sv4za
As filed with the Securities and Exchange
Commission on October 27, 2011
Registration
No. 333-175396
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Johnson &
Johnson
(Exact name of registrant as
specified in its charter)
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New Jersey
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2834
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22-1024240
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
(Address, including ZIP Code,
and telephone number, including area code, of registrants
principal executive offices)
James J. Bergin, Esq.
Steven M. Rosenberg, Esq.
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
(Name, address, including ZIP
Code, and telephone number, including area code, of agent for
service)
Copies to:
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Robert I. Townsend, III, Esq.
Damien R. Zoubek, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone:
(212) 474-1000
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Terrance Carlson, Esq.
Synthes, Inc.
1302 Wrights Lane East
West Chester, Pennsylvania 19380
Telephone: (610) 719-5000
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Creighton OM. Condon, Esq.
Christa A. DAlimonte, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 848-4000
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Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after this Registration Statement becomes effective and upon
completion of the merger described in the enclosed proxy
statement/prospectus.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
o Exchange
Act
Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
o Exchange
Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
1302 Wrights Lane East
West Chester, Pennsylvania 19380
October 27,
2011
Dear Stockholder:
We cordially invite you to attend a special meeting of Synthes
stockholders to be held on Thursday, December 15, 2011 at
11:00 a.m., at Synthes European Headquarters,
Luzernstrasse 19, 4528 Zuchwil (Solothurn), Switzerland. At
the special meeting, we will ask you to consider and vote on a
proposal to adopt the Agreement and Plan of Merger we entered
into as of April 26, 2011, as it may be amended from time
to time, with Johnson & Johnson and its wholly owned
subsidiary, Samson Acquisition Corp., pursuant to which Samson
Acquisition Corp. will merge with and into Synthes. As a result
of the merger, Synthes will become a wholly owned subsidiary of
Johnson & Johnson.
Upon closing of the merger, each share of Synthes common stock
you hold will be converted into the right to receive a
combination of (i) CHF 55.65 in cash and (ii) shares
of Johnson & Johnson common stock. The number of
shares of Johnson & Johnson common stock you receive
will depend on the average of the volume weighted average
trading prices of Johnson & Johnson common stock on
each of the ten trading days ending two trading days prior to
the effective time of the merger. If the average of the volume
weighted average trading prices of Johnson & Johnson
stock on each day during this valuation period, as converted
into CHF on each day in the valuation period, is between CHF
52.54 and CHF 60.45, then you will receive a number of shares of
Johnson & Johnson common stock having an aggregate
value of CHF 103.35 in exchange for each of your shares of
Synthes common stock. If the average of the volume weighted
average trading prices of Johnson & Johnson common
stock on each day during the valuation period is less than CHF
52.54, then you will receive 1.9672 shares of
Johnson & Johnson stock in exchange for each of your
shares of Synthes common stock. If the average of the volume
weighted average trading prices of Johnson & Johnson
common stock on each day during the valuation period is greater
than CHF 60.45, then you will receive 1.7098 shares of
Johnson & Johnson common stock in exchange for each of
your shares of Synthes common stock.
Johnson & Johnson common stock is listed on the New
York Stock Exchange under the trading symbol JNJ and
on October 24, 2011 the last practicable date before the date of
the accompanying proxy statement/prospectus, its closing price
was $64.73 per share.
The Synthes board of directors unanimously determined that
the merger is fair to and in the best interests of Synthes and
its stockholders, approved the merger agreement and recommends
that you vote FOR adoption of the merger
agreement.
Your vote is very important. Subject to the
terms and conditions of a voting agreement dated as of
April 26, 2011, Mr. Hansjörg Wyss, the Chairman
of the Synthes board of directors, Ms. Amy Wyss, a Synthes
director, and two trusts, the beneficiaries of which are Wyss
family members, have agreed, among other things, to vote
44,825,825 of their shares of Synthes common stock (representing
approximately 37.75% of the shares entitled to vote at the
special meeting) FOR the adoption of the merger
agreement. However, we cannot complete the merger unless the
merger agreement is adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Synthes
common stock entitled to vote at the special meeting. Only
stockholders entered in the stock ledger at the close of
business on October 20, 2011, the record date for the
special meeting, are entitled to notice of and to vote at the
special meeting and any adjournment or postponement of it.
Admission cards can be ordered until December 6, 2011 from
your custodian bank. Admission cards with the corresponding
voting material will be dispatched as from November 21,
2011 onwards. The special meeting will be conducted in German.
Please review the accompanying proxy statement/prospectus
carefully. In particular, you should consider the matters
discussed under Risk Factors beginning on
page 16 of the accompanying proxy statement/prospectus
before voting.
Thank you for your support; we appreciate your consideration of
this matter.
On behalf of the Board of Directors of Synthes, Inc.,
Dr. h.c.
mult. Hansjörg Wyss
Chairman of the Board
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved the merger
described in this proxy statement/prospectus or the
Johnson & Johnson common stock to be issued in
connection with the merger, or determined if this proxy
statement/prospectus is accurate or adequate. Any representation
to the contrary is a criminal offense.
This proxy
statement/prospectus is dated October 27, 2011,
and is first being mailed to stockholders on or about
November [ ], 2011.
REFERENCES
TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference
important business and financial information about
Johnson & Johnson from documents that are not included
in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your written
or oral request. You can obtain the documents incorporated by
reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Johnson & Johnson at
the following address and telephone number:
JOHNSON &
JOHNSON
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Attention: Office of Corporate Secretary
Telephone:
(732) 524-2455
If you would like to request documents, please do so by
December 1, 2011 in order to receive them before the
special meeting.
See
Where You Can Find More Information beginning on
page 116.
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Synthes, Inc.
c/o Synthes GmbH
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Eimattstrasse 3
4436 Oberdorf BL
Switzerland
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Tel. +41 61 965 61 11
Fax +41 61 965 66 00
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Notice of and Invitation to the Special Meeting of
Stockholders 2011
Thursday, December 15, 2011 at 11:00 am (doors open
at 10:30 am)
Synthes GmbH, Luzernstrasse 19, 4528 Zuchwil (Solothurn)
Oberdorf, November [ ], 2011
Dear Stockholders,
We would like to invite you to attend the Special Meeting of
Stockholders of Synthes, Inc. (hereafter Synthes), which will
take place on Thursday, December 15, 2011 at 11:00 am
at our premises at Luzernstrasse 19 in Zuchwil (Solothurn),
Switzerland.
The Special Meeting of Stockholders will be conducted in German
only. Subsequent to the meeting you are cordially invited to
join us for a cocktail reception.
Purpose
of the Special Meeting
The purposes of the Special Meeting are:
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To consider and vote upon a proposal to adopt the agreement and
plan of merger, dated as of April 26, 2011, as it may be
amended from time to time, among Johnson & Johnson,
Samson Acquisition Corp., a wholly owned subsidiary of
Johnson & Johnson, and Synthes, pursuant to which
Samson Acquisition Corp. will merge with and into Synthes. As a
result of the merger, Synthes will become a wholly owned
subsidiary of Johnson & Johnson, and each outstanding
share of Synthes common stock will be converted into the right
to receive a combination of (i) CHF 55.65 in cash and
(ii) a number of shares of Johnson & Johnson
common stock based on an exchange ratio that will be calculated
based upon the average of the volume weighted average trading
prices of Johnson & Johnson common stock on each of
the ten trading days ending two trading days prior to the
effective time of the merger; and
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To consider and vote upon a proposal to adjourn the Special
Meeting, if necessary or appropriate, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the Special Meeting to adopt the merger agreement.
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We will transact no other business at the Special Meeting except
such business as may properly be brought by the Synthes board of
directors before the Special Meeting or any adjournment or
postponement of it.
The number of shares of Johnson & Johnson common stock
you receive will depend on the average of the volume weighted
average trading prices of Johnson & Johnson common
stock on each of the ten trading days ending two trading days
prior to the effective time of the merger, as converted into CHF
on each day in this valuation period. If the average of the
volume weighted average trading prices of Johnson &
Johnson stock on each day during this valuation period, as
converted into CHF on each day in the valuation period, is
between CHF 52.54 and CHF 60.45, then you will receive a number
of shares of Johnson & Johnson common stock having an
aggregate value of CHF 103.35 in exchange for each of your
shares of Synthes common stock. If the average of the volume
weighted average trading prices of Johnson & Johnson
common stock on each day during the valuation period is less
than CHF 52.54, then you will receive 1.9672 shares of
Johnson & Johnson stock in exchange for each of your
shares of Synthes common stock. If the average of the volume
weighted average trading prices of Johnson & Johnson
common stock on each day during the valuation period is greater
than CHF 60.45, then you will receive 1.7098 shares of
Johnson & Johnson common stock in exchange for each of
your shares of Synthes common stock.
The Synthes Board of Directors unanimously determined that
the merger is fair to, and in the best interests of, Synthes and
its stockholders, approved the merger agreement and recommends
that you vote FOR adoption of the merger
agreement.
Attendance
procedures
Documents
The proxy statement/prospectus can be downloaded on
www.synthes.com (Investors/Media section). Alternatively a
hardcopy of the documentation (app. 300 pages) can be
ordered via mail,
e-mail or
phone from the address noted below under Questions.
Record
date for voting
Only stockholders entered in the stock ledger at the close of
business on October 20, 2011, the record date for the
Special Meeting, are entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement of it.
Admission
cards
Admission cards can be ordered until December 6, 2011, from
your custodian bank. Admission cards with the corresponding
voting material will be dispatched as from November 21,
2011, onwards.
Representation/Granting
proxy
Stockholders who will not be attending the Special Meeting in
person may appoint a proxy to represent them. To do this,
stockholders must sign their admission card/proxy form and
deliver them to the person they wish to appoint. In particular,
stockholders may elect to have their bank as a proxy holder of
deposited shares (Depotvertreter), or they may be represented by
the designated independent proxy.
Dr. Oscar Battegay, attorney at law and notary public,
Heuberg 7, PO Box 2032, 4001 Basel, Switzerland, phone
+41 58 387 95 00, fax +41 58 387 95 99, serves as the designated
independent proxy. Stockholders wishing to be represented by the
independent proxy should send their proxy authorizations and
instructions directly to Dr. Battegay. If you appoint
Dr. Battegay as your proxy, your votes will be cast
FOR the proposal of the Board of Directors, absent
written instructions to the contrary.
Additionally if you appoint Synthes, Inc. to represent you as
your proxy, your votes will be cast FOR the proposal
of the Board of Directors. Authorized proxies will accept voting
instructions until December 8, 2011.
You may revoke your proxy prior to the Special Meeting in the
manner described in the proxy statement/prospectus.
Representatives of custodian banks are requested to notify
Synthes as soon as possible, at the latest at the admission
office on the day of the Special Meeting, of the number of the
shares they are representing.
Questions
We request that you direct any questions with regard to the
Special Meeting to:
Synthes GmbH, Investor Relations, Eimattstrasse 3, 4436 Oberdorf
BL, Switzerland, phone +41 32 720 46 38,
e-mail
investor.relations@synthes.com.
Yours faithfully,
On behalf of the Board of Directors of Synthes, Inc.
Dr. h.c. mult. Hansjörg Wyss Chairman of the Board
TABLE OF
CONTENTS
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Q-1
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F-1
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A-1
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B-1
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C-1
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D-1
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EX-5.1 |
EX-23.2 |
EX-23.3 |
EX-99.2 |
EX-99.3 |
ii
QUESTIONS
AND ANSWERS
The following are some questions that you, as a stockholder
of Synthes, may have regarding the merger and the answers to
those questions. Johnson & Johnson and Synthes urge
you to read carefully the remainder of this proxy
statement/prospectus because the information in this section
does not provide all the information that might be important to
you with respect to the merger. Additional important information
is also contained in the Annexes to and the documents
incorporated by reference in this proxy statement/prospectus.
All references in this proxy statement/prospectus to
Johnson & Johnson refer to
Johnson & Johnson, a New Jersey corporation; all
references in this proxy statement/prospectus to
Synthes refer to Synthes, Inc., a Delaware
corporation; all references in this proxy statement/prospectus
to Samson Acquisition Corp. refer to Samson
Acquisition Corp., a Delaware corporation and a direct wholly
owned subsidiary of Johnson & Johnson; unless
otherwise indicated or as the context requires, all references
in this proxy statement/prospectus to we,
our and us refer to Johnson &
Johnson and Synthes collectively; and all references to the
merger agreement refer to the Agreement and Plan of
Merger, dated as of April 26, 2011, among
Johnson & Johnson, Synthes and Samson Acquisition
Corp., a copy of which is included as Annex A to this proxy
statement/prospectus. Johnson & Johnson following
completion of the merger is sometimes referred to in this proxy
statement/prospectus as the combined company.
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What am I being asked to vote on? |
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You are being asked to vote to adopt the merger agreement, as it
may be amended from time to time, entered into among
Johnson & Johnson, Samson Acquisition Corp., a wholly
owned subsidiary of Johnson & Johnson, and Synthes or
to adjourn the special meeting to a later date, if necessary or
appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to adopt
the merger agreement. In the merger, Samson Acquisition Corp.
will be merged with and into Synthes. |
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What will happen to Synthes as a result of the merger? |
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If the merger is completed, Synthes will become a wholly owned
subsidiary of Johnson & Johnson, and shares of Synthes
common stock will be cancelled and delisted from the SIX Swiss
Exchange. |
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What will I receive in the merger? |
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Upon closing of the merger, you will receive a combination of
(i) CHF 55.65 in cash and (ii) shares of
Johnson & Johnson common stock. The number of shares
of Johnson & Johnson common stock you receive will
depend on the average of the volume weighted average trading
prices of Johnson & Johnson common stock during the
ten trading days ending two trading days prior to the effective
time of the merger, as converted into CHF on each day in this
valuation period: |
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You will receive CHF 103.35 in shares of
Johnson & Johnson common stock in exchange for each
share of Synthes common stock that you own if the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each day during the valuation period, as
converted into CHF on each day in the valuation period, is
between CHF 52.54 and CHF 60.45 per share.
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You will receive 1.7098 shares of
Johnson & Johnson common stock in exchange for each
share of Synthes common stock that you own if the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each day during the valuation period, as
converted into CHF on each day in the valuation period, is
greater than CHF 60.45.
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You will receive 1.9672 shares of
Johnson & Johnson common stock in exchange for each
share of Synthes common stock that you own if the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each day during the valuation period, as
converted into CHF on each day in the valuation period, is less
than CHF 52.54.
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Does the Synthes board of directors support the merger? |
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Yes. The Synthes board of directors believes that the merger is
fair to, and in the best interests of, Synthes and its
stockholders, unanimously declared advisable and approved the
merger agreement and recommends that the stockholders vote
FOR the adoption of the merger agreement. |
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What vote is required to adopt the merger agreement? |
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The adoption of the merger agreement requires the affirmative
vote of a majority of the shares of Synthes common stock
outstanding as of the record date for the special meeting. In
connection with the merger, |
Q-1
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Mr. Hansjörg Wyss, the Chairman of the Synthes board
of directors, Ms. Amy Wyss, a Synthes director, and two
trusts, the beneficiaries of which are Wyss family members,
entered into a voting agreement with Johnson & Johnson
dated as of April 26, 2011, which we refer to as the
voting agreement, in which they agreed, among other
things, to vote 44,825,825 of their shares of Synthes common
stock FOR the adoption of the merger agreement,
subject to the terms and conditions of the voting agreement.
Please see the section entitled The Merger
Agreement The Voting Agreement on page 74
of this proxy statement/prospectus for a more detailed summary
of the terms and conditions of the voting agreement. A copy of
the voting agreement is attached to this proxy
statement/prospectus as Annex B. |
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Where and when is the special meeting of stockholders? |
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The Synthes special meeting will be held on Thursday,
December 15, 2011 at 11:00 a.m., at Synthes
European Headquarters, Luzernstrasse 19, 4528 Zuchwil
(Solothurn), Switzerland. You may attend the special meeting and
vote your shares in person, rather than completing, signing,
dating and returning your proxy. However, you must have an
admission card to attend the special meeting. To obtain an
admission card, please request one from your custodian bank
where your shares are held in custody as soon as possible.
Admission cards can be ordered until December 6, 2011 from
your custodian bank. Admission cards with the corresponding
voting materials will be dispatched as from November 21,
2011, onwards. |
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Who can vote at the special meeting? |
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You can vote at the special meeting if you owned shares of
Synthes common stock entered in the stock ledger at the close of
business on October 20, 2011, the record date for the
special meeting. As of the close of business on that day,
118,756,463 shares of Synthes common stock were outstanding. |
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What do I need to do now? |
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After carefully reading and considering the information
contained in this proxy statement/prospectus, please request
your admission card and corresponding voting material (including
a proxy form) from your custodian bank as soon as possible, and
in any event prior to December 6, 2011. Once you have
received the materials, you may vote your shares by attending
the special meeting and voting your shares in person at the
special meeting, or by completing a proxy form (instructions are
provided on the form). If you sign and return your proxy form
and do not indicate how you want to vote, your proxy will be
voted in favor of adoption of the merger agreement and in favor
of the adjournment proposal, if any. |
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Can I change my vote after I have mailed my signed proxy? |
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Yes. You can change your vote at any time prior to the time it
is voted at the special meeting. You can do this in one of three
ways. First, you can execute and deliver to Synthes a
later-dated proxy form relating to the same shares. Second, you
can file with Synthes acting Secretary a written notice of
revocation bearing a later date than the proxy form. Any such
written notice of revocation or subsequent proxy form must be
received by Synthes before the taking of the vote at the special
meeting and should be delivered to Synthes, Inc., Investor
Relations,
c/o Synthes
GmbH, Eimattstrasse 3, 4436 Oberdorf BL, Switzerland, or hand
delivered to Synthes acting Secretary or her
representative before the taking of the vote at the special
meeting. Third, you can attend the special meeting and vote in
person. Attendance at the special meeting will not, in and of
itself, constitute revocation of a proxy. |
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In addition to the three methods described above, stockholders
who have appointed Dr. Oscar Battegay as their proxy may
revoke such proxy by sending a written notice of revocation
bearing a later date than the proxy form or a later-dated proxy
form relating to the same shares and delivering it by mail so
that it is received by the designated independent proxy,
Dr. Oscar Battegay, before December 8, 2011. Such
revocation or proxy form should be delivered to Heuberg 7,
PO Box 2032, 4001 Basel, Switzerland, Attention:
Dr. Oscar Battegay. |
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For stockholders whose shares are held in street
name, and who have either instructed the record holder of
their shares on how to vote their shares or obtained a proxy
form from the record holder to vote at the special meeting,
please check with your bank, broker, nominee, fiduciary or other
custodian for information on how to revoke your instructions to
them. |
Q-2
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If my shares of Synthes common stock are held in street
name by my broker, will my broker vote my shares for
me? |
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Your broker will vote your shares of Synthes common stock only
if you provide instructions on how to vote. You should follow
the directions provided by your broker regarding how to instruct
your broker to vote your shares. Without instructions, your
shares will not be voted, which will have the effect of a vote
against the adoption of the merger agreement. |
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Is the merger expected to be taxable to me? |
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The receipt of the merger consideration in exchange for Synthes
common stock pursuant to the merger will be a taxable
transaction for United States federal income tax purposes. For
United States federal income tax purposes, generally you will
recognize capital gain or loss as a result of the merger
measured by the difference, if any, between (i) the sum of
(a) the fair market value of the Johnson &
Johnson common stock as of the effective time of the merger and
(b) the U.S. dollar value of the Swiss francs received and
(ii) your adjusted tax basis in the Synthes common stock
exchanged therefor in the merger. You should read The
Merger Material United States Federal Income Tax
Consequences of the Merger beginning on page 55 for a
more complete discussion of the United States federal income tax
consequences of the merger. Tax matters can be complicated and
the tax consequences of the merger to you will depend on your
particular tax situation. We urge you to consult your tax
advisor to determine the tax consequences of the merger to you. |
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Swiss-resident individual taxpayers holding Synthes common stock
as their private property should realize a tax-free private
capital gain or a non-tax-deductible loss, as the case may be,
for Swiss federal, cantonal and municipal income tax purposes
with respect to all or part of the shares of Johnson &
Johnson common stock received in the merger. A portion of the
merger consideration will be received in cash, and all or part
may be treated as taxable income for Swiss federal, cantonal and
municipal income tax purposes. Swiss-resident corporate and
individual taxpayers as well as corporate and individual
taxpayers resident abroad who hold Synthes common stock as part
of Swiss business assets are required to recognize any capital
gains realized as a result of the merger in their income
statement for the respective tax period and are subject to Swiss
federal, cantonal and municipal individual or corporate income
tax, as the case may be, on any net taxable earnings (including
a capital gain realized as a result of the merger) for such
period. You should read The Merger Material
Swiss Tax Consequences of the Merger beginning on
page 57 for a more complete discussion of the Swiss tax
consequences of the merger. Tax matters can be complicated, and
the tax consequences of the merger to you will depend on your
particular tax situation. We urge you to consult your tax
advisor to determine the tax consequences of the merger to you. |
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When do you expect the merger to be completed? |
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We are working to complete the merger as quickly as possible. If
the merger agreement is adopted by Synthes stockholders, it is
anticipated that the merger will be completed during the first
half of 2012, subject to the receipt of required stockholder and
regulatory approvals. However, it is possible that factors
outside our control could require us to complete the merger at a
later time or not complete it at all. |
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Can I dissent and require appraisal of my shares? |
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Yes. Synthes stockholders have appraisal rights under Delaware
law in connection with the merger. See The
Merger Appraisal Rights beginning on
page 49. |
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Who can help answer my questions? |
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If you have any questions about the merger or if you need
additional copies of this proxy statement/prospectus or the
proxy form, you should contact: |
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Synthes, Inc., Investor Relations
c/o Synthes
GmbH
Eimattstrasse 3
4436 Oberdorf BL, Switzerland
Email: investor.relations@synthes.com
Phone: +41 32 720 46 38 |
Q-3
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all the information
that is important to you. To understand the merger fully and for
a more complete description of the legal terms of the merger,
you should carefully read this entire proxy statement/prospectus
and the other documents to which we refer you, including in
particular the copies of the merger agreement and the voting
agreement that are attached to this proxy statement/prospectus
as Annexes A and B, respectively. See also Where You
Can Find More Information beginning on page 116. We
have included page references parenthetically to direct you to a
more complete description of the topics presented in this
summary.
The
Companies
Johnson &
Johnson (page 25)
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
Johnson & Johnson and its subsidiaries have
approximately 114,000 employees worldwide engaged in the
research and development, manufacture and sale of a broad range
of products in the health care field.
Johnson & Johnson is a holding company, which has
more than 250 operating companies conducting business in
virtually all countries of the world. Johnson &
Johnsons primary focus has been on products related to
human health and well-being. Johnson & Johnson is a
New Jersey corporation, incorporated in the State of New Jersey
in 1887.
Additional information about Johnson & Johnson and its
subsidiaries is included in the documents incorporated by
reference in this proxy statement/prospectus. See Where
You Can Find More Information beginning on page 116.
Samson
Acquisition Corp. (page 25)
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
Samson Acquisition Corp., a wholly owned subsidiary of
Johnson & Johnson, is a Delaware corporation that was
formed on April 21, 2011 solely for the purpose of
effecting the merger and the other transactions contemplated by
the merger agreement and has not engaged, and does not expect to
engage, in any other business activities.
Synthes,
Inc. (page 25)
Synthes, Inc.
1302 Wrights Lane East
West Chester, Pennsylvania 19380
Telephone:
(610) 719-5000
Synthes is a global medical device company that develops,
produces and markets instruments, implants and biomaterials for
the surgical fixation, correction and regeneration of the human
skeleton and its soft tissues. Synthes has more than
11,400 employees and operates and sells products in
42 countries worldwide. Synthes is a Delaware corporation,
incorporated in the State of Delaware in 1999 (originally under
the corporate name Synstra, Inc.).
1
The
Merger
Form
of the Merger (page 46)
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, at the effective time of the
merger, Samson Acquisition Corp., a wholly owned subsidiary of
Johnson & Johnson and a party to the merger agreement,
will merge with and into Synthes. Synthes will continue as the
surviving corporation of the merger and will become a wholly
owned subsidiary of Johnson & Johnson.
Merger
Consideration (page 46)
In the merger, each issued and outstanding share of Synthes
common stock (other than shares owned by Synthes as treasury
stock, shares owned by Johnson & Johnson and shares
for which appraisal rights have been properly exercised and
perfected under the General Corporation Law of the State of
Delaware (the DGCL)) will be automatically converted
into the right to receive a combination of (i) CHF 55.65 in
cash and (ii) shares of Johnson & Johnson common
stock. The number of shares of Johnson & Johnson
common stock each Synthes stockholder will receive is based on
the average of the volume weighted average trading prices of
Johnson & Johnson common stock on each of the ten
trading days ending two trading days prior to the effective time
of the merger, as converted into CHF on each day in this
valuation period. If the average of the volume weighted average
trading prices of Johnson & Johnson common stock on
each day during the valuation period is between CHF 52.54 and
CHF 60.45, then each share of Synthes common stock will be
converted into the right to receive a number of shares of
Johnson & Johnson common stock having an aggregate
value of CHF 103.35. If the average of the volume weighted
average trading prices of Johnson & Johnson common
stock on each day during the valuation period is less than CHF
52.54, then each share of Synthes common stock will be converted
into the right to receive 1.9672 shares of
Johnson & Johnson common stock. If the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each day during the valuation period is
greater than CHF 60.45, then each share of Synthes common stock
will be converted into the right to receive 1.7098 shares
of Johnson & Johnson common stock.
Holders of Synthes common stock will receive cash in lieu of any
fractional shares of Johnson & Johnson common stock
they otherwise would have received in the merger. Each Synthes
stockholder who would otherwise have been entitled to receive a
fraction of a share of Johnson & Johnson common stock
will receive an amount in cash (without interest, rounded down
to the nearest whole cent and subject to withholding taxes)
equal to the product obtained by multiplying (1) the
fractional share interest to which such holder (after taking
into account all fractional share interests then held by such
holder) would otherwise be entitled by (2) the average of
the volume weighted averages of the trading prices, as reported
by Bloomberg L.P., of Johnson & Johnson common stock
on each of the ten trading days ending two trading days prior to
the effective time of the merger, as converted into CHF on each
day during this valuation period.
The CHF 55.65 in cash and the number of shares of
Johnson & Johnson common stock to be received by
holders of Synthes common stock in the merger are referred to
collectively as the merger consideration.
The exchange ratio will be determined shortly before completion
of the merger. On October 24, 2011, the latest practicable
date before the date of this proxy statement/prospectus,
Johnson & Johnson common stock closed on the New York
Stock Exchange (the NYSE), at $64.73, the CHF
equivalent of which is CHF 57.26 per share, as of such date. If
this were the volume weighted average trading price per share of
Johnson & Johnson common stock used to calculate the
exchange ratio, the exchange ratio would be 1.8049. The actual
exchange ratio and, accordingly, the actual number of shares of
Johnson & Johnson common stock issued in respect of
each share of Synthes common stock in the merger, may differ
from this example and will not be known at the special meeting
because the valuation period will not occur until after the
special meeting.
Completion
of the Merger (page 46)
Johnson & Johnson and Synthes currently expect to
complete the merger during the first half of 2012, subject to
the receipt of required stockholder and regulatory approvals and
the satisfaction or waiver of the conditions to the
2
merger described in the merger agreement. However, it is
possible that factors outside of our control could require us to
complete the merger at a later date or not complete it at all.
Treatment
of Synthes Stock Options and Other Equity Based Awards
(page 54)
Each outstanding Synthes stock option will be cancelled upon the
closing of the merger and converted into an amount in cash equal
to the excess, if any, of (A) the sum of (x) the CHF
55.65 cash consideration in the merger and (y) the product
of the share exchange ratio multiplied by the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each of the ten trading days ending two
trading days prior to the effective time of the merger, as
converted into CHF on each day in this valuation period, over
(B) the exercise price per share of Synthes common stock
subject to the option, less applicable withholding taxes, if any.
Each Synthes restricted stock award will become fully vested
upon the closing of the merger, and the holder of the restricted
stock award will be entitled to receive, without any interest
thereon, the merger consideration less applicable withholding
taxes.
Ownership
of Johnson & Johnson Following the Merger
(page 47)
Based on the number of outstanding shares of Synthes common
stock on the record date and the number of outstanding shares of
Johnson & Johnson common stock on October 24,
2011, we anticipate that Synthes stockholders will own between
approximately 7% and 8% of the outstanding shares of
Johnson & Johnson common stock following the merger.
Material
United States Federal Income Tax Consequences of the Merger
(page 55)
The receipt of the merger consideration in exchange for Synthes
common stock pursuant to the merger will be a taxable
transaction for United States federal income tax purposes. For
United States federal income tax purposes, generally you will
recognize capital gain or loss as a result of the merger
measured by the difference, if any, between (i) the sum of
(a) the fair market value of the Johnson &
Johnson common stock as of the effective time of the merger and
(b) the U.S. dollar value of the Swiss francs received
and (ii) your adjusted tax basis in the Synthes common
stock exchanged therefor in the merger.
You should read The Merger Material United
States Federal Income Tax Consequences of the Merger for a
more complete discussion of the United States federal income tax
consequences of the merger. Tax matters can be complicated,
and the tax consequences of the merger to you will depend on
your particular tax situation. We urge you to consult your tax
advisor to determine the tax consequences of the merger to
you.
Material
Swiss Tax Consequences of the Merger
(page 57)
Swiss-resident individual taxpayers holding Synthes common stock
as their private property should realize a tax-free private
capital gain or a non-tax-deductible loss, as the case may be,
for Swiss federal, cantonal and municipal income tax purposes
with respect to all or part of the shares of Johnson &
Johnson common stock received in the merger. A portion of the
merger consideration will be received in cash, and all or part
may be treated as taxable income for Swiss federal, cantonal and
municipal income tax purposes. Swiss-resident corporate and
individual taxpayers as well as corporate and individual
taxpayers resident abroad who hold Synthes common stock as part
of Swiss business assets are required to recognize any capital
gains realized as a result of the merger in their income
statement for the respective tax period and are subject to Swiss
federal, cantonal and municipal individual or corporate income
tax, as the case may be, on any net taxable earnings (including
a capital gain realized as a result of the merger) for such
period.
You should read The Merger Material Swiss Tax
Consequences of the Merger for a more complete discussion
of the Swiss tax consequences of the merger. Tax matters can
be complicated, and the tax consequences of the merger to you
will depend on your particular tax situation. We urge you to
consult your tax advisor to determine the tax consequences of
the merger to you.
3
Recommendation
of the Synthes Board of Directors (page 31)
The Synthes board of directors believes that the merger is fair
to, and in the best interests of, Synthes and its stockholders,
unanimously declared advisable and approved the merger agreement
and recommends that the stockholders vote FOR the
adoption of the merger agreement.
To review the background of and reasons for the merger, as well
as certain risks related to the merger, see The
Merger Background to the Merger,
Reasons for the Merger and Recommendation of
the Synthes Board of Directors and Risk
Factors beginning on pages 26, 31 and 16,
respectively.
Opinion
of Synthes Financial Advisor (page 35)
In connection with the merger, Synthes financial advisor,
Credit Suisse Securities (USA) LLC, referred to as Credit
Suisse, delivered an opinion, dated April 25, 2011, to the
Synthes board of directors as to the fairness, from a financial
point of view and as of the date of such opinion, of the merger
consideration to be received by holders of Synthes common stock
(other than holders entering into the voting agreement and their
respective affiliates). The full text of Credit Suisses
written opinion is attached to this proxy statement/prospectus
as Annex C and sets forth, among other things, the
procedures followed, assumptions made, matters considered and
limitations on the scope of review undertaken. Credit
Suisses opinion was provided to the Synthes board of
directors (in its capacity as such) for its information in
connection with its evaluation of the merger consideration and
did not address any other aspect of the proposed merger,
including the relative merits of the merger as compared to
alternative transactions or strategies that might be available
to Synthes or the underlying business decision of Synthes to
proceed with the merger. The opinion does not constitute advice
or a recommendation to any stockholder as to how such
stockholder should vote or act on any matter relating to the
proposed merger or otherwise.
Interests
of Synthes Directors and Executive Officers in the Merger
(page 40)
In considering the recommendation of the Synthes board of
directors in favor of the adoption of the merger agreement,
Synthes stockholders should be aware that certain directors and
executive officers of Synthes have interests in the merger that
may be different from, or in addition to, the interests of other
Synthes stockholders generally. These interests include the
following:
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All outstanding options to purchase Synthes common stock under
Synthes equity incentive plans, including those held by
Synthes executive officers, would accelerate and vest upon
the closing of the merger. The options would be cancelled and
each option would be converted into an amount of cash equal to
the excess, if any, of the value of the merger consideration
over the exercise price of the option. As of October 20,
2011, unvested options held by Synthes executive officers
relating to 192,500 shares of Synthes common stock would be
subject to cancellation and exchange for cash if the merger is
completed. As of October 20, 2011, no directors held
options.
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All restrictions imposed on restricted stock granted under
Synthes equity incentive plans, including restricted stock
held by Synthes executive officers, would lapse upon the
closing of the merger. As of October 20, 2011, 76,035
restricted shares of Synthes common stock held by Synthes
executive officers would be subject to accelerated vesting if
the merger is completed. As of October 20, 2011, no
directors held restricted stock.
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Closing of the merger would constitute a change in
control under the executive officers employment and
change in control severance agreements, which generally entitle
the executive officers to severance payments and tax
gross-ups if
their employment is terminated during the two-year period
following the merger either by Synthes without Cause
or by the executive officers for Good Reason (as
such terms are defined in the applicable agreements).
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Members of the Synthes board of directors receive a grant of
shares of Synthes common stock as their annual retainer for
service on the board. They will receive a pro-rata portion of
their annual grant covering the period of service between the
previous grant and the closing of the merger.
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In connection with the Synthes board of directors
exploration of a potential sale of the company, Synthes entered
into retention bonus agreements with employees including the
executive officers, most of which were amended in connection
with the merger. Under the terms of the retention bonus
agreements, each executive officer, other than
Messrs. Hansjörg Wyss, Michel Orsinger, Robert Donohue
and William Wachter, will receive a bonus on the first and
second anniversaries of the merger if they remain continuously
employed by Synthes through such dates. Messrs. Orsinger
and Donohue will receive a bonus on the closing date of the
merger and the six-month anniversary of the merger if they
remain continuously employed by Synthes through such dates.
Mr. Wachter will receive a bonus on the closing date of the
merger and the one-year anniversary of the merger if he remains
continuously employed by Synthes through such dates. In each
case, if the executive officer is terminated without
Cause or resigns for Good Reason (as
such terms are defined in the executives employment or
change in control severance agreement, as applicable) following
the merger and prior to the final payment date, the executive
officer would be entitled to the full payment if the executive
officer signs, and does not revoke, a release in favor of
Synthes.
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In connection with the Employment Agreement between
Mr. Wyss and Synthes, Mr. Wyss will be entitled to
certain retirement benefits upon the expiration of his current
term as Chairman of the Board on April 30, 2012, or upon
his earlier resignation or termination without cause.
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Current and former officers and members of the Synthes board of
directors will retain all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at
or prior to the effective time of the merger and such rights
will continue following closing of the merger. The merger
agreement also provides that for six years after the effective
time of the merger, Johnson & Johnson will maintain
directors and officers liability insurance covering
each person who was, as of the date of the merger agreement,
covered by Synthes directors and officers
liability insurance.
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The Synthes board of directors was aware of these interests and
considered them, among other matters, when approving the merger
agreement.
For a more complete description, see The
Merger Interests of Synthes Directors and
Executive Officers in the Merger.
Regulatory
Approvals Required for the Merger (page 48)
The following is a summary of the material regulatory
requirements for completion of the merger. There can be no
guarantee if and when any of the consents or approvals required
for the merger will be obtained or as to the conditions that
such consents and approvals may contain. For further
information, please see Risk Factors beginning on
page 16.
United States Antitrust. Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), and related rules, certain transactions, including
the merger, may not be completed until notifications have been
given and information furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and all
statutory waiting period requirements have been satisfied.
Johnson & Johnson and Synthes filed Notification and
Report Forms with the Antitrust Division of the Department of
Justice and the Federal Trade Commission on June 6, 2011.
Johnson & Johnson withdrew its Notification and Report
Form on July 5, 2011 in order to allow more time for the
staff of the Federal Trade Commission to review the proposed
transaction and re-filed it on July 7, 2011. On
August 8, 2011, Johnson & Johnson and Synthes
received from the Federal Trade Commission a Request for
Additional Information and Documentary Materials (a Second
Request). The waiting period under the HSR Act with
respect to the proposed merger will expire at 11:59 p.m.,
Eastern Time, on the 30th day after both
Johnson & Johnson and Synthes have substantially
complied with the Second Request, unless earlier terminated by
the Federal Trade Commission or extended by agreement among the
parties and the Federal Trade Commission.
At any time before or after the effective time of the merger,
the Antitrust Division, the Federal Trade Commission or others
(including states and private parties) could take action under
the antitrust laws, including seeking to prevent the merger, to
rescind the merger or to conditionally approve the merger upon
the divestiture of
5
assets of Johnson & Johnson or Synthes or subject to
other remedies. There can be no assurance that a challenge to
the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful.
European Union Antitrust. Both
Johnson & Johnson and Synthes conduct business in
Member States of the European Union. Council Regulation (EC)
No. 139/2004, as amended, and accompanying regulations
require notification to and approval by the European Commission
of specific mergers or acquisitions involving parties with
worldwide sales and individual European Union sales exceeding
specified thresholds before these mergers and acquisitions can
be implemented. On September 27, 2011, Johnson &
Johnson filed the formal notification to the European Commission
of the merger. Pursuant to Council Regulation (EC)
No. 139/2004, the European Commission has 25 business days
from the day following the date of receipt of a complete
notification, which period may be extended to 35 business days
under certain circumstances, in which to consider whether the
merger would significantly impede effective competition in the
common market (as defined by European Community regulations) or
a substantial part of it, in particular as a result of the
creation or strengthening of a dominant position. By the end of
that period, the European Commission must issue a decision
either clearing the merger, which may be conditional upon
satisfaction of the parties undertakings, or opening an
in-depth Phase II investigation. A Phase II
investigation may last a maximum of an additional 125 business
days. It is possible that an investigation could result in a
challenge to the merger based on European Union competition law
or regulations.
Other Laws. In addition to the regulatory
approvals described above, notifications of the merger have been
filed with other governmental agencies for their review and
approval under foreign regulatory laws, such as foreign merger
control laws. It is possible that any of the governmental
entities with which filings have been made may seek, as
conditions for granting approval of the merger, various
regulatory concessions.
Appraisal
Rights (page 49)
Under Section 262 of the DGCL, record holders of Synthes
common stock who do not vote in favor of the adoption of the
merger agreement, who properly demand and perfect their
appraisal rights and who comply with the terms of
Section 262 of the DGCL will be entitled to seek appraisal
for, and obtain payment in cash for the judicially determined
fair value of, their shares of Synthes common stock if the
merger is completed, in lieu of receiving the merger
consideration. The relevant provisions of the DGCL are included
as Annex D to this proxy statement/prospectus. Synthes
stockholders are encouraged to read these provisions carefully
and in their entirety. Moreover, due to the complexity of the
procedures for exercising the right to seek appraisal, Synthes
stockholders who are considering exercising such rights are
encouraged to seek the advice of legal counsel. Failure to
strictly comply with the applicable DGCL provisions will result
in the loss of the right of appraisal. See The
Merger Appraisal Rights.
Comparison
of Rights of Common Shareholders of Johnson & Johnson
and Synthes (page 102)
Synthes stockholders, whose rights are currently governed by the
Synthes certificate of incorporation, as amended, the Synthes
amended and restated by-laws, as amended, and Delaware law,
will, upon completion of the merger, become shareholders of
Johnson & Johnson and their rights will be governed by
the Johnson & Johnson certificate of incorporation,
the Johnson & Johnson by-laws and New Jersey law.
Litigation
Related to the Merger (page 54)
Three putative shareholder class actions challenging the merger
have been filed in the Delaware Court of Chancery naming
Synthes, certain officers and directors of Synthes,
Johnson & Johnson and Samson Acquisition Corp. as
defendants. The three suits were consolidated into one action,
In re Synthes, Inc. Shareholder Litigation, Case
No. 6452-CS,
and a Verified Consolidated Amended Class Action Complaint
was filed in the consolidated action on August 2, 2011. On
August 4, 2011, the court entered an order dismissing
Johnson & Johnson from the case without prejudice. On
October 20, 2011, the remaining defendants filed a motion
to dismiss the Verified Consolidated Amended Class Action
Complaint with prejudice. On October 24, 2011, plaintiffs
filed a motion with the Court of Chancery seeking a preliminary
injunction to prevent Synthes from conducting a vote of
stockholders to adopt the merger agreement.
6
Accounting
Treatment of the Merger (page 55)
The merger will be accounted for by Johnson & Johnson
using the purchase method of accounting. Under this method of
accounting, the purchase price will be allocated to the fair
value of the net assets acquired. The excess purchase price over
the fair value of the assets acquired will be allocated to
goodwill.
Stock
Exchange Listing of Johnson & Johnson Common Stock
(page 48)
Shares of Johnson & Johnson common stock are quoted on
the NYSE under the stock symbol JNJ. It is a
condition to the consummation of the merger that the
Johnson & Johnson common stock to be issued in the
merger has been authorized for listing on the NYSE, subject to
official notice of issuance.
Delisting
of Synthes Common Stock (page 48)
Synthes common stock trades on the SIX Swiss Exchange under the
symbol SYST. If the merger is completed, Synthes
common stock will be delisted from the SIX Swiss Exchange.
The
Special Meeting
Date,
Time and Place (page 22)
The special meeting of Synthes stockholders will be held on
Thursday, December 15, 2011 at 11:00 a.m., at
Synthes European Headquarters, Luzernstrasse 19, 4500
Solothurn, Switzerland. At the special meeting, Synthes
stockholders will be asked to adopt the merger agreement or
adjourn the special meeting, if necessary or appropriate, to
permit further solicitation of proxies if there are not
sufficient votes at the time of the special meeting to adopt the
merger agreement.
Record
Date; Shares Entitled to Vote (page 22)
Synthes stockholders are entitled to vote at the special meeting
if they are entered in the Synthes stock ledger as of the close
of business on October 20, 2011, the record date for the
special meeting.
On the record date, there were 118,756,463 shares of
Synthes common stock outstanding and entitled to vote at the
special meeting. Stockholders will have one vote at the special
meeting for each share of Synthes common stock that they owned
on the record date.
Vote
Required (page 23)
Adoption of the merger agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of
Synthes common stock entitled to vote on the adoption of the
merger agreement on the record date. Subject to the terms and
conditions of the voting agreement, Mr. Hansjörg Wyss,
Ms. Amy Wyss and two trusts, the beneficiaries of which are
Wyss family members, have agreed, among other things, to vote
44,825,825 of their shares of Synthes common stock (representing
approximately 37.75% of the shares entitled to vote at the
special meeting) FOR the adoption of the merger
agreement.
Shares Owned
by Synthes Directors and Executive Officers
(page 23)
At the close of business on the record date, directors and
executive officers of Synthes beneficially owned and were
entitled to vote 58,390,695 shares of Synthes common stock,
which represent approximately 49.17% of the shares of Synthes
common stock entitled to vote at the special meeting.
The
Merger Agreement
The merger agreement is attached as Annex A to this
proxy statement/prospectus. We encourage you to read the merger
agreement because it is the principal document governing the
merger.
7
No
Solicitation (page 63)
The merger agreement contains restrictions on the ability of
each of Synthes, its subsidiaries and their respective
representatives to solicit or engage in discussions or
negotiations with a third party regarding a competing proposal
as described in The Merger Agreement No
Solicitation. Notwithstanding the restrictions, under
certain limited circumstances, Synthes may respond to and
negotiate an unsolicited acquisition proposal or the Synthes
board of directors may change its recommendation or recommend to
the Synthes stockholders an alternative transaction if specified
conditions are met. For a more complete description, see
The Merger Agreement No Solicitation.
Conditions
to the Completion of the Merger (page 67)
As more fully described in this proxy statement/prospectus and
as set forth in the merger agreement, the completion of the
merger depends on a number of conditions being satisfied or,
where legally permissible, waived. These conditions include,
among others, the adoption by Synthes stockholders of the merger
agreement, the receipt of all necessary regulatory approvals
under antitrust laws in the United States, the European Union
and certain other jurisdictions, the accuracy of the
representations and warranties made by the parties to the merger
agreement, performance by the parties of their obligations under
the merger agreement, and the absence of laws, orders or
antitrust-related litigation prohibiting or preventing the
merger. We cannot be certain when, or if, the conditions to the
merger will be satisfied or waived, or that the merger will be
completed. For a more complete description of the conditions to
completion of the merger, see The Merger
Agreement Conditions to Completion of the
Merger.
Termination
of the Merger Agreement (page 70)
The merger agreement may be terminated at any time prior to the
effective time of the merger under the following circumstances:
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by mutual written consent of Johnson & Johnson and
Synthes;
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by either Johnson & Johnson or Synthes if:
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the merger is not completed by April 26, 2012 (which we
refer to as the outside date), subject to a
60-day
extension under certain circumstances, subject to the
terminating partys compliance with certain provisions of
the merger agreement;
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certain legal restraints regarding the merger become final and
nonappealable, subject to the terminating partys
compliance with certain provisions of the merger agreement;
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Synthes stockholders fail to adopt the merger agreement; or
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the other party breaches the merger agreement such that any
condition to the non-breaching partys obligation to
complete the merger would not be satisfied, subject to the right
of the breaching party to cure the breach by the outside date
(and only if the terminating party is in compliance with its
representations, warranties and covenants at the time of
termination);
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by Johnson & Johnson if:
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the Synthes board of directors makes a change in the company
recommendation or fails to publicly reaffirm the company
recommendation within ten business days following a publicly
announced or publicly known competing proposal after a written
request from Johnson & Johnson to provide such
reaffirmation; or
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certain legal restraints regarding the merger relating to
antitrust and similar regulatory laws become final and
nonappealable, subject to Johnson & Johnsons
compliance with certain provisions of the merger agreement.
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For a more complete description of the provisions addressing the
circumstances under which the merger agreement can be
terminated, see The Merger Agreement
Termination of the Merger Agreement.
8
Fees
and Expenses (page 71)
Generally, all fees and expenses incurred in connection with the
merger and the transactions contemplated by the merger agreement
will be paid by the party incurring those expenses, except that
Johnson & Johnson and Synthes will share equally the
expenses incurred in connection with the printing and mailing of
this proxy statement/prospectus. In addition, upon termination
of the merger agreement under certain circumstances,
Johnson & Johnson may be obligated to pay Synthes a
termination fee of $650 million and, in other
circumstances, Synthes may be obligated to pay
Johnson & Johnson a termination fee of
$650 million. For a more complete description, see
The Merger Agreement Fees and Expenses.
Reasonable
Best Efforts (page 66)
Subject to the terms and conditions of the merger agreement,
Johnson & Johnson and Synthes have agreed to use their
reasonable best efforts to:
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take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary or reasonably
advisable under applicable laws or orders, to consummate and
make effective the merger and the related transactions; and
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obtain, or cause to be obtained, all waivers, permits, consents,
approvals, authorizations, qualifications and orders of all
governmental authorities and officials and parties to contracts
with Synthes and its subsidiaries that may be or become
necessary for the performance of obligations pursuant to the
merger agreement and the consummation of the related
transactions.
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As a result of these requirements, Johnson & Johnson
and Synthes may be required, conditional upon closing, to divest
certain assets or take other actions, subject to limitations
specified in the merger agreement. For a more complete
discussion see The Merger Agreement Reasonable
Best Efforts.
Market
Prices and Dividend Information (page 88)
Shares of Johnson & Johnson common stock are listed on
the NYSE and shares of Synthes common stock are listed on the
SIX Swiss Exchange. The following table presents:
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the last reported sale price of a share of Johnson &
Johnson common stock, as reported by the NYSE Composite
Transactions Tape;
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the last reported sale price of a share of Synthes common stock,
as reported by the SIX Swiss Exchange; and
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the market value of Synthes common stock on an equivalent price
per share basis, as determined by reference to the value of the
merger consideration to be received in respect of each share of
Synthes common stock in the merger,
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in each case on April 26, 2011, the last full trading day
prior to the public announcement of the merger, and on
October 24, 2011, the latest practicable date before the
date of this proxy statement/prospectus. The equivalent price
per share of Synthes common stock is always equal to CHF 159.00
to the extent that the average of the volume weighted average
trading prices per share of Johnson & Johnson common
stock on each day during the ten trading days ending two trading
days prior to the effective time of the merger, as converted
into CHF on each day in this valuation period, is within the
range of CHF 52.54 and CHF 60.45. Within this range, the CHF
159.00 equivalent price per share represents the cash
consideration of CHF 55.65 to be paid in respect of each share
of Synthes common stock in the merger plus the stock
consideration of shares of Johnson & Johnson having a
value in the aggregate of CHF 103.35 to be issued in respect of
each share of Synthes common stock in the merger. However, the
equivalent price per share of Synthes common stock will be less
than CHF 159.00 to the extent that the average of the volume
weighted average trading prices of Johnson & Johnson
common stock on each day during the valuation period, as
converted into CHF on each day in the valuation period, is less
than CHF 52.54 and will be more than CHF 159.00 to the
extent that the average of the volume weighted average trading
prices of Johnson & Johnson
9
common stock on each day during the valuation period, as
converted into CHF on each day in the valuation period, is
greater than CHF 60.45.
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Equivalent Price per
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Johnson & Johnson Common Stock
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Synthes Common Stock
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Share of Synthes
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High
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Low
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Close
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High
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Low
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Close
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Common Stock(1)
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April 26, 2011
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$65.30
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$64.07
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$64.95
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CHF 148.50
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CHF 146.40
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CHF 146.50
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CHF 159.00
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October 24, 2011
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$64.79
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$63.60
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$64.73
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CHF 149.40
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CHF 148.50
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CHF 148.80
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CHF 159.00
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(1) |
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Calculated using an average of the volume weighted average
trading prices of Johnson & Johnson common stock on
each day during the ten trading days ending two trading days
prior to April 26, 2011 and October 24, 2011,
respectively, as converted into CHF on each day in these periods. |
These prices will fluctuate prior to the special meeting and the
consummation of the merger, and stockholders are urged to obtain
current market quotations prior to making any decision with
respect to the merger.
Johnson & Johnson and Synthes declare and pay regular
dividends. See Market Prices and Dividend
Information.
10
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF JOHNSON &
JOHNSON
The following table sets forth selected historical consolidated
financial data of Johnson & Johnson. The historical
consolidated financial information of Johnson &
Johnson as of and for each of the five fiscal years in the
period ended January 2, 2011 has been derived from
Johnson & Johnsons audited historical financial
statements, which were audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm.
Johnson & Johnsons historical audited
consolidated financial statements for the years ended
January 2, 2011, January 3, 2010 and December 28,
2008 are contained in its Annual Report on
Form 10-K
for the year ended January 2, 2011, which is incorporated
by reference in this proxy statement/prospectus.
Johnson & Johnsons historical audited
consolidated financial statements for the years ended
December 30, 2007 and December 31, 2006 are not
incorporated by reference in this proxy statement/prospectus.
The selected historical consolidated financial data of
Johnson & Johnson as of July 3, 2011 and for the
six month periods ended July 3, 2011 and July 4, 2010
have been derived from Johnson & Johnsons
historical unaudited interim consolidated financial statements
contained in its Quarterly Report on
Form 10-Q
for the quarter ended July 3, 2011, which is incorporated
by reference in this proxy statement/prospectus. The selected
historical consolidated financial data of Johnson &
Johnson as of July 4, 2010 has been derived from
Johnson & Johnsons historical unaudited interim
consolidated financial statements contained in its Quarterly
Report on
Form 10-Q
for the quarter ended July 4, 2010, which is not
incorporated by reference in this proxy statement/prospectus.
These financial statements are unaudited, but, in the opinion of
Johnson & Johnsons management, contain all
adjustments necessary to present fairly Johnson &
Johnsons financial position, results of operations and
cash flows for the periods indicated.
Results of interim periods are not necessarily indicative of the
results expected for a full year or for future periods. This
information is only a summary and should be read in conjunction
with Johnson & Johnsons managements
discussion and analysis of results of operations and financial
condition and Johnson & Johnsons consolidated
financial statements and notes thereto incorporated by reference
in this proxy statement/prospectus. For additional information,
please see Where You Can Find More Information
beginning on page 116.
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Six Months Ended
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Fiscal Year Ended
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July 3,
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July 4,
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December 31,
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December 30,
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December 28,
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January 3,
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January 2,
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2011
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2010
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2006
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2007
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2008
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2010
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2011
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(Unaudited)
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(In US$ millions, except per share data)
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EARNINGS DATA:
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Sales to customers
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$
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32,770
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$
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30,961
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$
|
53,324
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$
|
61,095
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$
|
63,747
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$
|
61,897
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$
|
61,587
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Costs and expenses
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24,838
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|
20,461
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|
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38,737
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47,812
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|
|
|
46,818
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|
|
|
46,142
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|
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|
44,640
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Earnings before provision for taxes on income
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7,932
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|
10,500
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|
14,587
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|
13,283
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|
|
|
16,929
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|
|
|
15,755
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|
|
|
16,947
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Net earnings
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|
6,252
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|
|
|
7,975
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|
|
|
11,053
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|
|
|
10,576
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|
12,949
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|
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|
12,266
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|
|
|
13,334
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Basic net earnings per share
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|
2.28
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|
|
|
2.89
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|
|
|
3.76
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|
|
|
3.67
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|
|
|
4.62
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|
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|
4.45
|
|
|
|
4.85
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Diluted net earnings per share
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|
2.25
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|
|
|
2.85
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|
|
|
3.73
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|
|
|
3.63
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|
|
|
4.57
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|
|
|
4.40
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|
|
|
4.78
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Dividends paid per share
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1.110
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|
1.030
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|
1.455
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|
1.620
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|
|
|
1.795
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|
|
|
1.930
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|
|
|
2.110
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BALANCE SHEET DATA
(as of period end):
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|
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Total assets
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$
|
112,114
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|
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$
|
92,300
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$
|
70,556
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$
|
80,954
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$
|
84,912
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|
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$
|
94,682
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$
|
102,908
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Long-term debt
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|
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13,680
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|
|
|
7,937
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|
|
|
2,014
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|
|
|
7,074
|
|
|
|
8,120
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|
|
|
8,223
|
|
|
|
9,156
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Shareholders equity
|
|
|
62,132
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|
|
|
52,851
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|
|
|
39,318
|
|
|
|
43,319
|
|
|
|
42,511
|
|
|
|
50,588
|
|
|
|
56,579
|
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11
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF SYNTHES
The following table sets forth selected historical consolidated
financial data of Synthes. The historical consolidated financial
information of Synthes as of and for each of the five fiscal
years in the period ended December 31, 2010 has been
derived from Synthes audited historical financial
statements, which were audited by Ernst & Young LLP,
an independent accounting firm. Synthes historical audited
consolidated financial statements for the years ended
December 31, 2010, 2009 and 2008 are included in this proxy
statement/prospectus beginning on page F-17. Synthes
historical audited consolidated financial statements for the
years ended December 31, 2007 and 2006 are not included in
this proxy statement/prospectus.
The selected historical consolidated financial data of Synthes
as of June 30, 2011 and for the six month periods ended
June 30, 2011 and 2010 have been derived from Synthes
historical unaudited interim consolidated financial statements
included in this proxy statement/prospectus. The selected
historical consolidated balance sheet data of Synthes as of
June 30, 2010 has been derived from Synthes
historical unaudited interim consolidated financial statements
not included in this proxy statement/prospectus. These financial
statements are unaudited, but, in the opinion of Synthes
management, contain all adjustments necessary to present fairly
Synthes financial position, results of operations and cash
flows for the periods indicated.
Results of interim periods are not necessarily indicative of the
results expected for a full year or for future periods. This
information is only a summary and should be read in conjunction
with the section titled Synthes Managements
Discussion and Analysis of Results of Operations and Financial
Condition beginning on page 76 and Synthes
consolidated financial statements and notes thereto included in
this proxy statement/prospectus.
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|
|
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|
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Six Months
|
|
|
|
|
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Ended
|
|
|
|
|
|
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June 30,
|
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|
Fiscal Year Ended December 31,
|
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|
|
2011
|
|
|
2010
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
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|
2010
|
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(In US$ millions, except per share data)
|
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
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|
|
|
|
|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,975.0
|
|
|
$
|
1,803.9
|
|
|
$
|
2,391.6
|
|
|
$
|
2,759.7
|
|
|
$
|
3,192.5
|
|
|
$
|
3,394.7
|
|
|
$
|
3,687.0
|
|
Gross profit
|
|
|
1,629.1
|
|
|
|
1,485.6
|
|
|
|
1,957.9
|
|
|
|
2,234.7
|
|
|
|
2,638.7
|
|
|
|
2,802.4
|
|
|
|
3,046.5
|
|
Earnings from continuing operations
|
|
|
454.4
|
|
|
|
424.6
|
|
|
|
508.8
|
|
|
|
612.6
|
|
|
|
735.0
|
|
|
|
824.0
|
|
|
|
907.7
|
|
Net earnings
|
|
|
454.4
|
|
|
|
424.6
|
|
|
|
508.8
|
|
|
|
612.6
|
|
|
|
735.0
|
|
|
|
824.0
|
|
|
|
907.7
|
|
Earnings per share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
3.83
|
|
|
|
3.58
|
|
|
|
4.38
|
|
|
|
5.16
|
|
|
|
6.19
|
|
|
|
6.94
|
|
|
|
7.65
|
|
Net earnings
|
|
|
3.83
|
|
|
|
3.58
|
|
|
|
4.38
|
|
|
|
5.16
|
|
|
|
6.19
|
|
|
|
6.94
|
|
|
|
7.65
|
|
Dividends declared per common share
|
|
|
1.9485
|
|
|
|
1.2776
|
|
|
|
0.5414
|
|
|
|
0.6187
|
|
|
|
0.9092
|
|
|
|
0.9824
|
|
|
|
1.2776
|
|
CONSOLIDATED BALANCE SHEET DATA (as of period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
8,840.0
|
|
|
|
6,779.6
|
|
|
|
4,549.3
|
|
|
|
5,188.0
|
|
|
|
5,897.3
|
|
|
|
6,658.6
|
|
|
|
7,923.6
|
|
Liabilities (current and long-term)
|
|
|
1,322.7
|
|
|
|
1,031.4
|
|
|
|
1,170.6
|
|
|
|
1,102.0
|
|
|
|
1,071.5
|
|
|
|
1,020.4
|
|
|
|
1,184.9
|
|
Stockholders equity
|
|
|
7,517.3
|
|
|
|
5,748.2
|
|
|
|
3,378.7
|
|
|
|
4,086.0
|
|
|
|
4,825.8
|
|
|
|
5,638.2
|
|
|
|
6,738.7
|
|
12
SUMMARY
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma
condensed combined financial information about the financial
condition and results of operations of Johnson &
Johnson after giving effect to the merger. The summary unaudited
pro forma condensed combined income statement data for the six
months ended July 3, 2011 and the year ended
January 2, 2011 give effect to the merger as if the merger
had taken place on January 4, 2010. The summary unaudited
pro forma condensed combined balance sheet data gives effect to
the merger as if it had taken place on July 3, 2011.
The following summary unaudited pro forma condensed combined
financial information has been prepared by applying the purchase
method of accounting with Johnson & Johnson treated as
the acquirer and does not give effect to any potential cost
savings or other operating efficiencies that could result from
the merger. In addition, Johnson & Johnsons fair
value of consideration paid to Synthes stockholders will be
allocated to the assets acquired and liabilities assumed based
upon their estimated fair values as of the date of the
acquisition. The allocation is dependent upon certain valuations
and other studies that have not progressed to the state where
there is sufficient information to make a definitive allocation.
Accordingly, the purchase price allocation pro forma adjustments
are preliminary and have been made solely for the purpose of
providing unaudited pro forma condensed combined financial
information in this proxy statement/prospectus. The actual
number of shares of Johnson & Johnson common stock issued
in respect of each share of Synthes common stock in the merger
will be established shortly before completion of the merger.
The summary unaudited pro forma condensed combined financial
information is derived from, and should be read in conjunction
with, the consolidated financial statements and related notes of
Johnson & Johnson, incorporated herein by reference,
and the consolidated financial statements and related notes of
Synthes, included in this proxy statement/prospectus, together
with the more detailed unaudited pro forma condensed combined
financial information provided in the section titled
Unaudited Pro Forma Condensed Combined Financial
Information beginning on page 90. For further
information with respect to documents incorporated by reference
in this proxy statement/prospectus, please see Where You
Can Find More Information beginning on page 116. The
summary unaudited pro forma condensed combined financial
information set forth below has been presented for informational
purposes only and is not necessarily indicative of what the
combined financial condition or results of operations actually
would have been had the merger been completed as of the dates
indicated. In addition, the summary unaudited pro forma
condensed combined financial information presented below does
not purport to project the combined financial condition or
operating results for any future period.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Six Months Ended
|
|
|
January 2, 2011
|
|
July 3, 2011
|
|
|
(Unaudited)
|
|
|
(In millions, except per share amounts)
|
|
EARNINGS DATA:
|
|
|
|
|
|
|
|
|
Sales to customers
|
|
$
|
65,274
|
|
|
$
|
34,745
|
|
Costs and expenses
|
|
|
47,908
|
|
|
|
26,529
|
|
Earnings before provision for taxes on income
|
|
|
17,366
|
|
|
|
8,216
|
|
Net earnings
|
|
|
13,699
|
|
|
|
6,484
|
|
Basic net earnings per share
|
|
|
4.62
|
|
|
|
2.20
|
|
Diluted net earnings per share
|
|
|
4.56
|
|
|
|
2.17
|
|
Dividends paid per share
|
|
|
2.110
|
|
|
|
1.110
|
|
|
|
|
|
|
|
|
As of July 3, 2011
|
|
|
(Unaudited)
|
|
|
(In millions, except per
|
|
|
share amounts)
|
|
BALANCE SHEET DATA
|
|
|
|
|
Total assets
|
|
$
|
138,672
|
|
Long-term debt
|
|
|
21,215
|
|
Shareholders equity
|
|
|
75,565
|
|
13
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth for the periods presented certain
historical per share data of Johnson & Johnson common
stock and Synthes common stock on a historical basis and on
unaudited pro forma and pro forma equivalent bases after giving
effect to the merger under the purchase method of accounting.
The historical per share data of Johnson & Johnson and
Synthes has been derived from, and should be read in conjunction
with, the historical financial statements of Johnson &
Johnson and Synthes incorporated by reference or included in
this proxy statement/prospectus. See Where You Can Find
More Information, Selected Historical Consolidated
Financial Data of Johnson & Johnson and
Selected Historical Consolidated Financial Data of
Synthes beginning on pages 116, 11 and 12
respectively. The unaudited pro forma per share data has been
derived from, and should be read in conjunction with, the
unaudited pro forma condensed combined financial information
provided in the section titled Unaudited Pro Forma
Condensed Combined Financial Information beginning on
page 90.
The Synthes unaudited pro forma equivalent data was calculated
by multiplying the corresponding Johnson & Johnson
unaudited pro forma consolidated data by 1.8029, which was
calculated by assuming that the volume weighted average trading
price of Johnson & Johnson common stock utilized to
derive the exchange ratio was equal to CHF 57.32, which is the
average of the volume weighted average trading prices of
Johnson & Johnson common stock for the ten trading
days ending two trading days prior to October 25, 2011
(October 21, 2011), as converted into CHF on each day in
the valuation period. The exchange ratio does not include the
CHF 55.65 per share cash portion of the merger consideration.
The actual exchange ratio may vary as described in this proxy
statement/prospectus. This data shows how each share of Synthes
common stock would have participated in net income and book
value of Johnson & Johnson if the companies had always
been consolidated for accounting and financial reporting
purposes for all periods presented. These amounts, however, are
not intended to reflect future per share levels of net income
and book value of Johnson & Johnson.
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|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
July 3, 2011
|
|
|
January 2, 2011
|
|
|
|
(Unaudited)
|
|
|
|
(In millions, except per share amounts)
|
|
|
JOHNSON & JOHNSON HISTORICAL
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.28
|
|
|
$
|
4.85
|
|
Diluted
|
|
|
2.25
|
|
|
|
4.78
|
|
Dividends paid per share
|
|
|
1.110
|
|
|
|
2.110
|
|
Book value per share (basic)
|
|
|
22.67
|
|
|
|
20.66
|
|
SYNTHES HISTORICAL(1)
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Net earnings (basic and diluted):
|
|
$
|
3.83
|
|
|
$
|
7.65
|
|
Dividends declared per share:
|
|
|
1.9485
|
|
|
|
1.2776
|
|
Book value per share (basic):
|
|
|
63.30
|
|
|
|
56.76
|
|
JOHNSON & JOHNSON UNAUDITED PRO FORMA
COMBINED WITH SYNTHES
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.20
|
|
|
$
|
4.62
|
|
Diluted
|
|
|
2.17
|
|
|
|
4.56
|
|
Dividends paid per share:
|
|
|
1.110
|
|
|
|
2.110
|
|
Book value per share (basic):
|
|
|
25.57
|
|
|
|
N/A
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
July 3, 2011
|
|
|
January 2, 2011
|
|
|
|
(Unaudited)
|
|
|
|
(In millions, except per share amounts)
|
|
|
SYNTHES UNAUDITED PRO FORMA EQUIVALENTS
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Earnings from continuing operations:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.97
|
|
|
$
|
8.33
|
|
Diluted
|
|
|
3.91
|
|
|
|
8.22
|
|
Dividends declared per share:
|
|
|
2.00
|
|
|
|
3.80
|
|
Book value per share (basic):
|
|
|
46.10
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Synthes reports its financial information on a calendar period
basis, while Johnson & Johnson reports its financial
information on a fiscal year basis. Synthes financial
information is as of and for the year ended December 31,
2010 and the six months ended June 30, 2011. |
15
RISK
FACTORS
In addition to the other information included and
incorporated by reference in this proxy statement/prospectus,
including the matters addressed in the section entitled
Special Note Regarding Forward-Looking Statements,
Synthes stockholders should consider carefully the matters
described below in determining whether to adopt the merger
agreement. In addition, you should read and consider the risks
associated with an investment in the common stock of
Johnson & Johnson. These risks can be found in
Johnson & Johnsons Annual Report on
Form 10-K
for the fiscal year ended January 2, 2011, as updated by
subsequent Quarterly Reports on
Form 10-Q,
all of which are filed with the SEC and incorporated by
reference into this proxy statement/prospectus. For further
information regarding the documents incorporated in this proxy
statement/prospectus by reference, please see Where You
Can Find More Information beginning on page 116.
Because
of fluctuations in the market price of Johnson &
Johnson common stock and the Swiss franc/U.S. dollar exchange
rate, Synthes stockholders cannot be sure of the market value of
the Johnson & Johnson common stock that they will
receive in the merger.
At the time the merger is completed, each issued and outstanding
share of Synthes common stock (other than shares owned by
Johnson & Johnson or Synthes and shares in respect of
which appraisal rights have been properly exercised and
perfected) will be converted into the right to receive a
combination of (i) CHF 55.65 in cash and (ii) a number
of shares of Johnson & Johnson common stock equal to
the exchange ratio (as described below). The exchange ratio is
subject to a collar and may fluctuate, depending on the market
price of Johnson & Johnson common stock and the Swiss
franc/U.S. dollar exchange rate. If the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each of the ten trading days ending two
trading days prior to the effective time of the merger, as
converted into CHF on each day in this valuation period, is
equal to or between CHF 52.54 and CHF 60.45, then the number of
shares of Johnson & Johnson common stock exchangeable
for each share of Synthes common stock will be determined by
dividing CHF 103.35 by the average of the volume weighted
average trading prices.
Within the price range prescribed by the collar, the exchange
ratio floats so as to ensure that the value of
Johnson & Johnson common stock to be received in
exchange for each share of Synthes common stock will be CHF
103.35 per share of Synthes common stock. However, if the
average of the volume weighted average trading prices of
Johnson & Johnson common stock used to calculate the
exchange ratio is less than CHF 52.54, the exchange ratio will
be fixed at 1.9672 shares of Johnson & Johnson
common stock for each share of Synthes common stock. If the
average of the volume weighted average trading prices of
Johnson & Johnson common stock used to calculate the
exchange ratio is greater than CHF 60.45, the exchange ratio
will be fixed at 1.7098 shares of Johnson &
Johnson common stock for each share of Synthes common stock.
Accordingly, if the average of the volume weighted average
trading prices of Johnson & Johnson common stock used
to calculate the exchange ratio is less than the low end of the
collar, then the initial value of the stock portion of the
consideration to be paid per share of Synthes common stock may
be less than CHF 103.35. Conversely, if the average of the
volume weighted average trading prices of Johnson &
Johnson common stock used to calculate the exchange ratio is
greater than the high end of the collar, then the initial value
of the stock portion of the consideration may be greater than
CHF 103.35.
There will be time lapses between each of the date on which
Synthes stockholders vote on the merger agreement at the special
meeting, the date on which the exchange ratio is determined and
the date on which Synthes stockholders entitled to receive
shares of Johnson & Johnson common stock actually
receive such shares. The market value of Johnson &
Johnson common stock may fluctuate during these periods.
Stock price fluctuations may result from a variety of factors
(many of which are beyond our control), including the following:
|
|
|
|
|
changes in Johnson & Johnsons and Synthes
respective businesses, operations and prospects or market
assessments thereof;
|
|
|
|
market assessments of the likelihood that the merger will be
completed, including related considerations regarding litigation
and regulatory approvals of the merger;
|
|
|
|
market assessments about the prospects of post-merger operations;
|
16
|
|
|
|
|
fluctuations in the exchange rate between the U.S. dollar
and the Swiss franc; and
|
|
|
|
general business, market, industry and economic conditions and
other factors generally affecting the price of
Johnson & Johnson and Synthes common stock.
|
In addition, the exchange rate used to convert the
U.S. dollar denominated volume weighted average trading
prices of Johnson & Johnson common stock into Swiss
francs for purposes of calculating the exchange ratio may
fluctuate during the periods between each of the date of the
special meeting, the date on which the exchange ratio is
determined and the date on which Synthes stockholders entitled
to receive shares of Johnson & Johnson common stock
actually receive such shares. Fluctuations in this Swiss
franc/U.S. dollar exchange rate may cause the actual
exchange ratio to differ significantly from the exchange ratio
that would have existed if it had been calculated as of the date
of the special meeting.
Consequently, at the time Synthes stockholders must decide
whether or not to adopt the merger agreement, they will not know
the actual market value of the shares of Johnson &
Johnson common stock they will receive when the merger is
completed. The actual market value of shares of
Johnson & Johnson stock, when received by Synthes
stockholders, will depend on the market value of those shares on
that date. This market value may be less than the value used to
determine the exchange ratio, as the determination will be made
with respect to a period occurring prior to the consummation of
the merger.
Synthes stockholders are urged to obtain current market
quotations for shares of Johnson & Johnson common
stock and Synthes common stock.
The
merger is subject to the receipt of consents and clearances from
regulatory authorities that may impose conditions that could
have an adverse effect on Johnson & Johnson, Synthes
or the combined company, or if not obtained, could prevent
completion of the merger.
Completion of the merger is conditioned upon the expiration or
termination of the applicable waiting periods, and any extension
of the waiting periods, under the HSR Act, approval by the
European Commission under applicable merger regulations and
regulatory approval in certain other jurisdictions.
Johnson & Johnson and Synthes are pursuing all
required approvals in accordance with the merger agreement.
These consents, orders and approvals may impose conditions on or
require divestitures relating to the divisions, operations or
assets of Johnson & Johnson or Synthes or may impose
requirements, limitations or costs or place restrictions on the
conduct of the combined companys business. The merger
agreement may require Johnson & Johnson
and/or
Synthes to comply with such conditions imposed by regulatory
entities, and in certain circumstances, either company may
refuse to close the merger on the basis of those regulatory
conditions. Such conditions, divestitures, requirements,
limitations, costs or restrictions may jeopardize or delay
completion of the merger, may reduce the anticipated benefits of
the merger or may result in the abandonment of the merger.
Further, no assurance can be given that the required consents
and approvals will be obtained or that the required conditions
to closing will be satisfied, and, even if all such consents and
approvals are obtained and the conditions are satisfied, no
assurance can be given as to the terms, conditions and timing of
the approvals or that they will satisfy the terms of the merger
agreement. See The Merger Agreement Conditions
for the Completion of the Merger beginning on page 67
for a discussion of the conditions to the completion of the
merger and The Merger Regulatory Matters
beginning on page 48 for a description of the regulatory
approvals necessary in connection with the merger.
Failure
to complete the merger could negatively impact the stock prices
and the future business and financial results of
Johnson & Johnson and Synthes.
If the merger is not completed, the ongoing businesses of
Johnson & Johnson and Synthes may be adversely
affected. Johnson & Johnson and Synthes will be
subject to several risks, including the following:
|
|
|
|
|
being required to pay a termination fee of $650 million
under certain circumstances under the merger agreement;
|
|
|
|
having to pay certain costs relating to the merger, such as
legal, accounting, financial advisor, filing, mailing and
printing fees; and
|
17
|
|
|
|
|
focusing each companys management on the merger instead of
on pursuing other opportunities that could have been beneficial
to each company, in each case, without realizing any of the
benefits of having the merger completed.
|
If the merger is not completed, Johnson & Johnson and
Synthes cannot assure their stockholders that these risks will
not materialize and will not materially adversely affect the
business, financial results and stock prices of either company.
The
price of Johnson & Johnson common stock may be
affected by factors different from those affecting the price of
Synthes common stock.
Upon completion of the merger, holders of Synthes common stock
will become holders of Johnson & Johnson common stock.
Johnson & Johnsons business is different from
that of Synthes, and Johnson & Johnsons results
of operations, as well as the price of Johnson &
Johnson common stock, may be affected by factors different from
those affecting Synthes results of operations and the
price of Synthes common stock. For a discussion of
Johnson & Johnsons business and certain risks to
consider in connection with its business, see
Johnson & Johnsons Annual Report on
Form 10-K
for the fiscal year ended January 2, 2011, as updated by
subsequent Quarterly Reports on
Form 10-Q
, all of which are incorporated by reference in this proxy
statement/prospectus.
Fluctuations
in the valuation of foreign currencies could impact the value of
an investment in Johnson & Johnson common stock by
certain Synthes stockholders.
Johnson & Johnson common stock and any dividends to be
paid in respect of it will be denominated in U.S. dollars.
An investment in Johnson & Johnson common stock by an
investor whose principal currency is not the U.S. dollar
exposes the investor to foreign exchange rate risk. Any
depreciation of the U.S. dollar in relation to such other
currency will reduce the value of the investment in
Johnson & Johnson common stock, and any dividends to
be paid in respect of it, in terms of such other currency, and
any appreciation of the U.S. dollar will increase the value
in terms of such other currency.
Some
directors and executive officers of Synthes have interests in
the merger that differ from the interests of Synthes other
stockholders.
Some directors and executive officers of Synthes may have
interests in the merger that differ from, or that are in
addition to, their interests as stockholders of Synthes. These
interests may include, among other things, specific employment
arrangements, arrangements that provide for severance benefits
if certain executive officers employment is terminated
under certain circumstances following completion of the merger
and rights to indemnification and directors and
officers liability insurance that will survive the
completion of the merger. Although the Synthes board of
directors recommended the adoption of the merger to Synthes
stockholders, these interests may cause Synthes directors
and officers to view the merger differently than general
stockholders. See The Merger Interests of
Synthes Directors and Officers in the Merger
beginning on page 40.
Johnson &
Johnson is expected to incur substantial expenses related to the
merger and the integration of Synthes.
Johnson & Johnson is expected to incur substantial
expenses in connection with the merger and the integration of
Synthes. Specifically, based on estimates as of the date of the
announcement of the merger, Johnson & Johnson expects
to incur approximately $500 to 600 million of transaction
costs related to the merger, the largest component of which will
be costs incurred to hedge the foreign currency component of the
merger, and which costs are expected to be recorded as special
items. Additionally, there are a large number of processes,
policies, procedures, operations, technologies and systems that
must be integrated, including purchasing, accounting and
finance, sales, billing, payroll, manufacturing, marketing and
benefits. While Johnson & Johnson expects to incur
after-tax integration and restructuring costs and other costs
incurred to execute the transaction following completion of the
merger in 2012 that are estimated to range between $1.0 and
$1.2 billion, many of the expenses that will be incurred
are, by their nature, difficult to estimate accurately. These
expenses could, particularly in the near term, exceed the
savings that Johnson & Johnson expects to achieve from
elimination of duplicative expenses and the realization of
18
economics of scale and cost savings. Although
Johnson & Johnson and Synthes expect that the
realization of efficiencies related to the integration of the
businesses may offset incremental transaction, merger-related
and restructuring costs over time, we cannot give any assurance
that this net benefit will be achieved in the near term, or at
all.
The
merger may cause dilution to Johnson & Johnsons
earnings per share, which may negatively affect the market price
of Johnson & Johnsons common
stock.
Johnson & Johnson anticipates that the merger may have
a 1% to 2% dilutive impact, excluding special items, such as
after-tax charges for such items as amortization of acquired
intangibles, inventory
set-up
costs, restructuring costs and other costs incurred to execute
the transaction on the earnings per share of its common stock
during 2012. We anticipate that this dilutive impact will be
reduced over time. These expectations are based on preliminary
estimates as of the date of the public announcement of the
merger which may materially change. Johnson & Johnson
could also encounter additional transaction-related costs or
other factors such as the failure to realize all of the benefits
anticipated in the merger. In addition, Johnson &
Johnson anticipates that Synthes stockholders will own between
approximately 7% and 8% of the outstanding shares of
Johnson & Johnson common stock following the merger,
based on the number of outstanding shares of Synthes common
stock on the record date and the number of outstanding shares of
Johnson & Johnson common stock on October 24,
2011. Once its shares are issued in the merger,
Johnson & Johnsons earnings per share may be
lower than it would have been in the absence of the merger. All
of these factors could cause dilution to Johnson &
Johnsons earnings per share or decrease or delay the
expected accretive effect of the merger and cause a decrease in
the market price of Johnson & Johnson common stock.
19
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated
by reference in this proxy statement/prospectus contain certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, business strategies,
operating efficiencies, synergies, revenue enhancements,
competitive positions, growth opportunities for existing
products, plans and objectives of management, markets for the
common stock of Johnson & Johnson and Synthes and
other matters. Statements in this proxy statement/prospectus and
the documents incorporated herein by reference that are not
historical facts are hereby identified as forward-looking
statements for the purpose of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the
Securities Act of 1933, as amended (the Securities
Act). Such forward-looking statements, including, without
limitation, those relating to the future business prospects,
revenues and income of Johnson & Johnson and Synthes,
and those relating to the merger and the expected benefits
thereof, wherever they occur in this proxy statement/prospectus
or the documents incorporated herein by reference, are
necessarily estimates reflecting the judgment of the respective
managements of Johnson & Johnson or Synthes and
involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the
forward-looking statements. Such forward-looking statements
should, therefore, be considered in light of various important
factors, including those set forth in this proxy
statement/prospectus and the documents incorporated herein by
reference.
Words such as may, will,
predict, target, forecast,
estimate, project, plan,
intend, expect, anticipate,
believe, would, should,
could, intends and similar expressions
are intended to identify forward-looking statements. These
forward-looking statements are found at various places
throughout this proxy statement/prospectus and the other
documents incorporated herein by reference. Important factors
that could cause actual results to differ materially from those
indicated by such forward-looking statements include, without
limitation, the risks and uncertainties set forth under
Risk Factors, beginning on page 16, as well as,
among others, risks and uncertainties relating to:
|
|
|
|
|
the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement;
|
|
|
|
the outcome of any legal proceedings in which
Johnson & Johnson or Synthes is involved;
|
|
|
|
the inability to complete the merger due to the failure to
obtain stockholder approval, governmental or regulatory
clearances or the failure to satisfy other conditions to the
closing of the merger;
|
|
|
|
the failure of the merger to be completed for any other reason;
|
|
|
|
the risk that required governmental and regulatory approvals may
delay the merger or result in the imposition of conditions that
could cause the parties to abandon the merger;
|
|
|
|
the risk that the proposed merger disrupts current plans and
operations;
|
|
|
|
potential difficulties in employee retention as a result of the
merger;
|
|
|
|
disruption from the merger making it difficult to maintain
relationships with customers or suppliers;
|
|
|
|
the risk that the businesses will not be integrated
successfully, or that the integration will be more costly or
more time consuming and complex than anticipated;
|
|
|
|
the impact of exchange rate fluctuations between the
U.S. dollar and the Swiss franc;
|
|
|
|
the risk that cost savings and other synergies anticipated to be
realized from the merger may not be fully realized or may take
longer to realize than expected;
|
|
|
|
adverse developments in general market, business, economic,
labor, regulatory and political conditions;
|
|
|
|
the impact of any outbreak or escalation of hostilities on a
national, regional or international basis, acts of terrorism or
natural disasters;
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competitive factors, including technological advances achieved
and patents attained by competitors and generic competition as
patents on products expire;
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continued access to credit markets on favorable terms, and the
maintenance by Johnson & Johnson of an AAA credit
rating; and
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the impact of any change to applicable government laws and
regulations affecting domestic and foreign operations, including
those relating to trade, monetary and fiscal policies, taxes,
price controls, regulatory approval of new products, licensing
and healthcare reform.
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Additional factors that could impact Johnson &
Johnsons ability to achieve the results described in any
forward-looking statements can be found in Johnson &
Johnsons Annual Report on
Form 10-K
for the fiscal year ended January 2, 2011 and subsequent
Quarterly Reports on
Form 10-Q,
all filed with the SEC.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of
this proxy statement/prospectus, or if such statement is
included in another document incorporated in this proxy
statement/prospectus, as of the date of such other document.
Readers also should understand that it is not possible to
predict or identify all such factors and that this list should
not be considered a complete statement of all potential risks
and uncertainties. Johnson & Johnson and Synthes
undertake no obligation to update any forward-looking
statements, whether as a result of new information, changes in
beliefs, changes in circumstances, future events or
developments, or otherwise.
21
THE
SPECIAL MEETING
We are making this proxy statement/prospectus available to
Synthes stockholders as of the record date as part of the
solicitation of proxies by the Synthes board of directors for
use at the special meeting, including any adjournment or
postponement of the meeting.
Date,
Time and Place
The Synthes special meeting will be held on Thursday,
December 15, 2011 at 11:00 a.m., at Synthes
European Headquarters, Luzernstrasse 19, 4528 Zuchwil
(Solothurn), Switzerland. Please request your admission card
from your custodian bank where your shares are held in custody
as soon as possible if you plan to attend the special meeting.
Admission cards can be ordered until December 6, 2011 from
your custodian bank. Admission cards with the corresponding
voting material will be dispatched as from November 21,
2011 onwards. This proxy statement/prospectus can be downloaded
from www.synthes.com (Investors/Media section) or a
hardcopy of the documentation (approximately 300 pages) can
be ordered via mail, e-mail or phone from Synthes, Inc.,
Investor Relations,
c/o Synthes
GmbH, Eimattstrasse 3, 4436 Oberdorf BL, Switzerland,
phone +41 32 720 46 38,
e-mail: investor.relations@synthes.com.
Purpose
of the Special Meeting
At the special meeting, Synthes stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement,
pursuant to which a wholly owned subsidiary of
Johnson & Johnson, Samson Acquisition Corp., will
merge with and into Synthes, with Synthes becoming a wholly
owned subsidiary of Johnson & Johnson, and each
outstanding share of Synthes common stock will be converted into
the right to receive a combination of (i) CHF 55.65 in cash
and (ii) shares of Johnson & Johnson common stock
based on the average of the volume weighted average trading
prices of Johnson & Johnson common stock on each of
the ten trading days ending two trading days prior to the
effective time of the merger, as converted into CHF on each day
in this valuation period. If the average of the volume weighted
average trading prices of Johnson & Johnson common
stock on each day during the valuation period is between CHF
52.54 and CHF 60.45, then each share of Synthes common stock
will be converted into the right to receive a number of shares
of Johnson & Johnson common stock having an aggregate
value of CHF 103.35. If the average of the volume weighted
average trading prices of Johnson & Johnson common
stock on each day during the valuation period is less than CHF
52.54, then each share of Synthes common stock will be converted
into the right to receive 1.9672 shares of
Johnson & Johnson common stock. If the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each day during the valuation period is
greater than CHF 60.45, then each share of Synthes common stock
will be converted into the right to receive 1.7098 shares
of Johnson & Johnson common stock.
The Synthes board of directors unanimously determined that the
merger is fair to, and in the best interests of, Synthes and its
stockholders, declared advisable and approved the merger
agreement and recommends that you vote FOR adoption
of the merger agreement.
Record
Date; Shares Entitled to Vote; Quorum
Only stockholders entered in the stock ledger at the close of
business on October 20, 2011, the record date for the
special meeting, are entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement of it. On
the record date, 118,756,463 shares of Synthes common stock
were issued and outstanding and held by approximately
19 holders of record.
Synthes by-laws provide that, except (a) with respect
to shares of Synthes common stock issued pursuant to the
Combination Agreement dated February 24, 1999, to
(i) R. Maag and H.J. Wyss, (ii) the stockholders of
Synthes, Synthes North America, Inc., Synthes Spine, Inc. and
Synthes (Canada) Ltd., (iii) any stockholders of Stratec
Holding Ltd. that are U.S. persons who received share of
Synthes common stock bearing a legend in respect of issuances
pursuant to Section 4(2) of the Securities Act, and
(iv) any U.S. persons who are Qualified
Institutional Buyers as such term is defined in
Rule 144A of the Securities Act who purchased shares in
connection with Synthes secondary offering effected in
November 1999, or transferees of such Qualified Institutional
Buyers who obtained such shares in compliance with the
restrictions on resales and transfers set
22
forth in the offering circular prepared for such secondary
offering; and (b) under certain other limited
circumstances, any voting instruction received from a
U.S. person or bearing a U.S. postmark shall be
presumed to evidence a prohibited transfer of shares of Synthes
common stock, or interests therein or rights thereof, as to
which such voting instructions relate, and shall, accordingly,
be disregarded by Synthes and shall be deemed void and of no
effect.
A quorum will be present at the special meeting if there is the
presence in person or by proxy of the holders of shares of stock
having one-third of the voting power of the shares entitled to
vote at the meeting. Abstentions will be treated as present at
the special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business. In the
event that a quorum is not present at the special meeting, it is
expected that the special meeting will be adjourned to solicit
additional proxies, provided that the proposal to adjourn the
special meeting has been approved by the majority vote of the
stockholders present and entitled to vote at the special
meeting, although less than a quorum. Holders of record of
Synthes common stock on the record date are entitled to one vote
per share on any matter submitted to a vote at the special
meeting.
Vote
Required
The adoption of the merger agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of
Synthes common stock entitled to vote at the special meeting.
Because the required vote of Synthes stockholders is based upon
the number of outstanding shares of Synthes common stock
entitled to vote, rather than upon the shares actually voted,
the failure by a stockholder to submit a proxy or to vote in
person at the special meeting, including abstentions and broker
non-votes, will have the same effect as a vote against adoption
of the merger agreement.
Subject to the terms and conditions of the voting agreement,
Mr. Hansjörg Wyss, the Chairman of the Synthes board
of directors, Ms. Amy Wyss, a Synthes director, and two
trusts, the beneficiaries of which are Wyss family members, have
agreed, among other things, to vote 44,825,825 of their shares
of Synthes common stock (representing approximately 37.75% of
the shares entitled to vote at the special meeting)
FOR the adoption of the merger agreement.
Shares Owned
by Synthes Directors and Executive Officers
At the close of business on the record date, directors and
executive officers of Synthes beneficially owned and were
entitled to vote 58,390,695 shares of Synthes common stock,
which represented approximately 49.17% of the shares of Synthes
common stock entitled to vote at the special meeting.
Voting of
Proxies
Stockholders should request their admission card and
corresponding voting material (including a proxy form) from
their custodian bank where their shares are held in custody as
soon as possible, and in any event prior to December 6,
2011. Admission cards with the corresponding voting material
will be dispatched as from November 21, 2011. Once the
material has been received, stockholders may vote their shares
by attending and voting their shares in person at the special
meeting, or by completing a proxy form (instructions are
provided on the form). If a proxy form is signed by a
stockholder and returned without specific voting instructions,
the shares represented by the proxy will be voted
FOR the proposals presented at the special meeting.
Representatives of custodian banks are requested to notify
Synthes as soon as possible and at the latest at the admission
office on the day of the special meeting, of the number of the
shares they are representing.
Stockholders whose shares are held in street name
must either instruct the record holder of their shares how to
vote their shares or obtain a proxy form as described above to
vote at the special meeting. Please check the voting form used
by your bank, broker, nominee, fiduciary or other custodian for
information on how to submit your instructions to them.
The persons named as proxies by a stockholder may propose and
vote for one or more adjournments of the special meeting,
including adjournments to permit further solicitations of
proxies. Any adjournment may be made at any time by stockholders
representing a majority of the votes present in person or by
proxy at the special meeting,
23
whether or not a quorum exists, without further notice other
than by an announcement made at the meeting. Synthes does not
currently intend to seek an adjournment of its special meeting.
No proxy voted against the proposal to adopt the merger
agreement will be voted in favor of any such adjournment.
Synthes does not expect that any matter other than the proposals
to adopt the merger agreement and to adjourn the special
meeting, if necessary or appropriate, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the special meeting will be brought before the special
meeting. If, however, other matters are properly brought before
the special meeting, or any adjourned meeting, the persons named
as proxies will vote in accordance with their judgment.
Revocability
of Proxies
Stockholders may revoke their proxy at any time prior to the
taking of the vote at the special meeting. Stockholders may
revoke their proxy by:
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executing and delivering to Synthes a later-dated proxy form
relating to the same shares;
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filing with Synthes acting Secretary a written notice of
revocation bearing a later date than the proxy form; or
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attending the special meeting and voting in person (although
attendance at the special meeting will not, in and of itself,
revoke a proxy).
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Any such written notice of revocation or subsequent proxy form
must be received by Synthes before the taking of the vote at the
special meeting, and should be delivered to Synthes, Inc.,
Investor Relations,
c/o Synthes
GmbH, Eimattstrasse 3, 4436 Oberdorf BL, Switzerland, or hand
delivered to Synthes acting Secretary, Helene Schaub, or
her representative before the taking of the vote at the special
meeting.
In addition to the three methods described above, stockholders
who have appointed Dr. Oscar Battegay as their proxy may
revoke such proxy by sending a written notice of revocation
bearing a later date than the proxy form or a later-dated proxy
form relating to the same shares and delivering it by mail so
that it is received by the designated independent proxy,
Dr. Oscar Battegay, before December 8, 2011. Such
revocation or proxy form should be delivered to Heuberg 7,
PO Box 2032, 4001 Basel, Switzerland, Attention:
Dr. Oscar Battegay.
For stockholders whose shares are held in street
name, and who have either instructed the record holder of
their shares on how to vote their shares or obtained a proxy
form from the record holder to vote at the special meeting,
please check with your bank, broker, nominee, fiduciary or other
custodian for information on how to revoke your instructions to
them.
Solicitation
of Proxies
Synthes is soliciting proxies for the special meeting and will
bear all expenses in connection with solicitation of proxies,
except that those expenses incurred in connection with the
printing and mailing of this proxy statement/prospectus will be
shared equally by Synthes and Johnson & Johnson. Upon
request, Synthes will pay banks, brokers, nominees, fiduciaries
or other custodians their reasonable expenses for sending proxy
material to, and obtaining instructions from, persons for whom
they hold shares.
Synthes expects to solicit proxies primarily by mail, but
directors, officers and other employees of Synthes may also
solicit in person or by Internet, telephone or mail.
Synthes stockholders who receive more than one proxy form or
voting instruction form have shares registered in different
forms or in more than one account. Please complete, sign, date
and return all proxy forms and provide instructions for all
voting instruction forms received to ensure that all shares are
voted.
24
THE
COMPANIES
Johnson &
Johnson
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
Johnson & Johnson and its subsidiaries have
approximately 114,000 employees worldwide engaged in the
research and development, manufacture and sale of a broad range
of products in the health care field. Johnson &
Johnson is a holding company, which has more than 250 operating
companies conducting business in virtually all countries of the
world. Johnson & Johnsons primary focus has been
on products related to human health and well-being.
Johnson & Johnson is a New Jersey corporation,
incorporated in the State of New Jersey in 1887.
Additional information about Johnson & Johnson and its
subsidiaries is included in the documents incorporated by
reference in this proxy statement/prospectus. See Where
You Can Find More Information beginning on page 116.
Samson
Acquisition Corp.
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Telephone:
(732) 524-0400
Samson Acquisition Corp., a wholly owned subsidiary of
Johnson & Johnson, is a Delaware corporation that was
formed on April 21, 2011 solely for the purpose of
effecting the merger and the other transactions contemplated by
the merger agreement and has not engaged, and does not expect to
engage, in any other business activities.
Synthes
Synthes, Inc.
1302 Wrights Lane East
West Chester, Pennsylvania 19380
Telephone:
(610) 719-5000
Synthes is a global medical device company employing more than
11,400 people. Through its five product groups (Trauma,
Spine, Cranio-Maxillofacial, Biomaterials and Power Tools),
Synthes develops, produces and markets instruments, implants and
biomaterials for the surgical fixation, correction and
regeneration of the human skeleton and its soft tissues.
Synthes has operations and sells direct in 42 countries and
sells through distributors in an additional 76 countries.
Synthes operations are managed by four area head offices:
West Chester (USA) for North America; Solothurn (Switzerland)
for Europe, Middle East & Africa; Sydney (Australia)
for Asia/Pacific and Miami (USA) for Latin America. Synthes
operates 13 manufacturing facilities, mainly located in the
United States and Switzerland.
Following the merger of Stratec Medical and Synthes USA in
February 1999, the company was incorporated in Delaware under
the corporate name Synstra, Inc. In March 1999, Synstra changed
its name to Synthes-Stratec. In February 2004, following the
merger of Synthes-Stratec and Mathys, the company changed its
name to Synthes. Later in 2004, Synthes registered shares
were added to the Swiss Market Index.
25
THE
MERGER
Background
to the Merger
As part of its ongoing review of Synthes business, the
Synthes board of directors, which is sometimes referred to as
the Synthes board, regularly reviews and assesses
long-term strategic goals and associated risks, including
potential strategic alternatives. Against a backdrop of
significant changes to the regulatory, reimbursement, pricing
and tax environments driven by healthcare reform and the weak
economic environment that had reduced the growth prospects of
Synthes and its industry, the Synthes board of directors, in
April 2010, raised with Mr. Wyss the possibility of
exploring strategic alternatives to enhance stockholder value,
including a potential sale of the company.
Mr. Wyss concurred that it would be appropriate for the
Synthes board to explore strategic alternatives, and the Synthes
board agreed that Amin J. Khoury, a Synthes independent
director, would serve as the lead director in this process, as
he had previously done in all of Synthes significant
mergers and acquisitions transactions. In connection with this
process, Synthes retained Credit Suisse to act as its financial
advisor, based on Credit Suisses qualifications,
experience, reputation and familiarity with Synthes after having
advised Synthes on all of its significant mergers and
acquisitions transactions. Synthes also retained
Shearman & Sterling LLP (Shearman &
Sterling) to act as its legal advisor.
Synthes, with the assistance of Credit Suisse, began to assess
which potential strategic partners had the financial capacity to
complete a transaction of this size. Based on this assessment,
nine potential strategic partners (including Johnson &
Johnson) were identified. Beginning in mid-September 2010,
Synthes and Credit Suisse, acting in accordance with
Synthes directives, approached these potential strategic
partners to explore their interest in pursuing a possible
transaction with Synthes. Five of the nine strategic parties
declined the opportunity, and four expressed preliminary
interest. Synthes held initial introductory meetings with each
of these four potential strategic partners. Synthes entered into
confidentiality agreements and shared certain financial due
diligence materials with three of these four potential strategic
partners (with one party declining to proceed further than the
initial introductory meeting). Each of these parties was told
during this process that if it was interested in proceeding, it
would be necessary to submit a written non-binding proposal for
the acquisition of Synthes.
Synthes and Johnson & Johnson entered into a
confidentiality agreement on September 24, 2010 (which was
later amended several times) that covered Synthes
confidential information, and held a number of meetings in the
Fall of 2010 between certain of their senior executives to
discuss on a preliminary level a possible acquisition of Synthes
by Johnson & Johnson.
On September 27, 2010, Alex Gorsky, Vice Chairman of
Johnson & Johnsons Executive Committee, and
Michael Mahoney, Worldwide Chairman of Johnson &
Johnsons Medical Diagnostics & Devices group,
met with Mr. Wyss, Mr. Khoury and a representative of
Credit Suisse. At this meeting, there was a general discussion
of the potential for a business combination transaction between
Synthes and Johnson & Johnson and Synthes provided
Messrs. Gorsky and Mahoney with preliminary due diligence
information regarding Synthes, including financial due diligence
information.
On September 28, 2010, Aileen Stockburger, Vice President
of Worldwide Business Development of Johnson &
Johnsons subsidiary, DePuy Orthopaedics, Inc., and Susan
Morano, Vice President of New Business Development of
Johnson & Johnsons Medical Devices &
Diagnostics group, had a telephone conversation with a
representative of Credit Suisse to discuss the process of
working together towards a potential business combination
between Johnson & Johnson and Synthes. On October 14,
2010, Messrs. Gorsky and Mahoney, Peter Batesko, III,
Worldwide Vice President of Finance and Chief Financial Officer
of Johnson & Johnsons subsidiary, DePuy
Orthopaedics, Inc., Michael Ullmann, General Counsel of
Johnson & Johnsons Medical Devices &
Diagnostics group, and Ms. Stockburger met with
Messrs. Khoury, Michel Orsinger, Synthes President
and Chief Executive Officer, and Robert Donohue, Synthes
Chief Financial Officer, for a preliminary due diligence review
and presentation of Synthes business. Representatives of
Credit Suisse also attended this meeting.
On November 21, 2010, William C. Weldon, Chairman of the
Board of Directors and Chief Executive Officer of
Johnson & Johnson, and Mr. Khoury met and
generally discussed the potential for a business combination
transaction between Synthes and Johnson & Johnson.
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On December 12, 2010, Messrs. Wyss and Orsinger, and
Dr. Robert Frigg, Chief Technology Officer of
Synthes, met with Messrs. Mahoney, Gorsky and
Ullmann and Ms. Stockburger to further discuss
Synthes business, the structure of Johnson &
Johnsons Medical Device & Diagnostics group and
Johnson & Johnsons general thoughts about the
potential integration process. During this meeting, the
representatives of the two companies also discussed the AO
Foundation, a research and education foundation that is also a
minority shareholder of Synthes.
Also, starting in mid-November 2010, in accordance with
Synthes directives, Credit Suisse contacted six private
equity firms that were considered potential merger partners for
Synthes in light of their prior investments and capital
resources to explore their interest in pursuing a possible
transaction with Synthes. Two of the six declined the
opportunity, and four expressed preliminary interest. Synthes
entered into confidentiality agreements, held due diligence
meetings, and shared certain financial due diligence materials
with each of these four potential private equity partners. All
of the potential partners expressed an interest in proceeding,
and were instructed to submit a non-binding proposal for the
acquisition of Synthes.
At a meeting of the Synthes board of directors on
November 19, 2010, Messrs. Wyss and Khoury brought the
Synthes board up to date as to the status of discussions with
the various strategic parties and private equity partners.
On December 13, 2010, three of the private equity firms
submitted non-binding proposals to acquire Synthes for ranges of
up to CHF 150 per share of Synthes common stock, with the
consideration to be paid 100% in cash. These three private
equity firms indicated that, because of the size of the
potential transaction, they would need to include other private
equity firms in a consortium in order to proceed with a
transaction. The fourth private equity firm that had
participated in a due diligence meeting declined to submit a
non-binding proposal. In a telephone conversation on
December 15, 2010, Messrs. Gorsky and Wyss had a
discussion to follow up on the meeting between representatives
of the two companies on December 12. Mr. Gorsky
indicated that Johnson & Johnson would be following up
with a formal proposal in due course. The other parties
contacted declined to submit proposals.
In a telephone conversation on December 20, 2010,
Mr. Gorsky conveyed to Mr. Khoury the terms of
Johnson & Johnsons non-binding proposal to
acquire Synthes, with an indicative price range of CHF 145-150
per share of Synthes common stock. Johnson &
Johnsons proposal contemplated that more than 60% of the
consideration would be paid in the form of Johnson &
Johnson common stock, and was subject to, among other things,
satisfactory completion of due diligence and negotiation and
execution of mutually acceptable transaction agreements. In
response to a request from Mr. Khoury, Johnson &
Johnson presented this proposal in writing on December 23,
2010. Between January 10, 2011 and January 18, 2011,
Messrs. Gorsky and Wyss had a number of telephone
conversations in which Mr. Gorsky requested a proposed
timeline for a response to the Johnson & Johnson
proposal, and Mr. Wyss responded that the Synthes board was
considering the proposal and that Synthes would respond in the
coming weeks.
On January 12, 2011, Mr. Wyss and Mr. Khoury,
together with representatives of Credit Suisse, met in London
with representatives of each of the three private equity firms
that had submitted non-binding proposals on December 13,
2010. In each of these meetings, the parties discussed
Synthes business as well as a potential transaction.
Following this meeting, the three private equity firms were
authorized by Synthes to form a consortium for purposes of
proceeding with the proposed transaction.
On February 2, 2011, Mr. Weldon and Mr. Khoury
had a telephone conversation in which Mr. Weldon confirmed
to Mr. Khoury that Johnson & Johnsons
previously submitted non-binding proposal of CHF
145-150 per
share of Synthes common stock remained valid.
On February 8, 2011, Mr. Wyss and Mr. Khoury,
together with representatives of Credit Suisse, met in Boston
with representatives of each of the three private equity firms
that had submitted non-binding proposals to confirm that their
previously submitted non-binding proposals remained valid. On
February 9, 2011, the three private equity firms submitted
a revised non-binding proposal to reflect a proposed purchase
price of CHF 151 per share of Synthes common stock but said that
they could not increase their proposal above CHF 151 per share.
Also as part of this proposal, the private equity firms advised
that Mr. Wyss would be required to convert a substantial
portion of his equity investment in Synthes into an equity
investment in the post-merger company.
On February 10 and 11, 2011, the Synthes board of directors held
a regularly scheduled meeting that was also attended by
representatives of Shearman & Sterling and Credit
Suisse. At this meeting, the Synthes board discussed
27
potential strategic alternatives, including maintaining the
status quo, growing its business through acquisitions and a sale
of Synthes or merger with another company. In this regard, the
Synthes board considered that maintaining the status quo would
allow Synthes management to focus on opportunities to
develop Synthes business and to continue providing a
dividend to its stockholders, but that it also would continue to
expose Synthes to the negative effects of changes to the
regulatory, reimbursement, pricing and tax environments driven
by healthcare reform and the weak economic environment. The
Synthes board also considered that growing Synthes
business through acquisitions might allow Synthes to use its
relative size to drive synergies through economies of scale and
to achieve a mix of assets with a higher growth profile, but
that to date Synthes had not been able to find attractive
targets and that this strategy would create a risk of diluting
Synthes growth rate and margins. Finally, the Synthes
board considered that a sale of Synthes at a significant premium
to its trading price would provide immediate accretion in value
to stockholders, and that the opportunities to enhance
Synthes operating performance might improve if Synthes
were either a private company or were part of a larger
corporation, but also noted that an acquisition of Synthes would
require significant financing and that there were few strategic
and private equity firms with the financial capability to
complete such an acquisition.
Also at this meeting, Credit Suisse reviewed with the Synthes
board of directors financial aspects of the non-binding
proposals received from Johnson & Johnson and the
three private equity firms. The Synthes board discussed the fact
that the Johnson & Johnson proposal offered less
closing risk as it related to the necessary financing given
Johnson & Johnsons strong financial position and
the fact that a significant portion of the overall consideration
would be paid in Johnson & Johnson stock, not cash,
compared to the fact that 100% of the consideration offered by
the private equity firms to Synthes public stockholders
would be in the form of cash.
The Synthes board also discussed the private equity firms
proposal. The Synthes board noted that the private equity
firms proposal offered absolute value certainty to Synthes
stockholders because the value of the cash consideration would
not fluctuate after signing. The Synthes board also discussed
the fact that an acquisition of Synthes by a strategic partner
(such as Johnson & Johnson) would likely attract
greater regulatory scrutiny than an acquisition of Synthes by
one or more private equity firms, and accordingly, would be
likely to close at a later date. However, the Synthes board
discussed that there was significant closing risk associated
with the private equity firms proposal, as the private
equity funds ability to obtain sufficient cash to close
their proposed merger would be impacted by general uncertainty
in the financing markets as well as fluctuations in the currency
exchange rate. In this regard, the Synthes board noted that no
private equity firms had completed cash acquisitions of this
magnitude in several years. The Synthes board also discussed the
fact that because the private equity firms were not as familiar
with Synthes business and industry as Johnson &
Johnson was, the private equity firms would likely have greater
due diligence requirements than would Johnson &
Johnson, which might result in a longer due diligence period
prior to signing a merger agreement. The Synthes board also
discussed that the private equity firms would require
Mr. Wyss to convert a substantial portion of his equity to
facilitate the transaction.
After discussion with Synthes management and legal and
financial advisors, including an executive session of the
independent directors, the Synthes board authorized
Mr. Khoury to further discuss the Johnson &
Johnson proposal with representatives of Johnson &
Johnson. On February 14, 2011, Mr. Khoury spoke with
Mr. Weldon and indicated that because Synthes had received
all-cash proposals in an amount higher than CHF 150,
Johnson & Johnsons proposed price of CHF
145-150 was
not acceptable to the Synthes board and that the Synthes board
would accept a price of CHF 160 per share. Mr. Khoury also
discussed with Mr. Weldon the fact that it was important to
the Synthes board of directors that any business combination
transaction be structured so as to provide Synthes
stockholders with significant certainty of value and certainty
of closing. On February 15, 2011, in accordance with the
Synthes boards directives, Credit Suisse further conveyed
to a representative of Johnson & Johnson and
representatives of Johnson & Johnsons financial
advisor, Goldman, Sachs & Co. (Goldman
Sachs), the importance of certainty of value and closing,
as well as proposed price and mix of consideration, in the
Synthes boards evaluation of a business combination.
On February 16, 2011, Mr. Weldon and Mr. Khoury
had a further telephone call in which Mr. Weldon indicated
that Johnson & Johnson was prepared to raise its offer
to CHF 155 per share, subject to Johnson & Johnson
being able to conduct a complete due diligence review, but that
he did not have authority to offer more than CHF 155 per share.
Mr. Weldon noted that any ability of Johnson &
Johnson to offer more than CHF 155 per share would be subject to
the results of its due diligence review and discussion with the
Johnson & Johnson board of directors. Following this
call, representatives of Synthes indicated to representatives of
Johnson & Johnson that Synthes was
28
prepared to continue discussions with Johnson &
Johnson about a potential business combination transaction. On
February 20, 2011, Mr. Weldon and Mr. Khoury had
a further telephone call to discuss the timing for
Johnson & Johnson to commence its due diligence review.
Beginning in early March, representatives of Johnson &
Johnson and its advisors met in person and held telephonic
conference calls on numerous occasions with Synthes
representatives and advisors as part of Johnson &
Johnsons due diligence review of Synthes. Also in
connection with this due diligence review, Synthes made
available to Johnson & Johnson and its advisors a
variety of legal, business and financial documents. This due
diligence review continued through the execution of the merger
agreement.
On March 28, 2011, Johnson & Johnson and Synthes
entered into a confidentiality agreement that covered
Johnson & Johnsons confidential information to
facilitate Synthes conducting due diligence on
Johnson & Johnson in light of the stock component of
the consideration in a potential transaction with
Johnson & Johnson.
Also on March 28, 2011, Shearman & Sterling
provided to Johnson & Johnsons legal counsel,
Cravath, Swaine & Moore LLP (Cravath), an
initial draft of the merger agreement and the voting agreement.
Over the course of the next several weeks, the parties and their
respective advisors conducted extensive negotiations over the
terms and conditions of the merger agreement and the voting
agreement. These negotiations focused on the representations,
warranties, covenants and closing conditions to be included in
the merger agreement, as well as the obligations of the parties
in connection with obtaining regulatory approvals for the
merger. The negotiations also addressed the circumstances under
which the parties could terminate the merger agreement and the
voting agreement, the percentage of shares subject to the voting
agreement in the event the Synthes board were to change its
recommendation in favor of a superior proposal, and the
circumstances and amount of termination fees payable pursuant to
the merger agreement.
On April 1, 2011, the compensation committee of the Synthes
board met to consider proposed arrangements designed to
incentivize key personnel to remain employed with Synthes during
the potentially significant period of time that Synthes was
exploring a potential sale of the company and beyond (which the
compensation committee recognized could be a period of unease
and uncertainty for employees), and to reward them for their
contributions to the success of Synthes. After discussion, the
compensation committee approved, subject to approval by the
Synthes board, amendments to existing employment agreements with
seven senior executives, new change in control severance
arrangements with nine senior executives, and retention bonus
agreements with those 16 executives plus two other senior
executives, as well as retention bonuses and a reward bonus pool
for other groups of key employees. On April 4, 2011, the
Synthes board met to consider these proposed arrangements and,
after discussion, approved them.
On April 7, 2011, Mr. Mahoney, Gary Fischetti, Company
Group Chairman of Johnson & Johnsons subsidiary,
DePuy, Inc. and other representatives of DePuy, Inc. met with
Mr. Orsinger and other representatives of Synthes to review a
presentation of Synthes overall structure, operations and
business units. The management presentation was followed by an
integration planning session. Representatives of Credit Suisse
also attended this meeting. Afterward, Mr. Mahoney met with Mr.
Orsinger to discuss leadership and succession planning. The
parties discussed a further meeting to review international and
U.S. organization and research and development pipeline.
On April 12, 2011, Ms. Stockburger, Eric Harris, Assistant
General Counsel of Johnson & Johnson, Mr. Fischetti,
and other representatives of Johnson & Johnson met with Mr.
Orsinger and other representatives of Synthes to discuss, among
other things, Synthes international and U.S. organization
and research and development pipeline. Representatives of Credit
Suisse also attended this meeting. On April 13, 2011,
Messrs. Weldon and Wyss had a phone call to discuss the
status of the process between the two companies to date. During
this conversation, Mr. Weldon stated that before entering
into any definitive transaction, Johnson & Johnson
would need to complete its due diligence review.
On April 14, 2011, a representative from Credit Suisse and
a representative from Goldman Sachs exchanged emails regarding
the tentative timing of Synthes board of directors meeting.
On April 18, 2011, in response to market speculation about
a potential transaction between Johnson & Johnson and
Synthes, and in compliance with the requirements of the SIX
Swiss Exchange, Synthes issued a public statement confirming
that it was engaged in discussions with Johnson &
Johnson about a potential business combination transaction.
Synthes statement indicated that no assurance could be
given as to whether, when or on what terms any possible
transaction might occur, and that Synthes did not intend to make
any further public statements unless and until a definitive
agreement had been reached, or until discussions between the
parties had
29
terminated. Also on April 18, 2011, Mr. Mahoney
conveyed to representatives of Synthes that Johnson &
Johnson would like to modify the terms of the retention and
severance arrangements of Synthes senior executives in the
event of a business combination. On April 20, 2011, a
representative of Johnson & Johnson stated to a
representative of Credit Suisse that Johnson & Johnson
would like to begin discussions with senior executives of
Synthes regarding the proposed modifications, and that these
discussions were a predicate of Johnson & Johnson
pursuing any transaction. In response, and in accordance with
the Synthes boards directives, the representatives of
Synthes and Credit Suisse conveyed to Mr. Mahoney and to
representatives of Johnson & Johnson, respectively,
that Synthes did not want these discussions with the senior
executives to occur until negotiations of the terms of the
merger agreement and voting agreement were substantially
complete.
On April 19, 2011, Synthes representatives and
advisors participated in a due diligence session with
representatives of Johnson & Johnson to discuss
certain financial, business and legal matters related to
Johnson & Johnson.
Throughout the week of April 18, 2011, Synthes and
Johnson & Johnson and their respective advisors
continued to negotiate the terms of the merger agreement and the
voting agreement. These negotiations centered around the amount
and form of consideration (including whether there would be a
collar on the stock consideration, and the nature of
the collar), the circumstances under which Synthes
would be permitted to terminate the merger agreement and the
amount of a termination fee payable upon such termination, and
the obligations of the parties to obtain regulatory approvals
and the consequences of failing to do so.
On April 22, 2011, the Johnson & Johnson board of
directors, which is sometimes referred to as the
Johnson & Johnson board, met
telephonically. Representatives of Johnson &
Johnsons senior management team and Johnson &
Johnsons legal and financial advisors also participated in
this meeting. Members of Johnson & Johnsons
senior management team provided an update on the current status
of negotiations with Synthes and made presentations regarding,
among others, (i) Synthes business,
(ii) findings from Johnson & Johnsons due
diligence review of Synthes and (iii) the potential
financial implications of a combination. Representatives from
Cravath and Goldman Sachs discussed the legal and financial
implications of a potential combination. At this meeting, the
Johnson & Johnson board of directors authorized
continued negotiation with Synthes and the submission of a bid
to acquire Synthes, subject to final approval from the
Johnson & Johnson board.
Over the course of numerous discussions between
Johnson & Johnson and Synthes and their respective
legal and financial advisors between April 21 and April 25,
2011, Synthes and Johnson & Johnson agreed that
(1) the aggregate merger consideration would be CHF 159.00
per share, with 65% of the consideration being in the form of
Johnson & Johnson stock (subject to a 7%
collar) and 35% of the aggregate consideration being
in the form of cash, (2) Johnson & Johnson would
agree to use reasonable best efforts to obtain necessary
antitrust approvals (including the divestiture of assets in
accordance with the merger agreement) and to pay to Synthes a
reverse termination fee of $650 million if the
merger fails to close because required antitrust approvals have
not been obtained and (3) Synthes would convene a special
meeting of its stockholders to vote on adoption of the merger
agreement even if the Synthes board were to change its
recommendation in favor of adoption of the merger agreement
(although if the Synthes board were to change its recommendation
in favor of a superior proposal, the percentage of shares
subject to the voting agreement would be reduced from
approximately 37% to 33%).
On April 24, 2011, Mr. Mahoney again requested that
senior executives of Synthes modify the terms of their retention
and severance arrangements and expressed an interest in speaking
with these senior executives to discuss the proposed
modifications. During the day and evening on April 25,
2011, Messrs. Gorsky and Khoury spoke by telephone to
finalize the proposed transaction terms. Mr. Gorsky
expressed to Mr. Khoury the importance to
Johnson & Johnson of completing the modifications to
the terms of the retention and severance arrangements of
Synthes senior executives before Johnson &
Johnson could agree to a transaction.
On April 25, 2011, the Johnson & Johnson board of
directors met telephonically. Representatives of
Johnson & Johnsons senior management team and
Johnson & Johnsons legal and financial advisors
also participated in this meeting. Members of
Johnson & Johnsons senior management team
provided an update as to the current status of negotiations with
Synthes and reported that Johnson & Johnson had
reached an agreement in principle and described the agreed upon
terms. Members of Johnson & Johnsons senior
management team also made presentations regarding updates on the
findings made during the legal and business due diligence
process, an overview of Synthes senior management and an
update on the financial implications of a potential combination.
Representatives from Cravath and Goldman Sachs discussed the
legal and financial implications of a potential combination.
30
The members of the Johnson & Johnson board of
directors then unanimously authorized the execution and delivery
of the merger agreement and the voting agreement.
Also on April 25, 2011, the Synthes board of directors met
telephonically. Representatives of Synthes senior
management team and Synthes legal and financial advisors
also participated in this meeting. Representatives of
Shearman & Sterling reviewed the fiduciary duties of
the directors in connection with their consideration of the
proposed merger, and described the principal terms of the
proposed merger agreement and voting agreement. Also at this
meeting, Credit Suisse reviewed with the Synthes board of
directors its financial analysis of the merger consideration and
rendered to the Synthes board of directors an oral opinion,
confirmed by delivery of a written opinion dated April 25,
2011, to the effect that, as of that date and based on and
subject to the matters described in the opinion, the merger
consideration to be received by holders of Synthes common stock
(other than holders entering into voting agreements in
connection with the merger and their respective affiliates) was
fair, from a financial point of view, to such holders. The
directors also discussed the terms of the proposed transaction
and the process between the signing of definitive agreements and
the closing of the transaction. The members of the Synthes board
of directors then unanimously determined that the proposed
merger, upon the terms and conditions set forth in the merger
agreement, was fair to and in the best interests of Synthes and
its stockholders; declared the merger agreement advisable;
approved the merger agreement; and recommended that holders of
Synthes common stock adopt the merger agreement. The Synthes
board also unanimously approved proposed modifications to the
terms of the retention and severance arrangements that had been
approved by the Synthes board of directors on April 4,
2011, which modifications had been negotiated at the request of
Johnson & Johnson.
During the day on April 26, 2011, Mr. Mahoney and
other representatives of Johnson & Johnson and
Messrs. Wyss and Khoury met telephonically with
15 senior executives of Synthes to discuss proposed
modifications to the terms of the retention and severance
arrangements that had been approved by the Synthes board of
directors on April 4, 2011. As of the close of business on
April 26, 2011, 12 of the 15 senior executives had agreed
to the proposed modifications, and two additional executives
agreed to such modifications shortly thereafter.
Also on April 26, 2011, Messrs. Weldon and Wyss spoke
by telephone to confirm all open items had been resolved and to
discuss execution of the merger agreement and the voting
agreement.
During the evening of April 26, 2011, the merger agreement
and the voting agreement were executed. Johnson &
Johnson and Synthes issued a joint press release announcing the
agreements prior to the opening of the Swiss financial markets
on April 27, 2011.
Johnson &
Johnsons Reasons for the Merger
Johnson & Johnson believes the merger will expand and
strengthen its orthopaedics business worldwide, which represents
an important growth driver for it. Johnson & Johnson
further believes that Synthes is widely respected for its
innovative high-quality products, world-class research and
development capabilities, commitment to education, high
standards of service and extensive global footprint. It expects
that the merger will create the most innovative, comprehensive
orthopaedics business in the world and enable it to better serve
clinicians and patients worldwide.
Reasons
for the Merger and Recommendation of the Synthes Board of
Directors
At a special meeting held on April 25, 2011, the Synthes
board of directors unanimously determined that the merger is
fair to, and in the best interests of, Synthes and its
stockholders, approved the merger agreement and recommended that
Synthes stockholders vote FOR adoption of the merger
agreement.
In evaluating the merger, the Synthes board of directors
consulted with Synthes senior management and legal and
financial advisors and, in reaching its decision to approve the
merger agreement and recommend that Synthes stockholders adopt
the merger agreement, the Synthes board of directors considered
a number of factors, including the following:
Synthes Business Condition and
Prospects. The Synthes board of directors
considered information with respect to Synthes financial
condition, results of operations, business, competitive position
and business strategy, as well as current industry, economic,
regulatory and market conditions and trends. The Synthes
31
board of directors considered other strategic alternatives
reasonably available to Synthes, including continuing to operate
as an independent company and the possibility of growing its
business through acquisitions and internal growth while
remaining independent, in each case taking into account the
potential benefits, risks and uncertainties associated with
those other opportunities.
Value of Merger Consideration. The Synthes
board of directors considered the value of the merger
consideration to be received by Synthes stockholders in the
merger, including that the value may fluctuate and be different
than CHF 159 per share at closing. The Synthes board of
directors noted that, if the average of the volume weighted
average trading prices of Johnson & Johnsons
common stock on each of the ten trading days ending two trading
days prior to the effective time of the merger, as converted
into CHF on each day in this valuation period, is between CHF
52.54 and CHF 60.45, Synthes stockholders will receive, for each
share of Synthes common stock that they own, merger
consideration with a value of CHF 159.00 (consisting of
CHF 55.65 in cash and CHF 103.35 in Johnson &
Johnson common stock). The Synthes board of directors considered
this aggregate value as compared to recent and historical
trading prices of Synthes common stock. The Synthes board of
directors also considered the fact that, because the exchange
ratio for the stock portion of the merger consideration becomes
fixed outside this range of trading prices, the value of the
merger consideration to be received by Synthes stockholders
would also change: the value of the merger consideration will be
more than CHF 159.00 to the extent that the average of the
volume weighted average trading prices of Johnson &
Johnson common stock during the valuation period, as converted
into CHF on each day in the valuation period, is greater than
CHF 60.45 and will be less than CHF 159.00 to the extent that
the average of the volume weighted trading prices of
Johnson & Johnsons common stock during the
valuation period, as converted into CHF on each day in the
valuation period, is lower than CHF 52.54. Accordingly, the
Synthes board of directors considered the fact that the
aggregate value to be received by Synthes stockholders could be
impacted both by changes in the trading prices of
Johnson & Johnson common stock, as well as the changes
in the USD/CHF currency exchange rate.
Form of Merger Consideration. The Synthes
board of directors considered that the stock portion of the
merger consideration will permit Synthes stockholders to
exchange their shares of Synthes common stock for shares of
Johnson & Johnson common stock and retain an equity
interest in the combined enterprise and the related opportunity
to share in its future growth. The Synthes board of directors
also reviewed the current and historical results of operations
and trading prices of Johnson & Johnson common stock
and considered the liquidity that holding shares of
Johnson & Johnson common stock would provide to
Synthes stockholders who do not wish to hold shares of
Johnson & Johnson common stock following the merger.
Ability to Discuss Alternative Transactions and Change
Recommendation. The Synthes board of directors
considered Synthes ability to speak with third parties
about unsolicited alternative transaction proposals, and the
circumstances under which the Synthes board of directors could
change its recommendation in favor of the merger agreement. The
Synthes board of directors noted that even if the Synthes board
of directors changed its recommendation because of a superior
proposal, the percentage required to vote in favor of the merger
would be reduced from approximately 37% to 33% of the
outstanding shares of common stock.
Regulatory Matters. The Synthes board of
directors considered the required regulatory approvals for the
merger and the prospects and anticipated timing of obtaining
such approvals. The Synthes board of directors also considered
that Johnson & Johnson had agreed to use reasonable
best efforts to obtain necessary antitrust approvals (including
the divestiture of assets pursuant to the merger agreement), and
that Johnson & Johnson had agreed to pay a termination
fee to Synthes of $650 million if the merger is not
completed solely for antitrust reasons.
Tax Treatment. The Synthes board of directors
considered the expected tax treatment of the merger to Synthes
stockholders, including the fact that the merger is not
structured as a reorganization for United States federal income
tax purposes that generally would allow Synthes stockholders not
to recognize gain from the receipt of the stock portion of the
merger consideration.
Opinion of Financial Advisor. The Synthes
board of directors considered the financial presentation and
opinion, dated April 25, 2011, of Credit Suisse as to the
fairness, from a financial point of view and as of the date of
the opinion, of the merger consideration to be received by
holders of Synthes common stock (other than
32
holders entering into the voting agreement and their respective
affiliates), as more fully described in the section titled
Opinion of Synthes Financial Advisor beginning
on page 35.
Other Considerations. The Synthes board of
directors also considered:
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the fact that nine potential strategic partners and six
potential private equity partners were contacted on behalf of
Synthes to determine whether they would be interested in
acquiring Synthes and that no potential strategic partner other
than Johnson & Johnson submitted a proposal to acquire
Synthes, and that the only private equity firms that submitted a
non-binding proposal to acquire Synthes did so at CHF 151 per
share, and said they could not increase their proposed price
above CHF 151;
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the fact that the merger agreement does not include a financing
condition to Johnson & Johnsons obligation to
close the merger; and
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the availability of statutory appraisal rights to Synthes
stockholders who comply with the required procedures under the
DGCL.
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Potential Risks. The Synthes board of
directors considered a number of potential risks, as well as
related mitigating factors, in connection with its evaluation of
the merger, including:
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the fact that completion of the merger would require
satisfaction of closing conditions that are not within
Synthes control, including the receipt of regulatory
approvals, and that no material adverse effect on Synthes has
occurred;
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that if the merger is not completed as a result of the failure
to receive regulatory approvals or satisfy other closing
conditions, this could result in significant distractions of
Synthes employees and increased expenses from an
unsuccessful attempt to complete the merger and could have an
adverse impact on Synthes business;
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the fact that under the terms of the merger agreement, prior to
the completion or abandonment of the merger Synthes will be
required to conduct its business only in the ordinary course
consistent with past practice and subject to certain operational
restrictions; and
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the requirement that Synthes pay to Johnson & Johnson
a $650 million termination fee if the merger agreement is
terminated (1) by Johnson & Johnson following a
change in recommendation by the Synthes board of directors,
(2) by Johnson & Johnson if the Synthes board of
directors fails to publicly reaffirm its recommendation of the
merger following a publicly announced competing proposal, or
(3) because (x) the Synthes special meeting has not
been held by the outside date or the merger agreement is
not adopted at the special meeting and (y) a competing
proposal was publicly known prior to termination and
(z) Synthes enters into an agreement with respect to a
competing proposal within 12 months of termination.
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In the judgment of the Synthes board of directors, however,
these potential risks were more than offset by the potential
benefits of the merger discussed above.
The above discussion is not intended to be exhaustive, but
Synthes believes it addresses the material information and
factors considered by the Synthes board of directors in its
consideration of the merger, including factors that may support
the merger as well as factors that may weigh against it. In view
of the variety of factors and the amount of information
considered, the Synthes board of directors did not find it
practicable to, and did not make specific assessments of,
quantify or otherwise assign relative weights to, the specific
factors considered in reaching its determination. In addition,
the Synthes board of directors did not undertake to make any
specific determination as to whether any particular factor, or
any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, and individual
members of the Synthes board of directors may have given
different weights to different factors.
In considering the recommendation of the Synthes board of
directors to approve the merger agreement, Synthes stockholders
should be aware that certain executive officers and directors of
Synthes have certain interests in the merger that may be
different from, or in addition to, the interests of Synthes
stockholders generally. The Synthes board of directors was aware
of these interests and considered them when adopting the merger
agreement
33
and recommending that Synthes stockholders vote to adopt the
merger agreement. See Interests of Synthes
Directors and Executive Officers in the Merger beginning
on page 40.
Projected
Financial Information
Synthes does not, as a matter of course, prepare long-range
financial projections, and Synthes senior management prepares
only one-year forecasts in connection with Synthes annual
budgeting process.
However, in connection with Synthes evaluation of a
possible transaction, Synthes management prepared certain
financial projections for calendar years 2011 through 2015.
These forecasts were provided to the Synthes board of directors
and also provided to Synthes financial advisor in
connection with its opinion more fully described in the section
titled Opinion of Synthes Financial Advisor
beginning on page 35. These financial projections were not
provided to Johnson & Johnson or to any other party
that expressed an interest in pursuing a transaction with
Synthes. The financial projections set forth below are not
included in this proxy statement/prospectus to influence your
decision as to whether to vote to adopt the merger agreement or
because we believe they are material.
The inclusion of the financial projections set forth below in
this proxy statement/prospectus should not be regarded as an
indication that Synthes, the Synthes board of directors,
Johnson & Johnson or any recipient of the financial
projections considered, or now considers, them to be necessarily
predictive of actual future results, and they should not be
relied upon as such.
The financial projections are subjective in many respects and
reflect numerous judgments, estimates and assumptions that are
inherently uncertain, many of which are beyond Synthes
control, including estimates and assumptions regarding industry
performance, general business, economic, regulatory, market and
financial conditions and other future events, as well as matters
specific to Synthes business. Important factors that may
affect actual results and cause the financial projections not to
be accurate include, but are not limited to, risks and
uncertainties relating to Synthes business (including its
ability to achieve strategic goals, objectives and targets over
the applicable periods), industry performance, the regulatory
environment, general business and economic conditions,
competition and the protection and enforcement of intellectual
property rights. In addition, the financial projections do not
reflect any events that could affect Synthes prospects,
changes in general business or economic conditions or any other
transaction or event that has occurred since, or that may occur
and that was not anticipated at, the time the financial
projections were prepared, including the announcement of the
potential acquisition of Synthes by Johnson & Johnson
pursuant to the merger agreement. Further, the financial
projections do not take into account the effect of any failure
of the merger to occur, and should not be viewed as necessarily
accurate or continuing in that context. The financial
projections also cover multiple years and by their nature become
less predictive with each successive year. Furthermore, and for
the same reasons, the financial projections should not be
construed as commentary by Synthes management as to how
management expects Synthes actual results to compare to
research analysts estimates. There can be no assurance
that the financial projections will be achieved or that
Synthes future financial results will not vary, even
materially, from the financial projections. None of Synthes,
Johnson & Johnson or their respective affiliates,
representatives or agents undertakes any obligation to update or
otherwise to revise the financial projections to reflect
circumstances existing or arising after the date such
projections were generated or to reflect the occurrence of
future events, even if any or all of the underlying estimates
and assumptions are shown to be in error.
Set forth below is a summary of the financial projections.
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2011
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2012
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2013
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2014
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2015
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($ in millions except per share amounts)
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Revenue
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$
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3,993
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$
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4,273
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$
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4,573
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$
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4,894
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$
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5,238
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EBIT
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$
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1,357
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$
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1,453
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$
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1,555
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$
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1,665
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$
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1,783
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EBITDA
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$
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1,710
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$
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1,831
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$
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1,960
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$
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2,098
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$
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2,246
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Net Income
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$
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981
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$
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1,053
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$
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1,130
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$
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1,212
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$
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1,301
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Earnings Per Share
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$
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8.27
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$
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8.87
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$
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9.52
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$
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10.22
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$
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10.96
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Unlevered free cash flow
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$
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759
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$
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979
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$
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1,121
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$
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1,282
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$
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1,396
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34
Each of EBITDA, EBIT and unlevered free cash flow is not a
measure recognized by U.S. generally accepted accounting
principles (GAAP). Non-GAAP financial measures are
not intended to be substitutes for any GAAP financial measure
and, as calculated, may not be comparable to similarly titled
measures of other companies.
The financial projections should be read together with
Synthes historical financial statements and the other
information regarding Synthes contained elsewhere in this proxy
statement/prospectus. The financial projections were not
prepared with a view toward public disclosure. Neither
Synthes independent accounting firm nor any other
independent accountant has compiled, examined or performed any
procedures with respect to the prospective financial information
contained in the financial projections, nor have they expressed
any opinion or given any form of assurance on the financial
projections or their respective achievability, and accordingly
assume no responsibility for them.
There can be no assurance that any projections will be realized,
or that the assumptions on which they are based will prove to be
correct. The financial projections do not and should not be read
to update, modify or affirm any prior financial guidance issued
by Synthes. You are cautioned not to place undue reliance on
this information in making a decision as to whether to vote to
adopt the merger agreement.
Opinion
of Synthes Financial Advisor
Synthes retained Credit Suisse to act as its financial advisor
in connection with the merger. In connection with Credit
Suisses engagement, the Synthes board of directors
requested that Credit Suisse evaluate the fairness, from a
financial point of view, of the merger consideration to be
received by holders of Synthes common stock (other than holders
entering into the voting agreement and their respective
affiliates). On April 25, 2011, at a meeting of the Synthes
board of directors held to evaluate the proposed merger, Credit
Suisse rendered to the Synthes board of directors an oral
opinion, confirmed by delivery of a written opinion dated
April 25, 2011, to the effect that, as of that date and
based on and subject to the matters described in its opinion,
the merger consideration to be received by holders of Synthes
common stock (other than holders entering into the voting
agreement and their respective affiliates) was fair, from a
financial point of view, to such holders.
The full text of Credit Suisses written opinion, dated
April 25, 2011, to the Synthes board of directors, which
sets forth, among other things, the procedures followed,
assumptions made, matters considered and limitations on the
scope of review undertaken, is attached as Annex C and is
incorporated into this proxy statement/prospectus by reference
in its entirety. The description of Credit Suisses opinion
set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full text of Credit Suisses
opinion. Credit Suisses opinion was provided to the
Synthes board of directors (in its capacity as such) for its
information in connection with its evaluation of the merger
consideration and did not address any other aspect of the
proposed merger, including the relative merits of the merger as
compared to alternative transactions or strategies that might be
available to Synthes or the underlying business decision of
Synthes to proceed with the merger. The opinion does not
constitute advice or a recommendation to any stockholder as to
how such stockholder should vote or act on any matter relating
to the proposed merger or otherwise.
In arriving at its opinion, Credit Suisse reviewed a draft dated
April 25, 2011 of the merger agreement and certain publicly
available business and financial information relating to Synthes
and Johnson & Johnson. Credit Suisse also reviewed
certain other information relating to Synthes and
Johnson & Johnson, including financial forecasts
relating to Synthes and publicly available research
analysts estimates relating to Johnson &
Johnson, provided to or discussed with Credit Suisse by Synthes
and Johnson & Johnson, and met with Synthes and
Johnson & Johnsons managements to discuss
Synthes and Johnson & Johnsons respective
businesses and prospects. Credit Suisse also considered certain
financial and stock market data of Synthes and
Johnson & Johnson, and Credit Suisse compared that
data with similar data for other publicly held companies in
businesses it deemed similar to that of Synthes and
Johnson & Johnson, and Credit Suisse considered, to
the extent publicly available, the financial terms of certain
other business combinations and transactions which have been
effected or announced. Credit Suisse also considered such other
information, financial studies, analyses and investigations and
financial, economic and market criteria which it deemed relevant.
In connection with its review, Credit Suisse did not
independently verify any of the foregoing information and Credit
Suisse assumed and relied upon such information being complete
and accurate in all material respects. With
35
respect to the financial forecasts for Synthes that Credit
Suisse utilized in its analyses, Synthes management
advised Credit Suisse, and Credit Suisse assumed, that such
forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Synthes
management as to the future financial performance of Synthes.
With respect to the publicly available research analysts
estimates for Johnson & Johnson that Credit Suisse
utilized in its analyses, Credit Suisse reviewed and discussed
such forecasts with Johnson & Johnsons
management and assumed, with Synthes consent, that such
forecasts were a reasonable basis upon which to evaluate the
future financial performance of Johnson & Johnson.
Credit Suisse also relied upon, with Synthes consent and
without independent verification, the assessments of
Synthes and Johnson & Johnsons managements
as to (i) the existing and future products, product
candidates and technology of Synthes and the validity of, and
risks associated with, such products, product candidates and
technology and (ii) governmental and regulatory policies
and matters affecting the healthcare industry and the potential
impact thereof on Synthes, Johnson & Johnson and the
contemplated benefits of the merger. Credit Suisse assumed, with
Synthes consent, that there would be no developments with
respect to any such matters that would be material to Credit
Suisses analyses or opinion.
Credit Suisse also assumed, with Synthes consent, that, in
the course of obtaining any regulatory or third party consents,
approvals or agreements in connection with the merger, no delay,
limitation, restriction or condition, including any divestiture
requirements, would be imposed that would have an adverse effect
on Synthes, Johnson & Johnson or the contemplated
benefits of the merger in any respect material to Credit
Suisses analyses or opinion and that the merger would be
consummated in accordance with the terms of the merger
agreement, without waiver, modification or amendment of any
material term, condition or agreement. Representatives of
Synthes advised Credit Suisse, and Credit Suisse also assumed,
that the terms of the merger agreement, when executed, would
conform in all material respects to the terms reflected in the
draft reviewed by Credit Suisse. In addition, Credit Suisse was
not requested to make, and did not make, an independent
evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Synthes or Johnson & Johnson, nor was
Credit Suisse furnished with any such evaluations or appraisals.
Credit Suisses opinion addresses only the fairness, from a
financial point of view and as of the date of its opinion, of
the merger consideration to be received by holders of Synthes
common stock (other than holders entering into the voting
agreement and their respective affiliates) and did not address
any other aspect or implication of the merger, including,
without limitation, the form or structure of the merger
consideration or the merger or any voting or other agreement,
arrangement or understanding entered into in connection with the
merger or otherwise. Credit Suisses opinion also did not
address the fairness of the amount or nature of, or any other
aspect relating to, any compensation to any officers, directors
or employees of any party to the merger, or class of such
persons, relative to the merger consideration or otherwise. The
issuance of Credit Suisses opinion was approved by Credit
Suisses authorized internal committee.
Credit Suisses opinion was necessarily based upon
information made available to it as of the date of its opinion
and financial, economic, market and other conditions as they
existed and could be evaluated on that date. Credit Suisse did
not express any opinion as to what the value of shares of
Johnson & Johnson common stock actually would be when
issued to the holders of Synthes common stock pursuant to the
merger or the prices at which shares of Synthes common stock or
Johnson & Johnson common stock would trade at any
time. In addition, Credit Suisse expressed no view as to, and
its opinion did not address, foreign currency exchange risks
associated with the merger. Except as described in this summary,
the Synthes board of directors imposed no other limitations on
Credit Suisse with respect to the investigations made or
procedures followed in rendering its opinion.
In preparing its opinion to the Synthes board of directors,
Credit Suisse performed a variety of financial and comparative
analyses, including those described below. The summary of Credit
Suisses analyses described below is not a complete
description of the analyses underlying Credit Suisses
opinion. The preparation of a fairness opinion is a complex
process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. Credit Suisse arrived
at its ultimate opinion based on the results of all analyses
undertaken by it and assessed as a whole and did not draw, in
isolation, conclusions from or with regard to any one factor or
method of analysis. Accordingly, Credit Suisse believes that its
analyses must be considered as a whole and that selecting
portions of its analyses and factors or focusing on
36
information presented in tabular format, without considering all
analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the
processes underlying its analyses and opinion.
In its analyses, Credit Suisse considered industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond Synthes control.
No company, transaction or business used in Credit Suisses
analyses is identical to Synthes, Johnson & Johnson or
the proposed merger, and an evaluation of the results of those
analyses is not entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning
financial and operating characteristics and other factors that
could affect the acquisition, public trading or other values of
the companies, business segments or transactions analyzed. The
estimates contained in Credit Suisses analyses and the
ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Credit Suisses analyses are inherently subject to
substantial uncertainty.
Credit Suisse was not requested to, and it did not, recommend
the specific consideration payable in the proposed merger, which
merger consideration was determined through negotiations between
Synthes and Johnson & Johnson, and the decision to
enter into the merger agreement was solely that of the Synthes
board of directors. Credit Suisses opinion and financial
analyses were only one of many factors considered by the Synthes
board of directors in its evaluation of the proposed merger and
should not be viewed as determinative of the views of the
Synthes board of directors or Synthes management with
respect to the merger or the merger consideration.
The following is a summary of the material financial analyses
reviewed with the Synthes board of directors on April 25,
2011 in connection with Credit Suisses opinion. The
financial analyses summarized below include information
presented in tabular format. In order to fully understand Credit
Suisses financial analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Credit Suisses
financial analyses. For purposes of the financial analyses
summarized below, the term implied per share merger
consideration refers to the total implied value of the
merger consideration of CHF 159.00 per share calculated as
(i) the CHF 55.65 per share cash consideration and
(ii) the CHF 103.35 per share assumed value of the stock
consideration based on an illustrative merger exchange ratio of
1.8295 (which was calculated by dividing CHF 103.35 by the
volume weighted average Johnson & Johnson closing
stock price for the
three-day
period ended April 21, 2011 of $63.41 per share (as
converted into CHF utilizing a U.S. dollar to CHF exchange
rate of 0.8909)). The actual merger exchange ratio will be
determined prior to closing and, as provided in the merger
agreement, will not be greater than 1.9672 or less than 1.7098.
Synthes
Financial Analyses
Synthes Selected Companies Analysis. Credit
Suisse reviewed financial and stock market information of
Synthes and the following seven selected publicly traded
companies with operations in whole or in part in the medical
devices industry:
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Boston Scientific Corporation
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Johnson & Johnson
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Medtronic, Inc.
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Smith & Nephew plc
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St. Jude Medical, Inc.
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Stryker Corporation
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Zimmer Holdings, Inc.
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Credit Suisse reviewed, among other things, enterprise values of
the selected companies, calculated as equity values based on
closing stock prices on April 14, 2011 (the last trading
day prior to market rumors of a potential transaction with
Johnson & Johnson), plus debt, less cash and other
adjustments, as a multiple of calendar year 2011 estimated
37
earnings before interest, taxes, depreciation and amortization,
referred to as EBITDA. Credit Suisse also reviewed equity values
of the selected companies, based on closing stock prices on
April 14, 2011, as a multiple of calendar year 2011
estimated earnings per share, referred to as EPS. The overall
low and high calendar year 2011 estimated EBITDA multiples
observed for the selected companies were 7.1x and 10.9x,
respectively, and the overall low and high calendar year 2011
estimated EPS multiples observed for the selected companies were
11.5x and 23.2x, respectively. In calculating an implied per
share reference range for Synthes, Credit Suisse applied a range
of selected multiples of calendar year 2011 estimated EBITDA and
EPS of 8.0x to 9.0x and 14.0x to 18.0x, respectively, derived
from the selected companies to corresponding data of Synthes.
Financial data of the selected companies were based on publicly
available research analysts estimates, public filings and
other publicly available information. Financial data of Synthes
were based on internal estimates of Synthes management.
This analysis indicated the following approximate implied per
share reference range for Synthes as compared to the implied per
share merger consideration:
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Implied Per Share
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Implied Per Share
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Reference Range
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Merger Consideration
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CHF 109 CHF 130
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CHF 159
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Synthes Selected Transactions Analysis. Credit
Suisse reviewed financial information of the following eight
selected transactions involving companies with operations in
whole or in part in the medical devices industry:
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Acquiror
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Target
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Smith & Nephew plc
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Plus Orthopedics Holding AG
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Private Equity Consortium
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Biomet, Inc.
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Blackstone Capital Partners V. L.P.
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Encore Medical Corporation
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Synthes, Inc.
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Mathys Medizinaltechnik AG
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Zimmer Holdings, Inc.
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Centerpulse AG
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Synthes, Inc.
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Stratec Holding Ltd.
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Stryker Corporation
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Howmedica (Orthopaedic Division of
Pfizer Inc.)
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Johnson & Johnson
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DePuy, Inc.
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Credit Suisse reviewed, among other things, transaction values,
calculated as the purchase prices paid for the target companies
in the selected transactions plus debt, less cash and other
adjustments, as multiples of the target companies latest
12 months sales and EBITDA. The overall low and high latest
12 months sales multiples observed for the selected
transactions were 2.0x and 5.7x, respectively, and the overall
low and high latest 12 months EBITDA multiples observed for
the selected transactions were 8.0x and 18.6x, respectively. In
calculating an implied per share reference range for Synthes,
Credit Suisse applied a range of selected multiples of latest
12 months sales and EBITDA of 3.5x to 4.5x and 10.0x to
14.0x, respectively, derived from the selected transactions to
Synthes sales and EBITDA for the latest 12 months
ended March 31, 2011. Financial data of the selected
transactions were based on publicly available information at the
time of announcement of the relevant transaction. Financial data
of Synthes were based on public filings and internal estimates
of Synthes management. This analysis indicated the
following approximate implied per share reference range for
Synthes, as compared to the implied per share merger
consideration:
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Implied Per Share
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Implied Per Share
|
Reference Range
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|
Merger Consideration
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CHF 123 CHF 161
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CHF 159
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Synthes Discounted Cash Flow Analysis. Credit
Suisse performed a discounted cash flow analysis of Synthes to
calculate the estimated present value of the standalone
unlevered, after-tax free cash flows that Synthes was forecasted
to generate during the fiscal years ending December 31,
2011 through December 31, 2015 based on internal estimates
of Synthes management. Credit Suisse calculated terminal
values for Synthes by applying a range of terminal value EBITDA
multiples of 8.5x to 9.5x to Synthes estimated EBITDA for
the fiscal year ending December 31, 2015. The present value
(as of March 31, 2011) of the cash flows and terminal
values was then
38
calculated using discount rates ranging from 8.5% to 10.5%. This
analysis indicated the following approximate implied per share
reference range for Synthes, as compared to the implied per
share merger consideration:
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Implied Per Share
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Implied Per Share
|
Reference Range
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|
Merger Consideration
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CHF 133 CHF 154
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CHF 159
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Johnson &
Johnson Financial Analysis
Johnson & Johnson Selected Companies
Analysis. Credit Suisse reviewed financial and
stock market information of Johnson & Johnson, Synthes
and the six other selected publicly traded companies with
operations in whole or in part in the medical devices industry
referred to above in Synthes Selected
Companies Analysis. Credit Suisse reviewed, among other
things, enterprise values of Johnson & Johnson,
Synthes and the other selected companies, calculated as equity
values based on closing stock prices on April 14, 2011,
plus debt, less cash and other adjustments, as a multiple of
calendar year 2011 estimated EBITDA. Credit Suisse also reviewed
equity values of Johnson & Johnson, Synthes and the
other selected companies, based on closing stock prices on
April 14, 2011, as a multiple of calendar year 2011
estimated EPS. Financial data of Johnson & Johnson and
the other selected companies were based on publicly available
research analysts estimates, public filings and other
publicly available information. Financial data of Synthes were
based on internal estimates of Synthes management. Credit
Suisse then compared the implied multiples of calendar year 2011
estimated EBITDA and EPS derived for Johnson & Johnson
with those derived for Synthes and the other selected companies.
This analysis indicated ranges of implied multiples of calendar
year 2011 estimated EBITDA and EPS for Synthes and the other
selected companies of 7.1x to 10.9x and 11.5x to 23.2x,
respectively, as compared to implied multiples of calendar year
2011 estimated EBITDA and EPS for Johnson & Johnson of
7.6x and 12.4x, respectively.
Other Information. Credit Suisse also noted
for the Synthes board of directors certain additional factors
that were not considered part of Credit Suisses financial
analyses with respect to its opinion but were referenced for
informational purposes, including, among other things, the
following:
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premiums paid in selected transactions with transaction values
of greater than $10 billion announced between
January 1, 2000 and April 21, 2011, applying a
selected range of premiums derived from the closing stock prices
of the target companies during various periods prior to public
announcement of the relevant transactions to Synthes
closing stock price on April 14, 2011 and Synthes
high closing stock price during the 52-week period ended
April 14, 2011, which indicated an implied per share
reference range for Synthes of approximately CHF 143 to CHF 156;
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historical trading prices of Synthes common stock during the
52-week period ended April 14, 2011, which reflected low
and high stock prices during such period of approximately CHF
109 to CHF 135 per share;
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one-year forward stock price targets for Synthes common stock in
13 recently published, publicly available Wall Street research
analyst reports, which indicated low and high stock price
targets for Synthes (discounted to present value using a 9.5%
discount rate) of approximately CHF 105 to CHF 146 per
share; and
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one-year forward stock price targets for Johnson &
Johnson common stock in 13 recently published, publicly
available Wall Street research analyst reports, which indicated
a mean and median target stock price for Johnson &
Johnson of approximately $67.62 per share and $67.00 per share,
respectively, noting that such target stock prices implied a
premium of 5.5% and 4.6%, respectively, to Johnson &
Johnsons closing stock price of $64.07 per share on
April 21, 2011.
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Miscellaneous
Synthes selected Credit Suisse to act as its financial advisor
in connection with the merger based on Credit Suisses
qualifications, experience, reputation and familiarity with
Synthes. Credit Suisse is an internationally recognized
investment banking firm and is regularly engaged in the
valuation of businesses and securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings,
39
secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other
purposes.
Synthes has agreed to pay Credit Suisse for its financial
advisory services to Synthes in connection with the proposed
merger an aggregate fee currently estimated to be approximately
$50 million, $5 million of which was paid upon
delivery of Credit Suisses opinion and the balance of
which is contingent upon closing of the merger. In addition,
Synthes has agreed to reimburse Credit Suisse for its expenses,
including fees and expenses of legal counsel, and to indemnify
Credit Suisse and related parties for certain liabilities and
other items, including liabilities under the federal securities
laws, arising out of or related to its engagement. Credit Suisse
and its affiliates in the past have provided investment banking
and other financial services to Synthes, for which Credit Suisse
and its affiliates have received compensation. In addition,
Credit Suisse and its affiliates in the past have provided and
in the future may provide wealth management and other financial
services to significant stockholders of Synthes (including
Synthes founder and chairman, Mr. Hansjörg Wyss
and his family), which may include financial services in
connection with the merger, for which services Credit Suisse and
its affiliates have received and would expect to receive
compensation. Credit Suisse is a full service securities firm
engaged in securities trading and brokerage activities as well
as providing investment banking and other financial services. In
the ordinary course of business, Credit Suisse and its
affiliates may acquire, hold or sell, for Credit Suisses
and its affiliates own accounts and the accounts of customers,
equity, debt and other securities and financial instruments
(including bank loans and other obligations) of Synthes,
Johnson & Johnson and their respective affiliates and
any other company that may be involved in the merger, as well as
provide investment banking and other financial services to such
companies.
Interests
of Synthes Directors and Executive Officers in the
Merger
In considering the recommendation of the Synthes board of
directors in favor of the adoption of the merger agreement,
Synthes stockholders should be aware that certain directors and
executive officers of Synthes have interests in the merger that
may be different from, or in addition to, the interests of
Synthes stockholders generally. The Synthes board of directors
was aware of the interests described below and considered them,
among other matters, when approving the merger agreement and
recommending that Synthes stockholders vote to adopt the merger
agreement. These interests are summarized below.
Stock Options and Other Stock-Based
Awards. All outstanding options to purchase
Synthes common stock issued under the equity incentive plans
adopted in 2000 and 2010, including those held by executive
officers, will accelerate and vest upon the closing of the
merger. Under the terms of the merger agreement, all options
will be cancelled and each option will be converted into an
amount of cash equal to the excess, if any, of the merger
consideration over the exercise price of the option. For a more
complete description of the merger consideration, see The
Merger Treatment of Synthes Stock Options and
Other Equity-Based Awards on page 54. As of
October 20, 2011, unvested options held by Synthes
executive officers for 192,500 shares of Synthes common
stock will be cancelled and exchanged for cash if the merger is
completed. In addition, all restrictions imposed on restricted
stock grants granted under the equity incentive plans, including
those held by Synthes executive officers, will lapse upon the
closing of the merger. As of October 20, 2011, 76,035
restricted shares of Synthes common stock held by Synthes
executive officers will be subject to accelerated vesting if the
merger is completed. Please see the table below for further
details relating to options and grants of restricted stock held
by Synthes executive officers that are subject to
acceleration and vesting or lapsing of restrictions.
40
The following table sets forth, as of October 20, 2011, the
number of shares subject to unvested options held by
Synthes executive officers and the weighted average
exercise prices of those options and the number of shares of
restricted stock held by Synthes executive officers.
Synthes directors do not hold options or restricted stock:
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Weighted Average
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Number of Shares Subject
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Exercise
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Number of Shares
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Name
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to Unvested Options
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Price per Share (CHF)
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of Restricted Stock
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Michel Orsinger
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85,000
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115.38
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47,693
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President and Chief Executive Officer
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Robert Donohue
|
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24,000
|
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132.40
|
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28,342
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Chief Financial Officer
|
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Ciro Roemer
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27,500
|
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126.41
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0
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President, Europe and Operations
|
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Steven Murray
|
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20,000
|
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130.70
|
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0
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President, Spine
|
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Harry Hall IV
|
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20,000
|
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132.40
|
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0
|
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President, Trauma
|
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Michael Mazzio
|
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16,000
|
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128.15
|
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0
|
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President, CMF
|
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William Wachter
|
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0
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0
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President, Power Tools
|
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Dr. h. c. mult. Hansjörg Wyss
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0
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0
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Chairman of the Board
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Employment Agreements. Each executive officer
except for Mr. Wachter and Mr. Wyss entered into an
Employment Agreement with Synthes between August 10, 2010
and January 24, 2011 that provides for severance, as
described below, if the executive officer is terminated under
certain circumstances following a Change in Control
(as defined in the applicable Employment Agreement). The
Employment Agreements, with the exception of the Employment
Agreement for Mr. Roemer, were amended on or about
April 13, 2011. These Employment Agreements, as amended,
provide for severance following a Change in Control if the
executive officer is terminated without Cause or
resigns for Good Reason (as each is defined in the
applicable Employment Agreement, as amended) within the two
years following a Change in Control.
In the Employment Agreements for Messrs. Hall, Mazzio,
Murray and Roemer, Cause includes the executive
officers willful misconduct, gross negligence,
insubordination, theft, dishonesty, misappropriation of funds,
usurpation of corporate opportunity, material breach of
fiduciary duty, failure to follow policies or to perform
assigned duties, conviction of or plea of nolo contendere with
respect to a felony, any crime involving fraud, larceny or
embezzlement, or any other crime involving moral turpitude, any
other conduct that is materially detrimental to Synthes or
violation of drug and alcohol in the workplace policies. Cause
in the Employment Agreements for Messrs. Orsinger and
Donohue includes willful misconduct, failure to perform duties,
insubordination, theft, dishonesty, conviction of a felony or
any other misconduct that is materially detrimental to Synthes.
Good Reason for Messrs. Hall, Mazzio, Murray
and Roemer, as amended in accordance with the Revised Retention
Agreements, described below, includes the occurrence of any of
the following events without either (x) the executive
officers express prior written consent or (y) full cure
within 30 days after the executive officer gives written
notice to Synthes requesting cure: (i) a material reduction
in base salary, (ii) the relocation of the executive
officers principal office more than 75 miles (or for
Mr. Roemer, the relocation of his principal office from
Synthes offices in Switzerland), or (iii) the
assignment of duties or responsibilities that are substantially
inconsistent with the executive officers professional
skills and experience levels as of such Change in Control
(without regard to the fact that Synthes is no longer an
independent publicly held company). No event shall constitute
grounds for a Good Reason termination unless the executive
officer terminates his employment within 90 days after such
event occurs. Good Reason in the Employment Agreements for
Messrs. Orsinger and Donohue includes (i) a material
diminution in authority, title, duties, responsibilities or
reporting lines, (ii) a material reduction in total
compensation, or (iii) the
41
relocation of the executive officers principal office more
than 50 miles. Messrs. Orsinger and Donohue also must
resign within one year after an event that would constitute Good
Reason.
Consummation of the merger would constitute a Change in Control
under each of the Employment Agreements. The severance payable
to an executive officer upon a termination without Cause or a
resignation for Good Reason within two years following a Change
in Control is a lump sum payment equal to a multiple of the
total annual cash compensation (annual base salary plus annual
cash bonus) in effect at the time of termination plus a pro-rata
annual cash bonus for the year of termination. In addition, each
executive officer with an Employment Agreement (other than
Mr. Roemer, who is not a United States taxpayer) is
entitled to a
gross-up for
any excise tax imposed on the executive officer under
Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended. The severance multiple for
Messrs. Orsinger and Donohue is three times total annual
cash compensation, and the multiple for Messrs. Hall,
Mazzio, Murray and Roemer is two times total annual cash
compensation. The severance amounts payable to each executive
officer is set forth below in the tables titled Named
Executive Officers Golden Parachute Compensation on
page 45 and Other Executive Officers on
page 45.
Change in Control Severance
Agreement. Mr. Wachter entered into a Change
in Control Severance Agreement with Synthes on April 14,
2011. This agreement provides for severance benefits, as
described below, if Mr. Wachters employment is
terminated without Cause or he resigns for Good Reason within
two years following a Change in Control.
Cause includes Mr. Wachters willful misconduct, gross
negligence, insubordination, theft, dishonesty, misappropriation
of funds, usurpation of corporate opportunity, material breach
of fiduciary duty, failure to follow policies or to perform
assigned duties, conviction of or plea of nolo contendere with
respect to a felony, any crime involving fraud, larceny or
embezzlement, or any other crime involving moral turpitude, any
other conduct that is materially detrimental to Synthes or
violation of drug and alcohol in the workplace policies.
Good Reason includes the occurrence of any of the following
events without either (x) Mr. Wachters express prior
written consent or (y) full cure within 30 days after
Mr. Wachter gives written notice to Synthes requesting
cure: (i) a material diminution in authority, title,
duties, or responsibilities, (ii) a material reduction in
total compensation, or (iii) the relocation of
Mr. Wachters principal office more than
75 miles. No event shall constitute grounds for a Good
Reason termination unless Mr. Wachter terminates his
employment within 90 days after such event occurs.
Consummation of the merger would constitute a Change in Control
under Mr. Wachters Change in Control Severance
Agreement. The severance payable to Mr. Wachter upon a
termination without Cause or a resignation for Good Reason
within two years following a Change in Control is a lump sum
payment equal to his total annual cash compensation (annual base
salary plus annual cash bonus) in effect at the time of
termination plus a pro-rata annual cash bonus for the year of
termination. In addition, Mr. Wachter is entitled to a
gross-up for
any excise tax imposed under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended. The severance amounts
payable to Mr. Wachter are set forth below in the table
titled Other Executive Officers on page 45.
Additional Employment Agreements and Change in Control
Severance Agreements. In addition to the
Employment Agreements and Change in Control Severance Agreements
between Synthes and the executive officers described above,
three other executives who are not executive officers entered
into Employment Agreements on January 24, 2011, as amended
on April 13, 2011. Eight executives who are not executive
officers and did not enter into Employment Agreements with
Synthes entered into Change in Control Severance Agreements with
Synthes on April 14, 2011. The Employment Agreements and
Change in Control Severance Agreements were amended by Revised
Retention Agreements (described below) on or about
April 26, 2011. These Employment Agreements and Change in
Control Severance Agreements provide for substantially similar
benefits as the Employment Agreements and Change in Control
Severance Agreements with the executive officers described
above, except the severance multiplier for each executive ranges
from one to two times total cash compensation.
Retention Bonus Agreements. On April 13,
2011, Synthes entered into Retention Bonus Agreements with each
executive officer, other than Mr. Wyss, and certain other
employees. The Retention Bonus Agreements entitle each executive
officer to a multiple of the sum of his annual base salary plus
annual cash bonus if the executive officer remains in the
continuous employment of Synthes, to be paid in two parts as
described below. If the
42
executive officer is terminated without Cause or resigns for
Good Reason (defined in the same manner as the applicable
Employment Agreement or Change in Control Severance Agreement,
as amended by the Revised Retention Agreements described below,
where applicable) prior to the final payment date, the executive
officer would be entitled to the full payment if the executive
officer signs, and does not revoke, a release in favor of
Synthes. The Retention Bonus Agreements entitle the executive
officers to the following payments: Messrs. Orsinger and
Donohue are entitled to four times annual base salary plus
annual cash bonus, two-thirds to be paid on the closing date of
the merger and one-third to be paid on the six-month anniversary
of the closing date of the merger; Messrs. Hall, Mazzio,
Murray and Roemer are entitled to three times annual base salary
plus annual cash bonus, one-half to be paid on the first
anniversary of the closing date of the merger and one-half to be
paid on the second anniversary of the closing date of the
merger; and Mr. Wachter is entitled to one times annual
base salary plus annual cash bonus, one-half to be paid on the
closing date of the merger and one-half to be paid on the first
anniversary of the closing date of the merger. The retention
bonus amounts payable to each executive officer are set forth
below in the table titled Retention Payments on
page 44.
Revised Retention Agreements. In connection
with the merger, Synthes, at Johnson & Johnsons
request, entered into Revised Retention Agreements with
Messrs. Hall, Mazzio, Murray, and Roemer, as well as
certain other executives who are not executive officers, on or
about April 26, 2011, that amended their respective
Employment Agreements, Change in Control Severance Agreements
and Retention Agreements. The Revised Retention Agreements
(i) amended the definition of Good Reason so that it was
more difficult to resign for Good Reason by removing the
executives ability to resign for Good Reason due to a
material diminution in the executives authority, title,
duties or responsibilities or due to a material reduction in the
executives total compensation, (ii) amended the
payment dates of the Retention Bonus Agreements so that
retention bonuses are payable on the first and second
anniversaries of the closing date of the merger (from the
original terms under which the retention bonus was payable on
the closing date of the merger and the first anniversary of the
closing date of the merger), (iii) amended any severance
provisions in any other agreement so that the executive would
not be entitled to severance following the second anniversary of
the closing date, but would instead be eligible for the
Johnson & Johnson severance plan applicable to that
executive, (iv) required a release of claims in favor of
Synthes for any payment of a retention bonus in connection with
a termination of employment, and (v) increased restrictive
covenants for the executive to a period of 18 months
following termination of employment.
Additional Retention Bonus Agreements. In
addition to the Retention Bonus Agreements described above with
the executive officers, Synthes has entered into substantially
similar Retention Bonus Agreements covering approximately 200
executives and senior management with a value of approximately
$35 million.
43
The following table sets forth the retention payments that each
of Synthes executive officers would be entitled to receive
under their Retention Bonus Agreements, as amended, and the
retention payment dates, assuming each executive officer remains
employed with Johnson & Johnson through the applicable
payment date:
Retention
Payments
|
|
|
|
|
|
|
Name
|
|
Payment Date
|
|
Cash ($)(1)
|
|
|
Michel Orsinger
|
|
Closing
|
|
|
7,959,508
|
|
President and Chief Executive Officer
|
|
Six-Month Anniversary of the Closing
|
|
|
3,979,754
|
|
Robert Donohue Chief
|
|
Closing
|
|
|
3,076,896
|
|
Financial Officer
|
|
Six-Month Anniversary of the Closing
|
|
|
1,538,448
|
|
Ciro Roemer President
|
|
First Anniversary of the Closing
|
|
|
2,455,592
|
|
Europe and Operations
|
|
Second Anniversary of the Closing
|
|
|
2,455,592
|
|
Steven Murray
|
|
First Anniversary of the Closing
|
|
|
1,237,515
|
|
President, Spine
|
|
Second Anniversary of the Closing
|
|
|
1,237,515
|
|
Harry Hall IV
|
|
First Anniversary of the Closing
|
|
|
1,084,785
|
|
President, Trauma
|
|
Second Anniversary of the Closing
|
|
|
1,084,785
|
|
Michael Mazzio
|
|
First Anniversary of the Closing
|
|
|
827,055
|
|
President, CMF
|
|
Second Anniversary of the Closing
|
|
|
827,055
|
|
William Wachter
|
|
Closing
|
|
|
307,730
|
|
President Power Tools
|
|
First Anniversary of the Closing
|
|
|
307,730
|
|
Dr. h. c. mult. Hansjörg
|
|
Not Applicable
|
|
|
0
|
|
Wyss Chairman of the Board
|
|
|
|
|
|
|
All other executives as a group
|
|
First Anniversary of the Closing
|
|
|
6,655,986
|
|
|
|
Second Anniversary of the Closing
|
|
|
6,655,986
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts payable to
Messrs. Orsinger and Roemer include payments in Swiss
Francs and have been converted into U.S. dollars based on the
World Market Fix rate as of 11:00 a.m. (New York time) for
October 20, 2011, which was 0.8977 CHF to 1.00 USD.
|
Hansjörg Wyss. Pursuant to the Employment
Agreement between Mr. Wyss and Synthes, dated
April 25, 2003, and amended as of April 27, 2007,
Mr. Wyss is entitled to certain retirement benefits at the
end of his term as Chairman of the Board of Synthes on
April 30, 2012. Also, under the terms of the Employment
Agreement, Mr. Wyss would be entitled to these retirement
benefits if he resigns or his employment is terminated without
cause prior to April 30, 2012. The Employment Agreement
provides that, at the end of his term as Chairman of the Board
of Synthes, Mr. Wyss is entitled to assume the position of
Chairman Emeritus of Synthes. Pursuant to the merger agreement,
Mr. Wyss will cease to be a director of Synthes at the
closing of the merger. The Employment Agreement further provides
that the retirement benefits include an annual benefit of
$500,000, payable monthly, commencing on May 1, 2012, as
well as a continuation of his perquisites under his Employment
Agreement. Such perquisites include access to office space,
equipment, facilities, support personnel and dues for
professional associations as well as personal use of corporate
aircraft for Mr. Wyss and his spouse or significant other.
The Employment Agreement provides that Synthes or its successor
will also supply an automobile for Mr. Wyss use as
well as other perquisites to include an annual physical,
participation in a matching gift program and personal tax and
financial advice. It also provides that Synthes will reimburse
Mr. Wyss for all tax costs incurred for all of the
perquisites he receives. Under his Employment Agreement,
Mr. Wyss is entitled to an annual equity grant of
13,000 shares of Synthes common stock. If the merger closes
before the date in 2012 on which grants are typically made,
Mr. Wyss is entitled to receive a pro-rata portion of his
annual grant covering the period of service between the previous
grant and the closing of the merger. Mr. Wyss entered into
an agreement with Johnson & Johnson on April 26,
2011 that provides for Mr. Wyss to transfer to Synthes a
number of shares of Synthes common stock that would have been
converted, at the closing of the merger, into the right to
receive cash and Johnson & Johnson common stock valued
at $25 million in the aggregate.
The following tables show the retention and severance
compensation and benefits that each of Synthes executive
officers would be entitled to receive under their respective
employment, change in control and retention agreements, that are
based on or related to the merger, (i) if the executive is
not terminated immediately following the merger (Single Trigger)
and (ii) assuming the executive officer is terminated
without Cause or resigns for Good Reason immediately following
the closing of the merger (Double Trigger). The Single Trigger
amount represents the value of the Retention Bonus Agreement
award that are intended be paid in two installments (as shown
above in the table entitled Retention Payments)
contingent upon the executive officer remaining with Synthes.
The Double Trigger amount represents the
44
value of the Retention Bonus Agreement award, plus the
severance payments that would be made under the Employment
Agreements or Change in Control Severance Agreement that are
based on or related to the merger. The first table below,
entitled Named Executive Officers Golden Parachute
Compensation, sets forth, for each of Synthes Chief
Executive Officer, Chief Financial Officer and the other three
most highly compensated executive officers, the estimated value
of the potential retention and change in control severance pay
and other benefits due the executive officer (based on levels of
pay and other circumstances as of October 20, 2011),
including an estimate of the amount of any excise tax
gross-up and
the value of any stock options and other stock based awards
subject to accelerated vesting or for which restrictions would
lapse (see Stock Options and Other Stock-Based
Awards), if applicable, if the executive officer
terminated employment as of October 20, 2011. The second
table below, entitled Other Executive Officers,
shows the value of similar compensation payable to Synthes
other executive officers. Although the rules of the SEC do not
require the second table, it has been included so that
quantification of the payments and benefits that could be
received by Synthes executive officers is presented in a
uniform manner. Mr. Wyss has been omitted from these tables
because he will not receive any retention or severance
compensation based on or related to the merger.
Named
Executive Officers
Golden Parachute Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perquisites
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity(2)
|
|
|
Pension and
|
|
|
and Benefits
|
|
|
Reimbursement
|
|
|
|
|
|
|
|
Name
|
|
Event
|
|
Cash(1) ($)
|
|
|
($)
|
|
|
NQDC ($)
|
|
|
($)
|
|
|
($)(3)
|
|
|
Other ($)
|
|
|
Total ($)
|
|
|
Michel Orsinger
|
|
Single Trigger
|
|
|
11,939,262
|
|
|
|
17,682,062
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,646,535
|
|
|
|
0
|
|
|
|
36,267,859
|
|
President and Chief Executive Officer
|
|
Double Trigger
|
|
|
22,393,811
|
|
|
|
17,682,062
|
|
|
|
0
|
|
|
|
0
|
|
|
|
11,872,280
|
|
|
|
0
|
|
|
|
51,948,153
|
|
Robert Donohue
|
|
Single Trigger
|
|
|
4,615,344
|
|
|
|
5,908,854
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,980,160
|
|
|
|
0
|
|
|
|
13,504,358
|
|
Chief Financial Officer
|
|
Double Trigger
|
|
|
8,641,849
|
|
|
|
5,908,854
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,015,578
|
|
|
|
0
|
|
|
|
19,566,281
|
|
Ciro Roemer
|
|
Single Trigger
|
|
|
4,911,184
|
|
|
|
1,907,653
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
6,818,837
|
|
President, Europe and Operations
|
|
Double Trigger
|
|
|
8,873,488
|
|
|
|
1,907,653
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
10,781,141
|
|
Steven Murray
|
|
Single Trigger
|
|
|
2,475,030
|
|
|
|
788,125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
901,390
|
|
|
|
0
|
|
|
|
4,164,545
|
|
President, Spine
|
|
Double Trigger
|
|
|
4,442,140
|
|
|
|
788,125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,882,120
|
|
|
|
0
|
|
|
|
7,112,385
|
|
Harry Hall IV
|
|
Single Trigger
|
|
|
2,169,570
|
|
|
|
740,782
|
|
|
|
0
|
|
|
|
0
|
|
|
|
902,997
|
|
|
|
0
|
|
|
|
3,813,349
|
|
President, Trauma
|
|
Double Trigger
|
|
|
3,875,387
|
|
|
|
740,782
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,753,622
|
|
|
|
0
|
|
|
|
6,369,791
|
|
|
|
|
(1)
|
|
The amounts payable to
Messrs. Orsinger and Roemer include payments in Swiss
Francs and have been converted into U.S. dollars based on the
World Market Fix rate as of 11:00 a.m. (New York time) for
October 20, 2011, which was 0.8977 CHF to 1.00 USD.
|
|
|
|
(2)
|
|
This amount represents the value of
unvested options and restricted shares that would accelerate and
vest upon completion of the merger and the aggregate payments in
cancellation of stock and option awards, calculated using a per
share price of CHF 159.00 and has been converted into U.S.
dollars based on the World Market Fix rate as of 11:00 a.m.
(New York time) for October 20, 2011, which was 0.8977 CHF
to 1.00 USD, resulting in a per share price of $177.12.
|
|
|
|
(3)
|
|
The amounts in this column
represent the value of a
gross-up for
Synthes payment of excise taxes resulting from
Section 280G of the Internal Revenue Code of 1986, as
amended. Mr. Roemer is not a U.S. taxpayer and therefore
does not receive a tax
gross-up.
|
Other
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Pension and
|
|
|
Perquisites and
|
|
|
Reimbursement
|
|
|
|
|
|
|
|
Name
|
|
Event
|
|
Cash ($)
|
|
|
($)(1)
|
|
|
NQDC ($)
|
|
|
Benefits ($)
|
|
|
($)(2)
|
|
|
Other ($)
|
|
|
Total ($)
|
|
|
Michael Mazzio
|
|
Single Trigger
|
|
|
1,654,110
|
|
|
|
687,312
|
|
|
|
0
|
|
|
|
0
|
|
|
|
731,998
|
|
|
|
0
|
|
|
|
3,073,420
|
|
President, CHF
|
|
Double Trigger
|
|
|
2,958,635
|
|
|
|
687,312
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,383,819
|
|
|
|
0
|
|
|
|
5,029,766
|
|
William Wachter
|
|
Single Trigger
|
|
|
615,460
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
615,460
|
|
President, Power Tools
|
|
Double Trigger
|
|
|
1,403,878
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
495,987
|
|
|
|
0
|
|
|
|
1,899,865
|
|
|
|
|
(1)
|
|
This amount represents the value of
unvested options and restricted shares that would accelerate and
vest upon completion of the merger and aggregate payments in
cancellation of stock and option awards, calculated using a per
share price of CHF 159.00 and has been converted into U.S.
dollars based on the World Market Fix rate as of 11:00 a.m.
(New York time) for October 20, 2011, which was 0.8977 CHF
to 1.00 USD, resulting in a per share price of $177.12.
|
|
|
|
(2)
|
|
The amounts in this column
represent the value of a
gross-up for
Synthes payment of excise taxes resulting from
Section 280G of the Internal Revenue Code of 1986, as
amended.
|
45
Director Annual Retainers. Non-employee
directors receive an annual grant of shares of Synthes common
stock as a retainer for their service on the board. This grant
is typically made in February of each year. If the merger does
not close prior to the date in 2012 on which the annual grants
are typically made, Synthes will grant 13,700 shares of
Synthes common stock, in the aggregate, to the directors in
2012. If the merger closes before the date in 2012 on which
grants are typically made, the directors will receive a pro-rata
portion of their annual grant covering the period of service
between the previous grant and the closing of the merger.
Indemnification and Insurance. The merger
agreement provides that all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at
or prior to the effective time of the merger existing in favor
of current or former directors or officers of Synthes under
Synthes certificate of incorporation, by-laws or
indemnification contracts will be assumed by the surviving
corporation in the merger and will continue in full force and
effect in accordance with their terms following closing of the
merger. The merger agreement also provides that for six years
after the effective time of the merger, Johnson &
Johnson will maintain directors and officers
liability insurance for acts or omissions occurring at or prior
to the effective time of the merger, covering each person who
was, as of the date of the merger agreement, covered by
Synthes directors and officers liability
insurance, on terms no less favorable than those in effect as of
the date of the merger agreement.
Potential Employment Discussions Between Johnson &
Johnson and Synthes Executives. Affiliates
of Johnson & Johnson have had and expect to continue
to have conversations from time to time with executive officers
and other executives of Synthes, including the President and
Chief Executive Officer of Synthes, concerning their role at
Synthes or an affiliate of Johnson & Johnson
following the consummation of the merger. These conversations
may include proposals by the affiliates of
Johnson & Johnson regarding the proposed terms of
the individuals employment, compensation and benefits. No
assurance can be given that any such conversations will result
in an employment relationship between any affiliate of
Johnson & Johnson and any individual.
Form of
the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, at the effective time of the
merger, Samson Acquisition Corp., a wholly owned subsidiary of
Johnson & Johnson and a party to the merger agreement,
will merge with and into Synthes. Synthes will continue as the
surviving corporation of the merger and will become a wholly
owned subsidiary of Johnson & Johnson.
Completion
and Effectiveness of the Merger
The merger will become effective upon the filing of the
certificate of merger with the Secretary of State of the State
of Delaware in accordance with the relevant provisions of the
DGCL or such later time as is agreed upon by Johnson &
Johnson and Synthes and specified in the certificate of merger.
Such filing will occur as promptly as practicable, but in no
event later than the third business day after satisfaction or
written waiver (where permissible) of the conditions to the
completion of the merger set forth in the merger agreement
(other than those conditions that by their nature are to be
satisfied at closing, but subject to the satisfaction or waiver
of those conditions at such time) unless another date is agreed
to in writing by Johnson & Johnson and Synthes.
However, in the event that on such third business day all such
conditions to completion of the merger are no longer satisfied
or waived, the certificate of merger will not be filed until the
first business day on which all such conditions are again
satisfied or waived, unless another time is agreed to by
Johnson & Johnson and Synthes. The closing of the
merger will take place immediately prior to the filing of the
certificate of merger.
Merger
Consideration; Conversion of Shares
In the merger, each issued and outstanding share of Synthes
common stock (other than shares owned by Synthes as treasury
stock, shares owned by Johnson & Johnson and shares
for which appraisal rights have been properly demanded and
perfected under the DGCL) will be automatically converted into
the right to receive a combination of (i) CHF 55.65 in cash
and (ii) shares of Johnson & Johnson common
stock. The number of shares of Johnson & Johnson
common stock each Synthes stockholder will receive is based on
the average of the volume weighted average trading prices of
Johnson & Johnson common stock on each of the ten
trading days ending two trading days prior to the effective time
of the merger, as converted into CHF on each day in this
valuation period. If
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the average of the volume weighted average trading prices of
Johnson & Johnson common stock on each day during the
valuation period is between CHF 52.54 and CHF 60.45, then each
share of Synthes common stock will be converted into the right
to receive a number of shares of Johnson & Johnson
common stock having an aggregate value of CHF 103.35. If the
average of the volume weighted average trading prices of
Johnson & Johnson common stock on each day during the
valuation period is less than CHF 52.54, then each share of
Synthes common stock will be converted into the right to receive
1.9672 shares of Johnson & Johnson common stock.
If the average of the volume weighted average trading prices of
Johnson & Johnson common stock on each day during the
valuation period is greater than CHF 60.45, then each share of
Synthes common stock will be converted into the right to receive
1.7098 shares of Johnson & Johnson common stock.
Holders of Synthes common stock will receive cash in lieu of any
fractional shares of Johnson & Johnson common stock
they otherwise would have received in the merger. Each Synthes
stockholder who would otherwise have been entitled to receive a
fraction of a share of Johnson & Johnson common stock
will receive an amount in cash (without interest, rounded down
to the nearest whole cent and subject to withholding taxes)
equal to the product obtained by multiplying (1) the
fractional share interest to which such holder (after taking
into account all fractional share interests then held by such
holder) would otherwise be entitled by (2) the average of
the volume weighted averages of the trading prices, as reported
by Bloomberg L.P., of Johnson & Johnson common stock
on each of the ten trading days ending two trading days prior to
the effective time of the merger, as converted into CHF on each
day during this valuation period.
The CHF 55.65 in cash and the number of shares of
Johnson & Johnson common stock to be received by
holders of Synthes common stock in the merger are referred to
collectively as the merger consideration in this
proxy statement/prospectus.
The merger agreement provides that the exchange ratio will be
appropriately adjusted to reflect the effect of any stock split,
reverse stock split, stock dividend (including any dividend or
distribution of securities of a subsidiary of Synthes or
Johnson & Johnson or of securities convertible into
Johnson & Johnson or Synthes common stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other
similar change with respect to Johnson & Johnson
common stock or Synthes common stock with a record date
occurring on or after the date of the merger agreement and prior
to the effective time of the merger.
The exchange ratio will be determined shortly before completion
of the merger. On October 24, 2011, the latest practicable
date before the date of this proxy statement/prospectus,
Johnson & Johnson common stock closed on the NYSE, at
$64.73, the equivalent of which is CHF 57.26 per share, as of
such date. If this were the volume weighted average trading
price per share of Johnson & Johnson common stock used
to calculate the exchange ratio, the exchange ratio would be
1.8049. The actual exchange ratio and, accordingly, the actual
number of shares of Johnson & Johnson common stock
issued in respect of each share of Synthes common stock in the
merger, may differ from this example and will not be known at
the special meeting because the valuation period will not occur
until after the special meeting.
Ownership
of Johnson & Johnson Following the Merger
Based on the number of outstanding shares of Synthes common
stock on the record date and the number of outstanding shares of
Johnson & Johnson common stock on October 24,
2011, we anticipate that Synthes stockholders will own between
approximately 7% and 8% of the outstanding shares of
Johnson & Johnson common stock following the merger.
Procedures
for Exchange of Certificates; Fractional Shares
The conversion of Synthes common stock into the right to receive
the merger consideration will occur automatically at the
effective time of the merger. As promptly as practicable after
the closing of the merger, each of VEM Aktienbank AG, the
exchange agent and paying agent appointed by Johnson &
Johnson for shares held in Switzerland or Germany, and
Computershare Trust Company, N.A., the exchange agent and
paying agent appointed by Johnson & Johnson for shares
held in the United States (each an exchange agent),
will send instructions to each holder of record of shares of
Synthes common stock as of the effective time of the merger in
its respective
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jurisdiction. The instructions will contain directions for
obtaining shares of Johnson & Johnson common stock,
the cash portion of the merger consideration and cash for any
fractional shares of Johnson & Johnson common stock,
in exchange for shares of Synthes common stock.
After the effective time of the merger, each certificate that
previously represented shares of Synthes common stock will no
longer be outstanding, will be automatically canceled and
retired, will cease to exist and will represent only the right
to receive the merger consideration as described above.
Until holders of certificates previously representing Synthes
common stock have surrendered those certificates to the
appropriate exchange agent for exchange, those holders will not
receive dividends or distributions on the Johnson &
Johnson common stock into which such shares have been converted
with a record date after the effective time of the merger and
will not receive cash for any fractional shares of
Johnson & Johnson common stock. When holders surrender
such certificates, they will receive any dividends with a record
date after the effective time of the merger and a payment date
on or prior to the date of surrender and any cash for fractional
shares of Johnson & Johnson common stock, in each case
without interest.
In the event of a transfer of ownership of Synthes common stock
that is not registered in the transfer records of Synthes,
payment of the merger consideration as described above will be
made to the person to whom the ownership of Synthes common stock
was transferred if the certificate representing such shares is
presented to the appropriate exchange agent and is accompanied
by:
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all documents required to evidence and effect such
transfer; and
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evidence that any applicable stock transfer taxes have been paid.
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No fractional shares of Johnson & Johnson common stock
will be issued to any Synthes stockholder upon surrender of
certificates previously representing Synthes common stock. Each
Synthes stockholder will receive cash in lieu of any fraction of
a share of Johnson & Johnson common stock such
stockholder would otherwise have been entitled to receive. See
Merger Consideration; Conversion of
Shares.
Stock
Exchange Listing of Johnson & Johnson Common
Stock
It is a condition to the consummation of the merger that the
Johnson & Johnson common stock to be issued in the
merger has been authorized for listing on the NYSE, subject to
official notice of issuance.
Delisting
of Synthes Common Stock
Synthes common stock trades on the SIX Swiss Exchange under the
symbol SYST. If the merger is completed, Synthes
common stock will be delisted from the SIX Swiss Exchange.
Merger
Financing
Johnson & Johnson has represented in the merger
agreement that it has, and as of the closing will have, and will
make available to Samson Acquisition Corp., sufficient funds to
consummate the merger. The receipt of financing by
Johnson & Johnson is not a condition to the obligation
of any party to complete the merger under the terms of the
merger agreement.
Regulatory
Matters
United States Antitrust. Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), and related rules, certain transactions, including
the merger, may not be completed until notifications have been
given and information furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and all
statutory waiting period requirements have been satisfied.
Johnson & Johnson and Synthes filed Notification and
Report Forms with the Antitrust Division of the Department of
Justice and the Federal Trade Commission on June 6, 2011.
Johnson & Johnson withdrew its Notification and Report
Form on July 5, 2011 in order to allow more time for the
staff of the Federal Trade Commission to review the proposed
transaction and re-filed it on July 7, 2011. On
August 8, 2011, Johnson & Johnson and Synthes
received from the Federal Trade Commission a Request for
Additional Information and Documentary Materials (a Second
48
Request). The waiting period under the HSR Act with
respect to the proposed merger will expire at 11:59 p.m.,
Eastern Time, on the 30th day after both
Johnson & Johnson and Synthes have substantially
complied with the Second Request, unless earlier terminated by
the Federal Trade Commission or extended by agreement among the
parties and the Federal Trade Commission.
At any time before or after the effective time of the merger,
the Antitrust Division, the Federal Trade Commission or others
(including states and private parties) could take action under
the antitrust laws, including seeking to prevent the merger, to
rescind the merger or to conditionally approve the merger upon
the divestiture of assets of Johnson & Johnson or
Synthes or subject to other remedies. There can be no assurance
that a challenge to the merger on antitrust grounds will not be
made or, if such a challenge is made, that it would not be
successful.
European Union Antitrust. Both
Johnson & Johnson and Synthes conduct business in
Member States of the European Union. Council Regulation (EC)
No. 139/2004, as amended, and accompanying regulations
require notification to and approval by the European Commission
of specific mergers or acquisitions involving parties with
worldwide sales and individual European Union sales exceeding
specified thresholds before these mergers and acquisitions can
be implemented. On September 27, 2011, Johnson &
Johnson filed the formal notification to the European Commission
of the merger. Pursuant to Council Regulation (EC)
No. 139/2004, the European Commission has 25 business days
from the day following the date of receipt of a complete
notification, which period may be extended to 35 business days
under certain circumstances, in which to consider whether the
merger would significantly impede effective competition in the
common market (as defined by European Community regulations) or
a substantial part of it, in particular as a result of the
creation or strengthening of a dominant position. By the end of
that period, the European Commission must issue a decision
either clearing the merger, which may be conditional upon
satisfaction of the parties undertakings, or opening an
in-depth Phase II investigation. A Phase II
investigation may last a maximum of an additional 125 business
days. It is possible that an investigation could result in a
challenge to the merger based on European Union competition law
or regulations.
Other Laws. In addition to the regulatory
approvals described above, notifications of the merger have been
filed with other governmental agencies for their review and
approval under foreign regulatory laws, such as foreign merger
control laws. It is possible that any of the governmental
entities with which filings have been made may seek, as
conditions for granting approval of the merger, various
regulatory concessions.
General. In connection with obtaining the
approval of all necessary governmental authorities to complete
the merger, including but not limited to the governmental
authorities specified above, there can be no assurance that:
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governmental authorities will not impose any conditions on the
granting of their approval and, if such conditions are imposed,
that Johnson & Johnson or Synthes will be able to
satisfy or comply with such conditions;
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compliance or non-compliance will not have adverse consequences
on Johnson & Johnson after completion of the
merger; or
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the required regulatory approvals will be obtained within the
time frame contemplated by Johnson & Johnson and
referred to in this proxy statement/prospectus or on terms that
will be satisfactory to Johnson & Johnson and Synthes.
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We cannot assure you that a challenge to the merger will not be
made or that, if a challenge is made, it will not prevail. See
The Merger Agreement Conditions to the
Completion of the Merger.
Appraisal
Rights
In connection with the merger, record holders of Synthes common
stock who (i) do not vote for the adoption of the merger
agreement at the special meeting of stockholders, (ii) make
a written demand for appraisal prior to the taking of the vote
on the adoption of the merger agreement and (iii) otherwise
comply with the applicable statutory procedures of
Section 262 of the DGCL, summarized herein, may be entitled
to appraisal rights under Section 262 of the DGCL if the
merger is completed. In order to properly demand and perfect
appraisal rights, a record holder of shares of Synthes common
stock must comply with Section 262 of the DGCL.
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Section 262 of the DGCL is reprinted in its entirety as
Annex D to this proxy statement/prospectus. Set forth below
is a summary description of Section 262 of the DGCL. The
following summary describes the material aspects of
Section 262 of the DGCL and the law relating to appraisal
rights and is qualified in its entirety by reference to
Annex D. All references in Section 262 of the DGCL and
this summary to stockholder are to the record holder
of shares of Synthes common stock immediately prior to the
effective time of the merger as to which appraisal rights are
demanded. Failure to comply strictly with the procedures set
forth in Section 262 of the DGCL will result in the loss of
appraisal rights.
Under the DGCL, holders of shares of Synthes common stock who
follow the procedures set forth in Section 262 of the DGCL
will be entitled to have their shares appraised by the Delaware
Court of Chancery and to receive payment in cash of the
fair value of those shares, exclusive of any element
of value arising from the accomplishment or expectation of the
merger, in lieu of receiving the merger consideration.
Under Section 262 of the DGCL, when a merger agreement
relating to a proposed merger is to be submitted for adoption at
a meeting of stockholders, as in the case of the special
meeting, the corporation, not less than 20 days prior to
such meeting, must notify each of its stockholders who was a
stockholder of record on the record date for notice of such
meeting with respect to such shares for which appraisal rights
are available, that appraisal rights are so available, and must
include in each such notice a copy of Section 262 of the
DGCL. This proxy statement/prospectus constitutes such notice to
the holders of Synthes common stock and Section 262 of the
DGCL is attached to this proxy statement/prospectus as
Annex D and incorporated herein by reference. Any
stockholder who wishes to exercise such appraisal rights or who
wishes to preserve the right to do so should review the
following discussion and Annex D carefully, because failure
to timely and properly comply with the procedures specified in
Section 262 of the DGCL will result in the loss of
appraisal rights under the DGCL.
If you wish to exercise appraisal rights you must not vote for
the adoption of the merger agreement and must deliver to
Synthes, before the vote on the proposal to adopt the merger
agreement, a written demand for appraisal of your shares of
Synthes common stock. If you sign and return a proxy form
without abstaining or expressly directing that your shares of
Synthes common stock be voted against the adoption of the merger
agreement, you will effectively waive your appraisal rights
because such shares represented by the proxy will be voted for
the adoption of the merger agreement. Accordingly, if you desire
to demand and perfect appraisal rights with respect to any of
your shares of Synthes common stock, you must (i) refrain
from executing and returning the proxy form and from voting in
person FOR the proposal to adopt the merger
agreement or (ii) check either the against or
the abstain box next to the proposal on such proxy
form or vote in person against the proposal or register in
person an abstention with respect thereto. A vote or proxy
against the adoption of the merger agreement will not, in and of
itself, constitute a demand for appraisal.
A demand for appraisal will be sufficient if it reasonably
informs Synthes of the identity of the stockholder and that such
stockholder intends thereby to demand appraisal of such
stockholders shares of Synthes common stock. This written
demand for appraisal must be separate from any proxy or vote
abstaining from or voting against the adoption of the merger
agreement. If you wish to exercise your appraisal rights you
must be the record holder of such shares of Synthes common stock
on the date the written demand for appraisal is made and you
must continue to hold such shares through the effective time of
the merger. Accordingly, a stockholder who is the record holder
of shares of Synthes common stock on the date the written demand
for appraisal is made, but who thereafter transfers such shares
prior to the effective time of the merger, will lose any right
to appraisal in respect of such shares.
Only a holder of record of Synthes common stock is entitled to
assert appraisal rights for such shares of Synthes common stock
registered in that holders name. A demand for appraisal
should be executed by or on behalf of the holder of record,
fully and correctly, as the holders name appears on the
stock certificates or in the case of uncertificated shares, as
the holders name appears on the stockholder register, and
must state that such person intends thereby to demand appraisal
of his, her or its shares. If the shares are owned of record in
a fiduciary capacity, such as by a broker, dealer, commercial
bank, trust company or other nominee, execution of the demand
for appraisal should be made in that capacity, and if the shares
are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by
or on behalf of all joint owners. An authorized agent, including
one for two or more joint owners, may execute the demand for
appraisal on behalf of a holder of
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record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the
demand, it, he or she is acting as agent for such owner or
owners.
A record holder such as a broker, dealer, commercial bank, trust
company or other nominee who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to
the shares of Synthes common stock held for one or more
beneficial owners while not exercising such rights with respect
to the shares held for other beneficial owners; in such case,
the written demand should set forth the number of shares as to
which appraisal is sought. If the number of shares of Synthes
common stock is not expressly stated, the demand will be
presumed to cover all shares held in the name of the record
owner. If you hold your shares in an account with a broker,
dealer, commercial bank, trust company or other nominee and wish
to exercise your appraisal rights, you are urged to consult with
your broker, dealer, commercial bank, trust company or other
nominee to determine the appropriate procedures for the making
of a demand for appraisal.
All written demands for appraisal of shares of Synthes common
stock must be mailed or delivered to: Synthes, Inc., 1302
Wrights Lane East, West Chester, Pennsylvania 19380, Attention:
Corporate Secretary, or should be delivered to the Corporate
Secretary at the special meeting, prior to the vote on the
adoption of the merger agreement.
Within ten days after the effective time of the merger, the
surviving corporation must notify each stockholder who has
properly asserted appraisal rights under Section 262 of the
DGCL and has not voted for the adoption of the merger agreement
of the date that the merger has become effective. Within
120 days after the effective time of the merger, but not
thereafter, the surviving corporation or any stockholder who has
complied with the statutory requirements of Section 262 of
the DGCL and is otherwise entitled to appraisal rights may
commence an appraisal proceeding by filing a petition in the
Delaware Court of Chancery demanding a determination of the fair
value of the shares of all stockholders who have properly
demanded appraisal. If no such petition is filed, appraisal
rights will be lost for all stockholders who had previously
demanded appraisal of their shares. The surviving corporation is
not under any obligation, and has no present intention, to file
a petition with respect to appraisal of the value of the shares.
Accordingly, if you wish to exercise your appraisal rights, you
should regard it as your obligation to take all steps necessary
to perfect your appraisal rights in the manner prescribed in
Section 262 of the DGCL.
Within 120 days after the effective time of the merger, any
stockholder who has complied with the provisions of
Section 262 of the DGCL will be entitled, upon written
request, to receive from the surviving corporation a statement
setting forth the aggregate number of shares of Synthes common
stock not voted in favor of the adoption of the merger agreement
and with respect to which demands for appraisal were received by
the surviving corporation, and the number of holders of such
shares. Such statement must be mailed within ten days after the
written request therefor has been received by the surviving
corporation or within ten days after expiration of the period
for delivery of appraisal demands, whichever is later. A person
who is the beneficial owner of Synthes common stock held either
in a broker, dealer, commercial bank, trust company or other
nominee on behalf of such person may, in such persons own
name, file an appraisal petition or request from the surviving
corporation the statement described in this paragraph.
If a petition for an appraisal is timely filed and a copy
thereof served upon the surviving corporation, it will then be
obligated, within 20 days, to file with the Delaware
Register in Chancery a duly verified list containing the names
and addresses of the stockholders who have demanded appraisal of
their shares and with whom agreements as to the value of their
shares have not been reached. After notice to the stockholders
as required by the Delaware Court of Chancery, the Delaware
Court of Chancery is empowered to conduct a hearing on such
petition to determine those stockholders who have complied with
Section 262 of the DGCL and who have become entitled to
appraisal rights thereunder. The Delaware Court of Chancery may
require the stockholders who demanded appraisal rights of their
shares of Synthes common stock to submit their stock
certificates to the Register in Chancery for notation thereon of
the pendency of the appraisal proceeding; and if any stockholder
fails to comply with such direction, the Delaware Court of
Chancery may dismiss the proceedings as to such stockholder.
After the Delaware Court of Chancery determines which
stockholders are entitled to appraisal, the appraisal proceeding
will be conducted in accordance with the rules of the Delaware
Court of Chancery, including any rules specifically governing
appraisal proceedings. Through such proceeding, the Delaware
Court of Chancery shall determine the fair value of the shares
exclusive of any element of value arising from the
accomplishment or
51
expectation of the merger, together with interest, if any, to be
paid upon the amount determined to be the fair value. In
determining such fair value, the Delaware Court of Chancery
shall take into account all relevant factors. Unless the
Delaware Court of Chancery in its discretion determines
otherwise for good cause shown, interest from the effective time
of the merger through the date of payment of the judgment shall
be compounded quarterly and shall accrue at 5% over the Federal
Reserve discount rate (including any surcharge) as established
from time to time during the period between the effective time
of the merger and the date of payment of the judgment.
If you are considering seeking appraisal, you should be aware
that the fair value of your shares as determined under
Section 262 of the DGCL could be more than, the same as or
less than the per share merger consideration you are entitled to
receive pursuant to the merger agreement if you did not seek
appraisal of your shares and that investment banking opinions as
to the fairness from a financial point of view of the
consideration payable in a sale transaction, such as the merger,
are not opinions as to, and do not otherwise address, fair value
under Section 262 of the DGCL. In determining fair
value of shares, the Delaware Court of Chancery will take
into account all relevant factors. In Weinberger v. UOP,
Inc., the Delaware Supreme Court stated that such factors
include market value, asset value, dividends, earning
prospects, the nature of the enterprise and other facts which
were known or which could be ascertained as of the date of the
merger which throw any light on future prospects of the merged
corporation. In Weinberger, the Delaware Supreme
Court stated, among other things, that proof of value by
any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible
in court should be considered in an appraisal proceeding.
In addition, the Delaware Court of Chancery has decided that the
statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenting stockholders exclusive
remedy.
The Delaware Court of Chancery will direct the payment of the
fair value of the shares of Synthes common stock who have
perfected appraisal rights, together with interest, if any, by
the surviving corporation to the stockholders entitled thereto.
Unless the Delaware Court of Chancery in its discretion
determines otherwise for good cause shown, interest from the
effective time of the merger through the date of payment of the
judgment shall be compounded quarterly and shall accrue at 5%
over the Federal Reserve discount rate (including any surcharge)
as established from time to time during the period between the
effective time of the merger and the date of payment of the
judgment. The costs of the action (which do not include
attorneys fees or expert fees or expenses) may be
determined by the Delaware Court of Chancery and taxed upon the
parties as the Delaware Court of Chancery deems equitable. The
Delaware Court of Chancery may also order that all or a portion
of the expenses incurred by any stockholder in connection with
an appraisal, including without limitation reasonable
attorneys fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata
against the value of all of the shares entitled to
appraisal. In the absence of such determination or assessment,
each party bears its own expenses.
Any stockholder who has properly demanded and perfected an
appraisal in compliance with Section 262 of the DGCL will
not, after the effective time of the merger, be entitled to vote
his, her or its shares for any purpose or be entitled to the
payment of dividends or other distributions thereon, except
dividends or other distributions payable to holders of record of
shares of Synthes common stock as of a date prior to the
effective time of the merger.
At any time within 60 days after the effective time of the
merger, any stockholder who has not commenced an appraisal
proceeding or joined that proceeding as a named party may
withdraw the demand for appraisal and accept the merger
consideration to which the stockholder is entitled pursuant to
the merger agreement by delivering to the surviving corporation
a written withdrawal of the demand for appraisal. After this
period, a stockholder may withdraw a demand for appraisal only
with the written consent of the surviving corporation. If no
petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the effective time of the
merger, a stockholders right to appraisal will cease and
such stockholder will be entitled only to receive the merger
consideration pursuant to the merger agreement. No petition
timely filed in the Delaware Court of Chancery demanding
appraisal will be dismissed as to any stockholder without the
approval of the Delaware Court of Chancery and such approval may
be conditioned on such terms as the Delaware Court of Chancery
deems just; provided, however, that any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a
named party may submit a demand for appraisal and accept the per
share merger consideration offered pursuant to the merger
agreement within 60 days after the effective time of the
merger.
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If you properly demand appraisal of your shares of Synthes
common stock under Section 262 of the DGCL and you fail to
perfect, or effectively withdraw or lose, your right to
appraisal, as provided in the DGCL, your shares of Synthes
common stock will be converted into the right to receive the per
share merger consideration. You will fail to perfect, or
effectively lose or withdraw, your right to appraisal if, among
other things, no petition for appraisal is filed within
120 days after the effective time of the merger, or if you
deliver to surviving corporation a written withdrawal of your
demand for appraisal.
If you desire to exercise your appraisal rights, you must not
vote for adoption of the merger agreement and must strictly
comply with the procedures set forth in Section 262 of the
DGCL.
Failure to take any required step in connection with the
exercise of appraisal rights will result in the termination or
waiver of such rights.
In view of the complexity of Section 262 of the DGCL,
stockholders who may wish to dissent from the merger and pursue
appraisal rights should consult their legal advisors.
Synthes
Employee Benefits Matters
The merger agreement provides that for 12 months following
the closing date of the merger, the employees of Synthes or its
subsidiaries who remain in the employment of Synthes or the
surviving corporation after the closing date of the merger will
receive a base salary or wage rate, bonus opportunity (other
than with respect to any participant in Synthes Global
Executive Incentive Compensation Plan as of the closing date of
the merger) and a level of employee benefit plans and
arrangements (excluding any equity-based compensation, defined
benefit pension or post-employment health or post-employment
welfare benefits) that are no less favorable in the aggregate to
those provided to such employees immediately prior to the
closing date of the merger (and for participants in
Synthes Global Executive Incentive Compensation Plan as of
the closing date of the merger, a bonus opportunity that is no
less favorable in the aggregate than that provided to similarly
situated employees of Johnson & Johnson).
Johnson & Johnson also has agreed that, solely to the
extent that Johnson & Johnson makes a plan or program
available to employees of the surviving corporation and not, in
any case, where credit would result in a duplication of
benefits, Johnson & Johnson will cause the surviving
corporation to recognize the service of each Synthes employee
who remains employed by the surviving corporation as if such
service had been performed with Johnson & Johnson for
the following purposes:
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for purposes of vesting under Johnson & Johnsons
defined benefit pension plan;
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for purposes of eligibility and calculation of benefits for
vacation and paid time off under Johnson &
Johnsons vacation and paid time off programs;
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for purposes of eligibility under any health or welfare plan
maintained by Johnson & Johnson (other than any
post-employment health or post-employment welfare plan);
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for purposes of eligibility and vesting under
Johnson & Johnsons 401(k) plan; and
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unless covered under another Synthes arrangement, for purposes
of eligibility, vesting and calculation of benefits under
Johnson & Johnsons severance plan.
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Johnson & Johnson will not cause the surviving
corporation to recognize Synthes past service for purposes of
benefit accrual under any of the foregoing benefit plans of
Johnson & Johnson or for purposes of eligibility,
vesting or benefit accrual under any employee benefit plan of
Johnson & Johnson not described above.
The merger agreement provides that Johnson & Johnson
will enroll Synthes employees in the severance plans of
Johnson & Johnson, or its subsidiary, at the same
level of benefits as similarly situated employees of
Johnson & Johnson, unless a Synthes employee is
covered by another arrangement.
With respect to any welfare plan maintained by
Johnson & Johnson in which Synthes employees are
eligible to participate after the merger, the merger agreement
provides that Johnson & Johnson will waive any
limitations on benefits relating to any pre-existing conditions
to the extent such conditions are covered immediately prior to
the merger under the applicable Synthes plans and to the same
extent such limitations are waived under any comparable
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plan of Johnson & Johnson or its subsidiaries and
recognize, for purposes of annual deductible and
out-of-pocket
limits under its medical and dental plans, deductible and
out-of-pocket
expenses paid by employees of Synthes and its subsidiaries in
the calendar year in which the merger occurs.
Treatment
of Synthes Stock Options and Other Equity-Based
Awards
Each outstanding Synthes option will be cancelled upon the
closing of the merger and converted into an amount in cash equal
to the excess, if any, of (A) the sum of (x) the CHF
55.65 cash consideration in the merger and (y) the product
of the share exchange ratio multiplied by the average of the
volume weighted average trading prices of Johnson &
Johnson common stock on each of the ten trading days ending two
trading days prior to the effective time of the merger, as
converted into CHF on each day in this valuation period, over
(B) the exercise price per share of Synthes common stock
subject to the option, less applicable withholding taxes, if any.
Each Synthes restricted stock award will become fully vested
upon the closing of the merger, and the holder of the restricted
stock award will be entitled to receive, without any interest
thereon, the merger consideration less applicable withholding
taxes.
Litigation
Related to the Merger
Three putative shareholder class actions challenging the merger
have been filed in the Delaware Court of Chancery naming
Synthes, certain officers and directors of Synthes,
Johnson & Johnson and Samson Acquisition Corp., as
defendants: (i) Norfolk County Retirement System et
al., v. Hansjoerg Wyss et al., Case No. 6452
(filed May 5, 2011); (ii) Inter-Local Pension Fund
of the Graphic Communications Conference of the International
Brotherhood of Teamsters et al., v. Hansjoerg Wyss et al.,
Case No. 6506 (filed May 19, 2011); and
(iii) Mortimer Labes et al., v. Hansjoerg Wyss et
al., Case No. 6534 (filed May 31, 2011). The
complaints allege, among other things, that the members of the
Synthes board of directors breached their fiduciary duties and
seek, among other things, to enjoin the defendants from
completing the merger on the terms of the merger agreement. On
May 27, 2011, the Delaware Court of Chancery entered an
Order of Consolidation for Case No. 6452 and Case
No. 6506 and appointed Labaton Sucharow LLP and Spector
Roseman Kodroff & Willis P.C. as lead counsel in
respect of the consolidated cases. Case No. 6534 also
subsequently became part of the consolidated action, captioned
In re Synthes, Inc. Shareholder Litigation. On
August 2, 2011, plaintiffs counsel filed a Verified
Consolidated Amended Class Action Complaint in the
consolidated action (which we refer to as the Consolidated
Amended Complaint). The Consolidated Amended Complaint
includes additional factual allegations based on disclosures in
this proxy statement/prospectus (as initially filed on
July 7, 2011). Plaintiffs have dismissed
Johnson & Johnson from the action, and the court
entered an order dismissing Johnson & Johnson without
prejudice on August 4, 2011. On October 20, 2011 the
remaining defendants filed a motion to dismiss the Consolidated
Amended Complaint with prejudice. On October 24, 2011,
plaintiffs filed a motion with the Court of Chancery seeking a
preliminary injunction to prevent Synthes from conducting a vote
of stockholders to adopt the merger agreement.
Resale of
Johnson & Johnson Common Stock
Johnson & Johnson common stock issued in the merger
will not be subject to any restrictions on transfer arising
under the Securities Act, except for shares issued to any
Synthes stockholder who may be deemed to be an
affiliate of Johnson & Johnson for
purposes of Rule 145 under the Securities Act. Persons who
may be deemed to be affiliates include individuals or entities
that control, are controlled by, or are under common control
with Johnson & Johnson and may include the executive
officers, directors and significant stockholders of
Johnson & Johnson. This proxy statement/prospectus
does not cover resales of Johnson & Johnson common
stock received by any person upon completion of the merger, and
no person is authorized to make any use of this proxy
statement/prospectus in connection with any such resale.
Notice to
Synthes Stockholders Resident in Canada and Canadian Resale
Restrictions
Notice to Synthes Stockholders Resident in
Canada. The Johnson & Johnson common
stock that is being distributed to holders of Synthes common
stock that reside in Canada is being distributed under an
exemption from the prospectus requirement of Canadian provincial
and territorial securities laws.
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Canadian Resale Restrictions. The provincial
and territorial securities laws require the first trade in the
Johnson & Johnson common stock to be made in
accordance with certain conditions, including that no unusual
effort is made to prepare the market or to create a demand for
such shares and no extraordinary commission or consideration is
paid in respect of the trade. In addition, when selling the
shares, holders resident in a province or territory of Canada
must use a dealer appropriately registered in such province or
territory or rely on another exemption from the registration
requirement of such province or territory. If a holder requires
advice on any applicable prospectus or registration exemption,
the holder should consult its own legal advisor.
Accounting
Treatment of the Merger
The merger will be accounted for by Johnson & Johnson
using the purchase method of accounting. Under this method of
accounting, the purchase price will be allocated to the fair
value of the net assets acquired. The excess purchase price over
the fair value of the assets acquired will be allocated to
goodwill.
Material
United States Federal Income Tax Consequences of the
Merger
The following is a summary of the material United States federal
income tax consequences of the merger to holders of Synthes
common stock whose shares are converted into the right to
receive the merger consideration under the merger. This summary
is based on the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations, and administrative and judicial
interpretations thereof, each as in effect as of the date
hereof, all of which may change, possibly with retroactive
effect. This summary assumes that shares of Synthes common stock
are held as capital assets. It does not address all of the tax
consequences that may be relevant to particular holders in light
of their personal circumstances, or to other types of holders,
including, without limitation:
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banks, insurance companies or other financial institutions;
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broker-dealers;
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traders;
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expatriates;
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tax-exempt organizations;
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persons who are investors in a pass-through entity;
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persons who are subject to alternative minimum tax;
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persons who hold their shares of common stock as a position in a
straddle or as part of a hedging or
conversion transaction;
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persons deemed to sell their shares of common stock under the
constructive sale provisions of the Internal Revenue Code;
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persons that have a functional currency other than the United
States dollar; or
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persons who acquired their shares of Synthes common stock upon
the exercise of stock options or otherwise as compensation.
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In addition, this discussion does not address U.S. federal
estate, gift or other non-income tax, or any state, local or
non-U.S. tax
consequences of the merger.
ALL HOLDERS OF SHARES OF SYNTHES COMMON STOCK ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT
OF THEIR PARTICULAR SITUATIONS, AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAW OF ANY STATE, LOCAL OR
NON-U.S. JURISDICTION.
For purposes of this discussion, a United States
Holder means a holder of Synthes common stock who is:
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a citizen or individual resident of the United States;
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a corporation or an entity treated as a corporation for United
States federal income tax purposes, created or organized in or
under the laws of the United States or any political subdivision
thereof (including the District of Columbia);
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust (a) the administration over which a United States
court can exercise primary supervision and (b) all of the
substantial decisions of which one or more United States persons
have the authority to control and certain other trusts
considered United States persons for United States federal
income tax purposes.
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A
Non-United
States Holder is a holder (other than an entity treated as
a partnership for U.S. federal income tax purposes) that is
not a United States Holder.
If a partnership holds Synthes common stock, the tax treatment
of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership. If
you are a partner of a partnership holding Synthes common stock,
you should consult your tax advisor regarding the tax
consequences of the merger.
United
States Holders
The receipt of the merger consideration in exchange for shares
of Synthes common stock pursuant to the merger will be a taxable
transaction for United States federal income tax purposes. In
general, a United States Holder who receives the merger
consideration in exchange for shares of Synthes common stock
pursuant to the merger will recognize capital gain or loss for
United States federal income tax purposes equal to the
difference, if any, between (i) the sum of (a) the
fair market value of the Johnson & Johnson common
stock as of the effective time of the merger and (b) the
U.S. dollar value of the Swiss francs received and
(ii) the holders adjusted tax basis in the shares of
Synthes common stock exchanged for the merger consideration
pursuant to the merger. The U.S. dollar value of the Swiss
francs received should be determined, depending on the United
States Holders method of accounting and foreign currency
elections in effect, by reference to the spot rate on either the
date the shares of Synthes common stock are treated as sold for
U.S. income tax purposes or the date the Swiss francs are
received. Each U.S. Holder is urged to consult its own tax
advisor as to the determination of the amount realized in its
particular circumstances. Any gain or loss recognized would be
long-term capital gain or loss if the holding period for the
shares of Synthes common stock exceeded one year. Long-term
capital gains of noncorporate taxpayers generally are taxable at
a maximum rate of 15%. Capital gains of corporate shareholders
generally are taxable at the regular tax rates applicable to
corporations.
A United States Holders aggregate tax basis in
Johnson & Johnson common stock received in the merger
will equal the fair market value of such stock as of the
effective time of the merger. The holding period of the
Johnson & Johnson common stock received in the merger
will begin on the day after the merger. A United States
Holders basis in any Swiss francs received will equal the
U.S. dollar value of those Swiss francs using the same spot
rate used to determine the amount of gain or loss recognized.
On a subsequent disposition of any Swiss francs received in the
merger (including conversion into U.S. dollars), a United
States Holder will generally recognize exchange gain or loss
equal to the difference between the United States Holders
basis in such Swiss francs (as described above) and the fair
market value of the property received in exchange for the Swiss
francs. Exchange gain or loss will generally be treated as
U.S.-source
ordinary income or loss.
Non-United
States Holders
A Non-United
States Holder generally will not be subject to U.S. federal
income tax on any gain realized in the merger unless:
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the gain is effectively connected with the conduct of a trade or
business by the
Non-United
States Holder in the United States (and, if an income tax treaty
applies, is attributable to a U.S. permanent establishment
maintained by the
Non-United
States Holder); or
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in the case of a
Non-United
States Holder that is an individual, such
Non-United
States Holder is present in the United States for 183 days
or more in the taxable year of disposition and meets other
conditions and is not eligible for relief under an applicable
income tax treaty.
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Gain that is effectively connected with a
Non-United
States Holders conduct of a trade or business in the
United States generally will be subject to U.S. federal
income tax, net of certain deductions, at the same rates
applicable to U.S. persons. A
Non-United
States Holder that is a corporation may also be subject to
branch profits tax at a 30% rate (or such lower rate as may
apply under an applicable tax treaty) on after-tax profits
effectively connected with a U.S. trade or business to the
extent that such after-tax profits are not reinvested and
maintained in the U.S. business. If the gain is effectively
connected with the
Non-United
States Holders conduct of a trade or business in the
United States but, under an applicable income tax treaty, is not
attributable to a permanent establishment maintained by the
Non-United
States Holder in the United States, the gain may be exempt from
U.S. federal income tax under the income tax treaty. If a
Non-United
States Holder is described in the second bullet point above, the
Non-United
States Holder generally will be subject to U.S. federal
income tax at a rate of 30% on the gain realized, although the
gain may be offset by certain
U.S.-source
capital losses realized during the same taxable year.
Information
Reporting and Backup Withholding
Information reporting and backup withholding may apply to
payments made in connection with the merger. Backup withholding
will not apply, however, to a holder who (1) furnishes a
correct taxpayer identification number and certifies that it is
not subject to backup withholding on the substitute
Form W-9
or successor form included in the letter of transmittal to be
delivered to holders of Synthes common stock prior to completion
of the merger, (2) provides a certification of foreign
status on the applicable
Form W-8
(typically
Form W-8BEN)
or appropriate successor form or (3) is otherwise exempt
from backup withholding.
Back-up
withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be allowed as a refund or a
credit against such holders United States federal income
tax liability provided the required information is timely
furnished to the IRS.
Material
Swiss Tax Consequences of the Merger
Swiss-resident individual taxpayers holding Synthes common stock
as their private property should realize a tax-free private
capital gain or a non-tax-deductible loss, as the case may be,
for Swiss federal, cantonal and municipal income tax purposes
with respect to all or part of the shares of Johnson &
Johnson common stock received in the merger. A portion of the
merger consideration will be received in cash, and all or part
may be treated as taxable income for Swiss federal, cantonal and
municipal income tax purposes.
Swiss-resident corporate and individual taxpayers as well as
corporate and individual taxpayers resident abroad who hold
Synthes common stock as part of Swiss business assets are
required to recognize any capital gains realized as a result of
the merger in their income statement for the respective tax
period and are subject to Swiss federal, cantonal and municipal
individual or corporate income tax, as the case may be, on any
net taxable earnings (including a capital gain realized as a
result of the merger) for such period; capital losses are
tax-deductible. A part of the merger consideration may be
treated as dividend income for tax purposes. The same tax
treatment applies to Swiss resident individuals who, for income
tax purposes, are classified as professional securities
dealers for reasons of, for example, frequent dealing and
debt-financed purchases.
Swiss-resident taxpayers should consult with their individual
tax advisors to determine the Swiss tax consequences of the
merger in the light of their particular circumstances, including
what tax planning opportunities might be available to them.
57
THE
MERGER AGREEMENT
The following summary describes material provisions of the
merger agreement, which is included as Annex A to this
proxy statement/prospectus and is incorporated herein by
reference in its entirety. This summary may not contain all of
the information about the merger agreement that is important to
you. The rights and obligations of Johnson & Johnson
and Synthes are governed by the express terms and conditions of
the merger agreement and not by this summary or any other
information contained in this proxy statement/prospectus. We
urge you to read the merger agreement carefully and in its
entirety as well as this proxy statement/prospectus before
making any decisions regarding the merger.
The merger agreement is included in this proxy
statement/prospectus to provide you with information regarding
its terms. It is not intended to provide any factual information
about Johnson & Johnson or Synthes.
The merger agreement contains representations and warranties by
each of the parties to the merger agreement. These
representations and warranties were made solely for the benefit
of the other parties to the merger agreement and:
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may not be intended as statements of fact, but rather as a way
of allocating the risk to one of the parties if the statements
prove to be inaccurate;
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have been qualified by certain disclosures that were made to the
other parties in connection with the negotiation of the merger
agreement, that modify, qualify and create exceptions to the
representations, warranties and covenants set forth in the
merger agreement; and
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may apply standards of materiality in a way that is different
from what may be viewed as material by you or other investors or
that is different from standards of materiality generally
applicable under the United States federal securities laws.
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Accordingly, you should not rely on the representations and
warranties in the merger agreement (or the summaries contained
herein) as characterizations of the actual state of facts about
Johnson & Johnson or Synthes. The representations and
warranties and other provisions of the merger agreement should
not be read alone, but instead should be read together with the
information provided elsewhere in this proxy
statement/prospectus and in the documents incorporated herein by
reference. See Where You Can Find More Information
beginning on page 116.
Representations
and Warranties
The merger agreement contains certain customary representations
and warranties made by Synthes relating to, among other things,
the following:
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due organization, valid existence, good standing, corporate
power and authority and qualification or licensing;
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material subsidiaries;
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certificate of incorporation and by-laws or equivalent
organizational documents;
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capitalization of Synthes and ownership of its subsidiaries;
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corporate power and authority with respect to the execution and
delivery of the merger agreement, the due and valid execution
and delivery of the merger agreement and the enforceability of
the merger agreement;
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the approval of the merger agreement by the board of directors
of Synthes, the recommendation by the Synthes board of directors
that Synthes stockholders vote to adopt the merger agreement and
the vote required by the stockholders of Synthes to adopt the
merger agreement;
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the absence of conflicts with, or violations of, organizational
documents, any applicable law or any contracts, permits or other
instruments or obligations;
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required consents, approvals, authorizations, permits and
governmental filings and notifications in connection with the
merger;
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compliance with applicable laws and possession of material
permits;
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compliance with a certain corporate integrity agreement,
settlement agreement and divestiture agreement (see
Other Actions);
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financial statements and internal controls and procedures;
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the absence of certain changes and events since
December 31, 2010;
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the absence of material litigation;
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employee benefit plan matters and ERISA compliance;
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collective bargaining agreements and other labor relations
matters;
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owned real property and tangible assets;
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compliance with the terms of material leases;
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intellectual property;
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tax matters;
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environmental matters;
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material contracts;
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insurance;
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filings with the SIX Swiss Exchange and the accuracy of
information contained in such filings;
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receipt of an opinion from Synthes financial advisor;
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payment of fees and expenses for brokers, accountants, financial
advisors, investment bankers and legal counsel in connection
with the merger;
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regulatory compliance;
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compliance with the Foreign Corrupt Practices Act, the Currency
and Foreign Transactions Reporting Act of 1970 and other similar
laws, and the absence of any sanction by the Office of Foreign
Assets Control of the United States Department of Treasury;
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the absence of any poison pill or other rights
agreement or plan;
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the inapplicability of state takeover statutes; and
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the accuracy of the information supplied in connection with this
proxy statement/prospectus and the registration statement of
which it is a part.
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The merger agreement also contains certain customary
representations and warranties made by each of
Johnson & Johnson and Samson Acquisition Corp.
relating to, among other things, the following:
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due organization, valid existence, good standing, corporate
power and authority and qualification or licensing;
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the certificate of incorporation and by-laws or equivalent
organizational documents;
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capitalization of Johnson & Johnson and
Johnson & Johnsons ownership of Samson
Acquisition Corp.;
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due authorization, valid issuance, registration and NYSE
approval for listing the shares issuable pursuant to the merger;
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corporate power and authority with respect to the execution and
delivery of the merger agreement, the due and valid execution
and delivery of the merger agreement and the enforceability of
the merger agreement;
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the absence of a vote required by Johnson &
Johnsons shareholders to approve the merger;
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the absence of conflicts with, or violations of, organizational
documents, any applicable law or any contracts, permits or other
instruments or obligations;
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required consents, approvals, authorizations, permits and
governmental filings and notifications in connection with the
merger;
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availability to Johnson & Johnson of sufficient funds
to permit Samson Acquisition Corp. to consummate the merger;
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SEC filings and financial statements;
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internal controls and disclosure controls and procedures;
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the absence of material litigation;
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organization and operations of Samson Acquisition Corp.;
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the absence of ownership of Synthes common stock by
Johnson & Johnson and Samson Acquisition Corp.;
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payment of fees for brokers in connection with the
merger; and
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the accuracy of the information supplied in connection with this
proxy statement/prospectus and the registration statement of
which it is a part.
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Many of the representations and warranties in the merger
agreement are qualified by a materiality or
material adverse effect standard. For purposes of
the merger agreement, material adverse effect means,
when used in connection with Synthes or Johnson &
Johnson, any occurrence, state of facts, development,
circumstance, change or effect that, individually or in the
aggregate with all other events, occurrences, states of facts,
developments, circumstances, changes and effects:
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would prevent the consummation of the merger and any of the
transactions contemplated by the merger agreement, which we
refer to as the related transactions, by Synthes or
Johnson & Johnson, as applicable, or otherwise prevent
either of Synthes or Johnson & Johnson from performing
its respective obligations under the merger agreement; or
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has had or would reasonably be expected to have a material
adverse effect on the business, financial condition or results
of operations of Synthes and its subsidiaries, taken as a whole,
or Johnson & Johnson and its subsidiaries, taken as a
whole, as the case may be, except that any occurrence, state of
facts, development, circumstance, change or effect resulting
from the following will not be taken into account:
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any change in the market price or trading volume of Synthes
common stock or Johnson & Johnson common stock, as
applicable, or any failure, in and of itself, by Synthes or
Johnson & Johnson, as the case may be, to meet
internal projections or forecasts or published revenue or
earnings predictions for any period ending (or for which
revenues or earnings are released) on or after the date of the
merger agreement (however, the facts or causes underlying or
contributing to such change or failure may be considered);
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changes in general economic or political conditions, or in the
financial, credit or securities markets in general, to the
extent such changes do not disproportionately affect Synthes and
its subsidiaries, taken as a whole, or Johnson &
Johnson and its subsidiaries, taken as a whole, as the case may
be, relative to other participants in the industries in which
they conduct their respective businesses;
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changes in applicable law or GAAP or any interpretations
thereof, to the extent such changes do not disproportionately
affect Synthes and its subsidiaries, taken as a whole, or
Johnson & Johnson and its subsidiaries, taken as a
whole, relative to other participants in the industries in which
they conduct their respective businesses;
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changes, including legal and regulatory changes, in the
industries in which Synthes and its subsidiaries conduct their
respective businesses or in the industries in which
Johnson & Johnson and its subsidiaries conduct their
respective businesses, as applicable, to the extent such changes
do not disproportionately affect Synthes and its subsidiaries,
taken as a whole, or Johnson & Johnson and its
subsidiaries, taken as a whole, relative to other participants
in the industries in which they conduct their respective
businesses;
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acts of civil unrest or war (whether or not declared), armed
hostilities or terrorism, or any escalation or worsening of any
such acts under way as of the date of the merger agreement,
unless such acts are directed at the properties or assets of
Synthes or any of its subsidiaries or Johnson &
Johnson or any of it subsidiaries, as applicable;
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earthquakes, hurricanes, tsunamis, tornados, floods, mudslides,
volcanic eruptions or other natural disasters or force majeure
events, unless such events directly involve the properties or
assets of Synthes or any of its subsidiaries or
Johnson & Johnson or any of its subsidiaries, as the
case may be; or
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the public announcement of the merger agreement.
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The representations and warranties in the merger agreement do
not survive the effective time of the merger.
Conduct
of Business Pending the Merger
Synthes has undertaken certain covenants in the merger agreement
restricting the conduct of its business between the date of the
merger agreement and the effective time of the merger. During
this period, except (i) with prior written consent of
Johnson & Johnson (which consent shall not be
unreasonably withheld, delayed or conditioned) or (ii) as
contemplated or permitted by the merger agreement, Synthes has
agreed that (x) its businesses and the businesses of its
subsidiaries will be, in all material respects, conducted only
in the ordinary course of business and in a manner consistent in
all material respects with past practice (and Synthes and its
subsidiaries will not take any action to the contrary) and
(y) it shall, and shall cause each of its subsidiaries to,
use commercially reasonable efforts to preserve substantially
intact their business organizations and maintain and preserve
intact their current relationships with customers, suppliers,
licensors, licensees, distributors and others having business
dealings with them.
In addition, by way of amplification and not limitation, Synthes
has agreed that each of it and its subsidiaries be subject to
various specific restrictions relating to the conduct of their
respective businesses between the date of the merger agreement
and the effective time of the merger, including the following
(subject in each case to the exceptions specified in the
preceding paragraph):
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amending or otherwise changing its certificate of incorporation
or by-laws or equivalent organizational documents;
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issuing, delivering, selling, granting, pledging, disposing of
or granting or permitting an encumbrance on, any shares of any
classes of capital stock or other voting securities or other
ownership interests or similar interests (except for securities
issuable upon the exercise of Synthes stock options outstanding
as of the date of the merger agreement);
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selling, leasing, licensing, pledging, disposing of, or granting
or permitting an encumbrance on, any material property or other
assets (except for sales of inventory and used equipment in the
ordinary course of business and consistent with past practice);
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declaring, setting aside, making or paying any dividend, payable
in cash, stock, property or otherwise on any of its capital
stock (except (i) for dividends made by any Synthes
subsidiary to Synthes or another of its subsidiaries and
(ii) that Johnson & Johnson has consented to
Synthes paying a regular annual dividend for 2011 consistent
with past practice (including with respect to the timing
thereof) if the merger has not occurred prior to the customary
record date for such dividend and certain other conditions are
met);
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adjusting, reclassifying, combining, splitting, subdividing,
redeeming, purchasing or otherwise acquiring any of its capital
stock, voting securities or other ownership interests or any
securities convertible, exchangeable for or exercisable into
such securities or interests;
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acquiring, including by merger, consolidation, or acquisition of
stock or assets or any other business combination or by any
other manner, any other corporation, partnership, other business
organization or any business, division or equity interest
thereof;
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incurring or guaranteeing indebtedness or extending loans,
advances, capital contributions or investments (except
(i) to employees, (ii) to Synthes or its wholly owned
subsidiaries in the ordinary course of business or
(iii) borrowings under Synthes existing credit
facility);
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making or authorizing capital expenditures in excess of the
aggregate amount disclosed in Synthes capital expenditure
budget;
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making material modifications to accounting policies or
procedures, other than as required by GAAP or applicable law;
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modifying any material tax accounting methods (except as
required under applicable law) or tax elections, settling or
compromising any material tax liability or consenting to any
claim or assessment relating to a material amount of tax, filing
any amended tax return or claim for refund, entering into any
closing agreement relating to a material tax amount or waiving
or extending the statute of limitations in respect of material
taxes (except, in each case, in the ordinary course of business,
and to the extent applicable, in a manner consistent with past
practices);
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(i) abandoning, selling, transferring or licensing
intellectual property or related agreements,
(ii) disclosing or allowing to be disclosed any material
confidential information or (iii) adversely amending or
modifying any rights to any material intellectual property in
any material respect;
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except as required to ensure that any Synthes employee benefit
plan is not out of compliance with applicable law or the terms
of such plan:
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adopting, terminating or amending collective bargaining
agreements, similar contracts or employee benefit plans;
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increasing the compensation or benefits of, or paying any bonus
to, any current or former director, officer, employee or
consultant (other than in the ordinary course of business and in
a manner consistent with past practice);
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granting any change in control, retention, severance or
termination pay to any current or former director, officer,
employee or independent contractor or increasing any such
compensation or benefit;
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granting any awards;
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taking any action to fund or secure the payment of compensation
or benefits under any employee benefit plan;
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taking any action to accelerate the vesting or payment of any
compensation or benefit under any employee benefit plan or
awards made thereunder; or
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materially changing any actuarial or other assumption used to
calculate funding obligations with respect to any employee
benefit plan or changing the manner in which contributions to
any employee benefit plan are made or the basis on which such
contributions are determined (except as required by GAAP);
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except as required by law or any judgment of a court of
competent jurisdiction:
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paying, discharging, satisfying or settling any claims,
liabilities, obligations or litigation that are material to
Synthes and its subsidiaries, taken as a whole (other than
liabilities in the ordinary course of business, consistent with
past practice and in accordance with their terms that are
disclosed, reflected or reserved against in Synthes
financial statements or incurred since the date of the financial
statements in the ordinary course of business and in a manner
consistent with past practice);
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waiving or assigning rights or claims with material
value; or
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canceling material indebtedness;
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entering into, terminating or canceling (except when it may be
commercially reasonable to do so and after consulting with
Johnson & Johnson in advance and, in good faith,
taking Johnson & Johnsons views into
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account with respect to certain specified contracts), failing to
exercise a right to renew on commercially reasonable terms or
materially modifying or amending any material contract;
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entering into, modifying, amending or terminating any contract
or waiving, modifying, releasing or assigning any material
rights or claims thereunder, which action would reasonably be
expected to (i) impair in any material respect the ability
of Synthes to perform its obligations under the merger agreement
or (ii) materially impede, interfere with, hinder or delay
the consummation of the merger or related transactions;
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entering into any material contract to the extent consummation
of the merger and related transactions would reasonably be
expected to trigger, conflict with or result in a violation of
any change of control or similar provision of such
contract;
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authorizing or applying for the listing of shares of Synthes
common stock on any stock exchange (other than the SIX Swiss
Exchange); or
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authorizing or agreeing to do any of the foregoing.
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Johnson & Johnson has also agreed to various specific
restrictions relating to the conduct of its business between the
date of the merger agreement and the effective time of the
merger, including the following (in each case, except as
contemplated or permitted by any other provision of the merger
agreement or with the prior written consent of Synthes (which
consent shall not be unreasonably withheld, delayed or
conditioned)):
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amending or otherwise changing its certificate of incorporation
or by-laws, except for any amendments or changes that would not
(i) materially delay, impede or prevent the consummation of
the merger and related transactions or (ii) adversely
affect the stockholders of Synthes in any material respect
differently than the shareholders of Johnson & Johnson;
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declaring, setting aside, making or paying any extraordinary or
special dividends, in cash, stock, property or otherwise, with
respect to any of its capital stock;
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acquiring or merging with any business, person or division, or
entering into a joint venture, in each case within the
orthopedics market, if entering into a definitive agreement
relating to, or the consummation of, such actions would be
reasonably likely to materially delay, materially impede or
prevent the consummation of the transactions;
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acquiring or merging with any business, person or division, if
entering into a definitive agreement relating to, or the
consummation of, such acquisition or merger would be reasonably
likely to materially delay the effectiveness of the registration
statement; or
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authorizing or agreeing to do any of the foregoing.
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No
Solicitation
Under the merger agreement, subject to certain exceptions
described below, Synthes has agreed that it will not, nor will
any of its subsidiaries or any of its or its subsidiaries
respective officers, directors, employees, accountants,
consultants, legal counsel, investment bankers, advisors, agents
or other representatives, which we refer to as
representatives, directly or indirectly (and Synthes
will cause each of the parties listed above not to):
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solicit, initiate or take any other action to facilitate or
knowingly encourage any competing proposal, as described below;
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enter into, maintain, continue or participate in any discussions
or negotiations with any person or entity in furtherance of, or
furnish to any person any information with respect to, any
competing proposal;
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agree to, approve, endorse, recommend or consummate any
competing proposal;
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enter into any binding letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement or other contract or
agreement which contemplates or which would reasonably be
expected to lead to any competing proposal (other than certain
acceptable
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confidentiality agreements) (we refer to each such agreement in
respect of a potential competing proposal as a competing
transaction agreement);
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take any action to approve a third party becoming an
interested stockholder or to approve any
transaction, for the purposes of section 203 of the
DGCL; or
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resolve, propose, agree, authorize or permit any representative
to do any of the foregoing.
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The merger agreement also provides that Synthes will, and will
direct its subsidiaries and its subsidiaries
representatives to:
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immediately cease and cause to be terminated all existing
discussions and negotiations with any person regarding any
competing proposal conducted prior to the execution of the
merger agreement by Synthes, any of its subsidiaries or any of
its or its subsidiaries respective
representatives; and
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request the prompt return or destruction of all confidential
information previously furnished.
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Under the merger agreement, a competing proposal
means any bona fide proposal or offer from any person relating
to, or that could reasonably be expected to lead to, in one
transaction or a series of related transactions (other than the
merger):
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any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar
transaction involving Synthes or any of its subsidiaries
pursuant to which any person or the shareholders of any person
would own 15% or more of any class of equity securities of
Synthes or any resulting parent company of Synthes;
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any sale, lease, license, exchange, transfer or other
disposition of, or joint venture involving, assets or businesses
that constitute or represent more than 15% of the total revenue,
operating income, EBITDA or fair market value of the assets of
Synthes and its subsidiaries, taken as a whole;
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any sale, exchange, transfer or other disposition of more than
15% of any class of equity securities, or securities convertible
into or exchangeable for equity securities, of Synthes;
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any tender offer or exchange offer that, if consummated, would
result in any person becoming the beneficial owner of more than
15% of any class of equity securities of Synthes;
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any other transaction the consummation of which would be
reasonably likely to impede, interfere with, prevent or
materially delay the merger; or
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any combination of the foregoing.
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Synthes has agreed that promptly after the receipt of any
competing proposal or any bona fide inquiry relating to or that
could reasonably be expected to lead to any competing proposal,
Synthes will advise Johnson & Johnson, orally and in
writing, of such proposal, setting forth the financial and other
material terms and conditions of such proposal (including any
changes thereto) and the identity of the person making such
competing proposal or bona fide inquiry. Additionally, Synthes
is required to (i) keep Johnson & Johnson fully
informed of the status and material details (including any
changes to the terms) of any such competing proposal or bona
fide inquiry and (ii) provide to Johnson &
Johnson, as soon as reasonably practicable after receipt or
delivery thereof, copies of all correspondence and other written
material (including draft and final versions of agreements, as
well as any amendments, schedules and exhibits) relating to any
such competing proposal or bona fide inquiry between Synthes or
any of its subsidiaries or their respective representatives and
the person making such competing proposal or bona fide inquiry
or such persons representatives.
Notwithstanding the restrictions described above, if following
the execution of the merger agreement and prior to the adoption
of the merger agreement by Synthes stockholders, Synthes
receives an unsolicited, written, bona fide competing proposal
that did not arise as a result of a breach of Synthes
no-solicitation obligations under the merger agreement, and the
Synthes board of directors reasonably determines, in its good
faith judgment (after having received the advice of a financial
advisor of nationally recognized reputation and outside legal
counsel), that
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such competing proposal constitutes, or is reasonably likely to
lead to, a superior proposal, as described below; and
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failure to furnish information to, or enter into discussion
with, the person who made the competing proposal would be
inconsistent with the fiduciary duties of the Synthes board of
directors to Synthes and its stockholders under applicable law,
then Synthes may furnish information to, and enter into
discussions with, the person making such competing proposal (so
long as Synthes (i) has provided, or concurrently provides,
all such information to Johnson & Johnson and
(ii) has obtained from any such person a customary
confidentiality agreement containing terms no less favorable to
Synthes than those contained in the confidentiality agreement
between Synthes and Johnson & Johnson).
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Under the merger agreement, the term superior
proposal means any unsolicited, written, bona fide offer
made by a third party with respect to a competing proposal
(other than pursuant to the second to last bullet point in the
definition of competing proposal above), replacing each
reference to 15% in the definition of competing
proposal with 50%, which the Synthes board of
directors reasonably determines, in its good faith judgment,
after having received the advice of a financial advisor of
nationally recognized reputation and outside legal counsel, to
be:
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more favorable to the Synthes stockholders from a financial
point of view than the merger, taking into account all the terms
and conditions of such proposal, as well as any changes to the
financial terms of the merger agreement proposed by
Johnson & Johnson in response to such offer or
otherwise; and
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reasonably expected to be consummated.
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Change in
the Company Recommendation
The Synthes board of directors has agreed to recommend that
Synthes stockholders vote in favor of the adoption of the merger
agreement, which we refer to as the company
recommendation. Under the merger agreement, neither the
Synthes board of directors nor any committee of the Synthes
board of directors may take any of the following actions (each
of which we refer to as a change in the company
recommendation):
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withdraw, qualify, modify or amend, or propose publicly to
withdraw, qualify, modify or amend, the company recommendation;
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adopt or recommend, or propose publicly to adopt or recommend,
any competing proposal; or
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make any public statement inconsistent with the company
recommendation.
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Notwithstanding the above, at any time prior to the adoption of
the merger agreement by Synthes stockholders and subject to
Synthes obligations under the no-solicitation provisions
of the merger agreement, if the Synthes board of directors
determines in its good faith judgment (after having received the
advice of a financial advisor of nationally recognized
reputation and outside legal counsel) that the failure to make a
change in the company recommendation would be inconsistent with
the Synthes board of directors fiduciary duties to Synthes
and its stockholders under applicable law, the Synthes board of
directors may make a change in the company recommendation,
provided that no change in the company recommendation may be
made:
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that relates to a competing proposal unless such competing
proposal constitutes a superior proposal; and
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until after Synthes has provided Johnson & Johnson
with five business days prior written notice of the intent
to make a change in the company recommendation, which specifies
the reasons therefor, including the terms and conditions of such
superior proposal (provided that any amendment to the financial
terms and any other material term of such superior proposal
shall require a new two business day notice period).
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During the applicable notice period, Synthes and
Johnson & Johnson and their respective representatives
have agreed to negotiate in good faith regarding any revisions
to the terms of the merger agreement proposed by
Johnson & Johnson. In determining whether to make a
change in the company recommendation, the Synthes board of
directors must take into account any changes to the financial
terms of the merger agreement proposed by Johnson &
Johnson in response to its receipt of such notice from Synthes
or otherwise.
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Nothing in the merger agreement prohibits the Synthes board of
directors from making any disclosure that is required by
applicable law, except that neither the Synthes board of
directors nor any committee of the Synthes board of directors
may make any change in the company recommendation in connection
with such disclosure.
If the board of directors of Synthes makes a change in the
company recommendation, Synthes will nonetheless continue to be
obligated to hold its stockholders meeting and submit the
proposal to adopt the merger agreement to its stockholders as
described in this proxy statement/prospectus.
Synthes
Stockholders Meeting
Synthes has agreed to take all lawful action to call, give
notice of, convene and hold the Synthes stockholders meeting as
promptly as practicable for the purpose of obtaining stockholder
adoption of the merger agreement. Synthes has further agreed to
solicit proxies from its stockholders in favor of the adoption
of the merger agreement and to take all other action necessary
or advisable to obtain such stockholder adoption. The Synthes
board of directors has agreed, subject to a change in company
recommendation in accordance with the terms of the merger
agreement, to include its recommendation to its stockholders to
adopt the merger agreement in this proxy statement/prospectus.
The merger agreement requires Synthes to convene and hold the
Synthes stockholder meeting as promptly as practicable for the
purpose of obtaining stockholder adoption of the merger
agreement, regardless of any change in company recommendation or
competing proposal.
Reasonable
Best Efforts
Subject to the terms and conditions of the merger agreement,
Johnson & Johnson and Synthes have agreed to use their
reasonable best efforts to:
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take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary or reasonably
advisable under applicable laws or orders, to consummate and
make effective the merger and the related transactions; and
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obtain, or cause to be obtained, all waivers, permits, consents,
approvals, authorizations, qualifications and orders of all
governmental authorities and officials and parties to contracts
with Synthes and its subsidiaries that may be or become
necessary for the performance of obligations pursuant to the
merger agreement and the consummation of the related
transactions.
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Additionally, Synthes, Johnson & Johnson and Samson
Acquisition Corp. have each agreed to:
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cooperate fully with one another in promptly seeking to obtain
all such waivers, permits, consents, approvals, authorizations,
qualifications and orders; and
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make any appropriate filings, if necessary or advisable (in the
opinion of Johnson & Johnson), pursuant to the HSR
Act, the EU Merger Regulation or other applicable foreign, state
or supranational antitrust, competition, fair trade or similar
laws.
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The merger agreement further provides that Synthes will use its
reasonable best efforts to:
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provide or cause to be provided promptly to Johnson &
Johnson all necessary information and assistance as any
governmental authority may require; and
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provide or cause to be provided promptly all assistance and
cooperation to allow Johnson & Johnson to prepare and
submit any filings or submissions under the HSR Act, the EU
Merger Regulation or other applicable antitrust, competition,
fair trade or similar laws.
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Johnson & Johnson will have the principal
responsibility for devising and implementing the strategy for
obtaining any necessary antitrust or competition clearances and
will take the lead in all meetings and communications with any
governmental authority in connection with obtaining such
clearances; provided that Johnson & Johnson will
consult in advance with Synthes and in good faith take
Synthes views into account regarding the overall strategic
direction of obtaining antitrust or competition clearance in the
United States, the European Union or certain other material
jurisdictions, and Johnson & Johnson will consult with
Synthes prior to taking any material
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substantive position in any written submissions to, or to the
extent practicable, discussions with, governmental agencies in
such jurisdictions.
The merger agreement further provides that Johnson &
Johnson and Synthes will, and will cause their subsidiaries to
use their reasonable best efforts to, accomplish the following:
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take any and all steps necessary to avoid or eliminate each and
every legal impediment under any applicable state, federal,
foreign or supranational antitrust, competition, fair trade or
similar law that may be asserted by any antitrust or competition
governmental authority or any other party so as to enable the
parties to close the transaction as promptly as practicable (and
in any event, prior to the outside date);
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propose, negotiate, commit to and effect the sale, divestiture
or other disposition of their assets, properties or businesses,
and enter into such other arrangements, as are necessary or
reasonably advisable in order to avoid the entry of any order,
the commencement of litigation seeking the entry of, or to
effect the dissolution of, any injunction, temporary restraining
order or other order that would have the effect of materially
delaying or preventing the consummation of the merger and
related transactions; and
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defend through litigation, on the merits, any claims asserted in
court or administrative tribunal by any person in order to avoid
the entry of, or have vacated or terminated, any decree, order
or judgment that would prevent the closing from occurring prior
to the outside date.
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Notwithstanding the foregoing or any other provision of the
merger agreement, (i) neither Johnson & Johnson
nor any of its subsidiaries or affiliates will be required to
agree to a divestiture of any assets or businesses of DePuy,
Inc. or any of its subsidiaries or of Synthes or any of its
subsidiaries that, in the aggregate, are material relative to
(a) DePuy, Inc. and its subsidiaries, taken as a whole, or
(b) Synthes and its subsidiaries, taken as a whole, and
(ii) Synthes, only at the direction of Johnson &
Johnson (in connection with satisfying the obligations described
above), will agree to any divestiture of any of its assets or
the assets of any of its subsidiaries or affiliates so long as
such divestiture is conditioned on the consummation of the
merger.
Johnson & Johnson will have the sole and exclusive
right to direct and control any litigation, negotiation or other
action, with counsel of its own choosing, provided that, in the
United States, the European Union or certain other material
jurisdictions, Johnson & Johnson will consult in
advance with Synthes and in good faith take Synthes views
into account regarding the overall strategic direction of the
defense of any such litigation and consult with Synthes prior to
making dispositive motions or other material substantive filings
or entering into any negotiations concerning litigation in such
jurisdictions. In such jurisdictions, Johnson &
Johnson must, to the extent practicable and permitted by the
relevant governmental authority, give Synthes (through its
counsel) the opportunity to attend and participate in all
substantive meetings, telephone calls or discussions with
respect to any filings, investigations (including settlement of
any investigation), litigation or other inquiry, provided that
Johnson & Johnson or its representatives may conduct
such aforementioned interactions without Synthes or its
representatives present if Johnson & Johnson
determines in good faith that doing so would enhance the
likelihood of obtaining any necessary antitrust, competition,
fair trade or similar clearance by the outside date.
Conditions
to the Completion of the Merger
Conditions to Johnson & Johnsons, Samson
Acquisition Corp.s and Synthes Obligations to
Complete the Merger. Each partys obligation to effect
the merger is subject to the satisfaction or waiver of the
following conditions:
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the registration statement on
Form S-4,
of which this proxy statement/prospectus forms a part, has been
declared effective by the SEC and is not the subject of any stop
order or proceedings seeking a stop order;
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the merger agreement has been adopted by the affirmative vote of
shareholders of Synthes representing a majority of the shares of
Synthes common stock outstanding and entitled to vote at the
Synthes stockholder meeting on the adoption of the merger
agreement;
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no governmental authority has enacted, issued, promulgated,
enforced or entered any law or order, whether temporary,
preliminary or permanent, that is in effect and has the effect
of enjoining, restraining, prohibiting or otherwise preventing
the consummation of the merger and the related transactions;
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no antitrust, competition, fair trade or similar law or order,
arising in the United States, the European Union or certain
other jurisdictions whether temporary, preliminary, or
permanent, is in effect and has the effect of enjoining,
restraining, prohibiting or otherwise preventing the
consummation of the merger and the related transactions;
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any waiting period applicable to the consummation of the merger
under the HSR Act has expired or has been terminated;
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the approval by the European Commission of the merger and the
related transactions has been obtained pursuant to the EU Merger
Regulation (or the approval by those national competition
authorities in the European Union that have jurisdiction as a
result of a referral of the merger and the related transactions
under the EU Merger Regulation);
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any approval or waiting period with respect to certain
jurisdictions has been obtained or terminated or has
expired; and
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the shares of Johnson & Johnson common stock to be
issued to Synthes stockholders upon completion of the merger
have been approved for listing on the NYSE, subject to official
notice of issuance.
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Conditions to Johnson & Johnsons and Samson
Acquisition Corp.s Obligations to Complete the
Merger. Johnson & Johnsons and
Samson Acquisition Corp.s obligation to effect the merger
is further subject to the satisfaction or waiver of the
following additional conditions:
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the representations and warranties of Synthes relating to:
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capitalization and ownership of its subsidiaries;
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corporate power and authority with respect to the execution and
delivery of the merger agreement, the due and valid execution
and delivery of the merger agreement and the enforceability of
the merger agreement;
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the approval of the merger agreement by the board of directors
of Synthes and the vote required by the stockholders of Synthes
to adopt the merger agreement;
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the absence of conflicts with, or violations of, organizational
documents;
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the absence of certain changes and events relating to
Synthes employee benefits plans from December 31,
2010 to the date of the merger agreement, including increases in
compensation or benefits, grants or increases in severance or
termination pay for certain personnel, the entry into or
amendment of employment and other similar contracts, the removal
of restrictions in benefit plans or the adoption of new benefit
plans;
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agreements that limit or purport to limit the ability of
affiliates of Synthes (other than Synthes subsidiaries) to
compete in any line of business or with any person or entity in
any geographic area, during any period of time or in any
customer segment;
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brokers fees payable in connection with the merger and the
related transactions;
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the absence of any rights agreement, poison pill or
similar agreement or plan to which Synthes is a party; and
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the inapplicability of the Delaware state takeover statute set
forth in Section 203 of the DGCL;
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that are qualified as to materiality or material adverse effect
are true and correct, and such representations and warranties
that are not so qualified by materiality or material adverse
effect are true and correct in all material respects, in each
case as of the date of the merger agreement and as of the
closing date of the merger as though made on the closing date,
or if such representations and warranties expressly relate to an
earlier date, then as of such date;
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all the other representations and warranties of Synthes set
forth in the merger agreement are true and correct as of the
date of the merger agreement and as of the closing date of the
merger as though made on the closing date, or if such
representations and warranties expressly relate to an earlier
date, then as of such date, except to the extent that the facts
or matters as to which such representations and warranties are
not so true and
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correct as of such dates, without giving effect to any
qualifications or limitations as to materiality or material
adverse effect set forth in such representations and warranties,
individually or in the aggregate, have not had and would not
have a material adverse effect on Synthes;
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Synthes has performed or complied in all material respects with
the agreements and covenants required by the merger agreement to
be performed or complied with by it at or prior to the date on
which the merger is to be effected and has delivered to
Johnson & Johnson a certificate, signed by an
executive officer of Synthes, certifying that Synthes has so
performed or so complied;
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there is no pending suit, action or proceeding with respect to
any antitrust, competition, fair trade or similar law by any
governmental authority in the United States, the European Union
or certain other jurisdictions (i) seeking to restrain or
prohibit the consummation of the merger or any of the related
transactions or seeking to obtain from Johnson &
Johnson, Samson Acquisition Corp. or Synthes or any other
subsidiary or affiliate of Johnson & Johnson any
damages that, in the aggregate, are material relative to
(a) DePuy, Inc. and its subsidiaries, taken as a whole, or
(b) Synthes and its subsidiaries, taken as a whole,
(ii) seeking to impose limitations on the ability of
Johnson & Johnson or any of its affiliates to hold, or
exercise full rights of ownership of, any shares of capital
stock of the surviving corporation, including the right to vote
such shares on all matters properly presented to the
stockholders of the surviving corporation, (iii) seeking to
prohibit Johnson & Johnson or any of its subsidiaries
or affiliates from effectively controlling, in any material
respect, the business or operations of Synthes or any of its
subsidiaries or affiliates, (iv) seeking any divestiture
that is not required to be effected pursuant to the terms of the
merger agreement, or (v) that would have a material adverse
effect on Synthes or Johnson & Johnson; and
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there is no law or order, whether temporary, preliminary or
permanent, arising under any antitrust, competition, fair trade
or similar law or order in the United States, the European Union
or certain other jurisdictions that is in effect that would
reasonably be expected to result in any of the effects referred
to in the immediately preceding clause.
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Conditions to Synthes Obligation to Complete the
Merger. Synthes obligation to effect the
merger is further subject to the satisfaction or waiver of the
following additional conditions:
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the representation and warranty of Johnson & Johnson
and Samson Acquisition Corp. relating to ownership of
Synthes common stock is true and correct as of the date of
the merger agreement and as of the closing date of the merger as
though made on the closing date;
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the representations and warranties of Johnson &
Johnson and Samson Acquisition Corp. relating to authority with
respect to the execution and delivery of the merger agreement,
the due and valid execution and delivery of the merger agreement
and the enforceability of the merger agreement and the absence
of conflicts with, or violations of, organizational documents,
which are qualified as to materiality or material adverse effect
are true and correct, and such representations and warranties
that are not so qualified by materiality or material adverse
effect are true and correct in all material respects, in each
case as of the date of the merger agreement and as of the
closing date of the merger as though made on the closing date,
or if such representations and warranties expressly relate to an
earlier date, then as of such date;
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all the other representations and warranties of
Johnson & Johnson set forth in the merger agreement
are true and correct as of the date of the merger agreement and
as of the closing date of the merger as though made on the
closing date, or if such representations and warranties
expressly relate to an earlier date, then as of such date,
except to the extent that the facts or matters as to which such
representations and warranties are not so true and correct as of
such dates, without giving effect to any qualifications or
limitations as to materiality or material adverse effect set
forth in such representations and warranties, individually or in
the aggregate, have not had and would not have a material
adverse effect on Johnson & Johnson; and
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Johnson & Johnson and Samson Acquisition Corp. have
performed or complied in all material respects with the
agreements and covenants required by the merger agreement to be
performed or complied with by them at or prior to the date on
which the merger is to be effected and Johnson &
Johnson has delivered to Synthes a certificate, signed by an
executive officer of Johnson & Johnson, certifying
that Johnson & Johnson and Samson Acquisition Corp.
have so performed or so complied.
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69
Termination
of the Merger Agreement
The merger agreement may be terminated and the transactions
contemplated thereby abandoned at any time prior to the
effective time of the merger:
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by mutual written consent of Johnson & Johnson and
Synthes, duly authorized by their respective boards of directors;
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by either Johnson & Johnson or Synthes, if the
effective time of the merger has not occurred on or before the
outside date, subject to 60 days extension upon
delivery of written notice of such extension to the other party
not less than five business days prior to the outside date, in
the event that certain regulatory clearances have not yet been
obtained, provided that all other conditions to closing have
been satisfied (see Conditions to the
Completion of the Merger); provided, further, that the
right to terminate the merger agreement as described herein is
not available to any party whose failure to fulfill any
obligation under the merger agreement or other intentional
breach has been a material cause of, or resulted in, the failure
to effect the merger on or before the outside date;
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by either Johnson & Johnson or Synthes, if any
governmental authority has enacted, issued, promulgated,
enforced or entered any final and nonappealable law or order
that has the effect of enjoining, restraining, prohibiting or
otherwise preventing the consummation of the merger and the
related transactions, provided that the party seeking to
terminate the merger agreement has complied in all material
respects with its obligations described under
Additional Terms;
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by either Johnson & Johnson or Synthes, if the Synthes
stockholders fail to adopt the merger agreement at the Synthes
stockholder meeting;
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by Johnson & Johnson, upon a breach by Synthes of any
representation, warranty, covenant or agreement set forth in the
merger agreement such that any condition to Johnson &
Johnsons obligations to complete the merger would not then
be satisfied and such breach cannot be cured or has not been
cured on or before the outside date, provided that neither
Johnson & Johnson nor Samson Acquisition Corp. is in
material breach of its respective representations, warranties or
covenants as of the time of such purported termination;
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by Johnson & Johnson, if the Synthes board of
directors (i) makes a change in the company recommendation
or (ii) fails publicly to reaffirm the company
recommendation within ten business days of receipt of a written
request by Johnson & Johnson to provide such
reaffirmation following a competing proposal that has been
publicly announced or that has become publicly known;
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by Johnson & Johnson, if any governmental authority
has enacted, issued, promulgated, enforced or entered any law or
order with respect to any antitrust, competition, fair trade or
similar law in the United States, the European Union or certain
other jurisdictions having the effect of: (i) seeking to
restrain or prohibit the consummation of the merger or any other
related transactions or seeking to obtain from
Johnson & Johnson, Samson Acquisition Corp. or Synthes
or any other subsidiary or affiliate of Johnson &
Johnson any damages that, in the aggregate, are material
relative to (a) DePuy, Inc. and its subsidiaries, taken as
a whole, or (b) Synthes and its subsidiaries, taken as a
whole, (ii) seeking to impose limitations on the ability of
Johnson & Johnson or any of its affiliates to hold, or
exercise full rights of ownership of, any shares of capital
stock of the surviving corporation, including the right to vote
such shares on all matters properly presented to the
stockholders of the surviving corporation, (iii) seeking to
prohibit Johnson & Johnson or any of its subsidiaries
or affiliates from effectively controlling, in any material
respect, the business or operations of Synthes or any of its
subsidiaries or affiliates, (iv) seeking any divestiture
that is not required to be effected pursuant to the terms of the
merger agreement or (v) that would have a material adverse
effect on Synthes or Johnson & Johnson, in each case,
which shall have become final and nonappealable, provided that
Johnson & Johnson has complied in all material
respects with its obligations described under
Additional Terms; or
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by Synthes, upon a breach by Johnson & Johnson of any
representation, warranty, covenant or agreement set forth in the
merger agreement such that any condition to Synthes
obligation to complete the merger would not then be satisfied
and such breach cannot be cured or has not been cured on or
before the outside date,
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70
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provided that Synthes is not in material breach of its
respective representations, warranties or covenants as of the
time of such purported termination.
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Effect of
Termination
If the merger agreement is terminated as described in
Termination above, the merger agreement
will be void and no party will have any liability under the
merger agreement, except that:
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no termination will relieve any party from liability for fraud
committed prior to such termination or for any intentional
breach prior to such termination of any of its representations,
warranties, covenants or agreements set forth in the merger
agreement; and
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designated provisions of the merger agreement will survive
termination, including (i) the confidential treatment of
information, (ii) provisions regarding brokers fees,
(iii) the ability of any party to specifically enforce the
merger agreement against another party, (iv) the allocation
of fees and expenses, including, if applicable, the termination
fees described below and (v) certain other general
provisions governing the merger agreement.
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Fees and
Expenses
General. The merger agreement provides that
each party will pay its own fees and expenses in connection with
the merger agreement, the merger and the related transactions,
whether or not the merger or any other related transaction is
consummated, except that Johnson & Johnson and Synthes
will each pay one-half of the expenses incurred in connection
with printing and mailing of the registration statement of which
this proxy statement/prospectus is a part.
Termination Fee. Synthes must pay to
Johnson & Johnson a termination fee of
$650 million in each of the following circumstances:
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Johnson & Johnson terminates the merger agreement
because the Synthes board of directors makes a change in the
company recommendation (see the sixth bullet point under
Termination of the Merger Agreement);
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Johnson & Johnson terminates the merger agreement
because the Synthes board of directors fails publicly to
reaffirm the company recommendation within ten business days of
receipt of a written request by Johnson & Johnson to
provide such reaffirmation following a competing proposal that
has been publicly announced or that has become publicly known
(see the sixth bullet point under Termination
of the Merger Agreement); or
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(i) Johnson & Johnson or Synthes terminates the
merger agreement because (a) the merger is not effected by
the outside date (but only if the Synthes stockholder meeting
has not been held prior to the date of such termination) (see
the second bullet point under Termination of
the Merger Agreement) or (b) the Synthes stockholders
fail to adopt the merger agreement at the Synthes stockholder
meeting; (ii) prior to the termination of the merger
agreement, a competing proposal is publicly announced or has
become publicly known; and (iii) on or prior to the date
that is 12 months after the date of termination, Synthes
enters into a competing transaction agreement, or the
transactions contemplated by a competing proposal are
consummated (for purposes of this circumstance, the term
competing proposal has the same meaning as described
under No Solicitation, except that
references to 15% are replaced by 35%).
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Johnson & Johnson must pay Synthes a termination fee
of $650 million in the following circumstance:
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the merger agreement is terminated by either Johnson &
Johnson or Synthes (i) pursuant to their respective rights
described in the second, third or seventh bullet points under
Termination of the Merger Agreement and
(ii) at the time of any such termination all of the
conditions set forth in Conditions to
Completion of the Merger have been satisfied or waived
(or, with respect to any conditions that by their terms must be
satisfied at closing, would have been so satisfied if the
closing would have occurred), except for the conditions
described in the third and fourth bullet points under
Conditions to the Completion of the
Merger Conditions to Johnson &
Johnsons, Samson Acquisition Corp.s and
Synthes Obligations to
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71
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Complete the Merger and the conditions described in the
second to last and the last bullet points under
Conditions to the Completion of the
Merger Conditions to Johnson &
Johnsons and Samson Acquisition Corp.s Obligations
to Complete the Merger.
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Indemnification
and Insurance
Pursuant to the merger agreement, from and after the effective
time of the merger, Johnson & Johnson has agreed to
cause the surviving corporation to assume the obligations with
respect to all rights to indemnification and exculpation from
liabilities, including advancement of expenses, for acts or
omissions occurring at or prior to the effective time of the
merger now existing in favor of the current or former directors
or officers of Synthes, as provided in the certificate of
incorporation and by-laws of Synthes or any indemnification
contract between such directors or officers and Synthes. The
indemnification and exculpation rights pursuant to the terms of
the certificate of incorporation or by-laws of Synthes as in
effect at or prior to the effective time of the merger may not
be impaired by any modifications of such terms in any amendment
or restatement following the effective time of the merger.
Johnson & Johnson has agreed to obtain, at the
effective time of the merger, a prepaid (or tail)
directors and officers liability insurance policy in
respect of acts or omissions occurring at or prior to the
effective time of the merger for six years from the effective
time of the merger, covering persons currently covered by
Synthes directors and officers liability
insurance policies on terms with respect to such coverage and
amounts no less favorable than those of Synthes current
policy; provided that the surviving corporation will not be
obligated to pay more than 300% of the last annual premium paid
by Synthes for such insurance. If the necessary amount to
procure such insurance coverage exceeds such maximum amount,
Johnson & Johnson will only be obligated to provide as
much coverage as may be obtained for such maximum amount.
Other
Covenants and Agreements
The merger agreement contains certain other covenants and
agreements, including covenants and agreements relating to:
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cooperation between Johnson & Johnson and Synthes in
the preparation of this proxy statement/prospectus and the
registration statement of which this forms a part;
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confidentiality and access by each party to certain information
about the other party during the period prior to the effective
time of the merger;
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the use of reasonable best efforts by Johnson &
Johnson and Synthes to consult with the other before making
public announcements regarding the merger;
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cooperation between Johnson & Johnson and Synthes in
the defense or settlement of any stockholder litigation relating
to the merger and related transactions;
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the use of reasonable best efforts by Synthes and its board of
directors to ensure that no state takeover law becomes
applicable and, if applicable, to ensure the merger and related
transactions are consummated as promptly as practicable;
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the obligations of Samson Acquisition Corp.;
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sharing of notifications from governmental authorities in
connection with the merger or related transactions;
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the obligations of Synthes with respect to certain tax matters;
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the use of reasonable best efforts by Johnson &
Johnson to cause the shares of Johnson & Johnson
common stock to be issued in the merger to be approved for
listing on the NYSE;
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the use of reasonable best efforts by Synthes to cause the
delisting of its shares on the SIX Swiss Exchange; and
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the use of reasonable best efforts by Johnson &
Johnson and Synthes to cause the consents of their respective
independent auditors in connection with the registration
statement to be delivered to the other.
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72
Other
Actions
Under the merger agreement, Synthes and its subsidiaries are
required to:
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comply in all material respects with the terms and conditions of
the Settlement Agreement, entered into on September 27,
2010, among Synthes, the United States of America, the Office of
Inspector General, the United States Department of Defense
TRICARE Management Activity, the United States Department of
Veterans Affairs and Norian Corporation; and
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comply in all material respects with the terms and conditions of
the Corporate Integrity Agreement, entered into on
September 23, 2010, between Synthes and the Office of
Inspector General.
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Synthes is also required under the merger agreement to
(i) comply with the terms and conditions of the Divestiture
Agreement, entered into on September 23, 2010, among
Synthes, the Office of Inspector General and Norian Corporation
(which we refer to herein as the Divestiture
Agreement) and (ii) complete either the sale of the
assets of Norian Corporation to an unrelated party or the
dissolution of the Norian Corporation by May 24, 2011.
Synthes divested Norian on May 24, 2011, fulfilling its
obligations under the Divestiture Agreement.
Certificate
of Incorporation and By-laws of the Surviving
Corporation
At the effective time of the merger, Synthes certificate
of incorporation, will, by virtue of the merger, be amended and
restated in its entirety to read as the certificate of
incorporation of Samson Acquisition Corp., as in effect
immediately prior to the effective time of the merger, except
that all references to Samson Acquisition Corp. will be deemed
to be references to the surviving corporation until thereafter
amended. The merger agreement further provides that, at the
effective time of the merger, the by-laws of Samson Acquisition
Corp. as in effect immediately prior to the effective time of
the merger will continue as the by-laws of the surviving
corporation, except that all references to Samson Acquisition
Corp. will be deemed to be references to the surviving
corporation until thereafter amended. For a summary of certain
provisions of the current Synthes certificate of incorporation,
by-laws and the associated rights of Synthes stockholders, see
Comparison of Rights of Common Shareholders of
Johnson & Johnson and Synthes beginning on
page 102.
Directors
and Officers of the Surviving Corporation
The directors of Samson Acquisition Corp. immediately prior to
the effective time of the merger will be the initial directors
of the surviving corporation, each to hold office in accordance
with the certificate of incorporation and by-laws of the
surviving corporation, and the officers of Synthes immediately
prior to the effective time of the merger shall be the initial
officers of the surviving corporation, in each case, until their
respective successors are duly elected and qualified or until
such officers earlier death, resignation or removal.
Governing
Law
The merger agreement is governed by the laws of the state of
Delaware and provides that any action or proceeding relating to
or arising out of the merger agreement will be maintained
exclusively in the Court of Chancery of the State of Delaware.
Amendment;
Extension and Waiver; Parties in Interest; Assignment
Amendment. The merger agreement may be amended
by an instrument in writing signed by each of the parties to the
merger agreement by action taken by or on behalf of their
respective boards of directors at any time prior to the
effective time of the merger; provided, however, that after the
merger agreement has been adopted by the stockholders of
Synthes, no amendment may be made that requires (under
applicable law or the rules of any relevant stock exchange)
further approval by Synthes stockholders without such approval
having been obtained.
Extension and Waiver. To the extent permitted
by applicable law, at any time prior to the effective time of
the merger, a party may by written instrument signed on behalf
of such party:
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extend the time for performance of any obligation or other act
of any other party to the merger agreement;
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waive any breach or inaccuracy in the representations and
warranties of any other party contained in the merger agreement
or in any document delivered pursuant to the merger
agreement; and
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73
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waive compliance with any agreement of any other party or any
condition to its own obligations contained in the merger
agreement, except that, after the merger agreement has been
adopted by the stockholders of Synthes, no waiver may be made
that requires (under applicable law or the rules of any relevant
stock exchange) further approval by Synthes stockholders without
such approval having been obtained.
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Parties in Interest. Except for the rights of
Synthes stockholders to receive merger consideration and for
provisions described above under
Indemnification and Insurance, pursuant
to which the persons referenced therein are third party
beneficiaries, the merger agreement is not intended to confer
nor will confer upon any other person other than the parties
thereto any right, benefit or remedy of any nature whatsoever.
Assignment. Johnson & Johnson and
Samson Acquisition Corp. may assign all or any of their rights
and obligations under the merger agreement to any affiliate of
Johnson & Johnson without the consent of the other
parties to the merger agreement. Under the merger agreement,
such an assignment would not relieve Johnson & Johnson
or Samson Acquisition Corp, as applicable, of its obligations
under the merger agreement if the assignee did not perform the
assigned obligations. Following the merger, Synthes will become
a wholly owned direct or indirect subsidiary of
Johnson & Johnson, whether or not such an assignment
occurs.
The
Voting Agreement
On April 26, 2011, concurrently with and as a condition to
Johnson & Johnsons willingness to enter into the
merger agreement, Mr. Hansjörg Wyss, Chairman of the
Synthes board of directors, Amy Wyss, a member of the Synthes
board of directors, the AW 2010 GRAT and the Wyss 1989
Distributive Trust, each a trust the beneficiary of which are
Wyss family members (which we herein collectively refer to as
the Shareholders), entered into a voting agreement
with Johnson & Johnson. Pursuant to the voting
agreement, the Shareholders agreed to vote 44,825,825 of their
shares of Synthes common stock, representing approximately
37.75% of the shares of Synthes common stock outstanding as of
the record date for the special meeting, in favor of, among
other things, the adoption of the merger agreement and against
(i) any competing proposal or competing transaction,
(ii) the adoption of any competing transaction agreement
and (iii) any other action that would in any manner
(A) prevent, impede, frustrate or nullify any provision of
the merger agreement, (B) change the voting rights of any
class of Synthes capital stock or (C) otherwise interfere
with or delay the transactions contemplated by the merger
agreement. However, in the event that the Synthes board of
directors changes its recommendation that Synthes stockholders
adopt the merger agreement, the Shareholders are only required
to vote shares representing not less than 33% of the outstanding
Synthes common stock in favor of the adoption of the merger
agreement. In addition, the Shareholders have agreed not to
(i) subject to certain exceptions, transfer their shares of
Synthes common stock and (ii) solicit alternative
transactions or enter into discussions concerning, or provide
confidential information in connection with, any alternative
transaction. The voting agreement will terminate upon the
earlier of the effective time of the merger or the termination
of the merger agreement in accordance with its terms.
74
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF SYNTHES
The following table sets forth information with respect to the
beneficial ownership of shares of Synthes common stock as of
October 20, 2011 (except where otherwise indicated), by
each person or entity known by Synthes to beneficially own more
than 5% of Synthes, by each of Synthes directors, by each
of Synthes executive officers and by all of Synthes
directors and executive officers as a group. Except as indicated
in the footnotes to this table, and subject to applicable
community property laws, the persons listed in the table below
have sole voting and investment power with respect to all shares
of Synthes common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each of the
beneficial owners identified is
c/o Synthes,
Inc., 1302 Wrights Lane East, West Chester, Pennsylvania 19380.
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Percentage of Total
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Beneficial Owner
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Number of Shares
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Shares Outstanding
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Dr. h.c. mult. Hansjörg Wyss(1)
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45,810,708
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38.58
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%
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Charles Hedgepeth
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52,010
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0.04
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%
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Robert Bland(2)
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5,590,265
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4.71
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%
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Daniel Eicher
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1,275
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*
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Dr. David Helfet
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12,796
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0.01
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%
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Amin J. Khoury
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4,500
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*
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André Mueller
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4,199
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*
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Felix Pardo
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4,500
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*
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Jobst Wagner
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7,137
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*
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Amy Wyss(1)
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6,573,520
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5.54
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%
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Michel Orsinger
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227,943
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0.19
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%
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Robert Donohue
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34,342
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0.03
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%
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Ciro Roemer
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47,500
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0.04
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%
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Steven Murray
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5,000
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*
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Harry Hall IV
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5,000
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*
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Michael Mazzio
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4,000
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*
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William Wachter
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0
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*
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All executive officers and directors as a group (17 persons)
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58,390,695
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49.17
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%
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* |
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Owns less than one one-hundreth of a percent (0.01%) of the
total shares outstanding. |
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(1) |
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Disclaims ownership of any shares owned by family members. |
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(2) |
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Includes shares for which beneficial ownership is attributable
due to his role as a trustee for certain Wyss family trusts. |
75
SYNTHES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with Synthes condensed consolidated financial
statements and the corresponding notes included elsewhere in
this proxy statement/prospectus. Certain percentages presented
in this discussion and analysis are calculated from the
underlying whole-dollar amounts and therefore may not
recalculate from the rounded numbers used for disclosure
purposes.
OVERVIEW
Synthes, Inc. and its subsidiaries (collectively, the
Group) develop, manufacture, and distribute products
for the operative treatment of bone fractures including both
metallic and osteobiological materials. The Groups
operations are classified into four reportable segments that
manufacture and sell similar products in different geographic
areas. The North America, Europe (which covers Europe, the
Middle East and Africa, or EMEA), Asia Pacific, and
Latin America reportable segments derive their revenues from the
sale of medical implants and instruments. The key determining
factor in identifying the reportable segments is how the
Groups Chief Executive Officer routinely reviews the
Groups results. The Groups regional sales
performance is evaluated according to a focus on five primary
product groups: Trauma, Spine, and Cranio-Maxillofacial
(CMF) surgery, Power Tools, and Biomaterials.
Operational results, beyond sales performance, are evaluated
according to area of responsibility
and/or
region and not by product category, as expenses and profits are
not available by product category.
Through dedicated sales forces for each of these product groups,
the Group sells implants, instruments and power tools that are
used in operating rooms throughout the world, and is focused on
developing and launching innovative new products, providing a
high service level to its customers through a dedicated sales
force and delivering first-class educational offerings.
HIGHLIGHTS
FROM 2010
In May 2010, the Group formally opened a new manufacturing
facility in Suzhou, China. Production by this factory will
primarily supply the Chinese market and certain countries within
the Asia Pacific region. The facility also includes training and
product development centers. Approval to sell selected products
in China is expected in 2012 following completion of ongoing
clinical studies.
In October 2010, the Group reached a settlement with the
U.S. Department of Justice and the Office of Inspector
General of the Department of Health and Human Services
(OIG) relating to the Governments inquiry into
certain test marketing and promotional practices from May 2002
to July 2004 involving products of Synthes Norian
subsidiary. Under the settlement, the parent company of the
Group agreed to pay US$0.8 million in settlement, fines and
forfeiture payments for a single misdemeanor violation of the
U.S. Food, Drug and Cosmetic Act (the Act), and
also agreed to divest the assets of Norian. Norian agreed to pay
fines and forfeitures of approximately US$23.5 million for
one felony and numerous misdemeanor violations of the Act. All
amounts due under the settlement were paid, and the payments did
not have a material effect on the financial performance or
financial position of the Group. Additionally, as part of the
settlement, the Group entered into a Corporate Integrity
Agreement with the OIG. Under that agreement, the Group will
build upon its existing corporate compliance program and has
retained an Independent Review Organization to help the Group
monitor and evaluate compliance in its promotional and
product-related business functions.
In the fourth quarter of 2010, the Group acquired Anspach, a
privately-held company specializing in the development,
manufacturing, sale, and servicing of high-precision power
tools. This acquisition was a complementary addition to the
Groups existing power tools product portfolio. The
acquisition price was $182.9 million in cash. At the
acquisition date, the cash consideration was financed from
available cash balances of the Group.
Full year 2010 global revenue increased 8.6% versus the prior
year to $3.7 billion. Foreign exchange positively impacted
growth by 1.1%. Trauma and CMF generated combined 11% sales
growth globally, primarily through new product launches and
competitive conversions. However, pricing and market-related
issues (i.e., reimbursement challenges with insurers, high
procedure costs, and limited evidence of solid clinical
outcomes) negatively impacted the U.S. Spine business,
while Synthes generated single-digit growth in Spine outside the
U.S.
76
In North America, Synthes had sales growth of 4.8% for the full
year 2010, to $2.2 billion, a result of mixed performances
in the various product groups. Trauma, CMF and Power Tools grew
at rates of 7.2%, 11.4% and 65.7%, respectively. Spine revenues
decreased due to market-related issues, delayed new product
launches and pricing pressures.
In Europe, the Group achieved sales growth of 10.8% in 2010 with
sales of $929.5 million. The Group had positive sales
results in Trauma, CMF, and Power Tools with growth versus the
prior year of 12.3%, 17.9% and 10.7%, respectively, in 2010.
Severe winter weather in Europe contributed to increased
accidents resulting in increased sales. In Spine, as in the
U.S., the Group faced challenges in terms of lower procedure
volumes, continued pricing pressure and the entry of new
competitors. Despite these challenges, the Group experienced
sales growth of 5.5% in Spine.
In Asia Pacific, the Group had sales growth of 18.5% in 2010, to
$423.1 million as a result of mixed performances in the
various areas within that region. In 2010, the business
continued to expand profitably, with exceptional growth in both
our Spine and CMF product groups, primarily due to our
relatively recent entry into these emerging markets. Trauma,
CMF, Spine, and Power Tools all experienced growth at 16.8%,
29.3%, 20.8% and 17.8%, respectively.
In Latin America, the Group had sales growth of 26.3% with sales
of $176.5 million. Trauma, CMF and Power Tools grew at
27.7%, 31.2% and 37.6%, respectively. Spine also experienced
strong performance in 2010 with 19.1% growth. Important new
product launches across all product groups and ongoing dedicated
sales force expansion were contributors to the regions
sales growth performance.
HIGHLIGHTS
FROM FIRST HALF 2011
In June 2011, the Group and Eli Lilly announced the signing of
an exclusive worldwide strategic collaboration agreement which
will allow Synthes to expand its product portfolio to address
the growing demand of the aging population by combining our
innovative expertise within the medical device industry with a
dedicated,
best-in-class
pharmaceutical partner who is focused on Osteoporosis. Moving
forward, the Group will expand its breadth from primarily a
provider of metallic implants to a total solutions provider,
presenting customers with comprehensive metallic, biomaterial
and in the future, biologic & pharmaceutical
products all with an ultimate goal to improve
patient care. Together, the Group and Eli Lilly will collaborate
in three distinct areas: 1) the co-promotion of Eli
Lillys osteoporosis drug
FORTEO®
for current osteoporosis indications in the U.S. and in
select markets within Europe, Asia Pacific and Latin America,
2) a joint clinical development program that will pursue
regulatory approval for
FORTEO®
in potential future indications such as fracture healing and
3) the joint development and licensing of earlier stage
compounds for the local delivery and treatment of bone defects
and spinal fusion.
In May 2011, the Group sold assets comprising the product lines
of Norian for $22 million in cash to Kensey Nash
Corporation, (Kensey Nash) in conformity with the
terms of the settlement reached with the U.S. Department of
Justice and the Office of Inspector General (OIG) relating to
the Governments Norian inquiry. Kensey Nash made an
initial payment of $11 million and will make an additional
$11 million payment at the earlier of either the transfer
of manufacturing to the Kensey Nash facility or 18 months
following the closing. Also, as part of a long-term supply
agreement, Kensey Nash will manufacture the Norian products,
whereby the Group will exclusively distribute the products
worldwide, and the companies also entered into a research and
development agreement to create certain related future products.
Additionally, the Group also sold the Norian manufacturing
facility to Kensey Nash for $4 million.
In April 2011, the Group and Johnson & Johnson
announced a definitive agreement whereby Johnson &
Johnson will acquire Synthes for approximately
$21.3 billion. Upon completion of the merger, the Group and
the DePuy Companies of Johnson & Johnson together will
comprise the largest business within the Medical Devices and
Diagnostics segment of Johnson & Johnson. The
combination is expected to deliver: enhanced product development
capabilities and robust pipelines from the two organizations,
global reach to a broader orthopaedics portfolio, and renowned
leadership and expertise in professional education. Subject to
the receipt of regulatory approvals and the approval of Synthes
stockholders, the transaction is expected to close during the
first half of 2012.
77
First half 2011 global revenue increased 9.5% versus the prior
year to $2.0 billion. Foreign exchange positively impacted
growth by 3.8%. Trauma and CMF generated combined 9% sales
growth globally, primarily through new product launches and
competitive conversions in spite of difficult market challenges.
Significant pricing and market-related issues (i.e.,
reimbursement challenges with insurers, high procedure costs,
and limited evidence of solid clinical outcomes) negatively
impacted the U.S. Spine business, while the Group generated
double-digit growth in Spine outside the U.S.
In North America, the Group had sales growth of 5.8% for the
first half 2011, to $1.1 billion, a result of mixed
performances in the various product groups. Trauma, CMF and
Power Tools grew at rates of 3.9%, 10.6% and 232.7%,
respectively. Spine revenues decreased slightly by 2.0% due to
market-related issues and pricing pressures.
In Europe, the Group achieved sales growth of 9.6% in first half
2011 with sales of $499.6 million. The Group had positive
sales results in Spine, CMF, and Power Tools with growth versus
the prior year of 10.5%, 29.9% and 21.4%, respectively, in first
half 2011. In Trauma, the Group faced challenges in terms of a
very high first half 2010 sales base due to severe winter
weather in Europe, which contributed to increased accidents, and
therefore, resulted in increased sales. Also contributing to a
high first half 2010 sales base were orders of Saudi Tenders
(not repeated in first half 2011). Despite the high first half
2010 sales base, the Group experienced sales growth of 6.6% in
Trauma in the first half 2011.
In Asia Pacific, the Group had sales growth of 25.2% in first
half 2011, to $252.5 million as a result of mixed
performances in the various countries within that region. In the
first half 2011, the business continued to expand, with
exceptional growth in all product groups, primarily due to our
relatively recent entry into these emerging markets. Trauma,
CMF, Spine, and Power Tools all experienced growth at 21.8%,
45.5%, 30.6% and 20.5%, respectively.
In Latin America, the Group had sales growth of 18.9% with sales
of $97.1 million. Trauma and CMF grew at 19.9% and 34.9%,
respectively. Spine also experienced strong performance in first
half 2011 with 14.8% growth. Important new product launches
across all product groups and ongoing dedicated sales force
expansion were contributors to the regions sales growth
performance.
RESULTS
OF OPERATIONS
Net
Sales by Reportable Segment
The following tables present net sales by reportable segment and
the components of the percentage changes (US$ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Foreign
|
|
|
|
2010
|
|
|
2009
|
|
|
% Inc/(Dec)
|
|
|
Volume
|
|
|
Mix
|
|
|
Exchange
|
|
|
North America
|
|
$
|
2,157.9
|
|
|
$
|
2,059.2
|
|
|
|
4.8
|
%
|
|
|
3.2
|
%
|
|
|
1.3
|
%
|
|
|
0.3
|
%
|
Europe
|
|
|
929.5
|
|
|
|
838.8
|
|
|
|
10.8
|
|
|
|
12.4
|
|
|
|
0.3
|
|
|
|
(1.9
|
)
|
Asia Pacific
|
|
|
423.1
|
|
|
|
357.0
|
|
|
|
18.5
|
|
|
|
12.2
|
|
|
|
(2.2
|
)
|
|
|
8.5
|
|
Latin America
|
|
|
176.5
|
|
|
|
139.7
|
|
|
|
26.3
|
|
|
|
10.7
|
|
|
|
3.9
|
|
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,687.0
|
|
|
$
|
3,394.7
|
|
|
|
8.6
|
%
|
|
|
6.7
|
%
|
|
|
0.8
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Foreign
|
|
|
|
2009
|
|
|
2008
|
|
|
% Inc/(Dec)
|
|
|
Volume
|
|
|
Mix
|
|
|
Exchange
|
|
|
North America
|
|
$
|
2,059.2
|
|
|
$
|
1,922.2
|
|
|
|
7.1
|
%
|
|
|
2.9
|
%
|
|
|
4.4
|
%
|
|
|
(0.2
|
)%
|
Europe
|
|
|
838.8
|
|
|
|
824.7
|
|
|
|
1.7
|
|
|
|
8.2
|
|
|
|
1.3
|
|
|
|
(7.8
|
)
|
Asia Pacific
|
|
|
357.0
|
|
|
|
309.0
|
|
|
|
15.5
|
|
|
|
16.8
|
|
|
|
(2.1
|
)
|
|
|
0.8
|
|
Latin America
|
|
|
139.7
|
|
|
|
136.6
|
|
|
|
2.3
|
|
|
|
13.8
|
|
|
|
(0.5
|
)
|
|
|
(11.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,394.7
|
|
|
$
|
3,192.5
|
|
|
|
6.3
|
%
|
|
|
6.1
|
%
|
|
|
2.8
|
%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Foreign Exchange included in the table above
represents the effect of changes in foreign currency exchange
rates on sales growth. Generally, the strengthening of the
U.S. dollar will reduce U.S. GAAP reported revenues
and expenses.
2010
compared to 2009 and 2009 compared to 2008
The Groups net sales increased 8.6% to
$3,687.0 million in 2010 from $3,394.7 million in
2009. Net sales grew by 7.5% as a result of volume and price/mix
changes and 1.1% due to the favorable impact of foreign currency
exchange rates on net sales. The Groups net sales
increased 6.3% to $3,394.7 million in 2009 from
$3,192.5 million in 2008. Net sales grew by 8.9% as a
result of volume and price/mix changes and declined 2.6% due to
the unfavorable impact of foreign currency exchange rates on net
sales.
Net sales in North America grew 4.8% in 2010 to
$2,157.9 million compared to net sales of
$2,059.2 million in 2009. The growth in net sales in North
America in 2010 is attributable to 7.2% growth in Trauma sales
and 11.4% growth in CMF sales, partially offset by a decline of
4.6% in Spine. Net sales in North America grew 7.1% in 2009 to
$2,059.2 million compared to $1,922.2 million of net
sales in 2008 as a result of 6.4% growth in Trauma sales, 9.2%
growth in CMF sales and 8.9% growth in Spine sales.
Net sales in Europe grew 10.8% in 2010 to $929.5 million
compared to net sales of $838.8 million in 2009. The growth
in net sales in Europe in 2010 is attributable to 12.3% growth
in Trauma sales, 17.9% growth in CMF sales and 5.5% growth in
Spine sales. Net sales in Europe grew 1.7% in 2009 to
$838.8 million compared to$824.7 million of net sales
in 2008 as a result of 1.5% growth in Trauma sales, 4.7% growth
in CMF sales and 3.0% growth in Spine sales.
Net sales in Asia Pacific grew 18.5% in 2010 to
$423.1 million compared to net sales of $357.0 million
in 2009. The growth in net sales in Asia Pacific in 2010 is
attributable to 16.8% growth in Trauma sales, 29.3% growth in
CMF sales and 20.8% growth in Spine sales. Net sales in Asia
Pacific grew 15.5% in 2009 to $357.0 million compared to
$309.0 million of net sales in 2008 as a result of 13.3%
growth in Trauma sales, 25.0% growth in CMF sales and 19.7%
growth in Spine sales.
Net sales in Latin America grew 26.3% in 2010 to
$176.5 million compared to net sales of $139.7 million
in 2009. The growth in net sales in Latin America in 2010 is
attributable to 27.7% growth in Trauma sales, 31.2% growth in
CMF sales and 19.1% growth in Spine sales. Net sales in Latin
America grew 2.3% in 2009 to $139.7 million compared to
$136.6 million of net sales in 2008 as a result of 3.4%
growth in Trauma sales, 8.8% growth in CMF sales and 0.6% growth
in Spine sales.
Operating
Expenses
The following table presents operating expenses and the
respective percentage of net sales by year (US$ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Selling and Promotion
|
|
$
|
1,080.1
|
|
|
$
|
978.9
|
|
|
$
|
934.3
|
|
% of Net Sales
|
|
|
29.3
|
%
|
|
|
28.8
|
%
|
|
|
29.3
|
%
|
General and Administrative
|
|
$
|
393.3
|
|
|
$
|
382.4
|
|
|
$
|
349.4
|
|
% of Net Sales
|
|
|
10.7
|
%
|
|
|
11.3
|
%
|
|
|
10.9
|
%
|
Research and Development
|
|
$
|
172.4
|
|
|
$
|
168.3
|
|
|
$
|
169.9
|
|
% of Net Sales
|
|
|
4.7
|
%
|
|
|
5.0
|
%
|
|
|
5.3
|
%
|
Selling and promotion (S&P) expense has
increased in each of the last three years while S&P as a
percent of sales increased in 2010; but, decreased in 2009.
S&P expense over the last three years increased primarily
as a result of sales force increases from 2,940 in 2008 to 3,319
in 2009 to 3,636 in 2010 and higher depreciation of field sales
equipment, somewhat offset by lower continuing education
expenses. Foreign exchange increased S&P by 0.1%, 0.0%, and
0.1% in 2010, 2009 and 2008, respectively (as a percentage of
sales).
General and administrative (G&A) expense has
increased in dollar terms over the last three years; however, as
a percent of sales was lower in 2010 and 2008 compared to 2009
as a result of higher legal costs in 2009. In 2010, G&A
spending increased versus 2009 approximately 3%, while sales
grew 8.6%, reflecting spending control and
79
lower legal expense. This resulted in an approximately
60 basis points decrease (as a percent of sales) in 2010
compared to 2009. In 2009, G&A as a percent of sales
increased approximately 40 basis points compared to 2008.
The G&A increase in 2009 was primarily due to higher legal
expenses associated with major litigation (i.e., the Norian
matter which is discussed in the second paragraph of the
Highlights from 2010 section). A majority of our
G&A spend is incurred in the U.S. and Switzerland,
primarily in corporate and regional headquarters. Foreign
exchange increased G&A by 0.2%, 0.1% and 0.1% in 2010, 2009
and 2008, respectively (as a percentage of sales).
Research and development (R&D) expense as a
percent of sales has decreased in each of the last two years.
These decreases reflect lower spending for clinical trials.
Foreign exchange increased R&D by 0.1%, 0.2% and 0.1% in
2010, 2009 and 2008, respectively (as a percentage of sales).
Profitability
(US$
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net Sales
|
|
$
|
3,687.0
|
|
|
$
|
3,394.7
|
|
|
$
|
3,192.5
|
|
Gross Profit Margin
|
|
|
82.6
|
%
|
|
|
82.6
|
%
|
|
|
82.7
|
%
|
Operating Income Margin
|
|
|
34.8
|
%
|
|
|
34.3
|
%
|
|
|
33.8
|
%
|
Net Earnings Margin
|
|
|
24.6
|
%
|
|
|
24.3
|
%
|
|
|
23.0
|
%
|
Gross profit margin in total has not changed significantly over
the past three years. Full year 2010 gross profit margin of
82.6% (as a percentage of sales) remained high due to continued
operational productivity improvements, despite continuing
pricing pressures and increased manufacturing costs. Foreign
exchange positively impacted gross profit margin by 0.3% (as a
percentage of sales). Full year 2009 gross profit margin
was 82.6% (as a percentage of sales) and benefited from foreign
exchange rate changes positively impacting gross profit margin
by 1.1% (as a percentage of sales). Full year 2008 gross
profit margin of 82.7% (as a percentage of sales) benefited from
foreign exchange rates which positively impacted gross profit
margin by 0.9% (as a percentage of sales).
Other
Income (Expenses), Income Taxes and Net Earnings
Other expense increased in 2010 versus 2009 primarily due to the
intangible assets write-off in connection with the N Spine
acquisition of $9.0 million and foreign exchange losses of
$13.4 million in 2010. In 2009 and 2008, other expense
included $6.1 million and $24.0 million in foreign
exchange losses, respectively.
The Groups effective tax rate is a blend of U.S. and
foreign income tax expense. The effective tax rate on earnings
before income taxes for the years ended December 31, 2010,
2009 and 2008 has been 27.7%, 28.6% and 30.3%, respectively. The
effective tax rates for 2010 and 2009 are positively impacted by
ongoing tax planning and favorable settlement of contingencies.
As a result of the revenues and expenses discussed previously,
net earnings in 2010 increased 10.2% to $907.7 million from
$824.0 million in 2009. In 2009, net earnings increased
12.1% compared to 2008. Basic and diluted earnings per share
increased 10.2% in 2010 compared to 2009, while 2009 basic and
diluted earnings per share increased 12.1% from 2008.
Health
Care Reform in the U.S.
The Group continues to assess the impact that the health care
reform legislation passed in 2010 by the U.S. federal
government will have on our business. The new law includes a
2.3% excise tax on a majority of our U.S. sales that is
scheduled to be implemented in 2013.
80
First
Half 2011 compared to First Half 2010
Net
Sales by Reportable Segment
The following tables present net sales by reportable segment and
the components of the percentage changes (US$ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Foreign
|
|
|
|
2011
|
|
|
2010
|
|
|
% Inc/(Dec)
|
|
|
Volume
|
|
|
Mix
|
|
|
Exchange
|
|
|
North America
|
|
$
|
1,125.8
|
|
|
$
|
1,064.5
|
|
|
|
5.8
|
%
|
|
|
4.3
|
%
|
|
|
1.2
|
%
|
|
|
0.3
|
%
|
Europe
|
|
|
499.6
|
|
|
|
455.9
|
|
|
|
9.6
|
|
|
|
2.0
|
|
|
|
(0.2
|
)
|
|
|
7.8
|
|
Asia Pacific
|
|
|
252.5
|
|
|
|
201.8
|
|
|
|
25.2
|
|
|
|
14.1
|
|
|
|
(0.2
|
)
|
|
|
11.3
|
|
Latin America
|
|
|
97.1
|
|
|
|
81.7
|
|
|
|
18.9
|
|
|
|
12.4
|
|
|
|
(2.2
|
)
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,975.0
|
|
|
$
|
1,803.9
|
|
|
|
9.5
|
%
|
|
|
5.2
|
%
|
|
|
0.5
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange included in the table above
represents the effect of changes in foreign currency exchange
rates on sales growth. Generally, the strengthening of the
U.S. dollar will reduce U.S. GAAP reported revenues
and expenses.
The Groups net sales increased 9.5% to
$1,975.0 million in first half 2011 from
$1,803.9 million in first half 2010. Net sales grew by 5.7%
as a result of volume and price/mix changes and 3.8% due to the
favorable impact of foreign currency exchange rates on net sales.
Net sales in North America grew 5.8% in first half 2011 to
$1,125.8 million compared to net sales of
$1,064.5 million in first half 2010. The growth in net
sales in North America in first half 2011 is attributable to
3.9% growth in Trauma sales, 10.6% growth in CMF sales and
232.7% growth in Power Tools sales, partially offset by a
decline of 2.0% in Spine.
Net sales in Europe grew 9.6% in first half 2011 to
$499.6 million compared to net sales of $455.9 million
in first half 2010. The growth in net sales in Europe in first
half 2011 is attributable to 6.6% growth in Trauma sales, 29.9%
growth in CMF sales, 10.5% growth in Spine sales and 21.4%
growth in Power Tool sales.
Net sales in Asia Pacific grew 25.2% in first half 2011 to
$252.5 million compared to net sales of $201.8 million
in first half 2010. The growth in net sales in Asia Pacific in
first half 2011 is attributable to 21.8% growth in Trauma sales,
45.5% growth in CMF sales, 30.6% growth in Spine sales and 20.5%
growth in Power Tools sales.
Net sales in Latin America grew 18.9% in first half 2011 to
$97.1 million compared to net sales of $81.7 million
in first half 2010. The growth in net sales in Latin America in
first half 2011 is attributable to 19.9% growth in Trauma sales,
34.9% growth in CMF sales, 14.8% growth in Spine sales which
were slightly offset by a decline of 0.3% in Power Tools sales.
Operating
Expenses
The following table presents operating expenses and the
respective percentage of net sales by year (US$ in millions):
|
|
|
|
|
|
|
|
|
|
|
First Half 2011
|
|
|
First Half 2010
|
|
|
Selling and Promotion
|
|
$
|
592.6
|
|
|
$
|
530.3
|
|
% of Net Sales
|
|
|
30.0
|
%
|
|
|
29.4
|
%
|
General and Administrative
|
|
$
|
235.7
|
|
|
$
|
210.4
|
|
% of Net Sales
|
|
|
11.9
|
%
|
|
|
11.7
|
%
|
Research and Development
|
|
$
|
99.2
|
|
|
$
|
85.6
|
|
% of Net Sales
|
|
|
5.0
|
%
|
|
|
4.7
|
%
|
Selling and promotion (S&P) expense increased
0.6% as a percent of sales in the first half 2011 versus first
half 2010. S&P expense increased primarily as a result of
sales force increases from 3,636 in 2010 to 3,764 in first
81
half 2011 and higher investments in field sales equipment.
Foreign exchange increased S&P by 0.1% in first half 2011
versus first half 2010 (as a percentage of sales).
General and administrative (G&A) expense
increased 0.2% as a percent of sales in the first half 2011
versus first half 2010, primarily as a result of higher legal
expense associated with major litigation, somewhat offset by
cost reduction initiatives. Foreign exchange increased G&A
by 0.2% in first half 2011 versus first half 2010 (as a
percentage of sales).
Research and development (R&D) expense
increased 0.3% as a percent of sales in the first half 2011
versus first half 2010, primarily due to spending related to the
worldwide strategic collaboration agreement with Eli Lily.
Foreign exchange increased R&D by 0.2% in first half 2011
versus first half 2010 (as a percentage of sales).
Profitability
(US$
in millions)
|
|
|
|
|
|
|
|
|
|
|
First Half 2011
|
|
|
First Half 2010
|
|
|
Net Sales
|
|
$
|
1,975.0
|
|
|
$
|
1,803.9
|
|
Gross Profit Margin
|
|
|
82.5
|
%
|
|
|
82.4
|
%
|
Operating Income Margin
|
|
|
32.0
|
%
|
|
|
33.4
|
%
|
Net Earnings Margin
|
|
|
23.0
|
%
|
|
|
23.5
|
%
|
First half year 2011 gross profit margin of 82.5% (as a
percentage of sales) increased slightly versus first half
2010 gross profit margin of 82.4%, primarily due to
continued operational productivity improvements, despite
continuing pricing pressures, product mix, and increased
manufacturing costs.
Other
Income (Expenses), Income Taxes and Net Earnings
Other expense decreased in first half 2011 versus first half
2010 primarily due to the gain on the Norian sale of
$11.3 million partially offset by higher foreign exchange
losses in the first half 2011 of $11.5 million versus first
half 2010 of $6.3 million.
The Groups effective tax rate is a blend of U.S. and
foreign income tax expense. The effective tax rate on earnings
before income taxes for first half 2011 was 27.4% versus first
half 2010 income tax rate of 28.6%.
As a result of the revenues and expenses discussed previously,
net earnings in first half 2011 increased 7.0% to
$454.4 million from $424.6 million in first half 2010.
Basic and diluted earnings per share increased 6.9% in first
half 2011 compared to first half 2010.
LIQUIDITY
AND CAPITAL RESOURCES
At December 31, 2010, the Group had $736.6 million in
cash and cash equivalents, comprised of $0.9 million in
prime money market and government funds, and $735.7 million
in short-term deposits and interest-bearing accounts. At
December 31, 2009, the Group had $1,419.2 million in
cash and cash equivalents, comprised of $1,006.3 million in
government funds, and $412.9 million in short-term deposits
and interest-bearing accounts. The Groups policy is to
invest excess cash in short-term marketable securities earning a
market rate of interest without assuming undue risk to principle
limiting our exposure to any one company or industry.
Cash flows provided by operating activities were
$1,166.3 million in 2010 compared to $1,054.2 million
in 2009. The principal source of cash from operating activities
in 2010 was net earnings. Certain adjustments to reconcile net
earnings to net cash provided by operating activities accounted
for another $366.0 million of operating cash. All other
items of operating cash flows in 2010 were net cash outflows of
$107.4 million, primarily due to working capital
requirements. Cash flows provided by operating activities were
$1,054.2 million in 2009 compared to $818.1 million in
2008. The principal source of cash from operating activities in
2009 was net earnings. Certain adjustments to reconcile net
earnings to net cash provided by operating activities accounted
for another $282.0 million of operating cash. All other
items of operating cash flows in 2009 were net cash outflows of
$51.8 million, primarily due to working capital
requirements.
82
Cash flows used in investing activities were
$1,833.5 million in 2010, compared to $399.9 million
in 2009. Included in 2010 investment activity was
$189.7 million invested in business acquisitions, including
Anspach. In 2011, we expect to spend approximately
$490 million to purchase property, plant and equipment,
reflecting the cash outlays necessary to complete new
product-related investments, buildings and manufacturing
equipment. During 2010, the Group purchased $3.3 billion
and had maturities of $2.0 billion in U.S. government
securities. The securities are classified as short-term
available-for-sale
marketable securities on the consolidated balance sheets. The
purchases and any sales or maturities of these investments are
reflected as cash flows from investing activities. Cash flows
used in investing activities were $399.9 million in 2009,
compared to $359.8 million in 2008. Included in investing
activities for 2010, 2009 and 2008 were $48.0 million,
$108.6 million and $78.6 million, respectively in
consideration in connection with prior acquisitions including
the acquisition of AO Foundation intellectual property.
Cash flows used in financing activities were $69.6 million
for 2010 versus $118.2 million in 2009 and compared to
$127.0 million in 2008. In 2010 and 2009, the only
significant cash used in financing activities related to the
dividends paid to holders of Synthes common stock of
$151.6 million and $116.6 million, respectively.
In January 2010, the Group entered a CHF 120 million credit
facility with three Swiss banks. Borrowings under the credit
facility bear interest at a floating rate and the principal
balances at December 31, 2010 total CHF 90.0 million
(US$96.0 million). The credit facility is hedged by an
interest rate swap to fix the rate on the borrowings to maturity
in December 2016. The borrowing is secured by a new European
headquarters building in Solothurn, Switzerland and is intended
to fund the construction of the same. Interest expense
associated with the credit facility of CHF 0.4 million
(US$0.4 million) has been capitalized as of
December 31, 2010.
At June 30, 2011, the Group had $1,513.2 million in
cash and cash equivalents which is comprised of short-term
deposits and interest-bearing accounts. The Groups policy
is to invest excess cash in short-term marketable securities
earning a market rate of interest without assuming undue risk to
principle limiting our exposure to any one company or industry.
Cash flows provided by operating activities were
$593.5 million in the first half 2011 compared to
$540.7 million in the first half 2010. The principal source
of cash from operating activities in the first half 2011 was net
earnings. Certain adjustments to reconcile net earnings to net
cash provided by operating activities accounted for another
$193.5 million of operating cash. All other items of
operating cash flows in first half 2011 were net cash outflows
of $54.4 million, primarily due to working capital
requirements.
Cash flows provided by investing activities were
$284.1 million in the first half 2011, compared to cash
flows used in investing activities of $1,278.9 million in
the first half 2010. Included in the first half 2011 were
purchases of $1.8 billion and maturities of
$2.3 billion in U.S. government securities. The
securities are classified as short-term
available-for-sale
marketable securities on the condensed consolidated balance
sheet. The purchases and any sales or maturities of these
investments are reflected as cash flows from investing
activities.
Cash flows used in financing activities were $193.7 million
for the first half 2011, compared to $98.9 million in the
first half 2010. In the first half 2011, the only significant
cash used in financing activities related to the payment of
dividends to holders of Synthes common stock of
$231.4 million.
Cash and cash equivalents are invested in highly rated financial
institutions and invested only in high-quality financial
instruments, primarily issued by the U.S. government, in
accordance with our internal investment policy, and limit the
amount of credit exposure to any one entity.
As of June 30, 2011, the Group had short-term and long-term
investments in debt securities with a fair value of
$729.9 million. These investments are in debt securities of
many different companies and, therefore, we have no significant
concentration of risk with a single counterparty. All debt
securities are highly rated, and, therefore, we believe the risk
of default by the companies is low.
As of June 30, 2011, $852.7 million of our cash and
cash equivalents and short-term and long-term investments are
held in jurisdictions outside of the U.S., and are expected to
be indefinitely reinvested for continued use in foreign
operations. Repatriation of these assets to the U.S. would
have negative tax consequences. Approximately
83
$7 million of this amount is denominated in
U.S. dollars, and therefore bears no foreign currency
translation risk. The remaining is denominated in the various
currencies where we operate.
Management believes that cash flows from operations and
available borrowings under the CHF 120 million credit
facility are sufficient to meet our expected working capital,
capital expenditure and debt service needs. Should investment
opportunities arise, we believe that our earnings, balance sheet
and cash flows will allow us to obtain additional capital, if
necessary.
CONTRACTUAL
OBLIGATIONS
We have entered into contracts with various third parties in the
normal course of business that will require future payments. The
following table illustrates our contractual obligations as of
December 31, 2010 (US$ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2014
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
and
|
|
Contractual Obligations
|
|
Total
|
|
|
2011
|
|
|
2013
|
|
|
2015
|
|
|
Thereafter
|
|
|
Long-term debt
|
|
$
|
98.4
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
97.6
|
|
AO installment payments
|
|
|
77.9
|
|
|
|
51.5
|
|
|
|
26.4
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
43.3
|
|
|
|
15.3
|
|
|
|
19.0
|
|
|
|
8.4
|
|
|
|
0.6
|
|
Capital leases
|
|
|
4.4
|
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
2.4
|
|
Contributions to defined benefit plans
|
|
|
21.6
|
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
245.6
|
|
|
$
|
88.9
|
|
|
$
|
46.5
|
|
|
$
|
9.6
|
|
|
$
|
100.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 32% of the other long-term liabilities on our
consolidated balance sheet are liabilities related to defined
benefit pension plans. Defined benefit plan liabilities are
based upon the underfunded status of the respective plans; they
are not based upon future contributions. Due to uncertainties
regarding future plan asset performance, changes in interest
rates and our intentions on voluntary contributions, we are
unable to reasonably estimate future contributions beyond 2011.
Therefore, this table does not include any amounts related to
future contributions to our plans. See Note C10 to the
consolidated financial statements included in our 2010 Annual
Report for the year ended December 31, 2010 for further
information on our defined benefit plans.
Also included in other long-term liabilities on our consolidated
balance sheet are liabilities related to uncertain tax benefits
and corresponding interest and penalties thereon. Due to the
uncertainties inherent in these liabilities, such as the
ultimate timing and resolution of tax audits, we are unable to
reasonably estimate the amount or period in which potential tax
payments related to these positions will be made. Therefore,
this table does not include any obligations related to uncertain
tax benefits. See Note C6 to the consolidated financial
statements included in our 2010 Annual Report for the year ended
December 31, 2010 for further information on these
uncertain tax benefits.
We have entered into various contractual agreements that may
result in future payments dependent upon various events such as
granting of patents, regulatory approvals and product launches.
Since there is uncertainty on the timing or whether such
payments will have to be made, we have not included them in this
table. These payments could range from $0 to $28 million.
CRITICAL
ACCOUNTING ESTIMATES
We have adopted various accounting policies to prepare the
condensed consolidated financial statements in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP). Our most significant
accounting policies are disclosed in Note B to the
consolidated financial statements included in our 2010 Annual
Report for the year ended December 31, 2010.
The preparation of the interim condensed consolidated financial
statements, in conformity with U.S. GAAP, requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities and the reported amounts of
revenues and expenses in the condensed consolidated financial
statements and accompanying notes. Actual results could differ
from these estimates. Significant areas that require
managements estimates include the allowance for doubtful
accounts receivable,
84
provision for obsolete inventories, fair values of acquired
assets and liabilities, useful lives of assets, asset
impairment, product liability claims, self-insurance, pensions
and other post-retirement benefits, stock-based compensation,
commitments and contingencies, and income taxes. We base our
estimates on historical experience, actuarial valuations, or
various assumptions that are believed to be reasonable under the
circumstances. The Group is subject to risks and uncertainties,
such as changes in the health care environment, regulatory
oversight, changes in the financial markets, competition and
legislation that may cause actual results to differ from
estimated results.
Estimates are considered to be critical if they meet both of the
following criteria: (1) the estimate requires assumptions
about material matters that are uncertain at the time the
accounting estimates are made and (2) material changes in
the estimates are reasonably likely to occur from period to
period. Our critical accounting estimates include the following:
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