Time, subject to the terms and conditions set
forth in the Merger Agreement, each stock option to purchase
shares of Derma Common Shares (an Option) and each Derma
restricted stock unit award (an RSU), in each case, outstanding
immediately prior to the Effective Time that is vested as of the
Effective Time in accordance with its terms, will automatically
be cancelled and converted into the right to receive a cash
amount equal to the product of (i) the total number of shares of
Derma Common Stock subject to such Option or RSU and (ii) (a) in
the case of any such Option, the excess (if any) of $7.00 (the
Per Share Merger Consideration) over the per-share exercise price
of such Option, and (b) with respect to any such RSU, the Per
Share Merger Consideration. At the Effective Time, subject to the
terms and conditions set forth in the Merger Agreement, each
Option and each RSU, in each case, outstanding immediately prior
to the Effective Time that does not become vested as of the
Effective Time in accordance with its terms (and that is not
forfeited as of the Effective Time in accordance with its terms),
will automatically be converted into an option or restricted
stock unit (as applicable) relating to shares of Company common
stock generally subject to the same terms and conditions as were
applicable to each such Option or RSU immediately prior to the
Effective Time, the number, and (with respect to Options only)
the exercise price, of which will be determined in accordance
with the adjustment mechanisms set forth in the Merger Agreement.
The Merger Agreement includes various representations, warranties
and covenants of the parties customary for a transaction of this
nature. Until the earlier of the termination of the Merger
Agreement and the Effective Time, the Company has agreed, among
other things, to operate its business in the ordinary course and
has agreed to certain other operating covenants, as set forth
more fully in the Merger Agreement.
The Company is subject to a no-solicitation restriction on its
ability to solicit alternative acquisition proposals, and to
provide information to and engage in discussions with third
parties, subject to customary exceptions intended to allow the
Companys Board of Directors to fulfill its fiduciary duties. The
Merger Agreement contains certain termination rights of the
Company and Derma, and provides that, upon the termination of the
Merger Agreement under specified circumstances, Derma will be
required to (i)pay the Company a termination fee equal to
$6,120,000 and/or (ii)reimburse the Company with respect to
certain expenses in connection with the Merger, in an amount not
to exceed $1.5 million.
The foregoing summary of the material terms of the Merger
Agreement is not complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached hereto as
Exhibit 2.1 and is incorporated herein by reference.
The representations, warranties and covenants of the parties
contained in the Merger Agreement have been made solely for the
benefit of such parties. In addition, such representations,
warranties and covenants (i)have been made only for purposes of
the Merger Agreement, (ii)have been qualified by confidential
disclosures made by the parties to each other in connection with
the Merger Agreement, (iii)are subject to materiality
qualifications contained in the Merger Agreement which may differ
from what may be viewed as material by investors, (iv)were made
only as of the date of the Merger Agreement or such other date as
is specified in the Merger Agreement and (v)have been included in
the Merger Agreement for the purpose of allocating risk between
the contracting parties rather than establishing matters as
facts. Accordingly, the Merger Agreement is included with this
filing only to provide investors with information regarding the
terms of the Merger Agreement, and not to provide investors with
any other factual information regarding the parties or their
respective businesses. Investors should not rely on the
representations, warranties or covenants, or any descriptions
thereof, as characterizations of the actual state of facts or
condition of the parties or any of their respective subsidiaries
or affiliates. Moreover, information concerning the subject
matter of the representations and warranties may change after the
date of the Merger Agreement, which subsequent information may or
may not be fully reflected in the parties public disclosures. The
Merger Agreement should not be read alone, but should instead be
read in conjunction with the other information regarding the
parties, the Offer and the Merger that is or will be contained
in, or incorporated by reference into, a tender offer statement
on Schedule TO, including an offer to purchase, a letter of
transmittal and related documents, that will be filed with the
SEC by Merger Sub and the Company and a
Solicitation/Recommendation Statement on Schedule 14D-9 that will
be filed with the SEC by Derma, and the other documents that the
parties will file, with the SEC.
ITEM2.02 RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
On January10, 2017, the Company issued a press release announcing
its preliminary financial results on revenues, organic revenues,
earnings per share, adjusted earnings per share, operating cash
flows and free cash flows for the fourth quarter and year ended
December31, 2016 and preliminary financial guidance for 2017 (the
Press Release). A copy of the Press Release is attached as
Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated by reference into this Item.
The Company will hold a conference call for analysts and
investors at 9:00 am ET on Wednesday, January11, 2017, to discuss
the preliminary financial results for 2016 and preliminary
expectations for 2017 and to answer questions. Further
information about the call appears in the Press Release.
The information contained in Item2.02 of this Current Report on
Form 8-K (including the Press Release and selected historical
financial information) is being furnished and shall not be deemed
filed for the purposes of Section18 of the Securities Exchange
Act of 1934, as amended (the Exchange Act), or otherwise subject
to the liabilities of that Section. The information contained in
Item2.02 of this Current Report on Form 8-K (including the Press
Release and selected historical financial information) shall not
be incorporated by reference into any registration statement or
other document to the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific
reference in any such filing.
Discussion of Adjusted Financial Measures
In addition to our GAAP results, which we regularly report on a
quarterly basis, we provide organic revenues, adjusted EBITDA,
adjusted net income, adjusted earnings per diluted share,
adjusted diluted weighted average shares outstanding, free cash
flow, and adjusted free cash flow conversion. Organic revenues
consist of total revenues excluding the effects of currency
exchange rates, acquired revenues, and product discontinuances.
The various measures of adjusted EBITDA consist of GAAP net
income, excluding: (i)depreciation and amortization, (ii)other
income (expense), (iii)interest income and expense, (iv)income
taxes, (v)and those operating expenses also excluded from
adjusted net income. The measure of adjusted net income consists
of GAAP net income, excluding: (i)global enterprise resource
planning (ERP) implementation charges; (ii)structural
optimization charges; (iii)post-spin SeaSpine separation related
charges (iv)certain employee severance charges;
(v)acquisition-related charges; (vi)convertible debt non-cash
interest; (vii)intangible asset amortization expense; and
(viii)income tax impact from adjustments and other items. The
measure of adjusted diluted weighted average shares outstanding
is calculated by adding the economic benefit of the convertible
note hedge transactions relating to Integras 2016 convertible
notes. The adjusted earnings per diluted share measure is
calculated by dividing adjusted net income attributable to
diluted shares by adjusted diluted weighted average shares
outstanding. The measure of free cash flow consists of GAAP net
cash provided by operating activities less purchases of property
and equipment. The measure of adjusted free cash flow consists of
free cash flow adjusted for certain one-time unusual items. The
adjusted free cash flow conversion measure is calculated by
dividing free cash flow by adjusted net income.
The Company believes that the presentation of organic revenues
and the various adjusted EBITDA, adjusted net income, adjusted
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion measures provides important supplemental information
to management and investors regarding financial and business
trends relating to the Companys financial condition and results
of operations. Management uses non-GAAP financial measures in the
form of organic revenues, adjusted EBITDA, adjusted net income,
adjusted earnings per diluted share, adjusted diluted weighted
average shares outstanding, free cash flow and adjusted free cash
flow conversion when evaluating operating performance because we
believe that the inclusion or exclusion of the items described
below, for which the amounts and/or timing may vary significantly
depending upon the Companys acquisition, integration, and
restructuring activities, for which the amounts are non-cash in
nature, or for which the amounts are not expected to recur at the
same magnitude, provides a supplemental measure of our operating
results that facilitates comparability of our financial condition
and operating performance from period to period, against our
business model objectives, and against other companies in our
industry. We have chosen to provide this information to investors
so they can analyze our operating results in the same way that
management does and use this information in their assessment of
our core business and the valuation of our Company.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are significant measures used by management for
purposes of:
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supplementing the financial results and forecasts reported to the Companys board of directors; |
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evaluating, managing and benchmarking the operating performance of the Company; |
| establishing internal operating budgets; |
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determining compensation under bonus or other incentive programs; |
| enhancing comparability from period to period; |
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comparing performance with internal forecasts and targeted business models; and |
| evaluating and valuing potential acquisition candidates. |
The measure of organic revenues that we report reflects the
increase in total revenues for the quarter ended December31, 2016
adjusted for the effects of currency exchange rates, acquired
revenues, and product discontinuations on current period
revenues. We provide this measure because changes in foreign
currency exchange rates can distort our revenue reduction
favorably or unfavorably, depending upon the strength of the U.S.
dollar in relation to the various foreign currencies in which we
generate revenues. We generate significant revenues outside the
United States in multiple foreign currencies including euros,
British pounds, Swiss francs and Australian and Canadian dollars.
We believe this measure provides useful information to determine
the success of our international selling organizations in
increasing sales of products in their local currencies without
regard to fluctuations in currency exchanges rates, for which we
do not control. Additionally, significant acquisitions and
discontinued product lines can distort our current period
revenues when compared to prior periods.
The measure of adjusted net income reflects GAAP net income
adjusted for one or more of the following items, as applicable:
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Global ERP implementation charges. Global ERP implementation charges consist of the non-capitalizable portion of internal labor and outside consulting costs related to the implementation of a global ERP system. We have inherited many diverse business processes and different information systems through our numerous acquisitions. Accordingly, we are undertaking this initiative in order to standardize business processes globally and to better integrate all of our existing and acquired operations using one information system. Although recurring in nature given the expected timeframe to complete the implementation for our existing operations and our expectation to continue to acquire new businesses and operations, management excludes these charges when evaluating the operating performance of the Company because the frequency and amount of such charges vary significantly based on the timing and magnitude of the Companys implementation activities. |
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Structural optimization charges. These charges, which include employee severance and other costs associated with exit or disposal of facilities, costs related to acquisition integration, costs related to transferring manufacturing and/or distribution activities to different locations, and rationalization or enhancement of our organization, existing manufacturing, distribution, administrative, functional and commercial infrastructure. Some of these cost-saving and efficiency-driven activities are identified as opportunities in connection with acquisitions that provide the Company with additional capacity or economies of scale. Although recurring in nature given managements ongoing review of the efficiency of our organization and structure, including manufacturing, distribution and administrative facilities and operations, management excludes these items when evaluating the operating performance of the Company because the frequency and amount of such charges vary significantly based on the timing and magnitude of the Companys rationalization activities and are, in some cases, dependent upon opportunities identified in acquisitions, which also vary in frequency and magnitude. |
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Certain employee severance charges. Certain employee severance and related charges consist of charges related to senior management level terminations and certain significant reductions in force that are not initiated in connection with restructuring. Management excludes these items when evaluating the Companys operating performance because these amounts do not affect our core operations and because of the infrequent and/or large scale nature of these activities. |
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Acquisition-related charges. Acquisition-related charges include (i)up-front fees and milestone payments that are expensed as incurred in connection with acquiring licenses or rights to technology for which no product has been approved for sale by regulatory authorities and such approval is not reasonably assured at the time such up-front fees or milestone payments are made, (ii)inventory fair value purchase accounting adjustments, (iii)changes in the fair value of contingent consideration after the acquisition date, and (iv)legal, accounting and other outside consultants expenses directly related to acquisitions or divestitures. Inventory fair value purchase accounting adjustments consist of the increase to cost of goods sold that occur as a result of expensing the step up in the fair value of inventory that we purchased in connection with acquisitions as that inventory is sold during the financial period. Although recurring given the ongoing character of our development and acquisition programs, these acquisition, divestiture and in-licensing related charges are not factored into the evaluation of our performance by management after completion of development programs or acquisitions because they are of a temporary nature, they are not related to our core operating performance and the frequency and amount of such charges vary significantly based on the timing and magnitude of our development, acquisition and divestiture transactions as well as the level of inventory on hand at the time of acquisition. |
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Post-spin SeaSpine separation related charges. These charges include legal expenses and adjustments to stock based compensation incurred as part of the spin-off. |
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Intangible asset amortization expense. Management excludes this item when evaluating the Companys operating performance because it is a non-cash expense. |
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Convertible debt non-cash interest. The convertible debt accounting requires separate accounting for the liability and equity components of the Companys convertible debt instruments, which may be settled in cash upon conversion, in a manner that reflects an applicable non-convertible debt borrowing rate at the time that we issued such convertible debt instruments. Management excludes this item when evaluating the Companys operating performance because of the non-cash nature of the expense. |
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Income tax impact from adjustments and other items. Estimated impact on income tax expense related to the following: |
(i) |
Adjustments to income tax expense for the amount of additional tax expense that the Company estimates that it would record if it used non-GAAP results instead of GAAP results in the calculation of its tax provision, based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. |
(ii) |
When we calculate the adjusted tax rate, we include a full year estimate for all discrete items. We then apply that full year rate to the year-to-date results and calculate the current quarters rate to arrive at the year-to-date adjusted tax rate. We believe this removes significant variability in our results and creates a more operationally consistent result for our investors to use for comparability purposes. Specifically, the adoption of the FASB Update No.2016-09 accounting standard has the effect of generating a significant tax expense benefit in each of the four quarters of 2016. For the adjusted tax rate, we are treating this as a rate item, which is consistent with how other discrete tax expense items are handled in our current adjusted tax expense measure. |
Weighted average shares used to calculate GAAP diluted EPS
includes the convertible notes and warrant transactions because
they are dilutive. The measure of adjusted diluted weighted
average shares outstanding used to calculate adjusted diluted EPS
includes the effect of the convertible notes hedge transactions,
which is anti-dilutive. Integra believes the non-GAAP measure is
useful for understanding the economic benefit of the convertible
notes hedge transactions.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are not calculated in accordance with GAAP, and should
be considered supplemental to, and not as a substitute for, or
superior to, financial measures calculated in accordance with
GAAP. Non-GAAP financial measures have limitations in that they
do not reflect all of the revenues, costs or benefits associated
with the operations of the Companys business as determined in
accordance with GAAP. As a result, you should not consider these
measures in isolation or as a substitute for analysis of the
Companys results as reported under GAAP. The Company expects to
continue to acquire businesses and product lines and to incur
expenses of a nature similar to many of the non-GAAP adjustments
described above, and exclusion of these items from its adjusted
financial measures should not be construed as an inference that
all of these revenue adjustments or costs are unusual, infrequent
or non-recurring. Some of the limitations in relying on the
adjusted financial measures are:
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The Company periodically acquires other companies or businesses, and we expect to continue to incur acquisition-related expenses and charges in the future. These costs can directly impact the amount of the Companys available funds or could include costs for aborted deals which may be significant and reduce GAAP net income. |
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The Company has initiated a long term effort to implement a global ERP system, and we expect to continue to incur significant systems implementation charges until that effort is completed. These costs can directly impact the amount of the Companys available funds and reduce GAAP net income. |
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All of the adjustments to GAAP net income have been tax affected at the Companys actual tax rates. Depending on the nature of the adjustments and the tax treatment of the underlying items, the effective tax rate related to adjusted net income could differ significantly from the effective tax rate related to GAAP net income. |
ITEM8.01 OTHER EVENTS
On January10, 2017, the Company issued a Press Release
announcing, among other things, entry into the Merger Agreement,
which is attached as Exhibit99.1, and incorporated into this
Item8.01 by reference. The Company also prepared an investor
presentation a copy of which is attached hereto as Exhibit 99.2
and is incorporated herein by reference. The information
contained herein, including the attached press release, is
furnished to Item8.01 of Form 8-K and shall not be deemed filed
for purposes of Section18 of the Securities Exchange Act of 1934
nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933 or the Securities Exchange Act
of 1934 except as may be expressly set forth by specific
reference in such filing.
About Integra LifeSciences
Integra LifeSciences, a world leader in medical technology, is
dedicated to limiting uncertainty for caregivers, so they can
concentrate on providing the best patient care. Integra offers
innovative solutions, including leading regenerative
technologies, in specialty surgical solutions and orthopedics and
tissue technologies. For more information, please visit
www.integralife.com.
Important Information regarding the Offer
This announcement is neither an offer to purchase nor a
solicitation of an offer to sell securities. The tender offer for
the outstanding Common Share and shares of Company Preferred
Stock described in this Form 8-K has not commenced. At the time
the tender offer is commenced, the Company and Merger Sub will
file a Tender Offer Statement on ScheduleTO with the SEC and
Derma will file a Solicitation/Recommendation Statement on
Schedule 14D-9 with the SEC related to the tender offer. The
Tender Offer Statement (including an Offer to Purchase, a related
Letter of Transmittal and other tender offer documents) and the
Solicitation/Recommendation Statement will contain important
information that should be read carefully before any decision is
made with respect to the tender offer. Those materials will be
made available to Derma Sciences security holders at no expense
to them. In addition, all of those materials (and all other offer
documents filed with the SEC) will be available at no charge on
the SECs website at www.sec.gov.
Forward-Looking Statements
This Current Report on Form 8-K and Exhibit 99.1 hereto contain
forward-looking statements, including statements regarding the
proposed transaction and the ability to consummate the proposed
transaction. Statements in this document may contain, in addition
to historical information, certain forward-looking statements.
Some of these forward-looking statements may contain words like
believe, may, could, would, might, possible, should, expect,
intend, plan, anticipate, or continue, the negative of these
words, other terms of similar meaning or they may use future
dates. Forward-looking statements in this document include
without limitation statements regarding the planned completion of
the transaction. These statements are subject to risks and
uncertainties that could cause actual results and events to
differ materially from those anticipated, including, but not
limited to, risks and uncertainties related to the following:
statements regarding the anticipated benefits of the proposed
transactions contemplated by the Merger Agreement (the
Proposed Transactions); statements regarding the
anticipated timing of filings and approvals relating to the
Proposed Transactions; statements regarding the expected timing
of the completion of the Proposed Transactions; the percentage of
Dermas stockholders tendering their shares in the Offer; the
possibility that competing offers will be made; the possibility
that various closing conditions for the Proposed Transactions may
not be satisfied or waived; the effects of disruption caused by
the Proposed Transactions making it more difficult to maintain
relationships with employees, vendors and other business
partners; stockholder litigation in connection with the Proposed
Transactions; and other risks and uncertainties discussed in the
Companys filings with the SEC, including the Risk Factors
sections of the Companys Annual Report on Form 10-K for the year
ended December31, 2015 and subsequent quarterly reports on Form
10-Q, as well as the Schedule TO and related tender offer
documents to be filed by the Company and Merger Sub and the
Solicitation/Recommendation Statement to be filed by Derma. The
Company undertakes no obligation to update any forward-looking
statements as a result of new information, future developments or
otherwise, except as expressly required by law. All
forward-looking statements in this document are qualified in
their entirety by this cautionary statement.
Item9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
| 2.1 |
Agreement and Plan of Merger, dated as of January10, 2017, by and among Integra LifeSciences Holdings Corporation, Integra Derma, Inc., and Derma Sciences, Inc.* |
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| 99.1 |
Press release with attachments, dated January10, 2017 issued by Integra LifeSciences Holdings Corporation |
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| 99.2 | Investors Presentation |
* |
Schedules and exhibits have been omitted to Item601(b)(2) of Regulation S-K, but a copy will be furnished to the Securities and Exchange Commission upon request. |
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| INTEGRA LIFESCIENCES HOLDINGS CORPORATION | ||||||
| Date: January10, 2017 | By: | /s/ Glenn G. Coleman |
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| Glenn G. Coleman | ||||||
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EXHIBIT INDEX
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| 2.1 |
Agreement and Plan of Merger, dated as of January10, 2017, by and among Integra LifeSciences Holdings Corporation, Integra Derma, Inc. and Derma Sciences, Inc.* |
|
| 99.1 |
Press release with attachments, dated January 10, 2017 issued by Integra LifeSciences Holdings Corporation |
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| 99.2 | Investors Presentation |
* |
Schedules have been omitted |
