Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

COMMISSION FILE NO. 0-26224

 

 

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

 

DELAWARE   51-0317849

(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)

 

(I.R.S. EMPLOYER

IDENTIFICATION NO.)

311 ENTERPRISE DRIVE

PLAINSBORO, NEW JERSEY

  08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)   (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 275-0500

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of July 25, 2011 was 27,517,563.

 

 

 


Table of Contents

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

INDEX

 

     Page Number  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

     3   

Condensed Consolidated Statements of Operations for the three and six months ended June  30, 2011 and 2010 (Unaudited)

     3   

Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (Unaudited)

     4   

Condensed Consolidated Statements of Cash Flows for the six months ended June  30, 2011 and 2010 (Unaudited)

     5   

Notes to Unaudited Condensed Consolidated Financial Statements

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     28   

Item 4. Controls and Procedures

     28   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     29   

Item 1A. Risk Factors

     29   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     29   

Item 4. Reserved and Removed

  

Item 6. Exhibits

     29   

SIGNATURES

  

Exhibit 4.3

  

Exhibit 10.3

  

Exhibit 10.4

  

Exhibit 10.5

  

Exhibit 10.6

  

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32.1

  

Exhibit 32.2

  

EX-101 INSTANCE DOCUMENT

  

EX-101 SCHEMA DOCUMENT

  

EX-101 CALCULATION LINKBASE DOCUMENT

  

EX-101 DEFINITION LINKBASE DOCUMENT

  

EX-101 LABELS LINKBASE DOCUMENT

  

EX-101 PRESENTATION LINKBASE DOCUMENT

  


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share amounts)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2011     2010     2011     2010  

Total Revenue

   $ 193,329      $ 178,595      $ 374,370      $ 351,293   

Costs and Expenses:

        

Cost of product revenues

     72,838        64,464        137,759        127,688   

Research and development

     12,709        11,761        24,862        23,062   

Selling, general and administrative

     95,732        74,216        175,816        146,727   

Intangible asset amortization

     4,050        3,575        7,061        6,594   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     185,329        154,016        345,498        304,071   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,000        24,579        28,872        47,222   

Interest income

     127        52        200        113   

Interest expense

     (6,722     (4,300     (12,191     (8,841

Other income (expense), net

     593        763        (50     1,909   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,998        21,094        16,831        40,403   

Income tax expense

     1,299        5,937        4,645        10,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 699      $ 15,157      $ 12,186      $ 30,379   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per common share

   $ 0.02      $ 0.51      $ 0.41      $ 1.02   

Diluted net income per common share

   $ 0.02      $ 0.50      $ 0.40      $ 1.00   

Weighted average common shares outstanding (See Note 11):

        

Basic

     29,556        29,855        29,559        29,672   

Diluted

     30,178        30,399        30,154        30,282   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands)

 

     June 30,     December 31,  
     2011     2010  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 137,279      $ 128,763   

Trade accounts receivable, net of allowances of $6,825 and $7,322

     116,179        106,005   

Inventories, net

     174,460        146,928   

Deferred tax assets

     35,072        35,284   

Prepaid expenses and other current assets

     32,794        27,869   
  

 

 

   

 

 

 

Total current assets

     495,784        444,849   

Property, plant and equipment, net

     115,667        99,456   

Intangible assets, net

     230,935        194,904   

Goodwill

     285,376        261,928   

Deferred tax assets

     12,464        7,894   

Other assets

     13,630        10,102   
  

 

 

   

 

 

 

Total assets

   $ 1,153,856      $ 1,019,133   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities:

    

Borrowings under senior credit facility

   $ —        $ 108,438   

Accounts payable, trade

     47,894        27,783   

Deferred revenue

     3,367        4,444   

Accrued compensation

     25,063        27,562   

Accrued expenses and other current liabilities

     41,684        33,630   
  

 

 

   

 

 

 

Total current liabilities

     118,008        201,857   

Long-term borrowings under senior credit facility

     144,375        139,688   

Long-term convertible securities

     345,687        155,154   

Deferred tax liabilities

     10,317        10,645   

Other liabilities

     16,652        11,826   
  

 

 

   

 

 

 

Total liabilities

     635,039        519,170   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ Equity:

    

Preferred Stock; no par value; 15,000 authorized shares; none outstanding

     —          —     

Common stock; $0.01 par value; 60,000 authorized shares; 35,860 and 35,745 issued at June 30, 2011 and December 31, 2010, respectively

     360        359   

Additional paid-in capital

     598,249        552,227   

Treasury stock, at cost; 8,425 shares and 7,212 shares at June 30, 2011 and December 31, 2010, respectively

     (340,667     (283,658

Accumulated other comprehensive (loss) income:

    

Foreign currency translation adjustment

     17,530        (870 )

Pension liability adjustment, net of tax

     (586     (771

Unrealized loss on derivatives, net of tax

     (1,087     (154 )

Retained earnings

     245,018        232,830   
  

 

 

   

 

 

 

Total stockholders’ equity

     518,817        499,963   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,153,856      $ 1,019,133   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended June 30,  
     2011     2010  

OPERATING ACTIVITIES:

    

Net income

   $ 12,186      $ 30,379   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     24,451        18,954   

Deferred income tax benefit

     (5,209     (375

Amortization of debt issuance costs

     1,838        674   

Non-cash interest expense

     3,632        3,941   

Payment of accreted interest

     —          (6,599

Loss on disposal of property and equipment

     —          447   

Share-based compensation

     15,863        7,520   

Excess tax benefits from stock-based compensation arrangements

     (778     (3,474

Changes in assets and liabilities, net of business acquisitions:

    

Accounts receivable

     (701     2,687   

Inventories

     (9,550     (7,754

Prepaid expenses and other current assets

     1,192        (3,877

Other non-current assets

     (125     202   

Accounts payable, accrued expenses and other current liabilities

     4,424        6,041   

Deferred revenue

     (1,108     (715

Other non-current liabilities

     (277     (556
  

 

 

   

 

 

 

Net cash provided by operating activities

     45,838        47,495   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Cash used in business acquisition, net of cash acquired

     (80,799     (2,421

Purchases of property and equipment

     (13,138     (11,691
  

 

 

   

 

 

 

Net cash used in investing activities

     (93,937     (14,112
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Borrowings under senior credit facility

     85,000        75,000   

Repayments under senior credit facility

     (188,750     (15,000

Proceeds from liability component of convertible notes issuance

     186,830        —     

Proceeds from equity component of convertible notes issuance

     43,170        —     

Repurchase of liability component of convertible notes

     —          (71,351

Proceeds from sale of stock purchase warrants

     28,451        —     

Purchase of option hedge on convertible notes

     (42,895     —     

Debt issuance costs

     (8,005     —     

Purchases of treasury stock

     (57,009     —     

Proceeds from exercised stock options

     3,297        4,633   

Excess tax benefits from stock-based compensation arrangements

     778        3,474   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     50,867        (3,244
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     5,748        (8,412
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     8,516        21,727   

Cash and cash equivalents at beginning of period

     128,763        71,891   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 137,279      $ 93,618   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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INTEGRA LIFESCIENCES HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

General

The terms “we,” “our,” “us,” “Company” and “Integra” refer to Integra LifeSciences Holdings Corporation, a Delaware corporation, and its subsidiaries unless the context suggests otherwise.

In the opinion of management, the June 30, 2011 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K. The December 31, 2010 condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. Operating results for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the entire year.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets including in-process research and development, amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of pension assets and liabilities, valuation of derivative instruments, valuation of the equity component of convertible debt instruments, and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

Certain amounts from the prior year’s financial statements have been reclassified in order to conform to the current year’s presentation.

Recently Issued Accounting Standards

On June 16, 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income ; this standard eliminates the option to report other comprehensive income and its components in the statement of changes in equity. The Company can elect to present items of net income and other comprehensive income in one continuous statement, or in two consecutive statements. Each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts – net income and other comprehensive income – would need to be displayed under either alternative, and the statements would need to be presented with equal prominence as the other primary financial statements. This standard does not change: 1) the items that constitute net income and other comprehensive income, 2) when an item of other comprehensive income must be reclassified to net income, or 3) the computation for earnings-per-share - which will continue to be based on net income. This standard is effective for fiscal years beginning after December 15, 2011, and the Company has not yet determined which method it will elect upon adoption.

On May 12, 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-04 - Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This standard merges many aspects of fair value measurement guidance by amending U.S. GAAP and creating a new standard under International Financial Reporting Standards. The primary changes to U.S. GAAP include: 1) clarifying the valuation premise of highest and best use, 2) clarifying how portfolios of financial instruments are measured, 3) clarifying the use of blockage factors and other premiums and discounts, and 4) increasing the disclosure requirements in a number of circumstances. This standard is effective for fiscal years beginning after December 15, 2011, and the Company believes the standard will not have a material impact on the Company’s results.

Supplemental Cash Flow Information

During the six months ended June 30, 2010, 282,086 stock options were exercised, whereby in lieu of a cash payment for the exercise price, an option holder tendered 73,546 shares of Company stock that had a fair market value of approximately $3.1 million. These tendered shares were then immediately retired.

 

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2. BUSINESS ACQUISITIONS

SeaSpine, Inc.

On May 23, 2011, the Company acquired all of the outstanding common stock of SeaSpine, Inc. (“SeaSpine”) for $89.0 million, subject to certain working capital adjustments and indemnification holdbacks totaling $8.0 million which have been accrued at June 30, 2011. SeaSpine is based in Vista, California and designs, develops and manufactures spinal fixation products and synthetic bone substitute products.

The following summarizes the allocation of the purchase price based on fair value of the assets acquired and liabilities assumed (in thousands):

 

Cash

   $ 201      

Inventory

     14,900      

Accounts receivable

     7,608      

Other current assets

     623      

Property, plant and equipment

     9,177      

Deferred tax asset—long term

     302      

Intangible assets:

      Wtd. Avg. Life:

Technology

     3,000       8 years

Customer relationships

     41,200       13 years

Non-compete agreements

     1,900       4 years

Brand name

     300       1 year

Goodwill

     14,897      
  

 

 

    

Total assets acquired

     94,108      

Accounts payable and other liabilities

     5,108      
  

 

 

    

Net assets acquired

   $ 89,000      
  

 

 

    

Management determined the fair value of assets acquired during the second quarter of 2011. The goodwill recorded in connection with this acquisition is based on the benefits the Company expects to generate from SeaSpine’s future cash flows. For tax purposes, the Company is treating the acquisition as an asset acquisition; therefore, the goodwill will be deductible for tax purposes. The impact of the SeaSpine acquisition is not material to the consolidated operating results of the Company; therefore, the pro-forma impact of the acquisition has not been presented.

Integra Neurosciences Pty Ltd.

In October 2008 the Company acquired Integra Neurosciences Pty Ltd. in Australia and Integra Neurosciences Pty Ltd. in New Zealand for $4.0 million (6.0 million Australian dollars) in cash at closing, $0.3 million in acquisition expenses and working capital adjustments, and up to $2.1 million based on the exchange rates in effect at the time of the acquisition (3.1 million Australian dollars) in future payments based on the performance of business in the three years after closing. The Company paid approximately $0.9 million (1.0 million Australian dollars) of this potential revenue performance obligation in November 2009 for the first revenue performance year, and another $1.0 million (1.0 million Australian dollars) in December 2010 for the second revenue performance year. The Company accrued $1.1 million (1.0 million Australian dollars) at June 30, 2011 for the third revenue performance year.

Theken

In August 2008 the Company acquired Theken Spine, LLC, Theken Disc, LLC and Therics, LLC (collectively, “Integra Spine”) for $75.0 million in cash, subject to certain adjustments, acquisition expenses of $2.4 million, working capital adjustments of $3.9 million, and up to $125.0 million in future payments based on the revenue performance of the business in each of the two years after closing. The Company paid approximately $52.0 million for the first year revenue performance obligation in November 2009. From November 2009 through June 30, 2011 the Company has accrued a total of $4.6 million to settle a dispute related to a disagreement in the calculation of “trade sales” used in determining the revenue performance payment for the first year revenue performance obligation (see Note 14, “Commitments and Contingencies”). There are no amounts due for the second performance year.

3. INVENTORIES

Inventories, net consisted of the following:

 

     June 30,      December 31,  
     2011      2010  
     (In thousands)  

Finished goods

   $ 109,065       $ 87,508   

Work-in process

     35,444         31,536   

Raw materials

     29,951         27,884   
  

 

 

    

 

 

 
   $ 174,460       $ 146,928   
  

 

 

    

 

 

 

 

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4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six months ended June 30, 2011 were as follows (in thousands):

 

Goodwill

   $ 261,928   

Accumulated impairment losses

     —     
        

Goodwill at December 31, 2010

     261,928   

SeaSpine acquisition

     14,897   

Integra Spine earnout

     1,200   

Integra Neurosciences Pty Ltd. earnout

     1,059   

Foreign currency translation

     6,292   
        

Goodwill at June 30, 2011

   $ 285,376   
        

The Company performs its assessment of the recoverability of goodwill annually during the second quarter and it is based upon a comparison of the carrying value of goodwill with its estimated fair value. The Company performed its most recent assessment during the second quarter of 2011 which resulted in no impairment.

The Company performs its assessment of the recoverability of indefinite-live intangible assets annually during the second quarter and it is based upon a comparison of the carrying value of such assets to their estimated fair values. The Company performed its most recent assessment during the second quarter of 2011 which resulted in an impairment of $0.9 million related to one brand name asset that will no longer be used as part of our re-branding strategy. This charge has been recorded as a component of amortization expense.

During the six months ended June 30, 2011, the Company recorded impairment charges to definite lived intangible assets of $1.6 million related to technology assets whose related products are being discontinued and $0.2 million related to a brand name that will no longer be used because of our re-branding strategy. The Company has recorded the charges as a component of cost of product revenues and amortization expense, respectively.

The components of the Company’s identifiable intangible assets were as follows (dollars in thousands):

 

     Weighted
Average
Life
   June 30, 2011      December 31, 2010  
        Cost      Accumulated
Amortization
    Net      Cost      Accumulated
Amortization
    Net  

Completed technology

   12 years    $ 72,133       $ (32,293   $ 39,840       $ 69,261       $ (28,062   $ 41,199   

Customer relationships

   12 years      142,954         (51,969     90,985         99,290         (45,505     53,785   

Trademarks/brand names

   35 years      33,976         (9,179     24,797         33,448         (8,467     24,981   

Trademarks/brand names

   Indefinite      48,484         —          48,484         49,384         —          49,384   

Supplier relationships

   30 years      29,300         (5,014     24,286         29,300         (4,525     24,775   

All other*

   15 years      10,477         (7,934     2,543         8,440         (7,660     780   
                                                      
      $ 337,324       $ (106,389   $ 230,935      $ 289,123       $ (94,219   $ 194,904   
                                                      

 

* At December 31, 2010 all other included in-process research and development of $0.3 million which was indefinite lived. During the second quarter of 2011, this asset was placed in service as a component of completed technology.

Based on quarter-end exchange rates, annual amortization expense is expected to approximate $23.8 million in 2011, $23.4 million in 2012, $17.6 million in 2013, $16.7 million in 2014 and $14.7 million in 2015. Identifiable intangible assets are initially recorded at fair market value at the time of acquisition using an income or cost approach.

 

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5. DEBT

2016 Convertible Senior Notes

On June 15, 2011, the Company issued $230.0 million aggregate principal amount of its 1.625% Convertible Senior Notes due 2016 (the “2016 Notes”). The 2016 Notes mature on December 15, 2016, and bear interest at a rate of 1.625% per annum payable semi-annually in arrears on December 15 and June 15 of each year. The portion of the debt proceeds that was classified as equity at the time of the offering was $43.2 million, and that amount is being amortized to interest expense using the effective interest method through December 2016. The effective interest rate implicit in the liability component is 5.6%. In connection with this offering, the Company capitalized approximately $6.3 million of financing fees. At June 30, 2011, the carrying amount of the liability component was $187.2 million, the remaining unamortized discount was $42.8 million, and the principal amount outstanding was $230.0 million. The fair value of the 2016 Notes at June 30, 2011 was approximately $231.4 million.

The 2016 Notes are senior, unsecured obligations of the Company, and are convertible into cash and, if applicable, shares of its common stock based on an initial conversion rate, subject to adjustment of 17.4092 shares per $1,000 principal amount of 2016 Notes (which represents an initial conversion price of approximately $57.44 per share). The Company will satisfy any conversion of the 2016 Notes with cash up to the principal amount of the 2016 Notes pursuant to the net share settlement mechanism set forth in the indenture and, with respect to any excess conversion value, with shares of the Company’s common stock. The 2016 Notes are convertible only in the following circumstances: (1) if the closing sale price of the Company’s common stock exceeds 150% of the conversion price during a period as defined in the indenture; (2) if the average trading price per $1,000 principal amount of the 2016 Notes is less than or equal to 98% of the average conversion value of the 2016 Notes during a period as defined in the indenture; (3) at any time on or after June 15, 2016; or (4) if specified corporate transactions occur. The issue price of the 2016 Notes was equal to their face amount, which is also the amount holders are entitled to receive at maturity if the 2016 Notes are not converted. As of June 30, 2011, none of these conditions existed with respect to the 2016 Notes and as a result, the 2016 Notes are classified as long term.

Holders of the 2016 Notes, who convert their notes in connection with a qualifying fundamental change, as defined in the related indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, following the occurrence of a fundamental change, holders may require that the Company repurchase some or all of the 2016 Notes for cash at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any.

The 2016 Notes, under the terms of the private placement agreement, are guaranteed fully by Integra LifeSciences Corporation, a subsidiary of the Company. The Notes are the Company’s direct senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness.

In connection with the issuance of the 2016 Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the Notes (the “hedge participants”). The cost of the call transactions to the Company was approximately $42.9 million, representing options to buy 4.0 million shares from the hedge participants at an initial strike price of $57.44 per share, subject to customary anti-dilution adjustments. These transactions are expected to reduce the potential dilution upon conversion of the notes. The Company received approximately $28.5 million of proceeds from the warrant transactions, representing an obligation to potentially deliver 4.0 million shares to the hedge participants at an initial strike price of $70.05 per share, subject to customary anti-dilution adjustments. The earliest expiration of these warrant transactions is March 15, 2017 and they continue to expire through the 100th scheduled trading day thereafter, as defined in the indenture. The warrants could separately have a dilutive effect on the Company’s earnings per share if the market price of its common stock exceeds the strike price of the warrants.

During the three and six months ended June 30, 2011, the Company recognized non-cash interest of $0.3 million and cash interest of $0.2 million for a total of $0.5 million on the 2016 Notes.

Amended and Restated Senior Credit Agreement

On August 10, 2010, the Company entered into an amended and restated credit agreement with a syndicate of lending banks (the “Senior Credit Facility”) and further amended the Senior Credit Facility on June 8, 2011. The June 8, 2011 amendment increased the revolving credit component from $450.0 million to $600.0 million and eliminated the $150.0 million term loan component that existed under the original amended and restated credit agreement, allows the Company to further increase the size of the revolving credit component by an aggregate of $200.0 million with additional commitments, provides the Company with decreased borrowing rates and annual commitment fees, and provides more favorable financial covenants. The Senior Credit Facility’s maturity was extended from August 10, 2015 to June 8, 2016 and is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. In connection with the June 8, 2011 amendment, the Company capitalized $1.3 million of incremental financing costs, expensed $0.4 million of incremental financing costs, and expensed $0.4 million of previously capitalized financing costs. The Senior Credit Facility is subject to various financial and negative covenants and at June 30, 2011, the Company was in compliance with all such covenants.

Borrowings under the Senior Credit Facility currently bear interest, at the Company’s option, at a rate equal to (i) the Eurodollar Rate (as defined in the Senior Credit Facility, which definition has not changed) in effect from time to time plus the applicable rate (ranging from 1.00% to 1.75%) or (ii) the highest of (x) the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.5%, (y) the prime lending rate of Bank of America, N.A. or (z) the one-month Eurodollar Rate plus 1.0%. The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness less cash in excess of $40 million that is not subject to any restriction of the use or investment thereof to (b) consolidated EBITDA) at the time of the applicable borrowing.

The Company will also pay an annual commitment fee (ranging from 0.15% to 0.3%, based on the Company’s consolidated total leverage ratio) on the daily amount by which the revolving credit facility exceeds the outstanding loans and letters of credit under the credit facility.

 

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At June 30, 2011 and December 31, 2010, there was $144.4 million and $100.0 million outstanding, respectively, under the revolving credit component of the Senior Credit Facility at a weighted average interest rate of 1.5% and 2.5%, respectively. At June 30, 2011, there was approximately $455.6 million available for borrowing under the Senior Credit Facility. The fair value of outstanding borrowings under the Senior Credit Facility at June 30, 2011 was approximately $131.7 million. The Company considers the balance to be long-term in nature based on its current intent and ability to repay the borrowing outside of the next twelve-month period.

At December 31, 2010, there was $148.1 million outstanding under the term loan component of the Senior Credit Facility at an interest rate of 2.6%, and as noted above, this portion of the credit facility was eliminated and replaced with borrowings under the revolving credit component in June 2011.

2010 and 2012 Senior Convertible Notes

On June 11, 2007, the Company issued $165.0 million aggregate principal amount of its 2010 Notes and $165.0 million aggregate principal amount of its 2012 Notes (the 2010 Notes and the 2012 Notes, collectively the “Notes”). The 2010 Notes and the 2012 Notes bear interest at a rate of 2.75% per annum and 2.375% per annum, respectively, in each case payable semi-annually in arrears on December 1 and June 1 of each year. The portion of the debt proceeds that was classified as equity at the time of the offering was $16.4 million for the 2010 Notes and $30.6 million for the 2012 Notes. Those amounts are being amortized to interest expense using the effective interest method through June 2010 for the 2010 Notes, and through June 2012 for the 2012 Notes. The effective interest rate implicit in the liability component is 6.5% for the 2010 Notes and 6.8% for the 2012 Notes. The 2010 Notes were paid off in June 2010 in accordance with their terms. At June 30, 2011, the carrying amount of the liability component of the 2012 Notes was $158.5 million, the remaining unamortized discount was $6.5 million, and the principal amount outstanding was $165.0 million. At December 31, 2010, the carrying amount of the liability component of the 2012 Notes was $155.2 million, the remaining unamortized discount was $9.8 million, and the principal amount outstanding was $165.0 million. The entire carrying amount of the 2012 Notes is classified as long-term in the June 30, 2011 balance sheet as the Company has the intent and ability to settle the obligation with long-term borrowings from its Senior Credit Facility. The fair value of the 2012 Notes at June 30, 2011 was approximately $166.5 million.

The 2012 Notes are senior, unsecured obligations of the Company, and are convertible into cash and, if applicable, shares of its common stock based on an initial conversion rate, subject to adjustment, of 15.3935 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $64.96 per share). The Company will satisfy any conversion of the 2012 Notes with cash up to the principal amount pursuant to the net share settlement mechanism set forth in the indenture and, with respect to any excess conversion value, with shares of the Company’s common stock. The 2012 Notes are convertible only in the following circumstances: (1) if the closing sale price of the Company’s common stock exceeds 130% of the conversion price during a period as defined in the indenture; (2) if the average trading price per $1,000 principal amount of the 2012 Notes is less than or equal to 97% of the average conversion value of the 2012 Notes during a period as defined in the indenture; (3) anytime after December 15, 2011; or (4) if specified corporate transactions occur. None of these conditions existed with respect to the 2012 Notes as of June 30, 2011. The 2012 Notes are classified as long-term based on the Company’s intent and ability to settle the obligation with long-term borrowings from its Senior Credit Facility. The issue price of the 2012 Notes was equal to their face amount, which is also the amount holders are entitled to receive at maturity if the 2012 Notes are not converted.

In connection with the issuance of the 2012 Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the Notes (the “hedge participants”). The cost of the call transactions to the Company was approximately $30.4 million, representing options to buy 2.5 million shares from the hedge participants at an initial strike price of approximately $64.96 per share, subject to customary anti-dilution adjustments. These transactions are expected to reduce the potential dilution upon conversion of the notes. The Company received approximately $12.2 million of proceeds from the warrant transactions, representing an obligation to potentially deliver 2.5 million shares to the hedge participants at an initial strike price of approximately $77.96 per share, subject to customary anti-dilution adjustments. These warrant transactions expire on various dates between August 30, 2012 and January 23, 2013 and could separately have a dilutive effect on the Company’s earnings per share if the market price of its common stock exceeds the strike price of the warrants.

The interest expense components of the 2010 Notes and the 2012 Notes are as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
       2011      2010      2011      2010  
     (amounts in thousands)  

2010 Notes :

           

Non-cash interest

   $ –         $ 480       $ –         $ 1,190   

Cash Interest

     –           357         –           830   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ –         $ 837       $ –         $ 2,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

2012 Notes :

           

Non-cash interest

   $ 1,698       $ 1,586       $ 3,367       $ 3,146   

Cash Interest

     980         980         1,959         1,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,678       $ 2,566       $ 5,326       $ 5,105   
  

 

 

    

 

 

    

 

 

    

 

 

 

6. DERIVATIVE INSTRUMENTS

Interest Rate Hedging

The Company’s interest rate risk relates to U.S. dollar denominated variable LIBOR interest rate borrowings. The Company uses an interest rate swap derivative instrument entered into on August 10, 2010 with an effective date of December 31, 2010 to manage its earnings and cash flow exposure to changes in interest rates by converting a portion of its floating-rate debt into fixed-rate debt beginning on December 31, 2010. This interest rate swap expires on August 10, 2015.

The Company designates this derivative instrument as a cash flow hedge. The Company records the effective portion of any change in the fair value of a derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive income (“AOCI”), net of tax, until the hedged item affects earnings, at which point the effective portion of any gain or loss will be reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to interest expense at that time.

The Company expects that approximately $2.1 million of pre-tax losses recorded as net in AOCI related to the interest rate hedge could be reclassified to earnings within the next twelve months.

Foreign Currency Hedging

From time to time the Company enters into foreign currency hedge contracts intended to protect the U.S. dollar value of certain forecasted foreign currency denominated transactions. There were no foreign currency hedge contracts outstanding as of June 30, 2011 or December 31, 2010. The Company records the effective portion of any change in the fair value of foreign currency cash flow hedges in AOCI, net of tax, until the hedged item affects earnings. Once the related hedged item affects earnings, the Company reclassifies the effective portion of any related unrealized gain or loss on the foreign currency cash flow hedge to earnings. If the hedged forecasted transaction does not occur, or if it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time.

 

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The success of the Company’s hedging program depends, in part, on forecasts of certain activity denominated in euros. The Company may experience unanticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activity during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect its earnings and cash flows.

Counterparty Credit Risk

The Company manages its concentration of counterparty credit risk on its derivative instruments by limiting acceptable counterparties to a group of major financial institutions with investment grade credit ratings, and by actively monitoring their credit ratings and outstanding positions on an ongoing basis. Therefore, the Company considers the credit risk of the counterparties to be low. Furthermore, none of the Company’s derivative transactions is subject to collateral or other security arrangements, and none contains provisions that depend upon the Company’s credit ratings from any credit rating agency.

Fair Value of Derivative Instruments

The Company has classified all of its derivative instruments within Level 2 of the fair value hierarchy because observable inputs are available for substantially the full term of the derivative instruments. The following table summarizes the fair value, notional amounts presented in U.S. dollars, and presentation in the consolidated balance sheet for derivatives designated as hedging instruments as of June 30, 2011 and December 31, 2010:

 

     Fair Value as of  
     June 30,      December 31,  

Location on Balance Sheet (a):

   2011      2010  
     (In thousands)  

Derivative Assets:

     

Interest rate swap — Other assets (b)

   $ 196       $ 1,825   
  

 

 

    

 

 

 

Derivative Liabilities:

     

Interest rate swap — Accrued expenses and other current liabilities (b)

   $ 2,103       $ 2,095   
  

 

 

    

 

 

 

 

(a) The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months.
(b) At June 30, 2011 and December 31, 2010, the notional amount related to the Company’s sole interest rate swap was $144.4 million and $148.1 million, respectively. In the subsequent twelve months, the Company expects to reduce these amounts by $10.3 million and $8.4 million, respectively.

The following presents the effect of derivative instruments designated as cash flow hedges on the accompanying consolidated statements of operations during the three and six months ended June 30, 2011 and 2010:

 

     Amount of
Gain

(Loss)
Recognized

in AOCI-
Effective
Portion
    Amount of Gain
(Loss)
Reclassified

from AOCI Into
Earnings-
Effective
Portion
   

Location in

Statements of

Operations

     (In thousands)      

Three Months Ended June 30, 2011

      

Interest rate swap

   $ (2,958   $ (570   Interest (expense)
  

 

 

   

 

 

   

Three Months Ended June 30, 2010

      

Currency hedge contracts

   $ (1,018   $ (1,009   Other income (expense)
  

 

 

   

 

 

   

Six Months Ended June 30, 2011

      

Interest rate swap

   $ (2,781   $ (1,143   Interest (expense)
  

 

 

   

 

 

   

Six Months Ended June 30, 2010

      

Currency hedge contracts

   $ (1,734   $ (1,718   Other income (expense)
  

 

 

   

 

 

   

 

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The Company recognized no gains or losses resulting from ineffectiveness of cash flow hedges during the three and six months ended June 30, 2011 and 2010.

7. STOCK-BASED COMPENSATION

As of June 30, 2011, the Company had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock unit awards outstanding under six plans, the 1996 Incentive Stock Option and Non-Qualified Stock Option Plan (the “1996 Plan”), the 1998 Stock Option Plan (the “1998 Plan”), the 1999 Stock Option Plan (the “1999 Plan”), the 2000 Equity Incentive Plan (the “2000 Plan”), the 2001 Equity Incentive Plan (the “2001 Plan”), and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, the “Plans”). No new awards may be granted under the 1996 Plan, the 1998 Plan, the 1999 Plan and the 2000 Plan.

Stock options issued under the Plans become exercisable over specified periods, generally within four years from the date of grant for officers, directors and employees, and generally expire six years from the grant date for employees and from six to ten years for directors and certain executive officers. Restricted stock issued under the Plans vests over specified periods, generally three years after the date of grant.

Stock Options

The Company granted approximately 34,000 and 59,000 stock options during the six months ended June 30, 2011 and June 30, 2010, respectively. As of June 30, 2011, there were approximately $1.3 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately 2 years. The Company received net proceeds of $3.3 million and $4.6 million from stock option exercises for the six months ended June 30, 2011 and 2010, respectively.

Awards of Restricted Stock, Performance Stock and Contract Stock

Performance stock awards have performance features associated with them. Performance stock, restricted stock and contract stock awards generally have requisite service periods of three years. The Company expenses the fair value of these awards on a straight-line basis over the vesting period or requisite service period, whichever is shorter. As of June 30, 2011, there were approximately $13.1 million of total unrecognized compensation costs related to unvested awards. The Company expects to recognize these costs over a weighted-average period of approximately two years.

On May 17, 2011, in connection with the extension of the employment agreement with the chief executive officer, the Company provided a grant of 165,000 contract stock/stock units (“SUs”). As the SUs vested at the grant date, the Company recognized a charge of approximately $8.4 million upon issuance, which was included in selling, general and administrative expenses.

The Company has no formal policy related to the repurchase of shares for the purpose of satisfying stock-based compensation obligations.

The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which provides eligible employees with the opportunity to acquire shares of common stock at periodic intervals by means of accumulated payroll deductions. The ESPP is a non-compensatory plan based on its terms.

 

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8. TREASURY STOCK

On October 29, 2010, the Company’s Board of Directors authorized the Company to repurchase shares of the Company’s common stock for an aggregate purchase price not to exceed $75.0 million through December 31, 2012. Shares may be purchased either in the open market or in privately negotiated transactions. As of June 30, 2011, there remained $55.5 million available for share repurchases under this authorization. In addition to the authorization above, on June 3, 2011, the Company’s Board of Directors separately authorized the Company to repurchase shares of common stock from the proceeds of the 2016 Notes in connection with that offering. The following table sets forth the Company’s treasury stock activity:

 

     Six Months Ended
June 30,

2011
 
     $      # of Shares  
     (In thousands)  

Shares repurchased in the open market in connection with the Board approved buyback program

   $ 19,439         408   

Shares repurchased in connection with the issuance of the 2016 Notes

     37,570         805   
  

 

 

    

 

 

 

Total

   $ 57,009         1,213   
  

 

 

    

 

 

 

9. RETIREMENT BENEFIT PLANS

The Company maintains defined benefit pension plans that cover employees in its manufacturing plants located in Andover, United Kingdom (the “UK Plan”) and Tuttlingen, Germany (the “Germany Plan”). The Company closed the Tuttlingen, Germany plant in December 2005. The Company did not terminate the Germany Plan and the Company remains obligated for the accrued pension benefits related to this plan. The plans cover certain current and former employees.

Effective March 31, 2011, the Company froze the benefits due to the participants of the UK Plan in their entirety; this curtailment resulted in a $0.3 million reduction in the projected benefit obligations which the Company recorded on that date. The Company recorded the entire curtailment gain as an offset to the unrecognized net actuarial loss in accumulated other comprehensive income; therefore, this gain had no impact on the condensed consolidated statements of operations.

Net periodic benefit costs for the Company’s defined benefit pension plans included the following amounts (in thousands):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2011     2010     2011     2010  

Service cost

   $ 26      $ 26      $ 53      $ 53   

Interest cost

     169        155        334        313   

Expected return on plan assets

     (149     (119     (295     (244

Recognized net actuarial loss

     —          36        —          74   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net period benefit cost

   $ 46      $ 98      $ 92      $ 196   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company made $0.4 million and $0.5 million of contributions to its defined benefit pension plans during the six months ended June 30, 2011 and 2010, respectively.

10. Income Taxes

The following table provides a summary of the Company’s effective tax rate:

 

     Three Months Ended
June 30,
 
     2011     2010  

Reported tax rate

     65.0     28.1
     Six Months Ended
June 30,
 
     2011     2010  

Reported tax rate

     27.6     24.8

 

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The Company’s effective income tax rates for the three months ended June 30, 2011 and 2010 were 65.0% and 28.1%, respectively. Income tax expense for the three months ended June 30, 2011 included a $1.7 million correction to a deferred tax asset relating to 2009. The correction was not material to 2009 or to the expected results for the full year 2011, but represented a sizable adjustment to the tax expense recorded in the quarter. In addition, a tax law change in the State of New Jersey, effective June 30, 2011, resulted in an adjustment to certain deferred tax assets, which increased tax expense by $0.7 million. Further, the Company’s projection of full year income decreased significantly, especially in the United States because of certain costs and expenses recorded in the second quarter and the projection of similar costs and expenses for the remainder of the year. This change in estimate of the expected full year tax rate resulted in a year-to-date reduction of income tax expense recorded in the quarter. All of these items resulted in the reported effective tax rate for the three months ended June 30, 2011 to be 65.0%.

The Company’s effective income tax rates for the six months ended June 30, 2011 and 2010 were 27.6% and 24.8%, respectively. The income tax expense for the six months ended June 30, 2011 includes additional tax expense related to a $1.7 million correction to a deferred tax asset relating to 2009 that was recorded during the six-month period. This increase is partially offset because the Tax Relief, Unemployment Insurance and Job Creation Act of 2010 was passed during the fourth quarter of 2010, and had the effect of lowering the tax rate used to determine the tax provision for the second quarter of 2011 versus the rate that was in effect for the second quarter of 2010. Additionally, during the same period last year, we recorded a reversal of $2.3 million of accruals for uncertain tax positions resulting from matters which were considered effectively settled and the expiration of the statute of limitations for certain matters, which further lowered our effective tax rate for the prior-year period. Further, the Company’s projection of full year income decreased significantly, especially in the United States because of certain costs and expenses recorded in the second quarter and the projection of similar costs and expenses for the remainder of the year. This change in estimate of the expected full year tax rate resulted in a year-to-date reduction of income tax expense recorded during the six-month period.

11. NET INCOME PER SHARE

Certain of the Company’s unvested restricted share units contain rights to receive nonforfeitable dividends, and thus, are participating securities requiring the two-class method of computing earnings per share. The participating securities had an insignificant impact on the calculation of earnings per share (impacts the rounding by less than $0.01 per share) on all of the periods presented; therefore, the Company does not present the full calculation below.

Basic and diluted net income per share was as follows (in thousands, except per share amounts):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

Basic net income per share:

           

Net income

   $ 699       $ 15,157       $ 12,186       $ 30,379   

Weighted average common shares outstanding

     29,556         29,855         29,559         29,672   

Basic net income per common share

   $ 0.02       $ 0.51       $ 0.41       $ 1.02   

Diluted net income per share:

           

Net income

   $ 699       $ 15,157       $ 12,186       $ 30,379   

Weighted average common shares outstanding — Basic

     29,556         29,855         29,559         29,672   

Effect of dilutive securities:

           

Stock options and restricted stock

     622         544         595         610   
                                   

Weighted average common shares for diluted earnings per share

     30,178         30,399         30,154         30,282   

Diluted net income per common share

   $ 0.02       $ 0.50       $ 0.40       $ 1.00   

At June 30, 2011 and 2010 the Company had 1.5 million and 1.9 million of outstanding stock options, respectively. The Company also has warrants outstanding relating to its 2016 Notes and 2012 Notes. Stock options, restricted stock and warrants are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including the stock options would be anti-dilutive. For the three months ended June 30, 2011 and 2010, 0.1 million and 0.7 million anti-dilutive stock options, respectively, were excluded from the diluted earnings per share calculation. For the six months ended June 30, 2011 and 2010, 0.2 million and 0.7 million anti-dilutive stock options, respectively, were excluded from the diluted earnings per share calculation. As the strike price of the warrants exceeded the Company’s average stock price for the period, the warrants are anti-dilutive and the entire number of warrants was also excluded from the diluted earnings per share calculation.

 

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12. COMPREHENSIVE (LOSS) INCOME

Comprehensive (loss) income was as follows (in thousands):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2011     2010     2011     2010  

Net Income

   $ 699      $ 15,157      $ 12,186      $ 30,379   

Foreign currency translation adjustment

     4,934        (16,704     18,400        (27,933

Change in unrealized gain on derivatives, net of tax

     (1,361     (5     (933     (11

Pension liability adjustment, net of tax

     (77     —          185        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 4,195      $ (1,552   $ 29,838      $ 2,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

13. SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s chief operating decision maker reviews financial results and manages the business on an aggregate basis. Therefore, the Company presents financial results in a single reporting segment - the development, manufacture and distribution of medical devices.

Revenue consisted of the following (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

Orthopedics

   $ 80,579       $ 72,819       $ 152,813       $ 143,006   

Neurosurgery

     72,102         66,306         140,460         131,080   

Instruments

     40,648         39,470         81,097         77,207   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 193,329       $ 178,595       $ 374,370       $ 351,293   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company attributes revenues to geographic areas based on the location of the customer. We summarize total revenues by major geographic area below (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

United States

   $ 144,872       $ 138,760       $ 278,172       $ 268,123   

Europe

     25,209         20,076         50,296         44,228   

Asia Pacific

     11,625         9,174         22,372         18,411   

Other Foreign

     11,623         10,585         23,530         20,531   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 193,329       $ 178,595       $ 374,370       $ 351,293   
  

 

 

    

 

 

    

 

 

    

 

 

 

14. COMMITMENTS AND CONTINGENCIES

In consideration for certain technology, manufacturing, distribution and selling rights and licenses granted to the Company, the Company has agreed to pay royalties on sales of certain products that we sell. The royalty payments that the Company made under these agreements were not significant for any of the periods presented.

The Company has settled, or has pending against it, various other lawsuits, claims and proceedings. We describe the most significant of these below.

In January 2010, the Company received a notice from the seller’s representative of the former Theken companies of a disagreement in the calculation of “trade sales” used in calculating a revenue performance payment that the Company made in November 2009 related to the first performance year that ended September 30, 2009. The notice alleged that the Company owed an additional $6.7 million, and the Company recorded an accrual of $3.4 million for the settlement at that time. In January 2011, the Company received a notice from the seller’s representative that the alleged amount owed had been reduced to $5.7 million, and in June 2011 the Company and the seller agreed to settle the matter for $4.6 million. An accrual for an additional $1.2 million has been recorded at June 30, 2011 – for a total accrual of $4.6 million. There are no amounts due under the asset purchase agreement for the second performance year that ended September 30, 2010.

 

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The Company has various product liability claims pending against it for which it currently has accruals totaling $4.8 million recorded in the financial statements. The Company’s insurance policies cover these matters and the Company has recorded a corresponding receivable. Therefore, there is no impact on the Company’s consolidated statements of operations.

In addition to these matters, the Company is subject to various claims, lawsuits and proceedings in the ordinary course of its business, including claims by current or former employees, distributors and competitors and with respect to its products. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company’s financial condition. However, it is possible that these contingencies could materially affect its results of operations, financial position and cash flows in a particular period.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees expected to be incurred in connection with loss contingencies as a period cost as outside counsel incurs those fees.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 2010 included in our Annual Report on Form 10-K.

We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth above under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions in this report.

GENERAL

Integra is a world leader in medical devices and is focused on limiting uncertainty for surgeons so they can concentrate on providing the best patient care. Integra offers innovative solutions in orthopedic surgery, neurosurgery, spine surgery, and reconstructive and general surgery.

We present revenues in three market categories — Orthopedics, Neurosurgery and Instruments. Our orthopedics products include specialty metal implants for surgery of the extremities and spine, orthobiologics products for repair and grafting of bone, dermal regeneration products and tissue engineered wound dressings and nerve and tendon repair products. Our neurosurgery products group includes, among other things, grafts that are indicated for the repair of the dura mater, ultrasonic surgery systems for tissue ablation, cranial stabilization and brain retraction systems, systems for measurement of various brain parameters and devices used to gain access to the cranial cavity and to drain excess cerebrospinal fluid from the ventricles of the brain. Our instrument products include a wide range of specialty and general surgical and dental instruments and surgical lighting for sale to hospitals, surgery centers, and dental, podiatry, veterinary and physician offices.

We manage these product groups and distribution channels on a centralized basis. Accordingly, we present our financial results under a single reporting segment — the development, manufacture and distribution of medical devices.

We manufacture many of our products in plants located in the United States, France, Germany, Ireland, Mexico, Puerto Rico and the United Kingdom. We also source most of our hand-held surgical instruments through specialized third-party vendors.

In the United States, we have three sales channels. Within our Orthopedics sales channel, we sell through a large direct sales organization, and through specialty distributors focused on their respective surgical specialties. Neurosurgery sells products through directly employed sales representatives. Instruments sells through two sales channels, both directly and through distributors and wholesalers, depending on the customer call point.

We also market certain products through strategic corporate partners.

Our goal is to become a global leader in the development, manufacture and marketing of medical devices, implants and instruments by developing or acquiring innovative medical devices to sell through our sales channels. Our strategy therefore entails substantial growth in revenues through both internal means — launching new products and selling existing products more intensively — and by acquiring existing businesses or acquiring or in-licensing already successful product lines. We distinguish ourselves by emphasizing the importance of the relatively new field of regenerative medicine, which we define as surgical implants derived from our proprietary collagen matrix technology.

We aim to achieve this growth in revenues while maintaining strong financial results. While we pay attention to any meaningful trend in our financial results, we pay particular attention to measurements that are indicative of long-term profitable growth. These measurements include (1) revenue growth (derived through acquisitions and products developed internally), (2) gross margins on total revenues, (3) operating margins (which we aim to continually expand on as we leverage our existing infrastructure), (4) earnings before interest, taxes, depreciation and amortization, and (5) earnings per diluted share of common stock.

We believe that we are particularly effective in the following aspects of our business:

 

   

Developing, manufacturing and selling regenerative medicine products. We have a broad technology platform for developing products that regenerate or repair soft tissue and bone. We believe that we have a particular advantage in developing, manufacturing and selling tissue repair products derived from bovine collagen. These products constituted 24% of revenues for the six months ended June 30, 2011 and 2010, respectively.

 

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Developing metal implants for bone and joint repair, fixation and fusion. We have significant expertise in developing metal implants for use in bone and joint repair, fixation and fusion and in successfully bringing those products to market.

 

   

Acquiring and integrating new product lines and complementary businesses. Since 2008, we have acquired and integrated eight product lines or businesses through a disciplined acquisition program. We emphasize acquiring product lines at reasonable valuations which complement our existing products or can be used to gain greater advantages from our broad technology platform in tissue regeneration and metal implants. Our management is experienced at successfully integrating acquired product lines and businesses.

ACQUISITIONS

In May 2011, we acquired SeaSpine, Inc. (“SeaSpine”) for approximately $89.0 million subject to customary working capital adjustments and indemnification holdbacks totaling $8.0 million. SeaSpine, based in Vista, California, offers spinal fusion products to customers across the U.S. and in select markets in Europe. The addition of the SeaSpine business effectively doubles our distribution footprint and customer base in the U.S. spine hardware market.

RESULTS OF OPERATIONS

Executive Summary

Net income for the three months ended June 30, 2011 was $0.7 million, or $0.02 per diluted share as compared with net income of $15.2 million or $0.50 per diluted share for the three months ended June 30, 2010.

Net income for the six months ended June 30, 2011 was $12.2 million, or $0.40 per diluted share as compared with net income of $30.4 million or $1.00 per diluted share for the six months ended June 30, 2010.

For both of these periods, the decrease in net income resulted primarily from selling, general and administrative costs in connection with an incremental stock based compensation charge of $8.4 million, costs related to the implementation of our global enterprise resource planning system, and impairments of intangible assets. Additionally, during the first and second quarters of 2010, we reversed accruals of uncertain tax positions which decreased our overall tax expense for the six months ended June 30, 2010.

Our costs and expenses include the following charges (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

Acquisition-related charges

   $ 1,620       $ 640       $ 2,562       $ 1,195   

Charges related to extending our Chief Executive Officer’s employment contract

     8,379         —           8,379         —     

Certain employee termination and related charges

     812         —           846         628   

Facility consolidation, acquisition integration, manufacturing and distribution transfer charges

     271         784         2,093         1,246   

Systems implementation charges

     2,932         —           5,587         —     

Intangible asset impairment charges

     2,400         797         2,648         797   

Charges associated with discontinued or withdrawn product lines

     3,079         —           3,179         74   

Expenses related to issuance costs in connection with the revised credit agreement

     790         —           790         —     

Non-cash amortization of imputed interest for convertible debt

     1,998         1,888         3,632         3,941   

Charges related to restructuring our European entities

     116         —           378         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22,397       $ 4,109       $ 30,094       $ 7,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The items reported above are reflected in the condensed consolidated statements of operations as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

Cost of product revenues

   $ 3,516       $ 622       $ 4,854       $ 1,358   

Research and development

     —           48         300         102   

Selling, general and administrative

     15,193         754         19,370         1,683   

Intangible asset amortization

     900         797         1,148         797   

Interest expense

     2,788         1,888         4,422         3,941   
                                   

Total

   $ 22,397       $ 4,109       $ 30,094       $ 7,881   
                                   

We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period-to-period, depending upon our acquisition, integration, and restructuring activities and for certain items where the amounts are non-cash in nature. We believe that, given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, certain of the special charges discussed above could recur with similar materiality in the future. During 2010, we started investing significant resources in the global implementation of a single enterprise resource planning system. We will capitalize certain of those costs and record the balance as operating expenses.

We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry. We provide this information to investors so that they can analyze our operating results in the same way that management does and to use this information in their assessment of our core business and their valuation of Integra.

Revenues and Gross Margin on Product Revenues

Our revenues and gross margin on product revenues were as follows (in thousands):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2011     2010     2011     2010  

Orthopedics

   $ 80,579      $ 72,819      $ 152,813      $ 143,006   

Neurosurgery

     72,102        66,306        140,460        131,080   

Instruments

     40,648        39,470        81,097        77,207   
                                

Total revenue

     193,329        178,595        374,370        351,293   

Cost of product revenues

     72,838        64,464        137,759        127,688   
                                

Gross margin on total revenues

   $ 120,491      $ 114,131      $ 236,611      $ 223,605   
                                

Gross margin as a percentage of total revenues

     62.3     63.9     63.2     63.7
                                

THREE MONTHS ENDED JUNE 30, 2011 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2010

Revenues and Gross Margin

For the three months ended June 30, 2011, total revenues increased by $14.7 million, or 8%, to $193.3 million from $178.6 million for the same period during 2010. Domestic revenues increased 4% to $144.9 million, or 75% of total revenues, for the three months ended June 30, 2011 from $138.8 million, or 78% of total revenues, for the three months ended June 30, 2010. International revenues increased to $48.4 million from $39.8 million in the prior-year period, an increase of 22%, driven in part by foreign exchange fluctuations from a stronger euro versus the U.S. dollar compared to the second quarter of 2010. Foreign exchange rate fluctuations overall accounted for a $4.2 million increase in revenues during the second quarter of 2011 as compared to the same period last year.

 

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Orthopedics revenues were $80.6 million, an increase of 11% over the prior-year period. Most of the increase came from sales of spinal implants from our SeaSpine acquisition, regenerative medicine products for skin and wound repair and from sales of orthobiologics. Additionally, implants in the forefoot and peripheral nerve repair products in upper and lower extremities increased over the same quarter last year.

Neurosurgery revenues were $72.1 million, up 9% from the prior-year period. The primary sales driver was an increase in ultrasonic tissue ablation systems, neuromonitoring devices used in the critical care setting, and implants.

Revenues in the Instruments category were $40.6 million, up 3% from the prior year. Sales of instruments, surgical lighting systems, and retractors in the acute care setting have increased while instruments in our office based channel have decreased 1% compared to the same period in 2010.

Gross margin increased by $6.4 million to $120.5 million for the three-month period ended June 30, 2011, from $114.1 million for the same period last year. Gross margin as a percentage of total revenue was 62.3% compared to 63.9% in the prior year period. Included in the 2011 gross margin amount were impairments of intangible technology assets, the impact of discontinued products and a portion of the amortization of the SeaSpine inventory at acquisition value. Additionally, we had slightly higher costs of manufacturing than in the prior year period.

We expect that our gross margin for the full year 2011 will be in line with our full year 2010 gross margin. This will be achieved despite the incremental costs related to the amortization of SeaSpine inventory at acquisition value, and the aforementioned intangible asset charge. We plan to achieve this through (i) improving efficiencies in our manufacturing operations, resulting in better yields and lower costs, and to a lesser extent, (ii) increasing our sales of higher gross margin products as a proportion of total revenues, particularly those from our orthopedic lines.

Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:

 

     Three Months Ended June 30,  
     2011     2010  

Research and development

     6.6     6.6

Selling, general and administrative

     49.5     41.5

Intangible asset amortization

     2.1     2.0
  

 

 

   

 

 

 

Total operating expenses

     58.2     50.1
  

 

 

   

 

 

 

Total operating expenses, which consist of research and development expenses, selling, general and administrative expenses, and amortization expenses, increased $22.9 million, or 26%, to $112.5 million in the second quarter of 2011 compared to $89.6 million in the second quarter of 2010.

Research and development expenses in the second quarter of 2011 increased by $0.9 million to $12.7 million compared to $11.8 million in the same period last year. This increase resulted primarily from headcount increases as we concentrate on product development efforts for our spine, neurosurgery and extremity reconstruction product lines.

Selling, general and administrative expenses in the second quarter of 2011 increased by $21.5 million to $95.7 million compared to $74.2 million in the same period last year. Selling expenses increased by $4.2 million primarily due to commission costs and increases in the sales organization in the United States and Europe. General and administrative costs increased $17.3 million primarily due to an incremental stock based compensation charge of $8.4 million related to the renewal of our chief executive officer’s employment agreement, charges related to the implementation of our global enterprise resource planning system of $2.9 million, costs related to our acquisitions of $1.1 million and to a lesser extent headcount, compensation and benefit costs. We will continue to expand our direct sales organizations in our direct selling platforms where business opportunities are most attractive, including extremity reconstruction, and increase corporate staff to support our information systems infrastructure to facilitate future growth. We continue to expect that selling, general and administrative spending will be between 40% and 42% of revenues.

Amortization expense in the second quarter of 2011 was $4.0 million compared to $3.6 million in the same period last year. This increase is related primarily to tradename impairments of $0.9 million in connection with our re-branding strategy, which were partially offset by the completion of the amortization period for certain intangible assets. The Company has also identified several tradenames that it will phase out through the end of 2012; therefore, their useful lives will be shortened which will result in additional amortization expense of $1.6 million in the second half of 2011 and $2.7 million for the full year 2012. As our re-branding strategy continues to evolve, we may make further decisions about our trade names and incur additional impairment charges or accelerated amortization.

 

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Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses (in thousands):

 

     Three Months Ended June 30,  
     2011     2010  

Interest income

   $ 127      $ 52   

Interest expense

   $ (6,722   $ (4,300

Other income (expense)

   $ 593      $ 763   

Interest Income

Interest income increased in the three months ended June 30, 2011 compared to the same period last year, primarily as a result of higher overall cash balances.

Interest Expense

Interest expense in the three months ended June 30, 2011 increased primarily because of additional borrowings during the period on our senior credit facility and the impact of the interest rate swap which increased our interest expense by $0.6 million. Additionally, the three-month period ended June 30, 2011 includes approximately $0.8 million of debt issuance costs that were immediately expensed upon the refinancing of our senior credit facility. Our reported interest expense for the three-month periods ended June 30, 2011 and 2010 includes non-cash interest related to the accounting for convertible securities of $2.0 million and $2.1 million, respectively.

Other Income

Other income for the second quarter of 2011 of $0.6 million consists primarily of income from credits for research and development activities performed in foreign jurisdictions partially offset by foreign exchange losses on intercompany balances. Other income for the second quarter of 2010 of $0.8 million consists primarily of foreign exchange gains on intercompany balances.

Income Taxes

 

     Three Months Ended June 30,  
     2011     2010  
     (In thousands)  

Income before income taxes

   $ 1,998      $ 21,094   

Income tax expense

   $ 1,299      $ 5,937   

Effective tax rate

     65.0     28.1

Our effective income tax rates for the three months ended June 30, 2011 and 2010 were 65.0% and 28.1%, respectively. Income tax expense for the three months ended June 30, 2011 included a $1.7 million correction to a deferred tax asset relating to 2009. The correction was not material to 2009 or to the expected results for the full year 2011, but represented a sizable adjustment to the tax expense recorded in the quarter. In addition, a tax law change in the State of New Jersey, effective June 30, 2011, resulted in an adjustment to certain deferred tax assets, which increased tax expense by $0.7 million. Further, our projection of full year income decreased significantly, especially in the United States because of certain costs and expenses recorded in the second quarter and the projection of similar costs and expenses for the remainder of the year. This change in estimate of the expected full year tax rate resulted in a year-to-date reduction of income tax expense recorded in the quarter. All of these items resulted in the reported effective tax rate for the three months ended June 30, 2011 to be 65.0%.

Our effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses. We consider these factors and others, including our history of generating taxable earnings, in assessing our ability to realize deferred tax assets. We expect our effective income tax rate for the full year to be approximately 10%.

SIX MONTHS ENDED JUNE 30, 2011 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2010

Revenues and Gross Margin

For the six-month period ended June 30, 2011, total revenues increased by $23.1 million or 7%, to $374.4 million from $351.3 million during the prior-year period. Domestic revenues increased by 4% to $278.2 million and were 74% and 76% of total revenues for the six months ended June 30, 2011 and 2010, respectively. International revenues increased $13.0 million to $96.2 million, an increase of 16% compared to the same period in 2010. Foreign exchange fluctuations accounted for a $5.0 million increase in revenues for the six month period ended June 30, 2011.

Orthopedics revenues were $152.8 million, an increase of 7% over the prior year period. Spine and orthobiologics products led the growth in this category primarily as a result of our SeaSpine acquisition. Other increases came from sales of engineered collagen products for skin and wound repair and as a result of extremities reconstruction products implants for the forefoot.

Neurosurgery revenues were $140.5 million, an increase of 7% over the prior year period. As was the case in the second quarter, the primary sales driver for the year-to-date period was an increase in ultrasonic tissue ablation systems, neuromonitoring devices used in the critical care setting, and duraplasty products.

 

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Instruments revenues were $81.1 million, an increase of 5% over the prior year period. Sales of surgical lighting systems and handheld instruments in the office based channel primarily drove the growth in this category.

Gross margin increased by $13.0 million to $236.6 million for the six-month period ended June 30, 2011, from $223.6 million for the same period last year. Gross margin as a percentage of total revenue was 63.2% for the first two quarters of 2011, compared to 63.7% for this same period during 2010. This decrease resulted from impairments of intangible technology assets, amortization of the SeaSpine inventory at acquisition value, and product discontinuance costs.

Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:

 

     Six Months Ended June 30,  
     2011     2010  

Research and development

     6.6     6.6

Selling, general and administrative

     47.0     41.7

Intangible asset amortization

     1.9     1.9
                

Total operating expenses

     55.5     50.2
                

Total operating expenses, which consist of research and development expenses, selling, general and administrative expenses and amortization expenses, increased $31.3 million, or 18%, to $207.7 million in the first half of 2011, compared to $176.4 million in the same period last year.

Research and development expenses in the first half of 2011 increased by $1.8 million to $24.9 million compared to $23.1 million in the same period last year. This increase resulted primarily from headcount increases as we concentrate on product development efforts for our spine, neurosurgery and extremity reconstruction product lines.

Selling, general and administrative expenses in the first half of 2011 increased by $29.1 million to $175.8 million compared to $146.7 million in the same period last year. Selling expenses increased by $6.7 million primarily because of an increase in revenues and the corresponding commission costs. General and administrative costs increased $22.3 million due to an incremental stock based compensation charge of $8.4 million related to the renewal of our chief executive officer’s employment agreement, charges related to the implementation of our global enterprise resource planning system of $5.6 million, acquisition related costs of $1.4 million, severance costs, and to a lesser extent, increases in compensation costs brought on by increased headcount and bonus accruals.

Amortization expense in the first six months of 2011 increased by $0.5 million to $7.1 million compared to $6.6 million in the same period last year. The increase was primarily related to the impairment of tradenames totaling $1.1 million, partially offset by the completion of the amortization period for certain intangible assets. Additionally, the Company has identified several tradenames that it will phase out through the end of 2012; therefore, their useful lives have been shortened. Accordingly, this change in useful life will result in incremental amortization expense of $1.6 million in the second half of 2011 and $2.7 million in the full year of 2012. As our re-branding strategy continues to evolve, we may make further decisions about our trade names and incur additional impairment charges or accelerated amortization.

Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses (in thousands):

 

     Six Months Ended June 30,  
     2011     2010  

Interest income

   $ 200      $ 113   

Interest expense

     (12,191     (8,841

Other income (expense)

     (50 )     1,909   

Interest Income

Interest income increased in the six-month period ended June 30, 2011, compared to the same period last year, primarily due to higher average cash balances.

 

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Interest Expense

Interest expense increased in the six-month period ended June 30, 2011, compared to the same period last year, primarily because of increased average borrowings under our Senior Credit Facility during the period. Additionally, the impact of our interest rate swap resulted in additional interest expense of $1.1 million during the period. Furthermore, the six-month period ended June 30, 2011 includes approximately $0.8 million of debt issuance costs that were immediately expensed upon the refinancing of our Senior Credit Facility. Our reported interest expense for the six-month periods ended June 30, 2011 and 2010 includes non-cash interest related to the accounting for convertible securities of $3.7 million and $4.3 million, respectively.

Other Income (Expense)

Other income (expense) in the six months ended June 30, 2011 consisted of research and development reimbursements from foreign governments, which was almost entirely offset by foreign exchange losses. Other income (expense) in the six months ended June 30, 2010 consisted primarily as a result of foreign exchange gains of $1.9 million

Income Taxes

 

     Six Months Ended June 30,  
     2011     2010  
     (In thousands)  

Income before income taxes

   $ 16,831      $ 40,403   

Income tax expense

   $ 4,645      $ 10,024   

Effective tax rate

     27.6     24.8

Our effective income tax rates for the six months ended June 30, 2011 and 2010 were 27.6% and 24.8%, respectively. The income tax expense for the six months ended June 30, 2011 reflects additional tax expense related to a $1.7 million collection to a deferred tax asset relating to 2009 that was recorded during the six-month period. The increase in rate was tempered by the fact that during the fourth quarter of 2010, the Tax Relief, Unemployment Insurance and Job Creation Act of 2010 was passed, which lowered the tax rate used to determine the tax provision for the first six months of 2011 versus the rate that was in effect for the first six months of 2010. Additionally, during the six months ended June 30, 2010, we recorded a reversal of $2.3 million of accruals for uncertain tax positions due to matters that were considered effectively settled and the expiration of the statute of limitations for certain matters, which further reduced the 2010 effective rate below the 2011 effective rate. Further, our projection of full year income decreased significantly, especially in the United States because of certain costs and expenses recorded in the second quarter and the projection of similar costs and expenses for the remainder of the year. This change in estimate of the expected full year tax rate resulted in a year-to-date reduction of income tax expense recorded, during the six-month period.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS

Product revenues by major geographic area are summarized below (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2011      2010      2011      2010  

United States

   $ 144,872       $ 138,760       $ 278,172       $ 268,123   

Europe

     25,209         20,076         50,296         44,228   

Asia Pacific

     11,625         9,174         22,372         18,411   

Other Foreign

     11,623         10,585         23,530         20,531   
                                   

Total Revenues

   $ 193,329       $ 178,595       $ 374,370       $ 351,293   
                                   

Most of our revenues are from customers within the United States. Sales to U.S. customers were up approximately 4% for the three month period ended June 30, 2011 due to the strength of our orthopedics category. Over the past several quarters, revenues from our European customers have been affected by the austerity measures put in place by various European governments which has impacted their healthcare spending levels. Despite these austerity measures, during the second quarter we had an increase in European sales of approximately 26% which was driven largely by changes in foreign exchange rates and growth in neurosurgery and orthopedics products. Sales to customers in the Asia Pacific region increased approximately 27% for the three month period ended June 30, 2011 largely due to neurosurgery sales, while sales in orthopedics, and instruments grew modestly. Sales to our other foreign customers, particularly in Canada and Latin American countries, increased approximately 10% for the three month period ended June 30, 2011; this increase was focused in instruments and orthopedics.

Sales to U.S. customers were also up approximately 4% for the six month period ended June 30, 2011 due to the strength of our orthopedics business, while instruments and neurosurgery product sales grew modestly. We had an increase in European sales of approximately 14% for the six month period ended June 30, 2011 due in part to foreign exchange fluctuations, which had an impact on our neurosurgery products, and to a lesser extent, orthopedics and instruments. Sales to customers in the Asia Pacific region increased approximately 22% for the six month period ended June 30, 2011 largely due to neurosurgery sales while orthopedics and instruments revenues grew modestly. Sales to our other foreign customers, particularly in Canada and Latin American countries, increased approximately 15% for the six month period ended June 30, 2011 primarily in instruments.

 

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We generate significant revenues outside the United States, a portion of which are U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar and the currencies in which those customers do business could have an impact on the demand for our products in foreign countries.

Local economic conditions, regulatory or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the United States.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Marketable Securities

We had cash and cash equivalents totaling approximately $137.3 million and $128.8 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011, our non-U.S. subsidiaries held approximately $88.5 million of cash and cash equivalents that are available for use by all of our operations outside of the United States. If these funds were repatriated to the United States, or used for United States operations, certain amounts could be subject to tax in the United States for the incremental amount in excess of the foreign tax paid.

Cash Flows

 

     Six Months Ended June 30,  
     2011     2010  
     (In thousands)  

Net cash provided by operating activities

   $ 45,838      $ 47,495   

Net cash used in investing activities

     (93,937     (14,112

Net cash provided by (used in) financing activities

     50,867        (3,244

Effect of exchange rate fluctuations on cash

     5,748        (8,412
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 8,516      $ 21,727   
  

 

 

   

 

 

 

Cash Flows Provided by Operating Activities

We generated operating cash flows of $45.8 million and $47.5 million for the six months ended June 30, 2011 and 2010, respectively. Operating cash flows were lower than the same period in 2010 largely because of the decreased net income for the period, partially offset by an increase in stock based compensation charges. Net income for the six months ended June 30, 2011, plus items included in those earnings that did not result in a change to our cash balance, amounted to approximately $52.0 million. Changes in working capital reduced cash flows by approximately $5.7 million. Among the changes in working capital, accounts receivable used $0.7 million of cash, inventory used $9.6 million of cash, and deferred revenue used $1.1 million of cash; however, prepaid expenses and other current assets provided $1.2 million, and accounts payable, accrued expenses and other current liabilities provided $4.4 million of cash.

Net income for the six months ended June 30, 2010, plus items included in those earnings that did not result in a change to our cash balance, amounted to approximately $58.1 million. Additionally, we paid $6.6 million in accreted interest related to repurchase of our convertible notes. Changes in working capital reduced cash flows by $3.6 million. Among the changes in working capital, accounts receivable contributed $2.7 million and accounts payable and accrued expenses contributed another $6.0 million, while inventories used $7.8 million and prepaid expenses used $3.9 million.

Cash Flows Used in Investing Activities

During the six months ended June 30, 2011, we paid $80.8 million ($81.0 million net of $0.2 million of cash acquired) related to our acquisition of SeaSpine, Inc. and incurred $13.1 million in capital expenditures related primarily to expanding our regenerative medicine manufacturing capacity. During the six months ended June 30, 2010, we paid $11.7 million in cash for capital expenditures and $2.4 million for business acquisitions.

 

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Cash Flows Used in Financing Activities

Our principal sources of cash from financing activities relates to $230.0 million in borrowings under the 2016 Notes issued in June 2011, proceeds from the related warrant sale of $28.5 million, and $85.0 million in additional borrowings under our Senior Credit Facility. These amounts were offset by $188.8 million in repayments under our Senior Credit Facility, $42.9 million for the call option on our 2016 Notes, debt issuance costs of $8.0 million, treasury stock purchases of $57.0 million and proceeds from stock option exercises and the tax impact of stock based compensation of $4.1 million.

Our principal uses of cash for financing activities in the six months ended June 30, 2010 were from the repayment of the liability component of our 2010 Notes of $71.4 million, and proceeds from net borrowings under our senior credit facility of $60.0 million. Additionally, we generated proceeds from stock option exercises and the tax impact of stock-based compensation of $8.1 million in 2010.

Working Capital

At June 30, 2011 and December 31, 2010, working capital was $377.8 million and $243.0 million, respectively. The increase in working capital is primarily related to financing the purchase of SeaSpine with long term borrowings under our Senior Credit Facility and additional cash generated during the period.

Amended and Restated Senior Credit Agreement

During 2010, we entered into an amended and restated credit agreement with a syndicate of lending banks (the “Senior Credit Facility”) and further amended the Senior Credit Facility in June 2011. The June 2011 amendment increased the revolving credit component from $450.0 million to $600.0 million by reallocating and eliminating the $150.0 million term loan component that existed under the original amended and restated credit agreement, allows us to further increase the size of the revolving credit component by an aggregate of $200.0 million with additional commitments, provides us with decreased borrowing rates and annual commitment fees, and provides more favorable financial covenants. The Senior Credit Facility’s maturity was extended from August 10, 2015 to June 8, 2016 and is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. The Senior Credit Facility is subject to various financial and negative covenants.

Borrowings under the Senior Credit Facility currently bear interest, at the Company’s option, at a rate equal to (i) the Eurodollar Rate (as defined in the Senior Credit Facility, which definition has not changed) in effect from time to time plus the applicable rate (ranging from 1.00% to 1.75%) or (ii) the highest of (x) the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.5%, (y) the prime lending rate of Bank of America, N.A. or (z) the one-month Eurodollar Rate plus 1.0%. The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness less cash in excess of $40 million that is not subject to any restriction of the use or investment thereof to (b) consolidated EBITDA) at the time of the applicable borrowing.

The Company will also pay an annual commitment fee (ranging from 0.15% to 0.3%, based on the Company’s consolidated total leverage ratio) on the daily amount by which the revolving credit facility exceeds the outstanding loans and letters of credit under the credit facility.

We plan to utilize the Senior Credit Facility for working capital, capital expenditures, share repurchases, acquisitions, debt repayments and other general corporate purposes. At June 30, 2011 and December 31, 2010, there was $144.4 million and $100.0 million outstanding, respectively, under the revolving credit component of the Senior Credit Facility at a weighted average interest rate of 1.5% and 2.5%, respectively. The Company considers the balance to be long-term in nature based on its current intent and ability to repay the borrowing outside of the next twelve-month period. At June 30, 2011, there was approximately $455.6 million available for borrowing under the Senior Credit Facility.

Convertible Debt and Related Hedging Activities

We pay interest each June 1 and December 1 on our $165.0 million senior convertible notes due June 2012 (“2012 Notes”) at an annual rate of 2.375%, and on our $230.0 million senior convertible notes due December 2016 (“2016 Notes”) at an annual interest rate of 1.625% (collectively, “the Notes”). The 2012 Notes and 2016 Notes are senior, unsecured obligations of Integra, and are convertible into cash and, if applicable, shares of our common stock based on an initial conversion rate, subject to adjustment, of 15.3935 shares and 17.4092 shares, respectively, per $1,000 principal amount of notes (which represents an initial conversion price of approximately $64.96 per share and $57.44 per share, respectively). We expect to satisfy any conversion of the Notes with cash up to the principal amount pursuant to the net share settlement mechanism set forth in the respective indenture and, with respect to any excess conversion value, with shares of our common stock. The 2012 Notes and 2016 Notes are convertible only in the following circumstances: (1) if the closing sale price of our common stock exceeds 130% and 150%, respectively, of the conversion price during a period as defined in the applicable indenture; (2) if the average trading price per $1,000 principal amount of the Notes is less than or equal to 97% or 98%, respectively, of the average conversion value of the Notes during a period as defined in the applicable indenture; (3) at any time on or after December 15, 2011, or June 15, 2016, respectively; or (4) if specified corporate transactions occur. The issue price of the Notes was equal to their face amounts, which is also the amount holders are entitled to receive at maturity if the Notes are not converted. None of these conditions existed with respect to the Notes; therefore the 2016 Notes are classified as long-term. The 2012 Notes are classified as long-term based on the Company’s intent and ability to settle the obligation with long-term borrowings from its Senior Credit Facility.

 

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The Notes, under the terms of the applicable private placement agreement, are guaranteed fully by Integra LifeSciences Corporation, a subsidiary of Integra. The Notes are Integra’s direct senior unsecured obligations and will rank equal in right of payment to all of our existing and future unsecured and unsubordinated indebtedness.

In connection with the issuance of the Notes, we entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the Notes (the “hedge participants”). The cost of the call transactions to us was approximately $30.4 million for the 2012 Notes and $42.9 million for the 2016 Notes. We received approximately $12.2 million and $28.5 million of proceeds from the warrant transactions for the 2012 Notes and 2016 Notes, respectively. The call transactions involved our purchasing call options from the hedge participants, and the warrant transactions involved us selling call options to the hedge participants with a higher strike price than the purchased call options. The initial strike price of the call transactions is approximately $64.96 for the 2012 Notes and $57.44 for the 2016 Notes, subject to anti-dilution adjustments substantially similar to those in the Notes. The initial strike price of the warrant transactions is approximately $90.95 for the 2012 Notes and $70.05 for the 2016 Notes, in each case subject to customary anti-dilution adjustments.

We may from time to time seek to retire or purchase a portion of our outstanding Notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Under certain circumstances, the call options associated with any repurchased Notes may terminate early, but only with respect to the number of Notes that cease to be outstanding. The amounts involved may be material.

Share Repurchase Plan

On October 29, 2010, our Board of Directors authorized us to repurchase shares of our common stock for an aggregate purchase price not to exceed $75.0 million through December 31, 2012. Shares may be purchased either in the open market or in privately negotiated transactions. Under this program during the first six months of 2011, we repurchased approximately 0.4 million shares at a cost of $19.5 million; $55.5 million remains available under the authorization.

In addition to the authorization above, on June 3, 2011 the Company’s Board of Directors separately authorized the Company to repurchase shares of common stock from the proceeds of the 2016 Notes in connection with that debt offering. The Company repurchased 0.8 million shares for an aggregate purchase price of $37.6 million under that authorization during the second quarter of 2011.

Dividend Policy

We have not paid any cash dividends on our common stock since our formation. Our credit facility limits the amount of dividends that we may pay. Any future determinations to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board of Directors.

Capital Resources

We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures, and potential acquisition-related payments in the near term based on our current plans. The Company considers all such outstanding amounts to be long-term in nature based on its current intent and ability to repay the borrowings outside of the next twelve month period.

Contractual Obligations and Commitments

As of June 30, 2011, we were obligated to pay the following amounts under various agreements:

 

     Total      Less than
1 Year
     1-3
Years
     3-5
Years
     More than
5 Years
 
     (In millions)  

Convertible Securities(1)

   $ 395.0       $ 165.0       $ —         $ —         $ 230.0   

Revolving Credit Facility(2)

     145.0         —           —           145.0         —     

Interest(3)

     26.4         7.8         7.4         7.4         3.8   

Employment Agreements(4)

     3.6         1.9         1.7         —           —     

Operating Leases

     46.7         10.0         16.3         11.2         9.2   

Acquisition consideration(5)

     13.7         8.7         5.0         —           —     

Purchase Obligations

     13.1         12.3         0.8         —           —     

Other

     7.3         1.5         1.1         1.2         3.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 650.8       $ 207.2       $ 32.3       $ 164.8       $ 246.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1) The estimated debt service obligation of the senior convertible securities includes interest expense representing the amortization of the discount on the liability component of the senior convertible notes in accordance with the authoritative guidance. We have the ability and intent to settle the $165.0 million 2012 Notes that are due within one year with long-term borrowing under our Senior Credit Faclity, and have therefore classified these borrowings as long-term in our June 30, 2011 condensed consolidated balance sheet. See Note 5, “Debt,” of our consolidated financial statements for additional information.
(2) The Company may borrow and make payments against the credit facility from time to time and considers all of the outstanding amounts to be long-term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.
(3) Interest is calculated on the convertible securities based on current interest rates paid by the Company. As the revolving credit facility can be repaid at any time, no interest has been included in the calculation.
(4) Amounts shown under Employment Agreements do not include compensation resulting from a change in control.
(5) The acquisition consideration is comprised of amounts that may be due to the sellers of SeaSpine, Inc. upon the finalization of the working capital adjustment and indemnification holdback releases, the settlement of the Theken earnout dispute, and the earnout for Integra Neurosciences Pty Ltd.

Excluded from the contractual obligations table is the liability for uncertain tax benefits, including interest and penalties, totaling $7.4 million. This liability for uncertain tax benefits has been excluded because we cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

OTHER MATTERS

Critical Accounting Estimates

The critical accounting estimates included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 have not materially changed.

Recently Issued Accounting Standards

On June 16, 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income ; this standard eliminates the option to report other comprehensive income and its components in the statement of changes in equity. We can elect to present items of net income and other comprehensive income in one continuous statement, or in two consecutive statements. Each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts – net income and other comprehensive income – would need to be displayed under either alternative, and the statements would need to be presented with equal prominence as the other primary financial statements. This standard does not change: 1) the items that constitute net income and other comprehensive income, 2) when an item of other comprehensive income must be reclassified to net income, or 3) the computation for earnings-per-share - which will continue to be based on net income. This standard is effective for fiscal years beginning after December 15, 2011, and we have not yet determined which method we will elect upon adoption.

On May 12, 2011 the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-04 - Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This standard merges many aspects of fair value measurement guidance by amending U.S. GAAP and creating a new standard under International Financial Reporting Standards. The primary changes to U.S. GAAP include: 1) clarifying the valuation premise of highest and best use, 2) clarifying how portfolios of financial instruments are measured, 3) clarifying the use of blockage factors and other premiums and discounts, and 4) increasing the disclosure requirements in a number of circumstances. This standard is effective for fiscal years beginning after December 15, 2011, and we believe the standard will not have a material impact on our results.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes.

Foreign Currency Exchange and Other Rate Risks

We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in euros, Swiss francs, British pounds, Canadian dollars, and Australian dollars. We manage the foreign currency exposure centrally, on a combined basis, which allows us to net exposures and to take advantage of any natural offsets. To mitigate the impact of currency fluctuations on transactions denominated in nonfunctional currencies, we periodically enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. We temporarily record realized and unrealized gains and losses on these contracts that qualify as cash flow hedges in other comprehensive income, and then recognize them in other income or expense when the hedged item affects net earnings.

From time to time, we enter into foreign currency forward exchange contracts with terms of up to 12 months to manage currency exposures for transactions denominated in a currency other than an entity’s functional currency. As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. There were no foreign currency forward contracts outstanding at June 30, 2011.

We maintain written policies and procedures governing our risk management activities. With respect to cash flow hedges, changes in cash flows attributable to hedged transactions are generally expected to be completely offset by changes in the fair value of hedge instruments. Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged.

Interest Rate Risk

Cash and Cash Equivalents - We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents. A hypothetical 100 basis point movement in interest rates applicable to our cash and cash equivalents outstanding at June 30, 2011 would increase interest income by approximately $1.4 million on an annual basis. No significant decrease in interest income would be expected as our cash balances are earning interest at rates close to zero. We are subject to foreign currency exchange risk with respect to cash balances maintained in foreign currencies.

Senior Credit Facility - Our interest rate risk relates primarily to U.S. dollar LIBOR-indexed borrowings. We have used an interest rate derivative instrument to manage our earnings and cash flow exposure to changes in interest rates by utilizing a forward-starting interest rate swap that began to offset a portion of our interest payments in the first quarter of 2011. This interest rate derivative instrument fixed the interest rate on a portion of our expected LIBOR-indexed floating-rate borrowings beginning on December 31, 2010. The interest rate swap had a notional amount of $144.4 million outstanding as of June 30, 2011. We recognized $1.1 million of additional interest expense related to this derivative during the first half of 2011. The fair value of our interest rate derivative instrument was a net liability of $1.9 million at June 30, 2011.

Based on our outstanding borrowings at June 30, 2011, our variable rate debt is fully hedged and would not be impacted by a change in interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has designed our disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

As required by Exchange Act Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2011 to provide such reasonable assurance.

 

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Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various lawsuits, claims and proceedings are pending or have been settled by us. The most significant items are described below.

In January 2010, we received a notice from the seller’s representative of the former Theken companies of a disagreement in the calculation of “trade sales” used in calculating a revenue performance payment that we made in November 2009 related to the first performance year that ended September 30, 2009. The notice alleged that we owed an additional $6.7 million. In January 2011, the Company received a notice from the seller’s representative that the alleged amount owed had been reduced to $5.7 million, and in June 2011 the Company and the seller agreed to settle the matter for $4.6 million; accordingly, this amount has been accrued at June 30, 2011. There are no amounts due under the asset purchase agreement for the second performance year that ended September 30, 2010.

We have various product liability claims pending against us for which we currently has accruals totaling $4.8 million recorded in the financial statements. Our insurance policies cover these matters and we have recorded a corresponding receivable. Therefore, there is no impact on our consolidated statements of operations.

In addition to these matters, we are subject to various claims, lawsuits and proceedings in the ordinary course of our business, including claims by current or former employees, distributors and competitors and with respect to our products. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on our financial condition. However, it is possible that our results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

ITEM 1A. RISK FACTORS

The Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 have not materially changed other than the modifications to the risk factors as set forth below.

Our operating results may fluctuate.

Our operating results, including components of operating results such as gross margin and cost of product sales, may fluctuate from time to time, and such fluctuations could affect our stock price. Our operating results have fluctuated in the past and can be expected to fluctuate from time to time in the future. Some of the factors that may cause these fluctuations include:

 

   

current economic conditions, which could affect the ability of hospitals and other customers to purchase our products and could result in a reduction in elective and non-reimbursed operative procedures;

 

   

the impact of acquisitions;

 

   

the impact of our restructuring activities;

 

   

the timing of significant customer orders, which tend to increase in the fourth quarter to coincide with the end of budget cycles for many hospitals;

 

   

market acceptance of our existing products, as well as products in development;

 

   

the timing of regulatory approvals;

 

   

changes in the rates of exchange between the U.S. dollar and other currencies of foreign countries in which we do business, such as the euro and the British pound;

 

   

expenses incurred and business lost in connection with product field corrections or recalls;

 

   

changes in the cost or decreases in the supply of raw materials, including energy and steel;

 

   

our ability to manufacture our products efficiently;

 

   

the timing of our research and development expenditures;

 

   

reimbursement for our products by third-party payors such as Medicare, Medicaid and private health insurers;

 

   

inspections of our manufacturing facilities for compliance with Quality System Regulations (Good Manufacturing Practices) which could result in Form 483 observations, warning letters, injunctions or other adverse findings from the FDA or from equivalent regulatory bodies;

 

   

the FDA’s reform to the 510(k) Premarket Notification process which could make it more difficult to obtain clearance of our medical devices and could result in the requirement of clinical trial data in order to obtain FDA clearance; and

 

   

the increased regulatory scrutiny of certain of our products, including products which we manufacture for others, could result in their being removed from the market.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In October 2010, our Board of Directors adopted a new program that authorizes us to repurchase shares of our common stock for an aggregate purchase price not to exceed $75.0 million through December 31, 2012. Shares may be repurchased either in the open market or in privately negotiated transactions.

There were purchases of approximately 0.4 million shares of our common stock totaling $19.5 million during the six months ended June 30, 2011 under this program.

In addition to the authorization above, on June 3, 2011 the Company’s Board of Directors separately authorized the Company to repurchase shares of common stock from the proceeds of the 2016 Notes in connection with that debt offering. The Company repurchased 0.8 million shares for an aggregate purchase price of $37.6 million under that authorization during the second quarter of 2011.

ITEM 6. EXHIBITS

 

        4.1

   Purchase Agreement, dated June 9, 2011, by and between Integra LifeSciences Holdings Corporation and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc., RBC Capital Markets, LLC and Wells Fargo Securities, LLC (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on June 15, 2011)

        4.2

   Indenture, dated June 15, 2011, by and between Integra LifeSciences Holdings Corporation and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on June 15, 2011)

 

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      *4.3

   Second Amended and Restated Credit Agreement, dated as of June 8, 2011, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, JPMorgan Chase Bank N.A. as Syndication Agent, and, HSBC Bank USA, NA, Royal Bank of Canada, Wells Fargo Bank, N.A., Fifth Third Bank, DNB NOR Bank ASA, and TD Bank, N.A., as Co-Documentation Agents

      10.1

   Letter Agreement dated May 17, 2011 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 23, 2011)

      10.2

   Contract Stock/Units Agreement dated as of May 17, 2011 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 23, 2011)

    *10.3

   New Form of Contract Stock / Restricted Units Agreement (for 2011 Annual Equity Award for Stuart M. Essig)

    *10.4

   Form of Amendment 2011-1 to Contract Stock / Restricted Units Agreements between the Company and Mr. Essig

    *10.5

   Amendment 2011-1, dated as of May 17, 2011, to the Stuart M. Essig Contract Stock / Units Agreement dated as of August 6, 2008

    *10.6

   Amendment 2011-1, dated as of May 17, 2011, to the Stuart M. Essig Contract Stock / Restricted Units Agreement dated as of July 27, 2004

      10.7

   Letter Agreement, dated June 9, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 15, 2011)

      10.8

   Letter Agreement, dated June 9, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 15, 2011)

      10.9

   Letter Agreement, dated June 9, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on June 15, 2011)

      10.10

   Letter Agreement, dated June 9, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 15, 2011)

      10.11

   Letter Agreement, dated June 9, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on June 15, 2011)

      10.12

   Letter Agreement, dated June 9, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed on June 15, 2011)

      10.13

   Letter Agreement, dated June 9, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed on June 15, 2011)

      10.14

   Letter Agreement, dated June 9, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K filed on June 15, 2011)

      10.15

   Letter Agreement, dated June 14, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K filed on June 15, 2011)

 

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      10.16

   Letter Agreement, dated June 14, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.10 to the Company’s Form 8-K filed on June 15, 2011)

      10.17

   Letter Agreement, dated June 14, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.11 to the Company’s Form 8-K filed on June 15, 2011)

      10.18

   Letter Agreement, dated June 14, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K filed on June 15, 2011)

      10.19

   Letter Agreement, dated June 14, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K filed on June 15, 2011)

      10.20

   Letter Agreement, dated June 14, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.14 to the Company’s Form 8-K filed on June 15, 2011)

      10.21

   Letter Agreement, dated June 14, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.15 to the Company’s Form 8-K filed on June 15, 2011)

      10.22

   Letter Agreement, dated June 14, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K filed on June 15, 2011)

    *31.1

   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    *31.2

   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    *32.1

   Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

    *32.2

   Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*†101.INS

   XBRL Instance Document

*†101.SCH

   XBRL Taxonomy Extension Schema Document

*†101.CAL

   XBRL Taxonomy Extension Calculation Linkbase Document

*†101.DEF

   XBRL Definition Linkbase Document

*†101.LAB

   XBRL Taxonomy Extension Labels Linkbase Document

*†101.PRE

   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith
The financial information of Integra LifeSciences Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed on July 29, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, is furnished electronically herewith.

 

31


Table of Contents

SIGNATURES

Pursuant 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 thereunto duly authorized.

 

  INTEGRA LIFESCIENCES HOLDINGS CORPORATION
Date: July 29, 2011  

/s/ Stuart M. Essig

  Stuart M. Essig
  Chief Executive Officer
Date: July 29, 2011  

/s/ John B. Henneman, III

  John B. Henneman, III
 

Executive Vice President, Finance and Administration,

and Chief Financial Officer

 

32


Table of Contents

Exhibits

 

        4.1

   Purchase Agreement, dated June 9, 2011, by and between Integra LifeSciences Holdings Corporation and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc., RBC Capital Markets, LLC and Wells Fargo Securities, LLC (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on June 15, 2011)

        4.2

   Indenture, dated June 15, 2011, by and between Integra LifeSciences Holdings Corporation and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on June 15, 2011)

      *4.3

   Second Amended and Restated Credit Agreement, dated as of June 8, 2011, among Integra LifeSciences Holdings Corporation, the lenders party thereto, Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, JPMorgan Chase Bank N.A. as Syndication Agent, and, HSBC Bank USA, NA, Royal Bank of Canada, Wells Fargo Bank, N.A., Fifth Third Bank, DNB NOR Bank ASA, and TD Bank, N.A., as Co-Documentation Agents

      10.1

   Letter Agreement dated May 17, 2011 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 23, 2011)

      10.2

   Contract Stock/Units Agreement dated as of May 17, 2011 between the Company and Stuart M. Essig (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 23, 2011)

    *10.3

   New Form of Contract Stock / Restricted Units Agreement (for 2011 Annual Equity Award for Stuart M. Essig)

    *10.4

   Form of Amendment 2011-1 to Contract Stock / Restricted Units Agreements between the Company and Mr. Essig

    *10.5

  

Amendment 2011-1, dated as of May 17, 2011, to the Stuart M. Essig Contract Stock / Units Agreement dated as of August 6, 2008

    *10.6

   Amendment 2011-1, dated as of May 17, 2011, to the Stuart M. Essig Contract Stock / Restricted Units Agreement dated as of July 27, 2004

      10.7

   Letter Agreement, dated June 9, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 15, 2011)

      10.8

   Letter Agreement, dated June 9, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 15, 2011)

      10.9

   Letter Agreement, dated June 9, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on June 15, 2011)

      10.10

   Letter Agreement, dated June 9, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Base Call Option Transaction (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 15, 2011)

      10.11

   Letter Agreement, dated June 9, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on June 15, 2011)

 

33


Table of Contents

      10.12

   Letter Agreement, dated June 9, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed on June 15, 2011)

      10.13

   Letter Agreement, dated June 9, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed on June 15, 2011)

      10.14

   Letter Agreement, dated June 9, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Base Warrant Transaction (Incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K filed on June 15, 2011)

      10.15

   Letter Agreement, dated June 14, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K filed on June 15, 2011)

      10.16

   Letter Agreement, dated June 14, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.10 to the Company’s Form 8-K filed on June 15, 2011)

      10.17

   Letter Agreement, dated June 14, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.11 to the Company’s Form 8-K filed on June 15, 2011)

      10.18

   Letter Agreement, dated June 14, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Additional Call Option Transaction (Incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K filed on June 15, 2011)

      10.19

   Letter Agreement, dated June 14, 2011, between Deutsche Bank AG, London Branch and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K filed on June 15, 2011)

      10.20

   Letter Agreement, dated June 14, 2011, between Royal Bank of Canada and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.14 to the Company’s Form 8-K filed on June 15, 2011)

      10.21

   Letter Agreement, dated June 14, 2011, between The Royal Bank of Scotland plc and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.15 to the Company’s Form 8-K filed on June 15, 2011)

      10.22

   Letter Agreement, dated June 14, 2011, between Wells Fargo Bank, National Association and Integra LifeSciences Holdings Corporation, regarding the Additional Warrant Transaction (Incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K filed on June 15, 2011)

    *31.1

   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    *31.2

   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    *32.1

   Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

    *32.2

   Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*†101.INS

   XBRL Instance Document

*†101.SCH

   XBRL Taxonomy Extension Schema Document

 

34


Table of Contents

*†101.CAL

   XBRL Taxonomy Extension Calculation Linkbase Document

*†101.DEF

   XBRL Definition Linkbase Document

*†101.LAB

   XBRL Taxonomy Extension Labels Linkbase Document

*†101.PRE

   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith
The financial information of Integra LifeSciences Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed on July 29, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, is furnished electronically herewith.

 

35

Exhibit 4.3

EXECUTION VERSION

 

 

 

Published CUSIP Number: 45810CAA6

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of June 8, 2011

among

INTEGRA LIFESCIENCES HOLDINGS CORPORATION,

a Delaware corporation,

as the Borrower,

BANK OF AMERICA, N.A.,

as Administrative Agent, Swing Line Lender

and L/C Issuer,

and

JPMORGAN CHASE BANK, N.A.

as Syndication Agent,

and

HSBC BANK USA, NA, ROYAL BANK OF CANADA, WELLS FARGO BANK, N.A.,

FIFTH THIRD BANK , DNB NOR BANK ASA and TD BANK, N.A. ,

as Co-Documentation Agents,

and

THE OTHER LENDERS PARTY HERETO

 

 

 

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

and

J.P. MORGAN SECURITIES LLC,

as Joint Lead Arrangers and Joint Book Managers

 

 

 


TABLE OF CONTENTS

 

Section        Page  
ARTICLE I   
DEFINITIONS AND ACCOUNTING TERMS   

1.01

  Defined Terms      1   

1.02

  Other Interpretive Provisions      33   

1.03

  Accounting Terms      34   

1.04

  Rounding      35   

1.05

  Times of Day      35   

1.06

  Letter of Credit Amounts      35   

1.07

  Amendment and Restatement      35   
ARTICLE II   
COMMITMENTS AND CREDIT EXTENSIONS   

2.01

  Loans      37   

2.02

  Borrowings, Conversions and Continuations of Loans      37   

2.03

  Letters of Credit      38   

2.04

  Swing Line Loans      47   

2.05

  Prepayments      50   

2.06

  Termination or Reduction of Commitments      51   

2.07

  Repayment of Loans      52   

2.08

  Interest      52   

2.09

  Fees      53   

2.10

  Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate      53   

2.11

  Evidence of Debt      54   

2.12

  Payments Generally; Administrative Agent’s Clawback      55   

2.13

  Sharing of Payments by Lenders      57   

2.14

  Cash Collateral      58   

2.15

  Defaulting Lenders      59   

2.16

  Increase in Commitments      61   
ARTICLE III   
TAXES, YIELD PROTECTION AND ILLEGALITY   

3.01

  Taxes      62   

3.02

  Illegality      66   

3.03

  Inability to Determine Rates      66   

 

i


TABLE OF CONTENTS

 

Section        Page  

3.04

  Increased Costs; Reserves on Eurodollar Rate Loans      67   

3.05

  Compensation for Losses      68   

3.06

  Mitigation Obligations; Replacement of Lenders      69   

3.07

  Survival      69   
ARTICLE IV   
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS   

4.01

  Conditions to Closing      70   

4.02

  Conditions to all Credit Extensions      74   
ARTICLE V   
REPRESENTATIONS AND WARRANTIES   

5.01

  Existence, Qualification and Power      75   

5.02

  Authorization; No Contravention      75   

5.03

  Governmental Authorization; Other Consents      75   

5.04

  Binding Effect      76   

5.05

  Financial Statements; No Material Adverse Effect; No Internal Control Event      76   

5.06

  Litigation      77   

5.07

  No Default      77   

5.08

  Subsidiaries and Equity Investments      77   

5.09

  Ownership      77   

5.10

  Ownership of Personal Property; Liens      77   

5.11

  Intellectual Property; Licenses; Etc      78   

5.12

  Real Estate; Lease      78   

5.13

  Environmental Matters      78   

5.14

  Security Documents      79   

5.15

  Insurance      79   

5.16

  Transactions with Affiliates      80   

5.17

  Taxes      80   

5.18

  ERISA Compliance      80   

5.19

  Purpose of Loans and Letters of Credit      81   

5.20

  Margin Regulations; Investment Company Act; Public Utility Holding Company Act      81   

5.21

  Disclosure      82   

 

ii


TABLE OF CONTENTS

Section        Page  

5.22

  Compliance with Laws      82   

5.23

  Labor Matters      82   

5.24

  Solvency      83   

5.25

  Material Contracts      83   

5.26

  Nature of Business      83   
ARTICLE VI   
AFFIRMATIVE COVENANTS   

6.01

  Financial Statements      83   

6.02

  Certificates; Other Information      84   

6.03

  Notices      86   

6.04

  Payment of Obligations      87   

6.05

  Preservation of Existence, Etc      87   

6.06

  Maintenance of Properties      88   

6.07

  Maintenance of Insurance; Certain Proceeds      88   

6.08

  Compliance with Laws      88   

6.09

  Books and Records      89   

6.10

  Inspection Rights      89   

6.11

  Further Assurances with Respect to Additional Loan Parties      89   

6.12

  Further Assurances with Respect to Additional Collateral      90   

6.13

  Performance of Material Contracts, etc      90   

6.14

  Use of Proceeds      91   

6.15

  Environmental      91   
ARTICLE VII   
NEGATIVE COVENANTS   

7.01

  Liens      91   

7.02

  Investments      93   

7.03

  Indebtedness      95   

7.04

  Fundamental Changes and Acquisitions      97   

7.05

  Dispositions      98   

7.06

  Restricted Payments      99   

7.07

  Amendment, Etc. of Indebtedness; Other Material Contracts and Constitutive Documents and Payments in respect of Indebtedness      100   

 

iii


TABLE OF CONTENTS

 

Section        Page  

7.08

  Change in Nature of Business      101   

7.09

  Transactions with Affiliates      101   

7.10

  Limitations on Restricted Actions      101   

7.11

  Sale-Leasebacks; Off-Balance Sheet Obligation      102   

7.12

  Use of Proceeds      102   

7.13

  Impairment of Security Interests      102   

7.14

  Ownership of Foreign Subsidiaries      102   

7.15

  Fiscal Year      102   

7.16

  Partnerships, etc      102   

7.17

  Financial Covenants      102   

7.18

  Consolidated Capital Expenditures      103   

7.19

  Independent Covenants      103   
ARTICLE VIII   
EVENTS OF DEFAULT AND REMEDIES   

8.01

  Events of Default      103   

8.02

  Remedies Upon Event of Default      106   

8.03

  Application of Funds      106   
ARTICLE IX   
ADMINISTRATIVE AGENT   

9.01

  Appointment and Authority      108   

9.02

  Rights as a Lender      108   

9.03

  Exculpatory Provisions      108   

9.04

  Reliance by Administrative Agent      109   

9.05

  Delegation of Duties      110   

9.06

  Resignation of Administrative Agent      110   

9.07

  Non-Reliance on Administrative Agent and Other Lenders      111   

9.08

  No Other Duties, Etc      111   

9.09

  Administrative Agent May File Proofs of Claim      111   

9.10

  Collateral and Guaranty Matters      112   

9.11

  Secured Cash Management Services Agreements and Secured Swap Contracts      113   

 

iv


TABLE OF CONTENTS

 

Section        Page  
ARTICLE X   
MISCELLANEOUS   

10.01

  Amendments, Etc      113   

10.02

  Notices; Effectiveness; Electronic Communications      115   

10.03

  No Waiver; Cumulative Remedies; Enforcement      117   

10.04

  Expenses; Indemnity; Damage Waiver      118   

10.05

  Payments Set Aside      120   

10.06

  Successors and Assigns      120   

10.07

  Treatment of Certain Information; Confidentiality      125   

10.08

  Right of Setoff      126   

10.09

  Interest Rate Limitation      126   

10.10

  Counterparts; Integration; Effectiveness      127   

10.11

  Survival of Representations and Warranties      127   

10.12

  Severability      127   

10.13

  Replacement of Lenders      128   

10.14

  Governing Law; Jurisdiction; Etc      128   

10.15

  Waiver of Jury Trial      129   

10.16

  USA PATRIOT Act Notice      130   

10.17

  Time of the Essence      130   

10.18

  No Advisory or Fiduciary Responsibility      130   

10.19

  Electronic Execution of Assignments and Certain Other Documents      130   

SIGNATURES

     S-1   

 

v


SCHEDULES

 

Schedule 1.01

  Excluded Subsidiaries and Subsidiary Guarantors

Schedule 2.01

  Commitments and Applicable Percentages

Schedule 5.03

  Approvals and Consents

Schedule 5.08

  Subsidiaries and Other Equity Investments

Schedule 5.09

  Certain Stock Arrangements

Schedule 5.13

  Environmental Matters

Schedule 5.16

  Transactions with Affiliates

Schedule 5.18

  Pension Plans

Schedule 5.23

  Labor Matters

Schedule 5.25

  Material Contracts

Schedule 7.01

  Existing Liens

Schedule 7.02

  Existing Investments

Schedule 7.03

  Existing Indebtedness

Schedule 10.02

  Administrative Agent’s Office, Certain Addresses for Notices

EXHIBITS

 

Exhibit A

  Form of Loan Notice

Exhibit B

  Form of Swing Line Loan Notice

Exhibit C

  Form of Note

Exhibit D

  Form of Compliance Certificate

Exhibit E

  Form of Assignment of Assumption

Exhibit F

  Form of Subsidiary Guaranty Agreement

Exhibit G

  Form of Joinder Agreement

Exhibit H

  Opinion Matters

Exhibit I

  Form of Pledge Agreement

Exhibit J

  Form of Security Agreement

Exhibit K

  Form of Permitted Acquisition Certificate

 

vi


SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (“ Agreement ”) is entered into as of June 8, 2011, among INTEGRA LIFESCIENCES HOLDINGS CORPORATION , a Delaware corporation (the “ Borrower ”), each lender from time to time party hereto (collectively, the “ Lenders ” and individually, a “ Lender ”), BANK OF AMERICA, N.A. , as Administrative Agent, Swing Line Lender and L/C Issuer , JPMORGAN CHASE BANK , as Syndication Agent, and HSBC BANK USA, NA, RBC CAPITAL MARKETS, WELLS FARGO BANK, N.A., FIFTH THIRD BANK , DNB NOR BANK ASA and TD BANK, N.A. , as Co-Documentation Agents.

WITNESSETH:

WHEREAS , the Borrower, the Lenders party thereto (the “ Existing Lenders ”), Bank of America and the other agents party thereto are parties to that certain Amended and Restated Credit Agreement dated as of August 10, 2010 as amended, supplemented or modified from time to time prior to the date hereof, the “ Existing Credit Agreement ”), which provided to the Borrower a revolving credit facility and a term loan facility.

WHEREAS , in order to continue the existing indebtedness of the Borrower under the Existing Credit Agreement, to increase the Facility and to terminate the term loan facility, the Borrower has requested that the Existing Credit Agreement be amended and restated (the “ Amendment and Restatement ”), and the Lenders are willing to do so on the terms and conditions set forth herein;

NOW THEREFORE , in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:

Acquisition ”, by any Person, means the purchase or acquisition in a single transaction or a series of transactions by any such Person, individually or together with its Affiliates, of (a) any Equity Interest of another Person (other than a Loan Party) sufficient to cause such Person to become a direct or indirect Subsidiary of the Borrower or (b) all or a substantial portion of the Property of another Person (other than a Loan Party), including, without limitation, all or a substantial portion of the Property comprising a division, business unit or line of business, whether involving a merger or consolidation with such other Person. “ Acquire ” has a meaning correlative thereto.

Administrative Agent ” means Bank of America in its capacity as administrative agent and collateral agent, as applicable, under any of the Loan Documents, or any successor administrative agent and collateral agent, as provided in Section 9.06 .

 

1


Administrative Agent’s Office ” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

Agent Fee Letter ” means that certain letter agreement, dated as of June 7, 2011, between the Borrower and Bank of America.

Aggregate Commitments ” means the Commitments of all the Lenders.

Agreement ” means this Credit Agreement, as amended, amended and restated, supplemented or otherwise modified from time to time.

Amendment and Restatement ” has the meaning specified in the recitals hereto.

Applicable Percentage ” means with respect to any Revolving Credit Lender at any time, the percentage (carried out to the ninth decimal place) of the Facility represented by such Revolving Credit Lender’s Commitment at such time, subject to adjustment as provided in Section 2.15 . If the commitment of each Revolving Credit Lender to make Revolving Credit Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 , or if the Commitments have expired, then the Applicable Percentage of each Revolving Credit Lender in respect of the Facility shall be determined based on the Applicable Percentage of such Revolving Credit Lender in respect of the Facility most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

Applicable Rate ” means, from time to time, the following percentages per annum, based upon the Consolidated Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b) :

 

APPLICABLE RATE

Loans, Swing Line Loans and Letters of Credit

 

 

Pricing

Level

  

Consolidated Total

Leverage Ratio

   Eurodollar Rate
Loans and  Letter
of Credit Fees
    Base Rate
Loans and  Swing
Line Loans
    Commitment
Fee
 

I

   ³ 3.00 to 1.0      1.75     0.75     0.300

II

   < 3.00 to 1.0 but ³ 2.00 to 1.0      1.50     0.50     0.250

III

   < 2.00 to 1.0 but ³ 1.25 to 1.0      1.25     0.25     0.200

IV

   < 1.25 to 1.0      1.00     0.00     0.150

 

2


Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Total Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b) ; provided , however , that if a Compliance Certificate is not delivered within 5 Business Days of its becoming due in accordance with such Section 6.02(b) , then Pricing Level I will be applicable as of the first Business Day after the date on which such Compliance Certificate was required to be delivered until the date five Business Days after the appropriate Compliance Certificate is delivered, whereupon the Applicable Rate shall be adjusted based on the information contained in the Compliance Certificate. The Applicable Rate in effect during the period from the Closing Date until the first Business Day immediately following the date that the quarterly Compliance Certificate is delivered for the period ending June 30, 2011 shall be determined based upon the Consolidated Total Leverage Ratio reported in the Compliance Certificate delivered at Closing.

Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b) .

Applicable Revolving Credit Percentage ” means with respect to any Revolving Credit Lender at any time, such Revolving Credit Lender’s Applicable Percentage in respect of the Facility at such time.

Appropriate Lender ” means, at any time, (a) a Lender that has a Commitment or holds a Loan at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuer and (ii) if any Letters of Credit have been issued pursuant to Section 2.03(a) , the Revolving Credit Lenders and (c) with respect to the Swing Line Sublimit, (i) the Swing Line Lender and (ii) if any Swing Line Loans are outstanding pursuant to Section 2.04(a) , the Revolving Credit Lenders.

Approved Bank ” has the meaning specified in the definition of “ Cash Equivalents ”.

Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Arranger Fee Letters ” means collectively, the MLPFS Arranger Fee Letter and the JPM Arranger Fee Letter.

Arrangers ” means MLPFS and J.P. Morgan Securities, each in its capacity as a joint lead arranger and a joint book manager.

Assignee Group ” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)) , and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

 

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Attributable Indebtedness ” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Off-Balance Sheet Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capitalized Lease.

Audited Financial Statements ” means (a) the audited consolidated balance sheets of the Borrower and its Consolidated Subsidiaries for the fiscal year ended December 31, 2010, and (b) the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Consolidated Subsidiaries, including the notes thereto.

Availability Period ” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of all of the Commitments pursuant to Section 2.06 , and (c) the date of termination of the Commitment of each Revolving Credit Lender to make Revolving Credit Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02 .

Bank of America ” means Bank of America, N.A. and its successors.

Base Rate ” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” or (c) the Eurodollar Rate plus 1.00%. The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

Base Rate Loan ” means a Revolving Credit Loan that bears interest based on the Base Rate.

Borrower ” has the meaning specified in the introductory paragraph hereto.

Borrower Materials ” has the meaning specified in Section 6.02 .

Borrowing ” means a Revolving Credit Borrowing or a Swing Line Borrowing, as the context may require.

Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located or the State of New York and, if such day relates to any Eurodollar Rate Loan, means any such day that is also a London Banking Day.

Businesses ” has the meaning specified in Section 5.13(a) .

Capital Assets ” means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such Person.

 

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Capitalized Lease ” means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of such Person.

Cash Collateralize ” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, L/C Issuer or Swing Line Lender (as applicable) and the Revolving Credit Lenders, as collateral for the L/C Obligations, Obligations in respect of Swing Line Loans, or obligations of Revolving Credit Lenders to fund participations in respect of either thereof (as the context may require), cash or deposit account balances or, if the L/C Issuer or Swing Line Lender benefitting from such collateral shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent and (b) the L/C Issuer or the Swing Line Lender (as applicable). “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

Cash Equivalents ” means:

(a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof ( provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than thirty-six (36) months from the date of acquisition;

(b) marketable obligations issued by any state or commonwealth of the United States of America rated (at the time of acquisition of such security) at least “ AA ” by S&P, or the equivalent thereof by Moody’s, having maturities of not more than thirty-six (36) months from the date of acquisition;

(c) time deposits (including eurodollar time deposits), certificates of deposit (including eurodollar certificates of deposit) and bankers’ acceptances of (i) any Lender or any Affiliate of any Lender, (ii) any commercial bank of recognized standing either organized under the laws of the United States (or any State or territory thereof) having capital and surplus in excess of $1,000,000,000 or (iii) any bank whose short term commercial paper rating (at the time of acquisition of such security) by S&P is at least “ A-1 ” or the equivalent thereof (any such bank, an “ Approved Bank ”), in each case with maturities of not more than six months from the date of acquisition; and

(d) commercial paper and variable or fixed rate notes issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper and variable rate notes issued by, or guaranteed by, any industrial or financial company organized under the laws of the United States of America or any state or commonwealth thereof or the District of Columbia with a short term commercial paper rating (at the time of acquisition of such security) of at least “ A-1 ” or the equivalent thereof by S&P or at least “ P-1 ” or the equivalent thereof by Moody’s, or guaranteed by any industrial company organized under the laws of the United States of America or any

 

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state or commonwealth thereof or the District of Columbia with a long term unsecured debt rating (at the time of acquisition of such security) of at least “ Aa ” or the equivalent thereof by Moody’s, and in each case with maturities of not more than 180 days from the date of acquisition thereof.

Cash Management Bank ” means any party to a Cash Management Services Agreement with the Borrower or any of its Subsidiaries which party was a Lender or an Affiliate of a Lender under this Agreement at the time it entered into such Cash Management Services Agreement.

Cash Management Services Agreement ” means any agreement to provide management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management services.

Casualty ” means any casualty or other loss, damage or destruction.

Change in Law ” means (a) any change arising from the enactment or enforcement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, or any rules, regulations, interpretations, guidelines or directives promulgated thereunder, (b) the occurrence, after the date of this Agreement, of any of the following: (i) the adoption or taking effect of any law, rule, regulation or treaty, (ii) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (iii) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority; and (c) all requests, rules, regulations, guidelines, interpretations or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of Law), in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued, promulgated or implemented.

Change of Control ” means an event or series of events by which:

(a) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any Person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or

 

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(b) any Person or two or more Persons acting in concert, shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, or control over Voting Securities of the Borrower on a fully-diluted basis assuming the conversion and/or exercise of all outstanding Equity Interests of the Borrower owned by such Person or Persons representing 30% or more of the combined voting power of such Voting Securities.

Closing Date ” means the first date all of the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01 .

Code ” means the Internal Revenue Code of 1986, as amended.

Collateral ” means all the “Collateral” referred to in the Collateral Documents and any other assets and property that are or are intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties; provided , that , the parties acknowledge that assets and property acquired after the Closing Date, as permitted herein or otherwise, of the type described in the Collateral Documents are and shall be pledged to the Administrative Agent for the benefit of the Secured Parties as contemplated by Sections 6.11 and 6.12 .

Collateral Documents ” means, collectively, the Security Agreement, the Pledge Agreement and any other security agreements, pledge agreements or similar instruments delivered to the Administrative Agent as collateral agent from time to time pursuant to Sections 6.11 and 6.12 , and each other agreement, instrument or document that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

Commitment ” means, as to each Revolving Credit Lender, its obligation to (a) make Revolving Credit Loans to the Borrower pursuant to Section 2.01(b) , (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement and “ Commitments ” means the Commitments of all the Revolving Credit Lenders.

Commitment Fee ” has the meaning specified in Section 2.09(a) .

Compliance Certificate ” means a certificate substantially in the form of Exhibit D hereto.

Condemnation ” means any taking of Property, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner.

Condemnation Award ” means all proceeds of any Condemnation or transfer in lieu thereof.

 

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Consolidated Capital Expenditures ” means, for any period for any Person and its Subsidiaries determined on a consolidated basis, without duplication (a) all expenditures made directly or indirectly during such period for Capital Assets (whether paid in cash or other consideration or accrued as a liability and including, without limitation, all expenditures for maintenance and repairs which are required, in accordance with GAAP, to be capitalized on the books of such Person) and (b) solely to the extent not otherwise included in clause (a) of this definition, the aggregate principal amount of all Indebtedness (including, without limitation, obligations in respect of Capitalized Leases) assumed or incurred during such period in connection with any such expenditures for Capital Assets. For purposes of this definition, (i) Permitted Acquisitions shall not be included in Consolidated Capital Expenditures, and (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment or with Insurance Proceeds shall be included in Consolidated Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such Insurance Proceeds, as the case may be.

Consolidated Cash Interest Charges ” means for any period, for any Person and its Subsidiaries determined on a consolidated basis, Consolidated Interest Charges for such period; provided that all non-cash interest expense shall be excluded.

Consolidated Cash Taxes ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, (a) the aggregate amount of all income taxes of such Person, determined on a consolidated basis to the extent the same are paid in cash by such Person during such period, minus (b) to the extent included in the calculation of taxes under the foregoing clause (a), the aggregate amount of all tax recapture expenses arising from the redemption or repayment of Convertible Indebtedness issued after the Closing Date to the extent the same are actually paid in cash by such Person during such period, in an amount, together with all such tax recapture payments deducted from Consolidated Cash Taxes under this clause (b) at any time and from time to time, not to exceed $20,000,000 in the aggregate.

Consolidated EBITDA ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, an amount equal to Consolidated Net Income for such period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income during such period: (i) Consolidated Interest Charges for such period; (ii) the provision for federal, state, local and foreign income taxes payable for such period; (iii) depreciation and amortization expense; (iv) other expenses and all equity compensation charges reducing Consolidated Net Income which do not represent a cash item in such period or any future period; and (v) enterprise resource planning costs for such period, not to exceed (A) an aggregate amount of $15,000,000 during the fiscal year ending December 31, 2011, (B) an aggregate amount of $5,000,000 during the fiscal year ending December 31, 2012, (C) an aggregate amount of $3,000,000 during the fiscal year ending December 31, 2013, or (D) zero for any fiscal year thereafter; plus (b) Permitted Cost Savings, and minus (c) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits of the Borrower and its Subsidiaries for such period and (ii) all non-cash items increasing Consolidated Net Income for such period. Consolidated EBITDA is subject to calculation on a Pro Forma Basis in accordance with the provisions in Section 1.03 .

 

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Consolidated EBITDAR ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, an amount equal to Consolidated EBITDA for such period, plus , to the extent deducted in calculating Consolidated Net Income for such period, Rental Expense for such period.

Consolidated Fixed Charge Coverage Ratio ” means, for any period, the ratio of (a) Consolidated EBITDAR for such period minus Consolidated Capital Expenditures in excess of $40,000,000 for such period, to (b) Consolidated Fixed Charges for such period.

Consolidated Fixed Charges ” means, for any period for any Person and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Cash Interest Charges for such period plus (b) Consolidated Scheduled Debt Payments for such period plus (c) Consolidated Cash Taxes for such period plus (d) Rental Expense for such period. Consolidated Fixed Charges are subject to calculation on a Pro Forma Basis in accordance with the provisions of Section 1.03 .

Consolidated Funded Indebtedness ” means, for any Person and its Subsidiaries determined on a consolidated basis, as of any date of determination, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness (except as provided in clause (d) below), (c) all direct obligations arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments, (d) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business but including earn-outs that are earned and determinable but not yet due and payable), (e) Attributable Indebtedness in respect of Capitalized Leases and Off-Balance Sheet Obligations, (f) without duplication all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse (except for customary exceptions to non-recourse provisions such as fraud, misappropriation of funds and environmental liabilities) to such Person or any such Subsidiary; provided , however , that (i) for the purposes of Section 7.17(a ) only, Consolidated Funded Indebtedness shall be calculated net of available, unrestricted cash as set forth on the most recent balance sheet of the Borrower and its Consolidated Subsidiaries delivered pursuant to Section 6.01(a) and (b)  in excess of $40,000,000, and (ii) for purposes of the definition of “Consolidated Funded Indebtedness” the Indebtedness in respect of convertible debt securities shall be deemed to be the aggregate principal amount thereof outstanding as of such date of determination.

Consolidated Interest Charges ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, the sum of (a) all interest, premium payments, debt discount, loan fees, charges and related expenses in connection with Indebtedness (including capitalized interest), in each case to the extent treated as interest in accordance with GAAP, and (b) the portion of rent expense with respect to such period under Capitalized Leases that is treated as interest in accordance with GAAP.

 

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Consolidated Net Income ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, the net income (excluding extraordinary gains but including extraordinary cash losses other than losses related to the Permitted Swap Termination and fees related to the Convertible Note Exchange) of such Person for that period.

Consolidated Scheduled Debt Payments ” means, for any period for any Person and its Subsidiaries determined on a consolidated basis, the sum of all scheduled payments of principal on Consolidated Funded Indebtedness for such period (including, without limitation, the principal component of Capitalized Leases paid or payable during such period); provided that Consolidated Scheduled Debt Payments for any period shall not include (i) voluntary prepayments of Consolidated Funded Indebtedness, (ii) mandatory prepayments of Consolidated Funded Indebtedness, or (iii) any balloon, bullet or similar final payment (including payments under the Loan Documents that are due on the Maturity Date).

Consolidated Subsidiary ” means with respect to any Person at any date any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date in accordance with GAAP.

Consolidated Total Leverage Ratio ” means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four consecutive fiscal quarters most recently ended.

Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person, or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

Convertible Indebtedness means (a) all Indebtedness issued under the Convertible Notes (2012) and (b) any other Indebtedness of any Loan Party (which may be guaranteed by any other Loan Party) permitted to be incurred pursuant to Section 7.03(f) , (h) , (k)  or (l)  of this Agreement that (i) contains customary conversion rights for similar forms of Indebtedness as of the date of issuance in the reasonable determination of the Borrower and (ii) is either (x) convertible into common stock of the Borrower (and cash in lieu of fractional shares) and/or cash (in an amount determined by reference to the price of such common stock) or (y) sold as units with call options, warrants or rights to purchase (or substantially equivalent derivative transactions) that are exercisable for common stock of the Borrower and/or cash (in an amount determined by reference to the price of such common stock); provided , that any such Indebtedness issued in accordance with clause (b) of this definition shall not be convertible at the option of the issuer of such Indebtedness.

 

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Convertible Note Exchange ” means an exchange offer or other transaction exchanging the Convertible Notes (2012) or any other notes constituting Convertible Indebtedness for substantially similar securities (i) providing for conversion into common stock of the Borrower and/or cash (in an amount determined by reference to the price of such common stock), (ii) in an aggregate principal amount no greater than that of the Convertible Notes (2012) or such other notes constituting Convertible Indebtedness as of the date of exchange, and (iii) containing only those incentives to induce holders thereof to participate in such exchange as are commercially reasonable, as determined in good faith by the Borrower.

Convertible Note Indenture (2012 Maturity) ” means that certain Indenture, dated as of June 11, 2007, between the Borrower and Wells Fargo Bank, N.A., as Trustee.

Convertible Notes (2012) ” means those certain 2.375% Senior Convertible Notes due 2012, issued by the Borrower pursuant to Convertible Note Indenture (2012 Maturity), in the principal amount of $165,000,000, and any securities issued in exchange therefor in accordance with this Agreement.

Credit Extension ” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

Default Rate ” means an interest rate equal to (a) in the case of Eurodollar Rate Loans, the sum of (i) the Eurodollar Rate for such Loans, plus (ii) the Applicable Rate applicable to such Loans, plus (iii) 2% per annum, (b) in the case of the Letter of Credit Fees, a rate equal to (i) the Applicable Rate plus 2% per annum, (c) in the case of Base Rate Loans and for all other Obligations, the sum of (i) the Base Rate plus (ii) the Applicable Rate applicable to Base Rate Loans, plus (iii) 2% per annum.

Defaulting Lender ” means, subject to Section 2.15(b) , any Lender that, as determined by the Administrative Agent, (a) has failed to perform any of its funding obligations hereunder, including in respect of its Loans or its participations in respect of Letters of Credit or Swing Line Loans, within one Business Day of the date required to be funded by it hereunder, unless such obligation is the subject of a good faith dispute , (b) has notified the Borrower, or the Administrative Agent that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by the Administrative Agent, to confirm in a manner satisfactory to the Administrative Agent that it will comply with its funding obligations, or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it,

 

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or (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership of, or acquisition by, a Governmental Authority, of any equity interest in that Lender or any direct or indirect parent company thereof.

Disposition ” or “ Dispose ” means the sale, transfer, license, lease, Casualty or Condemnation or other disposition (including any Sale and Leaseback Transaction or any sale of any Equity Interest of any Subsidiary) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes issued by any other Person or accounts receivable or any rights and claims associated therewith or any capital stock of, or other Equity Interests in, any other Person; provided that the foregoing shall not be deemed to imply that any such disposition is permitted under this Agreement. The term “Disposition” shall not include any Equity Issuance.

Dollar ” and “ $ ” mean lawful money of the United States.

Domestic Subsidiary ” means a Subsidiary that is organized under the Laws of a political subdivision of the United States.

Eligible Assignee ” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii) and (v)  (subject to such consents, if any, as may be required under Section 10.06(b)(iii) ).

Engagement Letter ” means the engagement letter agreement dated June 7, 2011, among the Borrower and the MLPFS, as an Arranger.

Environmental Laws ” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Equity Interests ” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests),

 

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and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination; provided , however , that Convertible Indebtedness shall not be or be deemed to be an Equity Interest.

Equity Issuance ” means any issuance by the Borrower or any of its Subsidiaries of any capital stock or other Equity Interests to any Person or receipt by the Borrower or any of its Subsidiaries of a capital contribution from any Person, including the issuance of Equity Interests pursuant to the exercise of options or warrants and the conversion of any Indebtedness to equity; provided that the foregoing shall not be deemed to imply that any such issuance is permitted under this Agreement.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the Borrower or any of its Subsidiaries within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any of its Subsidiaries or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) by the Borrower or any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan resulting in withdrawal liability to the Borrower or any of its Subsidiaries or any ERISA Affiliate under Section 4201 of ERISA, or notification to the Borrower or any of its Subsidiaries or any ERISA Affiliate that a Multiemployer Plan is in reorganization within the meaning of Section 4241 of ERISA; (d) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

Eurodollar Rate ” means:

(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to (i) the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two London Banking Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to

 

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such Interest Period or, (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two London Banking Days prior to the commencement of such Interest Period; and

(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to (i) BBA LIBOR, at approximately 11:00 a.m., London time determined two London Banking Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Bank of America’s London Branch to major banks in the London interbank Eurodollar market at their request at the date and time of determination.

Eurodollar Rate Loan ” means a Revolving Credit Loan that bears interest at a rate based on clause (a) of the definition of “Eurodollar Rate.”

Event of Default ” has the meaning specified in Section 8.01 .

Excluded Subsidiaries ” means (a) all Foreign Subsidiaries and (b) each Domestic Subsidiary that (i) either (x) does not directly own a majority of the Equity Interests in any Foreign Subsidiary or (y) the Equity Interests and related “Collateral” (as defined in the Pledge Agreement) of such Domestic Subsidiary are pledged pursuant to the Pledge Agreement, and (ii) is designated by the Borrower as an “Excluded Subsidiary”; provided , that, as of any date of determination, the Consolidated EBITDA during the four consecutive fiscal quarters most recently ended of all Domestic Subsidiaries that are designated as Excluded Subsidiaries shall not exceed five percent (5.0%) of the Consolidated EBITDA during such period of the Borrower and its consolidated Domestic Subsidiaries. As of the Closing Date, each of the Domestic Subsidiaries listed in part A of Schedule 1.01 is designated as an Excluded Subsidiary in accordance with (and, for the avoidance of doubt, not as an exception to) clause (b) of this definition.

Excluded Taxes ” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located, (c) any backup withholding tax that is required by applicable Law to be withheld from amounts payable to a Lender that has failed to comply with clause (A) of Section 3.01(e)(ii) , and (d) in the case of a Foreign Lender,

 

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any United States withholding tax that (i) is required to be imposed on amounts payable to such Foreign Lender pursuant to the Laws in force at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or (ii) is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e) , except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a)(ii) or Section 3.01(c) .

Executive Officer ” means (i) with respect to the Borrower, those officers with titles of president, chief executive officer, executive vice-president and senior vice-president, and (ii) with respect to any other Loan Party, those officers with titles of president, chief executive officer and vice president.

Existing Credit Agreement ” has the meaning specified in the recitals hereto.

Facility ” means, at any time, the aggregate amount of the Revolving Credit Lenders’ Commitments at such time.

FASB ASC ” means the Accounting Standards Codification of the Financial Accounting Standards Board.

Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

Fee Letters ” means, collectively, the Arranger Fee Letters and the Agent Fee Letter.

Foreign Lender ” means any Lender that is organized under the Laws of a jurisdiction other than that in which the Borrower is resident for tax purposes (including such a Lender when acting in the capacity of the L/C Issuer). For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

Foreign Subsidiary ” means a Subsidiary that is not organized under the Laws of a political subdivision of the United States or a state thereof.

FRB ” means the Board of Governors of the Federal Reserve System of the United States.

Fronting Exposure ” means, at any time there is a Defaulting Lender, (a) with respect to the L/C Issuer, such Defaulting Lender’s Applicable Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lender’s participation

 

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obligation has been reallocated to other Revolving Credit Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swing Line Lender, such Defaulting Lender’s Applicable Percentage of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Credit Lenders or Cash Collateralized in accordance with the terms hereof.

Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

GAAP ” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).

Granting Lender ” has the meaning specified in Section 10.06(g) .

Guarantee ” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided , that , the term Guarantee shall not include (i) endorsements of instruments for collection in the ordinary course, (ii) customary exceptions to non-recourse provisions such as fraud, misappropriation of

 

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funds and environmental liabilities or (iii) assurances relating to environmental matters. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

Honor Date ” has the meaning specified in Section 2.03(c)(i) .

Increase Effective Date ” has the meaning specified in Section 2.16 .

Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net payment obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) Capitalized Leases and Off-Balance Sheet Obligations of such Person;

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;

 

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(h) all Indebtedness in respect of any of the foregoing of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on the property, including, without limitation, accounts and contract rights owned by such Person, even though such Person has not assumed or become liable for such Indebtedness; and

(i) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer in an amount proportionate to such Person’s interest therein, unless such Indebtedness is expressly made non-recourse to such Person (subject to customary exceptions to non-recourse provisions such as fraud, misappropriation of funds and environmental liabilities) or except to the extent such Indebtedness is owed by such partnership or joint venture to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any Capitalized Lease or Off-Balance Sheet Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

Indemnified Taxes ” means Taxes other than Excluded Taxes.

Indemnitees ” has the meaning specified in Section 10.04(b) .

Information ” has the meaning specified in Section 10.07 .

Insurance Proceeds ” means all insurance proceeds (other than business interruption insurance proceeds), damages, awards, claims and rights of action with respect to any Casualty.

Intercompany Notes ” means the promissory notes issued as contemplated by Section 7.02(d) , substantially in the form of Exhibit A to the Pledge Agreement or any intercompany loan agreement in form and substance reasonably satisfactory to the Administrative Agent.

Interest Payment Date ” means (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided , however , that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates, and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date (with Swing Line Loans being deemed made under the Facility for purposes of this definition).

Interest Period ” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in the Loan Notice; provided that:

(j) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the immediately preceding Business Day;

 

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(k) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(l) no Interest Period shall extend beyond the Maturity Date.

Internal Control Event ” means a material weakness in, or fraud that involves officers who have a significant role in and involving, the Borrower’s internal control over financial reporting, in each case as described in the Securities Laws.

Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of, any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a division, business unit or line of business. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

IP Rights ” has the meaning specified in Section 5.11 .

IRS ” means the United States Internal Revenue Service.

ISP ” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).

Issuer Documents ” means with respect to any Letter of Credit, the Letter of Credit Application and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to any such Letter of Credit.

Joinder Agreement ” means a joinder agreement executed and delivered in accordance with the provisions of Section 6.11, substantially in the form of Exhibit G hereto.

JPMorgan Securities ” means J.P. Morgan Securities LLC and its successors.

JPM Arranger Fee Letter ” means that certain letter agreement, dated June 7, 2011, among the Borrower and JPMorgan Securities.

Laws ” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes, administrative or judicial precedents or authorities and executive orders, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and

 

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permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law (including, without limitation, under the Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act of 1990, the FDA Modernization Act of 1997, and additional laws and regulations relating to medical devices promulgated by various governments and governmental agencies, the International Standards Organization’s regulations and registration requirements and the European Medical Device Directives).

L/C Advance ” means, with respect to each Revolving Credit Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Revolving Credit Percentage.

L/C Borrowing ” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed by the Borrower on the Honor Date or refinanced as a Revolving Credit Borrowing.

L/C Credit Extension ” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

L/C Issuer ” means, individually or collectively as the context may indicate, (a) Bank of America in its capacity as issuer of Letters of Credit hereunder or any successor to Bank of America in its capacity as an issuer of Letters of Credit hereunder and (b) any other Revolving Credit Lender, selected by the Borrower (with the consent of the Administrative Agent) to be an issuer of Letters of Credit hereunder, or any successor to such Lender in its capacity as an issuer of Letters of Credit hereunder.

L/C Obligations ” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . For purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount remaining to be drawn.

Lender ” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes each Lender with a commitment to make Loans as designated in Section 2.01 or in an Assignment and Assumption pursuant to which such Lender becomes a party hereto; provided that references to “Lenders” shall include Bank of America in its capacity as the Swing Line Lender; for purposes of clarification only, to the extent that the Swing Line Lender may have rights and obligations in addition to those of the other Lenders due to its status as Swing Line Lender, its status as such will be specifically referenced.

Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as to which a Lender may from time to time notify the Borrower and the Administrative Agent.

Letter of Credit ” means any standby letter of credit issued hereunder.

 

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Letter of Credit Application ” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer (modified to the extent that the terms thereof conflict with the terms hereof).

Letter of Credit Expiration Date ” means the day that is thirty days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the immediately preceding Business Day).

Letter of Credit Fee ” has the meaning specified in Section 2.03(h) .

Letter of Credit Sublimit ” means an amount equal to the lesser of (a) $60,000,000 and (b) the Commitments. The Letter of Credit Sublimit is part of, and not in addition to, the Facility.

License ” means any license, certification, accreditation, consent, permit or other authorization or approval which is required to be obtained from any Governmental Authority in connection with the operation of the Borrower and its Subsidiaries, including the development, testing, marketing, manufacturing and pricing and sale of medical devices.

Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

Liened Property ” has the meaning specified in Section 6.11 .

Liquidity ” means, as of any date, an amount which equals the sum of the aggregate amount of cash and Cash Equivalents as of such date of the Borrower and its Subsidiaries that is not subject to any restriction regarding the use or investment thereof (except as provided in customary investment account agreements), and (b) the Commitments minus the Total Outstandings as of such date.

Loan ” means an extension of credit by a Lender to the Borrower under Article II in the form of a Revolving Credit Loan, a Swing Line Loan or L/C Advance. Each Loan may be divided into tranches which are Base Rate Loans or Eurodollar Rate Loans (each a “ Type ” of Loan).

Loan Documents ” means this Agreement, the Notes, each Issuer Document, each Secured Swap Contract, each Secured Cash Management Services Agreement, the Fee Letters, the Subsidiary Guaranty, the Collateral Documents, and any agreement creating or perfecting rights in Cash Collateral pursuant to the provisions of Section 2.14 and all other documents delivered to the Administrative Agent, the L/C Issuer or any Lender in connection herewith or therewith relating specifically to the Obligations.

 

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Loan Notice ” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a) , which, in each case, if in writing, shall be substantially in the form of Exhibit A hereto.

Loan Party ” means, the Borrower and each Subsidiary Guarantor, and “ Loan Parties ” means any combination of the foregoing.

London Banking Day ” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

Master Agreement ” has the meaning specified in the definition of “ Swap Contract ”.

Material Adverse Effect ” means (a) a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or financial condition of the Borrower and its Subsidiaries taken as a whole, (b) a material adverse effect on the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party, (c) a material adverse effect upon the legality, validity or binding effect of any Loan Document, or (d) a material adverse effect upon the Lien of any Collateral Document or a material adverse effect on the rights, powers, or remedies of the Administrative Agent or any Lender under any Loan Document. Solely for purposes of this definition, “Loan Documents” shall be deemed to exclude Secured Cash Management Services Agreements and Secured Swap Contracts.

Material Contract ” means, with respect to any Loan Party, (a) each credit agreement, capital lease or other agreement related to any Indebtedness of any Loan Party in a face amount greater than $15,000,000 (other than the Loan Documents), (b) each Swap Contract to which any Loan Party is a party where the notional amount of such Swap Contract exceeds $15,000,000, and (c) any voting or shareholder’s agreement related to the Equity Interest in any Person to which any Loan Party is a party.

Maturity Date ” means June 8, 2016.

MLPFS ” means Merrill Lynch, Pierce, Fenner & Smith Incorporated.

MLPFS Arranger Fee Letter ” means that certain letter agreement, dated June 7, 2011, among the Borrower and MLPFS.

Minority Equity Interests ” means Equity Interests in a Person that is not a Subsidiary of the Borrower (or any of its Subsidiaries) owned by any Loan Party as of the Closing Date or otherwise acquired by any Loan Party after the Closing Date as a result of a Permitted Acquisition.

Moody’s ” means Moody’s Investors Service, Inc. and any successor in interest.

Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any of its Subsidiaries or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or has been obligated to make contributions.

 

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Multiple Employer Plan ” means a Plan which has two or more contributing sponsors (including the Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

Net Cash Proceeds ” means:

(m) with respect to any Disposition by the Borrower or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by the Borrower or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds; and

(n) with respect to the incurrence or issuance of any Indebtedness by the Borrower or any of its Subsidiaries, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by the Borrower or such Subsidiary in connection therewith.

Note ” means an amended and restated “Revolving Credit Note” made by the Borrower in favor of a Revolving Credit Lender evidencing Revolving Credit Loans or Swing Line Loans, as the case may be, made by such Revolving Credit Lender, substantially in the form of Exhibit C hereto.

Obligations ” means all advances to, and debts, liabilities, obligations, indemnities, covenants and duties of, any Loan Party arising under any Loan Document (including any Secured Swap Contract and any Secured Cash Management Services Agreement entered into after the date of this Agreement) or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the generality of the foregoing, the Obligations of any Loan Party under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorney fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligations of any Loan Party to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of any Loan Party. If applicable, the Obligations shall be “Designated Senior Indebtedness” (or substantially similar designation) pursuant to and for purposes of the Convertible Note Indenture (2012 Maturity) and any other Convertible Indebtedness.

 

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Off-Balance Sheet Obligation ” means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Borrower is a party, under which the Borrower has:

(a) any obligation under a guarantee contract that has any of the characteristics identified in FASB ASC 460-10-15-4;

(b) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets;

(c) any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the Borrower’s own stock and classified in stockholders’ equity in the Borrower’s statement of financial position, as described in FASB ASC 815-10-15-74; or

(d) any obligation, including a contingent obligation, arising out of a variable interest (as defined in the FASB ASC Master Glossary) in an unconsolidated entity that is held by, and material to, the Borrower, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with, the Borrower or its Subsidiaries.

Operating Lease ” means, as applied to any Person, any lease (including, without limitation, leases that may be terminated by the lessee at any time) of any Property that is not a Capitalized Lease other than any such lease in which that Person is the lessor.

Organization Documents ” means (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws, (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement, and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

Other Taxes ” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

Outstanding Amount ” means (a) with respect to Revolving Credit Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Revolving Credit Loans and Swing Line Loans, as the case may be, occurring on such date, and (b) with respect to any L/C Obligations

 

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on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.

Participant ” has the meaning specified in Section 10.06(d) .

PBGC ” means the Pension Benefit Guaranty Corporation.

Pension Act ” means the Pension Protection Act of 2006.

Pension Funding Rules ” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

Pension Plan ” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.

Permitted Acquisitions ” means any Acquisition; provided that (a) the Property acquired (or the Property of the Person acquired) in such Acquisition shall be used or useful in the same or similar line of business as the Loan Parties on the Closing Date, including activities ancillary, related or complementary thereto, (b) after giving effect to any Acquisition on a Pro Forma Basis, the total equity and debt investments of the Borrower and its Domestic Subsidiaries in the Foreign Subsidiaries does not exceed fifty percent (50%) of the aggregate book value of the total assets of the Borrower and its Domestic Subsidiaries, all as determined in accordance with GAAP, (c) in the case of an Acquisition of the Equity Interests of another Person, the board of directors (or other comparable governing body) of such other Person shall have duly approved such Acquisition, (d) no Event of Default has occurred and is continuing or would result therefrom, (e) the Borrower and its Consolidated Subsidiaries shall be in compliance with Section 7.17 on a Pro Forma Basis after giving effect to such Acquisition, (f) the Acquisition shall not involve an interest in a general partnership or joint venture or have a requirement that any Loan Party be a general or joint venture partner other than in compliance with Section 7.16 , (g) the Loan Parties shall, and shall cause the party that is the subject of the Acquisition to, execute and deliver such joinder and pledge agreements, security agreements and intercompany notes and take such other actions as may be necessary for compliance with the provisions of Sections 6.11 and 6.12 , (h) the aggregate consideration (including cash and non-cash consideration (other than non-cash consideration in the form of Qualified Equity Interests issued by the Borrower in accordance with Section 7.02(l) but including the maximum amount of any earn-out or similar deferred payment that will or could become due as a result of such Acquisition)) for each Acquisition (or a series of related Acquisitions) is less than or equal to $250,000,000, and (i) the Borrower shall have delivered to the Administrative Agent (1) with respect to any Acquisition in excess of $50,000,000, (x) a Permitted Acquisition Certificate signed by a Responsible Officer of the Borrower demonstrating compliance with the financial

 

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covenants hereunder after giving effect to the subject Acquisition on a Pro Forma Basis, and reaffirming that the representations are true and correct in all material respects as of such date, except those representations and warranties made as of a date certain, which shall remain true and correct in all material respects as of such date, and (y) within 5 Business Days following the closing of such Acquisition, a certificate of a Responsible Officer of the Borrower describing the Person to be acquired, including, without limitation, the location and type of operations and key management, (2) with respect to any Acquisition, a Permitted Acquisition Certificate executed by a Responsible Officer of the Borrower certifying compliance with clause (h) of this definition and (3) with respect to any Acquisition in excess of $100 million (i) that is an Acquisition of Equity Interests, all financial statements for the full fiscal year preceding acquisition, as well as the most recent interim statements of the party that is subject to the Acquisition or (ii) that is an Acquisition of assets, all material financial information for the full fiscal year preceding such Acquisition obtained by the Borrower or its Subsidiaries with respect to the assets subject to the Acquisition.

Permitted Acquisition Certificate ” means a certificate of the Borrower substantially in the form of Exhibit K .

Permitted Bond Hedge Transaction ” means any call or capped call option (or substantively equivalent derivative transaction) on the Borrower’s common stock (whether settled in cash and/or common stock) purchased by the Borrower in connection with the issuance of any Convertible Indebtedness; provided that the purchase price for such Permitted Bond Hedge Transaction, less the proceeds received by the Borrower from the sale of any related Permitted Warrant Transaction, does not exceed the net cash proceeds received by the Borrower or any other Loan Party from the sale of such Convertible Indebtedness issued in connection with the Permitted Bond Hedge Transaction.

Permitted Cost Savings ” means, for any period, projected or anticipated future synergies, cost savings and restructuring charges expected to arise from any Permitted Acquisition for such period so long as and only to the extent that such future synergies, cost savings and restructuring charges either (a) are permitted to be included as pro forma adjustments under Regulation S-K or Regulation S-X whether or not the pro forma reporting is required under applicable law or (b) are certified in writing by the Borrower, so long as (i) such synergies, cost savings and restructuring charges are reasonably expected to be realized within twelve (12) months after such Permitted Acquisition, (ii) the aggregate amount of all synergies, cost savings and restructuring charges added back to Consolidated EBITDA of the Borrower and its consolidated Subsidiaries during such period does not exceed $15,000,000 and (iii) the aggregate amount of such cost savings or synergies with respect to such Permitted Acquisition does not exceed the greater of (A) 25% of the Consolidated EBITDA (excluding clause (b) of the definition thereof) of any and all Persons acquired or, in the case of an asset Acquisition, that is fairly attributable to the assets acquired as a result of such Permitted Acquisition, and (B) $5,000,000.

Permitted Liens ” has the meaning specified in Section 7.01 .

 

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Permitted Warrant Transaction” means any call option, warrant or right to purchase (or substantively equivalent derivative transaction) on the Borrower’s common stock (whether settled in cash and/or common stock) sold by the Borrower in connection with and substantially concurrently with any purchase by the Borrower of a related Permitted Bond Hedge Transaction; provided that the purchase price for such Permitted Bond Hedge Transaction, less the proceeds received by the Borrower from the sale of such related Permitted Warrant Transaction, does not exceed the net cash proceeds received by the Borrower or any other Loan Party from the sale of the Convertible Indebtedness issued in connection with the Permitted Warrant Transaction.

Permitted Swap Termination ” means the termination of the Swap Contract to which Borrower is a party on the Closing Date.

Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Plan ” means (i) any “employee benefit plan” within the meaning of Section 3(3) of ERISA other than a Multiemployer Plan, maintained for employees of the Borrower or any Subsidiary (or, with respect to any “employee benefit plan” that is a Pension Plan, maintained for employees of the Borrower or any ERISA Affiliate) or (ii) any such “employee benefit plan” to which the Borrower or any Subsidiary (or, with respect to a Pension Plan, any ERISA Affiliate) is required to contribute on behalf of any of its employees.

Platform ” has the meaning specified in Section 6.02 .

Pledge Agreement ” means the Amended and Restated Pledge Agreement executed by the Borrower, the Subsidiary Guarantors and the Administrative Agent in accordance with the provisions of this Agreement, as amended, which Pledge Agreement shall be substantially in the form of Exhibit I hereto.

Pro Forma Basis ” means for purposes of calculating any financial ratio for any Reference Period for the purpose specified in Section 1.03(c) , and each such transaction actually consummated in such Reference Period, that such financial ratio or financial amount shall be calculated on a pro forma basis based on the following assumptions: (A) each such transaction shall be deemed to have occurred on the first day of such Reference Period; (B) any funds to be used by any Person in consummating any such transaction will be assumed to have been used for that purpose as of the first day of such Reference Period; (C) any Indebtedness to be incurred or repaid by any Person in connection with the consummation of any such transaction will be assumed to have been incurred or repaid on the first day of such Reference Period; (D) the gross interest expenses, determined in accordance with GAAP, with respect to such Indebtedness assumed to have been incurred on the first day of such Reference Period that bears interest at a floating rate shall be calculated at the current rate (as of the date of such calculation) under the agreement governing such Indebtedness (including this Agreement if the Indebtedness is incurred hereunder); and (E) any gross interest expense, determined in accordance with GAAP, with respect to Indebtedness outstanding during such Reference Period that was or is to be refinanced with proceeds of a transaction assumed to have been incurred as of the first day of the Reference Period will be excluded from such calculations.

Property ” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

 

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Public Lender ” has the meaning specified in Section 6.02 .

Qualified Equity Interest ” means (i) with respect to the Borrower, any Equity Interest other than Equity Interests (x) that constitute Indebtedness or are convertible or exchangeable into, or are redeemable for, Equity Interests that constitute Indebtedness; provided , that , the foregoing shall not exclude Equity Interests that accrue dividends that are not payable until the indefeasible payment in cash in full of all Obligations and the termination of all Commitments hereunder or (y) that otherwise, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (A) matures or is mandatorily redeemable or subject to any mandatory repurchase requirement, pursuant to a sinking fund obligation or otherwise (other than by virtue of a liquidation preference that would be entitled to payments or distributions only after Obligations have been indefeasibly repaid in full in cash and all Commitments have been terminated), (B) is convertible into or exchangeable or exercisable for Indebtedness or any other Equity Interest that is not a Qualified Equity Interest, or (C) is redeemable or subject to any mandatory repurchase requirement at the option of the holder thereof, in whole or in part, other than redemption or repurchase after the Obligations have been indefeasibly repaid in full in cash and all Commitments have been terminated and (ii) with respect to any Subsidiary of the Borrower, common stock or other common Equity Interests.

Real Property Assets ” means all interest (including leasehold interests) of the Borrower or any of its Subsidiaries in any real property.

Reference Period ” means (a) for purposes of calculating compliance with any financial covenant or test on any date on which a Compliance Certificate is required to be delivered hereunder, the four consecutive fiscal quarters most recently ended prior to such date and (b) for purposes of determining whether the conditions precedent have been satisfied for a proposed transaction, the four consecutive fiscal quarters most recently ended prior to date of such proposed transaction for which annual or quarterly financial statements and a Compliance Certificate shall have been delivered in accordance with the provisions hereof.

Register ” has the meaning specified in Section 10.06(c) .

Registered Public Accounting Firm ” has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws.

Regulation S-K ” means Regulation S-K under the U.S. Securities Act of 1933, as amended.

Regulation S-X ” means Regulation S-X under the U.S. Securities Act of 1933, as amended.

Related Parties ” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Person’s Affiliates.

Rental Expense ” means, for any period, for any Person and its Subsidiaries determined on a consolidated basis, the gross rental expenses for Operating Leases.

 

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Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

Request for Credit Extension ” means (a) with respect to a Borrowing, conversion or continuation of Revolving Credit Loans, a Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

Required Lenders ” means, as of any date of determination, Lenders having more than 50% of the sum of (a) the Total Outstandings (with the aggregate amount of each Revolving Credit Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Revolving Credit Lender for purposes of this definition) and (b) the aggregate unused Commitments; provided that the unused Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

Responsible Officer ” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer, corporate controller, any vice president or executive vice president of any Loan Party to the extent each such officer shall have been duly authorized by all necessary corporate, partnership or other action on the part of such Person to act on behalf of such Person and solely for purposes of the delivery of incumbency certificates pursuant to Section 4.01 , the secretary or any assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interest of the Borrower or any of its Subsidiaries (including, without limitation, any payment in connection with any dissolution, merger, consolidation or disposition involving Subsidiaries), or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest or of any option, warrant or other right to acquire any such Equity Interest or on account of any return of capital to the Borrower’s or such Subsidiary’s stockholders, partners or members (or the equivalent of any thereof) or the issuance of any Equity Interest or acceptance of any capital contributions or any option, warrant or right to acquire any such dividend, distribution or payment.

Revolving Credit Borrowing ” means a borrowing consisting of simultaneous Revolving Credit Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Revolving Credit Lenders pursuant to Section 2.01(b) .

Revolving Credit Lender ” means, at any time, (a) so long as any Commitment is in effect, any Lender that has a Commitment at such time or (b) if the Commitments have terminated or expired, any Lender that has a Revolving Credit Loan or a participation in L/C Obligations or Swing Line Loans at such time.

 

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Revolving Credit Loan ” has the meaning specified in Section 2.01(b) .

RLL Maintenance Period ” means the period beginning on the date that is three months prior to the stated maturity date of the Convertible Notes (2012) or any other Convertible Indebtedness to and including the stated maturity date of such Convertible Notes (2012) or such other Convertible Indebtedness.

Sale and Leaseback Transaction ” means any arrangement pursuant to which the Borrower or any of its Subsidiaries, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to any lease, whether an Operating Lease or a Capitalized Lease, of any Property that the Borrower or any of its Subsidiaries (a) has sold or transferred (or is to sell or transfer) to, or arranged the purchase by, a Person other than the Borrower or any of its Subsidiaries or (b) intends to use for substantially the same purpose as any other Property that has been sold or is transferred (or is to be sold or transferred) by the Borrowers or such Subsidiary to a Person other than the Borrower or any of its Subsidiaries in connection with such lease.

S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor in interest.

Sarbanes-Oxley ” means the Sarbanes-Oxley Act of 2002.

SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

Secured Cash Management Services Agreement ” means any Cash Management Services Agreement that is entered into by and between the Borrower or any of its Subsidiaries and any Cash Management Bank.

Secured Party ” means the Administrative Agent, each Lender, the L/C Issuer, each Swap Bank, each Cash Management Bank , each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05 , and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

Secured Swap Contract ” means any interest rate or foreign exchange rate Swap Contract that is entered into by and between the Borrower or any of its Subsidiaries and any Swap Bank.

Securities Laws ” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board, as each of the foregoing may be amended and in effect on any applicable date hereunder.

Security Agreement ” means the Amended and Restated Security Agreement executed by the Borrower, the Subsidiary Guarantors and the Administrative Agent substantially in the form of Exhibit J hereto.

 

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Shareholders’ Equity ” means, as of the date of determination, consolidated shareholders’ equity of any Person and its Subsidiaries on a consolidated basis as of that date determined in accordance with GAAP.

SPC ” has the meaning specified in Section 10.06(g) .

Subject Properties ” has the meaning specified in Section 5.13(a) .

Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “ Subsidiary ” or to “ Subsidiaries ” shall refer to a Subsidiary or Subsidiaries of the Borrower.

Subsidiary Guarantor ” means each Domestic Subsidiary of the Borrower on the Closing Date and each other Subsidiary of the Borrower that joins as a Subsidiary Guarantor pursuant to Section 6.11 , together with their successors and permitted assigns, in each case, other than the Excluded Subsidiaries. As of the Closing Date, the Domestic Subsidiaries listed on part B of Schedule 1.01 hereto are Subsidiary Guarantors.

Subsidiary Guaranty ” means the Amended and Restated Subsidiary Guaranty Agreement duly executed by each Subsidiary Guarantor and the Administrative Agent, substantially in the form of Exhibit F hereto.

Swap Bank ” means any Lender or an Affiliate of a Lender in its capacity as a party to a Swap Contract in effect under the Existing Credit Agreement on the Closing Date or otherwise entered into on or after the Closing Date.

Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options (excluding, for the avoidance of doubt, any option imbedded in any Convertible Indebtedness), bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

 

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Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

Swing Line ” means the Facility made available by the Swing Line Lender pursuant to Section 2.04 .

Swing Line Borrowing ” means a borrowing of a Swing Line Loan pursuant to Section 2.04 .

Swing Line Lender ” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

Swing Line Loan ” has the meaning specified in Section 2.04(a) .

Swing Line Loan Notice ” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b) , which, if in writing, shall be substantially in the form of Exhibit B hereto.

Swing Line Sublimit ” means an amount equal to the lesser of (a) $60,000,000 and (b) the Facility. The Swing Line Sublimit is part of, and not in addition to, the Facility.

Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

Threshold Amount ” means $25,000,000.

Total Outstandings ” means the aggregate Outstanding Amount of all Revolving Credit Loans, Swing Line Loans and L/C Obligations.

Type ” has the meaning specified in the definition of “Loan”.

UCC ” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “ UCC ” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

Unaudited Financial Statements ” means (a) the unaudited consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal quarter ended March 31, 2011 and (b) the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date, subject to normal year-end adjustments.

 

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United States ” and “ U.S. ” mean the United States of America.

Unreimbursed Amount ” has the meaning specified in Section 2.03(c)(i) .

Voluntary Convertible Note Repurchase ” means the voluntary repurchase at any time and from time to time of any Convertible Indebtedness by any Loan Party.

Voting Securities ” means, with respect to any Person, securities or other ownership interests having by the terms thereof ordinary voting power to elect the board of directors or other persons performing similar functions of such Person (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency).

Wholly-Owned Subsidiary ” means (a) with respect to any Domestic Subsidiary of any Person, a Domestic Subsidiary of such Person that is wholly-owned by such Person and (b) with respect to any Foreign Subsidiary of any Person, either (i) a Foreign Subsidiary of such Person that is wholly-owned by such Person or (ii) if any Law applicable to such Foreign Subsidiary requires that directors of such Foreign Subsidiary own any amount of common Equity Interests in such Foreign Subsidiary, such Foreign Subsidiary of such Person so long as (i) the amount of common Equity Interests in such Foreign Subsidiary owned by such director or directors is the minimum amount required by applicable Law, (ii) ownership of such common Equity Interests does not give such director or directors, individually or in combination, the right or ability to control, directly or indirectly through one or more intermediaries, the management of such Foreign Subsidiary, and (iii) such Person, directly or indirectly, owns all the other Equity Interests in such Foreign Subsidiary other than the Equity Interest held by such director or directors.

1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “ without limitation .” The word “ will ” shall be construed to have the same meaning and effect as the word “ shall .” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “ hereto ,” “ herein ,” “ hereof ” and “ hereunder ,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular

 

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provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “ asset ” and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b) In the computation of periods of time from a specified date to a later specified date, the word “ from ” means “ from and including ;” the words “ to ” and “ until ” each mean “ to but excluding ;” and the word “ through ” means “ to and including .”

(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03 Accounting Terms. (a)  Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.

(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

(c) Pro Forma Calculations . Notwithstanding anything herein to the contrary, any calculation of the Consolidated Total Leverage Ratio and Consolidated Fixed Charge Coverage Ratio for any Reference Period during which an Acquisition or Disposition shall have occurred shall each be made on a Pro Forma Basis for purposes of making the following determinations:

(i) determining the applicable pricing level under the definition of “Applicable Rate”;

 

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(ii) determining compliance with the Consolidated Total Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio (other than whether the conditions precedent for a proposed transaction have been satisfied as contemplated by subsection (iii) of this Section 1.03(c) ); and

(iii) determining whether the conditions precedent have been satisfied for a proposed transaction which is permitted hereunder only so long as no Event of Default will result from the consummation thereof, including, without limitation, any Disposition or any Investment which results in an Acquisition.

(d) Consolidation of Variable Interest Entities . All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Borrower is required to consolidate pursuant to FASB ASC 810 as if such variable interest entity were a Subsidiary as defined herein.

1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

1.06 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided , however , that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

1.07 Amendment and Restatement. In order to facilitate the Amendment and Restatement:

(a) Existing Credit Agreement Superseded . Each of the Borrower and each other Loan Party, the Administrative Agent, the L/C Issuer and the Lenders hereby agree that upon the effectiveness of this Agreement, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended and restated in their entirety by the terms, conditions and provisions of this Agreement, and the terms and provisions of the Existing Credit Agreement, shall be superseded by this Agreement.

 

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(b) Continuing Obligations . All of the “Obligations” (as defined in the Existing Credit Agreement, the “ Existing Obligations ”) outstanding under the Existing Credit Agreement and other “Loan Documents” (as defined in the Existing Credit Agreement, the “ Existing Loan Documents ”) shall continue as Obligations hereunder to the extent not repaid on the Closing Date, and each of this Agreement and any other Loan Document (as defined herein) that is amended and restated in connection with this Agreement is given as a substitution of and modification of, and not as a payment of or novation of, the indebtedness, liabilities and Existing Obligations of the Borrower under the Existing Credit Agreement or any Existing Loan Document, and neither the execution and delivery of such documents nor the consummation of any other transaction contemplated hereunder is intended to constitute a novation of the Existing Credit Agreement or of any of the other Existing Loan Documents or any obligations thereunder.

(c) Reallocation of Commitments . Upon the effectiveness of this Agreement, all outstanding “Loans” given by the Lenders under and as defined in the Existing Credit Agreement owing by the Borrower under the Existing Credit Agreement shall be deemed to be Loans hereunder. The parties hereto acknowledge and agree that, notwithstanding the provisions regarding assignments set forth in Section 10.06 hereof, as of the Closing Date, (i) the Commitments and Applicable Percentages for each of the Lenders are as set forth on Schedule 2.01 and (ii) each Lender that is party to the Existing Credit Agreement whose loan commitments under the Existing Credit Agreement is greater than its Commitments hereunder shall be deemed to have assigned, without recourse, to one or more Lenders such portion of the such decreasing Lender’s existing loans and commitments under the Existing Credit Agreement as shall be necessary to effectuate the reallocation of commitments and existing loans contemplated hereby. Notwithstanding anything to the contrary in the Existing Credit Agreement or this Agreement, no other documents or instruments, including any Assignment and Assumption, shall be executed in connection with such assignments (all of which requirements are hereby waived), and such assignments shall be deemed to be made with all applicable representations, warranties and covenants as if evidenced by an Assignment and Assumption. On the Closing Date, the Lenders shall make full cash settlement with each other through the Administrative Agent with respect to all assignments, reallocations and other changes in commitments contemplated hereby such that after giving effect to such settlements each Lender’s Applicable Percentage with respect to the Facility shall be as set forth on Schedule 2.01 ; provided , that the foregoing re-allocations and deemed assignments shall not give rise to, and each Lender hereby waives, payment of any additional amounts under Section 3.05 .

(d) Existing Notes . Upon the effectiveness of this Agreement, (i) all “Term Notes” and all “Revolving Credit Notes” as defined in and issued under the Existing Credit Agreement shall be superseded and replaced by the Notes hereunder and such Term Notes and Revolving Credit Notes shall be deemed cancelled and of no further force and effect, regardless of whether such notes were returned to the Borrower; provided , that Lenders that were “Lenders” under the Existing Credit Agreement will use commercially reasonable efforts to locate and return to Borrower for cancellation all original “Term Notes” and all “Revolving Credit Notes” issued under the Existing Credit Agreement.

 

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ARTICLE II

COMMITMENTS AND CREDIT EXTENSIONS

2.01 Loans.

(a) [Intentionally Omitted].

(b) Revolving Credit Borrowings . Subject to the terms and conditions set forth herein, each Revolving Credit Lender severally agrees to make loans (each such loan, a “ Revolving Credit Loan ”) to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Commitment; provided , however , that after giving effect to any Revolving Credit Borrowing, (i) the Total Outstandings shall not exceed the Facility, and (ii) subject to Section 2.04(a) with respect to the Swing Line Lender, the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Revolving Credit Lender’s Commitment. Within the limits of each Revolving Credit Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01(b) , prepay under Section 2.05 , and reborrow under this Section 2.01(b) .

(c) Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.

2.02 Borrowings, Conversions and Continuations of Loans. (a) Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c) , each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, as the case may be, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, as applicable (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted or continued, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or

 

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continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans in any such Loan Notice, but fails to specify an Interest Period, the Borrower will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be made as or converted to a Eurodollar Rate Loan.

(b) Following receipt of a Loan Notice for a Facility, the Administrative Agent shall promptly notify each Appropriate Lender of the amount of its Applicable Percentage of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Appropriate Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a) . In the case of a Borrowing, each Appropriate Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01 ), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided , however , that if, on the date a Loan Notice with respect to a Revolving Credit Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Revolving Credit Borrowing shall be applied, first , to the payment in full of any such L/C Borrowings, and second shall be made available to the Borrower as provided above.

(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of an Event of Default, no Loans may be requested as, converted to, or continued as, Eurodollar Rate Loans without the consent of the Required Lenders.

(d) The Administrative Agent shall promptly notify the Borrower and the applicable Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

(e) After giving effect to all Revolving Credit Borrowings, all conversions of Revolving Credit Loans from one Type to the other, and all continuations of Revolving Credit Loans as the same Type, there shall not be more than ten (10) Interest Periods in effect with respect to the Facility at any time.

2.03 Letters of Credit. (a)  The Letter of Credit Commitment . (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Revolving Credit Lenders set forth in this Section 2.03 , (1) from time to time

 

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on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue standby Letters of Credit for the account of the Borrower or its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with Section 2.03(b) , and (2) to honor drawings under the Letters of Credit; and (B) the Revolving Credit Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower or its Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Facility, (y) the aggregate Outstanding Amount of the Revolving Credit Loans of any Revolving Credit Lender, plus such Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii) The L/C Issuer shall not issue any Letter of Credit, if:

(A) subject to Section 2.03(b)(iii), the expiry date of the requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

(B) the expiry date of the requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Revolving Credit Lenders have approved such expiry date.

(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing the Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the L/C Issuer with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

 

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(B) the issuance of the Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, the Letter of Credit is in an initial stated amount less than $500,000;

(D) the Letter of Credit is to be denominated in a currency other than Dollars;

(E) the Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder; or

(F) any Revolving Credit Lender is at that time a Defaulting Lender, unless the L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, reasonably satisfactory to the L/C Issuer (in its sole discretion) with the Borrower or such Revolving Credit Lender to eliminate the L/C Issuer’s actual or potential Fronting Exposure (after giving effect to Section 2.15(a)(iv )) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which the L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion.

(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof.

(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue the Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of the Letter of Credit does not accept the proposed amendment to the Letter of Credit.

(vi) The L/C Issuer shall act on behalf of the Revolving Credit Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit. (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may

 

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agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issu