LabCorp 2006 Annual Report Download - page 43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2006 41
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Zero-Coupon Convertible Subordinated Notes
In 2001, the Company sold $744.0 aggregate principal amount
at maturity of its zero-coupon convertible subordinated notes
(the “notes”) due 2021. The notes, which are subordinate to the
Company’s bank debt, were sold at an issue price of $671.65 per
$1,000 principal amount at maturity (representing a yield to maturity of
2.0% per year). Each one thousand dollar principal amount at maturity
of the notes is convertible into 13.4108 shares of the Company’s
common stock, subject to adjustment in certain circumstances, if one
of the following conditions occurs:
1) If the sales price of the Company’s common stock for at least
20 trading days in a period of 30 consecutive trading days
ending on the last trading day of the preceding quarter reaches
specified thresholds (beginning at 120% and declining 0.1282%
per quarter until it reaches approximately 110% for the quarter
beginning July 1, 2021 of the accreted conversion price per
share of common stock on the last day of the preceding quarter).
The accreted conversion price per share will equal the issue
price of a note plus the accrued original issue discount and any
accrued contingent additional principal, divided by the number
of shares of common stock issuable upon conversion of a note
on that day. The conversion trigger price for the fourth quarter of
2006 was approximately $65.37.
2) If the credit rating assigned to the notes by Standard & Poor’s
Ratings Services is at or below BB-.
3) If the notes are called for redemption.
4) If specified corporate transactions have occurred (such as if the
Company is party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets).
Holders of the notes may require the Company to purchase
in cash all or a portion of their notes on September 11, 2011 at
$819.54 per note, plus any accrued contingent additional principal
and any accrued contingent interest thereon.
The Company may redeem for cash all or a portion of the notes at
any time on or after September 11, 2006 at specified redemption prices
per one thousand dollar principal amount at maturity of the notes.
The Company has registered the notes and the shares of common
stock issuable upon conversion of the notes with the Securities and
Exchange Commission.
On September 19, 2006, the Company announced that for the
period of September 12, 2006 to March 11, 2007, the zero-coupon
subordinated notes will accrue contingent cash interest at a rate of
no less than 0.125% of the average market price of a zero-coupon
subordinated note for the five trading days ended September 7, 2006,
in addition to the continued accrual of the original issue discount.
On October 2, 2006, the Company announced that its zero-coupon
subordinated notes could be converted into Common Stock at the
conversion rate of 13.4108 per $1,000 principal amount at maturity
of the notes, subject to the terms of the zero-coupon subordinated
notes and the Indenture, dated as of September 11, 2001 between the
Company and The Bank of New York, as trustee and conversion agent.
In order to exercise the option to convert all or a portion of the zero-
coupon subordinated notes, Holders were required to validly surrender
their zero-coupon subordinated notes at any time during the calendar
quarter beginning October 1, 2006, through the close of business on
the last business day of the calendar quarter, which was 5:00 p.m.,
New York City time, on Friday, December 29, 2006. At December 31,
2006, $1.3 of the $744 aggregate principal amount at maturity had
been converted into 0.017 shares of the Company’s common stock.
Exchange Offer for Zero-Coupon Subordinated Notes
On September 22, 2006, the Company announced that it had commenced
an exchange offer related to its zero-coupon subordinated notes due
2021. In the exchange offer, the Company offered to exchange a new
series of zero-coupon convertible subordinated notes due September 11,
2021 (the “New Notes”) and an exchange fee of $2.50 per $1,000
aggregate principal amount at maturity for all of the outstanding zero-
coupon subordinated notes due 2021 (the “Old Notes”).
The purpose of the exchange offer was to exchange the Old Notes
for the New Notes with certain different terms, including the addition
of a net share settlement feature. The net share settlement feature will
require the Company to satisfy its obligation due upon conversion to
holders of the New Notes in cash for a portion of the conversion obliga-
tion equal to the accreted principal of the New Notes and in shares
for the remainder of the conversion value. In addition, the New Notes
provide that the Company will eliminate its option to issue shares in lieu
of paying cash if and when the Company repurchases the New Notes
at the option of holders.
On October 23, 2006, the exchange offer expired. Following
settlement of the exchange, $741.2 in aggregate principal amount at
maturity of the New Notes and $2.6 in aggregate principal amount at
maturity of the Old Notes were outstanding.
On January 9, 2007, the Company announced that its zero-coupon
subordinated notes could be converted into Common Stock subject to
the terms of the note and Indenture agreements dated September 11,
2001 for the Old Notes and to the note and Indenture agreements dated
October 24, 2006 for the New Notes. In order to exercise the option