<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997
REGISTRATION NO. 333-19199
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
THERMEDICS DETECTION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3823 04-3106698
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
220 MILL ROAD, CHELMSFORD, MASSACHUSETTS 01824-4178
(508) 251-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
SANDRA L. LAMBERT, CLERK
THERMEDICS DETECTION INC.
C/O THERMO ELECTRON CORPORATION
81 WYMAN STREET
P. O. BOX 9046
WALTHAM, MA 02254-9046
(617) 622-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SETH H. HOOGASIAN, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE
GENERAL COUNSEL TESTA, HURWITZ & THIBEAULT, LLP
THERMEDICS DETECTION INC. 125 HIGH STREET
C/O THERMO ELECTRON CORPORATION BOSTON, MASSACHUSETTS 02110
81 WYMAN STREET (617) 248-7000
WALTHAM, MASSACHUSETTS 02254-9046
(617) 622-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement has become effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE (1)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.10 par
value.................. $34,488,000 $10,451
- -------------------------------------------------------------------------------------
Subscription Rights..... (2) --
</TABLE>
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- -------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(o). Of this amount, $6,982 has already
been paid.
(2) Evidencing the rights to subscribe to the above shares.
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 February 6, 1997
PROSPECTUS
2,200,000 SHARES
[LOGO OF THERMEDICS DETECTION APPEARS HERE]
COMMON STOCK
-----------
Thermedics Detection Inc. ("Thermedics Detection" or the "Company"), a
privately held, majority-owned subsidiary of Thermedics Inc. ("Thermedics"),
will distribute to holders of the Company's outstanding shares of common stock,
par value $.10 per share ("TDX Common Stock"), of record at the close of
business on February 6, 1997 (the "Thermedics Detection Record Date"),
including Thermedics, transferable subscription rights (the "Rights") to
subscribe for and purchase additional shares of TDX Common Stock for a price of
$ per share (the "Subscription Price"). Thermedics, which owns approximately
93.6% of the outstanding TDX Common Stock, will not exercise the Rights it
receives from the Company, but is instead distributing all of such Rights to
holders of outstanding shares of its common stock, par value $.05 per share
("Thermedics Common Stock"), of record at the close of business on February ,
1997 (the "Thermedics Record Date"), including Thermo Electron Corporation
("Thermo Electron"), which owns approximately 55.3% of the outstanding common
stock of Thermedics. Each holder of TDX Common Stock will receive approximately
.366 transferable Rights for each share of TDX Common Stock held of record on
the Thermedics Detection Record Date (or one Right for approximately every 2.73
shares held). Each holder of Thermedics Common Stock will receive 0.10
transferable Rights for each share of Thermedics Common Stock held of record on
the Thermedics Record Date (or one Right for every 10 shares held). Thermo
Electron will not distribute the Rights it receives to its stockholders, but
may exercise its Rights or sell its Rights depending on prevailing market
conditions, including in negotiated transactions with the Underwriters. No
fractional Rights or cash in lieu thereof will be distributed or paid by the
Company or Thermedics. The number of Rights distributed by the Company or
Thermedics to each holder of Thermedics Common Stock or TDX Common Stock will
be rounded up to the nearest whole number. The distribution of Rights to
holders of TDX Common Stock will not be a taxable event. The distribution of
Rights to holders of Thermedics Common Stock will constitute a taxable
distribution of property. See "The Rights Offering--Federal Income Tax
Consequences." Rights holders may purchase one share of TDX Common Stock for
each whole Right held. Each Right also carries the right to subscribe at the
Subscription Price for shares of TDX Common Stock that are not otherwise
purchased pursuant to the exercise of Rights. An election to exercise Rights,
once made, may not be revoked. All amounts received by the Subscription Agent
pursuant to the exercise of Rights will be held in a non-interest-bearing
escrow account until the completion of the Rights Offering. See "The Rights
Offering--Subscription Privileges." The Rights are evidenced by transferable
certificates. The Underwriters have agreed, subject to the terms and conditions
of the Standby Underwriting Agreement, to purchase from the Company on the
sixth business day after the Expiration Date (as defined below), at the
Subscription Price, (i) 300,000 shares of TDX Common Stock (the "Firm Shares")
and (ii) a number of shares of TDX Common Stock equal to 1,000,000 shares less
the number of shares of TDX Common Stock subscribed for through the exercise of
Rights (together with the Firm Shares, the "Underwritten Shares"). See
"Underwriting." The distribution of Rights by the Company and Thermedics and
the sale of the shares of TDX Common Stock upon the exercise of Rights or
pursuant to the underwriting arrangements are referred to herein as the "Rights
Offering." Assuming the sale of all of the Underwritten Shares, Thermedics will
beneficially own approximately 77.6% of the outstanding TDX Common Stock.
The Rights will expire at 5:00 p.m., Eastern time, on March , 1997 unless
extended by the Company (as extended, the "Expiration Date"), except that the
Company has agreed to allow the Underwriters to exercise Rights held by them on
the business day following the Expiration Date.
The issuance of shares of TDX Common Stock pursuant to the exercise of the
Rights is conditioned upon the sale of at least 1,000,000 shares of TDX Common
Stock in the Rights Offering (excluding the Firm Shares). See "The Rights
Offering--Subscription Privileges" and "Risk Factors--Risk of Termination of
the Rights Offering Under Certain Circumstances." The maximum number of shares
which may be issued in the Rights Offering, 2,200,000, and the minimum number
of shares which may be issued, represent approximately 17.1% and 10.8% of the
shares that would be outstanding after the Rights Offering, respectively.
Prior to this offering, there has been no public market for the TDX Common
Stock or the Rights. The TDX Common Stock and the Rights will be listed on the
American Stock Exchange. The Subscription Price will be determined by the
Company's Board of Directors after consultation with Representatives of the
Underwriters. It is currently estimated that the Subscription Price will be
between $11.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the Subscription Price.
-----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Subscription Underwriting Fees Proceeds to
Price (1) and Commissions (1) Company (1) (2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (2).......... $11.50 $.43 $11.07 Max.
$.77 $10.73 Min.
- -----------------------------------------------------------------------------------------------
Total (3).............. $25,300,000 Max. $943,000 $24,357,000 Max.
$14,950,000 Min. $997,000 $13,953,000 Min.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(cover page continued on next page)
-----------
LEHMAN BROTHER NATWESTSSECURITIES LIMITED
, 1997
<PAGE>
At the upper left of the page is a graphic image depicting the Company's
Alexus system. Immediately to the right of this image is a graphic image
depicting the Company's InScan system. To the left of these graphics is the
following caption:
The Company's Alexus systems (far left), which detect trace amounts of
constituents that affect product quality in refillable plastic soft drink, water
and other beverage containers, have been installed on more than 200 bottling
lines in more than 30 countries throughout the world. The Company's InScan
system (left) uses high-speed x-ray imaging technology to detect liquid
fill-levels and leakage in containers for the beverage, food and other
industries.
At the upper right of the page is a graphic image depicting the Company's
Flash-GC high-speed gas chromatography system. Below this graphic is the
following caption:
The Company's Flash-GC is a high-speed gas chromatography system that can
analyze chemical samples at speeds 20 to 50 times faster than conventional gas
chromatography.
(cover page continued from previous page)
(1) In connection with the transactions contemplated hereby, the Underwriters
will receive (a) standby and management fees aggregating $736,000, (b)
additional fees of $.58 for each share of TDX Common Stock actually
purchased by the Underwriters, whether pursuant to Rights purchased and
exercised or pursuant to the Standby Underwriting Agreement (excluding the
Firm Shares); provided that such fees in the aggregate shall not exceed 6%
of the Subscription Price for each share of TDX Common Stock purchased
pursuant to the exercise of Rights (by the Underwriters or otherwise) or
pursuant to the Standby Underwriting Agreement (excluding the Firm Shares)
plus an amount equal to the aggregate purchase price of Rights purchased
by the Underwriters, up to $100,000 and (c) an underwriting commission of
$.69 on each Firm Share purchased by the Underwriters. See "Underwriting."
The maximum Proceeds to the Company assumes that only the Firm Shares are
purchased by the Underwriters and 1,900,000 shares are purchased upon the
exercise of Rights by persons other than the Underwriters; and the minimum
Proceeds to the Company assumes that 1,300,000 shares are purchased by the
Underwriters and no shares are purchased upon exercise of Rights by
persons other than the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $660,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days following the Expiration Date, to purchase up to an additional
195,000 shares of TDX Common Stock at the Subscription Price solely to
cover over-allotments, if any. If this option is fully exercised, the
total additional Proceeds to the Company would be $2,125,000 and the
related total additional Underwriting Fees and Commissions would be
$117,000. See "Underwriting."
-------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE THERMEDICS DETECTION COMMON STOCK OR THE RIGHTS OR BOTH AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, INCLUDING BY ENTERING
STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING
PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
-------------
Alexus, EGIS and TEA Analyzer are each registered trademarks, and Flash-GC,
InScan, Micro-Quad, Quadra-Beam, Rampart and SecurScan are trademarks, of
Thermedics Detection Inc. All other trademarks or trade names referred to in
this Prospectus are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and the notes thereto appearing
elsewhere in this Prospectus. Except as otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option will not
be exercised. Investors should carefully consider the information set forth
under the heading "Risk Factors."
THE COMPANY
Thermedics Detection Inc. (the "Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical detectors,
high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and
other technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for other
high-security screening applications and for forensics and search applications.
The Company's principal product lines include:
. Alexus systems, introduced in 1992, detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and
other beverage containers at speeds in excess of 600 bottles per minute.
Alexus systems have been installed on more than 200 bottling lines in
more than 30 countries;
. InScan systems, introduced in 1996, detect liquid fill-levels, leakage,
foreign objects and product defects at speeds in excess of 2,400 units
per minute for the beverage, food and other industries;
. Micro-Quad, Quadra-Beam and other products of the Moisture Systems
division, acquired by the Company in 1996, measure moisture and other
product constituents, including fats, proteins, oils, flavorings,
solvents, adhesives and coatings, in the manufacturing processes of a
variety of industries;
. Flash-GC gas chromatography systems, introduced in 1996, analyze chemical
samples at speeds 20 to 50 times faster than conventional gas
chromatography systems. These systems can be used in a variety of
markets, primarily in near on-line process and quality control
applications that require high-speed results; and
. EGIS explosives detectors, first sold to commercial airports in Europe in
1991, detect and identify trace levels of explosives in carry-on bags, in
checked luggage and on people, and are also used in forensic
investigations. EGIS systems are the world's most widely used trace
particle/vapor explosives-detection systems, with an installed base of
more than 200 units in 21 countries, including more than 100 units
installed in airports.
The Company's strategy is to build upon its reputation as a technical and
market leader in applications requiring complex, high-speed or continuous
ultratrace detection and measurement. The Company holds significant patents
relating to its chemiluminescent analysis and high-speed gas chromatography
technologies, and believes that its proprietary position with respect to these
technologies affords it a competitive advantage. In addition, the Company
employs highly skilled research scientists and product development engineers
who use their intimate knowledge of their customers' production processes to
develop new products based on these technologies.
3
<PAGE>
THE RIGHTS OFFERING
Rights.................. The Company is distributing to holders of TDX Common
Stock of record at the close of business on February
6, 1997 (the "Thermedics Detection Record Date"),
including Thermedics, transferable subscription
rights (the "Rights") to subscribe for and purchase
additional shares of TDX Common Stock. Thermedics
will not exercise the Rights it receives from the
Company, but is instead distributing all of such
Rights to holders of record of Thermedics Common
Stock, including Thermo Electron, at the close of
business on February , 1997 (the "Thermedics Record
Date"). Each holder of TDX Common Stock will receive
approximately .366 transferable Rights for each share
of TDX Common Stock held of record on the Thermedics
Detection Record Date. Each holder of Thermedics
Common Stock will receive 0.10 transferable Rights
for each share of Thermedics Common Stock held of
record on the Thermedics Record Date. Thermo Electron
will not distribute the Rights it receives to its
stockholders, but may exercise its Rights or sell its
Rights depending on prevailing market conditions,
including in negotiated transactions with the
Underwriters. The number of Rights distributed by the
Company or Thermedics to each stockholder will be
rounded up to the nearest whole number. An aggregate
of approximately 1,900,000 Rights will be distributed
pursuant to the rights offering to an aggregate of
approximately 2,350 record holders of TDX Common
Stock and Thermedics Common Stock. Each Right will be
exercisable for one share of TDX Common Stock. An
aggregate of approximately 1,900,000 shares of TDX
Common Stock has been reserved for issuance upon
exercise of the Rights (the "Underlying Shares"). The
distribution of the Rights by the Company and
Thermedics and the sale of shares of TDX Common Stock
upon the exercise of Rights or pursuant to the
underwriting arrangements are referred to herein as
the "Rights Offering." See "The Rights Offering--The
Rights."
Thermedics Detection
Record Date............ February 6 , 1997
Thermedics Record
Date................... February , 1997
Expiration Date......... March , 1997, 5:00 p.m., Eastern time, or such later
date to which the Company may extend the expiration
of the Rights, except that the Company has agreed to
allow the Underwriters to exercise Rights held by
them on the business day following the Expiration
Date.
Basic Subscription
Privilege.............. Rights holders are entitled to purchase for the
Subscription Price one share of TDX Common Stock for
each whole Right held (the "Basic Subscription
Privilege"). The Rights are exercisable immediately
upon distribution. See "The Rights Offering--
Subscription Privileges--Basic Subscription
Privilege."
Oversubscription
Privilege.............. Each holder of Rights who elects to exercise his
Basic Subscription Privilege (including the
Underwriters) may also subscribe at the Subscription
Price for an unlimited number of additional
Underlying Shares that are not otherwise purchased
pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"). If an insufficient
number of Underlying Shares is available to satisfy
fully all
4
<PAGE>
elections to exercise the Oversubscription Privilege,
the available Underlying Shares will be prorated
among holders who exercise their Oversubscription
Privilege based on the respective numbers of Rights
exercised by such holders pursuant to the Basic
Subscription Privilege. See "The Rights Offering--
Subscription Privileges--Oversubscription Privilege."
Subscription Price...... $ in cash per share of TDX Common Stock
subscribed for pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege (the
"Subscription Price").
TDX Common Stock
Outstanding after
Rights Offering........ A maximum of 12,883,500 shares. This number excludes
218,180 shares issuable at a weighted average price
of $10.41 per share pursuant to stock options
outstanding at December 31, 1996 but assumes the sale
of all of the Underwritten Shares. If the minimum
number of Underwritten Shares is sold in the Rights
Offering, a maximum of 11,983,500 shares would be
outstanding after the Rights Offering. See
"Capitalization," "Management," and "Security
Ownership of Certain Beneficial Owners and
Management."
Transferability of
Rights and TDX Common
Stock.................. The Rights are transferable and will be listed on the
American Stock Exchange ("AMEX"). The TDX Common
Stock also will be listed on the AMEX. The
Subscription Agent will endeavor to sell Rights for
holders who have so requested by delivering a
Subscription Certificate (as defined below) with the
instruction for sale properly executed to the
Subscription Agent by 11:00 a.m., Eastern time, on
the date that is four AMEX trading days prior to the
Expiration Date. See "The Rights Offering--Exercise
of Rights."
Procedure for
Exercising Rights...... Basic Subscription Privileges and Oversubscription
Privileges may be exercised by properly completing
the subscription certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the Guaranteed
Delivery Procedures (as described in "The Rights
Offering--Exercise of Rights")), with payment of the
Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription
Privilege and Oversubscription Privilege, to the
Subscription Agent on or prior to the Expiration
Date. If the mail is used to forward Subscription
Certificates, it is recommended that insured,
registered mail be used. Once a holder of Rights has
exercised the Basic Subscription Privilege or the
Oversubscription Privilege, such exercise may not be
revoked. See "The Rights Offering--Exercise of
Rights."
Procedure for
Exercising Rights by
Foreign Stockholders... Subscription Certificates will not be mailed to
holders of Thermedics Common Stock or TDX Common
Stock whose addresses are outside the United States
or who have an APO or FPO address, but will be held
by the Subscription Agent for their account. To
exercise the Rights represented thereby, such holders
must notify the Subscription Agent by completing an
International Holder Subscription Form, which will be
delivered to such holders in lieu of a Subscription
Certificate, and sending it by mail or telecopy to
the Subscription Agent. Holders located in the United
Kingdom will not initially be provided with an
International Holder Subscription Form and, if they
are interested in participating in the
5
<PAGE>
Rights Offering, should contact Lehman Brothers
International (Europe), One Broadgate, London EC2M
7HA, England, telephone 011-44-1-71-260-2793,
telecopier 011-44-1-71-260-2635, attention: Mr.
Adrian Norman. International Holder Subscription
Forms must be returned to the Subscription Agent on
or prior to 11:00 a.m., Eastern time, on the date
that is four AMEX trading days prior to the
Expiration Date, at which time (if no instructions
have been received) such Rights will be sold, if
feasible, by the Subscription Agent and the net
proceeds, if any, remitted to such holders. Certain
restrictions applicable to the exercise and sale of
Rights by persons located outside of the United
States are set forth on the inside front cover page
of this Prospectus. See "The Rights Offering--Foreign
and Certain Other Stockholders."
Persons Holding Shares,
or Wishing to Exercise
Rights, Through
Others................. Persons holding Thermedics Common Stock or TDX Common
Stock, and receiving the Rights distributable with
respect thereto through a broker, dealer, commercial
bank, trust company or other nominee, as well as
persons holding stock certificates personally who
would prefer to have such institutions effect
transactions relating to the Rights on their behalf,
should contact the appropriate institution or nominee
and request it to effect the transactions for them.
Such holders should be aware that brokers or other
nominee holders may establish deadlines for receiving
instructions from beneficial holders significantly in
advance of the Expiration Date. See "The Rights
Offering--Exercise of Rights."
Issuance of TDX Common
Stock.................. Certificates representing shares of TDX Common Stock
purchased pursuant to the exercise of Rights will be
delivered to subscribers as soon as practicable after
the sixth business day following the Expiration Date.
The issuance of shares pursuant to the exercise of
Rights is conditioned upon the sale of at least
1,000,000 shares of TDX Common Stock in the Rights
Offering (excluding the Firm Shares). See "The Rights
Offering--Subscription Privileges" and "--Minimum
Sale of Shares."
Use of Proceeds......... Research and development activities, and for general
corporate purposes, including possible acquisitions.
See "Use of Proceeds."
Subscription Agent...... American Stock Transfer & Trust Company.
Standby Underwriting.... The Underwriters have agreed, subject to the terms
and conditions of the Standby Underwriting Agreement,
to purchase from the Company, at the Subscription
Price, on the sixth business day after the Expiration
Date a number of shares of TDX Common Stock equal to
1,000,000 shares less the number of shares of TDX
Common Stock purchased through the exercise of Rights
(together with the Firm Shares, the "Underwritten
Shares"). Subject to certain price and volume
limitations prescribed by applicable law, the
Underwriters may acquire Rights in the secondary
market and may exercise such Rights to acquire TDX
Common Stock. All such shares may be offered to the
public at offering prices determined from time to
time by the Underwriters, including at prices in
excess of the
6
<PAGE>
Subscription Price. The Company has agreed to pay the
Underwriters the fees and commissions set forth on
the cover page hereof. The Company has agreed to
allow the Underwriters to exercise any Rights held by
them on the first business day following the
Expiration Date. See "Underwriting."
Firm Shares............. The Underwriters have agreed, subject to the terms
and conditions of the Standby Underwriting Agreement,
to purchase from the Company, on the sixth business
day after the Expiration Date, 300,000 shares of TDX
Common Stock (the "Firm Shares"). The Underwriters
will receive a commission of $.69 for each Firm Share
purchased. See "Underwriting."
Nature of Commitment.... The obligation of the Underwriters to purchase
Underwritten Shares is subject to certain conditions
and may be terminated under certain circumstances.
See "The Rights Offering--Standby Underwriting
Commitment."
Proposed AMEX Symbols... Rights: TDX.Rt
TDX Common Stock: TDX.WI (when issued)
TDX (thereafter)
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR (1) COMBINED (4)
----------------------------------------- FISCAL YEAR
1992 (2) 1993 1994 1995 1996 (3) 1996
-------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297
Gross Profit............ 8,032 18,272 25,437 12,718 21,600 22,504
Research and Development
Expenses............... 647 1,790 3,895 2,741 4,608 4,608
Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663
Net Income.............. 1,903 5,803 6,380 1,508 362 438
Earnings per Share (5).. .19 .58 .63 .15 .04 .04
Weighted Average
Shares (5)............. 10,069 10,069 10,069 10,069 10,320 10,320
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, 1996
-----------------------
ACTUAL AS ADJUSTED (6)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital......................................... $23,358 $36,651
Total Assets............................................ 53,483 66,776
Long-term Obligations................................... 21,200 21,200
Shareholders' Investment................................ 20,910 34,203
</TABLE>
- --------
(1) The Company's 1992, 1993, 1994, 1995 and 1996 fiscal years, set forth in
this table and referred to elsewhere in this Prospectus, ended on January
2, 1993, January 1, 1994, December 31, 1994, December 30, 1995 and
December 28, 1996, respectively.
(2) Derived from unaudited financial statements.
(3) Includes the results of Moisture Systems and Rutter since their
acquisition by the Company in January 1996. See "The Company."
(4) The pro forma combined statement of income data was derived from the pro
forma combined condensed statement of income included elsewhere in this
Prospectus. The pro forma combined statement of income data sets forth the
results of operations for fiscal 1996, as if the acquisitions of Moisture
Systems and Rutter had occurred on January 1, 1996.
(5) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with
the initial capitalization of the Company, the effect of shares sold
through private placements, as well as the effect of the assumed issuance
of the private placements and the assumed exercise of stock options issued
within one year prior to the Company's proposed rights offering with
exercise prices less than the Subscription Price.
(6) Adjusted to reflect the minimum proceeds to the Company from the Rights
Offering, which assumes the sale of 1,300,000 shares to the Underwriters
at a Subscription Price of $11.50 per share and no purchase of shares upon
the exercise of Rights by persons other than the Underwriters, after
deduction of underwriting fees and commissions and estimated offering
expenses payable by the Company.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the TDX Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Prospectus.
Uncertainty of Market Acceptance of New Products. Certain of the Company's
products represent alternatives to traditional detection and analytical
methods. As a result, such products may be slow to achieve, or may not
achieve, market acceptance, as customers may seek further validation of the
efficiency and efficacy of the Company's technology, particularly where the
purchase of the product requires a significant capital commitment. The Company
believes that, to a significant extent, its growth prospects depend on its
ability to gain acceptance of the efficiency and efficacy of the Company's
innovative technologies by a broader group of customers. The Company is
currently devoting significant resources toward the enhancement of its
existing products and the development of new products and technologies,
including the Company's Flash-GC high-speed gas chromatography system; a more
portable EGIS; SecurScan, a walk-through explosives-detection system; and
Rampart, a lower-cost EGIS unit for use in airport screening of carry-on
baggage. There can be no assurance that the Company will be successful in
obtaining such broad acceptance or that, if obtained, such acceptance will be
sustained. The failure of the Company to obtain and sustain such broad
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations.
Ongoing Product Development Efforts Required by Rapid Technological
Change. The markets for the Company's products are characterized by changing
technology, evolving industry standards and new product introductions. The
Company's future success will depend in part upon its ability to enhance its
existing products and to develop and introduce new products and technologies
to meet changing customer requirements. There can be no assurance that the
Company will successfully complete the enhancement and development of these
products in a timely fashion or that the Company's current or future products
will satisfy the needs of its markets.
Dependence of Explosives Detection Market on Government Regulation and
Airline Industry. The Company's sales of its explosives-detection systems for
use in airports has been and will continue to be dependent on governmental
initiatives to require, or support, the screening of checked luggage, carry-on
items and personnel with advanced explosives-detection equipment.
Substantially all of such systems have been installed at airports in countries
other than the United States, in which the applicable government or regulatory
authority overseeing the operations of the airport has mandated such
screening. Such mandates are influenced by many factors outside of the control
of the Company, including political and budgetary concerns of governments,
airlines and airports. Of the more than 600 commercial airports worldwide,
more than 400 are located in the United States. Accordingly, the Company
believes that the size of the market for explosives-detection equipment is,
and will increasingly be, significantly influenced by United States government
regulation. In the United States, the Aviation Security Act of 1990 directed
the Federal Aviation Administration ("FAA") to develop a standard for
explosives-detection systems and required airports in the United States to
deploy systems meeting this standard in 1993. The standard adopted by the FAA
is more comprehensive than standards adopted in most other countries. To date,
no system has demonstrated that it meets the FAA standard under realistic
airport operating conditions. As a result, the FAA has not mandated the
installation of automated explosives-detection systems, and only a limited
number of these systems have been deployed, primarily on a test basis, in the
United States. The FAA first certified a computed X-ray tomography system for
checked luggage in December 1994. However, the FAA has recognized that this
system must undergo further testing to resolve whether it can operate under
realistic airport operating conditions. The Company's systems are trace
detectors for which no FAA certification process for checked baggage, carry-on
or personal screening exists to date. In 1992, the FAA approved the Company's
EGIS system for use by airlines in screening carry-on electronic items and
luggage searches. Each airline must seek this approval for each application.
Although the FAA has provided significant funding to the
9
<PAGE>
Company in connection with the development of its explosives-detection
technology, there can be no assurance that any of the Company's systems will
ever meet this or any other United States certification standard. Any product
utilizing a technology ultimately recommended or required by the FAA will have
a significant competitive advantage in the market for explosives-detection
devices. Unless the FAA takes action with respect to a particular explosives-
detection product or technology, airlines will not be required to upgrade
existing metal detection equipment. Earnings of U.S. air carriers tends to
fluctuate significantly from time to time. Any depression in the financial
condition of such carriers would likely result in lower capital spending for
discretionary items. Moreover, there can be no assurance that additional
countries will mandate the implementation of effective explosives screening
for airline baggage, carry-on items or personnel, or that, if mandated, the
Company's systems will meet the certification or other requirements of the
applicable government authority. Even if the Company's systems were to meet
the applicable requirements, there can be no assurance that the Company would
be able to market its systems effectively. See "Business--Explosives
Detectors" and "--Government Regulation."
In October 1996, the United States enacted legislation which includes a
$144.2 million allocation to purchase explosives-detection systems and other
advanced security equipment, including trace detection equipment such as the
systems manufactured by the Company, for carry-on and checked baggage
screening. There can be no assurance that this legislation will not be
modified to reduce the funding for advanced explosives equipment, that the
necessary appropriations will be made to fund the purchases of advanced
explosives-detection equipment contemplated by the legislation, that trace-
detection equipment such as the systems manufactured by the Company will be
mandated, or that, even if such appropriation is made and such equipment is
mandated, any of the Company's explosives-detection systems will be purchased
for installation at any airports in the United States. Further, there can be
no assurance that the U.S. will mandate the widespread use of these systems
after completion of the initial purchases.
Significance of Certain Customers. Sales of process detection instruments to
bottlers licensed by The Coca-Cola Company ("Coca-Cola Bottlers") were
$32,184,000, $9,974,000 and $10,641,000 in 1994, 1995 and 1996, respectively,
or 64%, 36% and 24% of the Company's revenues, respectively, during such
periods. Sales to Coca-Cola Bottlers have decreased as these customers have
substantially completed full deployment of the Company's Alexus system in
existing plant locations. Although the Company anticipates that it will
continue to derive revenues from the sale of upgrades and new systems to new
plants, as well as services to the Coca-Cola Bottlers, the Company does not
expect that revenues derived from these customers will continue at a rate
comparable to prior years. While the Company believes that the introduction of
new process detection products for the food, beverage and other markets will
continue to reduce the significance of the Coca-Cola Bottlers to the Company's
results of operations, there can be no assurance that the Company will be
successful in the introduction of new process detection products or that any
sales of these products will be sufficient to maintain a rate of growth
equivalent to prior years.
Competition; Technological Change. The Company encounters, and expects to
continue to encounter, competition in the sale of its current and future
products. Many of the Company's competitors and potential competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than those of the
Company. Some of these competitors have large existing installed bases of
products with substantial numbers of customers. In addition, other major
corporations have recently announced their intention to enter certain of the
Company's markets, including the security screening market. The Company
believes that many of its products are successful because they are
technologically superior to alternative products offered by some of the
Company's competitors. In order to continue to be successful, the Company
believes that it will be important to maintain this technological advantage.
No assurance can be given that the Company will be able to maintain such an
advantage or that competitors of the Company will not develop technological
innovations that will render products of the Company obsolete. For example,
the Company's EGIS system competes against other trace explosives detection
systems as well as systems utilizing dual energy X-ray or computed X-ray
tomography imaging technologies. There can be no assurance that such
technologies will not be enhanced to a degree that would impair the Company's
ability to market its explosives detection systems. See "Business--
Competition."
10
<PAGE>
Potential for Product Liability Claims. The Company's business involves the
risk of product liability claims inherent to the explosives detection
business, as well as the food, beverage and other industries. There are many
factors beyond the control of the Company that could result in the failure of
the Company's products to detect explosives or contaminants in food or
beverage containers, such as the reliability of a customer's operators, the
ongoing training of such operators and the maintenance of the Company's
products by its customers. For these and other reasons, there can be no
assurance that the Company's products will detect all explosives or
contaminants. The failure to detect explosives or contaminants could give rise
to product liability claims and result in negative publicity that could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company currently maintains both aviation and
general product liability insurance in amounts the Company believes to be
commercially reasonable. There can be no assurance that this insurance will be
sufficient to protect the Company from product liability claims, or that
product liability insurance will continue to be available to the Company at a
reasonable cost, if at all.
Uncertainties Associated With International Operations. In 1994, 1995 and
1996, international sales accounted for 85%, 73% and 67%, respectively, of the
Company's revenues, and the Company anticipates that international sales will
continue to account for a significant percentage of the Company's revenues.
Sales to customers in The Netherlands accounted for approximately 17% of the
Company's revenues in 1996. See Note 8 of Notes to the Company's Consolidated
Financial Statements. International revenues are subject to a number of
uncertainties, including the following: agreements may be difficult to enforce
and receivables difficult to collect through a foreign country's legal system;
foreign customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign income,
impose tariffs or adopt other restrictions on foreign trade; fluctuations in
exchange rates may affect product demand and adversely affect the
profitability in U.S. dollars of products and services provided by the Company
in foreign markets where payment for the Company's products and services is
made in the local currency; U.S. export licenses may be difficult to obtain;
and the protection of intellectual property in foreign countries may be more
difficult to enforce. Moreover, many foreign countries have their own
regulatory approval requirements for sales of the Company's products. As a
result, the Company's introduction of new products into international markets
can be costly and time-consuming, and there can be no assurance that the
Company will be able to obtain the required regulatory approvals on a timely
basis, if at all. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
Limited Protection of Proprietary Technology and Risks of Third-Party
Claims. Proprietary rights relating to the Company's products will be
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. The Company owns 37 United States patents and has filed
applications for five additional United States patents. The Company's U.S.
patents have expiration dates ranging from 1998 through 2014. The Company also
owns corresponding patents, or has filed corresponding applications, in a
number of jurisdictions throughout the world. In addition, the Company has an
exclusive, perpetual, royalty-free license under ten patents covering the use
of near-infrared and very near-infrared emitting diodes for on-line spectral
measurements. There can be no assurance, however, that any patents now or
hereafter owned by the Company will afford protection against competitors, or
as to the likelihood that patents will issue from pending patent applications.
Proceedings initiated by the Company to protect its proprietary rights could
result in substantial costs to the Company. Although the Company believes that
its products and technology do not infringe any existing proprietary rights of
others, there can be no assurance that third parties will not assert such
claims against the Company in the future or that such future claims will not
be successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to make, use, sell, distribute
or market its products and services in the U.S. or abroad. Such a judgment
could have a material adverse effect on the Company's business, financial
condition and results of operations. In the event that a claim relating to
proprietary technology or information is asserted against the Company, the
Company may seek licenses to such intellectual property. There
11
<PAGE>
can be no assurance, however, that such a license could be obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could preclude the sale, manufacture or
distribution of the Company's products and, therefore, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The cost of responding to any such claim may be material, whether
or not the assertion of such claim is valid. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or independent
development by others of similar technology. In addition, the laws of some
jurisdictions do not protect the Company's proprietary rights to the same
extent as the laws of the U.S. There can be no assurance that these
protections will be adequate. See "Business--Intellectual Property."
Risk of Termination of the Rights Offering Under Certain Circumstances. The
issuance of shares of TDX Common Stock pursuant to the exercise of the Rights
is conditioned upon the sale of at least 1,000,000 shares of TDX Common Stock
in the Rights Offering (excluding the Firm Shares). The Underwriters have
agreed to purchase from the Company on the sixth business day after the
Expiration Date, at the Subscription Price, the Firm Shares plus a number of
shares of TDX Common Stock equal to 1,000,000 less the number of shares of TDX
Common Stock subscribed for through the exercise of Rights. However, the
obligation of the Underwriters under the Standby Underwriting Agreement to
purchase Underwritten Shares is subject to the following conditions, among
others: that the Registration Statement of which this Prospectus is a part
shall have been declared effective, and that no stop order with respect
thereto shall have been issued; that satisfactory opinions of counsel to the
Company and to the Underwriters, and certain assurances from the Company's
independent public accountants, shall have been received; that the Company
shall not have experienced any material adverse change in its business
(including the results of operations or management) or properties; and that
the Company, Thermedics and Thermo Electron affirm as correct certain
representations and warranties made to the Underwriters. In addition, the
Underwriters in their absolute discretion may, in the event of the occurrence
of any of the following, elect to terminate their obligations under the
Standby Underwriting Agreement: if trading in the TDX Common Stock has been
suspended by the AMEX or trading in securities generally on the AMEX, the New
York Stock Exchange, the International Stock Exchange of the United Kingdom or
the over-the-counter market has been suspended, limited or subject to the
establishment of minimum prices; if a banking moratorium has been declared by
banking authorities of the United States, the United Kingdom, New York State
or the Commonwealth of Massachusetts; if there has occurred a declaration by
the United States or the United Kingdom of a national emergency or war, or a
material adverse change in general economic, political or financial conditions
or the effect of international conditions on the financial markets in the
United States or the United Kingdom is such as to make it, in the judgment of
the Underwriters, impracticable or advisable to proceed with the Rights
Offering or delivery of the Underwritten Shares as contemplated hereby.
If fewer than 1,300,000 shares are purchased in the Rights Offering
(including the Firm Shares) and the conditions to the obligations of the
Underwriters contained in the Standby Underwriting Agreement are not duly
satisfied or waived, the Rights Offering will not be completed. However,
subject to the conditions described above, the Underwriters will be obligated
to purchase the Firm Shares. See "The Rights Offering--Subscription
Privileges," "--Standby Underwriting Commitment" and "Underwriting."
Risks Associated with Acquisition Strategy. The Company's strategy includes
the acquisition of businesses and technologies that complement or augment the
Company's existing product lines. For example, in January 1996 the Company
acquired Moisture Systems. Promising acquisitions are difficult to identify
and complete for a number of reasons, including competition among prospective
buyers and the need for regulatory approvals, including antitrust approvals.
Any acquisitions completed by the Company may be made at substantial premiums
over the fair value of the net assets of the acquired companies. There can be
no assurance that the Company will be able to complete future acquisitions or
that the Company will be able to successfully integrate any acquired
businesses. In order to finance such acquisitions, it may be necessary for the
Company to raise additional funds through public or private financings. Any
equity or debt financing, if available at all, may be on terms which are not
favorable to the Company and, in the case of equity financing, may result in
dilution to the Company's stockholders.
12
<PAGE>
Difficulties in Managing Rapid Growth. Due to the level of technical and
marketing expertise necessary to support its existing and new customers, the
Company must attract and retain highly qualified and well-trained personnel.
There are a limited number of persons with the requisite skills to serve in
these positions, and it may become increasingly difficult for the Company to
hire such personnel. Further rapid expansion may also significantly strain the
Company's administrative, operational and financial personnel, management
information systems, manufacturing operations and other resources. There can
be no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations. Failure to manage growth
properly could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
Potential Fluctuations in Quarterly Performance. Significant annual and
quarterly fluctuations in the Company's results of operations may be caused
by, among other factors, the overall demand for, and market acceptance of, the
Company's products; the timing of regulatory approvals for certain of the
Company's products, government initiatives to promote the use of explosives
detection systems such as those manufactured and sold by the Company; the
timing of the announcement, introduction and delivery of new products and
product enhancements by the Company and its competitors; variations in the
Company's product mix and component costs; timing of customer orders;
adjustments of delivery schedules to accommodate customers programs; the
availability of components from suppliers; the timing and level of
expenditures in anticipation of future sales; the mix of products sold by the
Company; and pricing and other competitive conditions. Because certain of the
Company's products require significant capital expenditures and other
commitments by its customers, the Company has experienced extended sales
cycles. Delays in anticipated purchase orders could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customers may also cancel or reschedule shipments, and product
difficulties could delay shipments. Because the Company's operating expenses
are based on anticipated revenue levels and a high percentage of the Company's
expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter. There can be no assurance that any of these factors
will not have a material adverse impact on the Company's business and results
of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Dependence on Key Personnel. The Company is highly dependent on the members
of its senior management, including the executive officers identified under
"Management" elsewhere in this Prospectus, the loss of one or more of whom
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in part on whether it can attract
and retain highly qualified engineering, management, manufacturing, marketing
and sales personnel, particularly as the Company expands its business
activities. The Company faces significant competition for the services of such
personnel from other companies. There can be no assurance that the Company
will be able to continue to attract and retain the personnel it requires for
continued growth. The failure to hire and retain such personnel could
materially adversely affect the Company. See "Management."
Lack of Voting Control; Control by Thermedics. The Company's stockholders do
not have the right to cumulate votes for the election of directors. After
giving effect to the Rights Offering, assuming the sale of all of the
Underwritten Shares, Thermedics will beneficially own approximately 77.6% of
the outstanding TDX Common Stock. Accordingly, Thermedics will have the power
to elect the entire Board of Directors of the Company and to approve or
disapprove any corporate actions submitted to a vote of the Company's
stockholders. See "Relationship with Thermo Electron and Thermedics" and
"Security Ownership of Certain Beneficial Owners and Management."
Potential Conflicts of Interest. The Company may be subject to potential
conflicts of interest from time to time as a result of its relationship with
Thermo Electron and Thermedics. See "Relationship with Thermo Electron and
Thermedics." Certain officers of the Company are also officers of Thermedics,
Thermo Electron and/or other subsidiaries of Thermo Electron, and are full-
time employees of Thermedics or Thermo Electron. Such officers will devote
only a portion of their working time to the affairs of the Company. For
financial reporting purposes, the Company's financial results are included in
the consolidated financial statements of
13
<PAGE>
Thermedics and Thermo Electron. The members of the Board of Directors of the
Company who are also affiliated with Thermo Electron or Thermedics 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 Thermedics and Thermo Electron. In some
instances the impact of such decisions could be disadvantageous to the Company
while advantageous to Thermedics or Thermo Electron, or vice versa. Although
the Company has adopted no formal procedures for resolving potential conflicts
of interest, it is the Company's intention to add at least two independent
Directors to the Company's Board of Directors within six months after
completion of the Rights Offering, and to require the approval of such
independent Directors of all material transactions involving conflicts of
interest. 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 Thermedics."
Significant Additional Shares Eligible for Sale After the Offering. At the
conclusion of the 120-day period following the closing of the Rights Offering,
the Company will file a registration statement pursuant to the Securities Act
covering the resale of 683,500 shares of TDX Common Stock held by existing
investors other than Thermedics. The 10,000,000 shares of TDX Common Stock
owned by Thermedics are eligible for resale under Rule 144. In addition,
subject to certain limitations described below under "Shares Eligible for
Future Sale," as long as Thermedics is able to elect a majority of the
Company's Board of Directors, it will have the ability to cause the Company at
any time to register for resale all or a portion of the TDX Common Stock owned
by Thermedics.
Additional shares of TDX Common Stock issuable upon exercise of options
granted under the Company's stock-based compensation plans will become
available for future sale in the public market at prescribed times. Sales of a
significant number of shares of TDX Common Stock in the public market
following the Rights Offering could adversely affect the market price of the
TDX Common Stock. See "Relationship with Thermo Electron and Thermedics" and
"Shares Eligible for Future Sale."
Immediate and Substantial Dilution. Purchasers of the TDX Common Stock
offered hereby will incur an immediate and substantial dilution in the net
tangible book value per share of the TDX Common Stock from the Subscription
Price. Dilution per share to investors in the Rights Offering will be $10.06
and $9.36 assuming minimum and maximum proceeds to the Company, respectively.
Additional dilution is likely to occur upon the exercise of outstanding stock
options. See "Dilution."
No Prior Public Market for TDX Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the TDX
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The Subscription Price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the Subscription Price. Many factors, including
fluctuations in the Company's operating results, announcements of
technological innovations or new contracts or products by the Company or its
competitors, government regulation and approvals, developments in patent or
other proprietary rights and market conditions for stocks of companies similar
to the Company, could have a significant impact on the market price of the TDX
Common Stock, and there can be no assurance that the market price of the TDX
Common Stock will not decline below the Subscription Price.
Lack of Dividends. The Company anticipates that for the foreseeable future
the Company's earnings, if any, will be retained for use in the business and
that no cash dividends will be paid on the TDX Common Stock. Declaration of
dividends on the TDX Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions. See "Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Rights Offering
depends on the number of Rights exercised. The maximum and minimum net
proceeds to be received by the Company are estimated to be $23,697,000 and
$13,293,000, respectively (a maximum of $25,822,000 if the Underwriters' over-
allotment option is exercised in full) after deducting the underwriting fees
and commissions and estimated offering expenses payable by the Company.
The Company expects to use substantially all of the net proceeds from the
Rights Offering to fund research and development with respect to new products.
The Company expects to use the balance of such net proceeds for general
corporate purposes, including the possible acquisition of one or more
businesses. The Company, however, is not currently engaged in negotiations
with any companies and it has no agreements, understanding or commitments with
respect to any specific acquisitions that would be material to the Company.
Pending these uses, the Company expects to invest the net proceeds from the
Rights Offering primarily in investment grade interest bearing or dividend
bearing instruments, either directly by the Company or pursuant to a
repurchase agreement with Thermo Electron. See "Relationship with Thermo
Electron and Thermedics--Certain Transactions with Affiliates."
DIVIDEND POLICY
The Company has never paid any cash dividends on the TDX Common Stock. The
Company anticipates that for the foreseeable future the Company's earnings, if
any, will be retained for use in the business and that no cash dividends will
be paid on the TDX Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 28, 1996, as adjusted to reflect the issuance and sale of 1,300,000
shares of TDX Common Stock in the Rights Offering, after deducting
underwriting fees and commissions and estimated offering expenses payable by
the Company.
<TABLE>
<CAPTION>
DECEMBER 28, 1996
------------------------
ACTUAL AS ADJUSTED (1)
------- ---------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term Obligation:
Promissory Note to Parent Company................ $21,200 $21,200
------- -------
Shareholders' Investment:
Common stock, $.10 par value, 15,000,000 shares
authorized; 10,683,500
shares issued and outstanding, 11,983,500
shares, as adjusted for the Rights Offering
(2)............................................. 1,068 1,198
Capital in excess of par value................... 13,130 26,293
Retained earnings................................ 7,136 7,136
Cumulative translation adjustment................ (424) (424)
------- -------
Total Shareholders' Investment................. 20,910 34,203
------- -------
Total Capitalization (Long-term Obligation
and Shareholders' Investment)............... $42,110 $55,403
======= =======
</TABLE>
- --------
(1) Adjusted to reflect the minimum proceeds to the Company from the Rights
Offering, which assumes the sale of 1,300,000 shares to the Underwriters
at a Subscription Price of $11.50 per share and no purchase of shares upon
the exercise of Rights by persons other than the Underwriters, after
deduction of underwriting fees and commissions and estimated offering
expenses payable by the Company. See "The Rights Offering" and
"Underwriting." Common stock and capital in excess of par value would be
$1,288,000 and $36,607,000, respectively, assuming the capitalization of
the Company adjusted to reflect the maximum proceeds to the Company from
the sale of 2,200,000 shares at $11.50 per share.
(2) Does not include 358,333 shares of TDX Common Stock reserved for issuance
under the Company's stock-based compensation plans. Options to purchase
218,180 shares of TDX Common Stock had been granted and were outstanding
under the Company's stock-based compensation plans as of December 28,
1996. See "Management--Compensation of Directors" and "--Compensation of
Executive Officers" and Note 3 of Notes to the Company's Consolidated
Financial Statements.
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<PAGE>
DILUTION
As of December 28, 1996, the Company had net tangible book value of
$3,922,000, or $.37 per share. Net tangible book value per share is determined
by dividing the net tangible book value (total tangible assets less total
liabilities) of the Company by the number of shares of TDX Common Stock
outstanding. After giving effect to the Rights Offering, assuming the minimum
proceeds to the Company, which assumes the sale of 1,300,000 shares to the
Underwriters at a Subscription Price of $11.50 per share and the sale of no
shares upon the exercise of Rights by persons other than the Underwriters, and
the application of the estimated net proceeds, the pro forma net tangible book
value of the Company as of December 28, 1996 would have been $17,215,000 or
$1.44 per share. This represents an immediate increase in such net tangible
book value of $1.07 per share to present stockholders and an immediate
dilution of $10.06 per share to the investors purchasing shares in the Rights
Offering. See "Risk Factors--Immediate and Substantial Dilution." The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Subscription Price per share..................................... $11.50
Net tangible book value per share as of December 28, 1996 be-
fore the Rights Offering...................................... $ .37
Increase in net tangible book value per share attributable to
the Rights Offering........................................... 1.07
-----
Pro forma net tangible book value per share as of December 28,
1996, after the Rights Offering (1)............................. 1.44
------
Dilution per share to investors in the Rights Offering (1)....... $10.06
======
</TABLE>
- --------
(1) If all options outstanding as of December 28, 1996 to purchase an
aggregate of 218,180 shares of TDX Common Stock at a weighted average
exercise price of $10.41 per share were exercised in full, the pro forma
net tangible book value per share after the Rights Offering would be
$1.60, resulting in an immediate dilution of $9.90 per share to investors
purchasing shares in the Rights Offering.
The following table sets forth on a pro forma basis as of December 28, 1996,
the number of shares of TDX Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing shareholders and investors purchasing shares in the Rights Offering,
assuming the minimum proceeds to the Company from the Rights Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Thermedics (1).......... 10,000,000 83.5% 6,900,000 23.8% $ .69
Other existing investors
(2).................... 683,500 5.7 7,123,000 24.6 10.42
Investors in the Rights
Offering............... 1,300,000 10.8 14,950,000 51.6 11.50
---------- ----- ------------ -------
Total................. 11,983,500 100.0% 28,973,000 100.0%
========== ===== ============ =======
</TABLE>
- --------
(1) Calculated on the basis of the book value of net assets transferred by
Thermedics to the Company in exchange for 10,000,000 shares of TDX Common
Stock. See "Relationship with Thermo Electron and Thermedics."
(2) Represents the consideration paid for shares of TDX Common Stock purchased
for cash.
17
<PAGE>
After giving effect to the Rights Offering, assuming the maximum proceeds to
the Company, which assumes the sale of 2,200,000 shares upon the exercise of
Rights by persons other than the Underwriters and the sale of the Firm Shares
to the Underwriters, and the application of the estimated net proceeds, the
pro forma net tangible book value of the Company as of December 28, 1996 would
have been $27,619,000, or $2.14 per share. This represents an immediate
increase in such net tangible book value of $1.77 per share to present
stockholders and an immediate dilution of $9.36 per share to the investors
purchasing shares in the Rights Offering. See "Risk Factors--Immediate and
Substantial Dilution." The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Subscription Price per share.................................... $11.50
Net tangible book value per share as of December 28, 1996 be-
fore the Rights Offering..................................... $ .37
Increase in net tangible book value per share attributable to
the Rights Offering.......................................... 1.77
------
Pro forma net tangible book value per share as of December 28,
1996, after the Rights Offering (1)(2)......................... 2.14
------
Dilution per share to investors in the Rights Offering (1)(2)... $ 9.36
======
</TABLE>
- --------
(1) If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the Rights Offering would be
$2.27, resulting in an immediate dilution of $9.23 per share to investors
purchasing shares in the Rights Offering.
(2) If all options outstanding as of December 28, 1996 to purchase an
aggregate of 218,180 shares of TDX Common Stock at a weighted average
exercise price of $10.41 per share were exercised in full in addition to
the Underwriters' exercise of the over-allotment option, the pro forma net
tangible book value per share after the Rights Offering would be $2.41,
resulting in an immediate dilution of $9.09 per share to investors
purchasing shares in the Rights Offering.
The following table sets forth on a pro forma basis as of December 28, 1996,
the number of shares of TDX Common Stock purchased from the Company, the total
consideration paid and the average price paid per share by existing
shareholders and investors purchasing shares in the Rights Offering, assuming
the maximum proceeds to the Company from the Rights Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Thermedics (1).......... 10,000,000 77.6% 6,900,000 17.5% $ .69
Other existing investors
(2).................... 683,500 5.3 7,123,000 18.1 10.42
Investors in the Rights
Offering............... 2,200,000 17.1 25,300,000 64.4 11.50
---------- ----- ------------ -------
Total................. 12,883,500 100.0% 39,323,000 100.0%
========== ===== ============ =======
</TABLE>
- --------
(1) Calculated on the basis of the book value of net assets transferred by
Thermedics to the Company in exchange for 10,000,000 shares of TDX Common
Stock. See "Relationship with Thermo Electron and Thermedics."
(2) Represents the consideration paid for shares of TDX Common Stock purchased
for cash.
18
<PAGE>
THE COMPANY
The Company operated as a division of Thermedics until its incorporation as
a Massachusetts corporation in December 1990. In connection with the Company's
incorporation, Thermedics transferred to the Company its TEA Analyzer and
certain other trace detection technologies in exchange for 10,000,000 shares
of the Company's Common Stock. In January 1996, the Company acquired
substantially all of the assets of Moisture Systems Corporation and the stock
of Rutter & Co. B.V. (collectively, "Moisture Systems"). Unless the context
otherwise requires, references in this Prospectus to the Company or Thermedics
Detection Inc. refer to Thermedics Detection Inc. and its subsidiaries and
predecessors. As of December 28, 1996, Thermedics beneficially owned 93.6% of
the outstanding TDX Common Stock. The Company's principal executive offices
are located at 220 Mill Road, Chelmsford, Massachusetts 01824-4178, and its
telephone number is (508) 251-2000.
19
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights, at no cost, to holders of
outstanding shares of TDX Common Stock of record on the Thermedics Detection
Record Date. Thermedics Detection stockholders will receive approximately .366
Rights for each share of TDX Common Stock held by them of record on the
Thermedics Detection Record Date. Each Right will be exercisable for one share
of TDX Common Stock.
Thermedics, which currently owns approximately 93.6% of the outstanding TDX
Common Stock, will not exercise the Rights it receives from the Company, but
is instead distributing all of such Rights to holders of outstanding shares of
Thermedics Common Stock of record on the Thermedics Record Date (collectively,
with the holders of TDX Common Stock on the Thermedics Detection Record Date,
other than Thermedics, referred to as the "Holders"), including Thermo
Electron. Thermedics stockholders will receive 0.10 Rights for each share of
Thermedics Common Stock held by them of record on the Thermedics Record Date.
Each Right will be exercisable for one share of TDX Common Stock. No
fractional Rights or cash in lieu thereof will be issued or paid by the
Company or Thermedics. The number of Rights distributed to each Holder will be
rounded up to the nearest whole number.
Thermo Electron will not distribute the Rights it receives to its
stockholders but may exercise its Rights or sell its Rights, including in
negotiated transactions with the Underwriters.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Eastern time, on March , 1997 unless
extended by the Company. After the Expiration Date, unexercised Rights will be
null and void. The Company will not be obligated to honor any purported
exercise of Rights received by the Subscription Agent after the Expiration
Date, regardless of when the documents relating to such exercise were sent,
except pursuant to the Guaranteed Delivery Procedures described below. Notice
of any extension of the Expiration Date will be made through a press release
issued by the Company. Notwithstanding the foregoing, the Company has agreed
to allow the Underwriters to exercise any Rights held by them on the business
day following the Expiration Date.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one share of TDX Common Stock
(the "Basic Subscription Privilege"). Certificates representing shares of TDX
Common Stock purchased pursuant to the Basic Subscription Privilege will be
delivered to subscribers as soon as practicable after the sixth business day
following the Expiration Date.
Oversubscription Privilege. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for
Underlying Shares that are not otherwise purchased pursuant to the exercise of
Rights (the "Oversubscription Privilege"). The Oversubscription Privilege must
be exercised by a holder, if at all, simultaneously with the exercise of the
Basic Subscription Privilege.
Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are
not subscribed for through the Basic Subscription Privilege. If the Underlying
Shares not subscribed for through the Basic Subscription Privilege ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among those holders of
Rights exercising the Oversubscription Privilege, in proportion, not to the
number of shares requested pursuant to the Oversubscription Privilege, but to
the number of shares of TDX Common Stock each beneficial holder exercising the
Oversubscription Privilege has purchased pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
Rights holder being allocated a greater number of Excess Shares than such
holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder
20
<PAGE>
will be allocated only such number of Excess Shares as such holder subscribed
for and the remaining Excess Shares will be allocated among all other holders
exercising the Oversubscription Privilege. All beneficial holders who exercise
the Basic Subscription Privilege, including Underwriters, will be entitled to
exercise the Oversubscription Privilege. Certificates representing shares of
TDX Common Stock purchased pursuant to the Oversubscription Privilege will be
delivered to subscribers as soon as practicable after the sixth business day
following the Expiration Date and after all prorations have been effected.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and
the number of Underlying Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
Minimum Sale of Shares. The issuance of shares of TDX Common Stock pursuant
to the exercise of the Basic Subscription Privilege and the Oversubscription
Privilege is conditioned upon the sale of at least 1,000,000 shares of TDX
Common Stock in the Rights Offering (excluding the Firm Shares). All amounts
received by the Subscription Agent pursuant to the exercise of Rights will be
held in a non-interest-bearing escrow account until the completion of the
Rights Offering. The Underwriters have agreed to purchase from the Company on
the sixth business day after the Expiration Date at the Subscription Price a
number of shares of TDX Common Stock equal to 1,000,000 shares less the number
of shares of TDX Common Stock subscribed for through the exercise of Rights.
However, the obligations of the Underwriters are subject to certain conditions
contained in the Standby Underwriting Agreement. See "Underwriting." If fewer
than 1,300,000 shares are purchased in the Rights Offering (including the Firm
Shares) and the conditions to the obligations of the Underwriters contained in
the Standby Underwriting Agreement are not duly satisfied or waived, the
Rights Offering will not be completed. If the Rights Offering is not
completed, all funds received by the Subscription Agent in payment of the
Subscription Price and held in escrow by the Subscription Agent will be
returned by mail without interest or deduction as soon as practicable
following the termination or expiration of the Standby Underwriting Agreement.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to American Stock Transfer & Trust
Company (the "Subscription Agent"), at or prior to 5:00 p.m., Eastern time, on
the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any required signatures guaranteed,
together with payment in full of the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. Such payment in full must be by (a) check or bank
draft drawn upon a United States bank or postal, telegraphic or express money
order payable to American Stock Transfer & Trust Company, as Subscription
Agent, or (b) wire transfer of funds to the account maintained by the
Subscription Agent for such purpose at Chemical Bank, 55 Water Street, New
York, New York 10041, Account No. ; ABA No. 021 000 128. Any wire transfer
of funds should clearly indicate the identity of the subscriber who is paying
the Subscription Price by the wire transfer. The Subscription Price will be
deemed to have been received by the Subscription Agent only upon (i) clearance
of any uncertified check, (ii) receipt by the Subscription Agent of any
certified check or bank draft drawn upon a United States bank or of any
postal, telegraphic or express money order or (iii) receipt of good funds in
the Subscription Agent's account designated above. IF PAYING BY UNCERTIFIED
PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE UP TO FIVE
BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO WISH TO PAY THE
SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE
PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT
BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
21
<PAGE>
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Stock Transfer & Trust Company 40 Wall Street New York, New York
10005 Telephone: (718) 921-8200
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent on or prior to
the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration Date,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Thermedics Detection
Inc. Subscription Certificates and International Holder Subscription Forms
(the "Instructions") distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), stating the name of the
exercising Rights holder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rights holder, the number of Underlying Shares being subscribed
for pursuant to the Basic Subscription Privilege and the number of
Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such Rights
within five American Stock Exchange ("AMEX") trading days following the
date of the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate evidencing the
Rights being exercised, with any required signatures guaranteed, is
received by the Subscription Agent within five AMEX trading days following
the date of the Notice of Guaranteed Delivery relating thereto. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the address set forth above, or
may be transmitted to the Subscription Agent by telegram or facsimile
transmission (telecopy no. (718) 234-5001). Additional copies of the form
of Notice of Guaranteed Delivery are available upon request from the
Subscription Agent, at the address set forth above.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of TDX Common Stock which such holder wished to subscribe for pursuant
to the Oversubscription Privilege, the excess funds paid by such holder in
respect of the Subscription Price for shares not issued will be returned by
mail without interest or deduction as soon as practicable after the Expiration
Date.
A holder of Rights who purchases less than all of the shares of TDX Common
Stock represented by his Subscription Certificate will receive from the
Subscription Agent a new Subscription Certificate representing the balance of
the unsubscribed Rights, to the extent the Subscription Agent is able to
reissue a Subscription Certificate prior to the Expiration Date.
Unless a Subscription Certificate (i) provides that the shares of TDX Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution.
22
<PAGE>
Holders who hold shares of TDX Common Stock or Thermedics Common Stock for
the account of others, such as brokers, trustees or depositaries for
securities, should provide a copy of this Prospectus to the respective
beneficial owners of such shares as soon as possible, ascertain such
beneficial owners' intentions and obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Rights
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of TDX Common
Stock or Thermedics Common Stock or Rights held through such a holder should
contact the holder and request the holder to effect transactions in accordance
with the beneficial owner's instructions. Beneficial holders should be aware
that brokers or other record holders may establish deadlines for receiving
instructions from beneficial holders significantly in advance of the
Expiration Date.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY, THERMEDICS, OR THERMO ELECTRON, BUT RATHER SEND THEM TO AMERICAN
STOCK TRANSFER & TRUST COMPANY AS REFERENCED ABOVE.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT OR PRIOR
TO 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED,
PERSONAL CHECKS MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, HOLDERS OF RIGHTS
ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. The Company reserves the right to
reject any purchases not properly submitted or the acceptance of which would,
in the opinion of its counsel, be unlawful. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Subscription
Agent.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels, including
banks and brokers. The Rights and TDX Common Stock will be listed on the AMEX.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights
23
<PAGE>
evidenced by a single Subscription Certificate (but not fractional Rights) may
be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, a new Subscription Certificate evidencing
the balance of the Rights will be issued to the Rights holder or, if the
Rights holder so instructs, to an additional transferee. However,
notwithstanding the foregoing, the Subscription Agent will reissue
Subscription Certificates for the transferred Rights to the transferee, and
will reissue Subscription Certificates for the balance, if any, to the holder
of the Rights, only to the extent it is able to do so before the Expiration
Date. To transfer Rights to any person other than a bank or broker, signatures
on the Subscription Certificate must be guaranteed by an Eligible Institution.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued
and transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any, and
(iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. None of the Company, Thermedics,
nor the Subscription Agent will have any liability to a transferee or
transferor of Rights if Subscription Certificates are not received in time for
exercise or sale prior to the Expiration Date.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate are to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold.
Promptly following such sale, the Subscription Agent will send the Rights
holder a check for the net proceeds from the sale of any Rights sold. If the
proceeds from the sale of Rights are to be paid or delivered to anyone other
than the registered holder of the Rights, signatures on the Subscription
Certificate must be guaranteed by an eligible guarantor institution which is a
participant in a securities transfer association recognized program (otherwise
known as the Medallion Signature Guarantee Program). ANY SIGNATURE GUARANTEE
NOT MADE IN ACCORDANCE WITH THE MEDALLION SIGNATURE GUARANTEE PROGRAM WILL NOT
BE ACCEPTED BY THE SUBSCRIPTION AGENT. If the Rights can be sold by the
Subscription Agent, sales of such Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day
such Rights are sold, less any applicable brokerage commissions, taxes and
other direct expenses of sale. Orders to sell Rights must be received on or
prior to 11:00 a.m., Eastern time, on the date that is four AMEX trading days
prior to the Expiration Date, and the Subscription Agent's obligation to
execute orders is subject to its ability to find buyers at a price that would
result in net proceeds to the holder of the Rights.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not
the Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"). Rights exercised through DTC are referred to
as "DTC Exercised Rights." The holder of a DTC Exercised Right may exercise
the Oversubscription Privilege in respect of such DTC Exercised Right by
properly executing and delivering to the Subscription Agent, at or prior to
5:00 p.m., Eastern time, on March , 1997, a DTC Participant Oversubscription
Exercise Form, together with payment of the appropriate Subscription Price for
the number of Underlying Shares for which the Oversubscription Privilege is to
be exercised. Copies of the DTC Participant Oversubscription Exercise Form may
be obtained from the Subscription Agent.
24
<PAGE>
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Certificates will not be mailed to Holders whose addresses are
outside the United States or who have an APO or FPO address, but will be held
by the Subscription Agent for their account. To exercise or sell Rights, such
Holders must notify the Subscription Agent by completing an International
Holder Subscription Form, which will be delivered to such Holders (except
those located in the United Kingdom) in lieu of a Subscription Certificate,
and sending it by mail or telecopy to the Subscription Agent at the address
and telecopy number specified above. Holders located in the United Kingdom
will not initially be provided with International Holder Subscription Forms.
Such Holders who are interested in participating in the Rights Offering should
contact Lehman Brothers International (Europe), One Broadgate, London EC2M
7HA, England, telephone 011-44-1-71-260-2793, telecopier 011-44-1-71-260-2635,
attention: Mr. Adrian Norman. International Holder Subscription Forms must be
returned to the Subscription Agent at or prior to 11:00 a.m., Eastern time, on
the date that is four AMEX trading days prior to the Expiration Date, at which
time (if no instructions have been received) the Rights represented thereby
will be sold, if feasible, by the Subscription Agent and the net proceeds, if
any, remitted to such Holders. If the Rights can be sold by the Subscription
Agent, sales of such Rights will be deemed to have been effected at the
weighted average price received by the Subscription Agent on the day such
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses. Certain restrictions upon the transfer and exercise of Rights by
persons located outside of the United States are set forth elsewhere in this
Prospectus under the caption "Additional Information."
STANDBY UNDERWRITING COMMITMENT
The Company and the Underwriters have entered into a Standby Underwriting
Agreement, the material terms of which are discussed below. Under the Standby
Underwriting Agreement, and except as described in the following paragraph,
the Underwriters will be required to purchase from the Company on the sixth
business day after the Expiration Date, at the Subscription Price, the Firm
Shares plus a number of shares of TDX Common Stock equal to 1,000,000 shares
less the number of shares of TDX Common Stock that have been properly
subscribed for as of the Expiration Date ("Underwritten Shares"). If Rights to
purchase at least 1,000,000 shares are exercised, the Underwriters will not be
required to purchase any of the TDX Common Stock issuable upon the exercise of
the Rights. However, subject to the conditions described below, the
Underwriters will be obligated to purchase the Firm Shares. The Company has
also granted the Underwriters an option, exercisable within 30 days after the
Expiration Date, to purchase up to an additional 195,000 shares of TDX Common
Stock at the Subscription Price solely to cover over-allotments, if any.
The obligation of the Underwriters under the Standby Underwriting Agreement
to purchase Underwritten Shares is subject to the following conditions, among
others: that the Registration Statement of which this Prospectus is a part
shall have been declared effective, and that no stop order with respect
thereto shall have been issued; that satisfactory opinions of counsel to the
Company and to the Underwriters, and certain assurances from the Company's
independent public accountants, shall have been received; that the Company
shall not have experienced any material adverse change in its business
(including the results of operations or management) or properties; and that
the Company, Thermedics and Thermo Electron affirm as correct certain
representations and warranties made to the Underwriters. In addition, the
Underwriters in their absolute discretion may, in the event of the occurrence
of any of the following, elect to terminate their obligations under the
Standby Underwriting Agreement: if trading in the TDX Common Stock has been
suspended by the AMEX or trading in securities generally on the AMEX, the New
York Stock Exchange, the International Stock Exchange of the United Kingdom or
the over-the-counter market has been suspended, limited or subject to the
establishment of minimum prices; if a banking moratorium has been declared by
banking authorities of the United States, the United Kingdom, New York State
or the Commonwealth of Massachusetts; if there has occurred a declaration by
the United States or the United Kingdom of a national emergency or war, or a
material adverse change in general economic, political or financial conditions
or the effect of international conditions on the financial markets in the
United States or the United Kingdom is such as to make it, in the judgment of
the Underwriters, impracticable or inadvisable to proceed with the Rights
Offering or delivery of the Underwritten Shares as contemplated hereby.
25
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax considerations affecting holders of TDX Common Stock and Thermedics Common
Stock receiving Rights in the Rights Offering. This summary is based upon
laws, regulations, rulings, and decisions currently in effect. This summary
does not discuss all aspects of federal taxation that may be relevant to a
particular investor or to certain types of investors subject to special
treatment under the federal tax laws (for example, banks, dealers in
securities, life insurance companies, tax-exempt organizations, and foreign
persons), nor does it discuss any aspect of state, local, or foreign tax laws.
HOLDERS OF TDX COMMON STOCK AND THERMEDICS COMMON STOCK SHOULD THEREFORE
CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, AND UNDER ANY APPLICABLE STATE, LOCAL, OR FOREIGN TAX LAWS.
Distribution of the Rights to Holders of TDX Common Stock. A holder of TDX
Common Stock will not recognize taxable income for federal income tax purposes
as a result of the issuance to such holder of Rights in respect of the TDX
Common Stock. Except as provided in the following sentence, the basis of such
Rights will be zero. If either (i) the fair market value of the Rights on the
date of distribution is 15% or more of the fair market value of the TDX Common
Stock in respect of which they are received on such date, or (ii) the
stockholder elects, in the stockholder's federal income tax return for the
taxable year in which the Rights are received, to allocate part of the basis
of such TDX Common Stock to the Rights, then the stockholder's basis in such
TDX Common Stock will be allocated between such TDX Common Stock and such
Rights in proportion to their respective fair market values on the date of
distribution. The holding period of a stockholder with respect to Rights
received as a distribution on such stockholder's TDX Common Stock will include
the stockholder's holding period for the TDX Common Stock in respect of which
the Rights were issued.
Distribution of the Rights to Holders of Thermedics Common Stock. The
distribution of the Rights by Thermedics to holders of Thermedics Common Stock
will constitute a taxable distribution of property, and accordingly, each such
holder will be required to include as ordinary taxable income an amount equal
to the fair market value (if any) of the Rights as of the date of the
distribution (subject, to the extent available, to the 70% dividends-received
deduction currently allowed to certain corporate stockholders). The tax basis
of the Rights in the hands of the recipient Thermedics stockholder will be
equal to the amount so included in income.
Thermedics is required annually to notify the holders of Thermedics Common
Stock, on Internal Revenue Service Form 1099, of the amount of dividends
aggregating $10 or more paid to such holders during the prior year, including,
for 1997, the fair market value of the Rights (if any) on the date of
distribution. Thermedics and the Company will determine the fair market value
of the Rights on that date, after consultation with the Underwriters. It is
anticipated that the per share value of the TDX Common Stock represented by
the Rights at the date of commencement of the Rights Offering will approximate
the Subscription Price, with the result that the Rights should have nominal
value for federal income tax purposes. Holders of Thermedics Common Stock
should be aware, however, that the Internal Revenue Service will not be bound
by Thermedics' and the Company's determination.
Tax Basis in Rights. A holder of Rights that purchased the Rights will have
a tax basis in the Rights equal to the holder's cost of the Rights. A
Thermedics shareholder that received the Rights as a dividend with respect to
the stock of Thermedics will have a tax basis in the Rights equal to the
amount of the dividend (without taking into account any dividends-received
deduction for corporate shareholders). A holder of TDX Common Stock that
received the Rights with respect to the TDX Common Stock will allocate its
previous tax basis in the TDX Common Stock between the TDX Common Stock and
the Rights in proportion to their respective fair market values on the date of
the distribution, provided, however, that no such allocation of basis shall be
made if (i) the fair market value of the Rights so acquired is less than 15%
of the fair market value of the holder's TDX Common Stock immediately prior to
the distribution (unless the holder elects to make an allocation), or (ii) the
Rights so acquired are neither sold nor exercised.
26
<PAGE>
Exercise of Rights. A holder of Rights will not recognize gain or loss upon
the exercise of the Rights. A holder of Rights who receives shares of TDX
Common Stock upon such exercise will acquire a tax basis in those shares equal
to the sum of the price paid on exercise and the holder's tax basis in the
Rights. The holding period of TDX Common Stock received on exercise of the
Rights will begin on the date the Rights are exercised.
Transfer of Rights. A holder of Rights that sells Rights prior to exercise
will recognize gain or loss equal to the difference between the sale proceeds
and such holder's adjusted tax basis in the Rights sold. Such gain or loss
will be capital gain or loss if gain or loss from a sale of TDX Common Stock
held by such stockholder would be characterized as capital gain or loss at the
time of such sale. Capital gain or loss recognized on a sale of Rights by a
Thermedics Detection stockholder will be long-term capital gain or loss if the
TDX Common Stock for which the Rights were distributed was held by such
stockholder for more than one year; otherwise such gain or loss will be short-
term capital gain or loss. Any capital gain or loss recognized on a sale of
Rights by a Thermedics stockholder will be a short-term capital gain or loss.
Lapse of Rights. A holder of Rights that fails either to exercise or to
transfer the Rights prior to the Expiration Date will be deemed to have sold
his rights on that date for an amount equal to zero. As noted above (see "Tax
Basis in Rights"), holders of TDX Common Stock will have a basis of zero in
the Rights and so will not incur a loss for tax purposes upon the lapse of the
Rights. Assuming that the Rights are held as capital assets, holders of
Thermedics Common Stock who receive Rights will incur a short-term capital
loss upon the lapse of the Rights equal to their adjusted tax basis in the
Rights.
27
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information below as of and for the fiscal years
ended December 31, 1994, December 30, 1995 and December 28, 1996 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 Company's Consolidated Financial Statements
and related notes included elsewhere in this Prospectus. The selected
financial information for the fiscal year ended January 1, 1994 has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, but have not been included in this Prospectus.
The selected financial information for the fiscal year ended January 2, 1993
and as of January 1, 1994 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.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR COMBINED (2)
----------------------------------------- FISCAL YEAR
1992 1993 1994 1995 1996 (1) 1996
------- ------- ------- ------- -------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297
------- ------- ------- ------- ------- -------
Costs and Operating
Expenses:
Cost of revenues....... 9,329 23,759 24,906 15,236 22,150 22,793
Selling, general and
administrative
expenses.............. 4,229 7,526 11,973 7,487 15,525 16,233
Research and
development expenses.. 647 1,790 3,895 2,741 4,608 4,608
------- ------- ------- ------- ------- -------
14,205 33,075 40,774 25,464 42,283 43,634
------- ------- ------- ------- ------- -------
Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663
Interest and Other
Expense, Net........... -- -- -- (72) (878) (934)
------- ------- ------- ------- ------- -------
Income Before Provision
for Income Taxes....... 3,156 8,956 9,569 2,418 589 729
Provision for Income
Taxes.................. 1,253 3,153 3,189 910 227 291
------- ------- ------- ------- ------- -------
Net Income.............. $ 1,903 $ 5,803 $ 6,380 $ 1,508 $ 362 $ 438
======= ======= ======= ======= ======= =======
Earnings per Share (3).. $ .19 $ .58 $ .63 $ .15 $ .04 $ .04
======= ======= ======= ======= ======= =======
Weighted Average Shares
(3).................... 10,069 10,069 10,069 10,069 10,320 10,320
======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT
END OF PERIOD):
Working Capital......... $ 5,593 $ 447 $ 6,116 $11,273 $23,358
Total Assets............ 12,126 25,544 17,793 20,322 53,483
Long-term Obligations... -- -- -- -- 21,200
Shareholders'
Investment............. 7,282 3,822 9,208 13,773 20,910
</TABLE>
- --------
(1) Includes the results of Moisture Systems and Rutter since their
acquisition by the Company in January 1996.
(2) The pro forma combined statement of income data was derived from the pro
forma combined condensed statement of income included elsewhere in this
Prospectus. The pro forma combined statement of income data sets forth the
results of operations for fiscal 1996, as if the acquisitions of Moisture
Systems and Rutter had occurred on January 1, 1996.
(3) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with
the initial capitalization of the Company, the effect of shares sold
through private placements, as well as the effect of the assumed issuance
of the private placements and the assumed exercise of stock options issued
within one year prior to the Company's proposed rights offering with
exercise prices less than the Subscription Price.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Thermedics Detection Inc. (the "Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical detectors,
high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and
other technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for
other high-security screening applications and for forensics and search
applications.
Historically, the Company's principal product lines were process detection
systems, including Alexus systems, and EGIS explosives detectors. The Company
expanded its product lines to include moisture analysis equipment through its
acquisition of Moisture Systems and Rutter in January 1996, and also
introduced its InScan systems and Flash-GC gas chromatography systems in 1996.
The Company also performs contract research and development services for
government and industry customers and generates service revenues through long-
term contracts.
The Company's strategy has been to develop proprietary, high-speed
analytical technologies to meet the needs of its customers, introduce those
technologies to new markets, and finally, employ the process knowledge gained
from customers in these markets to develop new proprietary technologies. In
1992, based on technologies used in its EGIS systems and TEA Analyzer, the
Company developed its line of Alexus systems, which detect trace amounts of
contaminants in refillable plastic bottles for the soft-drink industry. The
Coca-Cola Bottlers elected to retrofit all of their existing refillable
plastic bottling lines outside of the U.S. with this device, creating a
dramatic increase in sales in 1993 through 1994. Sales of Alexus systems to
the Coca-Cola Bottlers were $32.2 million, or 64% of the Company's revenues,
in 1994. By 1995, the Coca-Cola Bottlers had substantially completed their
retrofit, and sales of the Alexus systems substantially declined. Sales of
Alexus systems to the Coca-Cola Bottlers were $10.0 million and $10.6 million,
or 36% and 24% of the Company's revenues, in 1995 and 1996, respectively.
These revenues represent product line upgrades by the Company's installed
base, and new bottling lines added by the Coca-Cola Bottlers. The Company has
sought to expand its customer base and continues to develop Alexus upgrades
and new applications and products. The Company also introduced several new
product lines over the last 12 months, including its InScan and Flash-GC
product lines. As the Company begins marketing these and other products,
including its EGIS explosives-detection equipment, the Company believes that
it will become less dependent on its traditional revenue base. No assurance
can be given, however, that the Company will be able to significantly broaden
the markets for its process detection systems.
The Company's sales of its explosives-detection systems for use in airports
has been and will continue to be dependent on governmental initiatives to
require, or support, the screening of checked luggage, carry-on items and
personnel with advanced explosives-detection equipment. Significant terrorist
acts, such as the downing of Pan American Flight 103, the World Trade Center
bombing and the bombing in Oklahoma City have sparked renewed government
initiatives in the screening of people, baggage and packages at high-
sensitivity locations such as airports. In October 1996, in response to the
explosion of TWA Flight 800, the United States enacted legislation which
included $144.2 million allocated for the purchase of explosives-detection
systems and other advanced security equipment, including trace equipment, such
as the systems manufactured by the Company for carry-on and checked baggage
screening. The Company believes that this legislation and potential follow-on
legislation will generate significant growth in the market for explosives-
detection instruments, including trace- detection systems.
29
<PAGE>
Approximately 67% of the Company's revenues originate outside of the U.S.
Although the Company seeks to charge its customers in the same currency as its
operating costs, the Company's financial performance and competitive position
may be impacted by currency exchange rate fluctuations affecting the
relationship between the U.S. dollar and foreign currencies.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial
information for each of the eight quarters in the period ended December 28,
1996. The Company believes that this information has been presented on the
same basis as the audited financial statements appearing elsewhere in this
Prospectus and in the opinion of the Company, includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the unaudited quarterly results when read in conjunction with the audited
financial statements of the Company and related notes thereto included
elsewhere in the Prospectus. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
APRIL 1, JULY 1, SEPT. 30, DEC. 30, MARCH 30, JUNE 29, SEPT. 28, DEC. 28,
1995 1995 1995 1995 1996 1996 1996 1996
-------- ------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................ $9,050 $7,140 $5,998 $5,766 $9,345 $10,104 $11,117 $13,184
Cost of Revenues........ 4,390 3,866 3,723 3,257 4,725 6,123 5,236 6,066
------ ------ ------ ------ ------ ------- ------- -------
Gross Profit............ 4,660 3,274 2,275 2,509 4,620 3,981 5,881 7,118
Operating Expenses...... 2,687 2,531 2,347 2,663 5,191 5,933 4,355 4,654
------ ------ ------ ------ ------ ------- ------- -------
Operating Income
(Loss)................. 1,973 743 (72) (154) (571) (1,952) 1,526 2,464
Net Income (Loss)....... 1,202 426 (35) (85) (524) (1,244) 705 1,425
Earnings (Loss) per
Share.................. .12 .04 -- .01 (.05) (.12) .07 .14
Weighted Average
Shares................. 10,069 10,069 10,069 10,069 10,099 10,342 10,342 10,498
Gross Profit Margin..... 51% 46% 38 % 44 % 49 % 39 % 53% 54%
Operating Income (Loss)
Margin................. 22% 10% (1)% (3)% (6)% (19)% 14% 19%
Net Income (Loss) Mar-
gin.................... 13% 6% (1)% (1)% (6)% (12)% 6% 11%
</TABLE>
The presentation of the Company's historical quarterly results reflects
revenues from process detection instruments of $2.9 million in the first
quarter of 1996, compared with $6.4 million in the first quarter of 1995. This
decrease was offset by an increase in revenues in the first quarter of 1996
due to the inclusion of $3.2 million of revenues from Moisture Systems and
Rutter, which were acquired January 1996. In the first half of 1996, gross
profit margin from process detection instruments decreased due to lower sales
volume, offset by higher-margin revenues from Moisture Systems and Rutter in
1996. In addition, in the first and second quarters of 1996, the Company
recorded significant nonrecurring charges, including those discussed in the
results of operations. These write-offs included a reserve for obsolete
inventory due to planned product changes, as well as costs for severance and a
reduction of leased facilities and other adjustments. The Company's operating
results for the first half of 1996 were adversely affected as a result of
these charges and the Company incurred an operating loss of $2.5 million for
that period. The Company was profitable in the periods subsequent to these
write-offs, with operating income of $1.5 million and $2.5 million recorded in
the third and fourth quarters of 1996, respectively.
RESULTS OF OPERATIONS
1996 Compared With 1995(/1/)
Total revenues increased to $43.8 million in 1996 from $28.0 million in
1995. Product revenues increased 69% to $31.3 million in 1996 from $18.5
million in 1995, while service revenues increased 32% to $12.5 million in 1996
from $9.5 million in 1995.
- --------
(1) References to 1996, 1995 and 1994 herein are for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
30
<PAGE>
Revenues from the Company's process detection instruments decreased to $16.0
million in 1996 from $18.5 million in 1995, primarily due to a decrease in
demand from the Coca-Cola Bottlers, which have substantially completed their
initial deployment of Alexus systems. Revenues from the Company's EGIS
explosives-detection systems increased to $7.1 million in 1996 from $4.6
million in 1995, primarily due to the sale of eight EGIS units to the U.S.
government to provide counterterrorism support in Israel. Revenues from
research and development contracts decreased by $2.2 million to $1.8 million
in 1996 due to the completion of a commercial contract with the Miller Brewing
Company for the InScan system and, to a lesser extent, the completion of
various phases of government contracts, which have since been renewed.
The gross profit margin increased to 49% in 1996 from 45% in 1995. The gross
profit margin on product revenues increased to 51% in 1996 from 46% in 1995,
primarily due to higher-margin revenues from Moisture Systems and Rutter,
offset in part by an inventory write-down of $0.8 million in the second
quarter of 1996 due to obsolescence created by planned product changes. The
gross profit margin on service revenues increased to 46% in 1996 from 44% in
1995, primarily due to the inclusion of higher-margin revenues from Moisture
Systems and, to a lesser extent, the impact of cost reductions implemented in
late 1995 and early 1996.
Selling, general and administrative expenses as a percentage of revenues
increased to 35% in 1996 from 27% in 1995, primarily due to higher expenses as
a percentage of revenues at Moisture Systems and Rutter and, to a lesser
extent, $0.4 million of costs incurred in the second quarter of 1996 related
to reductions in personnel and a reduction in leased space in response to the
lower sales volume of process detection instruments.
Research and development expenses increased to $4.6 million in 1996 from
$2.7 million in 1995, primarily due to research and development relating to
the Company's Flash-GC gas chromatograph and its InScan high-speed X-ray
imaging system. These projects are nearing completion and the Company expects
that its research and development expenses as a percentage of revenues will
decline in 1997. In addition, the Company recorded a nonrecurring charge of
$0.2 million in the second quarter of 1996 for the write-off of certain
research and development equipment no longer of use.
Interest expense, related party of $1.1 million in 1996 reflects the
issuance of a $21.2 million promissory note to Thermedics in connection with
the January 1996 acquisitions of Moisture Systems and Rutter. This note is due
March 1998, and bears interest at the 90-day Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter. See "Relationship
with Thermo Electron and Thermedics."
1995 Compared With 1994
Total revenues were $28.0 million in 1995, compared with $50.3 million in
1994. Product revenues decreased 54% to $18.5 million in 1995 from $40.4
million in 1994, and service revenues decreased 4% to $9.5 million in 1995
from $9.9 million in 1994.
Revenues from the Company's process detection instruments decreased to $18.5
million in 1995 from $38.0 million in 1994, primarily due to a decrease in
demand from the Coca-Cola Bottlers, which have substantially completed their
initial deployment of Alexus systems. Revenues from the Company's EGIS
explosives-detection systems declined to $4.6 million in 1995 from $10.1
million in 1994. During 1993 and 1994, large orders from BAA plc, which
oversees airports in the United Kingdom, and the German government accounted
for a significant portion of EGIS sales. These decreases were offset in part
by an increase in research and development contract revenues of $2.1 million
to $4.0 million in 1995 due to an increase in government contract revenue and,
to a lesser extent, revenue from a commercial contract with Miller Brewing
Company in 1995.
The gross profit margin declined to 45% in 1995 from 51% in 1994. The gross
profit margin on product revenues decreased to 46% in 1995 from 55% in 1994
due to the lower sales volume and, to a lesser extent, the inclusion of lower-
margin research and development contract revenues. The gross profit margin on
service revenues increased to 44% in 1995 from 31% in 1994 due to higher
margins on recent service contracts.
Selling, general and administrative expenses as a percentage of revenues
increased to 27% in 1995 from 24% of revenues in 1994, primarily due to the
lower sales volume in 1995.
31
<PAGE>
Research and development expenses decreased to $2.7 million in 1995 from
$3.9 million in 1994 due to a shift in the allocation of resources to
externally funded research and development contracts.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $23.4 million at December 28, 1996,
compared with $11.3 million at December 30, 1995. Included in working capital
are cash and cash equivalents of $13.5 million at December 28, 1996 and $1.3
million at December 30, 1995. During 1996, cash of $6.6 million was provided
by operating activities. Cash of $1.8 million was used to fund an increase in
accounts receivable due to retainage provisions on certain contracts and
higher international receivables, which often have longer payment cycles than
domestic receivables. This use of cash was largely offset by $1.3 million of
cash provided by a decrease in inventories resulting from improved inventory
management.
During 1996, cash of $22.6 million was used in investing activities. In
January 1996, the Company acquired the assets of Moisture Systems and certain
affiliated companies, and the stock of Rutter for a total of $21.7 million in
cash, including the repayment of approximately $.7 million of indebtedness. In
connection with this acquisition, the Company borrowed $21.2 million from
Thermedics pursuant to a promissory note due March 1998, and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. See "Relationship with Thermo Electron and
Thermedics." Thermedics has indicated its intention to require the repayment
of the principal amount of this note only to the extent that the Company's
liquidity and cash flow permit. In December 1996, the Company acquired certain
moisture detection product lines for approximately $0.3 million in cash, plus
a percentage of the revenues earned by the Company from such product lines.
The Company expended $0.8 million on purchases of machinery, equipment and
leasehold improvements in 1996.
In March 1996, the Company issued and sold 300,000 shares of the Company's
common stock in a private placement for net proceeds of $3.0 million. In
November 1996, the Company issued and sold 383,500 shares of the Company's
common stock in a private placement for net proceeds of $4.0 million.
During 1995, cash of $2.0 million was used in operating activities. Uses of
cash included $3.2 million to fund an increase in inventories in anticipation
of expected higher sales volume in 1996 and $2.4 million to reduce other
current liabilities, including accrued employee benefits and accrued warranty,
which were reduced as a result of the Company's lower volume of business in
1995. Investing activities used cash of $0.6 million and financing activities
provided cash of $3.2 million in 1995 as a result of additional capital
contributions from parent company.
During 1994, cash of $1.9 million was provided by operating activities. Cash
of $3.5 million was provided by a reduction in accounts receivable and
unbilled contract costs and fees and cash of $4.6 million was provided by a
decrease in inventories, both resulting from shipment of significant orders to
the Coca Cola Bottlers. These sources of cash, together with cash provided by
the Company's net income, were more than offset by the use of $14.1 million of
cash to reduce accounts payable and other current liabilities as a result of
the lower volume of business following shipment of the significant orders to
the Coca Cola Bottlers. Investing activities used cash of $0.7 million and
financing activities used cash of $1.0 million due to the transfer of funds to
parent company.
The Company expects to use substantially all of the anticipated net proceeds
from the Rights Offering to fund research and development for new products.
The Company expects to use the balance of such net proceeds for general
corporate purposes, including the possible acquisition of one or more
businesses. The Company, however, is not currently engaged in negotiations
with any companies and it has no agreements, understanding or commitments with
respect to any specific acquisitions that would be material to the Company.
Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of
cash for the possible acquisition of complementary businesses and
technologies. The Company expects that it will finance these acquisitions
through a combination of internal funds, the net proceeds of the Rights
Offering, additional debt or equity financing and/or short-term borrowings
from Thermedics or Thermo Electron, although it has no agreement with these
companies to ensure that funds will be available on acceptance terms or at
all. The Company believes that its existing resources are sufficient to meet
the capital requirements of its existing businesses for the foreseeable
future, including at least the next 24 months.
32
<PAGE>
BUSINESS
OVERVIEW
Thermedics Detection Inc. develops, manufactures and markets high-speed on-
line detection and measurement systems used in a variety of industrial process
applications, explosives detection and laboratory analysis. The Company's
industrial process systems use ultratrace chemical detectors, high-speed gas
chromatography, X-ray imaging, near-infrared spectroscopy and other
technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for
other high-security screening applications and for forensics and search
applications.
The Company's principal product lines include:
.Alexus systems, introduced in 1992, detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and
other beverage containers at speeds in excess of 600 bottles per minute.
Alexus systems have been installed on more than 200 bottling lines in more
than 30 countries;
.InScan systems, introduced in 1996, detect liquid fill-levels, leakage,
foreign objects and product defects at speeds in excess of 2,400 units per
minute for the beverage, food and other industries;
.Micro-Quad, Quadra-Beam and other products of the Moisture Systems
division, acquired by the Company in 1996, measure moisture and other
product constituents, including fats, proteins, oils, flavorings,
solvents, adhesives and coatings, in the manufacturing processes of a
variety of industries;
.Flash-GC gas chromatography systems, introduced in 1996, analyze chemical
samples at speeds 20 to 50 times faster than conventional gas
chromatography systems. These systems can be used in a variety of markets,
primarily in near on-line process and quality control applications that
require high-speed results; and
.EGIS explosives detectors, first sold to commercial airports in Europe in
1991, detect and identify trace levels of explosives in carry-on bags, in
checked luggage and on people, and are also used in forensic
investigations. EGIS systems are the world's most widely used trace
particle/vapor explosives-detection systems, with an installed base of
more than 200 units in 21 countries, including more than 100 units
installed in airports.
The Company's historical growth has resulted primarily from a strategy of
developing proprietary high-speed analytical technologies to meet the needs of
its customers, introducing those technologies to new markets and, finally,
employing the process knowledge gained from the customers in these markets to
develop new proprietary technologies. For example, the Company's TEA Analyzer
was the first instrument to use chemiluminescent analysis to reliably detect
nitrogen-based carcinogens in foods, beverages and other consumer products.
Enhanced TEA Analyzer technology is used in the Company's EGIS explosives-
detection systems as well as in the Alexus systems used in the beverage
industry. In 1995, in response to the needs of its beverage customers for more
sensitive, high-speed fill-level and leakage detectors, the Company developed
its InScan system based on a proprietary X-ray technology. The Company is
currently enhancing InScan to detect foreign objects and product defects in
the broader packaged goods markets for the food, consumer products and other
industries.
The Company's strategy is to build upon its reputation as a technical and
market leader in applications requiring complex, high-speed or continuous
ultratrace detection and measurement by continuing the technology development
and market-application cycle on which its growth has been based to date. The
Company holds significant patents relating to its chemiluminescent analysis
and high-speed gas chromatography technologies, and believes that its
proprietary position with respect to these technologies affords it a
competitive advantage. In
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addition, the Company employs highly skilled research scientists and product
development engineers who use their intimate knowledge of their customers'
production processes to develop new products based on these technologies.
The Company's customers are characterized by the need to improve product
quality and consistency while reducing production costs. Effective quality
control requires high-speed systems that can test samples on-line, or near on-
line, so that adjustments to the manufacturing process can be made quickly and
frequently. More effective sampling reduces the amount of unacceptable product
produced. Similarly, airports and other security checkpoints are required to
screen increasing volumes of passengers and baggage with a high degree of
accuracy without causing undue inconvenience and delays. Consequently, the
time between the initiation of the testing process and the completion of the
analysis must be reduced to the greatest practical extent. The Company
believes that its high-speed detection and measurement systems meet the
requirements of these demanding applications and, as a result, systems based
on its high-speed analytical techniques will become increasingly employed in a
wider variety of applications.
PROCESS DETECTION SYSTEMS
The Company designs, manufactures and markets high-speed on-line trace
(parts-per-trillion) measurement, detection and rejection equipment that uses
particle-detection, vapor-detection and other technologies for product quality
and productivity applications. The Company believes that the current total
annual worldwide market for process detection equipment and systems is in
excess of $2 billion. The Company currently addresses an approximately $250
million segment of this market, focusing on product content and packaging.
Alexus. The Company's Alexus systems detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and other
beverage containers. The Company is the world's largest supplier of quality
assurance systems for refillable plastic containers to the beverage industry.
The Company's Alexus systems, introduced in 1992, have been installed on more
than 200 bottling lines in more than 30 countries throughout the world,
primarily in Europe and Latin and South America, by the Coca-Cola Bottlers,
Perrier and other major beverage producers. Alexus systems sell for between
$150,000 and $500,000 per unit.
The Company believes that its Alexus systems are the most accurate, cost-
effective and easily maintained systems of their kind. The Alexus A100 system
obtains vapor samples from refillable plastic bottles of up to two liters
passing along a production line at speeds in excess of 600 bottles per minute.
Alexus operates by sending a small burst of air into each bottle and then
capturing some of the displaced vapor. Each vapor sample is sent through three
different channels for analysis: two chemiluminescence detectors are used to
search for both nitrogen-based compounds, such as ammonia and nitrogen
organics, and for volatile organic compounds. The third channel, strobe
analysis, is used to detect gasoline and other hydrocarbons. In addition, an
optical detection module is used to detect nonvolatile compounds such as soaps
and detergents. Optical detection is also used to inspect refillable water
bottles for fruit juices and other flavor substances. Once the analysis is
completed, an electronic signal is sent from the Alexus to indicate the bottle
status. Each bottle is tracked and a rejecter module then automatically
separates the acceptable and rejected bottles onto separate tracks. The Alexus
W10, introduced in 1994, incorporates strobe analysis and a chemiluminescence
detector to detect similar compounds in refillable three-, five- and six-
gallon water bottles at speeds of up to 3,600 bottles per hour.
Refillable plastic bottles are widely used for soft drinks, water and other
beverages. The United States permits the reuse of large plastic water bottles
used in commercial water dispensers. Certain countries, including Denmark,
Holland and Norway, require the reuse of refillable plastic bottles and many
countries, including Germany, Finland and Sweden, place a high tax on the use
of nonrecyclable containers. In addition, bottlers and consumers often prefer
plastic bottles because they are lighter, less breakable and easier to
transport than glass bottles. Refillable plastic bottles also provide a
significant economic advantage to beverage companies because they may be
returned for reuse as many as 30 times. Industry sources estimate that as many
as 1% of the returned bottles cannot be reused, even after cleaning, because
they contain foreign substances that can chemically bond with the plastic
container. Refilling a bottle that contains a foreign substance is of major
concern to beverage
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producers because the publicity associated with an abused bottle can severely
damage a brand name and a bottler's reputation. The Company believes that
demand for Alexus systems will increase as its current customers expand into
new markets around the world, as the technology is accepted by additional
beverage producers and as the Company provides upgrades to its installed
customer base.
InScan. The Company's InScan system uses high-speed X-ray imaging technology
to detect liquid fill-levels and leakage in containers for the beverage, food
and other industries. InScan uses a low-power X-ray to capture data both
vertically and horizontally. This data produces an instant, detailed image of
each container that InScan's proprietary software automatically compares to a
predetermined profile and generates mathematical algorithms to determine
whether the container is acceptable. InScan incorporates a sophisticated,
high-speed rejection system that automatically removes unacceptable containers
from the line. The Company shipped its first InScan units in 1996 and believes
that the current total annual worldwide beverage market for these systems is
approximately $60 million. The Company also believes that these systems have
applications in the broader packaging inspection market, which industry
sources estimate to be approximately $130 million per year. InScan systems
currently sell for an average of $35,000 per unit.
Bottlers have traditionally detected fill-level and leakage by shooting a
pinpoint gamma ray through a bottle or can on a production line. The principal
disadvantages of gamma-based systems are their limitations in both accuracy
and the scope of detection, as well as their potential for radioactive
contamination of personnel and machinery. The wider image generated by
InScan's X-ray imaging technology means that accuracy is unaffected by the
speed of the line, acceleration or deceleration of the line, sloshing of
contents or vibration. Consequently, InScan can be used on lines running at
speeds of up to 2,400 units per minute, with an accuracy of +/-0.5 millimeters
over the entire range of inspection speeds. Moreover, because the system is
designed to image a portion of a can or bottle, rather than a pinpoint, InScan
can be used to detect improper or missing lids, caps or tabs, as well as the
integrity of the container from the shape of the lid or cap. Other advantages
of InScan include reduced health hazards due to the elimination of potential
radioactive gamma hazards, simple positioning anywhere on a production line
and quick adjustability to fit packages of varying shapes.
The Company believes that its InScan X-ray imaging technology is
significantly more accurate than traditional single-point gamma-based systems.
The Company also believes that the increased accuracy of InScan systems can
result in substantially fewer short-filled or over-filled containers,
permitting an InScan system to pay for itself in as few as nine months.
The Company's InScan systems are currently used by major beer and soft drink
companies in the U.S. and overseas, including Miller, Molson, Coors and the
Coca-Cola Bottlers. Industry sources estimate that there are currently
approximately 5,000 beer and soft drink bottling lines throughout the world,
and that the number of such lines is increasing at a rate of approximately 5%
per year. The Company believes that demand for InScan systems will increase as
additional bottlers perceive the benefits of the technology.
The Company is currently developing new applications for InScan, including
the detection of foreign objects such as bone fragments and plastic in baby
food, and product defects in packaged goods for the food, consumer products
and other industries.
Moisture Systems. The Company's Moisture Systems division, acquired in 1996,
designs, manufactures and markets equipment that uses near-infrared
spectroscopy to measure moisture and other product constituents, including
fats, proteins, oils, flavorings, solvents, adhesives and coatings, in a
variety of manufacturing processes. The Company's systems are used across the
food, pharmaceutical, chemical, petrochemical, tobacco, forest products, pulp
and paper, paper converting, plastics, textiles, corrugating and other
industries. The Company believes that it is the world's largest supplier of
near-infrared on-line constituent-measurement products, with an installed base
of more than 10,000 units. Principal customers currently include Nabisco,
Nestle, Hoechst Celanese, Akzo Nobel, Georgia Pacific, Avery Dennison,
Reynolds Aluminum, Procter & Gamble, DuPont, 3M Company and other major
manufacturers of consumer and industrial products. With a large installed base
over a wide range of applications, the Company has built a base of knowledge
and experience that it believes to be a competitive advantage. The Company's
systems generally sell for between $10,000 and $100,000 per unit.
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The Company's moisture-analysis equipment determines the amount of near-
infrared light absorbed by a sample at each given wavelength to precisely
identify and measure the content of the sample's constituent molecules. The
Company's principal products include the Quadra-Beam and Micro-Quad, which are
designed to precisely measure moisture and other product constituents at fixed
points on a variety of solid materials. Quadra-Beam instruments operate with
either one or two sensors, and measure a single constituent per sensor. Micro-
Quad instruments operate with up to five sensors, and are capable of measuring
multiple constituents per sensor. Both Quadra-Beam and Micro-Quad products can
be incorporated into more complex systems. For example, the Company's Profile
Video Display Systems measure product constituents across webs for
applications in the paper, paper converting, sheet metal, textile and other
industries. Similarly, the Company's liquid and gas systems are designed to
measure product constituents in liquid or gas streams moving through pipes.
Customers for these systems include the petrochemical, chemical, food,
beverage, plastics and polymer industries.
Manufacturers need to perform precise measurements of moisture and other
product constituents to ensure product quality and consistency while reducing
production costs. Manufacturers have historically performed such measurements
on samples taken from production lines for laboratory analysis. The Company's
moisture-analysis products provide continuous, nondestructive analysis,
without requiring sample preparation or contact, making information instantly
available to the operator or computer controlling the production process. In
certain applications, these instruments can be incorporated into closed-loop
systems. For example, an instrument detecting insufficient moisture in a
product can relay an electronic signal to an oven elsewhere on the production
line to decrease the amount of moisture to be extracted during the drying
process.
Industry analysts estimate that the annual worldwide market for on-line
moisture measurement products is approximately $60 million. The Company
believes that approximately $35 to $40 million of this market is for near-
infrared measurement products. Approximately 60% of the Company's sales are to
new manufacturing facilities, facilities expanding by adding new production
lines and facilities incorporating on-line systems for the first time, and
approximately 40% are to replace existing on-line equipment. The Company sells
its moisture-analysis equipment primarily in the United States and in Europe.
The Company expects that certain geographical markets for this equipment,
including the Asia/Pacific region and Latin America, will grow significantly
over the next several years as countries in that region accelerate their
industrialization and their production of consumer products and industrial
goods, such as paper and cardboard.
FLASH-GC GAS CHROMATOGRAPHY SYSTEMS
The Company designs, manufactures and markets high-speed gas chromatography
systems that can analyze chemical samples at speeds 20 to 50 times faster than
conventional gas chromatography. Industry sources estimate that the
conventional gas chromatography laboratory and process instrument market is
currently $850 million annually. The Company currently markets its systems
under the trade name "Flash-GC" to analytical services and quality
laboratories and for near on-line process and quality control applications
that require high-speed results. The Company also intends to target certain
other segments of the conventional gas chromatography market in which access
to high-speed analysis would be advantageous.
As in traditional gas chromatography, a sample is introduced into the Flash-
GC and is separated into its chemical constituents in a chromatograph column
under heat and pressure. Traditional gas chromatographs place the column in a
heated oven. In contrast, the Flash-GC uses patented or patent-pending
technology to dynamically heat the column itself rather than the large mass of
air in the oven. Coupled with the Flash-GC's intermediate controlled-
temperature trap zones, this technology permits the Flash-GC to separate a
sample into its constituents 20 to 50 times faster than a conventional gas
chromatograph in certain applications. As in conventional gas chromatography,
the chemical constituents enter a detector at the end of the Flash-GC column,
which gives off an electric signal corresponding to the identity of each
constituent. The Flash-GC is not suitable for all applications because some
detectors used with conventional gas chromatographs cannot respond rapidly
enough to the output of the Flash-GC. The Company believes, however, that with
the detectors currently available with the Flash-GC, and with detectors
currently under development, this technology can serve a significant portion
of the conventional gas chromatography market in which speed is important.
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The Company believes that the Flash-GC has potential applications in the
food, flavors, fragrance, chemical, pharmaceutical, forensics and automotive
industries, as well as for medical and environmental laboratories. The Company
believes that the market for high-speed gas chromatography is only beginning
to develop and the Company intends to target only those sectors of the
laboratory and process gas chromatography market that are expected to place a
premium on near-instant analysis. For example, food processors subject to the
Food Quality Protection Act use gas chromatography to ensure that packaged
foods contain the correct ingredients and in the proper proportions. Today, a
typical gas chromatography analysis of the ingredients in packaged foods may
require 40 minutes, a time frame in which the food processor continues to
produce a large volume of its product that must ultimately be disposed of if
the analysis demonstrates nonconformity to applicable standards. The Flash-GC
permits food processors to perform the same analysis in less than two minutes.
Other customers using the Flash-GC include an automobile manufacturer
performing on-line emissions testing, a company evaluating its wastewater
during discharge and a beverage company evaluating production ingredients at
the point of mixing. In each case, these customers have reported analyses 20
to 50 times faster than with the conventional gas chromatographs currently in
use, with significant improvements in both productivity and quality.
The Flash-GC, a new technology introduced in 1996, received both the Pittcon
Editors' Gold Award for the best new product exhibited at Pittcon '96, a major
U.S. analytical instrument conference, and the Most Innovative New Product
Award at the Het Instrument '96 Conference, a major European analytical
instrument conference. The Company shipped ten Flash-GC units for beta testing
in 1996. The Company is currently building a sales and marketing organization
to support the Flash-GC, and expects to begin shipping production units in the
first quarter of 1997. The Company expects that the Flash-GC systems will be
priced at between $60,000 and $75,000 per unit. The Company is continuing to
develop the Flash-GC to configure it with additional detectors and to
introduce a process-oriented version for additional on-line applications.
EXPLOSIVES DETECTORS
The Company designs, manufactures and markets explosives-detection equipment
that uses trace particle- and vapor-detection techniques for forensics, search
and screening applications under the direction of police, border police,
transportation authorities and carriers. The Company's principal explosives-
detection system is EGIS, a highly sensitive particle- and vapor-detection
system for screening people, baggage, packages, freight, and electronic
equipment such as personal computers for the presence of a wide range of
explosives, including plastic explosives that have proven difficult to detect
using conventional methods. The EGIS system is designed for stand-alone use in
the detection of explosives in carry-on items and on personnel, and can be
used in conjunction with enhanced X-ray and other advanced imaging systems to
provide a comprehensive explosives-detection system for checked luggage.
Explosives-detection equipment used in security screening applications
comprises two distinct categories that are generally combined into a single
system: enhanced X-ray technologies, such as computed tomography ("CT") and
dual energy X-ray systems, and trace detection technologies, such as the EGIS
system. Because of its medium- to high-throughput rate, enhanced X-ray
equipment is generally used in the initial screening of checked luggage in
multi-tiered systems, with trace equipment placed at the end of the process.
X-ray technology, however, is relatively capital intensive and generally
requires significant engineering to fit into existing luggage systems. Trace
equipment is sensitive to minute quantities of explosive particles, and is
generally physically smaller, more portable and less expensive than X-ray
equipment. Trace equipment that combines gas chromatography with a detector
can simultaneously detect more types of explosives than units employing only a
detector. Trace systems currently require hand-held sample collectors. This
typically manual process results in a throughput level below that of enhanced
X-ray. Trace systems can be used effectively to manually screen checked
baggage rejected by X-ray systems, which have a relatively high false positive
rate. Trace systems have throughput rates that allow them to be used
effectively on a stand-alone basis in carry-on and walk-through screening
applications.
In response to the crash of TWA Flight 800 in July 1996, President Clinton
formed the White House Commission on Aviation Safety and Security, chaired by
Vice President Gore (the "Gore Commission"), to
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review airline and airport security and oversee aviation safety. Both the Gore
Commission and the Baseline Working Group, a government/industry panel that
was established prior to the crash of TWA Flight 800 to recommend an airport
security plan for the United States, have recommended that trace detection
equipment be used in series with enhanced X-ray systems for screening checked
luggage. The Gore Commission and the Baseline Working Group also recommended
the use of trace detection equipment for screening passengers and carry-on
baggage.
The Company believes that EGIS is the most accurate and most sensitive high-
speed trace explosives-detection equipment available today. EGIS utilizes the
Company's Flash-GC high-speed gas chromatography technology combined with
chemiluminescent detection techniques to detect ultratrace quantities of
certain explosives and taggants, and indicate the concentration and type of
explosive detected. Because EGIS' chemiluminescent detector responds only to
compounds of certain structures in the sample, rather than the thousands of
compounds that may be contained in the sample, EGIS is more selective than
competing trace detection systems, with fewer false-positive detections. A
processor in EGIS compares the chemical profile of the sample to the known
profiles of various explosives, including TNT, nitroglycerin, PETN, Semtex and
C-4. Within seconds of the introduction of the sample into EGIS, the system
determines whether explosives are present, and, if so, identifies the type and
amount.
The Company believes that it is the worldwide leader in providing explosives
trace detection equipment. Initially developed with internal funds and
contract funding from the FAA and the U.S. Department of State, more than 200
EGIS units have been deployed to date. The EGIS system is currently
operational in 21 countries and is in use in carry-on and checked luggage
screening at more than 42 international airports. EGIS is also used in
government buildings and embassies, and at border crossings and other
locations where there is a high degree of concern for security. The EGIS
system has assisted in identifying explosives used in terrorist bombings,
including those in Federal Building in Oklahoma City and the World Trade
Center in New York, as well as in Israel, Buenos Aires and the United Kingdom.
In March 1996, the Company supplied the U.S. government with eight EGIS
systems to provide counter-terrorism support in Israel. Most recently, the
Bureau of Alcohol, Tobacco and Firearms and the Federal Bureau of
Investigation used EGIS systems in their attempt to identify the cause of the
crash of TWA Flight 800.
Of the more than 600 commercial airports worldwide, more than 400 are
located in the United States, 150 are in Europe and 50 are in the Asia/Pacific
region. Following the bombing of Pan American Flight 103, various European
governments mandated the use of, and purchased, advanced explosives-detection
systems. The FAA has approved the use of several trace systems for various
applications, and approved the EGIS system for voluntary use by airlines in
screening carry-on electronic items and luggage searches in 1992. Although the
FAA certified a CT-based system for screening checked baggage in 1994, no CT-
based system has yet demonstrated compliance with FAA standards under
realistic airport operating conditions. To date, the FAA has not mandated the
use of any explosives-detection system. In October 1996, the United States
enacted legislation that includes a $144.2 million allocation for the initial
purchase of explosives-detection systems and other advanced security
equipment. This legislation specifically requires the purchase of 79 advanced
X-ray imaging devices for screening checked luggage, together with one trace
detection system to be used with each such X-ray imaging system. An additional
410 trace detection systems are to be purchased for use in screening carry-on
baggage. The Company believes that approximately $32 million has been
allocated to purchases of trace detection equipment such as the systems
manufactured by the Company.
In December 1996, the Baseline Working Group recommended the expenditure of
$1.8 billion between 1997 and 2000 for carry-on and checked luggage and
personal screening at larger U.S. airports, and recommended the expenditure of
an additional $3.9 billion between 2001 and 2005 to complete the U.S. system.
The Company believes that if the United States mandates the installation of
explosives-detection equipment in a substantial number of domestic commercial
airports, then the market for trace detection systems such as the Company's
EGIS system will grow rapidly for several years. There can be no assurance,
however, that the Company's systems would meet any applicable FAA requirements
or that, even if the Company's systems were
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to meet applicable requirements, that the Company would be able to market its
systems effectively. See "Risk Factors--Dependence of Explosives Detection
Market on Government Regulation and Airline Industry."
The EGIS system sells for between $160,000 and $200,000. In September 1996,
the Company entered into a development contract with the FAA to develop EGIS
II, a lower-cost EGIS unit for use in more portable applications such as
remote security checkpoints and counter-terrorism activities. In November
1996, the Company introduced its new SecurScan, a prototype of a walk-through
trace detector designed to screen 10 passengers per minute, and announced that
it intends to introduce Rampart, a lower-cost unit for airport applications,
in 1997. SecurScan and Rampart are expected to cost approximately $300,000 and
$55,000, respectively.
MARKETING, SALES AND SERVICE
The Company employs a variety of sales methods for its products and services
that are designed to fit the needs of particular customer groups. The Company
sells and services Alexus systems, principally outside of the United States,
with a small, specialized direct sales force supported by a broader service
organization. Alexus systems are also sold through Krones GmbH, a large German
turnkey plant contractor for new bottling lines. The Company sells and
services both its InScan and Moisture Systems and equipment through a mix of
direct sales, manufacturers representatives and original equipment
manufacturer relationships around the world. The Company also operates factory
service centers for these products.
The Company's Flash-GC systems are sold through a direct sales and services
organization. The Company is currently attempting to recruit additional direct
sales representatives for certain regions of the United States. In addition,
the Company intends to use specialized manufacturers representatives in other
territories. The Company currently has such representatives in Europe and in
the Southern United States.
EGIS explosives-detection systems are sold to a few key decision-makers
around the world, primarily government agencies or private companies
fulfilling government regulations. Accordingly, EGIS sales are made by a
small, specialized direct sales force, supported by a broader service
organization, from offices shared with Alexus sales and service organizations.
The Company's existing sales and service organizations are located in North
and South America and Europe. The Company also has distribution and service
capabilities in Asia through a combination of direct sales, manufacturers
representatives and original equipment manufacturer relationships.
INTELLECTUAL PROPERTY
The Company's policy is to protect its intellectual property rights,
including applying for patents when appropriate. The Company also enters into
licensing agreements with other companies in which it grants or receives
rights to specific patents and technical know-how. The Company owns 37 United
States patents, and has filed applications for five additional United States
patents. The Company's U.S. patents, more than 60% of which were issued after
1990, have expiration dates ranging from 1998 through 2014. The Company also
owns corresponding patents, or has filed corresponding applications, in a
number of jurisdictions throughout the world. In addition, the Company has an
exclusive, perpetual, royalty-free license under ten patents covering the use
of near-infrared and very near-infrared emitting diodes for on-line spectral
measurements. The Company owns several patents covering certain aspects of its
chemiluminescent analysis technology and high-speed gas chromatography
technology. The Company believes that these patents provide the Company with
competitive advantages in the markets for certain of its products. The Company
also considers technical know-how, trade secrets and trademarks to be
important to its business. See "Risk Factors--Limited Protection of
Proprietary Technology and Risks of Third-Party Claims."
COMPETITION
The markets for the Company's products are highly competitive. Competitors
may develop superior products or products of similar quality for sale at the
same or lower prices. Moreover, there can be no assurance
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that the Company's products will not be rendered obsolete by new industry
standards or changing technology. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors. See
"Risk Factors--Ongoing Product Development Efforts Required by Rapid
Technological Change" and "--Competition; Technological Change."
Process Detection Systems and Flash-GC. The Company's product quality
assurance systems compete with detection systems manufactured by numerous
companies. The Company believes, however, that these companies are generally
focused on particular niches in the process detection systems market, only in
some of which does the Company compete. The Alexus system encounters
competition throughout the world, but primarily in the German-speaking areas
of Europe, with products offered by Walter Grassle GmbH of Germany and
Sudtronics S.A. of Switzerland. InScan competes with gamma-based beverage
fill-height detectors offered by a number of companies, including Industrial
Dynamics Company, based in California, and Heuft Systemtechnik GmbH, based in
Germany. Competition in the moisture-detection market is highly fragmented.
The Company's principal competitor in this market is Infrared Engineering
Limited, based in England.
The Flash-GC is a new technology competing in the developing high-speed gas
chromatography market segment. The Company's Flash-GC competes principally
against high-speed gas chromatographs offered by ChromFast, based in Michigan.
Competition in the markets for each of the Company's process detection
systems and the Flash-GC is based primarily on performance, durability,
service and, to a lesser extent, price. The Company believes that its systems'
performance and speed, as well as the Company's reputation for developing
superior new technologies and for the innovative application of existing
technologies to a variety of high-speed production environments and product
quality assurance problems, are competitive advantages.
Explosives Detection Systems. In the explosives-detection market, the
Company competes with a small number of companies, including other makers of
chemical trace detection instruments, and, to a lesser degree, makers of
enhanced X-ray detectors. Competition in this market is based primarily on
performance, including speed, accuracy and the range of explosives that can be
detected; ease of use; service; and price. The Company's principal competitor
in the trace detection market is Barringer Technologies Inc., a Canadian firm
that has placed several trace detectors in airport applications. To date, no
other manufacturers have placed trace detection systems in airports, but the
Company expects that the FAA will purchase trace systems from Barringer and
such other manufacturers as part of the initial deployment of explosives-
detection systems in the U.S. The Company believes that the companies, if any,
whose devices are ultimately required by the FAA will have a substantial
competitive advantage in the United States.
GOVERNMENT REGULATION
The explosives-detection systems manufactured and marketed by the Company
for use in airports are subject to regulation by the FAA, corresponding
foreign governmental authorities and The International Civil Aviation
Organization, the United Nations organization for establishing standard
practices for the aviation industry on a worldwide basis. Sales of the
Company's explosives-detection systems for use in airports have been and will
continue to be dependent upon governmental initiatives to require or support
the screening of baggage, carry-on items and people with advanced explosives-
detection equipment. Substantially all of such systems have been installed at
airports in countries in which the applicable government or regulatory
authority overseeing the operations of the airport has mandated such
screening. Such mandates are influenced by many factors outside of the control
of the Company, including political and budgetary concerns of governments,
airlines and airports. To date, the FAA has not mandated the use of any
explosives-detection system. See "Risk Factors--Dependence of Explosives
Detection Market on Government Regulation and Airline Industry."
RESEARCH AND DEVELOPMENT
The Company maintains active programs for the development and introduction
of new products and improvements to existing products. The Company also seeks
to develop new applications for its existing products
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and technology. The Company is currently devoting significant resources toward
the enhancement of its existing products and the development of new products
and technologies, including: enhancing InScan to detect foreign objects and,
in some applications, product defects in packaged goods for the food, consumer
products and other industries; developing an advanced generation of moisture-
detection products to address recently identified customers needs; adding
auto-calibration capabilities to its Alexus system; completing production
units of the Flash-GC, as well as beginning to enhance the Flash-GC to broaden
its applications; and developing Rampart, a lower-cost unit for use in airport
screening of carry-on baggage.
The Company also performs contract engineering and/or development on behalf
of its customers. Recent contracts have included funding by the FAA of the
development of the SecurScan walk-through explosives-detection system as well
as feasibility studies and initial development work for EGIS II. The Company
believes that its reputation for being able to apply its core technologies to
solve production problems of its customers provides the Company with a
significant competitive advantage.
Company-funded research and development expenses were $3,895,000, $2,741,000
and $4,608,000 in fiscal 1994, 1995 and 1996, respectively. Contract research
and development revenues were $1,923,000, $3,987,000 and $1,758,000,
respectively, during the same periods.
EMPLOYEES
As of December 28, 1996, the Company had 216 fulltime employees, of which 6
were engaged in senior management, 25 in administration and accounting, 43 in
research and development, 46 in sales and marketing, 47 in product support and
49 in manufacturing. None of the Company's employees are represented by a
labor union, and the Company considers its relations with its employees to be
good. 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.
BACKLOG
At December 30, 1995 and December 28, 1996, the Company's backlog of firm
orders was approximately $5,045,000 and $11,955,000, respectively. The Company
includes in backlog only those orders for which it has received completed
purchase orders and for which delivery has been specified within twelve
months. Most orders are subject to cancellation by the customer. Because of
the possibility of customer changes in delivery schedules, cancellation of
orders and potential delays in product shipments, the Company's backlog as of
any particular date may not be representative of actual sales for any
succeeding period.
FACILITIES
The Company operates from two principal facilities: a 113,000-square foot
office, research and development, and manufacturing facility in Chelmsford,
Massachusetts occupied under a lease expiring in 2006, subject to one five-
year renewal option at the election of the Company; and a 40,000-square foot
office and manufacturing facility in Hopkinton, Massachusetts occupied under a
lease expiring in 1998. The Company also leases approximately 9,000 square
feet in Enschede, Holland occupied under a lease expiring in 2000. In
addition, 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.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could
reasonably be expected to have a material adverse effect on the Company or its
business.
41
<PAGE>
RELATIONSHIP WITH THERMO ELECTRON AND THERMEDICS
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, Thermedics has created the Company as a
privately held subsidiary, and Thermedics and Thermo Electron, and certain of
its subsidiaries, have created several other privately and publicly held
subsidiaries. From time to time, Thermo Electron and its subsidiaries will
create other majority-owned subsidiaries as part of its spin-out strategy.
(The Company and the other Thermo Electron subsidiaries are hereinafter
referred to as the "Thermo Subsidiaries.")
Thermedics develops, manufactures, and markets product quality assurance
systems, precision-weighing and inspection equipment, electrochemistry and
micro-weighing products, electronic-test instruments, explosives-detection
devices, and moisture-analysis systems, as well as implantable heart-assist
devices and other biomedical products. For its fiscal year ended December 30,
1995, and the nine months ended September 28, 1996, Thermedics had
consolidated revenues of $175,754,000 and $188,624,000, respectively, and
consolidated net income of $15,121,000 and $19,694,000, respectively.
Thermo Electron and its subsidiaries develop, manufacture and market
environmental monitoring and analysis instruments, papermaking and recycling
equipment, biomedical products such as heart-assist devices and mammography
systems, biomass electric power generation, and other specialized products and
technologies. 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 the nine months
ended September 28, 1996, Thermo Electron had consolidated revenues of
$2,270,291,000 and $2,138,125,000, respectively, and consolidated net income
of $139,582,000 and $137,184,000, respectively. See "Risk Factors--Potential
Conflicts of Interest."
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 adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate
the nature of such cooperation among themselves. The purpose of the Charter is
to ensure that (1) all of the companies and their shareholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3)
each company has access to the combined resources and financial, managerial
and technological strengths of the others, and (4) Thermo Electron and the
Thermo Subsidiaries, in the aggregate, are able to obtain the most favorable
terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members,
coordinating the access of Thermo Electron and the Thermo Subsidiaries (the
"Thermo Group") to external financing sources, ensuring compliance with
external financial covenants and internal financial policies, assisting in the
formulation of long-range planning and providing other banking and credit
services. Pursuant to the Charter, Thermo Electron may also provide guarantees
of debt obligations of the Thermo Subsidiaries or may obtain external
financing at the parent level for the benefit of the Thermo Subsidiaries. In
certain instances, the Thermo Subsidiaries may provide credit support to, or
on behalf of, the consolidated entity or may obtain financing directly from
external financing sources. Under the Charter, Thermo Electron is responsible
for 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 Group. In addition, Thermo
Electron is also responsible for ensuring that members comply with internal
policies and procedures. The cost of
42
<PAGE>
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 participates. 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, certain employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and financial and other services to the Company. The Company
was assessed an annual fee equal to 1.2% of the Company's revenues for these
services for calendar 1995. Beginning January 1, 1996, the fee has been
reduced to 1.0% of the Company's revenues. The fee is reviewed annually and
may be changed by mutual agreement of the Company and Thermo Electron. During
1995 and 1996, Thermo Electron assessed the Company $335,000 and $438,000,
respectively, in fees under the Services Agreement.
Management believes that the service fees charged under the Services
Agreement are reasonable and that the terms of the Services Agreement are fair
to the Company. For items such as employee benefit plans, insurance coverage
and other identifiable costs, Thermo Electron charges the Company based on
charges directly attributable to the Company. The Services Agreement
automatically renews for successive one-year terms, unless canceled by the
Company upon 30 days' prior written 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
following termination.
TAX ALLOCATION AGREEMENT
The Tax Allocation Agreement between the Company and Thermedics outlines the
terms under which the Company is to be included in Thermedics' consolidated
Federal and state income tax returns. Under current law, the Company will be
included in such tax returns so long as Thermedics owns at least 80% of the
outstanding TDX Common Stock. In years in which the Company has taxable income
it will pay to Thermedics amounts comparable to the taxes it would have paid
if it had filed its own separate company tax returns. Assuming the sale of all
of the Underwritten Shares, Thermedics will own 77.6% of the outstanding TDX
Common Stock, and the Company will be required to file its own tax returns for
periods subsequent to the completion of the Rights Offering.
CERTAIN TRANSACTIONS WITH AFFILIATES
As of December 28, 1996, $10,976,000 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
43
<PAGE>
Electron, which Thermo Electron collateralizes with investments principally
consisting of corporate notes, United States government agency securities,
money market funds, commercial paper, and other marketable securities, in the
amount of at least 103% of such obligation. The Company's funds subject to the
repurchase agreement are readily convertible into cash by the Company 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.
In January 1996, the Company acquired Moisture Systems for a total of $21.7
million in cash, including repayments of approximately $0.7 million of
indebtedness. In connection with this acquisition, the Company borrowed $21.2
million from Thermedics pursuant to a promissory note due March 1998, and
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Thermedics has indicated its
intention to require the repayment of the principal amount of this note only
to the extent that the Company's liquidity and cash flow permit.
Pursuant to a subcontract entered into in October 1993, the Company performs
research and development services for Coleman Research Corporation
("Coleman"), which is the prime contractor under a contract with the U.S.
Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron
and was acquired by Thermo Electron in March 1995. Coleman paid the Company
$829,000 and $619,000 for services rendered in 1995 and 1996, respectively.
The Company purchases an X-ray source that is used as a component in its
InScan systems from Trex Medical Corporation, a publicly traded, majority-
owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded,
majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is
purchased pursuant to written purchase orders. The Company paid Trex Medical
Corporation $285,000 and $162,000 under this arrangement in 1995 and 1996,
respectively.
The Company has subleased approximately 8,000 square feet of space in its
Chelmsford, Massachusetts, facility to Thermo Cardiosystems Inc., a publicly
traded, majority-owned subsidiary of Thermedics ("Thermo Cardiosystems"),
under a two-year sublease agreement. Under this sublease, Thermo Cardiosystems
will pay the Company base rent of $40,000 in the first year and $44,000 in the
second year, in each case, together with an amount equal to approximately
$33,000 per year, representing Thermo Cardiosystem's pro rata allocation of
the facility's aggregate operating costs, real estate taxes and utilities.
The Company believes that the arrangements set forth above are on terms
comparable to those the Company would receive from unaffiliated parties.
44
<PAGE>
MANAGEMENT
The Directors and executive officers of the Company and their ages as of
November 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Wood Jr....... 52 Chairman of the Board and Director
Jeffrey J. Langan..... 51 Chief Executive Officer, President and Director
David H. Fine......... 54 Senior Vice President
John N. Hatsopoulos... 62 Vice President, Chief Financial Officer and Director
Paul F. Kelleher...... 54 Chief Accounting Officer
</TABLE>
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.
Messrs. Wood, Hatsopoulos and Kelleher are full-time employees of Thermo
Electron or Thermedics, but these individuals devote such portions of their
time to the Company's affairs as the Company's needs reasonably require from
time to time.
Mr. Wood has been Chairman of the Board and Director of the Company since
its inception in 1990. Mr. Wood also served as the Company's Chief Executive
Officer from December 1995 until December 27, 1996. Mr. Wood has been
President and Chief Executive Officer of Thermedics since 1984. Mr. Wood has
been Senior Vice President of Thermo Electron since December 1995, and, prior
to that promotion, was a Vice President of Thermo Electron from September 1994
to December 1995. Mr. Wood is also a director of Thermedics, Thermo
Cardiosystems Inc., Thermo Sentron Inc. and Thermo Voltek Corp.
Mr. Langan has been President of the Company since April 1996, a Director of
the Company since November 1996, and Chief Executive Officer of the Company
since December 27, 1996. Prior to joining the Company, Mr. Langan held a
number of positions at Hewlett-Packard Company in both its Medical and
Analytical Products Groups. He served as General Manager of the Healthcare
Information Management Division, and also of the Clinical Systems Business
Unit within the Medical Group. In the late 1980s, Mr. Langan was General
Manager of the Gas Chromatography/Workstations Division of Hewlett-Packard's
Analytical Products Group. Mr. Langan is also a Vice President of Thermedics.
Dr. Fine has been Senior Vice President of the Company since 1992 and had
been a Vice President of the Company since its inception in 1990 until 1992.
Dr. Fine joined Thermo Electron in 1972 and has held the following positions
at Thermo Electron prior to 1990: Head of the Cancer Research Department,
Director of Special Projects for the Research and Development Center, and
Manager and Director of Research for Instrument Research Development. Dr. Fine
is also a Vice President of Thermedics.
Mr. Hatsopoulos has been Vice President and Chief Financial Officer of the
Company since its inception in 1990 and has been a Director of the Company
since December 1995. Mr. Hatsopoulos was appointed Chairman of the Board of
Thermedics in March 1995, and has served as Thermedics' Chief Financial
Officer since 1988 and its Vice President since 1986. In September 1996, Mr.
Hatsopoulos was appointed President of Thermo Electron effective January 1997.
Mr. Hatsopoulos has been the Chief Financial Officer of Thermo Electron since
1988 and had been an Executive Vice President of Thermo Electron since 1986.
He is also a director of Thermedics, Thermo Ecotek Corporation, Thermo
Fibergen Inc., Thermo Fibertek Inc., Thermo Instrument Systems Inc., Thermo
Power Corporation, Thermo TerraTech Inc. and ThermoTrex Corporation.
Mr. Kelleher has been the Chief Accounting Officer of the Company since its
inception in 1990. 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.
45
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company, Thermo Electron or any other
companies affiliated with Thermo Electron (also referred to as "outside
directors") receive an annual retainer of $2,000 and a fee of $1,000 per day
for attending regular meetings of the Board of Directors and $500 per day for
participating in meetings of the Board of Directors held by means of
conference telephone and for participating in certain meetings of committees
of the Board of Directors. Payment of director fees is made quarterly. Messrs.
Wood, Langan and Hatsopoulos are 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 or her fees until he or she ceases to
serve as a Director, dies or retires from his or her principal occupation. In
the event of a change in control or proposed change in control of the Company
that is not approved by the Board of Directors, deferred amounts become
payable immediately. For purposes of the Deferred Compensation Plan, a change
of control is defined as: (a) the occurrence, without the prior approval of
the Board of Directors, of the acquisition, directly or indirectly, by any
person of 50% or more of the outstanding TDX Common Stock or the outstanding
common stock of Thermedics or 25% or more of the outstanding common stock of
Thermo Electron or (b) the failure of the persons serving on the Board of
Directors immediately prior to any contested election of directors or any
exchange offer or tender offer for the TDX Common Stock or the common stock of
Thermedics or Thermo Electron to constitute a majority of the Board of
Directors at any time within two years following any such event. Amounts
deferred pursuant to the Deferred Compensation Plan are valued at the end of
each quarter as units of TDX Common Stock. When payable, amounts deferred may
be disbursed solely in shares of TDX Common Stock accumulated under the
Deferred Compensation Plan. The Company has reserved 25,000 shares under this
Plan. The Deferred Compensation Plan will not become effective until
completion of the Rights Offering. As of the date of this Prospectus, no units
had been accumulated under the Deferred Compensation Plan.
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, former Chief Executive Officer and one other executive officer for
the fiscal year ended December 28, 1996 (the Chief Executive Officer, the
former Chief Executive Officer and such other executive officer being
hereinafter referred to as the "Named Executive Officers"). No other executive
officer of the Company met the definition of "highly compensated" within the
meaning of the Securities and Exchange Commission's executive compensation
disclosure rules during this period.
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
Thermedics."
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
SECURITIES UNDERLYING
ANNUAL COMPENSATION OPTIONS
---------------------- (NO. OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) AND COMPANY)(2) COMPENSATION(3)
- --------------------------- ----------- ---------- --------------------- ---------------
<S> <C> <C> <C> <C>
John W. Wood Jr.
Former Chief Executive
Officer(4)............. $ 195,000 $ -- -- $6,750
Jeffrey J. Langan
Chief Executive Officer
and President(5)....... $ 165,000 $ -- 50,000 (TDX) $ --
75,000 (TMD)
15,000 (TMO)
David H. Fine
Senior Vice President.. $ 128,000 $ -- 20,000 (TDX) $6,381
3,000 (TMD)
1,950 (TMO)
7,500 (TSR)
30,000 (TLZ)
</TABLE>
- --------
(1) Bonus compensation for fiscal 1996 is not calculable as of the date of
this Preliminary Prospectus.
(2) In addition to receiving options to purchase TDX Common Stock (designated
in the table as TDX), Mr. Langan and Dr. Fine have been granted options to
purchase the common stock of Thermo Electron and certain of its other
subsidiaries as part of Thermo Electron's stock option program. Options
have been granted during the last fiscal year in the following Thermo
Electron companies: Thermedics (designated in the table as TMD), Thermo
Electron (designated in the table as TMO), Thermo Sentron Inc. (designated
in the table as TSR) and ThermoLase Corporation (designated in the table
as TLZ).
(3) Represents the amount of matching contributions made by the individual's
employer on behalf of the Named Executive Officers under the Thermo
Electron 401(k) plan.
(4) Mr. Wood is a senior vice president of Thermo Electron and the president
and chief executive officer of Thermedics, and also served as the
Company's chief executive officer until December 27, 1996. Reported in the
table under "Annual Compensation" and "All Other Compensation" are total
amounts paid to Mr. Wood for his service in all capacities to Thermo
Electron companies. The total annual compensation paid to Mr. Wood from
all sources within the Thermo Electron organization is allocated among the
companies based on the time he devotes to their businesses. For 1996, 50%
of Mr. Wood's annual compensation was allocated to Thermedics, and
included his managerial assignment on behalf of the Company. None of Mr.
Wood's annual compensation in 1996 was separately allocated to or paid by
the Company. In addition, Mr. Wood has been granted options to purchase
common stock of Thermo Electron and certain of its subsidiaries other than
the Company from time to time by Thermo Electron or such other
subsidiaries. These options are not reported here as they were granted as
compensation for service to Thermo Electron companies in capacities other
than in his capacity as chief executive officer of the Company.
(5) Mr. Langan was appointed President of the Company on April 2, 1996 and
Chief Executive Officer on December 27, 1996.
47
<PAGE>
Stock Options Granted During Fiscal 1996
The following table sets forth certain information concerning grants of
stock options by the Company and other Thermo Electron companies made during
fiscal 1996 to the Named Executive Officers. No options to purchase shares of
the Common Stock of the Company were granted to Mr. Wood during fiscal 1996.
It has not been the Company's policy in the past to grant stock appreciation
rights, and no such rights were granted during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
---- ------------ ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Wood Jr.(3)..... -- -- -- -- -- --
Jeffrey J. Langan....... 50,000 (TDX) 24.2% $10.00 04/02/06 $314,500 $ 797,000
75,000 (TMD)(4) 22.9% $28.13 04/02/03 $858,750 $2,001,750
15,000 (TMO)(4) 1.0% $42.79 05/22/03 $261,300 $ 609,000
David H. Fine........... 20,000 (TDX) 9.7% $10.75 12/17/06 $135,200 $ 342,600
3,000 (TMD)(4) 0.9% $28.13 02/09/99 $ 13,290 $ 27,930
1,950 (TMO)(4) 0.1% $42.79 05/22/99 $ 13,143 $ 27,612
7,500 (TSR)(4) 1.5% $14.00 02/09/08 $ 83,550 $ 224,550
30,000 (TLZ)(4)(5) 7.5% $23.55 09/12/08 $562,200 $1,510,800
</TABLE>
- --------
(l) The options to purchase shares of the common stock of Thermedics
(designated in the table as TMD), Thermo Electron (designated in the table
as TMO), Thermo Sentron Inc. (designated in the table as TSR) and
ThermoLase Corporation (designated in the table as TLZ) are immediately
exercisable, while the options to purchase shares of TDX Common Stock
(designated in the table as TDX) are not exercisable until the earlier of
(i) 90 days after the effective date of the registration of the TDX Common
Stock under Section 12 of the Exchange Act 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 the granting 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. 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 the optionee continues to be employed
by the Company or another Thermo Electron company. Certain options granted
as a part of Thermo Electron's stock option program have three-year terms,
and the repurchase rights lapse in their entirety on the second
anniversary of the grant date. As to the options to purchase shares of TDX
Common Stock, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date, unless the TDX Common Stock becomes
publicly-traded before that date, in which event the repurchase rights are
deemed to have lapsed 20% per year commencing on the fifth anniversary of
the grant date. The granting corporation may permit the holders of all
options to exercise options and satisfy tax withholding obligations by
surrendering shares equal in fair market value to the exercise price or
withholding obligation.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the underlying TDX
Common Stock, the optionholders' continued employment through the option
period and the date on which the options are exercised.
(3) Mr. Wood has also served as an officer of Thermo Electron since 1994 and
the chief executive officer of Thermedics since 1984 and has been granted
options to purchase common stock of Thermo Electron and certain of its
subsidiaries other than the Company. These options are not reported in
this table as they were granted as compensation for service to other
Thermo Electron companies in capacities other than his capacity as the
chief executive officer of the Company.
(4) These options were granted under stock option plans maintained by Thermo
Electron or its public subsidiaries as part of Thermo Electron's
compensation program and, accordingly, are reported as a percentage of
total options granted to employees of Thermo Electron and its public
subsidiaries.
(5) The options to purchase shares of the common stock of ThermoLase
Corporation granted to Dr. Fine are subject to the same terms as described
in footnote (1), except that the repurchase rights are deemed to lapse 20%
per year commencing on the fifth anniversary of the grant date.
48
<PAGE>
Stock Options Exercised During Fiscal Year 1996 and Fiscal Year-End Option
Values
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 and outstanding stock options held at the
end of fiscal 1996 by the Named Executive Officers. No stock appreciation
rights were exercised or outstanding during fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END
NUMBER OF ---------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME COMPANY ON EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE
---- ----------------------- --------------- -------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
John W. Wood Jr.(2)..... Themedics Detection(4) -- -- 0/23,333 $ 0/$268,330(3)
Jeffrey J. Langan....... Thermedics Detection -- -- 0/50,000 $ 0/$575,000(3)
Thermedics -- -- 75,000/0 $ 0/0
Thermo Electron -- -- 15,000/0 $ 0/0
David H. Fine........... Thermedics Detection(4) -- -- 0/61,667 $ 0/$709,171(3)
Thermedics -- -- 87,600/0 $616,979/0
Thermo Cardiosystems 2,445 103,546 1,530/0 $ 42,229/0
Thermo Ecotek -- -- 1,500/0 $ 17,625/0
Thermo Electron(5) 3,038 114,098 54,637/0 $956,232/0
Thermo Fibertek -- -- 4,500/0 $ 27,000/0
Thermo Sentron -- -- 7,500/0 $ 0/0
ThermoLase(6) -- -- 30,000/0 $ 0/0
ThermoSpectra -- -- 1,000/0 $ 1,875/0
ThremoTrex 360 17,838 --
</TABLE>
- --------
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable, except the options to purchase shares of TDX
Common Stock which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of the TDX Common Stock under
Section 12 of the Exchange Act 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. Certain options granted as a part of Thermo
Electron's stock option program have three-year terms, and the repurchase
rights lapse in their entirety on the second anniversary of the grant
date.
(2) Mr. Wood also holds unexercised options to purchase common stock of Thermo
Electron and its subsidiaries other than the Company. These options are
not reported here as they were granted as compensation for service to
other Thermo Electron companies in capacities other than his capacity as
chief executive officer of the Company.
(3) No public market existed for the shares underlying the options as of
December 28, 1996. Accordingly, this value has been calculated on the
basis of an assumed market value of $11.50 per share, which is the mid-
point of the estimated subscription price range.
(4) Options to purchase 23,333 and 41,667 shares of TDX Common Stock granted
to Mr. Wood and Dr. Fine, respectively, were granted pursuant to a
nonqualified stock option plan of Thermedics.
(5) Options to purchase 45,000 shares of the common stock of Thermo Electron
granted to Dr. Fine are subject to the same terms described in footnote
(1), except that the repurchase rights of the granting corporation
generally do not lapse until the tenth anniversary of the grant date. In
the event of the employee's death or involuntary termination prior to the
tenth anniversary of the grant date, the repurchase rights of the granting
corporation shall be deemed to have lapsed ratably over a five-year period
commencing with the fifth anniversary of the grant date.
(6) The options to purchase shares of the common stock of ThermoLase
Corporation granted to Dr. Fine are subject to the same terms described in
footnote (1), except the repurchase rights are deemed to lapse 20% per
year commencing on the fifth anniversary of the grant date.
49
<PAGE>
CERTAIN TRANSACTIONS
On March 22, 1996, the Company completed a private placement of 300,000
shares of TDX Common Stock at a purchase price of $10.00 per share. On
November 19, 1996, the Company completed an additional private placement of
383,500 shares of TDX Common Stock at a purchase price of $10.75 per share.
Although substantially all of the shares sold in such private placements were
purchased by outside investors that are not affiliated with the Company,
Thermedics or Thermo Electron, Dr. Fine purchased 10,000 shares of TDX Common
Stock in the March private placement and Mr. Langan purchased 10,000 shares of
TDX Common Stock in the November private placement, at prices of $10.00 and
$10.75 per share, respectively.
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the TDX Common Stock as of November 30, 1996 by Thermedics, which
is the only person or entity that owns beneficially more than 5% of the
outstanding shares of TDX Common Stock. See "Risk Factors--Control by
Thermedics."
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
- ------------------------------------ ------------------ -------------------------
<S> <C> <C>
Thermedics Inc.(1)................ 10,000,000 93.6%
470 Wildwood Street
Woburn, Massachusetts 01888
</TABLE>
- --------
(l) Thermedics is a majority-owned subsidiary of Thermo Electron and,
therefore, Thermo Electron may be deemed a beneficial owner of the shares
of TDX Common Stock beneficially owned by Thermedics. Thermo Electron
disclaims beneficial ownership of these shares. After giving effect to the
Rights Offering, assuming the sale of all of the Underwritten Shares,
Thermedics will beneficially own approximately 77.6% of the outstanding
TDX Common Stock.
Thermedics has adopted a stock option plan with respect to the TDX Common
Stock that it beneficially owns. Under this plan, options to purchase up to
333,333 shares of such stock may be granted to any person within the
discretion of the human resources committee of the Board of Directors of
Thermedics, including officers and key employees of Thermedics.
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the TDX Common Stock as of November 30, 1996 as well as
information regarding the beneficial ownership of the common stock of
Thermedics and Thermo Electron, as of November 30, 1996, with respect to (i)
each of the Company's Directors, (ii) the Chief Executive Officer, and (iii)
all Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
THERMEDICS THERMO ELECTRON
NAME(1) DETECTION INC.(2) THERMEDICS INC.(3) CORPORATION(4)
------- ----------------- ------------------ ---------------
<S> <C> <C> <C>
John W. Wood Jr........... 0 175,347 263,909
Jeffrey J. Langan......... 10,000 75,000 15,300
David H. Fine............. 10,000 110,568 70,003
John N. Hatsopoulos....... 0 65,618 506,768
All Directors and
executive officers
as a group (5) persons... 20,000 446,758 1,000,978
</TABLE>
- --------
(l) Except as reflected in the footnotes to this table, shares of TDX Common
Stock and common stock of Thermedics and Thermo Electron beneficially
owned consist of shares owned by the indicated person or by that person
for the benefit of minor children, and all share ownership involves sole
voting and investment power.
(2) Certain officers and directors have been granted options to purchase
135,000 shares of TDX Common Stock; however, these options will not become
exercisable until 90 days after the Rights Offering. No Director or
executive officer beneficially owned more than 1% of the TDX Common Stock
outstanding as of November 30, 1996, and all directors and executive
officers as a group beneficially owned less than 1% of the TDX Common
Stock outstanding as of such date.
51
<PAGE>
(3) Shares of the common stock of Thermedics beneficially owned by Mr. Wood,
Mr. Langan, Mr. Hatsopoulos, Dr. Fine and by all Directors and executive
officers as a group include 125,500, 75,000, 50,000, 87,600 and 357,100
shares, respectively, that such person or group has the right to acquire
within 60 days of November 30, 1996, through the exercise of stock
options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors
and executive officers as a group include 1,602 and 2,761 full shares,
respectively, allocated through November 30, 1996 to their respective
accounts maintained pursuant to Thermo Electron's Employee Stock Ownership
Plan of which the trustees, who have investment power over its assets, are
executive officers of Thermo Electron (the "ESOP"). Shares beneficially
owned by Mr. Wood include 2,600 shares held in a trust of which Mr. Wood's
spouse is the trustee. No director or executive officer beneficially owned
more than 1% of the common stock of Thermedics outstanding as of November
30, 1996; all Directors and executive officers as a group beneficially
owned 1.2% of such common stock outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to
reflect a three-for-two stock split effected on May 22, 1996. Shares of
the common stock of Thermo Electron beneficially owned by Mr. Wood, Mr.
Langan, Mr. Hatsopoulos, Dr Fine and by all Directors and executive
officers as a group include 227,658, 15,000, 379,685, 54,637 and 774,554
shares, respectively, that such person or group has the right to acquire
within 60 days of November 30, 1996, through the exercise of stock
options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors
and executive officers as a group include 1,934 and 3,258 full shares,
respectively, allocated through November 30, 1996 to their respective
accounts maintained pursuant to the ESOP. No director or executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
outstanding as of November 30, 1996; all directors and executive officers
as a group beneficially owned less than 1% of the common stock of Thermo
Electron outstanding as of such date.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the principal terms applicable to
the authorized shares of TDX Common Stock.
As of the date of this Prospectus, the Company had 50,000,000 shares of TDX
Common Stock authorized for issuance, of which 10,683,500 were issued and
outstanding. Each share of TDX Common Stock is entitled to pro rata
participation in distributions upon liquidation and to one vote on all matters
submitted to a vote of shareholders. Dividends may be paid to the holders of
TDX Common Stock when and if declared by the Board of Directors out of funds
legally available therefor. Holders of TDX Common Stock have no preemptive,
subscription, redemption, conversion or similar rights. The outstanding shares
of TDX Common Stock are, and the shares offered hereby when issued will be,
legally issued, fully paid and nonassessable.
The shares of TDX Common Stock have noncumulative voting rights. As a
result, the holders of more than 50% of the shares voting can elect all the
directors if they so choose, and in such event, the holders of the remaining
shares cannot elect any directors. Upon completion of the Rights Offering,
Thermedics will continue to beneficially own at least a majority of the
outstanding TDX Common Stock, and will have the power to elect all of the
members of the Company's Board of Directors. Thermedics is a majority-owned
subsidiary of Thermo Electron and, therefore, Thermo Electron may be deemed a
beneficial owner of the shares of TDX Common Stock beneficially owned by
Thermedics. Thermo Electron disclaims beneficial ownership of these shares.
The Company's Articles of Organization, as amended, contain certain
provisions permitted under the Business Corporation Law of the Commonwealth of
Massachusetts relating to the liability of directors. These provisions
eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The Company's
By-Laws also contains provisions to indemnify the directors and officers of
the Company to the fullest extent permitted by the Business Corporation Law of
the Commonwealth of Massachusetts. 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 TDX Common Stock is American Stock
Transfer & Trust Company.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Rights Offering, there will be a maximum of
12,883,500 shares of TDX Common Stock outstanding, assuming the sale of all of
the Underwritten Shares. The shares issued in the Rights Offering will be
freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased in the Rights Offering by affiliates of the Company, as that
term is defined in Rule 144 under the Securities Act (an "Affiliate"), may
generally only be resold in compliance with applicable provisions of Rule 144.
The Company has agreed, pursuant to Stock Purchase Agreements with the
shareholders of the Company other than Thermedics, to file a registration
statement under the Securities Act covering the sale of the 683,500 shares of
TDX Common Stock owned by them (the "Registrable Shares") within 120 days of
the closing of the Rights Offering. All fees, costs and expenses of the
registration of the Registrable Shares will be paid by the Company. See "Risk
Factors--Significant Additional Shares Eligible for Sale After the Offering."
As of December 28, 1996, Thermedics owned 10,000,000 of the outstanding
shares of TDX Common Stock. Thermo Electron, Thermedics and the Company have
agreed, without the prior written consent of the Representatives of
Underwriters, not to offer, sell or otherwise dispose of any shares of TDX
Common Stock within a 180-day period after the date of this Prospectus, other
than (i) shares of TDX Common Stock to be issued in the Rights Offering, (ii)
the issuance of options and sales of shares of TDX Common Stock pursuant to
existing stock-based compensation plans, (iii) shares of TDX Common Stock
which may be sold to Thermedics and Thermo Electron, (iv) the issuance of
shares of TDX Common Stock as consideration for the acquisition of one or more
businesses (provided that such TDX Common Stock may not be resold prior to the
expiration of the 180-day period referenced above) and (v) the sale of Rights
by Thermo Electron. So long as Thermedics 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 TDX Common Stock
owned by Thermedics or its affiliates, in which case it would be able to sell
such shares without restriction upon effectiveness of the registration
statement.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined
in Rule 144) for at least two years from the later of the date such securities
were acquired from the Company or (if applicable) the date they were acquired
from an Affiliate is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of TDX Common Stock or (ii) the average weekly trading
volume in the TDX Common Stock during the four calendar weeks preceding the
date on which notice of such sale was filed pursuant to Rule 144 provided
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, under Rule 144(k), if a
period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale is
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144. The Securities and Exchange Commission has
proposed an amendment to Rule 144 which would reduce the holding period
required for shares subject to Rule 144 to become eligible for sale in the
public market from two years to one year, and from three years to two years in
the case of Rule 144(k).
The Company has reserved 358,333 shares of TDX Common Stock for grants under
its existing stock-based compensation plans. As of December 28, 1996 the
Company had options outstanding to purchase up to 218,180 shares of TDX Common
Stock to certain of its officers and directors at a weighted average exercise
price of $10.41 per share. Ninety days after the completion of the Rights
Offering such options will become immediately exercisable, subject to the
right of the Company to repurchase shares at the exercise price if the
optionee ceases to be employed by the Company or another Thermo Electron
company. This repurchase right lapses ratably (on an annual basis) over a five
to ten year period depending upon the term of the option. As of December 28,
1996,
54
<PAGE>
the repurchase right had lapsed as to 16,502 shares issuable upon exercise of
outstanding options. The Company has reserved 140,153 shares remaining for
future grant under plans. The Company intends to file registration statements
under the Securities Act to register all shares of TDX Common Stock issuable
under such plans. Shares covered by these registration statements that are not
subject to transferability restrictions will be eligible for sale in the
public market immediately upon the filing of such registration statements,
subject to Rule 144 limitations applicable to Affiliates as noted above.
Prior to the Rights Offering, there has been no public market for the TDX
Common Stock, and no prediction can be made as to the effect, if any, that
market sales of shares of TDX Common Stock or the availability of shares for
sale will have on the market price of the TDX Common Stock prevailing from
time to time. Nevertheless, sales of significant numbers of shares of the TDX
Common Stock in the public market could adversely affect the market price of
the TDX Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--
Significant Additional Shares Eligible for Sale After the Offering."
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Standby Underwriting
Agreement, each of the Underwriters named below, for whom Lehman Brothers Inc.
and NatWest Securities Limited are acting as Representatives (the
"Representatives") has severally agreed to purchase from the Company at the
Subscription Price the respective percentage set forth opposite its name below
of a number of shares of TDX Common Stock equal to (i) 300,000 shares of TDX
Common Stock (the "Firm Shares") and (ii) 1,000,000 shares less the number of
shares purchased upon the exercise of Rights (together with the Firm Shares,
the "Underwritten Shares"):
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERWRITER UNDERWRITTEN SHARES
----------- -------------------
<S> <C>
Lehman Brothers Inc. .................................
NatWest Securities Limited............................
---
Total............................................... 100%
===
</TABLE>
In the Standby Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Underwritten Shares if any Underwritten Shares are purchased. In the event of
a default by any Underwriter, the Standby Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriter may be increased or the Standby Underwriting Agreement may be
terminated. The Company has been advised by the Representatives that the
several Underwriters propose to offer shares to certain dealers at a
concession initially equal to $ per share. Such concession may be changed
by the Underwriters to an amount not in excess of $ per share. The
Representatives have informed the Company that the Underwriters do not intend
to confirm sales of shares of TDX Common Stock to any accounts over which they
exercise discretionary authority.
The Company has granted the several Underwriters an option, exercisable not
later than 30 days after the Expiration Date, to purchase up to 195,000
additional shares of TDX Common Stock at the Subscription Price. To the extent
that the Underwriters exercise such option, each of the Underwriters severally
will have a firm commitment to purchase the same percentage thereof as is
shown in the above table. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the shares of TDX
Common Stock offered hereby.
Under current applicable law, the Underwriters may bid for and purchase
Rights for certain purposes. Such purchases will be subject to certain price
and volume limitations when the TDX Common Stock is being stabilized by the
Underwriters or when the Underwriters own Rights without an offsetting short
position in the TDX Common Stock. Such limitations provide, among other
things, that subject to certain exceptions, not more than one bid to purchase
Rights may be maintained in any one market at the same price at the same time
and that the initial bid for or purchase of Rights may not be made at a price
higher than the highest current independent bid price on the AMEX. Any such
price may not be increased, subject to certain exceptions, unless the
Underwriters have not purchased any Rights for a full business day or the
independent bid price for such Rights on the American Stock Exchange has
exceeded such price for a full business day. Effective March 4, 1997, the
foregoing restrictions on the bids for and purchase of Rights will terminate.
From the date hereof, the Underwriters may offer and sell TDX Common Stock
at prices set from time to time by the Representatives, which prices may be
higher or lower than the Subscription Price. Under rules applicable prior to
March 4, 1997, prior to the Expiration Date, each such price when set will not
exceed, if
56
<PAGE>
applicable, the highest price at which the TDX Common Stock last sold on the
AMEX (plus an amount equal to an exchange commission) or the current asked
price on the AMEX (plus such commission), whichever is higher and any such
offering price set on any calendar day will not be increased more than once
during that day. Any such offering may include TDX Common Stock acquired or to
be acquired through the exercise of the Rights or may be made in anticipation
of the purchase of Underwritten Shares. As a result of such offerings, the
Underwriters may realize profits or losses independent of the underwriting
commissions and fees described below.
In connection with this offering, the Underwriters may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the TDX Common Stock, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid, or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of TDX Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits Lehman Brothers Inc. to reclaim a selling concession from a syndicate
member in connection with the offering when shares of TDX Common Stock sold by
the syndicate member are purchased in syndicate covering transactions.
The Company has agreed to pay a management fee equal to $506,000 to the
Representatives, a standby fee of $230,000 to the Underwriters and additional
fees of $.58 per share to the Underwriters for each share of TDX Common Stock
actually purchased by the Underwriters (other than the Firm Shares and the
first 45,000 of overallotment shares), whether pursuant to Rights purchased and
exercised by the Underwriters or pursuant to the Standby Underwriting
Agreement; provided that such fees in the aggregate shall not exceed 6% of the
Subscription Price for each share of TDX Common Stock purchased pursuant to the
exercise of Rights (by the Underwriters or otherwise) or pursuant to the
Standby Underwriting Agreement (other than the Firm Shares and the first 45,000
of overallotment shares) plus an amount equal to the aggregate purchase price
of Rights purchased by the Underwriters, up to $100,000. The Company has agreed
to allow the Underwriters to exercise any Rights held by them on the first
business day following the Expiration Date. The Company has also agreed to
reimburse the Underwriters for their out-of-pocket expenses in connection with
the Rights Offering.
The Standby Underwriting Agreement provides that the Company, Thermedics and
Thermo Electron will indemnify the Underwriters against certain liabilities
incurred in connection with the Rights Offering, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, Thermedics and Thermo Electron have also agreed that they will
not, without the Representatives' prior written consent, offer, sell, grant any
options to purchase or otherwise dispose of any TDX Common Stock within 180
days after the date of this Prospectus, other than (i) sales of shares of TDX
Common Stock to be issued in the Rights Offering, (ii) the issuance of options
and sales of shares of TDX Common Stock pursuant to existing stock-based
compensation plans, (iii) shares of TDX Common Stock which may be sold to
Thermedics and Thermo Electron, (iv) the issuance of shares of TDX Common Stock
as consideration for the acquisition of one or more businesses (provided that
such TDX Common Stock may not be resold prior to the expiration of the 180-day
period referenced above) and (v) the sale of Rights by Thermo Electron. See
"Shares Eligible for Future Sale."
Thermo Electron may sell its Rights from time to time prior to the Expiration
Date in transactions on the American Stock Exchange, in negotiated
transactions, including transactions with the Underwriters, 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 Rights to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from Thermo
Electron and/or the purchasers of the Rights 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). Thermo
Electron and any broker-dealer
57
<PAGE>
who acts in connection with the sale of Rights by Thermo Electron may be
deemed to be "underwriters" as that term is defined in the Securities Act, and
any commission received by them and profit on any resale of the Rights as
principal might be deemed to be underwriting discounts and commissions under
the Securities Act.
Each of the Underwriters from time to time has performed various investment
banking services for Thermo Electron and its subsidiaries.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the TDX Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any TDX Common Stock within the United
States, its territories or possessions or to persons who are citizens thereof
or residents therein. The Standby Underwriting Agreement does not limit sales
of TDX Common Stock offered hereby outside of the United States.
NatWest Securities Limited has also represented and agreed that as a part of
the distribution of the TDX Common Stock offered hereby, (i) it has not
offered or sold and will not offer or sell any TDX Common Stock to persons in
the United Kingdom except to persons whose ordinary activities involve them in
aquiring, managing, holding or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
or the Financial Services Act 1986 (the "Act"); (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the TDX Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue
or pass on, in the United Kingdom any document received by it in connection
with the issue of the TDX Common Stock, other than any document which consists
of or any part of listing particulars, supplementary listing particulars or
any other document or instrument required or permitted to be published by
listing rules under Part IV of the Act, to a person who is of a kind described
in Article 11 (3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document
may otherwise be lawfully issued or passed on.
Prior to the Rights Offering there has been no public market for the TDX
Common Stock. The Subscription Price for the TDX Common Stock will be
determined by the Company in consultation with the Representatives. Among the
factors to be considered in determining the Subscription Price will be
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the state of the Company's business operations,
an assessment of the Company's management, the consideration of the above
factors in relation to market valuations of companies in related businesses
and other factors deemed relevant.
LEGAL OPINIONS
The validity of the issuance of the TDX Common Stock offered hereby will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of
Thermo Electron, Thermedics and the Company, and certain legal matters will be
passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Mr. Hoogasian owns or has the right to acquire 8,900 shares of
common stock of Thermedics and 115,927 shares of common stock of Thermo
Electron.
EXPERTS
The Consolidated Financial Statements of the Company, (except the
Consolidated Financial Statements of Rutter & Co. B.V. as of December 28, 1996
and for the period from January 25, 1996 (date of acquisition) to December 28,
1996), and the Combined Financial Statements of Moisture Systems Corporation
and Moisture Systems Limited included in this prospectus and the related
financial statement schedule included in the Registration Statement of which
this Prospectus forms a part have been audited by Arthur Andersen LLP,
independent public accountants, to the extent and for the periods as indicated
in their reports with respect thereto.
58
<PAGE>
The Consolidated Financial Statements of Rutter & Co. B.V. as of December 28,
1996 and for the period from January 25, 1996 to December 28, 1996 have been
audited by Deloitte & Touche, independent auditors and registeraccountants, as
stated in their report included herein. The consolidated financial statements
and financial statement schedule of the Company are included herein in
reliance upon the respective reports of such firms given upon their authority
as experts in accounting and auditing in giving said reports. The combined
financial statements of Moisture Systems Corporation and Moisture Systems
Limited are included herein in reliance upon the authority of Arthur Andersen
LLP as experts in accounting and auditing in giving said reports.
The Consolidated Financial Statements of Rutter & Co. B.V. for the two years
ended December 31, 1995 included in this Prospectus have been audited by
Deloitte & Touche, independent auditors and registeraccountants, as stated in
their reports appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) on Form S-1 under the Securities
Act with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Although statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to set forth all material elements of such documents, such statements
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement, although setting forth all material elements of such
documents, shall be deemed qualified by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. The address of such site is http://www.sec.gov.
The distribution of this Prospectus and the offering of the Rights and the
shares of TDX Common Stock in certain jurisdictions may be restricted by law.
No action has been taken by the Company, Thermedics or the Underwriters that
would permit an offering of the Rights or such shares or the circulation or
distribution of this Prospectus or any offering material in relation to the
Company, the Rights or such shares in any country outside the United States
where action for that purpose is required. Persons into whose possession this
Prospectus comes are required by the Company and the Underwriters to inform
themselves about and to observe any such restrictions, including the
following:
The TDX Common Stock may not be offered for sale in the United Kingdom
except in circumstances that do not constitute an offer to the public within
the meaning of the Companies Act 1985 and therefore offers may not be made
other than to persons who, at the date of this document, are (i) persons whose
ordinary business is to buy or sell shares or debentures, whether as principal
or agent, (ii) existing registered holders of TDX Common Stock, or (iii)
existing registered holders of Thermedics Common Stock, and in the case of
(iii), such persons will only be eligible to subscribe for such shares if in
so doing they represent that they are subscribing with a view to holding the
shares as an investment and that they have no immediate intention to resell
the shares. In addition, persons who receive Rights by way of dividend from
Thermedics but who do not fall within the categories described in (i) or (ii)
above shall, in taking such Rights, be construed as representing that they
will not transfer them to a third party.
59
<PAGE>
This document may only be issued or passed on to any person in the United
Kingdom if at the date of issue hereof such person is either (i) a person who
is reasonably believed to be of the kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995, as amended, or (ii) a person who is reasonably believed to be an
existing registered stockholder of either Thermedics or the Company and
therefore a person of the kind described in Article 8(1) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996.
The Rights may not be sold, transferred or exercised by any person located
in Canada. The Subscription Agent will sell the Rights for the account of each
Thermedics or Thermedics Detection stockholder located in Canada and mail the
proceeds of such sale to each such stockholder. See "The Rights Offering--
Method of Transferring Rights."
No application has been made to the French Commission des Operations de
Bourse in respect of this Prospectus or any part hereof. The Company hereby
represents and agrees, and each French recipient, by his acceptance of this
Prospectus agrees, that neither this Prospectus nor any part hereof
constitutes a public offering of Rights or shares of Thermedics Detection
Common Stock in France. The Company and Thermedics further confirm that they
have not, and each French recipient, by his acceptance of this Prospectus,
confirms that such recipient has neither offered for sale nor sold nor will
offer for sale or sell (whether by use of this Prospectus or any part hereof,
any information contained herein or any connected or related document or
otherwise) any of the Rights or shares of Thermedics Detection Common Stock to
the public in France.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish holders of the TDX Common Stock offered
hereby with annual reports containing financial statements audited by an
independent public accounting firm and with quarterly reports containing
unaudited summary financial statements for each of the first three quarters of
each fiscal year.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THERMEDICS DETECTION INC.
Reports of Independent Public Accountants............................... F-2
Consolidated Statement of Income for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996................................ F-4
Consolidated Balance Sheet as of December 30, 1995 and December 28,
1996................................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1994, December 30, 1995 and December 28, 1996.......................... F-6
Consolidated Statement of Shareholders' Investment for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996............. F-7
Notes to Consolidated Financial Statements.............................. F-8
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
Report of Independent Public Accountants................................ F-19
Combined Statement of Income for the year ended December 30, 1995 and
for the period from December 31, 1995 through January 25, 1996......... F-20
Combined Balance Sheet as of December 30, 1995.......................... F-21
Combined Statement of Cash Flows for the year ended December 30, 1995
and for the period from December 31, 1995 through January 25, 1996..... F-22
Combined Statement of Owners' Investment for the year ended December 30,
1995 and for the period from December 31, 1995 through January 25,
1996................................................................... F-23
Notes to Combined Financial Statements.................................. F-24
RUTTER & CO. B.V.
Auditor's Report........................................................ F-28
Consolidated Balance Sheets at December 31, 1995 and 1994............... F-29
Consolidated Profit and Loss Accounts for the years ended December 31,
1995 and 1994.......................................................... F-30
Notes to the Consolidated Balance Sheets and the Consolidated Profit and
Loss Accounts.......................................................... F-31
Parent Company Balance Sheets at December 31, 1995 and 1994............. F-35
Parent Company Profit and Loss Accounts for the years ended December 31,
1995 and 1994.......................................................... F-36
Notes to the Parent Company Balance Sheets and the Parent Company Profit
and Loss Accounts...................................................... F-37
Supplementary Information............................................... F-40
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF THERMEDICS DETECTION
INC., MOISTURE SYSTEMS AND RUTTER & CO. B.V. (UNAUDITED)
Pro Forma Combined Condensed Statement of Income for the year ended
December 28, 1996...................................................... F-45
Note to Pro Forma Combined Condensed Statement of Income................ F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
We have audited the accompanying consolidated balance sheet of Thermedics
Detection Inc. (a Massachusetts corporation and 94%-owned subsidiary of
Thermedics Inc.) and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of income, cash flows and
shareholders' investment for each of the three years in the period ended
December 28, 1996. 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
did not audit the financial statements of Rutter & Co. B.V. (a wholly owned
subsidiary of Thermedics Detection Inc.), for the period from January 25, 1996
(the date of acquisition) through and as of December 28, 1996, which
statements reflect total assets and total revenues of 16% and 17% in 1996,
respectively, of the consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Thermedics Detection Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended December 28, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of the Rutter & Co. B.V.
segment of Thermedics Detection Inc. as of December 28, 1996, and the related
consolidated statements of income, stockholder's equity, and cash flows for
the period from January 25, 1996 (acquisition date) to December 28, 1996 (all
expressed in Netherlands Guilders) (not included herein). These financial
statements are the responsibility of Thermedics Detection Inc.'s and Rutter &
Co. B.V.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in the Notes to the financial statements (not included herein),
the consolidated balance sheet of the Rutter & Co. B.V. segment of Thermedics
Detection Inc. includes the net assets acquired by Thermedics Detection Inc.
in its purchase of Rutter & Co. B.V. on January 25, 1996, after giving effect
to the allocation of Thermedics Detection Inc.'s purchase price to the
consolidated net assets of Rutter & Co. B.V. and to the changes in the
consolidated net assets of Rutter & Co. B.V. subsequent to the acquisition;
the related consolidated statements of income, stockholder's equity, and cash
flows reflect the results of operations and cash flows of Rutter & Co. B.V.
subsequent to such acquisition after giving effect to the allocation of
Thermedics Detection Inc.'s purchase price to Rutter & Co. B.V.'s consolidated
net assets.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Rutter & Co. B.V. segment
of Thermedics Detection Inc. at December 28, 1996, and the results of their
operations and their cash flows for the period from January 25, 1996 to
December 28, 1996 in conformity with generally accepted accounting principles
in the United States of America.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
January 29, 1997
F-3
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues (Note 8)
Product............................................ $40,436 $18,457 $31,255
Service............................................ 9,907 9,497 12,495
------- ------- -------
50,343 27,954 43,750
------- ------- -------
Costs and Operating Expenses:
Cost of product revenues........................... 18,052 9,895 15,417
Cost of service revenues........................... 6,854 5,341 6,733
Selling, general and administrative expenses (Note
6)................................................ 11,973 7,487 15,525
Research and development expenses.................. 3,895 2,741 4,608
------- ------- -------
40,774 25,464 42,283
------- ------- -------
Operating Income..................................... 9,569 2,490 1,467
Interest Income...................................... -- -- 229
Interest Expense, Related Party (Note 2)............. -- -- (1,119)
Other Income (Expense)............................... -- (72) 12
------- ------- -------
Income Before Provision for Income Taxes............. 9,569 2,418 589
Provision for Income Taxes (Note 4).................. 3,189 910 227
------- ------- -------
Net Income........................................... $ 6,380 $ 1,508 $ 362
======= ======= =======
Earnings per Share................................... $ .63 $ .15 $ .04
======= ======= =======
Weighted Average Shares.............................. 10,069 10,069 10,320
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 1,282 $13,484
Accounts receivable, less allowances of $516 and $1,215.... 4,619 9,387
Unbilled contract costs and fees........................... 1,152 307
Inventories................................................ 8,991 8,793
Prepaid and refundable income taxes (Note 4)............... 1,530 2,173
Prepaid expenses........................................... 208 547
------- -------
17,782 34,691
------- -------
Property, Plant and Equipment, at Cost, Net.................. 2,230 1,784
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 2).. -- 16,694
------- -------
Other Assets................................................. 310 314
------- -------
$20,322 $53,483
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable........................................... $ 1,558 $ 3,030
Accrued payroll and employee benefits...................... 681 1,375
Accrued installation and warranty expenses................. 1,414 1,413
Deferred revenue........................................... 1,324 1,281
Customer deposits.......................................... 446 637
Other accrued expenses..................................... 1,086 3,436
Due to parent company and affiliates....................... -- 161
------- -------
6,509 11,333
------- -------
Deferred Income Taxes (Note 4)............................... 40 40
------- -------
Promissory Note to Parent Company (Note 2)................... -- 21,200
------- -------
Commitments (Note 5)
Shareholders' Investment (Note 3):
Common stock, $.10 par value, 15,000,000 shares authorized;
10,000,000 shares and 10,683,500 shares issued and
outstanding .............................................. 1,000 1,068
Capital in excess of par value............................. 6,114 13,130
Retained earnings.......................................... 6,774 7,136
Cumulative translation adjustment.......................... (115) (424)
------- -------
13,773 20,910
------- -------
$20,322 $53,483
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- ------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .................................. $ 6,380 $ 1,508 $ 362
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization.............. 1,060 1,159 2,364
Provision for losses on accounts
receivable................................ 128 98 582
Other noncash expenses..................... 1,127 727 1,804
Increase (decrease) in deferred income
taxes..................................... 81 (40) --
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable...................... 1,862 1,051 (1,776)
Unbilled contract costs and fees......... 1,687 (931) 845
Inventories.............................. 4,649 (3,213) 1,254
Other current assets..................... (934) (116) (599)
Accounts payable......................... (2,977) 182 758
Other current liabilities................ (11,147) (2,392) 1,045
-------- ------- --------
Net cash provided by (used in) operating
activities............................. 1,916 (1,967) 6,639
-------- ------- --------
INVESTING ACTIVITIES:
Acquisitions (Note 2)........................ -- -- (21,668)
Acquisition of product line (Note 2)......... -- -- (300)
Purchases of machinery, equipment and
leasehold improvements...................... (722) (608) (766)
Proceeds from sale of machinery, equipment
and leasehold improvements.................. 448 19 113
Purchase of other assets..................... (471) -- --
-------- ------- --------
Net cash used in investing activities... (745) (589) (22,621)
-------- ------- --------
FINANCING ACTIVITIES:
Net proceeds from private placement of
Company common stock (Note 7)............... -- -- 6,964
Proceeds from issuance of promissory note to
parent company (Note 7)..................... -- -- 21,200
Transfers to parent company and additional
capital contributions, net ................. (984) 3,170 120
Other........................................ -- -- (15)
-------- ------- --------
Net cash provided by (used in) financing
activities............................. (984) 3,170 28,269
-------- ------- --------
Exchange Rate Effect on Cash.................. 14 (138) (85)
-------- ------- --------
Increase in Cash and Cash Equivalents......... 201 476 12,202
Cash and Cash Equivalents at Beginning of
Year......................................... 605 806 1,282
-------- ------- --------
Cash and Cash Equivalents at End of Year...... $ 806 $ 1,282 $ 13,484
======== ======= ========
CASH PAID FOR:
Interest..................................... $ -- $ -- $ 596
======== ======= ========
Income taxes................................. $ 338 $ 152 $ 618
======== ======= ========
NONCASH ACTIVITIES:
Fair value of assets of acquired companies... $ -- $ -- $ 24,328
Cash paid for acquired companies............. -- -- 21,668
-------- ------- --------
Liabilities assumed of acquired
companies................................ $ -- $ -- $ 2,660
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL IN CUMULATIVE
STOCK, $.10 EXCESS OF RETAINED TRANSLATION
PAR VALUE PAR VALUE EARNINGS ADJUSTMENT
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994........... $1,000 $ 2,814 $ -- $ 8
Net income........................ -- -- 6,380 --
Transfer to parent company, net... -- -- (984) --
Translation adjustment............ -- -- -- (10)
------ ------- ------ -----
BALANCE DECEMBER 31, 1994......... 1,000 2,814 5,396 (2)
Net income........................ -- -- 1,508 --
Additional capital contribution... -- 3,300 -- --
Transfer to parent company, net... -- -- (130) --
Translation adjustment............ -- -- -- (113)
------ ------- ------ -----
BALANCE DECEMBER 30, 1995......... 1,000 6,114 6,774 (115)
Net income........................ -- -- 362 --
Additional capital contribution... -- 120 -- --
Net proceeds from private
placement of Company common stock
(Note 7)......................... 68 6,896 -- --
Translation adjustment............ -- -- -- (309)
------ ------- ------ -----
BALANCE DECEMBER 28, 1996......... $1,068 $13,130 $7,136 $(424)
====== ======= ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Thermedics Detection Inc. ("the Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical-concentration
detectors, high-speed gas chromatography, X-ray imaging, near-infrared
spectroscopy and other technologies for quality assurance of in-process and
finished products, primarily in the food, beverage, pharmaceutical, forest
products, chemical and other consumer products industries. The Company's
explosives-detection equipment uses trace particle- and vapor-detection
techniques based on its proprietary chemiluminescene and high-speed gas
chromatography technologies. Customers use the Company's explosives-detection
equipment to detect plastic and other explosives at airports and border
crossings, for other high-security screening applications and for forensics
and search applications.
Relationship with Thermedics Inc. and Thermo Electron Corporation
The Company operated as a division of Thermedics Inc. ("Thermedics") until
its incorporation as a Massachusetts corporation in December 1990. In
connection with the Company's incorporation, Thermedics transferred to the
Company its TEA Analyzer and certain other trace detection technologies in
exchange for 10,000,000 shares of the Company's common stock. As of December
28, 1996, Thermedics owned 94% of the Company's outstanding common stock. As
of December 28, 1996, Thermedics is a 51%-owned subsidiary of Thermo Electron
Corporation ("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income and expenses of the Company as included in Thermedics' consolidated
financial statements.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1994, 1995 and 1996 are for the fiscal years ended December
31, 1994, December 30, 1995 and December 28, 1996, respectively.
Revenue Recognition
The Company recognizes product revenues upon shipment of its products. The
Company provides a reserve for its estimate of warranty and installation costs
at the time of shipment. The Company recognizes service revenues over the term
of the contract. Deferred revenue in the accompanying balance sheet consists
of unearned revenue on service contracts which is recognized over the life of
the service contract. Substantially all of the deferred revenue included in
the accompanying balance sheet as of December 30, 1995, will be recognized
within one year. Revenues and profits on long-term contracts are recognized
using the percentage-of-completion method. Revenues recorded under the
percentage-of-completion method, including revenues from long-term research
and development contracts, were $1,923,000 in 1994, $3,987,000 in 1995 and
$1,758,000 in 1996. The percentage of completion is determined by relating the
actual costs incurred to date to management's estimate of total costs to be
incurred on each contract. If a loss is indicated on any contract in process,
a provision is made currently for the entire loss. Contracts generally provide
for the billing of customers on a cost-plus-fixed-fee basis as costs are
incurred. Revenues earned on contracts in process in excess of billings are
classified as unbilled contract costs and fees in the accompanying balance
sheet. There are no significant amounts included in the accompanying balance
sheet that are not expected to be recovered from existing contracts at current
contract values, or that are not expected to be collected within one year,
including amounts that are billed but not paid under retainage provisions.
F-8
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
Income Taxes
The Company and Thermedics have a tax allocation agreement under which the
Company is included in Thermedics' 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 Thermedics amounts comparable to the taxes
the Company would have paid had it filed separate tax returns. If Thermedics'
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,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with the
initial capitalization of the Company, the effect of shares sold through
private placements, as well as the effect of the assumed issuance of the
private placements and the assumed exercise of stock options issued within one
year prior to the Company's proposed initial public offering with exercise
prices less than the subscription price. Because the effect of the assumed
exercise of stock options issued more than one year prior to the Company's
proposed initial public offering would be immaterial, they have been excluded
from the earnings per share calculation.
Stock Split
In March 1996, the Company declared and effected a two-for-three reverse
stock split. All share and per share information has been restated to reflect
the stock split.
Cash and Cash Equivalents
Cash receipts and cash disbursements of the Company's domestic operations
were combined with other Thermedics corporate cash transactions and balances
prior to the Company's March 1996 private placement of common stock.
Therefore, cash of the Company's domestic operations is not included in the
accompanying balance sheet as of December 30, 1995. The Company's cash
equivalents in 1995 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 and cash equivalents are
carried at cost, which approximates market value.
As of December 28, 1996, $10,976,000 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
F-9
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase agreement earns a rate based on the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each quarter.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies................................... $ 7,089 $ 6,135
Work in process............................................. 784 871
Finished goods.............................................. 1,118 1,787
------- -------
$ 8,991 $ 8,793
======= =======
</TABLE>
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: machinery and equipment,
three to ten years and leasehold improvements, the lesser of the term of the
lease or the life of the asset. Property, plant and equipment is comprised of
the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and leasehold improvements............. $ 4,874 $ 5,683
Less: Accumulated depreciation and amortization............. 2,644 3,899
------- -------
$ 2,230 $ 1,784
======= =======
</TABLE>
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 periods not exceeding 40
years. Accumulated amortization was $403,000 at December 28, 1996. 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. If impairment has occurred, any
excess of carrying value over fair value is recorded as a loss.
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 operations and are not
material for the three years presented.
F-10
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, due to parent company and
affiliates and promissory note to parent company. Their respective carrying
amounts in the accompanying balance sheet approximate fair value due to their
short-term nature, except for the promissory note to parent company. The
carrying amount of the promissory note to parent company approximates fair
value based on borrowing rates available to the Company at December 28, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On January 25, 1996, the Company acquired the assets of Moisture Systems
Corporation and certain affiliated companies (collectively, "Moisture
Systems"), and the stock of Rutter & Co. B.V. ("Rutter") for a total purchase
price of $21,668,000 in cash, which included the repayment of $700,000 of
debt. Moisture Systems and Rutter design, manufacture and sell instruments
that use near infrared spectroscopy to measure moisture and other product
constituents, including fats, proteins, oils, flavorings, solvents, adhesives
and coatings, in a variety of manufacturing processes. These systems are used
across the food, pharmaceutical, chemical, petrochemical, tobacco, forest
products, pulp and paper, converting, plastics, textiles, corrugating and
other industries. To finance these acquisitions, the Company borrowed
$21,200,000 from Thermedics pursuant to a promissory note due March 1998,
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. As of December 28, 1996, the
interest rate on the promissory note was 5.77%. In December 1996, the Company
acquired certain moisture measurement product lines for approximately $300,000
in cash, subject to certain post closing adjustments. In addition, the Company
has agreed to pay a licensing fee on sales of these products through December
2000.
These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of Moisture Systems and Rutter exceeded the estimated fair
value of the acquired net assets by $17,326,000, which is being amortized over
40 years. Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired.
The following table presents selected financial information for the Company,
Moisture Systems and Rutter on a pro forma basis, as if the acquisitions of
Moisture Systems and Rutter had occurred as of January 1, 1995.
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenues..................................................... $46,485 $45,297
Net Income................................................... 1,796 520
Earnings per Share........................................... .18 .05
</TABLE>
The pro forma results are not necessarily indicative of future operations on
the actual results that would have occurred had the acquisitions of Moisture
Systems and Rutter been made at the beginning of 1995. Additional pro forma
information for the Company, Moisture Systems and Rutter is included elsewhere
in this prospectus.
F-11
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EMPLOYEE BENEFIT PLANS
Stock-based Compensation Plans
Stock Option Plan
On November 1, 1994, the Company adopted a stock-based compensation plan for
its key employees, directors and others, which permits the grant of a variety
of stock and stock-based awards as determined by the human resources committee
of the Company's Board of Directors (the "Board Committee"), including
restricted stock, stock options, stock bonus shares or performance-based
shares. The option recipients and the terms of options granted under this plan
are determined by the Board Committee. Options granted 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 will be subject to certain
transfer restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally will be deemed to have lapsed
ratably over periods ranging from five to ten years after the first
anniversary of the grant date, depending on the term of the option, which will
generally range from ten to twelve years. Nonqualified stock options may be
granted at any price determined by the Board Committee, although incentive
stock options must be granted at not less than the fair market value of the
Company's common stock on the date of grant. To date, all options have been
granted at fair market value.
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 Thermedics. Under
this plan, shares of Thermedics and Thermo Electron's common stock may be
purchased at the end of a 12-month plan year at 95% of the fair market value
at the beginning of the plan year, and the shares purchased are subject to a
six-month resale restriction. Prior to November 1, 1995, the applicable shares
of common stock could be purchased at 85% of the fair market value at the
beginning of the plan year, and the shares purchased were subject to a one-
year resale restriction. Shares are purchased through payroll deductions of up
to 10% of each participating employee's gross wages.
Pro Forma Stock-based Compensation Plans Expense
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company
has elected to continue to apply APB 25 in accounting for its stock-based
compensation plans. Had compensation cost for awards in 1996 under the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method set forth under SFAS No.
123, the effect on the Company's net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net income:
As reported.......................................... $362
Pro forma............................................ 102
Earnings per share:
As reported.......................................... .04
Pro forma............................................ .01
</TABLE>
Pro forma net income for 1995 was not materially different from historical
net income in 1995.
F-12
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years. Pro forma compensation expense for options granted is reflected over
the vesting period, therefore future Pro Forma compensation expense may be
greater as additional options are granted.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Risk-free interest rate.............................................. 6.4%
Expected life of options............................................. 7 years
</TABLE>
Expected volatility of zero is assumed for options granted in Company common
stock due to the Company's status as nonpublic.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Stock Option Plan Activity
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
RANGE OF
WEIGHTED WEIGHTED OPTION
NUMBER AVERAGE NUMBER AVERAGE NUMBER PRICES
OF EXERCISE OF EXERCISE OF PER
SHARES PRICE SHARES PRICE SHARES SHARE
------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year...................... 25 $ 9.75 26 $9.75 -- --
Granted..................... 207 $10.45 2 $9.75 26 $9.75
Exercised................... -- $ -- -- $ -- -- --
Forfeited................... -- $ -- -- $ -- -- --
Expired..................... (14) $ 9.79 (3) $9.75 -- --
--- ------ --- ----- --- -----
Options outstanding, end of
year......................... 218 $10.41 25 $9.75 26 $9.75
=== ====== === ===== === =====
Options exercisable........... -- $ -- -- $ -- -- $ --
=== ====== === ===== === =====
Options available for grant... 116 309 308
=== === ===
Weighted average fair value of
options granted during year.. $ 3.76 $4.15
====== =====
</TABLE>
As of December 28, 1996, the options outstanding were exercisable at prices
ranging from $9.75 to $10.75 and had a weighted-average remaining contractual
life of 9.7 years.
At December 28, 1996, the Company had reserved 358,333 unissued shares of
its common stock for possible issuance under the stock-based compensation
plans.
F-13
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For this
plan, the Company contributed and charged to expense $159,000, $233,000 and
$247,000 in 1994, 1995 and 1996, respectively.
Defined Benefit Pension Plan
The Company's Rutter subsidiary, acquired in January 1996, has a defined
benefit pension plan covering substantially all of its full-time employees.
The Company's funding policy is to make contributions within a range required
by applicable regulations in the Netherlands.
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Service cost..................................................... $ 22
Interest cost on projected benefit obligation.................... 45
Return on plan assets............................................ (9)
Amortization of unrecognized obligation.......................... (26)
----
$ 32
====
</TABLE>
The funded status of the Company's defined benefit pension plan is as
follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits............................................. $607
Non-vested benefits......................................... --
----
Accumulated benefit obligation.............................. 607
Effect of projected future salary increases................... 152
----
Projected benefit obligation.................................. 759
Plan assets at fair value..................................... 965
----
Excess of plan assets over projected benefit obligation....... 206
Unrecognized net gain......................................... 196
Initial unrecognized net obligation........................... (69)
----
Prepaid pension cost........................................ $333
====
</TABLE>
Significant actuarial assumptions used to determine the net periodic pension
cost during 1996 were:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Discount rate.......................................................... 7%
Rate of increase in salary levels up to age 45......................... 4.5%
Rate of increase in salary levels after age 45......................... 2.5%
Expected long-term rate of return on assets............................ 4.0%
</TABLE>
F-14
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $9,379 $2,197 $(1,742)
Foreign............................................... 190 221 2,331
------ ------ -------
$9,569 $2,418 $ 589
====== ====== =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................... $2,736 $681 $(350)
State................................................. 568 166 (90)
Foreign............................................... 116 94 692
------ ---- -----
3,420 941 252
------ ---- -----
Net prepaid:
Federal............................................... (188) (25) (195)
State................................................. (43) (6) (34)
Foreign............................................... -- -- 204
------ ---- -----
(231) (31) (25)
------ ---- -----
$3,189 $910 $ 227
====== ==== =====
</TABLE>
Provision for income taxes in the accompanying statement of operations
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate............ $3,253 $ 822 $201
Increases (decreases) resulting from:
State income taxes, net of federal tax................ 346 106 (82)
Foreign tax rate and tax law differential............. 51 19 103
Tax benefit of foreign sales corporation.............. (499) (133) --
Deemed dividend from foreign subsidiary............... -- 80 --
Other, net............................................ 38 16 5
------ ----- ----
$3,189 $ 910 $227
====== ===== ====
</TABLE>
F-15
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and other accruals............................... $ 556 $ 999
Inventory basis difference................................ 675 643
Accrued compensation...................................... 133 130
Other, net................................................ 28 30
------- -------
$ 1,392 $ 1,802
======= =======
Deferred income taxes:
Depreciation.............................................. $ 40 $ 40
======= =======
</TABLE>
5. 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 $413,000, $542,000 and $1,335,000
in 1994, 1995 and 1996, respectively. Total future minimum payments due under
noncancelable operating leases at December 28, 1996, are $1,220,000 in 1997;
$1,041,000 in 1998; $953,000 in 1999; $880,000 in 2000; $850,000 in 2001; and
$3,714,000 in 2002 and thereafter. Total future minimum lease payments are
$8,658,000.
6. RELATED PARTY TRANSACTIONS
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management,
certain employee benefit administration, tax advice and preparation of tax
returns, centralized cash management, and certain financial and other
services, for which the Company pays Thermo Electron an annual fee equal to
1.0% of the Company's revenues. The Company paid Thermo Electron an amount
equal to 1.25% and 1.20% of the Company's revenues in 1994 and 1995,
respectively. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. For these services, the Company was charged
$629,000, $335,000 and $438,000 in 1994, 1995 and 1996, respectively.
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the Company
would have incurred on a stand-alone basis. The corporate services agreement
is renewed annually 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.
Research and Development Agreement
Pursuant to a subcontract entered into in October 1993, the Company performs
research and development services for Coleman Research Corporation
("Coleman"), which is the prime contractor under a contract with the U.S.
Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron
and was acquired by Thermo Electron in March 1995. Coleman paid the Company
$234,000, $829,000 and $619,000 for services rendered in 1994, 1995 and 1996,
respectively.
F-16
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Arrangement
The Company purchases an X-ray source that is used as a component in its
InScan systems from Trex Medical Corporation, a publicly traded, majority-
owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded,
majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is
purchased pursuant to written purchase orders. The Company paid Trex Medical
Corporation $18,000, $285,000 and $162,000 under this arrangement in 1994,
1995 and 1996, respectively.
Sublease Agreement
Subsequent to year end 1996, the Company subleased approximately 8,000
square feet of space in its Chelmsford, Massachusetts, facility to Thermo
Cardiosystems Inc. ("Thermo Cardiosystems"), a publicly traded, majority-owned
subsidiary of Thermedics, under a two-year sublease agreement. Under this
sublease, Thermo Cardiosystems will pay the Company base rent of $40,000 in
the first year and $44,000 in the second year, together with an amount equal
to approximately $33,000 per year, representing Thermo Cardiosystems' pro rata
allocation of the facility's aggregate operating costs, real estate taxes and
utilities.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
7. PRIVATE PLACEMENTS OF COMMON STOCK
In March 1996, the Company issued 300,000 shares of its common stock in a
private placement at $10.00 per share, for net proceeds of $3,000,000.
In November 1996, the Company issued 383,500 shares of its common stock in a
private placement at $10.75 per share, for net proceeds of $3,964,000.
F-17
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
8. SIGNIFICANT CUSTOMER AND GEOGRAPHICAL INFORMATION
Sales to one customer accounted for 64%, 36% and 24% of the Company's total
revenues in 1994, 1995 and 1996, respectively.
The Company is engaged in one business segment: developing, manufacturing
and marketing of high-speed on-line detection and measurement systems used in
a variety of industrial process applications, explosives detection and
laboratory analysis. The following table shows data for the Company by
geographical area.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................. $47,098 $22,571 $32,003
The Netherlands............................... -- -- 7,547
Other Europe.................................. 7,454 4,057 5,893
Other......................................... 2,042 2,600 2,588
Transfers among geographical areas (a)........ (6,251) (1,274) (4,281)
------- ------- -------
$50,343 $27,954 $43,750
======= ======= =======
Income before provision for income taxes:
United States................................. $ 9,505 $ 2,933 $ (859)
The Netherlands............................... -- -- 1,514
Other Europe.................................. 317 (127) 394
Other......................................... (126) 348 412
Corporate and eliminations (b)................ (127) (664) 6
------- ------- -------
Total operating income........................ 9,569 2,490 1,467
Other expense................................. -- (72) (878)
------- ------- -------
$ 9,569 $ 2,418 $ 589
======= ======= =======
Identifiable assets:
United States................................. $14,369 $15,806 $31,924
The Netherlands............................... -- -- 8,574
Other Europe.................................. 2,509 2,850 3,506
Other......................................... 915 1,666 1,615
Corporate and eliminations (c)................ -- -- 7,864
------- ------- -------
$17,793 $20,322 $53,483
======= ======= =======
Export revenues included in United States
revenues above (d):
Mexico........................................ $10,416 $ 1,363 $ 2,015
Germany....................................... 6,028 3,914 2,487
Other Europe.................................. 9,200 3,995 4,420
South America................................. 10,892 3,271 3,998
Other......................................... 3,139 2,341 4,437
------- ------- -------
$39,675 $14,884 $17,357
======= ======= =======
</TABLE>
- --------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Primarily general and administrative expenses.
(c) Primarily cash and cash equivalents.
(d) In general, export sales are denominated in U.S. dollars.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moisture Systems Corporation and Moisture Systems Limited:
We have audited the accompanying combined balance sheet of Moisture Systems
Corporation and Moisture Systems Limited (collectively, the Company) as of
December 30, 1995, and the related combined statements of income, cash flows
and owners' investment for the year ended December 30, 1995 and for the period
from December 31, 1995 through January 25, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Moisture Systems
Corporation and Moisture Systems Limited as of December 30, 1995 and the
results of their operations and their cash flows for the year ended December
30, 1995 and for the period from December 31, 1995 through January 25, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
F-19
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
------- -------------
<S> <C> <C>
Revenues (Note 6)........................................ $12,075 $1,141
------- ------
Costs and Operating Expenses:
Cost of revenues....................................... 5,805 563
Selling, general and administrative expenses........... 5,423 495
------- ------
11,228 1,058
------- ------
Operating Income......................................... 847 83
Interest Income.......................................... 24 1
Interest Expense (Note 4)................................ (189) (18)
------- ------
Income Before Provision for Income Taxes................. 682 66
Provision for Income Taxes (Note 3)...................... 47 6
------- ------
Net Income............................................... $ 635 $ 60
======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995
------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 297
Accounts receivable, less allowance of $86........................... 2,264
Inventories.......................................................... 1,978
Prepaid expenses..................................................... 26
------
4,565
------
Property, Plant and Equipment, at Cost, Net............................ 1,006
------
Other Assets........................................................... 22
------
$5,593
======
LIABILITIES AND OWNERS' INVESTMENT
Current Liabilities:
Notes payable and current portion of capital lease obligation (Note
4).................................................................. $1,157
Accounts payable..................................................... 1,008
Accrued payroll and employee benefits................................ 191
Dividends payable (Note 5)........................................... 120
Other accrued expenses............................................... 597
------
3,073
------
Long-term Obligations:
Capital lease obligation (Note 4).................................... 233
Other................................................................ 42
------
275
------
Owners' Investment (Note 5):
Common Stock......................................................... --
Capital in excess of par value....................................... 3,128
Accumulated deficit.................................................. (587)
Treasury stock, at cost.............................................. (296)
------
2,245
------
$5,593
======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-21
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 635 $ 60
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 445 11
Provision for losses on accounts receivable......... 33 2
Other noncash expenses.............................. (2) --
Changes in current accounts:
Accounts receivable............................... 495 (160)
Inventories....................................... (486) 120
Other current assets.............................. 85 6
Accounts payable.................................. (188) 146
Other current liabilities......................... 256 (9)
------- -----
Net cash provided by operating activities....... 1,273 176
------- -----
INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (112) (4)
Proceeds from sale of property, plant and equipment... 96 --
Increase in other assets.............................. (22) (8)
------- -----
Net cash used in investing activities........... (38) (12)
------- -----
FINANCING ACTIVITIES:
Net proceeds from line of credit (Note 4)............. 723 --
Repayment of note payable (Note 4).................... (1,071) --
Repayment of capital lease obligation................. (409) (34)
Repayment of related party debt (Note 7).............. (89) (23)
Dividends paid........................................ (617) (120)
------- -----
Net cash used in financing activities........... (1,463) (177)
------- -----
Decrease in Cash and Cash Equivalents................... (228) (13)
Cash and Cash Equivalents at Beginning of Period........ 525 297
------- -----
Cash and Cash Equivalents at End of Period.............. $ 297 $ 284
======= =====
CASH PAID FOR:
Interest.............................................. $ 189 $ 18
======= =====
Income Taxes.......................................... $ 36 $ --
======= =====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-22
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENT OF OWNERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED TREASURY
STOCK PAR VALUE DEFICIT STOCK
------ ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994................ $ -- $3,128 $(866) $(296)
Net income............................... -- -- 635 --
Dividends declared (Note 5).............. -- -- (356) --
----- ------ ----- -----
BALANCE DECEMBER 30, 1995................ -- 3,128 (587) (296)
Net income............................... -- -- 60 --
----- ------ ----- -----
BALANCE JANUARY 25, 1996................. $ -- $3,128 $(527) $(296)
===== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-23
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Nature of Operations
The accompanying combined financial statements include the accounts of
Moisture Systems Corporation (a Massachusetts corporation) and Moisture
Systems Limited (a United Kingdom corporation) (collectively, "the Company"),
companies under common control. The Company designs, manufactures and sells
instruments that use near infrared spectroscopy to measure moisture and other
product constituents, including fats, proteins, oils, flavorings, solvents,
adhesives and coatings, in a variety of manufacturing processes. The Company's
systems are used across the food, pharmaceutical, chemical, petrochemical,
tobacco, forest products, pulp and paper, converting, plastics, textiles,
corrugating and other industries. 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 1995 are for the fiscal year ended December 30, 1995.
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.
Cash and Cash Equivalents
The Company considers liquid investments with original maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1995
---------
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies..................................... $ 1,812
Work in process and finished goods............................ 166
--------
$ 1,978
========
</TABLE>
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: building--30 years;
building under capital lease--ten years; and machinery and equipment--three to
ten years. Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1995
---------
(IN THOUSANDS)
<S> <C> <C>
Building...................................................... $ 213
Building under capital lease.................................. 3,058
Machinery and equipment....................................... 1,506
--------
4,777
Less: Accumulated depreciation and amortization............... 3,771
--------
$ 1,006
========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, notes payable and current portion of capital
lease obligation, accounts payable, and long-term obligations. The
F-24
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
carrying amounts of these financial instruments, with the exception of long-
term obligations, approximate fair value due to their short-term nature. The
carrying amount of long-term obligations approximates fair value based on the
borrowing rates currently available to the Company.
Foreign Currency
All assets and liabilities of the Company's foreign operations are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Foreign currency transaction gains and losses are included in
the accompanying statement of income and are not material for the two periods
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,
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.
2. EMPLOYEE BENEFIT PLAN
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in the Company's 401(k) savings plan. Contributions to the 401(k)
savings plan are made by the employee. The Company does not contribute to this
plan.
3. INCOME TAXES
Moisture Systems Corporation has elected to be taxed as an S corporation for
federal and state income tax purposes. As an S corporation, taxable income of
Moisture Systems Corporation is reported on the individual income tax returns
of its stockholders, although certain states require a corporate-level tax.
Moisture Systems Limited is taxable at U.K. tax rates. The Company provides
for state and foreign income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets or liabilities are computed based on
the differences between the financial reporting basis and income tax basis of
assets and liabilities as measured by the enacted tax laws and rates expected
to be applicable when the differences reverse.
F-25
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
---- -------------
(IN THOUSANDS)
<S> <C> <C>
Domestic.................................................. $580 $117
Foreign................................................... 102 (51)
---- ----
$682 $ 66
==== ====
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
---- -------------
(IN THOUSANDS)
<S> <C> <C>
Currently payable:
State................................................... $12 $ 2
Foreign................................................. 21 4
--- ----
33 6
--- ----
Net deferred:
State................................................... 14 --
--- ----
$47 $ 6
=== ====
</TABLE>
The provision for income taxes differs from the provision calculated by
applying the statutory federal income tax rate of 34% to income before
provision for income taxes due to the following:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1995
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Income tax provision at statutory rate..... $ 232 $ 22
Increases (decreases) resulting from:
Income taxed to shareholders............. (197) (18)
State income taxes....................... 26 1
Foreign tax differential ................ (14) 1
----- ----
$ 47 $ 6
===== ====
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Prepaid income taxes:
U.K. building indexation................. $ 90
Various reserves and accruals............ 12
-----
102
Less: Valuation allowance.................. (90)
-----
$ 12
=====
Deferred income taxes:
Capital lease............................ $ 17
=====
</TABLE>
The valuation allowance was established by Moisture Systems Limited due to
the uncertainty of the realizability of the U.K. building indexation value and
the ability to use U.K. loss carryforwards.
F-26
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONCLUDED)
4. LONG-TERM OBLIGATION AND OTHER FINANCING ARRANGEMENTS
The Company entered into a building lease that met the requirements for
treatment as a capital lease. The future minimum lease payments under the
agreement are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $480
1997.......................................................... 240
----
720
Less: amount representing interest............................ 53
----
Present value of minimum lease payments....................... 667
Less: current portion......................................... 434
----
Long-term capital lease obligation............................ $233
====
</TABLE>
As of December 31, 1994, the Company had $1,071,000 outstanding under a note
payable with a bank. Borrowings bore interest at the prime rate plus 1%, which
was 9.5% at December 31, 1994, and were secured by the assets of the Company.
The outstanding balance on this note was paid in June 1995.
In June 1995, the Company entered into a line of credit agreement with a
bank. Borrowings bore interest at the prime rate plus 1%, were secured by the
assets of the Company and were due in April 1996. As of December 30, 1995, the
Company had $723,000 principal amount outstanding under this agreement,
bearing interest at 9.5%. Maximum borrowings during the period were
$1,400,000. The outstanding balance on this agreement was paid upon the sale
of the Company (Note 8).
5. OWNERS' INVESTMENT
A dividend to owners of the Company of $381,000 was declared in 1994 and
paid in 1995. A dividend to owners of the Company of $356,000 was declared in
1995.
6. SIGNIFICANT CUSTOMER AND EXPORT SALES
Sales to one customer accounted for 11% of the Company's total revenues in
1995.
The Company's export sales to the Netherlands were 12% of total revenues in
1995. All other export sales were 32% of total revenues in 1995.
7. RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with its owners and
affiliated companies. These transactions include sales, purchases, leasing and
short-term borrowings. Any amounts related to these related party
transactions, which have not been eliminated, have been separately presented
or are not material to the financial statements taken as a whole.
8. SALE TO THERMEDICS DETECTION INC.
On January 25, 1996, the Company was sold to Thermedics Detection Inc.
F-27
<PAGE>
AUDITOR'S REPORT
Introduction
We have audited the accompanying 1995 and 1994 consolidated and parent
company financial statements of Rutter & Co. B.V. at Enschede. Our audit
procedures also included the disclosures included in the supplementary
information under the caption "United States Generally Accepted Accounting
Principles (U.S. GAAP)". These financial statements and such supplementary
information are the responsibility of the entity's management. Our
responsibility is to express an opinion on these financial statements and such
supplementary information based on our audits.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, the above mentioned financial statements of Rutter & Co.
B.V. give a true and fair view of the financial position of the entity as of
December 31, 1995 and 1994 and of the result for the years then ended in
accordance with accounting principles generally accepted in the Netherlands
and comply with the legal requirements for financial statements as included in
Part 9, Book 2 of the Netherlands Civil Code.
Generally accepted accounting principles in the Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States of America would have affected net income for
each of the two years in the period ended December 31, 1995 and stockholders'
equity as of December 31, 1995 and 1994, to the extent summarized in the
supplementary information under the caption "United States Generally Accepted
Accounting Principles (U.S. GAAP)". In our opinion, such supplementary
information when considered in relationship to the basic financial statements
taken as a whole presents fairly in all material respects the information set
forth therein.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
March 13, 1996, except for the
supplementary information under the
caption "United States Generally
Accepted Accounting Principles (U.S.
GAAP)", as to which the date is
December 20, 1996.
F-28
<PAGE>
RUTTER & CO. B.V.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
NLG NLG
<S> <C> <C> <C> <C>
ASSETS
Fixed assets
Tangible fixed assets
Office furniture and equipment....... 128,504 119,565
Leasehold improvements............... 152,720 5,200
Other fixed assets................... 28,000 309,224 11,630 136,395
--------- ---------
Financial fixed assets
Participations in group companies.... -- 839,241
Other receivables.................... 17,539 17,539 17,381 856,622
--------- ---------
Current assets
Inventories............................ 1,430,415 1,548,100
Receivables
Accounts receivable, net of allow-
ances of NLG 32,640 in 1995 and NLG
33,360 in 1994...................... 2,389,051 1,886,393
Other receivables and prepayments.... 383,728 288,090
--------- ---------
2,772,779 2,174,483
Cash at bank and in hand............... 1,061,735 819,783
--------- ---------
5,591,692 5,535,383
========= =========
GROUP EQUITY, PROVISIONS AND LIABILI-
TIES
Group equity
Legal entity share in group equity..... 1,795,569 1,259,669
Minority interest...................... 22,063 12,471
--------- ---------
1,817,632 1,272,140
PROVISIONS
Pensions............................... 286,313 245,625
Short-term liabilities
Accounts payable....................... 1,078,612 831,278
Taxes and social security.............. 121,995 100,899
Other payables and accrued liabili-
ties.................................. 2,287,140 3,085,441
--------- ---------
3,487,747 4,017,618
--------- ---------
5,591,692 5,535,383
========= =========
</TABLE>
F-29
<PAGE>
RUTTER & CO. B.V.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
NLG NLG
<S> <C> <C> <C> <C>
Net sales......................... 13,707,261 11,293,027
Cost of materials................. 6,785,566 5,688,601
---------- ----------
Gross margin...................... 6,921,695 5,604,426
Wages and salaries................ 1,937,551 1,862,455
Social security costs............. 450,089 493,875
Depreciation and amortization..... 101,537 80,154
Other operating expenses.......... 1,476,502 1,448,109
--------- ---------
Total operating expenses.......... 3,965,679 3,884,593
---------- ----------
Operating result.................. 2,956,016 1,719,833
Interest income................... 37,771 26,450
Interest charges.................. 57,729 85,288
---------- ----------
Result on ordinary activities be-
fore taxation.................... 2,936,058 1,660,995
Taxation on result of ordinary
activites........................ 1,057,674 572,478
---------- ----------
Result on ordinary activities af-
ter taxation..................... 1,878,384 1,088,517
Minority interest................. 10,522 (7,302)
---------- ----------
1,888,906 1,081,215
Result non-consolidated companies,
after taxation................... (689) 346,467
---------- ----------
Net income........................ 1,888,217 1,427,682
========== ==========
</TABLE>
F-30
<PAGE>
RUTTER & CO. B.V.
NOTES TO THE CONSOLIDATED BALANCE SHEETSAND THE CONSOLIDATED PROFIT AND LOSS
ACCOUNTS
ACTIVITIES
The principal operations of Rutter & Co. B.V. (the "Company") are commercial
activities including the sale of automatic control systems and machinery-
equipment to customers in various industries in Western Europe as well as the
development of equipment. The Company is also a sales agent in the Netherlands
for a number of foreign suppliers.
The Company was wholly owned by Rutter Holdings B.V. during the periods
covered by these financial statements. On January 25, 1996, Thermedics
Detection Inc. purchased all of the outstanding shares of the Company.
ACCOUNTING POLICIES
General
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the Netherlands, which differ in
certain material respects from U.S. GAAP as summarized in the supplementary
information.
The accounting principles are based on the historical cost convention.
Assets and liabilities are stated at face value if not mentioned otherwise at
the applicable sheet item. Exchange rate differences due to transactions in
currencies other than the Netherlands guilder ("foreign currencies") are
reflected in the consolidated profit and loss account. From time-to-time, the
Company enters into foreign exchange contracts as a hedge against accounts
payable denominated in foreign currencies. The financial statements of foreign
subsidiaries have been translated into Netherlands guilders at the exchange
rate in effect on the respective balance sheet dates.
Consolidation
The following companies are included in the consolidation:
<TABLE>
<CAPTION>
NAME PERCENTAGE STATUTORY DOMICILE
---- ---------- ------------------
<S> <C> <C>
Rutter & Co. B.V................... 100 Enschede (The Netherlands)
SARL Rutter Instrumentation........ 90 Perreux-sur-Marne (France)
Systech Instruments B.V............ 50 Enschede (The Netherlands)
During 1995 the Company signed a letter of intent with Thermedics Detection
Inc., a U.S. company. The letter of intent stated that three of the Company's
subsidiaries would be sold before the date of purchase of the Company's
shares. Since each of the following such subsidiaries was spun-off by the
Company to its shareholder, Rutter Holdings B.V., prior to December 31, 1995,
due to the temporary control of these subsidiaries, the Company has accounted
for such subsidiaries using the equity method:
<CAPTION>
NAME PERCENTAGE STATUTORY DOMICILE
---- ---------- ------------------
<S> <C> <C>
Unitron Systems Terneuzen B.V...... 72 Terneuzen (The Netherlands)
Rutter & Eichholzer AG............. 100 Zug (Switzerland)
Rutter & Co. GmbH.................. 100 Ahaus (Germany)
</TABLE>
All significant intercompany profits, transactions and balances have been
eliminated in consolidation.
F-31
<PAGE>
RUTTER & CO. B.V.
VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS
VALUATION OF ASSETS AND LIABILITIES
Tangible fixed assets
The tangible fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method based on the
estimated useful lives of the related assets. In the case of leasehold
improvements, the estimated useful lives of the related assets do not exceed
the remaining term of the corresponding lease. The following table presents
the assigned economic lives of the Company's equipment and other fixed assets:
<TABLE>
<CAPTION>
CATEGORY ASSIGNED ECONOMIC LIFE
-------- ----------------------
<S> <C>
Leasehold improvements........................... 6 years
Office furniture and equipment................... 3-5 years
Other fixed assets............................... 3-5 years
</TABLE>
Financial fixed assets
Other receivables are stated at face value.
Inventories
Equipment inventories are stated at the lower of cost or market (first-in,
first-out method). Allowances are made for slow-moving, obsolete or unsaleable
stock.
Receivables
Receivables are stated at nominal value, less an allowance for possible
uncollectible amounts. Other receivables at December 31, 1995 include the sold
participations Rutter & Eichholzer AG at Zug (Switzerland) and Rutter & Co.
GmbH at Ahaus (Germany).
Provisions
The provision for pension liabilities concerns a past-service liability. The
past-service liability is calculated proportionally based on market rate and
actuarial principles.
DETERMINATION OF CONSOLIDATED RESULTS
Determination of the consolidated results is based on the accrual method of
accounting. Profits are recognized as far as they are realized at balance
sheet date, losses and risks are recognized at the moment they can be
ascertained. Sales include the fees charged to customers for delivered goods
or services excluding value added tax.
The cost of materials sold consist of the purchase price of the goods
combined with freight, import duties and realized exchange differences on the
purchase transactions in foreign currencies. The Company is included in a
fiscal unity for corporate income taxes and value added taxes with its parent
company Rutter Holdings B.V. and Pover Gemeenschappelijk Bezit B.V. For these
financial statements, income and value added tax effects for the Company have
been calculated on a stand-alone basis.
F-32
<PAGE>
RUTTER & CO. B.V.
NOTES TO SPECIFIC ITEMS OF THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED
STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OFFICE OTHER
FURNITURE OPERATING
LEASEHOLD AND FIXED
IMPROVEMENTS EQUIPMENT ASSETS TOTAL
------------ --------- --------- --------
NLG NLG NLG NLG
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets
Book value at January 1, 1994......... 9,695 98,362 19,391 127,448
Additions............................. -- 70,480 -- 70,480
------- ------- ------- --------
9,695 168,842 19,391 197,928
Book value of disposals............... -- -- -- --
Depreciation.......................... 4,495 48,974 7,761 61,230
Foreign currency differences.......... -- (303) -- (303)
------- ------- ------- --------
Book value at December 31, 1994....... 5,200 119,565 11,630 136,395
Additions............................. 180,659 66,825 37,395 284,879
------- ------- ------- --------
185,859 186,390 49,025 421,274
Book value of disposals............... -- 890 11,630 12,520
Depreciation.......................... 33,139 59,003 9,395 101,537
Foreign currency differences.......... -- 2,007 -- 2,007
------- ------- ------- --------
Book value at December 31, 1995....... 152,720 128,504 28,000 309,224
======= ======= ======= ========
Accumulated depreciation at December
31, 1994............................. 83,203 467,416 19,396 570,015
======= ======= ======= ========
Accumulated depreciation at December
31, 1995............................. 116,342 524,344 9,395 650,081
======= ======= ======= ========
FINANCIAL FIXED ASSETS
Participations in group companies
Balance at January 1, 1994............ 600,199
Net income from subsidiaries.......... 346,467
Dividends............................. (107,425)
--------
Balance at December 31, 1994.......... 839,241
Net loss from subsidiaries............ (689)
--------
838,552
Less:
Sale 72%-participation in Unitron
Systems Terneuzen B.V. at
Terneuzen.......................... 742,144
Sale 100%-participation Rutter &
Eichholzer AG at Zug............... 41,233
Sale 100%-participation Rutter & Co.
GmbH at Ahaus...................... 55,175 838,552
------- --------
Balance at December 31, 1995.......... --
========
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Other receivables NLG NLG
Balance at January 1.................. 17,381 24,489
Addition.............................. 158 (7,108)
------- --------
Balance at December 31................ 17,539 17,381
======= ========
</TABLE>
F-33
<PAGE>
RUTTER & CO. B.V.
CURRENT ASSETS
Inventories
The inventories consist of purchased equipment and components.
Cash at bank and in hand
This item includes cash and bank balances.
CONTINGENT LIABILITIES
. The companies are mostly accomodated in rented premises. Expiration dates
are varying.
. At balance sheet dates there were no forward purchase contracts in U.S.
dollars.
. On the basis of operational lease a number of cars is rented. The yearly
charges are NLG 222,480 (1994: NLG 257,700).
. The Company has a line of credit with a bank which provides up to a
maximum of NLG 2,500,000. As security for borrowings under the line of
credit, (assignment of) right of lien is given against:
--receivables;
--equipment;
--company inventories and merchandise inventories;
--shares Unitron Systems Terneuzen B.V.
At the balance sheet dates, the Company did not draw on these facilities.
The Company, Rutter Holdings B.V., Rutter & Co. GmbH and Pover
Gemeenschappelijk Bezit B.V. are severally liable.
. The company is severally liable for tax liabilities which result from the
fiscal unity with group companies for the value added tax and corporate
tax.
. At December 31, 1995 and 1994, bank guarantees (letters of credit) to the
amount of NLG 123,320 and NLG 181,404 were outstanding. The guarantees,
originally expressed in foreign currencies, are converted at the rates of
exchange at the balance sheet dates.
. A former Italian agent has claimed an amount of NLG 200,000 because of
the termination of the commercial agency relationship. The concerning
contracts were closed by Rutter & Eichholzer AG. No guarantees are given
for this subsidiary by Rutter & Co. B.V. Since Eichholzer AG was sold
during 1995, management does not believe this matter will materially
affect results of operations or the financial position of the Company.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Net-sales
The sales have increased by 22.6%.
Wages and salaries
In 1995, the Company employed 25 people (1994: 24). Under article 383, Book
2 Civil Code disclosure of the remuneration of the manager is omitted.
Director's fee
Paid director's fees amounted to NLG 10,000 (1994: NLG 20,000).
Social security costs
The social security costs include pension expenses in the amount of NLG
161,041 (1994: NLG 193,863).
F-34
<PAGE>
RUTTER & CO. B.V.
PARENT COMPANY BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
(AFTER PROFIT APPROPRIATION)
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
NLG NLG
<S> <C> <C> <C> <C>
ASSETS
Fixed assets
Tangible fixed assets
Leasehold improvements.............. 152,720 5,200
Office furniture and equipment...... 98,220 83,146
Other operating fixed assets........ 28,000 11,630
--------- ---------
278,940 99,976
Financial fixed assets
Participations in group companies... 60,476 951,483
Current assets
Inventories
Merchandise inventory............... 1,046,160 1,162,111
Receivables
Accounts receivable................. 1,904,891 1,494,440
Group companies..................... 812,340 798,524
Other receivables and prepayments... 270,784 141,813
--------- ---------
2,988,015 2,434,777
Cash at bank and in hand.............. 879,865 662,495
--------- ---------
5,253,456 5,310,842
========= =========
SHAREHOLDERS' EQUITY, PROVISIONS AND
LIABILITIES
Shareholders' equity
Share capital paid up and called
up................................. 451,000 451,000
Legally-required reserves........... -- 440,289
Other reserves...................... 1,361,711 353,879
--------- ---------
1,812,711 1,245,168
Provisions
Pensions 286,313 245,625
Short-term liabilities
Accounts payable.................... 923,165 743,904
Group companies..................... -- 1,909,847
Taxes and social security........... 12,935 14,357
Other creditors and accrued liabili-
ties............................... 2,218,332 1,151,941
--------- ---------
3,154,432 3,820,049
--------- ---------
5,253,456 5,310,842
========= =========
</TABLE>
F-35
<PAGE>
RUTTER & CO. B.V.
PARENT COMPANY PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Result of participations after taxation.................... (72,455) 411,519
Balance of other profits and losses........................ 1,963,313 992,762
--------- ---------
Result after taxation...................................... 1,890,858 1,404,281
========= =========
</TABLE>
F-36
<PAGE>
RUTTER & CO. B.V.
NOTES TO THE PARENT COMPANY BALANCE SHEETS AND PARENT COMPANY PROFIT AND LOSS
ACCOUNTS
ACCOUNTING POLICIES
General
The accounting principles are mentioned in the notes to the consolidated
balance and the consolidated profit and loss account.
VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS
Financial fixed assets
The participations are valued on the basis of the net equity method.
Profit and loss account
The financial statements of the company are included in the consolidated
annual report. Under article 402, title 9 Civil Code it is sufficient to state
a summarized profit and loss account.
NOTES TO SPECIFIC ITEMS OF THE PARENT COMPANY BALANCE SHEETS AND PARENT
COMPANY PROFIT AND LOSS ACCOUNTS
BALANCE SHEET
<TABLE>
<CAPTION>
OFFICE OTHER
FURNITURE OPERATING
LEASEHOLD AND FIXED
IMPROVEMENTS EQUIPMENT ASSETS TOTAL
------------ --------- --------- -------
NLG NLG NLG NLG
FIXED ASSETS
<S> <C> <C> <C> <C>
Tangible fixed assets
Book value at January 1, 1994........ 9,695 76,887 19,391 105,973
Additions............................ -- 47,159 -- 47,159
------- ------- ------ -------
9,695 124,046 19,391 153,132
Book value of disposals.............. -- -- -- --
Depreciation......................... 4,495 40,900 7,761 53,156
------- ------- ------ -------
Book value at December 31, 1994...... 5,200 83,146 11,630 99,976
Additions............................ 180,659 65,341 37,395 283,395
------- ------- ------ -------
185,859 148,487 49,025 383,371
Book value of disposals.............. -- -- 11,630 11,630
Depreciation......................... 33,139 50,267 9,395 92,801
------- ------- ------ -------
Book value at December 31, 1995...... 152,720 98,220 28,000 278,940
======= ======= ====== =======
Accumulated depreciation at December
31, 1994............................ 83,203 404,863 19,396 507,462
======= ======= ====== =======
Accumulated depreciation at December
31, 1995............................ 116,342 455,130 9,395 580,867
======= ======= ====== =======
</TABLE>
F-37
<PAGE>
RUTTER & CO. B.V.
<TABLE>
<CAPTION>
NLG
--------
<S> <C> <C>
FINANCIAL FIXED ASSETS
Participations in group companies
Balance at January 1, 1994............................... 647,388
Dividends................................................ (107,424)
Results of participations after taxation................. 411,519
--------
Balance at December 31, 1994............................. 951,483
Add:
Purchase 50%-participation in Systech Instruments B.V.
at Enschede........................................... 20,000
--------
971,483
Less:
Sale 72%-participation in Unitron Systems Terneuzen
B.V. at Terneuzen (realizable value).................. 742,144
Sale 100%-participation Rutter & Eichholzer AG at Zug
(realizable value).................................... 41,233
Sale 100%-participation Rutter & Co. GmbH at Ahaus (re-
alizable value)....................................... 55,175 838,552
------- --------
132,931
Add:
Results of participations after taxation............... (72,455)
--------
Balance at December 31, 1995............................. 60,476
========
</TABLE>
Specification
<TABLE>
<CAPTION>
PART OF THE ISSUED CAPITAL NOMINAL PAID SHARE CAPITAL NAME AND DOMICILE
-------------------------- -------------------------- -----------------
%
<S> <C> <C>
90 Frfrs 900,000 SARL Rutter Instrumentation
at Perreux-sur-Marne
50 NLG 40,000 Systech Instruments B.V. at
Enschede
</TABLE>
F-38
<PAGE>
RUTTER & CO. B.V.
SHAREHOLDERS' EQUITY
Differences exist between parent company shareholders' equity and group
equity included in the consolidated financial statements. These differences
are due to intercompany profits included in the inventory of a subsidiary,
which are eliminated in the consolidation.
<TABLE>
<CAPTION>
1995 1994
--------- -------
NLG NLG
<S> <C> <C>
Share capital paid up and called up
The authorized share capital consists of
500 shares each NLG 1000,
451 shares were issued and fully paid.
Legally-required reserves
Balance at January 1.................................... 440,289 136,019
Proposed appropriation for the year..................... -- 304,270
Release in favor of the other reserve................... 440,289 --
--------- -------
Balance at December 31.................................. -- 440,289
========= =======
Other reserve
Balance at January 1.................................... 353,879 272,796
From legally-required reserves.......................... 440,289 --
Write-off goodwill...................................... -- (18,928)
Proposed appropriation for the year..................... 567,543 100,011
--------- -------
Balance at December 31.................................. 1,361,711 353,879
========= =======
</TABLE>
PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
1995 1994
------- -------
NLG NLG
<S> <C> <C>
Result of participations after taxation
Share result group companies.............................. (71,766) 65,052
Share result other participations......................... (689) 346,467
------- -------
(72,455) 411,519
======= =======
</TABLE>
The management board: L.L.A.Pover
Enschede, The Netherlands, March 13, 1996
F-39
<PAGE>
RUTTER & CO. B.V.
SUPPLEMENTARY INFORMATION
PROVISIONS OF THE ARTICLES OF ASSOCIATION ON THE SUBJECT OF PROFIT
APPROPRIATION
Article 14
1. The profits are at the disposal of the general meeting of shareholders.
2. The company can only distribute if the shareholders' equity exceeds the
share capital paid up and called up added with the legally-required
reserves.
3. Distribution of profits takes place after the adoption of the financial
statements from which it appears that distribution is allowed.
4. The general meeting of shareholders can between times decide to make a
distribution, if the requirements of Article 2 are met.
POST-BALANCE-SHEET EVENTS
Due to the sale of the shares of the Company to Thermedics Detection Inc.,
credit facilities are cancelled at the beginning of 1996. Hereby existing
securities are given free.
PROFIT APPROPRIATION 1995
The profit over the year 1995 in the amount of NLG 1,890,858 is at the
disposal of the general meeting of shareholders. The managent board proposes
to appropriate the net result as follows:
<TABLE>
<CAPTION>
NLG
---------
<S> <C>
Interim dividend................................................. 742,144
Final dividend................................................... 581,171
Allocation to other reserves (retained earnings)................. 567,543
---------
1,890,858
=========
</TABLE>
This proposal is comprehended in the financial statements.
F-40
<PAGE>
RUTTER & CO. B.V.
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
a. Basis of Presentation
The accompanying financial statements are presented using Netherlands
generally accepted accounting principles (GAAP) and are denominated in
Netherlands guilders. The exchange rate at December 31, 1995 was 1.60.
Inclusion of separate parent company financial statements as a component of
the basic financial statements is a requirement under Netherlands GAAP. No
similar requirement exists under U.S. GAAP.
b. Scope of Consolidation and Related Party Transactions
The Netherlands GAAP financial statements include the accounts of three
subsidiaries using the equity method of consolidation during 1994.
Each of the three subsidiaries was spun-off by the Company to its
shareholder, Rutter Holdings B.V., during the year ended December 31, 1995.
Such transactions were undertaken in advance of the sale of the ownership
interests change in ownership of the Company in 1996. For U.S. GAAP purposes,
such subsidiaries represent a change in the reporting entity, since the
Company and the subsidiaries, which were spun-off, have been managed and
financed historically as if they were autonomous, have no more than incidental
common facilities and costs, will be operated and financed autonomously after
the spin-off, and will not have material financial commitments, guarantees, or
contingent liabilities to each other after the spin-off. Accordingly, the U.S.
GAAP financial statements are presented as if the Company never had an
investment in these subsidiaries.
The financial statements of Systech Instruments B.V. are fully consolidated
in the financial statements prepared under Netherlands GAAP. Under U.S. GAAP
this subsidiary would have been accounted for using the equity method of
accounting. Systech Instruments B.V. did not have any activities during 1995.
The balances consolidated for Systech Instruments B.V. are immaterial to the
consolidated balances.
c. Pension plans
In the Netherlands, the Company sponsors a defined benefit pension plan for
substantially all of its Netherlands employees. SFAS 87, the U.S. accounting
principles for pensions, uses accrual assumptions, including estimated future
salary increases, when calculating pension expense. For Netherlands GAAP
purposes, determination of pension expense does not take future salary
increases into account, but does consider prior back service costs and lower
discount rates.
In France, legally required retirement indemnities exist for U.S. GAAP
purposes. However, such amounts are immaterial and have not been provided.
d. Income taxes
Generally, temporary differences between financial statement and tax
reporting do not exist in the Netherlands GAAP accounts. Accordingly, deferred
income taxes which have been provided relate to the temporary differences
resulting from other U.S. GAAP reconciling items.
e. Cumulative translation adjustment
Translation adjustments for income statement items under Netherlands GAAP
were calculated using the exchange rate at the applicable balance sheet dates.
Under SFAS 52 of U.S. GAAP, the translation for income statement items is to
be calculated using the weighted average exchange rate for the year. For
purposes of applying U.S. GAAP, the SFAS 52 approach was applied starting at
January 1, 1989. Since this date, the year-end exchange rate has approximated
the average rate, resulting in no material differences in any year.
Accordingly, no cumulative translation adjustment at December 31, 1995 and
1994 has been recorded.
f. Fair value of financial instruments
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value.
g. Use of estimates
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that could affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
F-41
<PAGE>
RUTTER & CO. B.V.
and liabilities at the balance sheet dates, and the reported amounts of
revenue and expense during the reported periods. Actual results may vary from
such estimates.
h. Operating leases
The Company leases certain facilities and automobiles under operating
leases. As of December 31, 1995, the minimum annual rental commitments are as
follows:
<TABLE>
<CAPTION>
NLG
---------
<S> <C>
1996.................................................................. 313,230
1997.................................................................. 317,561
1998.................................................................. 233,316
1999.................................................................. 133,032
2000.................................................................. 71,629
Thereafter............................................................ --
---------
Total............................................................... 1,068,768
=========
</TABLE>
Rental expense was NLG 339,245 and NLG 306,774 for the years ended December
31, 1995 and 1994, respectively.
i. New accounting pronouncement
In March 1995, the United States Financial Accounting Standards Board issued
SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", which is applicable to the Company beginning
in 1996. Management believes that application of SFAS 121 will not result in
any adjustments to the carrying value of the Company's long-lived assets.
j. Stockholders' equity
Differences exist between parent company shareholders' equity and group
equity included in the consolidated financial statements prepared under
Netherlands GAAP due to intercompany profits included in the inventory of a
subsidiary, which are eliminated in the consolidation. On a U.S. GAAP basis,
parent company equity would be the same as consolidated equity.
k. Dividends
Management of the Company has proposed a final dividend of NLG 581,171 and
NLG 1,000,000 at December 31, 1995 and 1994, respectively. These proposed
dividends are accrued in the financial statements prepared under Netherlands
GAAP. Since these proposed dividends are subject to the authorization of the
general meeting of shareholders, these dividends would not be presented as a
liability in the financial statements prepared under U.S. GAAP.
l. Netherlands GAAP--U.S. GAAP reconciliation
The following is a summary of the significant adjustments to net income for
the years ended December 31, 1995 and 1994 and to stockholders' equity as of
December 31, 1995 and 1994, which would be required if U.S. GAAP had been
applied instead of Netherlands GAAP in the financial statements:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Net income according to the consolidated financial
statements prepared under Netherlands GAAP............. 1,888,217 1,427,682
U.S. GAAP adjustments:
Increase due to effects of applying SFAS 87,
"Employers' Accounting for Pensions"................. 156,525 177,105
Decrease due to effects of applying SFAS 109,
"Accounting for Income Taxes"........................ (54,780) (61,987)
Decrease due to elimination of net income of
subsidiaries spun-off................................ -- (346,467)
--------- ---------
Net income in accordance with U.S. GAAP............... 1,989,962 1,196,333
========= =========
</TABLE>
F-42
<PAGE>
RUTTER & CO. B.V.
A reconciliation of legal entity share in group equity in the balance sheet
from Netherlands GAAP reporting to stockholder's equity in U.S. GAAP reporting
is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Legal entity share in group equity according to the
consolidated financial statements prepared under
Netherlands GAAP........................................ 1,795,569 1,259,669
U.S. GAAP adjustments:
Increase due to effects of applying SFAS 87,
"Employers' Accounting for Pensions".................. 524,379 367,867
Decrease due to effects of applying SFAS 109,
"Accounting for Income Taxes"......................... (183,533) (128,753)
Increase due to accrual of proposed final dividends.... 581,171 1,000,000
Other.................................................. 29,015 --
--------- ---------
Stockholder's equity in accordance with U.S. GAAP........ 2,746,601 2,498,783
========= =========
</TABLE>
The accompanying consolidated statements of stockholder's equity has been
prepared in accordance with U.S. GAAP.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER
31, 1995 AND 1994
<TABLE>
<CAPTION>
NUMBER OF SHARE
ORDINARY CAPITAL TOTAL
SHARES AT PAR ACCUMULATED STOCKHOLDER'S
OUTSTANDING VALUE EARNINGS EQUITY
----------- ------- ----------- -------------
NLG NLG NLG
<S> <C> <C> <C> <C>
Balance January 1, 1994......... 451 451,000 1,651,450 2,102,450
Net income...................... -- -- 1,196,333 1,196,333
Dividend paid................... -- -- (800,000) (800,000)
--- ------- ---------- ----------
Balance December 31, 1994....... 451 451,000 2,047,783 2,498,783
Net income...................... -- -- 1,989,962 1,989,962
Dividends paid.................. -- -- (1,742,144) (1,742,144)
--- ------- ---------- ----------
Balance December 31, 1995....... 451 451,000 2,295,601 2,746,601
=== ======= ========== ==========
</TABLE>
F-43
<PAGE>
RUTTER & CO. B.V.
Cash flow data is not required to be prepared under Netherlands GAAP. The
accompanying statement of cash flows have been prepared in accordance with
U.S. GAAP.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
NLG NLG
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ 1,989,962 1,196,333
Adjustment to reconcile net income to net cash flows
from operating activities:
Minority interest................................... 9,592 12,471
Depreciation........................................ 101,537 67,433
Amortization of goodwill............................ -- 37,853
Effects of changes in assets and liabilities:
Increase in accounts receivable..................... (502,658) (480,984)
Decrease (increase) in inventories.................. 117,685 (64,264)
Increase in other current assets.................... (211,462) (81,492)
(Decrease) increase in accrued liabilities.......... (408,487) 178,432
Increase in accounts payable........................ 247,334 167,400
Increase in deferred taxes.......................... 54,780 61,987
Increase in taxes payable........................... 21,096 27,266
---------- ----------
Net cash provided by operating activities............. 1,419,379 1,122,435
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (274,366) (76,380)
Decrease in investments............................... -- 107,425
Proceeds from sale of subsidiaries.................... 839,241 --
Decrease (increase) in other receivables.............. (158) 7,108
---------- ----------
Net cash provided by investing activities............. 564,717 38,153
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long term debt............................ -- (300,000)
Dividends paid........................................ (1,742,144) (800,000)
---------- ----------
Net cash used in financing activities................. (1,742,144) (1,100,000)
NET CASH FLOWS........................................ 241,952 60,588
CASH AT BANK AND IN HAND AT BEGINNING OF YEAR......... 819,783 759,195
---------- ----------
CASH AT BANK AND IN HAND AT END OF YEAR............... 1,061,735 819,783
========== ==========
</TABLE>
F-44
<PAGE>
THERMEDICS DETECTION INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
On January 25, 1996, Thermedics Detection Inc. (the "Company") acquired the
assets of Moisture Systems Corporation and certain affiliated companies
(collectively, "Moisture Systems"), and the stock of Rutter & Co. B.V.
("Rutter") for a total purchase price of $21,668,000 in cash, which included
the repayment of $700,000 of debt. To finance these acquisitions, the Company
borrowed $21,200,000 from Thermedics Inc. ("Thermedics") pursuant to a
promissory note (the "promissory note") due March 1998, and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. These acquisitions have been accounted for using
the purchase method of accounting.
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the year ended December 28, 1996, as
if the acquisitions of Moisture Systems and Rutter had occurred on January 1,
1996. Moisture Systems and Rutter's historical statements of income represent
their results for the 25 day period from January 1, 1996 through January 25,
1996, the date of acquisition by the Company. Rutter's historical consolidated
statement of income, which is denominated in Netherlands guilders, has been
translated at the average exchange rate of .5903 for the year ended December
28, 1996. The pro forma statement of income is not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisitions of Moisture Systems and Rutter been made on January 1, 1996. This
statement should be read in conjunction with the accompanying notes and the
respective historical financial statements and related notes of the Company,
Moisture Systems and Rutter appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- --------------------
THERMEDICS MOISTURE
DETECTION SYSTEMS RUTTER ADJUSTMENTS COMBINED
---------- -------- ------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues....................... $43,750 $1,141 $593 $(187) $45,297
------- ------ ---- ----- -------
Costs and Operating Expenses:
Cost of revenues............. 22,150 563 267 (187) 22,793
Selling, general and
administrative expenses..... 15,525 495 168 45 16,233
Research and development
expenses.................... 4,608 -- -- -- 4,608
------- ------ ---- ----- -------
42,283 1,058 435 (142) 43,634
------- ------ ---- ----- -------
Operating Income............... 1,467 83 158 (45) 1,663
Interest Income................ 229 1 1 -- 231
Interest Expense............... (1,119) (18) -- (83) (1,220)
Other Income................... 12 -- 43 -- 55
------- ------ ---- ----- -------
Income Before Provision for
Income Taxes.................. 589 66 202 (128) 729
Provision for Income Taxes..... 227 6 59 (1) 291
------- ------ ---- ----- -------
Net Income..................... $ 362 $ 60 $143 $(127) $ 438
======= ====== ==== ===== =======
Earnings per Share............. $ .04 $ .04
======= =======
Weighted Average Shares........ 10,320 10,320
======= =======
</TABLE>
F-45
<PAGE>
THERMEDICS DETECTION INC.
NOTE TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
NOTE 1--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 28, 1996 (IN THOUSANDS, EXCEPT IN
TEXT)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
REVENUES
Elimination of intercompany sales between Moisture Systems and Rutter......................... $187
----
COST OF REVENUES
Elimination of costs associated with intercompany sales between Moisture Systems and Rutter... (187)
----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Service fee of 1.0% of the revenues of Moisture Systems and Rutter for services provided under
a services agreement between the Company and Thermo Electron................................. 15
Amortization over 40 years of $11,569,000 and $5,757,000 of cost in excess of net assets of
acquired companies created by the acquisitions of Moisture Systems and Rutter, respectively.. 30
----
45
----
INTEREST EXPENSE
Interest expense on the $21,200,000 promissory note issued to Thermedics to finance the
acquisitions of Moisture Systems and Rutter, calculated at an average interest rate of
5.74%........................................................................................ 83
----
PROVISION FOR INCOME TAXES
Income tax benefit associated with the adjustments above (excluding nondeductible amortization
of cost in excess of net assets of acquired companies relating to Rutter), calculated at the
Company's statutory income tax rate of 38%................................................... (45)
Income tax provision associated with the earnings of Moisture Systems Corporation, an S
corporation, calculated at the Company's statutory income tax rate of 38%.................... 44
----
(1)
----
</TABLE>
F-46
<PAGE>
At the upper left of the page is a graphic image depicting the Company's
SecurScan system. To the right of this graphic is a graphic image of the
Company's EGIS system. At the upper right of the page is the following caption:
The Company's EGIS system (below), which is a highly sensitive trace
particle- and vapor-detection system for screening people, baggage, packages,
freight, and electronic equipment for explosives, has an installed base of more
than 200 units in 21 countries, including more than 100 units in airports. The
Company recently introduced a prototype of its new SecurScan system (left) for
screening people for traces of explosives.
Below the image of the SecurScan system is a graphic image depicting a
number of moisture analysis instruments manufactured by the Company's Moisture
Systems division. To the right of this image is the following caption:
Equipment manufactured by the Company's Moisture Systems division (left)
uses near-infrared light absorption technology to measure moisture and other
product constituents in manufacturing processes for the food, pharmaceutical,
chemical and other industries.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any in-
formation or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not con-
stitute an offer of any securities other than those to which it relates or an
offer to sell, or a solicitation of an offer to buy, to any person in any ju-
risdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any cir-
cumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
The Company.............................................................. 19
The Rights Offering...................................................... 20
Selected Financial Information........................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 33
Relationship with Thermo Electron and Thermedics......................... 42
Management............................................................... 45
Security Ownership of Certain Beneficial Owners and Management........... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Opinions........................................................... 58
Experts.................................................................. 58
Additional Information................................................... 59
Reports to Security Holders.............................................. 60
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
Until , 1997 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the registered securities, whether or not participat-
ing in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
[LOGO OF THERMEDICS DETECTION APPEARS HERE]
COMMON STOCK
-----------------
PROSPECTUS
, 1997
-----------------
LEHMAN BROTHERS
NATWEST SECURITIES LIMITED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All amounts shown
are estimates except for the Securities and Exchange Commission (the
"Commission") registration fee, the NASD filing fee and the American Stock
Exchange listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration fee................ $ 10,451
NASD filing fee.................................................... 3,949
American Stock Exchange listing fee................................ 37,500
Legal fees and expenses............................................ 20,000
Accounting fees and expenses....................................... 280,000
Blue sky fees and expenses (including legal fees and expenses)..... 10,000
Printing and engraving expenses.................................... 150,000
Transfer agent and subscription agent fees......................... 50,000
Miscellaneous...................................................... 98,100
--------
Total.......................................................... $660,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Massachusetts Business Corporation Law and the Company's Articles of
Organization 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
Articles of Organization, 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 March and November 1996, pursuant to Securities Purchase Agreements with
certain investors, the Registrant sold an aggregate of 683,500 shares of
Common Stock for an aggregate gross purchase price of $7,122,625. All of such
investors were accredited investors (as defined in Regulation D) who made
appropriate investment representations. Such sales were made in reliance upon
the exemption from the registration provisions of the Securities Act set forth
in Section 4(2) thereof and Regulation D thereunder relative to sales by an
issuer not involving any public offering.
From December 1990 through December 31, 1996, the Registrant granted options
under its stock-based compensation plans to purchase an aggregate of 218,217
shares of Common Stock at a weighted average exercise price of $10.41 per
share. None of these options have been exercised. Exemption from registration
for these grants is claimed under Section 4(2) of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------------------------------------------------
<C> <S>
*1 Form of Standby Underwriting Agreement
2.1 Asset Purchase Agreement dated as of January 25, 1996 among the
Registrant, Moisture Systems Corporation and certain Affiliates
of Moisture Systems Corporation. Pursuant to Item 601(b)(2) of
Regulation S-K, schedules to this Agreement have been omitted.
The Registrant hereby undertakes to furnish supplementally a
copy of such schedules to the Commission upon request.
2.2 Share Purchase Agreement dated as of January 25, 1996 among the
Registrant, Rutter Holding B.V. and certain Affiliates of Rutter
Holding B.V. Pursuant to Item 601(b)(2) of Regulation S-K,
schedules to this Agreement have been omitted. The Registrant
hereby undertakes to furnish supplementally a copy of such
schedules to the Commission upon request.
*3.1 Articles of Organization of the Registrant, as amended
3.2 By-Laws of the Registrant
4.1 Specimen Common Stock Certificate
*4.2 Specimen Rights Certificate
*5 Opinion of Seth H. Hoogasian, Esq. with respect to the validity
of the securities being offered
10.1 Corporate Services Agreement dated as of March 20, 1996 between
Thermo Electron Corporation ("Thermo Electron") and the
Registrant
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (incorporated by reference herein form
Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 (File No. 1-8002))
10.3 Tax Allocation Agreement dated as of March 20, 1996 between
Thermedics Inc. ("Thermedics") and the Registrant
10.4 Master Repurchase Agreement dated as of March 20, 1996 between
Thermo Electron and the Registrant
10.5 Master Guarantee Reimbursement Agreement dated as of March 20,
1996 among Thermo Electron, Thermedics and the Registrant
10.6 Master Guarantee Reimbursement Agreement dated as of March 20,
1996 between Thermedics and the Registrant
10.7 Equity Incentive Plan of the Registrant
10.8 Deferred Compensation Plan for Directors of the Registrant
*10.9 $21.2 Million Principal Amount Promissory Note due March 1998,
issued by the Registrant to Thermedics
10.10 Form of Indemnification Agreement for Officers and Directors
10.11 Stock Purchase Agreement dated as of March 25, 1996 between
David H. Fine and the Registrant
10.12 Stock Purchase Agreement dated as of November 19, 1996 between
Jeffrey J. Langan and the Registrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------------------------------------------------
<C> <S>
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 parent, Thermo Electron Corporation, and its
subsidiaries, for services rendered to the Registrant or to such
affiliated corporations. Such plans were filed as Exhibits 10.21
- 10.44 to the Annual Report on Form 10-K of Thermo Electron for
the fiscal year ended December 30, 1995 [File No. 1-8002] and as
Exhibits 10.18 - 10.19, 10.22, and 10.48 - 10.49 to the Annual
Report on Form 10-K of Thermedics for the fiscal year ended
December 30, 1995 [File No. 1-9567] and are incorporated herein
by reference.
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Deloitte & Touche Registeraccountants
*23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)
24 Power of Attorney (see page II-5 of the Registration Statement)
*27 Financial Data Schedule
*99.1 Form of Subscription Agency Agreement
+99.2 Instructions as to use of Thermedics Detection Inc. Subscription
Certificates and International Holder Subscription Forms
*99.3 International Holder Subscription Form
*99.4 Form of Letter to Thermedics Detection stockholders
*99.5 Form of Letter to Thermedics stockholders
</TABLE>
- --------
* Filed herewith.
+ To be filed by amendment. All other exhibits previously filed.
(b) FINANCIAL STATEMENT SCHEDULE
The financial Statement Schedule as of September 28, 1996 and the Report of
Independent Public Accountants on such schedule are included in this
Registration Statement. All other schedules are omitted because they are not
applicable or are not required under Regulation S-X.
ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes to provide the underwriters at the
closing specified in the standby underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
II-3
<PAGE>
(c) 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.
(d) The undersigned Registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
(e) 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;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of Regulation S-X at the start of any
delayed offering or throughout a continuous offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHELMSFORD, MASSACHUSETTS, ON THIS 5TH DAY OF FEBRUARY, 1997.
Thermedics Detection Inc.
By: /s/ Jeffery J. Langan
-----------------------------------
JEFFREY J. LANGAN,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Jeffery J. Langan* Chief Executive February 5, 1997
- ------------------------------------ Officer, President
JEFFREY J. LANGAN and Director
(Principal
Executive Officer)
John N. Hatsopoulos* Vice President, February 5, 1997
- ------------------------------------ Chief Financial
JOHN N. HATSOPOULOS Officer and
Director
Paul F. Kelleher* Chief Accounting February 5, 1997
- ------------------------------------ Officer
PAUL F. KELLEHER (Principal Accounting
Officer)
John W. Wood Jr.* Chairman of the February 5, 1997
- ------------------------------------ Board and Director
JOHN W. WOOD JR.
*By: /s/ Jonathan W. Painter
--------------------------------
JONATHAN W. PAINTER
ATTORNEY-IN-FACT
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Thermedics Detection Inc. included in
Thermedics Detection Inc.'s Form S-1 and have issued our report thereon dated
February 3, 1997. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. Thermedics
Detection Inc.'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 3, 1997
S-1
<PAGE>
SCHEDULE II
THERMEDICS DETECTION INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING CHARGED TO ACCOUNTS ACCOUNTS AT END
DESCRIPTION OF PERIOD EXPENSE OTHER (A) RECOVERED WRITTEN OFF OF PERIOD
- ----------- ---------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Allowance for Doubtful
Accounts.............. $431 $128 $ -- $ -- $ (12) $547
YEAR ENDED DECEMBER 30,
1995
Allowance for Doubtful
Accounts.............. $547 $ 98 $ -- $ -- $(129) $516
YEAR ENDED DECEMBER 28,
1996
Allowance for Doubtful
Accounts.............. $516 $582 $122 $167 $(172) $1,215
</TABLE>
- --------
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements included elsewhere in this
Prospectus and foreign currency translation adjustment.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
----------- --------------------------------------------------------- ----
<C> <S> <C>
*1 Form of Standby Underwriting Agreement
2.1 Asset Purchase Agreement dated as of January 25, 1996
among the Registrant, Moisture Systems Corporation and
certain Affiliates of Moisture Systems Corporation.
Pursuant to Item 601(b)(2) of Regulation S-K, schedules
to this Agreement have been omitted. The Registrant
hereby undertakes to furnish supplementally a copy of
such schedules to the Commission upon request.
2.2 Share Purchase Agreement dated as of January 25, 1996
among the Registrant, Rutter Holding B.V. and certain
Affiliates of Rutter Holding B.V. Pursuant to Item
601(b)(2) of Regulation S-K, schedules to this Agreement
have been omitted. The Registrant hereby undertakes to
furnish supplementally a copy of such schedules to the
Commission upon request.
*3.1 Articles of Organization of the Registrant, as amended
3.2 By-Laws of the Registrant
4.1 Specimen Common Stock Certificate
*4.2 Specimen Rights Certificate
*5 Opinion of Seth H. Hoogasian, Esq. with respect to the
validity of the securities being offered
10.1 Corporate Services Agreement dated as of March 20, 1996
between Thermo Electron Corporation ("Thermo Electron")
and the Registrant
10.2 Thermo Electron Corporate Charter, as amended and
restated effective January 3, 1993 (incorporated by
reference herein form Exhibit 10.1 to Thermo Electron's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 (File No. 1-8002))
10.3 Tax Allocation Agreement dated as of March 20, 1996
between Thermedics Inc. ("Thermedics") and the Registrant
10.4 Master Repurchase Agreement dated as of March 20, 1996
between Thermo Electron and the Registrant
10.5 Master Guarantee Reimbursement Agreement dated as of
March 20, 1996 among Thermo Electron, Thermedics and the
Registrant
10.6 Master Guarantee Reimbursement Agreement dated as of
March 20, 1996 between Thermedics and the Registrant
10.7 Equity Incentive Plan of the Registrant
10.8 Deferred Compensation Plan for Directors of the
Registrant
*10.9 $21.2 Million Principal Amount Promissory Note due March
1998, issued by the Registrant to Thermedics
10.10 Form of Indemnification Agreement for Officers and
Directors
10.11 Stock Purchase Agreement dated as of March 25, 1996
between David H. Fine and the Registrant
10.12 Stock Purchase Agreement dated as of November 19, 1996
between Jeffrey J. Langan and the Registrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
----------- --------------------------------------------------------- ----
<C> <S> <C>
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 parent, Thermo Electron Corporation, and
its subsidiaries, for services rendered to the Registrant
or to such affiliated corporations. Such plans were filed
as Exhibits 10.21 - 10.44 to the Annual Report on Form
10-K of Thermo Electron for the fiscal year ended
December 30, 1995 [File No. 1-8002] and as Exhibits 10.18
- 10.19, 10.22, and 10.48 - 10.49 to the Annual Report on
Form 10-K of Thermedics for the fiscal year ended
December 30, 1995 [File No. 1-9567] and are incorporated
herein by reference.
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Deloitte & Touche Registeraccountants
*23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit
5)
24 Power of Attorney (see page II-5 of the Registration
Statement)
*27 Financial Data Schedule
*99.1 Form of Subscription Agency Agreement
+99.2 Instructions as to use of Thermedics Detection Inc.
Subscription Certificates and International Holder
Subscription Forms
*99.3 International Holder Subscription Form
*99.4 Form of Letter to Thermedics Detection stockholders
*99.5 Form of Letter to Thermedics stockholders
</TABLE>
- --------
* Filed herewith.
+ To be filed by amendment. All other exhibits previously filed.
<PAGE>
EXHIBIT 1
Draft 2/5/96
------------
Thermedics Detection Inc.
Common Stock
($.10 par value)
STANDBY UNDERWRITING AGREEMENT
------------------------------
____________, 1997
Lehman Brothers Inc.
NatWest Securities Limited
As Representatives of the several Underwriters
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Thermedics Detection Inc., a Massachusetts corporation (the
"Company"), proposes to offer approximately 1,900,000 shares of Common Stock,
par value $.10 per share (the "Common Stock"), of the Company, initially for
subscription upon the exercise of rights (the "Rights") evidenced by
transferable subscription certificates (the "Subscription Certificates") issued
by the Company to holders of Common Stock of the Company of record at the close
of business on ____________, 1997. The Rights will expire at 5:00 P.M., Eastern
time, on ____________, 1997, unless extended by the Company with the consent of
the Representatives (as defined below) (such date and time, the "Expiration
Date"). Thermedics Inc., a Massachusetts corporation ("Thermedics"), owns
10,000,000 shares of Common Stock. Thermedics will not exercise the Rights
received by it from the Company, but will distribute such rights to the holders
of its Common Stock, $.05 par value per share (the "Thermedics Common Stock"),
of record at the close of business on ____________, 1997. The Company proposes
to sell to the underwriters named in Schedule I hereto (the "Underwriters"), for
whom you (the "Representatives") are acting as representatives, a number of
shares of Common Stock equal to: (i) 1,000,000 shares of Common Stock less (ii)
----
the number of shares of Common Stock which, as of the Expiration Date, have been
properly subscribed for by the exercise of Rights (such number of shares of
Common Stock, the "Standby Securities"). The Company also proposes to grant to
the Underwriters (i) an option to purchase up to 150,000 additional shares of
Common Stock (the "Standby Option Securities" in connection with the Rights
Offering (as hereinafter defined) and (ii) an option to purchase 45,000 shares
of Common Stock (the "Firm Option Securities") in
<PAGE>
connection with the purchase by the Underwriters of the Firm Shares (as
hereinafter defined). The Firm Option Securities together with the Standby
Option Securities are referred to herein as the "Option Securities." The Company
also proposes to issue and sell to the Underwriters an additional 300,000 shares
(the "Firm Shares") of Common Stock on a firm commitment basis. The Standby
Securities together with the Option Securities and the Firm Shares are referred
to herein together as the "Securities." The issuance of the Rights, the offering
of the Common Stock to be issued by the Company upon exercise of the Rights and
the subscription and purchase of Common Stock upon the terms described in the
Prospectus (as hereinafter defined), including the purchase and distribution of
the Standby Securities and the Standby Option Securities pursuant to this
Agreement, are herein collectively referred to as the "Rights Offering". The
Rights Offering, together with the offering and sale of the Firm Shares and the
Firm Option Securities are referred to herein together as the "Offering."
Thermo Electron Corporation, a Delaware corporation ("Thermo
Electron"), is the corporate parent of Thermedics. To the extent provided
herein and for good and valuable consideration, each of Thermedics and Thermo
Electron has become a party to this Agreement.
1. Representations and Warranties. (a) The Company, Thermedics and
------------------------------
Thermo Electron, jointly and severally, represent and warrant to, and agree
with, each Underwriter as set forth below in this Section 1(a). Certain terms
used in Section 1 are defined in paragraphs (i) and (xxii) of this Section 1(a).
The following representations, warranties and agreements shall be deemed to
apply to each Subsidiary (as defined in Section 15) of the Company, unless the
context does not permit:
(i) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (file number 333-19119),
including the related preliminary prospectus, for the registration under the
Securities Act of 1933, as amended, and the rules thereunder (the "Act") of the
Rights and Common Stock to be issued in the Rights Offering. The Company may
have filed one or more amendments thereto, including the related preliminary
prospectus, each of which has previously been furnished to you. Copies of such
registration statement as amended to date have been delivered by the Company to
the Representatives and, to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
the Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"), except to the extent permitted by Regulation S-T. The Company will
next file with the Commission either (A) prior to effectiveness of such
registration statement, a further amendment to such registration statement
(including the form of final prospectus) or (B) after effectiveness of such
registration statement, a final prospectus in accordance with Rules 430A and
424(b)(1) or (4). If the Company uses the provisions of Rule 430A, such
registration statement, as amended at the Effective Date, shall include all
material information (other than Rule 430A Information) required by the Act to
be included in the Prospectus with respect to the Securities and the offering
thereof. As filed, such amendment and form of final prospectus (in the case of
clause (A)), or such final prospectus (in the case of clause (B)), shall contain
all Rule 430A Information, and, except to the extent the Representatives shall
agree in writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Time or, to the extent not
completed at the
-2-
<PAGE>
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be included or
made therein.
"Prospectus" means (a) the form of prospectus relating to the
Securities, as first filed pursuant to paragraph (1) or (4) of Rule 424(b), or
if no filing pursuant to Rule 424(b) is required, the form of prospectus
included in the registration statement at the Effective Date, (b) the term sheet
or abbreviated term sheet described in Rule 434(b), as first filed pursuant to
paragraph (7) of Rule 424(b) together with the last preliminary prospectus
included in the registration statement filed prior to the Effective Date or
filed pursuant to Rule 424(a) that is delivered by the Company to the
Underwriters for delivery to purchasers of the Securities. The Prospectus and
any related letters from the Company, Thermedics or Thermo Electron to record or
beneficial owners of Common Stock, Thermedics Common Stock or Rights, related
letters from the Company, Thermedics, or Thermo Electron to securities dealers,
commercial banks, trust companies and other nominees and other offering
materials, in each case disseminated by the Company, Thermedics or Thermo
Electron by any of their agents, and any other information that the Company,
Thermedics or Thermo Electron may use, prepare, approve or authorize for use in
connection with the Rights Offering, are collectively referred to hereinafter as
the "Offering Materials". Notwithstanding the foregoing, any offering material
or other information that is distributed by the Underwriters in connection with
the Rights Offering shall not be deemed to be "Offering Materials" hereunder
unless the distribution thereof is approved by the Company, Thermedics or Thermo
Electron. For purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement to any of the foregoing, shall be deemed to include the respective
copies thereof filed with the Commission pursuant to EDGAR. Capitalized terms
used herein without definition have the meanings assigned to them in the
Prospectus.
(ii) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on each Closing Date (as hereinafter defined), the Prospectus (and
any supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and, to the extent applicable, the
Securities Exchange Act of 1934, as amended, and the rules thereunder (the
"Exchange Act"); on the Effective Date, the Registration Statement did not or
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and on the Effective Date, the Prospectus, if
not required to be filed pursuant to Rule 424(b), and the Offering Materials did
not or will not, and on the date of the filing pursuant to Rule 424(b) and on
each Closing Date, the Prospectus (together with any supplement thereto) and the
Offering Materials will not, include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company, Thermedics and Thermo Electron make no
- -------- -------
representations or warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or the Prospectus (or
any
-3-
<PAGE>
supplement thereto). There is no contract or document required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement which is not described or filed as required.
(iii) The accounting firm(s) that have reported upon the audited
financial statements and schedules included in the Registration Statement and
Prospectus are independent public accountants as required by the Act.
(iv) The consolidated financial statements and the related notes of
the Company included in the Registration Statement and the Prospectus present
fairly, in all material respects, in accordance with generally accepted
accounting principles, the consolidated financial position of the entities
purported to be shown thereon, as of the dates indicated and the consolidated
results of operations and cash flows of the entities purported to be shown
thereon, for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved, except as otherwise noted
therein and subject, in the case of interim statements, to normal year-end audit
adjustments and footnote disclosures (which comply with the Act and the Exchange
Act). The financial statement schedules included in the Registration Statement
present fairly, in all material respects, in accordance with generally accepted
accounting principles the information required to be stated therein. The pro
forma financial statements and other pro forma financial information included in
the Registration Statement and the Prospectus, if any, present fairly, in all
material respects, the information shown therein, have been prepared, in all
material respects, in accordance with applicable rules and guidelines of the
Commission, if any, with respect thereto, have been properly compiled on the pro
forma bases described therein, and, in the opinion of the Company and Thermo
Electron, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(v) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, and is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary except where the
failure to so qualify or be in good standing would not have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and, except as
described in the Prospectus, the Company holds all material licenses,
certificates and permits from governmental authorities necessary for the conduct
of its business as described in the Prospectus.
(vi) All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued, fully paid and nonassessable. Other
than as described in the Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's corporate
charter, by-laws or other governing documents or any agreement or other
instrument to which the Company is a party or by which it may be bound. The
capitalization of
-4-
<PAGE>
the Company as of ____________ __, 199_ is as set forth in the Prospectus and
the Common Stock, the Rights, the Subscription Certificates and the Securities
conform to the description thereof contained in the Prospectus. All of the
outstanding shares of capital stock of each Subsidiary (as defined in Section
15) of the Company have been duly authorized and validly issued, are fully paid
and nonassessable and are owned directly or indirectly by the Company, free and
clear of any claim, lien, encumbrance, security interest, restriction upon
voting or transfer or any other claim of any third party.
(vii) Prior to or at the Effective Date, the Company and the
Subscription Agent will have entered into a subscription agency agreement (the
"Subscription Agency Agreement"). When executed by the Company, the
Subscription Agency Agreement will have been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the Subscription Agent, will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
(A) as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) (collectively, "applicable bankruptcy laws"), and (B) as rights to
indemnity and contribution thereunder may be limited by Federal or state
securities laws and/or public policy.
(viii) The Rights, when issued and delivered in accordance with the
terms of the Rights Offering, will be validly issued, and no holder thereof is
or will be subject to personal liability by reason of being such a holder (other
than with respect to potential tax liability as described in the Prospectus);
the shares of Common Stock issuable upon the exercise of the Rights, when issued
or delivered and paid for in accordance with the terms of the Rights Offering,
and any Securities issued pursuant to the terms of this Agreement, will be
validly issued, fully paid and nonassessable, and the issuance of the shares of
Common Stock issuable upon the exercise of the Rights and the Securities will
not be subject to the preemptive rights of any stockholder of the Company.
(ix) The Company has taken all valid corporate action to duly
reserve such number of its authorized and unissued shares of Common Stock as are
deliverable upon consummation of purchases pursuant to the Rights Offering.
(x) Except as described in or contemplated by the Registration
Statement and the Prospectus, there has not been (i) any material adverse change
in, or any adverse development which materially affects, the condition
(financial or other), results of operations, business or prospects of the
Company and its Subsidiaries on a consolidated basis from the date as of which
information is given in the Prospectus, (ii) any dividend or distribution of any
kind declared, paid or made by the Company on its capital stock other than the
Rights or (iii) any material change in the capitalization of the Company.
(xi) The Company is not, and would not be with the giving of notice
or lapse of time or both, in violation of or in default under, nor will the
execution or delivery hereof, the issuance and delivery of the Rights and the
Securities, the consummation of the Rights Offering or the
-5-
<PAGE>
consummation of the transactions contemplated hereby result in a violation of,
or constitute a default under, the corporate charter, by-laws or other governing
documents of the Company, or any agreement, indenture or other instrument to
which the Company is a party or by which it is bound, or to which any of its
properties is subject, nor will the performance by the Company of its
obligations hereunder violate any existing law, rule, administrative regulation
or decree of any court or any governmental agency or body having jurisdiction
over the Company or any of its properties, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of the Company, which would be material to the Company and its Subsidiaries
taken as a whole. Except for permits and similar authorizations required under
the Securities Act and the securities or "Blue Sky" laws of certain
jurisdictions and for such permits and authorizations as have been obtained, no
consent, approval, authorization or order of any court, governmental agency or
body or any financial institution is required for the offer and sale by the
Company of the Securities or the consummation of the Rights Offering as set
forth in the Registration Statement and the Prospectus or the consummation by
the Company, Thermedics or Thermo Electron of the transactions contemplated in
this Agreement and in the Registration Statement and the Prospectus (it being
understood that the Company, Thermedics and Thermo Electron make no
representation as to the distribution of the Securities by the Underwriters
outside of the United States or as to the distribution of the Rights by the
Company or Thermedics outside of the United States (except in the United
Kingdom)). Neither the filing of the Registration Statement nor the offering or
sale of its shares of Common Stock pursuant to the Rights Offering gives rise to
any rights, other than those that have been duly waived or satisfied and other
than the Company's obligations with respect to the "Resale Registration
Statement" (as defined in the Prospectus), for or relating to the registration
of any shares of Common Stock or other securities of the Company.
(xii) This Agreement has been duly authorized, executed and delivered by
the Company.
(xiii) The Company owns, or has valid rights to use, all items of real and
personal property which are material to the business of the Company and its
Subsidiaries taken as a whole, free and clear of all liens, encumbrances and
claims which may materially interfere with the business, properties, financial
condition or results of operations of the Company on a consolidated basis.
(xiv) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or Thermedics or Thermo Electron is
a party or to which any property of the Company is subject or which is pending
or, to the knowledge of the Company, Thermedics or Thermo Electron, contemplated
against the Company or Thermedics that is required to be disclosed in the
Prospectus and that is not so disclosed.
(xv) The Company is not in violation of any law, ordinance, governmental
rule or regulation or court decree to which it is subject, which violation could
have a material adverse effect on the condition (financial or other), results of
operations, business or prospects of the Company and its Subsidiaries on a
consolidated basis.
-6-
<PAGE>
(xvi) The Company is not an "investment company" or a company "controlled
by an investment company" within the meaning of such terms under the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder, and
will not become such after giving effect to the transactions contemplated in
this Agreement and in the Registration Statement and the Prospectus.
(xvii) The Company owns or possesses adequate licenses or other rights to
use all intellectual property rights, including patents and trademarks,
necessary to conduct its business as described or referred to in the Prospectus,
except where such failure, singularly or in the aggregate would not have a
material adverse effect on the Company and its Subsidiaries on a consolidated
basis, and, except as disclosed in the Prospectus, neither Thermo Electron,
Thermedics nor the Company has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with) rights or
claims of others with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how, that if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse effect upon the Company
and its Subsidiaries on a consolidated basis, and, except as disclosed in the
Prospectus, all products or processes referred to in the Prospectus and relating
to the business of the Company now conducted by it do not infringe upon or
conflict with any right or patent, or with any discovery, invention, product or
process which is the subject of any patent application known to the Company or
Thermo Electron, in a manner which would materially and adversely affect the
Company and its Subsidiaries on a consolidated basis.
(xviii) Each of the Corporate Services Agreement between the Company and
Thermo Electron (the "Services Agreement"), and the other agreements between the
Company and Thermedics or Thermo Electron pursuant to which the Company was
initially organized and capitalized (collectively, the "Organization
Agreements"), and the Tax Allocation Agreement between Thermo Electron and the
Company (all of the foregoing agreements being referred to herein as the "Inter-
corporate Agreements") has been duly and validly authorized, executed and
delivered by the Company and is the valid and binding agreement of the Company
enforceable in accordance with its terms, except as provided by applicable
bankruptcy laws. The execution, delivery and performance of the Inter-corporate
Agreements by the Company, the consummation of the transactions therein
contemplated and compliance with the terms thereof do not and will not result in
a violation of, or constitute a default under, the corporate charter, by-laws or
other governing documents of the Company, or any agreement, indenture or other
instrument to which the Company is a party or by which it is bound, or to which
any of its properties is subject, and do not and will not violate any existing
law, rule, administrative regulation or decree of any court or any governmental
agency or body having jurisdiction over the Company or any of its properties, or
result in the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company, which would be material to the
Company and its Subsidiaries taken as a whole. No consent, approval,
authorization or order of any court, governmental agency or body or financial
institution is required in connection with the consummation of the transactions
contemplated by such Inter-corporate Agreements.
(xix) Thermo Electron and Thermedics will take all such action as may be
necessary or expedient to ensure that (A) the representations and warranties of
the Company contained in this
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Agreement are true and correct and (B) the Company complies with the terms of
this Agreement and meets all of its obligations hereunder.
(xx) Neither the Company, Thermedics nor Thermo Electron or any other
Subsidiary of Thermo Electron has taken and none of such companies will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, stabilization
or manipulation of the price of the Rights or the Common Stock.
(xxi) The Common Stock and the Rights have been approved for listing,
subject only to official notice of issuance, on the American Stock Exchange.
(xxii) The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus with respect to the Rights
Offering referred to in paragraph (i) above and any preliminary prospectus with
respect to the Rights Offering included in the Registration Statement at the
Effective Date that omits Rule 430A Information. "Registration Statement" shall
mean the registration statement referred to in paragraph (i) above, including
exhibits and financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto becomes effective prior
to a Closing Date, shall also mean such registration statement as so amended.
Such term shall include any Rule 430A Information deemed to be included therein
at the Effective Date as provided by Rule 430A together with any registration
statement filed by the Company pursuant to Rule 462(b). "Representatives" shall
mean the Underwriters to the extent that no more than two parties are listed on
Schedule I hereto as Underwriters. "Rule 424", "Rule 430A", "Rule 434" and
"Rule 462" refer to such rules under the Act. "Rule 430A Information" means
information with respect to the Securities and the offering thereof permitted to
be omitted from the Registration Statement when it becomes effective pursuant to
Rule 430A.
(b) Each of Thermedics and Thermo Electron represents and warrants
to, and agrees with, each Underwriter as set forth below in this Section 1(b).
(i) Each of Thermedics and Thermo Electron has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own or lease its properties and conduct its business, and is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary, except where the
failure to so qualify or be in good standing would not have a material adverse
effect on Thermedics and its Subsidiaries taken as a whole or on Thermo Electron
and its Subsidiaries taken as a whole, as the case may be.
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<PAGE>
(ii) There has not been any material adverse change in, or any adverse
development which materially affects, the condition (financial or other),
results of operations, business or prospects of Thermo Electron and its
Subsidiaries taken as a whole, or Thermedics and its Subsidiaries taken as a
whole, from the date as of which information is given in the most recent
quarterly or annual report filed by Thermo Electron or Thermedics, as the case
may be, pursuant to the Exchange Act, except any as may have been disclosed to
the public.
(iii) Except as described in their filings with the Commission under the
Exchange Act, neither Thermedics nor Thermo Electron is, nor with the giving of
notice or lapse of time or both would be, in violation of or in default under,
nor will the execution or delivery hereof or consummation of the transactions
contemplated hereby result in a violation of, or constitute a default under, the
corporate charter, by-laws or other governing documents of Thermedics or Thermo
Electron, or any material agreement, indenture or other instrument to which
Thermedics or Thermo Electron is a party or by which any of them is bound, or to
which any of their properties is subject, nor will the performance by Thermedics
or Thermo Electron of its obligations hereunder violate any existing law, rule,
administrative regulation or decree of any court or any governmental agency or
body having jurisdiction over Thermedics or Thermo Electron or any of their
respective properties, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of Thermedics or Thermo
Electron, which would be material to Thermedics and its Subsidiaries taken as a
whole or to Thermo Electron and its Subsidiaries taken as a whole, as the case
may be.
(iv) This Agreement has been duly authorized, executed and delivered by
Thermedics and Thermo Electron.
(v) Thermedics owns, and will own as of each Closing Date (as defined
below), of record and beneficially, the number of shares of Common Stock of the
Company set forth in the Prospectus, free and clear of any liens, encumbrances,
claims or restrictions, except that certain of such shares are reserved for
issuance pursuant to stock option and other benefit plans under which options to
purchase Common Stock of the Company owned by Thermedics are granted to certain
employees, directors or consultants of Thermo Electron and its Subsidiaries.
(vi) The most recent Annual Report on Form 10-K of Thermedics and of
Thermo Electron and any subsequent reports filed pursuant to the Exchange Act
complied as of the date thereof in all material respects with the Exchange Act
and the rules and regulations thereunder.
(vii) The transfer by Thermedics to the Company of certain stock and/or
assets, as described in the Prospectus and in the Organization Agreements, has
been completed by all required corporate and other action. Each of the Inter-
corporate Agreements to which Thermedics is a party has been duly and validly
authorized, executed and delivered by Thermedics and is the valid and binding
agreement of Thermedics enforceable in accordance with its terms, except as
provided by applicable bankruptcy laws. The execution, delivery and performance
of each of the Inter-corporate Agreements to which Thermedics is a party by
Thermedics, the consummation of the transactions therein contemplated and
compliance with the terms thereof do not and will not result in a violation of,
or constitute a default under, the
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<PAGE>
corporate charter, by-laws or other governing documents of Thermedics, or any
agreement, indenture or other instrument to which Thermedics is a party or by
which it is bound, or to which any of its properties is subject, and do not and
will not violate any existing law, rule, administrative regulation or decree of
any court or any governmental agency or body having jurisdiction over Thermedics
or any of its properties, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of Thermedics, which
would be material to Thermedics. No consent, approval, authorization or order of
any court, governmental agency or body or financial institution is required in
connection with the consummation by Thermedics of the transactions contemplated
by the Inter-corporate Agreements to which Thermedics is a party, except such as
have been obtained.
(viii) The Services Agreement has been duly and validly authorized,
executed and delivered by Thermo Electron and is the valid and binding agreement
of Thermo Electron, enforceable in accordance with its terms.
(ix) The distribution to its stockholders of the Rights to be received
by Thermedics from the Company, as described in the Prospectus, has been duly
authorized by Thermedics and all necessary corporate action has been taken by
Thermedics with respect thereto.
(x) Except for permits and similar authorizations required under the
Securities Act and the securities or "Blue Sky" laws of certain jurisdictions
and for such permits and authorizations as have been obtained, no consent,
approval, authorization or order of any court, governmental agency or body or
financial institution is required for the distribution by Thermedics to its
stockholders of the Rights to be received by it from the Company or the
consummation by Thermedics and Thermo Electron of the transactions contemplated
in this Agreement and in the Registration Statement and the Prospectus.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company at a purchase price per share equal to
$______, the percentage set forth opposite such Underwriter's name in Schedule I
hereto of the Standby Securities, if any, such percentages to be adjusted as
necessary by the Representatives so that no Underwriter shall be obligated to
purchase Standby Securities other than in 100-share quantities. Subject to the
terms and conditions and in reliance upon the representations and warranties
herein set forth, the Company agrees to issue and sell to the Underwriters the
Firm Shares, and each of the Underwriters agrees, severally and not jointly, to
purchase at a price of $____ per Firm Share, the number of Firm Shares set forth
opposite such Underwriters' name in Schedule I hereto. The Underwriters agree
to offer the Firm Shares to the public as set forth in the Prospectus. The
number of Standby Securities shall be reduced by such number of shares reserved
for late subscriptions as may be agreed upon between the Company and the
Representatives. Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company grants (i) an
option to the several Underwriters to purchase, severally and not jointly, up to
150,000 shares in the aggregate of the Standby Option Securities from the
Company at $_____ per share and (ii) an option to the several Underwriters to
purchase severally and not jointly, up to 45,000 shares in the aggregate of
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<PAGE>
the Firm Option Securities from the Company at a price of $____ per share. Said
option may be exercised only to cover over-allotments in the sale of the
Securities and Common Stock purchased by or for the accounts of the Underwriters
upon exercise of Rights. Said option may be exercised in whole or in part at any
time on or before the thirtieth day after the Expiration Date upon written or
telegraphic notice by you to the Company, setting forth the aggregate number of
shares of the Option Securities as to which the several Underwriters are
exercising the option and the time and date for the purchase and sale thereof.
Such time and date (which may not be earlier than two or later than three
business days after the date of such notice, and which may be the same as but
may not be earlier than the First Closing Date defined in Section 3), or such
other time and date as may be agreed upon in writing by the Company and you, are
herein called the "Option Securities Closing Date". Delivery of certificates for
the shares of Option Securities, and payment therefor, shall be made as provided
in Section 3 hereof on the Option Securities Closing Date, which may be
postponed as provided in Section 9 hereof. The number of shares of the Option
Securities to be purchased by each Underwriter on the Option Securities Closing
Date shall be the same percentage of the total number of shares of the Option
Securities to be purchased by the several Underwriters on the Option Securities
Closing date as such Underwriter is committed to purchase of the Standby
Securities, as adjusted by you in such manner so that no Underwriter shall be
obligated to purchase Option Securities other than in 100-share quantities. The
Representatives also agree to provide to the Company, Thermedics and Thermo
Electron such assistance as they may reasonably request in connection with the
Rights Offering.
As compensation to the Underwriters for their commitments in connection
with the Rights Offering, the Company agrees to pay, on the First Closing Date
to you, as Representatives for the accounts of the several Underwriters as they
may agree, a fee in the amount of $230,000 (the "Standby Fee"). The Company
also agrees to pay, on the First Closing Date to you, as Representatives for the
accounts of the several Underwriters as they may agree, a management fee in the
amount of $506,000 (the "Management Fee"). In addition, in respect of the
Underwriters' commission for the purchase and resale of the Common Stock, the
Company agrees to pay to you, as Representatives for the accounts of the several
Underwriters as they may agree, on the First Closing Date, and on the Option
Securities Closing Date (to the extent not previously paid), an amount equal to
five percent (5.0%) of the aggregate Subscription Price (the "Take-Up Fee") in
respect of (i) all Standby Securities and Standby Option Securities, if any,
purchased by the several Underwriters, and (ii) all Common Stock acquired by the
Representatives for the accounts of the several Underwriters through the
exercise of Rights. Notwithstanding the foregoing, the Company shall not be
obligated to pay to the Representatives or the Underwriters, at any time, fees
in respect of the Rights Offering which exceed in the aggregate 6% of the
Subscription Price (as defined in the Prospectus) for each share of Common Stock
purchased pursuant to the exercise of Rights (by the Underwriters or otherwise)
or pursuant to the terms hereof (other than the Firm Shares or the Firm Option
Securities) plus an amount equal to the aggregate purchase price of Rights
purchased by the Underwriters, up to $100,000.
The Company and Thermo Electron acknowledge that the several Underwriters
may offer to the public Common Stock acquired by the Representatives for their
respective accounts
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<PAGE>
through the purchase and exercise of Rights or pursuant to their commitments
hereunder to purchase the Securities, if any, at such price or prices which, and
at such time or times when, the Representatives in their discretion may
determine in accordance with applicable laws, rules and regulations of the
Commission, whether or not prior to the Expiration Date, and whether or not for
long or short account. Any profits or losses realized upon such sales shall be
for the accounts of the several Underwriters.
3. Delivery and Payment. Delivery of and payment for the Standby
--------------------
Securities shall be made at 10:00 A.M., Eastern time, on __________ __, 1997,
which date and time may be postponed by agreement between the Representatives
and the Company or as provided in Section 9 hereof (such date and time of
delivery and payment for the Standby Securities and the Firm Shares being herein
called the "First Closing Date"). To the extent that the options referred to in
Section 2 are exercised, delivery of and payment for the Option Securities shall
be made on the Option Securities Closing Date. The First Closing Date and the
Option Securities Closing Date are herein called, individually, a "Closing Date"
and, together, the "Closing Dates". Delivery of the Securities purchased from
the Company shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the respective aggregate purchase prices of such Securities
being sold by the Company to or upon the order of the Company, by certified or
official bank check payable in New York Clearing House funds. Delivery of such
Securities shall be made at such location as the Representatives shall
reasonably designate at least one full business day in advance of the applicable
Closing Date and payment for such Securities shall be made at the office of
Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110
(or at such other place as mutually may be agreed upon). Certificates for such
Securities shall be registered in such names in such denominations as you may
request not less than one full business day in advance of the applicable Closing
Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 P.M. on the business day prior to the applicable Closing Date.
4. Offering by Underwriters. NatWest Securities Limited represents
------------------------
and agrees that (i) it has not offered or sold and will not offer or sell any
Securities to persons in the United Kingdom prior to admission of the Securities
to listing in accordance with Part IV of the Financial Services Act 1986 (the
"Act") except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 or the
Act, (ii) it has complied and will comply with all applicable provisions of the
Act with respect to anything done by it in relation to the Securities in, from
or otherwise involving the United Kingdom and (iii) it has only issued or passed
on, and will only issue or pass on, in the United Kingdom any document received
by it in connection with the issue of the Securities, other than any document
which consists of or any part of listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing rules under Part IV of the Act, to a person who is of a kind described
in Article 11(3) of
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<PAGE>
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom the document may otherwise lawfully be issued or
passed on.
5. Agreements. The Company, Thermedics and Thermo Electron, jointly
----------
and severally, agree with each Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof,
including any post-effective amendment, to become effective as soon as
practicable. Prior to the termination of the offering of the Securities, the
Company will not file any amendment of the Registration Statement or supplement
to the Prospectus without your prior consent, which consent shall not be
unreasonably withheld or delayed. The Company shall prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Securities.
Subject to the foregoing sentence, if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the Prospectus,
properly completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Representatives of such
timely filing. The Company and, in the case of clause (G), Thermo Electron,
will promptly advise the Representatives (A) when the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, shall have
become effective, (B) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b), (C)
when, prior to termination of the offering of the Securities, any amendment to
the Registration Statement shall have been filed or become effective, (D) of any
request by the Commission for any amendment of the Registration Statement or
supplement to the Prospectus or for any additional information, (E) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding for
that purpose, (F) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
and (G) if any of the representations and warranties contained in Section 1
hereof becomes inaccurate in any material respect subsequent to the date hereof.
The Company will use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company shall comply
with all requirements imposed upon it by the Act, so far as is necessary to
permit the continuance of sales of or dealings in the Securities as contemplated
by the provisions hereof and by the Prospectus. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event occurs as a result of which the Prospectus as then supplemented would
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act or
the rules thereunder (including to comply with Item 512(c) of Regulation S-K
under the Act), the Company
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<PAGE>
promptly will prepare and file with the Commission, subject to the second
sentence of paragraph (a) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an earning
statement or statements of the Company and its subsidiaries which will satisfy
the provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or a dealer may be required by the Act, as many
copies of each Preliminary Prospectus and Prospectus and any supplement thereto
as the Representatives may reasonably request. To the extent applicable, the
copies of the Registration Statement, any Preliminary Prospectus or Prospectus
(in each case, as amended or supplemented) furnished to the Representative and
counsel to the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T. The Company will pay all expenses incident to the
Rights Offering and the performance of its obligations under this Agreement.
(e) The Company will arrange for the qualification of the Securities
for distribution, offering and sale under the laws of such jurisdictions as the
Representatives may designate, and will maintain such qualifications in effect
so long as required for the distribution of the Securities, except that in no
event shall the Company be obligated in connection therewith to qualify as a
foreign corporation or to execute a general consent to service of process.
(f) The Company and Thermedics will commence mailing the
Subscription Certificates to record holders of the Common Stock and the
Thermedics Common Stock not later than two business days following the Record
Date, which shall be not later than ________ __, 1997 and shall complete such
mailing expeditiously, and will offer the Common Stock for subscription in
accordance with the terms and under the conditions set forth in the Prospectus.
The Expiration Date shall be not later than 5:00 P.M., Eastern time, on
_________ __, 1997, (unless extended by the Company with the consent of the
Representatives). The Company will advise you daily during the period when the
Rights are exercisable of the number of shares of Common Stock subscribed for,
and prior to 12:00 Noon, Eastern time, on the business day following the
Expiration Date, will advise you of the number of shares of Common Stock
subscribed for and of the number of Securities. Without your prior written
consent, the Company will not change any of the terms or conditions of the
Rights or the offering of Common Stock pursuant thereto as described in the
Registration Statement except that the Company may waive irregularities in the
exercise of Rights or waive conditions relating to the method (but not the
timing, except with your prior written consent) of the exercise of Rights. The
Company will not fix any date prior to any Closing Date as a record date for the
determination of the holders of Common Stock entitled to receive any dividend
other than the Rights.
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<PAGE>
(g) Each of the Company, Thermedics and Thermo Electron shall not,
during the 180-day period following the date of this Agreement, except pursuant
to this Agreement or the Rights Offering (including sales of Rights by Thermo
Electron) or with your prior written consent, directly or indirectly, offer for
sale, sell or otherwise dispose of any shares of Common Stock (except for the
issuance of shares of Common Stock pursuant to existing stock option, purchase
and compensation plans, the sales of shares of Common Stock by the Company to
Thermedics or the issuance of shares of Common Stock as consideration for the
acquisition of one or more businesses provided that such Common Stock may not be
resold prior to the expiration of the 180-day period following the date of this
Agreement), or sell or grant options, rights or warrants with respect to any
shares of Common Stock (other than the grant of options pursuant to existing
stock option, purchase and compensation plans). The Company, Thermedics and
Thermo Electron will not permit any employee stock option, director stock option
or other stock option to purchase Common Stock of the Company granted by it to
be exercised, and the Common Stock issued upon exercise of the stock option to
be sold, prior to the expiration of the 180-day period following the date of
this Agreement, without your prior written consent. The Company will not file
the Resale Registration Statement (as defined in the Prospectus) with the
Commission until the last date it is permitted to do so under the terms of the
applicable stock purchase agreements.
(h) The Company shall at all times reserve and keep available for
issue upon the exercise of the Rights such number of authorized but unissued
shares of Common Stock deliverable upon the exercise of the Rights as will be
sufficient to permit the exercise in full of all Rights issued.
(i) The Company shall take such steps as shall be necessary to
ensure that neither the Company nor any Subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(j) Whether or not this Agreement is terminated or the sale of the
Securities to the Underwriters is consummated, the Company shall pay or cause to
be paid, in addition to the expenses referred to in Section 7, (A) all expenses
(including stock transfer taxes) incurred in connection with the delivery to the
several Underwriters of the Securities, (B) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Prospectus
and any amendments or supplements of the foregoing, the preparation, printing,
delivery and shipping of all documents relating to the Rights Offering and the
printing, delivery and shipping of this Agreement and other underwriting
documents, including, but not limited to, any Underwriters' Questionnaires,
Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements Among
Underwriters and Selected Dealer Agreements, (C) all filing fees incurred in
connection with qualification of the Securities under state securities laws as
provided in Section 5(e) hereof, (D) the filing fee of the National Association
of Securities Dealers, Inc., (E) any applicable listing or other fees, (F) the
cost of printing certificates representing the Securities, (G) the cost and
charges of any transfer
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<PAGE>
agent or registrar, and (H) all other costs and expenses incident to the
performance of its obligations hereunder for which provision is not otherwise
made in this Section.
(k) The Company shall on or prior to each Closing Date use its best
efforts to cause the Securities to be purchased on such date by the Underwriters
to be approved for listing on the American Stock Exchange, subject only to
official notice of issuance, and shall take such action as shall be necessary to
comply with the rules and regulations of the American Stock Exchange with
respect to such Securities.
(l) During a period of five years from the Effective Date, the
Company shall furnish to the Representatives copies of all reports or other
communications furnished to shareholders and copies of any reports or financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed. To the
extent applicable, such reports or documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
6. Conditions to the Obligations of the Underwriters. The obligations of
-------------------------------------------------
the several Underwriters to purchase the Securities shall be subject to the
accuracy of the representations and warranties on the part of the Company,
Thermedics and Thermo Electron contained herein as of the Execution Time and the
applicable Closing Date, to the accuracy of the statements of the Company,
Thermedics and Thermo Electron made in any certificates pursuant to the
provisions hereof, to the performance by the Company, Thermedics and Thermo
Electron of their obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later time,
the Registration Statement will become effective not later than 12:00 Noon,
Eastern time, on ______ __, 1997; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any such
supplement, will be filed in the manner and within the time period required by
Rule 424(b); and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened.
(b) No Underwriter shall have been advised by the Company,
Thermedics or Thermo Electron or shall have discovered and disclosed to the
Company that the Registration Statement, or the Prospectus or any amendment or
supplement thereto, contains an untrue statement of fact which in your
reasonable opinion, or in the reasonable opinion of counsel for the
Underwriters, is material, or omits to state a fact which, in your reasonable
opinion, or in the reasonable opinion of counsel to the Underwriters, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) At the Execution Time and at the applicable Closing Date, the
Company and Thermo Electron shall have furnished to you the opinions (addressed
to the Underwriters) of Seth H. Hoogasian, Esq., General Counsel to the Company,
Thermedics and Thermo Electron,
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<PAGE>
dated respectively as of the Execution Time and the applicable Closing Date, in
the form previously provided to you.
(d) At the Execution Time and at the applicable Closing Date, the
Representatives shall have received from Testa, Hurwitz & Thibeault, LLP,
counsel to the Underwriters, such opinion or opinions, dated as of the Execution
Time and the applicable Closing Date, with respect to the issuance and sale of
the Securities, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(e) At the applicable Closing Date, the Company shall have furnished
to the Representatives certificates of the Company, dated as of the applicable
Closing Date and signed by the President or a Vice President and by the
Treasurer or Secretary of the Company given in their capacities as such, to the
effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct at and as of the applicable Closing Date, with
the same effect as if made on the applicable Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the applicable Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to their knowledge, threatened;
(iii) all filings required by Rule 424 and Rule 430A have been made;
(iv) the signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments or supplements
thereto and such documents contain all statements and information required to be
included therein, and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and
(v) since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amendment or supplement to
the Registration Statement or the Prospectus which has not been so set forth.
(f) At the applicable Closing Date, each of Thermedics and Thermo
Electron shall have furnished to the Representatives certificates of Thermedics
and Thermo Electron, dated respectively as of the applicable Closing Date and
signed by the President or a Vice President and the Treasurer or Secretary
thereof given in their capacities as such, to the effect that:
(i) the representations and warranties of Thermedics or ThermoTrex
(as applicable) in this Agreement are true and correct at and as of the
applicable Closing Date
-17-
<PAGE>
with the same effect as if made on the applicable Closing Date, and each of
Thermo Electron or Thermedics (as applicable) has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the applicable Closing Date;
(ii) the signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, and such documents contain all statements and information required
to be included therein and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(iii) since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not been
so set forth.
(g) At the Execution Time and at the applicable Closing Date, each
accounting firm whose report appears in the Prospectus shall have furnished to
the Representatives letters, dated respectively as of the Execution Time and the
applicable Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within the
meaning of the Act and the applicable published rules and regulations thereunder
and stating, as of the date of such letter (or, with respect to matters
involving changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a date not
more than five days prior to the date of each such letter), the conclusions and
findings of each such firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and with respect to each letter delivered on a Closing Date
confirming the conclusions and findings set forth in such prior letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
neither the Company nor any of the Subsidiaries of the Company shall have
sustained loss by fire, flood, accident or other calamity, or shall have become
a party to or the subject of any litigation, which is material to the Company
and its Subsidiaries taken as a whole, nor shall there have been a material
adverse change in the general affairs, operations, business, prospects, key
personnel, capitalization, financial condition or net worth of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, which loss, litigation or change, in your judgment, shall render it
inadvisable to proceed with the payment for and delivery of the Securities.
(i) Prior to the applicable Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
-18-
<PAGE>
(j) The Securities to be purchased on such Closing Date by the
Underwriters shall be approved for listing on the American Stock Exchange,
subject only to official notice of issuance.
(k) At the Execution Time, the Company shall have furnished or
caused to be furnished to the Representatives such lock-up agreements as are
requested by the Representatives.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any time
prior to, the applicable Closing Date by the Representatives. Any such
cancellation shall be without liability of the Underwriters to the Company,
Thermedics or Thermo Electron. Notice of such cancellation shall be given to
the Company in writing or by telephone or telegraph confirmed in writing.
7. Reimbursement of Underwriters' Expenses. The Company will reimburse
---------------------------------------
the Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of Testa, Hurwitz & Thibeault, LLP ) that
shall have been incurred by them in connection with the proposed purchase of the
Securities, whether or not a Closing shall have taken place.
8. Indemnification and Contribution.
--------------------------------
(a) The Company, Thermedics and Thermo Electron, jointly and severally,
shall indemnify and hold harmless each Underwriter against any loss, claim,
damage or liability (or any action in respect thereof), joint or several, to
which such Underwriter may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement made by the Company, Thermedics or Thermo Electron in
Section 1(a) hereof or by Thermedics or Thermo Electron in Section 1(b) hereof,
or (ii) any untrue statement or alleged untrue statement of a material fact
contained (A) in the Registration Statement, any Preliminary Prospectus, or any
of the Offering Materials, the Prospectus, any of the Offering Material or any
amendment or supplement to any thereof, or (B) in any "Blue Sky" application or
other document executed by the Company specifically for that purpose or based
upon any written information furnished by the Company filed in any state or
other jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called "Blue Sky Information"), or (iii) the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement to any thereof, or in any Blue Sky
Information a material fact required to be stated therein or necessary to make
the statements therein not misleading or (iv) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Securities or the offering contemplated hereby, and which
is included as
-19-
<PAGE>
part of or referred to in any loss, claim, damage, liability or action arising
out of or based upon matters covered by clause (ii) or (iii) above (provided
that the Company, Thermedics and Thermo Electron shall not be liable under this
clause (iv) to the extent that it is determined in a final judgment by a court
of competent jurisdiction that such loss, claim, damage, liability or action
resulted directly or indirectly from any such acts or failures to act undertaken
or omitted to be taken by such Underwriter through its gross negligence, willful
misconduct or breach of this Agreement or to have resulted from a violation of
Rule 10b-6, 10b-7 or 10b-8 under the Exchange Act or this Agreement (other than
actions performed at the request or with the consent of the Company)); and shall
reimburse each Underwriter promptly after receipt of invoices from such
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action, notwithstanding the possibility that payments for such
expenses might later be held to be improper, in which case the person receiving
them shall promptly refund them; provided, however, that the Company, Thermedics
and Thermo Electron shall not be liable in any such case to the extent, but only
to the extent, that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in the preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, any of the Offering
Material or any amendment or supplement to any thereof, or any Blue Sky
Information; and provided, further, that as to any Preliminary Prospectus this
indemnity agreement shall not inure to the benefit of any Underwriter on account
of any loss, claim, damage, liability or action arising from the sale of
Securities to any person by that Underwriter if that Underwriter failed to send
or give a copy of the Prospectus, as the same may be amended or supplemented, to
that person within the time required by the Act, and the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact in such Preliminary Prospectus was corrected in the
Prospectus, unless such failure resulted from non-compliance by the Company with
Section 5(d)
(b) Each Underwriter severally, but not jointly, shall indemnify and
hold harmless the Company, Thermedics and Thermo Electron against any loss,
claim, damage or liability (or action in respect thereof) to which the Company,
Thermedics or Thermo Electron may become subject, under the Act or otherwise,
insofar as such loss, claim, damage or liability (or action in respect thereof)
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Preliminary Prospectus, the Prospectus, any of the Offering Material or any
amendment or supplement to any thereof, or (B) in any Blue Sky Information, (ii)
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Prospectus, any of the Offering Material or any
amendment or supplement to any thereof, or in any Blue Sky Information a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) actions or omissions of such Underwriter in
connection with the services performed by it with respect to the Rights Offering
that are found in a final judgment by a court of competent jurisdiction to have
resulted from the bad faith or gross negligence of such Underwriter or related
party or to constitute a violation of Rule 10b-6, 10b-7 or 10b-8 under the
Exchange Act or this Agreement (other than actions performed at the request or
with the consent of the Company); and
-20-
<PAGE>
shall reimburse any legal or other expenses reasonably incurred by the Company,
Thermedics or Thermo Electron promptly after receipt of invoices from the
Company, Thermedics or Thermo Electron in connection with investigating or
defending against any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the Company, Thermedics and Thermo Electron
shall promptly refund them; provided, however, that such indemnification
referred to in clauses (i) and (ii) above shall be available in each such case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through you by
or on behalf of such Underwriter specifically for use in the preparation
thereof. The Company, Thermedics and Thermo Electron acknowledge that the
statements set forth in the last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus and Prospectus constitute
the only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or Prospectus, and you,
as the Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been prejudiced in any material respect by such failure or from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it or they wish, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under such subsection for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation, except that the
Representatives shall have the right to employ counsel to represent you and
those other Underwriters who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters against
the Company, Thermedics or Thermo Electron under such subsection if, in your
reasonable judgment, it is advisable for you and those Underwriters to be
represented by separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the indemnifying party or parties; provided,
however, in no event, shall the indemnifying party or parties be responsible for
the expenses of more than one separate counsel for all such indemnified parties.
(d) If the indemnification provided for in this Section 8 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company,
Thermedics
- 21 -
<PAGE>
and Thermo Electron on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, Thermedics and Thermo Electron on the
one hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The benefits received by the
Company, Thermedics and Thermo Electron shall be deemed to be the total net
proceeds from the Rights Offering (before deducting expenses) and benefits
received by the Underwriters shall be deemed to be equal to the total
compensation paid to the Underwriters hereunder. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by one of the parties and such
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, Thermedics,
Thermo Electron and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of this
subsection (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
against any action or claim which is the subject of this subsection (d), subject
to the proviso in the last sentence of subsection (c). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the compensation paid hereunder to such
Underwriter in respect of the securities purchased by such Underwriter
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint. Each
party entitled to contribution agrees that upon the service of a summons or
other initial legal process upon it in any action instituted against it in
respect of which contribution may be sought, it shall promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in subsection (c) hereof).
(f) The obligations of the Company, Thermedics and Thermo Electron under
this Section 8 shall be in addition to any liability which the Company,
Thermedics and Thermo Electron may otherwise have, and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act or the Exchange Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability that the
respective Underwriters may otherwise have, and shall extend, upon the same
terms and conditions, to each director of the Company (including any person who,
with his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to Thermedics and
- 22 -
<PAGE>
Thermo Electron, and each other person, if any, who controls the Company within
the meaning of the Act or the Exchange Act.
9. Default by an Underwriter. If anyone or more Underwriters shall fail
-------------------------
to purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder, the non-defaulting Underwriters shall be
obligated severally to take up and pay for (in the respective proportions which
the commitment percentage of each remaining Underwriter set forth opposite its
name in Schedule I hereto bears to the aggregate of the commitment percentages
of all the non-defaulting Underwriters) the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase; except that the non-
defaulting Underwriters shall not be obligated to purchase any of the Securities
if the total number of Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase exceed 9.09% of the total number of
Securities, and any non-defaulting Underwriters shall not be obligated to
purchase more than 110% of the percentage of the Securities set forth opposite
its name in Schedule I hereto. If the foregoing maximums are exceeded, the non-
defaulting Underwriters, and any other underwriters satisfactory to you that so
agree, shall have the right, but shall not be obligated, to purchase (in such
proportions as may be agreed upon among them) all of the Securities. If the non-
defaulting Underwriters or the other underwriters satisfactory to you do not
elect to purchase the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase, the Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company,
Thermedics or Thermo Electron.
10. Termination. Until the Closing Date, this Agreement may be terminated
-----------
by you by giving notice as hereinafter provided to the Company, if (i) the
Company, Thermedics or Thermo Electron shall have failed, refused or been
unable, at or prior to the Closing Date, to perform any agreement on its part to
be performed hereunder, (ii) any other condition of the obligations of the
Underwriters hereunder is not fulfilled, (iii) trading in the Thermedics
Detection Common Stock shall have been suspended by the American Stock Exchange
or trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or the International Stock Exchange of the United
Kingdom or the over-the-counter market shall have been suspended, limited or
minimum prices shall have been established on any of such exchanges or such
market by the Commission or by such exchange or other regulatory body or
governmental authority having jurisdiction, (iv) a banking moratorium shall have
been declared by Federal, New York, United Kingdom or Massachusetts authorities,
(v) the United States or the United Kingdom is or becomes engaged in hostilities
which result in the declaration of a national emergency or war, or (vi) there
shall have been such a material adverse change in general economic, political or
financial conditions, or the effect of international conditions on the financial
markets in the United States or the United Kingdom shall be such, as to, in the
judgment of a majority in interest of the several Underwriters, make it
inadvisable or impracticable to proceed with the delivery of the Securities.
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company, of Thermedics, of Thermo Electron and of the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any
- 23 -
<PAGE>
Underwriter, the Company, Thermedics or Thermo Electron or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of the second
paragraph of Section 2 and Sections 7 and 8 hereof shall survive the termination
or cancellation of this Agreement; except that if this Agreement is terminated
as a result of the occurrence of the events described in Section 10 hereof or as
a result of a default of one or more Underwriters as set forth in Section 9
hereof, the Company shall not be liable to the Underwriters for the Management
Fee and Standby Fee specified in Section 2 hereof or expenses as provided in
Section 7 hereof.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Underwriters, will be mailed,
delivered or telecopied to them c/o Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department; or, if sent
to the Company, Thermedics or Thermo Electron, will be mailed, delivered or
telecopied to it at 81 Wyman Street, P.O. Box 9046, Waltham, MA 02254-9046.
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (a) the representations, warranties, indemnities and
agreements of the Company, Thermedics and Thermo Electron contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of the Act or the
Exchange Act and (b) the indemnity agreement of the Underwriters contained in
Section 8 hereof shall be deemed to be for the benefit of directors of the
Company, officers of the Company who signed the Registration Statement, and any
person controlling the Company, including Thermedics and Thermo Electron.
Nothing in this Agreement shall be construed to give any person, other than the
persons referred to in this paragraph, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
14. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York, without giving effect to the
choice of law or conflict of law principles thereof.
15. Definition of Business Day, Subsidiary and Significant Subsidiary.
-----------------------------------------------------------------
For purposes of this Agreement, (a) "business day" means any day on which the
American Stock Exchange is open for trading, (b) "Subsidiary" has the meaning
set forth in Rule 405 of the Rules and Regulations and (c) "Significant
Subsidiary" has the meaning set forth in Item 1-02(v) of the Regulation S-X of
the Rules and Regulations.
16. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
- 24 -
<PAGE>
17. Agreement Supersedes. This Agreement shall supersede all provisions
--------------------
of any other agreements, whether written or oral, of any of the parties to this
Agreement that relate to the transactions contemplated by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 25 -
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicates hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, Thermedics, Thermo Electron and you.
Very truly yours,
THERMEDICS DETECTION INC.
By:
-----------------------
Name:
Title:
THERMEDICS INC.
By:
-----------------------
Name:
Title:
THERMO ELECTRON CORPORATION
By:
-----------------------
Name:
Title:
Confirmed and accepted as of the date first above written.
LEHMAN BROTHERS INC.
NATWEST SECURITIES LIMITED
as Representatives of the
several Underwriters named
in Schedule I hereto
By: LEHMAN BROTHERS INC.
By:
----------------------
Authorized Signatory
- 26 -
<PAGE>
Schedule I
----------
Underwriter Percentage of Securities to be Purchased
- ----------- ----------------------------------------
Lehman Brothers Inc.
NatWest Securities Limited
Total............. 100%
- 27 -
<PAGE>
EXHIBIT 3.1
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF ORGANIZATION
(Under G.L Ch. 156B)
ARTICLE I
The name of the corporation is:
Thermedetec Inc.
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
(a) To manufacture and market explosive detection and drug detection
devices;
(b) To provide drug detection services; and
(c) To carry on any other business, operation or activity which may be
lawfully carried on by a corporation organized under the provisions of
the Business Law of the Commonwealth of Massachusetts.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more
than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
<PAGE>
ARTICLE III
The type and classes of stock and the total number of shares and par value,
if any, of each type and class of stock which the corporation is authorized to
issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
<S> <C> <C> <C>
Common: Common: 200,000 $.10
Preferred: Preferred:
</TABLE>
ARTICLE IV
If more than one type, class or series of stock is authorized, a description
of each with, if any, the preferences, voting powers, qualifications, special
or relative rights or privileges as to each type and class thereof and any
series now established.
None
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are as follows:
None
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders: (If there are no
provisions, state "None".)
See Continuation Sheets 6A and 6B
Note: The preceding six (6) articles are considered to be permanent and may
only be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of organization of the corporation shall be the date
approved and filed by the Secretary of the Commonwealth. If a later effective
date is desired, specify such date which shall not be more than thirty days
after the date of filing.
The information contained in ARTICLE VIII is NOT a PERMANENT part of the
Articles of Organization and may be changed ONLY by filing the appropriate form
provided therefor.
ARTICLE VIII
a. The post office address of the corporation IN MASSACHUSETTS is:
470 Wildwood Street
P.O. Box 2999
Woburn, MA 01888
b. The name, residential address and post office address (if different) of
the directors and officer of the corporation are as follows:
<TABLE>
<CAPTION> RESIDENTIAL POST OFFICE
NAME ADDRESS ADDRESS
<S> <C> <C> <C>
President: Louis S. Slaughter 26 Bittersweet Lane P.O. Box 9046
Weston, MA 02193 Waltham, MA 02254
Treasurer: Theo Melas-Kyriazi 15 Norfolk Road P.O. Box 9046
Chestnut Hill, MA Waltham, MA 02254
02167
Clerk: Sandra L. Lambert 149 College Road P.O. Box 9046
Concord, MA 01742 Waltham, MA 02254
Directors: George N. Hatsopoulos 233 Tower Road P.O. Box 9046
Lincoln, MA 01773 Waltham, MA 02254
Robert C. Howard 230 Windsor Road P.O. Box 9046
Waban, MA 02168 Waltham, MA 02254
Firooz Rufeh 185 Hunters Ridge P.O. Box 9046
Road Waltham, MA 02254
Concord, MA 01742
John W. Wood Jr. 132 Williams Road P.O. Box 2999
Concord, MA 01742 Woburn, MA 01888
</TABLE>
<PAGE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the
last day of the month of:
The Saturday nearest December 31 each year
d. The name and BUSINESS address of the RESIDENT AGENT of the corporation,
if any, is:
None
ARTICLE IX
By-laws of the corporation have been duly adopted and the president,
treasurer, clerk and directors whose names are set forth above, have been duly
elected.
IN WITNESS WHEREOF and under the pains and penalties of perjury, I/WE, whose
signature(s) appear below as incorporator(s) and whose names and business or
residential address(es) ARE CLEARLY TYPED OR PRINTED beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 6th day of December, 1990.
/s/ Shella Lieberman
Shella Lieberman, Incorporator
Note: If an already-existing corporation is acting as incorporator, type in
the exact name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 12)
=========================================
I hereby certify that, upon an examination of these articles of
organization, duly submitted to me, it appears that the provisions of the
General Laws relative to the organization of corporations have been complied
with, and I hereby approve said articles; and the filing fee in the amount of
$200.00 having been paid, said articles are deemed to have been filed with me
this 7th day of December, 1990.
Effective date: /s/ Michael J. Connolly
MICHAEL J. CONNOLLY
Secretary of the Commonwealth
FILING FEE: 1/20 of 1% of the total amount of the authorized capital
stock with par value, and one cent a share for all authorized shares
without par value, but not less than $150 General Laws, Chapter 156B.
Shares of stock with a par value of less than one dollar shall be deemed
to have par value of one dollar per share.
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
Telephone: (617) 482-4420
<PAGE>
CONTINUATION SHEET 6A
(a) The corporation may be a partner in any business enterprise
which the corporation has power to conduct itself.
(b) Meetings of stockholders may be held anywhere in the United
States as shall be determined from time to time by the directors or as shall be
stated in the call of the meeting.
(c) The By-laws may provide that the directors may make, amend or
repeal the By-Laws, in whole or in part, except with respect to any provision
thereof which by law, by the Articles of Organization or by the By-laws requires
action by the stockholders.
(d) The By-laws may provide for the indemnification, to the extent
legally permissible, of directors, officers, employees or other agents of the
corporation, and persons who serve at the corporation's request as directors,
officers, employees or other agents of another organization of which the
corporation is a stockholder, in which the corporation otherwise holds an
ownership interest or of which the corporation is a creditor.
(e) The requisite vote to effect an amendment of the Articles of
Organization shall be a majority of each class of stock outstanding and entitled
to vote thereon, at a meeting duly called for the purpose; provided, only, that
any provision added to or changes made in the Articles of Organization by such
amendment could have been included in, and any provision deleted thereby could
have been omitted from, original Articles of Organization filed at the time of
such meeting.
(f) The requisite vote for the approval by the corporation of any
agreement of consolidation or merger with any other corporation or corporations
shall be a majority of each class of stock of the corporation outstanding and
entitled to vote thereon.
(g) The By-laws may provide that the corporation may enter into
contracts and otherwise transact business as a vendor, purchaser, partner, joint
venturer or otherwise with any director, officer, or stockholder of the
corporation, and with any corporation, joint stock company, business trust,
partnership or other entity in which any director, officer or stockholder of
this corporation is or may become a director, officer, stockholder, joint
venturer, partner, trustee or beneficiary, or in which he may otherwise be or
become a party or may have an interest, pecuniary or otherwise; and that no such
contract or transaction shall, in the absence of fraud, be affected, invalidated
or avoided, and no such director, officer or stockholder shall be held liable to
account to the corporation or to any creditor or stockholder of the corporation
for any profit or benefit realized by such person through any such contract or
transaction, by reason of such adverse interest or by reason of any fiduciary
relationship of such director, officer or stockholder to the corporation arising
out of such office or stock ownership.
<PAGE>
CONTINUATION SHEET 6B
(h) No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director notwithstanding any statutory provision or other law imposing
such liability, provided, however, that nothing in this clause (h) shall
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 or 62 or successor provisions of Chapter 156B of the Massachusetts
General Laws or (iv) for any transaction from which the director derived an
improper personal benefit. The foregoing provisions of this clause (h) shall not
eliminate the liability of a director for any act or omission occurring prior to
the date this clause (h) becomes effective. No amendment to or repeal of this
clause (h) shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
CERTIFICATE OF CORRECTION
(GENERAL LAWS, CHAPTER 156B, SECTION 6A)
FEDERAL IDENTIFICATION NUMBER: Applied for.
CORPORATE NAME: Thermedetec Inc.
DOCUMENT TO BE CORRECTED: Articles of Organization
IT IS HEREBY CERTIFIED THAT THE ABOVE MENTIONED DOCUMENT WAS FILED WITH THE
OFFICE OF THE SECRETARY OF STATE ON 12/7/90.
PLEASE STATE THE INACCURACY OR DEFECT TO BE CORRECTED IN SAID DOCUMENT:
In Article I, the name of the corporation was typed incorrectly. The second
"t" of the name should have been capitalized.
PLEASE STATE CORRECTED VERSION OF THE DOCUMENT:
The name of the corporation is: ThermedeTec Inc.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE SIGN OUR NAMES
THIS 3rd DAY OF January IN THE YEAR 1991.
/s/ Louis S. Slaughter, PRESIDENT
Louis S. Slaughter
/s/ Sandra L. Lambert, CLERK
Sandra L. Lambert
NOTE: IF THE INACCURACY OR DEFECT TO BE CORRECTED IS NOT APPARENT ON THE
FACE OF THE DOCUMENTS, MINUTES OF THE MEETING SUBSTANTIATING THE ERROR MUST BE
FILED WITH THE CERTIFICATE. IF REQUIRED, ADDITIONAL INFORMATION MAY BE STATED
ON A SEPARATE 8 1/2 X 11 INCH WHITE PAPER.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
FEDERAL
IDENTIFICATION
NO. 04-3106698
We, Louis S. Slaughter, President, and
Sandra L. Lambert, Clerk of
ThermedeTec Inc.
(EXACT name of corporation)
located at: 470 Wildwood Street, Woburn, MA 01888
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles
NUMBERED: 1
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on June
1, 1992, by vote of:
100 shares of Common of 100 shares outstanding,
type class & series, (if any)
_____shares of______of______shares outstanding, and
type class & series, (if any)
_____shares of______of______shares outstanding,
type class & series, (if any)
being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class
or series of stock which the corporation is authorized to issue fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKs WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
Common: Common:
Preferred: Preferred:
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCK WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
Common: Common:
Preferred: Preferred:
<PAGE>
That Article I of the Corporation's Articles of Organization is hereby
amended to read as follows:
ARTICLE I
The name of the Corporation is:
Thermedics Detection Inc.
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
EFFECTIVE DATE:______________________________
IN WITNESS WHEREOF, AND UNDER THE PENALTIES OF PERJURY, we have hereunto
signed our names this 2nd day of July, in the year 1992.
/s/ Louis S. Slaughter Louis S. Slaughter, President
/s/ Sandra L. Lambert Sandra L. Lambert, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
======================================
I hereby approve the within articles of amendment and, the filing fee in the
amount of $100 having been paid, said articles are deemed to have been filed
with me this 6th day of July, 1992.
/s/ Michael J. Connolly
MICHAEL J. CONNOLLY
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
Telephone: (617) 482-4420
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3106698
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, John W. Wood, Jr., President, and
Sandra L. Lambert, Clerk of
Thermedics Detection Inc.
(Exact name of corporation)
located at 220 Mill Road, Chelmsford, MA
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered: III
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on 20th,
1996, by vote of:
100 shares of Common of 100 shares outstanding,
(type class & series, if any)
_____shares of______of______shares outstanding, and
(type class & series, if any)
_____shares of______of______shares outstanding,
(type class & series, if any)
being at least a majority of each type, class or series outstanding and
entitled to vote thereon
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more
than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
<S> <C> <C> <C>
Common: Common: 200,000 $.10
Preferred: Preferred:
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
<S> <C> <C> <C>
Common: Common: 15,000,000 $.10
Preferred: Preferred:
</TABLE>
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter, 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:______________________________
SIGNED UNDER THE PENALTIES OF PERJURY this 21st day of March, 1996.
/s/ John W. Wood, Jr. John W. Wood, Jr., President
/s/ Seth H. Hoogasian Seth H. Hoogasian, Assistant Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
========================================
I hereby approve the within Articles of Amendment and, the filing fee in the
amount of $______ having been paid, said articles are deemed to have been filed
with me this 22nd day of March, 1996.
Effective date:_____________________________
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-3106698
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Jeffrey J. Langan, President, and
Sandra L. Lambert, Clerk of
Thermedics Detection Inc.
(Exact name of corporation)
located at 220 Mill Road, Chelmsford, Massachusetts
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered: III
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
January 31, 1997, by vote of:
10,301,000 shares of Common of 10,683,500 shares outstanding,
(type class & series, if any)
_____shares of______of______shares outstanding, and
(type class & series, if any)
_____shares of______of______shares outstanding,
(type class & series, if any)
being at least a majority of each type, class or series outstanding and
entitled to vote thereon
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more
than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
<S> <C> <C> <C>
Common: Common: 15,000,000 $.10
Preferred: Preferred:
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF TYPE NUMBER OF PAR
SHARES SHARES VALUE
<S> <C> <C> <C>
Common: Common: 50,000,000 $.10
Preferred: Preferred:
</TABLE>
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter, 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:______________________________
SIGNED UNDER THE PENALTIES OF PERJURY this 31st day of January, 1997.
/s/ Jeffrey J. Langan Jeffrey J. Langan, President
/s/ Sandra L. Lambert Sandra L. Lambert, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
========================================
I hereby approve the within Articles of Amendment and, the filing fee in the
amount of $______ having been paid, said articles are deemed to have been filed
with me this 31st day of January, 1997.
Effective date:_____________________________
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
<PAGE>
EX 4.2
------
[FRONT OF RIGHTS CERTIFICATE]
THERMEDICS DETECTION INC.
CONTROL NUMBER SUBSCRIPTION CERTIFICATE SUBSCRIPTION
REPRESENTING RIGHTS TO CERTIFICATE FOR
PURCHASE SHARES OF COMMON
STOCK, $.10 PAR VALUE, OF
THERMEDICS DETECTION INC.
("COMMON STOCK"). VOID IF NOT
EXERCISED BEFORE 5:00 P.M.
EASTERN TIME ON MARCH __, 1997.
THIS SUBSCRIPTION CERTIFICATE SHARES
IS TRANSFERABLE AND MAY BE
COMBINED OR DIVIDED (BUT ONLY SUBSCRIPTION PRICE:
INTO CERTIFICATES EVIDENCING A U.S.$_____ PER SHARE
WHOLE NUMBER OF RIGHTS) AT
THE OFFICE OF THE SUBSCRIPTION
AGENT.
THE TERMS AND CONDITIONS CUSIP ___________
OF THE RIGHTS OFFERING ARE
SET FORTH IN THE
COMPANY'S PROSPECTUS
DATED FEBRUARY __, 1997
(THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE
UPON REQUEST FROM
AMERICAN STOCK TRANSFER
& TRUST COMPANY, THE
SUBSCRIPTION AGENT.
REGISTERED OWNER:
The registered owner whose name is inscribed hereon, or assigns, is entitled to
subscribe for shares of Common Stock upon the terms and subject to the
conditions set forth in the Prospectus and instructions relating thereto. The
Rights represented by this Subscription Certificate may be exercised by duly
completing Form 1; may be transferred, assigned, exercised or sold through a
bank or broker by completing Form 2; and may be sold through the Subscription
Agent by duly completing Form 3. Special delivery instructions may be specified
by completing Form 4. THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY
NOT BE EXERCISED, TRANSFERRED, ASSIGNED OR SOLD UNLESS THE REVERSE SIDE HEREOF
IS SIGNED, WITH A SIGNATURE GUARANTEED IN ACCORDANCE WITH THE MEDALLION
SIGNATURE GUARANTEE PROGRAM, IF APPLICABLE, AND THE APPROPRIATE FORM IS
COMPLETED.
Dated:
[ THERMEDICS DETECTION INC. ]
[ Corporate Seal ]
Secretary President and Chief Executive Officer
<PAGE>
[BACK OF RIGHTS CERTIFICATE]
THERMEDICS DETECTION INC.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS
THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION
CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCE
THEREBY.
FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably
------
exercises one or more Rights to subscribe for shares of Common Stock as
indicated below, on the terms and subject to the conditions specified in the
Prospectus, receipt of which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Basic
Subscription Privilege (one Right needed to subscribe for each
full share): _______________
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege: _______________
(c) Total Subscription Price (total number of shares subscribed for
pursuant to both the Basic Subscription Privilege and the
Oversubscription Privilege -- times the Subscription Price of
$_____): _______________ (1)
METHOD OF PAYMENT (CHECK ONE)
[_] CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK
TRANSFER & TRUST COMPANY.
[_] WIRE TRANSFER DIRECTED TO AMERICAN STOCK TRANSFER & TRUST
COMPANY AT ITS ACCOUNT MAINTAINED AT CHEMICAL BANK, 55 WATER
STREET, NEW YORK, NEW YORK 10041, ACCOUNT NO. ____________, ABA
NO. 021 000 128.
(1) If the amount enclosed or transmitted is not sufficient to pay the
Subscription Price for all shares that are stated to be subscribed for,
or if the number of shares being subscribed for is not specified, the
number of shares subscribed for will be assumed to be the maximum number
that could be subscribed for upon payment of such amount. If the number
of shares to be subscribed for pursuant to the Oversubscription
Privilege is not specified and the amount enclosed or transmitted
exceeds the Subscription Price for all shares that the undersigned has
the right to purchase pursuant to the Basic Subscription Privilege (the
"Subscription Excess"), the person subscribing pursuant hereto shall be
deemed to have exercised the Oversubscription Privilege to purchase, to
the extent available, that number of whole shares of Thermedics
Detection Common Stock equal to the quotient obtained by dividing the
Subscription Excess by $_____. The amount remaining after such division
shall be returned to the subscriber without interest or deduction.
(d) If the number of Rights being exercised pursuant to the Basic
Subscription Privilege is less than all of the Rights
represented by this Subscription Certificate (check only one):
[_] DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING
THE REMAINING RIGHTS TO WHICH I AM ENTITLED.
[_] DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE
REMAINING RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS
(which include any required signature guarantees).
[_] SELL THE REMAINING UNEXERCISED RIGHTS IN ACCORDANCE WITH
MY FORM 3 INSTRUCTIONS.
<PAGE>
[_] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE
DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)..........................................
Window Ticket Number (if any)...........................................
Date of Execution of Notice of Guaranteed Delivery......................
Name of Institution which Guaranteed Delivery...........................
FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OR
------
YOUR RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value
received, _____ Rights represented by this Subscription Certificate are hereby
assigned to (please print name and address and Social Security No. or Taxpayer
ID No. of transferee in full):
------------------------------------
Name:....................................... PROVIDE GUARANTEE
Address:.................................... OF SIGNATURE(S)
............................................ BELOW IF TRANSFEREE IS
............................................ NOT A BANK OR BROKER
............................................
------------------------------------
Social Security No. or Taxpayer ID No.
[_] FORM 3 - CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH THE
------
SUBSCRIPTION AGENT: Check box if the undersigned hereby authorizes the
Subscription Agent to sell any Rights represented by this Subscription
Certificate but not exercised hereby and to deliver to the undersigned a check
for the net proceeds.
[_] FORM 4 - DELIVERY INSTRUCTIONS: Name and/or address for mailing any
------
stock, new Subscription Certificate or cash payment if other than shown on the
reverse hereof:
------------------------------------
Name:....................................... PROVIDE GUARANTEE OF
Address:.................................... SIGNATURE(S) BELOW
............................................
------------------------------------
(Including Zip Code)
- --------------------------------------------------------------------------------
<PAGE>
IMPORTANT Area Code and
RIGHTS HOLDERS SIGN HERE Telephone Number.......................
AND, IF RIGHTS ARE BEING SOLD OR (Home)
EXERCISED, COMPLETE SUBSTITUTE
FORM W-9 .......................................
.................................. (Business)
..................................
(Signature(s) of Holder(s) Tax Identification or
Social Security No....................
Dated:......................, 1997 (Complete Substitute Form W-9)
(Must be signed by the registered
holder(s) exactly as name(s) GUARANTEE OF SIGNATURE(S)
appear(s) on this Subscription Note: See paragraph 5(c) of
Certificate. If signature is by Instructions
trustee(s), executor(s),
administrator(s), guardian(s), Authorized Signature ..................
attorney(s)-in-fact, agent(s),
officer(s) of a corporation or Name...................................
another acting in a fiduciary
capacity, please provide the Title..................................
following information. See
Instructions.) Name of Firm ..........................
Name(s)........................... Address................................
..................................
(Please Print) Area Code and Telephone Number ........
Capacity.......................... Dated............................, 1997
Address...........................
..................................
(Including Zip Code)
<PAGE>
EXHIBIT 5
Thermedics Detection Inc.
220 Mill Road
Chelmsford, Massachusetts 01824-4178
February 5, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: Registration Statement on Form S-1 (Registration No. 333-19199)
Relating to Shares of Common Stock, Par Value $.10 Per Share, of
Thermedics Detection Inc. and Subscription Rights to Purchase Such
------------------------------------------------------------------
Shares
------
Ladies and Gentlemen:
I am General Counsel to Thermedics Detection Inc. (the "Company") and
have acted as counsel in connection with the registration under the Securities
Act of 1933, as amended (the "Act"), on Form S-1 (Registration No. 333-19199)
(the "Registration Statement") of (i) shares of the Company's Common Stock, par
value $.10 per share (the "Common Stock"), with a proposed maximum aggregate
offering price of $34,488,000 (such shares, together with any shares of Common
Stock registered under a registration statement related to the offering
contemplated by the Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Act (a "462(b) Registration Statement"), are
collectively referred to herein as the "Shares") and (ii) transferable
subscription rights (the "Rights") to purchase 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 and the Rights. 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 opinion that the Shares
and the Rights have been duly authorized by the Company, and, when issued as
contemplated by the Registration Statement, or by a 462(b) Registration
Statement, will be validly issued, fully paid and non-assessable.
<PAGE>
Pursuant to the requirements of the Act, I hereby consent to the filing
of this opinion as Exhibit 5 to the Registration Statement and to any 462(b)
Registration Statement, including any amendments thereto, and to the use of my
name under the caption "Legal Opinions" in any prospectus constituting a part
thereof.
Very truly yours,
Seth H. Hoogasian
General Counsel
SHH/pll
<PAGE>
EXHIBIT 10.9
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1)
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE
SECURITIES OR (2) UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Thermedics Detection Inc.
Promissory Note Due March 31, 1998
Woburn, Massachusetts
December 15, 1996
For value received, Thermedics Detection Inc., a Massachusetts corporation
(the "Company"), hereby promises to pay to Thermedics Inc. (hereinafter
referred to as the "Payee"), or registered assigns, on March 31, 1998, as
described below, the principal sum of twenty-one million two hundred thousand
dollars ($21,200,000) or such part thereof as then remains unpaid, to pay
interest from the date hereof on the whole amount of said principal sum
remaining from time to time unpaid at a rate per annum equal to the rate of the
Commercial Paper Composite Rate as reported by Merrill Lynch Capital Markets,
as an average of the last five business days of the fiscal quarter, plus
twenty-five (25) basis points, such interest to be payable in arrears on the
first day of each fiscal quarter of the Company during the term set forth
herein, until the whole amount of the principal hereof remaining unpaid shall
become due and payable, and to pay interest on all overdue principal and
interest at a rate per annum equal to the rate of interest announced from time
to time by The First National Bank of Boston at its head office in Boston,
Massachusetts as its "base rate" plus one percent (1%). Principal and all
accrued but unpaid interest shall be repaid on March 31, 1998. Principal and
interest shall be payable in lawful money of the United States of America, in
immediately available funds, at the principal office of the Payee or at such
other place as the legal holder may designate from time to time in writing to
the Company. Interest shall be computed on an actual 360-day basis.
This Note may be prepaid at any time or from time to time, in whole or in
part, without any premium or penalty. All prepayments shall be applied first
to accrued interest and then to principal.
1
<PAGE>
The then unpaid principal amount of, and interest outstanding on, this Note
shall be and become immediately due and payable without notice or demand, at
the option of the holder hereof, upon the occurrence of any of the following
events:
(a) the failure of the Company to pay any amount due hereunder
within ten (10) days of the date when due;
(b) any representation, warranty or statement made or furnished to
the Payee by the Company in connection with this Note or the transaction from
which it arises shall prove to have been false or misleading in any material
respect as of the date when made or furnished;
(c) the failure of the Company to pay its debts as they become due,
the insolvency of the Company, the filing by or against the Company of any
petition under the U.S. Bankruptcy Code (or the filing of any similar petition
under the insolvency law of any jurisdiction), or the making by the Company of
an assignment or trust mortgage for the benefit of creditors or the appointment
of a receiver, custodian or similar agent with respect to, or the taking by any
such person of possession of, any property of the Company;
(d) the sale by the Company of all or substantially all of its
assets;
(e) the merger or consolidation of the Company with or into any
other corporation in a transaction in which the Company is not the surviving
entity;
(f) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction not removed, repealed or
dismissed within thirty (30) days of issuance, against or affecting the person
or property of the Company or any liability or obligation of the Company to the
holder hereof; and
(g) the suspension of the transaction of the usual business of the
Company.
Upon surrender of this Note for transfer or exchange, a new Note or new
Notes of the same tenor dated the date to which interest has been paid on the
surrendered Note and in an aggregate principal amount equal to the unpaid
principal amount of the Note so surrendered will be issued to, and registered
in the name of, the transferee or transferees. The Company may treat the
person in whose name this Note is registered as the owner hereof for the
purpose of receiving payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all
reasonable attorneys' fees.
2
<PAGE>
No delay or omission on the part of the Payee in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Payee, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Company hereby waives presentment, demand, notice of prepayment, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note. The undersigned hereby
assents to any indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the Payee.
This Note shall be governed by and construed in accordance with, the laws
of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
This note replaces the previous Thermedics Detection Note of $21,200,000 to
Thermedics with a maturity of March 31, 1997.
THERMEDICS DETECTION INC.
By: /s/ Jeffrey J. Langan
---------------------
Jeffrey J. Langan
President
[Corporate Seal]
Attest:
/s/ Sandra L. Lambert
- ---------------------
Sandra L. Lambert
Clerk
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated February 3, 1997 (and to all references to our Firm) included in
or made a part of this Registration Statement and related Prospectus of
Thermedics Detection Inc.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moisture Systems Corporation and Moisture Systems Limited:
As independent public accountants, we hereby consent to the use of our
report dated February 3, 1997 (and to all references to our Firm) included in
or made a part of this Registration Statement and related Prospectus of
Thermedics Detection Inc.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Thermedics Detection
Inc. on Form S-1 of our report dated January 29, 1997 (relating to the
consolidated financial statements of Rutter & Co. B.V. for the period from
January 25, 1996 to December 28, 1996, not presented separately herein)
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the use in this Registration Statement of Thermedics
Detection Inc. on Form S-1 of our report dated March 13, 1996 (except for the
disclosures included in the supplementary information under the caption
"United States Generally Accepted Accounting Principles (U.S. GAAP)" which is
as of December 20, 1996) relating to the consolidated financial statements of
Rutter & Co. B.V. for the two years ended December 31, 1995 appearing in this
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
February 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
DETECTION ANNUAL REPORT FOR THE FISCAL YEAR ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 13,484
<SECURITIES> 0
<RECEIVABLES> 10,602
<ALLOWANCES> 1,215
<INVENTORY> 8,793
<CURRENT-ASSETS> 34,691
<PP&E> 5,683
<DEPRECIATION> 3,899
<TOTAL-ASSETS> 53,483
<CURRENT-LIABILITIES> 11,333
<BONDS> 0
0
0
<COMMON> 1,068
<OTHER-SE> 19,842
<TOTAL-LIABILITY-AND-EQUITY> 53,483
<SALES> 31,255
<TOTAL-REVENUES> 43,750
<CGS> 15,417
<TOTAL-COSTS> 22,150
<OTHER-EXPENSES> 4,608
<LOSS-PROVISION> 582
<INTEREST-EXPENSE> 1,119
<INCOME-PRETAX> 589
<INCOME-TAX> 227
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
Draft 2/5/97
------------
THERMEDICS DETECTION INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
----------------------
SUBSCRIPTION AGENCY AGREEMENT
DATED AS OF FEBRUARY __, 1997
<PAGE>
SUBSCRIPTION AGENCY AGREEMENT dated as of February __, 1997 by and between
Thermedics Detection Inc., a Massachusetts corporation (the "Company"), and
American Stock Transfer & Trust Company as Subscription Agent (the "Subscription
Agent").
WHEREAS, the Company has caused a Registration Statement on Form S-1
(Registration No. 333-19199) under the Securities Act of 1933, as amended (the
"Act"), to be filed with the Securities and Exchange Commission (the
"Commission") relating to the distribution by the Company of transferable
subscription rights (the "Rights") and sale of newly issued shares of the
Company's common stock, par value $.10 per share (the "Common Stock"), upon the
exercise of such Rights (such Registration Statement, in the form in which it
first becomes effective under the Act, and as it may thereafter be amended from
time to time, is referred to herein as the "Registration Statement"; the
distribution of the Rights and the sale of shares of Common Stock upon the
exercise thereof as contemplated by the Registration Statement is referred to
herein as the "Rights Offering");
WHEREAS, the Rights will be distributed to holders of record of shares of
Common Stock as of the close of business on February 6, 1997 (the "Record
Date") at a rate of approximately .366 Rights for each share of Common Stock
held on the Record Date (except as provided for in the following paragraph);
WHEREAS, a portion of the Rights will be distributed to Thermedics Inc., a
Massachusetts corporation ("Thermedics"), as a holder of record of Common Stock
and redistributed by Thermedics to holders of record of shares of its Common
Stock, par value $.05 per share ("Thermedics Common Stock"), including Thermo
Electron Corporation, a Delaware corporation ("Thermo Electron"), on
_______________ __, 1997 (the "Thermedics Record Date") at a rate of .10 Rights
for each share of Thermedics Common Stock held on the Thermedics Record Date;
WHEREAS, Thermo Electron will not distribute the Rights it receives to the
holders of record of its shares, but may, at its discretion, exercise its Rights
or sell its Rights;
WHEREAS, the Company has reserved for issuance, and has authorized the
issuance of, an aggregate number of authorized and unissued or treasury shares
of Common Stock (the "Underlying Shares") equal to the aggregate number of
Rights to be distributed pursuant to the Rights Offering;
WHEREAS, Rights holders will be entitled to subscribe to purchase, at a per
share price of $______ (the "Subscription Price"), one Underlying Share for each
Right held (the "Basic Subscription Privilege") and may also subscribe to
purchase additional Underlying Shares, to the extent that any such shares are
not purchased due to the non-exercise of Rights (the "Oversubscription
Privilege"); and
<PAGE>
-2-
WHEREAS, the Company desires the Subscription Agent to act on its behalf in
connection with the Rights Offering as set forth herein, and the Subscription
Agent is willing so to act.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
SECTION 1. Appointment of Subscription Agent. The Company hereby appoints
---------------------------------
the Subscription Agent to act as agent for the Company in accordance with the
instructions set forth in this Agreement, and the Subscription Agent hereby
accepts such appointment. The Company may from time to time appoint such co-
subscription agents as it may deem necessary or desirable.
SECTION 2. Issue of Securities.
-------------------
(a) The Company has distributed or will distribute the Rights to holders of
record of shares of Common Stock as of the close of business on the Record Date
(certain of which Rights are to be distributed by Thermedics as a holder of
Common Stock to holders of record shares of Thermedics Common Stock as of the
close of business on the Thermedics Record Date). The Company will promptly
notify the Subscription Agent upon the effectiveness of the Registration
Statement. As transfer agent and registrar for the shares of Common Stock, the
Subscription Agent shall provide such assistance as the Company may require in
order to effect the distribution of the Rights to holders of record of shares of
Common Stock as of the close of business on the Record Date (or to holders of
record of shares of Thermedics Common Stock on the Thermedics Record Date, as
the case may be) (it being understood that Subscription Certificates (as defined
in Section 3(b) hereof) or International Holder Subscription Forms (as defined
in Section 3(c) hereof), as the case may be, shall be mailed to record holders
(except those located in the United Kingdom, which holders must contact Lehman
Brothers International (Europe)) of (i) the Common Stock together with a copy of
the Prospectus no later than two business days following the [Thermedics] Record
Date and (ii) Thermedics Common Stock together with a copy of the Prospectus no
later than two business days following the date upon which the Subscription
Agent receives a final list of record holders of Thermedics Common Stock as of
the Thermedics Record Date), including assistance in determining the number of
Rights to be distributed to each such record holder and assistance in
distributing the Subscription Certificates evidencing the Rights or
International Holder Subscription Forms, as the case may be.
(b) The Company has authorized the issuance of and will hold in reserve the
Underlying Shares, and upon the valid exercise of Rights, the Company will issue
Underlying Shares to validly exercising Rights holders as set forth in the
Registration Statement.
SECTION 3. Basic Subscription Privilege; Oversubscription Privilege; Form
--------------------------------------------------------------
of Subscription Certificates.
- ----------------------------
<PAGE>
-3-
(a) Each Right carries with it a Basic Subscription Privilege and an
Oversubscription Privilege.
(i) Pursuant to each Right's Basic Subscription Privilege, the
Right grants to the holder thereof, upon the valid exercise of the Right
pursuant to Section 7 hereof, the right to purchase from the Company one
Underlying Share for the Subscription Price.
(ii) Pursuant to each Right's Oversubscription Privilege, the
Right grants to the holder thereof, upon the valid exercise thereof
pursuant to Section 7 hereof, and subject to the exercise of the Basic
Subscription Privilege represented by such Right, the right, subject to the
availability thereof as set forth below, to purchase from the Company
additional Underlying Shares for the Subscription Price. Underlying Shares
will be available for purchase pursuant to the Oversubscription Privilege
only to the extent that the maximum number of Underlying Shares are not
subscribed for through the exercise of all Basic Subscription Privileges by
the Expiration Date (as defined below). If the Underlying Shares so
available ("Excess Shares") are not sufficient to satisfy all subscriptions
pursuant to the Oversubscription Privilege, the Excess Shares will be
allocated pro rata (subject to the elimination of fractional shares) among
those holders of Rights exercising the Oversubscription Privilege, in
proportion, not to the number of shares requested pursuant to the
Oversubscription Privilege, but to the number of shares they have purchased
pursuant to the Basic Subscription Privilege; provided, however, that if
such pro rata allocation results in any holder being allocated a greater
number of Excess Shares than such holder subscribed for pursuant to the
exercise of such holder's Oversubscription Privilege, then such holder will
be allocated only such number of Excess Shares as such holder subscribed
for and the remaining Excess Shares will be allocated among all other
holders exercising Oversubscription Privileges.
(iii) Banks, brokers and other nominee holders of Rights who
exercise Rights and the Oversubscription Privilege on behalf of beneficial
owners of Rights shall be required to certify to the Subscription Agent and
the Company (by delivery to the Subscription Agent of a Nominee Holder
Certification substantially in the form of Exhibit B hereto), in connection
------- -
with the exercise of the Oversubscription Privilege, as to the aggregate
number of Rights that have been exercised, and the number of
Oversubscription Shares that are being subscribed for by each beneficial
owner of Rights on whose behalf such nominee holder is acting. If more
Underlying Shares are subscribed for pursuant to the Oversubscription
Privilege than are available for sale, Underlying Shares will be allocated
among persons exercising the Oversubscription Privilege in proportion to
such persons' exercise of Rights pursuant to the Basic Subscription
Privilege.
(b) The Rights shall be evidenced by subscription certificates (the
"Subscription Certificates"). The Subscription Certificates (and the form of
election to exercise or transfer Rights to be printed on the reverse thereof)
shall be substantially in the form attached
<PAGE>
-4-
as Exhibit A hereto. The Subscription Certificates shall be fully transferable
------- -
in the manner provided for herein.
(c) Subscription Certificates will not be provided to holders of
record whose addresses are outside the United States or who have an APO or FPO
address, but will be held by the Subscription Agent for their account. To
exercise or sell Rights, such international holders must notify the Subscription
Agent by completing an international holder subscription form (the
"International Holder Subscription Form") which will be delivered by the
Subscription Agent to such international holders (except those located in the
United Kingdom ) in lieu of a Subscription Certificate, and sending it by mail
or telecopy to the Subscription Agent. International holders located in the
United Kingdom will not initially be provided with International Holder
Subscription Forms. These international holders who are interested in
participating in the Rights Offering should contact Lehman Brothers
International (Europe).
SECTION 4. Signature and Registration.
--------------------------
(a) The Subscription Certificates shall be executed on behalf of the
Company by two of its executive officers. Any Subscription Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Subscription Certificate, shall be a proper officer of the
Company to sign such Subscription Certificate, even if at the date of the
execution of this Agreement or the date of the actual issuance of such
certificate any such person is not such an officer.
(b) The Subscription Agent will keep or cause to be kept, at its
principal offices in New York, books for registration and transfer of the Rights
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights and the number of Rights evidenced by each
outstanding Subscription Certificate.
SECTION 5. Division, Combination and Exchange of Subscription
--------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Subscription Certificates.
- ----------------------------------------------------------------------------
(a) Subject to the provisions of Section 9 hereof, any Subscription
Certificate, or any two or more Subscription Certificates, may be divided,
combined or exchanged for any number of Subscription Certificates or for a
single Subscription Certificate of different denominations; provided, however,
that the aggregate number of Rights evidenced by the Subscription Certificate or
Subscription Certificates so issued shall not exceed the aggregate number of
Rights evidenced by the Subscription Certificate or Subscription Certificates
surrendered in exchange therefore. The foregoing notwithstanding, a bank, trust
company, securities dealer or broker holding shares of Common Stock on the
Record Date for more than one beneficial owner may, upon proper showing to the
Subscription Agent, exchange its Subscription Certificate to obtain Subscription
Certificates for the number of Rights which each such beneficial owner would
have been entitled to receive pursuant to Section 9(a) hereof had each such
beneficial owner been the holder of record of such beneficial owner's shares on
the Record Date; provided, however, that the Company reserves the right to
refuse to issue any such Subscription Certificate or Subscription Certificates
if such issuance would be inconsistent with
<PAGE>
-5-
the principle that each beneficial owner's holding will be rounded down to the
nearest whole Right. No Subscription Certificates evidencing fractional Rights
will be issued upon division, combination or exchange of other Subscription
Certificates, and any instructions to divide, combine or exchange Subscription
Certificates which would result in the issuance of Subscription Certificates
evidencing fractional Rights shall be rejected. Any holder desiring to divide,
combine or exchange any Subscription Certificate or Subscription Certificates
shall make such requests in writing to the Subscription Agent, and shall
surrender the Subscription Certificate or Subscription Certificates (to be
divided, combined or exchanged) to the Subscription Agent. Thereupon the
Subscription Agent shall deliver to the person entitled thereto a Subscription
Certificate or Subscription Certificates, as the case may be, as so requested.
In all cases of transfer by an attorney-in-fact, the original power of attorney,
duly approved, or a copy thereof, duly certified, shall be deposited and remain
with the Subscription Agent. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority satisfactory to the Subscription Agent shall be produced and may be
required to be deposited and to remain with the Subscription Agent in its
discretion. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any division,
combination or exchange of Subscription Certificates.
(b) Upon receipt by the Company and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Subscription Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them which may be in the form of an
open penalty bond, and reimbursement to the Company and the Subscription Agent
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Subscription Certificate if mutilated, the Company will make
and deliver a new Subscription Certificate of like tenor to the Subscription
Agent for delivery to the registered owner in lieu of the Subscription
Certificate so lost, stolen, destroyed or mutilated. If required by the Company
or the Subscription Agent, an indemnity bond must be sufficient in the judgment
of both to protect the Company, the Subscription Agent or any agent thereof from
any loss which any of them may suffer if a Subscription Certificate is replaced.
SECTION 6. Subsequent Issue of Subscription Certificates. Subsequent to
---------------------------------------------
their original issuance, no Subscription Certificates shall be issued except (a)
Subscription Certificates issued upon any transfer, combination, division or
exchange of Rights pursuant to Section 5(a) or 10 hereof, (b) Subscription
Certificates issued in replacement of mutilated, destroyed, lost or stolen
Subscription Certificates pursuant to Section 5(b) hereof and (c) Subscription
Certificates issued pursuant to Section 7(e) hereof upon the partial exercise of
any Subscription Certificate to evidence the unexercised portion of such
Subscription Certificate.
SECTION 7. Exercise of Rights; Exercise Price; Expiration Date.
---------------------------------------------------
(a) The holder of any Subscription Certificate may exercise some or
all of the Rights evidenced thereby (but not in amounts of less than one Right
or an integral multiple thereof) by delivering to the Subscription Agent, on or
prior to 5:00 p.m., Eastern time, on _______________ __, 1997 (the "Expiration
Date"), a properly completed and executed
<PAGE>
-6-
Subscription Certificate evidencing such Rights (with signatures guaranteed by
an eligible guarantor institution which is a participant in a securities
transfer association recognized program (each, an "Eligible Guarantor"))
together with payment of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. In the case of holders of Rights that are held of
record through The Depository Trust Company ("DTC"), exercises of the Basic
Subscription Privilege (but not the Oversubscription Privilege) may be effected
by instructing DTC to transfer Rights (such Rights being "DTC Exercised Rights")
from the DTC account of such holder to the DTC account of the Subscription
Agent, together with payment of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege. The
Oversubscription Privilege in respect of DTC Exercised Rights may not be
exercised through DTC. The holder of a DTC Exercised Right may exercise the
Oversubscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent at or prior to 5:00 p.m.,
Eastern time, on the Expiration Date, a DTC Participant Oversubscription
Exercise Form, substantially in the form of Exhibit C hereto, together with
---------
payment of the appropriate Subscription Price for the number of Underlying
Shares for which the Oversubscription Privilege is to be exercised.
Alternatively, the holder of any Subscription Certificate may exercise the
Rights evidenced thereby by effecting compliance with the procedures for
guaranteed delivery set forth in Section 7(b) below.
(b) If a holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription
Price for each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received
(in the manner set forth in Section 7(d) hereof) by the Subscription Agent
on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the
Expiration Date, a guarantee notice (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions as to Use of
Thermedics Detection Inc. Subscription Certificates and International
Holder Subscription Forms (the "Instructions") distributed with the
Subscription Certificates, from a commercial bank or trust company having
an office or correspondent in the United States or a member firm of a
national securities exchange or a member of the National Association of
Securities Dealers, Inc. (each, an "Eligible Institution"), stating the
name of the exercising Rights holder, the number of Rights represented by
the Subscription Certificate or Subscription Certificates held by such
exercising Rights holder, the number of Underlying Shares being subscribed
for pursuant to the Basic Subscription Privilege and the number of
Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of the Subscription Certificate evidencing such Rights
within five American Stock Exchange ("AMEX") trading days following the
date of the Notice of Guaranteed Delivery, provided that if such a Notice
of Guaranteed Delivery
<PAGE>
-7-
relates to Rights with respect to which exercise of the Basic Subscription
Privilege will be made through DTC and such Notice of Guaranteed Delivery
also relates to the exercise of the Oversubscription Privilege, a DTC
Participant Oversubscription Exercise Form must also be received by the
Subscription Agent in respect of such exercise of the Oversubscription
Privilege on or prior to the Expiration Date; and
(iii) the properly completed Subscription Certificate[s]
evidencing the Rights being exercised, with any required signatures
guaranteed, are received by the Subscription Agent, or such Rights are
transferred into the DTC account of the Subscription Agent, within five
AMEX trading days following the date of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to
the Subscription Agent in the same manner as Subscription Certificates at
the addresses set forth above, or may be transmitted to the Subscription
Agent by telegram or facsimile transmission (telecopy no. 718-234-5001).
(c) The Rights shall expire at 5:00 p.m., Eastern time, on the
Expiration Date.
(d) The "Subscription Price" shall be $_____ per share of Common Stock
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege payable (in United States dollars) (i) by check or
bank draft drawn upon a U.S. bank or postal, telegraphic or express money order
payable to the Subscription Agent, or (ii) by wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at Chemical Bank,
55 Water Street, New York, New York 10041, Account No. 323-294723; ABA
No._______________. The Subscription Price shall be deemed to have been
received by the Subscription Agent only upon (i) clearance of any uncertified
check, (ii) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order or (iii) receipt of good funds in the Subscription Agent's account
designated above, in payment of the Subscription Price.
(e) If an exercising Rights holder has not indicated the number of
Rights being exercised, or if the Subscription Price payment forwarded by such
holder to the Subscription Agent is not sufficient to purchase the number of
shares subscribed for, the Rights holder will be deemed to have exercised the
Basic Subscription Privilege with respect to the maximum number of whole Rights
which may be exercised for the Subscription Price delivered to the Subscription
Agent and, to the extent that the Subscription Price payment delivered by such
holder exceeds the Subscription Price multiplied by the number of Rights
exercised (such excess being the "Subscription Excess"), the holder will be
deemed to have exercised its Oversubscription Privilege to purchase, to the
extent available, a number of whole Underlying Shares equal to the quotient
obtained by dividing the Subscription Excess by the Subscription Price.
(f) Funds received by the Subscription Agent in payment of the
Subscription Price for Underlying Shares subscribed for pursuant to the
Oversubscription Privilege shall be held in a segregated, interest-bearing
account pending allocation pursuant to Section 3(a)(ii) hereof and eventual
distribution pursuant to Section 8(a) hereof. The Company shall have sole
<PAGE>
-8-
discretion in determining how the funds in such account shall be invested, and
all interest and gains earned on such funds shall be paid to the Company. If a
Rights holder exercising the Oversubscription Privilege is allocated less than
all of the shares of Common Stock which such holder subscribed for pursuant to
the Oversubscription Privilege, the Subscription Agent, as soon as practicable
after the Expiration Date, shall mail to such Rights holder the Subscription
Price paid by such holder in respect of the number of shares that were
subscribed for but not ultimately issued, without interest or deduction.
(g) In case the holder of any Subscription Certificate shall exercise
less than all the Rights evidenced thereby, a new Subscription Certificate
evidencing the number of rights remaining unexercised shall be issued by the
Subscription Agent to the registered holder of such subscription Certificate or
to his duly authorized assigns, subject to the provisions of Section 9 hereof,
to the extent the Subscription Agent is able to reissue a Subscription
Certificate prior to the Expiration Date.
(h) The Subscription Agent is authorized to accept only Subscription
Certificates (other than Subscription Certificates delivered in accordance with
the procedure for guaranteed delivery set forth in Section 7(b)), or transfers
of Rights to its account at DTC, received prior to 5:00 p.m., Eastern time, on
the Expiration Date.
(i) Once a holder of Rights has exercised a Right, such exercise may
not be revoked.
(j) Notwithstanding anything to the contrary contained herein, the
Company has agreed to allow the Standby Underwriters (as defined below) to
exercise any Rights held by them on the business day following the Expiration
Date.
SECTION 8. Payment for Common Stock; Delivery of Stock Certificates.
--------------------------------------------------------
(a) The closing of the sale of the Common Stock upon exercise of the
Rights (the "Closing") will take place at 10:00 a.m., Eastern time, on the sixth
business day following the Expiration Date, or (if less than 1,000,000 shares of
Common Stock are properly subscribed for pursuant to the Rights Offering) at
such other date and time as the closing of the sale of Common Stock to the
underwriters for whom Lehman Brothers Inc. and NatWest Securities Limited
(collectively, the "Representatives") are acting as representatives (the
"Standby Underwriters") shall occur pursuant to Section 3 of the Standby
Underwriting Agreement (the "Underwriting Agreement") between the Company and
the Representatives (such date and time being referred to herein as the "Closing
Date"). At the Closing, the Subscription Agent shall pay, by wire transfer,
certified or bank check or other method acceptable to the Company, the amount of
all funds received by the Subscription Agent in payment of the Subscription
Price for Underlying Shares subscribed for pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege. Notwithstanding the foregoing,
the Closing shall not occur if less than an aggregate of 1,000,000 shares of
Common Stock are sold through the exercise of Rights or to the Standby
Underwriters. If the Company notifies the Subscription Agent that the Closing
will not occur due to the failure of the condition described in the preceding
sentence, the
<PAGE>
-9-
Subscription Agent, as soon as practicable after receipt of such notice, shall
mail to each Rights holder the Subscription Price paid by such holder in respect
of the number of shares that were subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, without interest or
deduction.
The Company shall deliver, or arrange to have delivered, at the Closing the
number of shares of Common Stock as are properly subscribed for pursuant to the
Rights Offering and as soon as practicable after the Closing, the Subscription
Agent shall deliver to each exercising Rights holder certificate(s) representing
the shares of Common Stock purchased pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege.
(b) In the event that the Standby Underwriters shall become obligated
to purchase any of the Underlying Shares not subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege, the Company
will give the Subscription Agent not less than two business days' notice in
writing as to the number of shares of Common Stock which are to be issued, and
as to the date fixed for the delivery thereof to the Standby Underwriters,
together with a list of the names and denominations in which certificates for
such shares are to be issued. The Subscription Agent will be prepared to
deliver the certificates representing the shares of Common Stock to be so
purchased at the offices of the Representatives on the date specified in such
notice and will make such certificates available at the offices of the
Representatives for inspection, checking and packaging not later than 1:00 p.m.
on the business day prior to the date specified in such notice for such
delivery.
SECTION 9. Fractional Rights and Shares.
----------------------------
(a) The Company shall not issue fractions of Rights nor shall the
Subscription Agent distribute Subscription Certificates which evidence
fractional Rights. The number of Rights issued to each holder will be rounded
up to the nearest whole number.
(b) The Company shall not issue fractional shares of Common Stock to
exercising Rights holders upon exercise and acceptance of Rights. The number of
shares of Common Stock that each Rights holder shall be entitled to purchase
pursuant to the Oversubscription Privilege shall be rounded down to the nearest
whole share.
SECTION 10. Transfer of Rights.
------------------
(a) Any holder may transfer (a) all of the Rights evidenced by a
Subscription Certificate by properly endorsing the Subscription Certificate for
transfer in accordance with the instructions accompanying the Subscription
Certificate or (b) some of the Rights evidenced by a Subscription Certificate
(but not fractional Rights) by delivering to the Subscription Agent such
Subscription Certificate properly endorsed for transfer, with instructions to
register the Rights to be transferred in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, the Subscription Agent shall issue a new
Subscription Certificate (together with a copy of the Prospectus) evidencing the
balance of the Rights to the holder or, if so instructed, to an additional
transferee. However,
<PAGE>
-10-
notwithstanding the foregoing, the Subscription Agent will reissue Subscription
Certificates for the transferred Rights to the transferee, and will reissue
Subscription Certificates for the balance, if any, to the holder of Rights, only
to the extent it is able to do so before the Expiration Date. For purposes of
this Agreement the term "properly endorsed for transfer" shall mean that each
and every signature of a registered holder or holders or assigns shall be made
or guaranteed by an Eligible Institution.
(b) Any holder may place an order with the Subscription Agent to sell
all or some of the Rights evidenced by a Subscription Certificate by delivering
to the Subscription Agent such Subscription Certificate properly executed for
sale by the Subscription Agent. In the event that such holder places an order
with the Subscription Agent to sell some of the Rights evidenced by the
Subscription Certificate, such holder shall instruct the Subscription Agent as
to the action to be taken with respect to the Rights that are not to be sold,
and the Subscription Agent shall take such action. Promptly following such sale
and receipt of the proceeds therefrom, the Subscription Agent shall send the
holder a check for the net proceeds from the sale of any such Rights. If the
proceeds from the sale of Rights are to be paid or delivered to anyone other
than the registered holder of the Rights, signatures on the Subscription
Certificate must be guaranteed by an Eligible Guarantor. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the weighted
average price received by the Subscription Agent on the day such Rights are
sold, less applicable brokerage commissions, taxes and other direct expenses of
sale, provided that the Company shall pay the fees of the Subscription Agent in
respect of such sales. Orders to sell Rights must be received by the
Subscription Agent at or prior to 11:00 a.m., Eastern time, on [the date that is
4 AMEX trading days prior to the Expiration Date]. The Subscription Agent's
obligation to execute orders is subject to its ability to find buyers at a price
that will result in net proceeds to the holder.
(c) International Holder Subscription Forms may not be used to sell,
transfer or subdivide Rights except to instruct the Subscription Agent to sell
Rights. If the Subscription Agent has not received instructions from
international holders or holders with APO or FPO addresses at or prior to 11:00
a.m. Eastern Time, on [the date that is 4 AMEX trading days prior to the
Expiration Date], it will sell the Rights held by such holders, if feasible, and
remit the net proceeds to such holders. The Subscription Agent's obligation to
sell Rights is subject to its ability to find buyers at a price that will result
in net proceeds to the holder.
SECTION 11. Foreign and Certain Other Stockholders. The Subscription
--------------------------------------
Agent shall not mail Subscription Certificates to holders of Common Stock whose
addresses are outside the U.S. [and Canada] or who have an APO or FPO address.
The Subscription Agent shall hold such Subscription Certificates for the account
of such holders and upon notice from such holders shall exercise the Rights on
their behalf. To so exercise such Rights, such stockholders must notify the
Subscription Agent not later than 11:00 a.m., Eastern time, on [the date that is
4 AMEX trading days prior to the Expiration Date]. If no instructions have been
received at or prior to 11:00 a.m., Eastern time, on [the date that is 4 AMEX
trading days prior to the Expiration Date], the Subscription Agent shall sell
such Rights, if feasible, and shall remit the net proceeds, if any, to such
stockholders. If the Rights can be sold, sales of such Rights will be deemed to
have been effected at the weighted average price received by the Subscription
Agent on the day such Rights
<PAGE>
-11-
are sold, less any applicable brokerage commissions, taxes and other expenses,
provided that the Company shall pay the fees of the Subscription Agent in
respect of such sales. International holders who exercise less than all of their
rights will not receive a Subscription Certificate evidencing their remaining
rights.
SECTION 12. Reports. The Subscription Agent shall notify both the Company
-------
and its designated representatives by telephone as requested during the period
commencing with the mailing of Subscription Certificates and ending on the
Expiration Date (and in the case of guaranteed deliveries pursuant to Section
7(b), the period ending five AMEX trading days after the Expiration Date), which
notice shall thereafter be confirmed in writing, of (i) the number of Rights
exercised on the day of such request, (ii) the number of Underlying Shares
subscribed for pursuant to the Basic Subscription Privilege and the number of
such Rights for which payment has been received, (iii) the number of Underlying
Shares subscribed for pursuant to the Oversubscription Privilege and the number
of such Rights for which payment has been received, (iv) the number of Rights
subject to guaranteed delivery pursuant to Section 7(b) on such day, (v) the
number of Rights for which defective exercises have been received on such day
and (vi) cumulative totals derived from the information set forth in clauses (i)
through (v) above. At or before 5:00 p.m., Eastern time, on the first AMEX
trading day following the Expiration Date, the Subscription Agent shall certify
in writing to the Company the cumulative totals through the Expiration Date
derived from the information set forth in clauses (i) through (v) above. The
Subscription Agent shall also maintain and update a listing of holders who have
fully or partially exercised their Rights, holders who have transferred their
Rights and their transferees and holders who have not exercised their Rights.
The Subscription Agent shall provide the Company or its designated
representatives with the information compiled pursuant to this Section 12 as any
of them shall request.
SECTION 13. Future Instructions and Interpretation.
--------------------------------------
(a) All questions as to the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations shall be final and binding. The Company in its sole discretion
may waive any defect or irregularity, permit a defect or irregularity to be
corrected within such time as it may determine or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Company determines in its sole discretion. Neither the Company nor the
Subscription Agent shall be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give such notification.
(b) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from an
authorized officer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
<PAGE>
- 12 -
SECTION 14. Payment of Taxes. The Company covenants and agrees that it
----------------
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Subscription
Certificate or of the Underlying Shares; provided, however, that the Company
shall not be liable for any tax liability arising out of any transaction which
results in, or is deemed to be, an exchange of Rights or shares or a
constructive dividend with respect to the Rights or shares and provided further
that the Company shall not be required to pay any tax or other governmental
charge which may be payable in respect of any transfer involved in the transfer
or delivery of any Subscription Certificate or the issuance or delivery of
certificates for shares of Common Stock in a name other than that of the
registered holder of such Subscription Certificate evidencing the Rights
exercised or transferred, and the Subscription Agent shall not register any such
transfer or issue any such certificate until such tax or governmental charge, if
required, shall have been paid.
SECTION 15. Cancellation and Destruction of Subscription Certificates.
---------------------------------------------------------
All Subscription Certificates surrendered for the purpose of exercise, exchange,
substitution or transfer shall be canceled by the Subscription Agent, and no
Subscription Certificates shall be issued in lieu thereof except as expressly
permitted by provisions of this Agreement. The Company shall deliver to the
Subscription Agent for cancellation and retirement, and the Subscription Agent
shall so cancel and return, any other Subscription Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The
Subscription Agent shall deliver all canceled Subscription Certificates to the
Company, or shall, at the written request of the Company, destroy such canceled
Subscription Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
SECTION 16. Right of Action. All rights of action in respect of this
---------------
Agreement are vested in the Company and the respective registered holders of the
Subscription Certificates; and any registered holder of any Subscription
Certificate, without the consent of the Subscription Agent or of the holder of
any other Subscription Certificate, may, on his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Subscription Certificate in the manner
provided in such Subscription Certificate and in this Agreement.
SECTION 17. Concerning the Subscription Agent.
---------------------------------
(a) The Company agrees to pay to the Subscription Agent
compensation in the amount of $______________ for all services rendered by it
hereunder and, from time to time, on demand of the Subscription Agent, its
reasonable out-of-pocket expenses and disbursements for mailing, postage and
delivery. The Company also agrees to indemnify the Subscription Agent for, and
to hold it harmless against, any loss, liability, or expense incurred without
negligence or bad faith on the part of the Subscription Agent for anything done
or omitted by the Subscription Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability in the premises, provided that the Subscription
Agent shall have provided the Company with notice of any such claim promptly
after such claim became known to the Subscription Agent, and provided further
that the
<PAGE>
- 13 -
Company shall have the right to assume the defense of any such claim upon
receipt of written notice thereof from the Subscription Agent. If the Company
assumes the defense of any such claim, the Subscription Agent shall be entitled
to participate in (but not control) the defense of any such claim at its own
expense. The Company shall not indemnify the Subscription Agent with respect to
any claim or action settled without its consent, which consent shall not be
unreasonably withheld.
(b) The Subscription Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Subscription Certificate, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged by the proper person or persons.
SECTION 18. Merger or Consolidation of Subscription Agent. Any
---------------------------------------------
corporation into which the Subscription Agent or any successor Subscription
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Subscription Agent or
any successor Subscription Agent shall be a party, or any corporation succeeding
to the corporate trust business of the Subscription Agent or any successor
Subscription Agent, shall be the successor to the Subscription Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
SECTION 19. Duties of Subscription Agent. The Subscription Agent
----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Subscription Certificates by their acceptance thereof shall be bound:
(a) The Subscription Agent may consult with legal counsel (who may
be, but is not required to be, legal counsel for the Company), and the opinion
of such counsel shall be full and complete authorization and protection to the
Subscription Agent as to any actions taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Subscription Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President
or a Vice President (including any Senior or Executive Vice President) and by
the Treasurer or any Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company and delivered to the Subscription Agent; and such
certificate shall be full authorization to the Subscription Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
<PAGE>
- 14 -
(c) The Subscription Agent shall be liable hereunder only for its
own negligence or willful misconduct.
(d) The Subscription Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Subscription Certificates or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(e) The Subscription Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Subscription Agent) or in respect
of the validity or execution of any Subscription Certificate; nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Subscription Certificate; nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Subscription Certificate or as to whether any shares of
Common Stock will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Subscription Agent for the carrying out or performing by the
Subscription Agent of the provisions of this Agreement.
(g) Nothing herein shall preclude the Subscription Agent from
acting in any other capacity for the Company.
SECTION 20. Notices to the Company, Holders and Subscription Agent. All
------------------------------------------------------
notices and other communications provided for or permitted hereunder shall be
made by hand delivery, prepaid first-class mail, or telecopier:
(a) if to the Company, to:
Thermedics Detection Inc.
c/o Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02254-9046
Attn: Seth H. Hoogasian, Esq.
Telecopier: 617-622-1283
<PAGE>
- 15 -
(b) if to the Subscription Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telecopier: 718-234-5001
Attn: Herb Lemmer, Esq.
Paula Magno
(c) if to a registered holder, at the address shown on the
registry books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; two business days after
being deposited in the mail, postage prepaid, if mailed as aforesaid; when
answered back if telexed; and when receipt is acknowledged, if telecopied.
SECTION 21. Supplements and Amendments. The Company and the Subscription
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Subscription Certificates in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Subscription Agent may deem necessary or desirable and which
shall not materially adversely affect the interests of the holders of the
Subscription Certificates.
SECTION 22. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Subscription Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 23. Termination. This Agreement shall terminate at 5:00 p.m.,
-----------
Eastern time, on the thirtieth day following the Expiration Date. Upon
termination of this Agreement, and provided that all shares of Common Stock for
Rights accepted for execution prior to such termination are issued and delivered
by the Company, the Company shall be discharged from all obligations under this
Agreement except for its obligations to the Subscription Agent under Sections 14
and 17 hereof and except with respect to the obligation of the Company to
provide instruction and direction to the Subscription Agent as may be provided
in this Agreement.
SECTION 24. Governing Law. This Agreement and each Subscription
-------------
Certificate shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts and for all purposes shall be construed in
accordance with the internal laws of said State.
SECTION 25. Benefits of This Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than the Company, the
Subscription Agent and the holders of the Subscription Certificates any legal or
equitable right, remedy or claim
<PAGE>
- 16 -
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Subscription Agent and the holders of the
Subscription Certificates.
SECTION 26. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
SECTION 27. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF the undersigned have caused this Subscription Agency
Agreement to be executed by their duly authorized representative as of the date
first above written.
THERMEDICS DETECTION INC.
By:
---------------------------
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT 99.3
THERMEDICS DETECTION INC.
International Holder Subscription Form
IMPORTANT: The number of Rights that may be exercised pursuant to the Basic
Subscription Privilege by the person whose name appears on the label affixed to
this form is the number indicated in the top right-hand corner of the label.
EXERCISE AND SUBSCRIPTION: The undersigned irrevocably exercises one or
more Rights to subscribe for shares of Thermedics Detection Common Stock as
indicated below, on the terms and subject to the conditions specified in the
prospectus of Thermedics Detection Inc. dated February __, 1997 (the
"Prospectus"), receipt of which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Basic
Subscription Privilege (one Right needed to subscribe for each
full share): _______________
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege: _______________
(c) Total Subscription Price (total number of shares subscribed for
pursuant to both the Basic Subscription Privilege and the
Oversubscription Privilege -- times the Subscription Price of
$_____): _______________ (1)
METHOD OF PAYMENT (CHECK ONE)
[_] CHECK OR BANK DRAFT DRAWN ON A U.S. BANK OR MONEY ORDER PAYABLE
TO AMERICAN STOCK TRANSFER & TRUST COMPANY.
[_] WIRE TRANSFER DIRECTED TO THE ACCOUNT MAINTAINED BY AMERICAN
STOCK TRANSFER & TRUST COMPANY AT CHEMICAL BANK, 55 WATER
STREET, NEW YORK, NEW YORK 10041, ACCOUNT NO. ____________, ABA
NO. 021 000 128.
(1) If the amount enclosed or transmitted is not sufficient to pay the
Subscription Price for all shares that are stated to be subscribed for,
or if the number of shares being subscribed for is not specified, the
number of shares subscribed for will be assumed to be the maximum number
that could be subscribed for upon payment of such amount. If the number
of shares to be subscribed for pursuant to the Oversubscription
Privilege is not specified and the amount enclosed or transmitted
exceeds the Subscription Price for all shares that the undersigned has
the right to purchase pursuant to the Basic Subscription Privilege (the
"Subscription Excess"), the person subscribing pursuant hereto shall be
deemed to have exercised the Oversubscription Privilege to purchase, to
the extent available, that number of whole shares of Thermedics
Detection Common Stock equal to the quotient obtained by dividing the
Subscription Excess by $_____. The amount remaining after such division
shall be returned to the subscriber without interest or deduction.
[_] CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH SUBSCRIPTION
AGENT: Check box if the undersigned hereby authorizes the
Subscription Agent to sell any Rights held by the undersigned
but not exercised hereby and to deliver to the undersigned a
check for the proceeds.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
PROSPECTUS AND ARE INCORPORATED HEREIN BY REFERENCE. ALL CAPITALIZED TERMS
USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS ASCRIBED TO THEM IN THE
PROSPECTUS. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM AMERICAN
STOCK TRANSFER & TRUST COMPANY, THE SUBSCRIPTION AGENT.
<PAGE>
ANY PERSON LOCATED IN THE UNITED KINGDOM WHO IS NOT EITHER (1) A PERSON
WHOSE ORDINARY BUSINESS IS TO BUY OR SELL SHARES OR DEBENTURES, WHETHER AS
PRINCIPAL OR AGENT, OR (2) AN EXISTING REGISTERED HOLDER OF THERMEDICS
DETECTION COMMON STOCK, REPRESENTS, BY SIGNING BELOW, THAT ANY SHARES OF
THERMEDICS DETECTION COMMON STOCK PURCHASED UPON THE EXERCISE OF RIGHTS ARE
BEING PURCHASED WITH A VIEW TO HOLDING SUCH SHARES AS AN INVESTMENT AND WITHOUT
ANY INTENTION TO RESELL SUCH SHARES.
IMPORTANT
RIGHTS HOLDER SIGN HERE
......................................................
......................................................
(Signature(s) of Holder(s))
Dated:.........................................., 1997
(Must be signed by the Rights holder(s) exactly as name(s) appear(s) on the
certificate(s) representing shares of Common Stock of Thermedics Inc. or
Thermedics Detection Inc. as to which the Rights have been distributed. If
signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s) - in - fact, agent(s), officer(s) of a corporation or another acting
in a fiduciary or representative capacity, please provide the following
information. See instructions.)
Name(s).........................................................................
................................................................................
(Please Print)
Capacity........................................................................
Address.........................................................................
................................................................................
(Including Zip Code)
Area Code and
Telephone Number................................................................
(Home)
................................................................................
(Business)
Tax Identification or
Social Security No..............................................................
(Complete Substitute Form W-9)
2
<PAGE>
EXHIBIT 99.4
[THERMEDICS DETECTION INC. LETTERHEAD]
February , 1997
Dear Shareholder:
Thermedics Detection Inc. ("Thermedics Detection") is distributing to
its shareholders transferable subscription rights (the "Rights") to purchase
shares of Thermedics Detection Common Stock for a price of $_____ per share (the
"Subscription Price"). Thermedics Inc. will not exercise the Rights it receives
as majority shareholder of Thermedics Detection, but is instead distributing the
Rights to its shareholders.
This Rights offering provides existing shareholders of both Thermedics
Detection and Thermedics with the opportunity to participate directly in the
initial public offering of Thermedics Detection. Upon completion of the Rights
offering, Thermedics Detection will enjoy the benefits of being a publicly
traded company.
Summary of Terms of the Rights Offering
The basic terms of the Rights offering are as follows:
. Each Thermedics Detection shareholder will receive approximately .366
Rights for each share of Thermedics Detection Common Stock held on the
Record Date (one Right for approximately every 2.73 shares of
Thermedics Detection Common Stock held).
. One whole Right is exercisable for one share of Thermedics Detection
Common Stock at a price of $_____ per share.
. Rights are exercisable from February __, 1997 through March __, 1997.
. Shareholders who have fully exercised the Rights issued to them may
subscribe for additional shares of Thermedics Detection Common Stock,
to the extent available, at the Subscription Price, through the
exercise of an oversubscription privilege.
. The Rights will trade on the American Stock Exchange from February __,
1997 through March __,1997, and the shares of Thermedics Detection
Common Stock will trade on the American Stock Exchange when issued
commencing on February __, 1997 and regular way commencing March __,
1997.
. THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON MARCH
__, 1997.
A more detailed description of the Rights offering is contained in the
enclosed Prospectus, which you should read and consider in its entirety prior
to participating in the Rights offering.
Enclosures
You will find enclosed a Prospectus describing the Rights offering and,
if you are located in the United States, a Subscription Certificate representing
Rights to purchase Thermedics Detection Common Stock as well as related
instructions. If you are located anywhere outside the United States (except the
United Kingdom), you will find instead an International Holder Subscription Form
and related instructions. You should carefully review the Prospectus and, if
applicable, the other enclosed materials.
Exercise of Rights
If you are located in the United States, you should follow the enclosed
instructions as to the exercise or transfer of the Rights represented by the
enclosed Subscription Certificate. If you are located outside the United
States (except the United Kingdom), you should follow the enclosed instructions
as to the completion of the
<PAGE>
International Holder Subscription Form. If you are located in the United
Kingdom, you should contact Lehman Brothers International (Europe) at the
international address indicated below if you are interested in participating in
the Rights offering.
Transfer of Rights
The Rights have been listed for trading on the American Stock Exchange
and are expected to trade from February __, 1997 through March __, 1997 through
normal brokerage channels. You may sell your Rights by contacting your broker or
you may request the subscription agent to sell some or all of your Rights and
deliver the proceeds to you. The subscription agent will attempt to sell any
Rights held by persons located outside the United States who have not provided
the subscription agent with exercise or sale instructions by 11:00 a.m., Eastern
time, on March __, 1997.
Additional Information
You may obtain additional information concerning the Rights offering
from the following sources:
United States International
Lehman Brothers Inc. Lehman Brothers International(Europe)
3 World Financial Center One Broadgate
New York, New York 10285 London EC2M 7HA
Attention: Mr. Kevin Davies England
telephone: (212) 526-3025 Attention: Mr. Adrian Norman
telecopier: (212) 526-9731 telephone: 44-1-71-260-2793
telecopier: 44-1-71-260-2635
Information is also available from the subscription agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
telephone: (718) 921-8200
telecopier: (718) 234-5001
Thermedics Detection is pleased to provide you with this opportunity to
participate in its initial public offering. We thank you for your support and
look forward to our continuing relationship.
Very truly yours,
Jeffrey J. Langan
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.5
[THERMEDICS INC. LETTERHEAD]
February , 1997
Dear Shareholder:
Thermedics Inc. ("Thermedics") pleased to offer you the opportunity to
participate in the initial public offering of its majority-owned subsidiary,
Thermedics Detection Inc. ("Thermedics Detection"), which manufactures
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
Thermedics Detection is distributing to its shareholders transferable
subscription rights (the "Rights") to purchase shares of Thermedics Detection
Common Stock for a price of $_____ per share (the "Subscription Price").
Thermedics will not exercise the Rights it receives as majority shareholder of
Thermedics Detection. Instead, Thermedics is distributing the Rights to its
shareholders in order to provide them with an opportunity to participate
directly in the initial public offering of Thermedics Detection.
Summary of Terms of the Rights Offering
The basic terms of the Rights offering are as follows:
. Each Thermedics shareholder will receive 0.10 Rights for each share of
Thermedics Common Stock held on the Record Date (one Right for every 10
shares of Thermedics Common Stock held).
. One whole Right is exercisable for one share of Thermedics Detection
Common Stock at a price of $_____ per share.
. Rights are exercisable from February __, 1997 through March __, 1997.
. Shareholders who have fully exercised the Rights issued to them may
subscribe for additional shares of Thermedics Detection Common Stock,
to the extent available, at the Subscription Price, through the
exercise of an oversubscription privilege.
. The Rights will trade on the American Stock Exchange from February __,
1997 through March __, 1997, and the shares of Thermedics Detection
Common Stock will trade on the American Stock Exchange when issued
commencing on February __, 1997 and regular way commencing March __,
1997.
. THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON
MARCH __, 1997.
A more detailed description of the Rights offering is contained in the
enclosed Prospectus, which you should read and consider in its entirety prior
to participating in the Rights offering.
Enclosures
You will find enclosed a Prospectus describing the Rights offering and,
if your shares of Thermedics Common Stock are held in your name and you are
located in the United States, a Subscription Certificate representing Rights to
purchase Thermedics Detection Common Stock as well as related instructions. If
you are located anywhere outside the United States (except the United Kingdom)
and hold your shares of Thermedics Common Stock in your name, you will find
instead an International Holder Subscription Form and related instructions. You
should carefully review the Prospectus and, if applicable, the other enclosed
materials.
<PAGE>
Exercise of Rights
If your shares of Thermedics Common Stock are held in your name and you
are located in the United States, you should follow the enclosed instructions as
to the exercise or transfer of the Rights represented by the enclosed
Subscription Certificate. If you are located outside the United States (except
the United Kingdom) and hold your shares of Thermedics Common Stock in your
name, you should follow the enclosed instructions as to the completion of the
International Holder Subscription Form. If you hold your shares of Thermedics
Common Stock in your own name and you are located in the United Kingdom, you
should contact Lehman Brothers International (Europe) at the international
address indicated below if you are interested in participating in the Rights
offering. If your shares of Thermedics Common Stock are held in the name of a
nominee such as a broker, you should contact the nominee and provide
instructions as to the exercise of your Rights.
Transfer of Rights
The Rights have been listed for trading on the American Stock Exchange
and are expected to trade from February __, 1997 through March __, 1997 through
normal brokerage channels. You may sell your Rights by contacting your broker or
you may request the subscription agent to sell some or all of your Rights and
deliver the proceeds to you. The subscription agent will attempt to sell any
Rights held by persons located outside the United States who have not provided
the subscription agent with exercise or sale instructions by 11:00 a.m., Eastern
time, on March __, 1997.
Additional Information
You may obtain additional information concerning the Rights offering
from the following sources:
United States International
Lehman Brothers Inc. Lehman Brothers International (Europe)
3 World Financial Center One Broadgate
New York, New York 10285 London EC2M 7HA
Attention: Mr. Kevin Davies England
telephone: (212) 526-3025 Attention: Mr. Adrian Norman
telecopier: (212) 526-9731 telephone: 44-1-71-260-2793
telecopier: 44-1-71-260-2635
Information is also available from the subscription agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
telephone: (718) 921-8200
telecopier: (718) 234-5001
Thermedics is pleased to provide you with this opportunity to
participate in the initial public offering of Thermedics Detection. On behalf of
the Board of Directors of Thermedics, I thank you for your continuing support.
Very truly yours,
John W. Wood Jr.
President and Chief Executive Officer
