UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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BIOVERIS CORPORATION

(Name of Registrant as Specified In Its Charter)

 

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BIOVERIS CORPORATION
16020 Industrial Drive
Gaithersburg, Maryland 20877
(301) 869-9800

 

May 21, 2007

 

To our Stockholders:

 

You are cordially invited to attend a special meeting of the stockholders of BioVeris Corporation (the “Company”) to be held at the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007 on Monday, June 25, 2007, beginning at 3:00 p.m., local time.

 

At the special meeting, you will be asked to consider and vote upon a proposal to approve the Agreement and Plan of Merger (“merger agreement”), dated as of April 4, 2007, among the Company, Roche Holding Ltd (“Roche”) and Lili Acquisition Corporation (“Merger Sub”), an indirect, wholly-owned subsidiary of Roche.

 

The merger agreement provides for, among other things, the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation after the consummation of the merger and becoming an indirect, wholly-owned subsidiary of Roche. If the merger is completed, you will be entitled to receive $21.50 in cash, without interest, for each share of our common stock you own, unless you have properly exercised your appraisal rights.

 

Our board of directors has unanimously approved and declared advisable the merger, the merger agreement and the transactions contemplated by the merger agreement and has unanimously declared that the merger, the merger agreement and the transactions contemplated by the merger agreement are fair to, and in the best interests of, our stockholders. Accordingly, our board of directors recommends that our stockholders vote “FOR” the approval of the merger agreement.

 

The proxy statement attached to this letter provides you with information about the proposed merger and the special meeting. We encourage you to read the entire proxy statement carefully because it explains the proposed merger, the documents related to the merger and other related matters, including the conditions to the completion of the merger. You may also obtain more information about the Company from documents we have filed with the Securities and Exchange Commission.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED. ACCORDINGLY, WE URGE YOU TO VOTE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR YOU MAY VOTE THROUGH THE INTERNET OR BY TELEPHONE AS DIRECTED ON THE ENCLOSED PROXY CARD.  IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES THAT ARE REGISTERED DIFFERENTLY, PLEASE VOTE ALL OF YOUR SHARES SHOWN ON ALL OF YOUR PROXY CARDS.

 

Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting.

 

We look forward to seeing you at the special meeting.

 

Sincerely,

 

 

Samuel J. Wohlstadter

Chairman of the Board of Directors and Chief
Executive Officer

BioVeris Corporation

 

This proxy statement is dated May 21, 2007 and is first being mailed to stockholders on or about May 21, 2007.

 

 

 

BIOVERIS CORPORATION

16020 Industrial Drive

Gaithersburg, Maryland 20877

(301) 869-9800

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON MONDAY, JUNE 25, 2007

 

TO THE STOCKHOLDERS:

 

The special meeting of stockholders of BioVeris Corporation, a company incorporated under the laws of Delaware (“BioVeris” or the “Company”), will be held on Monday, June 25, 2007, 3:00 p.m., local time, at the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007 in order to:

 

1. Consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of April 4, 2007, among the Company, Roche Holding Ltd and Lili Acquisition Corporation (“merger agreement”). A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

 

2. Approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement.

 

3. Transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

Only holders of record of shares of our common stock and series B preferred stock at the close of business on May 17, 2007, the record date for the special meeting, are entitled to notice of the meeting and to vote at the meeting and at any adjournment or postponement thereof. A list of stockholders will be available for inspection by stockholders of record during business hours at the Company’s executive offices, 16020 Industrial Drive, Gaithersburg, Maryland 20877, for ten days prior to the date of the special meeting and will also be available at the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.

 

Your vote is important, regardless of the number of shares of stock that you own. The approval of the merger agreement is conditioned on the affirmative vote of the holders of a majority of the outstanding shares of our common stock and series B preferred stock, voting together as a single class, that are entitled to vote at the special meeting. The proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of holders of a majority of the voting power present and entitled to vote.

 

We urge you to read the entire proxy statement carefully. Whether or not you plan to attend the special meeting, please vote by promptly completing the enclosed proxy card and then signing, dating and returning it in the postage-prepaid envelope provided so that your shares may be represented at the special meeting. Alternatively, you may vote your shares of stock through the Internet or by telephone, as indicated on the proxy card. Prior to the vote, you may revoke your proxy in the manner described in the proxy statement. Your failure to vote will have the same effect as a vote against the approval of the merger agreement.

 

Stockholders of the Company who do not vote in favor of the merger agreement will have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if they perfect their appraisal rights by complying with all of the required procedures under Delaware law. See “Dissenters’ Rights of Appraisal” beginning on page 70 of the enclosed proxy statement and Annex C to the enclosed proxy statement.

 

By Order of Our Board of Directors,

 

 

Samuel J. Wohlstadter
Chairman of the Board of Directors and Chief
Executive Officer

 

May 21, 2007

 

TABLE OF CONTENTS

 

 

 

The following summary highlights selected information from this proxy statement. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that item in this document.

 

Unless we otherwise indicate or unless the context requires otherwise, all references in this document to “Company,” “we,” “our,” and “us” refer to BioVeris Corporation and its subsidiaries; all references to “Roche” and “Parent” refer to Roche Holding Ltd; all references to “Merger Sub” refer to Lili Acquisition Corporation; all references to “merger agreement” refer to the Agreement and Plan of Merger, dated as of April 4, 2007, among the Company, Roche and Merger Sub, as it may be amended from time to time, a copy of which is attached as Annex A to this document; and all references to the “merger” refer to the merger contemplated by the merger agreement. All other capitalized terms used but not defined in this summary have the meanings ascribed to such terms in the merger agreement.

 

Parties to the Merger (page 13)

 

BioVeris Corporation.  BioVeris Corporation is a global healthcare and biosecurity company developing proprietary technologies in diagnostics and vaccinology that is dedicated to the development and commercialization of innovative products and services for healthcare providers, their patients and their communities.

 

Roche.  Roche Holding Ltd is a joint stock company organized under the laws of Switzerland. Roche is a holding company which, through its subsidiaries (collectively, the “Roche Group”), engages primarily in the development, manufacture, marketing and sales of pharmaceuticals, and diagnostics. The Roche Group is one of the world’s leading research-based health care groups active in the discovery, development, manufacture and marketing of pharmaceuticals and diagnostics.

 

Lili Acquisition Corporation.  Lili Acquisition Corporation is a Delaware corporation formed for the sole purpose of completing the merger with the Company. Merger Sub is an indirect, wholly-owned subsidiary of Roche. Merger Sub has not conducted any business other than in connection with the merger and other related transactions.

 

The Merger Agreement (page 45)

 

On April 4, 2007, the Company entered into a merger agreement with Roche and Merger Sub. Upon the terms and conditions of the merger agreement, Merger Sub will merge with and into the Company, with the Company as the surviving corporation. We will become an indirect, wholly-owned subsidiary of Roche. You will have no equity interest in the Company or Roche after the effective time of the merger. At the effective time of the merger, each share of our common stock, par value $0.001 per share (the “Common Stock”), including restricted stock awards, other than those held by the Company, Roche or Merger Sub and other than shares with respect to which appraisal rights have been properly exercised, will be cancelled and converted automatically into the right to receive $21.50 in cash, without interest and less any applicable withholding tax.

 

Certain Effects of the Merger (page 38)

 

If the merger is completed, you will be entitled to receive $21.50 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock owned by you, unless you have exercised your statutory appraisal rights with respect to the merger. As a result of the merger, the Company will cease to be an independent, publicly traded company. You will not own any shares of the surviving corporation.

 

The Special Meeting (page 13)

 

The special meeting will be held on Monday, June 25, 2007 starting at 3:00 p.m., local time at the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007.

 

Record Date and Quorum (page 14)

 

Stockholders of record at the close of business on Thursday, May 17, 2007 are entitled to notice of, and to vote at, the special meeting. The holders of the Common Stock and Series B Preferred Stock (“Series B Preferred Stock”) have one vote per share on all matters on which they are entitled to vote. On May 17, 2007 the outstanding voting securities consisted of 27,247,902 shares of Common Stock and 1,000 shares of Series B Preferred Stock. The presence at the special meeting, in person or by proxy, of the holders of a majority of the voting interests of all shares of our Common Stock and Series B Preferred Stock will constitute a quorum for the purpose of considering the proposals.

 

Required Vote (page 14)

 

For us to complete the merger, a simple majority of the outstanding shares of our Common Stock and Series B Preferred Stock entitled to vote at the special meeting, voting together as a single class, must vote “FOR” the approval of the merger agreement. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the combined voting power of Common Stock and Series B Preferred Stock, present, in person or represented by proxy, at the special meeting and entitled to vote on the matter, whether or not a quorum is present.

 

Voting by Directors and Executive Officers (page 14)

 

As of May 17, 2007, the record date for the special meeting, our current directors and executive officers held, in the aggregate, 6,568,456 shares of our Common Stock (excluding options) representing approximately 24.1% of our outstanding Common Stock and 1,000 shares of our Series B Preferred Stock, representing 100% of our outstanding Series B Preferred Stock. Each of our directors and executive officers has informed us that he intends to vote all of his Common Stock or Series B Preferred Stock “FOR” the approval of the merger agreement.

 

Recommendation of the Company’s Board of Directors (page 31)

 

After careful consideration, our board of directors, unanimously, (i) approved the merger agreement, including the merger and the other transactions contemplated thereby, (ii) determined that the terms of the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of the Company and our stockholders, (iii) recommends that our stockholders vote “FOR” adoption of the merger agreement and (iv) recommends that our stockholders vote “FOR” the approval of any proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not sufficient votes in favor of approval of the merger agreement at the time of the special meeting.

 

Opinion of BioVeris Corporation’s Financial Advisor (page 31 and Annex B)

 

Lehman Brothers, Inc. (“Lehman Brothers”) delivered its opinion to our board that, as of April 4, 2007, and based upon and subject to the qualifications and assumptions set forth therein, the $21.50 in cash per share to be received by the holders of Common Stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the Lehman Brothers opinion dated April 4, 2007, is attached to this proxy statement as Annex B. We encourage stockholders to read Lehman Brothers’ opinion carefully and in its entirety. Lehman Brothers’ opinion was provided to our board of directors in connection with its consideration of the merger consideration and does not address any other aspect of the proposed merger and does not constitute a recommendation as to how you should vote on the merger or any matter relevant to the merger agreement.

 

Reasons for the Merger (page 26)

 

The merger will enable our stockholders to (1) immediately realize the value of their investment in the Company through their receipt of the per share merger consideration of $21.50 in cash, representing a

premium of approximately 58.1% to the $13.60 closing price of our Common Stock on NASDAQ Global Market (“NASDAQ”) on April 3, 2007, the last trading day before the announcement of the merger; (2) eliminate the risks and uncertainties associated with our future performance; and (3) eliminate the risks and uncertainties associated with our issues and disagreements with Roche regarding out-of-field sales.

 

For these reasons, and the reasons discussed under “The Merger — Reasons for the Merger” beginning on page 26, the board has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, substantively and procedurally fair to, and in the best interests of the Company and its stockholders.

 

Company Options and Restricted Stock Awards (page 38)

 

In connection with the merger, each option to purchase our Common Stock outstanding immediately prior to the effective time of the merger will be fully vested and be cancelled in exchange for the right to receive a cash payment equal to the product of the number of shares subject to such option multiplied by the excess, if any, of (a) $21.50 per share over (b) the exercise price of such option, subject to applicable withholding tax. Each restricted stock award outstanding immediately prior to the effective time of the merger will be fully vested and be converted into the right to receive $21.50 in cash, without interest.

 

Restrictions on Solicitations (page 51)

 

We have agreed that we will not:

 

 

Notwithstanding these restrictions, the merger agreement provides that if we receive an unsolicited bona fide takeover proposal from a third party before the stockholder vote, which our board of directors determines in good faith is, or is reasonably likely to result in, a superior proposal, we may furnish non-public information to the third party making such superior proposal and engage or participate in discussions or negotiations with the third party making such superior proposal.

 

Conditions to the Merger (page 54)

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

 

Conditions to Roche’s and Merger Sub’s Obligations.  The obligation of Roche and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Conditions to BioVeris’ Obligations.  Our obligation to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Termination of the Merger Agreement (page 55)

 

The Company and Roche may agree to terminate the merger agreement without completing the merger at any time. The merger agreement may also be terminated in certain other circumstances, including:

 

 

 

 

 

 

 

Termination Fee (page 56)

 

We have agreed to pay a termination fee of $12 million to Roche if:

 

 

We are also required to pay Roche the $12 million termination fee if the merger agreement is terminated by Roche or us because our stockholders do not approve the merger agreement at the stockholder’s meeting, and prior to such termination, a takeover proposal by a third party was publicly announced or communicated to our board or stockholders and not terminated or withdrawn and, within six months of termination we enter into a definitive agreement or consummate a takeover proposal with a third party.

 

Government and Regulatory Approvals (page 43)

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder by the Federal Trade Commission (“FTC”), the merger may not be completed until the notification and report forms have been filed with the FTC and the Antitrust Division of the Department of Justice (“DOJ”) and the applicable waiting period has expired or been terminated. We and Roche filed notification and report forms under the HSR Act with the Antitrust Division of the DOJ and the FTC on April 13, 2007. The HSR Act waiting period expired on May 14, 2007. In addition, the merger may not be completed until the expiration or termination of the waiting period under the German Act against Restraints of Competition of 1958, as amended, or we receive the approval of the merger by the German Federal Cartel Office. We are also required to notify the Italian Competition Authority of the merger, but there is no automatic bar on closing applicable under the Italian merger control regime. The filing with the German Federal Cartel Office was made on May 11, 2007, and the filing with the Italian Competition Authority was made on May 15, 2007.

 

The merger may also be subject to review by the governmental authorities of various other jurisdictions under the antitrust laws of those jurisdictions.

 

The merger will also require the completion by the United States government of its review under the Exon-Florio Amendment to the Defense Production Act of 1950. The Company and Roche jointly submitted a notice of the merger to the Committee on Foreign Investment in the United States (“CFIUS”) on May 15, 2007.

 

Material U.S. Federal Income Tax Consequences (page 41)

 

The merger will be a taxable transaction to you if you are a “U.S. holder.” Your receipt of cash in exchange for your Common Stock generally will cause you to recognize a gain or loss measured by the difference, if any, between the cash you receive in the merger and your adjusted tax basis in your Common Stock. Holders of Common Stock who are not U.S. holders may have different tax consequences than those described with respect to U.S. holders and are urged to consult their tax advisors regarding the tax treatment to them under U.S. and non-U.S. tax laws. You should also consult your tax advisor on the particular tax consequences of the merger to you, including the federal, state, local and/or non-U.S. tax consequences of the merger.

 

Interests of Certain Persons in the Merger (page 38)

 

In considering the recommendation of the board of directors, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder, and that may present actual or potential conflicts of interest.

 

You should note that Samuel J. Wohlstadter, our chairman and chief executive officer, has entered into a separate agreement with Roche pursuant to which, among other things, Roche has agreed to purchase his Series B Preferred Stock. In addition, Mr. Wohlstadter and other members of management of the Company

will be entitled to receive certain severance and change-in-control payments under the Company’s termination protection program. Moreover, all outstanding options and restricted shares will become fully vested and will be cashed out in the merger.

 

In addition, in connection with the transaction, two newly formed entities established by Mr. Wohlstadter will purchase from the Company rights to certain intellectual property and related assets associated with our vaccines research and electrochemiluminescent (“ECL”) technology, and a non-exclusive limited license to use the ECL technology for certain limited purposes. These transactions with Mr. Wohlstadter were approved by a special committee of independent directors of our board of directors (the “Special Committee”) and by the full board of directors with Mr. Wohlstadter abstaining.

 

Stockholders Agreement (page 57)

 

Concurrently with the execution of the merger agreement, Roche entered into a stockholders agreement (which agreement was amended and restated on May 2, 2007) with Mr. Wohlstadter and his wife, Nadine Wohlstadter, in which they agreed to vote all of their shares of our Common Stock and Series B Preferred Stock in favor of the merger agreement. Mr. and Mrs. Wohlstadter collectively own approximately 19.3% of our outstanding Common Stock (excluding shares underlying options) and Mr. Wohlstadter owns 100% of the Series B Preferred Stock.

 

The stockholders agreement will terminate on the earlier of:

 

 

A copy of the stockholders agreement is attached as Annex D to this proxy statement.

 

The Asset Transfer Agreements (page 58)

 

In connection with the execution of the merger agreement, two private limited liability companies controlled by Mr. Wohlstadter entered into agreements with the Company on April 4, 2007 to acquire certain of our assets.

 

32 Mott Street Acquisition I, LLC, a Delaware limited liability company (“Vaccines Newco”), has entered into an agreement with us (the “vaccines asset transfer agreement”) to acquire certain assets related to the research, development, manufacture, production, testing, sale, distribution and use of vaccines (the “vaccines business”) from us in exchange for $3,859,000, paid as follows (a) $1,000,000 to be paid at closing, (b) three annual payments of $50,000 to be paid on the first three anniversaries of the closing date and (c) a final payment of $2,709,000 to be paid on the earlier of the third anniversary of closing or the receipt of certain levels of financing by Vaccines Newco.

 

32 Mott Street Acquisition II, LLC, a Delaware limited liability company (“ECL Newco”), has entered into an agreement with us (the “ECL asset transfer agreement”) to acquire the ECL license (as described below), certain sublicenses and certain of our non-intellectual property assets related to the research, development, manufacture, production, testing, sale, distribution and use of certain small instruments that use ECL technology that are currently under development (the “ECL business”) by us in exchange for $2,718,000, paid as follows (a) $1,000,000 to be paid at closing, (b) three annual payments of $50,000 to be paid on the first three anniversaries of the closing date and (c) a final payment of $1,568,000 to be paid on the earlier of the third anniversary of closing or the receipt of certain levels of financing by ECL Newco. In addition at the closing of the ECL asset transfer agreement, ECL Newco will pay us $779,000 in connection with certain severance obligations.

 

The payments made in connection with the vaccines asset transfer agreement and the ECL asset transfer agreement will be made to the Company and will not affect the consideration paid to you in connection with the merger. In addition, stockholders of the Company, other than Mr. Wohlstadter and his spouse, will not have any equity interest in Vaccines Newco or ECL Newco.

 

The transactions contemplated by the vaccines asset transfer agreement and the ECL asset transfer agreement (the “asset transfer agreements”) are conditioned upon, among other things, all of the conditions to the merger agreement, except for those which can only be satisfied at the closing of the merger agreement, being satisfied. The asset transfer agreements will terminate, if, among other things, the merger agreement is terminated.

 

In connection with the ECL asset transfer agreement, ECL Newco will enter into a related license agreement with the Company with respect to certain ECL technology (the “ECL license”), pursuant to which we will grant to ECL Newco a limited non-exclusive license, subject to certain restrictions, to use our ECL technology in connection with the ECL business.

 

Exchange and Payment Procedures (page 46)

 

As soon as practicable after the effective time of the merger, a paying agent designated by Roche, and reasonably acceptable to us, will mail a letter of transmittal and instructions to all of our stockholders of record. The letter of transmittal and instructions will tell you how to surrender your Common Stock certificates in exchange for the merger consideration, without interest. You should not return any share certificates you hold with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

Market Prices of Company Common Stock (page 70)

 

Our Common Stock is listed on the NASDAQ under the trading symbol “BIOV.” The closing sale price of our Common Stock on April 3, 2007, which was the last trading day before the announcement of the execution of the merger agreement, was $13.60 per share. On May 18, 2007, which was the last trading day before the date of this proxy statement, our Common Stock closed at $21.33 per share.

 

Dissenters’ Rights of Appraisal (page 70 and Annex C)

 

Under Delaware law, if you take or refrain from taking certain specific actions, you are entitled to appraisal rights in connection with the merger. You will have the right, under and in full compliance with Delaware law, to have the fair value of your shares of our Common Stock determined by the Court of Chancery of the State of Delaware. This right to appraisal is subject to a number of restrictions and technical requirements. Generally, in order to exercise your appraisal rights you must:

 

 

 

Merely voting against the merger agreement will not protect your rights to an appraisal, which requires all the steps provided under Delaware law. Requirements under Delaware law for exercising appraisal rights are described in further detail beginning on page 70. The relevant section of Delaware law, Section 262 of the Delaware General Corporation Law, regarding appraisal rights is reproduced and attached as Annex C to this proxy statement.

 

If you vote for the merger agreement, you will waive your rights to seek appraisal of your shares of Common Stock under Delaware law. This proxy statement constitutes our notice to our stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 of the Delaware General Corporation Law.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Company stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where You Can Find Additional Information” beginning on page 75.

 

 

 

 

 

You should read “The Merger — Reasons for the Merger” beginning on page 26 for a discussion of the factors that our board of directors considered in deciding to recommend the approval of the merger agreement. See also “The Merger — Interests of Certain Persons in the Merger” beginning on page 38.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Georgeson Inc.
17 State Street, 10th Floor
New York, New York 10004
Banks and Brokers Call: (212) 440-9800
All Others Call Toll Free: (866) 580-6733

 

This proxy statement, and the documents to which we refer you in this proxy statement, contains forward-looking statements within the meaning of the federal securities laws that relate to future events. All statements in this proxy statement, and the documents to which we refer you in this proxy statement, that are not historical facts, including any statements about the markets, potential markets, market growth, and the proposed merger transaction with Roche, are hereby identified as “forward-looking statements.” There are forward-looking statements throughout this proxy statement, including, among other things, under the headings “Summary,” “The Merger,” “The Merger — Opinion of BioVeris Corporation’s Financial Advisor,” “Projected Financial Information” and in statements containing the words “may,” “should,” “would,” “will,” “expect,” “could,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “continue,” “contemplate” and similar expressions. In the proxy statement, the Company has based these forward-looking statements on management’s current expectations, estimates and projections and they are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various important factors, including:

 

 

 

 

 

 

The foregoing sets forth some, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. A more complete description of the risks applicable to us is provided in the our filings with the SEC available at the SEC’s web site at http://www.sec.gov. Investors are cautioned not to place undue reliance on these forward-looking statements. Investors also should understand that it is not possible to predict or identify all risk factors and that neither this list nor the factors identified in our SEC filings should be considered a complete statement of all potential risks and uncertainties. We have no obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement.

 

BioVeris Corporation

 

BioVeris is a global healthcare and biosecurity company developing proprietary technologies in diagnostics and vaccinology. We are dedicated to the development and commercialization of innovative products and services for healthcare providers, their patients and their communities. Our principal executive offices are located at 16020 Industrial Drive, Gaithersburg, Maryland 20877, and our telephone number is (301) 869-9800.

 

For more information about BioVeris, please visit our website at www.bioveris.com. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. See also “Where You Can Find Additional Information” beginning on page 75. Our Common Stock is publicly traded on the NASDAQ under the symbol “BIOV.”

 

Roche Holding Ltd

 

Roche Holding Ltd is a joint stock company organized under the laws of Switzerland. Roche is a holding company which, through its subsidiaries (collectively, the “Roche Group”), engages primarily in the development, manufacture, marketing and sales of pharmaceuticals and diagnostics. The Roche Group is one of the world’s leading research-based health care groups active in the discovery, development, manufacture and marketing of pharmaceuticals and diagnostics. Roche’s principal executive offices are located at Grenzacherstrasse 124, CH-4070 Basel, Switzerland, and its phone number is +41-61-688-1111.

 

Lili Acquisition Corporation

 

Lili Acquisition Corporation, which we refer to as Merger Sub, is a Delaware corporation and an indirect, wholly-owned subsidiary of Roche, organized solely for the purpose of entering into the merger agreement with the Company and completing the merger. Lili Acquisition Corporation was incorporated on March 13, 2007, and has not conducted any business operations except for activities incidental to its formation and as contemplated by the merger agreement. Lili Acquisition Corporation’s principal executive offices are currently located at 1220 N. Market Street, Suite 334, Wilmington, Delaware 19801-2535, and its phone number is (302) 425-4701. Upon consummation of the proposed merger, Merger Sub will cease to exist and BioVeris will continue as the surviving corporation.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting to be held on Monday, June 25, 2007, starting at 3:00 p.m., local time, at the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007, or at any postponement or adjournment thereof. The purpose of the special meeting is for our stockholders to consider and vote upon a proposal to approve the merger agreement, approve the adjournment or postponement of the meeting, if necessary or appropriate, to solicit additional proxies, and to act on such other matters and transact such other business, as may properly come before the meeting. Our stockholders must adopt the merger

agreement in order for the merger to occur. If the stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A. This proxy statement, the notice of the special meeting and the enclosed form of proxy are first being mailed to our stockholders on or about May 21, 2007.

 

Stockholders of record at the close of business on Thursday, May 17, 2007 are entitled to notice of, and to vote at, the special meeting. On May 17, 2007, the outstanding voting securities consisted of 27,247,902 shares of Common Stock and 1,000 shares of Series B Preferred Stock.

 

The holders of our Common Stock and Series B Preferred Stock are entitled to one vote per share on all matters on which they are entitled to vote.

 

A quorum of holders of our voting interests must be present for the special meeting to be held. Holders of a majority of the voting interests of all shares of Common Stock and Series B Preferred Stock issued, outstanding, and entitled to vote at the special meeting will constitute a quorum for the purpose of considering the proposals. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.

 

For us to complete the merger, holders of a majority of the outstanding shares of our Common Stock and Series B Preferred Stock, voting together as a single class, entitled to vote at the special meeting, must vote “FOR” the approval of the merger agreement. The proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies requires the approval of holders of a majority of the Common Stock and Series B Preferred Stock, voting together as a single class, present, in person or by proxy at the meeting and entitled to vote.

 

In order for your Common Stock to be included in the vote, if you are a registered stockholder (that is, if you hold your Common Stock in certificated form), you must submit your proxy and vote your shares by returning the enclosed proxy, marked, signed and dated, in the postage prepaid envelope provided, or by telephone or through the Internet, as indicated on the proxy card, or you may vote in person at the special meeting.

 

Brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the adoption of the merger agreement and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares. Abstentions and broker non-votes, if any, will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining whether a quorum exists. Because adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of our Common Stock and Series B Preferred Stock, voting together as a single class, failures to vote, abstentions and broker non-votes, if any, will have the same effect as votes “AGAINST” adoption of the merger agreement.

 

As of Thursday, May 17, 2007, the record date, our current directors and executive officers held and are entitled to vote, in the aggregate, 6,568,456 shares of Common Stock (excluding options) representing approximately 24.1% of the outstanding Company Common Stock and 1,000 shares of our Series B Preferred Stock, representing 100% of the outstanding Series B Preferred Stock. Each of our directors and executive officers has informed us that he intends to vote all of his shares “FOR” the approval of the merger agreement and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

If you vote your shares of Common Stock by returning a signed proxy card by mail, or through the Internet or by telephone as indicated on the proxy card, your shares will be voted at the special meeting in accordance with the instructions given. If no instructions are indicated on your signed proxy card, your shares will be voted “FOR” the approval of the merger agreement, “FOR” adjournment or postponement of the meeting, if necessary or appropriate to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.

 

If your shares are held in street name, you should follow the instructions of your broker, bank or other nominee regarding revocation or change of proxies. If your broker, bank or other nominee allows you to submit a proxy by telephone or through the Internet, you may be able to change your vote by submitting a new proxy by telephone or through the Internet.

 

You may revoke or change your proxy at any time before the vote is taken at the special meeting, except as otherwise described below. If you have not voted through your broker, bank or other nominee because you are the registered stockholder, you may revoke or change your proxy before it is voted by:

 

 

 

 

We do not expect that any matter other than the proposal to approve the merger agreement and, if necessary, the proposal to adjourn or postpone the special meeting, will be brought before the special meeting. If, however, such a matter is properly presented at the special meeting or any adjournment or postponement of the special meeting, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment.

 

Please do NOT send in your share certificates with your proxy card. If the merger is completed, stockholders will be mailed a transmittal form following the completion of the merger with instructions for use in effecting the surrender of certificates in exchange for the merger consideration.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice (if the adjournment is not for more than 30 days), other than by an announcement made at the special meeting. If a quorum exists, then holders of a majority of the votes of the Company Common Stock and Series B Preferred Stock, voting together as a single class, present at the meeting, either in person or by proxy, and entitled to vote in person or represented by proxy at the special meeting may adjourn the special meeting. Alternatively, if no quorum exists, then the chairman or a majority in interest of the stockholders present at the special meeting may adjourn the special meeting. Any signed proxies received by the Company will be voted in favor of an adjournment in these circumstances, although a proxy voted “AGAINST” the proposal for the adjournment or postponement of the special meeting will not be voted in favor of an adjournment for the purpose of soliciting additional proxies. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company stockholders who have already sent in their proxies to revoke them prior to their use at the special meeting, reconvened following such adjournment or postponement, in the manner described above. Broker non-votes, if any, will not have any affect on the adjournment or postponement of the special meeting and abstentions, if any, will have the same effect as a vote “AGAINST” the adjournment or postponement of the special meeting.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor:

 

Georgeson Inc.
17 State Street, 10th Floor
New York, New York 10004
Banks and Brokers Call: (212) 440-9800
All Others Call Toll Free: (866) 580-6733

 

The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne by the Company. Additional solicitation may be made by telephone, facsimile, e-mail, in person or other contact by certain of our directors, officers, employees or agents, none of whom will receive additional compensation therefor. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses for forwarding material to the beneficial owners of shares held of record by others. We have also engaged Georgeson to assist in the solicitation of proxies for the meeting and we estimate that we will pay them a fee of approximately $8,500, and will reimburse them for reasonable administrative and out-of-pocket expenses incurred in connection with such solicitation.

 

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

On February 13, 2004, IGEN International, Inc. (“IGEN”) and Roche consummated a merger and certain related transactions (the “IGEN Transaction”) pursuant to which Roche acquired IGEN. The Company was spun-off from IGEN and became an independent, publicly-traded company on February 17, 2004.

 

At the time of the IGEN Transaction, the Company granted Roche a worldwide, non-exclusive, royalty-free license to patents and information relating to its proprietary ECL technology, subject to certain limitations (the “Roche License”). The license allows Roche to commercially exploit certain ECL products for use in specified fields (including certain clinical uses) on a royalty-free basis. Pursuant to the Roche License, Roche agreed to pay the Company 65% of revenues earned through out-of-field sales. The specified field under the Roche License specifically did not include (a) analyses for life science research and development, including at any pharmaceutical company or biotechnology company, (b) patient self testing use, (c) drug discovery and/or drug development (including at any pharmaceutical company or biotechnology company), including clinical research or determinations in or for clinical trials or in the regulatory approval process for a drug therapy, or (d) veterinary, food, water, or environmental testing or use. The Company’s right to terminate the license is restricted except under certain circumstances.

 

In conjunction with the IGEN Transaction, the Company made a capital contribution to MSD of $37.5 million. MSD was a joint venture between the Company and MST, a company controlled by Mr. Jacob Wohlstadter, the son of Mr. Wohlstadter, the Company’s CEO. In connection with the IGEN Transaction, Mr. Wohlstadter, at the request of the board of directors of IGEN, contributed $7.5 million to the Company in exchange for 1,000 shares of its Series B Preferred Stock, which amounts were used to fund a portion of the $37.5 million capital contributions made to MSD. The Series B Preferred Stock is entitled to receive dividends based on a portion of any distributions paid to the Company by MSD in respect of the Company’s Class C interest in MSD. In connection with the termination of the Company’s joint venture arrangement with MST and the resolution of certain disputes with MST, MSD and Mr. Jacob Wohlstadter, in December, 2004, the

Company sold its interest in MSD to MST, for approximately $9.9 million, which amount is to be paid over time based upon MSD’s net sales and debt or equity financing.

 

In 2005, the Company began to suspect, among other things, that Roche was selling ECL products to customers who were using the products outside the permitted fields of use. Representatives from the Company and Roche had numerous discussions during the latter half of 2005 to discuss, among other things, the evaluation of out-of-field sales and how to meet the needs of these customers, including through individual licenses or certain assay supply arrangements for customers in non-clinical markets.

 

In January 2006, Roche informed the Company that it had preliminarily estimated its 2005 worldwide out-of-field sales to be $2.4 million for “single-use” customers resulting in a $1.5 million fee due to the Company. Roche also informed the Company of its view that it did not owe the Company any amounts with respect to 2004 sales. The Company retained consultants, including L.E.K. Consulting LLP, to attempt to assess the level of out-of-field sales by conducting interviews of customers regarding their usage of their immunoassay instruments for, among other things, research and clinical trials. Although highly dependent on numerous assumptions, including the type and location of Roche’s customers, the Company preliminarily estimated that the fee due from Roche for such out-of-field sales could exceed $30 million annually. After several discussions between the Company and Roche, the Company notified Roche that it disagreed with Roche’s estimate of out-of-field sales for both 2004 and 2005 and Roche and the Company began a formal review of Roche’s ECL sales for 2005 as provided for in the Roche License.

 

Pursuant to the Roche License in May 2006, the Company and Roche jointly engaged Ernst & Young LLP as the independent field monitor to review placements and sales of products and services by Roche in 2005. The field monitor was tasked with preparing a written report, including a list of any sales or placements of products and services that were not within the licensed field and identifying sales or placements of products or services in violation of the license grant. It was later confirmed that the field monitor’s review was expected to continue through April 2007, unless the process was terminated early either by the Company or Roche.

 

On July 20 and September 4, 2006, the Company and Roche discussed a number of possible resolutions to the out-of-field sales dispute. At the September 4, 2006 meeting, Roche first indicated to the Company that it would consider a potential acquisition of the Company to resolve the matter.

 

On September 12, 2006, at the annual meeting of the board, presentations were made to the Company’s directors regarding Roche’s proposed resolutions. Our management presented an update on the status of ongoing discussions with Roche regarding a resolution of the out-of-field sales issues, including, among others, a review of recent meetings with representatives of Roche and a proposed transaction structure. Dechert LLP and Wilmer Cutler Pickering Hale and Dorr LLP, the Company’s outside counsel, addressed the board in detail as to the obligations of the board under securities rules, fiduciary duties and corporate disclosure issues. Representatives of Lehman Brothers made a presentation to the board in connection with Lehman Brothers’ evaluation of a potential transaction with Roche.

 

In response to Roche’s expression of interest and in anticipation of future discussions regarding a potential transaction, on September 13, 2006, the Company entered into a confidentiality agreement with Roche to enable the Company to share information with Roche regarding a potential transaction. Among other provisions, the confidentiality agreement extended, until September 13, 2009, the “standstill” provision in Section 3.10 of the Post-Closing Covenants Agreement between Roche and the Company, dated as of July 24, 2003, which, among other things, prevents Roche and its affiliates from submitting an acquisition proposal, from acquiring stock of the Company or participating in a proxy solicitation without the Company’s consent.

 

On September 19, 2006, the Company expanded its engagement with Lehman Brothers to specifically include serving as its financial advisor in connection with a potential transaction with Roche. As part of its engagement, Lehman Brothers agreed to render an opinion to the board with respect to the fairness to the Company’s common stockholders, from a financial point of view, of the consideration to be offered in a transaction with Roche, if requested to do so by the Company.

 

On October 9, 2006, the Company and Roche met to discuss a potential transaction, including possible structures. Roche explained its preference was that the transaction be structured as a license that would give

Roche freedom to sell their instruments for clinical trials and research purposes. Roche also expressed concern over assuming responsibility for certain existing obligations of the Company to MSD. Regardless of the structure of the transaction, Roche indicated that it did not attribute any value to the Company’s vaccine business. Although potential value ranges for a purchase of the entire Company were discussed, Roche indicated that the value would depend on the structure of the transaction. A representative of Lehman Brothers outlined the basis for the Company’s view of its valuation compared to the market price of the Company. On October 17, 2006, the Company sent Roche a letter outlining a structure involving a spin-off of certain assets in conjunction with the acquisition of the Company by Roche through a cash merger, as well as the Company’s general views on valuation parameters for the Company. In November 2006, Roche sent the Company a letter responding to Lehman’s analysis and to the Company’s proposed structure and indicating a preference for a fully paid-up license but a willingness to discuss all options. The letter also contained Roche’s assessment of the factors that it believed would affect the value of the Company. The Company believed that these factors would point to a value that was significantly lower than the Company’s view on valuation.

 

During this period of time, the Company continued to pursue, without success, discussions with other large diagnostic companies to determine if such companies would be interested in a potential transaction involving the ECL technology. For some time, the Company had also been in discussions with representatives of MSD to address various issues between the Company and MSD under their existing arrangements, including regarding the transfer of equipment, sharing of space, amounts owed by MSD to the Company and transfer of data. In addition, the Company was determining if it was possible to eliminate certain existing contractual relationships with MSD. After Roche raised additional concerns and the need for clarifications regarding certain existing agreements between the Company and MSD, the Company added these issues to its discussion with MSD. Subsequently, MSD indicated that it would seek certain concessions from the Company in exchange for agreeing to certain of the requested clarifications and modifications.

 

On November 7, 2006, the Company demanded that Roche make a payment to the Company for 65% of all revenues earned through out-of-field sales or placements during 2004. On the same date, the Company notified Roche that it was exercising its right under the Roche License to have an independent certified public accountant review Roche’s business records for 2004 and 2005, including sales records, accounting records and accounts of all uses of licensed ECL technology. The Company subsequently retained PriceWaterhouseCoopers (“PwC”) to perform that review. The Company also notified Roche of its desire to engage a field monitor to review Roche’s sales, placements, and compliance for the 2006 calendar year. Disputes subsequently arose between Roche and the Company concerning both of these processes, which led the Company to invoke the dispute resolution process under the Roche License to seek to resolve the issues of who should serve as the field monitor for 2006 and the proper scope of the review being conducted by PwC.

 

On December 1, 2006, the Company engaged Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) to represent the Company in connection with a review of certain strategic alternatives, including a possible sale of the Company. On December 1, 2006, representatives from both companies met to discuss varying aspects of a potential transaction, including the parties’ significantly different views as to valuation. During the course of December, the Company continued to pursue its rights for fees due under the Roche License for 2004, 2005 and 2006.

 

On December 11, 2006, the board met and again discussed the Company’s ongoing discussions with Roche regarding potential resolutions of the out-of-field sales dispute, including a potential transaction with Roche. The board directed management to continue discussions with Roche on a potential transaction to resolve outstanding matters.

 

On December 22, 2006, the Company received a preliminary non-binding proposal from Roche to purchase, by tender offer, all of the Company’s outstanding common shares for $14.25 per share, or approximately $400.7 million in the aggregate, representing a premium of 13.2% over the closing price of $12.59 for the Company’s stock on December 21, 2006. Roche’s letter also indicated that it would make a payment to the holders of the Company’s Series B Preferred Stock equal to the discounted pro rata share of payments from the sale of the Company’s Class C interest in MSD to which the Series B Preferred Stock is entitled. Roche further noted that a tender offer would not include a sale or other disposition of any of the

Company’s assets, although such a sale of assets, such as the vaccines business, to a related party or stockholder would be acceptable if the transaction was structured as a merger. Roche also indicated that it had concerns about the status of certain agreements between the Company and MSD. Roche’s letter further indicated that it would request Mr. and Mrs. Wohlstadter to enter into an agreement to tender all their shares or vote for any merger. The Company asked Lehman Brothers to provide a preliminary valuation of the Company and an analysis of Roche’s December 22 proposal.

 

In late December 2006, the Company received a preliminary payment of $2.8 million, representing Roche’s unilateral, preliminary calculation of amounts owed to the Company for Roche’s sales to certain “single-use” customers in 2004 that were outside Roche’s licensed field of use. The Company notified Roche that this $2.8 million payment did not represent full satisfaction of Roche’s obligations for 2004 out-of-field sales and the Company expressly reserved all rights to seek additional payments.

 

On January 3, 2007, the board met telephonically to review Roche’s December 22 proposal. Skadden made a presentation to the board regarding the board’s fiduciary duties in connection with a potential transaction. Lehman Brothers also made a presentation to the board regarding its valuation perspectives and Roche’s December 22 proposal. Following the presentations from its legal and financial advisors, the board determined that it was in the best interest of the Company’s stockholders to inform Roche that their valuation of the Company was inadequate, but that the Company was prepared to discuss a possible transaction with Roche at a more appropriate valuation.

 

On January 5, 2007, the Company informed Roche that the board believed that its $14.25 proposal was inadequate, but that the Company was prepared to continue discussions to see if a more appropriate valuation level could be reached.

 

On January 10 and 11, 2007, representatives from the Company and Roche met at Skadden’s New York offices to discuss the framework for the structure of a potential transaction. During such meetings, the Company reiterated to Roche that the board had determined that Roche’s December 22, 2006 proposal did not reflect the value of the Company, especially in light of the significant amounts that the Company believed Roche owed and would owe to the Company as a result of its out-of-field sales. Roche informed the Company that any significant additional discussions on value would require the involvement of Roche’s CEO, Dr. Franz Humer. Accordingly, the parties agreed to defer further discussions on valuation and focus the meetings on a structure for the transaction. During the discussions, the parties agreed that the proposed acquisition of the Company would be structured as a typical public company cash merger. The parties also discussed the terms of certain asset sales. Mr. Wohlstadter indicated that he was interested in acquiring the assets related to the vaccine business and a non-exclusive license to use the ECL technology and certain related assets to develop and sell “small” instruments, including for point-of-care. Roche indicated that it had no interest in the vaccines business (and attributed no value to it) and would be willing to have those assets sold prior to the merger. Roche also advised the Company that it did not ascribe significant value to the Company’s point-of-care efforts for its ECL technology and would be prepared to consider Mr. Wohlstadter’s request. Although Roche wanted to be able to fully exploit the ECL technology, it was willing to consider a “benign” license in favor of ECL Newco. The parties agreed that the term of the license and the specific assets and liabilities to be transferred needed to be spelled out in more detail. Roche also indicated that additional pricing discussions could not take place until all material terms of the merger and related transaction were resolved. At this time, Roche reiterated its desire to receive a formal agreement from MSD in connection with the proposed transaction, including relating to the scope of MSD’s rights (including rights with respect to the ECL technology).

 

On January 11, 2007, Roche provided the Company with an initial draft of the ECL license, which had been based on the Roche License. Roche reiterated its view that such license would need to be “benign” — not posing any competitive risk to Roche and be subject to limitations on transfer, sublicensing and upon a change of control. In addition, Roche provided a proposed agreement to be entered into with MSD, which, among other things, contained a release and a clarification of the scope and termination of the MSD joint venture and related research.

 

On January 12, 2007, the board reviewed the current status of discussions with Roche. In connection with those discussions, the board also discussed the potential sale to one or more entities controlled by

Mr. Wohlstadter of the vaccines assets, the ECL assets and the ECL license. In view of the fact that Mr. Wohlstadter was considering purchasing a small amount of assets from the Company in connection with the larger sale transaction with Roche, based on the advice of counsel and with the concurrence of Mr. Wohlstadter, the board determined that it was appropriate to appoint a Special Committee consisting of independent directors Dr. Joop Sistermans and Mr. William J. Crowley, Jr. to review any proposal related to the sale of the vaccines assets, the ECL assets and the ECL license to entities controlled by Mr. Wohlstadter. In addition the Special Committee was granted the authority to review the treatment of the Series B Preferred Stock in a potential merger.

 

On January 22, 2007, the Special Committee formally engaged Shearman & Sterling, LLP (“Shearman”) to serve as its legal advisor. On February 6, 2007, the Special Committee formally engaged Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) to render an opinion as to the fairness, from a financial point of view, to the Company of the proposed consideration to be received by the Company in the transaction being considered by the Special Committee. In meetings of the Special Committee held by telephone in late January and early February, Shearman reviewed with the Special Committee its fiduciary duties in connection with its consideration of a sale of the vaccines assets and the ECL assets, including the ECL license, to Mr. Wohlstadter. Also during this time, representatives of Shearman and Houlihan Lokey began their due diligence and analysis of the relevant assets, including by meeting with and requesting documents and information from Mr. Wohlstadter and representatives of the Company.

 

On January 24, 2007, at the Company’s request, Skadden distributed a draft merger agreement to Roche’s legal counsel for its review.

 

On February 7, 2007, Mr. Wohlstadter submitted a preliminary written proposal to the Special Committee with respect to the acquisition of the vaccines assets, the ECL assets and the ECL license. In this proposal, Mr. Wohlstadter acknowledged the Company’s desire to receive fair value for these assets. Mr. Wohlstadter’s proposal offered a purchase price equal to $1,015,000 for the vaccines assets, including the rights to certain third party licenses and sponsored research agreements, a patent application, equipment and a limited number of transferred employees. In addition the proposal offered a purchase price equal to $2 million for the ECL license and related rights and the book value of other certain assets and equipment related to the ECL business. Mr. Wohlstadter’s letter indicated that his final proposal would not be subject to a financing contingency. Mr. Wohlstadter premised this proposal as being preliminary and subject to change, including based on the terms of the definitive agreements.

 

On February 19 and 20, 2007, representatives of the Company and Roche, and their respective legal counsel, met at Skadden’s New York office to discuss the transaction documents, including the merger agreement and the agreements related to Mr. Wohlstadter’s proposed purchase of the vaccines assets, the ECL assets and the ECL license. During the discussions, the parties made progress on a number of the material terms of the various agreements. While merger consideration was not specifically discussed, representatives of the Company advised Roche that, in order to proceed with the merger, the Company expected a proposal in excess of $20 per share. In addition, the Company informed Roche that, while the negotiations regarding the contractual terms and conditions of Mr. Wohlstadter’s proposed purchases of the vaccines assets, the ECL assets and the ECL license would include Roche, the purchase price for such transactions would be negotiated between Mr. Wohlstadter and the Special Committee, and the contractual terms and conditions of such purchases would be subject to the Special Committee’s review and approval. The parties also reviewed the most recent proposal received from MSD, which included significant financial concessions from the Company requested by MSD. The Company advised Roche that it did not believe that the proposed merger transaction should be conditioned upon obtaining any modifications from MSD and, in view of Roche’s concerns about the concessions being requested by MSD, suggested that Roche conduct further due diligence so that it could become comfortable with the extent of the Company’s existing obligations to MSD.

 

On February 20, 2007, Mr. Wohlstadter delivered a letter to the Special Committee addressing the proposed valuation of the Series B Preferred Stock and its treatment in the proposed transaction with Roche. In this letter, Mr. Wohlstadter outlined the history of the Series B Preferred Stock, specifically:

 

 

In light of the history of the Series B Preferred Stock, and the possible merger with Roche, Mr. Wohlstadter requested that the Special Committee consider equitably adjusting the terms of the Series B Preferred Stock in connection with, and dependent upon the consummation of, the merger to provide that the Series B Preferred Stock be redeemed at its aggregate purchase price of $7.5 million.

 

Shortly thereafter, the Special Committee informed Mr. Wohlstadter that, in connection with Mr. Wohlstadter’s Series B Preferred Stock, it would not be prepared to consider any adjustment to the terms of the Series B Preferred Stock, including any cashing out of the Series B Preferred Stock in the merger for more than the face value of the stream of dividends to which the Series B Preferred Stock was entitled, which the Company had estimated to be approximately $610,000.

 

On February 21, 2007, Mr. and Mrs. Wohlstadter met with representatives of the Company and the Company’s financial and legal advisors, as well as the Special Committee’s legal and financial advisors, to discuss Mr. Wohlstadter’s proposed valuation of the vaccines assets, the ECL assets and the ECL license.

 

On February 22, 2007, the Company informed Roche that Roche was prohibited from making any further sales of ECL products to out-of-field customers that had been identified by Roche in a letter dated February 7, 2007, and any other customers whom Roche had reason to believe were using ECL products outside of the field. The Company further demanded that Roche make payment to the Company for 65% of all revenues earned through out-of-field sales or placement beyond those covered by the $2.8 million payment that Roche remitted to the Company in December 2006, including for sales in 2004, 2005, 2006, and 2007, together with interest on all amounts due. The Company also reserved the right to seek further payment for any additional out-of-field sales identified through the ongoing examinations by the field monitor and PwC. In a response dated March 2, 2007, Roche refused to make additional “voluntary” payments for out-of-field sales without a report from the field monitor, disagreed with the Company’s view on the 2004 payments and agreed that it would make no further sales for out-of-field uses to the single-use customers it had previously identified.

 

On February 22 and 23, 2007, the board held a meeting at which they discussed, among other things, the progress of negotiations in relation to a potential transaction with Roche and to hear a preliminary report from the Special Committee. The board also discussed the terms of proposed amendments to the Company’s termination protection program and the possible adoption of a broad-based severance plan for employees. The board also determined that if Roche required amendments to the MSD agreements in order to consummate a transaction that such modifications should be negotiated by Roche directly with MSD. Management also updated the board on developments in connection with the ongoing field monitor and audit process relating to the dispute over the Roche License. At such meeting, the board authorized the payment of a $12,000 fee to each member of the Special Committee.

 

The Special Committee met again with its financial and legal advisors on February 23, 2007, to further review and discuss, among other things, the potential transactions in which Mr. Wohlstadter would acquire the vaccines assets, the ECL assets and the ECL license from the Company. The Special Committee also discussed Mr. Wohlstadter’s Series B proposal. After this meeting, the Special Committee met with Mr. and Mrs. Wohlstadter and representatives of the Company to further discuss Mr. Wohlstadter’s various proposals

and advised Mr. Wohlstadter that the Special Committee would not be prepared to pursue a proposal by Mr. Wohlstadter unless he significantly increased his proposed purchase price.

 

On February 28, 2007, representatives of the Company, along with their financial and legal advisors, met with Mr. and Mrs. Wohlstadter, Mr. Wohlstadter’s legal counsel (participating by telephone), and the Special Committee’s financial and legal advisors, to further discuss the methodology and valuation of the vaccines and ECL assets, including the ECL license, and the significant limitations on the ECL license that had been imposed by Roche.

 

In late February 2007, the Company communicated to Roche that should it require amendments to the existing MSD agreements such modifications should be negotiated directly with MSD and any financial consideration for such modifications would need to be over and above amounts paid to the Company’s stockholders. As a result, Roche’s legal representatives performed additional diligence on MSD, including, with MSD’s consent, reviewing certain research and development summaries relating to the joint venture between the Company and MSD, which terminated in 2004. On March 8, 2007, Roche advised the Company that for the time being Roche was willing to proceed with the transaction without obtaining any written modifications from MSD. The Company and Roche subsequently agreed to include a specific covenant in the merger agreement whereby the surviving corporation would agree to perform and observe all terms, covenants and conditions of all binding obligations of the Company to MSD and MST.

 

On March 9, 2007, representatives of the Company and Roche, together with their legal advisors, engaged in a conference call to discuss open issues relating to the merger transaction, and agreed to meet in person during the weeks of March 19 and 26, 2007 to continue discussing the terms of the transaction.

 

On March 12, 2007, PwC notified Roche and the Company that it was calling a hiatus to its audit work due to limitations imposed by Roche.

 

On March 20, 22 and 23, 2007, Mr. Wohlstadter and representatives from the Company and Roche, along with each of their respective legal advisors, met in person in Washington, DC to further negotiate the terms and conditions of the various agreements related to the merger and the transactions with entities controlled by Mr. Wohlstadter. Although Roche was not prepared to discuss issues of valuation, representatives of the Company reiterated that any valuation of the Company would need to be in excess of $20 per share. In addition, in making its merger proposal, Roche was advised that it should value the entire Company, including the vaccines assets, ECL assets and ECL license, and assume that the Company would receive fair value for such assets in the sale to Mr. Wohlstadter and that the proceeds of such sale would remain in the Company following the merger. The Special Committee met with its financial and legal advisors telephonically on March 22, 2007 to further discuss Mr. Wohlstadter’s various proposals.

 

On March 23, 2007, Mr. Wohlstadter submitted a letter to the Special Committee containing a modified proposal for the ECL assets, ECL license and vaccines assets. In the modified proposal, Mr. Wohlstadter expressed his view that the form of the agreements, as currently negotiated, relating to the transaction contained restrictive provisions that had the effect of substantially reducing the value of the assets from his original expectations, most notably in relation to the scope and restrictions of the ECL license. In addition to the changes to the agreements relating to the asset sales and ECL license, Mr. Wohlstadter outlined certain factors relating to valuation metrics which he viewed as critical and urged the Special Committee to consider, including, the following:

 

 

 

In the March 23, 2007 letter, Mr. Wohlstadter indicated that his revised proposal for the ECL assets, including the ECL license, was $250,000, plus the book value of ECL assets. Mr. Wohlstadter did not modify his original February 7, 2007 proposal with respect to the vaccines assets, despite his view that there had been adverse changes to the terms and conditions of the vaccines asset purchase agreement documents.

 

During the weekend of March 24 and 25, 2007, Mr. George Migausky, the Company’s chief financial officer, and Mr. Patrick Christmas, the Company’s general counsel, at the request of Mr. Wohlstadter, telephonically discussed the status of the proposed purchase and valuation of the vaccines assets, the ECL assets and the ECL license with the members of the Special Committee.

 

On March 26, 2007, management and representatives from the Company and Roche, including, for parts of the meetings, Dr. Franz Humer, Roche’s chief executive officer, Dr. Erich Hunziker, Roche’s chief financial officer, and Dr. Gottlieb Keller, a member of Roche’s Executive Committee, along with their respective legal advisors, met to discuss the revised valuation by Roche and the various transaction documents. Dr. Humer initially indicated that Roche would be prepared to increase its proposal to $18.50 per share, which, following further negotiating and discussions, was later increased to $19.75 per share. Representatives of the Company consulted with their financial and legal advisors, following which the meeting resumed and the Company informed Roche that $19.75 did not reflect the full value of the Company. After further negotiations, Dr. Humer indicated that, subject to the satisfactory negotiation of the transaction documentation, Roche would be willing to offer the Company’s common stockholders $21.50 per share in cash in a one-step merger transaction and that such price represented Roche’s final offer. Management of the Company, including Mr. Wohlstadter, indicated that they would be willing to support a merger with Roche at a price of $21.50 per share of Common Stock, or approximately $600 million in the aggregate. Roche confirmed that the price per share that it had offered would not be increased or decreased by the amounts paid by Mr. Wohlstadter under the contemplated vaccines and ECL asset sales, assuming that the Special Committee approved the terms of such sales. At the end of such meeting, the parties agreed to continue their negotiations regarding the terms and conditions of the various agreements.

 

Later that day and on the following day, Mr. Wohlstadter and Mr. Migausky updated the members of the board regarding the valuation discussions with Roche.

 

On March 27, 2007, in response to a request from Houlihan Lokey, Mr. Wohlstadter provided a business summary to the Special Committee regarding 32 Mott Street Acquisition II, LLC, the Delaware limited liability company that was formed in connection with the proposed acquisition of the ECL assets and the ECL license. The report contained, among other things, risk factors, financial and operational assumptions and financial projections for the new entity. Mr. Wohlstadter’s counsel, representatives of the Company, and the Company’s financial and legal advisors, engaged in a conference call with the Special Committee’s legal and financial advisors to discuss the valuation of the ECL assets and the ECL license.

 

During the week of March 26, 2007, the parties and their respective representatives continued to negotiate the terms and conditions of the various agreements relating to the merger and the transactions with entities controlled by Mr. Wohlstadter, including the terms and consideration to be paid for both the Series B Preferred Stock and Mr. Wohlstadter’s non-disclosure and non-solicitation agreement and release.

 

Shearman, at the instruction of the Special Committee, informed representatives of Mr. Wohlstadter, through representatives of the Company, that the Special Committee would not be prepared to recommend Mr. Wohlstadter’s March 23 proposal unless it was at a higher price than that contained in the proposal. Beginning on March 29 and 30, 2007, Mr. Wohlstadter submitted a series of revised proposals to the Special

Committee with respect to the vaccines assets and the ECL assets, including the ECL license, each of which proposals included a payment at closing and a series of payments in later years. The proposals differed mainly in the amount and the level of certainty of the back-end payments. After reviewing and discussing each proposal, the Special Committee, through its representatives, indicated that it would not be prepared to recommend such a proposal unless it was revised to include a higher aggregate price and more certainty with respect to the back-end payments.

 

On March 31, 2007, Mr. Wohlstadter submitted a revised proposal to the Special Committee to address its concerns about price and the conditionality of the back-end payments under his previous proposals. He proposed that he acquire the vaccines assets for (a) $1,000,000 to be paid at closing, (b) three annual payments of $50,000 to be paid on the anniversaries of the closing date and (c) a final payment of $2,709,000 to be paid on the earlier of the third anniversary of closing or the receipt of certain third party financing. Mr. Wohlstadter also proposed that he acquire the ECL assets and the ECL license for (a) $1,000,000 to be paid at closing, (b) three annual payments of $50,000 to be paid on the anniversaries of the closing date and (c) a final payment of $1,568,000 to be paid on the earlier of the third anniversary of closing or the receipt of certain levels of financing, as well as absorbing up to $779,000 in connection with certain severance obligations of the Company.

 

A telephonic meeting of the Special Committee was held in the evening of April 1, 2007. At the meeting, the Special Committee discussed the March 31 proposal with representatives of Houlihan Lokey and Shearman, and Shearman reviewed with the Special Committee the terms of the purchase agreements with respect to the vaccines assets and the ECL assets and of the ECL license agreement. That evening, the Special Committee advised Mr. Wohlstadter that it would be willing to consider the sale of the vaccines assets and ECL assets, including the ECL license, on the terms set forth in Mr. Wohlstadter’s March 31 proposal, provided that Mr. Wohlstadter personally guarantee the annual payments and the final fixed payments, and that the acquisition vehicle controlled by Mr. Wohlstadter commit to pay the Company $779,000 in connection with certain severance obligations relating to the ECL asset transfer at closing. Mr. Wohlstadter subsequently agreed to these terms. Roche was then informed of the amounts agreed to between Mr. Wohlstadter and the Special Committee.

 

On April 2-4, 2007, the board held a special meeting to consider the approval of the merger agreement, the acquisition of the vaccines assets, the ECL assets and the ECL license by entities controlled by Mr. Wohlstadter, and the transactions contemplated by such agreements. At the meeting:

 

 

 

 

 

 

 

The meeting was adjourned until the late afternoon of April 3, 2007.

 

Beginning in the evening of April 2, 2007 and lasting into the evening of April 3, 2007, representatives of the Company and Roche and Mr. Wohlstadter’s counsel engaged in discussions to finalize various agreements, including the merger agreement, disclosure schedules, press releases, Mr. Wohlstadter’s non-solicitation and non-disclosure agreement and stockholders agreement and to agree on the treatment of the Series B Preferred Stock. During these discussions, Mr. Wohlstadter and Roche agreed that Roche would purchase Mr. Wohlstadter’s Series B Preferred Stock directly from Mr. Wohlstadter, that the Series B Preferred Stock would not be cancelled in the merger and that Mr. Wohlstadter would release any claims he had relating to the Series B Preferred Stock. Roche and Mr. Wohlstadter agreed that in consideration of Mr. Wohlstadter’s entering into the non-solicitation and non-disclosure agreement (including a release relating to certain intellectual property claims), the purchase of his Series B Preferred Stock and the release of potential claims related to the Series B Preferred Stock, Roche would pay Mr. Wohlstadter an aggregate lump sum of $2,750,000 in cash at the closing of the merger.

 

On the afternoon of April 3, 2007, the board recommenced its meeting. It was reported that the Series B Preferred Stock would not be cashed out in connection with the merger. Rather, in consideration for the purchase of the Series B Preferred Stock and Mr. Wohlstadter’s release of potential claims relating to the Series B Preferred Stock and Mr. Wohlstadter’s entering into certain other agreements, including the non-solicitation and non-disclosure agreement, Roche would pay Mr. Wohlstadter a lump sum of $2,750,000 in cash at the closing of the merger. The board then adjourned the meeting until the next morning.

 

On April 3, 2007 following the board meeting, the Special Committee held a meeting by telephone. At the meeting, representatives of Shearman reviewed with the Special Committee its fiduciary duties in connection with its consideration of the proposed sales of the vaccines assets and the ECL assets, including the ECL license. Representatives of Houlihan Lokey reviewed with the Special Committee its financial analyses of the revised proposal and rendered to the Special Committee an oral opinion, which opinion subsequently was confirmed in writing, to the effect that, as of the date of its written opinion and based upon and subject to the assumptions, limitations, qualifications and other matters described in its opinion, the consideration to be received by the Company from Mr. Wohlstadter for the vaccines assets, the ECL assets and the ECL license was fair, from a financial point of view, to the Company. The Special Committee unanimously resolved to recommend that the board approve the transfers of the vaccines assets and the ECL assets, including the ECL license, to Mr. Wohlstadter.

 

On the morning of April 4, 2007, the board recommenced its meeting. First, the Special Committee recommended to the board that the Company enter into the asset transfer agreements related to the vaccines assets, and the ECL assets and ECL license. Following careful consideration of the proposed merger agreement and the transactions with entities controlled by Mr. Wohlstadter, and the agreement entered into between Mr. Wohlstadter and Roche, including discussions with the Company’s financial and legal advisors, the board unanimously determined that the terms and conditions of the merger agreement negotiated with Roche were advisable and fair to and in the best interests of the Company’s stockholders, unanimously approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously resolved to recommend that the Company’s stockholders vote to approve and adopt the merger

agreement and the transactions contemplated by the merger agreement, including the merger. The board (with Mr. Wohlstadter abstaining) also approved the transactions with the entities controlled by Mr. Wohlstadter.

 

The merger agreement was executed by the parties on the morning of April 4, 2007. Prior to the opening of trading of the Common Stock on the NASDAQ on April 4, 2007, the Company issued a press release announcing the execution of the merger agreement and the transactions with entities controlled by Mr. Wohlstadter. Roche issued a similar press release on April 4, 2007.

 

Our board of directors, acting with the advice and assistance of its legal and financial advisors, evaluated the merger agreement and the consideration negotiated with Roche and their representatives. Our board of directors determined that the merger agreement, and the transactions contemplated thereby, including the proposed merger, are advisable and substantively and procedurally fair to and in the best interests of the Company and its stockholders. At a special meeting of our board of directors, held on April 2, 2007 and continued on April 3 and 4, 2007, at which all of the directors of the Company were present, our board of directors unanimously (with Mr. Wohlstadter abstaining with respect to the approval of the asset transfer agreements and related transactions) resolved to adopt and approve the merger agreement and the transactions contemplated thereby, including the proposed merger, and to recommend to our stockholders that they vote for the approval of the merger agreement.

 

In the course of reaching its recommendation, our board of directors consulted with our management, financial and legal advisors and considered a number of substantive factors, both positive and negative, and potential benefits and detriments of the merger. Our board of directors believed that, taken as a whole, the following factors supported its decision to approve the proposed merger:

 

 

 

 

 

 

 

 

 

 

 

 

 

Our board of directors also considered potential risks or negative factors relating to the merger, including the following:

 

 

 

 

 

 

 

Our board of directors concluded that the potentially negative factors associated with the proposed merger were substantially outweighed by the opportunity for the Company’s stockholders to realize a substantial premium on the value of their Common Stock and monetize their investment in the Company for $21.50 in cash per share of Common Stock. Our board of directors believed that the proposed merger would maximize the immediate value of the stockholders’ shares and eliminate the significant risk and uncertainty associated with monetizing the out-of-field sales payments owed to us by Roche under the Roche License, and that the inherent uncertainty affecting the Company’s industry and future prospects could result in a diminution in the market value of their shares. Accordingly, our board of directors concluded that the proposed merger was in the best interests of stockholders.

 

The foregoing discussion summarizes the material information and factors considered by the board of directors in its consideration of the proposed merger and related transactions. Our board of directors collectively reached the unanimous decision to approve the merger agreement and related transactions in light of the factors described above and other factors that each member of the board of directors felt were appropriate. In view of the variety of factors and the quality and amount of information considered, the board

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. Individual members of our board of directors may have given different weight to different factors.

 

After careful consideration, our board of directors, by unanimous vote of our directors:

 

 

On September 19, 2006, the Company expanded its engagement with Lehman Brothers to act as BioVeris’ financial advisor with respect to exploring strategic alternatives, including a potential transaction with Roche. At the April 2-4, 2007 board meeting, Lehman Brothers rendered its oral opinion to the BioVeris board of directors, subsequently confirmed in writing, that as of the date of the opinion and, based upon and subject to the matters stated in its opinion, from a financial point of view, the consideration to be offered to the common stockholders of BioVeris in the merger was fair to such stockholders.

 

The full text of the written opinion of Lehman Brothers, dated April 4, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken by Lehman Brothers in connection with the opinion, is attached to this proxy statement as Annex B and is incorporated herein by reference. Lehman Brothers provided its advisory services and opinion for the use and benefit of the BioVeris board of directors in connection with its consideration of the merger. The opinion was one of a number of factors considered by the BioVeris board of directors in deciding to approve the merger. Lehman Brothers’ opinion is not intended to be and does not constitute a recommendation to any stockholder of BioVeris as to how that stockholder should vote with respect to the merger. Lehman Brothers was not requested to opine as to, and its opinion does not in any manner address, BioVeris’ underlying business decision to proceed with or effect the merger. The following is a summary of Lehman Brothers’ opinion and the methodologies that Lehman Brothers employed in arriving at its opinion. This summary of Lehman Brothers’ opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

 

In arriving at its opinion, Lehman Brothers reviewed and analyzed, among other things:

 

 

 

 

 

In addition, Lehman Brothers had discussions with the management of BioVeris concerning BioVeris’ business, operations, assets, liabilities, financial condition and prospects and undertook such other studies, analyses and investigations as Lehman Brothers deemed appropriate.

 

In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information used by Lehman Brothers without assuming any responsibility for independent verification of such information. Lehman Brothers further relied upon the assurances of the management of BioVeris that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of BioVeris, Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of BioVeris as to the future financial performance of BioVeris and that BioVeris will perform substantially in accordance with such projections. In arriving at its opinion, Lehman Brothers conducted only a limited physical inspection of the properties and facilities of BioVeris and did not make or obtain any evaluations or appraisals of the assets or liabilities of BioVeris. In addition, BioVeris did not authorize Lehman Brothers to solicit, and Lehman Brothers did not solicit, any formal indications of interest from any third party with respect to the purchase of all or a part of BioVeris’ business. Lehman Brothers’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of Lehman Brothers’ opinion. Lehman Brothers was not requested to opine as to, and its opinion did not in any manner address, the underlying business decision of BioVeris to proceed with or effect the merger.

 

As compensation for its services as financial advisor in connection with the transaction, BioVeris will pay Lehman Brothers a fee of approximately $6,700,000, payable on completion of the merger. In addition, BioVeris has agreed to reimburse Lehman Brothers for reasonable out-of-pocket expenses incurred in connection with the transaction and to indemnify Lehman Brothers for certain liabilities that may arise out of its engagement by BioVeris and the rendering of the Lehman Brothers opinion. Lehman Brothers in the past has rendered investment banking services to Roche and to IGEN and received customary compensation for such services, and expects to perform various investment banking services for Roche and its affiliates in the future for which it expects to receive customary fees. In the ordinary course of its business, Lehman Brothers actively trades in the debt or equity securities of BioVeris and Roche for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

Lehman Brothers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. BioVeris selected Lehman Brothers as its financial advisor because its investment banking professionals have substantial experience in the life sciences diagnostics industry, and in transactions similar to the merger.

 

Financial Analyses of BioVeris’ Financial Advisor

 

The following is a summary of the material financial analyses presented by Lehman Brothers to the BioVeris board of directors in connection with providing its opinion to the BioVeris board of directors. The following summary, however, does not purport to be a complete description of the financial analyses performed by Lehman Brothers. The order of analyses described does not represent relative importance or weight given to those analyses performed by Lehman Brothers. The tables must be read together with the full text of each summary and are alone not a complete description of Lehman Brothers’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 30, 2007, and is not necessarily indicative of current market conditions.

 

Historical Trading Analysis

 

Lehman Brothers considered the historical public market trading performance of BioVeris since February 17, 2004, the first trading date after its spin-off from IGEN, through March 30, 2007 and compared this historical public market trading performance with Roche’s offer price of $21.50 per share of the Common Stock. Lehman Brothers compared BioVeris’ volume-weighted average Common Stock price for the one-month, three-month and six-month periods ended March 30, 2007, the closing Common Stock price on March 30, 2007, and the closing high Common Stock price since the spin-off, to the offer price of $21.50 per share of the Common Stock. The results of this analysis are summarized as follows:

 

Stock Price Performance Since Spin-off

 

 

The Common Stock price decreased by 15.9% from the closing price of $15.80 per share on February 17, 2004 to the closing price of $13.29 per share on March 30, 2007, while the percentage increase from the closing price of $15.80 per share on February 17, 2004 to Roche’s offer price of $21.50 per share of the Common Stock is 36.1%. Lehman Brothers also noted that Roche’s offer price represented 150.7% of the 52-week high stock price of the Common Stock, or a 50.7% premium, and 634.2% of the 52-week low stock price of the Common Stock, or a 534.2% premium. Lehman Brothers also noted that the percentage increase in the closing market capitalization weighted index value from February 17, 2004 to March 30, 2007 for selected public companies in the diagnostics industry, including well established companies focused on In-Vitro Diagnostics, and Emerging/Niche Diagnostics companies, was 62.4% and 57.3%, respectively. The companies included in each of these indices are identified in the following paragraph.

 

Selected Companies Analysis

 

Lehman Brothers calculated valuation multiples implied by the $21.50 per share offer price for the acquisition of BioVeris by Roche and compared those valuation multiples to valuation multiples of selected public companies in the diagnostics industry, including well established companies focused on In-Vitro Diagnostics, and Emerging/Niche Diagnostics companies. Although none of the selected companies is completely comparable to BioVeris, the companies included were chosen because they are companies with operations that for purposes of analysis may be considered similar to BioVeris’ business. The In-Vitro Diagnostics companies selected were Beckman Coulter, Becton Dickinson, bioMerieux, Bio-Rad Laboratories, Bruker Biosciences and Dade Behring Holdings. The Emerging/Niche Diagnostics companies selected were Cepheid, Cholestech, Clinical Data, Cytyc, Digene, Gen-Probe, Inverness Medical, Luminex, Meridian

Bioscience, Monogram Biosciences, Myriad Genetics, OraSure Technologies, Quidel and Ventana Medical Systems.

 

The valuation multiples for each applicable company were calculated on the basis of both revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”). For the purpose of the multiples of EBITDA, a subset of companies including Beckman Coulter, Becton Dickinson, bioMerieux, Bio-Rad Laboratories, Bruker Biosciences, Cholestech, Cytec, Dade Behring Holdings, Digene, Gen-Probe, Inverness Medical and Ventana Medical Systems was analyzed as certain data was not available for the full universe of companies analyzed. Lehman Brothers first analyzed revenue multiples calculated by dividing the enterprise value of each company, in each case as of March 30, 2007, by estimated revenues for calendar year 2007; Lehman Brothers also analyzed EBITDA multiples calculated by dividing the enterprise value of each company, in each case as of March 30, 2007, by the estimated EBITDA for the calendar year 2007. The data derived was compared to the estimated revenue and EBITDA multiples for BioVeris for its fiscal year ending March 31, 2008. EBITDA should not be considered in isolation from, or as a substitute for net income and other consolidated income statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability. Additionally, BioVeris’ computation of EBITDA may not be comparable to other similarly titled measures computed by other companies. Not all companies calculate EBITDA in the same manner. Lehman Brothers calculated the enterprise value as the market value of common equity plus the book value of debt less the book value of cash and cash equivalents as of March 30, 2007, and in the case of BioVeris, such cash and cash equivalents after giving effect to the Proposed Asset Transactions. The estimated revenue and EBITDA attributable to BioVeris for the fiscal year ending March 31, 2008 were determined using information provided by the management of BioVeris, inclusive of management’s estimate for out-of-field payments due from Roche. The same multiples were calculated with respect to selected public companies in the In-Vitro Diagnostics and Emerging/Niche Diagnostics industries using information available from public filings and consensus forecasts of revenue and EBITDA as reported by the Institutional Brokers’ Estimate System (“IBES”). The results of these analyses are summarized as follows:

 

Selected Companies Analysis

 

 

Note: EBITDA analysis excludes Myriad Genetics, Meridian Bioscience, Cepheid, Luminex, Quidel, OraSure Technologies, Monogram Biosciences and Clinical Data as estimates of 2007 estimated EBITDA were not meaningful.

 

Selected Transactions Analysis

 

Lehman Brothers reviewed selected transactions in the diagnostics industry to assess how similar Emerging/Niche Diagnostics as well as In-Vitro Diagnostics transactions were valued. Transactions reviewed for the analysis included the following (Target/Acquirer):

 

Emerging/Niche Diagnostics:

Molecular Devices / MDS (2007)

Lumigen / Beckman Coulter (2006)

TriPath / Becton Dickinson (2006)

Vision Systems / Danaher (2006)

Focus Diagnostics / Quest Diagnostics (2006)

ACON Laboratories / Inverness Medical (2006)

Diagnostic Systems Laboratories / Beckman Coulter (2005)

Novacept / Cytyc (2004)

i-STAT / Abbott (2003)

Unipath / Inverness Medical (2001)

Vysis / Abbott (2001)

 

In-Vitro Diagnostics:

Biosite / Beckman Coulter (2007)

Dako / EQT Partners (2007)

Phadia / Cinven (2006)

Bayer Diagnostics / Siemens (2006)

Diagnostic Products / Siemens (2006)

Serologicals / Millipore (2006)

Pfizer Diagnostics / Triton, PPM Ventures (2004)

Radiometer / Danaher (2003)

Amersham / General Electric (2003)

Perbio Science / Fisher Scientific (2003)

Chiron Diagnostics / Bayer (1998)

Coulter / Beckman (1997)

E.I. du Pont / Dade (1995)

Ciba Corning / Chiron (1994)

Baxter Diagnostics / Bain Capital (1994)

 

Using information available from company filings, public research and other sources for each of the selected transactions, Lehman Brothers calculated: (a) enterprise value as a multiple of revenue for the last twelve months (LTM) at transaction announcement date, and (b) enterprise value as a multiple of EBITDA for the last twelve months (LTM) at transaction announcement date. In determining enterprise value for BioVeris, the cash and cash equivalents were included after giving effect to the Proposed Asset Transactions. For the purpose of the multiples of EBITDA, a subset of transactions including Molecular Devices / MDS and TriPath / Becton Dickinson was analyzed as certain data was not available for the full universe of transactions analyzed. The same analysis was conducted using LTM revenue and EBITDA of BioVeris for the fiscal year ending March 31, 2007, inclusive of management’s estimate for out-of-field payments due from Roche, for

purposes of comparing the selected transactions to the proposed merger with Roche. The following table presents the results of this analysis:

 

Selected Transaction Analysis

 

 

Discounted Sum-of-the-Parts Analysis

 

Lehman Brothers performed a sum-of-the-parts analysis on BioVeris using financial projections from BioVeris management, aggregating the sum of BioVeris’ interests in: (i) BioSecurity, Clinical Point-of-Care and Life Science Diagnostics, and Vaccines after giving effect to the Proposed Asset Transactions, (ii) estimated historical and projected out-of-field payments due from Roche, and (iii) financial assets consisting of net cash and net operating losses (“NOLs”).

 

BioVeris’ interests in BioSecurity, Clinical Point-of-Care and Life Science Diagnostics were each valued using financial operating projections from company management, discounting projected after-tax cash flows through 2017, and discounting a terminal value based on a terminal growth rate of 3%. Each division’s cash flows were discounted using a range of discount rates. The discount rates used in the analysis were chosen by Lehman Brothers based on its expertise and experience with the diagnostics industry and also on an analysis of the weighted average cost of capital for selected comparable companies. The following ranges of discount rates were used to discount cash flows: (i) BioSecurity, 10% - 12%; (ii) Clinical Point-of-Care, 25% - 35%; and (iii) Life Science, 10% - 12%.

 

BioVeris’ estimated historical and projected out-of-field payments due from Roche were based on BioVeris management estimates. The out-of-field payments were discounted at a range of 8% - 10%, based on Lehman Brothers’ expertise and experience with the diagnostics industry and also on Lehman Brothers’ estimate of Roche’s own cost of capital.

 

BioVeris’ NOLs are also included as part of the total net financial assets component discounted sum-of-the-parts analysis. The tax savings to be derived through the use of the NOLs are discounted at a range of 8% - 10%. Total net financial assets also include estimated net cash of $44 million after giving effect to the Proposed Asset Transactions.

 

The table below provides the range of estimated per share values based on the sum-of-the-parts analysis:

 

Discounted Sum-of-the-Parts Analysis

 

 

General

 

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 application of those methods to the particular circumstances and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete and/or inaccurate view of the processes underlying the analyses on which the opinion of Lehman Brothers was based. In arriving at its fairness determination, Lehman Brothers considered the results of all of its analyses as a whole and made qualitative judgments as to the significance and relevance of each factor and analysis, and did not attribute any particular weight to any factor or analysis considered by it. Rather, Lehman Brothers made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to BioVeris or the contemplated acquisition by Roche.

 

Lehman Brothers prepared these analyses for purposes of providing its opinion to BioVeris’ board of directors as to the fairness from a financial point of view of the consideration to be offered by Roche to the BioVeris common stockholders in the merger. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of BioVeris, Lehman Brothers or any other person assumes responsibility if future results are materially different from those forecasted.

 

The consideration to be paid in the merger was determined through arms’-length negotiations between BioVeris and Roche and was approved by BioVeris’ board of directors. Lehman Brothers provided advice to BioVeris during these negotiations. Lehman Brothers did not, however, recommend any specific amount of consideration to BioVeris or its board of directors, or that any specific amount of consideration constituted the only appropriate consideration for the merger.

 

As described above, Lehman Brothers’ opinion to BioVeris’ board of directors was one of a number of factors taken into consideration by BioVeris’ board of directors in making its determination to approve the merger. The foregoing summary does not purport to be a complete description of the analyses performed by Lehman Brothers in connection with its fairness opinion and is qualified in its entirety by reference to the written opinion of Lehman Brothers attached to this proxy statement as Annex B. Lehman Brothers has delivered its consent to the inclusion of its opinion in Annex B.

 

Roche and Merger Sub have represented to us that their obligations and performance under the merger agreement are not subject to any conditions regarding their, or any other person’s, ability to obtain financing

for the merger and related transactions. Moreover, Roche has represented that as of the signing of the merger agreement, and as of the effective time of the merger, it will have cash on hand sufficient to enable it and Merger Sub to pay all amounts to be paid by Roche and Merger Sub in connection with the merger and its agreements with Mr. Wohlstadter.

 

If the merger agreement is adopted by our stockholders and certain other conditions to the closing of the merger are satisfied, Merger Sub will be merged with and into the Company, with the Company being the surviving corporation. Following the merger, the entire equity in the Company will be controlled by Roche (through the conversion, at the time of the merger, of each share of Merger Sub into one share of Common Stock, and through Roche’s purchase of Mr. Wohlstadter’s Series B Preferred Stock. See “The Merger — Interests of Certain Persons in the Merger” beginning on page 38).

 

When the merger is completed, each share of our Common Stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by the Company in treasury, by Parent or Merger Sub, or held by stockholders who are entitled to and who properly exercise appraisal rights in compliance with all of the required procedures under the laws of Delaware) will be converted into the right to receive $21.50 in cash without interest, less any applicable withholding taxes.

 

In considering the recommendation of our board of directors with respect to the merger, you should be aware that certain of our executive officers, members of management and directors have interests in the merger that may be different from or be in addition to your interests. Specifically, in connection with the purchase by entities controlled by Mr. Wohlstadter of the vaccines assets, ECL assets and the ECL license, our board appointed a Special Committee of independent directors to evaluate those purchases. The Special Committee engaged separate independent legal and financial advisors in connection with their evaluation. See “The Related Agreements — The Asset Transfer Agreements” beginning on page 58.

 

These interests may create potential conflicts of interest. Our board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and the merger and to recommend that you vote in favor of adopting the merger agreements.

 

Treatment of Stock Options and Restricted Stock Awards

 

As of May 21, 2007, there were approximately 911,200 shares of Common Stock subject to stock options and 204,227 shares of Common Stock subject to unvested restricted stock awards granted under our equity incentive plan to our executive officers, directors, and other parties in interest.

 

Each outstanding stock option that remains unexercised as of the completion of the merger, shall be fully vested and converted into the right to receive, in full satisfaction of such option, a cash amount, less applicable withholding taxes, equal to the product of:

 

 

Each restricted stock award that remains unvested as of the completion of the merger, shall be fully vested and converted into the right to receive, in full satisfaction of such restricted stock award, a cash amount equal to the product of:

 

 

The following table summarizes the vested and unvested options and the unvested restricted stock awards held by our executive officers, directors and other parties in interest as of May 21, 2007 and the consideration that each of them will receive pursuant to the merger agreement in connection with the cash-out of their options and restricted stock awards.

 

 

 

 

 

Termination Protection Program

 

Our termination protection program, effective as of February 13, 2004, provides severance benefits to its participants in the event that they (x) resign for “good reason” or are terminated “without cause” within thirty months following a change of control (which, by the terms of the termination protection program, would include the merger) or (y) are terminated prior to a change of control at the request of a party involved in such change of control, or otherwise in connection with the change of control. The severance benefits include, among other things: (i) a cash lump sum payment equal to the sum of (a) the participant’s pro rata target annual bonus in respect of the year of termination (which bonus is permitted by the merger agreement), (b) any unpaid salary through the date of termination, (c) any bonus earned but unpaid as of the date of termination for any previously completed year, (d) all compensation previously deferred but unpaid, (e) reimbursement for any unreimbursed expenses incurred by the participant and (f) an amount equal to 150% of the sum of the highest annual maximum bonus paid to the participant during the past three fiscal years and the annual base salary in effect at the time of the change of control, (ii) any fringe benefits or perquisites that the participant is entitled to as of the date of termination, (iii) any unvested Company stock options held by the participant becoming fully vested as of the date of termination and remaining exercisable for two years, (iv) continued eligibility for other employee benefits for a period of 18 months and (v) any tax gross-up payment to reimburse the participant for the payment of taxes under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The termination protection program includes an addendum that allows the chief executive officer to designate various employees to receive the following increased severance benefits: (A) with respect to up to six participants,

the percentage referred to in (i)(f) above shall be 200% rather than 150%, (B) with respect to up to four participants, the percentage referred to in (i)(f) above shall be 300% rather than 150%, (C) with respect to up to 39 participants, the period referred to in (iv) above shall be 24 months instead of 18 months, and (D) with respect to up to three participants, the period referred to in (iv) above shall be, instead of 18 months, life (with respect to medical and dental benefits and an annual comprehensive physical) and 36 months (with respect to other employee benefits). Messrs. Wohlstadter, Migausky and Christmas have been designated to receive 300%.

 

On April 4, 2007, our board of directors adopted an amendment (the “TPP amendment”) to the termination protection program. The TPP amendment allows our chief executive officer to designate up to three participants of the termination protection program who will be entitled to lump sum payments in lieu of lifetime medical benefits continuation and a reduced period of eligibility for non-medical employee benefits following their termination. The three individuals designated to receive lump sum payments in lieu of the lifetime medical benefits continuation that they had previously been entitled to receive under the termination protection program are Mr. Wohlstadter, our chief executive officer, Mr. Migausky, our chief financial officer, and Mr. Christmas, our general counsel. These individuals have agreed with the Company that, until the earlier of the termination of the merger agreement or the effective time of the merger, the net present value of their lifetime medical benefits shall be $456,207, $567,764 and $665,922, respectively (which amounts were calculated by an outside consultant retained by the Company). The TPP amendment also reduced the period of continued eligibility for certain non-medical benefits from thirty-six months to twenty-four months with respect to Mr. Wohlstadter, Mr. Migausky and Mr. Christmas, to ensure that the Company’s severance or other compensation paid in connection with our termination protection program complies with Section 409A of the Code. As permitted by the merger agreement, the Company may establish a grantor trust (so called “rabbi trust”), to fund the severance benefits payable to Mr. Wohlstadter and Mr. Migausky pursuant to the termination protection program.

 

Mr. Wohlstadter, Mrs. Wohlstadter, Mr. Migausky and Mr. Christmas participate in the termination protection program. If these individuals experience a qualifying termination in connection with a change in control, which is expected, they will be entitled to severance payments and benefits under the termination protection program, in addition to the accelerated vesting of any outstanding stock options and restricted stock awards. Consummation of the merger will constitute a change in control for purposes of the termination protection program. Furthermore, under our termination protection program, these individuals are entitled to additional payments to indemnify them against the imposition of excise taxes under Section 280G of the Code, so called “gross-up payments.” It is expected that each of these individuals will be resigning or will no longer be serving as an officer of the Company in connection with the consummation of the merger. Our board of directors will make a determination prior to the closing of the merger whether or not this cessation of employment will constitute a qualifying termination for purposes of the termination protection program. Roche has agreed to abide by this determination of our board of directors.

 

The chart set forth below provides an estimate of the amounts payable (or value to be provided) to each of these four individuals upon the closing of the merger and related qualifying termination, as well as an estimate of the gross-up payments.

 

 

 

 

Severance Plan

 

On April 4, 2007, our board of directors adopted a severance plan for the benefit of our employees other than those employees who are participants in our termination protection program. The severance plan provides that if a participating employee is terminated under certain conditions within six months following a change of control (which, by the terms of the severance plan, would include the merger) the employee is entitled to a lump-sum payment, provided that the employee has executed and not revoked a general release in favor of the Company. The amount of the severance payment is based on the individual employee’s term of service to the Company and, in no event, shall exceed twenty-six times the employee’s weekly base salary.

 

Agreements with Samuel J. Wohlstadter

 

On April 4, 2007, Mr. Wohlstadter entered into a transaction agreement with Roche whereby he agreed (i) conditioned upon the closing of the merger, to sell his 1,000 shares of Series B Preferred Stock to Roche, and release the Company from all claims he may have related to such preferred stock and (ii) to enter into a non-disclosure and non-solicitation agreement with the Company. In consideration for these agreements, Roche agreed to pay Mr. Wohlstadter a sum equal to $2,750,000 in cash at the closing of the merger. The transaction agreement will terminate upon the termination of the merger agreement pursuant to its terms.

 

The non-disclosure and non-solicitation agreement, which was also entered into on April 4, 2007, provides that Mr. Wohlstadter will (i) hold in confidence and not use any confidential information or trade secrets related to the ECL business except as permitted by the ECL license, (ii) refrain from transferring any technology owned by him and related to the ECL business prior to the closing of the merger agreement, (iii) refrain from soliciting any of the Company’s customers or employees for a period of two years following the closing of the merger agreement, except as permitted by the ECL asset transfer agreement and (iv) will not pursue, directly or indirectly, legal action against the Company’s affiliates or customers for certain specific actions. The non-disclosure and non-solicitation agreement will become effective only upon the closing of the transactions contemplated by the ECL asset transfer agreement, and will be null and void in the event that the ECL asset transfer agreement is terminated.

 

In addition, in connection with the acquisition by Roche, two newly formed entities established by Mr. Wohlstadter will purchase from the Company the vaccines assets and ECL assets and enter into the ECL license with the Company. These transactions with Mr. Wohlstadter were approved by a Special Committee of independent directors of our board or directors. For more information, see “The Related Agreements — Agreements with Samuel J. Wohlstadter” beginning on page 57.

 

Indemnification and Insurance

 

The surviving corporation has agreed to indemnify, to the fullest extent permitted by law, each of our current directors and officers against claims, liabilities and expenses, and to advance funds for expenses incurred in connection with any claim, suit, action, proceeding or investigation, based on or arising out of any acts or omissions in their capacity as an officer or director occurring on or before the effective time of the merger. The surviving corporation has also agreed to indemnify certain other individuals to the extent provided under indemnification agreements the Company currently has with such individuals.

 

In addition, the merger agreement requires the surviving corporation to purchase “tail” insurance policies or maintain directors and officers liability insurance policies for six years following the closing of the merger on terms and in amounts not less favorable to the directors and officers than the Company’s current policies, subject to certain limitations. For more information, see “The Merger Agreement- Indemnification and Insurance” beginning on page 52.

 

The following discussion is a summary of the material U.S. federal income tax consequences of the merger to “U.S. holders” (as defined below) of BioVeris Common Stock whose shares are exchanged for cash in the merger. This summary is based on the provisions of the Code, U.S. Treasury regulations promulgated

thereunder, judicial authorities and administrative rulings, all as in effect as of the date of the proxy statement and all of which are subject to change, possibly with retroactive effect.

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of our Common Stock that is, for U.S. federal income tax purposes:

 

 

Holders of our Common Stock who are not U.S. holders may be subject to different tax consequences than those described below and are urged to consult their tax advisors regarding their tax treatment under U.S. and non-U.S. tax laws.

 

The following does not purport to consider all aspects of U.S. federal income taxation of the merger that might be relevant to U.S. holders in light of their particular circumstances, or those U.S. holders that may be subject to special rules (for example, dealers in securities or currencies, brokers, banks, financial institutions, insurance companies, mutual funds, tax-exempt organization, stockholders subject to the alternative minimum tax, partnerships (or other flow-through entities and their partners or members), persons whose functional currency is not the U.S. dollar, stockholders who hold our stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment, stockholders that acquired our Common Stock pursuant to the exercise of an employee stock option or otherwise as compensation, or U.S. holders who exercise statutory appraisal rights), nor does it address the U.S. federal income tax consequences to U.S. holders that do not hold our Common Stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). In addition, the discussion does not address any aspect of foreign, state, local, estate, gift or other tax law that may be applicable to a U.S. holder.

 

The tax consequences to stockholders that hold our Common Stock through a partnership or other pass-through entity, generally, will depend on the status of the stockholder and the activities of the partnership. Partners in a partnership or other pass-through entity holding our Common Stock should consult their tax advisors.

 

This summary of certain material U.S. federal income tax consequences is for general information only and is not tax advice. Holders are urged to consult their tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement

 

The receipt of cash in exchange for shares of our Common Stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of Common Stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the stockholder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered for cash pursuant to the merger. Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such shares is more than 12 months at the time of the consummation of the merger. Long-term capital gains of individuals are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to certain limitations.

 

Backup Withholding and Information Reporting

 

A stockholder may be subject to backup withholding at the applicable rate (currently 28 percent) on the cash payments to which such stockholder is entitled pursuant to the merger, unless the stockholder properly establishes an exemption or provides a taxpayer identification number and otherwise complies with the backup withholding rules. Each stockholder should complete and sign the substitute Internal Revenue Service (“IRS”) Form W-9 that will be included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption applies and is established in a manner satisfactory to the paying agent. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowable as a refund or a credit against a stockholder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

 

Hart-Scott Rodino Review

 

The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, and the rules and regulations thereunder, which provide that certain acquisition transactions may not be completed until specified information has been furnished to the Antitrust Division of the Department of Justice, or DOJ, and the Federal Trade Commission, or FTC, and until certain waiting periods have been terminated or have expired. On April 13, 2007 we made the initial filings under the HSR Act with the Antitrust Division and the FTC. The DOJ and the FTC will decide which agency will review the material. The waiting period under the HSR Act expired on May 14, 2007.

 

German Federal Cartel Office Review

 

The merger is subject to review by the German Federal Cartel Office under the Act against Restraints of Competition (“Gesetz gegen Wettbewerbsbeschränkungen”). The applicable waiting period under the Act against Restraints of Competition must expire or be terminated before the merger may be completed. The German Federal Cartel Office has one month after receipt of the complete notification to (i) approve the merger, or (ii) investigate further, in which case the German Federal Cartel Office can extend its investigation by three additional months (i.e., a total of four months after receipt of the complete initial notification) to complete its investigation and issue a final decision. Roche made a filing relating to the merger with the German Federal Cartel Office on May 11, 2007, which we joined.

 

There can be no assurance that the German Federal Cartel Office will terminate the applicable statutory waiting periods or clear the merger at all or without restrictions or conditions that would have a material adverse effect on the surviving corporation if the merger is completed. In addition, at any time before or after the effective time of the merger, and notwithstanding that the waiting period has terminated or the merger may have been consummated, the German Federal Cartel Office could take such action under the applicable antitrust or competition laws as it deems necessary or desirable.

 

Italian Competition Authority Review

 

The merger is subject to review by the Italian Competition Authority under the Law No. 287 of October 10, 1990 on the Protection of Competition and the Market. The notification of the merger must be made to the Italian Competition Authority before the completion of the merger by the parties. The Italian Competition Authority has 30 days after receipt of the complete notification, to (i) approve the merger, or (ii) investigate further, in which case the Italian Competition Authority has generally an additional 45 days to complete its investigation and issue a final decision. Pending Italian Competition Authority approval, implementation of the merger need not be suspended. However, if the Italian Competition Authority finds that the merger raises serious competition concerns, then the Italian Competition Authority may require the parties to undertake any action that it considers appropriate in order to restore conditions of effective competition. The notification of the merger was submitted by Roche to the Italian Competition Authority on May 15, 2007.

 

Exon-Florio Review

 

The Exon-Florio Amendment empowers the President of the United States to prohibit or suspend an acquisition of, or investment in, a U.S. company by a “foreign person” if the President, after investigation, finds credible evidence that the foreign person might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate and appropriate authority to protect the national security. By a 1988 executive order, the President delegated to the Committee on Foreign Investment in the United States, or CFIUS, the authority to receive notices of proposed transactions, determine when an investigation is warranted, conduct investigations and submit recommendations to the President to suspend or prohibit the completion of transactions or to require divestitures of completed transactions.

 

A party or parties to a transaction may, but are not required to, submit to CFIUS a voluntary notice of the transaction. CFIUS has 30 calendar days from the date of acceptance of the submission to decide whether to initiate a formal investigation. If CFIUS declines to investigate, it sends a “no action” letter, and the review process is complete. If CFIUS decides to investigate, it has 45 calendar days in which to prepare a recommendation to the President of the United States, who must then decide within 15 calendar days whether to block the transaction.

 

Together with Roche, we submitted a notice of the merger to CFIUS, in accordance with the regulations implementing the Exon-Florio Amendment, on May 15, 2007. Although we do not believe an investigation of, or recommendation to block, the merger by CFIUS is warranted under the standards of the Exon-Florio Amendment, CFIUS and the President of the United States have considerable discretion to conduct investigations and block transactions under the Exon-Florio Amendment. In addition, legislation may be enacted which could affect CFIUS review of this transaction; the U.S. Senate and House of Representatives each passed bills to amend the CFIUS review process in July 2006, and the House, with the support of the President, passed another bill to amend the CFIUS review process in February 2007.

 

Foreign and Certain Other Regulatory Matters

 

The merger may be subject to certain regulatory requirements of other municipal, state, federal and foreign governmental agencies and authorities, including those relating to the offer and sale of securities. Together with Roche, we are currently working to evaluate and comply in all material respects with these requirements, as appropriate, and do not currently anticipate that they will hinder, delay or restrict completion of the merger.

 

It is possible that one or more of the regulatory approvals required to complete the merger will not be obtained on a timely basis or at all. In addition, it is possible that any of the governmental entities with which filings are made may seek regulatory concessions as conditions for granting approval of the merger. Under the merger agreement, we and Roche have each agreed to use our respective reasonable best efforts to complete the merger, including to gain clearance from antitrust and competition authorities and obtain other required approvals.

 

Although we do not expect regulatory authorities to raise any significant objections to the merger, we cannot be certain that we will obtain all required regulatory approvals or that these approvals will not contain terms, conditions or restrictions that result in a failure to satisfy the conditions to closing. Neither we nor Roche have yet obtained any of the governmental or regulatory approvals required to complete the merger.

 

If the merger is completed, the Common Stock will be delisted from the NASDAQ and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of the Common Stock.

 

The following describes the material terms of the merger agreement. A complete copy of the merger agreement is attached to this proxy statement as Annex A and is incorporated herein by reference. This description of the merger agreement is qualified in its entirety by reference to the attached merger agreement. We urge you to read the entire merger agreement carefully.

 

The merger agreement contains representations and warranties that the Company and Roche made to each other. The statements embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the Company and Roche have exchanged in connection with signing the merger agreement. Please note that certain representations and warranties were made as of a specified date, may be subject to a contractual standard of materiality different from those generally applicable to stockholders, or may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts.

 

The merger agreement provides that Merger Sub will merge with and into us, and the separate existence of Merger Sub will cease. We will survive the merger as an indirect wholly owned subsidiary of Roche (and we sometimes refer to ourselves as of and after such time as the “surviving corporation”). Following completion of the merger, our Common Stock will cease to be quoted on NASDAQ, will be deregistered under the Exchange Act, and will no longer be publicly traded. The Company will be a privately held corporation and our current stockholders will cease to have any ownership interest in the Company or rights as stockholders of the Company. Therefore, our current stockholders will not participate in any future earnings or growth of the Company and will not benefit from any appreciation in value of the Company.

 

Unless otherwise agreed by the parties to the merger agreement, the closing date for the merger will be on the earliest date reasonably practicable, but at least within two business days, after the satisfaction or waiver of the conditions to the merger agreement, as described below in “Conditions to the Merger” beginning on page 54. The effective time of the merger will occur at the time we, together with Roche, duly file the certificate of merger with the Secretary of State of the State of Delaware, which will occur as soon as practicable following the closing of the merger.

 

Company Common Stock

 

At the effective time of the merger, each share of Common Stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $21.50 in cash, without interest, less any required withholding taxes, other than the following shares:

 

 

After the merger is effective, each holder of a certificate representing any shares of Common Stock (other than shares for which appraisal rights have been properly demanded and perfected) will no longer have any rights with respect to the shares, except for the right to receive the merger consideration, without interest, less any required withholding taxes.

 

Restricted Stock Awards

 

At the effective time, each share of our Common Stock which is subject to a restricted stock award will become fully vested and be converted into the right to receive $21.50 in cash, without interest.

 

Company Options

 

At the effective time, each option to acquire shares of our Common Stock will become fully vested and be converted into the right to receive for each share of Common Stock then subject to such option an amount equal to the excess, if any, of $21.50 over the exercise price payable in respect of such share of Common Stock issuable under such option, less any required withholding taxes.

 

Preferred Stock

 

Each share of our Series B Preferred Stock issued and outstanding immediately prior to the effective time will remain issued and outstanding immediately following the effective time. See “The Related Agreements — Agreements with Samuel J. Wohlstadter” on page 57.

 

Appraisal Rights

 

If you exercise dissenter rights under Delaware law your Common Stock will not be converted into the right to receive $21.50 in cash per share, but instead your shares will be cancelled, will cease to exist and you will cease to have any rights with respect to such shares, except the right to receive the fair value of your shares of Common Stock in accordance with the provisions of Section 262 of the Delaware General Corporation Law (attached to this proxy statement as Annex C). See “Dissenters’ Rights of Appraisal” beginning on page 70.

 

At least five business days before the effective time of the merger, Roche will designate Computershare Investor Services, Inc., or another national bank or trust company reasonably acceptable to us, to act as agent for the benefit of holders of shares of Common Stock in connection with the merger (such firm the “paying agent”). Roche will deposit with the paying agent the total consideration payable to all holders of our Common Stock at the effective time. Promptly after the effective time, but in no event more than five business days thereafter, the surviving corporation will cause the paying agent to mail to each holder of record of Common Stock a letter of transmittal and instructions for use in effecting the surrender of the certificates representing shares of our Common Stock. The letter of transmittal and instructions will tell you how to surrender your Common Stock certificates or shares you may hold that are represented by book entry in exchange for the merger consideration.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a properly completed letter of transmittal.

 

You will not be entitled to receive the merger consideration until you surrender your stock certificate or certificates (or effective affidavit of loss in lieu thereof) to the paying agent, together with a properly completed and duly executed letter of transmittal and any other documents as may be reasonably requested by the paying agent. If a transfer of ownership of shares is not registered in the transfer records of the Company, cash to be paid upon due surrender of the stock certificate may be paid to the transferee if the stock certificate formerly representing the shares is presented to the paying agent accompanied by all documents required to evidence and effect the transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

 

No interest will be paid or accrued on the amount payable upon the surrender of the certificates.

 

After the effective time of the merger, there will be no transfers on our stock transfer books of shares of Common Stock that were outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, certificates are presented to the paying agent, they will be cancelled and exchanged for the merger consideration.

 

Any portion of the merger consideration deposited with the paying agent that remains undistributed to holders of our Common Stock six months after the closing of the merger will be delivered, upon demand, to Roche. Former holders of our Common Stock who have not complied with the above-described exchange and

payment procedures will thereafter only look to Roche or the surviving corporation for payment of the merger consideration.

 

Roche, the surviving corporation and the paying agent will be entitled to deduct and withhold from the merger consideration otherwise payable to any person such amounts as may be required to be deducted and withheld with respect to the making of such payments under the Code, and the rules and regulations promulgated thereunder, or under any provision of state, local or foreign tax law.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you will have to make an affidavit of the certificate’s loss, theft or destruction, and if required by the surviving corporation, post a bond in a reasonable amount as Roche may direct to protect Roche against any claim that may be made against it with respect to that certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

 

When the merger is completed, the certificate of incorporation and bylaws of the surviving corporation will be those agreed to by the parties and will include indemnity provisions no less favorable to our directors and officers than those found in our current certificate of incorporation and bylaws. The directors and officers of Merger Sub at the effective time of the merger will continue as the directors and officers of the surviving corporation.

 

The merger agreement contains representations and warranties made by us to Roche and Merger Sub, and by Roche and Merger Sub to us, and may be subject to important limitations and qualifications agreed to by the parties in connection with negotiating the terms of the merger agreement. In particular, the representations may be made only as of a specified date, may be subject to specific contractual exclusions, may be subject to contractual standards of materiality different from those generally applicable to public disclosures to stockholders, may be subject to the knowledge of limited individuals at the Company or may have been used for the purpose of allocating risk among the parties rather than establishing matters of fact. For the foregoing reasons, you should not rely on the representations and warranties contained in the merger agreement as statements of factual information. Our representations and warranties relate to, among other things:

 

 

 

Many of our representations and warranties are qualified by a “material adverse effect” standard. “Material adverse effect” is defined to mean a material adverse effect on the business, operations, results of operations, assets, liabilities or financial condition of the Company and our subsidiaries, taken as a whole, other than any effect arising out of or resulting from:

 

 

We have further agreed with Roche and Merger Sub that the mere fact of (A) a decrease in the market price or an increase or decrease in the trading volume of our equity securities or (B) the failure to meet our respective internal projections or published revenues or earnings forecasts will not by itself constitute a

material adverse effect, but the underlying reasons or causes of such events may constitute a material adverse effect. We have further agreed with Roche and Merger Sub that any failure to comply with the Sarbanes-Oxley Act of 2002, as amended, will not by itself constitute a material adverse effect, but the underlying reasons, causes or consequences of such failure may constitute a material adverse effect.

 

The merger agreement also contains various representations and warranties made by Roche and Merger Sub that are subject, in some cases, to specified exceptions and qualifications. The representations and warranties relate to:

 

 

The representations and warranties of each of the parties to the merger agreement will expire upon completion of the merger agreement or the termination of the merger agreement.

 

We have agreed in the merger agreement that, subject to certain exceptions, until the effective time of the merger, unless Roche otherwise consents (which consent will not be unreasonably withheld or delayed), we will, and will cause our subsidiaries, to:

 

 

We have also agreed that during the same time period, subject to certain exceptions and unless Roche gives its prior consent (which consent will not be unreasonably withheld or delayed), we will not:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to the fiduciary duties of our board of directors, the merger agreement requires us, as promptly as reasonably practicable, to call and hold a special meeting of our stockholders for the purpose of obtaining the vote of our stockholders necessary to approve the merger agreement. Except in certain circumstances described below in “Restrictions on Solicitations,” we are required to use commercially reasonable efforts to obtain the approval of our stockholders for the merger agreement and have our board of directors recommend that our stockholders vote in favor of adopting the merger agreement.

 

We have agreed that prior to the consummation of the merger we will not, and we will ensure that our representatives do not, directly or indirectly:

 

 

Notwithstanding these restrictions, the merger agreement provides that, if we receive an unsolicited bona fide takeover proposal from a third party before the stockholder vote, which our board of directors determines in good faith is, or is reasonably likely to result in, a superior proposal, the Company may furnish non-public information to the third party making such superior proposal and engage or participate in discussions or negotiations with the third party making such superior proposal. If our board of directors determines that the failure to change, qualify, withhold, withdraw or modify its recommendation that our stockholders adopt the merger agreement would violate our board’s fiduciary duties, or if our board determines that we have received a superior proposal, our board of directors may change, qualify, withhold, withdraw or modify its recommendation to our stockholders.

 

Subject to the conditions described below, our board may, at any time prior to the adoption of the merger agreement by our stockholders, change, qualify, withhold, withdraw or modify its recommendation that the stockholders vote in favor of the adoption of the merger agreement proposed in this proxy. Our board may only take this action if it has determined in good faith, after receiving the advice of its outside legal and financial advisors, that failure to take such action would be reasonably likely to constitute a breach by the board of its fiduciary duties under applicable law.

 

At any time prior to the adoption of the merger agreement by our stockholders, if the board receives a takeover proposal that the board determines constitutes a superior proposal, we may enter into an acquisition agreement if we:

 

 

The covenant in the merger agreement generally prohibiting us from soliciting acquisition proposals does not prevent us from complying with certain rules with regard to making public disclosures an acquisition proposal.

 

A “takeover proposal” is defined in the merger agreement to mean any inquiry, proposal or offer relating to:

 

 

A “superior proposal” is defined in the merger agreement to mean a third party proposal to acquire, directly or indirectly, 50% or more of our equity securities or all or substantially all of our consolidated assets, which is otherwise on terms and conditions that our board of directors determines in its good faith and reasonable judgment (after consulting with a financial advisor of national reputation and in light of all relevant circumstances, including all the terms and conditions of such proposal and the merger agreement) is reasonably likely to be consummated and more favorable to our stockholders than the merger (or any subsequent proposal made by Roche in response to such superior proposal).

 

For six years following the effective time of the merger, the surviving corporation shall, to the fullest extent permitted by law, indemnify and hold harmless and advance funds for the fees and expenses of each director and officer of the Company at the effective time of the merger against all claims, liabilities, losses, damages, judgments, fines, penalties, costs and reasonable expenses (including reasonable attorney’s fees and expenses) in connection with any claim, suit, action, proceeding or investigation (whether civil, criminal, administrative or investigative), based on or arising out of acts or omissions by such person in such person’s capacity as an officer or director prior to the effective time of the merger, including in connection with the merger or the transactions contemplated by the merger agreement. Any determination that must be made with respect to whether an officer or director is entitled to indemnification will be made by independent legal counsel selected by such officer or director and reasonably acceptable to the surviving corporation.

 

For six years after the effective time of the merger, the surviving corporation will indemnify our present and former directors and officers to the extent provided under our current certificate of incorporation, bylaws or any other indemnification agreements with such officers and directors.

 

After the effective time of the merger, the surviving corporation will obtain “tail” directors’ and officers’ insurance policies with a claims period of six years or, if unable to get such tail policies, will maintain the directors’ and officers’ policies for six years. The tail policies must contain terms and conditions which are not materially less favorable to the present and former officers and directors than the policies in effect before the effective time of the merger. The surviving corporation, in no event, will be required to expend more than an aggregate amount equal to 200% of the current annual premiums paid by the Company for such insurance.

In the event that the surviving corporation would be required to expend more than 200% of the current annual premiums, the surviving corporation will obtain the maximum amount of such insurance obtainable by payment of an aggregate amount equal to 200% of the current annual premiums.

 

Roche has agreed to cause the surviving corporation to comply with these indemnification and insurance obligations and has guaranteed the indemnification obligations.

 

Roche has agreed to, or to cause the surviving corporation to, provide, for a period of six months following the effective time of the merger:

 

 

Roche has also agreed to honor, fulfill and discharge and cause the surviving corporation to honor, fulfill and discharge the Company’s obligations under the termination protection program without amendment or change that is adverse to any participant of the program.

 

Roche has agreed to recognize employee’s service with the Company and IGEN before the merger for purposes of eligibility and vesting with respect to any benefit plan and for purposes of accrual of vacation and other paid time off and severance benefits to the extent that the Company gave such credit prior to the effective time. In addition, with respect to any benefit plan of Roche which replaces coverage under a comparable company benefit plan in which the employee participated, each employee will be immediately eligible to participate in such Roche plan, without waiting time or evidence of insurability to the extent the coverage replaces coverage under a comparable Company benefit plan. With regard to each benefit plan of Roche providing medical, dental, pharmaceutical and/or vision benefits, Roche has agreed to cause all pre-existing condition exclusions and actively-at-work requirements to be waived to the extent these preconditions were waived under company benefit plans. Roche has also agreed to use reasonable efforts to take into account eligible expenses incurred by employees or their covered dependents under a Company benefit plan during the plan year ending on the date the employee transfers into any Roche benefit plan for the purpose of satisfying all deductible, coinsurance and maximum out-of-pocket requirements under any Roche benefit plan.

 

Any employee whose employment with Roche, the surviving corporation or its affiliates is terminated within six months of the effective time of the merger will become fully vested in their 401(k) account balance. If so directed by Roche at least fifteen business days prior to the effective time of the merger, the Company has agreed to take all action necessary to terminate all 401(k) plans that it sponsors or maintains.

 

No later than ten business days prior to the closing of the merger, the Company shall provide Roche a list of employees who are participants in the termination protection program and who either will be resigning in connection with the consummation of the merger or have accepted employment with either Vaccine Newco or ECL Newco. Roche has acknowledged that the Company’s board of directors shall have the right to determine, prior to the effective time of the merger, whether or not to accept the position of termination protection program participants who will be resigning in connection with the consummation of the merger that they are entitled to benefits under the termination protection program.

 

Each of the parties to the merger agreement has agreed to cooperate with the other parties and use their respective reasonable best efforts to promptly take all actions and do all things necessary, proper or advisable

to cause the conditions to the closing of the merger agreement to be satisfied as promptly as practicable and to consummate and make effective the merger. In particular, the parties have agreed to use reasonable best efforts to obtain all approvals, consents, registrations, permits, authorizations and other confirmations from any governmental authority necessary, proper or advisable to consummate the merger and related transactions.

 

Roche and Merger Sub have represented to us that their obligations and performance under the merger agreement are not subject to any conditions regarding their, or any other person’s, ability to obtain financing for the merger and related transactions. Moreover, Roche has represented that as of the signing of the merger agreement, and as of the effective time of the merger, it will have cash on hand sufficient to enable it and Merger Sub to pay all amounts to be paid by Roche and Merger Sub in connection with the merger and its agreements with Mr. Wohlstadter.

 

The parties have agreed that the surviving corporation will duly and punctually perform and observe all of the terms, covenants and conditions of all binding obligations of the Company to MSD and MST.

 

The merger agreement contains additional agreements among the Company, Roche and Merger Sub relating to, among other things:

 

 

Conditions to Each Party’s Obligations.  Each party’s obligations to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

 

Conditions to Roche’s and Merger Sub’s Obligations.  The obligation of Roche and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Conditions to BioVeris’ Obligations.  Our obligation to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

The Company and Roche may agree to terminate the merger agreement without completing the merger at any time. The merger agreement may also be terminated in certain other circumstances, including:

 

 

 

 

 

 

 

 

If the merger agreement is terminated as specified above, the merger agreement will have no further effect and neither party will have any liability to the other, except for certain circumstances requiring the payment of a termination fee. See “Termination Fee” below. If the merger agreement is terminated, certain covenants will survive the termination.

 

We have agreed to pay a termination fee of $12 million to Roche if either we terminate the merger agreement and concurrently enter into a definitive acquisition agreement on superior terms with a third party, or if Roche terminates the merger agreement because our board of directors withdraws or modifies (in a manner adverse to Roche) its recommendation to our stockholders to adopt the merger agreement or publicly recommends to our stockholders a takeover proposal (other than a change in our board of directors’ recommendation with respect to the merger agreement in the absence of a takeover proposal which is primarily based on developments relating to the Roche License out-of-field sales issue). We are also required to pay Roche the $12 million termination fee if the merger agreement is terminated by Roche or us because our stockholders did not approve the merger agreement at the stockholder’s meeting, and prior to such termination, a takeover proposal by a third party was publicly announced or communicated to our board or stockholders and not terminated or withdrawn and within six months of such termination we enter into a definitive agreement or consummate a takeover proposal with a third party.

 

The merger agreement may be amended or supplemented by a written agreement by Roche, Merger Sub and us at any time prior to the effective time of the merger, except that no amendment or supplement that requires the further approval of our stockholders may be made once our stockholders have approved the merger agreement. At any time prior to the effective time of the merger, to the extent allowed by law, Roche, Merger Sub or the Company may

 

 

Each party to the merger agreement has consented to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party’s obligations under the merger agreement, without bond or other security being required. The right to specific enforcement will be in addition to any other remedy available in law or equity.

 

We have agreed that until the earlier of the effective time of the merger or the termination of the merger agreement, all reviews, audits, field monitoring (other than the field monitoring process for 2005; and the results of the ongoing review by the field monitor will not be disclosed by the field monitor to either party until the effective time or the termination of the merger agreement) and dispute resolution efforts, arbitrations or other proceedings regarding out-of-field sales under the Roche License will be suspended.

 

On April 4, 2007, the Company and Computershare Trust Company, N.A. (formerly EquiServe Trust Company, N.A.) entered into Amendment No. 1 to the Rights Agreement, dated as of January 9, 2004 between the Company and the Rights Agent to exempt the merger agreement and the transactions contemplated thereby from the Rights Agreement. The amendment provides that the Rights Agreement will terminate at the effective time of the merger. The amendment also provides that if for any reason the merger agreement is terminated in accordance with its terms, then the amendment shall be of no further force and effect, and the Rights Agreement shall remain exactly the same as it existed before the execution of the amendment.

 

Concurrently with entering into the merger agreement, Mr. and Mrs. Wohlstadter entered into a stockholders agreement with Roche (which agreement was amended and restated on May 2, 2007) pursuant to which they agreed to vote all of their shares of Common Stock and Series B Preferred Stock in favor of the merger agreement. Mr. and Mrs. Wohlstadter collectively own approximately 19.3% of our outstanding Common Stock (excluding shares underlying options). The stockholders agreement requires that the Wohlstadters not vote in favor of certain proposals, including, among others, any takeover proposal other than the transactions contemplated by the merger agreement. In addition, the stockholders agreement requires that the Wohlstadters, in their capacity as stockholders, not grant any proxies or enter into any voting trust or other agreement with respect to voting their shares during the term of the stockholder agreement.

 

The stockholders agreement will terminate on the earlier of:

 

 

A copy of the stockholders agreement is attached as Annex D to this proxy statement and we incorporate it by reference into this proxy statement. The foregoing summary of the stockholders agreement does not purport to be complete and may not contain all the information about the stockholders agreement that is important to you. We urge you to read the stockholders agreement carefully and in its entirety.

 

Simultaneously with entering into the merger agreement, the Company entered into agreements with entities controlled by our CEO, Mr. Wohlstadter, whereby those entities would purchase certain assets of the Company. Mr. Wohlstadter also entered into agreements with Roche in connection with, among other things, Roche’s purchase of his Series B Preferred Stock. Certain of these agreements are attached to the Company’s Current Report on Form 8-K filed with the SEC on April 10, 2007. We urge you to read those agreements in their entirety.

 

You are not being asked to vote on or approve these agreements at the special meeting.

 

On April 4, 2007, Mr. Wohlstadter entered into a transaction agreement with Roche whereby he agreed (i) conditioned upon the closing of the merger, to sell his 1,000 shares of Series B Preferred Stock to Roche, and release the Company from all claims he may have related to such preferred stock and (ii) to enter into a non-disclosure and non-solicitation agreement with the Company. In consideration for these agreements, Roche agreed to pay Mr. Wohlstadter a sum equal to $2,750,000 in cash at the closing of the merger. The transaction agreement will terminate upon the termination of the merger agreement pursuant to its terms.

 

The non-disclosure and non-solicitation agreement, which was also entered into on April 4, 2007, provides that Mr. Wohlstadter will:

 

 

 

 

 

in each case above, that uses or incorporates ECL technology.

 

The non-disclosure and non-solicitation agreement will become effective only upon the closing of the transactions contemplated by the ECL asset transfer agreement, and will be null and void in the event that the ECL asset transfer agreement is terminated.

 

The following descriptions of the asset purchase agreements set forth the material provisions of the asset purchase agreements but do not purport to describe all of the terms of the asset purchase agreements. The full texts of the vaccines asset transfer agreement, ECL asset transfer agreement and the related ECL license were filed with the SEC in a Current Report on Form 8-K on April 10, 2007. You are urged to read these agreements in their entirety. The asset transfer agreements were recommended to the board for approval by the Special Committee, which retained independent legal and financial advisors in connection with its review.

 

The payments made in connection with the vaccines asset transfer agreement and the ECL asset transfer agreement will be made to the Company and will not affect the consideration paid to you in connection with the merger.

 

Vaccines Agreement

 

On April 4, 2007, we entered into the vaccines asset transfer agreement with Vaccines Newco, a Delaware limited liability company controlled by Mr. Wohlstadter, pursuant to which immediately prior to the closing of the merger, we will sell to Vaccines Newco certain assets related to the research, development, manufacture, production, testing, sale, distribution and use of vaccines candidates. The purchase price for these assets is the assumption of specified liabilities of the vaccine business and (a) $1,000,000 to be paid at closing, (b) three annual payments of $50,000 to be paid on each of the first three anniversaries of the closing date and (c) a final payment of $2,709,000 to be paid on the earlier of the third anniversary of closing or the receipt of third party financing by Vaccines Newco.

 

Transferred Assets

 

Under the vaccines asset transfer agreement, the following assets will be transferred from us to Vaccines Newco:

 

 

Conduct of Vaccines Business Prior to Closing

 

Pending the closing of the vaccines asset transfer agreement, we have agreed to use our commercially reasonable efforts to:

 

 

Reasonable Best Efforts

 

Together with Vaccines Newco, we are required to use our reasonable best efforts to cause third parties to contracts being assumed by Vaccines Newco to fully release us from any liability under such contracts, but this obligation does not include making any payment to third parties. If at the closing of the vaccines asset transfer agreement, we have not been fully released from all liabilities under the assumed contracts, Vaccines Newco will either:

 

 

Employee Matters

 

In connection with the vaccines asset transfer agreement, Vaccines Newco may make offers of employment to certain of our employees. Together with Vaccines Newco, we will use our reasonable best

efforts to ensure that any individual who has accepted Vaccine Newco’s offer of employment shall have, effective upon the closing of the vaccines asset transfer agreement, entered into a modified version of our standard form release and resigned.

 

If an employee covered under the termination protection program accepts an offer of employment from Vaccines Newco prior to the closing of the asset transfer agreement and resigns, he or she will be entitled to benefits under the termination protection program, payable by us. Employees who are not covered by the termination protection program and who accept such an offer of employment from Vaccines Newco and resign will be entitled to the severance payments specified in their form release.

 

Conditions to the Vaccine Asset Transfer Agreement

 

The obligation of each party to consummate the vaccines asset transfer is subject to the satisfaction or waiver, on or before the closing date, of the following conditions:

 

 

The obligation of Vaccines Newco to consummate the vaccines asset transfer is subject to the satisfaction or waiver on or before the closing date of the following conditions:

 

 

The obligations of the Company to consummate the vaccines asset transfer is subject to the satisfaction or waiver on or before the closing date of the following conditions:

 

 

Indemnification

 

The vaccines asset transfer agreement contains limited indemnification rights, including:

 

 

 

 

 

Termination

 

The vaccines asset transfer agreement may be terminated:

 

 

ECL Agreement

 

On April 4, 2007, the Company entered into the ECL asset transfer agreement with ECL Newco, a Delaware limited liability company controlled by Mr. Wohlstadter, pursuant to which immediately prior to the closing of the merger, the Company will enter into a license with ECL Newco relating to ECL and sell to ECL Newco certain sublicenses and certain non-intellectual property assets of the Company related to the ECL business. The purchase price of the ECL assets and licenses is the assumption of specified liabilities of the ECL business and (a) $1,000,000 to be paid at the closing of the ECL asset transfer agreement, (b) three annual payments of $50,000 to be paid on each of the first three anniversaries of the closing date of the ECL asset transfer agreement and (c) a final payment of $1,568,000 to be paid on the earlier of the third anniversary of the closing of the ECL asset transfer agreement or the receipt of certain third-party financing by ECL Newco. In addition, in connection with severance obligations of the Company, at the closing of the merger, ECL Newco will pay $779,000 to the Company.

 

Transferred Assets

 

Under the ECL asset transfer agreement, the following assets will be transferred from us or granted to ECL Newco:

 

 

 

Conduct of ECL Business Prior to Closing

 

Pending the closing of the ECL asset transfer agreement, we have agreed to use our commercially reasonable efforts to:

 

 

Employee Matters

 

In connection with the ECL asset transfer agreement, ECL Newco may make offers of employment to certain of our employees. Together with ECL Newco, we will use our reasonable best efforts to ensure that any individual who has accepted ECL Newco’s offer of employment shall have, effective upon the closing of the ECL asset transfer agreement, entered into a modified version of the our standard form release and resigned.

 

If an employee covered under the termination protection program accepts an offer of employment from ECL Newco prior to the closing of ECL asset transfer agreement and resigns, he or she will be entitled to benefits under the termination protection program, provided, however, that ECL Newco will be responsible for paying $779,000 to us in connection with these severance costs at the closing of the merger. Employees who are not covered by the termination protection program and who accept an offer of employment from ECL Newco and resign will be entitled to severance payments specified in a modified version of our standard release.

 

Assumed Leases

 

Under the terms of the ECL asset transfer agreement, together with ECL Newco, we will use our commercially reasonable efforts to negotiate an assignment of certain leases to ECL Newco, which assignment shall include the landlord’s unconditional and irrevocable release of all of our obligations and liabilities under the leases. If releases are not obtained, the Company and ECL Newco will enter into a sublease (the form of which has been agreed to by the parties, but is subject to the landlord’s consent, if necessary) for the unreleased leases at closing.

 

Conditions to the ECL Asset Transfer Agreement

 

The obligations of each party to consummate the ECL asset transfer are subject to the satisfaction or waiver on or before the closing date of the following conditions:

 

 

The obligation of ECL Newco to consummate the ECL asset transfer is subject to the satisfaction or waiver, on or before the closing date, of the following conditions:

 

 

The obligation of the Company to consummate the ECL asset transfer is subject to the satisfaction or waiver on or before the closing date of the following conditions:

 

 

Indemnification

 

The ECL asset transfer agreement contains limited indemnification rights, including:

 

 

 

 

 

Termination

 

The ECL asset transfer agreement may be terminated:

 

 

Guarantee

 

Concurrently with entering into the vaccines asset transfer agreement and the ECL asset transfer agreement, Mr. Wohlstadter entered into a guarantee in favor of the Company, whereby he personally, irrevocably and unconditionally guaranteed the post-closing payments to the Company to be made by Vaccines Newco and ECL Newco in connection with the vaccines asset transfer agreement and the ECL asset transfer agreement.

 

ECL License

 

At the closing of the ECL asset purchase agreement, the Company and ECL Newco will enter into a license agreement with respect to certain ECL technology, pursuant to which we will grant to ECL Newco a limited non-exclusive license to use our ECL technology in connection with the ECL business acquired by ECL Newco.

 

The ECL license will be an irrevocable, perpetual, non-exclusive, worldwide, royalty-free right and license to use certain ECL patent rights and proprietary and confidential information relating to ECL technology solely for use on or incorporated in small instruments manufactured by or for ECL Newco weighing 40 kilograms or less, having a maximum size of 125,000 cubic centimeters and having a maximum actual footprint of 2,500 square centimeters (“ECL instruments”) to research, develop, prepare derivative works based on, reproduce, use, manufacture, distribute, display, perform, modify, import, sell, offer for sale, service, lease and otherwise commercially exploit ECL products.

 

Under the ECL license, ECL Newco will have no right to develop, use, manufacture or sell ECL assays that are packaged specifically for, and function only for use on, instruments manufactured or sold by us or our licensees (other than ECL Newco), resellers or affiliates, except that ECL Newco may use such ECL assays on any instruments that ECL Newco owns and uses in its internal research and development programs related to ECL instruments. In addition, ECL Newco is restricted from granting any sublicenses under the ECL license, but it may allow certain authorized third parties to use the licensed ECL technology in order to aid ECL Newco in the commercialization of such technology as long as those third parties are not among certain major healthcare technology companies (“MHTC”), which Roche, through the surviving corporation, may designate up to 18 of such companies annually, six each from the fields of life sciences, in vivo or in vitro diagnostic equipment and pharmaceuticals industries.

 

The ECL license will begin as of the effective time of the merger and terminate automatically upon the later to occur of (a) the expiration of the last-to-expire of the patents in the ECL patent rights or (b) the complete loss of confidential and proprietary status for all of the licensed ECL technology. In addition, the ECL license will terminate if ECL Newco is no longer controlled by members of a group consisting of Mr. Wohlstadter, his spouse, his issue and trusts established for their principal benefit within the first 21/2 years of the term of the ECL license. In addition, the ECL license will terminate if ECL Newco, or its successor or assign, ever becomes an affiliate of a MHTC.

 

The ECL license is subject to the rights of MSD, MST and Mr. Jacob Wohlstadter under all pre-existing agreements.

 

ECL Newco does not have the right under the ECL license to grant any sublicenses, including to its affiliates. ECL Newco also does not have the right to force the surviving corporation to prosecute any patent application to maintain any patent or to sue infringers of the licensed patents.

 

The ECL license also provides that certain third parties will have the right, as authorized third parties, to use licensed ECL technology in connection with ECL Newco’s commercialization of ECL licensed technology. ECL Newco may not:

 

 

ECL Newco may not expand any relationship with any person whom ECL Newco has designated as an authorized third party who later becomes designated by the surviving corporation as a MHTC.

 

ECL Newco, or any successor, is further restricted from selling or assigning the ECL license to any person designated as a MHTC by the surviving corporation. Moreover, ECL Newco may not assign or sell its rights under the ECL license for two and a half years from the closing of the ECL asset transfer agreement to any person, and for a further two and a half years thereafter the surviving corporation will have a right of first

refusal upon any sale or assignment of the ECL license by ECL Newco. If ECL Newco does sell or assign its interest to a third party, such third party successor may not sell or assign its interest in the ECL license for a period of 5 years from the effective time, and must provide the surviving corporation a right of first refusal upon such successors subsequent sale.

 

In addition to the ECL license, ECL Newco will enter into a number of non-exclusive sublicenses relating to the ECL business at the closing of the merger. Pursuant to these sublicenses, ECL Newco will receive non-exclusive, worldwide, royalty-free sublicenses to rights relating to the ECL technology granted to the Company by certain third parties. The Company will not provide any representations or warranties in any of the sublicense agreements and ECL Newco has agreed to indemnify the Company from and against all claims arising out of liability in any way relating to the sublicensed rights. Generally, these sublicense agreements will continue from the effective time of the merger agreement until the earlier of the expiration or termination of (a) the underlying license agreement or (b) the ECL license.

 

In connection with the ECL asset transfer agreement, the Company and ECL Newco will enter into covenants not to sue at the closing of the merger whereby the Company and ECL Newco will covenant and irrevocably agree not to assert any claim against the other party that asserts that the manufacture, provision of any service or promulgation of any specification, with respect to:

 

 

infringes or violates any legal rights under any of the respective parties’ future patents.

 

The covenants not to sue will contain certain limitations that allow for future claims by each party for breach of contract of the ECL license and for certain claims under each parties’ respective future patents in the event that the ECL license is terminated or expires on its terms. Specifically:

 

 

The Company’s agreement not to sue will terminate upon the earlier of (a) the last date on which the Company or any of its affiliates may assert or bring any legal or equitable claim against ECL Newco under any of the Company’s future patents, or (b) the date that the ECL license terminates or is terminated by the Company in accordance with its terms. ECL Newco’s agreement not to sue will terminate on the last date on which ECL Newco or any of its affiliates may assert or bring any legal or equitable claim against the Company under any ECL Newco future patent.

 

In connection with the ECL asset transfer agreement, ECL Newco entered into a supply agreement with the Company, a supply agreement with Roche Diagnostics Corporation and a material transfer agreement with Roche Diagnostics GmbH.

 

These supply agreements provide that Roche and the surviving corporation, as applicable, will supply ECL Newco with various materials to be used in the ECL business.

 

The Roche supply agreement will be in effect for two years, with automatic two year renewals, or until (i) there is a default under the Roche supply agreement, (ii) the ECL license is terminated, (iii) as to any specific product, such product is no longer sold to third parties or (iv) as to any specific product, ECL Newco does not accept price increases for such product.

 

Initially, the Roche supply agreement provides that Roche will supply ECL Newco with those products listed in Roche’s Research Biochemicals Catalog and certain other raw materials at agreed upon prices, which prices may be increased once each calendar year by Roche upon 90 days written notice to ECL Newco.

 

The surviving corporation supply agreement will remain in effect for one year, with automatic two year renewals, or until (i) there is a default under the supply agreement, (ii) the ECL license is terminated or (iii) as to any specific product, such product is no longer sold to third parties.

 

The surviving corporation supply agreement provides that the surviving corporation will supply ECL Newco with certain raw materials meeting ECL Newco’s required specifications at agreed upon prices, which prices may be increased once each calendar year by the surviving corporation upon 90 days written notice to ECL Newco. The surviving corporation supply agreement permits the surviving corporation to discontinue the manufacture and sale of any product upon 30 days written notice to ECL Newco.

 

The material transfer agreement with Roche allows ECL Newco the ability to analyze and study certain Roche products for use in ECL Newco’s research and development programs, and the option to enter into a license on Roche’s standard commercial terms with regard to such products. The material transfer agreement may be terminated by either party for cause upon 30 days prior written notice or by Roche at any time without cause upon 60 days prior written notice. Upon the termination of the material transfer agreement, ECL Newco will return any and all unused samples of Roche’s products to Roche and will no longer have any right to use such products.

 

We do not, as a matter of course, make public projections as to future performance or earnings beyond the current fiscal year and are especially wary of making projections for extended earnings periods due to the inherent unpredictability of the underlying assumptions and estimates. However, financial forecasts we prepared were made available to Lehman Brothers in connection with its analysis of the consideration to be paid in the merger. We have included below the material portions of these projections to give our stockholders access to certain nonpublic information provided to Lehman Brothers for purposes of considering and evaluating the merger. These projections were not provided to Roche during the negotiation of the merger agreement and Roche has disclaimed any responsibility for such projections. The inclusion of this information should not be regarded as an indication that we, our board of directors or Lehman Brothers considered, or now considers, this information to be a reliable prediction of future results.

 

We advised Lehman Brothers that the internal financial forecasts, upon which the projections were based, are subjective in many respects. The projections reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and are beyond our control. Many of our potential products, including clinical point-of-care (“Clinical POC”) products, are at an early stage of development and we have not introduced any clinical diagnostics products into the marketplace. Products under development require additional research and development efforts, including clinical testing and regulatory approval, prior to commercial use. Our potential products are subject to the risks of failure inherent in the development of products based on new technologies. These risks include the possibilities that our design or approach may not be successful, that our products may be found ineffective or fail to meet the applicable regulatory standards or receive necessary regulatory clearances, that our estimates of the market size and potential for our products may prove incorrect, that third parties may market superior or equivalent products, and that our products may not be recognized or accepted in the market due to unfamiliar brand names. The projections also reflect estimates and assumptions related to our business that are inherently subject to significant economic, political, development, technology, market, regulatory, financial and competitive uncertainties, all of which are difficult to predict and many of which are beyond our control. The projections also rely heavily on estimates of the value to us of the potential payments due to us from Roche’s out-of-field sales under the Roche License. As a

result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected.

 

The financial projections were prepared for internal use and to assist Lehman Brothers with its evaluation of the merger consideration and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. We use financial measures and terms not calculated in accordance with GAAP. EBITDA represents operating income (defined as net income before net interest and other financing costs and taxes) before depreciation and amortization, a measurement used by management to measure operating performance. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to operating income as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies calculate EBITDA identically, this presentation of EBITDA may not be comparable to similarly titled measures of other companies. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments, debt services requirements or capital expenditure requirements. Our independent registered public accounting firm, PwC, has neither examined nor compiled the projections and, accordingly, PwC does not express an opinion or any other form of assurance with respect thereto. The PwC report included in documents that are incorporated by reference in this proxy statement relates to our historical financial information. It does not extend to these projections and should not be read to do so. The projected financial information set forth below was prepared on a basis that is consistent with the accounting principles used in the Company’s historical financial statements. The financial projections do not take into account any circumstances or events occurring after the date they were prepared. Projections of this type are based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, political, development, technology, competitive, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Information” beginning on page 12, which factors may cause the financial projections or the underlying assumptions to be inaccurate. Since the projections cover multiple years, such information by its nature becomes even less reliable with each successive year.

 

Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the financial projections set forth below. No one has made or makes any representation to any stockholder or anyone else regarding the information included in these projections.

 

For the foregoing reasons, as well as the bases and assumptions on which the financial projections were compiled, the inclusion of specific portions of the financial projections in this proxy statement should not be regarded as an indication that such projections will be an accurate prediction of future events, and they should not be relied on as such. We do not intend to update or otherwise revise the following financial projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even if any or all of the assumptions are shown to be in error.

 

Set forth below are estimated projections for fiscal 2008 through 2017:

 

Projected Roche Payments Under Roche License