AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THERMEDICS DETECTION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 3823 04-3311544
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL IDENTIFICATION NO.)
ORGANIZATION) CLASSIFICATION CODE
NUMBER)
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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)
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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)
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COPY TO:
SETH H. HOOGASIAN, ESQUIRE
GENERAL COUNSEL
THERMEDICS DETECTION INC.
c/o Thermo Electron Corporation
81 Wyman Street
Waltham, Massachusetts 02254-9046
(617) 622-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement has become effective.
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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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
---------- ---------- ------------- ------------------ ---
<S> <C> <C> <C> <C>
Common Stock, $.10 par
value per share 643,500 $11.72 $7,541,820 $2,286
======================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
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 JULY 24, 1997
PROSPECTUS
643,500 SHARES
[LOGO]
COMMON STOCK
This Prospectus relates to the resale of 643,500 shares (the "Shares") of
Common Stock, par value $.10 per share (the "Common Stock"), of Thermedics
Detection Inc. (the "Company") by certain shareholders of the Company (the
"Selling Shareholders"). The Shares may be offered from time to time in
transactions on the American Stock Exchange, in negotiated transactions, through
the writing of options on the Shares, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Such transactions may be effected by the sale of the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the sellers and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). The Selling
Shareholders and any broker-dealer who acts in connection with the sale of
Shares hereunder may be deemed to be "underwriters" as that term is defined in
the Securities Act of 1933, as amended (the "Securities Act"), and any
commission received by them and profit on any resale of the Shares as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Shares were originally sold by the Company in private
placements pursuant to certain Stock Purchase Agreements with the Company dated
March 26, 1996 and November 19, 1996 (the "Purchase Agreements"). See "Selling
Shareholders."
------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
None of the proceeds from the sale of the Shares by the Selling Shareholders
will be received by the Company. The Company has agreed to bear all expenses
(other than underwriting discounts and selling commissions, and fees and
expenses of counsel or other advisors to the Selling Shareholders) in connection
with the registration and sale of the Shares being registered hereby. The
Company has agreed to indemnify the Selling Shareholders against certain
liabilities, including liabilities under the Securities Act as underwriter or
otherwise.
------------------
The Company is a majority-owned subsidiary of Thermedics Inc.
("Thermedics"), which is a majority-owned subsidiary of Thermo Electron
Corporation ("Thermo Electron"). The Common Stock is traded on the American
Stock Exchange under the symbol "TDX". On July 23, 1997, the reported closing
price of the Common Stock on the American Stock Exchange was $11-13/16 per
share.
, 1997
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 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 June
28, 1997, Thermedics beneficially owned 74.8% of the outstanding 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.
------------------
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.
2
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 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.
3
Each airline must seek this approval for each application. Although the FAA has
provided significant funding to the 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."
4
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.
The Company does not attempt to minimize currency and exchange rate risks
through material hedging activities.
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 numerous United States and foreign patents and has
filed applications for additional patents. In addition, the Company has an
exclusive, perpetual, royalty-free license under certain 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
5
Company may seek licenses to such intellectual property. There 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."
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.
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."
6
Dependence on Key Personnel. The Company is highly dependent on the members
of its senior management, including Messrs. John Wood, Jeffrey Langan, David
Fine, John Hatsopoulos and Paul Kelleher. 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. While the amount of time devoted to
the affairs of the Company by these individuals may vary substantially from time
to time, the Company generally expects that Mr. Wood will devote from 10% to 20%
of his time, and that Messrs. Hatsopoulos and Kelleher will devote less than 5%
of their time, respectively, to the affairs of the Company. See "Management."
The loss of one or more of these individuals 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. Thermedics
beneficially owns approximately 74.8% of the outstanding Common Stock.
Accordingly, Thermedics has the power to elect the entire Board of Directors of
the Company and to approve or disapprove any corporate actions submitted to a
vote of the Company's stockholders. See "Relationship 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" and "Transactions with Affiliates." 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 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 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. 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" and "Transactions with
Affiliates."
Significant Additional Shares Eligible for Sale After the Offering. The
9,992,400 shares of 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
Common Stock owned by Thermedics. Additional shares of Common Stock issuable
upon exercise of options granted under the Company's stock-based compensation
plans will become available for future sale in the public market at prescribed
times. Sales of a significant number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. See "Relationship with Thermo Electron and Thermedics" and "Shares
Eligible for Future Sale."
Lack of Dividends. The Company anticipates that for the foreseeable future
the Company's earnings, if any, will be retained for use in the business and
that no cash dividends will be paid on the Common Stock. Declaration of
dividends on the Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions. See "Dividend Policy."
7
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been publicly traded on the American Stock
Exchange on a "when-issued" basis since February 24, 1997 and has been traded
"regular way" since March 26, 1997. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock on the
American Stock Exchange.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter (February 24, 1997 through March 29, 1997) $12 1/4 $10 5/8
Second Quarter $13 1/4 $ 9 3/4
Third Quarter (through July 23, 1997) $11 15/16 $10 1/2
</TABLE>
As of July 23, 1997, there were 358 holders of record of Common Stock. This
figure does not reflect beneficial ownership of shares held in street or nominee
name.
DIVIDEND POLICY
The Company has never paid any cash dividends on the 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 Common Stock.
8
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
----
FIRST
-----
<S> <C>
Revenues $12,429
Gross Profit 6,333
Net Income 1,024
Earnings per Share .09
1996
-----------------------------------------
FIRST (1) SECOND THIRD FOURTH
---------- ------ ----- ------
Revenues $9,345 $10,104 $11,117 $13,184
Gross Profit 4,620 3,981 5,881 7,118
Net Income (Loss) (524) (1,244) 705 1,425
Earnings (Loss) per Share (.05) (.12) .07 .14
1995
----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Revenues $9,050 $ 7,140 $ 5,998 $ 5,766
Gross Profit 4,660 3,274 2,275 2,509
Net Income (Loss) 1,202 426 (35) (85)
Earnings (Loss) per Share .12 .04 -- (.01)
</TABLE>
(1) Includes the results of Moisture Systems and Rutter since their acquisition
by the Company on January 25, 1996.
9
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
29, 1997.
<TABLE>
<CAPTION>
MARCH 29, 1997
--------------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C>
Short-term Obligation:
Promissory Note to Parent Company $21,200
=======
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000 shares authorized; 13,354,792 shares
issued and outstanding (1) $ 1,335
Capital in excess of par value 40,984
Retained earnings 8,160
Cumulative translation adjustment (1,039)
-------
Total Shareholders' Investment $49,440
=======
</TABLE>
(1) Does not include 358,333 shares of Common Stock reserved for issuance under
the Company's stock-based compensation plans as of March 29, 1997. Options
to purchase 216,849 shares of Common Stock had been granted and were
outstanding under the Company's stock-based compensation plans as of March
29, 1997. See "Management -- Compensation of Directors" and "--
Compensation of Executive Officers" and Note 3 of Notes to the Company's
Consolidated Financial Statements.
10
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 and the three month periods ended March 30, 1996 and March 29,
1997 has not been audited but, in the opinion of the Company, includes all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly such information in accordance with generally accepted accounting
principles applied on a consistent basis. The results of operations for the
three months ended March 29, 1997 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED PRO FORMA
------------------------------------------------ -------------------- COMBINED (2)
MARCH 30, MARCH 29, FISCAL YEAR
1992 1993 1994 1995 1996 (1) 1996 1997 1996
---- ---- ---- ---- --------- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $17,361 $42,031 $50,343 $27,954 $43,750 $ 9,345 $12,429 $45,297
------- ------- ------- ------- ------- ------- ------- -------
Costs and Operating Expenses:
Cost of Revenues 9,329 23,759 24,906 15,236 22,150 5,182 6,096 22,793
Selling, General and Administrative
Expenses 4,229 7,526 11,973 7,487 15,525 3,558 3,449 16,233
Research and Development
Expenses 647 1,790 3,895 2,741 4,608 1,176 1,071 4,608
------- ------- ------- ------- ------- ------- ------- -------
14,205 33,075 40,774 25,464 42,283 9,916 10,616 43,634
------- ------- ------- ------- ------- ------- ------- -------
Operating Income (Loss) 3,156 8,956 9,569 2,490 1,467 (571) 1,813 1,663
Interest and Other Expense, Net -- -- -- (72) (878) (266) (107) (934)
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) Before for Income Taxes 3,156 8,956 9,569 2,418 589 (837) 1,706 729
Income Tax (Provision) Benefit (1,253) (3,153) (3,189) (910) (227) 313 (682) (291)
------- ------- ------- ------- ------- ------- ------- -------
Net Income (Loss) $ 1,903 $ 5,803 $ 6,380 $ 1,508 $ 362 $ (524) $ 1,024 $ 438
======= ======= ======= ======= ======= ====== ======= =======
Earnings (Loss) per Share (3) $ .19 $ .58 $ .63 $ .15 $ .04 $ (.05) $ .09 $ .04
======= ======= ======= ======= ======= ======= ======= =======
Weighted Average Shares (3) 10,069 10,069 10,069 10,069 10,320 10,099 10,976 10,320
======= ======= ======= ======= ======= ====== ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital $ 5,593 $ 447 $ 6,116 $11,273 $23,358 $31,429
Total Assets 12,126 25,544 17,793 20,322 53,483 85,412
Long-term Obligations -- -- -- -- 21,200 --
Shareholders' Investment 7,282 3,822 9,208 13,773 20,910 49,440
</TABLE>
(1) Includes the results of Moisture Systems and Rutter since their acquisition
by the Company on January 25, 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 incremental effect of the
assumed issuance of the shares in the private placements and the assumed
exercise of stock options issued within one year prior to the Company's
initial public offering with exercise prices less than the initial public
offering price.
11
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 may generate
significant growth in the market for explosives-detection instruments, including
trace-detection systems.
A substantial portion 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.
12
RESULTS OF OPERATIONS
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
Revenues in the first quarter of 1997 increased 33% to $12.4 million from
$9.3 million in the first quarter of 1996. Product revenues increased 38% to
$9.1 million in 1997 from $6.5 million in 1996, while service revenues increased
20% to $3.3 million in 1997 from $2.8 million in 1996. Revenues from the
Company's process detection instruments increased to $4.7 million in 1997 from
$1.3 million in 1996, primarily due to $2.2 million from the continued
fulfillment of a mandated product line upgrade from The Coca-Cola Company to its
existing installed base and, to a lesser extent, increased shipments of the
Company's InScan systems, which were introduced in 1996. Revenues from the
mandated product-line upgrade are expected to continue through the third quarter
of 1997. Revenues from the Company's EGIS explosives detection systems and
related services decreased to $1.0 million in 1997 from $2.9 million in 1996,
primarily due to reduced demand in 1997 when compared with the sale in 1996 of
eight EGIS systems to the U.S. government to provide counter-terrorism support
in Israel. In May 1997, the Company was awarded a $6.2 million contract for its
EGIS systems from the Federal Aviation Administration. Revenues from the
Company's Moisture Systems subsidiary increased to $4.0 million in 1997 from
$2.9 million in 1996, primarily due to the inclusion of revenues for the full
quarter in 1997.
The gross profit margin increased to 51% in the first quarter of 1997 from
45% in the first quarter of 1996. The gross profit margin on product revenues
increased to 49% in 1997 from 46% in 1996 as a result of a change in product mix
in 1997. The gross profit margin on service revenues increased to 56% in 1997
from 42% in 1996, primarily due to increased field service efficiencies and the
inclusion of higher-margin service revenues from Moisture Systems for the full
quarter in 1997.
Selling, general and administrative expenses as a percentage of revenues
decreased to 28% in the first quarter of 1997 from 38% in the first quarter of
1996 as a result of an increase in revenues and nonrecurring costs in the 1996
period related to a reduction in personnel and other adjustments. This decrease
was offset in part by increased selling expense as the Company develops a sales
force for its InScan and Flash-GC systems. Research and development expenses as
a percentage of revenues declined to 8.6% in the first quarter of 1997 from
12.6% in the first quarter of 1996, primarily due to an increase in revenues and
the substantial completion of research and development relating to the Company's
InScan systems.
Interest expense, related party, of $0.3 million in the first quarter of
1997 reflects the issuance of a $21.2 million promissory note to Thermedics in
connection with the January 1996 acquisition of Moisture Systems. 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 "Transactions
with Affiliates."
The effective tax rates were 40% and 37% in the first quarter of 1997 and
1996, respectively. The effective tax rates in both periods exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes. The effective tax rate increased in 1997 due to higher state income
taxes.
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.
Revenues increased in 1996 due to the inclusion of $18.0 million in revenues
from Moisture Systems and Rutter, which were acquired in January 1996. 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
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.
13
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. 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 the $21.2 million promissory note to Thermedics discussed above.
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.
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.
14
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $31.4 million at March 29, 1997, compared
with $23.4 million at December 28, 1996. Cash and cash equivalents were $47.3
million at March 29, 1997, compared with $13.5 million at December 28, 1996.
During the first quarter of 1997, $6.0 million of cash was provided by
operating activities. During the first quarter of 1997, cash was provided by an
increase in current liabilities of $3.9 million, including $2.2 million of other
accrued expenses, primarily related to costs incurred in connection with the
Company's initial public offering.
During the first quarter of 1997, the Company expended $0.1 million on
purchases of property, plant and equipment. During the remainder of 1997, the
Company expects to make capital expenditures of approximately $0.4 million.
In March 1997, the Company sold 2,671,292 shares of its common stock in an
initial public offering at $11.50 per share for net proceeds of $28.1 million.
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, 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 acceptable terms or at
all. The Company believes that its existing resources are sufficient to meet the
capital requirements of its existing businesses for the foreseeable future.
15
BUSINESS
OVERVIEW
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. The Company believes that its 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
16
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.
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 currently addresses the product
content and packaging segment of this market.
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 believes that it 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 producers because the publicity associated with an abused bottle can
severely damage a brand name and a bottler's
17
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. The Company also
believes that these systems have applications in the broader packaging
inspection market. 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. The Company believes that demand for InScan systems will
increase as additional bottlers perceive the benefits of the technology. The
Company is also 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. 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.
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,
18
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.
Approximately 60% of the Company's sales of on-line moisture measurement
products 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. 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.
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
19
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 began shipping production units in the first quarter of 1997. The
Flash-GC systems are 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 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.
20
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
May 1997, the FAA announced that it was making a $12.2 million purchase of trace
explosives-detection equipment for use at the nation's busiest airports. That
purchase included an order for approximately 50 EGIS systems for $5.8 million,
with an option to order 200 more units in the future.
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 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."
21
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. In May 1997, the Company was awarded a $2.75 million contract to develop
and manufacture advanced explosives-detection equipment for the government of
the United Kingdom. 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 numerous United
States and foreign patents, and has filed applications for additional patents.
In addition, the Company has an exclusive, perpetual, royalty-free license under
certain 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 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."
22
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.
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. 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 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.
23
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, $4,608,000 and $1,071,000 in fiscal 1994, 1995, 1996 and the three
months ended March 29, 1997, respectively. Contract research and development
revenues were $1,923,000, $3,987,000, $1,758,000 and $498,000, respectively,
during the same periods.
EMPLOYEES
As of March 29, 1997, the Company had 215 full-time employees, of which
seven were engaged in senior management, 23 in administration and accounting, 46
in research and development, 45 in sales and marketing, 48 in product support
and 46 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 March 30, 1996 and March 29, 1997, the Company's backlog of firm orders
was approximately $9,427,000 and $10,827,000, 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.
24
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
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 28,
1996, and the three months ended March 29, 1997, Thermedics had consolidated
revenues of $292,077,000 and $72,057,000, respectively, and consolidated net
income of $29,138,000 and $21,966,000, 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 28, 1996, and the three months
ended March 29, 1997, Thermo Electron had consolidated revenues of
$2,932,558,000 and $763,505,000, respectively, and consolidated net income of
$190,816,000 and $52,058,000, 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 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.
25
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.
26
TRANSACTIONS WITH AFFILIATES
From time to time, the Company may transact business with other companies in
the Thermo Group. In fiscal 1996, these transactions included the following:
As of March 29, 1997, $43,636,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of corporate
notes, 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 Cardiosystems' pro rata allocation of the facility's
aggregate operating costs, real estate taxes and utilities.
On March 26, 1996, the Company completed a private placement of 300,000
shares of 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
Common Stock at a purchase price of $10.75 per share. These shares together,
less certain shares previously sold by the Selling Shareholders, comprise the
Shares offered pursuant to this Prospectus. 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 in the March private placement and Mr. Langan purchased
10,000 Shares in the November private placement, at prices of $10.00 and $10.75
per share, respectively.
27
MANAGEMENT
The Directors and executive officers of the Company and their ages as of
June 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Wood Jr. 54 Chairman of the Board and Director
Jeffrey J. Langan 52 Chief Executive Officer, President and Director
David H. Fine 54 Senior Vice President
John N. Hatsopoulos 63 Vice President, Chief Financial Officer and
Director
Paul F. Kelleher 54 Chief Accounting Officer
Morton Collins 61 Director
Matthew C. Weisman 54 Director
</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.
While the amount of time devoted to the affairs of the Company by these
individuals may vary substantially from time to time, the Company generally
expects that Mr. Wood will devote from 10% to 20% of his time, and that Messrs.
Hatsopoulos and Kelleher will devote less than 5% of their time, respectively,
to the affairs of the Company.
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.
28
Mr. Kelleher has been the Chief Accounting Officer of the Company since its
inception in 1990. Mr. Kelleher has been Senior Vice President, Finance of
Thermo Electron since June 1997, was 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.
Mr. Collins has been a Director of the Company since February 1997. Mr.
Collins has been a General Partner of DSV Partners III, a venture capital
limited partnership, since 1981 and a General Partner of DSV Management, Ltd.
since 1982. Since 1985, DSV Management, Ltd. has been a General Partner of DSV
Partners IV, a venture capital limited partnership. Mr. Collins is also a
director of Kopin Corporation, The Liposome Company, Tandem Computers, Inc. and
ThermoTrex Corporation.
Mr. Weisman has been a Director of the Company since May 1997. Mr. Weisman
has been an independent business consultant for more than five years. Mr.
Weisman is also president of Cobey Corporation, a consulting and private
investment company. From 1984 until 1987, Mr. Weisman served on the faculty of
the Harvard Business School, where he taught a course on entrepreneurial
management and conducted research on service industries. From 1969 to 1983, Mr.
Weisman served as president and chief executive officer of Executive Air Fleet
Corporation, a worldwide provider of management services for corporate aircraft.
Mr. Weisman is a director of Serologicals, Inc.
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 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 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 Common Stock. When
payable, amounts deferred may be disbursed solely in shares of Common Stock
accumulated under the Deferred Compensation Plan. The Company has reserved
25,000 shares under this Plan. As of March 29, 1997, 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.
29
The Company is required to appoint certain executive officers and full-time
employees of Thermo Electron as executive officers of the Company in accordance
with the Thermo Electron Corporate Charter. The compensation for these executive
officers is determined and paid entirely by Thermo Electron. The time and effort
devoted by these individuals to the Company's affairs is provided to the Company
under the Services Agreement between the Company and Thermo Electron.
Accordingly, the compensation for these individuals is not reported in the
following table. See "Relationship with Thermo Electron and Thermedics."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- --------------
SECURITIES
UNDERLYING
OPTIONS
(NUMBER OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AND COMPANY)(1) COMPENSATION(2)
--------------------------- ------ ----- ---------------- ----------------
<S> <C> <C> <C> <C>
John W. Wood Jr.
Former Chief Executive Officer(3) ......... $195,000 $172,000 $6,750
Jeffrey J. Langan $100,000 50,000 (TDX) $ --
Chief Executive Officer and President(4) .. $165,000 75,000 (TMD)
15,000 (TMO)
David H. Fine $128,000 $ 45,000 20,000 (TDX) $6,381
Senior Vice President ...................... 3,000 (TMD)
1,950 (TMO)
7,500 (TSR)
30,000 (TLZ)
</TABLE>
(1) In addition to receiving options to purchase 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).
(2) 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.
(3) 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.
(4) Mr. Langan was appointed President of the Company on April 2, 1996 and
Chief Executive Officer on December 27, 1996.
30
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
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS PRICE 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) 5,400 (TMD) 1.6% $28.13 02/09/99 $ 23,922 $ 50,274
30,000 (TSR) 5.8% $14.00 03/01/08 $ 334,200 $ 898,200
2,100 (TVL) 1.5% $12.78 03/07/01 $ 4,221 $ 8,883
3,000 (TMO) 0.2% $42.79 05/22/99 $ 20,220 $ 42,480
37,500 (TMO) 2.4% $40.63 04/03/08 $1,212,750 $ 3,258,000
5,000 (TBA) 0.6% $10.00 03/11/08 $ 39,800 $ 106,900
10,000 (TFG) 1.8% $10.00 09/12/08 $ 79,600 $ 213,800
15,000 (TOC) 0.5% $12.00 04/09/08 $ 143,250 $ 384,900
5,000 (LYTE) 1.4% $10.00 03/11/08 $ 39,800 $ 106,900
15,000 (TMQ) 0.5% $13.00 03/11/08 $ 155,250 $ 417,000
20,000 (TXM) 1.0% $11.00 03/11/08 $ 175,000 $ 470,400
Jeffrey J. Langan 50,000 (TDX) 24.2% $10.00 04/02/06 $ 314,500 $ 797,000
75,000 (TMD) 22.9%(4) $28.13 04/02/03 $ 858,750 $ 2,001,750
15,000 (TMO) 1.0%(4) $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) 0.9%(4) $28.13 02/09/99 $ 13,290 $ 27,930
1,950 (TMO) 0.1%(4) $42.79 05/22/99 $ 13,143 $ 27,612
7,500 (TSR) 1.5%(4) $14.00 02/09/08 $ 83,550 $ 224,500
30,000 (TLZ) 7.5%(4)(5) $23.55 09/12/08 $ 562,200 $ 1,510,800
</TABLE>
(1) The options to purchase shares of the Company's Common Stock (designated in
the table as TDX) and 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), Thermo Voltek Corp.
(designated in the table as TVL), Thermo BioAnalysis Corporation
(designated in the table as TBA), Thermo Fibergen Inc. (designated in the
table as TFG),
31
Thermo Optek Corporation (designated in the table as TOC), ThermoQuest
Corporation (designated in the table as TMQ), Trex Medical Corporation
(designated in the table as TXM) and ThermoLase Corporation (designated in
the table as TLZ) are immediately exercisable, while the options to
purchase shares of the common stock of ThermoLyte Corporation (designated
in the table as LYTE) are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of such 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 Common Stock, the repurchase rights lapse in
their entirety on the ninth anniversary of the grant date, unless the
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
first 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 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 (designated in the
table as TMO) and certain of its subsidiaries other than the Company,
including the common stock of Thermedics (designated in the table as TMD),
Thermo Sentron Inc. (designated in the table as TSR), Thermo Voltek Corp.
(designated in the table as TVL), Thermo BioAnalysis Corporation
(designated in the table as TBA), Thermo Fibergen Inc. (designated in the
table as TFG), Thermo Optek Corporation (designated in the table as TOC),
ThermoLyte Corporation (designated in the table as LYTE), ThermoQuest
Corporation (designated in the table as TMQ) and Trex Medical Corporation
(designated in the table as TXM). These options 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. Each
of these options was granted under stock option plans maintained by Thermo
Electron and, accordingly, are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
(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 sixth anniversary of the grant date.
32
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 VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
SHARES FISCAL YEAR-END OPTIONS
ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY ON EXERCISE REALIZED UNEXERCISABLE)(1) UNEXERCISABLE)
---- ------- ----------- -------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
John W. Wood Jr.(2) Thermedics 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
ThermoTrex 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 Common
Stock which were not exercisable until May 22, 1997. 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
purchase 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 was the initial
public offering price of the Common Stock.
(4) Options to purchase 23,333 and 41,667 shares of 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 sixth anniversary of the grant date.
33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997 by Thermedics, which is the
only person or entity that owns beneficially more than 5% of the outstanding
shares of Common Stock. See "Risk Factors -- Control by 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) .............................. 9,992,400 74.8%
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 Common
Stock beneficially owned by Thermedics. Thermo Electron disclaims beneficial
ownership of these shares.
Thermedics has adopted a stock option plan with respect to the 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 Common Stock as of June 30, 1997 as well as information
regarding the beneficial ownership of the common stock of Thermedics and Thermo
Electron, as of June 30, 1997, with respect to (i) each of the Company's
Directors, (ii) each executive officer named in the summary compensation table
above, and (iii) all Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
THERMEDICS THERMO ELECTRON
NAME DETECTION INC.(2) THERMEDICS INC.(3) CORPORATION(4)
---- ----------------- ------------------ --------------
<S> <C> <C> <C>
John W. Wood Jr. 47,854 179,049 265,999
Jeffrey J. Langan 113,660 90,000 35,429
David H. Fine 101,667 114,068 73,986
John N. Hatsopoulos 21,262 64,495 632,768
Morton Collins 20,000 0 0
Matthew C. Weisman 20,000 0 0
All Directors and executive officers as a group
(7) persons 334,543 467,837 1,143,676
</TABLE>
(l) Except as reflected in the footnotes to this table, shares of 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) Shares of Common Stock beneficially owned by Mr. Wood, Mr. Langan, Mr.
Hatsopoulos, Dr. Fine, Mr. Collins, Mr. Weisman and by all Directors and
executive officers as a group include 43,333, 100,000, 20,000, 91,667,
20,000, 20,000 and 300,000 shares, respectively, that such person or group
has the right to acquire within 60 days of June 30, 1997, through the
exercise of stock options. No Director or executive officer beneficially
owned more than 1% of the Common Stock outstanding as of June 30, 1997; and
all directors and executive officers as a group beneficially owned
approximately 2.4% of the Common Stock outstanding as of such date.
34
(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 130,700, 90,000, 50,000, 91,100 and 380,800
shares, respectively, that such person or group has the right to acquire
within 60 days of June 30, 1997, 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 June 30, 1997 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 June 30,
1997; all Directors and executive officers as a group beneficially owned
approximately 1.3% of such common stock outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to reflect
a three-for-two stock split effected in the form of a 50% stock dividend 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 230,458, 35,100,
535,685, 56,537 and 952,917 shares, respectively, that such person or group
has the right to acquire within 60 days of June 30, 1997, 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 June 30, 1997 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 June 30, 1997; all Directors and
executive officers as a group beneficially owned less than 1% of such
common stock outstanding as of such date.
STOCK HOLDING ASSISTANCE PLAN
The Company has adopted a stock holding policy which requires certain
executives of the Company to acquire and hold a minimum number of shares of
Common Stock. In order to assist the executives in complying with the policy,
the Company also adopted a Stock Holding Assistance Plan, under which it may
make interest-free loans to certain individuals, including the executive
officers identified under the caption "Management -- Compensation of Executive
Officers," elsewhere in this Prospectus, to enable such individuals to purchase
the Company's Common Stock in the open market. No such loans were outstanding as
of March 29, 1997.
35
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling Shareholders, the
number of shares of Common Stock owned by each Selling Shareholder, the number
of Shares that may be offered by each Selling Shareholder pursuant to this
Prospectus, and the number of Shares each Selling Shareholder will own after
completion of the offering, assuming all of the Shares being offered hereby are
sold.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK SHARES OWNED
OWNED AFTER
PRIOR TO THE SHARES BEING COMPLETION
SELLING SHAREHOLDER OFFERING(1) OFFERED OF THE OFFERING
------------------- ----------- ------- ---------------
<S> <C> <C> <C>
Craig Drill Capital L.P. 80,000 80,000 0
Awad & Associates L.P. 5,000 5,000 0
Richard B. Felder 5,000 5,000 0
Richard B. Felder c/f Jeffrey D. Felder 2,500 2,500 0
Richard B. Felder c/f Jonathan D. Felder 2,500 2,500 0
Mark Cahill 2,500 2,500 0
Georgia Veru 2,500 2,500 0
Michael D. Mintz Trust u/a 8/12/92 11,500 10,000 1,500
Martin Walsh 10,000 10,000 0
Crescent International Holdings Limited(2) 50,000 50,000 0
David H. Fine(3) 101,667 10,000 91,667
Bear Stearns 80,000 80,000 0
Universal Partners, L.P. 10,000 10,000 0
Alan J. Rubin 10,000 10,000 0
Rush & Co. 55,000 55,000 0
Hartley Bernstein 5,000 5,000 0
William C. Bartholomay 10,000 10,000 0
Paul A. Berkman & Judith M. Berkman, JTWROS 5,000 5,000 0
Richard J. & Christine S. Cowgill 5,000 5,000 0
Harvey Greenfield 5,000 5,000 0
James W. Jacobs 10,000 10,000 0
Ronald M. Krinick 10,000 10,000 0
Jeffrey J. Langan(4) 113,660 10,000 103,660
Nadia One, Inc. 10,000 10,000 0
WNC Corporation 50,000 50,000 0
Randolph K. Pace 20,000 20,000 0
Pilot Trading Trust 9,000 9,000 0
Dr. Martin R. Post MD PC Retirement Trust dtd 9/1/84 2,500 2,500 0
Edward Raskin, Ttee FBO Edward Raskin u/a/d 10/14/94 5,000 5,000 0
Jiela Rufeh 2,500 2,500 0
Bejan Rufeh 2,500 2,500 0
Seema Sachdeva & Rakesh Sachdeva 5,000 5,000 0
Michael & Dafna Schmerin 2,500 2,500 0
Joel Schoenfeld 2,500 2,500 0
36
Hans Schopper 25,000 25,000 0
Allenstown Investment Partners 10,000 10,000 0
Carico, Inc. 5,000 5,000 0
Martin D. Cohn and Gerald L. Cohn, Trustees for Gerald L.
Cohn 25,000 25,000 0
Hannah S. and Samuel A. Cohn Memorial Foundation 5,000 5,000 0
Cynthia J. Cohn Revocable Trust 5,000 5,000 0
Ekistics Corp. 10,000 10,000 0
Richard Harriton 10,000 10,000 0
M.D. Funding, Inc. 10,000 10,000 0
Mid-Lakes Profit Sharing Trust 10,000 10,000 0
Bruce E. Toll 20,000 20,000 0
Tracy M. Cirillo(5) 1,000 1,000 0
Francis X. O'Brien 1,366 1,000 366
Total 840,693 643,500 197,193
</TABLE>
(1) Except as otherwise reflected in the footnotes to this table, all share
ownership includes Shares owned by the Selling Shareholders and shares that
the Selling Shareholders have the right to acquire within 60 days of June
30, 1997, through the exercise of stock options.
(2) Crescent International Holdings Limited is a wholly owned subsidiary of
Crescent Holding GmbH, which is indirectly controlled by Suliman S. Olayan,
the father of Hutham S. Olayan, a director of Thermo Electron. Ms. Olayan
disclaims beneficial ownership of the Shares owned by Crescent
International Holdings Limited.
(3) Dr. Fine is Senior Vice President of the Company. See "Management" and
"Security Ownership of Certain Beneficial Owners and Management."
(4) Mr. Langan is Chief Executive Officer, President and a Director of the
Company. See "Management" and "Security Ownership of Certain Beneficial
Owners and Management."
(5) Ms. Cirillo is an employee of the Company.
The Shares are being registered to permit public secondary trading of the
Shares from time to time by the Selling Shareholders. All of the Shares being
offered by the Selling Shareholders were sold by the Company in private
placement transactions pursuant to Stock Purchase Agreements with the Company
dated March 26, 1996 and November 19, 1996 (the "Purchase Agreements") for cash.
In the Purchase Agreements, the Company agree, among other things, to bear
all expenses (other than underwriting discounts, selling commissions, and fees
and expenses of counsel and other advisors to the Selling Shareholders) in
connection with the registration and sale of the Shares being offered by the
Selling Shareholders. See "Sale of Shares." The Company intends to prepare and
file such amendments and supplements to the Registration Statement of which this
Prospectus forms a part as may be necessary to keep the Registration Statement
effective until all the Shares registered thereunder have been sold pursuant
thereto or until, by reason of Rule 144(k) of the Commission under the
Securities Act or any other rule of similar effect, the Shares are no longer
required to be registered for the sale thereof by the Selling Shareholders.
37
SALE OF SHARES
The Company will not receive any of the proceeds from this offering. The
Shares offered hereby may be sold from time to time by or for the account of any
of the Selling Shareholders or by their pledgees, donees, distributees or
transferees or other successors in interest to the Selling Shareholders. The
Shares may be sold hereunder directly to purchasers by the Selling Shareholders
in negotiated transactions; by or through brokers or dealers in ordinary
brokerage transactions or transactions in which the broker solicits purchases;
block trades in which the broker or dealer will attempt to sell Shares as agent
but may position and resell a portion of the block as principal; transactions in
which a broker or dealer purchases as principal for resale for its own account;
or through underwriters or agents. The Shares may be sold at a fixed offering
price, which may be changed, at the prevailing market price at the time of sale,
at prices related to such prevailing market price or at negotiated prices. Any
brokers, dealers, underwriters or agents may arrange for others to participate
in any such transaction and may receive compensation in the form of discounts,
commissions or concessions from the Selling Shareholders and/or the purchasers
of the Shares. Each Selling Shareholder will be responsible for payment of any
and all commissions to brokers.
The aggregate proceeds to any Selling Shareholder from the sale of the
Shares offered hereby will be the purchase price of such Shares less any
broker's commission.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Any Selling Shareholder and any broker-dealer, agent or underwriter who acts
in connection with the sale of Shares hereunder may be deemed to be an
"underwriter" as that term is defined in the Securities Act, and any commissions
received by them and profit on any resale of the Shares as principal might be
deemed to be underwriting discounts and commissions under the Securities Act.
The Company has agreed to indemnify the Selling Shareholder against certain
liabilities, including liabilities under the Securities Act as underwriters or
otherwise.
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the principal terms applicable to
the authorized shares of Common Stock.
As of the date of this Prospectus, the Company had 50,000,000 shares of
Common Stock authorized for issuance, of which 13,354,792 were issued and
outstanding. Each share of Common Stock is entitled to pro rata participation in
distributions upon liquidation and to one vote on all matters submitted to a
vote of shareholders. Dividends may be paid to the holders of Common Stock when
and if declared by the Board of Directors out of funds legally available
therefor. Holders of Common Stock have no preemptive, subscription, redemption,
conversion or similar rights. The outstanding shares of Common Stock are, and
the shares offered hereby when issued will be, legally issued, fully paid and
nonassessable.
The shares of Common Stock have noncumulative voting rights. As a result,
the holders of more than 50% of the shares voting can elect all the directors if
they so choose, and in such event, the holders of the remaining shares cannot
elect any directors. Thermedics intends to continue to beneficially own at least
a majority of the outstanding Common Stock, and will have the power to elect all
of the members of the Company's Board of Directors. Thermedics is a
majority-owned subsidiary of Thermo Electron and, therefore, Thermo Electron may
be deemed a beneficial owner of the shares of Common Stock beneficially owned by
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
38
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 Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
There are currently 13,354,792 shares of Common Stock outstanding, of which
3,362,392 are freely tradeable without restriction or further registration under
the Securities Act, except that any shares purchased 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 remaining 9,992,400 shares of Common Stock are owned by Thermedics. In
connection with the Company's initial public offering, which was completed on
March 26, 1997, Thermo Electron, Thermedics and the Company have agreed, without
the prior written consent of the Representatives of underwriters of such
offering, not to offer, sell or otherwise dispose of any shares of Common Stock
prior to August 20, 1997, other than (i) the issuance of shares of Common Stock
to be issued in such offering, (ii) the issuance of options and sales of shares
of Common Stock pursuant to existing stock-based compensation plans, (iii)
shares of Common Stock which may be sold to Thermedics and Thermo Electron and
(iv) 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 August 20, 1997. 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 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, 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 one year from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of (i) 1% of
the then outstanding shares of Common Stock or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale was filed pursuant to Rule 144 provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, under Rule 144(k), if a period of at
least two 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 Company had reserved 358,333 shares of Common Stock for grants under its
existing stock-based compensation plans as of March 29, 1997. As of such date,
options to purchase up to 216,849 shares of Common Stock had been granted under
such plans. All such options are 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. The Company has registered all shares of
Common Stock issuable under such plans under the Securities Act. Accordingly,
shares issuable under these plans that are not subject to transferability
restrictions are eligible for sale in the public market immediately, subject to
Rule 144 limitations applicable to Affiliates as noted above.
39
LEGAL OPINION
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of
Thermo Electron, Thermedics and the Company. Mr. Hoogasian owns or has the right
to acquire 5,000 shares of Common Stock, 8,900 shares of common stock of
Thermedics and 107,558 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. 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. For further
information, reference is made to the Registration Statement, copies of which
may be obtained upon payment of the fees prescribed by the Commission from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Web
site at (http://www.sec.gov). The Common Stock of the Company is listed on the
American Stock Exchange, and the reports, proxy statements and other information
filed by the Company with the Commission can be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006.
40
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 and for the three months ended
March 30, 1996 and March 29, 1997...................................... F-4
Consolidated Balance Sheet as of December 30, 1995, December 28, 1996
and March 29, 1997..................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1994, December 30, 1995 and December 28, 1996 and for the three months
ended March 30, 1996 and March 29, 1997................................ F-6
Consolidated Statement of Shareholders' Investment for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 and for the
three months ended March 29, 1997...................................... 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
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 (except with respect
to the matter discussed in Note 9
as to which the date is March 26, 1997)
F-2
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
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 8)
Product....................... $40,436 $18,457 $31,255 $6,557 $9,073
Service....................... 9,907 9,497 12,495 2,788 3,356
------- ------- ------- ------ ------
50,343 27,954 43,750 9,345 12,429
------- ------- ------- ------ ------
Costs and Operating Expenses:
Cost of product revenues...... 18,052 9,895 15,417 3,553 4,614
Cost of service revenues...... 6,854 5,341 6,733 1,629 1,482
Selling, general and
administrative expenses
(Note 6)..................... 11,973 7,487 15,525 3,558 3,449
Research and development
expenses..................... 3,895 2,741 4,608 1,176 1,071
------- ------- ------- ------ ------
40,774 25,464 42,283 9,916 10,616
------- ------- ------- ------ ------
Operating Income (Loss)......... 9,569 2,490 1,467 (571) 1,813
Interest Income................. -- -- 229 -- 203
Interest Expense, Related Party
(Note 2)....................... -- -- (1,119) (221) (306)
Other Income (Expense).......... -- (72) 12 (45) (4)
------- ------- ------- ------ ------
Income (Loss) Before Income
Taxes.......................... 9,569 2,418 589 (837) 1,706
Income Tax (Provision) Benefit
(Note 4)....................... (3,189) (910) (227) 313 (682)
------- ------- ------- ------ ------
Net Income (Loss)............... $ 6,380 $ 1,508 $ 362 $ (524) $1,024
======= ======= ======= ====== ======
Earnings (Loss) per Share....... $ .63 $ .15 $ .04 $ (.05) $ .09
======= ======= ======= ====== ======
Weighted Average Shares......... 10,069 10,069 10,320 10,099 10,976
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
THERMEDICS DETECTION INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 29,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 1,282 $13,484 $47,265
Accounts receivable, less allowances of $516,
$1,215 and $1,172............................... 4,619 9,387 7,958
Unbilled contract costs and fees................. 1,152 307 138
Inventories...................................... 8,991 8,793 9,275
Prepaid and refundable income taxes (Note 4)..... 1,530 2,173 2,169
Prepaid expenses................................. 208 547 556
------- ------- -------
17,782 34,691 67,361
------- ------- -------
Property, Plant and Equipment, at Cost, Net........ 2,230 1,784 1,649
------- ------- -------
Cost in Excess of Net Assets of Acquired Companies
(Note 2).......................................... -- 16,694 16,088
------- ------- -------
Other Assets....................................... 310 314 314
------- ------- -------
$20,322 $53,483 $85,412
======= ======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Promissory note to parent company................ $ -- $ -- $21,200
Accounts payable................................. 1,558 3,030 2,480
Accrued payroll and employee benefits............ 681 1,375 1,187
Accrued installation and warranty expenses....... 1,414 1,413 1,256
Deferred revenue................................. 1,324 1,281 1,471
Customer deposits................................ 446 637 1,413
Other accrued expenses........................... 1,086 3,436 6,293
Due to parent company and affiliates............. -- 161 632
------- ------- -------
6,509 11,333 35,932
------- ------- -------
Deferred Income Taxes (Note 4)..................... 40 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, 10,683,500 shares and
13,354,792 shares issued
and outstanding ................................ 1,000 1,068 1,335
Capital in excess of par value................... 6,114 13,130 40,984
Retained earnings................................ 6,774 7,136 8,160
Cumulative translation adjustment................ (115) (424) (1,039)
------- ------- -------
13,773 20,910 49,440
------- ------- -------
$20,322 $53,483 $85,412
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
-------- ------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............ $ 6,380 $ 1,508 $ 362 $ (524) $ 1,024
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.............. 1,060 1,159 2,364 674 349
Provision for losses on
accounts receivable....... 128 98 582 30 18
Other noncash expenses..... 1,127 727 1,804 313 135
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) (1,284) 1,423
Unbilled contract costs
and fees................ 1,687 (931) 845 363 169
Inventories.............. 4,649 (3,213) 1,254 241 (515)
Other current assets..... (934) (116) (599) (306) (14)
Accounts payable......... (2,977) 182 758 (540) (550)
Other current
liabilities............. (11,147) (2,392) 1,045 2,092 3,923
-------- ------- -------- ------- -------
Net cash provided by
(used in) operating
activities............. 1,916 (1,967) 6,639 1,059 5,962
-------- ------- -------- ------- -------
INVESTING ACTIVITIES:
Acquisitions (Note 2)........ -- -- (21,668) (21,668) --
Acquisition of product line
(Note 2).................... -- -- (300) -- --
Purchases of machinery,
equipment and leasehold
improvements................ (722) (608) (766) (186) (131)
Proceeds from sale of
machinery, equipment and
leasehold improvements...... 448 19 113 6 82
Purchase of other assets..... (471) -- -- -- --
-------- ------- -------- ------- -------
Net cash used in
investing activities... (745) (589) (22,621) (21,848) (49)
-------- ------- -------- ------- -------
FINANCING ACTIVITIES:
Net proceeds from issuance of
Company common stock
(Note 7).................... -- -- 6,964 3,000 28,121
Proceeds from issuance of
promissory note to parent
company (Note 2)............ -- -- 21,200 21,200 --
Transfers to parent company
and additional capital
contributions, net ......... (984) 3,170 120 120 --
Other........................ -- -- (15) (13) (18)
-------- ------- -------- ------- -------
Net cash provided by
(used in) financing
activities............. (984) 3,170 28,269 24,307 28,103
-------- ------- -------- ------- -------
Exchange Rate Effect on Cash.. 14 (138) (85) 58 (235)
-------- ------- -------- ------- -------
Increase in Cash and Cash
Equivalents.................. 201 476 12,202 3,576 33,781
Cash and Cash Equivalents at
Beginning of Period.......... 605 806 1,282 1,282 13,484
-------- ------- -------- ------- -------
Cash and Cash Equivalents at
End of Period................ $ 806 $ 1,282 $ 13,484 $ 4,858 $47,265
======== ======= ======== ======= =======
CASH PAID FOR:
Interest..................... $ -- $ -- $ 596 $ -- $ --
======== ======= ======== ======= =======
Income taxes................. $ 338 $ 152 $ 618 $ 27 $ 23
======== ======= ======== ======= =======
NONCASH ACTIVITIES:
Fair value of assets of
acquired companies.......... $ -- $ -- $ 24,328 $24,328 $ --
Cash paid for acquired
companies................... -- -- (21,668) (21,668) --
-------- ------- -------- ------- -------
Liabilities assumed of
acquired companies....... $ -- $ -- $ 2,660 $ 2,660 $ --
======== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
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)
(UNAUDITED)
Net income........................ -- -- 1,024 --
Net proceeds from initial public
offering of common stock
(Note 9)......................... 267 27,854 -- --
Translation adjustment............ -- -- -- (615)
------ ------- ------ -------
BALANCE MARCH 29, 1997............ $1,335 $49,984 $8,160 $(1,039)
====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
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
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
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
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.
Interim Financial Statements
The financial statements as of March 29, 1997 and for the three months ended
March 30, 1996 and March 29, 1997, are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for
a fair presentation of results for these interim periods. The results of
operations for the three-month period ended March 29, 1997 are not necessarily
indicative of the results to be expected for the entire year.
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
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
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
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
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
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
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
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.
9. SUBSEQUENT EVENT
In March 1997, the Company sold 2,671,292 shares of common stock in an
initial public offering at $11.50 per share for net proceeds of $28.1 million.
Following the offering, Thermedics owned 75% of the Company's outstanding
common stock.
F-18
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
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
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
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
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
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>
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>
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
RUTTER & CO. B.V.
Cash flow data is not required to be prepared under Netherlands GAAP. The
accompanying statements 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
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
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
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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
CONSTITUTE 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
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company 2
Risk Factors 3
Price Range of Common Stock 8
Dividend Policy 8
Selected Quarterly Financial Data
(Unaudited) 9
Capitalization 10
Selected Financial Information 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Business 16
Relationship with Thermo Electron
and Thermedics 25
Transactions with Affiliates 27
Management 28
Security Ownership of Certain Beneficial
Owners and Management 34
Selling Shareholders 36
Sale of Shares 38
Description of Capital Stock 38
Shares Eligible for Future Sale 39
Legal Opinion 40
Experts 40
Additional Information 40
Index to Financial Statements F-1
</TABLE>
----------------------
UNTIL __________ , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING 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.
643,500 SHARES
[Logo]
COMMON STOCK
PROSPECTUS
____________ , 1997
================================================================================
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
estimated except the Securities and Exchange Commission ("Commission")
registration fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Securities and Exchange Commission registration fee $ 2,286
Legal fees and expenses 5,000
Accounting fees and expenses 5,000
Printing and engraving expenses 15,000
Miscellaneous 2,000
Total $29,286
</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.
The Selling Shareholders are obligated under the Purchase Agreements to
indemnify Directors, officers and controlling persons of the Registrant against
certain liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March and November 1996, pursuant to Stock Purchase Agreements with
certain investors, the Registrant sold an aggregate of 683,500 shares of its
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
II-1
(b) Financial Statement Schedules
The Financial Statement Schedules as of March 29, 1997 and the Report of
Independent Public Accountants on such schedules are included in this
Registration Statement. All other schedules are omitted because they are not
applicable or are not required under Regulation S-X.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, 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.
(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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WALTHAM, COMMONWEALTH OF
MASSACHUSETTS, ON THIS 23RD DAY OF JULY, 1997.
THERMEDICS DETECTION INC.
By: /s/ JEFFREY J. LANGAN
--------------------------------
JEFFREY J. LANGAN
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
Each of the undersigned Directors and Officers of Thermedics Detection Inc.
hereby appoints John N. Hatsopoulos, Paul F. Kelleher, Melissa F. Riordan, Seth
H. Hoogasian and Sandra L. Lambert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JEFFREY J. LANGAN
- ----------------------------------- President, Chief Executive Officer and July 23, 1997
JEFFREY J. LANGAN Director
/s/ JOHN N. HATSOPOULOS Vice President, Chief Financial Officer July 23, 1997
- ----------------------------------- and Director
JOHN N. HATSOPOULOS
/s/ PAUL F. KELLEHER Chief Accounting Officer July 23, 1997
- -----------------------------------
PAUL F. KELLEHER
/s/ JOHN W. WOOD JR. Director July 23, 1997
- -----------------------------------
JOHN W. WOOD JR.
- ----------------------------------- Director July , 1997
MORTON COLLINS
- ----------------------------------- Director July , 1997
MATTHEW C. WEISMAN
</TABLE>
II-3
SCHEDULE I
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
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
EXHIBIT INDEX
Each exhibit listed below which is marked by an asterisk (*) is incorporated
by reference to the correspondingly numbered exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-19199).
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C>
*2.1 -- Asset Purchase Agreement dated as of January 25, 1996 among the Registrant, Moisture
Systems Corporation and certain Affiliates of Moisture Systems
Corporation
*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.
*3.1 -- Articles of Organization of the Registrant, as amended
*3.2 -- Bylaws of the Registrant
*4.1 -- Specimen Common Stock Certificate
5 -- Opinion of Seth H. Hoogasian, Esq.
*10.1 -- Corporate Services Agreement dated as of March 20, 1996, between Thermo Electron
Corporation ("Thermo Electron") and the Company
10.2 -- Thermo Electron Corporate Charter, as amended and restated effective January 3,
1993 (filed as Exhibit 10.1 to Thermo Electron Corporation's Annual Report on
Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference)
*10.3 -- Tax Allocation Agreement dated as of March 20, 1996 between Thermedics Inc.
("Thermedics") and the Company
*10.4 -- Master Repurchase Agreement dated as of March 20, 1996 between the Company and
Thermo Electron
*10.5 -- Master Guarantee Reimbursement dated as of March 20, 1996 among Thermo Electron,
Thermedics and the Company
*10.6 -- Master Guarantee Reimbursement dated as of March 20, 1996 between Thermedics and
the Company
*10.7 -- Equity Incentive Plan of the Company
*10.8 -- Deferred Compensation Plan for Directors of the Company
*10.9 -- $21.2 Million Principal Amount Promissory Note due March 1998, issued by the Company
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 Company
*10.12 -- Stock Purchase Agreement dated as of November 19, 1996 between Jeffrey J. Langan
and the Company
10.13 -- Stock Holding Assistance Plan and Form of Promissory Note
In addition to the stock-based compensation plans of the
Company, the executive officers of the Company may be granted
awards under stock-based compensation plans of the
Registrant's parent, Thermo Electron, and its subsidiaries,
for services rendered to the Company or to such affiliated
corporations. Such plans were filed as Exhibits 10.21 through
10.45 to the Annual Report on Form 10-K of Thermo Electron for
the year ended December 28, 1996 [File No. 1-8002] and as
Exhibits 10.18 through 10.22 to the Annual Report on Form 10-K
of Thermedics for the fiscal year ended December 28, 1996
[File No. 1-9567] and are incorporated herein by reference.
11 -- Computation of Earnings (Loss) per Share
*22 -- Subsidiaries of the Company
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. (contained in Exhibit 5)
24 -- Power of Attorney (contained on page II-3 of this Registration Statement)
</TABLE>
EXHIBIT 5
Thermedics Detection Inc.
81 Wyman Street
Waltham, Massachusetts 02254-9046
July 23, 1997
Thermedics Detection Inc.
220 Mill Road
Chelmsford, Massachusetts 01824
Re: Registration Statement on Form S-1 Relating to 643,500 Shares of
the Common Stock, $.10 par value, of Thermedics Detection Inc.
Dear Sirs
I am General Counsel to Thermedics Detection Inc., a Massachusetts
corporation (the "Company"), and have acted as counsel in connection with the
registration under the Securities Act of 1933, as amended, on Form S-1 (the
"Registration Statement"), of 643,500 shares of the Company's Common Stock, $.10
par value per share (the "Shares"), which may from time to time be sold by
certain shareholders of the Company.
I or a member of my staff have reviewed the corporate proceedings taken by
the Company with respect to the authorization of the issuance of the Shares. I
or a member of my staff have also examined and relied upon originals or copies,
certified or otherwise authenticated to my satisfaction, of all corporate
records, documents, agreements or other instruments of the Company, and have
made investigations of law and have discussed with the Company's representatives
questions of fact that I or a member of my staff have deemed necessary or
appropriate.
Based upon and subject to the foregoing, I am of the opinion that the
Shares have been duly authorized by the Company and are validly issued, fully
paid and non-assessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, including any amendments thereto, and to the use of my
name under the caption "Legal Opinion" in the prospectus constituting a part
thereof.
Sincerely,
Seth H. Hoogasian
General Counsel
Exhibit 10.13
THERMEDICS DETECTION INC.
-------------------------
STOCK HOLDING ASSISTANCE PLAN
-----------------------------
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermedics Detection Inc. (the
"Company") and its stockholders by encouraging Key Employees to acquire and
maintain share ownership in the Company, by increasing such employees'
proprietary interest in promoting the growth and performance of the Company and
its subsidiaries and by providing for the implementation of the Stock Holding
Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the meanings set
forth below:
Committee: The Human Resources Committee of the Board of Directors of
the Company as appointed from time to time.
Common Stock: The common stock of the Company and any successor
thereto.
Company: Thermedics Detection Inc., a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the Company, as
adopted by the Committee and as in effect from time to time.
Key Employee: Any employee of the Company or any of its subsidiaries,
including any officer or member of the Board of Directors who is also an
employee, as designated by the Committee, and who, in the judgment of the
Committee, will be in a position to contribute significantly to the attainment
of the Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company pursuant to this
Plan.
Plan: The Thermo Fibertek Inc. Stock Holding Assistance Plan, as
amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered by the
Committee, which shall have authority to interpret the Plan and the Stock
Holding Policy and, subject to their provisions, to prescribe, amend and rescind
any rules and regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's interpretations and
decisions with regard to the Plan and the Stock Holding Policy and such rules
and regulations as may be established thereunder shall be final and conclusive.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the
manner and to the extent the Committee deems desirable to carry it into effect.
No member of the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans from time to
time to Key Employees in such amounts as to cause such Key Employees to comply
with the Stock Holding Policy is, in the judgment of the Committee, reasonably
expected to benefit the Company and authorizes the Company to extend Loans from
time to time to Key Employees in such amounts as may be requested by such Key
Employees in order to comply with the Stock Holding Policy. Such Loans may be
used solely for the purpose of acquiring Common Stock (other than upon the
exercise of stock options or under employee stock purchase plans) in open market
transactions or from the Company.
Each Loan shall be full recourse and evidenced by a non-interest
bearing promissory note substantially in the form attached hereto as Exhibit A
(the "Note") and maturing in accordance with the provisions of Section 6 hereof,
and containing such other terms and conditions, which are not inconsistent with
the provisions of the Plan and the Stock Holding Policy, as the Committee shall
determine in its sole and absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be imputed on
any interest free Loan extended under the Plan. A Key Employee shall be deemed
to have paid the imputed interest to the Company and the Company shall be deemed
to have paid said imputed interest back to the Key Employee as additional
compensation. The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent allowable under
the rules relating to investment interest. The deemed compensation payment to
the Key Employee shall be taxable to the employee and deductible to the Company,
but shall also be subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and payable on
demand by the Company. If no such demand is made, then each Loan shall mature
and the principal thereof shall become due and payable on the fifth anniversary
of the date of the Loan, provided that the Committee may, in its sole and
absolute discretion, authorize such other maturity and repayment schedule as the
Committee may determine. Each Loan shall also become immediately due and payable
in full, without demand, upon the occurrence of any of the events set forth in
the Note; provided that the Committee may, in its sole and absolute discretion,
authorize an extension of the time for repayment of a Loan upon such terms and
conditions as the Committee may determine.
2
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan or the
Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding
Policy at any time. No such amendment or termination, however, shall alter or
otherwise affect the terms and conditions of any Loan then outstanding to Key
Employee without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to
receive a Loan under the Plan, and no employee shall have any right to be
retained in the employ of the Company due to his or her participation in the
Plan.
(b) No Loan shall be made hereunder unless counsel for the Company
shall be satisfied that such Loan will be in compliance with applicable federal,
state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not be required
to establish any special or separate fund or to make any other segregation of
assets to assure the making of any Loan under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by accepting any
Loan under the Plan, each Key Employee shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, any action taken
under the Plan or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Loans hereunder, as may be
required by any applicable statute, rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective upon
approval and adoption by the Committee.
3
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMEDICS DETECTION INC.
PROMISSORY NOTE
$ Dated:
-------------- -------------
For value received, ________________, an individual whose residence is
located at _______________________ (the "Employee"), hereby promises to pay to
Thermedics Detection Inc. (the "Company"), or assigns, ON DEMAND, but in any
case on or before [insert date which is the fifth anniversary of date of
issuance] (the "Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without interest.
Principal shall be payable in lawful money of the United States of America, in
immediately available funds, at the principal office of the Company or at such
other place as the Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in full of
this Note, the Employee agrees to repay an amount equal to 20% of the Employee's
annual cash incentive compensation (referred to as bonus) to the Company,
beginning with the first such bonus payment to occur after the date of this
Note, and on each of the next four bonus payment dates occurring prior to the
Maturity Date. Any amount remaining unpaid under this Note, if no demand has
been made by the Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time, in whole or
in part, without any premium or penalty. The Employee acknowledges and agrees
that the Company has advanced to the Employee the principal amount of this Note
pursuant to the Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the option of the
Company, upon the occurrence of any of the following events:
(a) the termination of the Employee's employment with the
Company, with or without cause, for any reason or for no reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her debts as
they become due, the insolvency of the Employee, the filing by or
against the Employee of any petition under
4
the United States Bankruptcy Code (or the filing of any similar
petition under the insolvency law of any jurisdiction), or the making
by the Employee 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 Employee; or
(d) 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 Employee or any liability or
obligation of the Employee to the Company.
In case any payment herein provided for shall not be paid when due, the
Employee further promises to pay all costs of collection, including all
reasonable attorneys' fees.
No delay or omission on the part of the Company in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Company, 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
Employee 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 Company.
This Note has been made pursuant to the Company's Stock Holding
Assistance Plan and shall be governed by and construed in accordance with, such
Plan and the laws of the State of Delaware and shall have the effect of a sealed
instrument.
-------------------------------
Employee Name:
-----------------
- ------------------------
Witness
5
EXHIBIT 11
THERMEDICS DETECTION INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
----------------------------------------- -----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS
(LOSS) PER SHARE:
Net Income (Loss) (a) $ 6,380,000 $ 1,508,000 $ 362,000 $ (524,000) $ 1,024,000
----------- ----------- ----------- ----------- -----------
Shares:
Weighted average shares outstanding 10,000,000 10,000,000 10,275,385 10,032,967 10,975,926
Add: Shares issuable from assumed exercise of
options and shares issued in private
placements (as determined by the
application of the treasury stock method) 68,834 68,834 44,888 65,889 --
----------- ----------- ----------- ----------- -----------
Weighted averages shares, as adjusted (b) 10,068,834 10,068,834 10,320,273 10,098,856 10,975,926
----------- ----------- ----------- ----------- -----------
Primary Earnings (Loss) per Share (a) / (b) $ .63 $ .15 $ .04 $ (.05) $ .09
=========== =========== =========== =========== ===========
</TABLE>
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 (except with respect to the matters discussed in
Note 9 as to which the date is March 26, 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
July 23, 1997
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
July 23, 1997
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 on page F-3 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 on page F-28 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
July 23, 1997
