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As filed with the Securities and Exchange Commission on November 1, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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TREX MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 3844 06-1439626
<S> <C> <C>
(State or other jurisdiction of (PrimaryStandard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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36 Apple Ridge Road, Danbury, Connecticut 06810
(203) 790-1188
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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SANDRA L. LAMBERT, SECRETARY
TREX MEDICAL CORPORATION
C/O THERMO ELECTRON CORPORATION
81 Wyman Street
Post Office Box 9046
Waltham, Massachusetts 02254-9046
(617) 622-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copy to:
SETH H. HOOGASIAN, ESQUIRE
GENERAL COUNSEL
TREX MEDICAL CORPORATION
C/O THERMO ELECTRON CORPORATION
81 Wyman Street
Post Office Box 9046
Waltham, Massachusetts 02254-9046
(617) 622-1000
--------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement has become effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed Amount of
Title of each class of securities Amount to be maximum maximum registration
to be registered registered offering price per aggregate fee
share (1) offering price (1)
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Common Stock, $.01 par value 1,962,000 shs. $17.75 $34,825,500 $10,554.00
==================================================================================================================
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1) Estimated solely for the purpose of calculating the amount of the
registration fee. The calculation of the proposed maximum aggregate
offering price has been based upon (1) the registration hereunder of an
aggregate of 1,962,000 shares and (2) the average of the high and low sales
prices, $18.00 and $17.50, respectively, of the Registrant's Common Stock
on the American Stock Exchange on October 25, 1996 as reported in The Wall
----
Street Journal.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Trex Medical Corporation
Cross Reference Sheet
Between Items of Form S-1 and Prospectus
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Item Location in Prospectus
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus................................................... Inside Front and Outside Back Cover Pages;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.............................. The Company; Risk Factors
4. Use of Proceeds................................................. Not Applicable
5. Determination of Offering Price................................. Not Applicable
6. Dilution........................................................ Not Applicable
7. Selling Security Holders........................................ Selling Shareholders; Sale of Shares
8. Plan of Distribution............................................ Cover Page; Selling Shareholders; Sale of
Shares
9. Description of Securities to be Registered...................... Cover Page, Description of Capital Stock
10. Interests of Named Experts and Counsel.......................... Experts; Legal Opinions
11. Information with Respect to the Registrant...................... Cover Page; The Company; Risk Factors; Price Range
of Common Stock; Dividend Policy; Capitalization;
Selected Financial Information; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Relationship with
Thermo Electron and Thermo Instrument; Management;
Security Ownership of Certain Beneficial Owners and
Management; Description of Capital Stock; Shares
Eligible for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.................. Not Applicable
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********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1996
PROSPECTUS
1,962,000 Shares
TREX MEDICAL CORPORATION
Common Stock
This Prospectus relates to 1,962,000 shares (the "Shares") of Common Stock,
par value $.01 per share (the "Common Stock"), of Trex Medical Corporation
("Trex Medical" or the "Company"). The Shares may be offered by certain
shareholders of the Company (the "Selling Shareholders") from time to time in
transactions on the American Stock Exchange, in negotiated transactions,
through the writing of options on the Shares, or a combination of such methods
of sale, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Shareholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholder and any broker-dealer who acts
in connection with the sales of Shares hereunder may be deemed to be
"underwriters" as that term is defined in the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and profit
on any resale of the Shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. The Shares were originally
sold by the Company in private placements pursuant to certain Stock Purchase
Agreements with the Company dated November 22 and November 30, 1995 and January
31, 1996. See "Selling Shareholders."
_______________
The Common Stock offered hereby involves a high degree of risk.
See "RISK FACTORS" beginning at page 2.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear all
expenses (other than underwriting discounts and selling commissions, and fees
and expenses of counsel or other advisers to the Selling Shareholders) in
connection with the registration and sale of the Shares being registered hereby.
The Company has agreed to indemnify the Selling Shareholders against certain
liabilities, including liabilities under the Securities Act as underwriter or
otherwise.
Trex Medical Corporation is a majority-owned subsidiary of ThermoTrex
Corporation ("ThermoTrex"), which is a majority-owned subsidiary of Thermo
Electron Corporation ("Thermo Electron"). The Common Stock is traded on the
American Stock Exchange under the symbol "TXM." On October 30, 1996 the
reported closing price of the Common Stock on the American Stock Exchange was
$18.125 per share.
The date of this Prospectus is November __, 1996.
<PAGE>
TABLE OF CONTENTS
The Company.............................................................. 3
Risk Factors............................................................. 3
Price Range of Common Stock.............................................. 8
Dividend Policy.......................................................... 9
Selected Quarterly Financial Data........................................ 9
Capitalization........................................................... 10
Selected Financial Information........................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 12
Business................................................................. 15
Relationship and Potential Conflicts with Thermo Electron and
ThermoTrex........................................................... 28
Management............................................................... 32
Executive Compensation................................................... 36
Security Ownership of Certain Beneficial Owners and Management........... 39
Selling Shareholders..................................................... 41
Sale of Shares........................................................... 47
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 48
Legal Opinions........................................................... 49
Experts.................................................................. 49
Additional Information................................................... 49
Index to Financial Statements............................................F-1
2
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THE COMPANY
The Company is a worldwide leader in the design, manufacture and marketing
of mammography equipment and minimally invasive stereotactic needle biopsy
systems used for the detection of breast cancer, as well as a leading designer
and manufacturer of general radiography (X-ray) equipment. A mammography system
is a dedicated radiographic system designed specifically to image breast tissue.
Stereotactic needle biopsy systems, which use a guided hollow needle to extract
a sample of tissues from the breast, offer a cost-effective, less invasive
alternative to open surgery for the biopsy of suspicious breast lesions. The
Company recently broadened its product base by acquiring Bennett X-Ray
Corporation ("Bennett"), a leading producer of specialty and general purpose
radiographic systems, including mammography systems, XRE Corporation ("XRE"), a
manufacturer of X-ray imaging systems used for cardiac catheterization and
angiography and Continental X-Ray Corporation and its affiliates (collectively
"Continental") a manufacturer of general purpose radiographic systems and
specialty radiographic systems including radiographic/flouroscopy products.
The Company was incorporated in Delaware in September 1995 as a wholly-
owned subsidiary of ThermoTrex. ThermoTrex acquired all of the outstanding
shares of capital stock of Bennett in September 1995 for approximately
$42,000,000 in cash, net of cash acquired. On October 2, 1995, the Company
acquired all of the outstanding shares of capital stock of Bennett from
ThermoTrex in exchange for a $42,000,000 principal amount subordinated
convertible note due 2000 (the "Convertible Note"). The Convertible Note bears
interest at a rate of 4.2% per annum and is convertible into shares of Common
Stock at a conversion price of $11.79 per share. As of September 28, 1996,
ThermoTrex had converted $34,000,000 principal amount of the Convertible Note
for an aggregate of 2,883,798 shares of Common Stock. Subsequently, on October
16, 1995, ThermoTrex contributed all of the assets and liabilities relating to
its Lorad division ("Lorad") and the development of its Sonic CT system to the
Company in exchange for 20,000,000 shares of Common Stock of the Company. On May
29, 1996, the Company acquired substantially all of the assets of XRE for
approximately $17,000,000 in cash and the repayment of approximately $1,800,000
of XRE's debt. On September 4, 1996, the Company acquired substantially all of
the assets of Continental for approximately $18.4 million cash, net of cash
acquired.
Unless the context otherwise requires, references in this Prospectus to the
Company or Trex Medical Corporation refer to Trex Medical Corporation and its
subsidiaries. As of September 28, 1996, ThermoTrex beneficially owned 80% of
the Company's outstanding Common Stock, excluding the shares of Common Stock
issuable upon the conversion of the outstanding principal amount of the
Convertible Note. The Company's principal executive offices are located at 36
Apple Ridge Road, Danbury, Connecticut, and its telephone number is (203)
790-1188.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, the following factors should be considered
carefully in evaluating the Company and its business before purchasing any of
such shares.
Technological Change and New Products. The market for the Company's
products is characterized by rapid and significant technological change,
evolving industry standards and new product introductions. Many of the Company's
products are technologically innovative, and require significant planning,
design, development and testing at the technological, product and manufacturing
process levels. These activities require significant capital commitments and
investment by the Company. The high cost of technological innovation is matched
by the rapid and significant change in the technologies governing the products
that are competitive in the Company's market, by industry standards that may
change on short notice and by the introduction of new products and technologies
such as magnetic resonance imaging and ultrasound which may render existing
products and technologies
3
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uncompetitive or obsolete. There can be no assurance that the Company's products
or proprietary technologies will not become uncompetitive or obsolete.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products and processes because of the length of
time and expense associated with bringing new products through the development
and regulatory approval process and to the marketplace. The Company's success
depends in part on whether it can develop patentable products and obtain and
enforce patent protection for its products both in the United States and in
other countries. The Company has filed and intends to file applications as
appropriate for patents covering both its products and manufacturing processes.
No assurance can be given that patents will issue from any pending or future
patent applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any issued
patents owned by or licensed to the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The Company could incur substantial costs in
defending itself in suits brought against it or in suits in which the Company
may assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected.
The Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. See "Business_Patents and Proprietary
Technology."
Risks Associated With Pending and Threatened Patent Litigation. In April
1992, Fischer Imaging Corporation ("Fischer") commenced a lawsuit in the
United States District Court, District of Colorado, against the Company's Lorad
division, alleging that Lorad's prone breast biopsy systems infringed a Fischer
patent on a precision mammographic needle biopsy system. As of June 29, 1996,
the Company had aggregate revenues of approximately $55 million from the sale
of such systems. The suit requests a permanent injunction, treble damages and
attorneys' fees and expenses. If the Company is unsuccessful in defending this
lawsuit, it may be enjoined from manufacturing and selling its prone breast
biopsy systems without a license from Fischer. No assurance can be given that
the Company will be able to obtain such a license, if required, on commercially
reasonable terms, if at all. In addition, the Company may be subject to damages
for past infringement. No assurance can be given as to whether the Company will
be subject to such damages or, if so, the amount of damages which the Company
may be required to pay. The outcome of patent litigation, particularly in jury
trials, is inherently uncertain, and an unfavorable outcome in the Fischer
litigation could have a material adverse effect on the Company's business and
results of operations.
The Company also is aware of a U.S. patent held by Nicola E. Yanaki which
has been asserted by him against certain automatic exposure control features
included in most of the Company's current mammography systems. The Company has
been informed by the holder of this patent that a competitor of the Company has
obtained a license for use of this patent. If Mr. Yanaki were successful in
enforcing such patent, the Company could be subject to damages for past
infringement and enjoined from manufacturing and selling imaging equipment
utilizing certain automatic exposure control features, which would have a
material adverse effect on the Company's business and results of operations.
The Company is also aware of an issued European patent with counterparts in
other non-U.S. countries applicable to imaging equipment utilizing certain
automatic exposure control features. The European patent is the subject of an
opposition proceeding before the European Patent Office. There can be no
assurance as to the outcome of such opposition.
4
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In connection with the organization of the Company, ThermoTrex agreed to
indemnify the Company for any and all cash damages in connection with the
Fischer lawsuit and any potential claims by Mr. Yanaki with respect to sales of
the Company's products occurring prior to October 1995, when the businesses of
Lorad and Bennett were transferred to the Company. Notwithstanding this
indemnification, the Company would be required to report as an expense the full
amount, including any reimbursable amount, of any damages in excess of the
amount accrued ($2.3 million as of June 29, 1996), with any indemnification
payment it receives from ThermoTrex being treated as a contribution to
shareholders' investment. An unsuccessful outcome in any of these matters may
have a material adverse effect on the business of the Company and on its
results of operations for the period in which such outcome occurs. See
"Business--Patents and Proprietary Technology."
The Company is aware of two U.S. patents owned by a former employee which
have been asserted against the Company relating to its High Transmission
Cellular ("HTC") grid to be used with the Company's mammography systems. If the
former employee were successful in enforcing such patents, the Company could be
subject to damages and enjoined from manufacturing and selling the HTC grid.
The Company's competitors and other parties hold various patents and patent
applications in the fields in which the Company operates. There can be no
assurance that the Company will not be found to have infringed third-party
patents and, in the event of such infringement, the Company could be required
to alter its products or processes, pay licensing fees or cease making and
selling any infringing products and pay damages for past infringement.
No Assurance of Development and Commercialization of Products Under
Development. A number of the Company's potential products are currently under
development. There are a number of technological challenges that the Company
must successfully address to complete any of its development efforts. Product
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such products.
Proposed products based on the Company's technologies will require significant
additional research and development. There can be no assurance that any of the
products currently being developed by the Company, or those to be developed in
the future by the Company, will be technologically feasible or accepted by the
marketplace, or that any such development will be completed in any particular
timeframe.
Risks Associated with Acquisition Strategy. The Company's strategy includes
the acquisition of businesses and technologies that complement or augment the
Company's existing product lines. For example, in September 1995, the Company
acquired its Bennett subsidiary, in May 1996, the Company acquired substantially
all of the assets of XRE, a manufacturer of X-ray imaging systems for cardiac
catheterization and angiography, and in September 1996, the Company acquired
substantially all of the asset of Continental, a manufacturer of
radiographic/fluoroscopic products, general radiography systems,
electrophysiology products and dedicated mammography systems. Promising
acquisitions are difficult to identify and complete for a number of reasons,
including competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. There can be no assurance that the
Company will be able to complete future acquisitions or that the Company will be
able to successfully integrate any acquired businesses. In order to finance such
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders.
Intense Competition. The Company encounters and encounter intense
competition in the sale of its products. The Company believes that the principal
competitive factors effecting include product features, product performance and
service. The Company's competitors include large multinational corporations and
their operating units, including the GE Medical Systems division of General
Electric Company, Inc. ("GE"), the Philips Medical Systems North America Company
subsidiary of Philips N.V. ("Philips"), the Siemens Corporation subsidiary of
Siemens AG ("Siemens"), Toshiba
5
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American Medical Systems, Inc. and Toshiba America MRI, Inc. (collectively,
"Toshiba"), Shimadzu, and the Picker International, Inc. subsidiary of GEC, Inc.
("Picker International"). These companies and certain of the Company's other
competitors have substantially greater financial, marketing and other resources
than the Company. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company.
Moreover, a significant portion of the Company's sales are to GE, United States
Surgical Corporation ("U.S. Surgical") and Philips through original equipment
manufacturer ("OEM") arrangements. The products sold by such OEMs compete with
products offered by the Company and its independent dealers. Competition could
increase if new companies enter the market or if existing competitors expand
their product lines or intensify efforts within existing product lines. There
can be no assurance that the Company's current products, products under
development or ability to discover new technologies will be sufficient to enable
it to compete effectively with its competitors. See "Business_Competition."
Government Regulation; No Assurance of Regulatory Approval. The Company's
products are subject to regulation by the U.S. Food and Drug Administration
(the "FDA") and equivalent agencies in foreign countries. Failure to comply
with applicable regulatory requirements can result in, among other things,
civil and criminal fines, suspensions of approvals, recalls of products,
seizures, injunctions and criminal prosecutions.
To date, all of the Company's products have been classified by the FDA as
Class II medical devices and have been eligible for FDA marketing clearance
pursuant to the FDA's 510(k) premarket notification process, which is generally
shorter than the more involved premarket approval ("PMA") process. The
Company believes that most of its currently anticipated future products and
substantial modifications to existing products will be eligible for the 510(k)
premarket notification process. However, the FDA has not yet classified
full-view digital imaging mammography systems like the one being developed by
the Company. If such systems are classified as Class III devices, the Company
would be required to file for FDA marketing clearance for its full-view digital
imaging mammography system under the PMA process, which would require
substantial additional clinical trials and post-market follow-up for a number
of years. While not classifying such systems, the FDA recently issued a final
guidance document relating to the protocol for marketing clearance of full-view
digital imaging mammography systems. This document suggests that clearance may
be obtained through an enhanced 510(k) application with more extensive clinical
trials. The protocol set forth in the final guidance document calls for
clinical trials on 520 subjects prior to applying to the FDA for clearance to
commercially market such a system. In addition, full-view digital imaging
mammography systems will be subject to alternate quality assurance standards
under the Mammography Quality Standards Act. These alternate standards will be
submitted by the Company to the FDA for review. The Company can make no
prediction as to when the FDA will approve such standards, if at all. There
can be no assurance that full-view digital mammography systems will not be
classified by the FDA as Class III medical devices subject to the PMA process.
In addition, there can be no assurance that the necessary clearances for any of
the Company's products will be obtained on a timely basis, if at all.
FDA regulations also require manufacturers of medical certain "Good
Manufacturing Practices" ("GMP"), which include testing, quality control and
documentation procedures. The Company's manufacturing facilities are subject to
periodic inspection by the FDA. No assurances can be given that the FDA will not
in the future find the Company to be in violation of one or more such
regulations, which violation may adversely impact the operations of the Company.
See "Business--Government Regulation."
Healthcare Reform; Uncertainty of Patient Reimbursement. The Federal
government has in the past and may in the future consider, and certain state and
local as well as a number of foreign governments are considering or have
adopted, healthcare policies intended to curb rising healthcare costs. Such
policies include rationing of government-funded reimbursement for healthcare
services and imposing price controls upon providers of medical products and
services. The Company cannot predict what healthcare reform legislation or
regulation, if any, will be enacted in the United States or elsewhere.
Significant changes in the healthcare systems in the United States or
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elsewhere are likely to have a significant impact over time on the manner in
which the Company conducts its business. Such changes could have a material
adverse effect on the Company. In addition, the Federal government regulates
reimbursement of fees for certain diagnostic examinations and capital equipment
acquisition costs connected with services to Medicare beneficiaries. Recent
legislation has limited Medicare reimbursement for diagnostic examinations.
These policies may have the effect of limiting the availability or reimbursement
for procedures, and as a result may inhibit or reduce demand by healthcare
providers for products in the markets in which the Company competes. While the
Company cannot predict what effect the policies of government entities and other
third party payors will have on future sales of the Company's products, there
can be no assurance that such policies would not have an adverse impact on the
operations of the Company. See "Business--Reimbursement."
Dependence Upon Significant OEM Relationships. A significant portion of
the Company's sales are to GE, U.S. Surgical and Philips through OEM
arrangements. The Company's sales depend, in part, on the continuation of these
OEM arrangements and the level of end-user sales by such OEMs. There can be no
assurance that the Company will be able to maintain its existing, or establish
new, OEM relationships and any failure to do so could have a material adverse
effect on its business. See "Business--Sales and Marketing--OEM Agreements."
Potential Product Liability. The Company's business exposes it to potential
product liability claims which are inherent in the manufacturing, marketing and
sale of medical devices, and as such the Company may face substantial liability
to patients for damages resulting from the faulty design or manufacture of
products. The Company currently maintains product liability insurance, but there
can be no assurance that this insurance will provide sufficient coverage in the
event of a claim, that the Company will be able to maintain such coverage on
acceptable terms, if at all, or that a product liability claim would not
materially adversely affect the business or financial condition of the Company.
Risks Associated With International Operations. International sales
accounted for 21% and 14% of the Company's revenues in fiscal 1995 and 1994,
respectively. The Company intends to continue to expand its presence in
international markets. International revenues are subject to a number of risks,
including the following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign customers
may have longer payment cycles; foreign countries may impose additional
withholding taxes or otherwise tax the Company's foreign income, impose tariffs
or adopt other restrictions on foreign trade; U.S. export licenses may be
difficult to obtain; and the protection of intellectual property in foreign
countries may be more difficult to enforce. There can be no assurance that any
of these factors will not have a material adverse impact on the Company's
business and results of operations.
Control by ThermoTrex. The Company's stockholders do not have the right to
cumulate votes for the election of directors. ThermoTrex, which owns 80% of the
outstanding Common Stock of the Company, has the power to elect the entire Board
of Directors of the Company and to approve or disapprove any corporate actions
submitted to a vote of the Company's stockholders. See "Relationship and
Potential Conflicts of Interest with Thermo Electron and ThermoTrex" and
"Security Ownership of Certain Beneficial Owners and Management."
Potential Conflicts of Interest. The Company may be subject to potential
conflicts of interest from time to time as a result of its relationship with
Thermo Electron and ThermoTrex. For example, conflicts may arise in the
development and licensing of digital detector technology by ThermoTrex to the
Company, the manufacture of digital detectors by ThermoTrex for sale to the
Company and the Company's manufacturing of lasers for sale to ThermoLase
Corporation. See "Relationship and Potential Conflicts of Interest with Thermo
Electron and ThermoTrex." Certain officers of the Company are also officers of
ThermoTrex, Thermo Electron and/or other subsidiaries of Thermo Electron, and
are full-time employees of ThermoTrex or Thermo Electron. Such officers will
devote only a portion of their working time to the affairs of the Company. For
financial reporting purposes, the Company's financial results are included in
the consolidated financial statements of ThermoTrex and Thermo Electron. The
members of the Board of Directors of the Company who are also affiliated with
Thermo Electron or
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ThermoTrex will consider not only the short-term and the long-term impact of
operating decisions on the Company, but also the impact of such decisions on the
consolidated financial results of ThermoTrex and Thermo Electron. In some
instances the impact of such decisions could be disadvantageous to the Company
while advantageous to ThermoTrex or Thermo Electron, or vice versa. The Company
is a party to various agreements with Thermo Electron that may limit the
Company's operating flexibility. See "Relationship and Potential Conflicts of
Interest with Thermo Electron and ThermoTrex."
Significant Additional Shares Eligible for Future Sale. The 22,883,798
shares of Common Stock owned by ThermoTrex will become eligible for resale
under Rule 144 in October 1997. In addition, subject to certain limitations
described below under "Shares Eligible For Future Sale," as long as
ThermoTrex is able to elect a majority of the Company's Board of Directors, it
will have the ability to cause the Company at any time to register for resale
all or a portion of the Common Stock owned by ThermoTrex.
Additional shares of Common Stock issuable upon exercise of options granted
under the Company's stock-based compensation plans will become available for
future sale in the public market at prescribed times. Sales of a significant
number of shares of Common Stock in the public market could adversely affect
the market price of the Common Stock. See "Relationship and Potential
Conflicts of Interest with Thermo Electron and ThermoTrex" and "Shares
Eligible for Future Sale."
Potential Volatility of Stock Price. Since public trading of the Company's
Common Stock commenced in June 1996, the market price has fluctuated
considerably, and it may continue to fluctuate in the future. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new contracts or products by the Company or its competitors,
government regulation and approvals, developments in patent or other proprietary
rights and market conditions for stocks of companies similar to the Company
could have a significant impact on the market price of the Common Stock.
Lack of Dividends. The Company anticipates that for the foreseeable
future the Company's earnings, if any, will be retained for use in the business
and that no cash dividends will be paid on the Common Stock. Declaration of
dividends on the Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions. See "Dividend Policy."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been publicly traded on the American Stock
Exchange since June 27, 1996. The following sets forth, for the calendar
period indicated, the high and low sales prices on the American Stock Exchange.
High Low
Fiscal 1996
- -----------
Third Quarter (June 27, 1996 through June 28, 1996) $19.25 $15.375
Fourth Quarter $26.00 $17.875
Fiscal 1997
- -----------
First Quarter (through October 30, 1996) $20.25 $15.75
As of October 30, 1996, there were approximately 808 record holders of
Common Stock.
8
<PAGE>
DIVIDEND POLICY
The Company anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business and that no cash
dividends will be paid on the Common Stock.
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 1996
-------------------------------------------
First Second Third (1)
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues $32,509 $34,320 $36,681
Gross Profit 14,261 14,976 15,961
Net Income 1,626 2,108 2,169
Earnings per share:
Primary 0.08 0.10 0.10
Fully diluted 0.08 0.10 0.09
<CAPTION>
Fiscal 1995
-------------------------------------------
First Second Third (2)
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues $16,101 $17,197 $21,993
Gross Profit 8,116 8,575 10,420
Net Income 857 1,344 1,282
Earnings per share 0.04 0.07 0.06
<CAPTION>
Fiscal 1994
----------------------------------------------------
First Second Third Fourth
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $11,886 $13,214 $14,096 $15,214
Gross Profit 6,115 6,542 6,885 7,074
Net Income 354 329 402 109
Earnings per share 0.02 0.02 0.02 0.01
</TABLE>
(1) Reflects the acquisition of XRE in May 1996.
(2) Reflects the acquisition of Bennett in September 1995.
9
<PAGE>
CAPITALIZATION
The following table sets forth as of June 29, 1996 the capitalization of the
Company stated on a pro forma basis to reflect the July 1996 conversion of
$31,000,000 principal amount of the Convertible Note by ThermoTrex into
2,629,346 shares of the Company's Common Stock, and as adjusted to reflect the
issuance and sale by the Company of 3,746,832 shares of Common Stock in both
the Underwritten Public Offering and the Rights Offering, including 375,000
shares issued due to the exercise of the Underwriters' over-allotment and in
each case after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
<TABLE>
<CAPTION>
JUNE 29, 1996
---------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Long-term Obligations:
Subordinated Convertible Note, Due to Parent
Company............................................ $ 8,000 $ 8,000
Other............................................... 129 129
-------- --------
8,129 8,129
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized; 24,845,798 pro forma shares issued and
outstanding, 28,592,630 shares, as adjusted (1).... 248 286
Capital in excess of par value...................... 90,450 139,480
Retained earnings................................... 5,903 5,903
-------- --------
Total Shareholders' Investment..................... 96,601 145,669
-------- --------
Total Capitalization (Long-term Obligations and
Shareholders' Investment)........................ $104,730 $153,798
======== ========
</TABLE>
- --------
(1) Does not include 1,925,000 shares of Common Stock reserved for issuance
under the Company's stock-based compensation plans and 678,541 shares of
Common Stock reserved for issuance upon conversion of the outstanding
principal amount of the Convertible Note. Options to purchase 1,673,500
shares of Common Stock were outstanding under the Company's stock-based
compensation plans as of October 28, 1996. See "Management--Compensation
of Directors" and "Executive Compensation" and Note 9 of Notes to
Consolidated Financial Statements.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information below as of and for the years ended
January 1, 1994 and December 31, 1994, and the nine months ended September 30,
1995 has been derived from the Company's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this
Prospectus. The selected financial information for the fiscal years ended
December 28, 1991 and January 2, 1993, the nine months ended October 1, 1994
and the nine month periods ended July 1, 1995 and June 29, 1996 has not been
audited but, in the opinion of the Company, includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles
applied on a consistent basis. The results of operations for the nine months
ended June 29, 1996 are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
PRO FORMA COMBINED (6)
----------------------
NINE MONTHS ENDED
----------------------
NINE MONTHS
FISCAL YEAR (1) NINE MONTHS ENDED (1)(2) ENDED (1)
---------------------------------- ------------------------ ----------------
OCTOBER 1, SEPTEMBER 30, JULY 1, JUNE 29, SEPTEMBER 30, JUNE 29,
1991 1992 (3) 1993 1994 1994 1995 (4) 1995 1996 (5) 1995 1996
------ -------- ------- ------- ---------- ------------- ------- -------- ------------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Revenues......... $ -- $ 4,128 $37,519 $54,410 $39,196 $ 55,291 $48,512 $103,510 $85,749 $103,510
------ ------- ------- ------- ------- -------- ------- -------- ------- --------
Costs and
Operating
Expenses:
Cost of
revenues........ -- 2,164 18,589 27,794 19,654 28,180 24,747 58,312 48,038 57,833
Selling, general
and
administrative
expenses........ -- 1,027 9,788 13,272 9,794 12,174 11,055 20,530 21,852 20,530
Research and
development
expenses........ 313 1,683 7,182 10,662 7,320 8,595 8,485 12,945 10,657 12,945
------ ------- ------- ------- ------- -------- ------- -------- ------- --------
313 4,874 35,559 51,728 36,768 48,949 44,287 91,787 80,547 91,308
------ ------- ------- ------- ------- -------- ------- -------- ------- --------
Operating Income
(Loss)........... (313) (746) 1,960 2,682 2,428 6,342 4,225 11,723 5,202 12,202
Interest and
Other Income
(Expense), Net... -- -- (158) (22) (11) 22 23 (661) (140) 371
------ ------- ------- ------- ------- -------- ------- -------- ------- --------
Income (Loss)
Before Income
Taxes............ (313) (746) 1,802 2,660 2,417 6,364 4,248 11,062 5,062 12,573
Income Tax
Provision
(Benefit)........ (123) (202) 975 1,466 1,332 2,881 1,938 5,159 2,679 5,763
------ ------- ------- ------- ------- -------- ------- -------- ------- --------
Net Income
(Loss)........... $ (190) $ (544) $ 827 $ 1,194 $ 1,085 $ 3,483 $ 2,310 $ 5,903 $ 2,383 $ 6,810
====== ======= ======= ======= ======= ======== ======= ======== ======= ========
Earnings (Loss)
per Share (7):
Primary......... $ (.01) $ (.03) $ .04 $ .06 $ .05 $ .17 $ .11 $ .27 $ .10 $ .28
====== ======= ======= ======= ======= ======== ======= ======== ======= ========
Fully diluted... $ (.01) $ (.03) $ .04 $ .06 $ .05 $ .17 $ .11 $ .26 $ .10 $ .28
====== ======= ======= ======= ======= ======== ======= ======== ======= ========
Weighted Average
Shares (7):
Primary......... 20,151 20,151 20,151 20,151 20,151 20,151 20,151 21,839 23,035 24,631
====== ======= ======= ======= ======= ======== ======= ======== ======= ========
Fully diluted... 20,151 20,151 20,151 20,151 20,151 20,151 20,151 25,310 23,035 25,310
====== ======= ======= ======= ======= ======== ======= ======== ======= ========
BALANCE SHEET
DATA (AT END OF
PERIOD):
Working Capital.. $ -- $ 4,410 $ 6,148 $ 8,584 $ 7,333 $ 13,171 $ 21,113
Total Assets..... -- 35,004 44,553 48,000 47,465 102,374 143,046
Long-term
Obligations...... -- -- -- -- -- -- 39,129
Shareholders'
Investment....... (28) 28,636 36,694 37,033 37,471 80,010 65,601
</TABLE>
- ----
(1) All periods presented include ThermoTrex's research and development
business pertaining to its Sonic CT system.
(2) In September 1995, the Company changed its fiscal year-end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's transition period from January 1, 1995 to
September 30, 1995 ("fiscal 1995") is presented. The unaudited data for
the nine months ended October 1, 1994 is presented for comparative
purposes only.
(3) Includes the results of Lorad since its acquisition by ThermoTrex on
November 17, 1992.
(4) Includes the results of Bennett since its acquisition by ThermoTrex on
September 15, 1995.
(5) Includes the results of XRE since its acquisition by the Company on May
29, 1996.
(6) The pro forma combined statement of income data was derived from the pro
forma combined condensed statements of income included elsewhere in this
Prospectus. The pro forma combined statement of income data sets forth the
results of operations for the nine months ended September 30, 1995 and the
nine months ended June 29, 1996, as if the acquisition of Bennett had
occurred on January 1, 1995.
(7) Pursuant to Securities and Exchange Commission requirements, earnings
(loss) per share have been presented for all periods. Weighted average
shares for all periods include the 20,000,000 shares issued to ThermoTrex
in connection with the initial capitalization of the Company and the
effect of the assumed exercise of stock options issued within one year
prior to the Company's initial public offering.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, manufactures, and markets mammography equipment and
minimally invasive stereotactic needle-biopsy systems used for the detection of
breast cancer, general radiography (X-ray) equipment, X-ray imaging systems
used for cardiac catheterization and angiographs, and radiographic/fluoroscopy
systems. The Company sells its systems worldwide principally through a network
of independent dealers. In addition, the Company manufactures mammography and
radiography systems as an original equipment manufacturer for other medical
equipment companies such as U.S. Surgical, GE, and Philips. The Company has
four operating units: Lorad, a manufacturer of mammography and stereotactic
biopsy systems; Bennett, a manufacturer of general radiography and mammography
equipment; XRE, a manufacturer of X-ray imaging systems used in the diagnosis
and treatment of coronary artery disease and other vascular conditions; and
Continental, a manufacturer of general purpose radiographic systems and
specialty radiographic systems including radiographic/flouroscopy products.
The Company conducts all of its manufacturing operations in the United
States and sells its products on a worldwide basis. The Company anticipates
that an increasing percentage of its revenues will be from export sales. The
Company's export sales are denominated in U.S. dollars; therefore, neither its
revenue nor earnings are significantly affected by exchange rate fluctuations.
Results of Operations
In September 1995, the Company changed its fiscal year-end from the
Saturday nearest December 31 to the Saturday nearest September 30. Accordingly,
the results of operations for 1995 compares the nine months ended September 30,
1995 ("fiscal 1995") with the unaudited nine months ended October 1, 1994
("fiscal 1994").
Nine Months Ended June 29, 1996 Compared With Nine Months Ended July 1,
1995
Revenues increased 113% to $103.5 million in the nine months ended June
29, 1996 from $48.5 million in the nine months ended July 1, 1995, primarily due
to the inclusion of $33.8 million in revenues from Bennett, which was acquired
in September 1995, and the inclusion of $1.8 million in revenues from XRE, which
was acquired in May 1996. Revenues at Lorad increased 40% to $67.9 million in
the nine months ended June 29, 1996 from $48.5 million in the nine months ended
July 1, 1995 due to increased demand for biopsy systems, nondestructive testing
systems, and lasers sold to ThermoLase Corporation, a majority-owned subsidiary
of ThermoTrex. Export sales accounted for 25% of the Company's revenues in the
nine months ended June 29, 1996, compared with 21% in the nine months ended July
1, 1995.
The gross profit margin declined to 44% in the nine months ended June
29, 1996 from 49% in the nine months ended July 1, 1995, due to lower-margin
revenues at Bennett and XRE and, to a lesser extent, nonrecurring adjustments to
expense of $0.7 million for inventory revalued at the time of the Bennett and
XRE acquisitions.
Selling, general and administrative expenses as a percentage of revenues
decreased to 20% in the nine months ended June 29, 1996 from 23% in the nine
months ended July 1, 1995, due to increased revenues at Lorad. Research and
development expenses increased to $12.9 million in the nine months ended June
29, 1996 from $8.5 million in the nine months ended July 1, 1995, due to the
inclusion of $2.3 million of expense at Bennett and XRE and the Company's
continued efforts to develop and commercialize new products including the
Company's M-IV mammography system, full-view digital mammography system, and
direct-detection X-ray sensor, as well as enhancements of existing systems.
12
<PAGE>
Interest income in the nine months ended June 29, 1996, primarily
represents interest on the proceeds of Common Stock in November 1995. Interest
expense in the nine months ended June 29, 1996, represents interest associated
with the $42.0 million principal Convertible Note issued to ThermoTrex in
October 1995 in connection with the Bennett acquisition. As of July 2, 1996,
ThermoTrex had converted $34.0 million principal amount of this Convertible
Note.
The effective tax rate was 47% in the nine months ended June 29, 1996,
compared with 46% in the nine months ended July 1, 1995. The effective tax
rates exceed the statutory federal income tax rate due to the impact of state
income taxes and nondeductible amortization of cost in excess of net assets of
acquired companies.
The Company is involved with certain patent litigation that arose at
Lorad prior to its acquisition by ThermoTrex. See Note 2 of Notes to
Consolidated Financial Statements. In addition, a third party has alleged that
the Company's mammography systems infringe a patent held by the third party. See
Note 8 of Notes to Consolidated Financial Statements. In another matter, a
former employee of the Company has asserted that a component of a newly
introduced product infringes two U.S. patents owned by the former employee. See
''Risk Factors_Risks Associated with Pending and Threatened Patent Litigation''
for a discussion of these matters.
Nine Months Ended September 30, 1995 ("Fiscal 1995") Compared With
Nine Months Ended October 1, 1994 ("Fiscal 1994")
Revenues increased 41% to $55.3 million in fiscal 1995 from $39.2
million in fiscal 1994. The increase resulted from higher demand across all
product lines, with significant growth coming from international sales through
the Company's OEM agreement with Philips. Revenues from Philips were $9.8
million in fiscal 1995, compared with $4.1 million in fiscal 1994. Export sales
accounted for 21% of the Company's revenues in fiscal 1995, compared with 11% in
fiscal 1994.
The gross profit margin declined to 49% in fiscal 1995 from 50% in
fiscal 1994, due to an adjustment to expense of $0.3 million for inventory
revalued at the time of Bennett's acquisition.
Selling, general and administrative expenses as a percentage of revenues
decreased to 22% in fiscal 1995 from 25% in fiscal 1994, due primarily to
increased revenues. Research and development expenses increased to $8.6 million
in fiscal 1995 from $7.3 million in fiscal 1994, reflecting the Company's
continued efforts to develop and commercialize the full-view digital imaging
mammography system, as well as efforts to enhance existing systems.
The effective tax rate was 45% in fiscal 1995, compared with 55% in
fiscal 1994. These tax rates exceed the federal statutory federal income tax
rate due primarily to state income taxes and nondeductible amortization of cost
in excess of net assets of acquired companies. The decrease in the effective tax
rate in 1995 resulted from the lower relative impact of nondeductible
amortization of cost in excess of net assets of acquired companies and state
income taxes.
Twelve Months Ended December 31, 1994 Compared With Twelve Months Ended
January 1, 1994
Revenues increased 45% to $54.4 million in 1994 from $37.5 million in
1993. The increase resulted from the initiation of OEM sales under the Philips
agreement, an increase in digital spot mammography sales and increased demand
for StereoGuide needle-biopsy, mammography and industrial imaging equipment due
to increased demand. Revenues from Philips were $5.8 million in 1994. Export
sales accounted for 14% of the Company's revenues in 1994, compared with 10% of
revenues in 1993.
The gross profit margin declined to 49% in 1994 from 50% in 1993, due to
a change in sales mix.
13
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
declined to 24% in 1994 from 26% in 1993, due primarily to an increase in total
revenues. Research and development expenses increased to $10.7 million in 1994
from $7.2 million in 1993, reflecting the Company's continued efforts to
develop and commercialize the full-view digital imaging mammography system and
the Sonic CT system, and the development of the Philips OEM product.
The effective tax rate during 1994 was 55%, compared with 54% in 1993.
These rates exceed the statutory federal income tax rate due to nondeductible
amortization of cost in excess of net assets of acquired companies and the
impact of state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $21.1 million at June 29, 1996,
compared with $13.2 million at September 30, 1995. Included in working capital
are cash and cash equivalents of $2.4 million at June 29, 1996 and $0.2 million
at September 30, 1995. Net cash provided by operating activities was $4.8
million in the nine months ended June 29, 1996. During this period, the Company
expended $2.5 million on property, plant and equipment and raised $18.7 million
from the private placements of Common Stock.
In May 1996, the Company acquired substantially all of the assets of
XRE, a Massachusetts company that designs, manufactures and markets X-ray
imaging systems used for cardiac catheterization and angiographs, for
approximately $17.0 million in cash. In addition, the Company repaid
approximately $1.8 million of XRE's debt. The Company financed the acquisition
through its existing cash balances.
In September 1996, the Company acquired substantially all of the assets
of Continental, a manufacturer of general purpose radiographic systems and
specialty radiographic systems including radiographic/flouroscopy products, for
approximately $18.4 million cash, net of cash. The Company financed the
acquisition through its existing cash balances.
In connection with the September 1995 acquisition of Bennett, the
Company issued to ThermoTrex a $42.0 million principal amount 4.2% subordinated
convertible note. In March 1996, ThermoTrex converted $3.0 million principal
amount into 254,452 shares of the Company's Common Stock. In July 1996,
ThermoTrex converted an additional $31.0 million principal amount of this note
into 2,629,346 shares of Common Stock.
In July 1996, the Company sold 2,875,000 shares of its Common Stock in
an initial public offering, and 871,832 shares of its Common Stock in a
concurrent rights offering, at $14.00 per share for net proceeds of
approximately $49.1 million. The Company plans to use the proceeds for
acquisitions, to fund research and development and for working capital, and
other general corporate purposes.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant amounts
of cash to pursue the acquisition of complementary businesses and technologies.
The Company expects that it will finance these acquisitions through a
combination of internal funds, the net proceeds of its initial public offering
and rights offering, additional debt or equity financing and/or short-term
borrowings from ThermoTrex or Thermo Electron, although it has no agreement with
these companies to ensure that funds will be available on acceptable terms or at
all. The Company believes that its existing resources are sufficient to meet the
capital requirements of its existing businesses for the foreseeable future.
14
<PAGE>
BUSINESS
The Company is a worldwide leader in the design, manufacture and
marketing of mammography equipment and minimally invasive stereotactic needle
biopsy systems used for the detection of breast cancer, as well as a leading
designer and manufacturer of general radiography (X-ray) equipment. A
mammography system is a dedicated radiographic system designed specifically to
image breast tissue. Stereotactic needle biopsy systems, which use a guided
hollow needle to extract a sample of tissues from the breast, offer a cost-
effective, less invasive alternative to open surgery for the biopsy of
suspicious breast lesions. The Company recently broadened its product base by
acquiring Bennett X-Ray Corporation (''Bennett''), a leading producer of
specialty and general purpose radiographic systems, including mammography
systems, XRE Corporation (''XRE''), a manufacturer of X-ray imaging systems used
for cardiac catheterization and angiography and Continental X-Ray Corporation
and its affiliates (collectively, "Continental"), a manufacturer of general
purpose radiographic systems and specialty radiographic systems including
radiographic/fluoroscopy products.
The Company believes the introduction of technologically innovative
products has made a significant contribution to the achievement of its
leadership position. In 1984, the Company introduced the first mammography
system with a high frequency generator, which improved image quality while
reducing radiation dosage. The Company's Bennett Contour mammography system is
designed with a patented tilt C-arm which permits imaging of breast tissue
closer to the chest wall and greater flexibility in the positioning of
patients. The Company's Lorad StereoGuide stereotactic needle biopsy system is
one of two dedicated prone systems sold in the world, and its LORAD DSM digital
spot mammography option was one of the first digital imaging systems available
for use with stereotactic needle biopsy. The Bennett high frequency generator,
introduced in 1989, was the first generator to offer 100 kHz high frequency
power for general radiographic systems, resulting in improved image quality
while reducing radiation dosage.
The Company's mammography and stereotactic needle biopsy systems are
used by radiologists and physicians in offices, hospitals and dedicated breast-
care centers, and its general radiography systems are used by physicians and
radiologists, both in office and hospital settings, as well as by veterinarians
and chiropractors. The Company sells its systems worldwide principally through a
network of independent dealers. In addition, the Company manufactures
mammography and radiography systems and components as an original equipment
manufacturer for other medical equipment companies such as United States
Surgical Corporation ("U.S. Surgical"), the GE Medical Systems division of
General Electric Company, Inc. ("GE") and the Philips Medical Systems North
America Company subsidiary of Philips N.V. ("Philips").
The Company believes that sales of mammography systems will be driven by
acceptance of mammography as an effective cancer screening tool and
improvements in performance through technological innovation such as full-view
digital imaging. The Company believes that growth in the market for
stereotactic needle biopsy systems will be driven by increasing recognition in
the medical community of the effectiveness of this procedure as an alternative
to more invasive procedures, as well as by general health-care cost-containment
trends. The Company believes that sales in the market for general radiographic
systems are driven primarily by replacement of older systems.
The Company's strategy includes maintaining its market position and
expanding into complementary markets through continued technological innovation
and strategic acquisitions. The Company recently introduced a proprietary High
Transmission Cellular ("HTC") grid for use with its mammography systems that
provides better image contrast than existing grids at lower radiation doses,
and a patented autoexposure tomography option to its general radiography
systems that reduces the need for multiple exposures in tomography procedures,
thereby reducing the radiation exposure to the patient. The Company believes
the most promising technological advances in the radiography field will be
derived from the substitution of electronic detectors for the film currently
used in substantially all radiographic systems. This digital imaging technology
is expected to be capable of higher image quality, to permit the enhancement of
an X-ray image through software and to allow near-real-time, off-site
15
<PAGE>
analysis of the X-ray image by radiologists. The Company is currently developing
a full-view digital imaging mammography system and has working prototypes at two
clinical sites. The Company believes that the digital imaging technology being
developed for this system may be adaptable to general radiography and cardiac
diagnostic imaging systems and the Company will seek to develop applications in
these markets.
The Company also intends the acquisition of one or more additional
companies or technologies. The Company's strategy includes making from the
Company's distribution channels and technology. In May 1996, the Company
acquired XRE, which designs, manufactures and markets X-ray imaging systems used
for cardiac catheterization and angiography. XRE manufactures systems and system
components as an original equipment manufacturer for other medical equipment
companies such as Philips and the Picker International, Inc. subsidiary of GEC,
Inc. ("Picker International"). It also sells its systems in the United States
directly and through distributors. In September 1996, the Company acquired
Continental. Continental designs, manufactures and markets
radiographic/fluoroscopic products, general radiography systems,
electrophysiology products used in cardiac laboratories and dedicated
mammography systems.
Introduction to Radiography
Radiography involves the use of X-rays to produce images of matter
beneath an opaque surface. Radiography has been used as a medical diagnostic
tool since the turn of the century. A radiographic imaging system principally
consists of a generator, an X-ray tube and an image recording system, which is
usually film. The object to be imaged is placed between the X-ray tube and the
film. Typically, filters or grids are placed between the X-ray tube and the
object, or the object and the film, to reduce extraneous X-rays. Some
radiographic systems include a bucky, or moving grid, to increase image contrast
by reducing scattering X-rays.
X-rays, which are not reflected by opaque surfaces, pass through the
object and expose the film. However, if the object is comprised of areas of
varying densities or chemical compositions, X-rays will be absorbed by the
denser areas or areas of certain chemical compositions in proportion to the
density or chemical composition of the matter. As a result, the film will be
exposed to a varying degree, thereby producing an image of the density or
chemical variation within the object. For example, since bone has a greater
density than the surrounding tissue in the body, X-rays can be used to produce
an image of a skeleton.
Radiographic imaging systems are differentiated on the basis of the
power and frequency of the generator, the configuration of the X-ray tube
relative to the film and the software that controls the operation of the system.
In certain areas, the specialized requirements of the imaging procedure have
resulted in the development of dedicated systems. For example, mammography
systems, which are designed exclusively to image breast tissue, have the ability
to compress the breast, adjust X-ray power levels and use automated software
controls programmed to provide the best image of breast tissue.
Breast Cancer Detection
Breast cancer is the second leading cause of cancer fatalities in women.
The incidence of breast cancer in American women has grown from one in 20 in
1940 to one in 11 in 1980 to one in eight in 1994. The American Cancer Society
("ACS") estimates that in 1996 over 184,000 new cases of breast cancer in
American women will be reported and approximately 44,000 American women will
die from the disease.
Successful treatment of breast cancer depends in large part on the early
detection of malignant lesions in the breast. Current detection procedures
typically include clinical and self examination, screening mammography and, if
necessary, a biopsy. Physical examination is only useful for detecting lesions
that can be felt, while mammography has the ability to reveal lesions that have
not advanced to that stage. If a suspicious lesion is
16
<PAGE>
discovered in a screening mammogram, the woman typically will undergo a biopsy,
which is a procedure to physically remove cells from the lesion for testing in a
laboratory. If the cells are cancerous, the woman generally undergoes some form
of cancer treatment. The Company designs, manufactures and markets both
mammography and biopsy systems.
Mammography Systems
Most experts agree that mammography is the best method for detecting
breast cancer. The ACS and eighteen other health organizations, including the
American Medical Association, recommend that women aged 40 to 49 undergo a
screening mammogram every one to two years and that women over the age of 50
undergo an annual screening mammogram. However, only approximately 40% of women
in the United States comply with the ACS guidelines. The National Cancer
Institute and the American College of Physicians currently only recommend
screening mammography for women over the age of 50.
Current mammography systems are limited in their ability to image dense
breast tissue, typically found in women under the age of 50. This is
significant since approximately one-quarter of the women diagnosed with breast
cancer are under the age of 50. In addition, women with a family history of
breast cancer are at a higher risk of getting the disease and are therefore
encouraged to start undergoing screening mammography at a younger age.
Successful imaging of dense breast tissue requires high contrast images.
The Company recently introduced a new proprietary HTC grid that, compared to
existing grids, reduces scattering X-rays, while blocking fewer primary X-rays,
resulting in higher contrast images with lower radiation doses. In addition,
the Company is developing a full-view digital imaging mammography system
designed to substantially increase image contrast without a significant
decrease in image resolution.
Demand in the market for mammography systems is driven primarily by
technological innovation that produces better image quality. Although growth of
the installed base has slowed, demand for new systems continues as older models
are replaced with ones offering new technological innovations. In addition, the
Company believes that the market outside the United States will grow as more
countries adopt mammography quality standards similar to those recently adopted
in the United States.
The Company currently markets several different mammography systems. The
Company's systems are generally differentiated on the basis of price and
performance. The Company's high-end models are the recently introduced Lorad
M-IV and the Bennett Contour, which have retail list prices of approximately
$96,000 and $89,000, respectively. The Lorad M-IV offers enhanced image quality
and system features over the Lorad M-III, which has been Lorad's high-end model
for the last five years. Many of the Lorad M-IV's features were developed in
response to user demands, including upgradability and modular systems. The
Bennett Contour offers a patented tilt C-arm which permits the system to tilt
toward or away from the patient to aid in imaging breast tissue. The Company's
lower-priced models include the Lorad M-III and the Bennett MF-150, which have
retail list prices of approximately $82,500 and $48,000, respectively. These
models do not offer all of the features of the high-end models and are marketed
to more cost-conscious customers. In addition, the Company offers the Lorad
T-350 and the Bennett MD-5 mobile mammography systems.
The Company is also developing a next generation mammography system
which replaces the film with a solid-state detector capable of directly
recording the X-ray image in an electronic format. The Company anticipates that
this digital imaging system will be able to record 4,000 different shades of
grey compared to only 200 shades of grey in conventional film-recorded images,
resulting in significantly greater image contrast. In addition, since the image
is recorded in electronic format, it can be enhanced and manipulated,
transmitted over telephone lines to remote locations, and stored on magnetic or
optical media.
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The Company currently offers a DSM digital spot mammography option for
use primarily with stereotactic needle biopsy. However, this system is capable
of imaging only a small area of the breast. The Company currently has prototype
full-view digital imaging mammography systems in operation at Good Samaritan
Hospital in New York and the University of Virginia. At the Radiology Society of
North America Conventions in 1994 and 1995, the Company displayed superior
images from its prototypes to radiologists. The Company expects to submit a
modified design of this prototype to the United States Food and Drug
Administration ("FDA") for clearance, which is required before the Company can
commercially market its full-view digital imaging mammography system. There can
be no assurance that the Company will receive all necessary FDA clearances. See
"Risk Factors--Government Regulation" and "Business--Government Regulation."
Stereotactic Needle Biopsy Systems
Mammography is only one of the first steps in the diagnosis of breast
cancer. If a mammogram reveals a suspicious lesion that cannot be identified as
benign or malignant, the next step typically is to perform a biopsy to remove
cells from the suspicious lesion to determine whether or not they are
cancerous. Studies indicate that between 1% and 2% of women undergoing their
first screening mammography in the United States will have a biopsy. However,
only 20% to 40% of women biopsied will be diagnosed with breast cancer.
Traditionally, biopsies have been performed in open surgery under
general anesthetic. Surgical biopsies can be painful procedures, and surgeons
generally remove a large area of breast tissue, about the size of a golf ball,
to ensure the collection of tissue from the suspicious lesion. These surgeries
can leave visible scarring on the breast and scar tissue in the breast that can
make detecting cancers in future mammograms more difficult.
The Company offers a variety of needle biopsy systems that provide an
alternative to surgical biopsy. Stereotactic needle biopsy systems were
introduced to address the disadvantages of surgical biopsy. Stereotactic needle
biopsy procedures can be performed on an out-patient basis under local
anesthetic. These procedures generally remove only a small tissue sample,
resulting in minimal scarring both on and in the breast. Recent studies
indicate that stereotactic needle biopsy is equally effective compared to
surgical biopsy in determining whether a suspicious lesion is malignant. The
typical cost of a stereotactic needle biopsy procedure is approximately $1,000
compared to approximately $3,000 for a surgical biopsy. However, because this
procedure was only recently introduced and is still gaining acceptance by the
medical community, less than 10% of breast tissue biopsies performed in 1994
used a stereotactic needle biopsy procedure.
The basic principle of a stereotactic needle biopsy system is that a
hollow needle is inserted into the breast to remove cells from the suspicious
lesion. The needle is guided to the suspicious lesion by use of stereotactic
images of the breast. Stereotactic images are two images of the same fixed
breast, one taken at a 15 degree angle off true vertical in one direction and
the other taken at a 15 degree angle off true vertical in the other direction.
The stereotactic images are input into a computer and then used to plot the
coordinates of the lesion to aim a computer-controlled needle gun.
The Company offers upright, add-on systems, the StereoLoc II and MF-
CYTO, that can be attached to most of its mammography systems. Add-on systems
are principally comprised of a needle gun attachment that fits onto the
mammography system in place of the breast compression paddle. The stereotactic
images required to plot the location of the lesion are taken by the mammography
system. These systems enhance the functionality of a mammography system and are
beneficial to customers which have only periodic demand for stereotactic needle
biopsy procedures.
The Company also offers a dedicated prone table, the StereoGuide, for
customers with greater demand for biopsy procedures. With the dedicated prone
table, the patient lies down with her breast suspended through an aperture in
the table. The X-ray imaging equipment and needle gun are mounted below the
table. Patients on the prone table are more comfortable, increasing the
likelihood they will remain still during the procedure, and cannot
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see the needle being inserted in their breast, reducing the chance of fainting.
The Company's StereoGuide system is the subject of a lawsuit by Fischer alleging
infringement of a Fischer patent. See "Risk Factors-Risks Associated With
Pending and Threatened Patent Litigation" and "Business-Patents and
Proprietary Technology."
The Company offers a digital spot imaging option with all of its
stereotactic needle biopsy systems. Although not capable of imaging the entire
breast, digital spot imagers are capable of capturing an area large enough to
cover a suspicious lesion. The Company's digital spot imaging systems can
record and display an X-ray image in approximately ten seconds. Since the
image is recorded directly in electronic format, a computer can quickly plot
the location of the lesion and aim the needle gun once the lesion has been
located with a cursor on the computer screen. A stereotactic needle biopsy
procedure using digital spot imaging can be performed in as short a time as ten
minutes compared with a typical time of 45 minutes using a film-based system.
The retail list price for the StereoGuide table with the digital spot imaging
option is $234,000 and for the add-on system with the digital spot imaging
option ranges from $135,000 to $140,000.
The Company believes that the stereotactic needle biopsy system market
will grow as the procedure becomes more widely accepted by the medical community
and as pressures to contain health-care costs increase.
General Radiography
The Company addresses the general radiography (X-ray) market through its
Bennett and Continental subsidiaries. Bennett designs, manufactures, and
markets office-based X-ray systems, which are basic systems generally used in
medical outpatient facilities, such as doctors' office and surgi-care centers.
Bennett has focused on this segment of the market by providing low-cost,
reliable systems. Bennett and Continental also design, manufacture, and market
the more sophisticated and expensive radiographic systems typically used in
hospitals and clinics. In addition, Bennett manufactures and markets imaging
systems designed specifically for chiropractors and veterinarians.
The United States market for general radiographic systems is stable and
consists primarily of replacement sales as customers upgrade older equipment.
The Company believes that the international market is substantially larger than
the United States market and that the installed base of systems is still
growing, particularly in developing countries. The Company has recently been
expanding its international sales efforts.
The Company recently introduced the first, and currently only, general
radiographic system to receive the World Health Organization ("WHO") World
Health Imaging System_Radiographic ("WHIS-RAD") certificate of approval. The
Company's WHIS-RAD system is a flexible and easy to use general purpose
radiographic system. WHO will subsidize purchases of WHIS-RAD-approved systems
by qualifying health care organizations in developing countries.
The Company's radiographic systems typically include a generator, a tube
stand and a table or bucky structure. For each of these components the Company
offers a variety of options and features that can be configured to create
systems with different price and performance characteristics. A high-end,
hospital-based system, which has a retail list price of approximately $80,000,
may be comprised of a 60 kilowatt, high frequency generator; a ceiling-mounted
overhead tube crane; a four-way floating, elevating table; and an upright bucky
stand. An office-based system, which has a retail list price of approximately
$30,000, may be comprised of a 25 kilowatt, high frequency generator; a
floor-mounted, free standing tube stand and an upright bucky stand.
Continental's general radiography product line features high frequency
generators with anatomical programming and other operator selected features.
The Company offers two linear tomography systems, a dedicated tomography
unit and a mechanical tomography system that can be used as an option to a
general radiographic system. In a linear tomography system, during the
exposure the X-ray tube sweeps over the subject with the film tray sweeping
under the subject
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in the opposite direction. The resulting image provides an unobstructed view at
a desired plane within the subject's body. Both systems offer an automatic
exposure option. Prior to the introduction of this option, multiple exposures
were generally required to obtain a correctly exposed image. The Company
believes that for a number of applications its $80,000-$110,000 tomography
system may be a cost-effective alternative to CT scanners which can cost up to
$800,000. Continental recently introduced its PMT radiographic/tomographic line
of products, which has the flexibility both to image particular isolated organs,
such as kidneys, and to function as a general purpose radiographic suite,
permitting hospitals to contain costs by reducing the amount of space occupied
by radiographic equipment.
The Company believes digital imaging will have significant application
in the general radiographic and radiographic/flouroscopy markets and that the
technology it develops for its full-view digital imaging mammography system may
be adaptable to these applications. In general radiographic applications, the
Company believes digital imaging will produce better quality images and reduce
operating costs by eliminating the need for film and processing equipment and
chemicals. In addition, digital imaging will permit the electronic storage of
images on magnetic or optical media, as well as the transmission of images to
multiple locations. Furthermore, the Company believes digital imaging in
radiographic/fluoroscopy systems will be able to replace the image intensifier
and spot film device, which are both large and expensive components.
Cardiac Catheterization and Angiography
The Company, through its XRE subsidiary, designs, manufactures and
markets complete cardiac catheterization laboratories and positioners for
cardiovascular imaging systems. XRE systems consist of a mechanical positioner
which is used to position an X-ray source and, an image intensifier around a
patient who lies prone on an angiographic table. The entire system is designed
to provide real time images of the heart and coronary arteries for physicians
performing interventional procedures, such as a diagnostic angiogram or balloon
angioplasty.
Coronary artery disease is the leading cause of death in the United
States and represents an increasing health risk throughout the world. According
to an industry source, between 20 and 25 million individuals in the United
States suffer from some form of coronary artery disease, with an estimated cost
to the United States health care system of approximately $120 billion annually.
One of the most common forms of cardiovascular disease is atherosclerosis which
can lead to atheroma, or a narrowing of the arteries. In addition to the
coronary arteries, atherosclerosis can effect blood vessels in the brain, legs
and arteries throughout the body.
Traditionally, cardiac catheterization has been the tool of choice for
diagnosing atherosclerosis and certain other cardiovascular diseases because it
provides the clearest and most accurate depiction of the coronary arteries.
Cardiac catheterization involves X-ray imaging of the heart and large blood
vessels following the injection of a radio-opaque solution into the patient.
Historically, the primary form of treatment for coronary artery disease
has been open-heart bypass surgery. However, in recent years significant
advances have been made in the treatment of atherosclerosis and other coronary
artery diseases without extensive surgery. A common alternative treatment is
angioplasty, a procedure in which a segment of a narrowed coronary artery is
stretched by the inflation of a balloon introduced into the affected artery. A
more recent development involves the permanent implantation of devices such as a
stent into the blood vessel in order to keep the restricted vessel open.
Angioplasty is less invasive than surgery and generally does not require
a lengthy hospitalization (typically no more than two days). The Company
believes vascular and cardiovascular surgeons will increasingly use balloon
angioplasty and these other less invasive techniques to treat vascular diseases
in a non-surgical setting. Each of these procedures is performed under the
guidance of X-ray imaging.
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The Company's cardiac catheterization and angiography products are sold
worldwide under the Angiographic Devices tradename through its own direct sales
force and a network of independent dealers. The Company's products include the
Unicath C cardiovascular imaging system, and the Unicath LP biplane
cardiovascular imaging system. The Company recently introduced the Unicath SP,
its top of the line single plane and cardiovascular system with enhanced
features such as a larger X-ray tube and advanced image intensifier. The
Company also recently introduced the Poly Cx, a lower-cost alternative it
believes is ideally suited for suburban and smaller hospitals, as well as the
export market.
Both of the Company's XRE and Continental subsidiaries design,
manufacture and sell electrophysiology systems that are used in the treatment of
cardiac arrhythmia, which is characterized by the sudden, erratic beating of the
heart and can result in cardiac arrest. Both the Continental EP 2000 system and
XRE's Unicath EP consist of a C-arm positioner, an elevating/tilting table, and
a high-frequency X-ray generator. XRE's Unicath EP includes a parallelogram
positioner, a similar elevating/tilting table, and a constant-potential
generator. In addition, XRE offers a biplane version of Unicath EP, which
provides X-ray views from two different angles simultaneously, thereby
shortening lengthy electrophysiology procedures by at least half. Both XRE
systems feature variable-rate pulsed fluoroscopy and high-performance digital
imaging.
The Company also offers a complete line of digital imaging products. The
Company has developed and introduced a high speed digital imaging system, DVFX,
which is capable of acquiring images which may be stored on a variety of media.
This system is capable of providing high resolution real-time digital images at
30 frames per second. DVFX employs a proprietary digital filtering system
developed expressly for use in interventional imaging. Its open system
architecture facilitates image transfer and storage using industry standard,
high speed networks.
Many of the Company's positioners are based on its parallelogram-based
design. This design permits multi-angular views of the heart and coronary
arteries while the patient remains stationary on the table. As of December 31,
1995, over 4,000 cardiac catheterization and angiographic positioners and
systems manufactured by XRE had been installed throughout the world.
The Company's strategy is to increase sales of XRE products by marketing
them through the Company's dealer network and to incorporate the Company's
digital imaging technology into XRE's product offerings. In addition, the XRE
acquisition will permit the Company to broaden its product offerings and
leverage its sales and service organizations.
Radiographic/Fluoroscopy
The Company, through its Continental subsidiary, designs, manufactures
and markets radiographic/fluoroscopy products, general radiography systems,
electrophysiology products used in cardiac laboratories and dedicated
mammography systems. A radiographic/fluoroscopy ("R/F") system is able to
record dynamic events by capturing a series of images in a short period of time.
For example, R/F systems are used for various gastrointestinal procedures which
image in real time the progress of a radio-opaque ingested solution (typically
barium) throughout the body. According to an industry source, end-user sales of
R/F equipment in the United States in 1994 were approximately $440 million.
The Company produces and sells R/F systems under the Continental name
using advanced high frequency generators that provide pulsed power, resulting in
substantially reduced radiation exposure to the patient. The Company's R/F
products include the DigiSpot 2000, a high speed digital imaging system that
directly records the image in electronic format, permitting the electronic
storage of images on magnetic or optical media and the transmission of images to
multiple locations with image quality comparable with film-based systems.
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Other Products
The Company uses its technological and manufacturing expertise to
produce a number of other products.
The Company's LPX-160 portable imaging system is based on the Company's
medical imaging technology. This system is designed to produce high-resolution
images of metals, composites and plastics. Customers for this system include
the United States Air Force and several commercial airlines, which use the
system to test for stress fractures and other defects in aircraft, and Canadian
and American utilities, which use the system to inspect pipelines and turbines.
The Company was recently awarded a $9.7 million contract for these systems from
the United States Air Force. Sales to the United States Air Force were
approximately $1.1 million or 2.1% of the Company's revenues for the nine
months ended September 30, 1995 and approximately $5.0 million or 4.9% of the
Company's revenues for the nine months ended June 29, 1996.
The Company manufactures an X-ray source that is used as a component to
a fill-measuring device sold by Thermedics Inc., a publicly-traded majority-
owned subsidiary of Thermo Electron. For the nine months ending June 29, 1996,
the Company has sold approximately 98 such devices under this arrangement.
The Company also manufactures the laser used in ThermoLase Corporation's
hair removal process. ThermoLase Corporation is a publicly-traded,
majority-owned subsidiary of ThermoTrex. During the nine months ended June 29,
1996, the Company sold lasers to ThermoLase under this arrangement for
aggregate revenues of $5,250,000.
Sales and Marketing
Sales by Dealers and Distributors
The Company's products are sold worldwide under the Lorad, Bennett,
Angiographic Devices and Continental names through separate networks of
independent dealers. Lorad systems are sold domestically through a network of
approximately 50 dealers managed by six regional offices. Bennett systems are
sold domestically to physicians, clinics and hospitals through a network of
approximately 50 dealers supported by three Bennett regional sales managers and
six direct sales people focused on mammography. Overseas, Lorad systems are
sold by approximately 40 distributors covering 50 countries and Bennett systems
are sold by approximately 100 distributors covering more than 75 countries. The
Company and its network of independent dealers maintain a staff of
factory-trained service technicians to support the Lorad and Bennett systems.
The Company's XRE subsidiary sells its cardiac catheterization and angiography
products through a six person direct sales force and a network of approximately
twenty-five independent dealers covering primarily North America, Eastern
Europe, Western Europe and the Pacific Rim. The Company's Continental
subsidiary sells its products worldwide through a network of independent
dealers. In addition, Continental has entered into group purchasing agreements
with Columbia/HCA Healthcare Corporation, AmeriNet and Health Services
Corporation of America which expire between late 1997 and mid-1998.
OEM Agreements
In addition to manufacturing and marketing its own systems, the Company
manufactures systems and system components as an original equipment
manufacturer ("OEM") for other medical equipment companies. In general, under
the Company's OEM agreements, which could expire between 1996 and 1998, the
manufacturers are obligated to purchase from the Company certain minimum
quantities of systems, system components and subsystems manufactured by the
Company. There can be no assurance that upon the expiration of these agreements
they will be renewed or that new OEM customers can be identified.
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The Company is party to several agreements with Philips pursuant to
which the Company's Lorad division manufactures mammography systems based on
Philips and Lorad design criteria and a mobile general purpose X-ray system,
both for sale by Philips under the Philips nameplate. The agreement for the
purchase of the Lorad mammography systems has an initial term of five years
expiring in 1998, and is renewable for successive 12-month terms. The agreement
for the purchase of mobile general purpose X-ray systems is renewable for
successive 12-month terms. Sales to Philips accounted for 18% of the Company's
total revenues in fiscal 1995. Sales to Philips accounted for 45% of XRE's sales
in the twelve months ended December 31, 1995.
The Company is party to an agreement with GE pursuant to which the
Company's Bennett subsidiary manufactures radiographic systems utilizing
Bennett's high frequency generators for sale by GE under the GE nameplate. The
agreement with GE is for an initial term of three years expiring December 31,
1997.
The Company is a party to an agreement with Philips Medizin Systeme
Unternehmensbereich der Philips GmbH ("Philips Germany") pursuant to which
the Company's Bennett subsidiary manufactures radiographic systems for sale by
Philips Germany outside of the United States and Canada under the Smit Rontgen
nameplate. The agreement is renewable for successive 12-month terms. The
agreement does not require Philips Germany to purchase any minimum quantity of
products, but Philips Germany is required to provide Bennett with a 12-month
non-binding rolling forecast of its purchasing requirements.
In October 1995, the Company entered into an agreement with U.S.
Surgical pursuant to which the Company's Lorad division is manufacturing its
StereoGuide prone stereotactic biopsy table modified to accept a U.S. Surgical
biopsy device for sale by U.S. Surgical under the U.S. Surgical nameplate. U.S.
Surgical has agreed to certain minimum purchase requirements to maintain
exclusivity.
The Company's XRE subsidiary manufactures gantries or "positioners"
for Philips' PolyDiagnost C2 cardiovascular system and Picker International's
Cardicon-L and Omnicon-L cardiovascular systems. Sales to OEM's represented
approximately 50% of XRE's total revenues in 1995. The Company's Continental
subsidiary sells electrophysiology products to GE, Toshiba and Shimadzu through
OEM arrangements.
Research and Development
The Company maintains active programs for the development of new
mammography and X-ray imaging systems. The Company's current development
efforts are focused on the development of a full-view digital imaging
mammography system, direct detection X-ray sensors and the enhancement of
existing mammography products. The Company believes that the digital imaging
technology developed for this system also will be readily adaptable to general
radiographic and cardiac diagnostic imaging systems. No assurance can be given
that the Company's development programs will be successfully completed.
One of the Company's long-term research and development programs is the
development of a Sonic CT (Computed Tomography) system that uses acoustic waves
to form high-resolution images of breast tissue. The Company has deferred
spending additional resources on Sonic CT at the present time, so that it may
concentrate its resources more directly on its digital imaging research and
development.
The Company is developing products based upon digital imaging technology
developed by scientists at ThermoTrex. ThermoTrex has granted the Company a
fully-paid, exclusive, worldwide, perpetual license to use and sell such
technology in the fields of mammography and general radiography. Under the
terms of the license agreement with ThermoTrex, if the Company elects to fund
approximately $6 million of ThermoTrex's research and development over the next
three years, the Company's license will be extended to cover the fields of
radiographic/fluoroscopy, mobile C-arm fluoroscopy and cardiology/angiography.
The Company will purchase digital imaging detectors from ThermoTrex. See
"Relationship and Potential Conflicts of Interest with Thermo Electron and
ThermoTrex."
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Research and development expenses of the Company were $7.2 million,
$10.7 million and $8.6 million for 1993, 1994 and the nine months ended
September 30, 1995, respectively.
Competition
The health care industry in general, and the market for imaging products
in particular, is highly competitive. The Company competes with a number of
companies, many of which have substantially greater financial, marketing and
other resources than the Company. The Company's competitors include large
companies such as GE, Philips, the Siemens Corporation subsidiary of Siemens AG,
Toshiba American Medical Systems, Inc. and Toshiba America MRI, Inc.
(collectively, "Toshiba"), Shimadzu and Picker International, which compete in
most diagnostic imaging modalities, including X-ray imaging. In addition, a
significant portion of the Company's sales are to GE, U.S. Surgical and Philips
through OEM arrangements. The products sold by such OEMs compete with those
offered by the Company and its independent dealers. The Company's StereoLoc II,
MF-CYTO and StereoGuide stereotactic needle biopsy systems compete with products
offered by GE, Fischer Imaging Corporation and Philips and with conventional
surgical biopsy procedures.
The Company competes primarily on the basis of product features, product
performance and reputation as well as price and service. Although the Company
believes that its products currently compete favorably with respect to such
factors, there can be no assurance that the Company can maintain its
competitive position against current and potential competitors, especially
those with greater financial, manufacturing, marketing, service, support,
technical and other competitive resources. Competition could increase if new
companies enter the market or if existing competitors expand their product
lines. See "Risk Factors--Intense Competition" and "--Technological Change and
New Products."
Patents and Proprietary Technology
The Company's policy is to protect its intellectual property rights and
to apply for patent protection when appropriate. The Company currently holds
numerous issued United States patents expiring at various dates ranging from
1996 to 2014. The Company also has over 10 applications pending for additional
United States patents and a number of foreign counterparts for its patents in
various foreign countries. In addition, the Company has registered or other
trademarks. Patent protection provides the Company with competitive advantages
with respect to certain systems. The Company believes, however, that technical
know-how and trade secrets are more important to its business than patent
protection.
Competitors of the Company and other third-parties hold issued patents
and pending patent applications relating to imaging and other related
technologies, and it is uncertain whether these patents and patent applications
will require the Company to alter its products or processes, pay licensing fees
or cease certain activities. See "Risk Factors--Dependence on Patents and
Proprietary Rights" and "--Risks Associated With Pending and Threatened Patent
Litigation."
In April 1992, Fischer Imaging Corporation ("Fischer") commenced a
lawsuit in the United States District Court, District of Colorado, against the
Company's Lorad division, alleging that Lorad's prone breast biopsy systems
infringes a Fischer patent on a precision mammographic needle biopsy system. As
of June 29, 1996 the Company had aggregate revenues of approximately $55
million from the sale of such systems. The suit requests a permanent
injunction, treble damages and attorneys' fees and expenses. If the Company is
unsuccessful in defending this lawsuit it may be enjoined from manufacturing
and selling its StereoGuide system without a license from Fischer. No assurance
can be given that the Company will be able to obtain such a license, if
required, on commercially reasonable terms, if at all. In addition, the Company
may be subject to damages for past infringement. No assurance can be given as
to the amount which the Company may eventually be required to pay in expenses
or in such damages. The outcome of patent litigation, particularly in jury
trials, is inherently
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uncertain, and an unfavorable outcome in the Fischer litigation could have a
material adverse effect on the Company's business and results of operations.
The Company also is aware of a U.S. patent held by Nicola E. Yanaki
which has been asserted by him against certain automatic exposure control
features included in most of the Company's current mammography systems. The
Company has been informed by Mr. Yanaki that a competitor of the Company has
obtained a license for use of this patent. Although the Company believes that
the validity of this patent may be questionable and subject to a successful
challenge, if the patent holder were successful in enforcing such patent the
Company could be subject to damages for past infringement and enjoined from
manufacturing and selling imaging equipment utilizing certain automatic exposure
control features, which would have a material adverse effect on the Company's
financial condition and results of operations.
The Company is also aware of an issued European patent with counterparts
in other non-U.S. countries relating to imaging equipment utilizing certain
automatic exposure control features. The European patent is the subject of an
opposition proceeding before the European Patent Office. There can be no
assurance as to the outcome of such opposition.
In connection with the organization of the Company, ThermoTrex agreed to
indemnify the Company for any and all cash damages in connection with the
Fischer lawsuit and any potential claims by the holder of the automatic
exposure control patent described above, with respect to sales of the Company's
products occurring prior to October 1995, when the businesses of Lorad and
Bennett were transferred to the Company. Notwithstanding this indemnification,
the Company would be required to report as an expense in its results of
operations the full amount, including any reimbursable amount, of any damages
in excess of the amount accrued ($2.3 million as of June 29, 1996), with any
indemnification payment it receives from ThermoTrex being treated as a
contribution to shareholders' investment. An unsuccessful outcome of this
litigation may have a material adverse effect on the business of the Company
and on the results of operations of the Company for the period in which such
outcome occurs.
The Company is aware of two U.S. patents owned by a former employee
which have been asserted against the Company relating to its HTC grid to be used
with the Company's mammography systems. Although the Company believes that the
HTC grid does not infringe either of these patents, if the holder of the patents
were successful in enforcing such patents, the Company could be subject to
damages and enjoined from manufacturing and selling the HTC grid.
Government Regulation
The Company's products and its research, development and manufacturing
activities are subject to regulation by numerous governmental authorities in
the United States and other countries. In the United States, medical devices
are subject to rigorous FDA review. The federal Food, Drug and Cosmetic Act,
the Public Health Services Act and other federal statutes and regulations
govern or influence the testing, manufacture, safety, labeling, storage, record
keeping, reporting, approval, advertising and promotion of products such as
those offered by the Company. Noncompliance with applicable requirements can
result in fines, recalls or seizures of products, total or partial suspension
of production and criminal prosecution.
Pursuant to the Medical Device Amendments of 1976 (the "1976
Amendments") to the Federal Food, Drug and Cosmetic Act, and regulations
promulgated thereunder, medical devices intended for human use are classified
into three categories, Classes I, II and III, depending upon the degree of
regulatory control to which they will be subject. The Company believes its
current systems are classified as Class II devices.
If a new medical device, irrespective of whether it is a Class II or III
device, is substantially equivalent to an existing device that has been
continuously marketed since the effective date of the 1976 Amendments (May 28,
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1976) (a "Substantially Equivalent Device"), FDA requirements may be
satisfied through a procedure known as a "510(k) Submission," under which the
applicant provides product information supporting its claim of substantial
equivalence. In a 510(k) Submission, the FDA may also require that it be
provided with clinical test results demonstrating the safety and efficacy of
the device.
In connection with new product development, the Company from time to
time files 510(k) Submissions. While there can be no assurance in this regard,
all of the Company's X-ray components and products previously included in 510(k)
Submissions have received findings of substantial equivalence.
Class III medical devices (which consist of life support/life sustaining
devices, diagnostic or implanted devices) that are not Substantially Equivalent
Devices are subject to a more stringent and time-consuming FDA approval
process.
The Safe Medical Devices Act of 1990 substantially changed certain
aspects of the regulation of the sale of medical devices and, depending on how
it is interpreted and enforced, could make it substantially more difficult and
time-consuming to comply with pre-marketing clearance and approval processes.
Pursuant to this Act, the FDA is required to adopt implementing regulations,
which will require among other things that clinical test results supporting the
safety and efficacy of a medical device be included with a 510(k) Submission.
The regulations also provide that manufacturers of high-risk medical devices
(implantable devices, life sustaining/life support devices and such other
devices as the FDA may designate) must establish post-market surveillance
programs for devices that are first marketed after January 1, 1991.
The FDA has not yet classified full-view digital imaging mammography
systems like the one being developed by the Company. If such systems are
classified as Class III devices, the Company would be required to file for FDA
marketing clearance for its full-view digital imaging mammography system under
the PMA process, which would require substantial clinical trials and
post-market follow-up for a number of years. While not classifying such
systems, the FDA recently issued a final guidance document relating to the
protocol for marketing clearance of full-view digital imaging mammography
systems. This document suggests that clearance may be obtained through an
enhanced 510(k) application with more extensive clinical trials. The protocol
set forth in the final guidance document calls for clinical trials on 520
subjects prior to applying to the FDA for clearance to commercially market such
a system. In addition, full-view digital imaging mammography systems will be
subject to alternate quality assurance standards under the Mammography Quality
Standards Act. The Company will provide the FDA with a proposal for such
standard but can make no prediction as to when the FDA will approve such
standards, if at all.
The Company is also subject to periodic inspections by the FDA whose
primary purpose is to audit the Company's compliance with Good Manufacturing
Practices ("GMP"). Enforcement of GMP regulations has increased significantly
in the last several years, and the FDA has publicly stated that compliance will
be more strictly scrutinized. In the event that the Company or any of its
facilities was determined to be in noncompliance, and to the extent that the
Company or such facility was unable to convince the FDA of the adequacy of its
compliance, the FDA has the power to assert penalties or remedies, including a
recall or temporary suspension of product shipment until compliance is
achieved. Such penalties or remedies could have a material adverse effect on
the Company's business and results of operations.
The Company is also regulated by the FDA under the Radiation Control for
Health and Safety Act of 1968 (Public Law 90-602) which specifically addresses
radiation emitting products. Under this law, the Company is responsible for
submitting initial reports on all new X-ray systems that require certification
to FDA performance standards. The Company must also submit a quality assurance
and test program for FDA review to ensure continued compliance with X-ray
performance standards.
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Historically, the Company has been subject to recalls of certain of its
products from time to time under Public Law 90-602. Under this law, any product
which is not in compliance with the relevant performance standard must be
repaired, refurbished or returned at the manufacturer's expense.
The Company is also subject to regulation under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic Substances Act, the
Federal Water Pollution Control Act, the National Environmental Policy Act and
other federal, state or local statutes and regulations. The Company believes
that it is in material compliance with these and other applicable federal, state
and foreign legal and regulatory requirements under which it operates. However,
there can be no assurance that such legal or regulatory requirements will not be
amended or that new legal or regulatory requirements will not be adopted, any
one of which could have a material adverse effect on the Company's business or
results of operations.
Reimbursement
Suppliers of health care products and services are affected by Medicare,
Medicaid and other government insurance programs, as well as by private
insurance reimbursement programs. Third party payors (Medicare, Medicaid,
private health insurance, health administration authorities in foreign
countries and other organizations) may affect the pricing or relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for by such payors to the physicians, hospitals and
clinics utilizing the Company's products or by taking the position that such
reimbursement is not available at all.
Since 1983, Medicare reimbursement has been based on a fixed amount for
admitting a patient with a specific diagnosis. Hospital profit margins have
been reduced significantly since the introduction of Diagnosis Related Groups
("DRGs"). As DRG reimbursement is a fixed amount based on a specific
diagnosis, hospitals have incentives to use less costly treatment methods. If a
new technology is considered to be more cost effective, hospitals will
frequently make capital expenditures to provide cost savings. Frequently DRG
reimbursement is reduced to reflect the adoption of a new procedure or
technique, and as a result hospitals are generally willing to implement new
cost saving technologies before these downward adjustments in DRG rates take
effect.
The diagnostic procedures for which the Company's products are intended
to be used generally have been approved for Medicare reimbursement. Many of the
therapeutic procedures for which the Company's systems can be used have also
been approved for Medicare reimbursement. In addition, prior to 1991, hospitals
received Medicare reimbursement for the cost of capital equipment such as the
Company's products as a "capital pass through," which provided for an 85%
reimbursement of the Medicare utilization portion of the equipment cost, pro
rated over the depreciable life of the equipment.
In 1991, the Health Care Financing Administration of the U.S. Department
of Health and Human Services published rules to change the method of capital
reimbursement for hospitals. The rules changed capital reimbursement from a
system based on costs to one based on prospective payment. The rules provide for
a ten year transition and permit hospitals with unusually low or high capital
reimbursement methods to be reimbursed fairly. The Company believes that the new
capital reimbursement rules have impacted facilities expansion more heavily than
medical equipment purchases.
In early 1992, Medicare also began to phase in over a five-year period a
new system whereby reimbursement to physicians will be based on the lower of
their actual charges or a fee schedule amount based on "resource-based"
relative value "scale". This replaced a "charge-based" fee schedule, and is
anticipated to generally lower the reimbursements received by radiologists from
the previous method.
The Company believes, however, that since minimally invasive surgical
techniques are generally less expensive than open or conventional surgery,
stereotactic breast biopsy and other systems offered by the Company
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<PAGE>
provide hospitals the opportunity to save costs and, therefore, possibly benefit
from a revised reimbursement system.
Backlog
At both December 30, 1995 and June 29, 1996, the Company's backlog of
firm orders on a pro forma basis assuming the acquisition of XRE and Continental
had been completed was approximately $67.5 million. The Company includes in
backlog only those orders for which it has received completed purchase orders
and for which delivery has been specified within twelve months. Most orders are
subject to cancellation by the customer. Because of the possibility of customer
changes in delivery schedules, cancellation of orders and potential delays in
product shipments, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
Facilities
The Company operates from four facilities: a 63,500 square foot office
and manufacturing facility in Danbury, Connecticut owned by the Company, a
163,000 square foot manufacturing facility in Broadview, Illinois owned by the
Company, a 120,000 square foot office and manufacturing facility in Copiague,
New York leased by the Company pursuant to a lease expiring in 2005 and a
156,000 square foot office and manufacturing facility in Littleton,
Massachusetts leased by the Company pursuant to a lease expiring in 2012. As of
May 30, 1996, the annual base rent for the Company's Copiague, New York and
Littleton, Massachusetts facilities were approximately $600,000 and $858,000,
respectively. The Company has entered into a lease for a new 60,000 square foot
building to be constructed adjacent to its existing facility in Danbury,
Connecticut. The lease will commence upon completion of the building, which is
expected to occur in late 1996, and has a term of ten years with an initial
annual base rent of $771,600.
Personnel
As of September 28, 1996, the Company had 992 employees. None of the
Company's employees are represented by a labor union, and the Company considers
its relations with its employees to be good.
Legal Proceedings
Except as described above under "Business--Patents and Proprietary
Technology," "Risk Factors--Dependence on Patents and Proprietary Rights" and
"--Risks Associated With Pending and Threatened Patent Litigation," the
Company is not a party to any litigation that it believes could reasonably be
expected to have a material adverse effect on the Company or its business.
RELATIONSHIP AND POTENTIAL CONFLICTS OF INTEREST
WITH THERMO ELECTRON AND THERMOTREX
The Company was incorporated in September 1995 as a wholly-owned
subsidiary of ThermoTrex. ThermoTrex acquired all of the outstanding capital
stock of Bennett in September 1995 for approximately $42,000,000 in cash, net of
cash acquired. On October 2, 1995, the Company acquired all of the outstanding
shares of capital stock of Bennett from ThermoTrex in exchange for the
$42,000,000 principal amount Convertible Note. Subsequently, on October 16,
1995, ThermoTrex contributed all of the assets and liabilities relating to its
Lorad division and the development of its Sonic CT system to the Company in
exchange for 20,000,000 shares of Common Stock of the Company.
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Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermo Electron and certain of its
subsidiaries have created publicly and/or privately held majority-owned
subsidiaries. The Company and the other Thermo Electron subsidiaries are
referred to herein as the "Thermo Subsidiaries."
In October 1995, ThermoTrex granted to the Company an exclusive, paid-
up, royalty-free license for the use of certain technology relating to digital
imaging detectors in the fields of mammography and general radiography. Under
the license agreement, if the Company funds approximately $6 million of
ThermoTrex's research and development of the digital imaging technology in the
fields of radiographic/fluoroscopy, mobile C-arm fluoroscopy and
cardiology/angiography over the next three years, then ThermoTrex will be
obligated to grant the Company a fully-paid, exclusive, worldwide, perpetual
license to use and sell the digital imaging technology in these fields. The
license agreement provides that ThermoTrex will manufacture products based on
the digital imaging technology for the Company in the applicable fields.
ThermoTrex will sell the products to the Company at ThermoTrex's cost until the
Company has received an amount of Net Profit (as defined below) from the resale
of such products equal to amounts paid by the Company for research and
development as set forth above less any additional research and development
costs incurred by ThermoTrex with the prior written approval of the Company, and
thereafter at ThermoTrex's cost plus one-half of Net Profit. For purposes of the
preceding sentence, "Net Profit" means the difference between the prices the
Company receives upon resale of such products and the aggregate costs of the
Company and ThermoTrex relating to such sales. The Company has paid
approximately $1,350,000 to ThermoTrex under this arrangement for the nine
months ended June 29, 1996.
The Company has an arrangement with ThermoTrex whereby ThermoTrex
provides certain research and development services to the Company and the
Company pays ThermoTrex its fully burdened cost of providing such services. For
the nine months ended September 30, 1995, the Company paid ThermoTrex
approximately $1,536,000 under this arrangement. This arrangement has been
superseded by the license agreement described above.
The Company has an arrangement with the Tecomet division of Thermo
Electron for the manufacture of the Company's proprietary HTC grid. Under this
arrangement Tecomet manufactures the grid for the Company pursuant to written
purchase orders. The Company owns the intellectual property rights to the grid.
For the nine months ended September 30, 1995 and the nine months ended June 29,
1996, the Company paid Tecomet $250,000 and $162,275, respectively, under this
arrangement.
Under an arrangement with ThermoLase Corporation, a publicly-traded,
majority-owned subsidiary of ThermoTrex, the Company manufactures the laser
used in ThermoLase's hair-removal process. The Company manufactures these
lasers for ThermoLase pursuant to written purchase orders. As of June 29, 1996,
the Company has sold 75 lasers to ThermoLase under this arrangement for an
aggregate purchase price of approximately $5,250,000 million and had committed
to deliver 100 additional lasers.
Under an arrangement with Thermedics Detection Inc., a subsidiary of
Thermedics, a publicly-traded, majority-owned subsidiary of Thermo Electron,
the Company manufactures an X- ray source that is used as a component to a
fill-measuring device produced by Thermedics Detection. The Company
manufactures these X-ray sources for Thermedics Detection pursuant to written
purchase orders. For the nine months ended September 30, 1995 and the nine
months ended June 29, 1996, Thermedics Detection paid the Company $120,000 and
$361,600, respectively, under this arrangement.
The Company believes that the arrangements set forth above are on terms
comparable to those the Company would receive from unaffiliated parties.
On October 2, 1995, in exchange for all of the outstanding shares of
capital stock of Bennett, the Company issued the $42,000,000 principal amount
Convertible Note to ThermoTrex. The Convertible Note has an interest
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rate of 4.2% per annum and is convertible into shares of the Company's Common
Stock at a conversion price of $11.79 per share. In March 1996, ThermoTrex
converted $3,000,000 principal amount of the Convertible Note into 254,452
shares of Common Stock. In July 1996, ThermoTrex converted an additional
$31,000,000 principal amount of the Convertible Note into 2,629,346 shares of
Common Stock.
ThermoTrex develops advanced technologies, which it is incorporating
into commercial products for the personal-care and avionics industries. For the
nine months ended September 30, 1995, ThermoTrex had consolidated revenues of
$86,531,000 and consolidated net income of $36,341,000, including a gain on the
issuance of stock by a subsidiary of $34,721,000.
Thermo Electron and its subsidiaries develop, manufacture and market
environmental monitoring and analysis instruments, biomedical products
including heart-assist systems and respiratory care products, papermaking and
paper-recycling equipment, alternative-energy systems, industrial process
equipment and other specialized products. Thermo Electron and its subsidiaries
also provide environmental and metallurgical services and conduct advanced
technology research and development. For its fiscal year ended December 30,
1995, Thermo Electron had consolidated revenues of $2,207,417,000 and
consolidated net income of $140,080,000. See "Risk Factors--Potential Conflicts
of Interest" and "--Significant Additional Shares Eligible for Sale After the
Offerings."
The Thermo Electron Corporate Charter
Thermo Electron and the Thermo Subsidiaries, including the Company,
recognize that the benefits and support that derive from their affiliation are
essential elements of their individual performance. Accordingly, Thermo
Electron and each of the Thermo Subsidiaries, including the Company, have
adopted the Thermo Electron Corporate Charter (the "Charter") to define the
relationships and delineate the nature of such cooperation among themselves.
The purpose of the Charter is to ensure that (1) all of the companies and their
shareholders are treated consistently and fairly, (2) the scope and nature of
the cooperation among the companies, and each company's responsibilities, are
adequately defined, (3) each company has access to the combined resources and
financial, managerial and technological strengths of the others, and (4) Thermo
Electron and the Thermo Subsidiaries, in the aggregate, are able to obtain the
most favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to
be followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of long-
range planning and providing other banking and credit services. Pursuant to the
Charter, Thermo Electron may also provide guarantees of debt obligations of the
Thermo Subsidiaries or may obtain external financing at the parent level for the
benefit of the Thermo Subsidiaries. In certain instances, the Thermo
Subsidiaries may provide credit support to, or on behalf of, the consolidated
entity or may obtain financing directly from external financing sources. Under
the Charter, Thermo Electron is responsible for ensuring that the Thermo Group
remains in compliance with all covenants imposed by external financing sources,
including covenants related to borrowings of Thermo Electron or other members of
the Thermo Group, and for apportioning such constraints within the Thermo Group.
In addition, Thermo Electron establishes certain internal policies and
procedures applicable to members of the Thermo Group. The cost of the services
provided by Thermo Electron to the Thermo Subsidiaries is covered under existing
corporate services agreements between Thermo Electron and each of the Thermo
Subsidiaries.
The Charter presently provides that it shall continue in effect so long
as Thermo Electron and at least one Thermo Subsidiary participate. The Charter
may be amended at any time by agreement of the participants. Any
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Thermo Subsidiary, including the Company, may withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a
subsidiary's participation in the Charter in the event the subsidiary ceases to
be controlled by Thermo Electron or ceases to comply with the Charter or the
policies and procedures applicable to the Thermo Group. A withdrawal from the
Charter automatically terminates the corporate services agreement in effect
between the withdrawing company and Thermo Electron. The withdrawal from
participation does not terminate outstanding commitments to third parties made
by the withdrawing company, or by Thermo Electron or other members of the Thermo
Group, prior to the withdrawal. However, a withdrawing company is required to
continue to comply with all policies and procedures applicable to the Thermo
Group and to provide certain administrative functions mandated by Thermo
Electron so long as the withdrawing company is controlled by or affiliated with
Thermo Electron.
Corporate Services Agreement
As provided in the Charter, Thermo Electron and the Company have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, certain employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and certain financial and other services to the Company. In
1994 and 1995, Thermo Electron assessed the Company an annual fee for these
services equal to 1.25% and 1.20%, respectively, of the Company's total
revenues. Effective January 1, 1996, the fee was reduced to 1.0% of the
Company's total revenues. The fee may be changed by mutual agreement of the
Company and Thermo Electron. During the nine months ended September 30, 1995,
Thermo Electron assessed the Company $663,000 in fees under the Services
Agreement. The Company believes that the charges under the Services Agreement
are representative of the expenses the Company would have incurred on a
stand-alone basis and that the terms of the Services Agreement are reasonable.
For additional items such as employee benefit plans, insurance coverage and
other identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services Agreement terminates automatically in the
event the Company ceases to be a member of the Thermo Group or ceases to be a
participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis
by the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
Tax Allocation Agreement
The Tax Allocation Agreement between ThermoTrex and the Company outlines
the terms under which the Company is to be included in ThermoTrex's
consolidated federal and state income tax returns. Under current law, the
Company will be included in such tax returns so long as ThermoTrex owns at
least 80% of the outstanding Common Stock of the Company. In years in which the
Company has taxable income, it will pay to ThermoTrex amounts comparable to the
taxes it would have paid if it had filed its own separate corporate tax
returns. If ThermoTrex's equity ownership of the Company were to drop below
80%, then the Company would file its own income tax returns.
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Master Guarantee Reimbursement Agreements
The Company has entered into a Master Guarantee Reimbursement Agreement
with Thermo Electron which provides that the Company will reimburse Thermo
Electron for any costs it incurs in the event it is required to pay third
parties pursuant to any guarantees it issues on the Company's behalf.
ThermoTrex has entered into a similar agreement with Thermo Electron with
regard to the Company's obligations which are guaranteed by Thermo Electron.
The Company has also entered into a Master Guarantee Reimbursement Agreement
with ThermoTrex which provides that the Company will reimburse ThermoTrex for
any costs it incurs in the event that ThermoTrex is required to pay Thermo
Electron or any other party pursuant to any guarantees it issues on the
Company's behalf.
Miscellaneous
Currently, ThermoTrex beneficially owns 80% of the outstanding shares of
Common Stock (excluding shares of Common Stock issuable upon the conversion of
the Convertible Note). ThermoTrex presently intends to maintain at least an 80%
interest in the Company. This will require ThermoTrex to convert additional
principal amounts of the Convertible Note or to purchase additional shares of
Common Stock from time to time as the number of outstanding shares issued by
the Company increases. These purchases may be made either in the open market or
directly from the Company. See "Risk Factors--Control by ThermoTrex."
The Company's cash equivalents may be invested from time to time
pursuant to a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of corporate
notes, United States government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. The Company's funds subject to the repurchase agreement will
be readily convertible into cash by the Company and have an original maturity of
three months or less. The repurchase agreement earns a rate based on the
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter.
MANAGEMENT
The directors and executive officers of the Company and their ages as of
September 28, 1996 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gary S. Weinstein 38 Chairman of the Board and Director
Anthony J. Pellegrino 55 Vice Chairman of the Board and Director
Hal Kirshner 55 Chief Executive Officer, President and Director
John N. Hatsopoulos 61 Vice President, Chief Financial Officer and Director
Paul F. Kelleher 53 Chief Accounting Officer
Elias P. Gyftopoulos (2) 68 Director
Robert C. Howard 65 Director
Earl R. Lewis 52 Director
James W. May, Jr. (1)(2) 53 Director
Hutham S. Olayan (1)(2) 42 Director
Firooz Rufeh 58 Director
Kenneth Y. Tang 48 Director
</TABLE>
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<PAGE>
- --------------------
(1) Member of the Audit Committee.
(2) Member of the Human Resources Committee.
All of the Company's directors are elected annually by the shareholders
and hold office until their respective successors are duly elected and
qualified. Executive officers are elected annually by the Board of Directors and
serve at its discretion. Mr. Weinstein, Mr. Hatsopoulos, Mr. Kelleher, Mr.
Howard, Mr. Lewis, Mr. Rufeh and Dr. Tang are full-time employees of Thermo
Electron, ThermoTrex or other subsidiaries of Thermo Electron, but these
individuals devote such time to the affairs of the Company as the Company's
needs reasonably require from time to time. Because each of these individuals
owes duties to each of the entities for which he serves as an officer or
director, there may be circumstances in which such individual has a conflict of
interest. See "Risk Factors--Potential Conflicts of Interest" and "Relationship
and Potential Conflicts of Interest with Thermo Electron and ThermoTrex."
Mr. Weinstein has been Chairman of the Board and a Director of the
Corporation since February 1996. Mr. Weinstein has also been Chairman and Chief
Executive Officer of ThermoTrex and a Vice President of Thermo Electron since
February 1996. Mr. Weinstein was a Managing Director of Lehman Brothers Inc.
from 1992 until February 1996, serving most recently as Managing Director, head
of Global Syndicate and Equity Capital Markets since March 1995. Prior to that
appointment, Mr. Weinstein served in various positions at Lehman Brothers since
joining the firm in 1988, including head of Equities in Europe, head of Equity
New Issues in North and South America and head of Global Convertible
Securities. Mr. Weinstein is also a Director of ThermoTrex and ThermoLase
Corporation.
Mr. Pellegrino has been Vice Chairman of the Board and a Director of the
Company since its inception in October 1995. Mr. Pellegrino has been a Senior
Vice President of ThermoTrex since July 1995 and was Chairman of Lorad for more
than five years prior to that time. Mr. Pellegrino is also a Director of
ThermoQuest Corporation and ThermoLase Corporation.
Mr. Kirshner has been Chief Executive Officer, President and a Director
of the Company since its inception in October 1995. Mr. Kirshner has been
President of Lorad since February 1991. Prior to that time, he served as Chief
Operating Officer and President of Electrolux Water Systems, Inc.
Mr. Hatsopoulos has been Vice President, Chief Financial Officer and a
Director of the Company since its inception in October 1995. Mr. Hatsopoulos
has been a Vice President and Chief Financial Officer of ThermoTrex since 1990,
the Chief Financial Officer of Thermo Electron since 1988 and an Executive Vice
President of Thermo Electron since 1986. He is also a director of Thermo
BioAnalysis Corporation, Thermo Ecotek Corporation, Thermo Fibertek Inc.,
Thermo Instrument Systems Inc., Thermo Power Corporation, Thermo TerraTech
Inc., Thermo Optek Corporation, ThermoQuest Corporation, Thermo Sentron Inc.,
ThermoTrex and Lehman Brothers Funds, Inc., an open-end investment management
company.
Mr. Kelleher has been the Chief Accounting Officer of the Company since
its inception in October 1995. Mr. Kelleher has been Vice President, Finance of
Thermo Electron since 1987 and served as its Controller from 1982 to January
1996. He is a director of ThermoLase Corporation.
Dr. Gyftopoulos has been a Director of the Company since its inception
in October 1995. Dr. Gyftopoulos has been the Ford Professor of Mechanical
Engineering and of Nuclear Engineering at the Massachusetts Institute of
Technology for more than five years. Dr. Gyftopoulos is also a director of
Thermo BioAnalysis Corporation, Thermo Cardiosystems Inc., Thermo Electron,
ThermoLase Corporation, Thermo Remediation Inc., ThermoSpectra Corporation and
Thermo Voltek Corp.
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Mr. Howard has been a Director of the Company since its inception in
October 1995. Mr. Howard has been an Executive Vice President of Thermo
Electron since 1986. He is also a Director of Thermedics Inc., Thermo
Cardiosystems Inc., ThermoLase Corporation, Thermo Power Corporation, and
ThermoTrex.
Mr. Lewis has been a Director of the Company since its inception in
October 1995. Mr. Lewis has been Vice President of Thermo Electron since
September 1996 and Executive Vice President and Chief Operating Officer of
Thermo Instrument Systems Inc. since December 1995 and served as a Vice
President of that company from 1990 to 1995. He has also served as Chief
Executive Officer, President and a Director of Thermo Optek Corporation since
August 1995, and President of Thermo Jarrell Ash Corporation for more than five
years. Mr. Lewis is also Chairman of the Board and a Director of ThermoSpectra
Corporation.
Dr. May has been a Director of the Company since February 1996. He has
been Professor of Surgery at Harvard Medical School since 1994 and was Associate
Clinical Professor of Surgery for more than five years prior to that time.
Ms. Olayan has been a Director of the Company since February 1996. She
has served as President and a director of Olayan America Corporation since 1995
and Competrol Real Estate Limited since 1986, which are members of the Olayan
Group engaged in advisory services and private real estate investments,
respectively. Ms. Olayan also served as President and a director of Crescent
Diversified Limited, another member of the Olayan Group engaged in private
investments, from 1985 until 1994. Ms. Olayan is also a Director of Thermo
Electron.
Mr. Rufeh has been a Director of the Company since its inception in
October 1995 and was its Chairman of the Board from October 1995 to February
1996. Mr. Rufeh has been the President of ThermoTrex since 1988 and a Vice
President of Thermo Electron since January 1986. From 1985 to 1990, he was
Chairman of the Board of Thermo Power Corporation. He is also a Director of
ThermoTrex and ThermoLase Corporation.
Dr. Tang has been a Director of the Company since its inception in
October 1995. Dr. Tang has been Senior Vice President of ThermoTrex for more
than five years and was President of ThermoLase Corporation from December 1992
to May 1995. He is also a director of ThermoLase Corporation.
Compensation of Directors
Directors who are not employees of the Company, Thermo Electron or any
other companies affiliated with Thermo Electron (also referred to as "outside
directors") receive an annual retainer of $2,000 and a fee of $1,000 per day
for attending regular meetings of the Board of Directors and $500 per day for
participating in meetings of the Board of Directors held by means of conference
telephone and for participating in certain meetings of committees of the Board
of Directors. Payment of director fees is made quarterly. Messrs. Weinstein,
Pellegrino, Kirshner, Hatsopoulos, Howard, Lewis and Rufeh and Dr. Tang are
employees of members of the Thermo Electron companies and do not receive any
cash compensation from the Company for their services as directors. Directors
are also reimbursed for reasonable out-of-pocket expenses incurred in attending
such meetings.
Directors Deferred Compensation Plan. Under the Company's Deferred
Compensation Plan for Directors (the "Deferred Compensation Plan"), a
director has the right to defer receipt of his or her fees until he or she
ceases to serve as a director, dies or retires from his or her principal
occupation. In the event of a change in control or proposed change in control
of the Company that is not approved by the Board of Directors, deferred amounts
become payable immediately. For purposes of the Deferred Compensation Plan, a
change of control is defined as: (a) the occurrence, without the prior approval
of the Board of Directors, of the acquisition, directly or indirectly, by any
person of 50% or more of the outstanding Common Stock or the outstanding common
stock of ThermoTrex or 25% or more of the outstanding common stock of Thermo
Electron or (b) the failure of the persons serving on the Board of Directors
immediately prior to any contested election of directors or any exchange offer
or tender offer for the Common Stock or the common stock of ThermoTrex or
Thermo Electron to
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<PAGE>
constitute a majority of the Board of Directors at any time within two years
following any such event. Amounts deferred pursuant to the Deferred Compensation
Plan are valued at the end of each quarter as units of Common Stock. When
payable, amounts deferred may be disbursed solely in shares of Common Stock
accumulated under the Deferred Compensation Plan. The Company has reserved
25,000 shares under this Plan. As of the date of this Prospectus, 24 units had
been accumulated under the Deferred Compensation Plan.
Directors Stock Option Plan. The Company has adopted a directors stock
option plan (the "Plan") providing for the grant of stock options to purchase
shares of Common Stock to outside directors as additional compensation for
their service as directors. The Plan provides for the grant of stock options
upon a Director's initial appointment and, beginning in 2000, awards options to
purchase 1,000 shares annually to eligible directors, provided the Common Stock
is then publicly traded. A total of 200,000 shares of Common Stock have been
reserved for issuance under the Plan.
Under the Plan, each eligible director and each new outside director
initially joining the Board of Directors in 1996 will be granted an option to
purchase 40,000 shares of Common Stock upon the later of the adoption of the
plan or the director's appointment or election. The size of the award to new
directors appointed to the Board of Directors after 1996 will be reduced by
10,000 shares in each subsequent year. Directors initially joining the Board of
Directors after 1999 would not receive an option grant upon their appointment
or election to the Board of Directors, but would be eligible to participate in
the annual option awards described below. Options evidencing initial grants to
directors are presently exercisable, however, the shares acquired upon
exercise are subject to restrictions on transfer and the right of the Company
to repurchase such shares at the exercise price in the event the director
ceases to serve as a director of the Company or any other Thermo Electron
company. In such event, the restrictions and repurchase rights shall lapse or
be deemed to have lapsed in annual installments of 10,000 shares per year,
starting with the first anniversary of the date of grant, provided the director
has continuously served as a director of the Company, Thermo Electron or any
subsidiary of Thermo Electron since the grant date. These options expire on the
fifth anniversary of the grant date, unless the director dies, ceases to be an
eligible director or otherwise ceases to serve as a director of the Company,
Thermo Electron or any subsidiary of Thermo Electron prior to that date.
Commencing in 2000, eligible directors will also receive an annual grant
of options to purchase 1,000 shares of Common Stock, provided the Common Stock
is then publicly traded. The annual grant would be made at the close of business
on the date of each annual meeting of shareholders of the Company to each
outside director then holding office, commencing with the annual meeting to be
held in 2000. Options evidencing annual grants may be exercised at any time from
and after the six-month anniversary of the date of grant and prior to the
expiration of the option on the third anniversary of the date of grant. Shares
acquired upon exercise of the options would be subject to repurchase by the
Company at the exercise price if the recipient ceased to serve as a director of
the Company or any other Thermo Electron company prior to the first anniversary
of the date of grant for any reason other than death.
The exercise price for options granted under the Plan is determined by
the average of the closing prices reported by the American Stock Exchange (or
such other principal exchange on which the Common Stock is then traded) for the
five trading days immediately preceding and including the date the option is
granted or, if the shares underlying the option were not so traded, at the last
price paid per share by independent investors in an arms' length transaction
with the Company prior to the date of grant.
Grants of stock options to outside directors have consisted of 40,000
shares granted in November 1995 at an exercise price of $10.25 per share and
80,000 shares granted in February 1996 at an exercise price of $10.75 per
share.
35
<PAGE>
Certain Transactions
On November 22, 1995, November 30, 1995 and January 31, 1996, the Company
completed private placements primarily to outside investors of minority
investments in its Common Stock at purchase prices of $10.25 per share in the
November 1995 private placements and $10.75 per share in the January 1996
private placement. Crescent International Holdings Ltd. purchased an aggregate
of 200,000 shares of the Common Stock of the Company in such private
placements. Crescent International Holdings Ltd. is indirectly controlled by
Suliman S. Olayan, the father of Hutham S. Olayan, a Director of the Company.
In addition, the following directors and officers purchased the number of
shares of the Company's Common Stock set forth below in such private
placements: Anthony J. Pellegrino, Vice Chairman and Director, 20,000 shares;
Hal Kirshner, Chief Executive Officer, President and Director, 100,000 shares;
Robert C. Howard, Director, 2,500 shares; Firooz Rufeh, Director, 19,600
shares; and Kenneth Y. Tang, Director, 1,200 shares.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table
The following table summarizes compensation for services to the Company in
all capacities awarded to, earned by or paid to the Company's Chief Executive
Officer for the last full fiscal year ("fiscal 1996"), for the nine-month
period from January 1, 1995 to September 30, 1995 ("fiscal 1995"), reflecting
a change in the Corporation's fiscal year end to September 30, and for the
preceding full fiscal year from January 2, 1994 to December 31, 1994 ("Fiscal
1994"). No other executive officer of the Company met the definition of
"highly compensated" within the meaning of the Securities and Exchange
Commission's executive compensation disclosure rules during these periods.
The Company is required to appoint certain executive officers and full-time
employees of Thermo Electron as executive officers of the Company in accordance
with the Thermo Electron Corporate Charter. The compensation for these
executive officers is determined and paid entirely by Thermo Electron. The time
and effort devoted by these individuals to the Company's affairs is provided to
the Company under the Services Agreement between the Company and Thermo
Electron. Accordingly, the compensation for these individuals is not reported
in the following table. See "Relationship and Potential Conflicts of Interest
with Thermo Electron and ThermoTrex."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Fiscal Securities All Other
Principal Position Year Salary Bonus Underlying Options (3) Compensation (4)
------------------ ---- ------ ----- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Hal Kirshner
Chief Executive Officer
and President................... 1996 $192,500 -- (1) 150,000(TXM) $9,958 (5)
150(TMO)
1995 150,000(2) $ 200,000 -- 7,005
1994 200,000 180,000 22,500(TMO) 6,750
</TABLE>
36
<PAGE>
- --------------------
(1) Compensation for executive officers is reviewed and determined annually at
the end of each calendar year. Accordingly, bonuses have not yet been
determined for fiscal 1996.
(2) Salary data for fiscal 1995 reflects salary paid during the nine-month
period from January 1, 1995 to September 30, 1995, as a result of the
change in the Company's fiscal year-end.
(3) In addition to receiving options to purchase Common Stock (designated in
the table as TXM), Mr. Kirshner was granted options to purchase shares of
the common stock of Thermo Electron (designated in the table as TMO).
Information with respect to options to purchase the common stock of Thermo
Electron reflect a three-for-two split effected in May 1996.
(4) Represents the amount of matching contributions made by the individual's
employer on behalf of the Chief Executive Officer under the Thermo Electron
401(k) plan.
(5) In addition to the matching contribution referred to in footnote (4), such
amount includes $4,614, representing the market value of 115 shares of
Thermo Electron common stock received by Mr. Kirshner in May 1996 in
recognition of his managerial achievements at Thermo Electron's Annual
Management Conference.
Stock Options Granted During Fiscal 1996
The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to the Chief Executive Officer. It has
not been the Company's policy in the past to grant stock appreciation rights,
and no such rights were granted during fiscal 1996.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed Annual
Number of Shares Options Granted Exercise Rates of Stock Price
Underlying Options to Employees in Price Per Expiration Appreciation for Option
Name Granted (1) Fiscal Year Share Date Term (2)
---- ----------- ----------- ----- ---- --------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Hal Kirshner 150,000 (TXM) 15% $11.00 3/26/08 $1,312,500 $3,528,000
150 (TMO)(3) .01% 42.79 5/22/99 1,011 2,124
</TABLE>
- -------------
l) The options to purchase shares of the Common Stock of the Company are
presently exercisable, however, the shares acquired upon exercise are
subject to repurchase by the granting corporation at the exercise price if
the optionee ceases to be employed by the granting corporation or another
Thermo Electron company. The repurchase rights are deemed to lapse 20% per
year commencing on the fifth anniversary of the grant date. The granting
corporation may exercise its repurchase rights within six months after the
termination of the optionee's employment. The granting corporation may
permit the holders of all options to exercise options and satisfy tax
withholding obligations by surrendering shares equal in fair market value
to the exercise price or withholding obligation.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period and the date
on which the options are exercised.
37
<PAGE>
(3) These options were granted as a part of Thermo Electron's stock option
program, and have the same terms as stated in footnote (1), except that the
options have a three-year term and the repurchase rights lapse in their
entirety on the second anniversary of the grant date.
Stock Options Exercised During Fiscal Year 1996 and Fiscal Year-End Option
Values
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 and outstanding stock options held at the
end of fiscal 1996 by the Chief Executive Officer. No stock appreciation rights
were exercised or outstanding during fiscal 1996.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
-------- --------
Number of
Shares
Acquired Value Exercisable/ Exercisable/
Name Company on Exercise Realized Unexercisable (1) Unexercisable
---- ------- ----------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Hal Kirshner Trex Medical Corporation -- -- 150,000/0 $1,387,500/-
ThermoTrex 76,500 $2,079,270 73,000/0 1,809,155/-
ThermoLase -- -- 36,400/0 787,150/-
Thermo Electron -- -- 116,025/0 2,953,132/-
</TABLE>
- ---------
(l) All of the options reported outstanding at the end of the fiscal year are
immediately exercisable. In all cases, the shares acquired upon exercise of
the options reported in the table are subject to repurchase by the granting
corporation at the exercise price if the optionee ceases to be employed by
such corporation or another Thermo Electron company. The granting
corporation may exercise its repurchase rights within six months after the
termination of the optionee's employment. For publicly traded companies,
the repurchase rights generally lapse ratably over a five to ten year
period, depending on the option term, which may vary from seven to twelve
years, provided that the optionee continues to be employed by the granting
corporation or another Thermo Electron company.
(2) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Kirshner are subject to the same terms described in footnote
(1), except that the repurchase rights of the granting corporation
generally do not lapse until the tenth anniversary of the grant date. In
the event of the employee's death or involuntary termination prior to the
tenth anniversary of the grant date, the repurchase rights of the granting
corporation shall be deemed to have lapsed ratably over a five-year period
commencing with the fifth anniversary of the grant date.
Employment Agreements
In connection with the acquisition of the LORAD Corporation ("LORAD") in
November 1992, the Company entered into an employment agreement with Mr. Hal
Kirshner. Mr. Kirshner's agreement called for Mr. Kirshner to serve as
President and Chief Operating Officer of LORAD until December 31, 1995, at a
base salary of $200,000 per year plus bonus.
38
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholder
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 28, 1996 by
ThermoTrex, which is the only person or entity that owns beneficially more than
5% of the outstanding shares of Common Stock. See "Risk Factors_Control by
ThermoTrex."
<TABLE>
<CAPTION>
Percentage of
Number of Shares Outstanding Shares
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------------------ ------------------ ------------------
<S> <C> <C>
ThermoTrex Corporation (1) ..................... 23,562,339 (2) 80%
10455 Pacific Center Court
San Diego, CA 92121
</TABLE>
- -----------
(l) ThermoTrex is a majority-owned subsidiary of Thermo Electron and,
therefore, Thermo Electron may be deemed a beneficial owner of the shares
of Common Stock beneficially owned by ThermoTrex. Thermo Electron disclaims
beneficial ownership of these shares.
(2) Includes 678,561 shares of Common Stock issuable upon conversion of the
Convertible Note.
ThermoTrex has adopted a stock option plan with respect to the Common Stock
that it beneficially owns. Under this plan, options to purchase up to 400,000
shares of such stock may be granted to any person within the discretion of the
human resources committee of the Board of Directors of ThermoTrex, including
officers and key employees of ThermoTrex.
Management
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 28, 1996 as well
as information regarding the beneficial ownership of the common stock of
ThermoTrex and Thermo Electron, as of September 28, 1996, with respect to (i)
each of the Company's directors, (ii) the Chief Executive Officer, and (iii)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Thermo
Trex Medical ThermoTrex Electron
Name (1) Corporation (2) Corporation (3) Corporation (4)
-------- --------------- --------------- ---------------
<S> <C> <C> <C>
Gary S. Weinstein ................................ 315,000 110,000 150,412
Anthony J. Pellegrino ............................ 146,472 930,621 115,875
Hal Kirshner ..................................... 285,000 92,968 117,184
Elias P. Gyftopoulos ............................. 40,000 4,500 71,070
John N. Hatsopoulos .............................. 40,383 5,423 556,059
Robert C. Howard ................................. 43,674 35,554 192,685
Earl L. Lewis .................................... 40,500 420 131,914
James W. May, Jr. ................................ 40,000 0 0
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Hutham S. Olayan ............................................. 45,024 9,500 23,799
Firooz Rufeh ................................................. 83,600 101,788 134,263
Kenneth Y. Tang .............................................. 48,706 79,203 26,204
All directors and executive officers as a group (12 persons) 1,134,359 1,380,377 1,664,367
</TABLE>
- -------------
(l) Except as reflected in the footnotes to this table, shares of Common Stock
and common stock of ThermoTrex and Thermo Electron beneficially owned
consist of shares owned by the indicated person or by that person for the
benefit of minor children, and all share ownership involves sole voting and
investment power.
(2) Shares of the Common Stock beneficially owned by Mr. Weinstein, Mr.
Pellegrino, Mr. Kirshner, Dr. Gyftopoulos, Mr. Hatsopoulos, Mr. Howard, Mr.
Lewis, Dr. May, Ms. Olayan, Mr. Rufeh, Dr. Tang and all directors and
executive officers as a group include 300,000, 40,000, 150,000, 40,000,
40,000, 40,000, 40,000, 40,000, 40,000, 40,000, 40,000 and 816,000 shares
respectively, that such person or group has the right to acquire within 60
days of September 28, 1996, through the exercise of stock options. Shares
beneficially owned by Ms. Olayan and by all directors and executive
officers as a group include 24 shares allocated through September 28, 1996
to Ms. Olayan's account maintained pursuant to the Company's deferred
compensation plan for directors. Shares beneficially owned by Ms. Olayan do
not include 200,000 shares owned by Crescent International Holdings Ltd., a
member of the Olayan Group. Crescent International Holdings Ltd. is
indirectly controlled by Suliman S. Olayan, Ms. Olayan's father. Ms. Olayan
disclaims beneficial ownership of the shares owned by Crescent
International Holdings Ltd. Shares beneficially owned by Mr. Rufeh include
19,600 shares held in a family trust. No director or executive officer
beneficially owned more than 1% of the Common Stock outstanding as of
September 28, 1996, other than Mr. Weinstein who beneficially owned
approximately 1.0% of such Common Stock; and all directors and executive
officers as a group beneficially owned 3.8% of the Common Stock outstanding
as of such date.
(3) Shares of the common stock of ThermoTrex beneficially owned by Mr.
Weinstein, Mr. Pellegrino, Mr. Kirshner, Dr. Gyftopoulos, Mr. Hatsopoulos,
Mr. Howard, Ms. Olayan, Mr. Rufeh, Dr. Tang and by all directors and
executive officers as a group include 100,000, 134,500, 73,000, 4,500,
2,100, 31,320 4,500, 66,000, 63,318 and 489,638 shares, respectively, that
such person or group has the right to acquire within 60 days of September
28, 1996, through the exercise of stock options. Shares beneficially owned
by Mr. Pellegrino include 10,408 shares held in a trust of which Mr.
Pellegrino's spouse is the trustee. No director or executive officer
beneficially owned more than 1% of the common stock of ThermoTrex
outstanding as of September 28, 1996, other than Mr. Pellegrino, who
beneficially owned approximately 4.8% of such common stock; all directors
and executive officers as a group beneficially owned 7.0% of such common
stock outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to reflect
a three-for-two stock split effected in May 1996. Shares of the common
stock of Thermo Electron beneficially owned by Mr. Weinstein, Mr.
Pellegrino, Mr. Kirshner, Dr. Gyftopoulos, Mr. Hatsopoulos, Mr. Howard, Mr.
Lewis, Ms. Olayan, Mr. Rufeh, Dr. Tang and by all directors and executive
officers as a group include 150,075, 115,875, 116,025, 9,375, 429,685,
47,361, 126,937, 9,375, 90,560, 23,850 and 1,216,692 shares, respectively,
that such person or group has the right to acquire within 60 days of
September 28, 1996, through the exercise of stock options. Shares
beneficially owned by Ms. Olayan and by all directors and executive
officers as a group include 14,424 shares allocated through September 28,
1996 to Ms. Olayan's account maintained pursuant to Thermo Electron's
deferred compensation plan for directors. Shares beneficially owned by Mr.
Hatsopoulos, Mr. Howard, Mr. Lewis, Mr. Rufeh, Dr. Tang and by all
directors and executive officers as a group include 1,225, 1,963, 617,
1,142, 538 and 6,713 full shares, respectively, allocated through January
1, 1996 to their respective accounts maintained pursuant to Thermo
Electron's Employee Stock Purchase Plan of which the
40
<PAGE>
trustees who have investment power over its assets are executive
officers of Thermo Electron. Shares beneficially owned by Ms. Olayan do not
include 4,384,500 shares owned by Crescent Holding GmbH, a member of the
Olayan Group. Crescent Holding GmbH is indirectly controlled by Suliman S.
Olayan, Ms. Olayan's father. Ms. Olayan disclaims beneficial ownership of
the shares owned by Crescent Holding GmbH. No director or executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
outstanding as of September 28, 1996; all directors and executive officers
as a group beneficially owned 1.1% of the common stock of Thermo Electron
outstanding as of September 28, 1996.
SELLING SHAREHOLDERS
The following table shows the names of the Selling Shareholders, the number
of shares of the Company's Common Stock each owned, the number of shares that
may be offered by each of them pursuant to this Prospectus and the number of
Shares each will own after completion of the offering, assuming all of the
Shares being offered hereby are sold.
<TABLE>
<CAPTION>
Shares of
Common Stock Shares Owned
Owned Prior to Shares Being after Completion
Selling Shareholder the Offering (1) Offered of the Offering
------------------- ---------------- ------- ---------------
<S> <C> <C> <C>
Hal Kirshner (2) 285,000 100,000 185,000
Crescent International Holdings Ltd. (3) 200,000 200,000 0
Kemper Technology Fund 185,000 60,000 125,000
Ryco & Co. 140,000 140,000 0
The Acorn Fund 125,000 50,000 75,000
Thomas Paine Investors LP 73,400 50,000 23,400
W.H.I. Growth Fund L.P. 69,600 36,000 33,600
Anthony J. Pellegrino (4) 146,472 20,000 126,472
U.S. Trust 60,000 60,000 0
Rufeh Family Trust (5) 83,600 19,600 64,000
DSV Partners IV 50,000 50,000 0
Bank Julius Baer & Co. AG. 50,000 50,000 0
Dreyfus New Leaders Fund, Inc. 50,000 50,000 0
Robert C. Howard (6) 43,674 2,500 41,674
Daniel Lyke 41,230 25,000 16,230
Kenneth Y. Tang (7) 48,706 1,200 47,506
Pittway Retirement Trust 40,600 21,000 19,600
Warburg, Pinous Emerging Growth Fund, 40,000 40,000 0
Inc
Darier, Hentsch & Cie, Geneva 40,000 40,000 0
IBJ Schroder Bank & Trust Co. 40,000 40,000 0
Alliance Global Environment Fund 35,000 35,000 0
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tudor BVI Futures Ltd 26,700 26,700 0
Compagnie De Gestion Et De Banque Gonet S.A 25,000 25,000 0
BP Pension Trustees Limited 25,000 25,000 0
CS Zurich 25,000 25,000 0
Bankers Trust TTEE for Chrysler Corp. Empl. #1 Pension Plan 24,000 24,000 0
Chase Manhattan, N.A., TTEE for IBM Corp. Retirement Plan 24,000 24,000 0
Dresdner Bank (Schweiz) AG 23,000 23,000 0
The Kaufman Fund 20,000 20,000 0
Warburg, Pincus Post-Venture Capital Fund, Inc 20,000 20,000 0
Cudd & Co 20,000 20,000 0
Loews Corp. 20,000 20,000 0
State Street Bank Cust. for GE Pension Trust 18,000 18,000 0
Banca Del Gottardo 16,000 16,000 0
WNC Corporation 15,000 15,000 0
Smaragda Manuelides 15,000 15,000 0
James Pellegrino 15,000 10,000 5,000
C.O. Nominees Ltd 14,000 14,000 0
Wolverine Capital L.P. 12,500 12,500 0
Discount Bank Geneva 12,500 12,500 0
Turnstone Co. 12,500 12,500 0
Oddo & Cie 12,500 12,500 0
Peter O. Crisp (8) 12,345 10,000 2,345
Essex Special Growth Opportunities Fund L.P. 12,035 10,000 2,035
Raptor Global Fund Ltd 11,400 11,400 0
Bank Clariden 11,250 10,000 1,250
Irving Harris Foundation B 11,000 10,000 1,000
Irving Harris Foundation A 11,000 10,000 1,000
Ueberseebank AG 11,000 11,000 0
SE Banken Fonder 10,000 10,000 0
Philip H. Geier 10,000 10,000 0
EFAL Investment Co. 10,000 10,000 0
The Dora Razis 1981 Trust 10,000 10,000 0
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C> <C>
Lupo Del Bono 10,000 10,000 0
U.B.S. Geneve 10,000 10,000 0
Banque Nationale De Paris (Suisse) SA 10,000 10,000 0
Auer & Co 10,000 10,000 0
Glyns Nominees 10,000 10,000 0
Brett A. Spivey (9) 9,800 9,800 0
James J. O'Donnell IRA Account 9,200 7,000 2,200
Raptor Global Fund L.P. 8,100 8,100 0
Gamma Co., Inc 8,000 8,000 0
Harold Speert 7,750 2,500 5,250
Kathryn H. Speert 7,750 2,500 5,250
Yiska Moser Trust 6,650 6,000 650
Harny & Co 6,500 6,500 0
Robert A. Mccabe (10) 6,050 5,000 1,050
Aptargroup Inc. Master Pension 5,800 3,000 2,800
Emanon Partners L.P. 5,500 5,000 500
Richard B. Felder 5,500 5,000 500
Michael D. Mintz Trust 5,500 5,000 500
William N. Pontikes 5,500 5,000 500
Martin D. Cohn & Gerald L. Cohn Co. TTE's Gerald Cohn Revocable Trust 5,000 5,000 0
Deutsche Morgan Grenfell/CJ Lawrence Inc 5,000 5,000 0
Spencer Hempleman 5,000 5,000 0
CTM Financial Corp 5,000 5,000 0
Orsenna Ltd. 5,000 5,000 0
ABN Amro Bank 5,000 5,000 0
Low-Beer Family Trust 5,000 5,000 0
AWAD & Associates L.P 5,000 5,000 0
Kink & Co 5,000 5,000 0
Aries Trading Ltd 5,000 5,000 0
Jackie L. Stone 5,000 5,000 0
Darier, Hentsch Private Bank & Trust Ltd 5,000 5,000 0
James S. Milgard 5,000 5,000 0
Petronome Corporation 5,000 5,000 0
Carter Hempleman 5,000 5,000 0
Randolph & Judith Pace JTWROS 5,000 5,000 0
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
Martin R. Walsh 5,000 5,000 0
Brebar Investments 4,950 4,500 450
Sico Ltd 4,950 4,500 450
Delahaye Finance 4,750 4,750 0
Via Bourse 4,750 4,750 0
Ian A.D. Pilkington 4,400 4,000 400
Charles J. Cazelet 4,400 4,000 400
David M. Wentworth - Stanley 4,400 4,000 400
Lloyd Arnel 4,120 1,200 2,920
Bruce E. Toll 4,000 4,000 0
Lawrence D. Altschut 4,000 4,000 0
Harvey Greenfield 4,000 4,000 0
Alan J. Rubin 4,000 4,000 0
Michael Bollag 4,000 4,000 0
Tudor Arbitrage Partners, L.P. 3,800 3,800 0
Laurence D. Hollingworth 3,520 3,200 320
Soginvest Banca 3,500 3,500 0
Natalie Karp & Jason Karp 3,500 1,000 2,500
William C. Bartholomay 3,300 3,000 300
Lee Ruwitch, As Trustee Of The Lee Ruwitch Family Trust 3,000 3,000 0
Evangelos Kapetanakis 3,000 3,000 0
Edward V. Locke 2,600 1,200 1,400
Georgia Veru & Theodore Veru 2,500 2,500 0
RJW Kooijman 2,500 2,500 0
Molly Spira 2,500 2,500 0
MD Funding Inc 2,500 2,500 0
Swiss Bank Corporation Lausanne 2,500 2,500 0
Edward Stewart Revocable Trust 2,500 2,500 0
Alan Novich 2,500 2,500 0
William C. Struyk 2,200 2,000 200
Adams Street Joint Venture 2,200 2,000 200
Steven J. Kemper 2,100 1,000 1,100
Zurcher Kantonalbank 2,000 2,000 0
Hare & Co 2,000 2,000 0
Nancy Schachter 2,000 1,000 1,000
Coutts & Co. AG, Zurich 2,000 2,000 0
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Kambanis 2,000 2,000 0
Angelos D. Koutsonikolis 2,000 2,000 0
Frank Jungers (11) 2,000 2,000 0
Spyros Capralos 2,000 2,000 0
Michael J. Schmerin & Dafna Schmerin Jtwros 2,000 2,000 0
The Artemis Zavaliangos 1991 Trust 2,000 2,000 0
James Linus 2,000 2,000 0
Francesco Benvenuti 2,000 2,000 0
Matthew Frank 2,000 2,000 0
Sarah McAlpine 2,000 2,000 0
Matthew Neville 1,980 1,800 180
C.J. Middleton 1,650 1,500 150
Paul F. Ferrari, Trustee (12) 1,600 1,000 600
Richard J. Gusick, IRA Acct., Cowen & Co. Cust 1,500 1,500 0
Martin R. Post 1,500 1,500 0
Michael Kyriacopoulos & C. Kyriacopoulos JTWROS 1,500 1,000 500
Nicholas T. Zervas (13) 1,500 1,500 0
Alvin J. Smith 1,300 1,300 0
James O.R. Weaver 1,210 1,100 110
Marilyn Karp 1,200 1,000 200
Richard & Christine Cowgill JTWROS 1,100 1,000 100
Theobald M. Karch TTEE Theobald M. Karch Revocable Trust 1,000 1,000 0
George R. Freund 1,000 1,000 0
Giordano Martinelli 1,000 1,000 0
Mahi-niki Loumidis 1,000 1,000 0
Michael Mellman 1,000 1,000 0
Murray Norkin 1,000 1,000 0
Frederic M. Rosemore & Marion Rosemore JTWROS 1,000 1,000 0
Sigler & Co. 1,000 1,000 0
E. Crosby Lewis 1,000 1,000 0
Bank Leu Ag Zurich 1,000 1,000 0
Ernest Aloi 1,000 1,000 0
Bank Fur Handel und Effekten 1,000 1,000 0
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Stuart Albrecht 1,000 1,000 0
Karen M. Levin 815 700 115
Dr. Richard V. Aghababian 550 500 50
Volksbank Kufstein 500 500 0
U.B.S. Zurich 500 500 0
Seema Sachdeva & Rakesh Sachdeva 500 500 0
Fabrizia Egger 500 500 0
Meinl Bank 500 500 0
Ben G. Whitefield 495 450 45
Charles R.E. Cottan 495 450 45
Norman A. Pedersen III 275 250 25
Christine D. Vinchesi 250 250 0
</TABLE>
(1) Except as otherwise reflected in the footnotes to th is table, all share
ownership includes Shares owned by the Selling Shareholders and shares that
the Selling Shareholders have the right to acquire within 60 day s of
September 28, 1996, through the exercise of stock options.
(2) Hal Kirshner is Chief Executive Officer, President and Director of the
Company.
(3) Crescent International Holding Ltd., a member of the Olayan Group, is
indirectly controlled by Suliman S. Olayan, the father of Hutham S. Olayan,
a director of the Company. Ms. Olayan disclaims beneficial ownership of
these shares.
(4) Anthony J. Pellegrino is Vice Chairman of the Board and Director of the
Company and Senior Vice President of ThermoTrex.
(5) Firooz Rufeh is a Director of the Company, President and Director of
ThermoTrex and Vice President of Thermo Electron.
(6) Robert C. Howard is a Director of the Company and ThermoTrex and an
Executive Vice President of Thermo Electron.
(7) Kenneth Y. Tang is a Director of the Company and a Senior Vice President of
ThermoTrex.
(8) Peter O. Crisp is a Director of ThermoTrex and Thermo Electron.
(9) Brett A. Spivey is a Vice President of ThermoTrex.
(10) Robert A. McCabe is a Director of Thermo Electron.
(11) Frank Jungers is a Director of Thermo Electron.
(12) Paul F. Ferrari is a Director of ThermoTrex.
(13) Nicholas T. Zervas is a Director of ThermoTrex.
The Shares are being registered to permit public secondary trading of
the Shares from time to time by the Selling Shareholders. All of the Shares
being offered by the Selling Shareholders were sold by the Company in private
placement transactions pursuant to Stock Purchase Agreements with the Company
dated November 22, 1995, November 30, 1995 and January 31, 1996 (collectively,
the "Purchase Agreements").
In the Purchase Agreements, the Company agreed, among other things, to
bear all expenses (other than underwriting discounts, selling commissions, and
fees and expenses of counsel and other advisors to the Selling Shareholders) in
connection with the registration and sale of the Shares being offered by the
Selling Shareholders. See "Sale of Shares." The Company has agreed to prepare
and file such amendments and supplements to the Registration Statement of which
this Prospectus forms a part as may be necessary to keep the Registration
46
<PAGE>
Statement effective until all the Shares offered hereby have been sold pursuant
thereto or until such Shares are no longer, by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect, required to be registered
for the public sale thereof by the Selling Shareholders.
SALE OF SHARES
The Company has been advised that the Selling Shareholders may sell
Shares from time to time in transactions on the American Stock Exchange, in
negotiated transactions, through the writing of options on the Shares, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market price or at negotiated prices. The Selling Shareholders may
effect such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agent or to whom they sell
as principal, or both (which compensation to a particular broker-dealer might be
in excess of customary commissions).
The Selling Shareholders and any broker-dealers who act in connection
with the sale of Shares hereunder may be deemed to be "underwriters" as that
term is defined in the Securities Act, and any commissions received by them and
profit on any resale of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Company has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act as underwriter or otherwise.
DESCRIPTION OF CAPITAL STOCK
As of September 28, 1996, the Company had 50,000,000 shares of Common
Stock authorized for issuance, of which 28,592,630 were issued and outstanding.
Each share of Common Stock is entitled to pro rata participation in
distributions upon liquidation and to one vote on all matters submitted to a
vote of shareholders. Dividends may be paid to the holders of Common Stock when
and if declared by the Board of Directors out of funds legally available
therefor. Holders of Common Stock have no preemptive, subscription, redemption,
conversion or similar rights. The outstanding shares of Common Stock are, and
the shares offered hereby when issued will be, legally issued, fully paid and
nonassessable.
The shares of Common Stock have noncumulative voting rights. As a
result, the holders of more than 50% of the shares voting can elect all the
directors if they so choose, and in such event, the holders of the remaining
shares cannot elect any directors. Upon completion of the Offerings, ThermoTrex
will continue to beneficially own at least a majority of the outstanding Common
Stock, and will have the power to elect all of the members of the Company's
Board of Directors. ThermoTrex is a majority-owned subsidiary of Thermo Electron
and, therefore, Thermo Electron may be deemed a beneficial owner of the shares
of Common Stock beneficially owned by ThermoTrex. Thermo Electron disclaims
beneficial ownership of these shares.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. The Company's By-Laws also contains provisions to
indemnify the directors and officers of the Company to the fullest extent
permitted by the General Corporation Law of Delaware. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors and officers.
47
<PAGE>
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
There are currently 28,592,630 shares of Common Stock outstanding of
which 5,708,832 are freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by affiliates of the
Company as that term is defined in Rule 144 under the Securities Act.
The remaining 22,883,798 outstanding shares of Common Stock are owned by
ThermoTrex. In connection with the Company's initial public offering which was
completed on July 2, 1996, ThermoTrex has agreed that it will not offer, sell,
grant any option to purchase or otherwise dispose of any shares of the Common
Stock (except for the grant of options and the sale of shares of the Common
Stock pursuant to existing stock-based compensation plans) before December 23,
1996, without the prior consent of the underwriters of the initial public
offering. Upon expiration of this lock-up agreement, ThermoTrex may sell its
shares of the Common Stock in an offering registered under the Securities Act
or pursuant to an exemption from such registration, such as that provided by
Rule 144 under the Securities Act. So long as ThermoTrex is able to elect a
majority of the Board of Directors it will be able to cause the Company at any
time to register under the Securities Act all or a portion of the Common Stock
owned by ThermoTrex or its affiliates, in which case it would be able to sell
such shares without restriction upon effectiveness of the registration
statement.
In general, under Rule 144 as currently in effect, beginning
approximately 90 days after the effective date of the Registration Statement of
which this Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least two years from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of Common Stock (approximately 285,926 shares) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
date on which notice of such sale was filed pursuant to Rule 144 provided
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, under Rule 144(k), if a
period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144. The Securities and Exchange Commission has proposed an amendment to Rule
144 which would reduce the holding period required for shares subject to Rule
144 to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k).
The Company has reserved 1,925,000 shares of Common Stock for grants
under its existing stock-based compensation plans. As of September 28, 1996 the
Company had options outstanding to purchase up to 1,381,000 shares of Common
Stock to certain of its employees, officers and directors at a weighted average
exercise price of $11.14 per share. All of such shares are currently
exercisable. Once exercised, the shares acquired upon exercise are subject to
the right of the Company to repurchase shares at the exercise price if the
optionee ceases to be employed by the Company. This repurchase right lapses
ratably (on an annual basis) over a five to ten year period depending upon the
term of the option. As of September 28, 1996, the repurchase right had lapsed as
to no shares issuable upon exercise of outstanding options. The Company has
reserved 543,976 shares for future grants under plans. The Company intends to
file registration statements under the Securities Act to register all shares of
Common Stock issuable under such plans. Shares covered by these registration
statements that are not subject to
48
<PAGE>
transferability restrictions will be eligible for sale in the public market
immediately upon the filing of such registration statements, subject to Rule 144
limitations applicable to Affiliates as noted above.
Sales of significant numbers of shares of the Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities. See "Risk Factors--Significant Additional Shares Eligible for
Future Sale."
LEGAL OPINIONS
The validity of the issuance of the Common Stock offered in the
Offerings will be passed upon for the Company by Seth H. Hoogasian, Esq.,
General Counsel of Thermo Electron, ThermoTrex and the Company. Mr. Hoogasian
owns or has the right to acquire 6,000 shares of Common Stock, 7,800 shares of
common stock of ThermoTrex and 115,927 shares of common stock of Thermo
Electron.
EXPERTS
The Consolidated Financial Statements of the Company and Bennett
included in this Prospectus and the financial statement schedule included in the
Registration Statement of which this Prospectus forms a part have been audited
by Arthur Andersen LLP, independent public accountants, to the extent and for
the periods as indicated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Although statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to set forth all material elements of such documents, such
statements are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement, although setting forth all material elements
of such documents, shall be deemed qualified by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TREX MEDICAL CORPORATION
Report of Independent Public Accountants................................ F-2
Consolidated Statement of Income for the years ended January 1, 1994 and
December 31, 1994, for the nine months ended October 1, 1994 and Sep-
tember 30, 1995 and for the nine months ended July 1, 1995 and June 29,
1996................................................................... F-3
Consolidated Balance Sheet as of December 31, 1994, September 30, 1995
and
June 29, 1996.......................................................... F-4
Consolidated Statement of Cash Flows for the years ended January 1, 1994
and December 31, 1994, for the nine months ended October 1, 1994 and
September 30, 1995 and for the nine months ended July 1, 1995 and June
29, 1996............................................................... F-5
Consolidated Statement of Shareholders' Investment for the years ended
January 1, 1994 and December 31, 1994, for the nine months ended
September 30, 1995 and for the nine months ended June 29, 1996......... F-6
Notes to Consolidated Financial Statements.............................. F-7
BENNETT X-RAY CORPORATION
Report of Independent Public Accountants................................ F-15
Consolidated Statement of Operations for the fiscal years ended February
28, 1993, 1994 and 1995, for the six months ended August 31, 1994 and
for the period from March 1, 1995 through September 14, 1995........... F-16
Consolidated Balance Sheet as of February 28, 1994 and 1995 ............ F-17
Consolidated Statement of Cash Flows for the fiscal years ended February
28, 1993, 1994 and 1995, for the six months ended August 31, 1994 and
for the period from March 1, 1995 through September 14, 1995........... F-18
Consolidated Statement of Shareholders' Investment for the fiscal years
ended February 28, 1993, 1994 and 1995 and for the period from March 1,
1995 through September 14, 1995........................................ F-19
Notes to Consolidated Financial Statements.............................. F-20
</TABLE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF TREX MEDICAL CORPORATION
AND BENNETT X-RAY CORPORATION (UNAUDITED)
<TABLE>
<S> <C>
Pro Forma Combined Condensed Statement of Income for the nine months
ended
September 30, 1995..................................................... F-24
Pro Forma Combined Condensed Statement of Income for the nine months
ended
June 29, 1996.......................................................... F-26
Notes to Pro Forma Combined Condensed Financial Statements.............. F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trex Medical Corporation:
We have audited the accompanying consolidated balance sheet of Trex Medical
Corporation (a Delaware corporation and 100%-owned subsidiary of ThermoTrex
Corporation) and subsidiaries as of December 31, 1994 and September 30, 1995,
and the related consolidated statements of income, cash flows and
shareholders' investment for the years ended January 1, 1994 and December 31,
1994 and for the nine months ended September 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trex
Medical Corporation and subsidiaries as of December 31, 1994 and September 30,
1995 and the results of their operations and their cash flows for the years
ended January 1, 1994 and December 31, 1994 and for the nine months ended
September 30, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
March 26, 1996 (except with respect
to certain matters discussed in Note
9, as to which the date is September
4, 1996)
F-2
<PAGE>
TREX MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
------------------------- ------------------
OCTOBER 1, SEPTEMBER 30, JULY 1, JUNE 29,
1993 1994 1994 1995 1995 1996
------- ------- ----------- ------------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues (includes $350
and $2,240 to an af-
filiated company in
the nine months ended
September 30, 1995 and
the six months ended
March 30, 1996)
(Note 7).............. $37,519 $54,410 $39,196 $55,291 $48,512 $103,510
------- ------- ------- ------- -------- ---------
Costs and Operating Ex-
penses:
Cost of revenues
(includes $175 and
$1,120 for
affiliated company
revenues in the nine
months ended
September 30, 1995
and the six months
ended March 30,
1996)............... 18,589 27,794 19,654 28,180 24,747 58,312
Selling, general and
administrative
expenses (Note 6)... 9,788 13,272 9,794 12,174 11,055 20,530
Research and develop-
ment
expenses (Note 6)... 7,182 10,662 7,320 8,595 8,485 12,945
------- ------- ------- ------- -------- ---------
35,559 51,728 36,768 48,949 44,287 91,787
------- ------- ------- ------- -------- ---------
Operating Income....... 1,960 2,682 2,428 6,342 4,225 11,723
Interest Income........ -- -- -- -- -- 616
Interest Expense, Re-
lated Party
(Note 1).............. -- -- -- -- -- (1,284)
Other Income (Expense),
Net................... (158) (22) (11) 22 23 7
------- ------- ------- ------- -------- ---------
Income Before Provision
for
Income Taxes.......... 1,802 2,660 2,417 6,364 4,248 11,062
Provision for Income
Taxes (Note 4)........ 975 1,466 1,332 2,881 1,938 5,159
------- ------- ------- ------- -------- ---------
Net Income............. $ 827 $ 1,194 $ 1,085 $ 3,483 $ 2,310 $ 5,903
======= ======= ======= ======= ======== =========
Earnings per Share:
Primary............... $ .04 $ .06 $ .05 $ .17 $ .11 $ .27
======= ======= ======= ======= ======== =========
Fully Diluted......... $ .04 $ .06 $ .05 $ .17 $ .11 $ .26
======= ======= ======= ======= ======== =========
Weighted Average
Shares:
Primary............... 20,151 20,151 20,151 20,151 20,151 21,839
======= ======= ======= ======= ======== =========
Fully Diluted......... 20,151 20,151 20,151 20,151 20,151 25,310
======= ======= ======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TREX MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 29,
1994 1995 1996
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ -- $ 202 $ 2,379
Accounts receivable, less allowances
of $525, $870, and $1,073............ 9,909 14,937 21,405
Inventories........................... 6,722 16,667 28,068
Prepaid expenses...................... 158 113 1,078
Due from Thermo Electron Corporation
and affiliated companies............. -- -- 2,602
Prepaid income taxes (Note 4)......... 2,649 3,474 3,754
-------- -------- --------
19,438 35,393 59,286
-------- -------- --------
Property, Plant and Equipment, at Cost,
Net.................................... 6,310 7,811 11,570
-------- -------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2)..................... 22,252 59,170 72,190
-------- -------- --------
$ 48,000 $102,374 $143,046
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Current Liabilities:
Accounts payable...................... $ 3,742 $ 7,381 $ 9,475
Accrued payroll and employee bene-
fits................................. 991 2,338 3,459
Accrued warranty costs................ 1,126 2,991 4,913
Customer deposits..................... 742 771 3,633
Accrued income taxes.................. -- -- 4,255
Other accrued expenses (Note 2)....... 4,210 8,245 12,438
Due to Thermo Electron Corporation and
affiliated companies................. 43 496 --
-------- -------- --------
10,854 22,222 38,173
-------- -------- --------
Deferred Income Taxes (Note 4).......... 113 142 143
-------- -------- --------
Long-term Obligations:
Subordinated convertible note, due to
parent company
(Notes 1 and 9)...................... -- -- 39,000
Other................................. -- -- 129
-------- -------- --------
-- -- 39,129
-------- -------- --------
Commitments and Contingencies (Notes 2,
5, 6 and 8)
Shareholders' Investment:
Net parent company investment......... 37,033 80,010 --
Common stock, $.01 par value,
50,000,000 shares authorized;
22,216,452 shares issued and
outstanding.......................... -- -- 222
Capital in excess of par value........ -- -- 59,476
Retained earnings..................... -- -- 5,903
-------- -------- --------
37,033 80,010 65,601
-------- -------- --------
$ 48,000 $102,374 $143,046
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TREX MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
------------------------- --------------------
OCTOBER 1, SEPTEMBER 30, JULY 1, JUNE 29,
1993 1994 1994 1995 1995 1996
------- ------- ----------- ------------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............. $ 827 $ 1,194 $ 1,085 $ 3,483 $ 2,310 $ 5,903
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization......... 1,207 1,491 1,104 1,315 1,225 2,302
Provision for losses
on accounts
receivable........... -- 175 125 25 50 88
Increase (decrease)
in deferred income
taxes................ (22) 32 -- 29 -- --
Other noncash items... 3 -- -- (15) 17 (85)
Changes in current
accounts, excluding
the effects of
acquisition:
Accounts
receivable......... (2,132) (3,316) (2,704) (693) (444) (2,964)
Inventories......... (792) 153 (790) (1,476) (1,552) (2,518)
Other current as-
sets............... (150) 125 49 (82) (789) (4,006)
Accounts payable.... (802) 1,861 140 621 1,460 (438)
Other current lia-
bilities........... 85 411 1,994 444 270 6,498
------- ------- ------- ------- -------- ---------
Net cash provided by
(used in)
operating
activities.......... (1,776) 2,126 1,003 3,651 2,547 4,780
------- ------- ------- ------- -------- ---------
INVESTING ACTIVITIES:
Acquisition, net of
cash acquired......... -- -- -- -- -- (18,817)
Purchases of property,
plant and equipment... (1,754) (1,300) (724) (957) (1,134) (2,515)
Proceeds from sale of
property, plant and
equipment............. 27 29 29 14 45 46
------- ------- ------- ------- -------- ---------
Net cash used in
investing
activities.......... (1,727) (1,271) (695) (943) (1,089) (21,286)
------- ------- ------- ------- -------- ---------
FINANCING ACTIVITIES:
Net proceeds from
private placements of
Company common stock
(Note 9).............. -- -- -- -- -- 18,688
Net transfers (to) from
parent company ....... 3,503 (855) (308) (2,506) (1,458) --
Other.................. -- -- -- -- -- (5)
------- ------- ------- ------- -------- ---------
Net cash provided by
(used in)
financing
activities.......... 3,503 (855) (308) (2,506) (1,458) 18,683
------- ------- ------- ------- -------- ---------
Increase in Cash and
Cash Equivalents....... -- -- -- 202 -- 2,177
Cash and Cash 202
Equivalents at
Beginning of Period.... -- -- -- -- --
------- ------- ------- ------- -------- ---------
Cash and Cash
Equivalents at End of
Period................. $ -- $ -- $ -- $ 202 $ -- $ 2,379
======= ======= ======= ======= ======== =========
CASH PAID FOR:
Interest............... $ -- $ -- $ -- $ -- $ -- $ 1,282
======= ======= ======= ======= ======== =========
Income taxes........... $ -- $ -- $ -- $ -- $ -- $ 1,109
======= ======= ======= ======= ======== =========
NONCASH ACTIVITIES:
Fair value of assets of
acquired company...... $ -- $ -- $ -- $ -- $ -- $ 28,956
Cash paid for acquired
company............... -- -- -- -- -- (18,878)
------- ------- ------- ------- -------- ---------
Liabilities assumed
of acquired
company.............. $ -- $ -- $ -- $ -- $ -- $ 10,078
======= ======= ======= ======= ======== =========
Contribution of land
and building from
parent company........ $ 3,728 $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======== =========
Transfer of acquired
business from parent
company, net of cash
(Note 2).............. $ -- $ -- $ -- $42,000 $ -- $ --
======= ======= ======= ======= ======== =========
Issuance of subordi-
nated convertible note
to parent
company (Note 1)...... $ -- $ -- $ -- $ -- $ -- $ 42,000
======= ======= ======= ======= ======== =========
Conversion of subordi-
nated convertible note
by
parent company (Note
9).................... $ -- $ -- $ -- $ -- $ -- $ 3,000
======= ======= ======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TREX MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET PARENT COMMON CAPITAL IN
COMPANY STOCK, $.01 EXCESS OF RETAINED
INVESTMENT PAR VALUE PAR VALUE EARNINGS
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE JANUARY 2, 1993............ $ 28,636 $ -- $ -- $ --
Net income......................... 827 -- -- --
Contribution of land and building
from parent company............... 3,728 -- -- --
Net transfers from parent company.. 3,503 -- -- --
-------- ----- -------- ------
BALANCE JANUARY 1, 1994............ 36,694 -- -- --
Net income......................... 1,194 -- -- --
Net transfers to parent company.... (855) -- -- --
-------- ----- -------- ------
BALANCE DECEMBER 31, 1994.......... 37,033 -- -- --
Net income......................... 3,483 -- -- --
Net transfers to parent company.... (2,506) -- -- --
Transfer of acquired business from
parent company, net of cash (Note
2)................................ 42,000 -- -- --
-------- ----- -------- ------
BALANCE SEPTEMBER 30, 1995......... 80,010 -- -- --
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Issuance of subordinated
convertible note to parent company
(Note 1).......................... -- -- (42,000) --
Capitalization of Company.......... (80,010) 200 79,810 --
Net income......................... -- -- -- 5,903
Net proceeds from private
placements of Company common stock
(Note 9).......................... -- 19 18,669 --
Conversion of subordinated
convertible note by parent company
(Note 9).......................... -- 3 2,997 --
-------- ----- -------- ------
BALANCE JUNE 29, 1996.............. $ -- $ 222 $ 59,476 $5,903
======== ===== ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Trex Medical Corporation (the "Company") designs, manufactures and markets
mammography equipment and minimally invasive stereotactic needle biopsy
systems used in the detection of breast cancer. The Company also designs and
manufactures general X-ray equipment. The Company's mammography and
stereotactic needle biopsy systems are used by radiologists and physicians in
offices, hospitals and dedicated breast-care centers, and its general
radiography systems are used by physicians and radiologists, both in office
and hospital settings, as well as by veterinarians and chiropractors.
Relationship with ThermoTrex Corporation and Thermo Electron Corporation
The Company was incorporated in September 1995 as a wholly owned subsidiary
of ThermoTrex Corporation ("ThermoTrex"). On October 2, 1995, ThermoTrex
transferred to the Company all of the outstanding capital stock of Bennett X-
Ray Corporation ("Bennett"), in exchange for a $42,000,000 principal amount
4.2% subordinated convertible note, due 2000, convertible into shares of the
Company's common stock at $11.79 per share. On October 16, 1995, ThermoTrex
transferred to the Company the assets, liabilities and businesses of
ThermoTrex's Lorad division ("Lorad") and ThermoTrex's research and
development activities pertaining to its Sonic CT system, in exchange for
20,000,000 shares of the Company's common stock. ThermoTrex acquired Lorad and
Bennett in November 1992 and September 1995, respectively. As of September 30,
1995, ThermoTrex was a 51%-owned subsidiary of Thermo Electron Corporation
("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income and expenses of the Company as included in ThermoTrex's consolidated
financial statements.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
In September 1995, the Company changed its fiscal year-end from the Saturday
nearest December 31 to the Saturday nearest September 30. Accordingly, the
Company's transition period, which ended on September 30, 1995, is the 39-week
period from January 1, 1995 through September 30, 1995 (fiscal 1995), and
fiscal 1996 will be the 52-week period ending September 28, 1996. References
to 1993 and 1994 are for the fiscal years ended January 1, 1994 and December
31, 1994, respectively. Fiscal years 1993 and 1994 each included 52 weeks. The
unaudited statements of income and cash flows for the nine months ended
October 1, 1994 are presented for comparative purposes only and include 39
weeks.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty costs at the time of shipment.
Income Taxes
The Company and ThermoTrex have a tax allocation agreement under which the
Company is included in the consolidated income tax returns filed by
ThermoTrex. The agreement provides that in years in which the Company has
taxable income, it will pay to ThermoTrex amounts comparable to the taxes the
Company would have paid upon filing separate tax returns. If ThermoTrex's
equity ownership of the Company were to decrease below 80%, the Company would
file its own income tax returns.
F-7
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include the 20,000,000 shares issued to ThermoTrex in connection with
the initial capitalization of the Company and the effect of the assumed
exercise of stock options issued within one year prior to the Company's
proposed initial public offering. Fully-diluted earnings per share have not
been presented as they do not materially differ from primary earnings per
share.
Cash and Cash Equivalents
Prior to its incorporation in September 1995, the Company's cash receipts
and disbursements were combined with other ThermoTrex corporate cash
transactions and balances. Therefore, cash is not included in the accompanying
balance sheet as of December 31, 1994.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $ 3,576 $ 9,414
Work in process............................................. 1,472 5,195
Finished goods.............................................. 1,674 2,058
------- -------
$ 6,722 $16,667
======= =======
</TABLE>
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization principally using the straight-line method over
the estimated useful lives of the property as follows: building, 30 years;
machinery and equipment, 3 to 7 years; and leasehold improvements, the shorter
of the term of the lease or the life of the asset. Property, plant and
equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land......................................................... $1,000 $1,000
Building..................................................... 2,728 2,728
Machinery, equipment and leasehold improvements.............. 4,000 6,211
------- -------
7,728 9,939
Less: Accumulated depreciation and amortization.............. 1,418 2,128
------- -------
$6,310 $7,811
======= =======
</TABLE>
F-8
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $1,357,000 and $1,935,000 as of December 31, 1994 and
September 30, 1995, respectively. The Company assesses the future useful life
of this asset whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired businesses in assessing the
recoverability of this asset.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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 period. Actual results could differ from those estimates.
Interim Financial Statements
The financial statements as of June 29, 1996 and for the nine-month periods
ended October 1, 1994, July 1, 1995 and June 29, 1996, are unaudited but, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair presentation of results for these interim periods.
The results of operations for the nine-month period ended June 29, 1996 are
not necessarily indicative of the results to be expected for the entire year.
2. ACQUISITIONS
In September 1995, ThermoTrex acquired all of the outstanding capital stock
of Bennett for $42,865,000 in cash. Bennett is a manufacturer of high
frequency specialty and general purpose radiographic systems. This acquisition
has been accounted for using the purchase method of accounting, and Bennett's
results of operations have been included in the accompanying financial
statements from the date of acquisition. The cost of the acquisition exceeded
the estimated fair value of the acquired net assets by $37,496,000, which is
being amortized over 40 years. Allocation of the purchase price was based on
estimates of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. To date, no
information has been gathered that would cause the Company to believe that the
final allocation of the purchase price will be materially different than the
preliminary estimate.
Based on unaudited data, the following table presents selected financial
information for the Company and Bennett on a pro forma basis, assuming the
companies had been combined since the beginning of 1994.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -----------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues...................................... $96,943 $85,749
Net income (loss)............................. (1,236) 2,224
Earnings (loss) per share..................... (.06) .11
</TABLE>
F-9
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition of Bennett
been made at the beginning of 1994. Additional pro forma information for the
Company and Bennett is included elsewhere in this Prospectus.
In November 1992, ThermoTrex acquired Lorad for $5.3 million in cash,
assumption of $6.7 million of pre-existing debt of Lorad, and shares of
ThermoTrex common stock and stock options valued at $12.3 million. In
addition, in March 1995, ThermoTrex made a cash payment of $2.3 million to the
holders of approximately 9.2% of Lorad's common stock who had earlier voted
against the acquisition, in exchange for their interest in Lorad.
Other accrued expenses in the accompanying balance sheet include $3.0
million as of December 31, 1994 and $4.0 million as of September 30, 1995, for
estimated reserves associated with acquisitions, including a reserve of $2.3
million at December 31, 1994 and September 30, 1995 for legal fees and other
costs associated with a patent infringement suit that existed prior to
ThermoTrex's acquisition of Lorad. This suit was brought by Fischer Imaging
Corporation ("Fischer"), which alleges that Lorad infringed a Fischer patent
on a precision mammographic needle-biopsy system. In connection with the
organization of the Company, ThermoTrex agreed to indemnify the Company for
any and all cash damages under this lawsuit, with respect to sales occurring
prior to October 16, 1995, the date Lorad was transferred to the Company. Any
payments received under such indemnity would be recorded as capital
contributions. While the Company believes that it has meritorious legal
defenses to the allegation, due to the inherent uncertainties of litigation,
the Company is unable to predict the outcome of this matter. Although an
unsuccessful resolution could have a material adverse effect on the Company's
results of operations, in the opinion of management any resolution will not
have a material adverse effect on the Company's financial position.
3. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by ThermoTrex. Prior
to the November 1995 plan year, shares of ThermoTrex's and Thermo Electron's
common stock could be purchased at the end of a 12-month plan year at 85% of
the fair market value at the beginning of the plan year, and the shares
purchased were subject to a one-year resale restriction. Effective November 1,
1995, the applicable shares of common stock may be purchased at 95% of the
fair market value at the beginning of the plan year, and the shares purchased
are subject to a six-month resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages.
401(k) Savings Plan
The majority of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Prior to 1994, the
Company's Lorad division participated in its own 401(k) savings plan.
Contributions to the Thermo Electron and the Lorad 401(k) savings plans are
made by both the employee and the Company. Company contributions are based
upon the level of employee contributions. The Company contributed and charged
to expense for these plans $111,000, $313,000 and $242,000 in 1993, 1994 and
fiscal 1995, respectively.
F-10
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................. $ 426 $1,119 $2,474
State............................................... 99 547 808
------ ------ ------
525 1,666 3,282
------ ------ ------
Net deferred (prepaid):
Federal............................................. 329 (146) (228)
State............................................... 121 (54) (173)
------ ------ ------
450 (200) (401)
------ ------ ------
$ 975 $1,466 $2,881
====== ====== ======
</TABLE>
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate............ $ 613 $ 904 $2,164
Increases resulting from:
State income taxes, net of federal tax................ 145 325 419
Amortization of cost in excess of net assets of
acquired companies................................... 209 228 197
Nondeductible expenses................................ 8 9 101
------ ------ ------
$ 975 $1,466 $2,881
====== ====== ======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and accruals..................................... $1,777 $1,725
Allowance for doubtful accounts........................... 215 348
Inventory basis difference................................ 576 918
Accrued compensation...................................... 60 463
Other, net................................................ 21 20
------- -------
$2,649 $3,474
======= =======
Deferred income taxes:
Depreciation.............................................. $ 113 $ 142
======= =======
</TABLE>
F-11
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
The Company leases portions of its office and operating facilities under
various noncancelable operating lease arrangements expiring between fiscal
1997 and fiscal 2005. The accompanying statement of income includes expenses
from operating leases of $132,000, $40,000 and $44,000 in 1993, 1994 and
fiscal 1995, respectively. Future minimum payments due under noncancelable
operating leases at September 30, 1995, are $625,000 in fiscal 1996; $627,000
in fiscal 1997; $600,000 in each of fiscal 1998, 1999 and 2000; and $2,975,000
in fiscal 2001 and thereafter. Total future minimum lease payments are
$6,027,000.
6. RELATED PARTY TRANSACTIONS
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management,
certain employee benefit administration, tax advice and preparation of tax
returns, centralized cash management, and certain financial and other
services, for which the Company pays Thermo Electron annually an amount equal
to 1.20% of the Company's revenues. Prior to January 1, 1995, the Company paid
an annual fee equal to 1.25% of the Company's revenues. Effective December 31,
1995, the Company will pay an annual fee equal to 1.0% of the Company's
revenues. For these services, the Company was charged $469,000, $680,000 and
$663,000 in 1993, 1994 and fiscal 1995, respectively. The annual fee is
reviewed and adjusted annually by mutual agreement of the parties. Management
believes that the service fee charged by Thermo Electron is reasonable and
that such fees are representative of the expenses the Company would have
incurred on a stand-alone basis. The corporate services agreement is renewed
annually but can be terminated upon 30 days' prior notice by the Company or
upon the Company's withdrawal from the Thermo Electron Corporate Charter (the
Thermo Electron Corporate Charter defines the relationship among Thermo
Electron and its majority-owned subsidiaries). For additional items such as
employee benefit plans, insurance coverage and other identifiable costs,
Thermo Electron charges the Company based upon costs attributable to the
Company.
Other Related Party Services
ThermoTrex provides certain research and development contract services to
the Company, which are charged to the Company based on actual cost and usage.
For these services, the Company was charged $1,470,000, $2,816,000 and
$1,536,000 in 1993, 1994 and fiscal 1995, respectively.
Laser Manufacturing Agreement
ThermoLase Corporation ("ThermoLase"), a majority-owned subsidiary of
ThermoTrex, has engaged the Company to design and manufacture a laser to be
used in ThermoLase's laser-based hair-removal system. During fiscal 1995, the
Company recorded $350,000 of revenue under this agreement.
Vendor Agreement
During fiscal 1995, the Company placed an order for $2,500,000 for the
design and production of high-transmission cellular grids from the Tecomet
division of Thermo Electron, which will be received in fiscal 1996 and 1997.
In addition, the Company recorded expense of $250,000 during fiscal 1995
related to research and development funding provided to Tecomet.
F-12
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SIGNIFICANT CUSTOMER, EXPORT SALES AND CONCENTRATION OF CREDIT RISK
Sales to one customer accounted for 11%, 11% and 18% of the Company's total
revenues in 1993, 1994 and fiscal 1995, respectively. Export sales to Germany
accounted for 1%, 3% and 11% of the Company's total revenues in 1993, 1994 and
fiscal 1995, respectively. Other export sales accounted for 9%, 11% and 10% of
the Company's total revenues in 1993, 1994 and fiscal 1995, respectively. In
general, export sales are denominated in U.S. dollars. The Company sells its
products primarily to customers in the healthcare industry. The Company does
not normally require collateral or other security to support its accounts
receivable. Management does not believe that this concentration of credit risk
has or will have a significant negative impact on the Company.
8. CONTINGENCY
The owner of a U.S. patent related to automatic exposure control has claimed
that the Company's mammography systems infringe such patent. The patent owner
has offered a nonexclusive license under the patent on terms not acceptable to
the Company. Although the Company believes that the validity of the patent may
be questionable and subject to a successful challenge, if the patent holder
were successful in enforcing such patent the Company could be enjoined from
manufacturing and selling mammography systems. The Company will be indemnified
by ThermoTrex for any cash damages relating to sales of such systems occurring
prior to the dates on which ThermoTrex transferred certain businesses to the
Company, although any payments under such indemnity would be recorded as
capital contributions. Due to the inherent uncertainty of litigation,
management cannot predict the outcome of this matter. While an unfavorable
outcome could have a material adverse effect on the Company's results of
operations, in the opinion of management any resolution will not have a
material effect on the Company's financial position.
See Note 2 for a discussion of certain litigation.
9. SUBSEQUENT EVENTS
Private Placements of Common Stock
In November 1995, the Company issued 1,862,000 shares of its common stock in
a private placement at $10.25 per share for net proceeds of $17,618,000. In
January 1996, the Company issued 100,000 shares of its common stock in a
private placement at $10.75 per share for net proceeds of $1,070,000. Certain
officers and directors of the Company and a corporation affiliated with a
director of the Company purchased an aggregate of 343,300 shares of the
Company's common stock issued in these private placements.
Stock-based Compensation Plans
On November 1, 1995, the Company adopted a stock-based compensation plan for
its key employees, directors and others, which permits the grant of a variety
of stock and stock-based awards as determined by the human resources committee
of the Company's Board of Directors (the Board Committee), including
restricted stock, stock options, stock bonus shares or performance-based
shares. In March 1996, the Board Committee granted options to purchase
1,041,000 shares of the Company's common stock at $11.00 per share, which was
the fair market value on the date of grant. In May 1996, the Board Committee
granted options to purchase 240,000 shares of the Company's common stock at
$12.00 per share, which was the fair market value on the date of grant. In
October 1996, the Board Committee granted options to purchase 292,500 shares
of the Company's common stock at $17.40, which was the fair market value on
the date of grant. Through October 1996, options to purchase 20,000 shares of
common stock at $11.00 per share had lapsed. The option recipients and the
terms of options granted under this plan are determined by the Board
Committee. Options granted to date generally became exercisable 90 days after
the Company became subject to the Securities
F-13
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exchange Act of 1934, but are subject to certain transfer restrictions and the
right of the Company to repurchase shares issued upon exercise of the options
at the exercise price, upon certain events. The restrictions and repurchase
rights generally will be deemed to have lapsed ratably over periods ranging
from five to ten years after the first anniversary of the grant date,
depending on the term of the option, which will generally range from ten to
twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must be
granted at not less than the fair market value of the Company's common stock
on the date of grant.
The Company also has a directors' stock option plan, adopted on November 1,
1995, that provides for the grant of stock options, at fair market value, to
outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms as
options granted under the stock-based compensation plan described above,
except that the restrictions and repurchase rights generally will be deemed to
have lapsed ratably over a four-year period and the option term is five years.
In November 1995, pursuant to this plan, the Company granted options to
purchase 40,000 shares of the Company's common stock at $10.25 per share. In
February 1996, the Company granted options to purchase 80,000 shares of the
Company's common stock at $10.75 per share.
In addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermo Electron or its majority-owned subsidiaries.
No accounting recognition is given to options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
Reserved Shares
As of September 28, 1996, the Company had reserved 2,603,541 unissued shares
of its common stock for possible issuance under stock-based compensation plans
and conversion of the Company's 4.2% subordinated convertible note.
Acquisitions
In May 1996, the Company acquired XRE Corporation ("XRE"), a Massachusetts
company that designs, manufactures and markets X-ray imaging systems used for
cardiac catheterization and angiography, for approximately $17,100,000 in
cash. In addition, the Company repaid approximately $1,800,000 of XRE's debt.
In September 1996, the Company acquired Continental X-Ray Corporation and
affiliates ("Continental"), an Illinois company that designs, manufactures,
and markets general-purpose, radiographic/fluoroscopic, and physiology X-ray
systems for approximately $18,400,000 in cash, net of cash acquired.
The purchase price for both XRE and Continental is subject to post-closing
adjustments based on the net asset value of the respective companies as of the
closing dates. These acquisitions will be accounted for using the purchase
method of accounting. Pro forma information for the Company, XRE and
Continental is available elsewhere in this Prospectus.
Conversion of Subordinated Convertible Note
In March 1996, ThermoTrex converted $3,000,000 principal amount of the
Company's subordinated convertible note into 254,452 shares of the Company's
common stock. In July 1996, ThermoTrex converted
F-14
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$31,000,000 principal amount of the Company's subordinated convertible note
into 2,629,346 shares of the Company's common stock.
Initial Public Offering
In July 1996, the Company sold 2,875,000 shares of its common stock in an
initial public offering, and 871,832 shares of its common stock in a
concurrent rights offering, at $14.00 per share, for net proceeds of
approximately $49,068,000.
Subsequent to the initial public offering, the rights offering, and the
conversions of the subordinated convertible note, ThemoTrex owned 80% of the
Company's outstanding Common Stock.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bennett X-Ray Corporation:
We have audited the accompanying consolidated balance sheet of Bennett X-Ray
Corporation (a New York corporation) and subsidiaries as of February 28, 1994
and 1995, and the related consolidated statements of operations, cash flows
and shareholders' investment for each of the three years in the period ended
February 28, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bennett X-
Ray Corporation and subsidiaries as of February 28, 1994 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended February 28, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1995
F-16
<PAGE>
BENNETT X-RAY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS MARCH 1, 1995
FEBRUARY 28, ENDED THROUGH
---------------------------- AUGUST 31, SEPTEMBER 14,
1993 1994 1995 1994 1995
-------- --------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 28,618 $ 32,501 $ 42,533 $ 21,267 $ 23,369
-------- --------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues....... 17,919 21,760 26,622 13,311 14,941
Selling, general and
administrative
expenses.............. 7,678 8,271 11,913 5,957 6,653
Research and
development expenses.. 1,951 2,711 3,346 1,673 1,505
-------- --------- -------- -------- --------
27,548 32,742 41,881 20,941 23,099
-------- --------- -------- -------- --------
Operating Income
(Loss)................. 1,070 (241) 652 326 270
Other Income............ 321 74 93 47 74
-------- --------- -------- -------- --------
Income (Loss) Before In-
come Tax
Provision.............. 1,391 (167) 745 373 344
Income Tax Provision
(Note 3)............... 493 48 388 194 170
-------- --------- -------- -------- --------
Net Income (Loss)....... $ 898 $ (215) $ 357 $ 179 $ 174
======== ========= ======== ======== ========
Earnings (Loss) per
Share.................. $ 893.53 $ (213.93) $ 355.22 $ 178.11 $ 173.13
======== ========= ======== ======== ========
Shares Outstanding...... 1,005 1,005 1,005 1,005 1,005
======== ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
BENNETT X-RAY CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 28,
---------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 785 $ 397
Available-for-sale investments, at quoted market value (Note
2)........................................................... 812 844
Accounts receivable, less allowances of $231 and $464......... 3,494 3,101
Inventories................................................... 4,791 6,426
Prepaid expenses.............................................. 68 71
Prepaid income taxes (Note 3)................................. 208 422
------- -------
10,158 11,261
------- -------
Property and Equipment, at Cost, Net........................... 1,442 1,350
------- -------
$11,600 $12,611
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable.............................................. $ 1,564 $ 2,173
Accrued payroll and employee benefits......................... 993 1,058
Accrued warranty costs........................................ 1,195 1,370
Other accrued expenses........................................ 2,008 1,851
------- -------
5,760 6,452
------- -------
Deferred Income Taxes (Note 3)................................. 143 145
------- -------
Commitments and Contingency (Note 5)
Shareholders' Investment:
Common stock, no par value; 2,500 shares authorized;
1,005 shares issued and outstanding.......................... 21 21
Retained earnings............................................. 5,676 5,993
------- -------
5,697 6,014
------- -------
$11,600 $12,611
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
BENNETT X-RAY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS MARCH 1, 1995
FEBRUARY 28, ENDED THROUGH
------------------------- AUGUST 31, SEPTEMBER 14,
1993 1994 1995 1994 1995
------- ------- ------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)...... $ 898 $ (215) $ 357 $ 179 $ 174
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities:
Depreciation and
amortization........ 166 299 257 108 67
Increase (decrease)
in deferred
income taxes........ 186 (43) 2 (9) 855
Changes in current
accounts:
Accounts
receivable......... (466) (791) 393 254 (1,259)
Inventories......... (712) (608) (1,635) (983) (1,256)
Other current
assets............. (95) (52) (217) (111) 845
Accounts payable.... (1,091) 585 609 (180) 845
Other current
liabilities........ 552 647 83 517 (649)
------- ------- ------- ----- -------
Net cash used in
operating
activities......... (562) (178) (151) (225) (378)
------- ------- ------- ----- -------
Investing Activities:
Purchases of available-
for-sale investments.. -- (812) (32) -- --
Proceeds from sale and
maturities of
available-for-sale
investments........... -- -- -- -- 844
Purchases of property
and equipment......... (1,405) (151) (165) (67) --
------- ------- ------- ----- -------
Net cash provided by
(used in) investing
activities......... (1,405) (963) (197) (67) 844
------- ------- ------- ----- -------
Financing Activities:
Cash dividends paid.... (40) (40) (40) -- --
------- ------- ------- ----- -------
Increase (Decrease) in
Cash and Cash
Equivalents............ (2,007) (1,181) (388) (292) 466
Cash and Cash
Equivalents at
Beginning of Period.... 3,973 1,966 785 785 397
------- ------- ------- ----- -------
Cash and Cash
Equivalents at End of
Period................. $ 1,966 $ 785 $ 397 $ 493 $ 863
======= ======= ======= ===== =======
Supplemental Cash Flow
Information:
Cash paid during the
period for
income taxes......... $ 354 $ 76 $ 472 $ 232 $ 149
======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
BENNETT X-RAY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON
STOCK,
NO PAR RETAINED
VALUE EARNINGS
------ --------
<S> <C> <C>
BALANCE, FEBRUARY 28, 1992.................................. $ 21 $5,073
Net income................................................. -- 898
Payment of $40 per share cash dividend..................... -- (40)
---- ------
BALANCE, FEBRUARY 28, 1993.................................. 21 5,931
Net loss................................................... -- (215)
Payment of $40 per share cash dividend..................... -- (40)
---- ------
BALANCE, FEBRUARY 28, 1994.................................. 21 5,676
Net income................................................. -- 357
Payment of $40 per share cash dividend..................... -- (40)
---- ------
BALANCE, FEBRUARY 28, 1995.................................. 21 5,993
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net income................................................. -- 174
---- ------
BALANCE, SEPTEMBER 14, 1995................................. $ 21 $6,167
==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
BENNETT X-RAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bennett X-Ray Corporation was incorporated in 1967 and is engaged in the
manufacture of high frequency diagnostic radiographic (X-ray) equipment with a
focus on health care imaging products in the private office, clinic and
hospital markets.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Bennett X-Ray Corporation and its wholly owned subsidiaries, Bennett
International Corporation and Island X-Ray Incorporated (collectively referred
to as the "Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company has adopted a fiscal year ending February 28. References to
1993, 1994 and 1995 are for the fiscal years ended February 28, 1993, 1994 and
1995, respectively.
Revenue Recognition
The Company recognizes product revenues upon shipment of its products. The
Company provides a reserve for its estimate of warranty costs at the time of
shipment.
Cash and Cash Equivalents
The Company considers liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
Available-for-sale Investments
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
Company's debt and marketable equity securities are accounted for at market
value (Note 2).
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include material, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies.................................... $2,511 $3,876
Work in process and finished goods........................... 2,280 2,550
------- -------
$4,791 $6,426
======= =======
</TABLE>
F-21
<PAGE>
BENNETT X-RAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: machinery and equipment--3
to 7 years; automobiles--3 years; and leasehold improvements--the shorter of
the term of the lease or the life of the asset. Property and equipment consist
of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements...................................... $1,319 $ 1,447
Machinery and equipment..................................... 648 535
Automobiles................................................. 211 156
------- -------
2,178 2,138
Less: Accumulated
depreciation and
amortization............................................... 736 788
------- -------
$ 1,442 $1,350
======= =======
</TABLE>
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
recognizes deferred income taxes based on the expected future tax consequences
of differences between the financial statement basis and the tax basis of
assets and liabilities calculated using enacted tax rates in effect for the
year in which the differences are expected to be reflected in the tax return.
Interim Financial Statements
The financial statements for the six-month period ended August 31, 1994 and
for the period from March 1, 1995 through September 14, 1995 are unaudited
but, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair presentation of results for these
interim periods. The results of operations for the period from March 1, 1995
through September 14, 1995 are not necessarily indicative of the results to be
expected for the entire year.
2. AVAILABLE-FOR-SALE INVESTMENTS
In accordance with SFAS No. 115, the Company's debt and marketable equity
securities are considered available-for-sale investments in the accompanying
balance sheet and are carried at market value, with the difference between
cost and market value, net of related tax effects, recorded currently as a
component of shareholders' investment. Available-for-sale investments in the
accompanying 1994 and 1995 balance sheets represent investments in U.S.
Government securities with maturities of one year or less. There was no
difference between the market value and the cost basis of available-for-sale
investments at February 28, 1994 and 1995.
3. INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS)
Currently payable:
Federal.................................................... $291 $190 $527
State...................................................... 35 37 73
---- ---- ----
326 227 600
---- ---- ----
Net deferred (prepaid):
Federal.................................................... 77 (142) (224)
State...................................................... 90 (37) 12
---- ---- ----
167 (179) (212)
---- ---- ----
$493 $ 48 $388
==== ==== ====
</TABLE>
F-22
<PAGE>
BENNETT X-RAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The income tax provision in the accompanying statement of operations differs
from the amounts calculated by applying the statutory federal income tax rate
of 34% to income (loss) before income tax provision due to the following:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision
(benefit) at statutory rate........................ $ 473 $ (57) $ 253
Differences resulting
from:
State income taxes, net of federal tax............ 82 -- 56
Foreign sales corporation benefit................. (66) (43) (25)
Research and development tax credit............... (171) -- --
Nondeductible expenses and other.................. 175 148 104
----- ------- -------
$ 493 $ 48 $ 388
===== ======= =======
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and accruals................................. $ 208 $ 422
======= =======
Deferred income taxes:
Depreciation.......................................... $ 143 $ 145
======= =======
</TABLE>
4. EMPLOYEE BENEFIT PLAN
The Company has a noncontributory discretionary profit sharing plan covering
substantially all employees. Profit sharing expense amounted to $105,000,
$110,000 and $120,000 in fiscal 1993, 1994 and 1995, respectively.
5. RELATED PARTY LEASE AND CONTINGENCY
Facility Lease
The Company leases its main operating facility under a short-term operating
lease with a real estate trust, controlled by certain officers/shareholders of
the Company. The accompanying statement of operations includes expense from
this operating lease of $1,148,000, $1,224,000 and $1,318,000 in fiscal 1993,
1994 and 1995, respectively.
Guaranty
The Company guarantees a mortgage of its lessor. The amount outstanding
under this mortgage was $658,000 at February 28, 1995. This mortgage is also
secured by the underlying building and improvements.
6. SUBSEQUENT EVENT
In September 1995, all of the outstanding capital stock of the Company was
acquired by ThermoTrex Corporation, a majority-owned subsidiary of Thermo
Electron Corporation, for $42,865,000 in cash.
F-23
<PAGE>
TREX MEDICAL CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
On September 15, 1995, ThermoTrex Corporation ("ThermoTrex") acquired all of
the outstanding capital stock of Bennett X-Ray Corporation ("Bennett") for
$42.9 million in cash. On October 2, 1995, ThermoTrex transferred to the
Company all of the outstanding capital stock of Bennett in exchange for a
$42.0 million principal amount 4.2% subordinated convertible note, due 2000,
convertible into shares of the Company's common stock at $11.79 per share.
This acquisition has been accounted for using the purchase method of
accounting. Subsequent to September 30, 1995, ThermoTrex converted $34.0
million principal amount of the subordinated convertible note into 2,883,798
shares of the Company's common stock. On October 16, 1995, ThermoTrex
transferred to the Company the assets, liabilities and businesses of
ThermoTrex's Lorad division ("Lorad") and ThermoTrex's research and
development activities pertaining to its Sonic CT system, in exchange for
20,000,000 shares of the Company's common stock.
F-24
<PAGE>
TREX MEDICAL CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the nine months ended September 30,
1995, as if the acquisition of Bennett had occurred on January 1, 1995.
Bennett has a fiscal year which differs from the Company's fiscal year-end.
Bennett's results of operations presented below have been adjusted to conform
to the Company's fiscal year-end for purposes of the pro forma combined
condensed statement of income. The pro forma historical results of operations
for Bennett presented below include compensation expense and related party
rent expense in excess of amounts that will be paid in the future, pursuant to
agreements executed in connection with the acquisition, totaling $2.5 million
for the nine months ended September 30, 1995. The pro forma results of
operations are not necessarily indicative of future operations or the actual
results that would have occurred had the acquisition of Bennett been made on
January 1, 1995. This statement should be read in conjunction with the
accompanying notes, the pro forma combined condensed balance sheet and the
respective historical financial statements and related notes of the Company
and Bennett appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------
TREX MEDICAL BENNETT ADJUSTMENTS COMBINED
------------ ------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................. $55,291 $30,458 $ -- $85,749
------- ------- ------- -------
Costs and Operating Expenses:
Cost of revenues.................... 28,180 19,379 479 48,038
Selling, general and administrative
expenses........................... 12,174 8,638 1,040 21,852
Research and development expenses... 8,595 2,062 -- 10,657
------- ------- ------- -------
48,949 30,079 1,519 80,547
------- ------- ------- -------
Operating Income..................... 6,342 379 (1,519) 5,202
Interest Expense..................... -- -- (252) (252)
Other Income, Net.................... 22 90 -- 112
------- ------- ------- -------
Income Before Income Taxes........... 6,364 469 (1,771) 5,062
Income Tax Provision (Benefit)....... 2,881 236 (438) 2,679
------- ------- ------- -------
Net Income........................... $ 3,483 $ 233 $(1,333) $ 2,383
======= ======= ======= =======
Earnings per Share:
Primary............................. $ .17 $ .10
======= =======
Fully diluted....................... $ .17 $ .10
======= =======
Weighted Average Shares:
Primary............................. 20,151 2,884 23,035
======= ======= =======
Fully diluted....................... 20,151 2,884 23,035
======= ======= =======
</TABLE>
F-25
<PAGE>
TREX MEDICAL CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED JUNE 29, 1996
(UNAUDITED)
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the nine months ended June 29, 1996,
as if the acquisition of Bennett had occurred on January 1, 1995. The pro
forma results of operations are not necessarily indicative of future
operations or the actual results that would have occurred had the acquisition
of Bennett been made on January 1, 1995. This statement should be read in
conjunction with the accompanying notes and the historical financial
statements of the Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------- -------------------------------
TREX MEDICAL ADJUSTMENTS COMBINED
--------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues...................... $ 103,510 $ -- $ 103,510
-------------- ------------ --------------
Costs and Operating Expenses:
Cost of revenues............. 58,312 (479) 57,833
Selling, general and adminis-
trative expenses............ 20,530 -- 20,530
Research and development ex-
penses...................... 12,945 -- 12,945
-------------- ------------ --------------
91,787 (479) 91,308
-------------- ------------ --------------
Operating Income.............. 11,723 479 12,202
Interest Income............... 616 -- 616
Interest Expense.............. (1,284) 1,032 (252)
Other Income, Net............. 7 -- 7
-------------- ------------ --------------
Income Before Income Taxes.... 11,062 1,511 12,573
Income Tax Provision.......... 5,159 604 5,763
-------------- ------------ --------------
Net Income.................... $ 5,903 $ 907 $ 6,810
============== ============ ==============
Earnings per Share:
Primary...................... $ .27 $ .28
============== ==============
Fully diluted................ $ .26 $ .28
============== ==============
Weighted Average Shares:
Primary...................... 21,839 2,792 24,631
============== ============ ==============
Fully diluted................ 25,310 25,310
============== ==============
</TABLE>
F-26
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS, EXCEPT
IN TEXT)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
COST OF REVENUES
Increase in the work in process and finished goods inventories
of Bennett to the estimated selling price, less the sum of the
costs of disposal and a reasonable profit allowance for the
Company's selling efforts..................................... $ 479
-----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Service fee of 1.20% of the revenues of Bennett for services
provided under a services agreement between the Company and
Thermo Electron............................................... 365
Amortization over 40 years of $37,496,000 of cost in excess of
net assets of acquired
companies created by the acquisition of Bennett............... 675
-----
1,040
-----
INTEREST EXPENSE
Record interest expense on the $42,000,000 principal amount
4.2% subordinated convertible note issued to ThermoTrex, net
of $34,000,000 principal amount converted into common stock by
ThermoTrex.................................................... 252
-----
INCOME TAX PROVISION (BENEFIT)
Income tax benefit associated with the adjustments above
(excluding amortization of cost in excess of net assets of
acquired companies), calculated at the Company's statutory
income tax rate of 40%........................................ (438)
-----
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance on January 1, 1995 of 2,883,798 shares of the
Company's common stock from the assumed conversion of
$34,000,000 principal amount of the 4.2% subordinated
convertible note by ThermoTrex
</TABLE>
F-27
<PAGE>
TREX MEDICAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
NOTE 2--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME FOR THE NINE MONTHS ENDED JUNE 29, 1996 (IN THOUSANDS, EXCEPT IN
TEXT)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
COST OF REVENUES
Reversal of the adjustment to record Bennett's inventory at
estimated selling price, less the sum of the costs of disposal
and a reasonable profit allowance for the Company's selling
efforts........................................................ $(479)
-----
INTEREST EXPENSE
Decrease in interest expense on the $42,000,000 principal amount
4.2% subordinated convertible note issued to ThermoTrex, due to
the assumed conversion by ThermoTrex on January 1, 1995 of
$34,000,000 principal amount into common stock................. (1032)
-----
INCOME TAX PROVISION (BENEFIT)
Income tax provision associated with the adjustments above,
calculated at the Company's statutory income tax rate of 40%... 604
-----
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance on January 1, 1995 of 2,883,798 shares of the
Company's common stock from the assumed conversion of
$34,000,000 principal amount of the 4.2% subordinated
convertible note by ThermoTrex
</TABLE>
F-28
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give
any information or to make any representation not contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell any securities other than those to which it relates
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
_____________________
PROSPECTUS
_____________________
================================================================================
1,962,000 shares
TREX
Medical Corporation
Common Stock
_____________________
NOVEMBER __, 1996
_____________________
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission (the "Commission") registration fee.
Securities and Exchange Commission registration fee... $10,544
Legal fees and expenses............................... 10,000
Accounting fees and expenses.......................... 10,000
Miscellaneous......................................... 9,456
-----
Total........................................... $40,000
=======
Item 14. Indemnification of Directors and Officers
The Delaware General Corporation Law and the Company's Certificate of
Incorporation and By-Laws limit the monetary liability of directors to the
Company and to its shareholders and provide for indemnification of the
Company's officers and directors for liabilities and expenses that they may
incur in such capacities. In general, officers and directors are indemnified
with respect to actions taken in good faith in a manner reasonably believed to
be in, or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, actions that the indemnitee had not
reasonable cause to believe were unlawful. The Company also has
indemnification agreements with its directors and officers that provide for the
maximum indemnification allowed by law. Reference is made to the Company's
Certificate of Incorporation, By-Laws and form of Indemnification Agreement for
Officers and Directors incorporated by reference as Exhibits 3.1, 3.2 and 10.18
hereto, respectively.
Thermo Electron has an insurance policy which insures the directors
and officers of Thermo Electron and its subsidiaries, including the Company,
against certain liabilities which might be incurred in connection with the
performance of their duties.
The Selling Shareholders are obligated under the Purchase Agreements
to indemnify directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
On October 2, 1995, ThermoTrex transferred to the Company all
outstanding capital stock of its Bennett X-Ray Corporation subsidiary in
exchange for a $42,000,000 principal amount subordinated convertible note due
2000. Exemption from registration for this transaction is claimed under Section
4(2) of the Securities Act.
On October 16, 1995, ThermoTrex contributed all of the assets and
liabilities relating to its Lorad division and it Sonic CT system to the
Company in exchange for 20,000,000 shares of Common Stock. Exemption for
registration for this transaction is claimed under Section 4(2) of the
Securities Act.
On November 22, 1995 and November 30, 1995 the Company sold an
aggregate of 1,862,000 shares of Common Stock to 159 accredited investors
pursuant to Regulation D of the Commission promulgated under the Securities Act.
II-1
<PAGE>
On January 31, 1996, the Company sold 100,000 shares of Common Stock
to an accredited investor pursuant to Regulation D of the Commission promulgated
under the Securities Act.
From September 27, 1995 (the date of the Company's incorporation)
through September 28, 1996, the Company granted options under its stock-based
compensation plans to purchase an aggregate of 1,381,000 shares of Common Stock
at a weighted average exercise price of $11.14 per share. None of these options
have been exercised. Exemption from registration for these grants is claimed
under Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statements Schedule.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) The Financial Statement Schedule as of September 30, 1995 and the
Report of Independent Public Accountants on such schedule are included in this
Registration Statement. All other schedules are omitted because they are not
applicable or are not required under Regulation S-X.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3 or Form
S-8, and the information required to be included in a post-
effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-2
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Danbury, Connecticut, on
this 31st day of October, 1996.
TREX MEDICAL CORPORATION
By:/s/ Hal Kirshner
------------------------------
Hal Kirshner
Chief Executive Officer,
President and Director
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Trex Medical Corporation,
hereby constitute and appoint John N. Hatsopoulos, Paul F. Kelleher, Seth H.
Hoogasian, Esq., Sandra L. Lambert, Esq. and Jonathan W. Painter and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effective amendments to said Registration Statement
(including any subsequent Registration Statement for the same offering which
may be filed under Rule 462(b)), and generally to do all such things in our
names and on our behalf in our capacities as officers and directors to enable
Trex Medical Corporation to comply with the provisions of the Securities Act
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our attorneys,
or any of them, to said Registration Statement and any and all amendments
thereto.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Hal Kirshner Chief Executive Officer, October 31, 1996
- ----------------------------- President and Director
Hal Kirshner (Principal Executive Officer)
/s/ John N. Hatsopoulos Vice President, Chief October 31, 1996
- ----------------------------- Financial Officer and
John N. Hatsopoulos Director (Principal Financial
Officer)
/s/ Paul F. Kelleher Chief Accounting Officer October 31, 1996
- ----------------------------- (Principal Accounting
Paul F. Kelleher Officer)
II-4
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Elias P. Gyftopoulos Director October 31, 1996
- --------------------------
Dr. Elias P. Gyftopoulos
/s/ Robert C. Howard Director October 31, 1996
- --------------------------
Robert C. Howard
/s/ Earl R. Lewis Director October 31, 1996
- --------------------------
Earl R. Lewis
/s/ James W. May, Jr. Director October 31, 1996
- --------------------------
Dr. James W. May, Jr.
/s/ Hutham S. Olayan Director October 31, 1996
- --------------------------
Hutham S. Olayan
/s/ Anthony J. Pellegrino Director October 31, 1996
- --------------------------
Anthony J. Pellegrino
/s/ Firooz Rufeh Director October 31, 1996
- --------------------------
Firooz Rufeh
/s/ Kenneth Y. Tang Director October 31, 1996
- --------------------------
Kenneth Y. Tang
/s/ Gary S. Weinstein Director and Chairman of October 31, 1996
- -------------------------- the Board
Gary S. Weinstein
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trex Medical Corporation:
We have audited in accordance with generally accepted auditing standards the
consolidated balance sheet of Trex Medical Corporation and subsidiaries as of
December 31, 1994 and September 30, 1995, and the related consolidated
statements of income, cash flows and shareholders' investment for the years
ended January 1, 1994 and December 31, 1994 and for the nine months ended
September 30, 1995. These financial statements have been included in Trex
Medical Corporation's Form S-1 and we have issued our report thereon dated
March 26, 1996 (except with respect to certain matters discussed in Note 9, as
to which the date is September 4, 1996.) Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as
a whole. Trex Medical Corporation's schedule of Valuation and Qualifying
Accounts, included in Schedule II on page S-2, is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
March 26, 1996
S-1
<PAGE>
Schedule II
TREX MEDICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Charges to Balance
Beginning Costs and at End
of Period Expenses Other (a) of Period
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1995
Allowance for Doubtful Accounts.................... $525 $ 25 $320 $870
Year Ended December 31, 1994
Allowance for Doubtful Accounts.................... $350 $175 $-- $525
Year Ended January 1, 1994
Allowance for Doubtful Accounts.................... $350 $-- $-- $350
</TABLE>
- ----------
(a) Allowance of business acquired during the year as described in Note 2 to
Consolidated Financial Statements of the Company.
S-2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ---------- ----------------------
3.1 Certificate of Incorporation, as amended, of the Company (1)
3.2 By-Laws of the Company (1)
4.1 Specimen Common Stock Certificate (1)
4.2 $42,000,000 Subordinated Convertible Note due 2000 of the Company
issued to ThermoTrex (1)
5 Opinion of Seth H. Hoogasian, Esq.
10.1 Corporate Services Agreement dated as of September 27, 1995 between
Thermo Electron Corporation ("Thermo Electron") and the Company (1)
10.2 Thermo Electron Corporate Charter, as amended and restated effective
January 3, 1993 (incorporated by reference herein form Exhibit 10.1 to
Thermo Electron's Annual Report on form 10-K for the fiscal year ended
January 2, 1993 (File No. 1-8002))
10.3 Tax Allocation Agreement dates as of September 27, 1995 between Thermo
Electron and the Company (1)
10.4 Master Repurchase Agreement dated as of September 27, 1995 between
Thermo Electron and the Company (1)
10.5 Master Guarantee Reimbursement Agreement dated as of September 27,
1995 between Thermo Electron and the Company. (1)
10.6 Master Guarantee Reimbursement Agreement dated as of September 27,
1995 between ThermoTrex and the Company (1)
10.7 Oem Agreement Between Philips Medical Systems North American Company
And Lorad Dated as of November 2, 1993 (1)
10.8 OEM Agreement between Philips Medical Systems North American Company
and Lorad dated November 17, 1993 (1)
10.9 Purchase Agreement between General Electric Company and Bennett dated
November 17, 1994 (1)
10.10 Agreement between Philips Medizin Systeme Unternehmensbereich der
Philips GmbH and Bennett dated February 12, 1992 (1)
10.11 Distributor Agreement between ThermoTrex and US Surgical Corporation
dated October 20, 1995, as amended (1)
10.12 Note Purchase and Sale Agreement dated as of October 2, 1995 between
ThermoTrex and the Company. (1)
10.13 Lease dated as of September 15, 1995, by and among ThermoTrex and BK
Realty Associates, L.P. and Calrob Realty Associates (filed as Exhibit
10.26 to ThermoTrex's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 [File No. 1-10791] and incorporated herein by
reference).
10.14 Lease dated as of December 20, 1995, between Melvyn J. Powers and
Mary P. Powers D/B/.A M& M Realty and Lorad, as amended (1)
10.15 Equity Incentive Plan of the Company (1)
10.16 Deferred Compensation Plan for Directors of the Company (1)
10.17 Directors Stock Option Plan of the Company (1)
<PAGE>
Exhibit No. Description of Exhibit
- ---------- ----------------------
10.18 Form of Indemnification Agreement for Officers and Directors (1)
10.19 License Agreement between the Company and ThermoTrex dated as of
October 16, 1995 (1)
10.20 Lease dated May 29, 1996, between John K. Grady, Trustee of Concord
Associates Foster Street Trust, and XRE Acquisition Corp (1)
10.21 Asset Purchase Agreement dated September 4, 1996 by and among CXR
Acquisition Corp., the Company, Continental X-Ray Corporation, Alphatek
Corporation, Broadview Manufacturing Corporation, Haymarket Square
Associates, Advanced Medical Imaging, Inc., Trans-Continental X-Ray
Corporation and the Stockholders and Partners thereof
In addition to the stock-based compensation plans of the Company, the
executive officers of the Company may be granted awards under stock-
based compensation plans of the Company's parent, Thermo Electron
Corporation, and its subsidiaries, for services rendered to the Company
or to such affiliated corporations. Such plans are listed under Exhibits
10.19-10.87 to the Company's Registration Statement on Form S-1 (File
No. 333-2926) and incorporated herein be reference.
11 Computation of Earnings per share
21 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)
24 Power of Attorney (See Signature Page of this Registration Statement)
- ---------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-1 (File No. 333-2926) and incorporated herein be reference.
<PAGE>
EXHIBIT 5
---------
Trex Medical Corporation
81 Wyman Street, Post Office Box 9046
Waltham, MA 02254-9046
October 30, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration Statement on Form S-1 Relating to
1,962,000 Shares of Common Stock, Par Value
$.01 Per Share, of Trex Medical Corporation.
-------------------------------------------
Dear Sirs:
I am General Counsel to Trex Medical Corporation, a Delaware corporation
(the "Company"), and have acted as counsel in connection with the registration
under the Securities Act of 1933, as amended, on Form S-1 (the "Registration
Statement"), of 1,962,000 shares of the Company's Common Stock, par value $.01
per share (the "Shares"), which may from time to time be sold by certain
shareholders of the Company.
I or a member of my staff have reviewed the corporate proceedings taken
by the Company with respect to the authorization of the issuance of the Shares.
I or a member of my staff have also examined and relied upon originals or
copies, certified or otherwise authenticated to my satisfaction, of all
corporate records, documents, agreements or other instruments of the Company,
and have made investigations of law and have discussed with the Company's
representatives questions of fact that I or a member of my staff have deemed
necessary or appropriate.
Based upon and subject to the foregoing, I am of the opinion that the
Shares have been duly authorized by the Company and are validly issued, fully
paid and non-assessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, including any amendments thereto, and to the use of my
name under the caption "Legal Opinions" in the prospectus constituting a part
thereof.
Sincerely,
/s/ Seth H. Hoogasian
Seth H. Hoogasian
General Counsel
<PAGE>
EXHIBIT 10.21
-------------
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made and entered into as of the 4th day
of September, 1996, by and among CXR Acquisition Corp., a Delaware corporation
(the "Buyer"), a wholly-owned subsidiary of Trex Medical Corporation, a Delaware
corporation ("Trex Medical") and Continental X-Ray Corporation, an Illinois
corporation ("Continental"), Alphatek Corporation, an Illinois corporation
("Alphatek"), Broadview Manufacturing Corporation, an Illinois corporation
("Broadview"), Haymarket Square Associates, an Illinois partnership
("Haymarket"), Advanced Medical Imaging, Inc., an Illinois corporation ("AMI"),
Trans-Continental X-Ray Corporation, an Illinois corporation ("Trans-
Continental"), and the stockholders of Continental, Alphatek, Broadview, AMI and
Trans-Continental and the partners of Haymarket whose names appear on the
signature pages hereto (collectively, the "Stockholders") and, as to Section
7.21 only, Trex Medical. Continental, Alphatek, Broadview, Haymarket, AMI and
Trans-Continental are referred to herein individually as the Seller and
collectively as the Sellers.
The Buyer desires to purchase, and the Sellers desire to sell, all of
their assets, subject to the assumption by the Buyer of certain liabilities.
NOW THEREFORE, in consideration of the premises and the mutual
covenants, agreements and provisions herein contained, the parties hereto agree
as follows:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Accounts Receivable" -- as defined in Section 3.8.
"Agent" -- as defined in Section 2.9.
"Applicable Contract"-- any Contract (a) under which any Seller or any
of its Subsidiaries has or may acquire any rights, (b) under which any Seller or
any of its Subsidiaries has or may become subject to any obligation or
liability, or (c) by which any Seller or any of the assets owned or used by any
Seller or any of its Subsidiaries is or may become bound.
"Assets" -- as defined in Section 2.1.
"Assumed Liabilities" -- as defined in Section 2.3.
"Balance Sheet Date" -- as defined in Section 3.4.
<PAGE>
"Breach" -- for purposes of Section 6 hereof, a "Breach" of a
representation, warranty, covenant, obligation, or other provision of this
Agreement or any instrument delivered pursuant to this Agreement will be deemed
to have occurred if there is or has been (a) any inaccuracy in or breach of, or
any failure to perform or comply with, such representation, warranty, covenant,
obligation, or other provision, or (b) any claim (by any Person) or other
occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and the
term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Closing" -- as defined in Section 2.6.
"Closing Balance Sheet" -- as defined in Section 2.4.
"Closing Date" -- as defined in Section 2.6.
"Code" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Assets by the Sellers to the Buyer;
(b) the performance by the Buyer and the Sellers of their
respective covenants and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Assets and
exercise of control over the Assets.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" -- as defined in Section 6.2.
"Disclosure Letter" -- the disclosure letter delivered by the Sellers to
the Buyer concurrently with the execution and delivery of this Agreement and
attached hereto as Exhibit A and incorporated into this Agreement as a part
hereof.
"Draft Closing Balance Sheet" -- as defined in Section 2.4.
2
<PAGE>
"Encumbrance" -- any charge, claim, community property interest,
condition, equitable interest, lien, mortgage, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting (in the case of any security), transfer, receipt of
income, or exercise of any other attribute of ownership.
"Environment" -- soil, land, surface or subsurface strata, surface
waters (including navigable waters and ocean waters), groundwater, drinking
water supply, stream sediments, ambient air (including indoor air), plant and
animal life, and any other environmental medium or natural resource.
"Environmental, Health and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law, Occupational Safety and Health Law, a Contract or other
obligation relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action" include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sec. 9601 et seq., as amended
("CERCLA").
"Environmental Law" -- any Legal Requirement or principle of common law
designed:
(a) to advise appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous or toxic
substances or materials, violations or discharge limits, or other prohibitions
and of the commencement of activities, such as resource extraction or
construction, that could have an adverse impact on the Environment;
(b) to permit or license, or to prevent or acceptably minimize
the release of
3
<PAGE>
pollutants or hazardous or toxic substances or materials into the Environment;
(c) to reduce the quantities, prevent the release, and minimize
the hazardous characteristics of wastes that are generated;
(d) to assure that products are designed, formulated, packaged,
or used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) to protect resources, species, or ecological amenities;
(f) to acceptably minimize the risks inherent in transportation
of hazardous or toxic substances, pollutants, oil, petroleum, or other
potentially harmful substances;
(g) to clean up pollutants that have been released, prevent the
threat of release, or pay the costs of such cleanup, remediation or prevention;
or
(h) to make responsible parties pay private parties, or groups
of them, for damages done to their health or Environment, or to permit self-
appointed representatives of the public interest to recover for injuries done to
public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Amount" -- as defined in Section 2.9.
"ERISA Affiliate" -- as defined in Section 3.11.
"Exchange Act" -- the Securities Exchange Act of 1934 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"Excluded Assets" -- as defined in Section 2.1.
"Excluded Liabilities" -- as defined in Section 2.3.
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned, leased or operated by any of the Sellers (or any
predecessor Persons) and any buildings, plants, structures, or equipment
currently or formerly owned, leased or operated by any of the Sellers (or any
predecessor Persons).
"Financial Statements" -- as defined in Section 3.4.
"GAAP" -- generally accepted United States accounting principles.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver,
4
<PAGE>
exemption or variance, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" -- any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial (including court), legislative, police,
regulatory, or taxing authority or power of any nature.
"Hazardous Activity" -- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Sellers.
"Hazardous Materials" -- any substance that is now or may reasonably be
foreseen to be listed, deemed, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including any admixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and polychlorinated biphenyls,
asbestos or asbestos containing materials.
"Indemnified Persons" -- as defined in Section 6.2.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"June Balance Sheet" -- as defined in Section 3.4.
"June Income Statements" -- as defined in Section 3.4.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
5
<PAGE>
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, management employee, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Land" -- as defined in Section 3.29(a).
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other, constitution, law, ordinance, Order,
regulation, requirement, statute, treaty, or any principle of common law
interpreting any of the foregoing.
"Material Adverse Effect" -- any loss to the Sellers, taken as a whole,
in excess of $100,000.
"Net Asset Benchmark" -- as defined in Section 2.4.
"Neutral Auditors" -- as defined in Section 2.4.
"Occupational Safety and Health Law" -- any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(such as those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons exercising
similar authority), is not required to be specifically authorized by the parent
company (if any) of such Person, and does not require any other separate or
special authorization of any nature; and
6
<PAGE>
(c) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"Organizational Documents" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
"Permitted Exceptions" -- as defined in Section 5.1.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
limited liability partnership, joint venture, estate, trust, association,
organization, or other entity or Governmental Body.
"Plans" -- as defined in Section 3.11.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Products" -- as defined in Section 3.12(c).
"Purchase Price" -- as defined in Section 2.2.
"Real Property" -- as defined in Section 3.29.
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by any
one or more members of such individual's Family;
(c) any Person in which members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly
7
<PAGE>
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse and former spouses, (iii) any
other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who resides
with such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of
voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment (including
the abandonment or discarding of barrels, containers, tanks or other
receptacles).
"Restricted Employee" -- as defined in Section 7.16.
"Securities Act" -- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Seller" or "Sellers" -- as defined in the first paragraph of this
Agreement.
"Seller Representative"-- Patrick T. Fitzgerald, as representative of
all of the Sellers and the Stockholders.
"Subsidiary" -- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred), are held by the Owner or one or more of its
Subsidiaries.
"Survey" -- as defined in Section 2.10.
"Tax" -- any tax (including without limitation any income, capital
gains, gross receipts,
8
<PAGE>
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including without limitation taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, assessments or other fiscal charges of any
kind whatsoever, including any fine, interest, penalty, or addition thereto,
whether disputed or not), imposed, assessed, levied or collected by or under the
authority of any Governmental Body or payable pursuant to any tax-sharing
agreement or any other Contract relating to the sharing or payment of any such
tax.
"Tax Return" -- any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including without limitation
any schedule or attachment thereto, and any amendment thereof.
"Threat of Release" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute, action
or other matter is likely to be asserted, commenced, taken, or otherwise pursued
in the future.
"Title Company" -- as defined in Section 5.1.
"Title Policy" -- as defined in Section 5.1.
"Trust" -- as defined in Section 3.29.
"Trustee" -- as defined in Section 3.29.
"1995 Balance Sheet" -- as defined in Section 3.4.
"1995 Income Statements" -- as defined in Section 3.4.
2. SALE AND TRANSFER OF ASSETS; CLOSING
2.1 Sale of Assets. At the Closing, the Buyer shall purchase,
acquire and accept, and the Sellers shall assign, transfer, convey and deliver,
all of the Sellers' right, title and interest in and to, the assets, properties
and rights (contractual or otherwise) of every kind, nature and description
owned or used by the Sellers (collectively, the "Assets"). The Assets shall
include, without limitation, the following:
(a) Inventories. All inventories of raw materials, work-in-
process, finished
9
<PAGE>
products and resale merchandise, scrap inventory, and expendable manufacturing
supplies.
(b) Machinery and Equipment. All machinery and equipment
used in the research and development, manufacture, production, assembly, test,
handling, distribution, demonstration and sale of products, together with the
spare-parts inventories and all manufacturing or production tools and
maintenance supplies pertaining thereto.
(c) Intellectual Property Rights and Trademarks. All
patents, trademarks, service marks, copyrights, trade names and applications
therefor, including without limitation, the names "Continental X-Ray
Corporation" and "Alphatek Corporation".
(d) Technical Information and Intangibles. All inventions,
discoveries (whether patentable or unpatentable), processes, designs, know-how,
trade secrets, proprietary data, software programs and intellectual property of
all kinds, including drawings, plans, specifications, processes, patents, dies,
designs, blue prints, records, data, product development records, production
outlines, diskettes, source code, object code, flow charts, information, media
or knowledge and procedures, and customer and supplier lists.
(e) Contracts. All real and personal property leases,
licenses, sales, distribution, and supply Contracts, purchase Contracts and
sales orders, and any prepaid items, warranties and all causes of action and
claims related thereto.
(f) Motor Vehicles. All cars, trucks and other motor
vehicles, automotive equipment and other rolling stock.
(g) Books and Records. All books, records and accounts,
correspondence, production records, technical, accounting, manufacturing and
procedural manuals, and customer lists; employment records, studies, reports or
summaries relating to any environmental conditions or consequences of any
operation, as well as all studies, reports or summaries relating directly to the
general condition of the Sellers; and any confidential information which has
been reduced to writing relating to or arising out of the business of the
Sellers.
(h) Permits and Approvals. To the extent transferable, all
Governmental Authorizations of the Sellers.
(i) Claims. All claims, deposits, prepayments, refunds,
security interests, causes of action, choses in action, rights of recovery,
rights of setoff, rights of recoupment, rights under warranties and other
similar assets.
(j) Furniture and Fixtures. All office furniture, office
equipment and supplies and computer hardware.
(k) Accounts Receivable. All trade and other accounts and
notes receivable and any rights of recovery or setoff of every type and
character.
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(l) Real Property. All real property, including the property
located at 2000 South 25th Avenue, Broadview, Illinois, leaseholds and
subleaseholds in real property, and buildings, improvements, fixtures and
fittings thereon, easements, rights-of-way and other rights and privileges
appurtenant to such real property or leasehold or subleasehold estates.
(m) Miscellaneous Supplies. All catalogs, brochures, product
literature, product-related application notes, manuals, technical papers, other
printed materials, shipping and packaging materials and labels, cartons and
shipping containers, palettes, shipping equipment, graphics, artwork,
photographic film, slides, negatives, color separations, printer's and
photographer's plates and so-called "camera-ready materials" and sales and
advertising materials.
(n) Cash and Securities. All cash, bank accounts, money
market accounts, certificates of deposit, treasury bills, bonds, notes,
securities and similar assets.
(o) Assets in Subsidiaries. All of the assets of all
Subsidiaries of the Sellers.
Notwithstanding anything to the contrary herein, the Assets shall not
include the partnership interests of Haymarket held by Continental and Alphatek
(the "Excluded Assets").
2.2 Purchase Price for the Assets. Subject to Section 2.4, the
aggregate purchase price for the Assets shall be $13,050,500 (the "Purchase
Price") payable to Continental to be allocated to it and each of Alphatek,
Broadview, Haymarket, AMI, and Trans-Continental.
2.3 Assumption of Liabilities. At the Closing, the Buyer shall
assume all liabilities (the "Assumed Liabilities") of the Sellers arising out of
or relating primarily to the business of each such Seller (including but not
limited to claims, actions, Proceedings and liabilities for product warranty,
breach of contract, breach of warranty, tort or infringement), except the
Excluded Liabilities. The Buyer shall not assume any liabilities or obligations
of any Seller of any nature known or unknown, fixed, contingent or otherwise of
each such Seller (the "Excluded Liabilities"): (a) for any Environmental, Health
and Safety Liabilities resulting from the ownership, operation or condition of
the Facilities, or with respect to any site to which Hazardous Materials
generated by any Seller were transported, or for any liabilities or obligations
resulting from any Hazardous Activity conducted by any Seller, (b) for any Taxes
resulting from the conduct of the business of the Sellers, including all Taxes
on Real Property, except such Taxes on Real Property as are accrued and
reflected on the face of the Closing Balance Sheet, (c) for any violation by any
Seller of any Legal Requirement, (d) to any retired or other former employees of
any Seller including but not limited to pension payments to Paul and Irene
Worden ($1,226 per month plus COLA), Margaret Shoup ($335 per month), Erwin Held
($35 per month) and Ruth Taxy ($800 per month) or with respect to the note
payable to Paul and Irene Worden in the principal amount of $120,000 due October
2007, (e) under any Plans maintained at any time by any Seller or to which or in
which any Seller contributes or participates, or relating to any termination of
any such Plan, (f) for any liabilities or obligations of any Seller arising
under this Agreement, including without limitation, for any obligations arising
under Section 6.2 hereof, for any breach of any representation or warranty made
by any Seller contained herein or for any other breach hereof, and (g) for any
liabilities (other than such liabilities described in (a) through (f) above) of
which
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the Sellers have Knowledge on or prior to the Closing Date and which are not
reflected on the face of the Closing Balance Sheet or in the notes thereto, or
in the Disclosure Letter.
2.4 Post-Closing Adjustment. The Purchase Price set forth in Section
2.2 shall be subject to adjustment after the Closing Date as follows:
(a) Within 30 days after the Closing Date, the Buyer shall
prepare and deliver to the Seller Representative a combining balance sheet
reflecting the combined net assets of the Sellers as of the Closing Date (a
"Draft Closing Balance Sheet") at Buyer's expense. The Buyer shall prepare the
Draft Closing Balance Sheet in accordance with GAAP. For purposes of this
Agreement, "net assets" shall mean the Assets (other than Excluded Assets),
minus Assumed Liabilities reflected on such Balance Sheet in accordance with
GAAP applied on a basis consistent with the basis on which the 1995 Balance
Sheet was prepared with respect to excess and obsolete inventory and product
warranties.
(b) The Seller Representative shall deliver to the Buyer
within 15 days after receiving the Draft Closing Balance Sheet a detailed
statement describing its objections (if any) thereto. Failure of the Seller
Representative so to object to the Draft Closing Balance Sheet shall constitute
acceptance thereof, whereupon such Draft Closing Balance Sheet shall be deemed
to be the "Closing Balance Sheet." The Buyer and the Seller Representative shall
use reasonable efforts to resolve any such objections, but if they do not reach
a final resolution within 15 days after the Buyer has received the statement of
objections, the Buyer and the Seller Representative shall, within 5 days
thereafter, select one of the following nationally recognized accounting firms
(Coopers & Lybrand, Deloitte & Touche, Ernst & Young, KPMG Peat Marwick and
Price Waterhouse) mutually acceptable to them (which shall not be the regular
accounting firm used by the Buyer or any Seller) (the "Neutral Auditors") to
resolve any remaining objections. If the Buyer and the Seller Representative are
unable to agree on the choice of Neutral Auditors within such 5-day period, they
shall select as Neutral Auditors one of such nationally recognized accounting
firms by lot within 5 days thereafter (after excluding their respective regular
independent accounting firms). The Neutral Auditors shall determine, within 30
days after their appointment, whether the objections raised by the Seller
Representative are valid. The Draft Closing Balance Sheet that is the subject of
objections by the Seller Representative shall be adjusted in accordance with the
Neutral Auditors' determination and, as so adjusted, shall be the Closing
Balance Sheet. Such determination by the Neutral Auditors shall be conclusive
and binding upon the Buyer and the Seller Representative. The Buyer, on the
other hand, and the Sellers, on the other hand, shall share equally the fees and
expenses of the Neutral Auditors.
(c) If the net assets as shown on the Closing Balance Sheet
are less than the Net Asset Benchmark, the Sellers shall pay to the Buyer, by
wire transfer in immediately available funds, within ten business days after the
date on which the Closing Balance Sheet is finally determined pursuant to this
Section 2.4, an amount equal to such deficiency (plus interest thereon from the
Closing Date at the interest rate equal to the base rate of the Bank of Boston
as announced from time to time).
(d) As used in this Section 2.4, "Net Asset Benchmark" means
$3,000,500.
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2.5 Allocation of Purchase Price. The Sellers and the Buyer agree
that the consideration paid by the Buyer under Sections 2.3 and 2.4 hereof shall
be provisionally allocated among the Assets as provided on Exhibit C attached
hereto. The final allocation of the Purchase Price shall differ from the
provisional allocation only to reflect changes in the book value of the net
Assets as shown on the Closing Balance Sheet. The Buyer and the Sellers each
shall report the federal, state, provincial, foreign and local income and other
tax consequences of the transaction contemplated hereby in a manner consistent
with such allocation.
2.6 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur at the offices of Hedberg, Tobin,
Flaherty & Whalen, Three First National Plaza, Chicago, Illinois, at 10:00 a.m.
on the date set forth in the first paragraph of this Agreement (the "Closing
Date").
2.7 Deliveries by the Sellers to the Buyer. At the Closing, the
Sellers shall deliver, or cause to be delivered, to the Buyer:
(a) such executed assignments, patent assignments, trademark
assignments, bills of sale, certificates of title, or other documents, each
dated the Closing Date, as shall be necessary, in the opinion of the Buyer and
its counsel to transfer to the Buyer all of the Sellers' right, title and
interest in and to the Assets;
(b) an opinion of Hedberg, Tobin, Flaherty & Whalen, counsel
to the Sellers, in the form attached hereto as Exhibit D;
(c) consents to the assignment of the Contracts listed on
Exhibit E; and
(d) executed copies of such other agreements contemplated
hereunder to which any of the Sellers is party.
2.8 Deliveries by the Buyer to the Sellers. At the Closing, the
Buyer shall deliver to the Sellers:
(a) Subject to Section 2.9 hereof, the Purchase Price by
wire transfer to the account designated by the Sellers; and
(b) an executed assumption agreement and such other
documents, each dated as of the Closing Date, as shall be necessary, in the
opinion of the Sellers and their counsel, for the assumption by the Buyer of all
of the Assumed Liabilities.
2.9 Escrow. For the purpose of providing security for the
obligations of the Sellers under Section 6.2 hereof, $1,250,000 (the "Escrow
Amount") shall be withheld from the Purchase Price delivered at Closing and
shall be placed in an escrow account with BayBank, N.A. as escrow agent (the
"Agent"). The Agent shall hold the Escrow Amount pursuant to the terms of an
escrow agreement among the Sellers, the Buyer and the Agent substantially in the
form
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attached hereto as Exhibit F. On the first anniversary of the Closing Date, the
Seller Representative may withdraw 50% of the Escrow Amount, together with
interest earned thereon, for distribution to the Sellers, as their interests
appear, less the amount of any unsatisfied claims for indemnification made by
the Buyer prior to such first anniversary. On the second anniversary of the
Closing Date, the Seller Representative may withdraw the remainder of the Escrow
Amount, together with any interest thereon, for distribution to the Sellers, as
their interests appear, less the amount of any unsatisfied claims for
indemnification made by the Buyer on or prior to such second anniversary. Any
portion of the Escrow Amount that cannot be withdrawn from the escrow account
due to pending claims by the Buyer for indemnification, shall remain in the
escrow account until the resolution of such claims by judgment of a court from
which no appeal can be made, decision of an arbitrator or agreement of the Buyer
and the Seller Representative.
2.10 Survey. Buyer may procure, either before or after Closing, at
Sellers' sole cost and expense, a current spotted, staked ALTA/ACSM Land Title
Survey (the "Survey") of the Real Property drawn to scale, containing a metes
and bounds description of the Real Property, prepared and executed by a
registered Illinois land surveyor acceptable to Buyer, and certified to Buyer,
the Title Company and any lenders or other parties Buyer may designate. The
Survey shall show recording data where applicable, shall in all respects meet
or exceed the Minimum Standard Detail Requirements for Land Title Surveys
(urban surveys), as adopted in 1992 by the American Land Title Association and
American Congress on Surveying and Mapping, and shall include items 1, 2, 3,
4, (6, as to record matters only), 7, 8, 9, 10 and 11 from Table A of such
requirements. Sellers shall provide the surveyor with all information
necessary to properly prepare the Survey provided for in this Section.
2.11 Payment of Certain Loans. Buyer agrees to pay at Closing all
real estate mortgage and bank loans and other loans of the Sellers as listed on
Exhibit B hereto and timely present Sellers evidence of discharge of such
obligations.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, represent and warrant to the Buyer
as follows:
3.1 Organization and Good Standing.
(a) Each of the Sellers is a corporation (other than
Haymarket which is a partnership) duly organized, validly existing, and in good
standing under the laws of the state or other jurisdiction of its incorporation
or organization, with full corporate or partnership power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. Each of the Sellers is duly qualified to do business
as a foreign corporation or partnership, as the case may be, and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to so qualify, individually or in the aggregate, would not have a
Material Adverse Effect. Set forth in
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Part 3.1 of the Disclosure Letter is a list of the jurisdictions of
incorporation or organization of each Seller and a list of all states in which
each Seller is qualified to do business.
(b) The Sellers have delivered to the Buyer complete and
correct copies of all of the Sellers' Organizational Documents, as currently in
effect.
3.2 Authority; No Conflict.
(a) Each of the Sellers has the absolute and unrestricted
right, power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. All corporate and other actions and proceedings to be
taken by or on the part of each of the Sellers to authorize and permit the
execution and delivery by each Seller of this Agreement and the instruments
required to be executed and delivered by each Seller pursuant hereto, the
performance by each Seller of the obligations hereunder and the consummation by
each Seller of the transactions contemplated herein, have been duly and properly
taken. This Agreement has been duly executed and delivered by each Seller and
constitutes the legal, valid and binding obligation of each Seller, enforceable
against each Seller in accordance with its terms.
(b) Except as set forth in Part 3.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time): (i)
contravene, conflict with, or result in a violation of (A) any provision of the
Organizational Documents of any Seller, or (B) any resolution adopted by the
board of directors, partners or the stockholders of any Seller; (ii) contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
Order to which any Seller, or any of the assets owned or used by any Seller, may
be subject; (iii) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; (iv) result in the
imposition or creation of any Encumbrance upon or with respect to any of the
assets owned or used by any Seller; or (v) entitle any employee or other person
to severance or other payments by any Seller or create any other obligation to
an employee or other person, including any increase in benefits.
(c) Except as set forth in Part 3.2 of the Disclosure
Letter, no Seller will be required to give any notice to, make any filing with,
or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Subsidiaries. Set forth in Part 3.3 of the Disclosure Letter is
a list of all Subsidiaries of each Seller, including, with respect to each
Subsidiary, its jurisdiction of incorporation. All of the outstanding capital
stock of each Subsidiary has been duly authorized and validly issued, is fully
paid, nonassessable and free of preemptive rights, and is owned beneficially and
of record by the respective Seller or by another Subsidiary of a Seller free and
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clear of any Encumbrance or restriction of any nature, including, without
limitation, any restriction on transfer or voting. No shares of any Subsidiary's
capital stock are reserved for issuance, and there are no options, warrants,
convertible instruments or other rights, agreements or commitments, contingent
or otherwise, obligating a Subsidiary to issue, sell or purchase shares of
capital stock. No Seller is a partner or joint venturer with any other person.
No Seller is subject to any obligation, contingent or otherwise, to provide
funds to or make an investment (in the form of a loan, capital contribution or
otherwise) in any entity. No Seller has any equity interest in any corporation,
partnership or other business entity other than the Subsidiaries listed on the
Disclosure Letter. Each Subsidiary is in good standing under the laws of its
jurisdiction of incorporation and has all requisite power and authority to own,
operate and lease its properties and to carry on its business as it is now being
conducted. The Sellers have delivered to the Buyer complete and correct copies
of the Organizational Documents of each Subsidiary, as amended. Each Subsidiary
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction in which the character of the properties owned,
operated or leased by it or the nature of its activities is such that
qualification is required by applicable laws, except where the failure to so
qualify would not, individually or in the aggregate, have a Material Adverse
Effect. All jurisdictions where the Subsidiaries are qualified as foreign
corporations or are required to be so qualified are listed on Part 3.3 of the
Disclosure Letter.
3.4 Financial Statements. The Sellers have delivered to the Buyer:
(a) an audited combining balance sheet (the "1995 Balance Sheet") of the Sellers
as at December 31, 1995, (the "Balance Sheet Date") and the related audited
combining statements of income, stockholders' equity/partners' deficit and cash
flows for the fiscal year then ended (the "1995 Income Statements") and (b) an
unaudited combining balance sheet of the Sellers (the "June Balance Sheet") as
at June 30, 1996 and the related unaudited combining statements of income,
stockholders' equity/partners' deficit and cash flows for the six month period
then ended (the "June Income Statements"). The 1995 Balance Sheet and the 1995
Income Statements are referred to collectively as the "Financial Statements".
The Financial Statements fairly present the financial condition and the results
of operations and cash flows of the Sellers as at the respective dates of and
for the periods referred to therein all in accordance with GAAP and reflect the
consistent application of such accounting principles throughout the periods
involved. The Financial Statements, the June Balance Sheet and the June Income
Statements are consistent with the books and records of the Sellers.
3.5 Books and Records. The books of account, minute books, and other
records of the Sellers, all of which have been made available to the Buyer, are
complete and correct.
3.6 Title to Properties; Encumbrances. Except as set forth in Part
3.6 of the Disclosure Letter, the Sellers have valid and legally enforceable
title to all of the Assets free and clear of any Encumbrances whatsoever, and
the consummation of the Contemplated Transactions will vest in the Buyer all of
the Sellers' right, title and interest in and to the Assets.
3.7 Condition and Sufficiency of Assets. Except as set forth in Part
3.7 of the Disclosure Letter, to the Knowledge of the Sellers, the Assets are
structurally sound, are in good operating condition and repair, normal wear and
tear excepted, and are adequate for the uses to
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which they are being put, and are not in need of maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost. The Assets are the only assets necessary for the continued conduct of the
business of the Sellers after the Closing in substantially the same manner as
conducted prior to the Closing.
3.8 Accounts Receivable. All accounts receivable of the Sellers are
reflected properly on the Sellers' books and records in accordance with GAAP.
All accounts receivable of the Sellers that are reflected on the June Balance
Sheet (except for those collected in full prior to the Closing Date) or on the
accounting records of the Sellers as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date and except as set forth on
Part 3.8 of the Disclosure Letter, the Accounts Receivable are or will be as of
the Closing Date current and collectible within 90 days net of the respective
reserves shown on the June Balance Sheet or on the accounting records of the
Sellers as of the Closing Date. There is no contest, claim, or right of
set-off with any maker of an Account Receivable relating to the amount or
validity of such Account Receivable.
3.9 No Undisclosed Liabilities. To the Knowledge of the Sellers, the
Sellers have no liabilities or obligations of any nature (whether absolute,
accrued, contingent, or otherwise), and, there is no basis for the assertion
against any of the Sellers of any such liability or obligation, except for
liabilities or obligations set forth on the face of (rather than in any notes
thereto), or reserved against in, the 1995 Balance Sheet, current liabilities
incurred in the Ordinary Course of Business since the Balance Sheet Date or
liabilities or obligations pursuant to the Applicable Contracts assumed by the
Buyer hereunder or as reflected in Parts 3.6, 3.7, 3.10 3.11, or 3.13 of the
Disclosure Letter.
3.10 Taxes. Except as set forth in Part 3.10 of the Disclosure
Letter, to the Knowledge of the Sellers each of the Sellers has accurately
prepared and duly and timely filed all Tax Returns that it was required to file
and all such Tax Returns were correct and complete in all material respects.
None of the Sellers is the beneficiary of any extension of time within which to
file any Tax Return. All Taxes owed by the Sellers have been paid when due,
other than those being contested in good faith and where adequate reserves
(determined in accordance with GAAP) have been established therefor. All Taxes
of the Sellers attributable to Tax periods or portions thereof ending on or
prior to the Closing Date, including Taxes that may become payable by the
Sellers in future periods in respect of any transactions or sales occurring on
or prior to the Closing Date, that have not yet been paid have, in the
aggregate, been adequately reflected as a liability on the books of the Sellers
in accordance with GAAP. None of the Sellers is currently being audited or
examined by any Governmental Body, and no deficiencies for any Tax have been
asserted against any of the Sellers. No claim or inquiry with respect to any
material amount of Taxes has been made within the past seven years against any
Seller by an authority in a jurisdiction where any such Seller did not file Tax
Returns that such Seller is or may be subject to any Tax by that jurisdiction.
Without limiting the generality of the foregoing, the Sellers have withheld or
collected and duly paid all Taxes required to have been withheld or collected
and paid in connection with payments to foreign persons, sales and use Tax
obligations, and amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other person. Except as
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set forth in Part 3.10 of the Disclosure Letter, none of the Sellers are party
to any Tax allocation or sharing agreement or a member of an affiliated group
filing a consolidated federal income Tax Return.
3.11 Employee Benefits. Part 3.11 of the Disclosure Letter contains a
true, correct and complete list of all benefit plans (as defined in Section 3(3)
of ERISA) and all pension, benefit, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance pay
and other similar plans, programs and agreements, whether reduced to writing or
not, relating to any current or former employees of any of the Sellers (the
"Plans") and, except as set forth in Part 3.11 of the Disclosure Letter, none of
the Sellers has any obligations, contingent or otherwise, past or present, under
applicable law or the terms of any Plan. With respect to all Plans, each of the
Sellers is in compliance with all applicable Legal Requirements, including
ERISA. Each of the Sellers has performed all obligations required to be
performed by it under, and is not in violation of, and there has been no default
or violation by any other party with respect to, any of the Plans. There are no
pending or, to the Knowledge of the Sellers or the Stockholders, Threatened
Proceedings by employees or former employees of any Seller, or beneficiaries or
spouses of any of the above, involving any Plan. The Sellers have provided the
Buyer with copies of each Plan that is in writing and with a written summary of
each oral Plan. No Plan is an "employee pension benefit plan" as such term is
defined in Section 3(2) of ERISA. None of the Sellers nor any ERISA Affiliate
(as defined below) contributes to or has an obligation to contribute to or has
contributed to or had an obligation to contribute to within the past six years,
a "multi-employer" plan as defined in Section 4001(a)(3) of ERISA. None of the
Sellers nor any ERISA Affiliate has withdrawn from a multi-employer plan in a
complete or partial withdrawal that resulted in any unsatisfied employer
liability. None of the Sellers has contributed to an employee pension benefit
plan that is subject to Section 412 of the Code or Title IV of ERISA. "ERISA
Affiliate" means an entity which is a member of (i) a controlled group of
corporations (as defined in Section 414(b) of the Code), (ii) a group of trades
or businesses under common control (as defined in Section 414(c) of the Code),
or (iii) an affiliated service group (as defined in Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any of which includes any
of the Sellers.
3.12 Compliance with Legal Requirements;
(a) Except as set forth in Part 3.12 of the Disclosure
Letter: (i) to the Knowledge of the Sellers or the Stockholders, each of the
Sellers is, and at all times since January 1, 1991 has been, in compliance with
each Legal Requirement that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any of its assets; (ii) to
the Knowledge of the Sellers or the Stockholders, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
constitute or result in a violation by any Seller of, or a failure on the part
of any Seller to comply with, any Legal Requirement; (iii) none of the Sellers
has received, at any time since January 1, 1991, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement.
(b) To the Knowledge of the Sellers or the Stockholders,
each of the Sellers
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has obtained all Governmental Authorizations necessary for the conduct
of its business as currently conducted. To the Knowledge of the Sellers or the
Stockholders, except as set forth in Part 3.12 of the Disclosure Letter: (i)
each of the Sellers is, and at all times since January 1, 1991 has been, in
compliance in all material respects with each such Governmental Authorization,
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any such
Governmental Authorization; (iii) none of the Sellers has received, at any time
since January 1, 1991, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of or failure to comply with
any term or requirement of any such Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any such Governmental
Authorization; (iv) the rights of each of the Sellers under all such
Governmental Authorizations shall not be affected by the consummation of the
Contemplated Transactions, and (v) all such Governmental Authorizations are
fully-assignable to the Buyer.
(c) For purposes of this Section 3.12(c), the "Products"
shall mean x-ray products and all other products sold by the Sellers. To the
Knowledge of the Sellers or the Stockholders, each of the Sellers, and each
Product in current commercial distribution, is currently duly registered (in the
case of each Seller) and listed (in the case of each Product) with the Federal
Food and Drug Administration ("FDA") under section 360 of the Federal Food,
Drug, and Cosmetic Act, 21 U.S.C. 301 et seq. (the "FDC Act"), and the
applicable rules and regulations thereunder. Each Product in current commercial
distribution is either a Class I or a Class II medical device as defined under
21 U.S.C. 360c (a) (1) (A), (B) and the applicable rules and regulations
thereunder and to the Knowledge of the Sellers or the Stockholders, was first
marketed under, and is covered by, a premarket notification submission to the
FDA in compliance with 21 U.S.C. 360 (k) and the applicable rules and
regulations thereunder. To the Knowledge of the Sellers or the Stockholders,
each of the Sellers is currently in compliance with, and each Product in current
commercial distribution is manufactured, prepared, assembled and processed in
compliance with Good Manufacturing Practice for Medical Devices set forth in 21
C.F.R. part 820. To the Knowledge of the Sellers or the Stockholders, each of
the Sellers is in full compliance with the written procedures, recordkeeping and
FDA reporting requirements for Medical Device Reporting set forth in 21 C.F.R.
part 803. The premises of each of the Sellers and their records relating to the
Products were most recently inspected by the FDA in April, 1993, with a follow-
up inspection on April 7, 1994, and a true and complete copy of the report of
such inspections has been furnished to the Buyer. The Sellers have corrected all
deficiencies noted therein and have implemented all recommendations made
therein. Since April, 1994, the FDA has not inspected such premises and records.
To the Knowledge of the Sellers or the Stockholders, none of the Sellers is
subject to any enforcement proceedings by the FDA and no proceedings have been
threatened. To the Knowledge of the Sellers or the Stockholders, none of the
Sellers has introduced in commercial distribution during the period of six
calendar years immediately preceding the date hereof any Products which were
upon their shipment by the Sellers adulterated or misbranded in violation of 21
U.S.C. 331.
3.13 Legal Proceedings; Orders.
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(a) Except as set forth in Part 3.13 of the Disclosure
Letter, there is no pending Proceeding: (i) that has been commenced by or
against any Seller or that otherwise relates to or may affect, the business of,
or any of the assets owned or used by, any Seller, or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions. To the Knowledge of the
Sellers or the Stockholders, (A) no such Proceeding has been Threatened, and (B)
no event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding.
(b) Except as set forth in Part 3.13 of the Disclosure
Letter there is no Order to which any Seller, or any of the assets owned or used
by any Seller, is subject. Each of the Sellers is in full compliance with all of
the terms and requirements of each Order to which it, or any assets owned or
used by it, is subject.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the Balance Sheet Date, each of the
Sellers has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) except in the Ordinary Course of Business, payment or
increase by any Seller of any bonuses, salaries, commissions or other
compensation to any stockholder, director, officer, or employee or entry into
any employment, severance, or similar Contract with any stockholder, director,
officer, or employee;
(b) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
any Seller;
(c) damage to or destruction or loss of any asset or
property of any Seller, whether or not covered by insurance, having a Material
Adverse Effect;
(d) except in the Ordinary Course of Business, sale (other
than sales of inventory in the Ordinary Course of Business), lease, or other
disposition of any asset or property of any Seller or mortgage, pledge, or
imposition of any Encumbrance on any asset or property of any Seller;
(e) cancellation or waiver of any claims or rights with a
value to any Seller in excess of $25,000;
(f) material change in the accounting methods used by any
Seller;
(g) material adverse change in the financial condition,
assets, liabilities, earnings, business or prospects of the Sellers, taken as a
whole;
(h) indebtedness or other liability or obligation (whether
absolute, accrued,
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contingent or otherwise) incurred, or other transaction (except that reflected
in this Agreement) engaged in, by any Seller, except those in the Ordinary
Course of Business which are, individually and in the aggregate, less than
$25,000 in amount;
(i) acquisition of any assets other than in the Ordinary
Course of Business;
(j) material reduction in the rate of, or gross margins
associated with, bookings or orders for the products or services of any Seller;
or
(k) agreement, whether oral or written, by any Seller to do
any of the foregoing.
3.15 Contracts; No Defaults.
(a) The Sellers have delivered to the Buyer true and
complete copies of all of the Applicable Contracts. Part 3.15(a) of the
Disclosure Letter contains a complete and accurate list of each of the following
Applicable Contracts, whether oral or written, along with a description of all
oral Applicable Contracts: (i) each agreement that involves aggregate future
payments by any Seller of more than $25,000; (ii) each distributorship, sales
agency, franchise, joint venture or partnership agreement; (iii) each agreement
not made in the Ordinary Course of Business which is to be performed after the
Closing; (iv) each outstanding commitment to make a capital expenditure, capital
addition or capital improvement involving an amount in excess of $20,000; (v)
each real or personal property lease; (vi) each agreement relating to the loan
of money or availability of credit to or from any Seller; (vii) each agreement
limiting the freedom of any Seller to compete in any line of business or with
any Person; (viii) each agreement, contract, arrangement or understanding
between any Seller and any present or former employee, or other agreements
relating to the provision of services; (ix) each license agreement relating to
patents, trademarks, know-how or other intellectual property, whether as
licensee or licensor; (x) each collective bargaining agreement or other contract
or commitment to or with any labor union or other group of employees; (xi) each
mortgage, pledge, security, title retention, or similar agreement encumbering
any of the Assets; (xii) each agreement providing for payments to or by any
Person based on sales, purchases, revenues, profits or assets; (xiii) each
guaranty or similar undertaking with respect to the obligations of any other
Person; (xiv) each agreement relating to the acquisition or disposition of
significant assets, businesses or companies within the past five years; and (xv)
each other agreement which cannot be terminated by any Seller within one year
after the date hereof without penalty or under which the consequences of a
default or termination would have a Material Adverse Effect.
(b) Except as set forth in Part 3.15(b) of the Disclosure
Letter, each Contract identified or required to be identified in Part 3.15(a) of
the Disclosure Letter is in full force and effect and is valid and enforceable
in accordance with its terms. Except as set forth in Part 3.15(b) of the
Disclosure Letter: (i) each Seller is, and at all times since January 1, 1991
has requirements of each Applicable Contract to which it is a party; (ii) each
other Person that has any obligation or liability under any Applicable Contract
is, and at all times since January 1, 1991 has been, in compliance in
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all material respects with all applicable terms and requirements of such
Applicable Contract; and (iii) none of the Sellers has given to or received from
any other Person, at any time since January 1, 1991, any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Applicable Contract.
(c) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to any
Seller under any Applicable Contract with any Person having the contractual or
statutory right to demand or require such renegotiation and no such Person has
made written demand for such renegotiation.
3.16 Insurance. Part 3.16 of the Disclosure Letter sets forth a list
(including the name of the insurer, the name of the policyholder, the name of
each insured, the policy number and periods of coverage, and the scope of
coverage) of all policies of fire, theft, casualty, liability, burglary,
fidelity, workers compensation, business interruption, environmental, product
liability, automobile and other forms of insurance under which any Seller is
the beneficiary, including any self-insurance arrangement affecting any Seller.
No Seller has received any notice from any insurer under any such policy
disclaiming coverage or canceling or materially amending any such policy. Such
policies or extensions or renewals thereof in such amounts will be outstanding
and in full force and effect without interruption until the Closing Date. Each
of the Sellers has paid all premiums due, and has otherwise performed all of
its obligations under, each such policy. Each of the Sellers has given proper
and timely notice to the insurer of all claims that may be insured under such
policies. The Sellers have delivered true and complete copies of all such
insurance policies to the Buyer.
3.17 Environmental Matters. Except as set Disclosure Letter:
(a) Each of the Sellers is in full compliance with all
Environmental Laws. None of the Sellers or the Stockholders has any basis to
expect, nor has any Seller or any other Person for whose conduct any Seller is
or may be held to be responsible received, any actual or Threatened order,
notice, or other communication from (i) any Governmental Body or private citizen
acting in the public interest, (ii) the current or prior owner or operator of
any Facilities, or (iii) any other Person, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or Threatened
obligation to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which any Seller (or any
predecessor) has or had an interest, or with respect to any property or facility
at or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, transported or processed by any Seller (or any
predecessor), or any other Person for whose conduct any Seller is or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Sellers
or the Stockholders, Threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties and
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assets (whether real, personal, or mixed) in which any Seller (or any
predecessor) has or had an interest.
(c) None of the Sellers nor any other Person for whose
conduct any Seller is or may be held responsible, has any Environmental, Health
and Safety Liabilities with respect to the Facilities or any other properties
and assets (whether real, personal, or mixed) in which any Seller (or any
predecessor) has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any other such property or assets.
(d) There has been no Release or, to the Knowledge of the
Sellers or the Stockholders, Threat of Release, of any Hazardous Materials at or
from the Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, transported, produced, imported,
used, or processed at, from or by the Facilities, or at, from or by any other
properties and assets (whether real, personal, or mixed) in which any Seller (or
any predecessor) has or had an interest, or to the Knowledge of the Sellers or
the Stockholders any geologically or hydrologically adjoining property, whether
by any Seller or any other Person.
(e) The Sellers have delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by any Seller pertaining to Hazardous
Materials or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by any Seller, or any other Person for whose conduct any Seller is or
may be held responsible, with Environmental Laws or Occupational Safety and
Health Laws.
(f) Part 3.17 of the Disclosure Letter sets forth or
describes in reasonable detail: (i) all landfills, surface impoundments, pits,
underground injections wells, waste piles, incinerators and any other units used
by any Seller (or any predecessor) for the handling, treatment, recycling,
storage or disposal of Hazardous Materials and (ii) all underground or above-
ground storage tanks at the Facilities or on any property owned or operated at
any time by any Seller (or any predecessor).
3.18 Labor Disputes; Compliance. Since January 1, 1991, none of the
Sellers have been a party to any collective bargaining or other labor Contract.
Since January 1, 1991, there has not been, there is not presently pending or
existing, and to the Knowledge of the Sellers or the Stockholders there is not
Threatened, any strike, slowdown, picketing, work stoppage, labor arbitration
or proceeding in respect of the grievance of any employee, application or
complaint filed by an employee or union with the National Labor Relations Board
or any comparable Governmental Body, organizational activity, or other labor
dispute against or affecting any Seller or any Sellers' premises, and no
application for certification of a collective bargaining agent is pending or to
the Knowledge of the Sellers or the Stockholders is Threatened. To the
Knowledge of the Sellers or the Stockholders, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by any Seller, and no such
action is contemplated by any Seller.
3.19 Intellectual Property. Except as may be limited by the last
four sentences of this
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Section 3.19, the Sellers own or have adequate licenses to use, free and clear
of any Encumbrance or obligation of payment, all patents, trademarks, trade
names, service marks, branch names and copyrights, and applications therefor,
used in the conduct of the business or the use of which is necessary for the
conduct of the business of the Sellers as presently conducted (the
"Intangibles"). Set forth in Part 3.19 of the Disclosure Letter is a complete
list and summary description of all Intangibles and licenses or sublicenses
entered into or granted by or to the Sellers with respect thereto and the
countries of registration. The Sellers own or possess adequate rights to use,
free and clear of any Encumbrance or obligation of payment, all inventions,
technology, technical know-how, processes, designs, trade secrets, vendor and
customer lists and other confidential information required for or used in the
business of the Sellers as presently conducted ("Trade Secrets"). Except as
disclosed in Part 3.19 of the Disclosure Letter, no Person has made any claim or
demand upon any Seller pertaining to, and no Proceedings are pending, or to the
Knowledge of the Sellers or the Stockholders Threatened, which challenge the
rights of any Seller in respect of any Intangibles or Trade Secrets. No
Intangible owned or used by any Seller is subject to any Order. To the Sellers'
or the Stockholders' Knowledge, none of the Sellers has infringed or engaged in
the unauthorized use of, or violated any confidentiality agreement that pertains
to, any patent, trademark, trade name, service mark, brand name or copyright, or
any invention, technology, technical know-how, process, design, trade secret or
other intellectual property of another Person. To the Knowledge of the Sellers
or the Stockholders, there has been no infringement or unauthorized use of any
Intangible or Trade Secret by any other Person.
3.20 Disclosure. No representation or warranty of the Sellers or the
Stockholders in this Agreement and no statement in the Disclosure Letter omits
to state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
3.21 Relationships with Related Persons. Except as set forth in Part
3.21 of the Disclosure Letter, no Related Person of any Seller has, or at any
time after January 1, 1994 has had, any interest in any property (whether real,
personal, or mixed and whether tangible or intangible) used in or pertaining to
the business of the Sellers. Except as set forth in Part 3.21 of the Disclosure
Letter, none of the Sellers nor any Related Person of any Seller owns, or has
owned, of record or as beneficial owner, an equity interest or any other
financial or profit interest in any Person that has (i) had business dealings or
a financial interest in any transaction with any Seller, or (ii) engaged in a
Competing Business except for ownership of less than one percent of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market. Except as set forth
in Part 3.21 of the Disclosure Letter, no Related Person of any Seller is a
party to any Contract with, or has any claim or right against, any Seller.
3.22 Brokers or Finders. None of the Sellers nor any officers or
agents thereof have incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with the Contemplated Transactions. The Sellers
and the Stockholders will indemnify and hold the Buyer harmless from any such
payments alleged to be due by or through any Seller as a result of the actions
of any Seller or its officers or agents.
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3.23 No Termination of Relationship. Except as set forth in Part
3.23 of the Disclosure Letter, to the Knowledge of the Sellers or the
Stockholders no distributor, customer, supplier, lender, employee or other
person which has an existing relationship with the Seller intends not to
continue such relationship with the Buyer substantially on the same terms after
the Closing as a result of the execution of this Agreement or the performance of
the Contemplated Transactions.
3.24 Customers and Suppliers. No unfilled customer orders or
commitments obligating any Seller to process, manufacture or deliver products or
perform services, which orders or commitments are material, individually or in
the aggregate, to the Sellers will result in a material loss to the business of
the Sellers upon completion of performance. No purchase orders or commitments of
any Seller, which orders or commitments are material, individually or in the
aggregate, to any Seller, are materially in excess of normal requirements for
any such Seller, nor are prices provided therein materially in excess of current
market prices for the products or services to be provided thereunder. No
material supplier of any Seller has indicated within the past year that it will
stop, or materially decrease the rate of supplying materials, products, or
services to any Seller and no material customer of any Seller has indicated
within the past year that it will stop, or materially decrease the rate of,
buying materials, products or services from any Seller. Part 3.24 of the
Disclosure Letter sets forth a list of (a) each customer that accounted for more
than 5% of the combined revenues of the Sellers during the last fiscal year and
(b) each supplier that is the sole supplier of any significant product or
component to any Seller.
3.25 Recalls. No products of any Seller have been recalled since
January 1, 1991 and, to the Knowledge of the Sellers or the Stockholders, there
is no basis for any such recall.
3.26 Backlog. The backlog of the Sellers as of the Closing Date is
greater than or equal to $2,500,000. For purposes of this Section 3.26,
"backlog" means all firm orders and commitments for the Sellers' products and
services which orders and commitments contain terms and conditions that are
consistent with the Sellers' practices over the past year.
3.27 Inventories. As of the Closing Date, the book value of
Inventory (as defined below) that is of a quality and quantity usable and
salable in the Ordinary Course of Business of the Sellers is at least
$4,500,000. Items included in such Inventories are carried on the books of the
Sellers at the lower of cost or market and with respect to Inventories existing
as of the Balance Sheet Date, are reflected on the 1995 Balance Sheet net of
adjustments for excess and obsolete items. The term "Inventories" includes all
stock of raw materials, work-in-process and finished goods held by the Sellers,
for manufacturing, assembly, processing, finishing, and sale or resale to
others.
3.28 Product and Service Warranties. The Sellers have provided the
Buyer with copies of the current standard warranty used for each of the products
and services of the Sellers. Part 3.28 of the Disclosure Letter describes any
and all other product or service warranties made by or on behalf of the Sellers
that deviate materially from the current standard warranties and which remain in
effect on the date hereof, or pursuant to which any Seller has any remaining
obligations. Part 3.28 of the Disclosure Letter sets forth the aggregate
warranty costs of the Sellers in each of
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the last three full fiscal years.
3.29 Property, Plant and Equipment.
(a) Part 3.29(a) of the Disclosure Letter lists the common
street address for and legally describes all real property that any of the
Sellers and their Subsidiaries owns (together with all buildings, improvements,
fixtures and appurtenances located thereon and all rights and privileges which
are appurtenant thereto, the "Real Property"). Except as set forth in Part 3.29
of the Disclosure Letter, with respect to each such parcel of the Real Property:
(i) Boulevard Bank National Association, a national
banking association, as trustee (the "Trustee") under trust agreement dated
December 21, 1993 and known as trust number 9757 (the "Trust"), is the sole
holder of record fee simple title to the Real Property and Haymarket is the
owner of 100% of the beneficial interest in the Trust. The Trust has good and
marketable title to the Real Property, free and clear of any Encumbrance,
easement, covenant, or other restriction, except for installments of general
taxes and special assessments not yet delinquent and recorded easements,
covenants, and other restrictions which do not impair the current use,
occupancy, or value, or the marketability of title, of the property subject
thereto;
(ii) there are no pending or threatened condemnation
proceedings, lawsuits, or administrative actions relating to the Real Property
or other matters adversely affecting, or which would adversely affect the
current use, occupancy, or value thereof;
(iii) the legal description for the land comprising a
part of the Real Property (the "Land") contained in Part 3.29 of the Disclosure
Letter and in the deed to be delivered pursuant to this Agreement describes the
Land fully and accurately. The survey attached hereto as Exhibit H, which
geographically depicts the Land, is accurate. The buildings and improvements
comprising a part of the Real Property are located within the boundary lines of
the Land, are not in violation of applicable setback requirements, zoning laws,
and ordinances (and none of the properties or buildings or improvements thereon
are subject to "permitted non-conforming use," "permitted non-conforming
structure" or other similar classifications), and do not encroach on any
easement which may burden the Land, and the Land does not serve any adjoining
property for any purpose inconsistent with the current use of the Land, and the
Real Property is not located within any flood plain or subject to any similar
type restriction for which any Governmental Authorization necessary to the use
thereof has not been obtained;
(iv) all facilities comprising a part of the Real
Property have received all final, non-appealable and unconditional approvals of
Governmental Bodies (including Governmental Authorizations) required in
connection with the ownership, occupancy or operation thereof and have been
operated and maintained in material accordance with applicable Legal
Requirements;
(v) other than leases with one or more of the
Sellers, which leases shall be canceled by Sellers and all other parties thereto
effective no later than Closing, there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any party
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or parties the right of use or occupancy of any portion of the Real Property;
(vi) there are no outstanding options or rights of
first refusal or offer to purchase the Real Property, or any portion thereof or
interest therein;
(vii) there are no parties (other than the Sellers and
their Subsidiaries) in possession of the Real Property;
(viii) all facilities located on the Real Property are
supplied with utilities and other services necessary for the operation of such
facilities, including gas, electricity, water, telephone, sanitary sewer, and
storm sewer, all of which services are adequate to operate the Real Property at
its current rate of production, in accordance with all applicable Legal
Requirements and are provided via public roads or via permanent, irrevocable,
appurtenant easements benefiting the Real Property; and
(ix) the eastern boundary line of the Real Property
is contiguous to, and the Real Property has direct vehicular access to, a public
road, or has access to a public road, and access to the Real Property is
provided by paved public right-of-way with adequate curb cuts available.
(x) neither the Sellers nor any of their
Subsidiaries have received any notice that the real estate tax assessment of the
Real Property made by the County Assessor has been, or is proposed to be,
increased above the assessment applicable to the 1995 general real estate taxes;
(xi) no permanent real estate index number assigned
to the Real Property for real estate tax purposes by the County Assessor or
County Collector is applicable to any property other than the Real Property and
the only permanent real estate index numbers applicable to the Real Property are
15-16-420-017-0000 and 15-16-412-037-0000;
(xii) no part of the Real Property is part of any
area, lot, "zoning lot" or "lot of record" pursuant to any ordinances of the
municipality in which the Real Property is located concerning zoning, planning,
subdivision or development, any part of which area, lot, zoning lot or lot of
record is not part of the Real Property;
(xiii) no special taxes or assessments have been
levied, assessed or imposed against any part of the Real Property and Sellers
have no Knowledge of any pending or contemplated special taxes or assessments
with respect to any part of the Real Property;
(xiv) other than with respect to utility lines which
enter the Real Property directly from a public right-of-way or through perpetual
and irrevocable easements of record which are appurtenant to the Real Property,
no part of the Real Property is dependent upon any other real property or any
facilities located on other real property (a) for the continued use, occupancy
and enjoyment of the Real Property consistent with its current use, occupancy
and enjoyment, or (b) to satisfy any applicable zoning or other Legal
Requirements;
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(xv) no buildings, structures or other improvements
situated on other real property encroach on the Real Property; and
(xvi) there is no fact or circumstance concerning any
portion of the Real Property that (a) would be disclosed by an accurate survey
of the Real Property complying with the requirements of the Survey, as set forth
in Section 2.10 above, (b) is not disclosed by that certain survey of a portion
of the Real Property and certain other adjacent property prepared by Gremley &
Biederman, Inc., dated November 21, 1986, having a last revision date of
December 12, 1986, and bearing order no. 863455, and (c) either (1) materially
and adversely affects either the value of, or marketability of title to, the
Real Property, or the Buyer's or its successors' or assigns' ability or right to
occupy, use and enjoy the Real Property as it currently is being used, or (2)
causes the Title Company to refuse, upon delivery to it of the Survey, to
provide to Buyer or Buyer's designee, as part of the Title Policy, extended
coverage over matters of survey, or the endorsements described in Section 5.1(k)
below.
(b) Part 3.29(b) of the Disclosure Letter lists and briefly
describes all real property leased or subleased to any of the Sellers and their
Subsidiaries. The Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases listed in Section 3.29(b), which have not
been amended or modified since the date thereof, of the Disclosure Letter. With
respect to each lease and sublease listed in Section 3.29(b) of the Disclosure
Letter:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby (including
the assignments and assumptions referred to in Section 2 above);
(iii) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse of time, could
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has repudiated
any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) with respect to each sublease, the
representations and warranties set forth in subsections (i) through (v) above
are true and correct with respect to the underlying lease;
(vii) none of the Sellers of their Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or
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subleasehold;
(viii) all facilities leased or subleased thereunder
have received all approvals of Governmental Bodies (including Governmental
Authorizations) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable Legal Requirements; and
(ix) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the operation of
said facilities.
3.30 Illinois Responsible Property Transfer Act. The provisions of
the Illinois Responsible Property Transfer Act of 1988, as amended are not
applicable to the transfer of Real Property as contemplated by this Agreement.
3.31 Post-August 31 Activities. Since August 31, 1996, none of the
Sellers has billed any customers or booked any accounts receivable.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware.
4.2 Authority; No Conflict.
(a) The Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. All corporate and other actions and
proceedings to be taken by or on the part of the Buyer to authorize and permit
the execution and delivery by the Buyer of this Agreement and the instruments
required to be executed and delivered by the Buyer pursuant hereto, the
performance by the Buyer of its obligations hereunder and the consummation by
the Buyer of the transactions contemplated herein, have been duly and properly
taken. This Agreement has been duly executed and delivered by the Buyer and
constitutes the legal, valid, and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms.
(b) Except as set forth in Exhibit G, neither the execution
and delivery of this Agreement by the Buyer nor the consummation or performance
of any of the Contemplated Transactions by the Buyer will give any Person the
right to prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to: (i) any provision of the Buyer's Organizational
Documents; (ii) any resolution adopted by the board of directors or the
stockholders of the Buyer; (iii) any Legal Requirement or Order to which the
Buyer may be subject; or (iv) any Contract to which the Buyer is a party or by
which the Buyer may be bound.
Except as set forth in Exhibit G, the Buyer is not and will not be required
to obtain any Consent
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from any Person in connection with the execution and delivery of this Agreement
by the Buyer or the consummation or performance of any of the Contemplated
Transactions by the Buyer.
4.3 Certain Proceedings. There is no pending Proceeding that has
been commenced against the Buyer that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To the Buyer's Knowledge, no such Proceeding has been
Threatened.
4.4 Brokers and Finders. The Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection
with this Agreement and the Buyer will indemnify and hold the Sellers harmless
from any such payment alleged to be due by or through the Buyer as a result of
the action of the Buyer or its officers or agents.
5. CONDITIONS TO OBLIGATIONS
5.1. Conditions to Obligations of the Buyer. The obligations of the
Buyer to consummate the transactions contemplated hereby are subject to the
satisfaction, on or before the Closing, of the following conditions (unless
waived in writing by the Buyer in the manner provided in Section 7.6 hereof):
(a) Representations, Warranties and Performance of the
Sellers. The representations and warranties set forth in Section 3 hereof shall
be accurate on and as of the date hereof, and on and as of the Closing Date as
though made on and as of the Closing Date, and the Sellers shall have performed
all obligations and complied with all covenants required to be performed or to
be complied with by them under this Agreement prior to the Closing.
(b) No Material Adverse Changes. There shall have been no
material adverse change in the financial condition, properties, assets,
liabilities, earnings, business, operations or prospects of any of the Sellers
since December 31, 1995, whether or not in the Ordinary Course of Business.
(c) Authorization. The Sellers shall have furnished the
Buyer with a copy of all resolutions adopted by their Board of Directors and
shareholders in connection with such actions, certified by the Secretary or an
Assistant Secretary of the relevant Seller, together with copies of such other
instruments and documents as the Buyer shall have reasonably requested.
(d) Consents. Any Governmental Body having jurisdiction
over any Seller or over the Buyer, to the extent that its consent or approval is
required by applicable Legal Requirements for the performance of this Agreement
or the consummation of the transactions contemplated hereby shall have granted
any necessary consent or approval.
(e) Permits and Approvals. Any and all consents, permits,
approvals or other actions of any person, jurisdiction or authority required in
the reasonable opinion of the Buyer for lawful consummation of the transactions
contemplated hereby shall have been obtained, and shall
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be in full force and effect, and no such consent, permit, approval or other
action shall contain any provision that in the reasonable judgment of the Buyer
is unduly burdensome.
(f) Good Standing Certificates. Each Seller shall have
delivered to the Buyer a corporate good standing certificate from its
jurisdiction of incorporation (or equivalent evidence of each such entity's
status in the case of certain foreign jurisdictions).
(g) Officer's Certificate. Each Seller shall have delivered
to the Buyer a certificate executed by an officer of such Seller, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1(a) and 5.1(b).
(h) Legal Opinion. The Buyer shall have received from
Hedberg, Tobin, Flaherty & Whalen, counsel to the Sellers, an opinion
substantially in the form of Exhibit D attached hereto.
(i) Approvals. The Buyer shall have obtained all necessary
approvals from its Board of Directors to enter into this Agreement and to
consummate the transactions contemplated hereby;
(j) Deed. Sellers shall have delivered to Buyer a trustee's
deed executed by the Trustee and conveying marketable fee simple title to the
Real Property to Buyer or Buyer's designee subject only to the Permitted
Exceptions. In addition, Haymarket shall have executed and delivered to Buyer or
Buyer's designee a certificate of warranties containing those warranties that
are contained in an Illinois statutory form of general warranty deed.
(k) Title Insurance. Sellers, at their sole cost and
expense, shall have delivered or shall have caused to be delivered to Buyer an
American Land Title Association owner's policy of title insurance (the "Title
Policy"), standard form B (1992), covering the Real Property and issued to Buyer
or Buyer's designee by Chicago Title Insurance Company (the "Title Company").
The Title Policy shall be in an amount of not less than $2,800,000, and shall
cover the Closing Date, provide extended coverage over the general exceptions
commonly appearing in said standard form, and contain access, contiguity,
location, survey, zoning 3.1 (including parking) endorsements and such other
endorsements as may be reasonably requested by Buyer. The Title Policy shall
show good marketable fee simple title to the Real Property in Buyer or Buyer's
designee subject only to the following title exceptions (collectively, the
"Permitted Exceptions"): (i) general real estate taxes for the Real Property for
calendar year 1996 and subsequent years; (ii) the rights of persons unrelated to
Sellers arising by, through or under Buyer; and (iii) such additional exceptions
to title as Buyer may have specifically agreed in writing to accept. The Title
Policy shall state the tax parcel number(s) relating to the real property as
then shown on the County Assessor's records and whether or not other Real
Property is included within such number(s). Sellers acknowledge that, on August
20, 1996, Buyer ordered from Gremley & Biederman, Inc., preparation of the
Survey and further acknowledge that the Survey may not be completed by the
surveyor and available to the Buyer prior to the Closing. Accordingly, if Buyer
elects to proceed with the Closing without having first received the Survey,
then Sellers shall not be obligated to cause the Title Company to provide to
Buyer at Closing
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extended coverage over matters of survey or any other endorsement or affirmative
insurance for which the Title Company requires a current ALTA/ACMS Land Title
Survey of the Real Property. The provisions of the preceding sentence shall not,
however, be deemed to constitute a waiver by Buyer of, or otherwise diminish,
Sellers' obligations to cause the Title Company to provide to Buyer title
insurance satisfying the requirements of this subparagraph promptly following
the Buyer's and the Title Company's receipt of the Survey.
(l) Documents Satisfactory. The form and substance of all
legal matters contemplated herein and of all papers used or delivered hereunder
shall be reasonably acceptable to the Buyer, and the Buyer or its designee shall
have received all documents that it may have reasonably requested in connection
with the transactions contemplated hereby, in form and substance reasonably
satisfactory to it.
Section 5.2. Conditions to Obligations of the Sellers. The obligations
of the Sellers to consummate the transactions contemplated hereby are subject to
the satisfaction, on or before the Closing, of the following conditions (unless
waived by the Seller Representative in writing in the manner provided in Section
7.6 hereof):
(a) Representations, Warranties and Performance of the
Buyer. The representations and warranties set forth in Section 4 hereof shall be
accurate on and as of the date hereof, and on and as of the Closing Date as
though made on and as of the Closing Date, and the Buyer shall have performed
all obligations and complied with all covenants required to be performed or to
be complied with by it under this Agreement prior to the Closing.
(b) Authorization. The Buyer shall have furnished the
Sellers with a copy of all resolutions adopted by its Board of Directors in
connection with such actions, certified by the Secretary or an Assistant
Secretary of the Buyer, together with copies of such other instruments and
documents as the Seller shall have reasonably requested.
(c) Consents. Any Governmental Body having jurisdiction
over any Seller, to the extent that its consent or approval is required by
applicable Legal Requirements for the performance of this Agreement or the
consummation of the transactions contemplated hereby shall have granted any
necessary consent or approval.
(d) Permits and Approvals. Any and all consents, permits,
approvals or other actions of any person, jurisdiction or authority required in
the reasonable opinion of the Sellers for lawful consummation of the
transactions contemplated hereby shall have been obtained.
(e) Good Standing Certificates. The Buyer shall have
delivered to the Sellers a corporate good standing certificate from its
jurisdiction of incorporation.
(f) Officer's Certificate. The Buyer shall have delivered to
the Sellers a certificate executed by an officer of the Buyer, dated the Closing
Date, certifying to the fulfillment of the conditions specified in Section
5.2(a).
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(g) Documents Satisfactory. The form and substance of all
legal matters contemplated herein and of all papers used or delivered hereunder
shall be reasonably acceptable to the Sellers, and the Sellers shall have
received all documents that they may have reasonably requested in connection
with the transactions contemplated hereby, in form and substance reasonably
satisfactory to them.
(h) Severance Agreements. Each of Dennis Bleser, Oscar
Khutoryansky and Paul Kupsco shall have executed and delivered to the Buyer
severance agreements in form and substance satisfactory to the Buyer which
provide for the payment of one year's base salary and fringe benefits in the
event such person's employment with the Buyer is terminated without cause prior
to the third anniversary of the Closing Date, and upon such other terms mutually
agreeable to the Buyer and each of Messrs. Bleser, Khutoryansky and Kupsco. Each
of Mr. Patrick T. Fitzgerald and Ms. Julia Worden, collectively, shall have
agreed to indemnify and reimburse the Buyer for fifty percent (50%) of all
payments made by the Buyer under these severance agreements.
6. INDEMNIFICATION; REMEDIES
6.1 Survival. All representations, warranties, covenants, and
obligations in this Agreement, the Disclosure Letter and any other certificate
or document delivered pursuant to this Agreement will survive the Closing; the
right to indemnification, reimbursement, or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) about the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation.
6.2 Indemnification and Reimbursement by the Sellers and the
Stockholders. The Sellers and the Stockholders will, jointly and severally,
indemnify and hold harmless the Buyer, its representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons"),
and will reimburse the Indemnified Persons, for any loss, liability, claim,
damage, expense (including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising from or in connection with:
(a) any Breach of any representation or warranty made by any
Seller or Stockholder in this Agreement, the Disclosure Letter, or any other
certificate or document delivered by any Seller pursuant to this Agreement;
(b) any Breach by any Seller or Stockholder of any covenant
or obligation of any Seller or Stockholder in this Agreement;
(c) any Excluded Liability;
(d) any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or understanding
alleged to have been made by any
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such Person with any Seller or Stockholder; or
(e) any non-compliance by the Sellers of any applicable
Illinois Bulk Sales Law.
6.3 Indemnification and Reimbursement by the Buyer. The Buyer will
indemnify and hold harmless each of the Sellers and the Stockholders, and each
of their respective representatives, stockholders, controlling persons and
affiliates, and will reimburse each of the Sellers and the Stockholders, and
each of their respective representatives, stockholders, controlling persons and
affiliates for any Damages arising from or in connection with (a) any Breach of
any representation or warranty made by the Buyer in this Agreement or in any
certificate delivered by the Buyer pursuant to this Agreement, (b) any Breach
by the Buyer of any covenant or obligation of the Buyer in this Agreement, (c)
any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by such Person with the Buyer (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions or (d) any Assumed
Liabilities.
6.4 Limitations on Indemnification. None of the Sellers or the
Stockholders will have any liability for indemnification under Section 6.2(a)
with respect to any representation or warranty in Section 3, other than those
in Sections 3.1, 3.2, 3.3, 3.6, 3.10, 3.12, 3.17, 3.29(a)(i) or 3.30 unless on
or before the second anniversary of the Closing Date the Seller Representative
is given notice of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by the Buyer. None of the Sellers
or the Stockholders will have any liability for indemnification under Section
6.2(a) with respect to Section 3.1, 3.2, 3.3, 3.6, 3.10, 3.12, 3.17,
3.29(a)(i) or 3.30, or under Sections 6.2(b), 6.2(d) or 6.2(e), unless on or
before thirty (30) days after the expiration of the statute of limitations
applicable to the underlying claim giving rise to indemnification the Seller
Representative is given notice of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by the Buyer. The Buyer
will have no liability for indemnification under Section 6.3(a) with respect to
any representation or warranty in Section 4 unless on or before the second
anniversary of the Closing Date the Buyer is given notice of a claim specifying
the factual basis of that claim in reasonable detail to the extent then known
by the Seller Representative. The Buyer will have no liability for
indemnification under Sections 6.3(b) or 6.3(c) unless on or before thirty (30)
days after the expiration of the statute of limitations applicable to the
underlying claim giving rise to indemnification the Buyer is given notice of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by the Seller Representative. Notwithstanding the foregoing,
a claim for indemnification or reimbursement under Section 6.2(c) or Section
6.3(d) may be made at any time. None of the Sellers or the Stockholders shall
have any indemnity obligations to the Buyer under Section 6.2(a) until the
aggregate cumulative amount of the Buyer's indemnity claims against the Sellers
and the Stockholders exceeds $50,000, and then only for such aggregate
indemnity claims in excess of $50,000.
6.5 Procedures for Indemnification -- Third Party Claims.
(a) Subject to any limitations provided in Section 6.4,
promptly after receipt by
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an indemnified party under Section 6.2 or Section 6.3 of notice of the
commencement of any Proceeding against it, such indemnified party will, if a
claim is to be notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnified party's failure to give such
notice.
(b) If any Proceeding referred to in Section 6.5(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 6 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party. Notwithstanding the foregoing, if a customer or a supplier of any Seller
asserts that the Buyer is liable to such customer or supplier for a monetary
obligation which may constitute or result in Damages for which the Buyer may be
entitled to indemnification pursuant to this Section 6 and the Buyer reasonably
determines that it has a valid business reason to fulfill such obligations, then
(i) the Buyer shall be entitled to satisfy such obligation without prior notice
to or consent from the Sellers or the Seller Representative, (ii) the Buyer may
make a claim for indemnification pursuant to this Section 6 and (iii) the Buyer
shall be reimbursed, in accordance with the provisions of this Section 6, for
any such Damages for which it is entitled to indemnification pursuant to the
provisions of this Section 6; provided, however, that if the Buyer makes a claim
for indemnification in accordance with this sentence the Sellers and the
Stockholders shall not be
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deemed to have waived any defense to such claim by the Buyer, notwithstanding
the Buyer's prior satisfaction of the obligation for which indemnification is
sought, and it shall not be a defense to the Buyer's claim for indemnification
that the Buyer has satisfied the obligation for which indemnification is sought.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding for which it would be entitled to affect it or its affiliates other
than solely as a result of monetary damages the indemnified party may, by notice
to the indemnifying party, assume the exclusive right to defend, compromise, or
settle such Proceeding, and the indemnifying party shall be liable to the
indemnified party under this Section 6 for any reasonable fees of counsel and
any other costs or expenses incurred by the indemnified party as a result of its
assumptions of the defense of such proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) Each of the Sellers and the Stockholders hereby consents
to the non-exclusive jurisdiction of any court in which a Proceeding is brought
against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agrees that process may be served on the Sellers
and the Stockholders with respect to such a claim anywhere in the world.
(e) For purposes of providing any notice required under this
Section 6, the Buyer may treat the Seller Representative as the authorized
representative of all of the Sellers and the Stockholders and any notice given
to the Seller Representative shall be deemed given to each Seller and
Stockholder.
6.6 Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
7. GENERAL PROVISIONS
7.1 Expenses. Except as otherwise expressly provided in this
Agreement, each of the Buyer and the Sellers will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. In the event of termination
of this Agreement, the obligation of each party to pay its own expenses will be
subject to any rights of such party arising from a breach of this Agreement by
another party.
7.2 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, by the Buyer only with the consent of the Seller
Representative, and by any of the Sellers or the Stockholders, only with the
consent of the Buyer, none of which consents will unreasonably be withheld. The
content of any public announcement by the Buyer will be subject to review and
approval by the
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Seller Representative, and the content of any public announcement by any of the
Sellers or the Stockholders will be subject to review and approval by the Buyer,
none of which approvals will unreasonably be withheld. The Seller Representative
and the Buyer will consult with each other concerning the means by which the
Sellers' employees, customers, and suppliers and others having dealings with the
Sellers will be informed of the Contemplated Transactions, and the Buyer will
have the right to be present for any such communication.
7.3 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when actually received or if earlier, one day after deposit
with a nationally recognized overnight delivery service, charges prepaid, or
three days after deposit in the U.S. mail by certified mail, return receipt
requested, postage prepaid, in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers a party may designate by notice to the other party): Seller
Representative:
Patrick T. Fitzgerald
c/o Continental X-Ray Corporation
2000 South 25th Avenue
Broadview, Illinois 60153
Telecopy No.: (708)345-1227
with a copy to:
Paul E. Flaherty, Esq.
Hedberg, Tobin, Flaherty & Whalen
Suite 1950
Three First National Plaza
Chicago, Illinois 60602
Telecopy No.: (312) 726-3179
Buyer:
CXR Acquisition Corp.
c/o Trex Medical Corporation
36 Apple Ridge Road
Danbury, Connecticut 06810
Attention: President
Telecopy No.: 203-790-1188
with a copy to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254-9046
Attention: General Counsel
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Telecopy No.: (617) 622-1283
7.4 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the
Commonwealth of Massachusetts, County of Middlesex, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of
Massachusetts and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
7.5 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
7.6 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
7.7 Entire Agreement and Modification. This Agreement supersedes
all prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
7.8 Disclosure Letter. In the event of any inconsistency between
the statements in the body of this Agreement and those in the Disclosure Letter
(other than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
7.9 Assignments, Successors, and Third-Party Rights. No party
hereto may assign any of its rights under this Agreement without the prior
written consent of the other party except that the Buyer may assign any of its
rights under this Agreement to any Subsidiary of the Buyer. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon,
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and inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
7.10 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
7.11 Section Headings; Construction. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Sections" refer to the
corresponding Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
7.12 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
7.13 Governing Law. This Agreement will be governed by and construed
under the laws of the Commonwealth of Massachusetts without regard to conflicts
of laws principles.
7.14 Relief. In the event of a breach of the provisions of this
Agreement by any Seller, in addition to any other rights and remedies that the
Buyer may have under law or in equity, the Buyer shall have the right to
specific performance and injunctive relief, it being acknowledged and agreed
that money damages will not provide an adequate remedy. In the event litigation
is maintained by a party to this Agreement against any other party to enforce
this Agreement or to seek any remedy for breach, then the party prevailing in
such litigation shall be entitled to recover from the non-prevailing party
reasonable attorneys' fees and costs of suit.
7.15 Access to Historical Financial Information. The Sellers shall
make available, and direct and authorize their respective independent public
accountants to make available, to the Buyer and to the independent public
accountants representing the Buyer (at no cost to the Buyer), all working papers
pertaining to the examination by the Sellers' accountants of the accounting
records of the Sellers, and shall provide such cooperation as the Buyer shall
reasonably request in connection with the Buyer's preparation of any financial
statements relating to the businesses of the Sellers required to be included in
any filing made by the Buyer or any affiliate of the Buyer with the Securities
and Exchange Commission pursuant to the Securities Act or the Exchange Act. For
seven years from the date hereof, upon written request of a Seller or
Stockholder, Buyer or its successor shall make or cause to be made available to
such Seller or Stockholder, as the case may be, all books and records included
in the Assets that are needed by such Seller or Stockholder for a valid business
or financial purpose, and permit such Seller or Stockholder to inspect and copy
such books and records upon reasonable notice and at such reasonable times as
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may be mutually agreed upon by such Seller or Stockholder and Buyer and shall be
at such Seller's or Stockholder's sole cost and expense.
7.16 Solicitation. For a period of two years after the Closing Date,
none of the Sellers nor any Stockholders shall, either directly or indirectly as
a stockholder, investor, partner, director, officer, employee or otherwise,
solicit or attempt to induce any Restricted Employee to terminate his or her
employment with the Buyer or any affiliate of the Buyer; provided, however, that
it shall not be a breach of this Section 7.16 for any Seller or Stockholder to
solicit Restricted Employees by means of general public advertisements. For
purposes of this agreement, a "Restricted Employee" shall mean any person, other
than employees terminated involuntarily by the Buyer, who (i) either (A) hold or
have access to trade secrets or other confidential information relating to the
business of any Seller or (B) had annual base salary in 1995 of at least
$50,000, and (ii) either (X) was an employee of the Buyer or any affiliate of
the Buyer on either the date of this Agreement or the Closing Date or (Y) was an
employee of any Seller on either the date of this Agreement or the Closing Date
and who is employed by the Buyer immediately after the Closing.
7.17 Non-Competition.
(a) For a period of five years after the Closing Date, none
of the Sellers nor any Stockholder shall, either directly or indirectly as a
stockholder, investor, partner, director, officer, employee, consultant or
otherwise, (i) develop, manufacture, market or sell any product or perform any
services which compete with any existing or proposed medical diagnostic imaging
product manufactured or proposed to be manufactured or any services performed or
proposed to be performed by the Sellers on or prior to the Closing Date, or (ii)
engage in any business competitive with the business of the Sellers in the field
of medical diagnostic imaging as conducted on the Closing Date, anywhere in the
world. The preceding sentence shall apply to Paul Kupsco only as it relates to
the manufacture, sales and service of X-ray film processors.
(b) Each of the Sellers and the Stockholders agree that the
duration and geographic scope of the non-competition provision set forth in this
Section 7.17 are reasonable. In the event that any court determines that the
duration or the geographic scope, or both, are unreasonable and that such
provision is to that extent unenforceable, the parties agree that the provision
shall remain in full force and effect for the greatest time period and in the
greatest area that would not render it unenforceable. The parties intend that
this non-competition provision shall be deemed to be a series of separate
covenants, one for each and every county of each and every state of the U.S. and
each and every political subdivision of each and every country outside the U.S.
where this provision is intended to be effective.
7.18 Certificate of Amendment. On or prior to Closing, Continental
and Alphatek shall deliver to the Buyer a duly executed and acknowledged
articles or certificate of amendment to Continental's and Alphatek's articles or
certificate of incorporation or other appropriate document which is required to
change Continental's and Alphatek's corporate name to a new name bearing no
resemblance to its present name so as to make Continental's or Alphatek's
present name available to the Buyer. The Buyer is hereby authorized to file such
certificate or other document (at the Sellers' expense) in order to effectuate
such change of name at or after the Closing as the
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Buyer shall elect.
7.19 Transfer Taxes. The Sellers shall pay all state, county and
municipal sales, use, excise, real property transfer or other taxes which may be
payable in the State of Illinois in connection with the sale and transfer of the
Assets.
7.20 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.21 Guarantee. Trex Medical hereby guarantees the prompt and
complete performance by the Buyer of all of the Buyer's covenants, obligations
and conditions hereunder, which guarantee shall continue until all of the terms
of this Agreement to be performed by the Buyer have been performed or otherwise
discharged.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BUYER:
CXR ACQUISITION CORPORATION
By: /s/ Hal Kirshner
Name: Hal Kirshner
Title: President
SELLERS:
CONTINENTAL X-RAY CORPORATION
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: President
ALPHATEK CORPORATION
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: Vice President
BROADVIEW MANUFACTURING
CORPORATION
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: President
41
<PAGE>
HAYMARKET SQUARE ASSOCIATES
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: Administrative Partner
ADVANCED MEDICAL IMAGING, INC.
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: President
TRANS-CONTINENTAL X-RAY
CORPORATION
By: /s/ Patrick T. Fitzgerald
Name: Patrick T. Fitzgerald
Title: President
STOCKHOLDERS:
/s/ Julia Worden
Julia Worden
/s/ Genevieve Fitzgerald
Genevieve Fitzgerald
/s/ Patrick Fitzgerald
Patrick Fitzgerald
/s/ Paul Kupsco
Paul Kupsco
As to Section 7.21 only: TREX MEDICAL CORPORATION
By: /s/ Hal Kirshner
Name: Hal Kirshner
Title: President
42
<PAGE>
EXHIBIT 11
TREX MEDICAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, JULY 1, JULY 29,
1993 1994 1994 1995 1995 1996
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
COMPUTATION OF PRIMARY
EARNINGS PER SHARE:
Net Income (a).......... $ 827,000 $ 1,194,000 $ 1,085,000 $ 3,483,000 $ 2,310,000 $ 5,903,000
----------- ----------- ----------- ----------- ----------- -----------
Shares:
Weighted average shares
outstanding........... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 21,669,462
Add: Shares issuable
from assumed
exercise of options
(as determined by
the application of
the treasury stock
method)............. 151,414 151,414 151,414 151,414 151,414 169,414
----------- ----------- ----------- ----------- ----------- -----------
Weighted average
shares, as adjusted
(b)................... 20,151,414 20,151,414 20,151,414 20,151,414 20,151,414 21,838,876
----------- ----------- ----------- ----------- ----------- -----------
Primary Earnings per
Share
(a) / (b).............. $ .04 $ .06 $ .05 $ .17 $ .11 $ .27
=========== =========== =========== =========== =========== ===========
COMPUTATION OF FULLY
DILUTED EARNINGS PER
SHARE:
Income:
Net income............. $ 827,000 $ 1,194,000 $ 1,085,000 $ 3,483,000 $ 2,310,000 $ 5,903,000
Add: Convertible debt
interest, net of
tax................. -- -- -- -- -- 773,000
----------- ----------- ----------- ----------- ----------- -----------
Income applicable to
common stock assuming
full
dilution (a).......... $ 827,000 $ 1,194,000 $ 1,085,000 $ 3,483,000 $ 2,310,000 $ 6,676,000
----------- ----------- ----------- ----------- ----------- -----------
Shares:
Weighted average shares
outstanding........... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 21,669,462
Add: Shares issuable
from assumed
exercise of options
(as determined by
the application of
the treasury stock
method)............. 151,414 151,414 151,414 151,414 151,414 169,414
Shares issuable
from assumed
conversion of
subordinated
convertible note... -- -- -- -- -- 3,470,999
----------- ----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding, as
adjusted (b).......... 20,151,414 20,151,414 20,151,414 20,151,414 20,151,414 25,309,875
Fully Diluted Earnings
per Share (a)/(b)..... $ .04 $ .06 $ .05 $ .17 $ .11 $ .26
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
------------------------------
The following are directly or indirectly wholly-owned subsidiaries of Trex
Medical Corporation.
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
Bennett X-Ray Corporation New York
Bennett International Corporation U.S. Virgian Islands
Eagle X-Ray, Inc. New York
Island X-Ray Incorporated New York
Thermo Lorad F.S.C. Inc. U.S. Virgin Islands
Continental X-Ray Corporation Delaware
XRE Corporation Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trex Medical Corporation:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement and related Prospectus of Trex Medical Corporation.
Arthur Andersen LLP
Boston, Massachusetts
October 31, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bennett X-Ray Corporation:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement and related Prospectus of Trex Medical Corporation.
Arthur Andersen LLP
Boston, Massachusetts
October 31, 1996
