<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THERMOQUEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3826 77-0407461
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
355 RIVER OAKS PARKWAY
SAN JOSE, CALIFORNIA 95134
(408) 577-1053
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANDRA L. LAMBERT, SECRETARY
THERMOQUEST CORPORATION
C/O THERMO ELECTRON CORPORATION
81 WYMAN STREET
P.O. BOX 9046
WALTHAM, MASSACHUSETTS 02254-9046
(617) 622-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
SETH H. HOOGASIAN, ESQUIRE
GENERAL COUNSEL
THERMOQUEST CORPORATION
C/O THERMO ELECTRON CORPORATION
81 WYMAN STREET
P.O. BOX 9046
WALTHAM, MASSACHUSETTS 02254-9046
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration
Statement has become effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... 5,833,333 $15.0625 $87,864,578 $30,299.00
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee. The calculation of the proposed maximum aggregate offering
price has been based upon (1) the registration hereunder of an aggregate of
5,833,333 shares and (2) the average of the high and low sales prices,
$15.125 and $15.00, respectively, of the Registrant's Common Stock on the
American Stock Exchange on August 9, 1996 as reported in The Wall Street
Journal.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED AUGUST 13, 1996
PROSPECTUS
5,833,333 SHARES
THERMOQUEST CORPORATION
COMMON STOCK
This Prospectus relates to the resale of 5,833,333 shares (the "Shares") of
Common Stock, par value $.01 per share (the "Common Stock"), of ThermoQuest
Corporation (the "Company") issuable upon conversion of $96,250,000 principal
amount of the Company's outstanding 5% Convertible Subordinated Debentures due
2000 (the "Debentures"). The Debentures are convertible, at the option of the
holder (a "Selling Shareholder"), at a conversion price of $16.50 per share,
subject to adjustment for certain events. The Shares may be offered 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. Such transactions may be effected by the sale of the Shares
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the sellers 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 sellers of the
Shares and any broker-dealer who acts in connection with the sale 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 commission
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 COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear all
expenses (other than underwriting discounts and selling commissions, and fees
and expenses of counsel or other advisors to the sellers of the Shares) in
connection with the registration and sale of the Shares being registered hereby.
The Company has agreed to indemnify the sellers of the Shares against certain
liabilities, including liabilities under the Securities Act as underwriter or
otherwise.
------------------------
ThermoQuest is a majority-owned subsidiary of Thermo Instrument Systems
Inc. ("Thermo Instrument"), 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 "TMQ". On August 9, 1996, the reported
closing price of the Common Stock on the American Stock Exchange was $15.00 per
share.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
The Company........................................................................... 4
Risk Factors.......................................................................... 5
Price Range of Common Stock........................................................... 7
Dividend Policy....................................................................... 7
Capitalization........................................................................ 8
Selected Financial Information........................................................ 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 10
Business.............................................................................. 14
Relationship with Thermo Electron and Thermo Instrument............................... 22
Management............................................................................ 26
Security Ownership of Certain Beneficial Owners and Management........................ 32
Selling Shareholders.................................................................. 34
Sale of Shares........................................................................ 34
Description of Capital Stock.......................................................... 35
Shares Eligible for Future Sale....................................................... 35
Legal Opinions........................................................................ 36
Experts............................................................................... 36
Additional Information................................................................ 36
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
3
<PAGE> 4
THE COMPANY
Except as otherwise indicated, all information in this Prospectus reflects
three-for-two splits of the Common Stock and of the common stock of Thermo
Electron effected on January 10, 1996 and June 5, 1996, respectively. Investors
should carefully consider the information set forth under the heading "Risk
Factors."
The Company develops, manufactures and sells mass spectrometers, liquid
chromatographs and gas chromatographs. These analytical instruments are used in
the quantitative and qualitative chemical analysis of organic and inorganic
compounds at ultra-trace levels of detection. The Company's products are used
primarily by pharmaceutical companies for drug research, testing and quality
control; by environmental laboratories for testing water, air and soil samples
for compliance with environmental regulations; by chemical companies for
research and quality control; by manufacturers for testing in certain industrial
applications, such as the manufacture of silicon chips, and for quality control;
by food and beverage companies for quality control and to test for product
contamination; and in forensic applications. Industry sources estimate that the
total annual worldwide market for the Company's mass spectrometry business is
approximately $600 million and for the Company's chromatography business is
approximately $2.0 billion.
The Company was incorporated in Delaware in June 1995 as a wholly owned
subsidiary of Thermo Instrument. After the formation of the Company, Thermo
Instrument transferred to the Company all of the assets, liabilities and
businesses of Finnigan Corporation ("Finnigan"), which conducts the mass
spectrometry and gas chromatography businesses, and Thermo Separation Products
Inc. ("TSP"), which conducts the liquid chromatography business. Finnigan was
acquired by Thermo Instrument in 1990. TSP comprises the liquid chromatography
business of the former LDC Analytical division of Milton Roy Company, acquired
by Thermo Instrument in 1989, and Spectra-Physics Analytical, acquired by Thermo
Instrument from Spectra-Physics AB in February 1993. The Company's gas
chromatography business is conducted by Finnigan's Tremetrics division, which
was acquired by Thermo Instrument from Baker Hughes Incorporated in March 1994.
Unless the context requires otherwise, references herein to the company
refer to ThermoQuest Corporation and its subsidiaries and to the predecessor
businesses as conducted by Thermo Instrument, including acquired businesses from
their dates of acquisition. As of August 9, 1996, Thermo Instrument beneficially
owned approximately 93% of the Company's outstanding Common Stock. The Company's
principal executive offices are located at 355 River Oaks Parkway, San Jose,
California 95134 and its telephone number is (408) 577-1053.
4
<PAGE> 5
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, the following factors should be carefully
considered in evaluating the Company and its business before purchasing any of
such shares.
Competition; Technological Change and Industry Acceptance. The Company
encounters, and expects to continue to encounter, intense competition in the
sale of its current and future products. Some of the Company's competitors and
potential competitors have greater resources, manufacturing and marketing
capabilities, research and development staff and production facilities than
those of the Company. No assurance can be given that the Company's competitors
will not develop products that will be superior to the Company's products. In
addition, industry acceptance of new technologies developed by the Company may
be slow to develop due to, among other things, existing regulations written
specifically for older technologies and general unfamiliarity of users with new
technologies.
Risks Associated with Intellectual Property. The Company holds many
patents relating to various aspects of its products, including a significant
patent relating to ion trap mass spectrometers. In addition, the Company
believes that proprietary technical know-how is critical to many of its
products. Proprietary rights relating to the Company's products are protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained in confidence as trade
secrets. There can be no assurance that any patents now or hereafter owned by
the Company will afford protection against competitors and, in the absence of
patent protection, the Company may be vulnerable to competitors who attempt to
copy the Company's products or gain access to its trade secrets and know-how.
Proceedings initiated by the Company to protect its proprietary rights could
result in substantial costs to the Company. There can be no assurance that
competitors of the Company will not initiate litigation to challenge the
validity of the Company's patents, or that they will not use their resources to
design comparable products that do not infringe the Company's patents. There may
also be pending or issued patents of which the Company is not aware held by
parties not affiliated with the Company that relate to the Company's products or
technologies. The Company may need to acquire licenses to, or contest the
validity of, any such patents. It is likely that significant funds would be
required to contest the validity of any such patents. There can be no assurance
that any license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
Risks Associated with Acquisition Strategy. The Company's growth strategy
is to supplement its internal growth with the acquisition of businesses and
technologies that complement or augment the Company's existing product lines.
The Company may acquire certain portions of several businesses which have been
or may in the future be acquired by Thermo Instrument. Certain of these
businesses have low levels of profitability and businesses that the Company may
seek to acquire in the future may also be marginally profitable or unprofitable.
In order for any acquired businesses to achieve the level of profitability
desired by the Company, the Company must successfully reduce expenses and
improve operations. No assurance can be given that the Company will be
successful in this regard. In addition, 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 or Thermo Instrument will
be able to complete pending or future acquisitions. In order to finance any such
acquisitions, it may be necessary for the Company to raise additional funds
either through public or private financings. Any equity or debt financing, if
available at all, may be on terms which are not favorable to the Company and may
result in dilution to the Company's shareholders. See
"Business -- Acquisitions."
Dependence on the Pharmaceutical Industry. The largest single market for
the Company's mass spectrometers and liquid chromatographs is the pharmaceutical
industry. Although the Company's existing products are not subject to regulation
by the U.S. Food and Drug Administration (the "FDA"), FDA regulations apply to
the processes and production facilities used to manufacture pharmaceutical
products. Any material change by a pharmaceutical company in its manufacturing
process or equipment could necessitate additional FDA review and approval. Such
requirements may make it more difficult for the Company to sell its products to
pharmaceutical customers that have already applied for or obtained approval for
production
5
<PAGE> 6
processes using different equipment and supplies. Any changes in the regulations
that apply to the processes and production facilities used to manufacture
pharmaceutical products may adversely affect the market for the Company's
products. In addition, from time to time as a result of industry consolidation
and other factors, the pharmaceutical industry has reduced its capital
expenditures for equipment such as that manufactured by the Company, and there
can be no assurance that further changes in the pharmaceutical industry will not
adversely affect demand for the Company's products.
Possible Adverse Effect from Changes in Environmental Regulations. One of
the largest markets for the Company's products is environmental analysis. Most
air, water and soil analysis is conducted to comply with Federal, state, local
and foreign environmental regulations. These regulations are frequently specific
as to the type of technology required for a particular analysis and the level of
detection required for that analysis. The Company develops, configures and
markets its products to meet customer needs created by existing and anticipated
environmental regulations. These regulations may be amended or eliminated in
response to new scientific evidence or political or economic considerations. Any
significant change in environmental regulations could result in a reduction in
demand for the Company's products.
Possible Adverse Impact of Significant International Operations.
International sales accounted for approximately 69% of the Company's revenues in
fiscal 1995, and the Company expects that international sales will continue to
account for a significant portion of the Company's revenues in the future. Sales
to customers in foreign countries are subject to a number of risks, including
the following: agreements may be difficult to enforce, and receivables difficult
to collect through a foreign country's legal system; foreign customers may have
longer payment cycles; and foreign countries could impose withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, embargoes or
exchange controls or adopt other restrictions on foreign trade. Additionally,
the U.S. dollar value of the Company's net sales varies with currency exchange
rate fluctuations. Significant increases in the value of the U.S. dollar
relative to certain foreign currencies could have a material adverse effect on
the Company's competitive position and results of operations.
Risks Due to Potential Earthquake Activity. Certain of the Company's
businesses are located in areas where there is a risk of potentially significant
earthquake activity. Businesses that the Company may acquire in the future may
also be located in areas where there is earthquake risk. There can be no
assurance that insurance maintained by the Company would be sufficient to cover
all losses, or that such insurance will continue to be available on reasonable
terms.
Potential Conflicts of Interest. For financial reporting purposes, the
Company's financial results are included in Thermo Instrument's and Thermo
Electron's consolidated financial statements. Certain officers of the Company
are also officers of Thermo Instrument, Thermo Electron and/or other
subsidiaries of Thermo Electron. Such officers will devote only a portion of
their working time to the affairs of the Company. The members of the Board of
Directors and officers of the Company who are also affiliated with Thermo
Instrument or Thermo Electron 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 Thermo Instrument and
Thermo Electron. In some cases the impact of such decisions could be
disadvantageous to the Company while advantageous to Thermo Instrument or Thermo
Electron. The Company is a party to various agreements with Thermo Electron that
may limit the Company's operating flexibility. See "Relationship with Thermo
Electron and Thermo Instrument."
Lack of Voting Control. The Company's shareholders do not have the right
to cumulate votes for the election of directors. Thermo Instrument, which owns
approximately 93% of the voting stock of the Company and which intends to
maintain at least a majority interest in the Company in the future, 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
shareholders. See "Relationship with Thermo Electron and Thermo Instrument."
Shares Eligible for Future Sale. The 45,000,000 shares of Common Stock
beneficially owned by Thermo Instrument will become eligible for sale under Rule
144 promulgated under the Securities Act of 1933, as amended (the "Securities
Act") commencing in June 1997. In addition, as long as Thermo Instrument is able
to elect a majority of the Company's Board of Directors, it will be able to
cause the Company at any time to register all or a portion of the Common Stock
owned by Thermo Instrument under
6
<PAGE> 7
the Securities Act at any time. As of August 9, 1996, the Company had
outstanding $96,250,000 aggregate principal amount of 5% Convertible
Subordinated Debentures due 2000 (the "Debentures"). The Debentures are
convertible at any time after the later of (a) September 18, 1996 (180 days
after the closing of the sale of shares of Common Stock in the Company's initial
public offering) or (b) the effectiveness of the registration statement under
the Securities Act covering the shares of Common Stock issuable upon conversion
of the Debentures, of which this Prospectus forms a part. The Debentures, upon
the effectiveness of such Registration Statement, will be convertible into
5,833,333 shares of Common Stock, equal to $96,250,000 divided by the conversion
price of $16.50. The Company has reserved 3,000,000 shares of Common Stock for
issuance under its stock-based compensation plans. As of August 9, 1996, options
to purchase 2,373,150 shares of Common Stock were outstanding. Additional shares
of Common Stock issuable upon exercise of options which have been or may be
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 following this offering
could adversely affect the market price of the Common Stock. See "Shares
Eligible for Future Sale" and "Relationship with Thermo Electron and Thermo
Instrument."
Lack of Dividends. The Company has never paid any cash dividends on its
Common Stock. The Board of Directors 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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been publicly traded on the American Stock
Exchange since March 19, 1996. The following table sets forth, for the periods
indicated, the high and low sales prices for the Common Stock on the American
Stock Exchange.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- -------------------------------------------------------------------------- ------- ------
<S> <C> <C>
First Quarter (March 19, 1996 through March 29, 1996)..................... $20.00 $16.25
Second Quarter............................................................ $17.875 $13.75
Third Quarter (through August 9, 1996).................................... $15.50 $13.50
</TABLE>
As of August 9, 1996, there were approximately 2,064 holders of Common
Stock including individual participants in security position listings.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock. The
Board of Directors 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.
7
<PAGE> 8
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
29, 1996, and as adjusted to give effect to the assumed conversion of the
Company's 5% Convertible Subordinated Debentures due 2000 at a conversion price
equal to $16.50 per share.
<TABLE>
<CAPTION>
JUNE 29, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Short-term Obligations:
Notes payable....................................................... $ 8,795 $ 8,795
Current maturities of long-term obligations......................... 1,442 1,442
-------- --------
$ 10,237 $ 10,237
======== ========
Long-term Obligations:
5% Convertible Subordinated Debentures due 2000..................... $ 96,250 $ --
Other............................................................... 8,813 8,813
-------- --------
105,063 8,813
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000 shares authorized;
48,450,000 shares issued and outstanding and 54,283,333 shares as
adjusted(1)...................................................... 485 543
Capital in excess of par value...................................... 261,121 357,313
Retained earnings................................................... 24,194 24,194
Cumulative translation adjustment................................... 282 282
Net unrealized gain on available-for-sale investments............... 2 2
-------- --------
Total Shareholders' Investment................................... 286,084 382,334
-------- --------
Total Capitalization (Long-term Obligations and
Shareholders' Investment)................................. $391,147 $ 391,147
======== ========
</TABLE>
- ---------------
(1) Does not include 3,000,000 shares of Common Stock reserved for issuance
under the Company's stock-based compensation plans. Options to purchase
2,373,150 shares of Common Stock were outstanding under the Company's
stock-based compensation plans as of August 9, 1996. See "Management --
Compensation of Directors" and "-- Compensation of Executive Officers" and
Notes 3, 9 and 11 of Notes to Consolidated Financial Statements.
8
<PAGE> 9
SELECTED FINANCIAL INFORMATION
The selected financial information presented below as of and for the fiscal
years ended January 1, 1994, December 31, 1994 and December 30, 1995 has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report included elsewhere in this Prospectus. This information should be
read in conjunction with the financial statements and related notes included
elsewhere in this Prospectus. The selected financial information for the fiscal
years ended December 28, 1991 and January 2, 1993 and for the six months ended
July 1, 1995 and June 29, 1996 has not been audited but, in the opinion of the
Company, includes all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly such information in accordance with
generally accepted accounting principles applied on a consistent basis. The
results of operations for the six months ended June 29, 1996 are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JULY 1, JUNE 29,
1991 1992 1993(1) 1994(2) 1995(3) 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................... $145,327 $150,423 $204,757 $223,396 $241,909 $114,234 $134,015
-------- -------- -------- -------- -------- -------- --------
Costs and Operating Expenses:
Cost of revenues................. 79,945 77,894 107,986 112,597 120,724 56,901 69,538
Selling, general and
administrative expenses........ 39,114 40,386 56,034 62,605 66,557 32,086 34,019
Research and development
expenses....................... 8,844 11,048 13,659 14,712 17,453 8,788 9,592
-------- -------- -------- -------- -------- -------- --------
127,903 129,328 177,679 189,914 204,734 97,775 113,149
-------- -------- -------- -------- -------- -------- --------
Operating Income................... 17,424 21,095 27,078 33,482 37,175 16,459 20,866
Interest Income.................... 297 444 524 343 2,715 126 3,989
Interest Expense................... (2,162) (2,034) (1,941) (1,715) (3,725) (791) (3,355)
-------- -------- -------- -------- -------- -------- --------
Income Before Provision for Income
Taxes............................ 15,559 19,505 25,661 32,110 36,165 15,794 21,500
Provision for Income Taxes......... 7,024 7,978 11,381 13,584 15,163 6,556 9,070
-------- -------- -------- -------- -------- -------- --------
Net Income......................... $ 8,535 $ 11,527 $ 14,280 $ 18,526 $ 21,002 $ 9,238 $ 12,430
======== ======== ======== ======== ======== ======== ========
Earnings per Share(4).............. $ .19 $ .26 $ .32 $ .41 $ .46 $ .20 $ .27
======== ======== ======== ======== ======== ======== ========
Weighted Average Shares(4)......... 45,187 45,187 45,187 45,187 45,187 45,187 46,903
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working Capital.................... $ 27,753 $ 25,624 $ 44,866 $ 47,955 $166,902 $ 61,640 $222,575
Total Assets....................... 217,159 206,111 297,969 306,284 428,042 314,061 488,516
Long-term Obligations.............. 20,037 17,971 12,263 11,322 106,456 10,867 105,063
Shareholders' Investment........... 131,148 123,185 201,588 211,633 227,740 221,653 286,084
</TABLE>
- ---------------
(1) Includes the results of Spectra-Physics Analytical since its acquisition by
Thermo Instrument in February 1993.
(2) Includes the results of Tremetrics since its acquisition by Thermo
Instrument in March 1994.
(3) Reflects the issuance in August 1995 of $96,250,000 principal amount of 5%
Convertible Subordinated Debentures due 2000.
(4) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for such
periods include the 45,000,000 shares issued to Thermo Instrument in
connection with the initial capitalization of the Company and the effect of
the assumed exercise of stock options issued within one year prior to the
Company's initial public offering.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company develops, manufactures and sells mass spectrometers, liquid
chromatographs and gas chromatographs. These analytical instruments are used in
the quantitative and qualitative chemical analysis of organic and inorganic
compounds at ultra-trace levels of detection. The Company's products are used
primarily by pharmaceutical companies for drug research, testing and quality
control; by environmental laboratories for testing water, air and soil samples
for compliance with environmental regulations; by chemical companies for
research and quality control; by manufacturers for testing in certain industrial
applications, such as the manufacture of silicon chips, and for quality control;
by food and beverage companies for quality control and to test for product
contamination, and in forensic applications.
The Company was incorporated in June 1995 as a wholly owned subsidiary of
Thermo Instrument. After the formation of the Company, Thermo Instrument
transferred to the Company all of the assets, liabilities and businesses of
Finnigan and TSP. The Company's strategy is to supplement its internal growth
with the acquisition of complementary products and technologies. The Company has
successfully completed several such acquisitions. Thermo Instrument acquired
Spectra-Physics Analytical, a manufacturer of liquid chromatography instruments,
in February 1993 and Tremetrics, a manufacturer of gas chromatographs, in March
1994. More recently, in January 1996, the Company acquired Extrel FTMS, Inc., a
manufacturer of fourier transform mass spectrometers, from Waters Technologies
Corporation and in June 1996, the Company acquired the Automass division of
Analytical Technology, Inc. ("ATI") from Thermo Instrument. The Automass
division of ATI is a manufacturer of mass spectrometers. In the future, the
Company will seek to acquire businesses which have strong technologies and good
reputations and presence in the markets in which they compete, but may have
relatively poor profitability because of high manufacturing and operating
expenses. To realize an attractive return on its investment in any such future
acquisitions, the Company will need to successfully reduce the expenses of any
acquired company. There can be no assurance that such businesses will be
available at prices attractive to the Company. Since the Company competes
primarily on the basis of its technology, it will also need to continually
improve the technology underlying the products of any company it acquires, as
well as the technology underlying its existing products. While obsolescence of
older products is a risk inherent in a company that periodically introduces
newer, more technologically capable products, the Company attempts to manage its
inventory levels to reduce exposure resulting from such obsolescence.
Approximately 69% of the Company's revenues originate outside the United
States. Although the Company seeks to charge its customers in the same currency
as its operating costs, the Company's financial performance and competitive
position can be affected by currency exchange rate fluctuations affecting the
relationship between the U.S. dollar and foreign currencies. Where appropriate,
the Company uses forward contracts to reduce its exposure to currency
fluctuations.
RESULTS OF OPERATIONS
First Six Months 1996 Compared With First Six Months 1995
Revenues increased 17% to $134.0 million in the first six months of 1996
from $114.2 million in the first six months of 1995 primarily as a result of an
increase of $17.1 million in revenues from the Company's existing mass
spectrometry business, the inclusion of $3.7 million in revenues due to the
acquisition of the Automass division of ATI, and the inclusion in the first
quarter of 1996 of $2.6 million in revenues from the sale of products
manufactured by third parties. The increase in revenues from the Company's
existing mass spectrometry business was primarily due to the introduction of two
new products, one in the third quarter of 1995 and another in the first quarter
of 1996. These increases were offset by a decrease of $4.7 million in revenues
due to the strengthening of the U.S. dollar in relation to the Japanese yen and
the German mark.
The gross profit margin decreased to 48.1% in the first six months of 1996
from 50.2% in the first six months of 1995. This decline is primarily due to a
shift in product mix and, to a lesser extent, the inclusion in
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the first quarter of 1996 of lower-margin sales of products manufactured by
third parties. The gross profit margin for the third-party product sales was 7%.
Selling, general and administrative expenses as a percentage of revenues
decreased to 25.4% in the first six months of 1996 from 28.1% in the first six
months of 1995 primarily due to an increase in total revenues. Research and
development expenses as a percentage of revenues decreased to 7.2% in 1996 from
7.7% in 1995 primarily due to an increase in total revenues.
Interest income increased to $4.0 million in the first six months of 1996
from $0.1 million in the first six months of 1995 primarily as a result of
interest income earned on invested proceeds from the Company's issuance of 5%
Convertible Subordinated Debentures in August 1995. Interest expense increased
to $3.4 million in 1996 from $0.8 million in 1995 primarily due to interest on
the Company's 5% Convertible Subordinated Debentures.
The effective tax rate was 42% in the first six months of 1996 and 1995.
The effective tax rate exceeded the statutory federal income tax rate primarily
due to the impact of state income taxes and the nondeductible amortization of
cost in excess of net assets of acquired companies.
The Company expects the growth of its international business to continue.
Inherent in international growth are risks such as greater difficulties in
collecting accounts receivable due to longer payment cycles and possible
difficulties enforcing agreements and legal claims in foreign jurisdictions. Tax
rates in certain foreign countries exceed that of the United States and foreign
earnings may be subject to withholding requirements or the imposition of
tariffs, exchange controls or other restrictions. In addition, currency exchange
fluctuations affecting the relationship of the U.S. dollar and foreign
currencies may adversely affect the Company's results of operations and cash
flows.
1995 Compared With 1994
Revenues were $241.9 million in 1995, compared with $223.4 million in 1994,
an increase of 8.3%. Revenues increased $11.2 million in 1995 due to the
weakness of the U.S. dollar in relation to foreign currencies, particularly the
Japanese yen and the German mark. The remaining increase in revenues was
primarily due to the introduction of a new mass spectrometer by the Company in
1995.
The gross profit margin was 50.1% in 1995, compared with 49.6% in 1994.
Selling, general and administrative expenses as a percentage of revenues
remained relatively unchanged at 27.5% in 1995, compared with 28.0% in 1994.
Research and development expenses as a percentage of revenues increased to 7.2%
in 1995 from 6.6% in 1994 primarily due to increased expenditures in connection
with a line of mass spectrometry products that was introduced in 1995.
Interest income increased to $2.7 million in 1995 from $0.3 million in 1994
as a result of interest income earned on the invested proceeds from the
Company's 5% Convertible Subordinated Debentures. Interest expense increased to
$3.7 million in 1995 from $1.7 million in 1994 primarily due to interest on the
Company's 5% Convertible Subordinated Debentures. Interest expense for both
periods includes interest on mortgage debt on the Company's San Jose, California
facility and on borrowings by the Company's foreign subsidiaries from local
banks.
The effective tax rate was 41.9% in 1995, compared with 42.3% in 1994. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes, the inability to provide a tax benefit for
losses incurred at certain of the Company's foreign operations and the
nondeductible amortization of cost in excess of net assets of acquired
companies.
1994 Compared With 1993
Revenues were $223.4 million in 1994, compared with $204.8 million in 1993,
an increase of 9.1%. Revenues increased primarily due to the inclusion of
additional revenues from Spectra-Physics Analytical, which was acquired by
Thermo Instrument in February 1993, and the inclusion of additional revenues
from Tremetrics, which was acquired by Thermo Instrument in March 1994. In
addition, revenues increased $4.5
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million in 1994 due to the weakness of the U.S. dollar in relation to foreign
currencies, particularly the Japanese yen. These increases were offset in part
by declining sales in Europe due to the European recession.
The gross profit margin improved to 49.6% in 1994 from 47.3% in 1993,
primarily due to increased sales of higher-margin mass spectrometry instruments
and, to a lesser extent, favorable currency translations as discussed above.
Selling, general and administrative expenses as a percentage of revenues
remained relatively unchanged at 28.0% in 1994, compared with 27.4% in 1993.
Research and development expenses as a percentage of revenues were 6.6% in 1994,
compared with 6.7% in 1993.
Interest expense in 1994 and 1993 primarily represents interest on mortgage
debt on the Company's San Jose, California facility and on borrowings by the
Company's foreign subsidiaries from local banks.
The effective tax rate was 42.3% in 1994, compared with 44.4% in 1993. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes, the inability to provide a tax benefit for
losses incurred at certain of the Company's foreign operations and the
nondeductible amortization of cost in excess of net assets of acquired
companies. The effective tax rate decreased in 1994 due to a reduction in income
taxed at higher rates in Germany.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $222.6 million at June 29, 1996, compared
with $166.9 million at December 30, 1995, an increase of $55.7 million. Included
in working capital are cash, cash equivalents, and available-for-sale
investments of $184.1 million at June 29, 1996, compared with $120.4 million at
December 30, 1995. Cash provided by operating activities was $26.5 million in
the first six months of 1996. Accounts receivable decreased $10.9 million in the
first six months of 1996, primarily due to improved collections at one of the
Company's foreign subsidiaries.
During the first six months of 1996, the Company expended $5.6 million for
acquisitions.
In March and April 1996, the Company sold 3,450,000 shares of its common
stock in an initial public offering at $15.00 per share for net proceeds of
approximately $47.8 million.
During the first six months of 1996, the Company expended $1.9 million for
purchases of property, plant and equipment. During the remainder of 1996, the
Company plans to expend approximately $1.3 million for property, plant and
equipment. In addition, the Company has an underfunded defined benefit pension
plan covering employees of its manufacturing subsidiary in Bremen, Germany. The
Company's policy is to fund the plan at a level within the range required by
applicable regulations. As of December 30, 1995, the unfunded liabilities for
this plan were $11.5 million. As of December 30, 1995, the Company's foreign
subsidiaries had available short-term credit facilities of $7,282,000.
Prior to June 1995, the Company's cash flows from the business were
transferred to Thermo Instrument. Following the Company's incorporation in June
1995, cash flows from the business are retained within the Company for working
capital needs and to fund growth through the acquisition of complementary
businesses as well as through research and development.
Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of cash
to pursue the acquisition of complementary businesses. In March 1996, Thermo
Instrument acquired a substantial portion of the businesses comprising the
Scientific Instruments Division of Fisons plc ("Fisons"). The Company has had
discussions with Thermo Instrument regarding the acquisition of the CE
Instruments and Mass Lab divisions of Fisons, which manufacture gas
chromatographs and benchtop quadruple mass spectrometers, respectively. The CE
Instruments and Mass Lab divisions had revenues of approximately $38 million and
$10 million, respectively, in 1995. No assurance can be given that the Company
will ultimately acquire these businesses, and the timing and terms of the
acquisitions, including price, would be subject to negotiation between the
Company and Thermo Instrument. The Company expects that it will finance
acquisitions through a combination of internal funds, additional debt or equity
financing from the capital markets, or short-term borrowings from Thermo
Instrument or Thermo
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Electron, although there is no agreement with Thermo Instrument or Thermo
Electron under which such parties are obligated to lend funds to the Company.
The Company believes that its existing resources are sufficient to meet the
capital requirements of its existing businesses for the foreseeable future.
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BUSINESS
The Company develops, manufactures and sells mass spectrometers, liquid
chromatographs and gas chromatographs. These analytical instruments are used in
the quantitative and qualitative chemical analysis of organic and inorganic
compounds at ultra-trace levels of detection. The Company's products are used
primarily by pharmaceutical companies for drug research, testing and quality
control; by environmental laboratories for testing water, air and soil samples
for compliance with environmental regulations; by chemical companies for
research and quality control; by manufacturers for testing in certain industrial
applications, such as the manufacture of silicon chips, and for quality control;
by food and beverage companies for quality control and to test for product
contamination; and in forensic applications. Industry sources estimate that the
total annual worldwide market for the Company's mass spectrometers is
approximately $600 million and for its chromatographs is approximately $2.0
billion.
The Company is a leading manufacturer of mass spectrometers and liquid
chromatographs. In addition, the Company has recently entered the market for gas
chromatographs. The Company historically has produced instruments with superior
performance and believes that it enjoys a reputation as a technology leader.
Many of the major developments in modern mass spectrometry were pioneered by the
Company, and the Company believes that its proprietary position with respect to
several of these developments affords it a competitive advantage. The ion trap
mass spectrometer, which utilizes the latest mass spectrometer technology, was
first commercialized by the Company, and the Company holds a significant patent
relating to this technology. In 1995 and the first quarter of 1996, the Company
introduced two instruments that integrate a highly sensitive yet affordable ion
trap mass spectrometer with a liquid chromatograph or a gas chromatograph to
form the industry's most powerful benchtop liquid chromatograph/mass
spectrometer (LC/MS) and gas chromatograph/mass spectrometer (GC/MS)
instruments. Customer orders indicate strong market acceptance of these
products.
The Company's strategy is to build on its position as a market and
technology leader through the continued development of superior performance
analytical instruments, the cross-selling of its various product lines among the
industries the Company serves, as well as through selective acquisitions. As
part of this strategy, the Company intends to leverage its leading market
position in mass spectrometers by selling its liquid chromatographs and gas
chromatographs with its ion trap mass spectrometer products. This strategy will
effectively introduce its chromatography products to its mass spectrometry
customers and enhance profitability by reducing the Company's need to purchase
chromatography instruments on an OEM basis from third-party vendors. The Company
also intends to pursue acquisitions of product lines and technologies,
particularly in the areas of sample preparation and automation equipment, as
well as relevant data analysis and chemical information management software.
This emphasis reflects the Company's belief that the evolution of analytical
instrumentation is increasingly toward automation and ease of use, rather than
on the production of additional raw data. By providing powerful instruments that
incorporate advanced automation and information management capabilities, the
Company believes that its instruments will become increasingly accessible to
technicians, rather than just research scientists, resulting in wider use in an
increasing number of applications. In addition, Thermo Instrument has acquired a
substantial portion of the Scientific Instruments Division of Fisons, certain
portions of which may subsequently be acquired by the Company. See
"-- Acquisitions."
MARKET
The Company sells its products to customers in a wide range of industries.
Several of the major markets in which the Company sells its products are
described below. During fiscal 1995, no single customer accounted for more than
10% of the Company's total revenues.
Pharmaceutical. The largest single market for the Company's mass
spectrometers and liquid chromatographs is the pharmaceutical industry. The
Company believes that it is one of the largest suppliers of liquid
chromatographs to the pharmaceutical industry. In the pharmaceutical industry,
these instruments are used in the identification of newly synthesized or
discovered drug candidates, to measure drugs and metabolites in clinical studies
and for quality assurance of production drugs.
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Pharmaceutical companies synthesize thousands of candidate drugs based on
computational chemistry models which try to predict pharmacological activity. In
addition, many candidate drugs are isolated from natural products. Promising
candidates must be purified and their structure must be determined. This is
frequently done by combining the separating power of chromatography with the
detection power of mass spectrometry.
At a later stage in the drug development cycle, candidate drugs may be used
in clinical trials on animals or on human subjects. There are regulatory
requirements that require that the metabolic pathways of the candidate drug and
its breakdown products be known. Dose-response curves tracking the progress
through the body over time produce hundreds to thousands of samples requiring
analysis.
Competition in the pharmaceutical industry is driven to a large extent by
the speed and efficiency with which companies are able to bring new drugs to the
market. As pharmaceutical companies spend more money on research and development
and test for an increasing number of candidate drugs, their need for sample
analysis capacity increases. In addition, the FDA is requiring that
pharmaceutical companies submit increasingly larger quantities of data in
support of applications for approval to market drugs, which creates a further
need for testing capacity.
After a drug is released and in production, quality control becomes a
critical requirement. Incoming material that is used in the production process
must be tested to ensure purity and consistency. Once manufactured, each batch
of the drug must be tested for concentration, purity and dissolution.
The Company believes that demand within the pharmaceutical industry will be
driven increasingly by the ability of analytical instrument manufacturers to
reduce the time and expense of drug development by delivering integrated,
automated, easy to use instruments at a reasonable price, thereby allowing
technicians to run more tests at a lower cost and freeing senior scientists to
perform higher levels of research. The Company believes that its products are
very attractive to pharmaceutical customers due to their high sensitivity and
advanced automation capabilities.
Environmental. A second major market for the Company's analytical
instruments is in environmental analysis. This is the largest single market for
the Company's gas chromatographs. Users for environmental applications do not
generally require the sensitivity required in the pharmaceutical industry
because they typically test only to a prescribed detection level, and often test
only for a relatively small number of compounds. This market is driven to a
great degree by Federal, state, local and foreign environmental regulations,
which provide specific methods with respect to the testing of air, water and
soil for contaminants. These test methods are frequently specific as to the type
of technology required to perform a particular test, and the specification is
generally a function of the best available technology at the time the test
method is approved by the U.S. Environmental Protection Agency ("EPA"). For
example, certain EPA test methods require GC/MS as the analytical method in
analyses for low levels of certain toxic and carcinogenic compounds in air, soil
and water samples.
Customers in the environmental market look for highly automated, high
throughput instruments with reliable detection capabilities. The Company
believes that demand in this market will be driven by the availability of
advanced automation and information management capabilities that will allow
users to reduce costs. In addition, regulatory changes that require increased
sensitivity and/or the use of new technologies will require customers to
purchase new instruments. For example, while certain current EPA test methods
are written for single quadrupole mass spectrometers, the Company believes that
the EPA will in the future approve methods for pesticide detection based on the
use of ion trap mass spectrometers.
By offering reliable, automated instruments at a reasonable price, the
Company believes that it addresses the requirements of the environmental
customer. The Company also has focused on developing relatively low-cost
instruments that detect specific substances of environmental concern, which
saves customers the cost of buying more detection capability than is required
for the particular application. The Company sells its instruments to the EPA as
well as to state and foreign environmental regulatory authorities and to private
environmental laboratories. However, no material portion of the Company's
business is subject to renegotiation of profits or termination of contracts at
the election of governmental entities.
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Industrial/Chemical. Customers that purchase analytical instruments for
industrial and chemical applications typically utilize the instruments for
quality control and to test for contaminants in substances used in a particular
manufacturing application. For example, semiconductor manufacturers require
extremely high sensitivity to test for trace process contaminants that can
destroy the functionality of a semiconductor chip. These companies require the
most sensitive mass spectrometer technology available. For more routine
applications such as quality control in the chemical industry, relatively
inexpensive liquid chromatographs provide sufficient analytical capabilities.
The Company believes that the high sensitivity of its instruments provides it
with a competitive advantage in this market.
Food and Beverage. Customers in the food and beverage industry use the
Company's products for quality control to test for contaminants. Customers in
this industry must respond both to environmental and health regulations and to
societal concerns regarding product contamination. As concerns regarding product
contamination grow, customers in this industry may be required to perform tests
using increasingly sensitive instruments.
Forensic Sciences. Analytical instruments are used in a variety of
forensic applications, including testing for illicit drug use by employees or
athletes; testing body fluids to determine causes of death; testing to determine
the identity of substances suspected to be illegal; and testing for the presence
of substances of evidentiary significance for use in criminal investigations.
Customers that purchase mass spectrometers and chromatographs for forensic uses
generally place a high value on sensitivity.
TECHNOLOGY
A mass spectrometer is an instrument in which the chemical compound to be
analyzed is broken down into electrically-charged fragments (ions), which are
then sorted according to their mass to charge ratios. All mass spectrometers
consist of a device to introduce samples, an ionization source, a mass analyzer
that separates ions according to mass ratios, a detector that converts the ions
into an electrical signal, a signal processor that amplifies the electrical
signal and a computer that organizes and displays information in a convenient
and useful manner. The resulting data creates a "fingerprint" that is then
compared to a database for identification. Mass spectrometers are the most
powerful tools for the identification and quantification of chemical substances.
A gas or liquid chromatograph is used to separate complex mixtures of chemicals
into discrete components, which can then be analyzed based on the chromatograph
results alone or can be introduced into a mass spectrometer to give additional
information and to specifically identify unknown components.
Mass Spectrometers. The development of mass spectrometry began in the
early 1900's with the use of electrostatic and magnetic fields. Magnetic sector
mass spectrometers, which employ the oldest mass spectrometer technology, are
complex, expensive instruments which are limited to specific applications and
whose results require analysis by a research scientist. In the 1960's, the
Company's predecessor commercialized the first mass spectrometers using
quadrupole technology. These instruments are used by laboratories which engage
in more routine analyses which can be interpreted by technicians rather than
scientists. In the 1980's, the Company's predecessor introduced the first ion
trap mass spectrometer, the newest generation of mass spectrometer technology.
The Company believes that, over time, the market will evolve toward the ion trap
mass spectrometer, which offers many advantages over both magnetic sector and
quadrupole instruments for certain applications. A fourth type of mass
spectrometer, utilizing matrix-assisted laser desorption/ionization
time-of-flight ("MALDI-TOF") technology, is beginning to be used in certain
specialized applications, particularly in biotechnology research. Thermo
BioAnalysis Corporation ("Thermo BioAnalysis"), a subsidiary of Thermo
Instrument, develops and sells MALDI-TOF mass spectrometers.
The oldest mass spectrometer technology, magnetic sector, uses a magnetic
field (sometimes supplemented by an electrostatic field) to separate ions.
Quadrupole mass spectrometer technology, which is currently the most widely
used, employs a combination of electric current (dc voltage) and radio frequency
(RF voltage) to separate ions. The analyzer consists of four rods arranged to
form a square array. The rods are exposed to dc voltage superimposed on RF
voltage. By controlling the ratio of RF-to-dc voltage, it is possible to select
the ions exiting the quadrupole according to their mass. Quadrupole mass
spectrometers are
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frequently combined into triple quadrupole instruments to perform multi-stage
(MS/MS) analysis, in which multiple levels of mass analysis allow the mass
spectrometer to produce more chemical information. The newest mass spectrometer
technology is the ion trap. While other types of mass spectrometers separate and
analyze a continuous stream of ions, ion trap mass spectrometers trap ions in a
confined space using an electric field, which can be adjusted to eject ions as a
function of their mass-to-charge ratio. An advantage of ion trap mass
spectrometers is that, through software upgrades, MS/MS analysis can be
performed in a single ion trap mass spectrometer, theoretically to an infinite
number of stages (MS(n)).
The Company has pioneered many of the significant developments in mass
spectrometry and holds approximately 60 U.S. patents relating to mass
spectrometry, with additional patents pending. The Company has a distinguished
record of being the first to commercialize new technologies coming from its own
laboratories as well as from an extensive worldwide network of university
collaborators. Examples include the first computerized GC/MS quadrupole system,
the first commercial chemical ionization ion source, the first commercial triple
quadrupole MS/MS system, the first commercial ion trap system and the first
commercial ion trap MS/MS system.
Liquid Chromatographs. High performance liquid chromatography (HPLC) is an
analytical technique used to separate, identify and quantify complex mixtures of
primarily organic chemicals. In HPLC, the sample is introduced into a solvent
stream that is being pumped at a high pressure through a liquid chromatography
column. The column, both through physical and chemical properties, separates the
complex mixtures into discrete bands, allowing identification. The separated
sample is then passed through a detector, which measures the sample by various
technologies, including ultraviolet and visible light absorption, changes in
refractive index, fluorescence and conductivity. The data produced by the
detector is converted to an electronic form and transmitted for display and
manipulation on a personal computer. For complex mixtures, the HPLC may be
coupled with a mass spectrometer to give additional information and specifically
identify unknown components.
Gas Chromatographs. Like HPLC, gas chromatography is an analytical
technique used to separate, identify and quantify complex mixtures of primarily
organic chemicals. While gas chromatographs are generally easier to use and have
higher resolution than liquid chromatographs, only a relatively small percentage
of compounds can be converted to gaseous form for analysis on a gas
chromatograph. In gas chromatographs, samples are introduced typically by
syringe injection and are converted into the gas phase by heating. The sample
passes through an analytical column and the various components of the sample
mixture are separated into discrete bands which are suitable for analysis by
detectors. Detectors can be assembled in various configurations to facilitate
analysis of different chemical and physical properties in a sample mixture. The
data produced by the detector is converted to electronic form and transmitted
for display and manipulation on a personal computer. For complex mixtures, where
compounds cannot be adequately separated and identified by gas chromatography,
the gas chromatograph can be coupled with a mass spectrometer to give additional
information and specifically identify unknown components.
PRODUCTS
The market for the Company's products is highly specialized as a result of
the differing needs of the industries in which they are used. For example,
certain pharmaceutical applications require the extremely high sensitivity of
magnetic sector mass spectrometers, while gas chromatographs are better suited
for more routine analysis of known compounds. The Company is actively seeking to
cross-sell its products among the various industries it serves, particularly by
adding LC or GC input devices to its mass spectrometer products.
Mass Spectrometers. The Company currently manufactures three types of mass
spectrometers:
Magnetic Sector Mass Spectrometers. Magnetic sector mass spectrometers are
generally used in high resolution applications where an accurate analysis of
molecular weight is required to determine the elemental composition of unknown
samples. The Company believes it is a world leader in magnetic sector
instruments, and that its MAT 95 and MAT 900 series of products offer
unsurpassed performance in these applications. Magnetic sector instruments are
typically purchased by universities and pharmaceutical and chemical companies
for use in research applications. The Company believes it is the world's leading
supplier of isotope
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ratio magnetic sector mass spectrometers, which are used primarily in highly
specialized geochemical and nuclear applications. The Company is exploring new
applications for these highly powerful instruments, and has recently introduced
the BreathMAT in Europe and Asia. This instrument is used to test breath samples
for the presence of bacteria that are believed to be a cause of ulcers and
gastric cancer.
Magnetic sector instruments are also used for inductively coupled
plasma/mass spectrometer (ICP/MS) analysis, which is used for ultra-high
sensitivity analysis in applications including semiconductor manufacturing. The
Company has recently introduced the ELEMENT, an ICP/MS instrument capable of
detecting elements at the parts-per-quadrillion level. Magnetic sector
instruments generally range in price from $380,000 to $600,000, depending upon
their configuration.
Quadrupole Mass Spectrometers. Single quadrupole mass spectrometers are
typically utilized in environmental and forensic laboratories, which require
dependable, routine analyses that meet applicable regulatory requirements, such
as those promulgated by the EPA. While lacking the high resolution of some types
of magnetic sector mass spectrometers, these instruments provide reliable
performance at a relatively low price. Single quadrupoles are frequently
combined to form MS/MS spectrometers for use in more complex analyses such as
molecular structure analysis. In 1981, the Company introduced the first
commercially available triple stage quadrupole, the most powerful type of
quadrupole mass spectrometer. The Company believes it is the world leader in
triple-stage quadrupole mass spectrometers. The Company's TSQ(R) 7000 (triple
stage) and SSQ(R) 7000 (single stage) products comprise a complete family of
quadrupole mass spectrometers. These single or multiple stage mass spectrometers
are highly sensitive, can be easily interfaced with chromatographs and
accommodate the full range of ionization sources. The software included in the
SSQ 7000 and TSQ 7000 spectrometers incorporates a user friendly graphical user
interface, and can direct the user through instrument set up and data
acquisition. This enables operation of the instrument by technicians with
relatively little training. In addition, these instruments can be programmed for
fully automated operation, which can allow laboratories to run samples 24 hours
a day. Prices for quadrupole mass spectrometers range from $150,000 to $250,000
for SSQ systems and from $300,000 to $500,000 for TSQ systems.
Ion Trap Mass Spectrometers. The Company developed the first commercial
ion trap, holds a significant patent relating to ion trap technology and
continues to be the leader in this market. As is frequently true with new
analytical technologies, acceptance of ion traps has been relatively slow to
develop because most of the regulations governing environmental testing have
been written to specifications requiring older quadrupole technology, and
because chemists may be unfamiliar with the technology. The Company believes
that, over time, advancements in technology and market acceptance will
eventually cause ion traps to become the mass spectrometers of choice for
certain applications, such as MS(n) applications for the pharmaceutical and
environmental industries. For other applications, quadrupole and magnetic sector
mass spectrometers have unique capabilities and will continue to be the
technology of choice for these applications.
The ability to trap and integrate the intensities of ions has made the ion
trap the most sensitive method of mass analysis for certain applications. Ion
traps are smaller, mechanically simpler and therefore easier to maintain than
other types of mass spectrometers. The Company has recently introduced ion traps
that incorporate an external ion source, such as those found in quadrupole and
magnetic sector mass spectrometers, which use sophisticated ionization
techniques to increase the specificity and detection limits of the instrument.
In addition, the Company offers software upgrades that adapt ion traps for MS/MS
use (including MS(n)). By contrast, integration with another mass spectrometer
would be required to adapt quadrupole or magnetic sector mass spectrometers for
MS/MS use.
Due to their relative mechanical simplicity and small size, ion traps are
ideally suited for coupling with chromatographs to form benchtop LC/MS and GC/MS
instruments. While GC/MS instruments have been available for years, these
instruments have not typically been easily integrated and have occupied a great
deal of laboratory space. Customers also have often needed to purchase the two
instruments from separate vendors.
Benchtop LC/MS(n) instruments were not commercially available until the
Company introduced the first such instrument in June 1995. Through significant
advancements in integration techniques and information technology, the Company
has developed the benchtop GCQ(TM) (GC/MS(n)) and LCQ(TM) (LC/MS(n))
instruments, which combine ion trap mass spectrometers with chromatographs.
These instruments are the first to
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allow users to combine GC and LC with MS(n), and offer high performance at a
competitive price for appropriate applications.
The Company believes that the availability of this level of performance in
a benchtop mass spectrometer makes these instruments the most versatile
instrument yet developed for use in many analytical applications, ranging from
trace analysis of environmental pollutants to molecular structural determination
of complex pharmaceuticals. Prices for ion traps range from $60,000 to $80,000
for a GCQ and from $150,000 to $200,000 for an LCQ, depending upon the
configuration.
Liquid Chromatographs. An HPLC system consists of a pump, which pumps a
solvent stream; an autosampler, which injects a sample into the solvent stream;
a column through which the solute is pumped at very high pressure; a detector,
which measures molecules based upon the rate at which they pass through the
column by light absorption, change in refractive index, fluorescence and/or
conductivity; and a data acquisition and control system. The type of solvent,
column and detector selected for a given analysis depends upon the type of
sample being separated and/or analyzed and the types of molecules existing
within the sample. The Company sells HPLC systems at an average price of $40,000
to $50,000, as well as individual components, including a wide range of
detectors ranging in price from $5,500 to $16,000.
The Company believes that its line of autosamplers, which range in price
from $6,500 to $17,000, offer the most advanced autosampling capabilities and
the highest sample capacity in the analytical instrument market. The Company's
patented VORTEX mixing systems offer highly automated mixing capabilities. By
integrating all aspects of the sample preparation and storage process into the
HPLC system, customers are able to reduce the manual element of the analytical
process, and thereby reduce costs, as well as save limited laboratory space.
The Company supplies a wide range of pumps, including single solvent
(isocratic) or multiple solvent (gradient) pumps, with full-flow or micro-flow
options. These pumps, which generate pressures up to 6,000 psi within a benchtop
instrument, must be durable and reliable to function effectively, particularly
in quality control applications where operation can be nearly continuous. The
Company's pumps incorporate a number of proprietary design features that
facilitate longevity and easy maintenance. Pump prices range from $4,500 for a
single solvent pump to $13,500 for a four-solvent pump.
The Company has recently introduced the TD-LC system, a new product for the
pharmaceutical industry, which automates the tablet dissolution process and
integrates that process with the process of separating and analyzing the
solution in the HPLC system. The Company believes that other opportunities exist
for products that effectively automate other discrete processes in
pharmaceutical research and development.
All of the Company's HPLC systems and components may be controlled by
automated HPLC software. This software provides single-keyboard control over one
or more systems, rapid system set-up, real-time analysis editing and customized
reporting formats. The Company believes that its software is the most powerful
software tool available in the HPLC market.
Gas Chromatographs. A basic gas chromatograph includes an oven (including
a column), an injector and a detector. The Company's primary gas chromatograph
supports up to two sample injectors, three detector mountings, and an auxiliary
oven for heating samples. The Company offers the widest array of detectors
available from a single company and also offers tandem detectors, which
incorporate two detectors into a single mounting, providing increased
identification capability. The design of the Company's gas chromatographs,
combined with the availability of a wide range of detector options, enables the
Company to offer one of the most flexible gas chromatographs available.
Selecting from the Company's 13 different detectors and three different
injectors, the customer can purchase an instrument that is customized to its
specific requirements. Prices for the Company's GC instruments range from
$12,000 to $30,000, depending upon their configuration.
The Company believes that its expertise in detector technology gives it a
competitive advantage. Due to its capabilities in this area, the Company sells
detectors not only incorporated in its own instruments but also on an OEM basis
to other manufacturers of gas chromatographs. The Company's detectors
incorporate many
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<PAGE> 20
proprietary features and some detectors, such as the ultrasonic detector, which
is the only gas chromatograph detector capable of detecting certain inert gases,
are unique to the Company. The new MicroGold(TM) detectors incorporate new
designs which improve sensitivity and reliability in a capillary column, the
most commonly used type of column.
The Company recently introduced a new temperature programmable injector,
which allows greater control over sample vaporization, which decreases thermal
breakdown of the compounds to be measured. Electronic pressure control options,
which control the rate of injection of the sample, are available on all injector
configurations.
The Company has developed a leading position in the area of volatile
organic compound analysis due to the unique capabilities of its detectors. The
Company intends to utilize its detector technology to develop new applications
for its gas chromatographs in petroleum, chemical and other environmental
markets where superior sensitivity is required.
The Company entered the gas chromatography business in 1994 with its
acquisition of Tremetrics. Prior to its acquisition by the Company, Tremetrics
had a small distribution network, which limited its ability to compete
effectively with major manufacturers of gas chromatographs. The Company's
strategy is to gain market share for gas chromatographs by leveraging its
extensive existing distribution network. The Company believes that market
familiarity with its gas chromatographs will also be enhanced by increased sales
of GCQ instruments.
ACQUISITIONS
The Company's strategy is to supplement its internal growth with the
acquisition of complementary products and technologies. The Company has
successfully completed the acquisition and integration of a number of businesses
over the past several years, including Spectra-Physics Analytical, a
manufacturer of liquid chromatography instruments, and Tremetrics, a
manufacturer of gas chromatographs. More recently, in January 1996, the Company
acquired Extrel FTMS, Inc. ("Extrel"), a manufacturer of fourier transform mass
spectrometers, from Waters Technologies Corporation and in June 1996, the
Company acquired the Automass division of Analytical Technology, Inc. from
Thermo Instrument. The Automass division is a manufacturer of mass
spectrometers. Extrel and the Automass division had revenues of approximately $3
million and $7 million, respectively, in 1995.
In March 1996, Thermo Instrument acquired a substantial portion of the
Scientific Instruments Division of Fisons. The Company has had discussions with
Thermo Instrument regarding the acquisition of the CE Instruments and Mass Lab
divisions of Fisons, which manufacture gas chromatographs and benchtop
quadrupole mass spectrometers, respectively. The CE Instruments and Mass Lab
divisions had revenues of approximately $38 million and $10 million,
respectively, in 1995. No assurance can be given that the Company will
ultimately acquire these businesses, and the timing and terms of the
acquisitions, including price, would be subject to negotiation between the
Company and Thermo Instrument.
COMPETITION
The Company competes in each of its markets primarily on technical
performance, customer service and support and, to a lesser extent, price. The
Company believes it is a leading manufacturer of mass spectrometers and liquid
chromatography instruments. The Company's key competitors in the HPLC market
include Waters Technologies, Hewlett-Packard and Dionex. The Company has
recently entered the gas chromatography market, in which the key competitors are
Hewlett-Packard, Varian, Perkin-Elmer and Shimadzu. Some of the Company's
competitors have resources substantially greater than those of the Company.
SALES AND MARKETING
The Company markets its instruments in larger international markets through
its own worldwide sales force of 190 direct salespeople (including support), and
in smaller markets through a network of dealers and
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<PAGE> 21
distributors. In addition, the Company sells certain of its liquid and gas
chromatographs pursuant to OEM arrangements under which third parties purchase
and resell the Company's products. The Company's sales force is supported
throughout the world by a customer support group which provides training,
instrument servicing and parts replacements.
BACKLOG
The Company's backlog was $63.4 million as of June 29, 1996, compared with
$65.1 million as of December 30, 1995. The Company includes in its backlog only
orders confirmed with a purchase order for products and related services
scheduled to be shipped or rendered within one year. The Company does not
believe that the level of, or changes in the level of, its backlog is
necessarily a meaningful indicator of future results of operations.
RESEARCH AND DEVELOPMENT
The Company maintains active programs for the development of new
technologies and the enhancement of existing products. Research and development
expenses for the Company were $13.7 million, $14.7 million and $17.5 million in
1993, 1994 and 1995, respectively, or 6.7%, 6.6% and 7.2%, respectively, of the
Company's revenues for such periods.
PATENTS AND LICENSES
The Company's policy is to protect its intellectual property rights,
including applying for and obtaining patents when appropriate. The Company holds
numerous patents related to its technologies, with additional patents pending.
The Company also enters into licensing agreements with other companies in which
it grants or receives rights to specific patents and technical know-how. A
patent that protects certain aspects of the Company's ion trap mass
spectrometers, which expires in 2002, is believed to provide the Company with a
competitive advantage in the market for these products. The Company has granted
Varian a non-transferable license to use the patent for GC applications, subject
to a royalty. The Company also considers technical know-how, trade secrets and
trademarks to be important to its business.
FACILITIES
The Company owns all of its manufacturing facilities, including
approximately 200,000 square feet located in San Jose, California; approximately
82,000 square feet in Austin, Texas; approximately 80,000 square feet in Riviera
Beach, Florida; and approximately 165,000 square feet in Bremen, Germany. In
addition, the Company owns sales and service facilities of approximately 28,000
square feet in Hemel Hempstead, England and approximately 8,000 square feet in
Stone, England. The Company leases office space throughout the world for its
sales and service operations. The Company believes that these facilities are
adequate for its present operations.
PERSONNEL
As of June 29, 1996, the Company had a total of 1,064 employees. To date,
the Company has been able to attract and retain the personnel required by its
business, but there can be no assurance that additional skilled personnel
necessary to successfully expand the Company's business and operations can be
recruited and retained. The Company believes that its relationship with
employees is good.
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RELATIONSHIP WITH THERMO ELECTRON
AND THERMO INSTRUMENT
The Company was organized in June 1995 as a wholly owned subsidiary of
Thermo Instrument. Thermo Instrument has contributed all of the assets,
liabilities and business of Finnigan and TSP to the Company in exchange for
45,000,000 shares of Common Stock of the Company. Thermo Electron holds $10
million principal amount of the Company's 5% Convertible Subordinated
Debentures.
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
hereinafter referred to as the "Thermo Subsidiaries.")
Thermo Instrument develops, manufactures, and markets instruments used to
identify and analyze radioactivity, complex chemical compounds, toxic metals,
and other elements in a broad range of liquids and solids, as well as to
control, monitor, image, inspect and measure various industrial processes and
life science phenomena. For its fiscal year ended December 30, 1995 and for the
six months ended June 29, 1996, Thermo Instrument had consolidated revenues of
$782,662,000 and $547,123,000, respectively, and consolidated net income of
$79,306,000 and $69,339,000, respectively.
Thermo Electron and its subsidiaries develop, manufacture and market
environmental monitoring and analysis instruments and manufacture biomedical
products including heart-assist devices and mammography systems, paper-recycling
and papermaking 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
and for the six months ended June 29, 1996, Thermo Electron had consolidated
revenues of $2,207,417,000 and $1,398,144,000, respectively, and consolidated
net income of $140,080,000 and $85,942,000, respectively.
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, has 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 stockholders
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 determining 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
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<PAGE> 23
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, can withdraw from participation in the Charter upon 30
days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement in effect between the
withdrawing company and Thermo Electron. The withdrawal from participation does
not terminate outstanding commitments to third parties made by the withdrawing
company, or by Thermo Electron or other members of the Thermo Group, prior to
the withdrawal. However, a withdrawing company is required to continue to comply
with all policies and procedures applicable to the Thermo Group and to provide
certain administrative functions mandated by Thermo Electron so long as the
withdrawing company is controlled by or affiliated with Thermo Electron.
CORPORATE SERVICES AGREEMENT
As provided in the Charter, the Company and Thermo Electron 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, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and certain financial and other services to the Company. In 1993,
1994 and 1995, Thermo Electron assessed the Company an annual fee for these
services equal to 1.25%, 1.25% and 1.20%, respectively, of the Company's
revenues. Effective fiscal 1996, the fee has been reduced to 1.0% of the
Company's revenues. The fee may be changed by mutual agreement of the Company
and Thermo Electron. During fiscal 1994 and 1995, Thermo Electron assessed the
Company $2,792,000 and $2,903,000, respectively, in fees under the Services
Agreement. Management believes that the charges under the Services Agreement are
reasonable and that the terms of the Services Agreement are representative of
the expenses the Company would have incurred on a stand-alone basis. For
additional items such as employee benefit plans, insurance coverage and other
identifiable costs, Thermo Electron charges the Company based on charges
attributable to the Company. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services Agreement terminates automatically in the
event the Company ceases to be a member of the Thermo Group or ceases to be a
participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis by
the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
TAX ALLOCATION AGREEMENT
The Tax Allocation Agreement between the Company and Thermo Electron
outlines the terms under which the Company is to be included in Thermo
Electron's consolidated Federal and state income tax returns. Under current law,
the Company will be included in such tax returns so long as Thermo Electron owns
at least 80% of the outstanding common stock of Thermo Instrument and Thermo
Instrument owns at least 80% of the outstanding Common Stock of the Company. In
years in which the Company has taxable income, it will pay to Thermo Electron
amounts comparable to the taxes it would have paid if it had filed its own
separate company tax returns. If Thermo Instrument's equity ownership of the
Company were to drop below 80%, the Company would file its own tax returns.
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<PAGE> 24
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. Thermo
Instrument has entered into a similar agreement with Thermo Electron with regard
to the Company's obligations which are guaranteed by Thermo Electron. The
Company has also entered into a Master Guarantee Reimbursement Agreement with
Thermo Instrument which provides that the Company will reimburse Thermo
Instrument for any costs it incurs in the event that Thermo Instrument is
required to pay Thermo Electron or any other party pursuant to any guarantees it
issues on the Company's behalf.
RELATED PARTY TRANSACTIONS
The Company acts as a distributor of certain of Thermo BioAnalysis'
products, is the exclusive distributor of such company's MALDI-TOF products in
Japan and is the exclusive distributor of its CE products in countries in which
TSP maintains a direct sales force. In consideration of such arrangements,
Thermo BioAnalysis sells the Company such products at discounted rates
negotiated by the parties. The Company is responsible for all installation and
warranty labor obligations at its expense. These arrangements may be terminated
on not less than three months' notice by either party given after December 31,
1996. For the six months ended June 29, 1996, Thermo BioAnalysis sold $954,000
of products to the Company under these arrangements. Prior to 1996, the Company
acted as commission-based sales agent for these products. Under this prior
arrangement, Thermo BioAnalysis paid the Company commissions of $1,260,000 in
the fiscal year ended December 30, 1995. In addition, Thermo BioAnalysis pays
the Company a finder's fee for each qualified lead that generates an order for
its MALDI-TOF products from customers in the United States and Europe.
Thermo BioAnalysis has also entered into an arrangement with the Company
whereby the Company provides assembly labor for Thermo BioAnalysis' CE products
on a contract basis. Under this arrangement, the Company assembles instruments
as required by Thermo BioAnalysis for a charge based on the sum of the Company's
actual cost of materials and the allocable portion of its labor, overhead and
other indirect expenses. For the fiscal year ended December 30, 1995 and the six
months ended June 29, 1996, Thermo BioAnalysis paid the Company approximately
$600,000 and $263,000, respectively, under this arrangement.
The Company acts as a distributor in Australia for certain products
manufactured by Thermo Environmental Instruments Inc. ("TEI"), a wholly-owned
subsidiary of Thermo Instrument, and Thermo Optek Corporation ("Thermo Optek"),
a majority-owned subsidiary of Thermo Instrument. For the fiscal year ended
December 30, 1995 and the six months ended June 29, 1996, the Company purchased
approximately $115,000 and $230,000, respectively, of TEI's products and
approximately $237,000 and $54,000, respectively, of Thermo Optek's products
under these arrangements.
Thermo Instruments (Canada) Inc. ("TI Canada"), a wholly-owned subsidiary
of Thermo Optek, acts as a distributor for certain of the Company's products in
Canada. For the fiscal year ended December 30, 1995 and the six months ended
June 29, 1996, TI Canada purchased approximately $938,000 and $1,561,000,
respectively, of the Company's products under this arrangement.
Certain of the Company's products incorporate circuit boards and other
equipment manufactured by Thermo Optek. For the fiscal year ended December 30,
1995 and the six months ended June 29, 1996, the Company purchased approximately
$4,554,000 and $3,506,000, respectively, of Thermo Optek's products under this
arrangement. In addition, Tecomet Inc. ("Tecomet"), a wholly-owned subsidiary of
Thermo Electron, manufactures certain parts for the Company's quadrupole mass
spectrometers. For the fiscal year ended December 30, 1995 and the six months
ended June 29, 1996, the Company purchased approximately $1,581,000 and
$499,000, respectively, of Tecomet's products under this arrangement.
The Company believes that the arrangements set forth above are on terms
comparable to those the Company would receive from unaffiliated parties.
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MISCELLANEOUS
The Company's cash equivalents may be 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, United States government agency
securities, money market funds, commercial paper, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement will be readily convertible into cash
by the Company and have an original maturity of three months or less. The
repurchase agreement earns a rate based on the Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter.
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MANAGEMENT
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Arvin H. Smith......................... 66 Chairman of the Board and Director
Dr. Richard W. K. Chapman.............. 51 Chief Executive Officer, President and Director
John N. Hatsopoulos.................... 62 Vice President, Chief Financial Officer and Director
Paul F. Kelleher....................... 54 Chief Accounting Officer
Philip L. Warren....................... 52 Vice President
Dr. George N. Hatsopoulos.............. 69 Director
Frank Jungers(1)....................... 68 Director
Anthony J. Pellegrino.................. 55 Director
Dr. Michael E. Porter(1)............... 48 Director
</TABLE>
- ---------------
(1) Member of the Audit and Human Resources Committees.
All of the Company's Directors are elected annually and hold office until
their respective successors are elected and qualified. Executive officers are
elected annually by the Board of Directors and serve at its discretion. Mr.
Hatsopoulos and Mr. Kelleher are full-time employees of Thermo Electron and
certain of its subsidiaries other than the Company, but devote such time to the
affairs of the Company as the Company's needs reasonably require from time to
time. Dr. Chapman is also a Vice President of Thermo Instrument, and is
responsible for certain operations within Thermo Instrument that are not related
to the Company's operations.
Arvin H. Smith has been a Director of the Company since its inception in
June 1995. Mr. Smith has been a Director and the President and Chief Executive
Officer of Thermo Instrument since 1986, and Executive Vice President of Thermo
Electron since November 1991. He was Senior Vice President of Thermo Electron
from 1986 to 1991. Mr. Smith is also a Director of Thermo Optek Corporation,
ThermoSpectra Corporation and Thermedics Inc.
Richard W.K. Chapman has been Chief Executive Officer, President and a
Director of the Company since its inception in June 1995, and served as
Marketing Manager of Finnigan from 1989 to 1992 and as President of Finnigan
from 1992 to 1995. Dr. Chapman is the Chairman of the Board of Directors of
Thermo BioAnalysis, has been a Vice President of Thermo Instrument since 1994
and a Director of Thermo Cardiosystems Inc. since March 1995.
John N. Hatsopoulos has been a Vice President, Chief Financial Officer and
a Director of the Company since its inception in June 1995. Mr. Hatsopoulos has
been a Vice President and Chief Financial Officer of Thermo Instrument since
1988, the Chief Financial Officer of Thermo Electron since 1988 and an Executive
Vice President of Thermo Electron since 1986. He is also a Director of Lehman
Brothers Funds, Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo
Instrument, Thermedics Inc., Thermo Optek Corporation, Thermo Power Corporation,
Thermo Sentron Corporation, Thermo TerraTech Inc., ThermoTrex Corporation and
Trex Medical Corporation.
Paul F. Kelleher has been the Chief Accounting Officer of the Company since
its inception in June 1995. Mr. Kelleher has been Vice President, Finance of
Thermo Electron since 1987 and served as its Controller from 1982 to January
1996. He is a Director of ThermoLase Corporation.
Philip L. Warren has been Vice President of the Company since its inception
in June 1995. He was named President of Finnigan in September 1995, and served
as Finnigan's Vice President, Field Operations from 1985 to May 1994 and as its
Vice President, General Manager from May 1994 until he was named President.
George N. Hatsopoulos has been a Director of the Company since its
inception in June 1995 and has served as President and Chief Executive Officer
of Thermo Electron since he founded that company in 1956.
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<PAGE> 27
Dr. Hatsopoulos is also a Director of Bolt, Beranek & Newman, Inc., Thermo
Ecotek Corporation, Thermo Electron, Thermo Fibertek Inc., Thermo Instrument,
Thermedics Inc., Thermo Optek Corporation, Thermo Power Corporation and
ThermoTrex Corporation. Dr. Hatsopoulos is the brother of John N. Hatsopoulos, a
Vice President, Director, and the Chief Financial Officer of the Company.
Frank Jungers was appointed a Director of the Company in January 1996. Mr.
Jungers has been a self-employed consultant on business and energy matters since
1977. In addition, he was Vice Chairman of Riedel Environmental Technologies,
Inc. from July 1989 to October 1991 and was President of that company from
January 1989 until July 1989. Mr. Jungers is also a Director of the AES
Corporation, Dual Drilling Company, Donaldson, Lufkin & Jenrette,
Georgia-Pacific Corporation, Pacific Rehabilitation and Sports Medicine, Inc.,
Star Technologies Inc., Thermo Electron and Thermo Ecotek Corporation.
Anthony J. Pellegrino has been a Director of the Corporation since its
inception in June 1995. Mr. Pellegrino is a Senior Vice President of ThermoTrex
Corporation ("ThermoTrex"), a Thermo Electron subsidiary which, among other
things, manufactures mammography and needle-biopsy systems and supplies general
x-ray equipment. He is also a Director of Trex Medical Corporation, a subsidiary
of ThermoTrex. For more than five years prior to the inception of Trex Medical
Corporation in October 1995, Mr. Pellegrino served as Chief Executive Officer
and Chairman of LORAD Corporation, a division of Trex Medical Corporation which
was previously a division of ThermoTrex. Mr. Pellegrino is also a Director of
ThermoLase Corporation.
Michael E. Porter has been a Director of the Company since November 1995.
He has been the C. Roland Christensen Professor of Business Administration at
the Harvard Business School since 1990, and has held various teaching positions
at the Harvard Business School since 1973. Dr. Porter is also a director of
Alpha-Beta Technologies Inc. and Parametric Technologies Corporation.
COMPENSATION OF DIRECTORS
Commencing January 1, 1996, Directors who are not employees of the Company,
Thermo Instrument or Thermo Electron receive an annual retainer of $4,000 and a
fee of $1,000 per day for attending meetings of the Board of Directors and $500
per day for participating in certain meetings of committees of the Board of
Directors or participating in meetings of the Board of Directors or its
committees held by means of conference telephone. Payment of Directors fees is
made quarterly. Dr. Chapman, Dr. G. Hatsopoulos, and Messrs. J. Hatsopoulos,
Pellegrino and Smith are all employees of 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 fees until he ceases to serve as a
Director, dies or retires from his 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.
Either of the following is deemed to be a change of control: (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 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 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 date of
deferral 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 75,000 shares under this plan. A
total of 430 units have been accumulated under this 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 the Common Stock to outside Directors (Directors who are not employees
of the Company or any of its affiliates) as additional compensation for their
service as Directors. The Plan provides for the grant of stock options upon a
Director's initial appointment and,
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beginning in 2000, awards options to purchase 1,000 shares annually to eligible
Directors, provided the Company's Common Stock is then publicly traded. A total
of 225,000 shares of Common Stock have been reserved for issuance under the
Plan.
Under the Plan, each eligible Director was granted an option to purchase
45,000 shares of Common Stock upon completion of the Company's initial public
offering. In addition, each new director initially joining the Board of
Directors in 1996 will be granted an option to purchase 45,000 shares of Common
Stock. The size of the award to new Directors appointed to the Board of
Directors after 1996 is reduced by 11,250 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 vest and are exercisable
upon the fourth anniversary of the grant date, unless the Common Stock
underlying the option grant is registered under Section 12 of the Securities
Exchange Act of 1934, as amended ("Section 12 Registration") prior to the fourth
anniversary of the grant date. In the event that the effective date of Section
12 Registration occurs prior to the fourth anniversary of the grant date, then
the option becomes exercisable (on the later of 90 days after Section 12
Registration or six months after the grant date) and the shares acquired upon
exercise will be 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, Thermo Electron or any
subsidiary of Thermo Electron. In such event, the restrictions and repurchase
rights shall lapse or be deemed to have lapsed in equal annual installments of
11,250 shares, starting with the first anniversary of the grant date, 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 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 stockholders of the Company to each 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 grant date of the option and prior to the
expiration of the option on the third anniversary of the grant date. 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 grant date.
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 other
principal exchange in 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 are not so traded, at the last price
paid per share by independent investors in an arms-length transaction with the
Company prior to the option grant.
As of August 9, 1996, 90,000 options to purchase Common Stock had been
granted under the Plan at an exercise price of $15.00 per share. In connection
with Dr. Porter's appointment as a Director, he was granted an option under the
Company's Equity Incentive Plan to purchase 45,000 shares of the Company's
Common Stock at an exercise price of $13.00 per share.
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 and one other executive officer for the fiscal year ended December 30,
1995. No other executive officer of the Company who held office at the end of
fiscal 1995 met the definition of "highly compensated" within the meaning of the
Securities and Exchange Commission's executive compensation disclosure rules for
this period.
28
<PAGE> 29
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 with Thermo Electron and Thermo Instrument."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
FISCAL ------------------ ------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION(2)
- --------------------------- ------ -------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard W.K. Chapman................. 1995 $159,494 $95,000 225,000(TMQ) $ 6,749
President and CEO(3)
Philip L. Warren..................... 1995 $146,931 $50,000 75,000(TMQ) $ 2,901
Vice President 1,000(TBAN)
15,000(TMO)
</TABLE>
- ---------------
(1) All options to purchase shares of the Company's Common Stock shown in the
table were granted after the end of fiscal 1995 but are included in the
table for clarity of presentation. In addition to receiving options to
purchase Common Stock (designated in the table as TMQ), Mr. Warren was
granted options to purchase shares of the common stock of Thermo Electron
(designated in the table as TMO) and Thermo BioAnalysis (designated in the
table as TBAN). Information with respect to options to purchase the common
stock of Thermo Electron reflect three-for-two stock splits effected in May
1995 and June 1996.
(2) Represents the amount of matching contributions made on behalf of the
executive officers participating in the 401(k) plan maintained by Finnigan.
(3) Dr. Chapman has been granted options to purchase shares of the common stock
of Thermo Electron and its subsidiaries other than the Company from time to
time as part of Thermo Electron's stock option program. These options are
not reported in this table as they were granted as compensation for service
in capacities other than Dr. Chapman's capacity as President and Chief
Executive Officer of the Company.
STOCK OPTIONS GRANTED DURING FISCAL 1995
The following table sets forth information concerning individual grants of
stock options made during fiscal 1995 to the Company's Chief Executive Officer
and the other named executive officer. It has not been the Company's policy in
the past to grant stock appreciation rights, and no rights were granted during
fiscal 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZED
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL RATES OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) 1995 SHARE DATE 5% 10%
- ---- ------------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard W.K.
Chapman(2)...... 225,000(TMQ) 9.8% $ 13.00 01/10/08 $2,328,750 $6,255,000
Philip L. 75,000(TMQ) 3.3% $ 13.00 01/10/08 $ 776,250 $2,085,000
Warren.......... 1,000(TBAN) 1.3%(3) $ 10.00 09/21/05 $ 6,290 $ 15,940
15,000(TMO)(4) 1.2%(3) $ 32.60 11/28/07 $ 389,100 $1,045,650
</TABLE>
- ---------------
(1) All options to purchase shares of the Common Stock of the Company
(designated in the table as TMQ) were granted after the end of fiscal 1995
but are included in the table for clarity of presentation. Options
29
<PAGE> 30
to purchase shares of the common stock of Thermo Electron (designated in the
table as TMO) and Thermo BioAnalysis (designated in the table as TBAN) were
granted in 1995 to Mr. Warren. The options to purchase shares of the Common
Stock of the Company and the common stock of Thermo Electron are immediately
exercisable while the options to purchase shares of the common stock of
Thermo BioAnalysis are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of such company's common stock
under Section 12 of the Securities Exchange Act of 1934 and (ii) nine years
after the grant date. In all cases, 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 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. For
companies whose shares are not publicly traded, the repurchase rights lapse
in their entirety on the ninth anniversary of the grant date. The granting
corporation may permit the holders of all such options to exercise options
and satisfy tax withholding obligations by surrendering shares equal in fair
market value to the exercise price or withholding obligation. Information
with respect to options to purchase the common stock of Thermo Electron
reflects three-for-two stock splits effected in May 1995 and June 1996.
(2) Dr. Chapman has been granted options to purchase shares of the common stock
of Thermo Electron and its subsidiaries other than the Company. These
options are not reported in the table as they were granted as compensation
for service in capacities other than Dr. Chapman's capacity as President and
Chief Executive Officer of the Company.
(3) These options were granted under a stock option plan maintained by Thermo
Electron and accordingly are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
(4) Options to purchase 15,000 shares of the common stock of Thermo Electron
granted to Mr. Warren are subject to the same terms as 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 optionee'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.
30
<PAGE> 31
STOCK OPTIONS EXERCISED DURING FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
The following table reports certain information regarding stock option
exercises during fiscal 1995 and outstanding stock options held at the end of
fiscal 1995 by the Company's Chief Executive Officer and the other named
executive officer. No stock appreciation rights were exercised or were
outstanding during fiscal 1995.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND
FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY EXERCISE REALIZED UNEXERCISABLE)(1) UNEXERCISABLE)
- ---- ------------------- ----------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Richard W.K. Chapman(2).... ThermoQuest -- -- 0/225,000 0/--(3)
Philip L. Warren........... ThermoQuest -- -- 0/75,000 0/--(3)
30,375/0 $417,998/0
Thermo Instrument 47,376 $718,502
0/1,000 0/--(3)
Thermo BioAnalysis -- --
21,750/0(4) $173,127/0
Thermo Electron -- --
3,375/0 $ 40,500/0
Thermo Fibertek -- --
1,000/0 $ 5,625/0
ThermoSpectra -- --
270/0 $ 12,299/0
ThermoTrex -- --
</TABLE>
- ---------------
(1) All options to purchase shares of the Common Stock of the Company were
granted after the end of fiscal 1995 but are included in the table for
clarity of presentation. All of the options reported outstanding at the end
of the fiscal year were immediately exercisable, except for options to
purchase shares of the Common Stock of the Company, which became exercisable
90 days after the effective date of the Company's initial public offering of
Common Stock, and options to purchase shares of the common stock of Thermo
BioAnalysis, which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of such company's Common Stock
under Section 12 of the Securities Exchange Act of 1934 and (ii) nine years
after the grant date. 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 companies whose shares are not
publicly traded, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date. 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. Information with respect to options to purchase the
common stock of Thermo Electron reflects three-for-two stock splits effected
in May 1995 and June 1996. Information with respect to options to purchase
the common stock of Thermo Fibertek reflects a three-for-two stock split
effected in June 1996.
(2) Dr. Chapman has been granted options to purchase shares of the common stock
of Thermo Electron and its subsidiaries other than the Company. Activity
with regard to these options is not reported in the table as they were
granted as compensation for services in capacities other than Dr. Chapman's
capacity as President and Chief Executive Officer of the Company.
(3) No public market existed for the shares underlying the options as of
December 30, 1995. Accordingly, no value in excess of exercise price has
been attributed to these options.
(4) Options to purchase 15,000 shares of the common stock of Thermo Electron
granted to Mr. Warren are subject to the same terms as 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 optionee's death or involuntary termination prior to the tenth
anniversary of the grant date, the
31
<PAGE> 32
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 1, 1996 with respect to each person who
was known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------------------ ---------- --------
<S> <C> <C>
Thermo Instrument Systems Inc.(1).............................. 45,000,000 93%
1275 Hammerwood Avenue
Sunnyvale, California 94089
</TABLE>
- ---------------
(1) 22,500,000 shares of the Common Stock owned beneficially by Thermo
Instrument are owned by each of two wholly owned subsidiaries of Thermo
Instrument. Thermo Instrument is a majority-owned subsidiary of Thermo
Electron and, therefore, Thermo Electron may be deemed to be a beneficial
owner of the shares of Common Stock beneficially owned by Thermo Instrument.
Thermo Electron disclaims beneficial ownership of these shares.
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, the common stock of Thermo Instrument and the
common stock of Thermo Electron, each as of August 1, 1996, with respect to (i)
each Director, (ii) each executive officer named in the summary compensation
table above, and (iii) all Directors and current executive officers as a group.
While certain Directors or executive officers of the Company are also
directors and executive officers of Thermo Instrument or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the shares
of Common Stock owned by Thermo Instrument.
<TABLE>
<CAPTION>
THERMOQUEST THERMO INSTRUMENT THERMO ELECTRON
NAME(1) CORPORATION(2) SYSTEMS INC.(3) CORPORATION(4)
- ------- -------------- ----------------- ---------------
<S> <C> <C> <C>
Richard W.K. Chapman.......................... 225,650 138,671 81,631
George N. Hatsopoulos......................... 90,000 143,300 3,438,607
John N. Hatsopoulos........................... 90,000 93,122 636,980
Frank Jungers................................. 45,157 52,525 245,754
Anthony J. Pellegrino......................... 91,000 0 115,875
Michael E. Porter............................. 90,273 0 1,125
Arvin H. Smith................................ 90,000 431,653 512,943
Philip L. Warren.............................. 75,000 62,571 21,748
All Directors and executive officers as a
group (9 persons)........................... 803,080 940,521 5,199,566
</TABLE>
- ---------------
(1) Shares of Common Stock and common stock of Thermo Instrument and Thermo
Electron beneficially owned include shares owned by the indicated person, by
that person's spouse, by that person and his spouse and by that person and
his spouse (or either of them) for the benefit of minor children. Except as
reflected in the footnotes to this table, all share ownership involves sole
voting and investment power.
(2) Shares of the Common Stock beneficially owned by each Director and executive
officer and by all Directors and executive officers as a group exclude
45,000,000 shares beneficially owned by Thermo
32
<PAGE> 33
Instrument, as to which shares each Director and executive officer and all
members of such group disclaim beneficial ownership. Shares of the Common
Stock beneficially owned by Dr. Chapman, Dr. Hatsopoulos, Mr. Hatsopoulos,
Mr. Jungers, Mr. Pellegrino, Mr. Porter, Mr. Smith, Mr. Warren and all
Directors and executive officers as a group include 225,000, 90,000, 90,000,
45,000, 90,000, 90,000, 90,000, 75,000 and 795,000 shares, respectively,
that such person or group has the right to acquire with 60 days of August 1,
1996 through the exercise of stock options. Shares beneficially owned by Mr.
Jungers, Dr. Porter and all Directors and executive officers as a group
include 157, 273 and 430 shares, respectively, allocated through August 1,
1996 to their respective accounts maintained under the Company's Deferred
Compensation Plan for its Directors. No Director or executive officer
beneficially owned more than 1% of the Common Stock outstanding as of such
date, and all Directors and executive officers as a group beneficially owned
1.6% of the Common Stock outstanding as of such date.
(3) The shares of common stock of Thermo Instrument have been adjusted to
reflect a three-for-two stock split effected on April 14, 1995 and a
five-for-four stock split effected on December 29, 1995. Shares of the
common stock of Thermo Instrument beneficially owned by Dr. Chapman, Dr.
Hatsopoulos, Mr. Hatsopoulos, Mr. Jungers, Mr. Smith, Mr. Warren and all
Directors and executive officers as a group include 121,287, 93,750, 83,750,
13,809, 234,375, 30,375 and 577,346 shares, respectively, that such person
or group has the right to acquire within 60 days of August 1, 1996, through
the exercise of stock options. Shares beneficially owned by Dr. Hatsopoulos,
Mr. Hatsopoulos, Mr. Smith and all Directors and executive officers as a
group include 515, 515, 516 and 1,929 full shares, respectively, allocated
through July 1, 1996 to their respective accounts maintained pursuant to
Thermo Electron's employee stock ownership plan ("ESOP"). Shares
beneficially owned by Mr. Jungers and all Directors and executive officers
as a group include 12,157 shares allocated through August 1, 1996, to Mr.
Jungers' account maintained under Thermo Instrument's Deferred Compensation
Plan for its directors. Shares beneficially owned by Dr. Hatsopoulos include
21,368 shares held by Dr. Hatsopoulos' spouse. Shares beneficially owned by
Mr. Jungers include 543 shares held by Mr. Jungers' spouse. No Director or
executive officer beneficially owned more than 1% of the common stock of
Thermo Instrument outstanding as of August 1, 1996; all Directors and
executive officers as a group beneficially owned less than 1% of such common
stock outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to reflect
three-for-two stock splits effected on May 25, 1995 and June 5, 1996. Shares
of the common stock of Thermo Electron beneficially owned by Dr. Chapman,
Dr. Hatsopoulos, Mr. Hatsopoulos, Mr. Jungers, Mr. Pellegrino, Mr. Smith,
Mr. Warren and all Directors and executive officers as a group include
80,284, 1,399,500, 349,935, 9,375, 115,875, 222,411, 21,748 and 2,199,128
shares, respectively, that such person or group has the right to acquire
within 60 days of August 1, 1996, through the exercise of stock options.
Shares beneficially owned by Dr. Hatsopoulos, Mr. Hatsopoulos, Mr. Smith and
all Directors and executive officers as a group include 2,222, 1,838, 1,622
and 6,910 full shares, respectively, allocated through July 1, 1996 to their
respective accounts maintained pursuant to Thermo Electron's ESOP. Shares
beneficially owned by Mr. Jungers and all Directors and executive officers
as a group include 80,427 shares allocated through August 1, 1996, to Mr.
Jungers' account maintained under Thermo Electron's Deferred Compensation
Plan for its directors. Shares beneficially owned by Dr. Hatsopoulos include
89,601 shares held by Dr. Hatsopoulos' spouse, 168,750 shares held by a QTIP
trust (the "Hatsopoulos QTIP Trust") of which Dr. Hatsopoulos' spouse is a
trustee, 1,304 shares held by trusts of which Dr. Hatsopoulos and his spouse
are the trustees and 39,937 shares held by a family trust of which Dr.
Hatsopoulos' spouse is a trustee. Shares beneficially owned by Mr.
Hatsopoulos include 168,750 shares held by the Hatsopoulos QTIP Trust of
which Mr. Hatsopoulos is a trustee. Shares beneficially owned by Mr. Jungers
include 91,827 shares held by a trust for Mr. Jungers and 4,500 shares held
by Mr. Jungers' spouse. Dr. Hatsopoulos beneficially owned approximately
2.4% of the common stock of Thermo Electron outstanding as of August 1,
1996; no other Director or executive officer beneficially owned more than 1%
of such common stock as of such date. All Directors and executive officers
as a group beneficially owned approximately 3.6% of the common stock of
Thermo Electron outstanding as of August 1, 1996.
33
<PAGE> 34
SELLING SHAREHOLDERS
The Selling Shareholders currently hold Debentures convertible into the
Shares which are the subject of this Prospectus. It is unknown if, when or in
what amounts a Selling Shareholder may offer Shares for sale and the names of
the Selling Shareholders who may sell the Shares. There is no assurance that the
Selling Shareholders will sell any or all of the Shares offered hereby.
Because the Selling Shareholders may offer all or some of the Shares
pursuant to the offering contemplated by this Prospectus, and because there are
currently no agreements, arrangements or understandings with respect to the sale
of any of the Shares that will be held by the Selling Shareholders after
completion of this offering, no estimate can be given as to the amount of the
Shares that will be held by the Selling Shareholders after completion of this
offering.
Other than as a result of the ownership of the Debentures, to the best of
the Company's knowledge, none of the Selling Shareholders other than Thermo
Electron had any material relationship with the Company within the three year
period ending on the date of this Prospectus.
SALE OF SHARES
The Company will not receive any of the proceeds from this offering. The
Shares offered hereby may be sold from time to time by or for the account of any
of the Selling Shareholders or by their pledgees, donees, distributees or
transferees or other successors in interest to the Selling Shareholders. The
Shares may be sold hereunder directly to purchasers by the Selling Shareholders
in negotiated transactions; by or through brokers or dealers in ordinary
brokerage transactions or transactions in which the broker solicits purchasers;
block trades in which the broker or dealer will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal;
transactions in which are broker or dealer purchases as principal for resale for
its own account; or through underwriters or agents. The Shares may be sold at a
fixed offering price, which may be changed, at the prevailing market price at
the time of sale, at prices related to such prevailing market price or at
negotiated prices. Any brokers, dealers, underwriters or agents may arrange for
others to participate in any such transaction and may receive compensation in
the form of discounts, commissions or concessions from the Selling Shareholders
and/or the purchasers of the Shares. Each Selling Shareholder will be
responsible for payment of any and all commissions to brokers.
The aggregate proceeds to any Selling Shareholder from the sale of the
Shares offered by a Selling Shareholder hereby will be the purchase price of
such Shares less any broker's commissions.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdiction only through registered
or licensed brokers or dealers. In addition, in certain states the Shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Any Selling Shareholder and any broker-dealer, agent or underwriter that
participates with the Selling Shareholder in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares offered hereby may not simultaneously
engage in market making activities with respect to the Shares for a period of
two business days prior to the commencement of such distribution. In addition,
and without limiting the foregoing, each Selling Shareholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of the Shares by
the Selling Shareholder.
There is no assurance that any Selling Shareholder will sell any or all of
the Shares described herein and may transfer, devise or gift such securities by
other means not described herein.
34
<PAGE> 35
The Company is permitted to suspend the use of this Prospectus in
connection with sales of the Shares by holders during certain periods of time
under certain circumstances relating to pending corporate developments and
public filings with the Commission and similar events. Expenses of preparing and
filing the registration statement and all post-effective amendments will be
borne by the Company.
DESCRIPTION OF CAPITAL STOCK
As of August 1, 1996 the Company had 100,000,000 shares of Common Stock
authorized for issuance, of which 48,450,000 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
stockholders. Dividends may be paid to the holders of Common Stock when and if
declared by the Board of Directors out of funds legally available therefore.
Holders of Common Stock have no preemptive 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, which means
that 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. Thermo Instrument beneficially owns
45,000,000 shares of Common Stock, which represents approximately 93% of the
outstanding Common Stock and has the power to elect all of the members of the
Company's Board of Directors.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of Directors. The provisions eliminate a Director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts or omissions, which involve intentional misconduct or a
knowing violation of law. The Company's Certificate of Incorporation 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 48,450,000 shares of Common Stock outstanding of which
3,450,000 are freely tradeable 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 promulgated under the Securities Act.
The remaining 45,000,000 shares are beneficially owned by Thermo
Instrument. In connection with the Company's initial public offering which was
completed on March 22, 1996, Thermo Instrument has agreed that it will not
offer, sell, or grant any option to purchase or otherwise dispose of any shares
of the Common Stock (except for the grant of options and the sale of shares of
Common Stock pursuant to existing stock-based compensation plans) before
September 13, 1996, without the prior consent of the underwriters of such
offering. Upon expiration of this lock-up agreement, Thermo Instrument may sell
its shares of Common Stock in an offering registered under the Securities Act or
pursuant to an exemption from such registration. So long as Thermo Instrument 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 Thermo Instrument 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 person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years 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 or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date of the notice filed
pursuant to Rule 144. Sales under Rule 144 are also subject to certain
35
<PAGE> 36
manner of sale restrictions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is
deemed an "affiliate" of the Company must comply with Rule 144 in any sale of
shares of Common Stock not covered by a registration statement (except, in the
case of registered shares acquired by the affiliate on the open market, for the
holding period requirement). A person (or person whose shares are aggregated)
who is not deemed an "affiliate" of the Company and who has beneficially owned
restricted shares for at least three years is entitled to sell such shares under
Rule 144(k) without regard to the volume, notice and other limitations of Rule
144. In meeting the two and three year holding periods described above, a holder
of restricted shares can include the holding periods of a prior owner who was
not an affiliate. In June 1995, the Securities and Exchange Commission proposed
certain amendments to Rule 144 which, if adopted, would reduce the holding
periods described above. To date, the Commission has not taken any further
action with regard to this proposal.
As of August 9, 1996, the Company had options outstanding to purchase up to
2,373,150 shares of Common Stock to its employees and Directors at a weighted
average exercise price of $13.11 per share. Such options are currently
exercisable, subject to repurchase at the exercise price if the optionee ceases
to be employed by the Company. As of August 9, 1996, the repurchase right had
not lapsed with respect to any shares issuable upon exercise of outstanding
options. In addition, the Company has reserved 626,850 shares for future grant
under its existing stock-based compensation plans. The Company has filed
registration statements under the Securities Act to register all shares of
Common Stock issuable under such plans.
As of August 9, 1996, the Company had outstanding $96,250,000 in aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000 (the
"Debentures"). The Debentures will be convertible at any time after the later of
(a) September 18, 1996 (180 days after the closing of the sale of shares of
Common Stock in the Company's initial public offering) or (b) the effectiveness
of the Registration Statement of which this Prospectus forms a part. The
Debentures will be convertible into the shares of Common Stock being registered
hereby. Shares issuable upon conversion of the Debentures will be eligible for
sale in the public market after the effectiveness of such Registration
Statement.
LEGAL OPINIONS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of
Thermo Electron, Thermo Instrument and the Company. Mr. Hoogasian is a full-time
employee of Thermo Electron and owns or has the right to acquire 6,000 shares of
Common Stock, 16,738 shares of common stock of Thermo Instrument and 115,928
shares of common stock of Thermo Electron.
EXPERTS
The financial statements of the Company included in this Prospectus and the
financial statement schedules 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 reports of said firm and the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended, with respect to the securities offered hereby. This Prospectus
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. For further information, reference is made to the
Registration Statement, copies of which may be obtained upon payment of the fees
prescribed by the Commission from the Public Reference Section of the
Commission, 450 Fifth Street, N.W.,
36
<PAGE> 37
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, New York, New York 10048 and at 500 West Madison Street, Chicago,
Illinois 60661.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048 and at 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
at prescribed rates. The Commission also maintains a Web site at
(http:/www.sec.gov). The Common Stock of the Company is listed on the American
Stock Exchange, and the reports, proxy statements and other information filed by
the Company with the Commission can be inspected at the office of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006.
37
<PAGE> 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Statement of Income for the years ended January 1, 1994, December 31,
1994 and December 30, 1995 and for the six months ended July 1, 1995 and June 29,
1996................................................................................ F-3
Consolidated Balance Sheet as of December 31, 1994, December 30, 1995 and June 29,
1996................................................................................ F-4
Consolidated Statement of Cash Flows for the years ended January 1, 1994, December 31,
1994 and December 30, 1995 and for the six months ended July 1, 1995 and June 29,
1996................................................................................ F-5
Consolidated Statement of Shareholders' Investment for the years ended January 1,
1994, December 31, 1994 and December 30, 1995 and for the six months ended June 29,
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ThermoQuest Corporation:
We have audited the accompanying consolidated balance sheets of ThermoQuest
Corporation (a Delaware corporation and 93%-owned subsidiary of Thermo
Instrument Systems Inc.) and subsidiaries as of December 31, 1994 and December
30, 1995, and the related consolidated statements of income, cash flows and
shareholder's investment for each of the three years in the period ended
December 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 ThermoQuest
Corporation and subsidiaries as of December 31, 1994 and December 30, 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 30, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 7, 1996 (except with respect to
certain matters discussed in Note 11, as
to which the date is June 13, 1996)
F-2
<PAGE> 40
THERMOQUEST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 1, JUNE 29,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 10).................. $204,757 $223,396 $241,909 $114,234 $134,015
-------- -------- -------- -------- --------
Costs and Operating Expenses:
Cost of revenues.................. 107,986 112,597 120,724 56,901 69,538
Selling, general and
administrative expenses
(includes $2,559, $2,792,
$2,903, $1,371 and $1,340 to
related party)(Note 8)......... 56,034 62,605 66,557 32,086 34,019
Research and development
expenses....................... 13,659 14,712 17,453 8,788 9,592
-------- -------- -------- -------- --------
177,679 189,914 204,734 97,775 113,149
-------- -------- -------- -------- --------
Operating Income.................... 27,078 33,482 37,175 16,459 20,866
Interest Income..................... 524 343 2,715 126 3,989
Interest Expense.................... (1,941) (1,715) (3,725) (791) (3,355)
-------- -------- -------- -------- --------
Income Before Provision for
Income Taxes...................... 25,661 32,110 36,165 15,794 21,500
Provision for Income Taxes (Note
6)................................ 11,381 13,584 15,163 6,556 9,070
-------- -------- -------- -------- --------
Net Income.......................... $ 14,280 $ 18,526 $ 21,002 $ 9,238 $ 12,430
======== ======== ======== ======== ========
Earnings per Share.................. $ .32 $ .41 $ .46 $ .20 $ .27
======== ======== ======== ======== ========
Weighted Average Shares............. 45,187 45,187 45,187 45,187 46,903
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 41
THERMOQUEST CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC. 31, DEC. 30, JUNE 29,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................................. $ 13,050 $120,354 $ 182,316
Available-for-sale investments, at quoted market value (amortized
cost of $1,749).................................................... -- -- 1,752
Accounts receivable, less allowances of $2,366, $2,341 and $2,443..... 52,592 65,729 56,455
Inventories:
Raw materials and supplies......................................... 17,091 17,970 20,887
Work in process and finished goods................................. 21,374 29,050 30,449
Prepaid expenses...................................................... 1,049 1,258 2,055
Prepaid income taxes (Note 6)......................................... 9,928 8,695 8,503
-------- -------- --------
115,084 243,056 302,417
-------- -------- --------
Property, Plant and Equipment, at Cost, Net............................. 44,798 43,531 42,546
-------- -------- --------
Patents and Other Assets................................................ 4,705 5,627 4,979
-------- -------- --------
Cost in Excess of Net Assets of Acquired Companies (Notes 2 and 11)..... 141,697 135,828 138,574
-------- -------- --------
$306,284 $428,042 $488,516
======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term
obligations (Note 0) .............................................. $ 5,459 $ 11,755 $10,237
Accounts payable...................................................... 11,704 13,144 12,790
Accrued payroll and employee benefits................................. 15,457 10,533 9,872
Accrued installation and warranty expenses............................ 7,069 7,079 7,628
Deferred revenue...................................................... 8,258 8,417 8,730
Customer deposits..................................................... 6,607 6,403 6,490
Accrued income taxes.................................................. 3,053 4,118 9,245
Other accrued expenses................................................ 8,285 12,077 11,120
Due to parent company................................................. 1,237 2,628 3,730
-------- -------- --------
67,129 76,154 79,842
-------- -------- --------
Deferred Income Taxes (Note 6).......................................... 5,812 5,767 5,767
-------- -------- --------
Accrued Pension and Other Deferred Items (Note 5)....................... 10,388 11,925 11,760
-------- -------- --------
Long-term Obligations (Note 9).......................................... 11,322 106,456 105,063
-------- -------- --------
Commitments (Note 7)
Shareholders' Investment (Notes 3, 4 and 11):
Net parent company investment......................................... 210,180 -- --
Common stock, $.01 par value, 100,000,000 shares authorized;
45,000,000 and 48,450,000 shares issued and outstanding............ -- 450 485
Capital in excess of par value........................................ -- 213,378 261,121
Retained earnings..................................................... -- 11,764 24,194
Cumulative translation adjustment..................................... 1,453 2,148 282
Net unrealized gain on available-for-sale investments................. -- -- 2
-------- -------- --------
211,633 227,740 286,084
-------- -------- --------
$306,284 $428,042 $488,516
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 42
THERMOQUEST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JULY 1, JUNE 29,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................... $ 14,280 $ 18,526 $ 21,002 $ 9,238 $ 12,430
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.............................. 8,049 8,390 8,397 4,208 3,808
Provision for losses on accounts receivable................ 395 (265) 213 12 29
Other noncash expenses..................................... 1,170 1,085 1,192 492 722
Increase (decrease) in deferred income taxes............... 125 (181) (45) -- --
Changes in current accounts, excluding the effects of
acquisitions:
Accounts receivable..................................... (14,144) 4,220 (13,135) 3,606 10,946
Inventories............................................. 902 1,596 (7,523) (2,600) (2,510)
Other current assets.................................... 3,537 3,512 1,027 (372) (359)
Accounts payable........................................ 1,048 696 2,649 (356) (2,350)
Other current liabilities............................... (6,692) (8,250) 782 (5,867) 3,223
Other...................................................... 1,801 1,252 1,532 703 597
-------- -------- -------- -------- --------
Net cash provided by operating activities............... 10,471 30,581 16,091 9,064 26,536
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 11)................... -- -- -- -- (5,643)
Purchases of available-for-sale investments.................... -- -- -- -- (1,650)
Purchases of property, plant and equipment..................... (3,011) (2,260) (2,761) (1,055) (1,908)
Other.......................................................... (88) 287 (73) 237 54
-------- -------- -------- -------- --------
Net cash used in investing activities................... (3,099) (1,973) (2,834) (818) (9,147)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of Company common stock (Note 11)... -- -- -- -- 47,778
Increase (decrease) in short-term obligations.................. 76 (2,724) 5,927 (908) (2,320)
Net proceeds from issuance of subordinated convertible
debentures (Note 9).......................................... -- -- 93,912 -- --
Repayment of long-term obligations............................. (1,330) (681) (1,135) (409) (416)
Net transfer to parent company................................. (2,388) (25,486) (5,590) (4,086) --
Other.......................................................... 24 -- 281 -- (95)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities..... (3,618) (28,891) 93,395 (5,403) 44,947
-------- -------- -------- -------- --------
Exchange Rate Effect on Cash..................................... (787) 1,131 652 1,653 (374)
-------- -------- -------- -------- --------
Increase in Cash and Cash Equivalents............................ 2,967 848 107,304 4,496 61,962
Cash and Cash Equivalents at Beginning of Period................. 9,235 12,202 13,050 13,050 120,354
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Period....................... $ 12,202 $ 13,050 $120,354 $ 17,546 $182,316
======== ======== ======== ======== ========
CASH PAID FOR:
Interest....................................................... $ 1,941 $ 1,715 $ 1,701 $ 791 $ 3,282
======== ======== ======== ======== ========
Income taxes................................................... $ 370 $ 5,003 $ 6,826 $ 2,426 $ 3,975
======== ======== ======== ======== ========
NONCASH ACTIVITIES:
Fair value of assets of acquired companies..................... $ -- $ -- $ -- $ -- $ 11,553
Cash paid for acquired companies............................... -- -- -- -- (5,852)
-------- -------- -------- -------- --------
Liabilities assumed of acquired companies.................... $ -- $ -- $ -- $ -- $ 5,701
======== ======== ======== ======== ========
Transfer of acquired businesses from parent company (Note 2)... $ 67,310 $ 13,492 $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 43
THERMOQUEST CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
CAPITAL GAIN ON
NET PARENT COMMON IN CUMULATIVE AVAILABLE-
COMPANY STOCK, $.01 EXCESS OF RETAINED TRANSLATION FOR-SALE
INVESTMENT PAR VALUE PAR VALUE EARNINGS ADJUSTMENT INVESTMENTS
---------- ----------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 2, 1993.......... $ 124,446 $ -- $ -- $ -- $ (1,261) $--
Net income....................... 14,280 -- -- -- -- --
Transfer of acquired business
from parent company (Note 2)... 67,310 -- -- -- -- --
Net transfer to parent company... (2,388) -- -- -- -- --
Translation adjustment........... -- -- -- -- (799) --
--------- ---- -------- ------- ------- ---
BALANCE JANUARY 1, 1994.......... 203,648 -- -- -- (2,060) --
Net income....................... 18,526 -- -- -- -- --
Transfer of acquired business
from parent company (Note 2)... 13,492 -- -- -- -- --
Net transfer to parent company... (25,486) -- -- -- -- --
Translation adjustment........... -- -- -- -- 3,513 --
--------- ---- -------- ------- ------- ---
BALANCE DECEMBER 31, 1994........ 210,180 -- -- -- 1,453 --
Net income prior to
capitalization of Company...... 9,238 -- -- -- -- --
Net transfer to parent company... (5,590) -- -- -- -- --
Capitalization of Company........ (213,828) 300 213,528 -- -- --
Net income after capitalization
of Company..................... -- -- -- 11,764 -- --
Effect of three-for-two stock
split.......................... -- 150 (150) -- -- --
Translation adjustment........... -- -- -- -- 695 --
--------- ---- -------- ------- ------- ---
BALANCE DECEMBER 30, 1995........ -- 450 213,378 11,764 2,148 --
(UNAUDITED)
Net income....................... -- -- -- 12,430 -- --
Net proceeds from initial public
offering of Company common
stock (Note 11)................ -- 35 47,743 -- -- --
Net unrealized gain on
available-for-sale
investments.................... -- -- -- -- -- 2
Translation adjustment........... -- -- -- -- (1,866) --
--------- ---- -------- ------- ------- ---
BALANCE JUNE 29, 1996............ $ -- $ 485 $ 261,121 $ 24,194 $ 282 $ 2
========= ==== ======== ======= ======= ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 44
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
ThermoQuest Corporation (the "Company") develops, manufactures and sells
mass spectrometers, liquid chromatographs and gas chromatographs. The Company's
products are used primarily by pharmaceutical, chemical and food and beverage
companies; environmental laboratories; and in industrial and forensic
applications.
Relationship with Thermo Instrument Systems Inc.
The Company was incorporated in June 1995 as a wholly owned subsidiary of
Thermo Instrument Systems Inc. ("Thermo Instrument") at which time Thermo
Instrument transferred to the Company the assets, liabilities and businesses of
Finnigan Corporation ("Finnigan") and Thermo Separation Products Inc. ("TSP") in
exchange for 45,000,000 shares of the Company's common stock. As of December 30,
1995, Thermo Instrument was an 86%-owned subsidiary of Thermo Electron
Corporation ("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income and expenses of the Company as included in Thermo Instrument's
consolidated financial statements. The accompanying financial statements do not
include Thermo Instrument's general corporate debt, which is used to finance
operations of all of its respective business segments, or an allocation of
Thermo Instrument's interest expense. The Company has had positive cash flows
since 1992.
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
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1993, 1994 and 1995 are for the fiscal years ended January 1,
1994, December 31, 1994 and December 30, 1995, respectively.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty and installation costs at the
time of shipment. Deferred revenue in the accompanying balance sheets consists
primarily of unearned revenue on service contracts at Finnigan and TSP.
Substantially all of the deferred revenue included in the accompanying 1995
balance sheet will be recognized within one year.
Income Taxes
The Company and Thermo Instrument have a tax allocation agreement under
which both the Company and Thermo Instrument are included in Thermo Electron's
consolidated federal and certain state income tax returns. The agreement
provides that in years in which the Company has taxable income, it will pay to
Thermo Electron amounts comparable to the taxes the Company would have paid if
it had filed separate tax returns. If Thermo Instrument's equity ownership of
the Company were to drop below 80%, the Company would be required to 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,
F-7
<PAGE> 45
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for such
periods include the 45,000,000 shares issued to Thermo Instrument in connection
with the initial capitalization of the Company and the effect of the assumed
exercise of stock options issued within one year prior to the Company's initial
public offering.
Cash and Cash Equivalents
Prior to its incorporation, the cash receipts and disbursements of the
Company's domestic operations were combined with other Thermo Instrument
corporate cash transactions and balances. Therefore, cash of the Company's
domestic operations is not included in the accompanying 1994 balance sheet.
As of December 30, 1995, $96,737,000 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 U.S.
government agency securities, corporate notes, commercial paper, money market
funds 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 and have an original maturity of three
months or less. The repurchase agreement earns a rate based on the Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each quarter.
As of December 30, 1995, the Company's cash equivalents also include investments
in commercial paper and short-term certificates of deposit of the Company's
foreign operations, which have an original maturity of three months or less.
Cash equivalents are carried at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor and
manufacturing overhead.
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 using the straight-line method over the estimated
useful lives of the property as follows: buildings and improvements, 5 to 40
years; machinery and equipment, 3 to 10 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset.
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $13,269 $13,463
Buildings........................................................ 26,357 27,414
Machinery, equipment and leasehold improvements.................. 20,294 19,788
------- -------
59,920 60,665
Less: Accumulated depreciation and amortization.................. 15,122 17,134
------- -------
$44,798 $43,531
======= =======
</TABLE>
F-8
<PAGE> 46
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Patents and Other Assets
Patents and other assets in the accompanying balance sheets include the
costs of acquired patents that are amortized using the straight-line method over
an estimated useful life of 12 years. These assets were $3,325,000 and
$2,547,000, net of accumulated amortization of $4,876,000 and $5,669,000, at
year-end 1994 and 1995, respectively. Patents and other assets in the
accompanying balance sheets also include deferred debt costs of $231,000 and
$2,348,000, net of accumulated amortization of $149,000 and $370,000, at
year-end 1994 and 1995, respectively. These costs are being amortized through
the maturities of the related debt. The debt matures in 2000 and 2004.
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 $12,555,000 and $16,524,000 at year-end 1994 and 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 companies in assessing the recoverability of this asset.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as a
separate component of shareholders' investment titled "Cumulative translation
adjustment." Foreign currency transaction gains and losses are included in the
accompanying statement of income and are not material for the three years
presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Split
On January 10, 1996, the Company declared a three-for-two stock split in
the form of a 50% stock dividend distributed to the shareholder of record as of
January 10, 1996. All share and per share information has been restated to
reflect the stock split.
Interim Financial Statements
The financial statements as of June 29, 1996 and for the six-month periods
ended July 1, 1995 and June 29, 1996 are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of results for these interim periods. The results of
operations for the six-month period ended June 29, 1996 are not necessarily
indicative of the results to be expected for the entire year.
F-9
<PAGE> 47
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
In February 1993, Thermo Instrument acquired Spectra-Physics Analytical, a
manufacturer of liquid chromatography and capillary electrophoresis analytical
instruments. Spectra-Physics Analytical was merged with LDC Analytical Inc. in
December 1993 to form Thermo Separation Products Inc.
In March 1994, Thermo Instrument acquired substantially all of the assets,
subject to certain liabilities, of Tremetrics Inc. ("Tremetrics") as part of its
acquisition of several businesses within the EnviroTech Measurements & Controls
Group of Baker Hughes Incorporated. Tremetrics is a manufacturer of gas
chromatographs. The assets of Tremetrics were transferred by Thermo Instrument
to Finnigan in March 1994. In connection with the Company's incorporation in
June 1995, Thermo Instrument contributed the assets, liabilities and businesses
of Spectra-Physics Analytical and Tremetrics to the Company.
These acquisitions have been accounted for using the purchase method of
accounting, and the results of their operations have been included in the
accompanying financial statements from the respective dates of acquisition. The
aggregate cost of these acquisitions exceeded the estimated fair value of the
acquired net assets by $68,612,000, which is being amortized over 40 years.
Pro forma data is not presented since the results of operations of
Spectra-Physics Analytical have been included in the accompanying financial
statements from February 1993 and the acquisition of Tremetrics was not material
to the Company's results of operations and financial position.
3. STOCK-BASED COMPENSATION PLANS
In November 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. To date,
only nonqualified stock options have been awarded under this plan. The option
recipients and the terms of options granted under this plan are determined by
the Board Committee. Options granted to date generally vest and become
immediately exercisable on the ninth anniversary of the grant date, unless the
Company's common stock becomes publicly traded prior to such date. In such an
event, options become exercisable 90 days after the Company becomes subject to
the Securities Exchange Act of 1934, but are subject to certain transfer
restrictions and the right of the Company to repurchase shares issued upon
exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally are deemed to have lapsed ratably
over periods ranging from five to ten years after the first anniversary of the
grant date, depending on the term of the option, which generally ranges 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 fair market value of the Company's stock on the date of
grant. To date, all options have been granted at fair market value. As of
February 7, 1996, options to purchase 2,341,500 shares of the Company's common
stock exercisable at $13.00 per share are outstanding under this plan. As of
February 7, 1996 no options have been exercised and no options are exercisable
under the stock-based compensation plan described above. The Company also has a
directors' stock option plan, adopted in November 1995, that provides for the
grant of stock options to outside directors pursuant to a formula approved by
the Company's shareholders. Options granted under this plan will have the same
general terms as options granted to date under the stock-based compensation plan
described above, except that the restrictions and repurchase rights generally
are deemed to have lapsed ratably over a four-year period and the option term is
five years. As of February 7, 1996, no options to purchase shares of the
Company's common stock have been granted under this plan. 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
other majority-owned subsidiaries.
F-10
<PAGE> 48
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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.
4. COMMON STOCK
At December 30, 1995, the Company had reserved 8,833,333 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
for issuance upon possible conversion of the Company's subordinated convertible
debentures.
5. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by Thermo Instrument.
Prior to the November 1995 plan year, shares of Thermo Instrument's and Thermo
Electron's common stock could be purchased at the end of a 12-month plan year at
85% of the fair market value at the beginning of the plan year, and the shares
purchased were subject to a one-year resale restriction. Effective November 1,
1995, the applicable shares of common stock may be purchased at 95% of the fair
market value at the beginning of the plan year, and the shares purchased will be
subject to a six-month resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's or Finnigan's 401(k) savings plan.
Contributions to the 401(k) savings plans are made by both the employee and the
Company. Company contributions are based upon the level of employee
contributions. For these plans, the Company contributed and charged to expense
$876,000, $1,191,000 and $1,007,000 in 1993, 1994 and 1995, respectively.
Postemployment Benefits
The Company provides certain postemployment benefits to former or inactive
employees. In accordance with SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," the Company recognizes the cost of postemployment
benefits if certain criteria are met and the amount of benefits can be
reasonably estimated.
Defined Benefit Pension Plan
The Company's Bremen, Germany subsidiary has a defined benefit pension plan
covering substantially all of its full-time employees. Benefits are based on a
percentage of eligible earnings for each year of service in excess of ten years.
The Company's funding policy is to make contributions within a range required by
applicable regulations.
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 274 $ 303 $ 386
Interest cost on projected benefit obligation............. 911 981 1,087
Return on plan assets..................................... (306) (286) (234)
Amortization of unrecognized obligation................... 46 47 --
----- ------ ------
$ 925 $1,045 $1,239
===== ====== ======
</TABLE>
F-11
<PAGE> 49
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Company's defined benefit pension plan is as
follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................................ $12,985 $14,040
Non-vested benefits............................................ 268 196
------- -------
Accumulated benefit obligation................................. 13,253 14,236
Effect of projected future salary increases...................... 2,633 1,618
------- -------
Projected benefit obligation..................................... 15,886 15,854
Plan assets at fair value........................................ 5,283 6,048
------- -------
Plan assets less than projected benefit obligation............... 10,603 9,806
Unrecognized net gain............................................ 53 2,151
Initial unrecognized net obligation.............................. (440) (421)
------- -------
Accrued pension costs.......................................... $10,216 $11,536
======= =======
</TABLE>
Actuarial assumptions used to determine the net periodic pension costs
during 1993, 1994 and 1995 were:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................... 7.0 % 7.0 % 7.5 %
Rate of increase in salary levels............................... 4.5 % 4.5 % 3.5 %
Expected long-term rate of return on assets..................... 7.0 % 6.0 % 6.0 %
</TABLE>
6. INCOME TAXES
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $21,115 $30,372 $24,583
Foreign............................................... 4,546 1,738 11,582
------- ------- -------
$25,661 $32,110 $36,165
======= ======= =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................. $ 4,617 $ 8,141 $ 7,852
State............................................... 460 1,201 1,523
Foreign............................................. 2,982 1,652 4,600
------- ------- -------
8,059 10,994 13,975
------- ------- -------
Net deferred:
Federal............................................. 2,658 2,072 683
State............................................... 664 518 145
Foreign............................................. -- -- 360
------- ------- -------
3,322 2,590 1,188
------- ------- -------
$11,381 $13,584 $15,163
======= ======= =======
</TABLE>
F-12
<PAGE> 50
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes that is currently payable does not reflect
$2,000,000 of tax benefits used to reduce cost in excess of net assets of
acquired companies in 1995.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate.......... $ 8,981 $11,239 $12,658
Increases (decreases) resulting from:
State income taxes, net of federal tax.............. 731 1,117 1,084
Foreign tax rate and tax law differential........... 1,391 1,044 906
Tax benefit of foreign sales corporation............ (690) (770) (659)
Amortization of cost in excess of net assets of
acquired companies............................... 904 848 1,012
Other, net.......................................... 64 106 162
------- ------- -------
$11,381 $13,584 $15,163
======= ======= =======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Foreign tax loss carryforward.................................. $ 7,540 $ 7,404
Reserves and other accruals.................................... 4,961 2,408
Inventory basis difference..................................... 2,010 2,528
Accrued compensation........................................... 1,708 1,788
Other, net..................................................... 1,249 1,971
------- -------
17,468 16,099
Less: Valuation allowance...................................... 7,540 7,404
------- -------
$ 9,928 $ 8,695
======= =======
Deferred income taxes:
Depreciation................................................... $ 5,812 $ 5,767
======= =======
</TABLE>
The valuation allowance relates to uncertainty concerning the realization
of foreign net operating losses, which is dependent on the future income of a
German subsidiary of the Company. As of December 30, 1995, the Company had
$12,549,000 of foreign net operating loss carryforwards, which do not expire.
The decrease in the valuation allowance in 1995 results from use of the foreign
net operating loss carryforwards. Any tax benefit resulting from use of the loss
carryforwards is recorded as a reduction of cost in excess of net assets of
acquired companies.
A provision has not been made for U.S. or additional foreign taxes on
$20,696,000 of undistributed earnings of foreign subsidiaries, which could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas. The Company believes that any
additional U.S. tax liability due upon remittance of such earnings would be
immaterial due to available U.S. foreign tax credits.
F-13
<PAGE> 51
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $1,565,000, $2,596,000 and $3,046,000
in 1993, 1994 and 1995, respectively. Future minimum payments due under
noncancelable operating leases at December 30, 1995 are $1,969,000 in 1996;
$1,351,000 in 1997; $664,000 in 1998; $197,000 in 1999; and $76,000 in 2000.
Total future minimum lease payments are $4,257,000.
8. 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 paid Thermo Electron annually an amount equal to 1.25% of the
Company's revenues in fiscal 1993 and 1994 and 1.20% of the Company's revenues
in fiscal 1995. For these services, the Company was charged $2,559,000,
$2,792,000 and $2,903,000 in 1993, 1994 and 1995, respectively. Beginning in
fiscal 1996, the Company will pay an annual fee equal to 1.0% of the Company's
revenues. The annual fee is reviewed and adjusted annually by mutual agreement
of the parties. Management believes that the service fee charged by Thermo
Electron is reasonable and that such fees are representative of the expenses the
Company would have incurred on a stand-alone basis. The corporate services
agreement is renewed annually but can be terminated upon 30 days' prior notice
by the Company or upon the Company's withdrawal from the Thermo Electron
Corporate Charter (the Thermo Electron Corporate Charter defines the
relationship among Thermo Electron and its majority-owned subsidiaries). For
additional items such as employee benefit plans, insurance coverage and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
9. SHORT- AND LONG-TERM OBLIGATIONS
Long-term obligations of the Company are as follows:
<TABLE>
<CAPTION>
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
5% Subordinated convertible debentures due 2000................. $ -- $ 96,250
10.23% Mortgage loan secured by property with a net book value
of $16,303, payable in monthly installments with final
payments in 2004.............................................. 10,855 10,101
6.25% Notes payable, payable in semi-annual installments with
final payments in 1999........................................ 1,444 1,215
5.75% Note payable, payable in semi-annual installments with
final payments in 1999........................................ 127 100
------- --------
12,426 107,666
Less: Current maturities of long-term obligations............... 1,104 1,210
------- --------
$11,322 $106,456
======= ========
</TABLE>
In August 1995, the Company issued and sold $96,250,000 principal amount of
5% subordinated convertible debentures due 2000. The debentures will be
convertible into shares of the Company's common
F-14
<PAGE> 52
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock at any time after the later of (1) 180 days after the date of the close of
the Company's initial public offering of common stock or (2) the date of the
effectiveness under the Securities Act of 1933 of a registration statement
covering the resale of shares of the Company's common stock issuable upon
conversion of the debentures, and prior to redemption and maturity. The
conversion price of the debentures will be set on the date of the closing of the
Company's initial public offering of common stock. The conversion price will be
equal to 110% of the initial public offering price of the Company's common
stock. If the Company's initial public offering has not occurred by August 3,
1996, this percentage will decrease 2.5% on such date and on each anniversary of
such date prior to the Company's initial public offering. If the Company's
initial public offering has not occurred by August 1, 1996, the rate of interest
borne by the debentures will increase by 0.5% on such date and on each
anniversary of such date prior to the Company's initial public offering. The
debentures are guaranteed on a subordinated basis by Thermo Electron. Thermo
Instrument and the Company have agreed to reimburse Thermo Electron in the event
Thermo Electron is required to make a payment under the guarantee. In addition,
the Company has agreed to reimburse Thermo Instrument in the event Thermo
Instrument is required to make a payment under the guarantee.
The annual requirements of long-term obligations as of December 30, 1995
are $1,210,000 in 1996; $1,300,000 in 1997; $1,399,000 in 1998; $1,320,000 in
1999; $97,504,000 in 2000; and $4,933,000 in 2001 and thereafter. Total future
requirements of long-term obligations are $107,666,000.
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet include $4,355,000 and $10,545,000 in 1994 and 1995,
respectively, of short-term bank borrowings and amounts borrowed under lines of
credit at the Company's foreign subsidiaries. The weighted average interest rate
for these borrowings was 4.76% and 5.80% at year-end 1994 and 1995,
respectively. Unused lines of credit were $7,282,000 at year-end 1995.
F-15
<PAGE> 53
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHICAL INFORMATION
The Company is engaged in one business segment: developing, manufacturing
and selling mass spectrometers, liquid chromatographs and gas chromatographs.
The following table shows data for the Company by geographical area.
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................. $129,339 $145,281 $145,430
Germany....................................... 54,722 51,333 64,368
Japan......................................... 25,993 28,919 36,966
Other......................................... 54,125 58,369 66,409
Transfers among geographical areas(a)......... (59,422) (60,506) (71,264)
-------- -------- --------
$204,757 $223,396 $241,909
======== ======== ========
Income before provision for income taxes:
United States(b).............................. $ 15,650 $ 24,431 $ 20,867
Germany....................................... 2,473 (1,398) 3,421
Japan......................................... 5,431 6,433 5,820
Other......................................... 3,524 4,016 7,067
-------- -------- --------
Total operating income........................ 27,078 33,482 37,175
Interest expense, net......................... (1,417) (1,372) (1,010)
-------- -------- --------
$ 25,661 $ 32,110 $ 36,165
======== ======== ========
Identifiable assets:
United States(c).............................. $177,495 $186,153 $288,095
Germany....................................... 63,225 63,726 61,468
Japan......................................... 17,879 18,369 33,760
Other......................................... 39,370 38,036 44,719
-------- -------- --------
$297,969 $306,284 $428,042
======== ======== ========
Export revenues included in United States revenues
above(d):
Europe........................................ $ 33,407 $ 34,341 $ 36,943
Other......................................... 18,982 19,305 26,578
-------- -------- --------
$ 52,389 $ 53,646 $ 63,521
======== ======== ========
</TABLE>
- ---------------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Includes corporate general and administrative expenses.
(c) Includes $93.9 million in net proceeds from the August 1995 issuance of 5%
subordinated convertible debentures.
(d) In general, export sales are denominated in U.S. dollars.
F-16
<PAGE> 54
THERMOQUEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
11. SUBSEQUENT EVENTS
Initial Public Offering
In March and April 1996, the Company sold 3,450,000 shares of its common
stock in an initial public offering at $15.00 per share for net proceeds of
approximately $47.8 million. Following the offering, Thermo Instrument owned 93%
of the Company's outstanding common stock.
Acquisitions
On December 1, 1995, Thermo Instrument acquired the assets of the
analytical instruments division of Analytical Technology, Inc. ("ATI"). In June
1996, the Company acquired the Automass division of ATI from Thermo Instrument
for $4.1 million in cash. The Automass division of ATI is a manufacturer of mass
spectrometers. Because the Company and the Automass division of ATI were deemed
for accounting purposes to be under control of their common majority owner,
Thermo Instrument, the transaction has been accounted for in a manner similar to
a pooling of interests. As the results of the Automass division of ATI for
December 1995 were not material to the Company's results of operations, the
Company's 1995 historical financial information has not been restated. The
Company's 1996 historical financial information has been restated to include the
results of operations of the Automass division of ATI from January 1, 1996.
In January 1996, the Company acquired Extrel FTMS, Inc. ("Extrel") for $1.7
million in cash. The acquisition of Extrel has been accounted for using the
purchase method of accounting and its results of operations have been included
in the accompanying financial statements from the date of acquisition.
The cost of these acquisitions exceeded the estimated fair value of the
acquired net assets by $4.5 million, which is being amortized over 40 years.
Allocation of the purchase price for these acquisitions were based on estimates
of the fair value of the net assets acquired and is subject to adjustment upon
finalization of the purchase price allocation.
Pro forma data is not presented since these acquisitions were not material
to the Company's results of operations and financial position.
Stock-based Compensation Plans
In June 1996, the Board Committee granted options to purchase 24,000 shares
of the Company's common stock at an exercise price of $16.60 per share, which
was the fair market value on the date of grant.
F-17
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred by the Company in connection with the issuance and
distribution of the securities being registered are as follows. All amounts are
estimated except the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Securities and Exchange Commission registration fee...................... $30,299.00
Legal fees and expenses.................................................. 10,000.00
Accounting fees and expenses............................................. 10,000.00
Miscellaneous............................................................ 9,701.00
--------
Total............................................................... $60,000.00
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Company's Certificate of
Incorporation and By-Laws limit the monetary liability of directors to the
Company and to its stockholders and provide for indemnification of the Company's
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful. The Company also has indemnification agreements with its
directors and officers that provide for the maximum indemnification allowed by
law. Reference is made to the Company's Certificate of Incorporation, By-Laws
and form of Indemnification Agreement for Officers and Directors incorporated by
reference as Exhibits 3.1, 3.2 and 10.10 hereto, respectively.
Thermo Electron Corporation has an insurance policy which insures the
directors and officers of Thermo Electron and its subsidiaries, including the
Company, against certain liabilities which might be incurred in connection with
the performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1995, the assets of certain wholly owned subsidiaries of Thermo
Instrument were contributed to the Company in exchange for 44,997,000 shares of
Common Stock; in June 1995, the Company issued 3,000 shares of Common Stock to
such subsidiaries of Thermo Instrument for $.01 per share at the time of the
incorporation of the Company. Exemption from registration for these transactions
is claimed under Section 4(2) of the Securities Act.
On August 3, 1995, the Company issued $96,250,000 principal amount of 5%
Convertible Subordinated Debentures due 2000 (the "Debentures") at par pursuant
to a subscription agreement with Lehman Brothers International (Europe), NatWest
Securities Limited and Fahnestock & Co. Inc. $47,900,000 principal amount of
Debentures was sold to non-U.S. persons in reliance upon Regulation S under the
Securities Act, $47,100,000 principal amount of Debentures was sold to qualified
institutional buyers under Rule 144A under the Securities Act, and $1,250,000
was sold pursuant to Regulation D under the Securities Act.
ITEM 16. EXHIBITS.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) Financial Statement Schedules as of December 30, 1995 and the Report of
Independent Public Accountants on such Schedules are included in this
Registration Statement. All other schedules are omitted as not applicable or not
required under Regulation S-X.
II-1
<PAGE> 56
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (c)(1)(i) and (c)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on this 13th day of August, 1996.
THERMOQUEST CORPORATION
By: /s/ DR. RICHARD W. K. CHAPMAN
------------------------------------
Dr. Richard W. K. Chapman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints John N. Hatsopoulos, Paul F. Kelleher, Seth H.
Hoogasian, Sandra L. Lambert and Jonathan W. Painter, and each of them, as his
true and lawful attorneys-in-fact and agents for the undersigned, with full
power of substitution, for and in the name, place and stead of the undersigned,
to sign and file with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), any and all
amendments and exhibits to this Registration Statement, and any and all
applications and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby, with
full power and authority to do and perform any and all acts and things
whatsoever requisite and necessary or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ----------------
<C> <S> <C>
/s/ DR. RICHARD W. K. CHAPMAN President, Chief Executive August 13, 1996
- ------------------------------------------ Officer and Director (Principal
Dr. Richard W. K. Chapman Executive Officer)
/s/ JOHN N. HATSOPOULOS Vice President, Chief Financial August 13, 1996
- ------------------------------------------ Officer and Director (Principal
John N. Hatsopoulos Financial Officer)
/s/ PAUL F. KELLEHER Chief Accounting Officer August 13, 1996
- ------------------------------------------ (Principal Accounting Officer)
Paul F. Kelleher
/s/ ARVIN H. SMITH Chairman of the Board and August 13, 1996
- ------------------------------------------ Director
Arvin H. Smith
/s/ DR. GEORGE N. HATSOPOULOS Director August 13, 1996
- ------------------------------------------
Dr. George N. Hatsopoulos
/s/ FRANK JUNGERS Director August 13, 1996
- ------------------------------------------
Frank Jungers
/s/ ANTHONY J. PELLEGRINO Director August 13, 1996
- ------------------------------------------
Anthony J. Pellegrino
/s/ DR. MICHAEL E. PORTER Director August 13, 1996
- ------------------------------------------
Dr. Michael E. Porter
</TABLE>
II-3
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ThermoQuest Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of ThermoQuest Corporation included in
ThermoQuest Corporation's Form S-1 and have issued our report thereon dated
February 7, 1996 (except with respect to certain matters discussed in Note 11,
as to which the date is June 13, 1996). Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. ThermoQuest Corporation's schedule of Valuation and Qualifying Accounts,
included in Schedule II on page S-2, is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 7, 1996 (except with respect to
certain matters discussed in Note 11,
as to which the date is June 13, 1996)
S-1
<PAGE> 59
SCHEDULE II
THERMOQUEST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS BALANCE
BEGINNING AND ACCOUNTS ACCOUNTS AT END OF
OF YEAR EXPENSES RECOVERED WRITTEN-OFF OTHER(A) YEAR
---------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, 1994
Allowance for Doubtful Accounts...... $1,736 $ 395 $-- $(114) $599 $ 2,616
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts...... $2,616 $ (265) $-- $(868) $883 $ 2,366
YEAR ENDED DECEMBER 30, 1995
Allowance for Doubtful Accounts...... $2,366 $ 213 $68 $(333) $ 27 $ 2,341
</TABLE>
- ---------------
(a) Includes allowance of business acquired during the year as described in Note
2 to Consolidated Financial Statements of the Company and the effect of
foreign currency translation.
S-2
<PAGE> 60
EXHIBIT INDEX
Each exhibit listed below which is marked by an asterisk (*) is
incorporated by reference to the corresponding numbered exhibit in the Company's
Registration Statement on Form S-1 (File No. 333-00276).
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ------- ------------------------------------------------------------------------- ----------
<S> <C> <C>
3.1* Certificate of Incorporation, as amended, of the Company.................
3.2* By-laws of the Company...................................................
4* Specimen Common Stock Certificate........................................
5 Opinion of Seth H. Hoogasian, Esq........................................
10.1* Corporate Services Agreement dated as of June 30, 1995 between Thermo
Electron and the Company.................................................
10.2 Thermo Electron Corporate Charter, as amended and restated effective
January 3, 1993 (incorporated by reference herein from Exhibit 10.1 to
Thermo Electron's Annual Report on from 10-K for the fiscal year ended
January 2, 1993 (File No. 1-8002)).......................................
10.3* Tax Allocation Agreement dated as of June 30, 1995 between Thermo
Instrument and the Company...............................................
10.4* Master Repurchase Agreement dated as of June 30, 1995 between Thermo
Electron and the Company.................................................
10.5* Master Guarantee Reimbursement Agreement dated as of June 30, 1995
between Thermo Electron and the Company..................................
10.6* Master Guarantee Reimbursement Agreement dated as of June 30, 1995
between Thermo Instrument and the Company................................
10.7* Equity Incentive Plan of the Company.....................................
10.8* Deferred Compensation Plan for Directors of the Company..................
10.9* Directors Stock Option Plan of the Company...............................
10.10* Form of Indemnification Agreement for Officers and Directors.............
10.11* Subscription Agreement dated as of July 20, 1995 among the Company.
Lehman Brothers International (Europe), NatWest Securities Limited and
Fahnestock & Co. Inc.....................................................
10.12* Fiscal Agency Agreement dated as of August 3, 1995 between the Company
and Chemical Bank........................................................
10.13* Deed of Trust and Security Agreement dated February 22, 1989 between the
Company (as successor-in-interest to Finnigan Properties, Inc.) and the
Northwestern Mutual Life Insurance Company...............................
In addition to the stock-based compensation plans of the Registrant, the
executive officers of the Registrant may be granted awards under
stock-based compensation plans of the Registrant's ultimate parent,
Thermo Electron Corporation, and its subsidiaries, for services rendered
to the Registrant or to such affiliated corporations. Such plans were
filed as Exhibits 10.15 through 10.17 and 10.19 through 10.74 to the
Registration Statement on Form S-1 (Registration No. 333-02924) of Trex
Medical Corporation filed March 29, 1996 and are incorporated herein by
reference.
11 Computation of Earnings per Share........................................
21* Subsidiaries of the Company..............................................
23.1 Consent of Arthur Andersen LLP...........................................
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ------- ------------------------------------------------------------------------- ----------
<S> <C> <C>
23.2 Consent of Seth H. Hoogasian, Esq. (contained in Exhibit 5)..............
24 Power of Attorney (See Signature Page of this Registration Statement)....
</TABLE>
<PAGE> 1
EXHIBIT 5
[THERMO ELECTRON LOGO/LETTERHEAD]
August 12, 1996
ThermoQuest Corporation
355 River Oaks Parkway
San Jose, California 95134
Re: Registration Statement on Form S-1
Relating to 5,833,333 Shares of the
Common Stock, $.01 par value, of ThermoQuest Corporation
Ladies and Gentlemen:
I am General Counsel to ThermoQuest Corporation, a Delaware corporation
(the "Company"), and have acted as counsel in connection with the registration
under the Securities Act of 1933, as amended (the "Securities Act"), on Form S-1
(the "Registration Statement"), of 5,833,333 shares of the Company's Common
Stock, $.01 par value per share (the "Common Stock"), issuable upon conversion
of the Company's 5% Convertible Subordinated Debentures due 2000. Such shares
are collectively referred to herein as the "Shares".
I or a member of my legal staff have reviewed the corporate proceedings
taken by the Company with respect to the authorization of the issuance of the
Shares. I or a member of my legal staff have also examined and relied upon
originals or copies, certified or otherwise authenticated to my satisfaction, of
all corporate records, documents, agreements or other instruments of the Company
and have made all investigations of law and have discussed with the Company's
representatives all questions of fact that I have deemed necessary or
appropriate.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Delaware.
2. The issuance and sale of the Shares as contemplated in the Registration
Statement have been duly authorized by the Company.
3. The Shares, when issued upon conversion of the Debentures, will be
validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement.
Very truly yours,
Seth H. Hoogasian
General Counsel
<PAGE> 1
EXHIBIT 11
THERMOQUEST CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JULY 1, JUNE 29,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS
PER SHARE:
Net Income(a).............. $14,280,000 $18,526,000 $21,002,000 $ 9,238,000 $12,430,000
----------- ----------- ----------- ----------- -----------
Shares:
Weighted average shares
outstanding........... 45,000,000 45,000,000 45,000,000 45,000,000 46,903,022
Add: Shares issuable from
assumed exercise of
options (as determined
by the application of
the treasury stock
method)............... 187,320 187,320 187,320 187,320 --
----------- ----------- ----------- ----------- -----------
Weighted averages shares,
as adjusted(b)........ 45,187,320 45,187,320 45,187,320 45,187,320 46,903,022
----------- ----------- ----------- ----------- -----------
PRIMARY EARNINGS PER SHARE
(a) / (b)..................... $ .32 $ .41 $ .46 $ .20 $ .27
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ThermoQuest Corporation:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 9, 1996
