LabCorp 2007 Annual Report Download - page 46

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
44 Laboratory Corporation of America® Holdings 2007
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 specifi ed 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 2007 was approximately $66.13.
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 specifi ed 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).
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 out-
standing 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
requires the Company to satisfy its obligation due upon conversion
to holders of the New Notes in cash for a portion of the conversion
obligation 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 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.
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 specifi ed 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 12, 2007, the Company announced that for the
period of September 12, 2007 to March 11, 2008, 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 fi ve trading days ended September 7, 2007,
in addition to the continued accrual of the original issue discount.
On October 3, 2007, 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, 2007, 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 31, 2007. At
December 31, 2007, $2.8 of the $744 aggregate principal amount
at maturity had been converted into 0.031 shares of the Company’s
common stock.
On January 4, 2008, 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 to convert all or a portion of the LYONs or Zero-Coupon Notes,
Laboratory Corporation of America