UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
__________________________________________________________ 
FORM 10-Q
 
 __________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2015
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-36214
__________________________________________________________ 
Hologic, Inc.
(Exact name of registrant as specified in its charter)
 __________________________________________________________
Delaware
 
04-2902449
(State of incorporation)
 
(I.R.S. Employer Identification No.)
35 Crosby Drive,
Bedford, Massachusetts
 
01730
(Address of principal executive offices)
 
(Zip Code)
(781) 999-7300
(Registrant’s telephone number, including area code)
 __________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  ý
As of July 24, 2015, 281,802,585 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.
 


HOLOGIC, INC.
INDEX
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
EXHIBITS
 


2

PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements (unaudited)
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and per share data)
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Revenues:
 
 
 
 
 
 
 
Product
$
583.0

 
$
529.3

 
$
1,676.0

 
$
1,562.8

Service and other
110.9

 
103.3

 
326.2

 
307.3

 
693.9

 
632.6

 
2,002.2

 
1,870.1

Costs of revenues:
 
 
 
 
 
 
 
Product
186.2

 
186.7

 
559.6

 
549.3

Amortization of intangible assets
73.1

 
80.5

 
225.6

 
234.1

Impairment of intangible assets
—

 
—

 
—

 
26.6

Service and other
55.9

 
52.6

 
163.7

 
159.6

Gross Profit
378.7

 
312.8

 
1,053.3

 
900.5

Operating expenses:
 
 
 
 
 
 
 
Research and development
56.0

 
52.5

 
161.2

 
151.1

Selling and marketing
94.3

 
83.0

 
263.3

 
245.0

General and administrative
73.1

 
64.7

 
194.7

 
194.6

Amortization of intangible assets
27.4

 
29.7

 
82.8

 
85.0

Impairment of intangible assets
—

 
—

 
—

 
0.5

Restructuring and divestiture charges
11.9

 
6.7

 
21.9

 
36.6

 
262.7

 
236.6

 
723.9

 
712.8

Income from operations
116.0

 
76.2

 
329.4

 
187.7

Interest income
0.3

 
0.3

 
1.0

 
0.8

Interest expense
(52.4
)
 
(52.4
)
 
(154.3
)
 
(168.1
)
Debt extinguishment loss
(18.2
)
 
—

 
(24.9
)
 
(7.4
)
Other income (expense), net
1.0

 
(1.5
)
 
0.6

 
(3.5
)
Income before income taxes
46.7

 
22.6

 
151.8

 
9.5

Provision for income taxes
17.3

 
11.3

 
45.3

 
20.3

Net income (loss)
$
29.4

 
$
11.3

 
$
106.5

 
$
(10.8
)
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.04

 
$
0.38

 
$
(0.04
)
Diluted
$
0.10

 
$
0.04

 
$
0.37

 
$
(0.04
)
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
281,184

 
276,843

 
280,064

 
274,713

Diluted
292,612

 
279,205

 
287,790

 
274,713



See accompanying notes.

3

HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In millions)
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Net income (loss)
$
29.4

 
$
11.3

 
$
106.5

 
$
(10.8
)
Changes in foreign currency translation adjustment
4.5

 
3.3

 
(14.0
)
 
(3.7
)
Changes in unrealized holding gains and losses on available-for-sale securities
(0.7
)
 
4.2

 
(3.9
)
 
2.0

Changes in pension plans, net of taxes of $0.2 in fiscal 2014
—

 
—

 
0.1

 
(0.6
)
Changes in value of hedged interest rate caps, net of tax of $0.5 and $1.4 for the three and nine months ended June 27, 2015
(0.7
)
 
—

 
(2.3
)
 
—

Other comprehensive income (loss)
3.1

 
7.5

 
(20.1
)
 
(2.3
)
Comprehensive income (loss)
$
32.5

 
$
18.8

 
$
86.4

 
$
(13.1
)
See accompanying notes.


4

HOLOGIC, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par value)
 
 
June 27,
2015
 
September 27,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
885.0

 
$
736.1

Restricted cash
3.8

 
5.5

Accounts receivable, less reserves of $10.6 and $12.0, respectively
382.8

 
396.0

Inventories
295.0

 
330.6

Deferred income tax assets
—

 
39.4

Prepaid income taxes
23.7

 
22.4

Prepaid expenses and other current assets
38.5

 
35.8

Total current assets
1,628.8

 
1,565.8

Property, plant and equipment, net
449.9

 
461.9

Intangible assets, net
3,125.4

 
3,433.6

Goodwill
2,809.0

 
2,810.8

Other assets
117.4

 
142.6

Total assets
$
8,130.5

 
$
8,414.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
671.5

 
$
114.5

Accounts payable
89.9

 
92.1

Accrued expenses
259.5

 
262.1

Deferred revenue
152.2

 
150.9

Deferred income tax liabilities
16.1

 
—

Total current liabilities
1,189.2

 
619.6

Long-term debt, net of current portion
3,270.8

 
4,153.2

Deferred income tax liabilities
1,209.7

 
1,375.4

Deferred revenue
17.6

 
20.1

Other long-term liabilities
206.1

 
183.4

Commitments and contingencies (Note 6)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value – 1,623 shares authorized; 0 shares issued
—

 
—

Common stock, $0.01 par value – 750,000 shares authorized; 281,485 and 277,972 shares issued, respectively
2.8

 
2.8

Additional paid-in-capital
5,736.3

 
5,658.2

Accumulated deficit
(3,494.1
)
 
(3,600.6
)
Accumulated other comprehensive income (loss)
(7.9
)
 
2.6

Total stockholders’ equity
2,237.1

 
2,063.0

Total liabilities and stockholders’ equity
$
8,130.5

 
$
8,414.7

See accompanying notes.


5


HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
106.5

 
$
(10.8
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
60.8

 
72.7

Amortization
308.3

 
319.1

Non-cash interest expense
49.5

 
52.2

Stock-based compensation expense
42.2

 
39.1

Excess tax benefit related to equity awards
(8.0
)
 
(5.2
)
Deferred income taxes
(110.9
)
 
(204.6
)
Asset impairment charges
—

 
33.3

Cost-method equity investment impairment charges
—

 
6.9

Debt extinguishment loss
24.9

 
7.4

Loss on disposal of business
9.6

 
—

Loss on disposal of property and equipment
4.5

 
5.1

Other
0.5

 
(1.4
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
3.5

 
28.4

Inventories
32.9

 
(42.2
)
Prepaid income taxes
(1.3
)
 
34.4

Prepaid expenses and other assets
4.7

 
13.8

Accounts payable
(1.8
)
 
1.7

Accrued expenses and other liabilities
25.3

 
16.1

Deferred revenue
2.4

 
10.7

Net cash provided by operating activities
553.6

 
376.7

INVESTING ACTIVITIES
 
 
 
Net proceeds from sale of business
—

 
2.4

Purchase of property and equipment
(27.9
)
 
(30.9
)
Increase in equipment under customer usage agreements
(30.2
)
 
(26.9
)
Net (purchases) sales of insurance contracts
(6.4
)
 
13.8

Purchases of mutual funds
—

 
(29.7
)
Sales of mutual funds
7.7

 
22.4

Increase in other assets
—

 
(3.0
)
Net cash used in investing activities
(56.8
)
 
(51.9
)
FINANCING ACTIVITIES
 
 
 
Repayment of long-term debt
(2,045.0
)
 
(578.8
)
Net proceeds from long-term debt
1,495.1

 
—

Proceeds from revolving credit line
175.0

 
—

Payment of debt issuance costs
(8.3
)
 
(2.4
)
Purchase of interest rate caps
(6.1
)
 
—

Payment of deferred acquisition consideration
—

 
(5.0
)
Net proceeds from issuance of common stock pursuant to employee stock plans
50.4

 
75.8

Excess tax benefit related to equity awards
8.0

 
5.2

Payment of minimum tax withholdings on net share settlements of equity awards
(12.6
)
 
(9.2
)
Net cash used in financing activities
(343.5
)
 
(514.4
)
Effect of exchange rate changes on cash and cash equivalents
(4.4
)
 
(0.4
)
Net increase (decrease) in cash and cash equivalents
148.9

 
(190.0
)
Cash and cash equivalents, beginning of period
736.1

 
822.5

Cash and cash equivalents, end of period
$
885.0

 
$
632.5

See accompanying notes.

6

HOLOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(all tabular amounts in millions, except number of shares, which are reflected in thousands, and per share data)
(1) Basis of Presentation
The consolidated financial statements of Hologic, Inc. (“Hologic” or the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended September 27, 2014 included in the Company’s Form 10-K filed with the SEC on November 20, 2014. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three and nine months ended June 27, 2015 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 26, 2015.
Subsequent Events Consideration
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There was one significant unrecognized subsequent event related to the unaudited consolidated financial statements for the three and nine months ended June 27, 2015 related to the Company's issuance of $1.0 billion aggregate principal amount of 5.250% senior notes due 2022 in a private offering and the subsequent discharge of the Company's existing $1.0 billion aggregate principal amount of 6.25% senior notes due 2020 (see Note 4) on July 2, 2015. There were no material recognized subsequent events recorded in the unaudited consolidated financial statements as of and for the three and nine months ended June 27, 2015.

7

(2) Fair Value Measurements
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company has investments in publicly-traded companies and mutual funds, both of which are valued using quoted market prices, representing Level 1 assets, and investments in interest rate cap derivative instruments, which are valued using analyses obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets. The fair values of the Company's interest rate cap derivative instruments represent the estimated amounts the Company would receive to terminate the contracts. Refer to Note 5 for further discussion and information on the interest rate cap derivative instruments.
The Company has a payment obligation to the participants under its Nonqualified Deferred Compensation Plan (“DCP”). This liability is recorded at fair value based on the underlying value of certain hypothetical investments under the DCP as designated by each participant for their benefit. Since the value of the DCP obligation is based on market prices, the liability is classified within Level 1.
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at June 27, 2015: 
 
 
 
Fair Value at Reporting Date Using
 
Balance as of June 27, 2015
 
Quoted Prices in
Active Market for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
Marketable securities:
 
 
 
 
 
 
 
Equity securities
$
21.1

 
$
21.1

 
$
—

 
$
—

Mutual funds
8.4

 
8.4

 
—

 
—

Interest rate cap - derivative
2.4

 
—

 
2.4

 
—

Total
$
31.9

 
$
29.5

 
$
2.4

 
$
—

Liabilities:
 
 
 
 
 
 
 
Deferred compensation liabilities
$
33.4

 
$
33.4

 
$
—

 
$
—

Total
$
33.4

 
$
33.4

 
$
—

 
$
—

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of cost-method equity investments and long-lived assets, including property, plant and equipment, intangible assets and goodwill.
In the second quarter of fiscal 2014, the Company evaluated its MRI breast coils product line asset group, which is within its Breast Health segment, for impairment due to the Company’s expectation that it would be sold or disposed of significantly before the end of its previously estimated useful life. The undiscounted cash flows expected to be generated by this asset group over its estimated remaining useful life were not sufficient to recover its carrying value. The Company estimated the fair value of the asset group using market participant assumptions, which were based on underlying cash flow estimates, resulting in an impairment charge of $28.6 million. Pursuant to ASC 360, Property, Plant, and Equipment-Other, subtopic 10-35-28, the impairment charge was allocated to the long-lived assets, with $27.1 million to intangible assets and $1.5 million to property and equipment. The property and equipment charge was recorded to cost of product revenues and general and administrative expenses in the amounts of $0.3 million and $1.2 million, respectively. The Company believes this adjustment falls within Level 3 of the fair value hierarchy. This asset group was sold in the fourth quarter of fiscal 2014 (see Note 3).
In the first quarter of fiscal 2014, the Company recorded a $3.1 million impairment charge to record certain of its buildings at fair value related to the Hitec-Imaging organic photoconductor manufacturing line shutdown (see Note 3). The Company believes this adjustment falls within Level 3 of the fair value hierarchy.
The Company holds certain cost-method equity investments in non-publicly traded securities aggregating $4.4 million and $5.2 million at June 27, 2015 and September 27, 2014, respectively, which are included in other long-term assets on the Company’s Consolidated Balance Sheets. These investments are generally carried at cost, less any write-downs for other-than-temporary impairment charges. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these

8

entities. In certain instances, a cost method investment’s fair value is not estimated as there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and to make such an estimation would be impractical. In the three and nine month periods ended June 28, 2014, the Company recorded other-than-temporary impairment charges of $3.2 million and $6.9 million, respectively, related to its cost-method equity investments.
Disclosure of Fair Value of Financial Instruments
The Company’s financial instruments mainly consist of cash and cash equivalents, accounts receivable, marketable securities, cost-method equity investments, interest rate caps, insurance contracts, DCP liability, accounts payable and debt obligations. The carrying amounts of the Company’s cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company’s marketable securities and interest rate caps are recorded at fair value. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. GAAP, which approximates fair value, and the related DCP liability is recorded at fair value. The Company believes the carrying amounts of its cost-method equity investments approximate fair value.
Amounts outstanding under the Company’s Credit Agreement of $1.68 billion aggregate principal as of June 27, 2015 are subject to variable rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. The Company’s Senior Notes had a fair value of approximately $1.03 billion as of June 27, 2015 based on their trading price, representing a Level 1 measurement. The fair value of the Company’s Convertible Notes is based on the trading prices of the respective notes and represents a Level 1 measurement. Refer to Note 4 for the carrying amounts of the various components of the Company’s debt.
The estimated fair values of the Company’s Convertible Notes at June 27, 2015 were as follows:
 
2010 Notes
$
746.2

2012 Notes
651.3

2013 Notes
449.2

 
$
1,846.7


(3) Restructuring and Divestiture Charges
The Company evaluates its operations for opportunities to improve operational effectiveness and efficiency, including facility and operations consolidation, and to better align expenses with revenues. In addition, the Company continually assesses its management structure. As a result of these assessments, the Company has undertaken various restructuring actions, which are described below. The following table displays charges taken in the fiscal 2015 year to date period and fiscal 2014 related to these actions and a rollforward of the accrued balances from September 27, 2014 to June 27, 2015:

9

 
Consolidation of Diagnostics Operations
 
Fiscal 2015 Actions
 
Fiscal 2014 Actions
 
Other Operating Cost Reductions
 
Total    
Fiscal 2014 charges:
 
 
 
 
 
 
 
 
 
Workforce reductions
$
2.9

 
$
—

 
$
29.5

 
$
9.8

 
$
42.2

Non-cash impairment charge
—

 
—

 
—

 
3.1

 
3.1

Facility closure costs
—

 
—

 
—

 
0.6

 
0.6

Other
0.1

 
—

 
—

 
0.2

 
0.3

Fiscal 2014 restructuring charges
$
3.0

 
$
—

 
$
29.5

 
$
13.7

 
$
46.2

Divestiture net charges
 
 
 
 
 
 
 
 
5.5

Fiscal 2014 restructuring and divestiture charges
 
 
 
 
 
 
 
 
$
51.7

Fiscal 2015 charges:
 
 
 
 
 
 
 
 

Workforce reductions
$
0.1

 
$
3.7

 
$
6.1

 
$
0.2

 
$
10.1

Facility closure costs
0.5

 
—

 
1.6

 
0.1

 
2.2

Fiscal 2015 restructuring and divestiture charges
$
0.6

 
$
3.7

 
$
7.7

 
$
0.3

 
$
12.3

Divestiture net charges
 
 
 
 
 
 
 
 
9.6

Fiscal 2015 restructuring and divestiture charges
 
 
 
 
 
 
 
 
$
21.9

 
Consolidation of Diagnostics Operations
 
Fiscal 2015 Actions
 
Fiscal 2014 Actions
 
Other Operating Cost Reductions  
 
Total    
Rollforward of Accrued Restructuring
 
 
 
 
 
 
 
 
 
Balance as of September 27, 2014
$
3.0

 
$
—

 
$
12.0

 
$
1.9

 
$
16.9

Fiscal 2015 restructuring charges
0.6

 
3.7

 
7.7

 
0.3

 
12.3

Stock-based compensation
—

 
(0.7
)
 
—

 
—

 
(0.7
)
Severance payments
(3.0
)
 
(1.7
)
 
(15.0
)
 
(1.9
)
 
(21.6
)
Other payments
(0.5
)
 
—

 
(1.0
)
 
(0.3
)
 
(1.8
)
Balance as of June 27, 2015
$
0.1

 
$
1.3

 
$
3.7

 
$
—

 
$
5.1

Consolidation of Diagnostics Operations
In connection with its acquisition of Gen-Probe Incorporated (“Gen-Probe”) in August 2012, the Company implemented restructuring actions to consolidate its Diagnostics operations, including streamlining product development initiatives, reducing overlapping functional areas in sales, marketing and general and administrative functions, and consolidating manufacturing resources, field services and support. As a result, the Company terminated certain employees from Gen-Probe and its legacy diagnostics business in research and development, sales, marketing and general and administrative functions. The Company also decided to move its legacy molecular diagnostics operations from Madison, Wisconsin to Gen-Probe’s facilities in San Diego, California. This transfer was completed at the end of fiscal 2014, and as a result, many of the employees in Madison were terminated. The Company recorded severance and benefit charges pursuant to ASC 420, Exit or Disposal Cost Obligations (ASC 420), beginning in fiscal 2012 through the first quarter of fiscal 2015. The Company recorded $3.0 million for severance and benefits in fiscal 2014. The Company recorded $0.6 million for facility closure costs and severance and benefits in the nine months ended June 27, 2015 and $0.6 million and $2.3 million for severance and benefits in the three and nine months ended June 28, 2014, respectively.

10

Fiscal 2015 Actions
In the first, second and third quarters of fiscal 2015, the Company continued to make executive management changes resulting in the termination of certain executives and employees on a worldwide basis. In addition, the Company continued to consolidate and close certain international offices. Severance and benefit charges under these actions have been recorded pursuant to ASC 712, Compensation-Nonretirement Postemployment Benefits (ASC 712), and ASC 420 depending on the circumstances, and the Company recorded severance and benefit charges of $0.7 million and $3.7 million in the three and nine months ended June 27, 2015, respectively. Included in the charge is $0.7 million of stock-based compensation in the nine month period.
Fiscal 2014 Actions
During the first quarter of fiscal 2014, the Company implemented a cost reduction initiative comprised of reducing headcount and evaluating research projects and operating costs. In connection with this plan, the Company terminated certain employees on a worldwide basis. The Company recorded the severance and benefit charges pursuant to ASC 420 and ASC 712 depending on the circumstances. The Company recorded $6.3 million of severance and benefit charges in the first quarter of fiscal 2014, which included $0.4 million of stock-based compensation.
On December 6, 2013, Stephen P. MacMillan was appointed as President, Chief Executive Officer and a director of the Company. The employment of John W. Cumming, the Company’s prior President and Chief Executive Officer, terminated upon Mr. MacMillan’s appointment. The Company provided separation benefits to Mr. Cumming pursuant to his employment letter dated July 18, 2013 resulting in a charge of $6.6 million in the first quarter of fiscal 2014, which included $4.4 million of stock-based compensation related to the acceleration of all of Mr. Cumming’s outstanding equity awards in accordance with the existing terms of Mr. Cumming’s stock-based payment arrangements.
In the second, third, and fourth quarters of fiscal 2014, the Company continued to make executive management changes and implemented additional cost reduction initiatives resulting in the termination of certain executives and employees on a worldwide basis. In addition, in the fourth quarter of fiscal 2014, the Company decided to consolidate and close certain international offices. Severance and benefit charges under these actions were recorded pursuant to ASC 420 and ASC 712 depending on the circumstances, and the Company recorded severance and benefit charges of $16.6 million in fiscal 2014. Included in the charge was $1.8 million of stock-based compensation for the modification of the terms of equity awards to certain employees. Of these charges, $3.0 million and $5.0 million was recorded in the second and third quarters of fiscal 2014, respectively, for severance and benefits pursuant to ASC 712. The Company recorded $0.2 million and $6.1 million for severance and benefits in the three and nine months ended June 27, 2015, respectively, and $1.4 million and $1.6 million for facility closure costs in the three and nine months ended June 27, 2015, respectively. The facility closure costs primarily relate to lease obligation charges for two office locations.     
Other Operating Cost Reductions:
Hitec-Imaging Organic Photoconductor Manufacturing Line Shut-down
In the fourth quarter of fiscal 2013, in connection with the Company’s cost reduction initiatives, the Company decided to shut-down its Hitec-Imaging organic photoconductor manufacturing line located in Germany. This production line is included within the Breast Health segment. As a result, the Company terminated certain employees, primarily in manufacturing, in fiscal 2014. During the first quarter of fiscal 2014, the Company completed its negotiations with the local Works Council to determine severance benefits for the approximately 95 affected employees. The Company recorded severance and benefit charges pursuant to ASC 420 and estimates the total severance and related charges related to this action will be approximately $9.3 million. The Company began notifying the affected employees in the second quarter of fiscal 2014, and as such no charges were recorded in the first quarter of fiscal 2014. The Company recorded charges of $8.7 million in fiscal 2014 in connection with terminating these employees of which $7.3 million and $1.1 million was recorded in the second and third quarters of fiscal 2014, respectively. In fiscal 2015, the Company recorded $0.3 million for severance and benefits and facility closure costs. The Company also recorded an impairment charge of $3.1 million in the first quarter of fiscal 2014 to record certain buildings at this location to their estimated fair value.

11

Divestitures
In the fourth quarter of fiscal 2014, the Company completed the sale of its MRI breast coils product line and recorded a loss on disposal of $5.3 million. The Company also provided certain transition services through April 2015, including the manufacturing and sale of inventory to the buyer. Since all operations had ceased during the third quarter of fiscal 2015, the Company concluded that this subsidiary had been substantially liquidated and recorded a $9.6 million charge in the third quarter of fiscal 2015 related to writing off the cumulative translation adjustment related to the subsidiary.

(4) Borrowings and Credit Arrangements
The Company’s borrowings consisted of the following: 
 
June 27,
2015
 
September 27,
2014
Current debt obligations, net of debt discount:
 
 
 
Term Loan
74.7

 
—

Revolver
175.0

 
—

Term Loan A
—

 
99.6

Term Loan B
—

 
14.9

Convertible Notes
421.8

 
—

Total current debt obligations
671.5

 
114.5

Long-term debt obligations, net of debt discount:
 
 
 
Term Loan
1,418.1

 
—

Term Loan A
—

 
796.7

Term Loan B
—

 
1,120.9

Senior Notes
1,000.0

 
1,000.0

Convertible Notes
852.7

 
1,235.6

Total long-term debt obligations
3,270.8

 
4,153.2

Total debt obligations
3,942.3

 
4,267.7

The debt maturity schedule for the Company's obligations as of June 27, 2015 was as follows:
 
Remainder 2015
 
2016
 
2017
 
2018
 
2019
 
2020 and Thereafter
 
Total
Term Loan
$
18.7

 
$
75.0

 
$
84.4

 
$
121.9

 
$
150.0

 
$
1,050.0

 
$
1,500.0

Revolver
—

 
175.0

 
—

 
—

 
—

 
—

 
175.0

Senior Notes
—

 
—

 
—

 
—

 
—

 
1,000.0

 
1,000.0

Convertible Notes (1)
450.0

 
—

 
—

 
906.4

 
—

 
—

 
1,356.4

 
$
468.7

 
$
250.0

 
$
84.4

 
$
1,028.3

 
$
150.0

 
$
2,050.0

 
$
4,031.4

(1) Classified based on the earliest date of redemption for each respective issuance with the exception of the 2010 Notes which are convertible by their respective holders as further discussed below. In addition, the balance in fiscal 2018 reflects accretion on the 2013 Notes through June 27, 2015.
Credit Agreement
On May 29, 2015, the Company entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other lenders party thereto (collectively, the "Lenders"). This Credit Agreement replaced the Company's existing senior secured credit facility with Goldman Sachs Bank USA, in its capacity as administrative and collateral agent and the lenders party thereto ("Prior Credit Agreement") entered into on August 1, 2012, and the proceeds under the Credit Agreement of $1.68 billion were used to pay off the amounts outstanding under the Prior Credit Agreement.

12

The credit facilities under the Credit Agreement consist of:
•
A $1.5 billion secured term loan to Hologic with a final maturity date of May 29, 2020 (the “Term Loan”); and
•
A secured revolving credit facility under which the Borrowers (as defined below) may borrow up to $1 billion, subject to certain sublimits, with a final maturity date of May 29, 2020 (the “Revolver”).
Hologic and one of its subsidiaries, Hologic GGO 4 Ltd ("Hologic U.K.") are the initial borrowers (the “Borrowers”) under the Credit Agreement. Hologic’s obligations under the Credit Agreement are guaranteed by certain of Hologic's domestic subsidiaries (the "Subsidiary Guarantors"). Hologic U.K.’s obligations under the Credit Agreement are guaranteed by Hologic and the Subsidiary Guarantors.
In addition to the Term Loan, the Company borrowed $175.0 million under the Revolver. Borrowings under the Revolver may be made in certain alternative currencies pursuant to the terms of the Credit Agreement. The Company has the ability, subject to the terms of the Credit Agreement, to designate any additional wholly-owned foreign subsidiary of Hologic as a Designated Borrower (as defined in the Credit Agreement) to receive loans up to a $100 million sublimit. The obligations of any Designated Borrower under such sublimit would be guaranteed by Hologic and the Subsidiary Guarantors.
Borrowings under the Credit Facilities bear interest, at the Company's option and in each case plus an applicable margin, as follows:
•
Term Loan: the Base Rate (as defined in the Credit Agreement) or the Eurocurrency Rate (i.e., the Libor rate); and
•
Revolver: if funded in U.S. Dollars, the Base Rate or the Eurocurrency Rate, and, if funded in an alternative currency, the Eurocurrency Rate; and if requested under the swing line sublimit, the Base Rate.
The applicable margin to the Base Rate and the Eurocurrency Rate is subject to specified changes depending on the total net leverage ratio as defined in the Credit Agreement. Current borrowings outstanding under the Credit Agreement bear interest at the Eurocurrency Rate plus the applicable margin of 1.75% per annum. The Company is also required to pay a quarterly commitment fee on the undrawn committed amount available under the Revolver.
The Company is required to make scheduled principal payments under the Term Loan in increasing amounts ranging from $18.75 million per three-month period commencing with the three-month period ending on September 25, 2015 to $37.5 million per three-month period commencing with the three-month period ending on September 28, 2018. The remaining balance of the Term Loan is due at maturity. Any amounts outstanding under the Revolver are due at maturity. In addition, subject to the terms and conditions set forth in the Credit Agreement, the Company is required to make certain mandatory prepayments from specified excess cash flows from operations (to the extent the Company’s net senior secured leverage ratio exceeds a certain ratio) and from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances and insurance recoveries (subject to certain reinvestment rights) (“Mandatory Prepayments”). Mandatory Prepayments are required to be applied by the Company, first, to the Term Loan, second, to any outstanding amount under the swing line sublimit, third, to the Revolver, and fourth to any outstanding amount under a letter of credit sublimit. Subject to certain limitations, the Company may voluntarily prepay any of the credit facilities under the Credit Agreement without premium or penalty.
Borrowings outstanding under the Credit Agreement and the Prior Credit Agreement for the three and nine months ended June 27, 2015 had weighted-average interest rates of 2.39% and 2.59%, respectively. The interest rate on the outstanding Term Loan borrowing at June 27, 2015 was 1.94%. Interest expense under the Credit Agreement and Prior Credit Agreement aggregated $12.8 million and $44.7 million for the three and nine months ended June 27, 2015, respectively, which includes non-cash interest expense of $2.2 million and $8.0 million related to the amortization of the deferred issuance costs and accretion of the debt discount, respectively.  Interest expense totaled $17.9 million and $57.5 million for the three and nine months ended June 28, 2014, respectively, which includes non-cash interest expense of $3.1 million and $9.6 million related to the amortization of the deferred issuance costs and accretion of the debt discount, respectively.

The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting the ability of the Borrowers and the Subsidiary Guarantors, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, enter into sale-leaseback transactions, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. The Credit Agreement also contains customary representations and warranties and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross defaults and an event of default upon a change of control of the Company.

13

Borrowings are secured by first-priority liens on, and a first-priority security interest in, substantially all of the assets of the Company, with certain exceptions. The Credit Agreement contains total net leverage ratio and interest coverage ratio financial covenants measured as of the last day of each fiscal quarter. The total net leverage ratio is 5.50:1.00 beginning on the Company's fiscal quarter ending September 26, 2015, and then decreases over time to 4.00:1.00 for the quarter ending March 28, 2020. The interest coverage ratio is 3.75:1.00 beginning on the Company's fiscal quarter ending September 26, 2015, and will remain as such for each quarter thereafter. The total net leverage ratio is defined as the ratio of the Company's consolidated net debt as of the quarter end to its consolidated adjusted EBITDA (as defined in the Credit Agreement) for the four-fiscal quarter period ending on the measurement date. The interest coverage ratio is defined as the ratio of the Company's consolidated adjusted EBITDA for the prior four-fiscal quarter period ending on the measurement date to adjusted consolidated cash interest expense for the same measurement period. These terms, and the calculation thereof, are defined in further detail in the Credit Agreement. Although the covenant calculations were not required as of June 27, 2015, the Company would have been in compliance.
The Company has evaluated the Credit Agreement for derivatives pursuant to ASC 815, Derivatives and Hedging, and identified embedded derivatives that require bifurcation as the features are not clearly and closely related to the host instrument. The embedded derivatives are a default provision, which could require additional interest payments, and a provision requiring contingent payments to compensate the lenders for changes in tax deductions. The Company has determined that the fair value of these embedded derivatives was nominal as of June 27, 2015.
Pursuant to ASC 470, Debt (ASC 470), the accounting for the Credit Agreement was evaluated on a creditor-by-creditor basis with regard to the Prior Credit Agreement to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the Prior Credit Agreement did not participate in this refinancing transaction and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $18.2 million in the third quarter of fiscal 2015 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to these creditors. For the remainder of the creditors, this transaction has been accounted for as a modification because on a creditor-by-creditor basis the present value of the cash flows between the two debt instruments before and after the transaction was less than 10%. Pursuant to ASC 470, subtopic 50-40, third-party costs of $4.6 million related to this transaction were recorded as interest expense and $3.8 million were recorded as deferred issuance costs to be amortized over the term of the agreement. In addition, fees paid directly to the Lenders of $4.9 million were recorded as a debt discount.
Prior Credit Agreement
On December 24, 2014, the Company voluntarily pre-paid $300.0 million of its Term Loan B facility. Pursuant to ASC 470, the Company recorded a debt extinguishment loss of $6.7 million in the first quarter of fiscal 2015 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to this voluntary prepayment.
On October 31, 2013, the Company voluntarily pre-paid $100.0 million of its Term Loan B facility, which was reflected in current debt obligations as of September 28, 2013. Pursuant to ASC 470, the Company recorded a debt extinguishment loss of $3.0 million in the first quarter of fiscal 2014 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to this voluntary prepayment.
During the second quarter of fiscal 2014, the Company, the Guarantors, Goldman Sachs, and the Lenders entered into Refinancing Amendment No. 3 to the Prior Credit Agreement and reduced the applicable interest rates. In connection with this refinancing, the Company voluntarily prepaid $25.0 million of the new senior secured tranche B term loan facility (the "Amended Term Loan B"). Pursuant to ASC 470, the accounting for this refinancing was evaluated on a creditor-by-creditor basis to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the Prior Credit Agreement did not participate in this refinancing transaction and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $4.4 million in the second quarter of fiscal 2014 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to these creditors. For the remainder of the creditors, this transaction was accounted for as a modification because on a creditor-by-creditor basis the present value of the cash flows between the two debt instruments before and after the transaction was less than 10%. Pursuant to ASC 470, subtopic 50-40, third-party costs of $1.0 million related to this transaction were recorded to interest expense.

14

Senior Notes
As of June 27, 2015, the Company had outstanding $1.0 billion of 6.25% senior notes due 2020 (the “Senior Notes”). The Senior Notes had a maturity date of August 1, 2020 and bore interest at the rate of 6.25% per year, payable semi-annually on February 1 and August 1 of each year, commencing on February 1, 2013. The Company recorded interest expense of $16.0 million and $48.0 million in both the three and nine month periods ended June 27, 2015 and June 28, 2014, respectively, which includes non-cash interest expense of $0.4 million and $1.2 million in both the three and nine month periods ended June 27, 2015 and June 28, 2014, respectively, related to the amortization of the deferred issuance costs.
On July 2, 2015, the Company completed a private placement of $1.0 billion aggregate principal amount of its 5.250% Senior Notes due 2022 (the “2022 Notes”) at an offering price of 100% of the aggregate principal amount of the 2022 Notes. The 2022 Notes mature on July 15, 2022 and bear interest at the rate of 5.250% per year, payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2016. The Company used the net proceeds of the 2022 Notes, plus available cash to discharge the outstanding Senior Notes and will redeem such Senior Notes, in the aggregate principal amount of $1.0 billion on August 1, 2015 at an aggregate redemption price of $1.03125 billion, reflecting a premium payment of $31.25 million. In addition, the Company will make a final interest payment in the amount of $31.25 million for interest accrued to August 1, 2015, to holders of record of the Senior Notes as of July 15, 2015. As a result of this transaction, the Company will record a debt extinguishment loss in the fourth quarter of fiscal 2015, which will include the premium payment and pro-rata debt issuance costs. Debt issuance costs related to the Senior Notes were $8.4 million as of June 27, 2015. The Company is required to evaluate the accounting under ASC 470 at the creditor-by-creditor level to determine modification versus extinguishment accounting.
The 2022 Notes were not registered, and will not registered, under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States in accordance with Regulation S under the Securities Act. The 2022 Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain domestic subsidiaries of Hologic (the “Guarantors”).
The 2022 Notes were issued pursuant to an indenture (the "Indenture"), dated as of July 2, 2015, among the Company, the Guarantors and Wells Fargo Bank, National Association, as trustee. The Indenture contains covenants which limit, among other things, the ability of the Company and the Guarantors to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, enter into certain transactions with affiliated persons and to make certain investments. These covenants are subject to a number of exceptions and qualifications, including the suspension of certain of these covenants upon the 2022 Notes receiving an investment grade credit rating. The Company is not required to maintain any financial covenants with respect to the 2022 Notes.
The Company may redeem the 2022 Notes at any time prior to July 15, 2018 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the Indenture. The Company may also redeem up to 35% of the aggregate principal amount of the 2022 Notes with the net cash proceeds of certain equity offerings at any time and from time to time before July 15, 2018, at a redemption price equal to 105.250% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. The Company also has the option to redeem the 2022 Notes on or after: July 15, 2018 through July 14, 2019 at 102.625% of par; July 15, 2019 through July 14, 2020 at 101.313% of par; and July 15, 2020 and thereafter at 100% of par. In addition, if the Company undergoes a change of control, as provided in the Indenture, the Company will be required to make an offer to purchase each holder’s 2022 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Convertible Notes

During the third quarter of fiscal 2015, the closing price of the Company's common stock exceeded 130% of the applicable conversion price of its 2010 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2010 Notes may convert their notes during the fourth quarter of fiscal 2015. As such, the Company classified the $421.8 million carrying value of its 2010 Notes (which have a principal value of $450.0 million) as a current debt obligation. In the event the closing price conditions are met in the fourth quarter of fiscal 2015 or a future fiscal quarter, the 2010 Notes will be convertible at a holder's option during the immediately following fiscal quarter. As of June 27, 2015, the if-converted value of the 2010 Notes exceeded the aggregate principal amount by approximately $296.2 million. It is the Company's current intent and policy to settle any conversion of the Convertible Notes as if the Company had elected to make either a net share settlement or all cash election, such that upon conversion, the Company intends to pay the holders in cash for the principal amount of the 2010 Notes and, if applicable, shares of its common stock or cash to satisfy the premium based on a calculated daily conversion value.

15

Interest expense under the Convertible Notes is as follows: 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Amortization of debt discount
$
9.2

 
$
8.5

 
$
27.0

 
$
28.4

Amortization of deferred financing costs
0.4

 
0.4

 
1.3

 
1.5

Principal accretion
4.0

 
3.9

 
11.9

 
11.4

Non-cash interest expense
13.6

 
12.8

 
40.2

 
41.3

2.00% accrued interest (cash)
4.7

 
4.7

 
14.2

 
17.6

 
$
18.3

 
$
17.5

 
$
54.4

 
$
58.9

(5) Derivatives
Interest Rate Cap - Cash Flow Hedge
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk by the use of interest rate caps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income ("AOCI") to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in Other income (expense) in the Consolidated Statements of Operations.
On January 7, 2015, the Company entered into two separate interest rate cap agreements to help mitigate the interest rate volatility associated with the variable rate interest on its credit facilities under the Prior Credit Agreement, which has been replaced by the new Credit Agreement. Interest rate cap agreements provide the right to receive cash if the reference interest rate rises above a contractual rate. The aggregate premium paid by the Company for the interest rate cap agreements was $6.1 million, which was the initial fair value of the instruments recorded in the Company's financial statements.
The critical terms of the interest rate caps were designed to mirror the terms of the Company’s LIBOR-based borrowings under the Prior Credit Agreement. The terms in the new Credit Agreement are consistent with the Prior Credit Agreement, and therefore the interest rate caps continue to be highly effective at offsetting the cash flows being hedged. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on $1.0 billion of principal for a two-year period, which ends on December 30, 2016.
As of June 27, 2015, the Company determined that the existence of hedge ineffectiveness, if any, was immaterial and all changes in the fair value of the interest rate caps are recorded in the Consolidated Statements of Comprehensive Income as a component of AOCI.
The aggregate fair value of these interest rate caps was $2.4 million at June 27, 2015 and is included in both Prepaid expenses and other current assets and Other assets on the Company’s Consolidated Balance Sheet. Refer to Note 2 “Fair Value Measurements” above for related fair value disclosures.
The tables below present the location of the Company’s derivative financial instruments on the Consolidated Balance Sheets and the unrealized loss recognized in AOCI related to the interest rate caps for the following reporting periods (in millions):
 
Balance Sheet Location
 
June 27, 2015
Assets:
 
 
 
Derivative instruments designated as a cash flow hedge:
 
 
 
Interest rate cap agreements
Prepaid expenses and other current assets
 
$
0.8

Interest rate cap agreements
Other assets
 
1.6

 
 
 
$
2.4



16

 
Three Months Ended June 27, 2015
Nine Months Ended June 27, 2015
Amount of loss recognized in other comprehensive income, net of taxes:
 
 
Interest rate cap agreements
$
(0.7
)
$
(2.3
)
During the three and nine months ended June 27, 2015, an immaterial amount was reclassified from AOCI to the Company’s Consolidated Statements of Operations related to the derivative financial instruments. The Company expects to similarly reclassify approximately $2.3 million from AOCI to the Consolidated Statements of Operations in the next twelve months.

(6) Commitments and Contingencies

Litigation and Related Matters
On June 9, 2010, Smith & Nephew, Inc. ("Smith & Nephew") filed suit in the United States District Court for the District of Massachusetts against Interlace Medical, Inc. ("Interlace"), which the Company acquired on January 6, 2011. The complaint alleged that the Interlace MyoSure hysteroscopic tissue removal device infringed U.S. patent 7,226,459. On November 22, 2011, Smith & Nephew filed suit against the Company in the United States District Court for the District of Massachusetts. The complaint alleged that use of the MyoSure hysteroscopic tissue removal system infringed U.S. patent 8,061,359. Both complaints sought permanent injunctive relief and unspecified damages. On September 4, 2012, following a two week trial, the jury returned a verdict of infringement of both the ‘459 and ‘359 patents and assessed damages of $4.0 million. On June 27, 2013, the Court allowed Smith & Nephew’s request for injunction, but ordered that enforcement of the injunction be stayed until final resolution, including appeal, of the current re-examinations of both patents at the United States Patent and Trademark Office (“USPTO”). The Court also rejected the jury’s damage award and ordered the parties to identify a mechanism for resolving the damages issue. The Company intends to file post-trial motions seeking to reverse the jury’s verdict. The USPTO has issued final decisions that the claims of the ‘459 and the '359 patents asserted as part of the litigation are not patentable. Smith & Nephew has appealed these decisions to the U.S. Patent Trial and Appeal Board. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.
On March 6, 2012, Enzo Life Sciences, Inc. (“Enzo”) filed suit against the Company in the United States District Court for the District of Delaware. The complaint alleged that certain of the Company’s molecular diagnostics products, including without limitation products based on its proprietary Invader chemistry, such as Cervista HPV HR and Cervista HPV 16/18, infringe Enzo’s U.S. patent 6,992,180. The complaint seeks permanent injunctive relief and unspecified damages. The Company was formally served with the complaint on July 3, 2012, and a trial is tentatively scheduled for the fall of 2015. In January 2012, Enzo filed suit against Gen-Probe in the United States District Court for the District of Delaware. The Gen-Probe complaint alleged that certain of Gen-Probe’s diagnostics products, including products that incorporate Gen-Probe’s patented hybridization protection assay technology, such as the Aptima Combo 2 and Aptima HPV assays, infringe Enzo’s U.S. patent 6,992,180. On September 30, 2013, Enzo amended its list of accused products to include Prodesse, MilliPROBE, PACE and Procleix assays. The complaint seeks permanent injunctive relief and unspecified damages. Enzo has asserted the ‘180 patent claims against six other companies. The court issued a Markman order on July 7, 2015 construing the claims, and it is expected that summary judgment motions will be heard in the fall of 2015. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.

On March 27, 2015, Enzo filed an additional suit against the Company in the United States District Court for the District of Delaware, The complaint alleged that certain additional Company molecular diagnostic products, including, inter alia, the Procleix Parvo/HAV assays and coagulation products, including the Invader Factor II test and the Invader Factor V test, also infringe U.S. Patent 6,992,180. The complaint further alleged that certain of the Company’s molecular diagnostic products, including Hologic’s Progensa PCA3 products, all Aptima products and all Procleix products infringe Enzo’s U. S. Patent 7,064,197. On June 11, 2015, this matter was stayed pending the resolution of summary judgment motions in the 2012 case referenced above. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.

On October 29, 2013, the Interlace stockholder representatives filed a complaint in the Delaware Court of Chancery alleging breach of contract for issues related to the payment of contingent consideration under the Interlace acquisition agreement, and sought $14.7 million in additional payments. On October 20, 2014, a trial was held in Delaware. The parties

17

executed a settlement agreement in January 2015 for an amount less than that sought. The effect of this settlement was not material to the Company's financial statements.
The Company is a party to various other legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described above there are no other proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal costs are expensed as incurred.

(7) Marketable Securities
The following reconciles the cost basis to the fair market value of the Company’s equity securities that are classified as available-for-sale: 
Period Ended:
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair Value
June 27, 2015
$
16.1

 
$
12.4

 
$
(7.4
)
 
$
21.1

September 27, 2014
$
15.5

 
$
10.2

 
$
(1.3
)
 
$
24.4

The Company's investments in marketable securities consist primarily of investments in common stock of entities in the medical device and healthcare industries. One of the Company's investments is in an unrealized loss position of $7.3 million, and the Company has evaluated the near-term prospects of this investment in relation to the severity and duration of the unrealized loss. The near-term prospects since the initial investment have not changed significantly and the unrealized losses have been deemed to be of a short-term nature. Based on that evaluation and the Company's ability and intent to hold this investment to full recovery of its carrying cost, the Company does not consider this investment to be other-than-temporarily impaired at June 27, 2015.


(8) Net Income (Loss) Per Share
A reconciliation of basic and diluted share amounts is as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Basic weighted average common shares outstanding
281,184

 
276,843

 
280,064

 
274,713

Weighted average common stock equivalents from assumed exercise of stock options and stock units
3,108

 
2,130

 
2,688

 
—

Incremental shares from assumed conversion of the Convertible Notes premium
8,320

 
232

 
5,038

 
—

Diluted weighted average common shares outstanding
292,612

 
279,205

 
287,790

 
274,713

Weighted-average anti-dilutive shares related to:
 
 
 
 
 
 
 
Outstanding stock options
168

 
4,727

 
1,939

 
7,007

Stock units
4

 
21

 
63

 
811

The Company has outstanding Convertible Notes, and the principal balance and any conversion premium may be satisfied, at the Company’s option, by issuing shares of common stock, cash or a combination of shares and cash. The Company's current policy is that it will settle the principal balance of the Convertible Notes in cash. As such, the Company applies the treasury stock method to these securities and the dilution related to the conversion premium of the 2010 and 2012 Notes is included in the calculation of diluted weighted-average shares outstanding for fiscal 2015 as the average stock price during the quarterly periods was greater than the conversion price of the 2010 and 2012 Notes.

18


(9) Stock-Based Compensation
The following presents stock-based compensation expense in the Company’s Consolidated Statements of Operations:
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Cost of revenues
$
2.3

 
$
1.9

 
$
6.5

 
$
5.5

Research and development
2.0

 
2.2

 
6.1

 
6.3

Selling and marketing
2.1

 
2.0

 
6.4

 
6.1

General and administrative
9.4

 
5.2

 
22.5

 
14.7

Restructuring and divestiture
0.6

 
1.7

 
0.7

 
6.5

 
$
16.4

 
$
13.0

 
$
42.2

 
$
39.1

The Company granted 1.2 million and 2.4 million stock options during the nine months ended June 27, 2015 and June 28, 2014, respectively, with weighted-average exercise prices of $26.95 and $21.92, respectively. There were 7.3 million options outstanding at June 27, 2015 with a weighted-average exercise price of $22.05.
The Company uses a binomial model to determine the fair value of its stock options. The weighted-average assumptions utilized to value these stock options are indicated in the following table:
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Risk-free interest rate
1.7
%
 
1.3
%
 
1.7
%
 
1.2
%
Expected volatility
38.6
%
 
41.4
%
 
38.6
%
 
41.4
%
Expected life (in years)
5.3

 
4.5

 
5.3

 
4.4

Dividend yield
—

 
—

 
—

 
—

Weighted average fair value of options granted
$
12.07

 
$
7.97

 
$
9.73

 
$
7.64

The Company granted 1.4 million and 2.4 million restricted stock units (RSUs) during the nine months ended June 27, 2015 and June 28, 2014, respectively, with weighted-average grant date fair values of $26.65 and $21.97, per unit respectively. As of June 27, 2015, there were 3.7 million unvested RSUs outstanding with a weighted-average grant date fair value of $24.10 per unit. In addition, the Company granted 0.3 million performance stock units (PSUs) in fiscal 2015 to members of its senior management team, which have a weighted-average grant date fair value of $26.58 per unit. Each recipient of PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three years provided the Company’s defined Return on Invested Capital metrics are achieved. The Company is recognizing compensation expense ratably over the required service period based on its estimate of the number of shares that will vest. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. During the third quarter of fiscal 2015, the Company increased its estimate of those shares that are probable of vesting and recognized an additional $3.2 million of stock-based compensation expense.
At June 27, 2015, there was $25.1 million and $82.0 million of unrecognized compensation expense related to stock options and stock units (comprised of RSUs and PSUs), respectively, to be recognized over a weighted-average period of 3.5 years and 2.7 years, respectively.

19


(10) Other Balance Sheet Information

 
June 27,
2015
 
September 27,
2014
Inventories
 
 
 
Raw materials
$
99.9

 
$
115.6

Work-in-process
63.4

 
57.1

Finished goods
131.7

 
157.9

 
$
295.0

 
$
330.6

Property, plant and equipment
 
 
 
Equipment and software
$
353.4

 
$
342.5

Equipment under customer usage agreements
295.5

 
285.2

Building and improvements
180.1

 
176.9

Leasehold improvements
59.9

 
63.2

Land
51.5

 
51.6

Furniture and fixtures
16.3

 
16.3

 
956.7

 
935.7

Less – accumulated depreciation and amortization
(506.8
)
 
(473.8
)
 
$
449.9

 
$
461.9


20


(11) Business Segments and Geographic Information
The Company has four reportable segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. Certain reportable segments represent an aggregation of operating units within each segment. The Company measures and evaluates its reportable segments based on segment revenues and operating income adjusted to exclude the effect of non-cash charges, such as intangible asset amortization expense, intangible asset and goodwill impairment charges, acquisition related fair value adjustments and integration expenses, restructuring and divestiture charges and other one-time or unusual items.
Identifiable assets for the four principal operating segments consist of inventories, intangible assets, goodwill, and property, plant and equipment. The Company fully allocates depreciation expense to its four reportable segments. The Company has presented all other identifiable assets as corporate assets. There were no intersegment revenues during the three and nine months ended June 27, 2015 and June 28, 2014. Segment information is as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Total revenues:
 
 
 
 
 
 
 
Diagnostics
$
306.9

 
$
293.1

 
$
907.7

 
$
869.7

Breast Health
279.5

 
238.0

 
777.1

 
703.2

GYN Surgical
85.5

 
78.5

 
248.9

 
229.4

Skeletal Health
22.0

 
23.0

 
68.5

 
67.8

 
$
693.9


$
632.6


$
2,002.2


$
1,870.1

Income from operations:
 
 
 
 
 
 
 
Diagnostics
$
30.0

 
$
4.8

 
$
85.3

 
$
24.8

Breast Health
74.7

 
58.4

 
210.7

 
128.0

GYN Surgical
9.5

 
9.1

 
27.2

 
26.8

Skeletal Health
1.8

 
3.9

 
6.2

 
8.1

 
$
116.0


$
76.2

 
$
329.4

 
$
187.7

Depreciation and amortization:
 
 
 
 
 
 
 
Diagnostics
$
88.8

 
$
95.8

 
$
269.2

 
$
282.6

Breast Health
5.9

 
11.7

 
21.8

 
30.2

GYN Surgical
25.6

 
26.3

 
77.0

 
78.4

Skeletal Health
0.3

 
0.2

 
1.1

 
0.6

 
$
120.6


$
134.0


$
369.1


$
391.8

Capital expenditures:
 
 
 
 
 
 
 
Diagnostics
$
12.4

 
$
12.8

 
$
38.6

 
$
37.9

Breast Health
2.8

 
2.7

 
8.4

 
6.8

GYN Surgical
2.2

 
2.0

 
6.6

 
5.9

Skeletal Health
0.1

 
—

 
0.3

 
0.2

Corporate
0.9

 
2.5

 
4.2

 
7.0

 
$
18.4


$
20.0


$
58.1


$
57.8

 

21

 
June 27,
2015
 
September 27,
2014
Identifiable assets:
 
 
 
Diagnostics
$
4,134.1

 
$
4,383.5

Breast Health
827.5

 
859.8

GYN Surgical
1,678.1

 
1,748.2

Skeletal Health
24.8

 
26.1

Corporate
1,466.0

 
1,397.1

 
$
8,130.5

 
$
8,414.7

The Company had no customers with balances greater than 10% of accounts receivable as of June 27, 2015 or September 27, 2014, or any customer that represented greater than 10% of consolidated revenues during the three and nine months ended June 27, 2015 and June 28, 2014.
The Company operates in the following major geographic areas as noted in the below chart. Revenue data is based upon customer location. Other than the United States, no single country accounted for more than 10% of consolidated revenues. The Company’s sales in Europe are predominantly derived from France, Germany and the United Kingdom. The Company’s sales in Asia-Pacific are predominantly derived from China, Australia and Japan. The “All others” designation includes Canada, Latin America and the Middle East.
Revenues by geography as a percentage of total revenues were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
United States
77.8
%
 
75.7
%
 
75.8
%
 
74.8
%
Europe
11.3
%
 
12.5
%
 
12.2
%
 
13.9
%
Asia-Pacific
7.9
%
 
8.0
%
 
8.5
%
 
7.4
%
All others
3.0
%
 
3.8
%
 
3.5
%
 
3.9
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

(12) Income Taxes
In accordance with ASC 740, Income Taxes (ASC 740), each interim period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.
The Company’s effective tax rates for the three and nine month periods ended June 27, 2015 were 37.1% and 29.8%, respectively, compared to 50.0% and 214.2%, respectively, for the corresponding periods in the prior year. For the current three month period, the effective tax rate was higher than the statutory tax rate primarily due to the non-deductible write-off of the cumulative translation adjustment related to one of the Company's subsidiaries that was deemed to be substantially liquidated in the third quarter of fiscal 2015. For the current nine month period, the effective tax rate was lower than the statutory rate primarily due to the domestic production activities deduction and reserve reversals due to a favorable income tax audit settlement partially offset by the non-deductible cumulative translation adjustment write-off. For the three and nine month periods ended June 28, 2014, the effective tax rate was higher than the statutory rate primarily due to unbenefited foreign losses.


22

(13) Intangible Assets
Intangible assets consisted of the following:
 
Description
As of June 27, 2015
 
As of September 27, 2014
Gross
Carrying
Value
 
Accumulated
Amortization
 
Gross
Carrying
Value
 
Accumulated
Amortization
Developed technology
$
3,979.2

 
$
1,624.6

 
$
3,965.6

 
$
1,399.4

In-process research and development
3.7

 
—

 
17.9

 
—

Customer relationships and contracts
1,102.4

 
447.3

 
1,102.4

 
384.7

Trade names
236.4

 
124.9

 
236.5

 
105.3

Business licenses
2.6

 
2.1

 
2.6

 
2.0

 
$
5,324.3


$
2,198.9


$
5,325.0


$
1,891.4

During the first quarter of fiscal 2015, the Company received regulatory approval for one of its in-process research and development projects acquired in the Gen-Probe acquisition and reclassified this asset of $14.2 million to developed technology.
The estimated remaining amortization expense as of June 27, 2015 for each of the five succeeding fiscal years is as follows:
Remainder of Fiscal 2015
$
100.6

Fiscal 2016
$
375.4

Fiscal 2017
$
366.3

Fiscal 2018
$
355.9

Fiscal 2019
$
344.4


(14) Product Warranties
Product warranty activity was as follows:
 
 
Balance at
Beginning of
Period
 
Provisions
 
Settlements/
Adjustments
 
Balance at
End of Period
Nine Months Ended:
 
 
 
 
 
 
 
June 27, 2015
$
6.3

 
$
4.4

 
$
(5.1
)
 
$
5.6

June 28, 2014
$
9.3

 
$
5.5

 
$
(7.5
)
 
$
7.3


23

(15) Accumulated Other Comprehensive Income

The following tables summarize the changes in accumulated balances of other comprehensive income for the periods presented:

 
Three months ended June 27, 2015
 
Nine months ended June 27, 2015
 
Foreign Currency Translation
 
Marketable Securities
 
Pension Plans
 
Hedged Interest Rate Caps
 
Total
 
Foreign Currency Translation
 
Marketable Securities
 
Pension Plans
 
Hedged Interest Rate Caps
 
Total
Beginning Balance
$
(23.2
)
 
$
5.7

 
$
(1.5
)
 
$
(1.6
)
 
$
(20.6
)
 
$
(4.7
)
 
$
8.9

 
$
(1.6
)
 
$
—

 
$
2.6

Other comprehensive income (loss)
4.5

 
(0.7
)
 
—

 
(0.7
)
 
3.1

 
(14.0
)
 
(3.9
)
 
0.1

 
(2.3
)
 
(20.1
)
Amounts reclassified from accumulated other comprehensive income
9.6

 
—

 
—

 
—

 
9.6

 
9.6

 
—

 
—

 
—

 
9.6

Ending Balance
$
(9.1
)
 
$
5.0

 
$
(1.5
)
 
$
(2.3
)
 
$
(7.9
)
 
$
(9.1
)
 
$
5.0

 
$
(1.5
)
 
$
(2.3
)
 
$
(7.9
)

The reclassification out of accumulated other comprehensive income to restructuring and divestiture charges for the three and nine months ended June 27, 2015 was $9.6 million related to writing off the cumulative translation adjustment related to the MRI breast coils product line (see note 3).

 
Three months ended June 28, 2014
 
Nine months ended June 28, 2014
 
Foreign Currency Translation
 
Marketable Securities
 
Pension Plans
 
Total
 
Foreign Currency Translation
 
Marketable Securities
 
Pension Plans
 
Total
Beginning Balance
$
1.6

 
$
9.9

 
$
(0.9
)
 
$
10.6

 
$
8.6

 
$
12.1

 
$
(0.3
)
 
$
20.4

Other comprehensive income (loss)
3.3

 
4.2

 
—

 
7.5

 
(3.7
)
 
2.0

 
(0.6
)
 
(2.3
)
Amounts reclassified from accumulated other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Ending Balance
$
4.9

 
$
14.1

 
$
(0.9
)
 
$
18.1

 
$
4.9

 
$
14.1

 
$
(0.9
)
 
$
18.1



24


(16) New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Presentation of Debt Issuance Costs. This guidance intends to simplify the presentation of debt issuance costs and more closely align the presentation of debt issuance costs under U.S. GAAP to IFRS standards. This guidance is effective for annual periods beginning after December 15, 2015, and is applicable to the Company in fiscal 2017. Early adoption is permitted. The Company is currently evaluating this guidance, but does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements.
    
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This guidance focuses on a reporting company’s consolidation evaluation to determine whether certain legal entities should be consolidated. This guidance is effective for annual periods beginning after December 15, 2015, and is applicable to the Company in fiscal 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance, but does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements or disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660), which provides guidance for revenue recognition. This ASU is applicable to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to receive in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. On July 9, 2015, the FASB voted in favor of delaying the effective date of the new standard by one year, with early adoption permitted as of the original effective date. ASU 2014-09 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which is fiscal 2019 for the Company. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist. ASU 2013-11 amends the presentation requirements of ASC 740 and requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. The ASU is effective for annual periods, and interim periods within those years, beginning after December 15, 2013, which is fiscal 2015 for the Company. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented. The adoption of ASU 2013-11 did not have a material impact on the Company's consolidated financial position or results of operations.

In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income. The ASU is effective for annual periods, and interim periods within those years, beginning after December 15, 2013, which is fiscal 2015 for the Company. The adoption of ASU 2013-05 did not have a material impact on the Company's consolidated financial position or results of operations.



25

(17) Supplemental Guarantor Condensed Consolidating Financials
The Company’s Senior Notes are fully and unconditionally and jointly and severally guaranteed by Hologic, Inc. (“Parent/Issuer”) and certain of its domestic subsidiaries which are 100% owned by Hologic, Inc. The following represents the supplemental condensed financial information of Hologic, Inc. and its guarantor and non-guarantor subsidiaries as of June 27, 2015 and September 27, 2014 and for the three and nine months ended June 27, 2015 and June 28, 2014, as applicable.

26

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 27, 2015
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Product
$
172.2

 
$
448.6

 
$
116.2

 
$
(154.0
)
 
$
583.0

Service and other
94.6

 
10.0

 
13.2

 
(6.9
)
 
110.9

 
266.8

 
458.6

 
129.4

 
(160.9
)
 
693.9

Costs of revenues:
 
 
 
 
 
 
 
 
 
Product
84.0

 
171.0

 
85.2

 
(154.0
)
 
186.2

Amortization of intangible assets
0.8

 
72.2

 
0.1

 
—

 
73.1

Service and other
46.4

 
8.1

 
8.3

 
(6.9
)
 
55.9

Gross Profit
135.6

 
207.3

 
35.8

 
—

 
378.7

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
10.2

 
44.0

 
1.8

 
—

 
56.0

Selling and marketing
26.8

 
50.0

 
17.5

 
—

 
94.3

General and administrative
21.5

 
43.2

 
8.4

 
—

 
73.1

Amortization of intangible assets
0.2

 
26.2

 
1.0

 
—

 
27.4

Restructuring and divestiture charges
10.1

 
—

 
1.8

 
—

 
11.9

 
68.8

 
163.4

 
30.5

 
—

 
262.7

Income (loss) from operations
66.8

 
43.9

 
5.3

 
—

 
116.0

Interest income
0.2

 
—

 
0.1

 
—

 
0.3

Interest expense
(51.8
)
 
(0.3
)
 
(0.3
)
 
—

 
(52.4
)
Debt extinguishment loss
(18.2
)
 
—

 
—

 
—

 
(18.2
)
Other income (expense), net
1.1

 
0.3

 
(0.3
)
 
(0.1
)
 
1.0

Income (loss) before income taxes
(1.9
)
 
43.9

 
4.8

 
(0.1
)
 
46.7

Provision for income taxes
4.3

 
12.3

 
0.7

 
—

 
17.3

Equity in earnings (losses) of subsidiaries
35.6

 
3.5

 
—

 
(39.1
)
 
—

Net income (loss)
$
29.4

 
$
35.1

 
$
4.1

 
$
(39.2
)
 
$
29.4


27

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 27, 2015
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Product
$
438.3

 
$
1,312.1

 
$
348.9

 
$
(423.3
)
 
$
1,676.0

Service and other
278.1

 
39.9

 
38.1

 
(29.9
)
 
326.2

 
716.4

 
1,352.0

 
387.0

 
(453.2
)
 
2,002.2

Costs of revenues:
 
 
 
 
 
 
 
 
 
Product
217.9

 
515.2

 
249.8

 
(423.3
)
 
559.6

Amortization of intangible assets
3.6

 
221.8

 
0.2

 
—

 
225.6

Service and other
130.9

 
38.7

 
24.0

 
(29.9
)
 
163.7

Gross Profit
364.0

 
576.3

 
113.0

 
—

 
1,053.3

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
28.2

 
127.8

 
5.2

 
—

 
161.2

Selling and marketing
74.3

 
132.5

 
56.5

 
—

 
263.3

General and administrative
56.3

 
113.8

 
24.6

 
—

 
194.7

Amortization of intangible assets
1.1

 
78.5

 
3.2

 
—

 
82.8

Restructuring and divestiture charges
11.5

 
0.6

 
9.8

 
—

 
21.9

 
171.4

 
453.2

 
99.3

 
—

 
723.9

Income from operations
192.6

 
123.1

 
13.7

 
—

 
329.4

Interest income
0.6

 
1.2

 
0.5

 
(1.3
)
 
1.0

Interest expense
(152.2
)
 
(2.0
)
 
(1.5
)
 
1.4

 
(154.3
)
Debt extinguishment loss
(24.9
)
 
—

 
—

 
—

 
(24.9
)
Other income (expense), net
251.6

 
(251.1
)
 
0.5

 
(0.4
)
 
0.6

Income (loss) before income taxes
267.7

 
(128.8
)
 
13.2

 
(0.3
)
 
151.8

Provision for income taxes
14.3

 
28.0

 
3.0

 
—

 
45.3

Equity in earnings (losses) of subsidiaries
(146.9
)
 
6.4

 
—

 
140.5

 
—

Net income (loss)
$
106.5

 
$
(150.4
)
 
$
10.2

 
$
140.2

 
$
106.5



28

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 28, 2014
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Product
$
128.4

 
$
386.4

 
$
125.8

 
$
(111.3
)
 
$
529.3

Service and other
88.2

 
14.4

 
13.1

 
(12.4
)
 
103.3

 
216.6

 
400.8

 
138.9

 
(123.7
)
 
632.6

Costs of revenues:
 
 
 
 
 
 
 
 
 
Product
61.5

 
147.3

 
89.2

 
(111.3
)
 
186.7

Amortization of intangible assets
1.4

 
75.3

 
3.8

 
—

 
80.5

Service and other
46.8

 
5.9

 
12.3

 
(12.4
)
 
52.6

Gross Profit
106.9

 
172.3

 
33.6

 
—

 
312.8

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
7.7

 
42.9

 
1.9

 
—

 
52.5

Selling and marketing
16.8

 
43.4

 
22.8

 
—

 
83.0

General and administrative
15.8

 
37.8

 
11.1

 
—

 
64.7

Amortization of intangible assets
0.6

 
26.8

 
2.3

 
—

 
29.7

Restructuring and divestiture charges
1.0

 
2.9

 
2.8

 
—

 
6.7

 
41.9

 
153.8

 
40.9

 
—

 
236.6

Income (loss) from operations
65.0

 
18.5

 
(7.3
)
 
—

 
76.2

Interest income
0.1

 
1.1

 
0.2

 
(1.1
)
 
0.3

Interest expense
(52.6
)
 
(0.3
)
 
(0.6
)
 
1.1

 
(52.4
)
Other income (expense), net
1.3

 
(3.0
)
 
0.2

 
—

 
(1.5
)
Income (loss) before income taxes
13.8

 
16.3

 
(7.5
)
 
—

 
22.6

Provision for income taxes
6.8

 
3.6

 
0.9

 
—

 
11.3

Equity in earnings (losses) of subsidiaries
4.3

 
3.3

 
—

 
(7.6
)
 
—

Net income (loss)
$
11.3

 
$
16.0

 
$
(8.4
)
 
$
(7.6
)
 
$
11.3



29

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 28, 2014
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Product
$
356.8

 
$
1,154.0

 
$
373.7

 
$
(321.7
)
 
$
1,562.8

Service and other
262.7

 
47.4

 
37.2

 
(40.0
)
 
307.3

 
619.5

 
1,201.4

 
410.9

 
(361.7
)
 
1,870.1

Costs of revenues:
 
 
 
 
 
 
 
 
 
Product
172.4

 
431.7

 
266.9

 
(321.7
)
 
549.3

Amortization of intangible assets
4.2

 
224.0

 
5.9

 
—

 
234.1

Impairment of intangible assets
—

 
—

 
26.6

 
—

 
26.6

Service and other
140.3

 
27.5

 
31.8

 
(40.0
)
 
159.6

Gross Profit
302.6

 
518.2

 
79.7

 
—

 
900.5

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
23.0

 
121.7

 
6.4

 
—

 
151.1

Selling and marketing
52.6

 
126.8

 
65.6

 
—

 
245.0

General and administrative
45.5

 
114.9

 
34.2

 
—

 
194.6

Amortization of intangible assets
2.4

 
77.9

 
4.7

 
—

 
85.0

Impairment of intangible assets
—

 
—

 
0.5

 
—

 
0.5

Restructuring and divestiture charges
7.6

 
15.0

 
14.0

 
—

 
36.6

 
131.1

 
456.3

 
125.4

 
—

 
712.8

Income (loss) from operations
171.5

 
61.9

 
(45.7
)
 
—

 
187.7

Interest income
0.3

 
2.3

 
0.7

 
(2.5
)
 
0.8

Interest expense
(168.0
)
 
(0.8
)
 
(1.8
)
 
2.5

 
(168.1
)
Debt extinguishment loss
(7.4
)
 
—

 
—

 
—

 
(7.4
)
Other income (expense), net
7.9

 
(12.4
)
 
1.0

 
—

 
(3.5
)
Income (loss) before income taxes
4.3

 
51.0

 
(45.8
)
 
—

 
9.5

Provision for income taxes
5.0

 
9.9

 
5.4

 
—

 
20.3

Equity in earnings (losses) of subsidiaries
(10.1
)
 
14.3

 
—

 
(4.2
)
 
—

Net (loss) income
$
(10.8
)
 
$
55.4

 
$
(51.2
)
 
$
(4.2
)
 
$
(10.8
)


30

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 27, 2015
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income (loss)
$
29.4

 
$
35.1

 
$
4.1

 
$
(39.2
)
 
$
29.4

Changes in foreign currency translation adjustment
—

 
0.3

 
4.2

 
—

 
4.5

Changes in unrealized holding gain on available-for-sale securities
—

 
(0.7
)
 
—

 
—

 
(0.7
)
Changes in value of hedged interest rate caps, net of tax
(0.7
)
 
—

 
—

 
—

 
(0.7
)
Comprehensive income (loss)
$
28.7

 
$
34.7

 
$
8.3

 
$
(39.2
)
 
$
32.5

For the Nine Months Ended June 27, 2015
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income (loss)
$
106.5

 
$
(150.4
)
 
$
10.2

 
$
140.2

 
$
106.5

Changes in foreign currency translation adjustment
—

 
(0.2
)
 
(13.8
)
 
—

 
(14.0
)
Changes in unrealized holding gain on available-for-sale securities
—

 
(3.9
)
 
—

 
—

 
(3.9
)
Changes in pension plans, net of taxes
—

 
—

 
0.1

 
—

 
0.1

Changes in value of hedged interest rate caps, net of tax
(2.3
)
 
—

 
—

 
—

 
(2.3
)
Comprehensive income (loss)
$
104.2

 
$
(154.5
)
 
$
(3.5
)
 
$
140.2

 
$
86.4

For the Three Months Ended June 28, 2014
 
 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income (loss)
$
11.3

 
$
16.0

 
$
(8.4
)
 
$
(7.6
)
 
$
11.3

Changes in foreign currency translation adjustment
—

 
0.3

 
3.0

 
—

 
3.3

Changes in unrealized holding loss on available-for-sale securities
—

 
4.2

 
—

 
—

 
4.2

Comprehensive income (loss)
$
11.3

 
$
20.5

 
$
(5.4
)
 
$
(7.6
)
 
$
18.8


For the Nine Months Ended June 28, 2014


31

 
Parent/Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net (loss) income
$
(10.8
)
 
$
55.4

 
$
(51.2
)
 
$
(4.2
)
 
$
(10.8
)
Changes in foreign currency translation adjustment
—

 
0.4

 
(4.1
)
 
—

 
(3.7
)
Changes in unrealized holding loss on available-for-sale securities
—

 
2.0

 
—

 
—

 
2.0

Changes in pension plans, net of taxes
—

 
—

 
(0.6
)
 
—

 
(0.6
)
Comprehensive (loss) income
$
(10.8
)
 
$
57.8

 
$
(55.9
)
 
$
(4.2
)
 
$
(13.1
)

32

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
June 27, 2015
 
 
Parent/
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
536.5

 
$
175.8

 
$
172.7

 
$
—

 
$
885.0

Restricted cash
—

 
—

 
3.8

 
—

 
3.8

Accounts receivable, net
133.4

 
180.7

 
68.7

 
—

 
382.8

Inventories
84.2

 
167.9

 
42.9

 
—

 
295.0

Deferred income tax assets
—

 
9.1

 
1.0

 
(10.1
)
 
—

Prepaid income taxes
20.2

 
3.1

 
0.4

 
—

 
23.7

Prepaid expenses and other current assets
20.1

 
7.7

 
10.7

 
—

 
38.5

Intercompany receivables
—

 
2,959.2

 
7.4

 
(2,966.6
)
 
—

Total current assets
794.4

 
3,503.5

 
307.6

 
(2,976.7
)
 
1,628.8

Property, plant and equipment, net
25.9

 
335.0

 
89.0

 
—

 
449.9

Intangible assets, net
21.2

 
3,076.6

 
38.0

 
(10.4
)
 
3,125.4

Goodwill
328.6

 
2,390.0

 
90.4

 
—

 
2,809.0

Other assets
69.7

 
46.4

 
1.3

 
—

 
117.4

Long term intercompany receivables
—

 
—

 
13.0

 
(13.0
)
 
—

Investment in subsidiaries
8,406.2

 
209.8

 
—

 
(8,616.0
)
 
—

Total assets
$
9,646.0

 
$
9,561.3

 
$
539.3

 
$
(11,616.1
)
 
$
8,130.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
671.5

 
$
—

 
$
—

 
$
—

 
$
671.5

Accounts payable
39.0

 
39.5

 
11.4

 
—

 
89.9

Accrued expenses
147.7

 
68.8

 
43.3

 
(0.3
)
 
259.5

Deferred revenue
116.8

 
10.1

 
25.3

 
—

 
152.2

Deferred income tax liability
26.2

 
—

 
—

 
(10.1
)
 
16.1

Intercompany payables
2,924.1

 
—

 
42.5

 
(2,966.6
)
 
—

Total current liabilities
3,925.3

 
118.4

 
122.5

 
(2,977.0
)
 
1,189.2

Long-term debt, net of current portion
3,270.8

 
—

 
—

 
—

 
3,270.8

Deferred income tax liabilities
49.5

 
1,156.7

 
3.5

 
—

 
1,209.7

Deferred revenue
7.8

 
3.7

 
6.1

 
—

 
17.6

Long-term intercompany payables
13.0

 
—

 
—

 
(13.0
)
 
—

Other long-term liabilities
142.5

 
28.9

 
34.7

 
—

 
206.1

Total stockholders’ equity
2,237.1

 
8,253.6

 
372.5

 
(8,626.1
)
 
2,237.1

Total liabilities and stockholders’ equity
$
9,646.0

 
$
9,561.3

 
$
539.3

 
$
(11,616.1
)
 
$
8,130.5


33

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
September 27, 2014
 
 
Parent/
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
288.1

 
$
287.8

 
$
160.2

 
$
—

 
$
736.1

Restricted cash
—

 
—

 
5.5

 
—

 
5.5

Accounts receivable, net
128.4

 
182.5

 
85.1

 
—

 
396.0

Inventories
88.6

 
190.1

 
51.9

 
—

 
330.6

Deferred income tax assets
26.2

 
12.1

 
1.1

 
—

 
39.4

Prepaid income taxes
20.3

 
3.2

 
—

 
(1.1
)
 
22.4

Prepaid expenses and other current assets
16.2

 
11.0

 
8.6

 
—

 
35.8

Intercompany receivables
—

 
2,702.1

 
18.1

 
(2,720.2
)
 
—

Total current assets
567.8

 
3,388.8

 
330.5

 
(2,721.3
)
 
1,565.8

Property, plant and equipment, net
29.7

 
337.1

 
95.1

 
—

 
461.9

Intangible assets, net
25.1

 
3,377.3

 
41.9

 
(10.7
)
 
3,433.6

Goodwill
282.4

 
2,390.9

 
137.5

 
—

 
2,810.8

Other assets
88.4

 
52.7

 
1.5

 
—

 
142.6

Long term intercompany receivables
—

 
—

 
13.0

 
(13.0
)
 
—

Investments in subsidiaries
8,526.0

 
221.7

 
—

 
(8,747.7
)
 
—

Total assets
$
9,519.4

 
$
9,768.5

 
$
619.5

 
$
(11,492.7
)
 
$
8,414.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
114.5

 
$
—

 
$
—

 
$
—

 
$
114.5

Accounts payable
34.8

 
46.1

 
11.2

 
—

 
92.1

Accrued expenses
139.4

 
69.5

 
54.3

 
(1.1
)
 
262.1

Deferred revenue
113.5

 
7.4

 
30.0

 
—

 
150.9

Intercompany payables
2,676.2

 
—

 
44.2

 
(2,720.4
)
 
—

Total current liabilities
3,078.4

 
123.0

 
139.7

 
(2,721.5
)
 
619.6

Long-term debt, net of current portion
4,153.2

 
—

 
—

 
—

 
4,153.2

Deferred income tax liabilities
90.9

 
1,279.1

 
5.4

 
—

 
1,375.4

Deferred revenue
8.3

 
3.6

 
8.2

 
—

 
20.1

Long-term intercompany payables
13.0

 
—

 
—

 
(13.0
)
 
—

Other long-term liabilities
112.6

 
34.3

 
36.5

 
—

 
183.4

Total stockholders’ equity
2,063.0

 
8,328.5

 
429.7

 
(8,758.2
)
 
2,063.0

Total liabilities and stockholders’ equity
$
9,519.4

 
$
9,768.5

 
$
619.5

 
$
(11,492.7
)
 
$
8,414.7


34

CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 27, 2015
 
 
Parent/
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
599.4

 
$
(77.9
)
 
$
32.1

 
$
—

 
$
553.6

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Purchase of property and equipment
(8.0
)
 
(14.1
)
 
(5.8
)
 
—

 
(27.9
)
Increase in equipment under customer usage agreements
—

 
(19.6
)
 
(10.6
)
 
—

 
(30.2
)
Net purchases of insurance contracts
(6.4
)
 
—

 
—

 
—

 
(6.4
)
Sales of mutual funds
7.7

 
—

 
—

 
—

 
7.7

Increase in other assets
(0.8
)
 
(0.2
)
 
1.0

 
—

 
—

Net cash used in investing activities
(7.5
)
 
(33.9
)
 
(15.4
)
 
—

 
(56.8
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Repayment of long-term debt
(2,045.0
)
 
—

 
—

 
—

 
(2,045.0
)
Net proceeds from long-term debt
1,495.1

 
—

 
—

 
—

 
1,495.1

Proceeds from revolving credit line
175.0

 
—

 
—

 
—

 
175.0

Payment of debt issuance costs
(8.3
)
 
—

 
—

 
—

 
(8.3
)
Purchase of interest rate caps
(6.1
)
 
—

 
—

 
—

 
(6.1
)
Net proceeds from issuance of common stock pursuant to employee stock plans
50.4

 
—

 
—

 
—

 
50.4

Excess tax benefit related to equity awards
8.0

 
—

 
—

 
—

 
8.0

Payment of minimum tax withholdings on net share settlement of equity awards
(12.6
)
 
—

 
—

 
—

 
(12.6
)
Net cash used in financing activities
(343.5
)
 
—

 
—

 
—

 
(343.5
)
Effect of exchange rate changes on cash and cash equivalents
—

 
(0.2
)
 
(4.2
)
 
—

 
(4.4
)
Net increase (decrease) in cash and cash equivalents
248.4

 
(112.0
)
 
12.5

 
—

 
148.9

Cash and cash equivalents, beginning of period
288.1

 
287.8

 
160.2

 
—

 
736.1

Cash and cash equivalents, end of period
$
536.5

 
$
175.8

 
$
172.7

 
$
—

 
$
885.0


35

CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 28, 2014
 
 
Parent/
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
412.6

 
$
(81.1
)
 
$
45.2

 
$
—

 
$
376.7

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Net proceeds from sale of business
—

 
—

 
2.4

 
—

 
2.4

Purchase of property and equipment
(9.4
)
 
(15.3
)
 
(6.2
)
 
—

 
(30.9
)
Increase in equipment under customer usage agreements
(0.5
)
 
(15.8
)
 
(10.6
)
 
—

 
(26.9
)
Net sales of insurance contracts
13.8

 
—

 
—

 
—

 
13.8

Purchases of mutual funds
(29.7
)
 
—

 
—

 
—

 
(29.7
)
Sales of mutual funds
22.4

 
—

 
—

 
—

 
22.4

(Increase) decrease in other assets
(1.0
)
 
(3.0
)
 
1.0

 
—

 
(3.0
)
Net cash used in investing activities
(4.4
)
 
(34.1
)
 
(13.4
)
 
—

 
(51.9
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Repayment of long-term debt
(578.8
)
 
—

 
—

 
—

 
(578.8
)
Payment of debt issuance costs
(2.4
)
 
—

 
—

 
—

 
(2.4
)
Payment of deferred acquisition consideration
(5.0
)
 
—

 
—

 
—

 
(5.0
)
Net proceeds from issuance of common stock pursuant to employee stock plans
75.8

 
—

 
—

 
—

 
75.8

Excess tax benefit related to equity awards
5.2

 
—

 
—

 
—

 
5.2

Payment of minimum tax withholdings on net share settlements of equity awards
(9.2
)
 
—

 
—

 
—

 
(9.2
)
Net cash used in financing activities
(514.4
)
 
—

 
—

 
—

 
(514.4
)
Effect of exchange rate changes on cash and cash equivalents
—

 
0.4

 
(0.8
)
 
—

 
(0.4
)
Net (decrease) increase in cash and cash equivalents
(106.2
)
 
(114.8
)
 
31.0

 
—

 
(190.0
)
Cash and cash equivalents, beginning of period
321.6

 
387.4

 
113.5

 
—

 
822.5

Cash and cash equivalents, end of period
$
215.4

 
$
272.6

 
$
144.5

 
$
—

 
$
632.5



36

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT
Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding:
 
•
the effect of the continuing worldwide macroeconomic uncertainty on our business and results of operations;
•
the coverage and reimbursement decisions of third-party payors and the guidelines, recommendations, and studies published by various organizations relating to the use of our products and treatments;
•
the uncertainty of the impact of cost containment efforts and federal healthcare reform legislation on our business and results of operations;
•
the ability to successfully manage ongoing organizational and strategic changes, including our ability to attract, motivate and retain key employees;
•
the impact and anticipated benefits of completed acquisitions and acquisitions we may complete in the future;
•
the ability to consolidate certain of our manufacturing and other operations on a timely basis and within budget, without disrupting our business and to achieve anticipated cost synergies related to such actions;
•
our goal of expanding our market positions;
•
the development of new competitive technologies and products;
•
regulatory approvals and clearances for our products;
•
production schedules for our products;
•
the anticipated development of our markets and the success of our products in these markets;
•
the anticipated performance and benefits of our products;
•
business strategies;
•
estimated asset and liability values;
•
the impact and costs and expenses of any litigation we may be subject to now or in the future;
•
our compliance with covenants contained in the terms of our indebtedness;
•
anticipated trends relating to our financial condition or results of operations, including the impact of interest rate and foreign currency exchange fluctuations; and
•
our capital resources and the adequacy thereof.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include the cautionary statements set forth herein and in our other filings with the Securities and Exchange Commission, including those set forth under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014. We qualify all of our forward-looking statements by these cautionary statements.

37

OVERVIEW
We are a developer, manufacturer and supplier of premium diagnostics products, medical imaging systems and surgical products. Our core business units are focused on diagnostics, breast health, GYN surgical and skeletal health. We sell and service our products through a combination of direct sales and service forces and a network of independent distributors and sales representatives.
We offer a wide range of diagnostic products which are used primarily to aid in the diagnosis of human diseases and screen donated human blood. Our primary diagnostics products include our Aptima family of assays, including our advanced instrumentation (Panther and Tigris), our ThinPrep system, the Rapid Fetal Fibronectin Test and our Procleix blood screening assays. The Aptima family of assays is used to detect the infectious microorganisms that cause the common sexually transmitted diseases, or STDs, chlamydia and gonorrhea, certain high-risk strains of human papillomavirus, or HPV, and Trichomonas vaginalis, the parasite that causes trichomoniasis. The ThinPrep system is primarily used in cytology applications, such as cervical cancer screening, and the Rapid Fetal Fibronectin Test assists physicians in assessing the risk of pre-term birth. In blood screening, we develop and manufacture the Procleix family of assays, which are used to detect various infectious diseases. These blood screening products are marketed worldwide by our blood screening collaborator, Grifols S.A., or Grifols, under Grifols' trademarks.
Our breast health products include a broad portfolio of breast imaging and related products and accessories, including digital mammography systems, computer-aided detection, or CAD, for mammography and minimally invasive breast biopsy devices, breast biopsy site markers, breast biopsy guidance systems and breast brachytherapy products. Our most advanced breast imaging platform, Dimensions, utilizes a technology called tomosynthesis to produce 3D images, as well as conventional 2D full field digital mammography images.
Our GYN surgical products include our NovaSure Endometrial Ablation System, or NovaSure, and our MyoSure Hysteroscopic Tissue Removal System, or MyoSure. The NovaSure system involves a trans-cervical procedure for the treatment of abnormal uterine bleeding. The MyoSure system is a tissue removal device that is designed to provide incision-less removal of fibroids, polyps, and other pathology within the uterus.
Our skeletal health products include dual-energy X-ray bone densitometry systems, an ultrasound-based osteoporosis assessment product, and our Fluoroscan mini C-arm imaging products.
Unless the context otherwise requires, references to we, us, Hologic or our company refer to Hologic, Inc. and its consolidated subsidiaries.
Trademark Notice
Hologic is a trademark of Hologic, Inc. Other trademarks, logos, and slogans registered or used by Hologic and its divisions and subsidiaries in the United States and other countries include, but are not limited to, the following: Affirm, Aptima, Aptima Combo 2, Aquilex, ATEC, Celero, Cervista, Contura, C-View, Dimensions, Discovery, Eviva, Fluoroscan, Gen-Probe, Healthcome, Horizon, HTA, Interlace, Invader, LORAD, MammoPad, MammoSite, MultiCare, MyoSure, NovaSure, Panther, PreservCyt, Prodesse, QDR, Rapid fFN, Sahara, SecurView, Selenia, Serenity, StereoLoc, TCT, ThinPrep, THS, Tigris, TLI IQ, and Trident.

38

RESULTS OF OPERATIONS
All dollar amounts in tables are presented in millions.
Product Revenues
 
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Change
 
June 27, 2015
 
June 28, 2014
 
Change
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
Product Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diagnostics
$
299.5

 
43.2
%
 
$
285.3

 
45.1
%
 
$
14.2

 
5.0
 %
 
$
886.1

 
44.3
%
 
$
847.3

 
45.3
%
 
$
38.8

 
4.6
%
Breast Health
183.1

 
26.4
%
 
149.5

 
23.6
%
 
33.6

 
22.5
 %
 
493.8

 
24.7
%
 
440.0

 
23.5
%
 
53.8

 
12.2
%
GYN Surgical
85.2

 
12.3
%
 
78.2

 
12.4
%
 
7.0

 
8.9
 %
 
248.1

 
12.4
%
 
228.4

 
12.2
%
 
19.7

 
8.6
%
Skeletal Health
15.2

 
2.2
%
 
16.3

 
2.6
%
 
(1.1
)
 
(6.7
)%
 
48.0

 
2.4
%
 
47.1

 
2.5
%
 
0.9

 
1.9
%
 
$
583.0

 
84.1
%
 
$
529.3

 
83.7
%
 
$
53.7

 
10.1
 %
 
$
1,676.0

 
83.8
%
 
$
1,562.8

 
83.5
%
 
$
113.2

 
7.2
%
We generated an increase in product revenues in both the current three and nine month periods compared to the corresponding periods in the prior year. The growth was across all four of our business segments on a domestic basis and on a worldwide basis for all segments with the exception of Skeletal Health in the current three month period. Product revenues increased 10.1% and 7.2%, respectively, in the current three and nine month periods, as reported growth was partially offset by the foreign currency exchange impact of the strengthening U.S. dollar against a number of currencies, most notably the Euro and UK Pound.
Diagnostics product revenues increased 5.0% and 4.6% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year due to increases in Blood Screening of $9.2 million and $26.8 million, respectively, and Molecular Diagnostics of $9.5 million and $24.0 million, respectively, partially offset by decreases of $4.5 million and $11.9 million, respectively, in our Cytology & PeriNatal business.
Blood Screening revenues increased in the current three and nine month periods primarily due to volume increases related to the agreement between Grifols and the Japanese Red Cross, and on a year to date basis, restocking of certain assays for Grifols to normalize its inventory levels. The increases in Molecular Diagnostics products, and in particular our Aptima family of assays, was primarily due to increased volumes from our strategic alliance with Quest Diagnostics Incorporated, or Quest, entered into in the third quarter of fiscal 2013, our increased installed base of Panther instruments, and increased sales of our HPV screening assay. Partially offsetting these increases in the current three and nine month periods was a reduction in Cervista HPV revenues as our larger customers transition to our Panther system and for the nine month period, lower instrumentation sales due to the significant purchases made by Quest in the first quarter of fiscal 2014 in connection with the beginning of the strategic alliance referenced above. The decreases in our Cytology & PeriNatal products in the current three and nine month periods compared to the corresponding periods in the prior year were primarily related to the negative foreign currency exchange impact of the strengthening U.S. dollar on our sales denominated in foreign currencies and slightly lower average selling prices in China. ThinPrep Pap Test volumes domestically are relatively flat in the current three and nine month periods compared to the corresponding periods in the prior year, and have increased internationally. In the U.S., we believe the negative impact on Thin-Prep Pap Test volumes resulting from interval expansion for cervical cancer screening was largely negated by our increased market share gains.
Breast Health product revenues increased 22.5% and 12.2% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year. In the current three and nine month periods, our digital mammography systems and related components revenue increased by $37.3 million and $72.6 million, respectively. This increase is primarily due to higher sales volume of our 3D Dimensions system on a worldwide basis, which was principally driven by domestic sales, which have increased to be a higher percentage of total 3D sales. This increase was partially offset by slightly lower average selling prices and a product mix shift within the 3D offerings to systems with less features. In addition, we also had higher sales of options and upgrades primarily driven by our C-View product. As expected, we continue to experience a decline in the number of 2D systems sold in the U.S. as customers transition to the 3D Dimensions systems. These increases were partially offset by the negative foreign currency exchange impact of the strengthening U.S. dollar on our sales denominated in foreign currencies, lower MRI breast coils revenue as a result of the divestiture of this product line in the fourth quarter of fiscal 2014, and declines as a result of the planned shutdown of our Hitec-Imaging organic photoconductor production line in fiscal 2014.

39

GYN Surgical product revenues increased 8.9% and 8.6% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year primarily due to an increase in MyoSure system sales of $8.3 million and $20.5 million, respectively. The MyoSure system continues to gain strong market acceptance as unit sales increase globally, partially offset by lower average sales prices and product mix shift. NovaSure revenues were slightly lower in the current three and nine month periods compared to the corresponding periods in the prior year as volumes increased internationally, offset by the negative foreign currency exchange impact of the strengthening U.S. dollar on our sales denominated in foreign currencies.
Skeletal Health product revenues decreased 6.7% in the current three month period and increased 1.9% in the current nine month period compared to the corresponding periods in the prior year. The decrease in the current three month period is primarily due to lower sales volumes of our older Discovery products and the negative foreign currency impact of the strengthening U.S. dollar on our sales denominated in foreign currencies, partially offset by increases in our Horizon osteoporosis assessment product sales on a worldwide basis. For the current nine month period, the increase in revenues related to our Horizon product were slightly higher than the declines related to Discovery.
Product revenues by geography as a percentage of total product revenues were as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
June 27, 2015
 
June 28, 2014
United States
76.6
%
 
74.4
%
 
74.4
%
 
73.5
%
Europe
11.9
%
 
13.0
%
 
12.8
%
 
14.5
%
Asia-Pacific
8.6
%
 
8.7
%
 
9.3
%
 
8.1
%
All others
2.9
%
 
3.9
%
 
3.5
%
 
3.9
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
The increase in product revenues in the United States as a percentage of consolidated product revenues in the current three and nine month periods compared to the corresponding periods in the prior year were the result of higher total product revenue in our Breast Health product lines, specifically related to the increased sales of our 3D Dimensions systems. The impact of this increase and the negative impact of the strengthening U.S. dollar against the Euro and UK Pound resulted in a reduction in European revenues, which are often denominated in the Euro and UK Pound, as a percentage of consolidated product revenues in the current three and nine month periods.
Service and Other Revenues
 
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Change
 
June 27, 2015
 
June 28, 2014
 
Change
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
Service and Other Revenues
$
110.9

 
16.0
%
 
$
103.3

 
16.3
%
 
$
7.6

 
7.4
%
 
$
326.2

 
16.3
%
 
$
307.3

 
16.4
%
 
$
18.9

 
6.2
%
Service and other revenues are primarily comprised of revenue generated from our field service organization to provide ongoing service, installation and repair of our products. The majority of these revenues are generated within our Breast Health segment. Service and other revenues increased 7.4% and 6.2% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year primarily due to a favorable shift in service contract pricing and higher installation and training revenues related to our increased sales of 3D Dimensions systems. The increase was also driven to a lesser extent by an increase in the number of service contracts in our Breast Health business as our installed base of our digital mammography systems continues to grow.

40

Cost of Product Revenues
 
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Change
 
June 27, 2015
 
June 28, 2014
 
Change
 
Amount
 
% of
Product
Revenue
 
Amount
 
% of
Product
Revenue
 
Amount
 
%
 
Amount
 
% of
Product
Revenue
 
Amount
 
% of
Product
Revenue
 
Amount
 
%
Cost of Product Revenues
$
186.2

 
31.9
%
 
$
186.7

 
35.3
%
 
$
(0.5
)
 
(0.3
)%
 
$
559.6

 
33.4
%
 
$
549.3

 
35.2
%
 
$
10.3

 
1.9
 %
Amortization of Intangible Assets
73.1

 
12.5
%
 
80.5

 
15.2
%
 
(7.4
)
 
(9.2
)%
 
225.6

 
13.5
%
 
234.1

 
15.0
%
 
(8.5
)
 
(3.6
)%
Impairment of Intangible Assets
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
26.6

 
1.7
%
 
(26.6
)
 
(100.0
)%
 
$
259.3

 
44.4
%
 
$
267.2

 
50.5
%
 
$
(7.9
)
 
(3.0
)%
 
$
785.2

 
46.9
%
 
$
810.0

 
51.9
%
 
$
(24.8
)
 
(3.1
)%
Product revenues gross margin increased to 55.6% and 53.1%, respectively, in the current three and nine month periods compared to 49.5% and 48.1%, respectively, in the prior year corresponding periods.
Cost of Product Revenues. The cost of product revenues, excluding amortization of intangible assets, as a percentage of product revenues was 31.9% and 33.4% in the current three and nine month periods, respectively, compared to 35.3% and 35.2% in the corresponding periods in the prior year. Cost of product revenues as a percentage of product revenues in the current year periods decreased in Diagnostics and Breast Health, and increased in GYN Surgical and Skeletal Health compared to the corresponding periods in the prior year, resulting in the overall improvement in gross margins (exclusive of amortization of intangible assets).
Diagnostics' product costs as a percentage of revenue decreased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to an increase in product revenue related to the increase in Aptima assay sales and related volumes resulting in favorable manufacturing variances, higher blood screening revenues, lower royalty expenses primarily for ThinPrep due to the expiration of a royalty obligation during fiscal 2014, lower Cervista HPV sales, and lower molecular diagnostics instrumentation sales, which have very low gross margins. Partially offsetting these improvements was the negative impact of the strengthening U.S. dollar on our sales denominated in foreign currencies.

Breast Health’s product costs as a percentage of revenue decreased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to the favorable product mix shift to our higher margin 3D Dimensions as our 3D Dimensions systems have higher average sales prices than our 2D systems and sales in the U.S. have higher average sales prices than those sold internationally, resulting in higher gross margins. In addition, we had higher software sales for 3D upgrades and our C-View product, which have higher gross margins than capital equipment sales, while we had lower revenues from our Hitec-Imaging business, which has lower gross margins than the majority of our Breast Health products. Partially offsetting these improvements was the negative impact of the strengthening U.S. dollar on our sales denominated in foreign currencies.

GYN Surgical’s product costs as a percentage of revenue increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to an increase in sales volumes for our MyoSure system and product mix shift. The MyoSure system has slightly lower gross margins than our NovaSure system. In addition, in the current nine month period we recorded a $4.0 million charge to write-off certain inventory that will not be utilized.

Skeletal Health’s product costs as a percentage of revenue increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to decreases in the average selling prices for both our Horizon and legacy Discovery products principally due to the negative impact of the strengthening U.S. dollar on our sales denominated in foreign currencies.

41

Amortization of Intangible Assets. Amortization of intangible assets relates to acquired developed technology, which is generally amortized over its estimated useful life of between 8.5 and 15 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed. Amortization expense decreased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to lower amortization expense from intangible assets from the Cytyc acquisition, which are being amortized based on the pattern of economic use, and the write-down in the second quarter of fiscal 2014 and the eventual write-off of the MRI breast coils developed technology asset as a result of the divestiture of this product line in the fourth quarter of fiscal 2014, partially offset by an increase in developed technology as a result of certain in-process R&D projects being completed in 2014.
Impairment of Intangible Assets. There was no impairment of intangible assets in the current three and nine month periods. In the second quarter of fiscal 2014, we evaluated our MRI breast coils product line asset group, which is within our Breast Health segment, for impairment due to the expectation that it would be sold or disposed of significantly before the end of its previously estimated useful life, which ultimately occurred in the fourth quarter of fiscal 2014. The undiscounted cash flows expected to be generated by this asset group over its estimated remaining life were not sufficient to recover its carrying value. We estimated the fair value of the asset group resulting in an aggregate impairment charge of $28.6 million, comprised of $27.1 million of intangible assets and $1.5 million of property and equipment. The impairment charge was allocated to the long-lived assets, resulting in $26.6 million being allocated to developed technology.
Cost of Service and Other Revenues
 
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Change
 
June 27, 2015
 
June 28, 2014
 
Change
 
Amount
 
% of
Service
Revenue
 
Amount
 
% of
Service
Revenue
 
Amount
 
%
 
Amount
 
% of
Service
Revenue
 
Amount
 
% of
Service
Revenue
 
Amount
 
%
Cost of Service and Other Revenue
$
55.9

 
50.4
%
 
$
52.6

 
50.9
%
 
$
3.3

 
6.3
%
 
$
163.7

 
50.2
%
 
$
159.6

 
52.0
%
 
$
4.1

 
2.6
%
Service and other revenues gross margin was 49.6% and 49.8% in the current three and nine month periods, respectively, compared to 49.1% and 48.0% in the corresponding periods in the prior year, respectively. Within our Breast Health segment, the increase in gross margin is related to a favorable shift in service contract pricing and higher installation and training revenues related to our increased sales of 3D Dimensions systems. The increase was also driven to a lesser extent by the continued conversion of a high percentage of our domestic installed base of digital mammography systems to service contracts upon expiration of the warranty period improving leverage of our service infrastructure.
Operating Expenses
 
 
Three Months Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Change
 
June 27, 2015
 
June 28, 2014
 
Change
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
 
Amount
 
% of
Total
Revenue
 
Amount
 
% of
Total
Revenue
 
Amount
 
%
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
56.0

 
8.1
%
 
$
52.5

 
8.3
%
 
$
3.5

 
6.7
 %
 
$
161.2

 
8.1
%
 
$
151.1

 
8.1
%
 
$
10.1

 
6.7
 %
Selling and marketing
94.3

 
13.6
%
 
83.0

 
13.1
%
 
11.3

 
13.6
 %
 
263.3

 
13.2
%
 
245.0

 
13.1
%
 
18.3

 
7.5
 %
General and administrative
73.1

 
10.5
%
 
64.7

 
10.2
%
 
8.4

 
13.0
 %
 
194.7

 
9.7
%
 
194.6

 
10.4
%
 
0.1

 
0.1
 %
Amortization of intangible assets
27.4

 
3.9
%
 
29.7

 
4.7
%
 
(2.3
)
 
(7.7
)%
 
82.8

 
4.1
%
 
85.0

 
4.5
%
 
(2.2
)
 
(2.7
)%
Impairment of intangible assets
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0.5

 
—

 
(0.5
)
 
(100.0
)%
Restructuring and divestiture charges
11.9

 
1.7
%
 
6.7

 
1.1
%
 
5.2

 
77.6
 %
 
21.9

 
1.1
%
 
36.6

 
2.0
%
 
(14.7
)
 
(40.2
)%
 
$
262.7

 
37.8
%
 
$
236.6

 
37.4
%
 
$
26.1

 
11.0
 %
 
$
723.9

 
36.2
%
 
$
712.8

 
38.1
%
 
$
11.1

 
1.6
 %

42

Research and Development Expenses. Research and development expenses increased 6.7% in each of the current three and nine months periods compared to the corresponding periods in the prior year. The increases were primarily due to increased compensation from higher headcount and improved operating results, primarily in our Diagnostics and GYN Surgical segments, and additional program spend primarily for our virology product line within our molecular diagnostics business, including increased clinical spending and higher spend for prototype materials. Partially offsetting these increases was lower spend from our MRI breast coils product line as a result of the divestiture of this business in the fourth quarter of fiscal 2014. At any point in time, we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period.
Selling and Marketing Expenses. Selling and marketing expenses increased 13.6% and 7.5% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year. In the current three and nine month periods, selling and marketing expenses increased primarily due to increased commissions as a result of higher sales and an increase in spending on marketing initiatives primarily for our breast cancer awareness, Genius 3D and cervical cancer awareness campaigns. These increases were partially offset by lower travel expenses and lower spend from our MRI breast coils product line as a result of the divestiture of this business in the fourth quarter of fiscal 2014.
General and Administrative Expenses. General and administrative expenses increased 13.0% and 0.1% in the current three and nine month periods, respectively, compared to the corresponding periods in the prior year. The increases in the current three and nine month periods were primarily related to higher compensation due to improved operating results and higher stock-based compensation, increased consulting expenses for a number of corporate initiatives and higher medical device excise taxes from increased U.S. product sales. These increases were partially offset by decreases in credit card fees related to customer sales, decreases in certain non-income tax expenses, and a reduction of bad debt expense. In addition, the current nine month period did not include $4.7 million of legal and consulting fees incurred to assist in our negotiation and response to shareholder activism in fiscal 2014.
Amortization of Intangible Assets. Amortization of intangible assets results from customer relationships, trade names, business licenses and non-compete agreements related to our acquisitions. These intangible assets are generally amortized over their estimated useful lives of between 2 and 30 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed utilizing expected undiscounted future cash flows. Amortization expense decreased 7.7% and 2.7% in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to lower amortization expense from intangible assets from the Cytyc acquisition, which are being amortized based on the pattern of economic use, partially offset by the shortening of the remaining life of certain corporate trade names in the second quarter of fiscal 2014 as we decided to phase out their use.
Impairment of Intangible Assets. There was no impairment of intangible assets in the current three and nine month periods of fiscal 2015. In the second quarter of fiscal 2014, we recorded an impairment charge for a trade name intangible asset related to our MRI breast coils product line as previously discussed.
Restructuring and Divestiture Charges. In fiscal 2014, we implemented cost containment measures that primarily resulted in headcount reductions and also started the process of reorganizing our senior management team and international structure, which has led to additional headcount actions in fiscal 2015. Pursuant to U.S. generally accepted accounting principles, the related severance and benefit charges are being recognized either ratably over the respective required employee service periods or up-front for contractual benefits, and other charges are being recognized as incurred. In the current three and nine month periods, we recorded aggregate charges of $2.3 million and $12.3 million, respectively, related to these actions, primarily for severance and benefits and to a lesser extent facility closure costs. In addition, during the current three and nine month periods, we recorded a $9.6 million charge to write-off the cumulative translation adjustment related to the divestiture of our MRI breast coils product line. This subsidiary was deemed to be substantially liquidated in the third quarter of fiscal 2015 as operations fully ceased. In the prior year three and nine month periods, we recorded aggregate charges of $6.7 million and $36.6 million, respectively, primarily related to our fiscal 2014 actions including the termination of our former President and CEO and shutting down our Hitec-Imaging organic photoconductor manufacturing line. These charges recorded in fiscal 2014 primarily related to severance and benefits, and the nine month period includes a $3.1 million impairment charge to record certain buildings at one of our German locations to their estimated fair value. For additional information pertaining to restructuring actions and charges, please refer to Note 3 to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

43

Interest Income
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Interest Income
$
0.3

 
$
0.3

 
$
—

 
—
%
 
$
1.0

 
$
0.8

 
$
0.2

 
25.0
%
Interest income was flat in the current three month period compared to the corresponding period in the prior year and increased by $0.2 million in the current nine month period compared to the corresponding period in the prior year. The nine month period increase is primarily related to higher average cash balances in the current year.
Interest Expense
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Interest Expense
$
(52.4
)
 
$
(52.4
)
 
$
—

 
—
%
 
$
(154.3
)
 
$
(168.1
)
 
$
13.8

 
(8.2
)%

Interest expense consists primarily of the cash interest costs and the related amortization of the debt discount and deferred issuance costs on our Convertible Notes, Senior Notes and amounts borrowed under our Credit Agreement and Prior Credit Agreement. The decrease in interest expense in the current nine month period compared to the corresponding period in the prior year was primarily due to lower outstanding balances under the Credit Agreement and Prior Credit Agreement from principal payments in fiscal 2014 and 2015, which included voluntary pre-payments, lower weighted-average interest rates due to refinancing the Term Loan B facility during fiscal 2014, and the redemption of $405.0 million in principal amount of our 2.00% Convertible Notes due 2037, or the 2007 Notes, in December 2013. Interest expense in the current three month period remained flat as compared to the corresponding period of the prior year as the decreases noted for the nine month period were offset by the increase in interest expense for $4.6 million in transaction fees that were expensed related to executing the new Credit Agreement.
Debt Extinguishment Loss
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Debt Extinguishment Loss
$
(18.2
)
 
$
—

 
$
(18.2
)
 
(100.0
)%
 
$
(24.9
)
 
$
(7.4
)
 
$
(17.5
)
 
236.5
%

In the third quarter of fiscal 2015, we entered into a new Credit Agreement with Bank of America, N.A. The initial net proceeds under the new Credit Agreement were used to refinance our obligations under our Prior Credit Agreement with Goldman Sachs Bank USA. In connection with this transaction, we recorded a debt extinguishment loss of $18.2 million for the write off of the pro-rata share of the debt discount and deferred issuance costs under the existing facility.

In the second quarter of fiscal 2014, we refinanced our Term Loan B facility and voluntarily prepaid $25.0 million of principal. In connection with this transaction, we recorded a debt extinguishment loss of $4.4 million for the write off of the pro-rata share of the debt discount and deferred issuance costs. Additionally, in the first quarters of each of fiscal 2015 and 2014, we made voluntary pre-payments of $300.0 million and $100.0 million on our Term Loan B facility, respectively. These prepayments are considered a partial debt extinguishment, and as a result, the pro-rata share of the debt discount and deferred issuance costs aggregating $6.7 million and $3.0 million related to these prepayments were recorded as a debt extinguishment loss in the first quarter of fiscal 2015 and 2014, respectively.

44

Other Income (Expense), net
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Other Income (Expense), net
$
1.0

 
$
(1.5
)
 
$
2.5

 
(166.7
)%
 
$
0.6

 
$
(3.5
)
 
$
4.1

 
(117.1
)%
For the current three month period, this account was primarily comprised of gains of $0.6 million on the cash surrender value of life insurance contracts and mutual funds related to our deferred compensation plan, and net foreign currency exchange gains of $0.4 million. For the prior year three month period, this account was primarily comprised of an other-than temporary impairment charge for a cost-method equity investment of $3.2 million, partially offset by gains of $1.3 million on the cash surrender value of life insurance contracts and mutual funds related to our deferred compensation plan.

For the current nine month period, this account was primarily comprised of gains of $2.0 million on the cash surrender value of life insurance contracts and mutual funds related to our deferred compensation plan, partially offset by net foreign currency exchange losses of $1.5 million. For the prior year nine month period, this account was primarily comprised of other-than-temporary impairment charges on cost-method equity investments of $6.9 million and net foreign currency exchange losses of $0.9 million, partially offset by gains of $4.1 million on the cash surrender value of life insurance contracts and mutual funds related to our deferred compensation plan.
Provision for Income Taxes
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Provision for Income Taxes
$
17.3

 
$
11.3

 
$
6.0

 
53.1
%
 
$
45.3

 
$
20.3

 
$
25.0

 
123.2
%
Our effective tax rate for the current three and nine month periods was 37.1% and 29.8%, respectively, compared to a provision of 50.0% and 214.2%, respectively, for the corresponding periods in the prior year. For the current three month period, the effective tax rate was higher than the statutory tax rate primarily due to the non-deductible write-off of the cumulative translation adjustment account related to one of the Company's subsidiaries that was deemed to be substantially liquidated in the third quarter of fiscal 2015. For the current nine month period, the effective tax rate was lower than the statutory rate primarily due to the domestic production activities deduction and reserve reversals due to a favorable income tax audit settlement partially offset by the non-deductible cumulative translation adjustment write-off. For the prior year three and nine month periods, the effective tax rate was higher than the statutory rate primarily due to unbenefited foreign losses.
Segment Results of Operations
We report our business as four segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. The accounting policies of the segments are the same as those described in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014. We measure segment performance based on total revenues and operating income or loss. Revenues from product sales of each of these segments are described in further detail above. The discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment.

45

Diagnostics
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Total Revenues
$
306.9

 
$
293.1

 
$
13.8

 
4.7
%
 
$
907.7

 
$
869.7

 
$
38.0

 
4.4
%
Operating Income
$
30.0

 
$
4.8

 
$
25.2

 
525.0
%
 
$
85.3

 
$
24.8

 
$
60.5

 
244.0
%
Operating Income as a % of Segment Revenue
9.8
%
 
1.6
%
 
 
 
 
 
9.4
%
 
2.8
%
 
 
 
 
Diagnostics revenues increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to the increase in product revenues discussed above.
Operating income for this business segment increased in the current three and nine month periods compared to the corresponding periods in the prior year due to increased gross profit in absolute dollars and slightly lower operating expenses. Gross profit in absolute dollars increased in the current three and nine month periods primarily due to increased Aptima sales, higher blood screening revenues as a result of the agreement between Grifols and the Japanese Red Cross, favorable manufacturing variances and lower royalty expense, partially offset by a decrease in Cervista HPV volume, lower instrumentation sales and the negative foreign currency impact of the strengthening U.S. dollar on our sales denominated in foreign currencies. As a result, gross margin improved to 51.1% and 49.2% in the current three and nine month periods of fiscal 2015, respectively, from 45.2% and 45.9% in the corresponding prior year periods, respectively.
Operating expenses decreased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to a reduction in headcount in general and administrative functions and sales and marketing, lower restructuring charges, and a decrease in the amortization of intangible assets. For the nine month period, there was also lower bad debt expense and a decrease in non-income tax expense. These decreases were partially offset by an increase in spending on research and development for additional headcount and project spending, primarily for our virology product line, higher spend for various marketing initiatives and increased compensation from improved operating results.
Breast Health
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Total Revenues
$
279.5

 
$
238.0

 
$
41.5

 
17.5
%
 
$
777.1

 
$
703.2

 
$
73.9

 
10.5
%
Operating Income
$
74.7

 
$
58.4

 
$
16.3

 
27.9
%
 
$
210.7

 
$
128.0

 
$
82.7

 
64.6
%
Operating Income as a % of Segment Revenue
26.7
%
 
24.5
%
 
 
 
 
 
27.1
%
 
18.2
%
 
 
 
 
Breast Health revenues increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to the $33.6 million and $53.8 million increase in product revenue discussed above and the $8.0 million and $20.1 million increase in service revenue that was substantially related to additional service revenue driven by the increased sales of our 3D Dimensions systems.
Operating income for this business segment increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to an increase in gross profit in absolute dollars from higher revenue, partially offset by an increase in operating expenses. The overall gross margin increased to 57.6% and 56.0% in the current three and nine month periods, respectively, compared to 52.1% and 48.1% in the corresponding periods in the prior year, respectively, primarily due to the increase in 3D Dimensions sales, on both a unit basis and as a percentage of total digital mammography systems, compared to our 2D systems and an increase in software related sales, which have higher gross margins, partially offset by the negative foreign

46

currency impact of the strengthening U.S. dollar on our sales denominated in foreign currencies. In addition, service gross margin has improved due to an increase in service contracts from our higher installed base upon expiration of the warranty period without a corresponding increase in costs. The prior year nine month period included a $26.6 million asset impairment charge related to our MRI breast coils product line discussed above.
Operating expenses increased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to an increase in commissions due to higher revenues, higher marketing expenditures primarily for our breast cancer awareness and Genius 3D campaigns, the $9.6 million charge to write-off the cumulative translation adjustment related to the divestiture of our MRI breast coils product line discussed above and increased compensation from improved operating results. These expense increases were partially offset by lower intangible asset amortization expense, lower restructuring expenses, and lower MRI breast coils product line expenses as a result of its divestiture.
GYN Surgical
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Total Revenues
$
85.5

 
$
78.5

 
$
7.0

 
8.9
%
 
$
248.9

 
$
229.4

 
$
19.5

 
8.5
%
Operating Income
$
9.5

 
$
9.1

 
$
0.4

 
4.4
%
 
$
27.2

 
$
26.8

 
$
0.4

 
1.5
%
Operating Income as a % of Segment Revenue
11.1
%
 
11.6
%
 
 
 
 
 
10.9
%
 
11.7
%
 
 
 
 
GYN Surgical revenues increased in the current three and nine month periods compared to the corresponding periods in the prior year due to the change in product revenues discussed above.
Operating income for this business segment increased in the current year periods compared to the corresponding periods in the prior year primarily due to an increase in gross profit in absolute dollars, partially offset by an increase in operating expenses. Gross margin increased to 59.3% in the current quarter from 57.3% in the corresponding period in the prior year primarily due to the benefit of increased volumes, partially offset by a product mix shift due to higher sales volume of MyoSure systems and the negative foreign currency impact of the strengthening U.S. dollar on our sales denominated in foreign currencies. The MyoSure system has lower gross margins than our NovaSure system. Gross margin in the current nine month period decreased to 56.6% from 57.5% in the corresponding period in the prior year primarily due to the $4.0 million charge to write-off inventory that will not be utilized, the impact of higher MyoSure system sales, and the negative impact of the strengthening U.S. dollar.
Operating expenses increased in the current three and nine month periods, primarily due to an increase in sales force headcount, higher commissions, increased costs associated with international sales initiatives, and increased research and development expenses.
Skeletal Health
 
 
Three Months Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
Change
 
June 27,
2015
 
June 28,
2014
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
Amount
 
Amount
 
Amount
 
%
Total Revenues
$
22.0

 
$
23.0

 
$
(1.0
)
 
(4.7
)%
 
$
68.5

 
$
67.8

 
$
0.7

 
1.0
 %
Operating Income
$
1.8

 
$
3.9

 
$
(2.1
)
 
(53.8
)%
 
$
6.2

 
$
8.1

 
$
(1.9
)
 
(23.5
)%
Operating Income as a % of Segment Revenue
8.2
%
 
17.0
%
 
 
 
 
 
9.1
%
 
11.9
%
 
 
 
 
Skeletal Health revenues decreased in the current three month period and increased in the current nine month period compared to the corresponding periods in the prior year primarily due to product revenues as discussed above.
Operating income decreased in the current three and nine month periods compared to the corresponding periods in the prior year primarily due to decreases in gross margin in absolute dollars as a result of lower product sales, combined with higher operating

47

expenses for compensation from improved company operating results and additional investment in research and development projects. The gross margin rate decreased to 46.7% in the current quarter from 48.7% in the corresponding period in the prior year. The gross margin rate for the current nine month period decreased to 44.1% from 45.0% in the corresponding prior year period.

LIQUIDITY AND CAPITAL RESOURCES
At June 27, 2015, we had $439.6 million of working capital and our cash and cash equivalents totaled $885.0 million. Our cash and cash equivalents balance increased by $148.9 million during the first nine months of fiscal 2015 primarily due to an increase in operating cash flows and proceeds from equity plans, partially offset by debt principal payments and capital expenditures.
In the first nine months of fiscal 2015, our operating activities provided us with $553.6 million of cash, which included net income of $106.5 million, non-cash charges for depreciation and amortization aggregating $369.1 million, non-cash interest expense of $49.5 million related to our outstanding debt, stock-based compensation expense of $42.2 million, debt extinguishment losses of $24.9 million, and a $9.6 million charge related to writing off the cumulative translation adjustment of our MRI breast coils product line that was deemed to be substantially liquidated. These adjustments to net income were partially offset by a decrease in net deferred tax liabilities of $110.9 million, primarily from the amortization of intangible assets. Cash provided by operations included a net cash inflow of $65.7 million from changes in our operating assets and liabilities. Changes in our operating assets and liabilities were driven primarily by a decrease in inventory of $32.9 million as a result of increased sales in both the Diagnostics and Breast Health segments and an overall effort to reduce inventory levels, and an increase in accrued expenses of $25.3 million primarily due to the accrual of interest on our debt due to timing of payments and annual bonuses, partially offset by restructuring payments.
In the first nine months of fiscal 2015, our investing activities utilized $56.8 million of cash primarily for capital expenditures of $58.1 million, which consisted of the placement of equipment under customer usage agreements and purchases of manufacturing equipment and computer hardware.
In the first nine months of fiscal 2015, our financing activities used cash of $343.5 million primarily due to net payments related to our long term debt of $374.9 million, which included $300.0 million in voluntary prepayments and $86.3 million of scheduled principal payments under our Prior Credit Agreement. As a result of our new Credit Agreement, we borrowed $16.3 million more than the principal that was outstanding under the Prior Credit Agreement, and we incurred $4.9 million of fees recorded as a debt discount. Cash outflows included $12.6 million for employee-related taxes withheld for the net share settlement of vested restricted stock units, debt issuance costs for the new Credit Agreement of $8.3 million and the purchase of interest rate caps of $6.1 million to hedge the variable interest rate on amounts outstanding under our Credit Agreement. Partially offsetting these uses of cash were proceeds of $50.4 million from our equity plans, primarily from the exercise of stock options.
Debt
We had total recorded debt outstanding of $3.94 billion at June 27, 2015, which is comprised of amounts outstanding under our Credit Agreement of $1.67 billion (principal $1.68 billion), Senior Notes of $1.00 billion and Convertible Notes of $1.27 billion (principal $1.32 billion).

48

The debt maturity schedule for our obligations as of June 27, 2015 was as follows:
 
Remainder 2015
 
2016
 
2017
 
2018
 
2019
 
2020 and Thereafter
 
Total
Term Loan
$
18.7

 
$
75.0

 
$
84.4

 
$
121.9

 
$
150.0

 
$
1,050.0

 
$
1,500.0

Revolver
—

 
175.0

 
—

 
—

 
—

 
—

 
175.0

Senior Notes
—

 
—

 
—

 
—

 
—

 
1,000.0

 
1,000.0

Convertible Notes (1)
450.0

 
—

 
—

 
906.4

 
—

 
—

 
1,356.4

 
$
468.7

 
$
250.0

 
$
84.4

 
$
1,028.3

 
$
150.0

 
$
2,050.0

 
$
4,031.4

(1) Classified based on the earliest date of redemption for each respective issuance with the exception of the 2010 Notes which are convertible by their respective holders as further discussed below. In addition, the balance in fiscal 2018 reflects accretion on the 2013 Notes through June 27, 2015.
Credit Agreement
On May 29, 2015, we and certain of our domestic subsidiaries entered into a Credit and Guaranty Agreement, or the Credit Agreement, with Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other lenders party thereto (collectively, the "Lenders"). This Credit Agreement replaced our existing senior secured credit facility with Goldman Sachs Bank USA, in its capacity as administrative agent and collateral agent and the lenders party thereto ("Prior Credit Agreement") entered into on August 1, 2012, and the proceeds under the Credit Agreement of $1.68 billion were used to pay off the amounts outstanding under the Prior Credit Agreement.
The credit facilities under the Credit Agreement consist of:
•
A $1.5 billion secured term loan to Hologic with a final maturity date of May 29, 2020 or the Term Loan; and
•
A secured revolving credit facility under which the Borrowers (as defined below) may borrow up to $1 billion, subject to certain sublimits, with a final maturity date of May 29, 2020 or the Revolver.
Hologic and one of its subsidiaries, Hologic GGO 4 Ltd (“Hologic U.K.”) are the initial borrowers (the “Borrowers”) under the Credit Agreement. Hologic’s obligations under the Credit Agreement are guaranteed by certain of Hologic’s domestic subsidiaries (the “Subsidiary Guarantors”). Hologic U.K.’s obligations under the Credit Agreement are guaranteed by Hologic and the Subsidiary Guarantors.
In addition to the Term Loan, we borrowed $175.0 million under the Revolver. Borrowings under the Revolver may be made in certain alternative currencies pursuant to the terms of the Credit Agreement. We have the ability, subject to the terms of the Credit Agreement, to designate any additional wholly-owned foreign subsidiary as a Designated Borrower (as defined in the Credit Agreement) to receive loans up to a $100 million sublimit. The obligations of any Designated Borrower under such sublimit would be guaranteed by us and our Subsidiary Guarantors.
Borrowings under the credit facilities bear interest, at our option and in each case plus an applicable margin, as follows:
•
Term Loan: the Base Rate (as defined in the Credit Agreement) or the Eurocurrency Rate (i.e., the Libor rate); and
•
Revolver: if funded in U.S. Dollars, the Base Rate or the Eurocurrency Rate, and, if funded in an alternative currency, the Eurocurrency Rate; and if requested under the swing line sublimit, the Base Rate.
The applicable margin to the Base Rate and the Eurocurrency Rate is subject to specified changes depending on the total net leverage ratio as defined in the Credit Agreement. Current borrowings outstanding under the Credit Agreement bear interest at the Eurocurrency Rate plus the applicable margin of 1.75% per annum. We are also required to pay a quarterly commitment fee on the undrawn committed amount available under the Revolver.
We are required to make scheduled principal payments under the Term Loan in increasing amounts ranging from $18.75 million per three-month period commencing with the three-month period ending on September 25, 2015 to $37.5 million per three-month period commencing with the three-month period ending on September 28, 2018. The remaining balance of the Term Loan is due at maturity. Any amounts outstanding under the Revolver are due at maturity. In addition, subject to the terms and conditions set forth in the Credit Agreement, we are required to make certain mandatory prepayments from specified excess cash flows from operations (to the extent our net senior secured leverage ratio exceeds a certain ratio) and from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances and insurance recoveries (subject to certain reinvestment rights) (“Mandatory Prepayments”). Mandatory Prepayments are required to be applied by us, first, to the Term Loan, second, to any outstanding amount under the swing line sublimit, third, to the Revolver, and fourth to

49

any outstanding amount under a letter of credit sublimit. Subject to certain limitations, we may voluntarily prepay any of the credit facilities under the Credit Agreement without premium or penalty.
The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting our ability and that of the Subsidiary Guarantors, subject to negotiated exceptions, to incur additional indebtedness and additional liens on our assets, engage in mergers or acquisitions or dispose of assets, enter into sale-leaseback transactions, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of our businesses. The Credit Agreement also contains customary representations and warranties and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross defaults and an event of default upon a change of control of the company.
Borrowings are secured by first-priority liens on, and a first-priority security interest in, substantially all of our assets, with certain exceptions. The Credit Agreement contains total net leverage ratio and interest coverage ratio financial covenants measured as of the last day of each fiscal quarter. The total net leverage ratio is 5.50:1.00 beginning on our fiscal quarter ending September 26, 2015, and then decreases over time to 4.00:1.00 for the quarter ending March 28, 2020. The interest coverage ratio is 3.75:1.00 beginning on our fiscal quarter ending September 26, 2015, and will remain as such for each quarter thereafter. The total net leverage ratio is defined as the ratio of our consolidated net debt as of the quarter end to our consolidated adjusted EBITDA (as defined in the Credit Agreement) for the four-fiscal quarter period ending on the measurement date. The interest coverage ratio is defined as the ratio of our consolidated adjusted EBITDA for the prior four-fiscal quarter period ending on the measurement date to adjusted consolidated cash interest expense for the same measurement period. These terms, and the calculation thereof, are defined in further detail in the Credit Agreement. Although the covenant calculations were not required as of June 27, 2015, we would have been in compliance.
Senior Notes
On July 2, 2015, we completed a private placement of $1.0 billion aggregate principal amount of our 5.250% Senior Notes due 2022, or our 2022 Notes. The 2022 Notes are our general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries (the "Guarantors"). The 2022 Notes mature on July 15, 2022 and bear interest at the rate of 5.250% per year, payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2016. We used the net proceeds of the 2022 Notes, plus available cash to discharge our outstanding $1.0 billion aggregate principal amount of 6.25% senior notes due 2020, or our Senior Notes and we will redeem such Senior Notes on August 1, 2015 at an aggregate redemption price of $1.03125 billion, reflecting a premium payment of $31.25 million. In addition, we will make a final interest payment in the amount of $31.25 million for interest accrued to August 1, 2015, to holders of record of the Senior Notes as of July 15, 2015. As a result of this transaction, we will record a debt extinguishment loss in the fourth quarter of fiscal 2015, which will comprise the premium payment and pro-rata debt issuance costs. Debt issuance costs related to the Senior Notes were $8.4 million as of June 27, 2015.
The 2022 Notes were issued pursuant to an indenture (the “Indenture”), dated as of July 2, 2015, among the Company, the Guarantors and Wells Fargo Bank, National Association, as trustee. The Indenture contains covenants which limit, among other things, our ability and the ability of the Guarantors to incur additional indebtedness and additional liens on our assets, to engage in mergers or acquisitions or dispose of assets, to pay dividends or make other distributions, to enter into certain transactions with affiliated persons and to make certain investments. These covenants are subject to a number of exceptions and qualifications, including the suspension of certain of these covenants upon the 2022 Notes receiving an investment grade credit rating. We are not required to maintain any financial covenants with respect to the 2022 Notes.
We may redeem the 2022 Notes at any time prior to July 15, 2018 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the Indenture. We may also redeem up to 35% of the aggregate principal amount of our 2022 Notes with the net cash proceeds of certain equity offerings at any time and from time to time before July 15, 2018, at a redemption price equal to 105.250% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. We also have the option to redeem the 2022 Notes on or after: July 15, 2018 through July 14, 2019 at 102.625% of par; July 15, 2019 through July 14, 2020 at 101.313% of par; and July 15, 2020 and thereafter at 100% of par. In addition, if we undergo a change of control, as provided in the Indenture, we will be required to make an offer to purchase each holder’s 2022 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Convertible Notes
At June 27, 2015, our Convertible Notes, in the aggregate principal amount of $1.32 billion, are recorded at $1.27 billion, which is net of the unamortized debt discount attributed to the embedded conversion feature of the Convertible Notes. These notes consist of:
 

50

•
$450 million of our 2.00% Convertible Exchange Senior Notes due 2037 issued in November 2010, which we refer to as the 2010 Notes;
•
$500 million of our 2.00% Convertible Senior Notes due 2042 issued in March 2012, which we refer to as the 2012 Notes; and
•
$370 million of our 2.00% Convertible Senior Notes due 2043 issued in February 2013, which we refer to as the 2013 Notes.
Holders may require us to repurchase the 2010 Notes on each of December 15, 2016, 2020, 2025, on December 13, 2030 and on December 14, 2035, or upon a fundamental change, as provided in the indenture for the 2010 Notes, at a repurchase price equal to 100% of their accreted principal amount, plus accrued and unpaid interest.
During the third quarter of fiscal 2015, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2010 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of the 2010 Notes may convert their notes during the fourth quarter of fiscal 2015. As such, we classified the $421.8 million in carrying value ($450.0 million principal value) of our 2010 Notes as a current debt obligation. In the event the closing price conditions are met in the fourth quarter of fiscal 2015 or a future fiscal quarter, the 2010 Notes will be convertible at a holder's option during the immediately following fiscal quarter. As of June 27, 2015, the if-converted value of the 2010 Notes exceeded the aggregate principal amount by approximately $296.2 million. It is our current intent and policy to settle any conversion of the Convertible Notes as if we had elected to make either a net share settlement or all cash election, such that upon conversion, we intend to pay the holders in cash for the principal amount of the 2010 Notes and, if applicable, shares of our common stock or cash to satisfy the premium based on a calculated daily conversion value.
Holders may require us to repurchase the 2012 Notes on each of March 1, 2018, 2022, 2027 and 2032, and on March 2, 2037, or upon a fundamental change, as provided in the indenture for the 2012 Notes, at a repurchase price equal to 100% of their accreted principal amount, plus accrued and unpaid interest.
Holders may require us to repurchase the 2013 Notes on each of December 15, 2017, 2022, 2027, 2032 and 2037, or upon a fundamental change, as provided in the indenture for the 2013 Notes, at a repurchase price equal to 100% of their accreted principal amount, plus accrued and unpaid interest.
We may redeem any of the 2010 Notes, 2012 Notes and 2013 Notes beginning December 19, 2016, March 6, 2018 and December 15, 2017, respectively. We may redeem all or a portion of the 2010 Notes, 2012 Notes, and 2013 Notes (i.e., in cash or a combination of cash and shares of our common stock) at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the applicable redemption date.
We have recorded deferred tax liabilities related to our convertible notes original issuance discount, representing the spread between the stated cash coupon rate and the higher interest rate that is deductible for tax purposes based on the type of security. When our convertible notes are extinguished, we are required to recapture the original issuance discount previously deducted for tax purposes. The tax recapture, however, decreases as the fair market value of the notes increase. Our final tax liability upon settling the notes will decrease and may ultimately be zero as our common stock price rises and it exceeds the conversion price of our convertible notes.
Stock Repurchase Program
On November 11, 2013, we announced that our Board of Directors authorized the repurchase of up to $250.0 million of our outstanding common stock over the next three years. Under the stock repurchase program, we are authorized to repurchase, from time-to-time, shares of our outstanding common stock on the open market or in privately negotiated transactions in the United States. The timing and amount of stock repurchases will be determined based upon our evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program. Through June 27, 2015, we had not repurchased any shares of our common stock under this program.

51

Legal Contingencies
We are currently involved in several legal proceedings and claims. In connection with these legal proceedings and claims, management periodically reviews estimates of potential costs to be incurred by us in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed in consultation with outside counsel and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with ASC 450, Contingencies, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such financial outcome can be reasonably estimated. It is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings.
Future Liquidity Considerations
We believe that our cash and cash equivalents, cash flows from operations and the cash available under our revolving facility will provide us with sufficient funds in order to fund our expected normal operations and debt payments, including interest and potential payouts for any convertible notes for which conversion is triggered by the holder, over the next twelve months. Our longer-term liquidity is contingent upon future operating performance. We may also require additional capital in the future to fund capital expenditures, repayment of debt and related deferred tax liabilities, as applicable, acquisitions, strategic transactions or other investments. As described above, we have significant indebtedness outstanding under our Credit Agreement, Senior Notes, 2022 Notes and Convertible Notes. These capital requirements could be substantial. For a description of risks to our operating performance and our indebtedness, see “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our interim consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, reserves for excess and obsolete inventories, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowances. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see the “Cautionary Statement” above and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014.
The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014. There have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year ended September 27, 2014.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. Financial instruments consist of cash equivalents, accounts receivable, publicly-traded equity securities, cost-method equity investments, mutual funds, insurance contracts and related deferred compensation plan liabilities, interest rate caps, accounts payable and debt obligations. Except for our outstanding Convertible Notes, 2022 Notes and Senior Notes, the fair value of these financial instruments approximates their carrying amount. As of June 27, 2015, we have $1.32 billion in principal amount of Convertible Notes outstanding, which are comprised of our 2010 Notes with a principal amount of $450.0 million, our 2012 Notes with a principal amount of $500.0 million and our 2013 Notes with a principal amount of $370.0 million. The Convertible Notes are

52

recorded net of the unamortized debt discount on our consolidated balance sheets. The fair value of our 2010 Notes, 2012 Notes and 2013 Notes as of June 27, 2015 was approximately $746.2 million, $651.3 million and $449.2 million, respectively. Amounts outstanding under our Credit Agreement aggregating $1.68 billion aggregate principal as of June 27, 2015 are subject to variable rates of interest based on current market rates, and as such, we believe the carrying amount of these obligations approximates fair value. The fair value of our Senior Notes as of June 27, 2015 was approximately $1.03 billion.
Primary Market Risk Exposures. Our primary market risk exposure is in the areas of interest rate risk and foreign currency exchange rate risk. We incur interest expense on borrowings outstanding under our Convertible Notes, 2022 Notes, Senior Notes and Credit Agreement. The Convertible Notes, 2022 Notes and Senior Notes have fixed interest rates. Borrowings under our Credit Agreement bear interest at our option and in each case plus an applicable margin, as follows:

•
Term Loan: the Base Rate (as defined in the Credit Agreement) or the Eurocurrency Rate (i.e., the Libor rate); and
•
Revolver: if funded in U.S. Dollars, the Base Rate or the Eurocurrency Rate, and, if funded in an alternative currency, the Eurocurrency Rate; and if requested under the swing line sublimit the Base Rate.
The applicable margin to the Base Rate and the Eurocurrency Rate is subject to specified changes depending on the total net leverage ratio as defined in the Credit Agreement. Current borrowings outstanding under the Credit Agreement bear interest at the Eurocurrency Rate plus 1.75% per annum.
As of June 27, 2015, there was $1.68 billion in aggregate principal amount outstanding under the Credit Agreement comprised of $1.5 billion under the Term Loan facility and $175.0 million under the Revolver. Since these debt obligations are variable rate instruments, our interest expense associated with these instruments is subject to change. A 10% adverse movement (increase in LIBOR rate) would increase annual interest expense by less than $1.0 million due to the low current interest rate environment. On January 7, 2015, we entered into two separate interest rate cap agreements to help mitigate the interest rate volatility associated with the variable rate interest on these facilities. The critical terms of the interest rate caps were designed to mirror the terms of our LIBOR-based borrowings under the Prior Credit Agreement. The terms in the new Credit Agreement are consistent with the Prior Credit Agreement, and therefore the interest rate caps continue to be highly effective at offsetting the cash flows being hedged. We designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on $1.0 billion of principal for a two-year period, which ends on December 30, 2016.
The return from cash and cash equivalents will vary as short-term interest rates change. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our business, financial condition or results of operations.
Foreign Currency Exchange Risk. Our international business is subject to risks, including, but not limited to: unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors affecting our international business.

We conduct business worldwide and maintain sales and service offices outside the United States as well as manufacturing facilities in Costa Rica, Germany, England, Canada and China. Our international sales are denominated in a number of currencies, primarily the Euro, U.S. dollar and Renminbi. The expenses of our international offices are denominated in local currencies, except at our Costa Rica subsidiary, where the majority of the business is conducted in U.S. dollars. Fluctuations in foreign currency rates could affect our sales, cost of goods and operating margins and could result in exchange losses. In addition, currency devaluations can result in a loss if we hold deposits of that currency.
We believe that the operating expenses of our international subsidiaries that are incurred in local currencies will not have a material adverse effect on our business, results of operations or financial condition. Our operating results and certain assets and liabilities that are denominated in the Euro are affected by changes in the relative strength of the U.S. dollar against the Euro. Our expenses, denominated in Euros, are positively affected when the U.S. dollar strengthens against the Euro and adversely affected when the U.S. dollar weakens. However, we believe that the foreign currency exchange risk is not significant. A hypothetical 10% increase or decrease in foreign currencies that we transact in would not have a material adverse impact on our business, financial condition or results of operations.

Item 4.    Controls and Procedures.

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We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of June 27, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of June 27, 2015.
An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION
Item 1.    Legal Proceedings.
Information with respect to this Item may be found in Note 6 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Additional information on our commitments and contingencies can be found in our Annual Report on Form 10-K for our fiscal year ended September 27, 2014.
Item 1A. Risk Factors.

There are no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for our fiscal year ended September 27, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer's Purchases of Equity Securities

Period of Repurchase
Total Number of
Shares Purchased
(#) (1)
 
Average Price
Paid Per Share
($) (1)
 
Total Number of
Shares Purchased As Part of Publicly
Announced Plans or
Programs (#) (2)
 
Maximum
Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Our
Programs (in millions) 
March 29, 2015 – April 25, 2015
3,537

 
$
33.13

 
—

 
$
250.0

April 26, 2015 – May 23, 2015
1,397

 
34.08

 
—

 
250.0

May 24, 2015 – June 27, 2015
10,039

 
36.42

 
—

 
250.0

Total
14,973

 
$
—

 
—

 
$
250.0

 ___________________________________
(1)
For the majority of restricted stock units granted, the number of shares issued on the date that the restricted stock units vest is net of the minimum statutory tax withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. These repurchases of our common stock were to cover employee income tax withholding obligations in connection with the vesting of restricted stock units under our equity incentive plans.

54

(2)
On November 11, 2013, we announced that our Board of Directors authorized the repurchase of up to $250.0 million of our outstanding common stock over the next three years. Through June 27, 2015, we had not repurchased any shares of our common stock under this program.

Item 5.    Other Information.
On July 27, 2015, the Company entered into a Transition Agreement with one of its former named executive officers and the Company’s current Corporate Vice President, Service and Support, Roger Mills. Pursuant to the Transition Agreement, Mr. Mills will remain employed by the Company through September 26, 2015 and thereafter provide consulting services to the Company through November 30, 2016. In connection with this arrangement, Mr. Mills will forego his right to any severance payments under his Severance Agreement. Mr. Mills will remain subject to the terms of his Non-Competition and Proprietary Information Agreement, will continue to participate in the Company’s Short-Term Incentive Plan for fiscal 2015 in accordance with the terms thereof and his outstanding equity awards will continue to vest in accordance with their terms through his consultancy period.



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Item 6.    Exhibits.
(a) Exhibits
 
 
 
 
 
Incorporated by
Reference
Exhibit
Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End
Date
 
 
 
 
 
 
 
4.1
 
Indenture dated July 2, 2015, by and among Hologic, the guarantors party thereto and Wells Fargo Bank, National Association, as Trustee.

 
8-K
 
7/2/2015
 
 
 
 
 
 
 
4.2
 
Form of 5.250% Senior Note due 2022 (included in Exhibit 4.1).

 
8-K
 
7/2/2015
 
 
 
 
 
 
 
10.1
 
Credit and Guaranty Agreement, dated May 29, 2015, among Hologic, Hologic GGO 4 Ltd, each Designated Borrower from time to time party thereto, the Guarantors from time to time party thereto, each Lender from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

 
8-K
 
5/29/2015
 
 
 
 
 
 
 
10.2*
 
Pledge and Security Agreement, dated May 29, 2015, among the grantors party thereto and Bank of America, N.A. as Collateral Agent.

 
 
 
 
 
 
 
 
 
 
 
10.3*
 
Second Amendment to Restated Agreement by and between Gen-Probe Incorporated and Grifols Diagnostic Solutions Inc. ‡
 
 
 
 
 
 
 
 
 
 
 
31.1*
 
Certification of Hologic’s CEO pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
31.2*
 
Certification of Hologic’s CFO pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
32.1**
 
Certification of Hologic’s CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
32.2**
 
Certification of Hologic’s CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
101.INS*
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition
 
 
 
 
_______________

*    Filed herewith.
**    Furnished herewith.
‡    Confidential treatment has been granted or requested with respect to portions of this exhibit.




56

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Hologic, Inc.
 
 
 
(Registrant)
 
 
 
 
Date:
July 29, 2015
 
/s/    Stephen P. MacMillan        
 
 
 
 
 
 
 
Stephen P. MacMillan
Chairman, President and Chief Executive Officer
 
 
 
 
Date:
July 29, 2015
 
/s/    Robert W. McMahon        
 
 
 
 
 
 
 
Robert W. McMahon
 
 
 
Chief Financial Officer
(Principal Financial Officer)


57


Exhibit 10.2
Execution Version

 

PLEDGE AND SECURITY AGREEMENT
dated as of May 29, 2015
among
EACH OF THE GRANTORS PARTY HERETO
and
BANK OF AMERICA, N.A.,
as Collateral Agent





    


TABLE OF CONTENTS
PAGE

ARTICLE 1
DEFINITIONS; GRANT OF SECURITY
Section 1.01. General Definitions    1
Section 1.02. Definitions; Interpretation    10
ARTICLE 2
GRANT OF SECURITY
Section 2.01. Grant of Security    11
Section 2.02. Certain Limited Exclusions    12
ARTICLE 3
SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE
Section 3.01. Security for Obligations    14
Section 3.02. Continuing Liability Under Collateral    14
ARTICLE 4
CERTAIN PERFECTION REQUIREMENTS
Section 4.01. Delivery Requirements    15
Section 4.02. Control Requirements    16
Section 4.03. Intellectual Property Recording Requirements    16
Section 4.04. Other Actions    17
Section 4.05. Timing and Notice    18


    


ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.01. Grantor Information & Status    18
Section 5.02. Collateral Identification, Special Collateral    19
Section 5.03. Ownership Of Collateral And Absence Of Other Liens    20
Section 5.04. Status of Security Interest    21
Section 5.05. Goods and Receivables    22
Section 5.06. Pledged Equity Interests, Investment Related Property    22
Section 5.07. Intellectual Property    23
Section 5.08. Miscellaneous    24
ARTICLE 6
COVENANTS AND AGREEMENTS
Section 6.01. Grantor Information and Status    25
Section 6.02. Collateral Identification; Special Collateral    25
Section 6.03. Ownership of Collateral and Absence of Other Liens    26
Section 6.04. Status of Security Interest    26
Section 6.05. Goods & Receivables.    26
Section 6.06. Pledged Equity Interests, Investment Related Property    29
Section 6.07. Intellectual Property    32
Section 6.08. Miscellaneous    33
ARTICLE 7
ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS
Section 7.01. Access; Right of Inspection    34


    


Section 7.02. Further Assurances    34
Section 7.03. Additional Grantors    36
ARTICLE 8
COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT
Section 8.01. Power of Attorney    36
Section 8.02. No Duty On The Part Of Collateral Agent Or Secured Parties    37
Section 8.03. Appointment Pursuant to Credit Agreement    38
ARTICLE 9
REMEDIES
Section 9.01. Generally    38
Section 9.02. Application of Proceeds    40
Section 9.03. Sales on Credit    40
Section 9.04. Investment Related Property    40
Section 9.05. Grant of Intellectual Property License    41
Section 9.06. Intellectual Property    41
Section 9.07. Cash Proceeds; Deposit Accounts    44
ARTICLE 10
COLLATERAL AGENT
ARTICLE 11
CONTINUING SECURITY INTEREST; TRANSFER OF LOANS
ARTICLE 12
STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM
ARTICLE 13
MISCELLANEOUS



    


SCHEDULE 1.01A — CLOSING DATE MINORITY INVESTMENTS
SCHEDULE 5.01 — GENERAL INFORMATION
SCHEDULE 5.02 — COLLATERAL IDENTIFICATION
SCHEDULE 5.04 — FINANCING STATEMENTS
SCHEDULE 5.05 — LOCATION OF EQUIPMENT AND INVENTORY
SCHEDULE 5.06 — PLEDGED EQUITY INTERESTS
SCHEDULE 5.07 — INTELLECTUAL PROPERTY
SCHEDULE 5.08 — CONSENTS
EXHIBIT A — PLEDGE SUPPLEMENT
EXHIBIT B — UNCERTIFICATED SECURITIES CONTROL AGREEMENT
EXHIBIT C — [RESERVED]
EXHIBIT D — [RESERVED]
EXHIBIT E — TRADEMARK SECURITY AGREEMENT
EXHIBIT F — COPYRIGHT SECURITY AGREEMENT
EXHIBIT G — PATENT SECURITY AGREEMENT



    




This PLEDGE AND SECURITY AGREEMENT dated as of May 29, 2015 among Hologic, Inc. (the “Company”), certain domestic subsidiaries of the Company party hereto from time to time, whether as an original signatory hereto or as an Additional Grantor (as herein defined) ( each, a “Grantor”), and Bank of America, N.A., as collateral agent for the Secured Parties (as herein defined) (in such capacity as collateral agent, together with its successors and permitted assigns, the “Collateral Agent”).
RECITALS:
WHEREAS, reference is made to that certain Credit and Guaranty Agreement, dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) by and among the Company, the other Borrowers party thereto from time to time, the other Grantors party thereto, as Guarantors, the Collateral Agent, the other Agents party thereto and the Lenders party thereto from time to time;
WHEREAS, subject to the terms and conditions of the Credit Agreement, certain Grantors may enter into (i) one or more Hedge Agreements with one or more Lender counterparties and (ii) one or more Cash Management Agreements with one or more Cash Management Providers;
WHEREAS, in consideration of the extensions of credit and other accommodations of the Lenders, the Lender counterparties and Cash Management Providers as set forth in the Credit Agreement, the Hedge Agreements and the Cash Management Agreements, respectively, each Grantor has agreed to secure such Grantor’s obligations under the Loan Documents, the Hedge Agreements and the Cash Management Agreements, as set forth herein; and
WHEREAS, pursuant to Section 4.01(a) of the Credit Agreement, the Grantors are required to execute and deliver certain agreements and documents in order to perfect the Collateral Agent’s security interest in the Collateral on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, each Grantor and the Collateral Agent agree as follows:
Article 1
DEFINITIONS; GRANT OF SECURITY
Section 1.01    . General Definitions. In this Agreement, the following terms shall have the following meanings:
“Additional Grantors” shall have the meaning assigned in Section 7.03.


    


“Agreement” shall mean this Pledge and Security Agreement dated as of May 29, 2015, as it may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, in accordance with the terms of the Credit Agreement.
“Cash Proceeds” shall have the meaning assigned in Section 9.07.
“Collateral” shall have the meaning assigned in Section 2.01.
“Collateral Account” shall mean any Deposit Account or Securities Account established by the Collateral Agent.
“Collateral Agent” shall have the meaning set forth in the preamble.
“Collateral Records” shall mean books, records, ledger cards, files, correspondence, customer lists, supplier lists, blueprints, technical specifications, manuals, computer software and related documentation, computer printouts, tapes, disks and other electronic storage media and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.
“Collateral Support” shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.
“Company” shall have the meaning set forth in the preamble.
“Control” shall mean: (1) with respect to any Deposit Accounts, control within the meaning of Section 9-104 of the UCC, (2) with respect to any Securities Accounts, Security Entitlements, Commodity Contract or Commodity Account, control within the meaning of Section 9-106 of the UCC, (3) with respect to any Uncertificated Securities, control within the meaning of Section 8-106(c) of the UCC, (4) with respect to any Certificated Security, control within the meaning of Section 8-106(a) or (b) of the UCC, (5) with respect to any Electronic Chattel Paper, control within the meaning of Section 9-105 of the UCC, (6) with respect to Letter-of-Credit Rights, control within the meaning of Section 9-107 of the UCC and (7) with respect to any “transferable record” (as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction), control within the meaning of Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in the jurisdiction relevant to such transferable record.
“Copyright Licenses” shall mean any and all agreements, licenses and covenants (whether or not in writing) providing for the granting of any right in or to any Copyright or otherwise providing for a covenant not to sue (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 5.02(II) under the heading “Copyright Licenses” (as such schedule may be amended or supplemented from time to time) provided that, for the avoidance of doubt, the Copyright Licenses shall not include any Excluded Asset.

1
    


“Copyright Security Agreement” shall mean a Copyright Security Agreement substantially in the form of Exhibit F.
“Copyrights” shall mean all United States and foreign copyrights (including community designs), including but not limited to copyrights in software and all rights in and to databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered and whether or not the underlying works of authorship have been published, moral rights, reversionary interests, termination rights, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications required to be listed in Schedule 5.02(II) under the heading “Copyrights” (as such schedule may be amended or supplemented from time to time), (ii) all extensions and renewals thereof, (iii) the right to sue or otherwise recover for past, present and future infringements or other violations thereof thereof, and (iv) all Proceeds of the foregoing, including, without limitation, licenses, fees, royalties, income, payments, claims, damages and proceeds of suit now or hereafter due and/or payable with respect thereto, and (v) all other rights of any kind accruing thereunder or pertaining thereto throughout the world provided that, for the avoidance of doubt, Copyrights shall not include any Excluded Asset.
“Credit Agreement” shall have the meaning set forth in the recitals.
“Excluded Asset(s)” shall mean any asset of any Grantor excluded from the security interest hereunder by virtue of Section 2.02 hereof but only to the extent, and for so long as, so excluded thereunder.
“Excluded Foreign Equity Interests” shall mean the capital stock of and/or any other Equity Interests issued by any Foreign Subsidiary that is not a First-Tier Foreign Subsidiary.
“Foreign Intellectual Property” shall mean any Intellectual Property (whether now owned or existing or hereafter acquired, created, developed or arising) consisting of foreign, international, or multi-national issued/registered Patents, registered Trademarks, registered Copyrights, or any applications for the foregoing.
“Grantors” shall have the meaning set forth in the preamble.
“Insurance” shall mean (i) all insurance policies covering any or all of the Collateral (regardless of whether the Collateral Agent is the loss payee thereof or an additional insured thereon) and (ii) any key man life insurance policies.
“Intellectual Property” shall mean, the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under the laws of the United States (or of any state or political subdivision thereof) or of any Foreign Jurisdiction or otherwise, including without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses, and the right to sue or otherwise recover for past, present and future infringement, dilution, misappropriation or other violation or impairment thereof, including the right to receive all Proceeds therefrom, including without limitation license fees, royalties, income, payments, claims, damages and

2
    


proceeds of suit, now or hereafter due and/or payable with respect thereto provided that, for the avoidance of doubt, the Intellectual Property shall not include any Excluded Asset.
“Intellectual Property Agreements” shall mean the Patent Security Agreement, the Trademark Security Agreement and the Copyright Security Agreement.
“Intellectual Property Licenses” shall mean, collectively, the Copyright Licenses, Patent Licenses, Trademark Licenses and Trade Secret Licenses.
“Investment Accounts” shall mean the Collateral Account, Securities Accounts, Commodity Accounts and Deposit Accounts.
“Investment Related Property” shall mean: (i) all “investment property” (as such term is defined in Article 9 of the UCC) and (ii) all of the following (regardless of whether classified as investment property under the UCC): all Pledged Equity Interests, Pledged Debt, the Investment Accounts and certificates of deposit provided that, for the avoidance of doubt, the Investment Related Property shall not include any Excluded Asset.
“Material Intellectual Property” shall mean any item of Intellectual Property included in the Collateral which is material to the business of the Grantors, taken as a whole, or is otherwise of material value to the Grantors, taken as a whole.
“M.G.L.” shall have the meaning assigned in Section 2.02.
“Non-Assignable Contract” shall mean any agreement, contract or license to which any Grantor is a party that by its terms purports to restrict or prevent the assignment or granting of a security interest therein (either by its terms or by any federal or state statutory prohibition or otherwise irrespective of whether such prohibition or restriction is enforceable under Sections 9-406 through 409 of the UCC).
“Patent Licenses” shall mean all agreements, licenses and covenants (whether or not in writing) providing for the granting of any right in or to any Patent or otherwise providing for a covenant not to sue (whether such Grantor is licensee or licensor thereunder), including, without limitation, each agreement required to be listed in Schedule 5.02(II) under the heading “Patent Licenses” (as such schedule may be amended or supplemented from time to time) provided that, for the avoidance of doubt, the Patent Licenses shall not include any Excluded Asset.
“Patent Security Agreement” shall mean a Patent Security Agreement substantially in the form of Exhibit G.
“Patents” shall mean all United States and foreign patents and certificates of invention, inventions or similar industrial property rights, and applications for any of the foregoing, including, but not limited to: (i) each patent and patent application required to be listed in Schedule 5.02(II) under the heading “Patents” (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all improvements thereto, (iv) the right to sue or otherwise recover for

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past, present and future infringements or other violations thereof, (v) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto, and (vi) all other rights of any kind accruing thereunder or pertaining thereto throughout the world provided that, for the avoidance of doubt, the Patents shall not include any Excluded Asset.
“Pledged Debt” shall mean all indebtedness for borrowed money owed to such Grantor, whether or not evidenced by any Instrument, including, without limitation, all indebtedness described on Schedule 5.02(I) under the heading “Pledged Debt” (as such schedule may be amended or supplemented from time to time), issued by the obligors named therein, the instruments, if any, evidencing such any of the foregoing, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing provided that, for the avoidance of doubt, the Pledged Debt shall not include any Excluded Asset.
“Pledged Equity Interests” shall mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and any other participation or interests in any equity or profits of any business entity including, without limitation, any trust and all management rights relating to any entity whose Equity Interests are included as Pledged Equity Interests provided that, for the avoidance of doubt, the Pledged Equity Interests shall not include any Excluded Asset.
“Pledged LLC Interests” shall mean, other than any Excluded Asset, all interests in any limited liability company and each series thereof owned by any Grantor, including, without limitation, all limited liability company interests listed on Schedule 5.02(I) under the heading “Pledged LLC Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests and all rights as a member of the related limited liability company that constitutes “Collateral” hereunder.
“Pledged Partnership Interests” shall mean, other than any Excluded Asset, all interests in any general partnership, limited partnership, limited liability partnership or other partnership owned by any Grantor, including, without limitation, all partnership interests listed on Schedule 5.02(I) under the heading “Pledged Partnership Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests and all rights as a partner of the related partnership that constitutes “Collateral” hereunder.

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“Pledged Stock” shall mean, other than any Excluded Asset, all shares of capital stock owned by any Grantor, including, without limitation, all shares of capital stock described on Schedule 5.02(I) under the heading “Pledged Stock” (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares that constitutes “Collateral” hereunder.
“Pledge Supplement” shall mean an agreement substantially in the form of Exhibit A hereto.
“Receivables” shall mean all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including, without limitation all such rights constituting or evidenced by any Account, Chattel Paper, Instrument, General Intangible or Investment Related Property, together with all of Grantor’s rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Receivables Records provided that, for the avoidance of doubt, Receivables shall not include any Excluded Asset.
“Receivables Records” shall mean (i) all original copies of all documents, instruments or other writings or electronic records or other Records evidencing the Receivables, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to Receivables, including, without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of Grantor or any computer bureau or agent from time to time acting for Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors, secured parties or agents thereof, and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto and (v) all other written or non-written forms of information related in any way to the foregoing or any Receivable.
“Secured Obligations” shall have the meaning assigned in Section 3.01.
“Secured Parties” shall mean the Agents, the Lenders, the L/C Issuer, the Lender counterparties and the Cash Management Providers, and the respective successors and permitted assigns of each of the foregoing Persons.
“Securities” shall mean any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates

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for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Specified Closing Date Minority Investments” shall mean the Grantors’ Equity Interests set forth in Schedule 1.01A or Equity Interests received in exchange therefor or on account thereof.
“Specified Equipment and Inventory” shall mean, at any time, any (A) Equipment and/or Inventory which is installed or otherwise located at a physician's office, hospital, medical clinic, laboratory or other third party location pursuant to a Customer Usage Agreement, System Loan and Product Purchase Agreement, use agreements, conditional sales agreements, leases and other similar contracts entered into by a Grantor with end users or other third parties that directly or indirectly contract with end users and which the Grantors, in their discretion, determine are a necessary or desirable means of generating revenue from such Equipment or Inventory, including through the diagnostic processes related thereto, including, but not limited to, (i) diagnostic Equipment or Inventory, such as Thin Prep PAP Processors, Tigres, Panther, ETS (Direct Tube Sampling Instruments) and mammography and osteoporosis Equipment and Inventory, (ii) surgical Equipment or Inventory, such as NovaSure and MyoSure controller, (iii) molecular Equipment or Inventory and (iv) any other medical device related Equipment and/or Inventory; (B) any Equipment and/or Inventory which is stored with or located at a warehouse, distribution center, or other similar location owned, operated, leased or subcontracted by any third party manufacturer (and/or any other operator of warehouses, distribution centers, and/or other similar location); and (C) any Equipment and/or Inventory consisting of molds, plastics and assembly manufacturing equipment in the possession of any third party manufacturer.
“Specified Material Contracts” means (i) that certain Supply Agreement dated as of November 22, 2006 by and between Gen-Probe Incorporated, a corporation of the State of Delaware, USA, located at 10210 Genetic Center Drive, San Diego, California 92121-4362 and STRATEC Biomedical Systems AG, having its principal place of business at Gewerbestrasse 37, D-75217 Birkenfeld-Graefenhausen, Germany and (ii) that certain agreement dated as of July 24, 2009 between GEN-PROBE INCORPORATED, a Delaware corporation, having a place of business at 10210 Genetic Center Drive, San Diego, California 92121, and NOVARTIS VACCINES AND DIAGNOSTICS, INC., a Delaware corporation, having a place of business at 4560 Horton Street, Emeryville, California 94608, in each case as amended, supplemented, restated or otherwise modified from time to time.
“Specified Post Closing Minority Investments” means any Equity Interest acquired by any Grantor in any Person (other than a Subsidiary) after the Closing Date that, together with all other Specified Post Closing Minority Investments, has an aggregate book value of less than $75,000,000 or Equity Interests received in exchange therefor or on account thereof.
“Specified Minority Investments” means, collectively, the Specified Closing Date Minority Investments and Specified Post Closing Minority Investments.
“Trademark Licenses” shall mean any and all agreements, licenses and covenants (whether or not in writing) providing for the granting of any right in or to any Trademark or otherwise providing for a covenant not to sue or permitting co-existence (whether such Grantor is licensee or

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licensor thereunder), including, without limitation, each agreement required to be listed in Schedule 5.02(II) under the heading “Trademark Licenses” (as such schedule may be amended or supplemented from time to time) provided that, for the avoidance of doubt, Trademark Licenses shall not include any Excluded Asset.
“Trademark Security Agreement” shall mean a Trademark Security Agreement substantially in the form of Exhibit E.
“Trademarks” shall mean all United States and foreign trademarks, trade names, trade dress, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, whether or not registered, and with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications required to be listed in Schedule 5.02(II) under the heading “Trademarks” (as such schedule may be amended or supplemented from time to time), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by any of the foregoing, (iv) the right to sue or otherwise recover for past, present and future infringement, dilution or other violation of any of the foregoing or for any injury to the related goodwill, (v) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto, and (vi) all other rights of any kind accruing thereunder or pertaining thereto throughout the world provided that, for the avoidance of doubt, Trademarks shall not include any Excluded Asset.
“Trade Secret Licenses” shall mean any and all agreements (whether or not in writing) providing for the granting of any right in or to Trade Secrets (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 5.02(II) under the heading “Trade Secret Licenses” (as such schedule may be amended or supplemented from time to time) provided that, for the avoidance of doubt, Trade Secret Licenses shall not include any Excluded Asset.
“Trade Secrets” shall mean all trade secrets and all other confidential or proprietary information and know-how whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, including but not limited to: (i) the right to sue or otherwise recover for past, present and future misappropriation or other violation thereof, (ii) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto, and (iii) all other rights of any kind accruing thereunder or pertaining thereto throughout the world provided that, for the avoidance of doubt, Trade Secrets shall not include any Excluded Asset.
“UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of, or remedies with respect to, any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in

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such other jurisdiction solely for purposes of the provisions hereof relating to such perfection, priority or remedies.
“United States” shall mean the United States of America.
Section 1.02    . Definitions; Interpretation. (a) In this Agreement, the following capitalized terms shall have the meaning given to them in the UCC (and, if defined in more than one Article of the UCC, shall have the meaning given in Article 9 thereof): Account, Account Debtor, As-Extracted Collateral, Bank, Certificated Security, Chattel Paper, Commercial Tort Claims, Commodity Account, Commodity Contract, Commodity Intermediary, Consignee, Consignment, Consignor, Deposit Account, Document, Entitlement Order, Electronic Chattel Paper, Equipment, Farm Products, Fixtures, General Intangibles, Goods, Health-Care-Insurance Receivable, Instrument, Inventory, Letter-of-Credit Right, Manufactured Home, Money, Payment Intangible, Proceeds, Record, Securities Account, Securities Intermediary, Security Certificate, Security Entitlement, Supporting Obligations, Tangible Chattel Paper and Uncertificated Security. For the avoidance of doubt, such capitalized terms included shall not include any Excluded Assets.
(b)    All other capitalized terms used herein (including the preamble, recitals and exhibits hereto) and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. The incorporation by reference of terms defined in the Credit Agreement shall survive any termination of the Credit Agreement until this Agreement is terminated as provided in Article 11 hereof. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including,” when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The terms lease and license shall include sub-lease and sub-license, as applicable. If any conflict or inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC.
ARTICLE 2    
GRANT OF SECURITY
Section 2.01    . Grant of Security. Each Grantor hereby grants to the Collateral Agent, for the benefit of the Secured Parties, a security interest in and continuing lien on all of such Grantor’s right, title and interest in, to and under all personal property of such Grantor including, but not limited to the following, in each case whether now owned or hereafter existing, in which

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such Grantor now has or hereafter acquires an interest, creates or develops or otherwise arising and wherever the same may be located (all of which, other than to the extent constituting Excluded Assets, being hereinafter collectively referred to as the “Collateral”):
(a)    Accounts;
(b)    Chattel Paper;
(c)    Documents;
(d)    General Intangibles;
(e)    Goods (including, without limitation, Inventory and Equipment);
(f)    Instruments;
(g)    Insurance;
(h)    Intellectual Property;
(i)    Investment Related Property (including, without limitation, Deposit Accounts);
(j)    Letter-of-Credit Rights;
(k)    Money;
(l)    Receivables and Receivable Records;
(m)    Commercial Tort Claims now or hereafter described on Schedule 5.02(III);
(n)    to the extent not otherwise included above, all other personal property of any kind and all Collateral Records, Collateral Support and Supporting Obligations relating to any of the foregoing; and
(o)    to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing.
Section 2.02    . Certain Limited Exclusions. Notwithstanding anything herein to the contrary, in no event shall the Collateral include or the security interest granted under Section 2.01 hereof attach to (a) any lease, license, contract or agreement to which any Grantor is a party, or any of its rights or interests thereunder, if and to the extent that a security interest (x) is prohibited by or would be in violation of (i) any law, rule or regulation applicable to such Grantor, or (ii) a term, provision or condition of any such lease, license, contract or agreement (unless such law, rule, regulation, term, provision or condition would be rendered ineffective with respect to the creation of the security interest hereunder pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity) or (y) would result in a breach, default or

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other violation of any term, provision or condition of any such lease, license, contract or agreement after giving effect to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity; provided, however, that the Collateral shall include (and such security interest shall attach) immediately at such time as the contractual or legal prohibition shall no longer be applicable and to the extent severable, shall attach immediately to any portion of such lease, license, contract or agreement not subject to the prohibitions specified in subclause (i) or (ii) of clause (a) of this Section 2.02; provided further that the exclusions referred to in clause (a) of this Section 2.02 shall not include any Proceeds of any such lease, license, contract or agreement; (b) any of the outstanding capital stock of or other Equity Interest in a (I) First-Tier Foreign Subsidiary or Excluded Disregarded Entity in excess of 65% of the voting power of all classes of capital stock of such First-Tier Foreign Subsidiary or Excluded Disregarded Entity entitled to vote; provided that immediately upon the amendment of the Internal Revenue Code to allow the pledge of a greater percentage of the voting power of capital stock in a First-Tier Foreign Subsidiary or Excluded Disregarded Entity without adverse tax consequences, the Collateral shall include, and the security interest granted by each Grantor shall attach to, such greater percentage of capital stock of each First-Tier Foreign Subsidiary and Excluded Disregarded Entity and (II) “security corporation” under Massachusetts General Laws (“M.G.L.”) chapter 63, § 38B, but only to the extent that the pledge of such capital stock or other Equity Interest would result in such entity ceasing to qualify as a “security corporation” under M.G.L. chapter 63, § 38B; (c) any Excluded Foreign Equity Interests and the Equity Interests issued by any Receivables Entity or Immaterial Domestic Subsidiary; (d) any “intent-to-use” application for trademark or service mark registration filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. §1051, prior to the filing under Section 1(c) or Section 1(d) of the Lanham Act of a “Statement of Use” or an “Amendment to Allege Use” with respect thereto, solely to the extent, if any, that, and solely during the period, if any, in which, the grant of a security interest therein prior to such filing would impair the validity or enforceability of any registration that issues from such intent-to-use trademark or service mark application under applicable federal law; (e) motor vehicles and other Goods covered by a certificate of title the perfection of a security interest in which is excluded from the Uniform Commercial Code in the relevant jurisdiction; (f) Foreign Intellectual Property; (g) Margin Stock (within the meaning of Regulation U issued by the FRB); (h) Equity Interests in any Person (other than wholly owned Subsidiaries of the Company) if and to the extent that a security interest (x) is prohibited by or would be in violation of any term, provision or condition of such Person’s organizational or joint venture documents (unless such term, provision or condition would be rendered ineffective with respect to the creation of the security interest hereunder pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity) or (y) would result in a breach, default or other violation of any term, provision or condition of such documents after giving effect to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity; provided, however, that the Collateral shall include (and such security interest shall attach) immediately at such time as the contractual prohibition shall no longer be applicable and to the extent severable, shall attach immediately to any portion of such Equity Interests not subject to the prohibitions specified in this clause 2.02(h) or (i) any property and/or assets of Grantors (other than (i) Intellectual Property, (ii) Pledged Equity Interests, (iii) intercompany loans and (iv) the Proceeds of any

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Collateral) located outside of the United States, provided that the aggregate value of such property and assets does not exceed $150,000,000 at any time and provided further that in regards to any of such property or assets valued in excess of $150,000,000, such property and assets shall not constitute Collateral to the extent that the Collateral Agent and the Company reasonably agree that the costs or other consequences (including adverse tax consequences) of providing a security interest in such property and/or assets is excessive in view of the benefits to be obtained by the Secured Parties.
ARTICLE 3    
SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE
Section 3.01    . Security for Obligations. This Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a) (and any successor provision thereof)), of all the Obligations (the “Secured Obligations”).
Section 3.02    . Continuing Liability Under Collateral. Notwithstanding anything herein to the contrary, (a) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended or shall be a delegation of duties to the Collateral Agent or any other Secured Party, (b) each Grantor shall remain liable under each of the agreements included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall the Collateral Agent nor any Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests and (c) the exercise by the Collateral Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral.
ARTICLE 4    
CERTAIN PERFECTION REQUIREMENTS
Section 4.01    . Delivery Requirements. (a) With respect to any Certificated Securities included in the Collateral, each Grantor shall deliver to the Collateral Agent the Security Certificates evidencing such Certificated Securities duly indorsed by an effective indorsement (within the meaning of Section 8-107 of the UCC), or accompanied by share transfer powers or other instruments of transfer duly endorsed by such an effective endorsement, in each case, to the Collateral Agent or in blank. In addition, each Grantor shall cause any certificates evidencing any Pledged Equity Interests included in the Collateral, including, without limitation, any Pledged Partnership Interests included in the Collateral or Pledged LLC Interests included in the Collateral,

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to be similarly delivered to the Collateral Agent regardless of whether such Pledged Equity Interests constitute Certificated Securities. Notwithstanding the foregoing, the delivery requirements set forth in this Section 4.01(a) shall be subject to the delivery periods set forth in Section 4.05 and shall not apply to any certificates evidencing Equity Interests or equity investments valued at less than $5,000,000 individually, except to the extent the aggregate value of such Equity Interests and equity investments exceeds $25,000,000 (in which case the delivery requirements under this Section 4.01(a) shall apply to the certificates evidencing all such Equity Interests and equity investments in excess of such aggregate threshold); provided that (x) such exception shall not apply to any certificates evidencing the Equity Interests or equity investments in the Company’s Subsidiaries and (y) the requirements of this Section 4.01(a) shall not apply to Specified Minority Investments.
(b)    With respect to any Instruments or Tangible Chattel Paper included in the Collateral, each Grantor shall deliver, within the delivery periods set forth in Section 4.05, to the Collateral Agent all such Instruments or Tangible Chattel Paper to the Collateral Agent duly indorsed in blank; provided, however, that such delivery requirement shall not apply to (i) any Instruments or Tangible Chattel Paper having a face amount of less than $10,000,000 individually, except to the extent the aggregate outstanding face amount of such Instruments and Tangible Chattel Paper exceeds $30,000,000 (in which case the delivery requirements under this Section 4.01(b) shall apply to all such Instruments and Tangible Chattel Paper in excess of such aggregate threshold) or (ii) any Tangible Chattel Paper relating to or in respect of any Specified Equipment and Inventory.
Section 4.02    . Control Requirements.
(a)    [Reserved].
(b)    With respect to any Uncertificated Security included in the Collateral (other than any Uncertificated Securities constituting (x) Collateral credited to a Securities Account and (y) Specified Minority Investments), each Grantor shall cause, within the compliance period set forth in Section 4.05, the issuer of such Uncertificated Security to either (i) register the Collateral Agent as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement substantially in the form of Exhibit B hereto (or such other agreement in form and substance reasonably satisfactory to the Collateral Agent), pursuant to which such issuer agrees to comply with the Collateral Agent’s instructions with respect to such Uncertificated Security without further consent by such Grantor.
(c)    With respect to any Letter-of-Credit Rights included in the Collateral (other than any Letter-of-Credit Rights constituting a Supporting Obligation for a Receivable in which the Collateral Agent has a valid and perfected security interest) with a value in excess of $25,000,000 individually, each Grantor shall ensure, within the compliance period set forth in Section 4.05, that Collateral Agent has Control thereof by obtaining the written consent of each issuer of each related letter of credit to the assignment of the proceeds of such letter of credit to the Collateral Agent.
(d)    Reserved.
Section 4.03    . Intellectual Property Recording Requirements. (a) In the case of any Collateral (whether now owned or existing or hereafter acquired, created, developed or arising)

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consisting of Patents issued in the United States or pending Patent applications filed in the United States, each Grantor shall execute and deliver, within the compliance period set forth in Section 4.05, to the Collateral Agent a Patent Security Agreement in substantially the form of Exhibit G hereto (or a supplement thereto) covering all such Patents in appropriate form for recordation with the United States Patent and Trademark Office with respect to the security interest of the Collateral Agent.
(b)    In the case of any Collateral (whether now owned or existing or hereafter acquired, created, developed or arising) consisting of Trademarks registered in the United States or pending Trademark applications filed in the United States, each Grantor shall execute and deliver, within the compliance period set forth in Section 4.05, to the Collateral Agent a Trademark Security Agreement in substantially the form of Exhibit E hereto (or a supplement thereto) covering all such Trademarks, in appropriate form for recordation with the United States Patent and Trademark Office with respect to the security interest of the Collateral Agent.
(c)    In the case of any Collateral (whether now owned or existing or hereafter acquired, created, developed or arising) consisting of Copyrights registered in the United States or pending Copyright applications filed in the United States, or consisting of exclusive Copyright Licenses that constitute Material Intellectual Property in respect of Copyrights registered in the United States for which any Grantor is the licensee, the Grantor shall execute and deliver, within the compliance period set forth in Section 4.05, to the Collateral Agent a Copyright Security Agreement in substantially the form of Exhibit F hereto (or a supplement thereto) covering all such Copyrights and exclusive Copyright Licenses, in appropriate form for recordation with the United States Copyright Office with respect to the security interest of the Collateral Agent.
Section 4.04    . Other Actions. With respect to any Pledged Partnership Interests and Pledged LLC Interests included in the Collateral (other than any Specified Minority Investment), if the Grantors own less than 100% of the Equity Interests in any issuer of such Pledged Partnership Interests or Pledged LLC Interests constituting Collateral, the Grantors shall, within the compliance period set forth in Section 4.05, use their commercially reasonable efforts to obtain the consent of each other holder of partnership interest or limited liability company interests in such issuer to the security interest of the Collateral Agent hereunder and following an Event of Default, the transfer of such Pledged Partnership Interests and Pledged LLC Interests constituting Collateral to the Collateral Agent or its designee, and to the substitution of the Collateral Agent or its designee as a partner or member with all the rights and powers related thereto. Each Grantor consents to the grant by each other Grantor of a Lien in all Investment Related Property constituting Collateral to the Collateral Agent and without limiting the generality of the foregoing consents to the transfer of any Pledged Partnership Interest and any Pledged LLC Interest constituting Collateral to the Collateral Agent or its designee following an Event of Default for the purposes of enabling the Collateral Agent to exercise rights and remedies under the Credit Agreement and Article 9 hereof and to the substitution of the Collateral Agent or its designee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto.
Section 4.05    . Timing and Notice. Notwithstanding any provisions set forth herein, with respect to any Collateral in existence on the Closing Date, each Grantor shall comply with the

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requirements of Article 4 on the Closing Date and Section 6.12(c) of the Credit Agreement, and with respect to any Collateral hereafter owned or acquired, created, developed or arising such Grantor shall (i) for the avoidance of doubt, comply with the requirements of Sections 6.10 and 6.11 of the Credit Agreement as applicable, and (ii) comply with the requirements of Article 4 and/or Sections 6.02(a), 6.02(b) and 6.05(b) hereof, as applicable, (x) with respect to (1) Material Intellectual Property and (2) Collateral (other than Intellectual Property) valued, in the aggregate with all other Collateral (other than Intellectual Property) acquired, created, developed or arising in the same Fiscal Quarter, in excess of the greater of (1) $50,000,000 and (2) 0.5% of Total Assets, within 45 days after such Collateral is acquired, created, developed or otherwise arises and (y) with respect to all other Collateral, within the later of (I) 45 days after such Collateral is acquired, created, developed or otherwise arises and (II) 15 days after the end of such Fiscal Quarter in which such Collateral is acquired, created, developed or otherwise arises; provided that the Collateral Agent may grant an extension therefor if the applicable Grantor in respect thereof is using commercially reasonable efforts to comply with such requirements.
ARTICLE 5    
REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that the following statements are true and correct in all material respects as of such date other than to the extent such representation or warranty specifically relate to an earlier date (in which case such representation or warranty shall be true and correct in all material respects as of such earlier date), in each case, subject to Section 4.05:
Section 5.01    . Grantor Information & Status. (a) As of the Closing Date, Schedules 5.01(A) and (B) set forth under the appropriate headings: (1) the full legal name of such Grantor, (2) all trade names or other names under which such Grantor (currently) commonly conducts business, (3) the type of organization of such Grantor, (4) the jurisdiction of organization of such Grantor, (5) its organizational identification number, if any, and (6) the jurisdiction where the chief executive office or its sole place of business (or the principal residence if such Grantor is a natural person) is located.
(b)    Except as provided on Schedule 5.01(C), as of the Closing Date, it has not changed its name, jurisdiction of organization, chief executive office or sole place of business (or principal residence if such Grantor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) and has not commonly done business under any other name, in each case, within the past five (5) years.
(c)    It has not within the last five (5) years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, which has not heretofore been terminated other than the agreements identified on Schedule 5.01(D) hereof (as such Schedule may be amended or supplemented from time to time).
(d)    As of the Closing Date, such Grantor has been duly organized and is validly existing as an entity of the type as set forth opposite such Grantor’s name on Schedule 5.01(A)

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solely under the laws of the jurisdiction as set forth opposite such Grantor’s name on Schedule 5.01(A) and, except as permitted by the Credit Agreement, remains duly existing as such. Except as permitted by the Credit Agreement, such Grantor has not filed any certificates of dissolution or liquidation, any certificates of domestication, transfer or continuance in any other jurisdiction.
(e)    No Grantor is a “transmitting utility” (as defined in Section 9-102(a)(81) of the UCC).
Section 5.02    . Collateral Identification, Special Collateral.
(a)     On the Closing Date, Schedule 5.02 sets forth under the appropriate headings all of such Grantor’s: (1) Pledged Equity Interests constituting Collateral, other than any Pledged Equity Interests valued at less than $5,000,000 individually, except to the extent that the aggregate value of such Pledged Equity Interests exceeds $25,000,000, (in which case, this scheduling requirement shall only apply to all Pledged Equity Interests in excess of the aggregate threshold), provided that such exception shall not apply to any Pledged Equity Interests evidencing the Equity Interests in the Company’s Subsidiaries, (2) Pledged Debt other than any Pledged Debt having a face amount of less than $10,000,000 individually, except to the extent that the aggregate face amount of such Pledged Debt exceeds $30,000,000 (in which case, this scheduling requirement shall only apply to all Pledged Debt in excess of the aggregate threshold), (3) Reserved, (4) Reserved, (5) United States registrations and issuances of and applications for Patents, Trademarks, and Copyrights owned by such Grantor constituting Material Intellectual Property, (6) Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses constituting Material Intellectual Property other than employment related agreements or consulting agreements with individuals to the extent that such agreements can be characterized as Patent Licenses, Trademark Licenses, Trade Secret Licenses and/or Copyright Licenses, (7) Commercial Tort Claims constituting Collateral other than (A) any Commercial Tort Claims having a value of less than $15,000,000 individually, except to the extent that the aggregate value of such Commercial Tort Claims exceeds $50,000,000 or (B) any Commercial Tort Claim with respect to the infringement of Intellectual Property as to which the Company has no knowledge, (8) Letter-of-Credit Rights for letters of credit other than any individual Letters of Credit Rights worth less than $25,000,000, (9) the name and address of any warehouseman, bailee or other third party in possession of any Inventory, Equipment and other tangible personal property, in each case, constituting Collateral other than (A) Specified Equipment and Inventory, (B) other Equipment, Inventory and other tangible personal property with warehousemen, salesmen, servicemen, customers or such items in transit, under repair or with assemblers and/or manufacturers, (C) any other Inventory, Equipment and other tangible personal property, in each case, constituting Collateral at one location having a value less than $15,000,000 individually, except to the extent the aggregate value of such Inventory, Equipment or other tangible personal property exceeds $50,000,000 or (D) listed on Schedule 5.05 and (10) Material Contracts.
(b)    None of the Collateral in excess of $10,000,000 individually or $30,000,000 in the aggregate (which is not encumbered by a valid, perfected, First Priority Lien securing the Secured Obligations) constitutes, or is the Proceeds of, (1) Farm Products, (2) As-Extracted

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Collateral, (3) Manufactured Homes, (4) Health-Care-Insurance Receivables, (5) timber to be cut, or (6) aircraft, aircraft engines, satellites, ships or railroad rolling stock.
(c)    All information supplied by any Grantor with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects, subject to the thresholds, exclusions and limitations set forth in this Agreement, the Credit Agreement, or the Perfection Certificate, as applicable.
Section 5.03    . Ownership Of Collateral And Absence Of Other Liens. (a) Other than as provided herein and in the Credit Agreement, it owns the Collateral purported to be owned by it or otherwise has the rights it purports to have in each item of Collateral and, as to all Collateral whether now existing or hereafter acquired, developed or created (including by way of lease or license), will continue to own or have such rights in each item of the Collateral, in each case free and clear of any and all Liens, rights or claims of all other Persons, including, without limitation, liens arising as a result of such Grantor becoming bound (as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, in each case, other than any Permitted Liens and except if the failure to own or have rights in such Collateral or if the rights or claims of other Persons in the Collateral would not reasonably be expected to have a Material Adverse Effect.
(b)    Other than any financing statements filed in favor of the Collateral Agent, no effective financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Collateral is on file in any filing or recording office except for (x) financing statements for which duly authorized proper termination statements have been delivered to the Collateral Agent for filing and (y) financing statements, fixture filings or instruments similar in effect filed in connection with Permitted Liens. Other than the Collateral Agent and any automatic control in favor of a Bank, Securities Intermediary or Commodity Intermediary maintaining a Deposit Account, Securities Account or Commodity Contract, no Person is in Control of any Collateral other than in connection with Permitted Liens.
Section 5.04    . Status of Security Interest. (a) Upon the filing of any financing statement naming such Grantor as “debtor” and the Collateral Agent as “secured party” and describing the Collateral in the filing offices set forth opposite such Grantor’s name on Schedule 5.04 hereof (as such schedule may be amended or supplemented from time to time), the security interest of the Collateral Agent in all Collateral that can be perfected by the filing of a financing statement under the Uniform Commercial Code as in effect in the applicable jurisdiction will constitute valid, perfected, First Priority Liens with respect to such Collateral under the law of such jurisdiction (to the extent applicable thereto). Each agreement purporting to give the Collateral Agent Control over any Collateral is effective to establish the Collateral Agent’s Control of the Collateral subject thereto.
(b)    To the extent perfection or priority of the security interest therein is not subject to Article 9 of the UCC, upon recordation of the Intellectual Property Agreements in the applicable intellectual property registries in the United States (including but not limited to the United States Patent and Trademark Office and the United States Copyright Office) of the security interests granted hereunder in all Collateral consisting of Patents registered or issued in the United States (and all

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applications therefor), Trademarks registered or issued in the United States (and all applications therefor), Copyrights registered in the United States (and all applications therefor) and exclusive Copyright Licenses (with respect to Copyrights registered in the United States), the security interests granted to the Collateral Agent hereunder in such Collateral listed in such Intellectual Property Agreements shall constitute valid, perfected, First Priority Liens in Grantor’s interest therein.
(c)    Except (x) as set forth in the Credit Agreement and (y) with respect to the Specified Minority Investments, no authorization, consent, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body or any other Person is required for either the pledge or grant by any Grantor of the Liens in the Collateral purported to be created in favor of the Collateral Agent hereunder, except (A) for the filings contemplated by clauses (a) and (b) of Section 5.04 above, (B) as may be required, in connection with the disposition of any Investment Related Property, by laws generally affecting the offering and sale of Securities and (C) for such consents previously obtained.
(d)    Such Grantor is in compliance with its obligations under Article 4 hereof.
Section 5.05    . Goods and Receivables.
(a)    Reserved.
(b)    Reserved.
(c)    Any Goods now or hereafter produced by any Grantor included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended, and the rules and regulations promulgated thereunder, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
(d)    Other than any (i) Inventory or Equipment in transit, being repaired or in the possession or control of any warehouseman, bailee, repairman, serviceman, salesman, customer, assembler, manufacturer or other third party, (ii) Specified Equipment and Inventory (and any Equipment and/or Inventory which is stored with or located at a warehouse, distribution center, or other similar location operated, leased or subcontracted (but not owned) by Company) and (iii) any other Inventory, Equipment and other tangible personal property at one location having a value less than $15,000,000 individually, except to the extent the aggregate value of such Inventory, Equipment or other tangible personal property exceeds $50,000,000, all of the Equipment and Inventory included in the Collateral is located only at the locations specified in Schedule 5.05 (as such schedule may be amended or supplemented from time to time).
Section 5.06    . Pledged Equity Interests, Investment Related Property. (a) Except as otherwise permitted in the Credit Agreement or herein, it is the record and beneficial owner of the Pledged Equity Interests free of all Liens (other than Permitted Liens), rights or claims of other Persons (other than Permitted Liens) and, other than as set forth in Schedule 5.06 hereof (as such schedule may be amended or supplemented from time to time), there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding

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with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests.
(b)    Except (x) as set forth in Schedule 5.06 (as such schedule may be amended or supplemented from time to time) and (y) with respect to the Specified Minority Investments, no consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or reasonably desirable in connection with the creation, perfection or First Priority status of the security interest of the Collateral Agent in any Pledged Equity Interests constituting Collateral other than those consents previously obtained.
(c)    Except as set forth in Schedule 5.06(c) (as such schedule may be amended or supplemented from time to time), all of the Pledged LLC Interests and Pledged Partnership Interests constituting Collateral (other than Specified Minority Investments) are or represent interests that by their terms provide that they are securities governed by the uniform commercial code of an applicable jurisdiction.
Section 5.07    . Intellectual Property.
(a)    Reserved.
(b)    Except as set forth in Schedule 5.07 and other than any Intellectual Property the disposition or license of which is otherwise permitted under Section 7.08 of the Credit Agreement, each (i) Patent, Trademark and Copyright listed on Schedule 5.02 that constitutes Material Intellectual Property is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, (ii) no Patents constituting Material Intellectual Property is the subject of a reexamination proceeding, and (iii) such Grantor has performed in all material respects all acts and has paid all renewal, maintenance and other fees and taxes required to maintain in full force and effect each and every registration and application of Copyrights, Patents and Trademarks that constitute Material Intellectual Property; in each case of clauses (i), (ii) and (iii), except as would not reasonably be likely to have a Material Adverse Effect.
(c)    No action or proceeding is pending, or to such Grantors’ knowledge, threatened, challenging the validity, enforceability, registration, ownership or use of any of such Grantor’s Patents, Trademarks, or Copyrights listed on Schedule 5.02 that constitute Material Intellectual Property that is reasonably likely to have a Material Adverse Effect.
(d)    None of the Trademarks, Patents, Copyrights or Trade Secrets that constitute Material Intellectual Property has been licensed by any Grantor to any Affiliate or third party, except as disclosed in Schedule 5.07 (as such schedule may be amended or supplemented from time to time) or otherwise permitted under the Credit Agreement (including, without limitation, to effect or in furtherance of the Reorganization), and all exclusive Copyright Licenses (with respect to Copyrights registered in the United States) that constitute Material Intellectual Property have been properly recorded in the United States Copyright Office.

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(e)    Such Grantor has been using appropriate statutory notice of registration in connection with its use of registered Trademarks, proper marking practices in connection with the use of issued Patents and pending Patent applications, and appropriate notice of copyright in connection with the publication of Copyrights, except where failure to use such statutory notice of registration, proper marking practices and appropriate notice of copyright would not have a Material Adverse Effect.
(f)    Such Grantor has taken commercially reasonable steps to protect the confidentiality of its Trade Secrets that constitute Material Intellectual Property in accordance with industry standards except where the failure to take such steps would not reasonably likely have a Material Adverse Effect.
(g)    Such Grantor has maintained its standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with all Trademarks of such Grantor and has taken commercially reasonable actions to insure that all licensees of the Trademarks owned by such Grantor meet such standards of quality, in each case, except where failure to maintain or meet such standards is not reasonably likely have a Material Adverse Effect.
(h)    [Reserved.]
(i)    [Reserved.]
(j)    no settlement or consents, covenants not to sue, co-existence agreements, non-assertion assurances, or releases have been entered into by such Grantor or binds such Grantor in a manner that is reasonably likely to adversely affect such Grantor’s rights to own, license or use any Material Intellectual Property, except, in each case, (x) as disclosed in Schedule 5.07 hereof (as such schedule may be amended or supplemented from time to time) or (y) where such settlement, consents, covenants not to sue, co-existence agreements, non-assertion assurances, or releases would not reasonably be likely to have a Material Adverse Effect.
Section 5.08    . Miscellaneous. No Material Contract prohibits assignment or requires consent of or notice to any Person in connection with the assignment to the Collateral Agent hereunder, except such as has been given or made or is currently sought (or is not required to be sought) pursuant to Section 6.08 hereof or was sought in accordance with Section 6.08 hereof and not given or made, as set forth in Schedule 5.08 (as such schedule may be amended or supplemented from time to time).
ARTICLE 6    
COVENANTS AND AGREEMENTS
Each Grantor hereby covenants and agrees that, subject to the compliance periods set forth in Section 4.05:

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Section 6.01    . Grantor Information and Status. Without limiting any prohibitions or restrictions on mergers or other transactions set forth in the Credit Agreement, and except as it may be permitted to do so under the Credit Agreement, each Grantor covenants and agrees to comply with the requirements of Section 6.01(j) of the Credit Agreement within the time periods set forth therein and, within the earlier of (x) thirty (30) days after the completion of such merger or other change in corporate structure and (y) if applicable, ten (10) days prior to the date on which the perfection of the Liens under the Collateral Documents would (absent additional filings or other actions) lapse, in whole or in part, by reason of such change, take all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Collateral Agent’s security interest in that portion of the Collateral granted or intended to be granted and agreed to hereby, subject to the thresholds, exclusions and limitations set forth herein, which in the case of any merger or other change in corporate structure shall include, without limitation, executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, confirming the grant of the security interest hereunder.
Section 6.02    . Collateral Identification; Special Collateral. (a) In the event that it hereafter acquires any Collateral of a type described in Section 5.02(b) hereof with a fair market value in excess of $10,000,000 individually or $30,000,000 in the aggregate (to the extent not already encumbered by a valid, perfected, First Priority Lien securing the Secured Obligations), it shall promptly notify the Collateral Agent thereof in writing and take such actions and execute such documents and make such filings all at such Grantor’s expense as the Collateral Agent may reasonably request to the extent that such actions, execution of documents and/or filings are otherwise required under Article 4 hereof in order to ensure that the Collateral Agent has a valid, perfected, First Priority Lien in such Collateral.
(b)    In the event that it hereafter acquires or has any Commercial Tort Claim constituting Collateral that a Responsible Officer of such Grantor reasonably believes has a value in excess of $15,000,000 individually or $50,000,000 in the aggregate (other than any Commercial Tort claim in respect of the infringement of Intellectual Property as to which the Company has no knowledge), it shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, identifying such new Commercial Tort Claims; provided that no Grantor shall be required to compromise in any way its attorney-client privilege.
Section 6.03    . Ownership of Collateral and Absence of Other Liens. (a) Except for the security interest created by this Agreement and Permitted Liens, and without duplication of Section 6.07(e), it shall not create or suffer to exist any Lien upon or with respect to any of the Collateral, and such Grantor shall use commercially reasonable efforts to defend the Collateral against all Persons (other than the holders of Permitted Liens) at any time claiming any interest therein.
(b)    Upon any Responsible Officer of such Grantor obtaining knowledge thereof, it shall promptly notify the Collateral Agent in writing of any event that may have a Material Adverse Effect on the value of the Collateral (taken as a whole), a Material Adverse Effect on the ability of such Grantor or the Collateral Agent to dispose of all or any material portion of the Collateral, or

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a Material Adverse Effect on the rights and remedies of the Collateral Agent in relation thereto, including, without limitation, the levy of any legal process against all or any material portion of the Collateral, in each case, other than Dispositions permitted under Section 7.08 of the Credit Agreement.
(c)    It shall not sell, transfer or assign (by operation of law or otherwise) or exclusively license to another Person any Collateral except as otherwise permitted by the Credit Agreement.
Section 6.04    . Status of Security Interest. (a) Subject to the thresholds, exclusions and limitations set forth in Article 4 hereof and subsection (b) of this Section 6.04, such Grantor shall maintain the security interest of the Collateral Agent hereunder in all Collateral as valid, perfected, First Priority Liens to the extent required hereunder.
(b)    Notwithstanding anything to the contrary herein, no Grantor shall be required to take any action to (i) perfect any Collateral that can only be perfected by Control, in each case except as and to the extent specified in Article 4 hereof and (ii) grant or perfect any lien or security interest in Collateral in a Foreign Jurisdiction or under or pursuant to the laws of a Foreign Jurisdiction (and none of the Grantors shall be required to enter into any security agreements or pledge agreements governed by laws of any Foreign Jurisdictions)
Section 6.05    . Goods & Receivables.
(a)    [Reserved.]
(b)    (1) If any Equipment or Inventory constituting Collateral is in possession or control of any warehouseman, bailee or other third party (other than a Consignee under a Consignment for which such Grantor is the Consignor), such Grantor shall join with the Collateral Agent in notifying the third party of the Collateral Agent’s security interest and upon the reasonable request of the Collateral Agent, obtaining an acknowledgment from the third party that it is holding such Equipment and Inventory for the benefit of the Collateral Agent and will permit the Collateral Agent to have access to such Equipment or Inventory for purposes of inspecting such Collateral or, following an Event of Default, to remove same from such premises if the Collateral Agent so elects; provided that this requirement shall not apply to (A) Specified Equipment and Inventory, (B) Equipment, Inventory and other tangible personal property which is with warehousemen, salesmen, servicemen, customers or such items in transit, under repair or with manufacturers or assemblers and (C) Equipment or Inventory constituting Collateral valued at less than $15,000,000 individually, except to the extent that the aggregate value of such Equipment and Inventory exceeds $50,000,000 (in which case, the requirement shall apply to all such Equipment and Inventory in excess of such aggregate threshold); and (2) with respect to any Goods constituting Collateral subject to a Consignment for which such Grantor is the Consignor, such Grantor shall file appropriate financing statements against the Consignee and take such other action as may be necessary to ensure that such Grantor has a first priority perfected security interest in such Goods subject to any Permitted Liens or nonmaterial liens granted by or otherwise encumbering the assets of the Consignor; provided that this requirement shall not apply to Goods valued at less than $10,000,000 individually, except

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to the extent that the aggregate value of such Goods exceeds $30,000,000 (in which case, the requirement shall apply to all such Goods in excess of such aggregate threshold).
(c)    It shall keep the Equipment, Inventory and any Documents evidencing any material Equipment and Inventory constituting Collateral in the locations specified on Schedule 5.05 (as such schedule may be amended or supplemented from time to time) or as otherwise provided by Section 5.05 unless, with respect to any locations in the United States, it shall have notified the Collateral Agent in writing prior to thirty (30) days after any change in locations, identifying such new locations and providing such other information in connection therewith as the Collateral Agent may reasonably request.
(d)    It shall keep and maintain at its own cost and expense satisfactory and complete records of the Receivables, including, but not limited to, to the extent it is commercially reasonable to do so, the originals of all documentation with respect to all Receivables and records of all payments received and all credits granted on the Receivables, all merchandise returned and all other material dealings therewith.
(e)    Reserved.
(f)    Other than in the ordinary course of business it shall not amend, modify, terminate or waive any provision of any Receivable other than such amendments, modifications, terminations or waivers that would not have a Material Adverse Effect.
(g)    At any time following the occurrence and during the continuation of an Event of Default, the Collateral Agent shall have the right at any time to notify, or require such Grantor to notify, any Account Debtor of the Collateral Agent’s security interest in the Receivables and any Supporting Obligation constituting Collateral and, in addition, the Collateral Agent may: (1) direct the Account Debtors under any Receivables to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent; (2) notify, or require such Grantor to notify, each Person maintaining a lockbox or similar arrangement to which Account Debtors under any Receivables have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to the Collateral Agent; and (3) enforce, at the expense of such Grantor, collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. If the Collateral Agent notifies such Grantor that it has elected to collect the Receivables in accordance with the preceding sentence, any payments of Receivables received by such Grantor shall be forthwith (and in any event within two (2) Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Collateral Agent if required, in the Collateral Account maintained under the sole dominion and control of the Collateral Agent, and until so turned over, all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Receivables, any Supporting Obligation constituting Collateral or Collateral Support constituting Collateral shall be received in trust for the benefit of the Collateral Agent hereunder and shall be segregated from other funds of such Grantor and such Grantor shall not, except as may be permitted by the Collateral Agent, adjust, settle or compromise the amount or payment of any Receivable for less than the total unpaid balance thereof, grant any extension or renewal of the time

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of payment of any Receivable or release wholly or partly any Account Debtor or obligor thereof, or allow any credit or discount thereon.
Section 6.06    . Pledged Equity Interests, Investment Related Property. (a) Except as provided in the next sentence, in the event such Grantor receives any dividends, interest, distributions, securities or other property on account of any Pledged Equity Interest or other Investment Related Property constituting Collateral, upon the merger, consolidation, liquidation or dissolution of any issuer of such Pledged Equity Interest or Investment Related Property, then (i) such dividends, interest, distributions, securities or other property shall be included in the definition of Collateral without further action (unless otherwise constituting an Excluded Asset) and (ii) such Grantor shall promptly take all steps, if any, necessary or reasonably advisable to ensure the validity, perfection, priority and, if applicable, control of the Collateral Agent over such dividends, interest, distributions, securities or other property (including, without limitation, delivery thereof to the Collateral Agent) and pending any such action such Grantor shall be deemed to hold such dividends, interest, distributions, securities or other property in trust for the benefit of the Collateral Agent and shall segregate such dividends, interest, distributions, securities or other property from all other property of such Grantor; provided that, for the avoidance of doubt, such Grantor shall not be required to (x) comply with the delivery and control requirements set forth in Article 4 with respect to any such Investment Related Property that constitutes Specified Minority Investments and (y) take any action to perfect Collateral Agent’s liens on any such dividends, interest, distributions, securities or other property, in each case, constituting Specified Minority Investments other than as required pursuant to Article 4 hereof (and subject to the thresholds, exclusions and limitations (and time periods in regards to compliance) set forth in Article 4 hereof). Notwithstanding the foregoing, so long as the Collateral Agent has not (after the occurrence or during the continuation of an Event of Default) directed the Grantors in writing to segregate all cash dividends, securities, distributions and other property in accordance with the immediately preceding sentence, the Collateral Agent authorizes such Grantor to retain all cash dividends, securities, distributions and other property paid consistent with the past practice of the issuer and all scheduled payments of interest.
(b)    Voting.
(i)    So long as no Event of Default shall have occurred and be continuing, except as otherwise provided in this Agreement or in the Credit Agreement, such Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Investment Related Property included in the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, such Grantor shall not exercise or refrain from exercising any such right if the Collateral Agent shall have notified such Grantor that, in the Collateral Agent’s reasonable judgment, such action would have a Material Adverse Effect; and provided further, such Grantor shall give the Collateral Agent at least five (5) Business Days prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right in a manner that would reasonably be expected to have a Material Adverse Effect; it being understood, however, that neither the voting by such Grantor of any Pledged Stock for, or such Grantor’s consent to, the election of directors (or similar governing body) at a regularly scheduled annual or other meeting of stockholders or

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with respect to incidental matters at any such meeting, nor such Grantor’s consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement, shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 6.06(b)(i) and no notice of any such voting or consent need be given to the Collateral Agent.
(ii)    Upon the occurrence and during the continuation of an Event of Default:
(A)    upon receipt of written notice from Collateral Agent terminating such Grantor’s voting rights, all rights of such Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease and all such rights shall thereupon become vested in the Collateral Agent (to the extent permitted by applicable law and the applicable agreements and organization documents) who shall thereupon have the sole right to exercise such voting and other consensual rights; provided that (x) to the extent the applicable agreements or organizational documents prohibit the vesting of such voting rights in the Collateral Agent (including, without limitation, through the use of a proxy or power-of-attorney), such Grantor shall exercise such voting and other consensual rights solely in accordance with the instructions of the Collateral Agent and (y) such rights shall automatically revert back to such Grantor upon the waiver or cure of all Events of Default then existing; and
(B)    in order to permit the Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder: (1) such Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Collateral Agent all proxies, dividend payment orders and other instruments as the Collateral Agent may from time to time reasonably request and (2) such Grantor acknowledges that the Collateral Agent may utilize the power of attorney set forth in Section 8.01.
(c)    Except (x) to the extent not prohibited by the Credit Agreement (including, without limitation, in connection with any transaction not prohibited by the Credit Agreement) and (y) with respect to the Specified Minority Investments, without the prior written consent of the Collateral Agent, it shall not vote to enable or take any other action to: (i) cause to be amended or terminated any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes, in an adverse manner, the rights of such Grantor with respect to any Investment Related Property constituting Collateral or adversely affects the validity, perfection or priority of the Collateral Agent’s security interest, (ii) cause any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interest or other Equity Interests of any nature or to issue securities convertible into or granting the right of purchaser or exchange for any such additional stock, partnership interests, limited liability company interest or other Equity Interests of any nature of such issuer unless such additional stock, partnership interests, limited liability

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company interest or any other Equity Interests owned by such Grantor (or, in each case, any portion thereof) has been pledged to the Collateral Agent to the extent required by the terms and conditions of Sections 2.01 and 2.02, (iii) cause any issuer of any Pledged Equity Interest to dispose of all or a material portion of their assets, (iv) waive any material default under or material breach of any terms of organizational document relating to the issuer of any Pledged Equity Interest or the terms of any Pledged Debt other than to the extent that such waiver would not reasonably be expected to have a Material Adverse Effect, (v) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests that are not securities (for purposes of the UCC) on the Closing Date to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as securities for purposes of the UCC other than at the direction of Collateral Agent or (vi) cause any Pledged Partnership Interests or Pledged LLC Interests to be certificated without delivering each such certificate to the Collateral Agent in accordance with Section 4.01(a), subject to the delivery periods set forth in Section 4.05, and such Grantor shall fulfill all other requirements under Article 4 applicable in respect thereof; provided, however, notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (v), such Grantor shall promptly notify the Collateral Agent in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish the Collateral Agent’s “control” thereof.
(d)    Except as expressly permitted by the Credit Agreement, without the prior written consent of the Collateral Agent, it shall not permit any issuer (that is a Subsidiary) of any Pledged Equity Interest constituting Collateral to merge or consolidate unless (i) subject to the thresholds, exclusions and limitations (and time periods in regards to compliance) set forth in Article 4 hereof, such issuer creates, or has previously created, a security interest that is perfected by a filed financing statement (that is not effective solely under section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, (ii) all the outstanding capital stock or other Equity Interests of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder (subject to Section 2.02 hereof) and no cash, securities or other property is distributed in respect of the outstanding Equity Interests of any other constituent Grantor if it is prohibited under the Credit Agreement; provided that if the surviving or resulting Grantors upon any such merger or consolidation involving an issuer which is a First-Tier Foreign Subsidiary, then such Grantor shall only be required to pledge Equity Interests in accordance with Sections 2.01 and 2.02 and (iii) such Grantor promptly complies with the delivery and control requirements of Article 4 hereof.
Section 6.07    . Intellectual Property. (a) Other than to the extent permitted by the Credit Agreement, it shall not do any act or omit to do any act whereby any of the Material Intellectual Property may lapse, or become abandoned, canceled, dedicated to the public, forfeited or unenforceable, or which would adversely affect the validity, grant, or enforceability of the security interest granted therein unless such act or omission would not reasonably be expected to have a Material Adverse Effect.
(b)    Other than to the extent permitted in the Credit Agreement, it shall not, with respect to any Trademarks constituting Material Intellectual Property, cease the use of any of such Trademarks or fail to maintain the level of the quality of products sold and services rendered under

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any of such Trademark at a level at least substantially consistent with the quality of such products and services as of the Closing Date, and such Grantor shall take all reasonable steps to insure that licensees of such Trademarks use such consistent standards of quality except where the failure to use such Trademarks, to maintain such level of quality or take such steps would not have a Material Adverse Effect.
(c)    It shall promptly notify the Collateral Agent if it knows or has reason to know that any item of Material Intellectual Property may become (i) abandoned or dedicated to the public or placed in the public domain, (ii) invalid or unenforceable, (iii) subject to any adverse determination or development regarding such Grantor’s ownership, registration or use or the validity or enforceability of such item of Material Intellectual Property (including the institution of, or any such determination or development in, any action or proceeding in the United States Patent and Trademark Office, the United States Copyright Office, any state registry within the United States or any court) unless such adverse determination or development would not reasonably be expected to have a Material Adverse Effect or (iv) the subject of any reversion or termination rights unless becoming the subject of such reversion or termination rights would not reasonably be expected to have a Material Adverse Effect.
(d)    Other than to the extent permitted by the Credit Agreement, it shall take all commercially reasonable steps, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office, any state registry within the United States or any court, to pursue any application and maintain any registration or issuance of each Trademark, Patent, and Copyright, that, in each case, constitutes Material Intellectual Property owned by or exclusively licensed to such Grantor, subject to Section 6.08 hereof, including, but not limited to, those items on Schedule 5.02(II) unless failing to take such steps would not reasonably be expected to have a Material Adverse Effect.
(e)    In the event that any Material Intellectual Property owned by or exclusively licensed to such Grantor is infringed, misappropriated, or diluted by a third party and Grantors have knowledge thereof, such Grantor shall promptly take action in response to such infringement, misappropriation, or dilution to protect its rights in such Material Intellectual Property to the extent that such Grantor deems it commercially reasonable to do so and such infringement, misappropriation or dilution would reasonably be expected to have a Material Adverse Effect.
(f)    It shall take commercially reasonable steps, consistent with industry standards, to protect the secrecy of all Trade Secrets that constitute Material Intellectual Property (including, without limitation, entering into confidentiality agreements with employees and consultants and labeling and restricting access to secret information and documents) unless failure to take such steps would not reasonably be expected to have a Material Adverse Effect.
(g)    It shall use commercially reasonable efforts to use proper statutory notice, consistent with industry standards, in connection with its use of any of the Material Intellectual Property unless failure to use proper statutory notice would not reasonably be expected to have a Material Adverse Effect.

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Section 6.08    . Miscellaneous. Such Grantor shall, within thirty (30) days after the Closing Date, with respect to any of its Material Contracts that is a Non-Assignable Contract (other than any Material Contract that constitutes (i) an Account, Chattel Paper or Payment Intangible of such Grantor, (ii) a Specified Minority Investment and (iii) the Specified Material Contracts) in effect on the Closing Date and within thirty (30) days after it enters into any Material Contract (entered into after the Closing Date) that is a Non-Assignable Contract (other than any Specified Minority Investment), request in writing the consent of the counterparty or counterparties to such Non-Assignable Contract pursuant to the terms of such Non-Assignable Contract or applicable law to the assignment or granting of a security interest in such Non- Assignable Contract to the Secured Parties and use commercially reasonable efforts to obtain such consent as soon as practicable thereafter.
ARTICLE 7    
ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS
Section 7.01    . Access; Right of Inspection. The Collateral Agent shall at all times have free reasonable access during normal business hours to all the books, correspondence and records of each Grantor, and the Collateral Agent and its representatives may examine the same, take extracts therefrom and make photocopies thereof, in each case, at the Collateral Agent’s expense (or, after the occurrence and during the continuation of an Event of Default, at the Company’s expense), and each Grantor agrees to render to the Collateral Agent, at such Grantor’s cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Collateral Agent and its representatives shall upon reasonable notice and at such reasonable times during normal business hours also have the right to enter any premises of each Grantor and inspect any property of each Grantor where any of the Collateral is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein, in each case, at the Collateral Agent’s expense (or, after the occurrence and during the continuation of an Event of Default, at the Company’s expense).
Section 7.02    . Further Assurances. (a) Each Grantor agrees that from time to time, at the expense of such Grantor, that it shall, subject to the other provisions hereof, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing and subject to Article 4 and Article 6 hereof, in each case, each Grantor shall:
(i)    file such financing or continuation statements, or amendments thereto, record security interests in Intellectual Property and execute and deliver such other agreements, instruments, endorsements, powers of attorney or notices, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to effect, reflect, perfect and preserve the security interests granted or purported to be granted hereby;

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(ii)    take all actions necessary to ensure the recordation of appropriate evidence of the liens and security interest granted hereunder in the Intellectual Property with any intellectual property registry in the United States in which said Intellectual Property is registered or issued or in which an application for registration or issuance is pending including, without limitation, the United States Patent and Trademark Office, the United States Copyright Office;
(iii)    at any reasonable time, upon reasonable request by the Collateral Agent, allow inspection of the Collateral by the Collateral Agent, or persons designated by the Collateral Agent;
(iv)    at the Collateral Agent’s request, appear in and defend any action or proceeding that may affect such Grantor’s title to or the Collateral Agent’s security interest in all or any material part of the Collateral; and
(v)    furnish the Collateral Agent with such information regarding the Collateral, including, without limitation, the location thereof, as the Collateral Agent may reasonably request from time to time.
(b)    Each Grantor hereby authorizes the Collateral Agent to file a Record or Records, including, without limitation, financing or continuation statements, intellectual property security agreements and amendments to any of the foregoing, in any jurisdictions and with any filing offices, in each case, in the United States as the Collateral Agent may determine, in its reasonable discretion, are necessary or advisable to perfect or otherwise protect the security interest granted to the Collateral Agent herein (subject to Article 2, Article 4 and Article 6 hereof). Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Collateral Agent may determine, in its reasonable discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Collateral Agent herein, including, without limitation, describing such property as “all assets, whether now owned or hereafter acquired, developed or created” or words of similar effect.
Section 7.03    . Additional Grantors. From time to time subsequent to the Closing Date, additional domestic Persons may become parties hereto as additional Grantors (each, an “Additional Grantor”), by executing a Pledge Supplement. Upon delivery of any such Pledge Supplement to the Collateral Agent, notice of which is hereby waived by Grantors, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of the Collateral Agent not to cause any Subsidiary of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.
ARTICLE 8    
COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT

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Section 8.01    . Power of Attorney. Each Grantor hereby irrevocably appoints the Collateral Agent (such appointment being coupled with an interest) as such Grantor’s attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, the Collateral Agent or otherwise, from time to time in the Collateral Agent’s reasonable discretion to take any action and to execute any instrument that the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default (other than in regards to clauses (e) and (f) below, which the Collateral Agent may do under this Section 8.01 whether or not an Event of Default has occurred and is continuing):
(a)    to obtain and adjust insurance required to be maintained by such Grantor or paid to the Collateral Agent pursuant to and to the extent provided in the Credit Agreement;
(b)    to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;
(c)    to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above;
(d)    to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral;
(e)    to prepare and file any UCC financing statements against such Grantor as debtor covering the Collateral;
(f)    subject to any exceptions contained in Article 2 and Article 4 hereof, to prepare, sign, and file for recordation in any intellectual property registry within the United States, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of such Grantor as debtor;
(g)    to take or cause to be taken all actions necessary to perform or comply or cause performance or compliance with the terms of this Agreement, including, without limitation, access to pay or discharge taxes or Liens (other than Permitted Liens) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Collateral Agent in its sole discretion, any such payments made by the Collateral Agent to become obligations of such Grantor to the Collateral Agent, due and payable immediately without demand; and
(h)    subject to applicable law, generally to sell, transfer, lease, license, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Collateral Agent’s option and such Grantor’s expense, at any time or from time to time, all acts and things that the Collateral Agent deems reasonably necessary to protect, preserve or

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realize upon the Collateral and the Collateral Agent’s security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.
Section 8.02    . No Duty On The Part Of Collateral Agent Or Secured Parties. The powers conferred on the Collateral Agent hereunder are solely to protect the interests of the Secured Parties in the Collateral and shall not impose any duty upon the Collateral Agent or any Secured Party to exercise any such powers. The Collateral Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
Section 8.03    . Appointment Pursuant to Credit Agreement. The Collateral Agent has been appointed as collateral agent pursuant to the Credit Agreement. The rights, duties, privileges, immunities and indemnities of the Collateral Agent hereunder are subject to the provisions of the Credit Agreement.
ARTICLE 9    
REMEDIES
Section 9.01    . Generally. (a) If any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it at law or in equity, all the rights and remedies of the Collateral Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) to collect, enforce or satisfy any Secured Obligations then owing, whether by acceleration or otherwise, and also may pursue any of the following separately, successively or simultaneously:
(i)    require any Grantor to, and each Grantor hereby agrees that it shall at its expense and promptly upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties;
(ii)    enter onto the property where any Collateral is located and take possession thereof with or without judicial process;
(iii)    prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent the Collateral Agent deems appropriate; and
(iv)    without notice except as specified below or under the UCC, sell, assign, lease, license (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable.

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(b)    The Collateral Agent or any Secured Party may be the purchaser of any or all of the Collateral at any public or private (to the extent to the portion of the Collateral being privately sold is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations) sale in accordance with the UCC and the Collateral Agent, as collateral agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale made in accordance with the UCC, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by the Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for the Collateral Agent to dispose of the Collateral or any portion thereof by using Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. Each Grantor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, the Grantors shall be liable for the deficiency and the fees of any attorneys employed by the Collateral Agent to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Collateral Agent, that the Collateral Agent has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this Section shall in any way limit the rights of the Collateral Agent hereunder.
(c)    The Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. The Collateral Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(d)    The Collateral Agent shall have no obligation to marshal any of the Collateral.

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Section 9.02    . Application of Proceeds. Except as expressly provided elsewhere in this Agreement, all proceeds of Collateral received by the Collateral Agent in the event that an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.02 of the Credit Agreement and in respect of any sale of, any collection from, or other realization upon all or any part of the Collateral shall be applied in full or in part by the Collateral Agent against the Secured Obligations in the order of priority set forth in Section 8.03 of the Credit Agreement.
Section 9.03    . Sales on Credit. If Collateral Agent sells any of the Collateral upon credit, the Grantor will be credited only with payments actually made by purchaser and received by the Collateral Agent and applied to indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Collateral Agent may resell the Collateral and Grantor shall be credited with proceeds of the sale.
Section 9.04    . Investment Related Property. Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Investment Related Property included in the Collateral conducted without prior registration or qualification of such Investment Related Property included in the Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property included in the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property included in the Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If the Collateral Agent determines to exercise its right to sell any or all of the Investment Related Property included in the Collateral, upon written request, each Grantor shall and shall cause each issuer of any Pledged Stock to be sold hereunder, each partnership and each limited liability company from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number and nature of interest, shares or other instruments included in the Investment Related Property included in the Collateral which may be sold by the Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.
Section 9.05    . Grant of Intellectual Property License. For the purpose of enabling the Collateral Agent, during the continuance of an Event of Default, to exercise rights and remedies under Article 9 hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of

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royalty or other compensation to such Grantor), subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of said Trademarks, to use, assign, license or sublicense any of the Intellectual Property now owned or hereafter acquired, developed or created by such Grantor, wherever the same may be located. Such license shall include access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout hereof.
Section 9.06    . Intellectual Property. (a) Anything contained herein to the contrary notwithstanding, in addition to the other rights and remedies provided herein, upon the occurrence and during the continuation of an Event of Default:
(i)    the Collateral Agent shall have the right (but not the obligation) to bring suit or otherwise commence any action or proceeding in the name of any Grantor, the Collateral Agent or otherwise, in the Collateral Agent’s sole discretion, to enforce any Intellectual Property rights, in which event such Grantor shall, at the request of the Collateral Agent, do any and all lawful acts and execute any and all documents required by the Collateral Agent in aid of such enforcement and such Grantor shall promptly, upon demand, reimburse and indemnify the Collateral Agent as provided in Article 12 hereof in connection with the exercise of its rights under this Section, and, to the extent that the Collateral Agent shall elect not to bring suit to enforce any Intellectual Property rights as provided in this Section, upon acceleration of the Obligations, each Grantor agrees to use commercially reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement, misappropriation, dilution or other violation of any of such Grantor’s rights in the Intellectual Property by others and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing, misappropriating, diluting or otherwise violating as shall be necessary to prevent such infringement, misappropriation, dilution or other violation;
(ii)    upon written demand from the Collateral Agent, for the purpose of enabling the Collateral Agent, to exercise rights and remedies under Article 9 hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor shall grant, assign, convey or otherwise transfer to the Collateral Agent or such Collateral Agent’s designee all of such Grantor’s right, title and interest in and to the Intellectual Property and shall execute and deliver to the Collateral Agent such documents as are necessary or appropriate to carry out the intent and purposes of this Agreement, in each case, in accordance with applicable law;
(iii)    each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that the Collateral Agent (or any Secured Party) receives cash proceeds in respect of the sale of, or other realization upon, the Intellectual Property;
(iv)    Reserved; and
(v)    the Collateral Agent shall have the right to notify, or require each Grantor to notify, any obligors with respect to amounts due or to become due to such Grantor in respect of the Intellectual Property, of the existence of the security interest created herein, to direct such obligors to make payment of all such amounts directly to the Collateral Agent, and, upon such notification

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and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done:
(A)    all amounts and proceeds (including checks and other instruments) received by Grantor in respect of amounts due to such Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to the Collateral Agent in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 9.07 hereof; and
(B)    the Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon.
(b)    If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment or other transfer to the Collateral Agent of any rights, title and interests in and to the Intellectual Property shall have been previously made and shall have become absolute and effective, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, the Collateral Agent shall promptly execute and deliver to such Grantor, at such Grantor’s sole cost and expense, such assignments or other transfer as may be necessary to reassign to such Grantor any such rights, title and interests as may have been assigned to the Collateral Agent as aforesaid, subject to any disposition thereof that may have been made by the Collateral Agent; provided, after giving effect to such reassignment, the Collateral Agent’s security interest granted pursuant hereto, as well as all other rights and remedies of the Collateral Agent granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of any other Liens granted by or on behalf of the Collateral Agent and the Secured Parties.
Section 9.07    . Cash Proceeds; Deposit Accounts. (a) If any Event of Default shall have occurred and be continuing, in addition to the rights of the Collateral Agent specified in Section 6.05 with respect to payments of Receivables, all proceeds of any Collateral received by any Grantor consisting of cash, checks and other near-cash items (collectively, “Cash Proceeds”), shall be deemed to be held by such Grantor in trust for the Collateral Agent and, upon the written direction of the Collateral Agent, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Collateral Agent, if required) and held by the Collateral Agent in the Collateral Account. Any Cash Proceeds received by the Collateral Agent (whether from a Grantor or otherwise) during the continuation of any Event(s) of Default may, in the sole discretion of the Collateral Agent, (i) may be applied by the Collateral Agent against the Secured Obligations then due and owing and/or (ii) if all of such Obligations then due and owing have been paid in full, be held by the Collateral Agent for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations (whether matured or unmatured) only for so long as it reasonably appears there may be additional Secured Obligations that arise.

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ARTICLE 10    
COLLATERAL AGENT
The provisions of Article 9 and Section 10.04(b) of the Credit Agreement shall inure to the benefit of the Collateral Agent, and shall be binding upon all Grantors and all Secured Parties, in connection with this Agreement and the other Collateral Documents, as if references therein to the Administrative Agent were to the Collateral Agent.
ARTICLE 11    
CONTINUING SECURITY INTEREST; TRANSFER OF LOANS
This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Secured Obligations (other than contingent indemnification obligations as to which no claim has been made or notice has been given), the cancellation or termination of the Commitments and the cancellation, expiration, posting of backstop letters of credit or cash collateralization of all outstanding Letters of Credit satisfactory to the issuer(s) of such Letters of Credit, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing, any Lender may assign or otherwise transfer any Loans held by it and such assignee shall thereupon become vested with all the benefits in respect thereof granted to the Lenders herein or otherwise pursuant to the provisions set forth in the Credit Agreement. Upon the payment in full of all Secured Obligations (other than contingent indemnification obligations as to which no claim has been made or notice has been given), the cancellation or termination of the Commitments and the cancellation, expiration, posting of backstop letters of credit or cash collateralization of all outstanding Letters of Credit satisfactory to the issuer(s) of such Letters of Credit, the security interest granted hereby shall automatically terminate hereunder and of record and all rights to the Collateral shall revert to the Grantors. Upon any such termination the Collateral Agent shall, at the Grantors’ expense, execute and deliver to the Grantors or otherwise authorize the filing of such documents as the Grantors shall reasonably request, including financing statement amendments and/or termination statements to evidence such termination. Upon any disposition of property permitted by the Credit Agreement, the Liens granted herein on and with respect to such property shall be deemed to be automatically released and such property shall automatically revert to the applicable Grantor with no further action on the part of any Person. Notwithstanding the immediately preceding sentence, the Collateral Agent shall, at the applicable Grantor’s expense, execute and deliver or otherwise authorize the filing of such documents as such Grantor shall reasonably request, in form and substance reasonably satisfactory to the Collateral Agent, including financing statement amendments to evidence such release in accordance with Section 9.10 of the Credit Agreement.
ARTICLE 12    
STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM
The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting

35
    


for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property. Neither the Collateral Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or otherwise. If any Grantor fails to timely perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by each Grantor under Section 10.04 of the Credit Agreement.
ARTICLE 13    
MISCELLANEOUS
Any notice required or permitted to be given under this Agreement shall be given in accordance with Section 10.02 of the Credit Agreement. No failure or delay on the part of the Collateral Agent in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. This Agreement shall be binding upon and inure to the benefit of the Collateral Agent and the Grantors and their respective successors and assigns to the extent permitted by the Credit Agreement. No Grantor shall, without the prior written consent of the Collateral Agent given in accordance with the Credit Agreement, assign any right, duty or obligation hereunder. This Agreement and the other Loan Documents embody the entire agreement and understanding between the Grantors and the Collateral Agent and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

36
    


THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY CLAIMS SOUNDING IN CONTRACT LAW OR TORT LAW ARISING OUT OF THE SUBJECT MATTER HEREOF) SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK (OTHER THAN ANY MANDATORY PROVISIONS OF THE UCC RELATING TO THE LAW GOVERNING PERFECTION AND THE EFFECT OF PERFECTION OF THE SECURITY INTEREST).
SECTIONS 10.15(B), 10.15(C), 10.15(D) AND 10.16 OF THE CREDIT AGREEMENT ARE INCORPORATED HEREIN BY THIS REFERENCE AND SUCH INCORPORATION SHALL SURVIVE ANY TERMINATION OF THE CREDIT AGREEMENT.
[Remainder of page intentionally left blank]



IN WITNESS WHEREOF, each Grantor and the Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
HOLOGIC, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Vice President and Treasurer



BIOLUCENT, LLC, as Grantor
By: Hologic, Inc.,
Its Sole Member and Manager
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Vice President and Treasurer


CYTYC CORPORATION, as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer


CYTYC INTERNATIONAL, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

CYTYC LIMITED LIABILITY COMPANY, as Grantor
By: Cytyc Corporation,
Its Sole Member
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

CYTYC PRENATAL PRODUCTS CORP., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer




CYTYC SURGICAL PRODUCTS, LIMITED PARTNERSHIP, as Grantor
By: Cytyc Corporation,
Its General Partner
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

DIRECT RADIOGRAPHY CORP., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

HOLOGIC LIMITED PARTNERSHIP, as Grantor
By: Cytyc Corporation,
Its General Partner
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

INTERLACE MEDICAL, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer


SUROS SURGICAL SYSTEMS, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer


THIRD WAVE AGBIO, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

THIRD WAVE TECHNOLOGIES, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

GEN-PROBE INCORPORATED, as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer

GEN-PROBE SALES & SERVICE, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer


GEN-PROBE PRODESSE, INC., as Grantor
By:
/s/ Marci Lerner
Name: Marci Lerner
Title: Treasurer


BANK OF AMERICA, N.A., as Collateral Agent
By:
/s/ Lori Egan
Authorized Signatory
Name: Lori Egan
Title: SVP

61982187 v1-WorkSiteUS-011648/0001

37
    



Exhibit 10.3

SECOND AMENDMENT TO
Restated Agreement dated July 24, 2009
between
Gen-Probe Incorporated
and
Grifols Diagnostic Solutions Inc.

This Second Amendment (the “Second Amendment”), effective January 15, 2015, to the Restated Agreement dated July 24, 2009 and as amended on November 8, 2013 (collectively, the “Agreement”) is made by and between Gen-Probe Incorporated (hereinafter, “Gen-Probe”), a Delaware corporation with a place of business at 10210 Genetic Center Drive, San Diego, CA 92121-4362, and Grifols Diagnostic Solutions Inc. (hereinafter, “Grifols”), a Delaware corporation with a place of business at 4560 Horton Street, Emeryville, CA 94608. Capitalized terms not defined in this Second Amendment shall have the same meaning given them in the Agreement.

RECITALS

WHEREAS, Novartis Vaccines and Diagnostics, Inc. (hereinafter, “Novartis V&D”) and Gen-Probe entered into the Agreement relating to the development, manufacture, marketing and distribution of products in the Blood Screening Field;

WHEREAS, on November 10, 2013, Novartis V&D and Grifols entered into a definitive agreement pursuant to which Novartis V&D agreed to sell, and Grifols agreed to acquire, the blood transfusion diagnostics business unit of Novartis V&D. The assets acquired by Grifols include, but are not limited to, nucleic acid testing assays, software, instrumentation and equipment for blood screening, as well as related patents, brands, licenses and royalties, together with the antigen production facilities and global headquarter offices in Emeryville, California, and commercial offices located in Switzerland and Hong Kong; the foregoing transaction closed on January 9, 2014;

WHEREAS, the parties to the Agreement wish to have Grifols succeed to the rights and responsibilities of Novartis V&D under the Agreement;

WHEREAS, Grifols wishes to pursue the nucleic acid testing business in Thailand, to include a tender being offered, or which will imminently be offered, by the Thai Red Cross (hereinafter, “TRC”);

WHEREAS, in preparation for Grifols’ response to the TRC Tender (as defined below), the parties desire to set forth terms and conditions which shall specifically govern the sale of Products in Thailand, including, without limitation, pricing and the modified structure by which revenue is reported and Gen-Probe is compensated;

WHEREAS, the parties hereto have come to an agreement regarding settlement of potential warranty claims for the Procleix® Tigris® instrument, the Procleix® Panther® instrument and the Reagent Preparation Incubator (“RPI”) for the years 2012 and 2013, and for future claims; and

WHEREAS, the parties hereto now desire to amend the Agreement to revise and clarify their rights and obligations under the Agreement with respect to the foregoing.

1
Grifols/Gen-Probe – Amendment #2 to Restatement




NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants set forth in the Agreement, as amended, and in this Second Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Gen-Probe and Grifols agree as follows:



AGREEMENT

A.
Section 1.48 is hereby amended in its entirety to read as follows:

“1.48    “Territory” shall mean the entire world, subject to Section 3.1.9(g).”

B.
A new Section 1.57 is hereby added to the Agreement as follows:

“1.57    “Out-of-Box Failure” shall mean a Blood Screening Instrument, or a component or module thereof, purchased from Gen-Probe hereunder, which, when opened and installed or made ready for use at its final destination, fails to operate in accordance with the applicable specifications for such Blood Screening Instrument, or component or module thereof.”

C.
A new Section 3.1.9(g) is hereby added to the contract to read as follows:

“(g)    Sales to the Thai Red Cross (“TRC”). The TRC may tender with a mix of pooling and Individual Donation Testing (IDT) and, therefore, the parties have identified a price structure for both pooling in mini-pools of four (4) and IDT as outlined in this Section 3.1.9(g).
    
(i)
Pricing of Procleix® Panther and Procleix® Ultrio Elite® for TRC in Pools. The parties hereto contemplate that Grifols will offer the TRC the Procleix® Panther Blood Screening Instrument and the Procleix® Ultrio® Elite Blood Screening Assay (for screening blood in pools of 4 donation samples) under a Reagent Rental (as defined in Section 6.1.2(b)(i)) program, for a total fee per donation (inclusive of the Blood Screening Instrument, Blood Screening Assay, and related maintenance and repair services) in local currency as set forth below (USD shown for illustrative purposes only):

 
THB
USD
Assay
[ * ]
          [ * ]

Instrument
[ * ]
          [ * ]
Service
[ * ]
          [ * ]
Total
[ * ]
          [ * ]


2
Grifols/Gen-Probe – Amendment #2 to Restatement
[ * ] Indicates information has been omitted and filed separately with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.



(ii)
To the extent that the total fee to the TRC per donation in connection with the TRC Tender (as defined below) in mini-pools of four (4) is lower than [ * ], Grifols shall bear the full responsibility for any such lower fee and Gen-Probe’s compensation from Grifols relating to the TRC Tender in mini-pools of four (4) shall be calculated as if the total fee per donation was equal to [ * ].

(iii)
Pricing of Procleix® Panther and Procleix® Ultrio Elite® for TRC in IDT. The parties hereto contemplate that Grifols will offer the TRC the Procleix® Panther Blood Screening Instrument and the Procleix® Ultrio® Elite Blood Screening Assay (for screening blood in individual donation samples) under a Reagent Rental (as defined in Section 6.1.2(b)(i)) program, for a total fee (inclusive of the Blood Screening Instrument, Blood Screening Assay, and related maintenance and repair services) in local currency as set forth below (USD shown for illustrative purposes only):

 
THB
USD

Assay
[ * ]
[ * ]

Instrument
[ * ]
[ * ]

Service
[ * ]
[ * ]

Total
[ * ]
[ * ]

 
(iv)
To the extent that the total fee to the TRC per Blood Screening Assay unit in connection with the TRC Tender in IDT is lower than [ * ], Grifols shall bear the full responsibility for any such lower fee and Gen-Probe’s compensation from Grifols relating to the TRC Tender in an IDT format shall be calculated as if the total fee per Blood Screening Assay unit was equal to [ * ].

(v)
For the purpose of calculating Net Sales, the parties agree that the price allocated to each of the assay, instrument rental and service set forth in Sections 3.1.9(g)(i) and 3.1.9(g)(iii) are reasonable and that such prices shall apply in the event that Grifols decides, in its sole discretion or at the request of the TRC, to bid using one price for the assay, instrument rental and service.

(vi)
Applicable Purchase Price. Notwithstanding anything to the contrary set forth in this Section 3.1.9(g), Section 1.3.3 of this Agreement (relating to the minimum Applicable Purchase Price) remains in full force and effect and the pricing contemplated by this Section 3.1.9(g) for the TRC shall at all times be subject to Section 1.3.3 of this Agreement. This Section 3.1.9

3
Grifols/Gen-Probe – Amendment #2 to Restatement
[ * ] Indicates information has been omitted and filed separately with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.


(g) shall only become effective if Grifols is the prevailing party in a future national tender expected to be offered by the TRC between the effective date of the Second Amendment of this Agreement and the end of the 2016 calendar year (hereinafter, collectively, the “TRC Tender”), and will apply as of the first invoice Grifols issues to the TRC for the sale of Products in Thailand. Grifols, or its Affiliate, as applicable, shall compensate Gen-Probe for the aforementioned sale of Blood Screening Assays in accordance with Section 6.1 of this Agreement as modified by this Section 3.1.9(g). Subject to Section 1.3.3 of this Agreement, with respect to each Blood Screening Assay sold in Thailand to the TRC pursuant to the TRC Tender, the “Applicable Purchase Price” shall mean, on a per unit basis, the price calculated as follows (the “Applicable Purchase Price for Thailand”):
[ * ] each such Blood Screening Assay
+
[ * ] each such Blood Screening Assay
For the avoidance of doubt, the parties acknowledge and agree that the Applicable Purchase Price for Thailand only applies to the initial term of the TRC Tender and, unless otherwise mutually agreed by the parties, the Applicable Purchase Price shall revert to the standard formula set forth in the Agreement without giving effect to the terms of this Section 3.1.9(g) for any renewal or extension of the TRC Tender beyond the initial term of the TRC Tender.
(vii)
Summary of Final Agreement. In the event Grifols is awarded the TRC Tender, it shall provide Gen-Probe with a written summary of the terms and conditions of the final commercial agreement executed by Grifols and the TRC, at the first Supervisory Board meeting scheduled following full execution of such final agreement.


(viii)
Reporting. Grifols shall provide to Gen-Probe, within thirty (30) days after the end of each calendar month during the Blood Screening Term, a written report which shall (i) identify with specificity, on a Product-by-Product basis, the gross sales of all Products sold by Grifols in Thailand, including, without limitation, the number of Blood Screening Assays sold concurrently or in connection with the placement of Blood Screening Instruments under a Reagent Rental program; (ii) contain an accounting of the allowable deductions taken pursuant to Section 6.1.2(d) and Section 6.4; and (iii) reconcile the total revenues received regarding nucleic acid testing with the Products in Thailand, and the revenues that Grifols reports to Gen-Probe each calendar month pursuant to Section 6.4. Grifols shall provide to Gen-Probe, no later than thirty (30) days following the end of each calendar year, an annual income statement that pertains to the nucleic acid testing business in Thailand.



4
Grifols/Gen-Probe – Amendment #2 to Restatement
[ * ] Indicates information has been omitted and filed separately with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.


(ix)
Services. In accordance with Section 3.1.9(c), Grifols shall establish direct service and support personnel to support the TRC business. Product sales and related maintenance and repair services to be rendered in Thailand shall be solely and directly performed by Grifols (or its local Affiliate), and will not involve the use of third party distributors, service companies or agents.”



5
Grifols/Gen-Probe – Amendment #2 to Restatement


D.
Section 5.7 is hereby amended in its entirety to read as follows:

“5.7    Warranty.

5.7.1    Blood Screening Instruments. Except as otherwise set forth in Section 5.7.4 below, Gen-Probe warrants to Grifols that all the Blood Screening Instruments delivered to Grifols pursuant to this Agreement shall conform to the applicable specifications, shall be free from defects in material and workmanship, and shall be manufactured in compliance with applicable laws and regulations. Except as otherwise set forth in Section 5.7.4 below, the foregoing warranties with respect to Blood Screening Instruments shall apply until the earlier to occur of (a) eighteen (18) months from the date of shipment of the Blood Screening Instrument from Gen-Probe to Grifols (or Grifols’ designee) or (b) twelve months following installation of the Blood Screening Instrument at Grifols’ Customer location.

5.7.2    Blood Screening Assays. Gen-Probe warrants to Grifols that all the Blood Screening Assays delivered to Grifols pursuant to this Agreement shall conform to the applicable specifications, shall be free from defects in material and workmanship, and shall be manufactured in compliance with applicable laws and regulations. The foregoing warranties with respect to Blood Screening Assays shall apply until the expiration date of each such Blood Screening Assay.

5.7.3    Out-of-Box Failure Reporting. Grifols acknowledges that certain Blood Screening Instruments are manufactured for Gen-Probe by subcontract manufacturers and that Gen-Probe has represented that it is entitled to submit certain warranty claims to such subcontract manufacturers pursuant to the terms of the agreements between Gen-Probe and such subcontract manufacturers. To facilitate Gen-Probe’s efforts to maximize recoveries for warranty claims that may be submitted to such subcontract manufacturers, Grifols commits to reporting at least ninety percent (90%) of all module failures and Out-of-Box Failures to Gen-Probe each calendar quarter on a timely basis and pursuant to a warranty recovery process mutually agreed to by Gen-Probe and Grifols.

5.7.4    Pass-Through Warranty. Notwithstanding anything to the contrary set forth elsewhere in this Agreement, to the extent a Blood Screening Instrument is manufactured by a subcontract manufacturer(s), in whole or in part, and such subcontract manufacturer(s) provide(s) a warranty on the Blood Screening Instrument, in whole or in part, Gen-Probe shall not provide Grifols any warranty on any such Blood Screening Instruments manufactured by a subcontract manufacturer(s) (or any applicable part(s) thereof) other than the warranty(ies) offered by such subcontract manufacturer(s). Gen-Probe agrees to provide warranty information (including, without limitation, information on the process for submitting warranty claims, warranty claim requirements, list of applicable Blood Screening Instrument parts and their warranty periods) to Grifols on any and all Blood Screening Instruments (or any applicable parts(s) thereof) manufactured by a subcontract manufacturer upon Grifols’ request. Notwithstanding anything to the contrary contained in this Agreement, such warranty information as updated from time to time by any subcontract manufacturer(s) shall be (a) provided by Gen-Probe to Grifols so that Grifols has notice of such updates, and (b) automatically made a part of this Agreement as if fully set forth herein and incorporated by reference without the necessity of an amendment therewith. Except as otherwise set forth in Section 5.4.2(c) of this Agreement with respect to certain Spare Parts, and to the extent that Grifols and Gen-Probe have mutually agreed that Gen-Probe shall be

6
Grifols/Gen-Probe – Amendment #2 to Restatement


the sole provider to Grifols of certain Blood Screening Instruments (or any applicable part(s) thereof) or Spare Parts, Gen-Probe shall be the sole authorized party to process returns or credits relating to warranties for such Blood Screening Instruments (or any applicable part(s) thereof) and Spare Parts that are manufactured by a subcontract manufacturer. As of the effective date of this Second Amendment, Grifols acknowledges that Gen-Probe is the sole provider to Grifols of Tigris Instruments, Panther Instruments and Spare Parts for the Panther Instrument and, accordingly, Gen-Probe is the sole authorized party to process returns or credits relating to warranties for Tigris Instruments, Panther Instruments and Spare Parts for the Panther Instrument.

5.7.5    LIMITATION OF LIABILITY. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, GEN-PROBE MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS. GEN-PROBE DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.

5.7.6    Complaint Resolution. The parties agree that prompt investigation is required of any complaint concerning product quality, in order to minimize product scrap and provide optimal customer service. The parties shall use best efforts to respond promptly to any complaint that potentially implicates product quality, in accordance with the September 19, 2013 Quality Agreement for Alliance Partnership and the parties’ “Complaint Handling Plan.”


E.
Section 6.3 is hereby amended in its entirety to read as follows:

“6.3    Invoicing.

(a)
Upon shipment of the Products to Grifols, Gen-Probe shall submit invoices therefor indicating the applicable Transfer Price to Grifols, as set forth below:

By Regular Mail:
Grifols Diagnostic Solutions Inc.
Attention: Accounts Payable
2410 Lillyvale Avenue
Los Angeles, California 90032



Invoicing by Electronic Mail:

Gen-Probe may also send electronic invoices to FSSC_GDSAP@Grifols.com
(or such address as Grifols may provide to Gen-Probe under separate cover).
**On the subject line of the email note the following information in the specific order listed as follows:
(i)
Gen-Probe’s name
(ii)
Invoice Number

7
Grifols/Gen-Probe – Amendment #2 to Restatement


(iii)
Invoice Date
(iv)
PO Number”

F.
Novartis’ notice address in Section 12.1 (“Notices”) is hereby deleted, and replaced by the following:

“If to Grifols:    Grifols Diagnostic Solutions Inc.
Attention: President
4560 Horton Street
Emeryville, CA 94608

Carbon copy to:

Grifols Diagnostic Solutions Inc.
Attention: Assistant General Counsel
4560 Horton Street
Emeryville, CA 94608”

The remainder of Section 12.1 shall remain unmodified.

G.
Settlement of Warranty Claims for Procleix® Tigris® instrument, Procleix® Panther® instrument and RPI. Notwithstanding anything to the contrary in the Agreement, past and future potential warranty claims with regard to the Procleix® Tigris® instrument, the Procleix® Panther® instrument and the RPI are hereby resolved as follows:

1.
In settlement of potential warranty claims for the Procleix® Tigris® instrument for the years 2012 and 2013, Gen-Probe shall issue a credit to Grifols in the total amount of Four Hundred Three Thousand Six Hundred Twenty-Nine Dollars ($403,629); One Hundred Sixty Eight Thousand Two Hundred Twenty Dollars ($168,220) of the total amount accounts for settlement of claims from the year 2012, and Two Hundred Thirty Five Thousand Four Hundred Nine Dollars ($235,409) of the total amount accounts for settlement of claims from the year 2013.

2.
In settlement of potential warranty claims for the Procleix® Panther® instrument for the years 2012 and 2013, Gen-Probe shall issue a credit to Grifols in the total amount of One Hundred Ninety Thousand Four Hundred Fifty One Dollars ($190,451).

3.
In settlement of potential warranty claims for the RPI for the years 2012 and 2013, Gen-Probe shall issue a credit to Grifols in the total amount of Sixty-One Thousand Five Hundred Thirty-Nine Dollars ($61,539).

4.
In lieu of any liability for warranty claims relating to the Tigris Instrument and/or the Panther Instrument pursuant to Section 5.7 of the Agreement for calendar year 2014 and thereafter, Gen-Probe has agreed to provide Grifols with a one-time per instrument credit at the time each such Tigris Instrument or Panther Instrument, as the case may be, is installed at a Customer site. The per instrument credit for the calendar year 2014 is (i) $5,500 for each Tigris Instrument installed at a Customer site and (ii) $5,000 for each Panther Instrument installed at a Customer site. Such instrument credits shall be applied from time to time as a reduction to the payments made by Grifols to Gen-Probe pursuant to Article 6 of the Agreement. For the avoidance of doubt, Grifols acknowledges and agrees that Gen-Probe shall have no liability for warranty claims relating to the Tigris Instrument or the Panther Instrument (including any liability under Section 6.4.4 of

8
Grifols/Gen-Probe – Amendment #2 to Restatement


the Product Development Addendum for the Panther Instrument and Ultrio Elite Assay), other than the instrument credits contemplated hereby.

5.
The appropriate personnel of each of Grifols and Gen-Probe shall meet in the first calendar quarter of each calendar year to review the warranty claims relating to Blood Screening Instruments (including components or modules thereof) that arose in the immediately preceding calendar year, and shall determine whether a prospective modification of the per instrument warranty credits for the Tigris Instrument and/or the Panther Instrument contemplated by this Second Amendment is warranted for the then current calendar year. For the avoidance of doubt, any adjustments to the per instrument warranty credits mutually agreed to by each of Gen-Probe and Grifols shall apply on a prospective basis only and in no event will either party be eligible to receive any reimbursement for warranty credits relating to any completed calendar year. For the further avoidance of doubt, the parties acknowledge and agree that any subsequent modification to the amount of the per instrument warranty credit for either the Tigris Instrument or the Panther Instrument will not require a subsequent amendment of the Agreement.

All of the other tables, addenda, terms and conditions of the Agreement shall continue in full force and effect. This Second Amendment, together with the Agreement, as amended, constitute the entire agreement between the parties hereto regarding the subject matter hereof and supersede any prior or contemporaneous agreement, understanding or negotiations with respect to such subject matter.

If there is any conflict between the Agreement, as amended, and any provision of this Second Amendment, this Second Amendment will control. Except as otherwise provided in this Second Amendment, the Agreement will continue in full force according to its terms.

This Second Amendment may be signed by the parties in counterparts, which signatures, taken as a whole, shall constitute an effective Amendment. Signature pages sent via facsimile or e-mail shall be deemed valid and binding to the same extent as the original, provided that the parties promptly provide originally signed documents thereafter.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


9
Grifols/Gen-Probe – Amendment #2 to Restatement


IN WITNESS WHEREOF, the parties hereto, through their authorized representatives have set their hands below, whereby they evidence their intent to be legally bound as of the effective date of this Second Amendment.


GRIFOLS DIAGNOSTIC SOLUTIONS INC.


GEN-PROBE INCORPORATED
By:
/s/ Carsten Schroeder________
By:
/s/ Eric B. Compton_________
Name:
Carsten Schroeder__________
Name:
Eric B. Compton___________
Title:
President_________________
Title:
Chief Operating Officer_____
Date:
15 April 2015_____________
Date:
3/30/2015________________
 
 
 
 
 
 
 
 
 
 
 
 
 


10
Grifols/Gen-Probe – Amendment #2 to Restatement





Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen P. MacMillan, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Hologic, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 29, 2015
 
/s/    Stephen P. MacMillan        
 
Stephen P. MacMillan
 
Chairman, President and Chief Executive Officer
 






Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert W. McMahon, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Hologic, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 29, 2015
 
/s/    Robert W. McMahon
 
Robert W. McMahon
 
Chief Financial Officer
 






Exhibit 32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, Stephen P. MacMillan, Chief Executive Officer of Hologic, Inc., a Delaware corporation (the “Company”), do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), that:
(1)
The Quarterly Report on Form 10-Q for the quarter ended June 27, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated: July 29, 2015
/s/    Stephen P. MacMillan        
 
Stephen P. MacMillan
 
Chairman, President and Chief Executive Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO HOLOGIC, INC. AND WILL BE RETAINED BY HOLOGIC, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.






Exhibit 32.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, Robert W. McMahon, Chief Financial Officer of Hologic, Inc., a Delaware corporation (the “Company”), do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), that:
(1)
The Quarterly Report on Form 10-Q for the quarter ended June 27, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated: July 29, 2015
/s/    Robert W. McMahon
 
Robert W. McMahon
 
Chief Financial Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO HOLOGIC, INC. AND WILL BE RETAINED BY HOLOGIC, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.


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