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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-61561
STERIGENICS INTERNATIONAL, INC.
109,307 SHARES OF COMMON STOCK
This Prospectus relates to the public offering, which is not being
underwritten, of 109,307 shares (the "Shares") of Common Stock, $0.001 par value
(the "Common Stock") of SteriGenics International, Inc., a Delaware Corporation
("SteriGenics" or the "Company").
The Shares may be offered by a certain stockholder of the Company (the
"Selling Stockholder") from time to time in transactions on the Nasdaq National
Market, in privately negotiated transactions, or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholder may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholder 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). See "Selling Stockholder" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholder.
On August 20, 1998, the closing price of the Company's Common Stock on the
Nasdaq National Market was $20.63 per share. The Common Stock is traded on the
Nasdaq National Market under the symbol "STER."
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The Selling Stockholder and any broker-dealers or agents that participate
with the Selling Stockholder in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them 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.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5.
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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.
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The date of this Prospectus is August 21, 1998
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AVAILABLE INFORMATION
SteriGenics is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 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 filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed fees. The Commission also
makes electronic filings publicly available on the Internet within 24 hours of
acceptance. The Commission's Internet address is http://www.sec.gov. The
Commission web site also contains reports, proxy and information statements, and
other information regarding registrants that file electronically with the
Commission. The Common Stock of the Company is quoted on the Nasdaq National
Market. Reports, proxy and information statements and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments, exhibits and schedules, referred to
as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with the Commission, with respect to the Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements contained in this Prospectus
regarding the contents of any contract or other document to which reference is
made are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon the payment of the fees prescribed by the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
(File No. 000-22909) pursuant to the 1934 Act are hereby incorporated by
reference in this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended March 31,
1998;
2. The Company's Current Report on Form 10-Q for the quarter ended June 30,
1998;
3. The Company's Definitive Proxy Statement as filed with the Commission on
June 22, 1998; and
4. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission on July
30, 1997 and as amended on August 7, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus but prior to the
termination of the offering to which this Prospectus relates shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated herein modifies, supersedes or replaces such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified, superseded or replaced, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
herein). Requests should be submitted in writing or by telephone at (510)
770-9000 to SteriGenics International, Inc., at the principal executive offices
of the Company, 4020 Clipper Court, Fremont, California 94538, Attn: Investor
Relations.
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This Prospectus includes trademarks of the Company and other corporations.
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FORWARD -- LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements that involve risks and uncertainties. The
statements contained in this Prospectus or incorporated by reference herein that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the 1934 Act, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth in this
Prospectus under "Risk Factors." In evaluating the Company's business,
prospective investors should consider carefully the factors set forth in this
Prospectus under "Risk Factors" in addition to the other information set forth
in this Prospectus and incorporated by reference herein.
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THE COMPANY
SteriGenics International, Inc. ("SteriGenics" or the "Company") is a
provider of high quality contract sterilization and radiation processing
services, with over 19 years of experience in the operation, design and
development of Gamma irradiation ("Gamma") facilities. The Company operates 12
Gamma facilities and one electron beam radiation ("E-Beam") facility nationwide
serving over 1,000 customers, primarily in the medical products market. In
recent years, the Company has expanded into various non-medical sterilization
and processing markets and has over 200 non-medical customers. The company
expanded its technology base into E-Beam with its acquisition in December 1997
of certain assets of the Nicolet Electron Services Division of ThermoSpectra
Corporation (the "Nicolet Acquisition"). The Company's objective is to be the
leading provider of high quality contract sterilization and radiation processing
services. SteriGenics' principal executive offices are located at 4020 Clipper
Court, Fremont, California 94538, and its telephone number is (510) 770-9000.
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RISK FACTORS
In addition to the other information in this Report, the following risk
factors should be considered carefully in evaluating the Company and its
business.
UNPREDICTABILITY OF FUTURE OPERATING RESULTS; LIKELY FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in revenues and operating results from quarter to
quarter. As a result, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful, and that such comparisons
cannot be relied upon as indicators of future performance. In addition, there
can be no assurance that the Company's revenues will grow or be sustained in
future periods or that the Company will maintain its current profitability in
the future. A significant component of such quarterly fluctuations results from
fluctuations in the demand by the Company's customers for sterilization and
radiation processing services due to varying manufacturing cycles, changes in
demand for customers' products and seasonality related to growth cycles for
spices and herbs and decreased demand during the third fiscal quarter and the
first part of the fourth fiscal quarter due to the holiday season. Other factors
that could cause the Company's operating results to vary significantly from
period to period include volatility in the market for medical devices; the
ability of the Company to deliver services in a timely and cost effective
manner; the ability of the Company to expand successfully in the advanced
applications sterilization and radiation processing market; the ability to
effectively integrate and successfully expand its recently acquired E-Beam
business; the timing and size of orders from the Company's customer base; the
ability of the Company to obtain supplies of Cobalt 60 on a timely basis and at
a reasonable cost; fluctuations in currency exchange rates because payments
under certain of the Company's Cobalt 60 operating leases are payable in
Canadian dollars; fluctuations in the costs of electricity for the Company's
E-Beam business; loss of processing time due to maintenance; the costs
associated with customer product being damaged as a consequence of overdosing
and other factors; changes in interest rates; regulatory matters; and
litigation, acquisitions and other extraordinary events.
The Company's results of operations are also influenced by competitive
factors, including the pricing and availability of the Company's and competing
sterilization and radiation processing services; the acceptance of Gamma and
E-Beam radiation as a means of sterilizing and processing products as opposed to
other technologies; the ability of the Company's competitors to obtain orders
from the Company's customers; the establishment of in-house sterilization
capabilities by the Company's customers; the acquisition of the Company's
customers by entities that do not use the Company's services; the timing of new
service or technology announcements and releases by the Company and its
competitors; and the entry of new competitors into the market for sterilization
and radiation processing services. A large portion of the Company's expenses are
fixed and difficult to reduce in a short period of time. If revenues do not meet
the Company's expectations, the Company's fixed expenses would exacerbate the
adverse effect of such a shortfall on net income.
Additional factors that have a significant impact on the Company's results
of operations are the timing of construction and commencement of operations of
new facilities. Building new facilities requires significant capital investments
in construction and equipment and, for Gamma facilities, in Cobalt 60. In
addition to incurring costs associated with building and equipping such
facilities, the Company also incurs costs related to Cobalt 60 and higher
personnel costs in the months preceding initial operation. As a result of their
own internal procedures, customers often delay qualification and use of new
facilities until they have been operational for a specified period of time of up
to 12 months. As a result, in the past, the Company has failed to realize a
portion of anticipated revenues for the facility pending such qualification,
while incurring significant start-up costs, both of which adversely affected the
Company's results of operations.
Due to these factors, as well as other unanticipated factors, it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected.
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DEPENDENCE ON MEDICAL PRODUCTS CUSTOMERS
The Company derives a substantial portion of its revenues from the sale of
sterilization services to manufacturers of medical devices, labware and eyecare
products ("medical products"), and the Company expects that the sterilization of
medical products will continue to account for a significant portion of the
Company's revenues for the foreseeable future. The Company thus depends to a
considerable extent upon the continued growth of the market for medical
products. In particular, a significant aspect of the Company's medical products
business is the sterilization of single-use medical devices. As a result, the
Company is dependent in part on continued growth in the market for single-use
medical devices. There has recently been an increasing focus on reusable medical
devices and, therefore, there can be no assurance that use of reusable medical
devices will not increase. Any significant increase in the use of reusable
medical devices would decrease the use of single use devices of the type
sterilized by the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that continued growth in the use of medical products depends on a
number of factors, including the impact of health reform proposals. The Company
believes that government and private insurance company efforts to contain or
reduce health care costs are likely to continue. These trends may lead to fewer
medical procedures being performed or the increased use of reusable medical
devices, either of which could negatively impact the demand for the Company's
services. In addition, the Company is dependent on the ongoing conversion of
products from EtO to Gamma or E-Beam sterilization and there can be no assurance
that such conversion will continue at the rate currently anticipated by the
Company. Loss of significant business from medical products manufacturers,
including reductions caused by large customers establishing captive facilities,
changes in such customers' competitive position or a decision to purchase
contract sterilization services from other suppliers, a downturn in the medical
products market, or a failure of the conversion of products from EtO to Gamma at
the anticipated rate could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The market for sterilization and radiation processing services is intensely
competitive and is characterized by significant price competition. The Company's
market is fragmented as a result of geographical limitations on the
transportation of products for sterilization, multiple technologies and the mix
of captive and contract facilities. In particular, the Company currently faces
competition from other providers of contract Gamma sterilization services, the
most significant of which is Isomedix, Inc., a subsidiary of Steris Corporation
("Isomedix"), and other providers of contract E-Beam sterilization services
including The Titan Corporation, E-Beam Services Inc. and Iotron Industries
Canada Inc. In addition, many products that can be sterilized using Gamma or
E-Beam can also be sterilized using EtO. As a result, the Company also competes
with companies that process products using EtO technology, including Cosmed
Group, Inc., Griffith Micro Science, Inc. and Isomedix. Certain of the Company's
competitors and potential competitors have substantially greater financial,
marketing, distribution, technical and other resources than the Company or offer
a broader range of sterilization technologies, which may enable them to address
more of the sterilization requirements of individual customers. In addition, the
Company competes with manufacturers that have or are considering establishing
in-house sterilization capabilities. The Company may also in the future face
competition from suppliers of Cobalt 60 radioisotope, particularly Nordion, as
well as foreign providers of sterilization services. In addition, Isomedix has
announced its intention to enter the California market for sterilization
services, which would increase competition in that market. To the extent that
the Company expands into international markets it will also be faced with
competition from existing providers of sterilization and radiation processing
services in those markets.
In recent years, price competition in the sterilization and radiation
processing services industry has intensified. The Company may in the future face
increased competition from companies that employ new or improved technologies or
that offer sterilization services that are more effective or less costly than
those developed and marketed by the Company. To the extent such increase in
competition were to occur, the Company may explore alternative sterilization
technologies as necessary to enhance its competitive position. Such competition
could have a material adverse effect on the Company's business, financial
condition and
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results of operations. There can be no assurance that the Company will be able
to continue to compete effectively or that the competitive pressures faced by
the Company will not have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY OF EXPANSION IN ADVANCED APPLICATIONS MARKETS
While the Company has traditionally focused primarily on the medical
products market, it has increased its efforts in the advanced application
contract sterilization and radiation processing market. The Company currently
sterilizes a wide range of food ingredients and consumer products, including
cosmetics, spices and herbs. The Company also processes various industrial
compounds and other materials using both Gamma and E-Beam technologies. In
addition, as a result of the Company's recently acquired E-Beam business, the
Company has begun to process other advanced applications products such as
semiconductors and gemstones. Many of the advanced application markets for Gamma
sterilization and processing are new and emerging, and there can be no assurance
that any of these markets will develop at the anticipated rate, if at all.
Approval for the irradiation of food products is regulated by the FDA and
the USDA. While the FDA has approved radiation for the processing of a variety
of foods, including pork, poultry and fresh fruits and vegetables, only limited
commercial sales of irradiated food have taken place. In December 1997, the FDA
approved radiation for the processing of red meat, meat byproducts and food
products in order to eliminate E. coli and other harmful foodborne pathogens.
However, before irradiated red meat can be sold commercially, the USDA must set
certain minimum standards for processors to follow. The USDA is currently
reviewing the issue and is expected to set such standards later in 1998,
although there can be no assurance it will do so. In addition, current FDA rules
and regulations require the labeling of any retail food product that is
irradiated, and to date, there has been significant consumer resistance to
irradiated food. The irradiation of red meat could also result in an increase in
the cost of such products to a level which may be unacceptable to most
consumers. As a result, there can be no assurance that sterilization of fresh
food products will gain public acceptance or will ultimately prove commercially
feasible in the United States or that the Company would undertake to expand its
irradiation activities to include red meat. To the extent that the Company seeks
to take advantage of future opportunities in this market, such activities would
require significant changes in the Company's processing techniques, including
the redesign of facilities and the addition of refrigeration capabilities.
Furthermore, to accommodate the perishable nature of red meat and the high
processing volume that may result from the commercial irradiation of red meat,
the Company could be required to expend significant capital to build specially
equipped processing facilities near customer facilities.
RISKS RELATED TO GEOGRAPHIC EXPANSION USING THE MINICELL; RISKS RELATED TO
INTERNATIONAL OPERATIONS
A key element of the Company's strategy is to expand geographically into
smaller regional markets and internationally using the MiniCell. There can be no
assurance that manufacturers in these markets will use the Company's facilities,
that such manufacturers will pay higher sterilization prices in exchange for
lower transportation costs and a decrease in turn-around time or that the
Company will receive enough volume of product to operate such facilities on a
profitable basis. In addition, many manufacturers in these smaller markets
currently use EtO to sterilize their products and would need to convert their
products to Gamma. Failure of the Company to successfully introduce and operate
MiniCells in these new markets could materially adversely affect the Company's
business, financial condition and results of operations.
If the Company is successful in expanding into international markets either
through the use of the MiniCell or otherwise, it will be subject to a number of
risks related to foreign operations, including fluctuations in currency exchange
rates, political and economic conditions in various jurisdictions, unexpected
changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer accounts
receivable payment cycles and potentially adverse tax consequences. There can be
no assurance that such factors will not have a material adverse effect on the
Company's future operations outside the U.S.
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UNCERTAINTIES RELATED TO MINICELL LEASING
The Company's ability to successfully lease its MiniCell will depend upon
the acceptance of the Company's technology and the concept of "in-house
outsourcing" (utilizing third party contractors to provide services within a
manufacturer's own facility) by manufacturers with high volume sterilization
needs, as well as upon the Company's ability to enter into favorable leasing
terms with potential customers. The Company has not yet leased a MiniCell, and
there can be no assurance that manufacturers will elect to lease a MiniCell in
lieu of relying on traditional in-house sterilization operations and contract
sterilization providers or that any such leases will be on terms favorable to
the Company. In addition, the leasing of the MiniCell will involve a significant
commitment of management attention and resources by prospective customers and
may require input from and approval at multiple levels of a customer's
organization. Accordingly, the Company anticipates that the MiniCell leasing
process will be subject to long sales cycles typically associated with
significant capital expenditures. Delay in or the failure to lease the MiniCell
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON GAMMA TECHNOLOGY
Historically, the Company has performed all of its sterilization and
radiation processing services using Gamma radiation. Because of its reliance on
Gamma technology, a decline in the demand for, or the pricing of, Gamma services
would have a material adverse effect on the Company's business, financial
condition and results of operations. To remain competitive, the Company may also
need to respond quickly to technological changes and innovations in the
sterilization and radiation processing market, including changes in the
technologies used to perForm Sterilization or radiation processing services that
could render Gamma obsolete or noncompetitive. The Company is also dependent
upon continued consumer acceptance of the Gamma sterilization of medical
products and the ongoing conversion of products from EtO to Gamma sterilization.
There can be no assurance that such conversion will occur at the rate
anticipated by the Company. Failure by the Company to quickly and effectively
respond to changes in the sterilization and radiation processing market,
including the development of new technologies, or a significant increase in
consumer resistance to products sterilized by Gamma, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Competition" and "-- Risks Associated With Entry Into E-Beam
Business."
SUBSTANTIAL DEBT
As of June 30, 1998, the Company's total consolidated liabilities were
$60.9 million, of which $41.9 million represented long-term debt (including
current portion), its total consolidated assets were $132.6 million and its
total stockholders' equity was $71.8 million. The Company's substantial level of
debt presents the risk that the Company might not generate sufficient cash to
service the Company's indebtedness, including its Industrial Revenue Bonds
("IRBs"), or that its debt level could limit its ability to finance an
acquisition and develop additional projects, to compete effectively or to
operate successfully under adverse economic conditions. As of June 30, 1998, the
Company had $36.5 million of tax-free IRBs outstanding with variable interest
rates as of June 30, 1998 of either 3.3% or 3.7%. Under federal regulations, the
maximum aggregate amount of tax-free IRBs that the Company may issue is $40.0
million. Once the Company has issued the maximum amount of tax-free IRBs, it
will be required to obtain any additional financing through higher cost funding
sources. Each of the Company's IRBs is collateralized by certain assets of the
Company. The Company is also required, under certain IRB agreements, to maintain
cash reserves in the amount of the bond interest payments due within one year.
As a result, such cash is not available to the Company for working capital or
other purposes.
RISKS RELATED TO GOVERNMENT REGULATION AND STANDARDS COMPLIANCE
The Company's business is subject to various federal, state and local laws,
regulations, agency actions and court decisions. Although the Company believes
it has received all licenses and permits necessary to conduct its current
sterilization business, there can be no assurance that the Company will not be
found in violation of applicable requirements or that governmental bodies will
not seek to impose regulatory requirements not now
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anticipated on the Company and its business. In addition, the long-term course
of regulatory policy cannot be predicted and, there can be no assurance that
laws and regulations will not be applied in a manner that adversely affects the
Company. The imposition of such regulatory requirements could force the Company
to alter or cease operations of its facilities and could otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations.
The design, construction, use and operation of commercial Gamma facilities
such as those operated by the Company, and byproduct materials used in such
facilities, are extensively regulated by the United States Nuclear Regulatory
Commission (the "NRC"), or in some cases by various state regulatory agencies
and authorities that undertake comparable regulatory functions from the NRC (the
"Agreement States"). While E-Beam is not regulated by the NRC, the Company's
E-Beam facility is subject to regulation by the California Department of Health
Services. The Company is currently operating its E-Beam facility under a
California Department of Health Services license held by ThermoSpectra
Corporation pending the approval of its application for a new radioactive
material license. The Company is also subject to various local zoning and permit
rules in the construction of its facilities. The Company's facilities are
subject to regulation by additional regulatory bodies at the federal, state and
local levels, depending upon the type of product that is being irradiated. The
Company's facilities are subject to the requirements of the FDA when irradiating
medical devices, foods, cosmetics or food or drug packaging materials. In
addition, if the Company were to begin processing meat or poultry products, it
would become subject to the requirements of the Food Safety and Inspection
Service of the USDA, which would require the amendment of its regulations to
authorize this use of irradiation as well as the establishment of the applicable
manufacturing practices that must be followed when using such irradiation. The
Company is also subject to the requirements of other federal agencies, such as
the United States Occupational Safety and Health Administration and the United
States Environmental Protection Agency (the "EPA"). In addition, the Company is
subject to the regulatory requirements of the state and local agencies in the
jurisdictions where the various irradiation facilities are located.
In addition to extensive regulation by various governmental bodies and
agencies, the Company is subject to standards, guidelines and requirements
established by industry organizations and other non-governmental bodies, such as
the International Standards Organization ("ISO") and the Association for the
Advancement of Medical Instrumentation ("AAMI"). The ISO 9002 Standard is an
international quality standard that requires the Company to implement and
document an effective quality assurance program which is subject to quality
systems surveillance audits every six months.
Changes in, or reinterpretations of, existing requirements and standards or
adoption of new requirements beyond those described below or the failure at any
time to comply with any applicable material regulations and standards could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will not incur
significant costs to comply with laws, regulations and other requirements in the
future or that such laws, regulations and other requirements will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Violations of or noncompliance with applicable governmental requirements
may result in an enforcement action including, among other things, a notice of
violation, imposition of civil penalties, suspension, modification or revocation
of any applicable license, criminal prosecution, or withholding or recall of the
nuclear byproduct material held by the Company. Any such action would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS OF OPERATING FACILITIES USING RADIOACTIVE MATERIAL
The operation of the Company's Gamma and E-Beam facilities involves special
safety risks, potential liabilities related to exposure to radioactive material,
and specific regulatory, radiological health and safety and environmental
requirements and may raise concerns with respect to both worker safety and
community reaction. Should an incident involving exposure of workers or others
beyond regulatory limits to radioactive materials occur at any of the Company's
facilities, the resultant liability could be substantial. Such an incident would
also result in adverse community reaction, which could impact the Company's
ability to continue to operate any facility involved in such an incident, as
well as similar facilities. In the event any losses or
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liabilities related to such an incident are underinsured or exceed accumulated
funds, or adequate recovery is not possible, the Company's business, financial
condition and results of operations would be materially adversely affected.
In addition, the Company may encounter resistance from those in the
communities where it seeks to build additional facilities or be subject to
protests or other actions in areas where it has facilities based on perceived
risk of exposure to radiation on the part of those living in the communities
surrounding the Company's facilities. Any actual or perceived exposure to
radiation as a result of the Company's activities or a failure related to the
Company's safety procedures could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Environmental and Related Risks."
The Cobalt 60 stored in water shielding pools at each of the Company's
facilities is double encapsulated in stainless steel. There can be no assurance
that these stainless steel capsules will not corrode. In 1995, the Company
encountered minor corrosion in the outer encapsulation of certain of its Cobalt
60 rods, requiring their replacement. Since the quantity of Cobalt 60 in a
facility is the key determinant of the amount of product that can be processed,
any significant delay in the replacement of such Cobalt 60 could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the Company is determined to be responsible for the
corrosion, it could be required to bear the costs of transportation and
reencapsulation of the Cobalt 60. Furthermore, such corrosion, if undetected,
could result in radioactive material being released into the water shielding
pool, which could cause contamination of the pool and potentially the related
facility. Any contamination resulting from such release and the related
decontamination process would have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Risks Related
to Government Regulation and Standards Compliance."
Due to the high energy levels emitted from the electron accelerator in the
Company's E-Beam facility, some residual radiation remains in the cell after the
accelerator is turned off and items that are in the direct path of the beam,
such as equipment and portions of the concrete, may become radioactive for some
period of time. Therefore, although the Company complies with federal and state
regulations with regard to worker safety, workers who enter the E-Beam cell are
exposed to low levels of radiation. Furthermore, the Company may be required to
incur costs in connection with disposal of radioactive material in connection
with the replacement of equipment or upgrading or decommissioning of its E-Beam
facility.
ENVIRONMENTAL AND RELATED RISKS
The Company's operations are subject to regulation by the EPA as well as
state and local governmental agencies. Although there can be no assurance, the
Company believes it currently maintains all licenses and permits necessary to
conduct its current business and that it is in material compliance with
applicable environmental, health and safety laws and regulations. The loss of
any of the Company's licenses or permits could force the Company to suspend or
terminate operations at one or more of its facilities or could otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations.
Pursuant to an Asset Acquisition Agreement effective August 8, 1996 (the
"Asset Agreement"), the Company purchased certain assets of RTI, Inc. ("RTI"),
including property located in Haw River, North Carolina and leasehold interests
in property located in Salem, New Jersey and Rockaway, New Jersey (the "Rockaway
Property"). The Rockaway Property was previously owned and operated by Thiokol
Chemical Corporation ("Thiokol"), and is listed on the Superfund National
Priorities List ("NPL"). In 1992, RTI and Thiokol entered into an Administrative
Consent Order ("ACO") with the New Jersey Department of Environmental Protection
(the "NJDEP") requiring, among other things, implementation of a groundwater
remedy estimated to exceed $2.0 million in costs.
Under the Asset Agreement, RTI retained ownership of the Rockaway Property
and all associated environmental liabilities as of the closing date. RTI agreed
to indemnify and hold the Company harmless from and against any and all claims
which may arise directly or indirectly from any use or release of hazardous
substances on or under the leased premises as of the closing date. In addition,
the Company obtained a letter from the NJDEP stating that the NJDEP will not
institute either judicial or administrative civil proceedings against the
Company for any discharge, deposit, release or disposal of hazardous substances
or pollutants
10
<PAGE> 11
existing at the Rockaway Property, emanating therefrom, or occurring before the
closing. However, the Company is required by the NJDEP to maintain a standby
letter of credit in the amount of $500,000, contingent upon the continued clean
up efforts required of RTI. The required amount of the letter of credit
decreases over the life of the leasehold interest, and/or as the NJDEP requires.
The Company believes, based on present information available to it, including
the indemnification from RTI, the ACO among RTI, Thiokol and the NJDEP, and the
NJDEP's letter stating that it will not seek recovery or remediation costs from
the Company for contamination that predates the purchase of RTI's assets, that
it does not face any significant environmental liability with respect to the
Rockaway Property. However, there can be no assurance that the Company will not
be subject to environmental liability relating to the remediation of the
Rockaway Property or liability for losses suffered by adjacent property owners
or other third parties, and such liability could have a material adverse effect
on its business, financial condition or results of operations.
In the spring of 1985, the Company leased over 400 stainless steel capsules
of radioactive Cesium from the United States Department of Energy (the "DOE")
for use at the Company's Decatur, Georgia and Westerville, Ohio irradiation
facilities. On June 6, 1988, the Company discovered one or more of DOE's Cesium
capsules had leaked radioactive Cesium, which is water soluble, contaminating
the Company's Decatur, Georgia facility. As a result of the contamination, the
Company's Decatur irradiation facility was completely shut down from June 6,
1988 until July 1996, when the Company leased the facility to a third party for
a different purpose. The decontamination activities were conducted by the DOE
and its contractors, and the Company filed an administrative claim with the DOE
for damages the Company incurred as a result of the Cesium contamination. The
DOE did not pay or deny the Company's claim within the required six-month
period. As a result, the Company filed suit against the U.S. government in June
1991. Although the DOE had orally offered to fund the costs of the cleanup, the
government subsequently asserted a substantial counterclaim against the Company
alleging that the Company had been negligent in its handling and use of the
Cesium capsules. A settlement was reached between the parties to this litigation
on April 9, 1997, following a trial and notice of appeals filed by both
SteriGenics, the U.S. government and two of its contractors. The presiding court
entered a stipulation of dismissal effective May 9, 1997. While the litigation
resulted in significant expenses and was a significant diversion of management
attention, the Company is not aware of any ongoing environmental or other legal
liabilities associated with the Cesium incident. However, there can be no
assurance that unspecified third parties, including former employees or persons
owning or occupying nearby properties, would not, in the future, assert claims
against the Company in connection with the contamination of the Decatur
facility. In January 1993, after the decontamination activities were completed,
final survey reports were prepared by both a contractor for DOE and by a third
party consultant on behalf of the Georgia Department of Human Resources, which
regulates such matters in Georgia, to allow for the unrestricted use of the
Decatur facility consistent with the requirements of the Georgia Department of
Human Resources. The documentation and data prepared by such third party
indicated that any residual radioactivity at the Decatur facility was beneath
that of regulatory concern to the applicable regulatory authority. While the
Company no longer uses Cesium in any of its facilities, there can be no
assurance that it will not experience any incidents of radioactive contamination
resulting from its use of Cobalt 60. Incidents involving radioactive
contamination from use of Cobalt 60 would likely differ from incidents involving
Cesium contamination in a number of respects. Cesium is a salt and water
soluble, in contrast to Cobalt 60, which is a metal and not water soluble. As a
result, when Cesium contamination occurs, the evaporation of contaminated water
can result in Cesium being spread to a greater extent than would be the case
with substances that are not water soluble, such as Cobalt 60. However, since
Cobalt 60 is a metal and therefore any released amount would remain in a more
concentrated form, direct exposure could potentially be more dangerous. See
"-- Risks of Operating Facilities Using Radioactive Material."
RISKS RELATED TO COBALT 60 SUPPLY
To date, the Company has obtained its supply of the Cobalt 60 radioactive
isotope from three sources. The Company's primary sources of Cobalt 60 are
Nordion, a Canadian company and the world's principal source of Cobalt 60, and
REVISS Services (UK) Limited ("REVISS"), a United Kingdom company and formerly a
division of Amersham International plc. In addition, the Company has purchased
smaller amounts of its Cobalt 60 requirements from Neutron Products Inc., a
Maryland corporation. While the Company has
11
<PAGE> 12
not experienced any shortages in Cobalt 60 supply since the mid-1980s and has
various supply contracts in place, there can be no assurance that it will be
able to obtain sufficient supplies of Cobalt 60 from Nordion, REVISS or other
suppliers on acceptable terms or that it will be able to identify and qualify
alternative sources. In addition, there is no assurance that Nordion will not in
the future become a competitor of the Company in the delivery of sterilization
services, which could result in a decrease in the availability of Cobalt 60 from
Nordion. In July 1997, Nordion announced a joint venture with Griffith Micro
Science, Inc. to provide sterilization services in Mexico. If interruptions in
the supply or increases in the price of Cobalt 60 were to occur for any reason,
including a decision by any of the Company's suppliers to decrease or
discontinue supplies of Cobalt 60 to the Company, trade restrictions with Canada
or the United Kingdom, political unrest, labor disputes or other factors, the
Company's business, financial condition and results of operations would be
materially adversely affected. Since the Company pays for Cobalt 60 primarily in
Canadian dollars, and the Canadian dollar is currently trading at levels
significantly lower than it has in recent years, the Company's results of
operations may be adversely affected by fluctuations in currency exchange rates.
In addition, the availability and price of Cobalt 60 to the Company and its
suppliers is dependent in part on the political situation in countries with
large deposits of Cobalt 59 (the material that is processed into Cobalt 60),
such as the Democratic Republic of Congo and the republics of the former Soviet
Union. Such countries have recently experienced political unrest. In addition,
since mined Cobalt 59 must be converted into Cobalt 60 in nuclear reactors, the
supply of Cobalt 60 to the Company's suppliers is dependent upon the
availability of nuclear reactors to convert Cobalt 59 to Cobalt 60. An
interruption in the Company's supply of Cobalt 60 or significant increase in the
price the Company is required to pay for Cobalt 60 would have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS OF BUSINESS INTERRUPTION
Any prolonged disruption in the operations at any of the Company's
facilities, whether due to technical or labor difficulties, equipment
malfunction, regulatory action, destruction of or damage to any facility or
other reasons, would have a material adverse effect on the Company's business,
financial condition and results of operations. This risk is increased since
customers generally seek to have their products sterilized within a 300 mile
radius of their production or distribution facilities and, therefore, it is
often not feasible to transfer products to other facilities in the event of a
prolonged disruption in any facility. The Company is also susceptible to natural
disasters, including earthquakes, hurricanes and tornadoes, as well as other
catastrophic events such as fire. Furthermore, if additional capacity is
required as a result of unplanned increases in demand for the Company's
services, the Company may suffer delays and increased costs in establishing
other facilities or increasing production at existing facilities that could
adversely affect customer relationships, cause a loss of market opportunities
and have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the failure to effectively
implement any design or process changes could disrupt the sterilization process,
which could also adversely affect customer relationships, cause a loss of market
opportunities and have a material adverse effect on the Company's business,
financial condition and results of operations.
MANAGING GROWTH; RECENT AND POTENTIAL ACQUISITIONS
The Company has recently experienced a period of revenue growth and an
expansion in the number of its employees, the scope of its operating and
financial systems and the geographic area of its operations. This growth and
expansion has resulted in and may continue to result in new and increased
responsibilities for management personnel and has placed additional demands upon
the Company's management, operating and financial systems and resources. In
order to successfully integrate its expanded operations and to manage future
growth, if any, the Company will be required to implement new and expanded
business and financial systems, procedures and controls, and to upgrade its
accounting and other internal management systems. There can be no assurance that
the Company's systems, procedures, controls and staffing will be successfully
managed or will be adequate to successfully support the Company's operations.
Failure to manage any future growth properly would have a material adverse
effect on the Company's business, financial condition and results of operations.
12
<PAGE> 13
The Company may in the future undertake acquisitions that could present
challenges to the Company's management, such as integrating and incorporating
new operations, technologies and personnel. If the Company's management is
unable to effectively manage these challenges, the Company's business, financial
condition and results of operations could be materially adversely affected.
Furthermore, there can be no assurance that any acquisitions will result in
increased revenue or positively impact the Company's profitability. Moreover,
any new acquisition, depending on its size, could result in the use of a
significant portion of the Company's available cash or the acquisition of
additional debt or, if such acquisition is made utilizing the Company's
securities, could result in significant dilution to the Company's stockholders.
The Company does not currently have any understandings, commitments or
agreements with respect to any potential acquisition or corporate partnering
arrangements. While it is an element of the Company's strategy to pursue
strategic acquisitions, the Company believes that the number of potential
acquisition candidates in the domestic market is limited. Therefore, there can
be no assurance that the Company will successfully complete any such
transaction.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills of
its key technical and management personnel, many of whom would be difficult to
replace. To reach its future business objectives, the Company will need to hire
additional qualified personnel in the areas of sales, engineering and
management. There can be no assurance that the Company will be able to hire such
personnel, as the Company must compete with other companies, academic
institutions, government entities and other agencies. The number of persons with
experience in Gamma sterilization and E-Beam technology is limited, and as a
result, competition for such personnel is intense. There can be no assurance
that the Company can retain such personnel or that it can attract or retain
other highly qualified personnel in the future. The Company maintains $2.0
million of key person life insurance on James F. Clouser, the Company's Chief
Executive Officer and President. The loss of any of the Company's senior
management, facilities managers or other key research, regulatory, technical or
sales and marketing personnel, particularly if lost to competitors, or the
failure of any key employee to perform well in his or her current position,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the loss of James F. Clouser
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FINANCIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company faces the risk of financial exposure to product liability
claims alleging that the Company's failure to adequately perform its services
resulted in adverse effects. While the Company's customers are responsible for
determining the appropriate dosage of radiation their products should receive,
the Company is required to certify that such dose level was achieved. There can
be no assurance that the Company will not be held liable for damages that are
alleged to result from improper dosing or incorrect dosage instructions received
from a customer. The Company currently maintains product liability insurance
with a claims limit of $5.0 million per claim and $5.0 million in the aggregate.
However, there can be no assurance that the Company will avoid significant
product liability claims and attendant adverse publicity. Furthermore, there can
be no assurance that the Company's product liability insurance is adequate or
that such insurance coverage will remain available at acceptable costs. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, adverse product liability
actions could negatively affect market acceptance of the Company's services and
the Company's ability to obtain and maintain regulatory approval for its
products.
NEED FOR ADDITIONAL CAPITAL
The Company requires substantial working capital to fund its business,
particularly for capital expenditures, including the construction of its
facilities and acquisition of Cobalt 60. There can be no assurance that as a
result of acquisitions, lower than anticipated cash flows or other unforeseen
events the Company will not require additional debt or equity financing.
Further, there can be no assurance that additional financing, if
13
<PAGE> 14
required, will be available to the Company on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its planned expansion, acquisitions or research, development
and engineering programs. Accordingly, the inability to obtain or difficulty in
obtaining such financing could have a material adverse effect on the Company's
business, financial condition and results of operations.
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret
protection and nondisclosure agreements to protect its proprietary rights. In
addition, the Company has a U.S. patent application pending on its MiniCell.
There can be no assurance, however, that patent and copyright law and trade
secret protection will be adequate to deter misappropriation of its technology,
that any patents issued to the Company will not be challenged, invalidated or
circumvented, that the rights granted thereunder will provide competitive
advantages to the Company, or that the claims under any patent application will
be allowed. Furthermore, there can be no assurance that others will not
independently develop similar processes or designs, duplicate the Company's
processes or design around any patents issued to the Company. The Company may be
subject to or may initiate interference proceedings in the United States Patent
and Trademark Office, which can demand significant financial and management
resources. The process of seeking patent protection can be time consuming and
expensive and there can be no assurance that patents will be issued from
currently pending or future applications or that any new patents that may be
issued will be sufficient in scope or strength to provide meaningful protection
or any commercial advantage to the Company.
The Company has received an inquiry from the Software Publishers
Association (the "SPA") regarding an alleged failure to obtain proper licenses
for certain third party software. The Company is in discussions with the SPA
and, while there can be no assurance, the Company does not believe that the
resolution of this matter will have a material adverse effect on its financial
condition or operating results.
The Company may in the future receive communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others or seeking indemnification against such alleged
infringement. No assurance can be given that any of these claims will not result
in protracted and costly litigation, that damages for infringement will not be
assessed or that should it be necessary or desirable to obtain a license
relating to one or more of the Company's services or current or future
technologies, the Company will be able to do so on commercially reasonable terms
or at all.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated and may
continue to be subject to significant fluctuations in the future. Factors such
as variations in the Company's financial results, comments by securities
analysts, changes in earnings estimates by securities analysts, fluctuations in
the stock prices of the Company's competitors, the Company's ability to
successfully sell its services in the U.S. and overseas, any loss of key
management, adverse regulatory actions or decisions, evidence regarding the
safety or efficacy of Gamma or E-Beam sterilization activities, announcements of
extraordinary events such as litigation or acquisitions, announcements of
technical innovations or changes in pricing policies by the Company or its
competitors, the development of in-house sterilization capabilities by
manufacturers, changing government regulations or industry standards and
developments with respect to FDA, NRC or other government regulations,
developments with respect to patents or other proprietary rights or public
concern as to the safety of sterilization services performed by the Company, as
well as changes in the market for medical products and general economic,
political and market conditions, may have a significant effect on the market
price of the Company's Common Stock. In addition, stock markets have experienced
extreme price and volume trading volatility in recent years. This volatility has
had a substantial effect on the market prices of securities of many companies
for reasons frequently unrelated or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
14
<PAGE> 15
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of the Company.
The Company's Certificate of Incorporation allows the Board of Directors to
issue and determine the rights, powers and preferences of Preferred Stock
without any vote or further action by the stockholders, and certain provisions
of the Company's Certificate of Incorporation and Bylaws eliminate the right of
stockholders to act by written consent without a meeting, and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law could
also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met. The possible issuance of Preferred Stock, the
procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial block of the
Company's Common Stock. These provisions could also limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.
15
<PAGE> 16
MANAGEMENT
The directors and executive officers of the Company as of August 5, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James F. Clouser..................... 47 President, Chief Executive Officer and Director
D. Patterson Adams................... 45 Vice President and General Manager, Non-Medical
Division
Thomas J. Balutis.................... 46 Chief Financial Officer and Vice President of
Finance and Administration
Eric W. Beers........................ 38 Senior Vice President of Engineering
Donald A. Currie..................... 41 Vice President of Operations, Eastern Region
Eugene C. Davis...................... 50 Vice President of Operations, Western Region
Lisa C. Foster....................... 37 Vice President of Quality Assurance
David E. Meyer....................... 47 President of Medical Products Division
Charles W. King, Jr.................. 62 Chairman of the Board
James Yarter(1)...................... 61 Director
Frederick J. Ruegsegger(1)........... 42 Director
</TABLE>
- ---------------
(1) Member of Audit Committee and Compensation Committee.
All directors hold office until the next annual meeting of the stockholders
and until their successors have been duly elected and qualified. Officers are
elected by and serve at the direction of the Board of Directors. There are no
family relationships among the directors or officers of the Company.
James F. Clouser joined SteriGenics in June 1988 as President and Chief
Executive Officer. Previously, from 1984 to 1988 he served as Chief Operating
Officer of Attain, Inc., a high technology start-up manufacturer of automatic
test equipment for semiconductor devices. Mr. Clouser has a Bachelor of Science
in Engineering from Pennsylvania State University, a Master of Business
Administration degree in Finance from Wayne State University, and a Masters of
Science degree in Accounting from Rochester Institute of Technology.
D. Patterson Adams joined SteriGenics in January 1998 as Vice President and
General Manager of the Non-Medical Division. Prior to joining SteriGenics, Mr.
Adams served as a consultant to health care providers and medical manufacturers
as President of VestCorp, an investment holding company, from July 1995 to
January 1998. Mr. Adams served as Chief Operating Officer of Progressive Capital
Investment Corporation from July 1993 to June 1995. From June 1988 to June 1993,
Mr. Adams was Vice President of EtO Operations for Isomedix, Inc. Mr. Adams
earned his Bachelor of Science Degree in Biology from the University of Memphis.
Thomas J. Balutis joined SteriGenics in June 1998 as Chief Financial
Officer and Vice President of Finance and Administration. Prior to joining
SteriGenics and since 1978, Mr. Balutis has held the position of Chief Financial
Officer for various entities affiliated with Bertelsmann AG, an international
media company, the most recent of which was Bertelsmann Industry Services, Inc.
Mr. Balutis has a Bachelor of Science in Business Administration from King's
College and a Master of Business Administration from Wilkes University.
Eric W. Beers joined SteriGenics in February 1994 as Senior Vice President
of Engineering. Prior to joining SteriGeneics and since 1980, Mr. Beers held
several engineering and managerial positions with Nordion, a supplier of Colbalt
60 and irradiation equipment, the most recent of which was as Manager of the
Industrial Irradiation Engineering Department. Mr. Beers has a degree in
Mechanical/Aeronautical Engineering from Carleton University in Canada and is a
Member of the Association of Professional Engineers of Ontario, Canada.
Donald A. Currie joined SteriGeneics in March 1991 as General Manager of
the Westerville facility. In August 1994, Mr. Currie became Director of
Operations overseeing the Westerville and Schaumburg facilities
16
<PAGE> 17
and was promoted to Vice President of Operations, Non-Medical in November 1996.
In January 1998, Mr. Currie became Vice President of Operations, Eastern Region.
Mr. Currie has a Bachelor of Arts degree in Materials and Operations Management
from Michigan State University.
Frederick J. Ruegsegger became a director of the Company in August 1998.
Mr. Reugsegger has been the Senior Vice President, Finance and Corporate
Development and Chief Financial Officer of Axys Pharmaceuticals, Inc. since
January 1998. Prior to that he served as Vice President, Finance and
Administration and Chief Financial Officer of Arris Pharmaceutical Corporation
from December 1996 until January 1998. From 1993 to 1996, he was President and
Chief Executive Officer of EyeSys Technologies, Inc., a medical instrument and
software company. Mr. Ruegsegger received a B.S. degree in Economics from the
University of Illinois and a Master of Management from Northwestern University's
Kellogg Graduate School of Management.
James R. Yarter became a director of the Company in January 1998. Mr.
Yarter has been a consultant to medical device manufacturers since April 1996.
From October 1995 to April 1996, Mr. Yarter served as President and Chief
Executive Officer of U.S. Medical, a medical device company. From February 1994
to October 1995, Mr. Yarter was President and Chief Executive Officer of BLOCK
Medical, a medical device company. Mr. Yarter provided private consulting
services to medical device manufacturers from 1990 to February 1994. Previously,
Mr. Yarter served as a corporate officer at C.R. Bard, a medical equipment and
supplies manufacturer.
17
<PAGE> 18
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 5, 1998, certain information
with respect to shares beneficially owned by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock, (ii) each of the Company's directors and the
executive officers named in the Summary Compensation Table and (iii) all current
directors and executive officers as a group. Beneficial ownership has been
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within sixty (60) days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
such acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AS OF AUGUST 5, 1998(1)(2)
--------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF CLASS
---------------- ---------------- -------------------
<S> <C> <C>
Charles W. King, III Trust........................... 681,600 8.8%
c/o King Asset Management Corporation
1999 South Bascom Avenue, Ste. 925
Campbell, CA 95008
Michael J. King Trust................................ 681,600 8.8%
c/o King Asset Management Corporation
1999 South Bascom Avenue, Ste. 925
Campbell, CA 95008
Patricia Morley King Trust........................... 681,600 8.8%
c/o King Asset Management Corporation
1999 South Bascom Avenue, Ste. 925
Campbell, CA 95008
Charles W. King, Jr. Revocable Trust................. 431,462 5.5%
c/o King Asset Management Corporation
1999 South Bascom Avenue, Ste. 925
Campbell, CA 95008
Thomas J. Balutis.................................... -- --
Eric W. Beers(3)..................................... 22,367 *
James F. Clouser(4).................................. 258,413 3.2%
Donald A. Currie(5).................................. 15,130 *
Eugene C. Davis(6)................................... 14,000 *
David E. Meyer(7).................................... 31,517 *
Charles W. King, Jr.(8).............................. 431,462 5.5%
Frederick J. Ruegsegger.............................. 150 *
James R. Yarter...................................... -- --
All current directors and executive officers as a
group
(11 persons)(9).................................... 361,150 4.5%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 5, 1998 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing percentage ownership of each other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all
18
<PAGE> 19
shares of Common Stock. To the Company's knowledge, the entities named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(2) Percentage ownership is based on 7,779,619 shares of Common Stock
outstanding on August 5, 1998.
(3) Includes 19,367 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
(4) Includes 223,124 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
(5) Includes 15,130 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
(6) Includes 14,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
(7) Includes 31,017 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
(8) Mr. King does not have any beneficial ownership of the Charles W. King, III
Trust, the Michael J. King Trust or the Patricia Morley King Trust.
(9) Includes 321,011 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of August 5,
1998.
19
<PAGE> 20
SELLING STOCKHOLDER
The following table sets forth certain information, as of August 5, 1998,
with respect to the number of shares of Common Stock owned by the Selling
Stockholder and as adjusted to give effect to the sale of the Shares offered
hereby. The Shares are being registered to permit public secondary trading of
the Shares, and the Selling Stockholder may offer the Shares for resale from
time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholder were acquired from the
Company in the Company's acquisition of ThermoSpectra Corporation, pursuant to
the Asset Acquisition Agreement dated December 27, 1997, whereby RSI Leasing,
Inc., a California corporation and wholly owned subsidiary of SteriGenics,
acquired the assets of ThermoSpectra Corporation. The Common Stock was issued
pursuant to the exemption from the registration requirements of the Securities
Act provided by Section 4(2) thereof. The Selling Stockholder represented to the
Company that it was acquiring the Shares for investment and with no present
intention of distributing the Shares.
The Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions. The Company has agreed to use
its best efforts to keep such Registration Statement effective for the lesser of
thirty (30) days from the date of effectiveness of this Prospectus or until all
Shares have been sold.
The Shares offered by this Prospectus may be offered from time to time by
the Selling Stockholder named below:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER THE OFFERING
---------------------- ----------------------
NUMBER OF NUMBER OF SHARES NUMBER OF
NAME AND ADDRESS OF SELLING STOCKHOLDER SHARES PERCENT(1) BEING OFFERED SHARES PERCENT(1)
- --------------------------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Thermo Spectra Corporation............. 109,307 1.4% 109,307 0 *
Eight East Forge Parkway
Franklin, MA 02038
Total........................ 109,307 1.4% 109,307 0 *
=== === ===
</TABLE>
- ---------------
* Less than 1%
(1) Based upon shares of Common Stock outstanding on August 5, 1998. This
Registration Statement shall also cover any additional shares of Common
Stock which become issuable in connection with the shares registered for
sale hereby by reason of any stock dividend, stock split, recapitalization
or other similar transaction effected without the receipt of consideration
which results in an increase in the number of the Company's outstanding
shares of Common Stock.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold by the Selling Stockholder from time to time in transactions
in the over-the-counter market, on the Nasdaq National Market, in privately
negotiated transactions, or by a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices. The Selling
Stockholder may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares
20
<PAGE> 21
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.
The Selling Stockholder and any broker-dealers or agents that participate
with the Selling Stockholder in the distribution of the Shares may under certain
circumstances be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit realized on
the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholder may
agree to indemnify such broker-dealers against certain liabilities, including
liabilities under Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholder (and, if it acts as agent for the
purchase of such Shares, from such purchaser). Broker-dealers may agree with the
Selling Stockholder to sell a specified number of Shares at a stipulated price
per share, and, to the extent such a broker-dealer is unable to do so acting as
agent for the Selling Stockholder, to purchase as principal any unsold Shares.
Brokers-dealers who acquire Shares as principal may thereafter resell such
Shares from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, on the Nasdaq National Market, in privately negotiated transactions, or
by 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, and in connection with such
resales may pay to or receive from the purchasers of such Shares commissions
computed as described above.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Stockholder will be
subject to applicable provisions of the 1934 Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholder.
The Selling Stockholder will pay all commissions and other expenses
associated with the sale of Shares by it. The Shares offered hereby are being
registered pursuant to contractual obligations of the Company, and the Company
has agreed to bear certain expenses in connection with the registration and sale
of the Shares being offered by the Selling Stockholder. The Company has not made
any underwriting arrangements with respect to the sale of Shares offered hereby.
21
<PAGE> 22
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, $0.001 par value, and 1,000,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of August 5, 1998, there were 7,779,619 shares of Common Stock
outstanding that were held of record by approximately 52 stockholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Price Range of Common Stock and Dividend Policy." In the event of the
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be issued upon
completion of this offering will be fully paid and nonassessable.
Under the terms of the Asset Acquisition Agreement entered into as of
December 27, 1997 by and among SteriGenics, RSI Leasing, Inc. and ThermoSpectra
Corporation ("ThermoSpectra"), under which the Company acquired certain assets
of the Nicolet Electron Services Division, ThermoSpectra may under certain
circumstances be entitled to receive up to an additional 21,861 shares of Common
Stock of the Company.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. At present, the Company has no
plans to issue any of the Preferred Stock.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo
Park, California.
EXPERTS
The consolidated financial statements and schedule of SteriGenics
International, Inc. at March 31, 1998 and 1997 and for each of the three years
in the period ended March 31, 1998 incorporated by reference in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon incorporated by reference herein,
and are included in reliance upon such report, given upon the authority of such
firm as experts in accounting and auditing.
22
<PAGE> 23
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, SELLING STOCKHOLDER OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Information Incorporated by
Reference............................ 2
Forward -- Looking Statements.......... 3
Risk Factors........................... 5
Management............................. 16
Stock Ownership of Certain Beneficial
Owners and Management................ 18
Selling Stockholder.................... 20
Plan of Distribution................... 20
Description of Capital Stock........... 22
Legal Matters.......................... 22
Experts................................ 22
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
STERIGENICS
INTERNATIONAL, INC.
------------------------
COMMON STOCK
109,307 SHARES
------------------------
AUGUST 21, 1998
- ------------------------------------------------------
- ------------------------------------------------------
