PROSPECTUS Filed Pursuant to Rule 424(b)(3)
of the Securities Act of 1933
(Registration No. 333-18781)
300,000 Shares
TREX MEDICAL CORPORATION
Common Stock
This Prospectus relates to 300 ,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 December 19, 1996. See "Selling Shareholders."
_______________
The Common Stock offered hereby involves a high degree of risk.
See "RISK FACTORS" beginning at page 4.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
THE THE
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
The date of this Prospectus is January 10, 1996.
PAGE
<PAGE>
PROSPECTUS Filed Pursuant to Rule 424(b)(3)
of the Securities Act of 1933
(Registration No. 333-18781)
December 20 , 1996, the reported closing price of the Common Stock on the
American Stock Exchange was $14.75 per share.
The date of this Prospectus is January 10, 1996.2
PAGE
<PAGE>
TABLE OF CONTENTS
The Company ............................................. 3
Risk Factors ............................................ 4
Price Range of Common Stock .............................10
Dividend Policy .........................................10
Capitalization ..........................................11
Selected Financial Information ..........................12
Selected Quarterly Financial Data .......................14
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................15
Business ................................................18
Relationship and Potential Conflicts with Thermo
Electron and ThermoTrex .............................29
Management ..............................................33
Executive Compensation ..................................36
Security Ownership of Certain Beneficial Owners
and Management ......................................41
Selling Shareholders ....................................44
Sale of Shares ..........................................45
Description of Capital Stock ............................45
Shares Eligible for Future Sale .........................46
Legal Opinions ..........................................47
Experts .................................................47
Additional Information ..................................48
Index to Financial Statements ..........................F-1
3
PAGE
<PAGE>
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 November 30, 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 and
liabilities of XRE for approximately $18,500,000 in cash, net of cash
acquired and including the repayment of debt. On September 4, 1996, the
Company acquired substantially all of the assets and liabilities of
Continental for approximately $18.4 million in cash, net of cash acquired
and including the repayment of debt.
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 December 20, 1996, ThermoTrex
beneficially owned 79% 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.
4
PAGE
<PAGE>
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 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 pla
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 that 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.
5
PAGE
<PAGE>
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
system infringes a Fischer patent on a precision mammographic
needle-biopsy system. As of September 28, 1996, the Company had
recognized aggregate revenues of approximately $63.1 million from sales
of such systems, of which $34.4 million represents sales prior to October
1, 1995. 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 such
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 that the Company may be required to pay.
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. 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.
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.
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 as of September 28, 1996
(approximately $2 million), with any indemnification payment it receives
from ThermoTrex being treated as a contribution to shareholders'
investment.
The Company is also aware of two U.S. patents owned by a former
employee that have been asserted against the Company relating to its
high-transmission cellular ("HTC")(TM) grid to be used with its
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 unfavorable outcome of any one or more of the above described
matters could have a material adverse effect on the Company's business
6
PAGE
<PAGE>
and results of operations. The Company's competitors and other parties
hold other 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 time frame.
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 October
1995, the Company acquired its Bennett subsidiary; in May 1996, the
Company acquired substantially all of the assets and liabilities of XRE,
a manufacturer of X-ray imaging systems used in the diagnosis and
treatment of coronary artery disease and other vascular conditions; and
in September 1996, the Company acquired substantially all of the assets
and liabilities of Continental, a manufacturer of radiographic
fluoroscopy 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 that
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 expects to continue to
-------------------
encounter intense competition in the sale of its products. The Company
believes that the principal competitive factors affecting the market for
its products include product features, product performance and
reputation, price, 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 of North Americ Company subsidiary of Philips
N.V. ("Philips"), the Siemens Corporation subsidiary of Siemens AG
("Siemens"), Toshiba American Medical Systems, Inc. and Toshiba America
MRI, Inc. (collectively, "Toshiba"), Shimadzu, and the Picker
7
PAGE
<PAGE>
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
the United States Surgical Corporation ("U.S. Surgical"), GE, and Philips
through OEM arrangements. The products sold by such OEM customers 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.
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-breast digital mammography
systems such as 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-breast digital 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-breast
digital 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-breast digital 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-breast 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.
8
PAGE
<PAGE>
FDA regulations also require manufacturers of medical devices to
adhere to 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.
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 elsewhere are likely to have a
significant impact over time on the manner in which the Company conducts
its business. 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 certain 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.
Dependence Upon Significant OEM Relationships . A significant portion
----------------------------------------------
of the Company's sales are to U.S. Surgical, GE, 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.
Potential Product Liability. The Company's business exposes its
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 22%, 21%, and 14% of the Company's revenues in fiscal 1996,
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
9
PAGE
<PAGE>
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.
Control by ThermoTrex. The Company's stockholders do not have the
---------------------
right to cumulate votes for the election of directors. ThermoTrex, which
owns 79% 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 s
--------------------------------
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
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 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 .
------------------------------------------------------------
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
10
PAGE
<PAGE>
"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 th
-------------------------------------
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 December 20, 1996) $20.25 $14.375
As of December 20, 1996, there were approximately 830 record holders
of Common Stock.
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.
11
PAGE
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of September 28, 1996 and as adjusted to reflect the issuance and sale by
the Company of 300,000 shares of Common Stock at $14.50 per share on
December 19, 1996, for net proceeds of $4,215,000, after deducting
placement agent commissions and estimated offering expenses payable by
the Company.
September 28, 1996
----------------------
Actual As Adjusted
-------- -----------
(In thousands, except
share amounts)
Long-term Obligations:
Subordinated convertible note, due to
parent company $ 8,000 $ 8,000
Other 109 109
-------- --------
8,109 8,109
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000
shares authorized; 28,592,630 shares
issued and outstanding and 28,892,630
shares as adjusted (1) 286 289
Capital in excess of par value 139,667 143,879
Retained earnings 9,344 9,344
-------- --------
Total Shareholders' Investment 149,297 153,512
-------- --------
Total Capitalization (Long-term
Obligations and Shareholders'
Investment) $157,406 $161,621
======== ========
____________________
(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 1,655,500
shares of Common Stock were outstanding under the Company's stock-based
compensation plans as of December 13, 1996. See "Managment--Compensation
of Directors" and "Executive Compensation" and Notes 4 and 5 of Notes to
Consolidated Financial Statements.
SELECTED FINANCIAL INFORMATION
<TABLE>
The selected financial information below as of and for the fiscal years ended
September 30, 1995, and for the fiscal year ended December 31, 1994 has been deriv
Consolidated Financial Statements, which have been audited by Arthur Andersen LLP,
accountants, as indicated in their report included elsewhere in this Prospectus. T
information as of and for the fiscal year ended January 1, 1994 and as of December
derived from the Company's Consolidated Financial Statements which have been audit
LLP, but have not been included in this Prospectus. The selected financial informa
year ended January 2, 1993, and the twelve months ended September 30, 1995 has not
the opinion of the Company, includes all adjustments (consisting only of normal, r
necessary to present fairly such information in accordance with generally accepted
applied on a consistent basis.
<CAPTION>
Nine Months
Year Ended (1) Ended
----------------------
Sept. 28, Sept. 30, Sept. 30, Fis
-------------
1996 (5) 1995 (2,4) 1995 (1,2,4) 1994
----------------------------------------------------
(In thousands, except per share amo
<C> <C> <C> <C>
Statement of Income Data:
Revenues $150,195 $ 70,505 $ 55,291 $ 54,410
-------- -------- -------- --------
Costs and Operating Expenses:
Cost of revenues 86,642 36,320 28,180 27,794
Selling, general and
administrative expenses 27,156 15,652 12,174 13,272
Research and development
expenses 18,862 11,937 8,595 10,662
-------- -------- -------- --------
132,660 63,909 48,949 51,728
-------- -------- -------- --------
Operating Income (Loss) 17,535 6,596 6,342 2,682
Interest and Other Income
(Expense), Net (23) 11 22 (22)
-------- -------- -------- --------
Income (Loss) Before Income
Taxes 17,512 6,607 6,364 2,660
Income Tax Provision (Benefit) 8,168 3,015 2,881 1,466
-------- -------- -------- --------
Net Income (Loss) $ 9,344 $ 3,592 $ 3,483 $ 1,194
======== ======== ======== ========
</TABLE>
PAGE
<PAGE>
SELECTED FINANCIAL INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Nine Months
Year Ended (1) Ended
----------------------
Sept. 28, Sept. 30, Sept. 30, Fis
-------------
1996 (5) 1995 (2,4) 1995 (1,2,4) 1994
----------------------------------------------------
(In thousands, except per share amo
<C> <C> <C> <C>
Earnings (Loss) per
Share (6):
Primary $ .40 $ .18 $ .17 $ .06
======== ======== ======== ========
Fully diluted $ .38 $ .18 $ .17 $ .06
======== ======== ======== ========
Weighted Average Shares (6):
Primary 23,483 20,151 20,151 20,151
======== ======== ======== ========
Fully diluted 26,550 20,151 20,151 20,151
======== ======== ======== ========
Balance Sheet Data
(at end of period):
Working Capital $ 59,834 $ 13,171 $ 8,584
Total Assets 200,850 102,374 48,000
Long-term Obligations 8,109 - -
Shareholders' Investment 149,297 80,010 37,033
____________________
(1) All periods presented include ThermoTrex's research and development business p
CT system.
(2) In September 1995, the Company changed its fiscal year-end from the Saturday n
the Saturday nearest September 30. Accordingly, the Company's transition perio
to September 30, 1995 ("fiscal 1995") is presented. The unaudited data for the
September 30, 1995 is presented for comparative purposes only.
(3) Includes the results of Lorad since its acquisition by ThermoTrex in November
(4) Includes the results of Bennett since its acquisition by ThermoTrex in Septemb
(5) Reflects the May 1996 and September 1996 acquisitions of XRE and Continental,
net proceeds of the Company's private placements in November 1995 and January
offering in July 1996.
(6) Pursuant to Securities and Exchange Commission requirements, earnings (loss) p
presented for all periods. Weighted average shares for all periods include the
issued to ThermoTrex in connection with the initial capitalization of the Comp
the assumed exercise of stock options issued within one year prior to the Comp
offering.
</TABLE>
1212
PAGE
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 1996
First Second Third (1) Fourth (2)
Fourth (2) Fourth (2)
(in thousands, except per share amounts)
Revenues $32,509 $34,320 $36,681 $46,685
Gross Profit 14,261 14,976 15,961 18,355
Net Income 1,626 2,108 2,169 3,441
Earnings per share
Primary 0.08 0.10 0.10 0.12
Fully 0.08 0.09 0.09 0.12
Fiscal 1995 (3)
First Second Third (4)
(in thousands, except per share amounts)
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
Fiscal 1994
First Second Third Fourth
(in thousands, except per share amounts)
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
(1) Reflects the acquisition of XRE in May 1996.
(2) Reflects the acquisition of Continental in September 1996.
(3) 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 39-week transition period ended
September 30, 1995 is presented.
(4) Includes the results of Bennett since its acquisition by ThermoTrex
in September 1995.
15
PAGE
<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 breast-biopsy systems, general
radiography (X-ray) equipment, and X-ray imaging systems used for cardiac
catheterization and angiography, as well as radiographic fluoroscopy. 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 (OEM) 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 breast-biopsy systems; Bennett , a
manufacturer of general X-ray 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 and specialized
X-ray
systems.
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 its 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 1996 compares the year ended
September 28, 1996 (fiscal 1996) with the unaudited year ended September
30, 1995 (1995). 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).
Fiscal 1996 Compared With 1995
------------------------------
Revenues increased 113% to $150.2 million in fiscal 1996 from $70.5
million in 1995. Revenues increased $56.2 million due to the acquisitions
of Bennett, XRE, and Continental.
Revenues at Lorad increased 35% in fiscal 1996 as a result of
increased demand for mammography, biopsy, and nondestructive testing
(NDT) systems, and lasers sold to ThermoLase Corporation ("ThermoLase"),
a majority-owned subsidiary of ThermoTrex.
Under an OEM agreement with U.S. Surgical entered into in fiscal 1996,
Lorad has agreed to manufacture biopsy systems for U.S. Surgical to be
marketed and sold under the U.S. Surgical product name of Advanced Breast
Biopsy Instrument (ABBI). In fiscal 1996, sales to U.S. Surgical totaled
$16.9 million.
16
PAGE
<PAGE>
The gross profit margin declined to 42% in fiscal 1996, from 48% in
1995, due primarily to the inclusion of lower-margin revenues at Bennett
and XRE.
Selling, general and administrative expenses as a percentage of
revenues decreased to 18% in fiscal 1996 from 22% in 1995, due primarily
to increased revenues at Lorad and the inclusion of the operations of
Bennett and XRE, which incurred lower expenses as a percentage of
revenues. Research and development expenses increased to $18.9 million in
fiscal 1996 from $11.9 million in 1995, due to the inclusion of $4.2
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 (first shipped in the fourth quarter of fiscal 1996),
full-breast digital mammography system, and direct-detection X-ray
sensor, as well as enhancements of existing systems. Under a license
agreement between the Company and ThermoTrex, the Company may elect to
expend approximately $2.0 million each year during fiscal 1997 and 1998
for additional research and development and to expand the field of use in
which it is entitled to use ThermoTrex's direct-detection digital imaging
technology. See Note 9 of Notes to Consolidated Financial Statements.
Interest income in fiscal 1996 primarily represents interest income
earned on the invested proceeds from the Company's private placements of
common stock in November 1995 and January 1996, and initial public
offering in July 1996. Interest expense in fiscal 1996 represents
interest associated with the $42.0 million principal amount 4.2%
subordinated convertible note issued to ThermoTrex in October 1995 in
connection with the Bennett acquisition. As of September 28, 1996, the
outstanding balance of this note was $8.0 million, due to the conversion
by ThermoTrex of $34.0 million principal amount.
The effective tax rate was 47% in fiscal 1996, compared with 46% in
1995. The effective tax rates exceed the statutory federal income tax
rate due primarily to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
The Company is a defendant in certain patent litigation and has been
notified that it allegedly infringes certain other technologies owned by
third parties.
See Notes 3 and 11 of Notes to Consolidated Financial
Statements . While an unfavorable outcome of one or more of these matters
could have a material adverse effect on the Company's results of
operations, the Company does not believe that it is reasonably likely
that any resolution would have a material effect on the Company's
financial position.
Fiscal 1995 Compared With 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.
17
PAGE
<PAGE>
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-breast digital mammography system, as well as
enhancements of existing systems.
The effective tax rate was 45% in fiscal 1995, compared with 55% in
fiscal 1994. The effective tax rates exceed the statutory federal income
tax rate due primarily to the impact of 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.
Liquidity and Capital Resources
Consolidated working capital was $59.8 million at September 28, 1996,
compared with $13.2 million at September 30, 1995. Included in working
capital are cash and cash equivalents of $34.0 million at September 28,
1996 and $0.2 million at September 30, 1995. Net cash provided by
operating activities was $6.0 million in fiscal 1996. In fiscal 1996, the
Company funded an increase in accounts receivable of $7.7 million due
primarily to September 1996 shipments of the Company's new M-IV
mammography system.
The Company expended $3.1 million on purchases of property, plant and
equipment during fiscal 1996. The Company expects to expend approximately
$6.0 million for purchases of property, plant and equipment during fiscal
1997.
In connection with the October 1995 acquisition of Bennett, the
Company issued to ThermoTrex a $42.0 million principal amount 4.2%
subordinated convertible note. During fiscal 1996, ThermoTrex converted
$34.0 million principal amount into 2,883,798 shares of the Company's
common stock.
In May 1996, the Company acquired substantially all of the assets and
liabilities of XRE for approximately $18.5 million in cash, net of cash
acquired and including the repayment of debt. In September 1996, the
Company acquired substantially all of the assets and liabilities of
Continental for approximately $18.4 million in cash, net of cash acquired
and including the repayment of debt.
In November 1995, January 1996 and December 1996, the Company
completed private placements of 1,862,000, 100,000 and 300,000 shares of
its common stock for net proceeds of $17.6 million, $1.1 million and
$4,215,000, respectively. In July 1996, the Company sold 2,875,000 shares
of its common stock in an initial public offering, and 871,832 shares of
18
PAGE
<PAGE>
its common stock in a concurrent rights offering, for net proceeds of
$49.1 million.
Although the Company expects to have positive cash flow from its
existing operations, the Company may require significant amounts of cash
for any acquisition of a business or technology. The Company expects that
it will finance any such acquisitions through a combination of internal
funds, 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 its existing resources are
sufficient to meet the capital requirements of its existing operations
for the foreseeable future.
BUSINESS
--------
The Company designs, manufactures, and markets mammography equipme
and minimally invasive stereotactic breast -biopsy systems used for the
detection of breast cancer, as well as general radiography (X-ray)
equipment. In addition, the Company manufactures specialized X-ray
equipment, including imaging systems used in the diagnosis and treatment
of coronary artery disease and other vascular conditions, and
radiographic fluoroscopy (R/F) systems used to diagnose gastrointestinal
(GI) disorders and other conditions.
The Company, incorporated in September 1995 as a wholly
owned subsidiary of ThermoTrex Corporation (ThermoTrex),
consists of four
operating units: Lorad, Bennett X-Ray Corporation (Bennett), XRE
Corporation (XRE), and Continental X-Ray Corporation (Continental). In
October 1995, the Company acquired all of the outstanding shares of
capital stock of Bennett from ThermoTrex in exchange for a $42.0 million
principal amount 4.2% subordinated convertible note (of which $8.0
million remains outstanding). Also in October 1995, ThermoTrex
contributed all of the assets and liabilities relating to its Lorad
division and the development of its Sonic CT(TM) (Computed Tomography)
s ystem to the Company in exchange for 20,000,000 shares of the Company's
common stock. In May 1996, the Company acquired substantially all of the
assets and liabilities of XRE for approximately $18.5 million in cash,
net of cash acquired and including the repayment of debt. In September
1996, the Company acquired substantially all of the assets and
liabilities of Continental for approximately $18.4 million in cash, net
of cash acquired and including the repayment of debt.
E ach unit specializes in manufacturing a particular type of imaging
equipment for different market segments. Through its L orad division, the
Company manufactures and markets mammography and minimally invasive
stereotactic breast -biopsy systems, which provide a
cost-effective,
less-invasive alternative to open surgery for the biopsy of suspicious
breast lesions. Bennett's primary product line consists of
general-purpose X-ray equipment, but Bennett also manufactures
mammography systems, a stereotactic breast-biopsy system, and X-ray units
used by chiropractors and veterinarians. XRE manufactures and markets
X-ray imaging systems used by interventional cardiologists in the
diagnosis and treatment of blockages in coronary arteries and other
19
PAGE
<PAGE>
vessels. XRE also manufactures electrophysiology products that aid
doctors in diagnosing and treating cardiac arrhythmia. Continental
manufactures and markets a broad line of general-purpose and specialty
X-ray systems, including R/F systems used to diagnose GI disorders . In
addition, Continental
manufactures electrophysiology products and
mammography systems.
The Company also manufactures the specialized hair-removal lasers
purchased by its sister company, ThermoLase, another majority-owned
subsidiary of ThermoTrex,
and nondestructive testing systems, which are
used by the military to test
aircraft for stress fractures and other
defects.
The Company is currently developing a full-breast digital mammography
system that is intended to be capable of higher image quality. The system
is designed to enhance the X-ray image through software and to allow
near-real-time analysis . The Company expects that it will be possible to
electronically transmit these images to allow off-site analysis by
another radiologist.
The Company believes this technology may also
provide better images of dense breast tissue, which is often found in
younger women. The Company is currently collecting clinical data to be
submitted with the Company's 510(k) application to the U.S. Food and Drug
Administration (FDA), which must grant market clearance
before t
system can be sold commercially. The Company has designed its new,
high-end conventional mammography systems so that radiologists can
upgrade to digital technology when it becomes available. The Company
believes that the digital imaging technology being developed for this
system may be adaptable to its general and specialized radiography
systems, and the Company will seek to develop applications in these
markets. The Company is also working on a more advanced version of its
digital technology, which incorporates a flat-panel, direct-digital
detector and could provide still more information for earlier diagnoses.
Breast Cancer Detection
Mammography Systems. Most experts agree that mammography, the X-ray
--------------------
imaging of breast tissue, is the best method for detecting breast cancer.
The Company designs, manufactures, and markets mammography systems that
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. Many of the Lorad M-IV's features were developed in
response to user demands, including the ability to be upgraded. The
Bennett Contour offers a patented tilt C-arm that permits the system to
tilt toward or away from the patient to aid in imaging breast tissue. The
Company's lower-priced models are the Lorad M-III and the Bennett MF-150,
which 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.
Successful imaging of dense breast tissue requires high-contrast
images. The Company recently introduced a new proprietary High-
Transmission Cellular (HTC)(TM) grid that, compared with existing grids,
reduces X-ray scattering while blocking fewer primary X-rays, resulting
in higher-contrast images with lower radiation doses. The HTC grid is
20
PAGE
<PAGE>
currently available on the Lorad M-IV and will be available on the
Bennett Contour.
The Company currently has prototype full-breast digital mammography
systems in operation at Good Samaritan Hospital in New York and at the
University of Virginia Medical Center. The Company expects to submit data
collected using this prototype to the FDA for clearance, which is
required before the Company can commercially market its full-breast
digital imaging system.
The Company is currently developing a next-generation full-breast
digital mammography system, which would replace the film with a
solid-state detector capable of directly recording the X-ray image in an
electronic format. The system is designed to substantially increase image
contrast without a significant decrease in image resolution.
The Company believes that demand in the market for mammography systems
is driven primarily by technological innovation that results in better
image quality. Although growth of the installed base has slowed, demand
for new systems continues as older models are replaced with those
offering 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.
Minimally Invasive Stereotactic Breast-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.
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 minimally invasive stereotactic
breast-biopsy systems that provide an alternative to surgical biopsy.
These stereotactic breast-biopsy systems were introduced to address the
disadvantages of open surgical biopsy and can be performed on an
outpatient basis under local anesthetic. These procedures generally
remove only a small tissue sample, resulting in minimal scarring both on
and in the breast.
The Company offers a dedicated prone table, the StereoGuide(R), for
customers that perform a significant number of biopsy procedures. With
the dedicated prone table, the patient lies down with her breast
suspended through an aperture in the table. X-ray imaging equipment and a
needle-gun attachment (not manufactured by the Company) 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
21
PAGE
<PAGE>
see the needle being inserted in the breast, reducing the chance of
fainting. Recent studies indicate that stereotactic needle biopsy is
equally effective compared with surgical biopsy in determining whether a
suspicious lesion is malignant. The typical cost of a stereotactic needle
biopsy procedure is approximately one third of the price for an open
surgical biopsy. The Company's StereoGuide system is the subject of a
lawsuit alleging infringement of a Fischer Imaging Corporation (Fischer)
patent. See "Business - Legal Proceedings."
The Company also offers upright, add-on systems, the StereoLoc II and
the Cytoguide, that can be attached to most of its mammography systems.
Add-on systems principally consist 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 who have only
periodic demand for stereotactic needle-biopsy procedures.
The Company offers a digital spot imaging option with all of its
stereotactic breast-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 10
seconds. Since the image is recorded 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 breast-biopsy procedure using digital spot imaging can be
performed in as short a time as 10 minutes, compared with a typical time
of 45 minutes using a film-based system.
The Company believes that the stereotactic breast-biopsy system market
will grow as the procedure becomes more widely accepted by the medical
community and as pressures to contain healthcare 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' offices 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 U.S. market for general X-ray 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 U.S. market and that the installed base of systems is still
growing, particularly in developing countries. The Company has recently
expanded its international sales efforts.
22
PAGE
<PAGE>
The Company's radiographic systems typically include a generator, a
tube stand, and a table or bucky structure to hold the film. 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 may
consist 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 may consist of a 25-kilowatt,
high-frequency generator; a floor-mounted, free-standing tube stand; and
an upright bucky stand. The Company's general radiography product line
features high-frequency generators with anatomical programming and other
operator-selected features.
The Company offers two linear tomography systems: the Bennett BT-300
and the Continental Precision Movement Tomography (PMT)
radiographic/tomographic system. In a linear tomography procedure, the
X-ray tube sweeps over the patient in one direction with the film tray
sweeping under the patient in the opposite direction. The resulting image
provides an unobstructed view at a desired plane within the patient's
body, of the kidneys, for example. The Continental PMT system uses a
patented robotic positioning system to rapidly position the equipment and
the patient for either tomographic or general radiography procedures. The
Company believes that for a number of applications its tomography systems
may be a cost-effective alternative to computed tomography scanners.
The Company believes digital imaging will have significant application
in the general and specialized radiographic markets and that the
technology it develops for its full-breast digital imaging system may be
adaptable to these applications. In general X-ray applications, the
Company believes digital imaging will produce better quality images and
reduce operating costs by eliminating the need for film, 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 could make the image intensifiers, which are
large and expensive components in certain imaging systems, obsolete.
Cardiac Catheterization, Angiography, and Electrophysiology
In May 1996, the Company acquired XRE, a designer, manufacturer, and
marketer of complete cardiac catheterization laboratories (also called
cath labs) and positioners for cardiovascular imaging systems. XRE's
imaging equipment is used in cath labs where angiography (examination of
the blood vessels using X-rays following the injection of a radio-opaque
contrast medium) is performed by an interventional cardiologist. 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. One
of the most common forms of cardiovascular disease is atherosclerosis,
23
PAGE
<PAGE>
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, angiography 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 angiography is performed in a cardiac catheterization
laboratory and 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 balloon 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 a device called a stent into the
blood vessel in order to keep the restricted vessel open once it has been
expanded by balloon angioplasty.
Angioplasty and stent placement are less invasive than surgery and
generally do not require 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. These procedures are performed
under the guidance of X-ray imaging such as that provided by the
Company's equipment.
XRE's products include the Unicath C cardiovascular imaging system and
the Unicath LP biplane cardiovascular imaging system. XRE recently
introduced the Unicath SP, its newest single-plane cardiovascular imaging
system, with enhanced features such as a larger X-ray tube and advanced
image intensifier with Full-Frame(TM) Zoom to further enhance the imaging
of interventional devices such as stents.
To complement its Unicath SP labs, XRE has developed a line of digital
image processing systems, workstations, and archive alternatives. Each of
these products uses an "open architecture" to facilitate connectivity
with industry-standard networks and storage devices. XRE's new DVFX
digital video filter system acquires, enhances, and displays
high-resolution images at 30 frames per second to clearly image and
freeze the motion of the heart. The Unicath SP also has XRE's exclusive
Full-Frame Zoom feature, which further improves visualization of
interventional devices by enlarging the presentation on TV image
monitors.
Many of XRE's X-ray positioners are based on its parallelogram design.
This design permits multi-angular views of the heart and coronary
arteries while the patient remains stationary on the table.
Both XRE and Continental design, manufacture, and sell
electrophysiology systems that are used in the diagnosis and treatment of
24
PAGE
<PAGE>
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 with high-performance digital imaging.
Radiographic Fluoroscopy Systems
Through its Continental subsidiary, acquired in September 1996, the
Company designs, manufactures, and markets radiographic fluoroscopy
products. An 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 to image in real-time the
progress of a radio-opaque ingested solution (typically barium) through
the digestive tract.
Continental produces R/F systems using advanced high-frequency
generators that provide pulsed power, resulting in substantially reduced
radiation exposure to the patient. Continental's R/F products include the
new DigiSpot 2000, a high-speed digital imaging system that records the
image in an 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.
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 have included the United States Air Force, several commercial
airlines, and Canadian and American utilities.
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. During fiscal 1996 sales of
such devices under this arrangement totaled $361,000.
The Company also manufactures the lasers used in ThermoLase's
hair-removal process. ThermoLase is a publicly traded, majority-owned
subsidiary of ThermoTrex. During fiscal 1996, sales of these lasers
totaled $8,549,000. The Company has committed to deliver additional
lasers to ThermoLase under this arrangement for approximately $6.4
million. The Company anticipates that these lasers will be delivered in
fiscal 1997.
25
PAGE
<PAGE>
Sales and Distribution
The Company sells its products through a worldwide network of more
than 100 independent dealers and, to a lesser extent, on a direct basis.
Each of the Company's operating units employs regional sales managers who
oversee the performance of the independent dealers on a domestic and
international basis and, in certain instances, support direct sales
efforts. The Company and its independent dealers maintain a staff of
factory-trained service technicians to support its systems on a worldwide
basis.
OEM Agreements
In addition to manufacturing and marketing its own systems, the
Company manufactures systems and system components as an OEM for other
medical equipment companies such as U.S. Surgical,
GE , Philip
Picker International. See "Business - Dependency on a Single Customer."
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-breast digital
mammography system, X-ray sensors for direct-detection digital imaging
technology, 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
diagnostic cardiac imaging systems.
One of the Company's long-term research and development programs is
the development of a Sonic CT 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 on digital imaging technology
developed by scientists at ThermoTrex. ThermoTrex has granted the Company
a fully paid, exclusive, worldwide, perpetual license to use 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 the research and development in the
fields of radiographic fluoroscopy, mobile C-arm fluoroscopy, and
cardiography/angiography over a three-year period, the Company's license
will be extended to cover such fields. As of September 28, 1996, the
Company had cumulatively funded $1.8 million under the agreement. See
"Relationship and Potential Conflicts of Interest with Thermo Electron
and ThermoTrex."
Research and development expenses of the Company were $18.9 million,
$8.6 million, and $10.7 million for fiscal 1996, the nine months ended
September 30, 1995, and 1994, respectively.
26
PAGE
<PAGE>
Competition
The healthcare 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, Siemens
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 U.S. Surgical, GE and
Philips through OEM arrangements. The products sold through such OEM
arrangements compete with those offered by the Company and
independent dealers. The Company's StereoLoc II, Cytoguide, and
StereoGuide stereotactic breast-biopsy systems compete with products
offered by GE, Fischer Imaging Corporation, and Philips, and with
conventional surgical biopsy procedures. The Company competes in these
markets primarily on the basis of product features, product performance,
and reputation as well as price and service. The Company believes that
competition is likely to increase as a result of healthcare
cost-containment pressures and the development of alternative diagnostic
and interventional technologies. 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 2003 to 2014. The Company also has more than 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 for 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 "Risks Factors -
Risks Associated With Pending and Threatened Patent Litigation" and
"Business - Legal Proceedings."
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
27
PAGE
<PAGE>
the Company. Noncompliance with applicable requirements can result in
fines, recalls, or seizures of products, total or partial suspension of
production, and criminal prosecution.
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 shipments 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.
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 that is not in compliance with the relevant performance
standard must be repaired, refurbished, or returned at the manufacturer's
expense.
The Company believes that compliance with federal, state, and local
environmental regulations will not have a material adverse effect on its
capital expenditures, earnings, or competitive position. See "Risk
Factors - Government Regulation; No Assurance of Regulatory Approval" and
"- Healthcare Reform; Uncertainty of Patient Reimbursement."
Backlog
The backlog of firm orders was $71.7 million as of September 28, 1996,
compared with $45.4 million as of September 30, 1995. The Company
anticipates that substantially all of the backlog at September 28, 1996,
will be shipped during fiscal 1997.
Raw Materials
Raw materials, components, and supplies purchased by the Company are
either available from a number of different suppliers or from alternative
sources that could be developed without a material adverse effect on the
Company. To date, the Company has experienced no difficulties in
obtaining these materials.
28
PAGE
<PAGE>
Seasonal Influences
There are no significant seasonal influences on the Company's sales of
products and services.
Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
Dependency on a Single Customer
Revenues from OEM sales of a modified design of the Company's
stereotactic prone breast-biopsy system to U.S. Surgical accounted for
11% of the Company's total revenues in fiscal 1996.
Facilities
The Company owns two office and manufacturing facilities: a 63,500
square-foot facility in Danbury, Connecticut, and a 163,000 square-foot
facility in Broadview, Illinois. The Company leases a 120,000 square-foot
office and manufacturing facility in Copiague, New York, under a lease
expiring in 2005, a 156,000 square-foot office and manufacturing facility
in Littleton, Massachusetts, under a lease expiring in 2012, and a 60,000
square foot office and manufacturing facility in Danbury, Connecticut,
under a lease expiring in 2006.
The Company believes that its facilities are in good condition and are
suitable and adequate to meet current needs.
Personnel
As of September 28, 1996, the Company employed 992 persons.
Legal Proceedings
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 system infringes a Fischer patent on a precision
mammographic needle-biopsy system. As of September 28, 1996, the Company
had recognized aggregate revenues of approximately $63.1 million from the
sale of such systems, of which $34.4 million represents sales prior to
October 1, 1995. 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 that the Company may eventually
be required to pay in expenses or in such damages. See "Risk Factors -
Risks Associated With Pending and Threatened Patent Litigation."
29
PAGE
<PAGE>
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 with respect to sales of the Company's products
occurring prior to October 1995, when Lorad was 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 (approximately $2 million as of September 28, 1996),
with any indemnification payment it receives from ThermoTrex being
treated as a contribution to shareholders' investment.
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.
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
30
PAGE
<PAGE>
to such sales. As of September 28, 1996, the Company had paid
approximately $1,800,000 to ThermoTrex under this arrangement.
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. During fiscal 1996, the Company purchased grids for
an aggregate purchase price of $397,000 under this arrangement. In
addition, the Company recorded expense of $250,000 during fiscal 1996
related to research and development funding provided to Tecomet in
connection with this project.
Under an arrangement with ThermoLase, the Company manufactures the
laser used in ThermoLase's hair-removal process. The Company manufactures
these lasers for ThermoLase pursuant to written purchase orders. During
fiscal 1996, the Company had sales of $8,549,000 under this arrangement.
The Company has committed to deliver additional lasers to ThermoLase
under this arrangement for approximately $6,400,000.
Under an arrangement with Thermedics Detection Inc., a subsidiary of
Thermedics Inc., 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. During fiscal 1996, Thermedics
Detection paid the Company $361,000 under this arrangement.
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 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, in addition to providing the Company's medical imaging
products, supplies laser-based hair-removal services and personal-care
products through its ThermoLase subsidiary and conducts advanced
technology research . For the fiscal year ended September 28
ThermoTrex had consolidated revenues of $182,029,000 and consolidated net
income of $42,575,000.
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
31
PAGE
<PAGE>
Factors-Potential Conflicts of Interest" and "-Significant Additional
Shares Eligible for Future Sale."
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 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
32
PAGE
<PAGE>
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 fiscal year ended September 28 , 1996 , Thermo
Electron assessed the Company $1,567,000 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.
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
33
PAGE
<PAGE>
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 79 % of the outstanding shares
of Common Stock (excluding shares of Common Stock issuable upon the
conversion of the Convertible Note). ThermoTrex may convert additional
principal amounts of the Convertible Note or purchase additional shares
of Common Stock from time to time in the open market or directly from the
Company. See "Risk Factors-Control by ThermoTrex."
As of September 28, 1996, $32,696,000 of the Company's cash
equivalents were invested 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 are readily
convertible into cash by the Company . The repurchase agreement earns a
rate based on the 90-day 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:
Name Age Position
---- --- --------
PPosition
--------
Gary S. Weinstein 38 Chairman of the Board and Director
Anthony J. 56 Vice Chairman of the Board and
Pellegrino Director
Hal Kirshner 55 Chief Executive Officer, President
and Director
John N. Hatsopoulos 62 Vice President, Chief Financial
Officer and Director
Paul F. Kelleher 54 Chief Accounting Officer
Elias P. Gyftopoulos 68 Director
(2)
Robert C. Howard 65 Director
Earl R. Lewis 52 Director
James W. May, Jr. 53 Director
(1)(2)
Hutham S. Olayan 42 Director
(1)(2)
Firooz Rufeh 58 Director
34
PAGE
<PAGE>
Kenneth Y. Tang 48 Director
--------------
(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.
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.
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 President of Thermo Electron since January 1997. Mr.
Hatsopoulos was an Executive Vice President of Thermo Electron from 1986
until January 1997. He is also a director of Thermo BioAnalys
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.,
35
PAGE
<PAGE>
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.
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, Thermo Remediation Inc., ThermoSpectra
Corporation and Thermo Voltek Corp.
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, 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.
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
36
PAGE
<PAGE>
more than five years and was President of ThermoLase from December 1992
to May 1995. He is also a director of ThermoLase.
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 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
37
PAGE
<PAGE>
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.
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
38
PAGE
<PAGE>
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. Ms. Olayan disclaims beneficial
ownership of the shares owned by Crescent International Holdings Ltd. 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 ended September 28,
1996 ("fiscal 1996"), for the nine-month period from January 1, 1995 to
September 30, 1995("fiscal 1995"), reflecting a change in th
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
Annual Long-Term
Compensation Compensatio
------------ -----------
n
-
Securities
Name and Fisca Underlying All Other
Principal l Salary Bonus Compensation(
--------- ------ ----- -------------
Position Year Options(3) 4)
-------- ---- ---------- --
39
PAGE
<PAGE>
Hal Kirshner
Chief Executive
Officer and 1996 $192,500 -- 150,000(TX $9,958 (5)
President....... (1) M)
150(TMO)
1995 $200,0 -- 7,005
150,000(2 00
)
1994 200,000 180,00 6,750
0 22,500(TMO
)
--------------
(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 in the form of a 50% stock
dividend.
(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
Potential
% of Realizable
Number of Total Value at Assumed
Shares Options Annual Rates
Name Underlying Granted Exercis of Stock Price
----
Options to e Expiratio Appreciation for
Granted (1) Employees Price n Date Option Term (2)
----------- ----- ---------------
in Fiscal Per
---
Year Share
---- -----
5% 10%
40
PAGE
<PAGE>
Hal
Kirshn 150,000 15% $11.00 3/26/08 $1,312,5 $3,528,0
er (TXM) 00 00
150 .01% 42.79 5/22/99 1,011 2,124
(TMO)(3)
_______
(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.
(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
Number of Value of
Shares Unexercised
Underlying In-the-Mone
Unexercised y Options
Options at at Fiscal
Fiscal Year-End
--------
Year-End
--------
41
PAGE
<PAGE>
Number
of Shares
Acquired Value Exercisable/ Exercisable
Name Company on RealizedUnexercisable /
----- ------- ---------------------
Exercise (1) Unexercisab
-------- --- -----------
le
--
Hal
Kirshne Trex Medical - - 150,000/0 $1,387,500
r /-
ThermoTrex 76,500 $2,079,2 73,000/0 1,809,155/
70 -
ThermoLase - - 36,400/0
787,150/-
Thermo - - 116,025/0 2,953,132/
Electron -
-------
(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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholder
42
PAGE
<PAGE>
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."
Percentage of
Number of Outstanding
Name and Address of Beneficial Shares Shares
------------------------------
Shares Shares
Owner Beneficially
----- ------------ ------------
Beneficially Beneficially
------------
Owned Owned
----- -----
ned Owned
-----
ThermoTrex Corporation (1) ....23,562,339 (2) 79%
10455 Pacific Center Court
San Diego, CA 92121
________
(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.
While certain directors and executive officers of the Company are also
directors and executive officers of ThermoTrex or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the
shares of Common Stock owned by ThermoTrex.
Trex Medical ThermoTrex Thermo
Name(1) Corporation(
------- ------------
Corporation Electron
- ----------- -----------
2) Corporation
-- -----------
(3) Corporation
-----------
(4)
---
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
43
PAGE
<PAGE>
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
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 1,134,35 1,380,37 1,664,367
persons) .................. 9 7
_______
(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 all directors and
executive officers as a group exclude 23,562,339 shares beneficially
owned by ThermoTrex, as to which each director and executive officer
and all members of such group disclaim beneficial ownership. 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
44
PAGE
<PAGE>
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 in the form
of a 50% stock dividend. 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 Ownership Plan of which the 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.
45
PAGE
<PAGE>
Shares of
Common Stock Shares Shares Owned
Owned Prior Being after
Selling Shareholder to the Offered Completion of
------------------- --- ------- --
Offering(1) the Offering
----------- ------------
Wessel Corporation N.V. 100,000 100,00 0
0
Thermo Opportunity Fund, 114,600 50,000 64,600
Inc.
Primespecial 38,000 20,000 18,000
John D. Bryan 22,000 20,000 2,000
Union Bancaire Privee 18,000 18,000 0
Robert E. Kirby 15,000 15,000 0
Yiska Moser Trust 15,000 15,000 0
George & Elizabeth Harvey 10,000 10,000 0
Myles Tanenbaum 10,000 10,000 0
Frank Argano 10,000 10,000 0
Joseph N. Cunningham 10,000 10,000 0
Howard Blitman 10,000 10,000 0
Gestielle B 5,000 5,000 0
BCI Dollar Equity 10,000 5,000 5,000
Gestielle America 2,000 2,000 0
(1) Except as otherwise reflected in the footnotes to this table, all
share ownership includes Shares owned by the Selling Shareholders
and shares that the Selling Shareholders have the right to acquire
within 60 days of September 28, 1996, through the exercise of stock
options.
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 December 19, 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 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
46
PAGE
<PAGE>
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 December 20 , 1996, the Company had 50,000,000 shares of Common
Stock authorized for issuance, of which 28,8 92,630 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.
47
PAGE
<PAGE>
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.
The transfer agent and registrar for the Common Stock is American
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
There are currently 28,892,630 shares of Common Stock outstanding of
which 6,008,832 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. ThermoTrex may sell its shares of 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, 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 288,926 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
48
PAGE
<PAGE>
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
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 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
49
PAGE
<PAGE>
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. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants
50
PAGE
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Trex Medical Corporation
Report of Independent Public Accountants F-2
Consolidated Statement of Income for the years ended
September 28, 1996 and September 30, 1995, the nine
months ended September 30, 1995 and the year ended
December 31, 1994 F-3
Consolidated Balance Sheet as of September 28, 1996 and
September 30, 1995 F-4
Consolidated Statement of Cash Flows for the years ended
September 28, 1996 and September 30, 1995, the nine
months ended September 30, 1995 and the year ended
December 31, 1994 F-5
Consolidated Statement of Shareholders' Investment for
the years ended September 28, 1996 and September 30,
1995, the nine months ended September 30, 1995 and
the year ended December 31, 1994 F-7
Notes to Consolidated Financial Statements F-8
F-21
PAGE
<PAGE>
Report of Independent Public Accountants
-----------------------------------------------------------------
To the Shareholders and Board of Directors of Trex Medical Corporation:
We have audited the accompanying consolidated balance sheet of Trex
Medical Corporation (a Delaware corporation and 80%-owned subsidiary of
ThermoTrex Corporation) and subsidiaries as of September 28, 1996 and
September 30, 1995, and the related consolidated statements of income,
shareholders' investment and cash flows for the year ended September 28,
1996, the nine months ended September 30, 1995, and the year ended
December 31, 1994. 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 September 28, 1996 and
September 30, 1995, and the results of their operations and their cash
flows for the year ended September 28, 1996, the nine months ended
September 30, 1995, and the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
F-32
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Income
Nine Months
Year Ended Ended Year
--------------------- ----------- ----------
Ended
(In thousands except) Sept. 28, Sept. 30, Sept. 30, Dec. 31,
per share amounts) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Revenues (includes $8,910,
$470, $470 and $0 to
affiliated companies)
(Notes 9 and 10) $150,195 $ 70,505 $ 55,291 $ 54,410
-------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues
(includes $4,698, $223,
$223 and $0 for
affiliated companies
revenues) (Note 9) 86,642 36,320 28,180 27,794
Selling, general and
administrative
expenses (Note 9) 27,156 15,652 12,174 13,272
Research and development
expenses (Note 9) 18,862 11,937 8,595 10,662
-------- -------- -------- --------
132,660 63,909 48,949 51,728
-------- -------- -------- --------
Operating Income 17,535 6,596 6,342 2,682
Interest Income 1,290 - - -
Interest Expense, Related
Party (Note 9) (1,373) - - -
Other Income (Expense), Net 60 11 22 (22)
-------- -------- -------- --------
Income Before Provision for
Income Taxes 17,512 6,607 6,364 2,660
Provision for Income Taxes
(Note 7) 8,168 3,015 2,881 1,466
-------- -------- -------- --------
Net Income $ 9,344 $ 3,592 $ 3,483 $ 1,194
======== ======== ======== ========
Earnings per Share:
Primary $ .40 $ .18 $ .17 $ .06
======== ======== ======== ========
Fully diluted $ .38 $ .18 $ .17 $ .06
======== ======== ======== ========
Weighted Average Shares:
Primary 23,483 20,151 20,151 20,151
======== ======== ======== ========
Fully diluted 26,550 20,151 20,151 20,151
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-43
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Balance Sheet
September 28, September 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 33,966 $ 202
Accounts receivable, less allowances
of $1,264 and $870 29,104 14,937
Inventories 33,010 16,667
Prepaid expenses 1,316 113
Prepaid income taxes (Note 7) 5,712 3,474
-------- --------
103,108 35,393
-------- --------
Property, Plant and Equipment, at Cost, Net 13,770 7,811
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 83,972 59,170
-------- --------
$200,850 $102,374
======== ========
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 12,598 $ 7,381
Accrued payroll and employee benefits 4,616 2,338
Accrued warranty costs 5,344 2,991
Customer deposits 3,414 771
Accrued income taxes 2,010 -
Other accrued expenses (Note 3) 12,203 8,245
Due to affiliated companies 3,089 496
-------- --------
43,274 22,222
-------- --------
Deferred Income Taxes (Note 7) 170 142
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due
to parent company (Note 9) 8,000 -
Other 109 -
-------- --------
8,109 -
-------- --------
Commitments and Contingencies
(Notes 3, 8, 9 and 11)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 50,000,000
shares authorized; 28,592,630 shares
issued and outstanding in 1996 286 -
Capital in excess of par value 139,667 -
Retained earnings 9,344 -
Net parent company investment - 80,010
-------- --------
149,297 80,010
-------- --------
$200,850 $102,374
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-54
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Cash Flows
Nine Months
Year Ended Ended Yea
--------------------- ----------- ----
Ended
------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
-----------------------------------------------------------------------
(Unaudited)
Operating Activities:
Net income $ 9,344 $ 3,592 $ 3,483 $ 1,194
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 3,195 1,702 1,315 1,491
Provision for losses
on accounts
receivable 273 75 25 175
Increase (decrease)
in deferred income
taxes (26) 61 29 32
Gain on sale of
property, plant
and equipment (32) (15) (15) -
Changes in current
accounts, exclud-
ing the effects
of acquisitions:
Accounts
receivable (7,681) (1,305) (693) (3,316)
Inventories (2,105) (533) (1,476) 153
Other current
assets (1,835) (6) (82) 125
Accounts payable 106 2,342 621 1,861
Other current
liabilities 4,711 (1,139) 444 411
-------- -------- -------- --------
Net cash provided by
operating activities 5,950 4,774 3,651 2,126
-------- -------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) (36,888) - - -
Purchases of property,
plant and equipment (3,071) (1,533) (957) (1,300)
Other, net 16 14 14 29
-------- -------- -------- --------
Net cash used in
investing activities $(39,943) $ (1,519) $ (943) $ (1,271)
-------- -------- -------- --------
F-5
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended Year
---------------------- ----------- ----
Ended
------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Financing Activities:
Net proceeds from
issuance of Company
common stock (Note 4) $ 67,757 $ - $ - $ -
Net transfers to parent
company - (3,053) (2,506) (855)
-------- -------- -------- --------
Net cash provided by
(used in) financing
activities 67,757 (3,053) (2,506) (855)
-------- -------- -------- --------
Increase in Cash and
Cash Equivalents 33,764 202 202 -
Cash and Cash Equivalents
at Beginning of Period 202 - - -
-------- -------- -------- --------
Cash and Cash Equivalents
at End of Period $ 33,966 $ 202 $ 202 $ -
======== ======== ======== ========
Cash Paid For:
Interest $ 1,373 $ - $ - $ -
Income taxes $ 1,294 $ - $ - $ -
Noncash Activities:
Fair value of assets of
acquired companies $ 53,519 $ - $ - $ -
Cash paid for acquired
companies (38,178) - - -
-------- -------- -------- --------
Liabilities assumed
of acquired
companies $ 15,341 $ - $ - $ -
======== ======== ======== ========
Transfer of acquired
business from
parent company, net
of cash $ - $ 42,000 $ 42,000 $ -
Issuance of subordinated
convertible note to
parent company $ 42,000 $ - $ - $ -
Conversions of subord-
inated convertible
note by parent
company $ 34,000 $ - $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Shareholders' Investment
Common Capital
Stock, in Excess Net Parent
$.01 Par of Par Retained Company
(In thousands) Value Value Earnings Investment
------------------------------------------------------------------------
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 3) - - - 42,000
-------- -------- -------- --------
Balance September 30, 1995 - - - 80,010
Issuance of subordinated
convertible note to parent
company (Note 9) - (42,000) - -
Capitalization of Company 200 79,810 - (80,010)
Net income - - 9,344 -
Net proceeds from issuance
of Company common stock
(Note 4) 57 67,700 - -
Tax benefit related to
employees' and directors'
stock plans - 186 - -
Conversions of subordinated
convertible note by parent
company (Note 4) 29 33,971 - -
-------- -------- -------- --------
Balance September 28, 1996 $ 286 $139,667 $ 9,344 $ -
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
PAGE
<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 breast-
biopsy systems used for the detection of breast cancer. The Company also
designs and manufactures general radiography (X-ray) equipment and X-ray
imaging systems used for cardiac catheterization and angiography, as well
as radiographic fluoroscopy. The Company's mammography and stereotactic
breast-biopsy systems are used by radiologists and physicians in offices,
hospitals, and dedicated breast-care centers, and its general X-ray
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 shares of
capital stock of Bennett X-Ray Corporation (Bennett), in exchange for a
$42.0 million principal amount 4.2% subordinated convertible note
(Note 9). As of September 28, 1996, ThermoTrex had converted $34.0
million principal amount of this note. 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(TM) 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 28, 1996, ThermoTrex owned 22,883,798 shares of the
Company's common stock, representing 80% of such stock outstanding.
ThermoTrex is a 51%-owned subsidiary of Thermo Electron Corporation
(Thermo Electron).
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, was the 39-week period from January 1, 1995 to September 30,
1995, referenced as "fiscal 1995." References to "fiscal 1996" and "1994"
are for the years ended September 28, 1996 and December 31, 1994,
respectively. Fiscal 1996 and 1994 each included 52 weeks. The unaudited
consolidated statements of income and cash flows for the 52-week period
ended September 30, 1995 are presented for comparative purposes only.
F-10
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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.
Concentration of Credit Risk
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.
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.
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
Earnings per share have been computed based on the weighted average
number of shares outstanding during the period. 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, for periods prior to the
Company's initial public offering, the effect of the assumed exercise of
stock options issued within one year prior to the Company's initial
public offering. Because the effect of common stock equivalents would be
immaterial, they have been excluded from the primary earnings per share
calculation subsequent to the Company's initial public offering. Fully
diluted earnings per share include the assumed exercise of stock options
and the assumed effect of the conversion of the Company's 4.2%
subordinated convertible note, due to parent company.
F-11
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
As of September 28, 1996, $32,696,000 of the Company's cash
equivalents were invested in 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, U.S. 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 are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
Prior to its incorporation in September 1995, the Company's cash
receipts and disbursements were combined with other ThermoTrex corporate
cash transactions and balances.
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:
(In thousands) 1996 1995
----------------------------------------------------------------------
Raw materials and supplies $20,513 $ 9,414
Work in process 9,218 5,195
Finished goods 3,279 2,058
------- -------
$33,010 $16,667
======= =======
F-12
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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: buildings, 29 to 31.5 years; machinery and equipment, 3 to 8
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:
(In thousands) 1996 1995
----------------------------------------------------------------------
Land $ 1,194 $1,000
Buildings 3,788 2,728
Leasehold improvements 2,195 1,293
Machinery and equipment 10,082 4,918
------- ------
17,259 9,939
Less: Accumulated depreciation and amortization 3,489 2,128
------- ------
$13,770 $7,811
======= ======
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 $3,621,000 and $1,935,000 as of September
28, 1996 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,
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.
F-13
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
2. Unaudited Comparative Results
The following unaudited financial information for the nine months
ended October 1, 1994 is presented to provide comparative results for
fiscal 1995, included in the accompanying statement of income.
Nine
Months Ended
October 1,
(In thousands except per share amounts) 1994
Revenues $39,196
Costs and Operating Expenses:
Cost of revenues 19,654
Selling, general and administrative
expenses 9,794
Research and development expenses 7,320
-------
36,768
-------
Operating Income 2,428
Other Expense, Net (11)
-------
Income Before Provision for Income Taxes 2,417
Provision for Income Taxes 1,332
-------
Net Income $ 1,085
=======
Earnings per Share:
Primary $ .05
=======
Fully diluted $ .05
=======
Weighted Average Shares:
Primary 20,151
=======
Fully diluted 20,151
=======
3. Acquisitions
In September 1996, the Company acquired substantially all of the
assets and liabilities of Continental X-Ray Corporation and affiliates
(Continental), an Illinois-based company that designs, manufactures, and
markets general-purpose and specialized X-ray systems, for approximately
$18.4 million in cash, net of cash acquired and including the repayment
of debt.
F-14
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
In May 1996, the Company acquired substantially all of the assets
and liabilities of XRE Corporation (XRE), a Massachusetts-based company
that designs, manufactures, and markets X-ray imaging systems used in the
diagnosis and treatment of coronary artery disease and other vascular
conditions, for approximately $18.5 million in cash, net of cash acquired
and including the repayment of debt.
In September 1995, ThermoTrex acquired all of the outstanding
capital stock of Bennett, a New York-based manufacturer of high-frequency
specialty and general-purpose X-ray systems, for approximately $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
(Note 9).
These acquisitions have been accounted for using the purchase
method of accounting, and their results of operations have been included
in the accompanying financial statements from their respective dates of
acquisition by the Company, or for Bennett, by ThermoTrex. The cost of
the acquisitions exceeded the estimated fair value of the acquired net
assets by $64.0 million, which is being amortized over 40 years.
Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired and, for XRE and
Continental, 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 from the preliminary estimate.
Based on unaudited data, the following table presents selected
financial information for the Company and the businesses acquired on a
pro forma basis, assuming Continental and XRE had been combined since the
beginning of 1995 and Bennett had been combined since the beginning of
1994.
Nine
Year Ended Months Ended Year Ended
(In thousands except September 28, September 30, December 31,
per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues $191,351 $126,185 $96,943
Net income (loss) 9,300 2,012 (1,258)
Earnings (loss) per share:
Primary .29 .07 (.06)
Fully diluted .29 .07 (.06)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions of XRE and Continental been made at the beginning of fiscal
1995 and the acquisition of Bennett been made at the beginning of 1994.
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
F-15
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
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
$3.5 million and $4.0 million as of September 28, 1996 and September 30,
1995, respectively, for estimated reserves associated with acquisitions,
including a reserve of approximately $2 million 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 infringes 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 treated as a contribution to shareholders' investment.
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.
4. Common Stock
Sale 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
$49.1 million.
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
$17.6 million. 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 $1.1 million. Certain officers and directors of the Company purchased
an aggregate of 143,300 shares of the Company's common stock issued in
these private placements. In addition, an entity indirectly related to a
director of the Company purchased 200,000 shares of the Company's common
stock issued in these private placements. This director, however,
disclaims beneficial ownership of such shares.
Conversion of Subordinated Convertible Note
During fiscal 1996, ThermoTrex converted $34.0 million principal
amount of the Company's 4.2% subordinated convertible note into 2,883,798
shares of the Company's common stock.
F-16
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
4. Common Stock (continued)
Reserved Shares
As of September 28, 1996, the Company had reserved 2,603,542
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, due to parent company.
5. 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. The option recipients and the terms of
options granted under this plan are determined by the Board Committee.
Options granted to date became exercisable on September 30, 1996, and 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 lapse 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 may 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. To
date, all options have been granted at fair market value. 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 lapse
ratably over a four-year period and the option term is five years. 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.
F-17
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
5. Stock-based Compensation Plans (continued)
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. A summary of the
Company's stock option information for fiscal 1996 is as follows:
Range of
Option
Number Prices
of per
(In thousands except per share amounts) Shares Share
----------------------------------------------------------------------
Options outstanding, beginning of year - $ -
Granted 1,401 10.25-12.00
Exercised - -
Lapsed or cancelled (20) 11.00
----- -----------
Options outstanding, end of year 1,381 $10.25-12.00
=====
Options exercisable -
=====
Options available for grant 519
=====
6. Employee Benefit Plans
Employee Stock Purchase Plan
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase plan sponsored by
ThermoTrex. Under this plan, shares of ThermoTrex's and Thermo Electron's
common stock can be purchased at the end of a 12-month plan year 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. Prior to
November 1, 1995, the applicable shares of common stock could be
purchased 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. 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. Contributions to
the 401(k) savings plan 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 $701,000,
$242,000, and $313,000, in fiscal 1996, fiscal 1995, and 1994,
respectively.
F-18
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
7. Income Taxes
The components of the provision for income taxes for fiscal 1996,
fiscal 1995, and 1994 are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable:
Federal $6,324 $2,474 $1,119
State 1,866 808 547
------ ------ ------
8,190 3,282 1,666
------ ------ ------
Prepaid:
Federal (16) (228) (146)
State (6) (173) (54)
------ ------ ------
(22) (401) (200)
------ ------ ------
$8,168 $2,881 $1,466
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $186,000 of such benefits that have been allocated to capital
in excess of par value for fiscal 1996 resulting from employee exercises
of stock options in affiliated companies.
The provision for income taxes in the accompanying statement of
income for fiscal 1996, fiscal 1995, and 1994 differs from the provision
calculated by applying the statutory federal income tax rate of 35% in
fiscal 1996 and 34% in fiscal 1995 and 1994 to income before provision
for income taxes due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes
at statutory rate $6,129 $2,164 $ 904
Increases resulting from:
State income taxes, net of federal tax 1,209 419 325
Amortization of cost in excess of net
assets of acquired companies 541 197 228
Other, net 289 101 9
------ ------ ------
$8,168 $2,881 $1,466
====== ====== ======
F-19
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $3,409 $1,725
Accrued compensation 1,107 463
Allowance for doubtful accounts 430 348
Inventory basis difference 766 918
Other, net - 20
------ ------
$5,712 $3,474
====== ======
Deferred income taxes:
Depreciation $ 170 $ 142
====== ======
8. Commitments
The Company leases portions of its office and operating facilities
under various noncancelable operating lease arrangements expiring between
fiscal 1997 and fiscal 2006. The accompanying statement of income
includes expenses from these operating leases of $674,000, $44,000, and
$40,000 in fiscal 1996, fiscal 1995, and 1994, respectively. Future
minimum payments due under these noncancelable operating leases at
September 28, 1996, are $1,443,000 in fiscal 1997; $1,406,000 in fiscal
1998; $1,377,000 in fiscal 1999; $1,372,000 in fiscal 2000; $1,372,000 in
fiscal 2001; and $6,409,000 in fiscal 2002 and thereafter. Total future
minimum lease payments are $13,379,000. The Company also has an operating
lease arrangement with a related party as discussed in Note 9.
9. 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 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
calendar year 1995 and 1994, respectively. The annual fee is reviewed and
adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $1,567,000, $663,000, and $680,000 in fiscal
1996, fiscal 1995, and 1994, respectively. 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
F-20
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
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.
Related Party Revenues
ThermoLase Corporation (ThermoLase), a majority-owned subsidiary of
ThermoTrex, has engaged the Company to design and manufacture the laser
to be used in ThermoLase's laser-based hair-removal system. During fiscal
1996 and fiscal 1995, the Company recorded $8,549,000 and $350,000,
respectively, of revenue under this agreement.
Under an arrangement with Thermedics Detection Inc., a
majority-owned subsidiary of Thermedics Inc., a majority-owned subsidiary
of Thermo Electron, the Company manufactures an X-ray source, pursuant to
written purchase orders, that is used as a component to a fill-measuring
device produced by Thermedics Detection Inc. During fiscal 1996 and
fiscal 1995, the Company recorded $361,000 and $120,000, respectively, 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 Thermo
Electron's Tecomet division (Tecomet), which will be received through
fiscal 1997. During fiscal 1996, the Company purchased grids valued at
$397,000 from Tecomet under this arrangement. In addition, the Company
recorded expense of $250,000 during each of fiscal 1996 and fiscal 1995
related to research and development funding provided to Tecomet in
connection with this project.
Research and Development Agreement
In October 1995, the Company and ThermoTrex entered into a license
agreement under which the Company may elect to fund approximately $6.0
million of ThermoTrex's research and development efforts related to
direct-detection digital imaging technology in certain medical imaging
fields. If the Company elects to fund such costs, it is required to pay
approximately $2.0 million in each of three years through fiscal 1998 and
its license will be extended to cover such fields. In fiscal 1996, the
Company recorded $1,800,000 of expense under this agreement. Prior to
this agreement, ThermoTrex provided certain research and development
contract services to the Company, which were charged to the Company based
on actual cost and usage. For these services, the Company was charged
$1,536,000, and $2,816,000 in fiscal 1995 and 1994, respectively.
F-21
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
Operating Lease
The Company leases an office and operating facility from a realty
trust controlled by an employee under a noncancelable operating lease
arrangement expiring in fiscal 2012. The accompanying statement of income
includes expenses from this operating lease of $286,000 in fiscal 1996.
Future minimum payments due under this noncancelable operating lease at
September 28, 1996, are $858,000 per year in fiscal 1997, 1998, 1999, and
2000; $897,000 in fiscal 2001; and $11,102,000 in fiscal 2002 and
thereafter. Total future minimum lease payments are $15,431,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
Subordinated Convertible Note
In September 1995, ThermoTrex acquired all of the outstanding
capital stock of Bennett for approximately $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. As of September 28, 1996, ThermoTrex had converted $34.0 million
principal amount of this note.
10. Significant Customers and Export Sales
Sales to one customer accounted for 11% of the Company's total
revenues in fiscal 1996, and sales to another customer accounted for 18%
and 11% of the Company's total revenues in fiscal 1995 and 1994,
respectively. Export sales to Germany accounted for 7%, 11%, and 3% of
the Company's total revenues in fiscal 1996, fiscal 1995, and 1994,
respectively. Other export sales accounted for 15%, 10%, and 11% of the
Company's total revenues in fiscal 1996, fiscal 1995, and 1994,
respectively. In general, export sales are denominated in U.S. dollars.
11. Contingencies
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 treated as a
F-22
PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
11. Contingencies (continued)
contribution to shareholders' investment. In addition, 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)(TM) 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.
See Note 3 for a discussion of certain additional litigation.
Due to the inherent uncertainty of dispute resolution, management
cannot predict the outcome of these matters. While an unfavorable outcome
of one or more of these matters 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.
12. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, accounts receivable, accounts payable, due to
affiliated companies, and its 4.2% subordinated convertible note due to
parent company. The carrying amounts of the Company's cash and cash
equivalents, accounts receivable, accounts payable, and due to affiliated
companies approximate fair value due to their short-term nature. The fair
value of the Company's 4.2% subordinated convertible note (Note 9),
determined based on quoted market prices, was $13,740,000 at September
28, 1996, and exceeds the carrying amount due to the market price of the
Company's common stock exceeding the conversion price of the convertible
note at year end.
F-23
PAGE
<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.
300,000 shares
TREX
Medical Corporation
Common Stock
_____________________
January 10, 1997
PROSPECTUS
---------------------
