<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1997
REGISTRATION NO. 333-19199
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
THERMEDICS DETECTION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3823 04-3106698
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
220 MILL ROAD, CHELMSFORD, MASSACHUSETTS 01824-4178
(508) 251-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
SANDRA L. LAMBERT, CLERK
THERMEDICS DETECTION INC.
C/O THERMO ELECTRON CORPORATION
81 WYMAN STREET
P. O. BOX 9046
WALTHAM, MA 02254-9046
(617) 622-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SETH H. HOOGASIAN, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE
GENERAL COUNSEL TESTA, HURWITZ & THIBEAULT, LLP
THERMEDICS DETECTION INC. 125 HIGH STREET
C/O THERMO ELECTRON CORPORATION BOSTON, MASSACHUSETTS 02110
81 WYMAN STREET (617) 248-7000
WALTHAM, MASSACHUSETTS 02254-9046
(617) 622-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement has become effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated February 18, 1997
PROSPECTUS
2,200,000 SHARES
LOGO
COMMON STOCK
-----------
Thermedics Detection Inc. ("Thermedics Detection" or the "Company"), a
privately held, majority-owned subsidiary of Thermedics Inc. ("Thermedics"),
will distribute to holders of the Company's outstanding shares of common stock,
par value $.10 per share ("TDX Common Stock"), of record at the close of
business on February 6, 1997 (the "Thermedics Detection Record Date"),
including Thermedics, transferable subscription rights (the "Rights") to
subscribe for and purchase additional shares of TDX Common Stock for a price of
$ per share (the "Subscription Price"). Thermedics, which owns approximately
93.6% of the outstanding TDX Common Stock, will not exercise the Rights it
receives from the Company, but is instead distributing all of such Rights to
holders of outstanding shares of its common stock, par value $.05 per share
("Thermedics Common Stock"), of record at the close of business on February 21,
1997 (the "Thermedics Record Date"), including Thermo Electron Corporation
("Thermo Electron"), which owns approximately 55.3% of the outstanding common
stock of Thermedics. Each holder of TDX Common Stock will receive approximately
.366 transferable Rights for each share of TDX Common Stock held of record on
the Thermedics Detection Record Date (or one Right for approximately every 2.73
shares held). Each holder of Thermedics Common Stock will receive 0.10
transferable Rights for each share of Thermedics Common Stock held of record on
the Thermedics Record Date (or one Right for every 10 shares held). Thermo
Electron will not distribute the Rights it receives to its stockholders, but
may exercise its Rights or sell its Rights depending on prevailing market
conditions, including in negotiated transactions with the Underwriters. No
fractional Rights or cash in lieu thereof will be distributed or paid by the
Company or Thermedics. The number of Rights distributed by the Company or
Thermedics to each holder of Thermedics Common Stock or TDX Common Stock will
be rounded up to the nearest whole number. The distribution of Rights to
holders of TDX Common Stock will not be a taxable event. The distribution of
Rights to holders of Thermedics Common Stock will constitute a taxable
distribution of property. See "The Rights Offering--Federal Income Tax
Consequences." Rights holders may purchase one share of TDX Common Stock for
each whole Right held. Each Right also carries the right to subscribe at the
Subscription Price for shares of TDX Common Stock that are not otherwise
purchased pursuant to the exercise of Rights. An election to exercise Rights,
once made, may not be revoked. All amounts received by the Subscription Agent
pursuant to the exercise of Rights will be held in a non-interest-bearing
escrow account until the completion of the Rights Offering. See "The Rights
Offering--Subscription Privileges." The Rights are evidenced by transferable
certificates. The Underwriters have agreed, subject to the terms and conditions
of the Standby Underwriting Agreement, to purchase from the Company on the
sixth business day after the Expiration Date (as defined below), at the
Subscription Price, (i) 300,000 shares of TDX Common Stock (the "Firm Shares")
and (ii) a number of shares of TDX Common Stock equal to 1,000,000 shares less
the number of shares of TDX Common Stock subscribed for through the exercise of
Rights (together with the Firm Shares, the "Underwritten Shares"). See
"Underwriting." The distribution of Rights by the Company and Thermedics and
the sale of the shares of TDX Common Stock upon the exercise of Rights or
pursuant to the underwriting arrangements are referred to herein as the "Rights
Offering." Assuming the sale of all of the Underwritten Shares, Thermedics will
beneficially own approximately 77.6% of the outstanding TDX Common Stock.
The Rights will expire at 5:00 p.m., Eastern time, on March 19, 1997 unless
extended by the Company (as extended, the "Expiration Date"), except that the
Company has agreed to allow the Underwriters to exercise Rights held by them on
the business day following the Expiration Date. The Rights Offering is expected
to close on the fourth business day after the Expiration Date. If the Rights
Offering is not completed, the Subscription Agent will return the Subscription
Price paid by investors as soon as practicable thereafter.
The issuance of shares of TDX Common Stock pursuant to the exercise of the
Rights is conditioned upon the sale of at least 1,000,000 shares of TDX Common
Stock in the Rights Offering (excluding the Firm Shares). See "The Rights
Offering--Subscription Privileges" and "Risk Factors--Risk of Termination of
the Rights Offering Under Certain Circumstances." The maximum number of shares
which may be issued in the Rights Offering, 2,200,000, and the minimum number
of shares which may be issued, represent approximately 17.1% and 10.8% of the
shares that would be outstanding after the Rights Offering, respectively.
Prior to this offering, there has been no public market for the TDX Common
Stock or the Rights. The TDX Common Stock and the Rights will be listed on the
American Stock Exchange. The Subscription Price will be determined by the
Company's Board of Directors after consultation with Representatives of the
Underwriters. It is currently estimated that the Subscription Price will be
between $11.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the Subscription Price.
-----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Subscription Underwriting Fees Proceeds to
Price (1) and Commissions (1) Company (1) (2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (2).......... $11.50 $.43 $11.07 Max.
$.77 $10.73 Min.
- -----------------------------------------------------------------------------------------------
Total (3).............. $25,300,000 Max. $943,000 $24,357,000 Max.
$14,950,000 Min. $997,000 $13,953,000 Min.
</TABLE>
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(cover page continued on next page)
-----------
LEHMAN BROTHERS NATWEST SECURITIES LIMITED
, 1997
<PAGE>
At the upper left of the page is a graphic image depicting the Company's
Alexus system. Immediately to the right of this image is a graphic image
depicting the Company's InScan system. To the left of these graphics is the
following caption:
The Company's Alexus systems (far left), which detect trace amounts of
constituents that affect product quality in refillable plastic soft drink, water
and other beverage containers, have been installed on more than 200 bottling
lines in more than 30 countries throughout the world. The Company's InScan
system (left) uses high-speed x-ray imaging technology to detect liquid
fill-levels and leakage in containers for the beverage, food and other
industries.
At the upper right of the page is a graphic image depicting the Company's
Flash-GC high-speed gas chromatography system. Below this graphic is the
following caption:
The Company's Flash-GC is a high-speed gas chromatography system that can
analyze chemical samples at speeds 20 to 50 times faster than conventional gas
chromatography.
(cover page continued from previous page)
(1) In connection with the transactions contemplated hereby, the Underwriters
will receive (a) standby and management fees aggregating $736,000,(b)
additional fees of $.58 for each share of TDX Common Stock actually
purchased by the Underwriters, whether pursuant to Rights purchased and
exercised or pursuant to the Standby Underwriting Agreement (excluding the
Firm Shares); provided that such standby, management and additional fees
in the aggregate shall not exceed 6% of the Subscription Price for each
share of TDX Common Stock purchased pursuant to the exercise of Rights (by
the Underwriters or otherwise) or pursuant to the Standby Underwriting
Agreement (excluding the Firm Shares) plus an amount equal to the
aggregate purchase price of Rights purchased by the Underwriters, up to
$100,000 and (c) an underwriting commission of $.69 on each Firm Share
purchased by the Underwriters. See "Underwriting." The maximum Proceeds to
the Company assumes that only the Firm Shares are purchased by the
Underwriters and 1,900,000 shares are purchased upon the exercise of
Rights by persons other than the Underwriters; and the minimum Proceeds to
the Company assumes that 1,300,000 shares are purchased by the
Underwriters and no shares are purchased upon exercise of Rights by
persons other than the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $660,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days following the Expiration Date, to purchase up to an additional
195,000 shares of TDX Common Stock at the Subscription Price solely to
cover over-allotments, if any. If this option is fully exercised, the
total additional Proceeds to the Company would be $2,125,000 and the
related total additional Underwriting Fees and Commissions would be
$117,000. See "Underwriting."
-------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE THERMEDICS
DETECTION COMMON STOCK OR THE RIGHTS OR BOTH, INCLUDING BY ENTERING
STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
-------------
Alexus, EGIS and TEA Analyzer are each registered trademarks, and Flash-GC,
InScan, Micro-Quad, Quadra-Beam, Rampart and SecurScan are trademarks, of
Thermedics Detection Inc. All other trademarks or trade names referred to in
this Prospectus are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and the notes thereto appearing
elsewhere in this Prospectus. Except as otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option will not
be exercised. Investors should carefully consider the information set forth
under the heading "Risk Factors."
THE COMPANY
Thermedics Detection Inc. (the "Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical detectors,
high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and
other technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for other
high-security screening applications and for forensics and search applications.
The Company's principal product lines include:
. Alexus systems, introduced in 1992, detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and
other beverage containers at speeds in excess of 600 bottles per minute.
Alexus systems have been installed on more than 200 bottling lines in
more than 30 countries;
. InScan systems, introduced in 1996, detect liquid fill-levels, leakage,
foreign objects and product defects at speeds in excess of 2,400 units
per minute for the beverage, food and other industries;
. Micro-Quad, Quadra-Beam and other products of the Moisture Systems
division, acquired by the Company in 1996, measure moisture and other
product constituents, including fats, proteins, oils, flavorings,
solvents, adhesives and coatings, in the manufacturing processes of a
variety of industries;
. Flash-GC gas chromatography systems, introduced in 1996, analyze chemical
samples at speeds 20 to 50 times faster than conventional gas
chromatography systems. These systems can be used in a variety of
markets, primarily in near on-line process and quality control
applications that require high-speed results; and
. EGIS explosives detectors, first sold to commercial airports in Europe in
1991, detect and identify trace levels of explosives in carry-on bags, in
checked luggage and on people, and are also used in forensic
investigations. 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 strategy is to build upon its reputation as a technical and
market leader in applications requiring complex, high-speed or continuous
ultratrace detection and measurement. The Company holds significant patents
relating to its chemiluminescent analysis and high-speed gas chromatography
technologies, and believes that its proprietary position with respect to these
technologies affords it a competitive advantage. In addition, the Company
employs highly skilled research scientists and product development engineers
who use their intimate knowledge of their customers' production processes to
develop new products based on these technologies.
3
<PAGE>
THE RIGHTS OFFERING
Rights..................
The Company is distributing to holders of TDX Common
Stock of record at the close of business on February
6, 1997 (the "Thermedics Detection Record Date"),
including Thermedics, transferable subscription
rights (the "Rights") to subscribe for and purchase
additional shares of TDX Common Stock. Thermedics
will not exercise the Rights it receives from the
Company, but is instead distributing all of such
Rights to holders of record of Thermedics Common
Stock, including Thermo Electron, at the close of
business on February 21, 1997 (the "Thermedics Record
Date"). Each holder of TDX Common Stock will receive
approximately .366 transferable Rights for each share
of TDX Common Stock held of record on the Thermedics
Detection Record Date. Each holder of Thermedics
Common Stock will receive 0.10 transferable Rights
for each share of Thermedics Common Stock held of
record on the Thermedics Record Date. Thermo Electron
will not distribute the Rights it receives to its
stockholders, but may exercise its Rights or sell its
Rights depending on prevailing market conditions,
including in negotiated transactions with the
Underwriters. The number of Rights distributed by the
Company or Thermedics to each stockholder will be
rounded up to the nearest whole number. An aggregate
of approximately 1,900,000 Rights will be distributed
pursuant to the rights offering to an aggregate of
approximately 2,350 record holders of TDX Common
Stock and Thermedics Common Stock. Each Right will be
exercisable for one share of TDX Common Stock. An
aggregate of approximately 1,900,000 shares of TDX
Common Stock has been reserved for issuance upon
exercise of the Rights (the "Underlying Shares"). The
distribution of the Rights by the Company and
Thermedics and the sale of shares of TDX Common Stock
upon the exercise of Rights or pursuant to the
underwriting arrangements are referred to herein as
the "Rights Offering." See "The Rights Offering--The
Rights."
Thermedics Detection
Record Date............
February 6 , 1997
Thermedics Record
Date................... February 21 , 1997
Expiration Date.........
March 19, 1997, 5:00 p.m., Eastern time, or such
later date to which the Company may extend the
expiration of the Rights, except that the Company has
agreed to allow the Underwriters to exercise Rights
held by them on the first business day following the
Expiration Date.
Basic Subscription Rights holders are entitled to purchase for the
Privilege.............. Subscription Price one share of TDX Common Stock for
each whole Right held (the "Basic Subscription
Privilege"). The Rights are exercisable immediately
upon distribution. See "The Rights Offering--
Subscription Privileges--Basic Subscription
Privilege."
Oversubscription Each holder of Rights who elects to exercise his
Privilege.............. Basic Subscription Privilege (including the
Underwriters) may also subscribe at the Subscription
Price for an unlimited number of additional
Underlying Shares that are not otherwise purchased
pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"). If an insufficient
number of Underlying Shares is available to satisfy
fully all
4
<PAGE>
elections to exercise the Oversubscription Privilege,
the available Underlying Shares will be prorated
among holders who exercise their Oversubscription
Privilege based on the respective numbers of Rights
exercised by such holders pursuant to the Basic
Subscription Privilege. See "The Rights Offering--
Subscription Privileges--Oversubscription Privilege."
Subscription Price...... $ in cash per share of TDX Common Stock
subscribed for pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege (the
"Subscription Price").
TDX Common Stock
Outstanding after
Rights Offering........
A maximum of 12,883,500 shares. This number excludes
218,180 shares issuable at a weighted average price
of $10.41 per share pursuant to stock options
outstanding at December 31, 1996 but assumes the sale
of all of the Underwritten Shares. If the minimum
number of Underwritten Shares is sold in the Rights
Offering, a maximum of 11,983,500 shares would be
outstanding after the Rights Offering. See
"Capitalization," "Management," and "Security
Ownership of Certain Beneficial Owners and
Management."
Transferability of
Rights and TDX Common
Stock.................. The Rights are transferable and will be listed on the
American Stock Exchange ("AMEX"). The TDX Common
Stock also will be listed on the AMEX. The
Subscription Agent will endeavor to sell Rights for
holders who have so requested by delivering a
Subscription Certificate (as defined below) with the
instruction for sale properly executed to the
Subscription Agent by 11:00 a.m., Eastern time, on
the date that is four AMEX trading days prior to the
Expiration Date. See "The Rights Offering--Exercise
of Rights."
Procedure for Basic Subscription Privileges and Oversubscription
Exercising Rights...... Privileges may be exercised by properly completing
the subscription certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the Guaranteed
Delivery Procedures (as described in "The Rights
Offering--Exercise of Rights")), with payment of the
Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription
Privilege and Oversubscription Privilege, to the
Subscription Agent on or prior to the Expiration
Date. If the mail is used to forward Subscription
Certificates, it is recommended that insured,
registered mail be used. Once a holder of Rights has
exercised the Basic Subscription Privilege or the
Oversubscription Privilege, such exercise may not be
revoked. See "The Rights Offering--Exercise of
Rights."
Procedure for
Exercising Rights by
Foreign Stockholders... Subscription Certificates will not be mailed to
holders of Thermedics Common Stock or TDX Common
Stock whose addresses are outside the United States
or who have an APO or FPO address, but will be held
by the Subscription Agent for their account. To
exercise the Rights represented thereby, such holders
must notify the Subscription Agent by completing an
International Holder Subscription Form, which will be
delivered to such holders in lieu of a Subscription
Certificate, and sending it by mail or telecopy to
the Subscription Agent. Holders located in the United
Kingdom will not initially be provided with an
International Holder Subscription Form and, if they
are interested in participating in the
5
<PAGE>
Rights Offering, should contact Lehman Brothers
International (Europe), One Broadgate, London EC2M
7HA, England, telephone 011-44-1-71-260-2793,
telecopier 011-44-1-71-260-2635, attention: Mr.
Adrian Norman. International Holder Subscription
Forms must be returned to the Subscription Agent on
or prior to 11:00 a.m., Eastern time, on the date
that is four AMEX trading days prior to the
Expiration Date, at which time (if no instructions
have been received) such Rights will be sold, if
feasible, by the Subscription Agent and the net
proceeds, if any, remitted to such holders. Certain
restrictions applicable to the exercise and sale of
Rights by persons located outside of the United
States are set forth elsewhere in this Prospectus
under the caption "Additional Information." See "The
Rights Offering--Foreign and Certain Other
Stockholders."
Persons Holding Shares,
or Wishing to Exercise
Rights, Through
Others.................
Persons holding Thermedics Common Stock or TDX Common
Stock, and receiving the Rights distributable with
respect thereto through a broker, dealer, commercial
bank, trust company or other nominee, as well as
persons holding stock certificates personally who
would prefer to have such institutions effect
transactions relating to the Rights on their behalf,
should contact the appropriate institution or nominee
and request it to effect the transactions for them.
Such holders should be aware that brokers or other
nominee holders may establish deadlines for receiving
instructions from beneficial holders significantly in
advance of the Expiration Date. See "The Rights
Offering--Exercise of Rights."
Issuance of TDX Common
Stock..................
Certificates representing shares of TDX Common Stock
purchased pursuant to the exercise of Rights will be
delivered to subscribers as soon as practicable after
the fourth business day following the Expiration
Date. The issuance of shares pursuant to the exercise
of Rights is conditioned upon the sale of at least
1,000,000 shares of TDX Common Stock in the Rights
Offering (excluding the Firm Shares). See "The Rights
Offering--Subscription Privileges" and "--Minimum
Sale of Shares."
Use of Proceeds.........
Research and development activities, expansion of
sales and marketing activities and for general
corporate purposes, including possible acquisitions.
See "Use of Proceeds."
Subscription Agent...... American Stock Transfer & Trust Company.
Standby Underwriting....
The Underwriters have agreed, subject to the terms
and conditions of the Standby Underwriting Agreement,
to purchase from the Company, at the Subscription
Price, on the fourth business day after the
Expiration Date a number of shares of TDX Common
Stock equal to 1,000,000 shares less the number of
shares of TDX Common Stock purchased through the
exercise of Rights (together with the Firm Shares,
the "Underwritten Shares"). Subject to certain price
and volume limitations prescribed by applicable law,
the Underwriters may acquire Rights in the secondary
market and may exercise such Rights to acquire TDX
Common Stock. All such shares may be offered to the
public at offering prices determined from time to
time by the Underwriters, including at prices in
excess of the
6
<PAGE>
Subscription Price. The Company has agreed to pay the
Underwriters the fees and commissions set forth on
the cover page hereof. The Company has agreed to
allow the Underwriters to exercise any Rights held by
them on the first business day following the
Expiration Date. See "Underwriting."
Firm Shares.............
The Underwriters have agreed, subject to the terms
and conditions of the Standby Underwriting Agreement,
to purchase from the Company, on the fourth business
day after the Expiration Date, 300,000 shares of TDX
Common Stock (the "Firm Shares"). The Underwriters
will receive a commission of $.69 for each Firm Share
purchased. See "Underwriting."
Nature of Commitment.... The obligation of the Underwriters to purchase
Underwritten Shares is subject to certain conditions
and may be terminated under certain circumstances.
See "The Rights Offering--Standby Underwriting
Commitment."
Proposed AMEX Symbols... Rights: TDX.RtTDX Common Stock: TDX.WI (when issued)
TDX (thereafter)
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR (1) COMBINED (4)
----------------------------------------- FISCAL YEAR
1992 (2) 1993 1994 1995 1996 (3) 1996
-------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297
Gross Profit............ 8,032 18,272 25,437 12,718 21,600 22,504
Research and Development
Expenses............... 647 1,790 3,895 2,741 4,608 4,608
Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663
Net Income.............. 1,903 5,803 6,380 1,508 362 438
Earnings per Share (5).. .19 .58 .63 .15 .04 .04
Weighted Average
Shares (5)............. 10,069 10,069 10,069 10,069 10,320 10,320
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, 1996
-----------------------
ACTUAL AS ADJUSTED (6)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital......................................... $23,358 $36,651
Total Assets............................................ 53,483 66,776
Long-term Obligations................................... 21,200 21,200
Shareholders' Investment................................ 20,910 34,203
</TABLE>
- --------
(1) The Company's 1992, 1993, 1994, 1995 and 1996 fiscal years, set forth in
this table and referred to elsewhere in this Prospectus, ended on January
2, 1993, January 1, 1994, December 31, 1994, December 30, 1995 and
December 28, 1996, respectively.
(2) Derived from unaudited financial statements.
(3) Includes the results of Moisture Systems and Rutter since their
acquisition by the Company in January 1996. See "The Company."
(4) The pro forma combined statement of income data was derived from the pro
forma combined condensed statement of income included elsewhere in this
Prospectus. The pro forma combined statement of income data sets forth the
results of operations for fiscal 1996, as if the acquisitions of Moisture
Systems and Rutter had occurred on January 1, 1996.
(5) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with
the initial capitalization of the Company, the effect of shares sold
through private placements, as well as the effect of the assumed issuance
of the private placements and the assumed exercise of stock options issued
within one year prior to the Company's proposed rights offering with
exercise prices less than the Subscription Price.
(6) Adjusted to reflect the minimum proceeds to the Company from the Rights
Offering, which assumes the sale of 1,300,000 shares to the Underwriters
at a Subscription Price of $11.50 per share and no purchase of shares upon
the exercise of Rights by persons other than the Underwriters, after
deduction of underwriting fees and commissions and estimated offering
expenses payable by the Company.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the TDX Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Prospectus.
Uncertainty of Market Acceptance of New Products. Certain of the Company's
products represent alternatives to traditional detection and analytical
methods. As a result, such products may be slow to achieve, or may not
achieve, market acceptance, as customers may seek further validation of the
efficiency and efficacy of the Company's technology, particularly where the
purchase of the product requires a significant capital commitment. The Company
believes that, to a significant extent, its growth prospects depend on its
ability to gain acceptance of the efficiency and efficacy of the Company's
innovative technologies by a broader group of customers. The Company is
currently devoting significant resources toward the enhancement of its
existing products and the development of new products and technologies,
including the Company's Flash-GC high-speed gas chromatography system; a more
portable EGIS; SecurScan, a walk-through explosives-detection system; and
Rampart, a lower-cost EGIS unit for use in airport screening of carry-on
baggage. There can be no assurance that the Company will be successful in
obtaining such broad acceptance or that, if obtained, such acceptance will be
sustained. The failure of the Company to obtain and sustain such broad
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations.
Ongoing Product Development Efforts Required by Rapid Technological
Change. The markets for the Company's products are characterized by changing
technology, evolving industry standards and new product introductions. The
Company's future success will depend in part upon its ability to enhance its
existing products and to develop and introduce new products and technologies
to meet changing customer requirements. There can be no assurance that the
Company will successfully complete the enhancement and development of these
products in a timely fashion or that the Company's current or future products
will satisfy the needs of its markets.
Dependence of Explosives Detection Market on Government Regulation and
Airline Industry. The Company's sales of its explosives-detection systems for
use in airports has been and will continue to be dependent on governmental
initiatives to require, or support, the screening of checked luggage, carry-on
items and personnel with advanced explosives-detection equipment.
Substantially all of such systems have been installed at airports in countries
other than the United States, in which the applicable government or regulatory
authority overseeing the operations of the airport has mandated such
screening. Such mandates are influenced by many factors outside of the control
of the Company, including political and budgetary concerns of governments,
airlines and airports. Of the more than 600 commercial airports worldwide,
more than 400 are located in the United States. Accordingly, the Company
believes that the size of the market for explosives-detection equipment is,
and will increasingly be, significantly influenced by United States government
regulation. In the United States, the Aviation Security Act of 1990 directed
the Federal Aviation Administration ("FAA") to develop a standard for
explosives-detection systems and required airports in the United States to
deploy systems meeting this standard in 1993. The standard adopted by the FAA
is more comprehensive than standards adopted in most other countries. To date,
no system has demonstrated that it meets the FAA standard under realistic
airport operating conditions. As a result, the FAA has not mandated the
installation of automated explosives-detection systems, and only a limited
number of these systems have been deployed, primarily on a test basis, in the
United States. The FAA first certified a computed X-ray tomography system for
checked luggage in December 1994. However, the FAA has recognized that this
system must undergo further testing to resolve whether it can operate under
realistic airport operating conditions. The Company's systems are trace
detectors for which no FAA certification process for checked baggage, carry-on
or personal screening exists to date. In 1992, the FAA approved the Company's
EGIS system for use by airlines in screening carry-on electronic items and
luggage searches. Each airline must seek this approval for each application.
Although the FAA has provided significant funding to the
9
<PAGE>
Company in connection with the development of its explosives-detection
technology, there can be no assurance that any of the Company's systems will
ever meet this or any other United States certification standard. Any product
utilizing a technology ultimately recommended or required by the FAA will have
a significant competitive advantage in the market for explosives-detection
devices. Unless the FAA takes action with respect to a particular explosives-
detection product or technology, airlines will not be required to upgrade
existing metal detection equipment. Earnings of U.S. air carriers tends to
fluctuate significantly from time to time. Any depression in the financial
condition of such carriers would likely result in lower capital spending for
discretionary items. Moreover, there can be no assurance that additional
countries will mandate the implementation of effective explosives screening
for airline baggage, carry-on items or personnel, or that, if mandated, the
Company's systems will meet the certification or other requirements of the
applicable government authority. Even if the Company's systems were to meet
the applicable requirements, there can be no assurance that the Company would
be able to market its systems effectively. See "Business--Explosives
Detectors" and "--Government Regulation."
In October 1996, the United States enacted legislation which includes a
$144.2 million allocation to purchase explosives-detection systems and other
advanced security equipment, including trace detection equipment such as the
systems manufactured by the Company, for carry-on and checked baggage
screening. There can be no assurance that this legislation will not be
modified to reduce the funding for advanced explosives equipment, that the
necessary appropriations will be made to fund the purchases of advanced
explosives-detection equipment contemplated by the legislation, that trace-
detection equipment such as the systems manufactured by the Company will be
mandated, or that, even if such appropriation is made and such equipment is
mandated, any of the Company's explosives-detection systems will be purchased
for installation at any airports in the United States. Further, there can be
no assurance that the U.S. will mandate the widespread use of these systems
after completion of the initial purchases.
Significance of Certain Customers. Sales of process detection instruments to
bottlers licensed by The Coca-Cola Company ("Coca-Cola Bottlers") were
$32,184,000, $9,974,000 and $10,641,000 in 1994, 1995 and 1996, respectively,
or 64%, 36% and 24% of the Company's revenues, respectively, during such
periods. Sales to Coca-Cola Bottlers have decreased as these customers have
substantially completed full deployment of the Company's Alexus system in
existing plant locations. Although the Company anticipates that it will
continue to derive revenues from the sale of upgrades and new systems to new
plants, as well as services to the Coca-Cola Bottlers, the Company does not
expect that revenues derived from these customers will continue at a rate
comparable to prior years. While the Company believes that the introduction of
new process detection products for the food, beverage and other markets will
continue to reduce the significance of the Coca-Cola Bottlers to the Company's
results of operations, there can be no assurance that the Company will be
successful in the introduction of new process detection products or that any
sales of these products will be sufficient to maintain a rate of growth
equivalent to prior years.
Competition; Technological Change. The Company encounters, and expects to
continue to encounter, competition in the sale of its current and future
products. Many of the Company's competitors and potential competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than those of the
Company. Some of these competitors have large existing installed bases of
products with substantial numbers of customers. In addition, other major
corporations have recently announced their intention to enter certain of the
Company's markets, including the security screening market. The Company
believes that many of its products are successful because they are
technologically superior to alternative products offered by some of the
Company's competitors. In order to continue to be successful, the Company
believes that it will be important to maintain this technological advantage.
No assurance can be given that the Company will be able to maintain such an
advantage or that competitors of the Company will not develop technological
innovations that will render products of the Company obsolete. For example,
the Company's EGIS system competes against other trace explosives detection
systems as well as systems utilizing dual energy X-ray or computed X-ray
tomography imaging technologies. There can be no assurance that such
technologies will not be enhanced to a degree that would impair the Company's
ability to market its explosives detection systems. See "Business--
Competition."
10
<PAGE>
Potential for Product Liability Claims. The Company's business involves the
risk of product liability claims inherent to the explosives detection
business, as well as the food, beverage and other industries. There are many
factors beyond the control of the Company that could result in the failure of
the Company's products to detect explosives or contaminants in food or
beverage containers, such as the reliability of a customer's operators, the
ongoing training of such operators and the maintenance of the Company's
products by its customers. For these and other reasons, there can be no
assurance that the Company's products will detect all explosives or
contaminants. The failure to detect explosives or contaminants could give rise
to product liability claims and result in negative publicity that could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company currently maintains both aviation and
general product liability insurance in amounts the Company believes to be
commercially reasonable. There can be no assurance that this insurance will be
sufficient to protect the Company from product liability claims, or that
product liability insurance will continue to be available to the Company at a
reasonable cost, if at all.
Uncertainties Associated With International Operations. In 1994, 1995 and
1996, international sales accounted for 85%, 73% and 67%, respectively, of the
Company's revenues, and the Company anticipates that international sales will
continue to account for a significant percentage of the Company's revenues.
Sales to customers in The Netherlands accounted for approximately 17% of the
Company's revenues in 1996. See Note 8 of Notes to the Company's Consolidated
Financial Statements. International revenues are subject to a number of
uncertainties, including the following: agreements may be difficult to enforce
and receivables difficult to collect through a foreign country's legal system;
foreign customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign income,
impose tariffs or adopt other restrictions on foreign trade; fluctuations in
exchange rates may affect product demand and adversely affect the
profitability in U.S. dollars of products and services provided by the Company
in foreign markets where payment for the Company's products and services is
made in the local currency; U.S. export licenses may be difficult to obtain;
and the protection of intellectual property in foreign countries may be more
difficult to enforce. Moreover, many foreign countries have their own
regulatory approval requirements for sales of the Company's products. As a
result, the Company's introduction of new products into international markets
can be costly and time-consuming, and there can be no assurance that the
Company will be able to obtain the required regulatory approvals on a timely
basis, if at all. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. 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 38 United States patents and has filed
applications for four additional United States patents. The Company's U.S.
patents have expiration dates ranging from 1998 through 2014. The Company also
owns corresponding patents, or has filed corresponding applications, in a
number of jurisdictions throughout the world. In addition, the Company has an
exclusive, perpetual, royalty-free license under ten patents covering the use
of near-infrared and very near-infrared emitting diodes for on-line spectral
measurements. There can be no assurance, however, that any patents now or
hereafter owned by the Company will afford protection against competitors, or
as to the likelihood that patents will issue from pending patent applications.
Proceedings initiated by the Company to protect its proprietary rights could
result in substantial costs to the Company. Although the Company believes that
its products and technology do not infringe any existing proprietary rights of
others, there can be no assurance that third parties will not assert such
claims against the Company in the future or that such future claims will not
be successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to make, use, sell, distribute
or market its products and services in the U.S. or abroad. Such a judgment
could have a material adverse effect on the Company's business, financial
condition and results of operations. In the event that a claim relating to
proprietary technology or information is asserted against the Company, the
Company may seek licenses to such intellectual property. There
11
<PAGE>
can be no assurance, however, that such a license could be obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could preclude the sale, manufacture or
distribution of the Company's products and, therefore, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The cost of responding to any such claim may be material, whether
or not the assertion of such claim is valid. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or independent
development by others of similar technology. In addition, the laws of some
jurisdictions do not protect the Company's proprietary rights to the same
extent as the laws of the U.S. There can be no assurance that these
protections will be adequate. See "Business--Intellectual Property."
Risk of Termination of the Rights Offering Under Certain Circumstances. The
issuance of shares of TDX Common Stock pursuant to the exercise of the Rights
is conditioned upon the sale of at least 1,300,000 shares of TDX Common Stock
in the Rights Offering (including the Firm Shares). The Underwriters have
agreed to purchase from the Company on the fourth business day after the
Expiration Date, at the Subscription Price, the Firm Shares plus a number of
shares of TDX Common Stock equal to 1,000,000 less the number of shares of TDX
Common Stock subscribed for through the exercise of Rights. However, the
obligation of the Underwriters under the Standby Underwriting Agreement to
purchase Underwritten Shares is subject to the following conditions, among
others: that the Registration Statement of which this Prospectus is a part
shall have been declared effective, and that no stop order with respect
thereto shall have been issued; that satisfactory opinions of counsel to the
Company and to the Underwriters, and certain assurances from the Company's
independent public accountants, shall have been received; that the Company
shall not have experienced any material adverse change in its business
(including the results of operations or management) or properties; and that
the Company, Thermedics and Thermo Electron affirm as correct certain
representations and warranties made to the Underwriters. In addition, the
Underwriters in their absolute discretion may, in the event of the occurrence
of any of the following, elect to terminate their obligations under the
Standby Underwriting Agreement: if trading in the TDX Common Stock has been
suspended by the AMEX or trading in securities generally on the AMEX, the New
York Stock Exchange, the International Stock Exchange of the United Kingdom or
the over-the-counter market has been suspended, limited or subject to the
establishment of minimum prices; if a banking moratorium has been declared by
banking authorities of the United States, the United Kingdom, New York State
or the Commonwealth of Massachusetts; if there has occurred a declaration by
the United States or the United Kingdom of a national emergency or war, or a
material adverse change in general economic, political or financial conditions
or the effect of international conditions on the financial markets in the
United States or the United Kingdom is such as to make it, in the judgment of
the Underwriters, impracticable or advisable to proceed with the Rights
Offering or delivery of the Underwritten Shares as contemplated hereby.
If fewer than 1,300,000 shares are purchased in the Rights Offering
(including the Firm Shares) and the conditions to the obligations of the
Underwriters contained in the Standby Underwriting Agreement are not duly
satisfied or waived, the Rights Offering will not be completed. However,
subject to the conditions described above, the Underwriters will be obligated
to purchase the Firm Shares. See "The Rights Offering--Subscription
Privileges," "--Standby Underwriting Commitment" and "Underwriting."
Risks Associated with Acquisition Strategy. The Company's strategy includes
the acquisition of businesses and technologies that complement or augment the
Company's existing product lines. For example, in January 1996 the Company
acquired Moisture Systems. Promising acquisitions are difficult to identify
and complete for a number of reasons, including competition among prospective
buyers and the need for regulatory approvals, including antitrust approvals.
Any acquisitions completed by the Company may be made at substantial premiums
over the fair value of the net assets of the acquired companies. There can be
no assurance that the Company will be able to complete future acquisitions or
that the Company will be able to successfully integrate any acquired
businesses. In order to finance such acquisitions, it may be necessary for the
Company to raise additional funds through public or private financings. Any
equity or debt financing, if available at all, may be on terms which are not
favorable to the Company and, in the case of equity financing, may result in
dilution to the Company's stockholders.
12
<PAGE>
Difficulties in Managing Rapid Growth. Due to the level of technical and
marketing expertise necessary to support its existing and new customers, the
Company must attract and retain highly qualified and well-trained personnel.
There are a limited number of persons with the requisite skills to serve in
these positions, and it may become increasingly difficult for the Company to
hire such personnel. Further rapid expansion may also significantly strain the
Company's administrative, operational and financial personnel, management
information systems, manufacturing operations and other resources. There can
be no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations. Failure to manage growth
properly could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
Potential Fluctuations in Quarterly Performance. Significant annual and
quarterly fluctuations in the Company's results of operations may be caused
by, among other factors, the overall demand for, and market acceptance of, the
Company's products; the timing of regulatory approvals for certain of the
Company's products, government initiatives to promote the use of explosives
detection systems such as those manufactured and sold by the Company; the
timing of the announcement, introduction and delivery of new products and
product enhancements by the Company and its competitors; variations in the
Company's product mix and component costs; timing of customer orders;
adjustments of delivery schedules to accommodate customers programs; the
availability of components from suppliers; the timing and level of
expenditures in anticipation of future sales; the mix of products sold by the
Company; and pricing and other competitive conditions. Because certain of the
Company's products require significant capital expenditures and other
commitments by its customers, the Company has experienced extended sales
cycles. Delays in anticipated purchase orders could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customers may also cancel or reschedule shipments, and product
difficulties could delay shipments. Because the Company's operating expenses
are based on anticipated revenue levels and a high percentage of the Company's
expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter. There can be no assurance that any of these factors
will not have a material adverse impact on the Company's business and results
of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Dependence on Key Personnel. The Company is highly dependent on the members
of its senior management, including the executive officers identified under
"Management" elsewhere in this Prospectus, the loss of one or more of whom
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in part on whether it can attract
and retain highly qualified engineering, management, manufacturing, marketing
and sales personnel, particularly as the Company expands its business
activities. The Company faces significant competition for the services of such
personnel from other companies. There can be no assurance that the Company
will be able to continue to attract and retain the personnel it requires for
continued growth. The failure to hire and retain such personnel could
materially adversely affect the Company. See "Management."
Lack of Voting Control; Control by Thermedics. The Company's stockholders do
not have the right to cumulate votes for the election of directors. After
giving effect to the Rights Offering, assuming the sale of all of the
Underwritten Shares, Thermedics will beneficially own approximately 77.6% of
the outstanding TDX Common Stock. Accordingly, Thermedics will have the power
to elect the entire Board of Directors of the Company and to approve or
disapprove any corporate actions submitted to a vote of the Company's
stockholders. See "Relationship with Thermo Electron and Thermedics" and
"Security Ownership of Certain Beneficial Owners and Management."
Potential Conflicts of Interest. The Company may be subject to potential
conflicts of interest from time to time as a result of its relationship with
Thermo Electron and Thermedics. See "Relationship with Thermo Electron and
Thermedics" 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 will devote only a portion of their working
time to the affairs of
13
<PAGE>
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. Although the Company has adopted no formal
procedures for resolving potential conflicts of interest, it is the Company's
intention to add at least one additional independent Director to the Company's
Board of Directors within six months after completion of the Rights Offering,
and to require the approval of such independent Directors of all material
transactions involving conflicts of interest. The Company is a party to various
agreements with Thermo Electron that may limit the Company's operating
flexibility. See "Relationship with Thermo Electron and Thermedics" and
"Transactions with Affiliates."
Significant Additional Shares Eligible for Sale After the Offering. At the
conclusion of the 120-day period following the closing of the Rights Offering,
the Company will file a registration statement pursuant to the Securities Act
covering the resale of 683,500 shares of TDX Common Stock held by existing
investors other than Thermedics. The 10,000,000 shares of TDX Common Stock
owned by Thermedics are eligible for resale under Rule 144. In addition,
subject to certain limitations described below under "Shares Eligible for
Future Sale," as long as Thermedics is able to elect a majority of the
Company's Board of Directors, it will have the ability to cause the Company at
any time to register for resale all or a portion of the TDX Common Stock owned
by Thermedics.
Additional shares of TDX Common Stock issuable upon exercise of options
granted under the Company's stock-based compensation plans will become
available for future sale in the public market at prescribed times. Sales of a
significant number of shares of TDX Common Stock in the public market following
the Rights Offering could adversely affect the market price of the TDX Common
Stock. See "Relationship with Thermo Electron and Thermedics" and "Shares
Eligible for Future Sale."
Immediate and Substantial Dilution. Purchasers of the TDX Common Stock
offered hereby will incur an immediate and substantial dilution in the net
tangible book value per share of the TDX Common Stock from the Subscription
Price. Dilution per share to investors in the Rights Offering will be $10.06
and $9.36 assuming minimum and maximum proceeds to the Company, respectively.
Additional dilution is likely to occur upon the exercise of outstanding stock
options. See "Dilution."
No Prior Public Market for TDX Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the TDX
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The Subscription Price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the Subscription Price. Many factors, including
fluctuations in the Company's operating results, announcements of technological
innovations or new contracts or products by the Company or its competitors,
government regulation and approvals, developments in patent or other
proprietary rights and market conditions for stocks of companies similar to the
Company, could have a significant impact on the market price of the TDX Common
Stock, and there can be no assurance that the market price of the TDX Common
Stock will not decline below the Subscription Price.
Lack of Dividends. The Company anticipates that for the foreseeable future
the Company's earnings, if any, will be retained for use in the business and
that no cash dividends will be paid on the TDX Common Stock. Declaration of
dividends on the TDX Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to be received by the Company from the Rights Offering
depends on the number of Rights exercised. The maximum and minimum net
proceeds to be received by the Company are estimated to be $23,697,000 and
$13,293,000, respectively (a maximum of $25,822,000 if the Underwriters' over-
allotment option is exercised in full) after deducting the underwriting fees
and commissions and estimated offering expenses payable by the Company.
The Company currently expects to use between 50% and 60% of the net proceeds
from the Rights Offering to fund research and development with respect to new
products, and approximately 25% of such net proceeds to expand its sales and
marketing efforts throughout the world. The Company expects to use the balance
of such net proceeds for general corporate purposes, including the possible
acquisition of one or more businesses. The Company, however, is not currently
engaged in negotiations with any companies and it has no agreements,
understanding or commitments with respect to any specific acquisitions that
would be material to the Company. Pending these uses, the Company expects to
invest the net proceeds from the Rights Offering primarily in investment grade
interest bearing or dividend bearing instruments, either directly by the
Company or pursuant to a repurchase agreement with Thermo Electron in which
the Company would in effect lend excess cash to Thermo Electron, on a
collateralized basis at market interest rates. See "Transactions with
Affiliates."
DIVIDEND POLICY
The Company has never paid any cash dividends on the TDX Common Stock. The
Company anticipates that for the foreseeable future the Company's earnings, if
any, will be retained for use in the business and that no cash dividends will
be paid on the TDX Common Stock.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 28, 1996, as adjusted to reflect the issuance and sale of 1,300,000
shares of TDX Common Stock in the Rights Offering, after deducting
underwriting fees and commissions and estimated offering expenses payable by
the Company.
<TABLE>
<CAPTION>
DECEMBER 28, 1996
------------------------
ACTUAL AS ADJUSTED (1)
------- ---------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Long-term Obligation:
Promissory Note to Parent Company................ $21,200 $21,200
------- -------
Shareholders' Investment:
Common stock, $.10 par value, 15,000,000 shares
authorized; 10,683,500
shares issued and outstanding, 11,983,500
shares, as adjusted for the Rights Offering
(2)............................................. 1,068 1,198
Capital in excess of par value................... 13,130 26,293
Retained earnings................................ 7,136 7,136
Cumulative translation adjustment................ (424) (424)
------- -------
Total Shareholders' Investment................. 20,910 34,203
------- -------
Total Capitalization (Long-term Obligation
and Shareholders' Investment)............... $42,110 $55,403
======= =======
</TABLE>
- --------
(1) Adjusted to reflect the minimum proceeds to the Company from the Rights
Offering, which assumes the sale of 1,300,000 shares to the Underwriters
at a Subscription Price of $11.50 per share and no purchase of shares upon
the exercise of Rights by persons other than the Underwriters, after
deduction of underwriting fees and commissions and estimated offering
expenses payable by the Company. See "The Rights Offering" and
"Underwriting." Common stock and capital in excess of par value would be
$1,288,000 and $36,607,000, respectively, assuming the capitalization of
the Company adjusted to reflect the maximum proceeds to the Company from
the sale of 2,200,000 shares at $11.50 per share.
(2) Does not include 358,333 shares of TDX Common Stock reserved for issuance
under the Company's stock-based compensation plans. Options to purchase
218,180 shares of TDX Common Stock had been granted and were outstanding
under the Company's stock-based compensation plans as of December 28,
1996. See "Management--Compensation of Directors" and "--Compensation of
Executive Officers" and Note 3 of Notes to the Company's Consolidated
Financial Statements.
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DILUTION
As of December 28, 1996, the Company had net tangible book value of
$3,922,000, or $.37 per share. Net tangible book value per share is determined
by dividing the net tangible book value (total tangible assets less total
liabilities) of the Company by the number of shares of TDX Common Stock
outstanding. After giving effect to the Rights Offering, assuming the minimum
proceeds to the Company, which assumes the sale of 1,300,000 shares to the
Underwriters at a Subscription Price of $11.50 per share and the sale of no
shares upon the exercise of Rights by persons other than the Underwriters, and
the application of the estimated net proceeds, the pro forma net tangible book
value of the Company as of December 28, 1996 would have been $17,215,000 or
$1.44 per share. This represents an immediate increase in such net tangible
book value of $1.07 per share to present stockholders and an immediate
dilution of $10.06 per share to the investors purchasing shares in the Rights
Offering. See "Risk Factors--Immediate and Substantial Dilution." The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Subscription Price per share..................................... $11.50
Net tangible book value per share as of December 28, 1996 be-
fore the Rights Offering...................................... $ .37
Increase in net tangible book value per share attributable to
the Rights Offering........................................... 1.07
-----
Pro forma net tangible book value per share as of December 28,
1996, after the Rights Offering (1)............................. 1.44
------
Dilution per share to investors in the Rights Offering (1)....... $10.06
======
</TABLE>
- --------
(1) If all options outstanding as of December 28, 1996 to purchase an
aggregate of 218,180 shares of TDX Common Stock at a weighted average
exercise price of $10.41 per share were exercised in full, the pro forma
net tangible book value per share after the Rights Offering would be
$1.60, resulting in an immediate dilution of $9.90 per share to investors
purchasing shares in the Rights Offering.
The following table sets forth on a pro forma basis as of December 28, 1996,
the number of shares of TDX Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing shareholders and investors purchasing shares in the Rights Offering,
assuming the minimum proceeds to the Company from the Rights Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Thermedics (1).......... 10,000,000 83.5% 6,900,000 23.8% $ .69
Other existing investors
(2).................... 683,500 5.7 7,123,000 24.6 10.42
Investors in the Rights
Offering............... 1,300,000 10.8 14,950,000 51.6 11.50
---------- ----- ------------ -------
Total................. 11,983,500 100.0% 28,973,000 100.0%
========== ===== ============ =======
</TABLE>
- --------
(1) Calculated on the basis of the book value of net assets transferred by
Thermedics to the Company in exchange for 10,000,000 shares of TDX Common
Stock. See "Relationship with Thermo Electron and Thermedics."
(2) Represents the consideration paid for shares of TDX Common Stock purchased
for cash.
17
<PAGE>
After giving effect to the Rights Offering, assuming the maximum proceeds to
the Company, which assumes the sale of 2,200,000 shares upon the exercise of
Rights by persons other than the Underwriters and the sale of the Firm Shares
to the Underwriters, and the application of the estimated net proceeds, the
pro forma net tangible book value of the Company as of December 28, 1996 would
have been $27,619,000, or $2.14 per share. This represents an immediate
increase in such net tangible book value of $1.77 per share to present
stockholders and an immediate dilution of $9.36 per share to the investors
purchasing shares in the Rights Offering. See "Risk Factors--Immediate and
Substantial Dilution." The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Subscription Price per share.................................... $11.50
Net tangible book value per share as of December 28, 1996 be-
fore the Rights Offering..................................... $ .37
Increase in net tangible book value per share attributable to
the Rights Offering.......................................... 1.77
------
Pro forma net tangible book value per share as of December 28,
1996, after the Rights Offering (1)(2)......................... 2.14
------
Dilution per share to investors in the Rights Offering (1)(2)... $ 9.36
======
</TABLE>
- --------
(1) If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the Rights Offering would be
$2.27, resulting in an immediate dilution of $9.23 per share to investors
purchasing shares in the Rights Offering.
(2) If all options outstanding as of December 28, 1996 to purchase an
aggregate of 218,180 shares of TDX Common Stock at a weighted average
exercise price of $10.41 per share were exercised in full in addition to
the Underwriters' exercise of the over-allotment option, the pro forma net
tangible book value per share after the Rights Offering would be $2.41,
resulting in an immediate dilution of $9.09 per share to investors
purchasing shares in the Rights Offering.
The following table sets forth on a pro forma basis as of December 28, 1996,
the number of shares of TDX Common Stock purchased from the Company, the total
consideration paid and the average price paid per share by existing
shareholders and investors purchasing shares in the Rights Offering, assuming
the maximum proceeds to the Company from the Rights Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Thermedics (1).......... 10,000,000 77.6% 6,900,000 17.5% $ .69
Other existing investors
(2).................... 683,500 5.3 7,123,000 18.1 10.42
Investors in the Rights
Offering............... 2,200,000 17.1 25,300,000 64.4 11.50
---------- ----- ------------ -------
Total................. 12,883,500 100.0% 39,323,000 100.0%
========== ===== ============ =======
</TABLE>
- --------
(1) Calculated on the basis of the book value of net assets transferred by
Thermedics to the Company in exchange for 10,000,000 shares of TDX Common
Stock. See "Relationship with Thermo Electron and Thermedics."
(2) Represents the consideration paid for shares of TDX Common Stock purchased
for cash.
18
<PAGE>
THE COMPANY
The Company operated as a division of Thermedics until its incorporation as
a Massachusetts corporation in December 1990. In connection with the Company's
incorporation, Thermedics transferred to the Company its TEA Analyzer and
certain other trace detection technologies in exchange for 10,000,000 shares
of the Company's Common Stock. In January 1996, the Company acquired
substantially all of the assets of Moisture Systems Corporation and the stock
of Rutter & Co. B.V. (collectively, "Moisture Systems"). Unless the context
otherwise requires, references in this Prospectus to the Company or Thermedics
Detection Inc. refer to Thermedics Detection Inc. and its subsidiaries and
predecessors. As of December 28, 1996, Thermedics beneficially owned 93.6% of
the outstanding TDX Common Stock. The Company's principal executive offices
are located at 220 Mill Road, Chelmsford, Massachusetts 01824-4178, and its
telephone number is (508) 251-2000.
19
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights, at no cost, to holders of
outstanding shares of TDX Common Stock of record on the Thermedics Detection
Record Date. Thermedics Detection stockholders will receive approximately .366
Rights for each share of TDX Common Stock held by them of record on the
Thermedics Detection Record Date. Each Right will be exercisable for one share
of TDX Common Stock.
Thermedics, which currently owns approximately 93.6% of the outstanding TDX
Common Stock, will not exercise the Rights it receives from the Company, but
is instead distributing all of such Rights to holders of outstanding shares of
Thermedics Common Stock of record on the Thermedics Record Date (collectively,
with the holders of TDX Common Stock on the Thermedics Detection Record Date,
other than Thermedics, referred to as the "Holders"), including Thermo
Electron. Thermedics stockholders will receive 0.10 Rights for each share of
Thermedics Common Stock held by them of record on the Thermedics Record Date.
Each Right will be exercisable for one share of TDX Common Stock. No
fractional Rights or cash in lieu thereof will be issued or paid by the
Company or Thermedics. The number of Rights distributed to each Holder will be
rounded up to the nearest whole number.
Thermo Electron will not distribute the Rights it receives to its
stockholders but may exercise its Rights or sell its Rights, including in
negotiated transactions with the Underwriters.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Eastern time, on March 19, 1997 unless
extended by the Company. After the Expiration Date, unexercised Rights will be
null and void. The Company will not be obligated to honor any purported
exercise of Rights received by the Subscription Agent after the Expiration
Date, regardless of when the documents relating to such exercise were sent,
except pursuant to the Guaranteed Delivery Procedures described below. Notice
of any extension of the Expiration Date will be made through a press release
issued by the Company. Notwithstanding the foregoing, the Company has agreed
to allow the Underwriters to exercise any Rights held by them on the business
day following the Expiration Date.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one share of TDX Common Stock
(the "Basic Subscription Privilege"). Certificates representing shares of TDX
Common Stock purchased pursuant to the Basic Subscription Privilege will be
delivered to subscribers as soon as practicable after the fourth business day
following the Expiration Date.
Oversubscription Privilege. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for
Underlying Shares that are not otherwise purchased pursuant to the exercise of
Rights (the "Oversubscription Privilege"). The Oversubscription Privilege must
be exercised by a holder, if at all, simultaneously with the exercise of the
Basic Subscription Privilege.
Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are
not subscribed for through the Basic Subscription Privilege. If the Underlying
Shares not subscribed for through the Basic Subscription Privilege ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among those holders of
Rights exercising the Oversubscription Privilege, in proportion, not to the
number of shares requested pursuant to the Oversubscription Privilege, but to
the number of shares of TDX Common Stock each beneficial holder exercising the
Oversubscription Privilege has purchased pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
Rights holder being allocated a greater number of Excess Shares than such
holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder
20
<PAGE>
will be allocated only such number of Excess Shares as such holder subscribed
for and the remaining Excess Shares will be allocated among all other holders
exercising the Oversubscription Privilege. All beneficial holders who exercise
the Basic Subscription Privilege, including Underwriters, will be entitled to
exercise the Oversubscription Privilege. Certificates representing shares of
TDX Common Stock purchased pursuant to the Oversubscription Privilege will be
delivered to subscribers as soon as practicable after the fourth business day
following the Expiration Date and after all prorations have been effected.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and
the number of Underlying Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
Minimum Sale of Shares. The issuance of shares of TDX Common Stock pursuant
to the exercise of the Basic Subscription Privilege and the Oversubscription
Privilege is conditioned upon the sale of at least 1,000,000 shares of TDX
Common Stock in the Rights Offering (excluding the Firm Shares). All amounts
received by the Subscription Agent pursuant to the exercise of Rights will be
held in a non-interest-bearing escrow account until the completion of the
Rights Offering. The Underwriters have agreed to purchase from the Company on
the fourth business day after the Expiration Date at the Subscription Price a
number of shares of TDX Common Stock equal to 1,000,000 shares less the number
of shares of TDX Common Stock subscribed for through the exercise of Rights.
However, the obligations of the Underwriters are subject to certain conditions
contained in the Standby Underwriting Agreement. See "Underwriting." If fewer
than 1,300,000 shares are purchased in the Rights Offering (including the Firm
Shares) and the conditions to the obligations of the Underwriters contained in
the Standby Underwriting Agreement are not duly satisfied or waived, the
Rights Offering will not be completed. If the Rights Offering is not
completed, all funds received by the Subscription Agent in payment of the
Subscription Price and held in escrow by the Subscription Agent will be
returned by mail without interest or deduction as soon as practicable
following the termination or expiration of the Standby Underwriting Agreement.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to American Stock Transfer & Trust
Company (the "Subscription Agent"), at or prior to 5:00 p.m., Eastern time, on
the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any required signatures guaranteed,
together with payment in full of the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. Such payment in full must be by (a) check or bank
draft drawn upon a United States bank or postal, telegraphic or express money
order payable to American Stock Transfer & Trust Company, as Subscription
Agent, or (b) wire transfer of funds to the account maintained by the
Subscription Agent for such purpose at The Chase Manhattan Bank, 55 Water
Street, New York, New York 10041, Account No. 323294723; ABA No. 021 000 021.
Any wire transfer of funds should clearly indicate the identity of the
subscriber who is paying the Subscription Price by the wire transfer. The
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) clearance of any uncertified check, (ii) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a United
States bank or of any postal, telegraphic or express money order or (iii)
receipt of good funds in the Subscription Agent's account designated above. IF
PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY
MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO
WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE
URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE
THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO
CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
21
<PAGE>
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Stock Transfer & Trust Company 40 Wall Street New York, New York
10005 Telephone: (718) 921-8200
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent on or prior to
the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration Date,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Thermedics Detection
Inc. Subscription Certificates and International Holder Subscription Forms
(the "Instructions") distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), stating the name of the
exercising Rights holder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rights holder, the number of Underlying Shares being subscribed
for pursuant to the Basic Subscription Privilege and the number of
Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such Rights
within three American Stock Exchange ("AMEX") trading days following the
date of the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate evidencing the
Rights being exercised, with any required signatures guaranteed, is
received by the Subscription Agent within three AMEX trading days following
the date of the Notice of Guaranteed Delivery relating thereto. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the address set forth above, or
may be transmitted to the Subscription Agent by telegram or facsimile
transmission (telecopy no. (718) 234-5001). Additional copies of the form
of Notice of Guaranteed Delivery are available upon request from the
Subscription Agent, at the address set forth above.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of TDX Common Stock which such holder wished to subscribe for pursuant
to the Oversubscription Privilege, the excess funds paid by such holder in
respect of the Subscription Price for shares not issued will be returned by
mail without interest or deduction as soon as practicable after the Expiration
Date.
A holder of Rights who purchases less than all of the shares of TDX Common
Stock represented by his Subscription Certificate will receive from the
Subscription Agent a new Subscription Certificate representing the balance of
the unsubscribed Rights, to the extent the Subscription Agent is able to
reissue a Subscription Certificate prior to the Expiration Date.
Unless a Subscription Certificate (i) provides that the shares of TDX Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution.
22
<PAGE>
Holders who hold shares of TDX Common Stock or Thermedics Common Stock for
the account of others, such as brokers, trustees or depositaries for
securities, should provide a copy of this Prospectus to the respective
beneficial owners of such shares as soon as possible, ascertain such
beneficial owners' intentions and obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Rights
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of TDX Common
Stock or Thermedics Common Stock or Rights held through such a holder should
contact the holder and request the holder to effect transactions in accordance
with the beneficial owner's instructions. Beneficial holders should be aware
that brokers or other record holders may establish deadlines for receiving
instructions from beneficial holders significantly in advance of the
Expiration Date.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY, THERMEDICS, OR THERMO ELECTRON, BUT RATHER SEND THEM TO AMERICAN
STOCK TRANSFER & TRUST COMPANY AS REFERENCED ABOVE.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT OR PRIOR
TO 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED,
PERSONAL CHECKS MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, HOLDERS OF RIGHTS
ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. The Company reserves the right to
reject any purchases not properly submitted or the acceptance of which would,
in the opinion of its counsel, be unlawful. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Subscription
Agent.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels, including
banks and brokers. The Rights and TDX Common Stock will be listed on the AMEX.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights
23
<PAGE>
evidenced by a single Subscription Certificate (but not fractional Rights) may
be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, a new Subscription Certificate evidencing
the balance of the Rights will be issued to the Rights holder or, if the
Rights holder so instructs, to an additional transferee. However,
notwithstanding the foregoing, the Subscription Agent will reissue
Subscription Certificates for the transferred Rights to the transferee, and
will reissue Subscription Certificates for the balance, if any, to the holder
of the Rights, only to the extent it is able to do so before the Expiration
Date. To transfer Rights to any person other than a bank or broker, signatures
on the Subscription Certificate must be guaranteed by an Eligible Institution.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued
and transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any, and
(iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. None of the Company, Thermedics,
nor the Subscription Agent will have any liability to a transferee or
transferor of Rights if Subscription Certificates are not received in time for
exercise or sale prior to the Expiration Date.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate are to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold.
Promptly following such sale, the Subscription Agent will send the Rights
holder a check for the net proceeds from the sale of any Rights sold. If the
proceeds from the sale of Rights are to be paid or delivered to anyone other
than the registered holder of the Rights, signatures on the Subscription
Certificate must be guaranteed by an eligible guarantor institution which is a
participant in a securities transfer association recognized program (otherwise
known as the Medallion Signature Guarantee Program). ANY SIGNATURE GUARANTEE
NOT MADE IN ACCORDANCE WITH THE MEDALLION SIGNATURE GUARANTEE PROGRAM WILL NOT
BE ACCEPTED BY THE SUBSCRIPTION AGENT. If the Rights can be sold by the
Subscription Agent, sales of such Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day
such Rights are sold, less any applicable brokerage commissions, taxes and
other direct expenses of sale. Orders to sell Rights must be received on or
prior to 11:00 a.m., Eastern time, on the date that is four AMEX trading days
prior to the Expiration Date, and the Subscription Agent's obligation to
execute orders is subject to its ability to find buyers at a price that would
result in net proceeds to the holder of the Rights.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not
the Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"). Rights exercised through DTC are referred to
as "DTC Exercised Rights." The holder of a DTC Exercised Right may exercise
the Oversubscription Privilege in respect of such DTC Exercised Right by
properly executing and delivering to the Subscription Agent, at or prior to
5:00 p.m., Eastern time, on March 19, 1997, a DTC Participant Oversubscription
Exercise Form, together with payment of the appropriate Subscription Price for
the number of Underlying Shares for which the Oversubscription Privilege is to
be exercised. Copies of the DTC Participant Oversubscription Exercise Form may
be obtained from the Subscription Agent.
24
<PAGE>
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Certificates will not be mailed to Holders whose addresses are
outside the United States or who have an APO or FPO address, but will be held
by the Subscription Agent for their account. To exercise or sell Rights, such
Holders must notify the Subscription Agent by completing an International
Holder Subscription Form, which will be delivered to such Holders (except
those located in the United Kingdom) in lieu of a Subscription Certificate,
and sending it by mail or telecopy to the Subscription Agent at the address
and telecopy number specified above. Holders located in the United Kingdom
will not initially be provided with International Holder Subscription Forms.
Such Holders who are interested in participating in the Rights Offering should
contact Lehman Brothers International (Europe), One Broadgate, London EC2M
7HA, England, telephone 011-44-1-71-260-2793, telecopier 011-44-1-71-260-2635,
attention: Mr. Adrian Norman. International Holder Subscription Forms must be
returned to the Subscription Agent at or prior to 11:00 a.m., Eastern time, on
the date that is four AMEX trading days prior to the Expiration Date, at which
time (if no instructions have been received) the Rights represented thereby
will be sold, if feasible, by the Subscription Agent and the net proceeds, if
any, remitted to such Holders. If the Rights can be sold by the Subscription
Agent, sales of such Rights will be deemed to have been effected at the
weighted average price received by the Subscription Agent on the day such
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses. Certain restrictions upon the transfer and exercise of Rights by
persons located outside of the United States are set forth elsewhere in this
Prospectus under the caption "Additional Information."
STANDBY UNDERWRITING COMMITMENT
The Company and the Underwriters have entered into a Standby Underwriting
Agreement, the material terms of which are discussed below. Under the Standby
Underwriting Agreement, and except as described in the following paragraph,
the Underwriters will be required to purchase from the Company on the fourth
business day after the Expiration Date, at the Subscription Price, the Firm
Shares plus a number of shares of TDX Common Stock equal to 1,000,000 shares
less the number of shares of TDX Common Stock that have been properly
subscribed for as of the Expiration Date ("Underwritten Shares"). If Rights to
purchase at least 1,000,000 shares are exercised, the Underwriters will not be
required to purchase any of the TDX Common Stock issuable upon the exercise of
the Rights. However, subject to the conditions described below, the
Underwriters will be obligated to purchase the Firm Shares. The Company has
also granted the Underwriters an option, exercisable within 30 days after the
Expiration Date, to purchase up to an additional 195,000 shares of TDX Common
Stock at the Subscription Price solely to cover over-allotments, if any.
The obligation of the Underwriters under the Standby Underwriting Agreement
to purchase Underwritten Shares is subject to the following conditions, among
others: that the Registration Statement of which this Prospectus is a part
shall have been declared effective, and that no stop order with respect
thereto shall have been issued; that satisfactory opinions of counsel to the
Company and to the Underwriters, and certain assurances from the Company's
independent public accountants, shall have been received; that the Company
shall not have experienced any material adverse change in its business
(including the results of operations or management) or properties; and that
the Company, Thermedics and Thermo Electron affirm as correct certain
representations and warranties made to the Underwriters. In addition, the
Underwriters in their absolute discretion may, in the event of the occurrence
of any of the following, elect to terminate their obligations under the
Standby Underwriting Agreement: if trading in the TDX Common Stock has been
suspended by the AMEX or trading in securities generally on the AMEX, the New
York Stock Exchange, the International Stock Exchange of the United Kingdom or
the over-the-counter market has been suspended, limited or subject to the
establishment of minimum prices; if a banking moratorium has been declared by
banking authorities of the United States, the United Kingdom, New York State
or the Commonwealth of Massachusetts; if there has occurred a declaration by
the United States or the United Kingdom of a national emergency or war, or a
material adverse change in general economic, political or financial conditions
or the effect of international conditions on the financial markets in the
United States or the United Kingdom is such as to make it, in the judgment of
the Underwriters, impracticable or inadvisable to proceed with the Rights
Offering or delivery of the Underwritten Shares as contemplated hereby.
25
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax considerations affecting holders of TDX Common Stock and Thermedics Common
Stock receiving Rights in the Rights Offering. This summary is based upon
laws, regulations, rulings, and decisions currently in effect. This summary
does not discuss all aspects of federal taxation that may be relevant to a
particular investor or to certain types of investors subject to special
treatment under the federal tax laws (for example, banks, dealers in
securities, life insurance companies, tax-exempt organizations, and foreign
persons), nor does it discuss any aspect of state, local, or foreign tax laws.
HOLDERS OF TDX COMMON STOCK AND THERMEDICS COMMON STOCK SHOULD THEREFORE
CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, AND UNDER ANY APPLICABLE STATE, LOCAL, OR FOREIGN TAX LAWS.
Distribution of the Rights to Holders of TDX Common Stock. A holder of TDX
Common Stock will not recognize taxable income for federal income tax purposes
as a result of the issuance to such holder of Rights in respect of the TDX
Common Stock. Except as provided in the following sentence, the basis of such
Rights will be zero. If either (i) the fair market value of the Rights on the
date of distribution is 15% or more of the fair market value of the TDX Common
Stock in respect of which they are received on such date, or (ii) the
stockholder elects, in the stockholder's federal income tax return for the
taxable year in which the Rights are received, to allocate part of the basis
of such TDX Common Stock to the Rights, then the stockholder's basis in such
TDX Common Stock will be allocated between such TDX Common Stock and such
Rights in proportion to their respective fair market values on the date of
distribution. The holding period of a stockholder with respect to Rights
received as a distribution on such stockholder's TDX Common Stock will include
the stockholder's holding period for the TDX Common Stock in respect of which
the Rights were issued.
Distribution of the Rights to Holders of Thermedics Common Stock. The
distribution of the Rights by Thermedics to holders of Thermedics Common Stock
will constitute a taxable distribution of property, and accordingly, each such
holder will be required to include as ordinary taxable income an amount equal
to the fair market value (if any) of the Rights as of the date of the
distribution (subject, to the extent available, to the 70% dividends-received
deduction currently allowed to certain corporate stockholders). The tax basis
of the Rights in the hands of the recipient Thermedics stockholder will be
equal to the amount so included in income.
Thermedics is required annually to notify the holders of Thermedics Common
Stock, on Internal Revenue Service Form 1099, of the amount of dividends
aggregating $10 or more paid to such holders during the prior year, including,
for 1997, the fair market value of the Rights (if any) on the date of
distribution. Thermedics and the Company will determine the fair market value
of the Rights on that date, after consultation with the Underwriters. It is
anticipated that the per share value of the TDX Common Stock represented by
the Rights at the date of commencement of the Rights Offering will approximate
the Subscription Price, with the result that the Rights should have nominal
value for federal income tax purposes. Holders of Thermedics Common Stock
should be aware, however, that the Internal Revenue Service will not be bound
by Thermedics' and the Company's determination.
Tax Basis in Rights. A holder of Rights that purchased the Rights will have
a tax basis in the Rights equal to the holder's cost of the Rights. A
Thermedics shareholder that received the Rights as a dividend with respect to
the stock of Thermedics will have a tax basis in the Rights equal to the
amount of the dividend (without taking into account any dividends-received
deduction for corporate shareholders). A holder of TDX Common Stock that
received the Rights with respect to the TDX Common Stock will allocate its
previous tax basis in the TDX Common Stock between the TDX Common Stock and
the Rights in proportion to their respective fair market values on the date of
the distribution, provided, however, that no such allocation of basis shall be
made if (i) the fair market value of the Rights so acquired is less than 15%
of the fair market value of the holder's TDX Common Stock immediately prior to
the distribution (unless the holder elects to make an allocation), or (ii) the
Rights so acquired are neither sold nor exercised.
26
<PAGE>
Exercise of Rights. A holder of Rights will not recognize gain or loss upon
the exercise of the Rights. A holder of Rights who receives shares of TDX
Common Stock upon such exercise will acquire a tax basis in those shares equal
to the sum of the price paid on exercise and the holder's tax basis in the
Rights. The holding period of TDX Common Stock received on exercise of the
Rights will begin on the date the Rights are exercised.
Transfer of Rights. A holder of Rights that sells Rights prior to exercise
will recognize gain or loss equal to the difference between the sale proceeds
and such holder's adjusted tax basis in the Rights sold. Such gain or loss
will be capital gain or loss if gain or loss from a sale of TDX Common Stock
held by such stockholder would be characterized as capital gain or loss at the
time of such sale. Capital gain or loss recognized on a sale of Rights by a
Thermedics Detection stockholder will be long-term capital gain or loss if the
TDX Common Stock for which the Rights were distributed was held by such
stockholder for more than one year; otherwise such gain or loss will be short-
term capital gain or loss. Any capital gain or loss recognized on a sale of
Rights by a Thermedics stockholder will be a short-term capital gain or loss.
Lapse of Rights. A holder of Rights that fails either to exercise or to
transfer the Rights prior to the Expiration Date will be deemed to have sold
his rights on that date for an amount equal to zero. As noted above (see "Tax
Basis in Rights"), holders of TDX Common Stock will have a basis of zero in
the Rights and so will not incur a loss for tax purposes upon the lapse of the
Rights. Assuming that the Rights are held as capital assets, holders of
Thermedics Common Stock who receive Rights will incur a short-term capital
loss upon the lapse of the Rights equal to their adjusted tax basis in the
Rights.
27
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information below as of and for the fiscal years
ended December 31, 1994, December 30, 1995 and December 28, 1996 has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report included elsewhere in this Prospectus. This information should
be read in conjunction with the Company's Consolidated Financial Statements
and related notes included elsewhere in this Prospectus. The selected
financial information for the fiscal year ended January 1, 1994 has been
derived from the Company's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, but have not been included in this Prospectus.
The selected financial information for the fiscal year ended January 2, 1993
and as of January 1, 1994 has not been audited but, in the opinion of the
Company, includes all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly such information in accordance with
generally accepted accounting principles applied on a consistent basis.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR COMBINED (2)
----------------------------------------- FISCAL YEAR
1992 1993 1994 1995 1996 (1) 1996
------- ------- ------- ------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297
------- ------- ------- ------- ------- -------
Costs and Operating
Expenses:
Cost of revenues....... 9,329 23,759 24,906 15,236 22,150 22,793
Selling, general and
administrative
expenses.............. 4,229 7,526 11,973 7,487 15,525 16,233
Research and
development expenses.. 647 1,790 3,895 2,741 4,608 4,608
------- ------- ------- ------- ------- -------
14,205 33,075 40,774 25,464 42,283 43,634
------- ------- ------- ------- ------- -------
Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663
Interest and Other
Expense, Net........... -- -- -- (72) (878) (934)
------- ------- ------- ------- ------- -------
Income Before Provision
for Income Taxes....... 3,156 8,956 9,569 2,418 589 729
Provision for Income
Taxes.................. 1,253 3,153 3,189 910 227 291
------- ------- ------- ------- ------- -------
Net Income.............. $ 1,903 $ 5,803 $ 6,380 $ 1,508 $ 362 $ 438
======= ======= ======= ======= ======= =======
Earnings per Share (3).. $ .19 $ .58 $ .63 $ .15 $ .04 $ .04
======= ======= ======= ======= ======= =======
Weighted Average Shares
(3).................... 10,069 10,069 10,069 10,069 10,320 10,320
======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT
END OF PERIOD):
Working Capital......... $ 5,593 $ 447 $ 6,116 $11,273 $23,358
Total Assets............ 12,126 25,544 17,793 20,322 53,483
Long-term Obligations... -- -- -- -- 21,200
Shareholders'
Investment............. 7,282 3,822 9,208 13,773 20,910
</TABLE>
- --------
(1) Includes the results of Moisture Systems and Rutter since their
acquisition by the Company in January 1996.
(2) The pro forma combined statement of income data was derived from the pro
forma combined condensed statement of income included elsewhere in this
Prospectus. The pro forma combined statement of income data sets forth the
results of operations for fiscal 1996, as if the acquisitions of Moisture
Systems and Rutter had occurred on January 1, 1996.
(3) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with
the initial capitalization of the Company, the effect of shares sold
through private placements, as well as the effect of the assumed issuance
of the private placements and the assumed exercise of stock options issued
within one year prior to the Company's proposed rights offering with
exercise prices less than the Subscription Price.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Thermedics Detection Inc. (the "Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical detectors,
high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and
other technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for
other high-security screening applications and for forensics and search
applications.
Historically, the Company's principal product lines were process detection
systems, including Alexus systems, and EGIS explosives detectors. The Company
expanded its product lines to include moisture analysis equipment through its
acquisition of Moisture Systems and Rutter in January 1996, and also
introduced its InScan systems and Flash-GC gas chromatography systems in 1996.
The Company also performs contract research and development services for
government and industry customers and generates service revenues through long-
term contracts.
The Company's strategy has been to develop proprietary, high-speed
analytical technologies to meet the needs of its customers, introduce those
technologies to new markets, and finally, employ the process knowledge gained
from customers in these markets to develop new proprietary technologies. In
1992, based on technologies used in its EGIS systems and TEA Analyzer, the
Company developed its line of Alexus systems, which detect trace amounts of
contaminants in refillable plastic bottles for the soft-drink industry. The
Coca-Cola Bottlers elected to retrofit all of their existing refillable
plastic bottling lines outside of the U.S. with this device, creating a
dramatic increase in sales in 1993 through 1994. Sales of Alexus systems to
the Coca-Cola Bottlers were $32.2 million, or 64% of the Company's revenues,
in 1994. By 1995, the Coca-Cola Bottlers had substantially completed their
retrofit, and sales of the Alexus systems substantially declined. Sales of
Alexus systems to the Coca-Cola Bottlers were $10.0 million and $10.6 million,
or 36% and 24% of the Company's revenues, in 1995 and 1996, respectively.
These revenues represent product line upgrades by the Company's installed
base, and new bottling lines added by the Coca-Cola Bottlers. The Company has
sought to expand its customer base and continues to develop Alexus upgrades
and new applications and products. The Company also introduced several new
product lines over the last 12 months, including its InScan and Flash-GC
product lines. As the Company begins marketing these and other products,
including its EGIS explosives-detection equipment, the Company believes that
it will become less dependent on its traditional revenue base. No assurance
can be given, however, that the Company will be able to significantly broaden
the markets for its process detection systems.
The Company's sales of its explosives-detection systems for use in airports
has been and will continue to be dependent on governmental initiatives to
require, or support, the screening of checked luggage, carry-on items and
personnel with advanced explosives-detection equipment. Significant terrorist
acts, such as the downing of Pan American Flight 103, the World Trade Center
bombing and the bombing in Oklahoma City have sparked renewed government
initiatives in the screening of people, baggage and packages at high-
sensitivity locations such as airports. In October 1996, in response to the
explosion of TWA Flight 800, the United States enacted legislation which
included $144.2 million allocated for the purchase of explosives-detection
systems and other advanced security equipment, including trace equipment, such
as the systems manufactured by the Company for carry-on and checked baggage
screening. The Company believes that this legislation and potential follow-on
legislation will generate significant growth in the market for explosives-
detection instruments, including trace- detection systems.
29
<PAGE>
Approximately 67% of the Company's revenues originate outside of the U.S.
Although the Company seeks to charge its customers in the same currency as its
operating costs, the Company's financial performance and competitive position
may be impacted by currency exchange rate fluctuations affecting the
relationship between the U.S. dollar and foreign currencies.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial
information for each of the eight quarters in the period ended December 28,
1996. The Company believes that this information has been presented on the same
basis as the audited financial statements appearing elsewhere in this
Prospectus and in the opinion of the Company, includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the unaudited quarterly results when read in conjunction with the audited
financial statements of the Company and related notes thereto included
elsewhere in the Prospectus. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
APRIL 1, JULY 1, SEPT. 30, DEC. 30, MARCH 30, JUNE 29, SEPT. 28, DEC. 28,
1995 1995 1995 1995 1996 1996 1996 1996
-------- ------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................ $9,050 $7,140 $5,998 $5,766 $9,345 $10,104 $11,117 $13,184
Cost of Revenues........ 4,390 3,866 3,723 3,257 4,725 6,123 5,236 6,066
------ ------ ------ ------ ------ ------- ------- -------
Gross Profit............ 4,660 3,274 2,275 2,509 4,620 3,981 5,881 7,118
Operating Expenses...... 2,687 2,531 2,347 2,663 5,191 5,933 4,355 4,654
------ ------ ------ ------ ------ ------- ------- -------
Operating Income
(Loss)................. 1,973 743 (72) (154) (571) (1,952) 1,526 2,464
Net Income (Loss)....... 1,202 426 (35) (85) (524) (1,244) 705 1,425
Earnings (Loss) per
Share.................. .12 .04 -- (.01) (.05) (.12) .07 .14
Weighted Average
Shares................. 10,069 10,069 10,069 10,069 10,099 10,342 10,342 10,498
Gross Profit Margin..... 51% 46% 38 % 44 % 49 % 39 % 53% 54%
Operating Income (Loss)
Margin................. 22% 10% (1)% (3)% (6)% (19)% 14% 19%
Net Income (Loss) Mar-
gin.................... 13% 6% (1)% (1)% (6)% (12)% 6% 11%
</TABLE>
The presentation of the Company's historical quarterly results reflects
revenues from process detection instruments of $2.9 million in the first
quarter of 1996, compared with $6.4 million in the first quarter of 1995. This
decrease was offset by an increase in revenues in the first quarter of 1996 due
to the inclusion of $3.2 million of revenues from Moisture Systems and Rutter,
which were acquired January 1996. In the first half of 1996, gross profit
margin from process detection instruments decreased due to lower sales volume,
offset by higher-margin revenues from Moisture Systems and Rutter in 1996. In
addition, in the first and second quarters of 1996, the Company recorded
significant nonrecurring charges, including those discussed in the results of
operations. These write-offs included a reserve for obsolete inventory due to
planned product changes, as well as costs for severance and a reduction of
leased facilities and other adjustments. The Company's operating results for
the first half of 1996 were adversely affected as a result of these charges and
the Company incurred an operating loss of $2.5 million for that period. The
Company was profitable in the periods subsequent to these write-offs, with
operating income of $1.5 million and $2.5 million recorded in the third and
fourth quarters of 1996, respectively.
RESULTS OF OPERATIONS
1996 Compared With 1995(/1/)
Total revenues increased to $43.8 million in 1996 from $28.0 million in 1995.
Product revenues increased 69% to $31.3 million in 1996 from $18.5 million in
1995, while service revenues increased 32% to $12.5 million in 1996 from $9.5
million in 1995.
- --------
(1) References to 1996, 1995 and 1994 herein are for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
30
<PAGE>
Revenues 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 million in 1996 from $4.6
million in 1995, primarily due to the sale of eight EGIS units to the U.S.
government to provide counterterrorism support in Israel. Revenues from
research and development contracts decreased by $2.2 million to $1.8 million
in 1996 due to the completion of a commercial contract with the Miller Brewing
Company for the InScan system and, to a lesser extent, the completion of
various phases of government contracts, which have since been renewed.
The gross profit margin increased to 49% in 1996 from 45% in 1995. The gross
profit margin on product revenues increased to 51% in 1996 from 46% in 1995,
primarily due to higher-margin revenues from Moisture Systems and Rutter,
offset in part by an inventory write-down of $0.8 million in the second
quarter of 1996 due to obsolescence created by planned product changes. The
gross profit margin on service revenues increased to 46% in 1996 from 44% in
1995, primarily due to the inclusion of higher-margin revenues from Moisture
Systems and, to a lesser extent, the impact of cost reductions implemented in
late 1995 and early 1996.
Selling, general and administrative expenses as a percentage of revenues
increased to 35% in 1996 from 27% in 1995, primarily due to higher expenses as
a percentage of revenues at Moisture Systems and Rutter and, to a lesser
extent, $0.4 million of costs incurred in the second quarter of 1996 related
to reductions in personnel and a reduction in leased space in response to the
lower sales volume of process detection instruments.
Research and development expenses increased to $4.6 million in 1996 from
$2.7 million in 1995, primarily due to research and development relating to
the Company's Flash-GC gas chromatograph and its InScan high-speed X-ray
imaging system. These projects are nearing completion and the Company expects
that its research and development expenses as a percentage of revenues will
decline in 1997. In addition, the Company recorded a nonrecurring charge of
$0.2 million in the second quarter of 1996 for the write-off of certain
research and development equipment no longer of use.
Interest expense, related party of $1.1 million in 1996 reflects the
issuance of a $21.2 million promissory note to Thermedics in connection with
the January 1996 acquisitions of Moisture Systems and Rutter. This note is due
March 1998, and bears interest at the 90-day Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter. See "Transactions
with Affiliates."
1995 Compared With 1994
Total revenues were $28.0 million in 1995, compared with $50.3 million in
1994. Product revenues decreased 54% to $18.5 million in 1995 from $40.4
million in 1994, and service revenues decreased 4% to $9.5 million in 1995
from $9.9 million in 1994.
Revenues from the Company's process detection instruments decreased to $18.5
million in 1995 from $38.0 million in 1994, primarily due to a decrease in
demand from the Coca-Cola Bottlers, which have substantially completed their
initial deployment of Alexus systems. Revenues from the Company's EGIS
explosives-detection systems declined to $4.6 million in 1995 from $10.1
million in 1994. During 1993 and 1994, large orders from BAA plc, which
oversees airports in the United Kingdom, and the German government accounted
for a significant portion of EGIS sales. These decreases were offset in part
by an increase in research and development contract revenues of $2.1 million
to $4.0 million in 1995 due to an increase in government contract revenue and,
to a lesser extent, revenue from a commercial contract with Miller Brewing
Company in 1995.
The gross profit margin declined to 45% in 1995 from 51% in 1994. The gross
profit margin on product revenues decreased to 46% in 1995 from 55% in 1994
due to the lower sales volume and, to a lesser extent, the inclusion of lower-
margin research and development contract revenues. The gross profit margin on
service revenues increased to 44% in 1995 from 31% in 1994 due to higher
margins on recent service contracts.
Selling, general and administrative expenses as a percentage of revenues
increased to 27% in 1995 from 24% of revenues in 1994, primarily due to the
lower sales volume in 1995.
31
<PAGE>
Research and development expenses decreased to $2.7 million in 1995 from
$3.9 million in 1994 due to a shift in the allocation of resources to
externally funded research and development contracts.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $23.4 million at December 28, 1996,
compared with $11.3 million at December 30, 1995. Included in working capital
are cash and cash equivalents of $13.5 million at December 28, 1996 and $1.3
million at December 30, 1995. During 1996, cash of $6.6 million was provided
by operating activities. Cash of $1.8 million was used to fund an increase in
accounts receivable due to retainage provisions on certain contracts and
higher international receivables, which often have longer payment cycles than
domestic receivables. This use of cash was largely offset by $1.3 million of
cash provided by a decrease in inventories resulting from improved inventory
management.
During 1996, cash of $22.6 million was used in investing activities. In
January 1996, the Company acquired the assets of Moisture Systems and certain
affiliated companies, and the stock of Rutter for a total of $21.7 million in
cash, including the repayment of approximately $.7 million of indebtedness. In
connection with this acquisition, the Company borrowed $21.2 million from
Thermedics pursuant to a promissory note due March 1998, and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. See "Transactions with Affiliates." Thermedics has
indicated its intention to require the repayment of the principal amount of
this note only to the extent that the Company's liquidity and cash flow
permit. In December 1996, the Company acquired certain moisture detection
product lines for approximately $0.3 million in cash, plus a percentage of the
revenues earned by the Company from such product lines. The Company expended
$0.8 million on purchases of machinery, equipment and leasehold improvements
in 1996.
In March 1996, the Company issued and sold 300,000 shares of the Company's
common stock in a private placement for net proceeds of $3.0 million. In
November 1996, the Company issued and sold 383,500 shares of the Company's
common stock in a private placement for net proceeds of $4.0 million.
During 1995, cash of $2.0 million was used in operating activities. Uses of
cash included $3.2 million to fund an increase in inventories in anticipation
of expected higher sales volume in 1996 and $2.4 million to reduce other
current liabilities, including accrued employee benefits and accrued warranty,
which were reduced as a result of the Company's lower volume of business in
1995. Investing activities used cash of $0.6 million and financing activities
provided cash of $3.2 million in 1995 as a result of additional capital
contributions from parent company.
During 1994, cash of $1.9 million was provided by operating activities. Cash
of $3.5 million was provided by a reduction in accounts receivable and
unbilled contract costs and fees and cash of $4.6 million was provided by a
decrease in inventories, both resulting from shipment of significant orders to
the Coca Cola Bottlers. These sources of cash, together with cash provided by
the Company's net income, were more than offset by the use of $14.1 million of
cash to reduce accounts payable and other current liabilities as a result of
the lower volume of business following shipment of the significant orders to
the Coca Cola Bottlers. Investing activities used cash of $0.7 million and
financing activities used cash of $1.0 million due to the transfer of funds to
parent company.
The Company expects to use substantially all of the anticipated net proceeds
from the Rights Offering to fund research and development for new products.
The Company expects to use the balance of such net proceeds for general
corporate purposes, including the possible acquisition of one or more
businesses. The Company, however, is not currently engaged in negotiations
with any companies and it has no agreements, understanding or commitments with
respect to any specific acquisitions that would be material to the Company.
Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of
cash for the possible acquisition of complementary businesses and
technologies. The Company expects that it will finance these acquisitions
through a combination of internal funds, the net proceeds of the Rights
Offering, additional debt or equity financing and/or short-term borrowings
from Thermedics or Thermo Electron, although it has no agreement with these
companies to ensure that funds will be available on 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, including at least the next 24 months.
32
<PAGE>
BUSINESS
OVERVIEW
Thermedics Detection Inc. develops, manufactures and markets high-speed on-
line detection and measurement systems used in a variety of industrial process
applications, explosives detection and laboratory analysis. The Company's
industrial process systems use ultratrace chemical detectors, high-speed gas
chromatography, X-ray imaging, near-infrared spectroscopy and other
technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products, chemical and
other consumer products industries. The Company's explosives-detection
equipment uses simultaneous trace particle- and vapor-detection techniques
based on its proprietary chemiluminescence and high-speed gas chromatography
technologies. Customers use the Company's explosives-detection equipment to
detect plastic and other explosives at airports and border crossings, for
other high-security screening applications and for forensics and search
applications.
The Company's principal product lines include:
.Alexus systems, introduced in 1992, detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and
other beverage containers at speeds in excess of 600 bottles per minute.
Alexus systems have been installed on more than 200 bottling lines in more
than 30 countries;
.InScan systems, introduced in 1996, detect liquid fill-levels, leakage,
foreign objects and product defects at speeds in excess of 2,400 units per
minute for the beverage, food and other industries;
.Micro-Quad, Quadra-Beam and other products of the Moisture Systems
division, acquired by the Company in 1996, measure moisture and other
product constituents, including fats, proteins, oils, flavorings,
solvents, adhesives and coatings, in the manufacturing processes of a
variety of industries;
.Flash-GC gas chromatography systems, introduced in 1996, analyze chemical
samples at speeds 20 to 50 times faster than conventional gas
chromatography systems. These systems can be used in a variety of markets,
primarily in near on-line process and quality control applications that
require high-speed results; and
.EGIS explosives detectors, first sold to commercial airports in Europe in
1991, detect and identify trace levels of explosives in carry-on bags, in
checked luggage and on people, and are also used in forensic
investigations. 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 these technologies affords it a
competitive advantage. In
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addition, the Company employs highly skilled research scientists and product
development engineers who use their intimate knowledge of their customers'
production processes to develop new products based on these technologies.
The Company's customers are characterized by the need to improve product
quality and consistency while reducing production costs. Effective quality
control requires high-speed systems that can test samples on-line, or near on-
line, so that adjustments to the manufacturing process can be made quickly and
frequently. More effective sampling reduces the amount of unacceptable product
produced. Similarly, airports and other security checkpoints are required to
screen increasing volumes of passengers and baggage with a high degree of
accuracy without causing undue inconvenience and delays. Consequently, the
time between the initiation of the testing process and the completion of the
analysis must be reduced to the greatest practical extent. The Company
believes that its high-speed detection and measurement systems meet the
requirements of these demanding applications and, as a result, systems based
on its high-speed analytical techniques will become increasingly employed in a
wider variety of applications.
PROCESS DETECTION SYSTEMS
The Company designs, manufactures and markets high-speed on-line trace
(parts-per-trillion) measurement, detection and rejection equipment that uses
particle-detection, vapor-detection and other technologies for product quality
and productivity applications. The Company believes that the current total
annual worldwide market for process detection equipment and systems is in
excess of $2 billion. The Company currently addresses an approximately $250
million segment of this market, focusing on product content and packaging.
Alexus. The Company's Alexus systems detect trace amounts of constituents
that affect product quality in refillable plastic soft drink, water and other
beverage containers. The Company 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
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producers because the publicity associated with an abused bottle can severely
damage a brand name and a bottler's reputation. The Company believes that
demand for Alexus systems will increase as its current customers expand into
new markets around the world, as the technology is accepted by additional
beverage producers and as the Company provides upgrades to its installed
customer base.
InScan. The Company's InScan system uses high-speed X-ray imaging technology
to detect liquid fill-levels and leakage in containers for the beverage, food
and other industries. InScan uses a low-power X-ray to capture data both
vertically and horizontally. This data produces an instant, detailed image of
each container that InScan's proprietary software automatically compares to a
predetermined profile and generates mathematical algorithms to determine
whether the container is acceptable. InScan incorporates a sophisticated,
high-speed rejection system that automatically removes unacceptable containers
from the line. The Company shipped its first InScan units in 1996 and believes
that the current total annual worldwide beverage market for these systems is
approximately $60 million. The Company also believes that these systems have
applications in the broader packaging inspection market, which industry
sources estimate to be approximately $130 million per year. InScan systems
currently sell for an average of $35,000 per unit.
Bottlers have traditionally detected fill-level and leakage by shooting a
pinpoint gamma ray through a bottle or can on a production line. The principal
disadvantages of gamma-based systems are their limitations in both accuracy
and the scope of detection, as well as their potential for radioactive
contamination of personnel and machinery. The wider image generated by
InScan's X-ray imaging technology means that accuracy is unaffected by the
speed of the line, acceleration or deceleration of the line, sloshing of
contents or vibration. Consequently, InScan can be used on lines running at
speeds of up to 2,400 units per minute, with an accuracy of +/-0.5 millimeters
over the entire range of inspection speeds. Moreover, because the system is
designed to image a portion of a can or bottle, rather than a pinpoint, InScan
can be used to detect improper or missing lids, caps or tabs, as well as the
integrity of the container from the shape of the lid or cap. Other advantages
of InScan include reduced health hazards due to the elimination of potential
radioactive gamma hazards, simple positioning anywhere on a production line
and quick adjustability to fit packages of varying shapes.
The Company believes that its InScan X-ray imaging technology is
significantly more accurate than traditional single-point gamma-based systems.
The Company also believes that the increased accuracy of InScan systems can
result in substantially fewer short-filled or over-filled containers,
permitting an InScan system to pay for itself in as few as nine months.
The Company's InScan systems are currently used by major beer and soft drink
companies in the U.S. and overseas, including Miller, Molson, Coors and the
Coca-Cola Bottlers. Industry sources estimate that there are currently
approximately 5,000 beer and soft drink bottling lines throughout the world,
and that the number of such lines is increasing at a rate of approximately 5%
per year. The Company believes that demand for InScan systems will increase as
additional bottlers perceive the benefits of the technology.
The Company is currently developing new applications for InScan, including
the detection of foreign objects such as bone fragments and plastic in baby
food, and product defects in packaged goods for the food, consumer products
and other industries.
Moisture Systems. The Company's Moisture Systems division, acquired in 1996,
designs, manufactures and markets equipment that uses near-infrared
spectroscopy to measure moisture and other product constituents, including
fats, proteins, oils, flavorings, solvents, adhesives and coatings, in a
variety of manufacturing processes. The Company's systems are used across the
food, pharmaceutical, chemical, petrochemical, tobacco, forest products, pulp
and paper, paper converting, plastics, textiles, corrugating and other
industries. The Company believes that it is the world's largest supplier of
near-infrared on-line constituent-measurement products, with an installed base
of more than 10,000 units. Principal customers currently include Nabisco,
Nestle, Hoechst Celanese, Akzo Nobel, Georgia Pacific, Avery Dennison,
Reynolds Aluminum, Procter & Gamble, DuPont, 3M Company and other major
manufacturers of consumer and industrial products. With a large installed base
over a wide range of applications, the Company has built a base of knowledge
and experience that it believes to be a competitive advantage. The Company's
systems generally sell for between $10,000 and $100,000 per unit.
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The Company's moisture-analysis equipment determines the amount of near-
infrared light absorbed by a sample at each given wavelength to precisely
identify and measure the content of the sample's constituent molecules. The
Company's principal products include the Quadra-Beam and Micro-Quad, which are
designed to precisely measure moisture and other product constituents at fixed
points on a variety of solid materials. Quadra-Beam instruments operate with
either one or two sensors, and measure a single constituent per sensor. Micro-
Quad instruments operate with up to five sensors, and are capable of measuring
multiple constituents per sensor. Both Quadra-Beam and Micro-Quad products can
be incorporated into more complex systems. For example, the Company's Profile
Video Display Systems measure product constituents across webs for
applications in the paper, paper converting, sheet metal, textile and other
industries. Similarly, the Company's liquid and gas systems are designed to
measure product constituents in liquid or gas streams moving through pipes.
Customers for these systems include the petrochemical, chemical, food,
beverage, plastics and polymer industries.
Manufacturers need to perform precise measurements of moisture and other
product constituents to ensure product quality and consistency while reducing
production costs. Manufacturers have historically performed such measurements
on samples taken from production lines for laboratory analysis. The Company's
moisture-analysis products provide continuous, nondestructive analysis,
without requiring sample preparation or contact, making information instantly
available to the operator or computer controlling the production process. In
certain applications, these instruments can be incorporated into closed-loop
systems. For example, an instrument detecting insufficient moisture in a
product can relay an electronic signal to an oven elsewhere on the production
line to decrease the amount of moisture to be extracted during the drying
process.
Industry analysts estimate that the annual worldwide market for on-line
moisture measurement products is approximately $60 million. The Company
believes that approximately $35 to $40 million of this market is for near-
infrared measurement products. Approximately 60% of the Company's sales are to
new manufacturing facilities, facilities expanding by adding new production
lines and facilities incorporating on-line systems for the first time, and
approximately 40% are to replace existing on-line equipment. The Company sells
its moisture-analysis equipment primarily in the United States and in Europe.
The Company expects that certain geographical markets for this equipment,
including the Asia/Pacific region and Latin America, will grow significantly
over the next several years as countries in that region accelerate their
industrialization and their production of consumer products and industrial
goods, such as paper and cardboard.
FLASH-GC GAS CHROMATOGRAPHY SYSTEMS
The Company designs, manufactures and markets high-speed gas chromatography
systems that can analyze chemical samples at speeds 20 to 50 times faster than
conventional gas chromatography. Industry sources estimate that the
conventional gas chromatography laboratory and process instrument market is
currently $850 million annually. The Company currently markets its systems
under the trade name "Flash-GC" to analytical services and quality
laboratories and for near on-line process and quality control applications
that require high-speed results. The Company also intends to target certain
other segments of the conventional gas chromatography market in which access
to high-speed analysis would be advantageous.
As in traditional gas chromatography, a sample is introduced into the Flash-
GC and is separated into its chemical constituents in a chromatograph column
under heat and pressure. Traditional gas chromatographs place the column in a
heated oven. In contrast, the Flash-GC uses patented or patent-pending
technology to dynamically heat the column itself rather than the large mass of
air in the oven. Coupled with the Flash-GC's intermediate controlled-
temperature trap zones, this technology permits the Flash-GC to separate a
sample into its constituents 20 to 50 times faster than a conventional gas
chromatograph in certain applications. As in conventional gas chromatography,
the chemical constituents enter a detector at the end of the Flash-GC column,
which gives off an electric signal corresponding to the identity of each
constituent. The Flash-GC is not suitable for all applications because some
detectors used with conventional gas chromatographs cannot respond rapidly
enough to the output of the Flash-GC. The Company believes, however, that with
the detectors currently available with the Flash-GC, and with detectors
currently under development, this technology can serve a significant portion
of the conventional gas chromatography market in which speed is important.
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The Company believes that the Flash-GC has potential applications in the
food, flavors, fragrance, chemical, pharmaceutical, forensics and automotive
industries, as well as for medical and environmental laboratories. The Company
believes that the market for high-speed gas chromatography is only beginning
to develop and the Company intends to target only those sectors of the
laboratory and process gas chromatography market that are expected to place a
premium on near-instant analysis. For example, food processors subject to the
Food Quality Protection Act use gas chromatography to ensure that packaged
foods contain the correct ingredients and in the proper proportions. Today, a
typical gas chromatography analysis of the ingredients in packaged foods may
require 40 minutes, a time frame in which the food processor continues to
produce a large volume of its product that must ultimately be disposed of if
the analysis demonstrates nonconformity to applicable standards. The Flash-GC
permits food processors to perform the same analysis in less than two minutes.
Other customers using the Flash-GC include an automobile manufacturer
performing on-line emissions testing, a company evaluating its wastewater
during discharge and a beverage company evaluating production ingredients at
the point of mixing. In each case, these customers have reported analyses 20
to 50 times faster than with the conventional gas chromatographs currently in
use, with significant improvements in both productivity and quality.
The Flash-GC, a new technology introduced in 1996, received both the Pittcon
Editors' Gold Award for the best new product exhibited at Pittcon '96, a major
U.S. analytical instrument conference, and the Most Innovative New Product
Award at the Het Instrument '96 Conference, a major European analytical
instrument conference. The Company shipped ten Flash-GC units for beta testing
in 1996. The Company is currently building a sales and marketing organization
to support the Flash-GC, and expects to begin shipping production units in the
first quarter of 1997. The Company expects that the Flash-GC systems will be
priced at between $60,000 and $75,000 per unit. The Company is continuing to
develop the Flash-GC to configure it with additional detectors and to
introduce a process-oriented version for additional on-line applications.
EXPLOSIVES DETECTORS
The Company designs, manufactures and markets explosives-detection equipment
that uses trace particle- and vapor-detection techniques for forensics, search
and screening applications under the direction of police, border police,
transportation authorities and carriers. The Company's principal explosives-
detection system is EGIS, a highly sensitive particle- and vapor-detection
system for screening people, baggage, packages, freight, and electronic
equipment such as personal computers for the presence of a wide range of
explosives, including plastic explosives that have proven difficult to detect
using conventional methods. The EGIS system is designed for stand-alone use in
the detection of explosives in carry-on items and on personnel, and can be
used in conjunction with enhanced X-ray and other advanced imaging systems to
provide a comprehensive explosives-detection system for checked luggage.
Explosives-detection equipment used in security screening applications
comprises two distinct categories that are generally combined into a single
system: enhanced X-ray technologies, such as computed tomography ("CT") and
dual energy X-ray systems, and trace detection technologies, such as the EGIS
system. Because of its medium- to high-throughput rate, enhanced X-ray
equipment is generally used in the initial screening of checked luggage in
multi-tiered systems, with trace equipment placed at the end of the process.
X-ray technology, however, is relatively capital intensive and generally
requires significant engineering to fit into existing luggage systems. Trace
equipment is sensitive to minute quantities of explosive particles, and is
generally physically smaller, more portable and less expensive than X-ray
equipment. Trace equipment that combines gas chromatography with a detector
can simultaneously detect more types of explosives than units employing only a
detector. Trace systems currently require hand-held sample collectors. This
typically manual process results in a throughput level below that of enhanced
X-ray. Trace systems can be used effectively to manually screen checked
baggage rejected by X-ray systems, which have a relatively high false positive
rate. Trace systems have throughput rates that allow them to be used
effectively on a stand-alone basis in carry-on and walk-through screening
applications.
In response to the crash of TWA Flight 800 in July 1996, President Clinton
formed the White House Commission on Aviation Safety and Security, chaired by
Vice President Gore (the "Gore Commission"), to
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review airline and airport security and oversee aviation safety. Both the Gore
Commission and the Baseline Working Group, a government/industry panel that
was established prior to the crash of TWA Flight 800 to recommend an airport
security plan for the United States, have recommended that trace detection
equipment be used in series with enhanced X-ray systems for screening checked
luggage. The Gore Commission and the Baseline Working Group also recommended
the use of trace detection equipment for screening passengers and carry-on
baggage.
The Company believes that EGIS is the most accurate and most sensitive high-
speed trace explosives-detection equipment available today. EGIS utilizes the
Company's Flash-GC high-speed gas chromatography technology combined with
chemiluminescent detection techniques to detect ultratrace quantities of
certain explosives and taggants, and indicate the concentration and type of
explosive detected. Because EGIS' chemiluminescent detector responds only to
compounds of certain structures in the sample, rather than the thousands of
compounds that may be contained in the sample, EGIS is more selective than
competing trace detection systems, with fewer false-positive detections. A
processor in EGIS compares the chemical profile of the sample to the known
profiles of various explosives, including TNT, nitroglycerin, PETN, Semtex and
C-4. Within seconds of the introduction of the sample into EGIS, the system
determines whether explosives are present, and, if so, identifies the type and
amount.
The Company believes that it is the worldwide leader in providing explosives
trace detection equipment. Initially developed with internal funds and
contract funding from the FAA and the U.S. Department of State, more than 200
EGIS units have been deployed to date. The EGIS system is currently
operational in 21 countries and is in use in carry-on and checked luggage
screening at more than 42 international airports. EGIS is also used in
government buildings and embassies, and at border crossings and other
locations where there is a high degree of concern for security. The EGIS
system has assisted in identifying explosives used in terrorist bombings,
including those in Federal Building in Oklahoma City and the World Trade
Center in New York, as well as in Israel, Buenos Aires and the United Kingdom.
In March 1996, the Company supplied the U.S. government with eight EGIS
systems to provide counter-terrorism support in Israel. Most recently, the
Bureau of Alcohol, Tobacco and Firearms and the Federal Bureau of
Investigation used EGIS systems in their attempt to identify the cause of the
crash of TWA Flight 800.
Of the more than 600 commercial airports worldwide, more than 400 are
located in the United States, 150 are in Europe and 50 are in the Asia/Pacific
region. Following the bombing of Pan American Flight 103, various European
governments mandated the use of, and purchased, advanced explosives-detection
systems. The FAA has approved the use of several trace systems for various
applications, and approved the EGIS system for voluntary use by airlines in
screening carry-on electronic items and luggage searches in 1992. Although the
FAA certified a CT-based system for screening checked baggage in 1994, no CT-
based system has yet demonstrated compliance with FAA standards under
realistic airport operating conditions. To date, the FAA has not mandated the
use of any explosives-detection system. In October 1996, the United States
enacted legislation that includes a $144.2 million allocation for the initial
purchase of explosives-detection systems and other advanced security
equipment. This legislation specifically requires the purchase of 79 advanced
X-ray imaging devices for screening checked luggage, together with one trace
detection system to be used with each such X-ray imaging system. An additional
410 trace detection systems are to be purchased for use in screening carry-on
baggage. The Company believes that approximately $32 million has been
allocated to purchases of trace detection equipment such as the systems
manufactured by the Company.
In December 1996, the Baseline Working Group recommended the expenditure of
$1.8 billion between 1997 and 2000 for carry-on and checked luggage and
personal screening at larger U.S. airports, and recommended the expenditure of
an additional $3.9 billion between 2001 and 2005 to complete the U.S. system.
The Company believes that if the United States mandates the installation of
explosives-detection equipment in a substantial number of domestic commercial
airports, then the market for trace detection systems such as the Company's
EGIS system will grow rapidly for several years. There can be no assurance,
however, that the Company's systems would meet any applicable FAA requirements
or that, even if the Company's systems were
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to meet applicable requirements, that the Company would be able to market its
systems effectively. See "Risk Factors--Dependence of Explosives Detection
Market on Government Regulation and Airline Industry."
The EGIS system sells for between $160,000 and $200,000. In September 1996,
the Company entered into a development contract with the FAA to develop EGIS
II, a lower-cost EGIS unit for use in more portable applications such as
remote security checkpoints and counter-terrorism activities. In November
1996, the Company introduced its new SecurScan, a prototype of a walk-through
trace detector designed to screen 10 passengers per minute, and announced that
it intends to introduce Rampart, a lower-cost unit for airport applications,
in 1997. SecurScan and Rampart are expected to cost approximately $300,000 and
$55,000, respectively.
MARKETING, SALES AND SERVICE
The Company employs a variety of sales methods for its products and services
that are designed to fit the needs of particular customer groups. The Company
sells and services Alexus systems, principally outside of the United States,
with a small, specialized direct sales force supported by a broader service
organization. Alexus systems are also sold through Krones GmbH, a large German
turnkey plant contractor for new bottling lines. The Company sells and
services both its InScan and Moisture Systems and equipment through a mix of
direct sales, manufacturers representatives and original equipment
manufacturer relationships around the world. The Company also operates factory
service centers for these products.
The Company's Flash-GC systems are sold through a direct sales and services
organization. The Company is currently attempting to recruit additional direct
sales representatives for certain regions of the United States. In addition,
the Company intends to use specialized manufacturers representatives in other
territories. The Company currently has such representatives in Europe and in
the Southern United States.
EGIS explosives-detection systems are sold to a few key decision-makers
around the world, primarily government agencies or private companies
fulfilling government regulations. Accordingly, EGIS sales are made by a
small, specialized direct sales force, supported by a broader service
organization, from offices shared with Alexus sales and service organizations.
The Company's existing sales and service organizations are located in North
and South America and Europe. The Company also has distribution and service
capabilities in Asia through a combination of direct sales, manufacturers
representatives and original equipment manufacturer relationships.
INTELLECTUAL PROPERTY
The Company's policy is to protect its intellectual property rights,
including applying for patents when appropriate. The Company also enters into
licensing agreements with other companies in which it grants or receives
rights to specific patents and technical know-how. The Company owns 38 United
States patents, and has filed applications for four additional United States
patents. The Company's U.S. patents, more than 60% of which were issued after
1990, have expiration dates ranging from 1998 through 2014. The Company also
owns corresponding patents, or has filed corresponding applications, in a
number of jurisdictions throughout the world. In addition, the Company has an
exclusive, perpetual, royalty-free license under ten patents covering the use
of near-infrared and very near-infrared emitting diodes for on-line spectral
measurements. The Company owns several patents covering certain aspects of its
chemiluminescent analysis technology and high-speed gas chromatography
technology. The Company believes that these patents provide the Company with
competitive advantages in the markets for certain of its products. The Company
also considers technical know-how, trade secrets and trademarks to be
important to its business. See "Risk Factors--Limited Protection of
Proprietary Technology and Risks of Third-Party Claims."
COMPETITION
The markets for the Company's products are highly competitive. Competitors
may develop superior products or products of similar quality for sale at the
same or lower prices. Moreover, there can be no assurance
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that the Company's products will not be rendered obsolete by new industry
standards or changing technology. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors. See
"Risk Factors--Ongoing Product Development Efforts Required by Rapid
Technological Change" and "--Competition; Technological Change."
Process Detection Systems and Flash-GC. The Company's product quality
assurance systems compete with detection systems manufactured by numerous
companies. The Company believes, however, that these companies are generally
focused on particular niches in the process detection systems market, only in
some of which does the Company compete. The Alexus system encounters
competition throughout the world, but primarily in the German-speaking areas
of Europe, with products offered by Walter Grassle GmbH of Germany and
Sudtronics S.A. of Switzerland. InScan competes with gamma-based beverage
fill-height detectors offered by a number of companies, including Industrial
Dynamics Company, based in California, and Heuft Systemtechnik GmbH, based in
Germany. Competition in the moisture-detection market is highly fragmented.
The Company's principal competitor in this market is Infrared Engineering
Limited, based in England.
The Flash-GC is a new technology competing in the developing high-speed gas
chromatography market segment. The Company's Flash-GC competes principally
against high-speed gas chromatographs offered by ChromFast, based in Michigan.
Competition in the markets for each of the Company's process detection
systems and the Flash-GC is based primarily on performance, durability,
service and, to a lesser extent, price. The Company believes that its systems'
performance and speed, as well as the Company's reputation for developing
superior new technologies and for the innovative application of existing
technologies to a variety of high-speed production environments and product
quality assurance problems, are competitive advantages.
Explosives Detection Systems. In the explosives-detection market, the
Company competes with a small number of companies, including other makers of
chemical trace detection instruments, and, to a lesser degree, makers of
enhanced X-ray detectors. Competition in this market is based primarily on
performance, including speed, accuracy and the range of explosives that can be
detected; ease of use; service; and price. The Company's principal competitor
in the trace detection market is Barringer Technologies Inc., a Canadian firm
that has placed several trace detectors in airport applications. To date, no
other manufacturers have placed trace detection systems in airports, but the
Company expects that the FAA will purchase trace systems from Barringer and
such other manufacturers as part of the initial deployment of explosives-
detection systems in the U.S. The Company believes that the companies, if any,
whose devices are ultimately required by the FAA will have a substantial
competitive advantage in the United States.
GOVERNMENT REGULATION
The explosives-detection systems manufactured and marketed by the Company
for use in airports are subject to regulation by the FAA, corresponding
foreign governmental authorities and The International Civil Aviation
Organization, the United Nations organization for establishing standard
practices for the aviation industry on a worldwide basis. Sales of the
Company's explosives-detection systems for use in airports have been and will
continue to be dependent upon governmental initiatives to require or support
the screening of baggage, carry-on items and people with advanced explosives-
detection equipment. Substantially all of such systems have been installed at
airports in countries in which the applicable government or regulatory
authority overseeing the operations of the airport has mandated such
screening. Such mandates are influenced by many factors outside of the control
of the Company, including political and budgetary concerns of governments,
airlines and airports. To date, the FAA has not mandated the use of any
explosives-detection system. See "Risk Factors--Dependence of Explosives
Detection Market on Government Regulation and Airline Industry."
RESEARCH AND DEVELOPMENT
The Company maintains active programs for the development and introduction
of new products and improvements to existing products. The Company also seeks
to develop new applications for its existing products
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and technology. The Company is currently devoting significant resources toward
the enhancement of its existing products and the development of new products
and technologies, including: enhancing InScan to detect foreign objects and,
in some applications, product defects in packaged goods for the food, consumer
products and other industries; developing an advanced generation of moisture-
detection products to address recently identified customers needs; adding
auto-calibration capabilities to its Alexus system; completing production
units of the Flash-GC, as well as beginning to enhance the Flash-GC to broaden
its applications; and developing Rampart, a lower-cost unit for use in airport
screening of carry-on baggage.
The Company also performs contract engineering and/or development on behalf
of its customers. Recent contracts have included funding by the FAA of the
development of the SecurScan walk-through explosives-detection system as well
as feasibility studies and initial development work for EGIS II. The Company
believes that its reputation for being able to apply its core technologies to
solve production problems of its customers provides the Company with a
significant competitive advantage.
Company-funded research and development expenses were $3,895,000, $2,741,000
and $4,608,000 in fiscal 1994, 1995 and 1996, respectively. Contract research
and development revenues were $1,923,000, $3,987,000 and $1,758,000,
respectively, during the same periods.
EMPLOYEES
As of December 28, 1996, the Company had 216 fulltime employees, of which 6
were engaged in senior management, 25 in administration and accounting, 43 in
research and development, 46 in sales and marketing, 47 in product support and
49 in manufacturing. None of the Company's employees are represented by a
labor union, and the Company considers its relations with its employees to be
good. To date, the Company has been able to attract and retain the personnel
required by its business, but there can be no assurance that additional
skilled personnel necessary to successfully expand the Company's business and
operations can be recruited and retained.
BACKLOG
At December 30, 1995 and December 28, 1996, the Company's backlog of firm
orders was approximately $5,045,000 and $11,955,000, respectively. The Company
includes in backlog only those orders for which it has received completed
purchase orders and for which delivery has been specified within twelve
months. Most orders are subject to cancellation by the customer. Because of
the possibility of customer changes in delivery schedules, cancellation of
orders and potential delays in product shipments, the Company's backlog as of
any particular date may not be representative of actual sales for any
succeeding period.
FACILITIES
The Company operates from two principal facilities: a 113,000-square foot
office, research and development, and manufacturing facility in Chelmsford,
Massachusetts occupied under a lease expiring in 2006, subject to one five-
year renewal option at the election of the Company; and a 40,000-square foot
office and manufacturing facility in Hopkinton, Massachusetts occupied under a
lease expiring in 1998. The Company also leases approximately 9,000 square
feet in Enschede, Holland occupied under a lease expiring in 2000. In
addition, the Company leases office space throughout the world for its sales
and service operations. The Company believes that these facilities are
adequate for its present operations.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could
reasonably be expected to have a material adverse effect on the Company or its
business.
41
<PAGE>
RELATIONSHIP WITH THERMO ELECTRON AND THERMEDICS
Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermedics has created the Company as a
privately held subsidiary, and Thermedics and Thermo Electron, and certain of
its subsidiaries, have created several other privately and publicly held
subsidiaries. From time to time, Thermo Electron and its subsidiaries will
create other majority-owned subsidiaries as part of its spin-out strategy.
(The Company and the other Thermo Electron subsidiaries are hereinafter
referred to as the "Thermo Subsidiaries.")
Thermedics develops, manufactures, and markets product quality assurance
systems, precision-weighing and inspection equipment, electrochemistry and
micro-weighing products, electronic-test instruments, explosives-detection
devices, and moisture-analysis systems, as well as implantable heart-assist
devices and other biomedical products. For its fiscal year ended December 30,
1995, and the nine months ended September 28, 1996, Thermedics had
consolidated revenues of $175,754,000 and $188,624,000, respectively, and
consolidated net income of $15,121,000 and $19,694,000, respectively.
Thermo Electron and its subsidiaries develop, manufacture and market
environmental monitoring and analysis instruments, papermaking and recycling
equipment, biomedical products such as heart-assist devices and mammography
systems, biomass electric power generation, and other specialized products and
technologies. Thermo Electron and its subsidiaries also provide environmental
and metallurgical services and conduct advanced technology research and
development. For its fiscal year ended December 30, 1995, and the nine months
ended September 28, 1996, Thermo Electron had consolidated revenues of
$2,270,291,000 and $2,138,125,000, respectively, and consolidated net income
of $139,582,000 and $137,184,000, respectively. See "Risk Factors--Potential
Conflicts of Interest."
THE THERMO ELECTRON CORPORATE CHARTER
Thermo Electron and the Thermo Subsidiaries, including the Company,
recognize that the benefits and support that derive from their affiliation are
essential elements of their individual performance. Accordingly, Thermo
Electron and each of the Thermo Subsidiaries adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate
the nature of such cooperation among themselves. The purpose of the Charter is
to ensure that (1) all of the companies and their shareholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3)
each company has access to the combined resources and financial, managerial
and technological strengths of the others, and (4) Thermo Electron and the
Thermo Subsidiaries, in the aggregate, are able to obtain the most favorable
terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members,
coordinating the access of Thermo Electron and the Thermo Subsidiaries (the
"Thermo Group") to external financing sources, ensuring compliance with
external financial covenants and internal financial policies, assisting in the
formulation of long-range planning and providing other banking and credit
services. Pursuant to the Charter, Thermo Electron may also provide guarantees
of debt obligations of the Thermo Subsidiaries or may obtain external
financing at the parent level for the benefit of the Thermo Subsidiaries. In
certain instances, the Thermo Subsidiaries may provide credit support to, or
on behalf of, the consolidated entity or may obtain financing directly from
external financing sources. Under the Charter, Thermo Electron is responsible
for determining that the Thermo Group remains in compliance with all covenants
imposed by external financing sources, including covenants related to
borrowings of Thermo Electron or other members of the Thermo Group, and for
apportioning such constraints within the Thermo Group. In addition, Thermo
Electron is also responsible for ensuring that members comply with internal
policies and procedures. The cost of 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.
42
<PAGE>
The Charter presently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participates. The Charter
may be amended at any time by agreement of the participants. Any Thermo
Subsidiary, including the Company, can withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate
a subsidiary's participation in the Charter in the event the subsidiary ceases
to be controlled by Thermo Electron or ceases to comply with the Charter or the
policies and procedures applicable to the Thermo Group. A withdrawal from the
Charter automatically terminates the corporate services agreement in effect
between the withdrawing company and Thermo Electron. The withdrawal from
participation does not terminate outstanding commitments to third parties made
by the withdrawing company, or by Thermo Electron or other members of the
Thermo Group, prior to the withdrawal. However, a withdrawing company is
required to continue to comply with all policies and procedures applicable to
the Thermo Group and to provide certain administrative functions mandated by
Thermo Electron so long as the withdrawing company is controlled by or
affiliated with Thermo Electron.
CORPORATE SERVICES AGREEMENT
As provided in the Charter, the Company and Thermo Electron have entered into
a Corporate Services Agreement (the "Services Agreement") under which Thermo
Electron's corporate staff provides certain administrative services, including
certain legal advice and services, risk management, certain employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and financial and other services to the Company. The Company was
assessed an annual fee equal to 1.2% of the Company's revenues for these
services for calendar 1995. Beginning January 1, 1996, the fee has been reduced
to 1.0% of the Company's revenues. The fee is reviewed annually and may be
changed by mutual agreement of the Company and Thermo Electron. During 1995 and
1996, Thermo Electron assessed the Company $335,000 and $438,000, respectively,
in fees under the Services Agreement.
Management believes that the service fees charged under the Services
Agreement are reasonable and that the terms of the Services Agreement are fair
to the Company. For items such as employee benefit plans, insurance coverage
and other identifiable costs, Thermo Electron charges the Company based on
charges directly attributable to the Company. The Services Agreement
automatically renews for successive one-year terms, unless canceled by the
Company upon 30 days' prior written notice. In addition, the Services Agreement
terminates automatically in the event the Company ceases to be a member of the
Thermo Group or ceases to be a participant in the Charter. In the event of a
termination of the Services Agreement, the Company will be required to pay a
termination fee equal to the fee that was paid by the Company for services
under the Services Agreement for the nine-month period prior to termination.
Following termination, Thermo Electron may provide certain administrative
services on an as-requested basis by the Company or as required in order to
meet the Company's obligations under Thermo Electron's policies and procedures.
Thermo Electron will charge the Company a fee equal to the market rate for
comparable services if such services are provided following termination.
TAX ALLOCATION AGREEMENT
The Tax Allocation Agreement between the Company and Thermedics outlines the
terms under which the Company is to be included in Thermedics' consolidated
Federal and state income tax returns. Under current law, the Company will be
included in such tax returns so long as Thermedics owns at least 80% of the
outstanding TDX Common Stock. In years in which the Company has taxable income
it will pay to Thermedics amounts comparable to the taxes it would have paid if
it had filed its own separate company tax returns. Assuming the sale of all of
the Underwritten Shares, Thermedics will own 77.6% of the outstanding TDX
Common Stock, and the Company will be required to file its own tax returns for
periods subsequent to the completion of the Rights Offering.
TRANSACTIONS WITH AFFILIATES
As of December 28, 1996, $10,976,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo
43
<PAGE>
Electron, which Thermo Electron collateralizes with investments principally
consisting of corporate notes, United States government agency securities,
money market funds, commercial paper, and other marketable securities, in the
amount of at least 103% of such obligation. The Company's funds subject to the
repurchase agreement are readily convertible into cash by the Company and have
an original maturity of three months or less. The repurchase agreement earns a
rate based on the Commercial Paper Composite Rate plus 25 basis points, set at
the beginning of each quarter.
In January 1996, the Company acquired Moisture Systems for a total of $21.7
million in cash, including repayments of approximately $0.7 million of
indebtedness. In connection with this acquisition, the Company borrowed $21.2
million from Thermedics pursuant to a promissory note due March 1998, and
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Thermedics has indicated its
intention to require the repayment of the principal amount of this note only
to the extent that the Company's liquidity and cash flow permit.
Pursuant to a subcontract entered into in October 1993, the Company performs
research and development services for Coleman Research Corporation
("Coleman"), which is the prime contractor under a contract with the U.S.
Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron
and was acquired by Thermo Electron in March 1995. Coleman paid the Company
$829,000 and $619,000 for services rendered in 1995 and 1996, respectively.
The Company purchases an X-ray source that is used as a component in its
InScan systems from Trex Medical Corporation, a publicly traded, majority-
owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded,
majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is
purchased pursuant to written purchase orders. The Company paid Trex Medical
Corporation $285,000 and $162,000 under this arrangement in 1995 and 1996,
respectively.
The Company has subleased approximately 8,000 square feet of space in its
Chelmsford, Massachusetts, facility to Thermo Cardiosystems Inc., a publicly
traded, majority-owned subsidiary of Thermedics ("Thermo Cardiosystems"),
under a two-year sublease agreement. Under this sublease, Thermo Cardiosystems
will pay the Company base rent of $40,000 in the first year and $44,000 in the
second year, in each case, together with an amount equal to approximately
$33,000 per year, representing Thermo Cardiosystem's pro rata allocation of
the facility's aggregate operating costs, real estate taxes and utilities.
The Company believes that the arrangements set forth above are on terms
comparable to those the Company would receive from unaffiliated parties.
On March 22, 1996, the Company completed a private placement of 300,000
shares of TDX Common Stock at a purchase price of $10.00 per share. On
November 19, 1996, the Company completed an additional private placement of
383,500 shares of TDX Common Stock at a purchase price of $10.75 per share.
Although substantially all of the shares sold in such private placements were
purchased by outside investors that are not affiliated with the Company,
Thermedics or Thermo Electron, Dr. Fine purchased 10,000 shares of TDX Common
Stock in the March private placement and Mr. Langan purchased 10,000 shares of
TDX Common Stock in the November private placement, at prices of $10.00 and
$10.75 per share, respectively.
44
<PAGE>
MANAGEMENT
The Directors and executive officers of the Company and their ages as of
November 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Wood Jr....... 52 Chairman of the Board and Director
Jeffrey J. Langan..... 51 Chief Executive Officer, President and Director
David H. Fine......... 54 Senior Vice President
John N. Hatsopoulos... 62 Vice President, Chief Financial Officer and Director
Paul F. Kelleher...... 54 Chief Accounting Officer
Morton Collins........ 61 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.
Mr. Kelleher has been the Chief Accounting Officer of the Company since its
inception in 1990. Mr. Kelleher has been Vice President, Finance of Thermo
Electron since 1987 and served as its Controller from 1982 to January 1996. He
is a director of ThermoLase Corporation.
45
<PAGE>
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.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company, Thermo Electron or any other
companies affiliated with Thermo Electron (also referred to as "outside
directors") receive an annual retainer of $2,000 and a fee of $1,000 per day
for attending regular meetings of the Board of Directors and $500 per day for
participating in meetings of the Board of Directors held by means of
conference telephone and for participating in certain meetings of committees
of the Board of Directors. Payment of director fees is made quarterly. Messrs.
Wood, Langan and Hatsopoulos are employees of Thermo Electron companies and do
not receive any cash compensation from the Company for their services as
Directors. Directors are also reimbursed for reasonable out-of-pocket expenses
incurred in attending such meetings.
Directors Deferred Compensation Plan. Under the Company's Deferred
Compensation Plan for Directors (the "Deferred Compensation Plan"), a Director
has the right to defer receipt of his or her fees until he or she ceases to
serve as a Director, dies or retires from his or her principal occupation. In
the event of a change in control or proposed change in control of the Company
that is not approved by the Board of Directors, deferred amounts become
payable immediately. For purposes of the Deferred Compensation Plan, a change
of control is defined as: (a) the occurrence, without the prior approval of
the Board of Directors, of the acquisition, directly or indirectly, by any
person of 50% or more of the outstanding TDX Common Stock or the outstanding
common stock of Thermedics or 25% or more of the outstanding common stock of
Thermo Electron or (b) the failure of the persons serving on the Board of
Directors immediately prior to any contested election of directors or any
exchange offer or tender offer for the TDX Common Stock or the common stock of
Thermedics or Thermo Electron to constitute a majority of the Board of
Directors at any time within two years following any such event. Amounts
deferred pursuant to the Deferred Compensation Plan are valued at the end of
each quarter as units of TDX Common Stock. When payable, amounts deferred may
be disbursed solely in shares of TDX Common Stock accumulated under the
Deferred Compensation Plan. The Company has reserved 25,000 shares under this
Plan. The Deferred Compensation Plan will not become effective until
completion of the Rights Offering. As of the date of this Prospectus, no units
had been accumulated under the Deferred Compensation Plan.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table summarizes compensation for services to the Company in
all capacities awarded to, earned by or paid to the Company's Chief Executive
Officer, former Chief Executive Officer and one other executive officer for
the fiscal year ended December 28, 1996 (the Chief Executive Officer, the
former Chief Executive Officer and such other executive officer being
hereinafter referred to as the "Named Executive Officers"). No other executive
officer of the Company met the definition of "highly compensated" within the
meaning of the Securities and Exchange Commission's executive compensation
disclosure rules during this period.
The Company is required to appoint certain executive officers and full-time
employees of Thermo Electron as executive officers of the Company in
accordance with the Thermo Electron Corporate Charter. The compensation for
these executive officers is determined and paid entirely by Thermo Electron.
The time and effort devoted by these individuals to the Company's affairs is
provided to the Company under the Services Agreement between the Company and
Thermo Electron. Accordingly, the compensation for these individuals is not
reported in the following table. See "Relationship with Thermo Electron and
Thermedics."
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ---------------------
SECURITIES UNDERLYING
OPTIONS
(NO. OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) AND COMPANY)(2) COMPENSATION(3)
- --------------------------- ----------- ---------- --------------------- ---------------
<S> <C> <C> <C> <C>
John W. Wood Jr.
Former Chief Executive
Officer(4)............. $ 195,000 $ -- -- $6,750
Jeffrey J. Langan
Chief Executive Officer
and President(5)....... $ 165,000 $ -- 50,000 (TDX) $ --
75,000 (TMD)
15,000 (TMO)
David H. Fine
Senior Vice President.. $ 128,000 $ -- 20,000 (TDX) $6,381
3,000 (TMD)
1,950 (TMO)
7,500 (TSR)
30,000 (TLZ)
</TABLE>
- --------
(1) Bonus compensation for fiscal 1996 is not calculable as of the date of
this Preliminary Prospectus.
(2) In addition to receiving options to purchase TDX Common Stock (designated
in the table as TDX), Mr. Langan and Dr. Fine have been granted options to
purchase the common stock of Thermo Electron and certain of its other
subsidiaries as part of Thermo Electron's stock option program. Options
have been granted during the last fiscal year in the following Thermo
Electron companies: Thermedics (designated in the table as TMD), Thermo
Electron (designated in the table as TMO), Thermo Sentron Inc. (designated
in the table as TSR) and ThermoLase Corporation (designated in the table
as TLZ).
(3) Represents the amount of matching contributions made by the individual's
employer on behalf of the Named Executive Officers under the Thermo
Electron 401(k) plan.
(4) Mr. Wood is a senior vice president of Thermo Electron and the president
and chief executive officer of Thermedics, and also served as the
Company's chief executive officer until December 27, 1996. Reported in the
table under "Annual Compensation" and "All Other Compensation" are total
amounts paid to Mr. Wood for his service in all capacities to Thermo
Electron companies. The total annual compensation paid to Mr. Wood from
all sources within the Thermo Electron organization is allocated among the
companies based on the time he devotes to their businesses. For 1996, 50%
of Mr. Wood's annual compensation was allocated to Thermedics, and
included his managerial assignment on behalf of the Company. None of Mr.
Wood's annual compensation in 1996 was separately allocated to or paid by
the Company. In addition, Mr. Wood has been granted options to purchase
common stock of Thermo Electron and certain of its subsidiaries other than
the Company from time to time by Thermo Electron or such other
subsidiaries. These options are not reported here as they were granted as
compensation for service to Thermo Electron companies in capacities other
than in his capacity as chief executive officer of the Company.
(5) Mr. Langan was appointed President of the Company on April 2, 1996 and
Chief Executive Officer on December 27, 1996.
47
<PAGE>
Stock Options Granted During Fiscal 1996
The following table sets forth certain information concerning grants of
stock options by the Company and other Thermo Electron companies made during
fiscal 1996 to the Named Executive Officers. No options to purchase shares of
the Common Stock of the Company were granted to Mr. Wood during fiscal 1996.
It has not been the Company's policy in the past to grant stock appreciation
rights, and no such rights were granted during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
---- ------------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Wood Jr.(3)..... 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 (TM0) 0.2% $42.79 05/22/99 $ 20,220 $ 42,480
37,500 (TM0) 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)(4) 22.9% $28.13 04/02/03 $ 858,750 $2,001,750
15,000 (TMO)(4) 1.0% $42.79 05/22/03 $ 261,300 $ 609,000
David H. Fine........... 20,000 (TDX) 9.7% $10.75 12/17/06 $ 135,200 $ 342,600
3,000 (TMD)(4) 0.9% $28.13 02/09/99 $ 13,290 $ 27,930
1,950 (TMO)(4) 0.1% $42.79 05/22/99 $ 13,143 $ 27,612
7,500 (TSR)(4) 1.5% $14.00 02/09/08 $ 83,550 $ 224,550
30,000 (TLZ)(4)(5) 7.5% $23.55 09/12/08 $ 562,200 $1,510,800
</TABLE>
- --------
(l) The options to purchase shares of the common stock of Thermedics
(designated in the table as TMD), Thermo Electron (designated in the table
as TMO), Thermo Sentron Inc. (designated in the table as TSR) and
ThermoLase Corporation (designated in the table as TLZ) are immediately
exercisable, while the options to purchase shares of TDX Common Stock
(designated in the table as TDX) are not exercisable until the earlier of
(i) 90 days after the effective date of the registration of the TDX Common
Stock under Section 12 of the Exchange Act and (ii) nine years after the
grant date. In all cases, the shares acquired upon exercise are subject to
repurchase by the granting corporation at the exercise price if the
optionee ceases to be employed by the granting corporation or another
Thermo Electron company. The granting corporation may exercise its
repurchase rights within six months after the termination of the
optionee's employment. The repurchase rights generally lapse ratably over
a five- to ten-year period, depending on the option term, which may vary
from seven to twelve years, provided the optionee continues to be employed
by the Company or another Thermo Electron company. Certain options granted
as a part of Thermo Electron's stock option program have three-year terms,
and the repurchase rights lapse in their entirety on the second
anniversary of the grant date. As to the options to purchase shares of TDX
Common Stock, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date, unless the TDX Common Stock becomes
publicly-traded before that date, in which event the repurchase rights are
deemed to have lapsed 20% per year commencing on the 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 TDX
Common Stock, the optionholders' continued employment through the option
period and the date on which the options are exercised.
(3) Mr. Wood has also served as an officer of Thermo Electron since 1994 and
the chief executive officer of Thermedics since 1984 and has been granted
options to purchase common stock of Thermo Electron (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), Thermo Quest
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.
48
<PAGE>
Stock Options Exercised During Fiscal Year 1996 and Fiscal Year-End Option
Values
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 and outstanding stock options held at the
end of fiscal 1996 by the Named Executive Officers. No stock appreciation
rights were exercised or outstanding during fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END
NUMBER OF ---------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME COMPANY ON EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE
---- ----------------------- --------------- -------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
John W. Wood Jr.(2)..... Themedics Detection(4) -- -- 0/23,333 $ 0/$268,330(3)
Jeffrey J. Langan....... Thermedics Detection -- -- 0/50,000 $ 0/$575,000(3)
Thermedics -- -- 75,000/0 $ 0/0
Thermo Electron -- -- 15,000/0 $ 0/0
David H. Fine........... Thermedics Detection(4) -- -- 0/61,667 $ 0/$709,171(3)
Thermedics -- -- 87,600/0 $616,979/0
Thermo Cardiosystems 2,445 103,546 1,530/0 $ 42,229/0
Thermo Ecotek -- -- 1,500/0 $ 17,625/0
Thermo Electron(5) 3,038 114,098 54,637/0 $956,232/0
Thermo Fibertek -- -- 4,500/0 $ 27,000/0
Thermo Sentron -- -- 7,500/0 $ 0/0
ThermoLase(6) -- -- 30,000/0 $ 0/0
ThermoSpectra -- -- 1,000/0 $ 1,875/0
ThremoTrex 360 17,838 --
</TABLE>
- --------
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable, except the options to purchase shares of TDX
Common Stock which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of the TDX Common Stock under
Section 12 of the Exchange Act and (ii) nine years after the grant date.
In all cases, the shares acquired upon exercise of the options reported in
the table are subject to repurchase by the granting corporation at the
exercise price if the optionee ceases to be employed by such corporation
or another Thermo Electron company. The granting corporation may exercise
its repurchase rights within six months after the termination of the
optionee's employment. For companies whose shares are not publicly traded,
the repurchase rights lapse in their entirety on the ninth anniversary of
the grant date. For publicly traded companies, the repurchase rights
generally lapse ratably over a five to ten year period, depending on the
option term, which may vary from seven to twelve years, provided that the
optionee continues to be employed by the granting corporation or another
Thermo Electron company. Certain options granted as a part of Thermo
Electron's stock option program have three-year terms, and the repurchase
rights lapse in their entirety on the second anniversary of the grant
date.
(2) Mr. Wood also holds unexercised options to purchase common stock of Thermo
Electron and its subsidiaries other than the Company. These options are
not reported here as they were granted as compensation for service to
other Thermo Electron companies in capacities other than his capacity as
chief executive officer of the Company.
(3) No public market existed for the shares underlying the options as of
December 28, 1996. Accordingly, this value has been calculated on the
basis of an assumed market value of $11.50 per share, which is the mid-
point of the estimated subscription price range.
(4) Options to purchase 23,333 and 41,667 shares of TDX Common Stock granted
to Mr. Wood and Dr. Fine, respectively, were granted pursuant to a
nonqualified stock option plan of Thermedics.
(5) Options to purchase 45,000 shares of the common stock of Thermo Electron
granted to Dr. Fine are subject to the same terms described in footnote
(1), except that the repurchase rights of the granting corporation
generally do not lapse until the tenth anniversary of the grant date. In
the event of the employee's death or involuntary termination prior to the
tenth anniversary of the grant date, the repurchase rights of the granting
corporation shall be deemed to have lapsed ratably over a five-year period
commencing with the fifth anniversary of the grant date.
(6) The options to purchase shares of the common stock of ThermoLase
Corporation granted to Dr. Fine are subject to the same terms described in
footnote (1), except the repurchase rights are deemed to lapse 20% per
year commencing on the sixth anniversary of the grant date.
49
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the TDX Common Stock as of November 30, 1996 by Thermedics, which
is the only person or entity that owns beneficially more than 5% of the
outstanding shares of TDX Common Stock. See "Risk Factors--Control by
Thermedics."
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
- ------------------------------------ ------------------ -------------------------
<S> <C> <C>
Thermedics Inc.(1)................ 10,000,000 93.6%
470 Wildwood Street
Woburn, Massachusetts 01888
</TABLE>
- --------
(l) Thermedics is a majority-owned subsidiary of Thermo Electron and,
therefore, Thermo Electron may be deemed a beneficial owner of the shares
of TDX Common Stock beneficially owned by Thermedics. Thermo Electron
disclaims beneficial ownership of these shares. After giving effect to the
Rights Offering, assuming the sale of all of the Underwritten Shares,
Thermedics will beneficially own approximately 77.6% of the outstanding
TDX Common Stock.
Thermedics has adopted a stock option plan with respect to the TDX Common
Stock that it beneficially owns. Under this plan, options to purchase up to
333,333 shares of such stock may be granted to any person within the
discretion of the human resources committee of the Board of Directors of
Thermedics, including officers and key employees of Thermedics.
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the TDX Common Stock as of November 30, 1996 as well as
information regarding the beneficial ownership of the common stock of
Thermedics and Thermo Electron, as of November 30, 1996, with respect to (i)
each of the Company's Directors, (ii) 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(1) DETECTION INC.(2) THERMEDICS INC.(3) CORPORATION(4)
------- ----------------- ------------------ ---------------
<S> <C> <C> <C>
John W. Wood Jr........... 0 175,347 263,909
Jeffrey J. Langan......... 10,000 75,000 15,300
David H. Fine............. 10,000 110,568 70,003
John N. Hatsopoulos....... 0 65,618 506,768
Morton Collins............ 0 0 0
All Directors and
executive officers
as a group (6) persons... 20,000 446,758 1,000,978
</TABLE>
- --------
(l) Except as reflected in the footnotes to this table, shares of TDX Common
Stock and common stock of Thermedics and Thermo Electron beneficially
owned consist of shares owned by the indicated person or by that person
for the benefit of minor children, and all share ownership involves sole
voting and investment power.
(2) Certain officers and directors have been granted options to purchase
135,000 shares of TDX Common Stock; however, these options will not become
exercisable until 90 days after the Rights Offering. No Director or
executive officer beneficially owned more than 1% of the TDX Common Stock
outstanding as of November 30, 1996, and all directors and executive
officers as a group beneficially owned less than 1% of the TDX Common
Stock outstanding as of such date.
50
<PAGE>
(3) Shares of the common stock of Thermedics beneficially owned by Mr. Wood,
Mr. Langan, Mr. Hatsopoulos, Dr. Fine and by all Directors and executive
officers as a group include 125,500, 75,000, 50,000, 87,600 and 357,100
shares, respectively, that such person or group has the right to acquire
within 60 days of November 30, 1996, through the exercise of stock
options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors
and executive officers as a group include 1,602 and 2,761 full shares,
respectively, allocated through November 30, 1996 to their respective
accounts maintained pursuant to Thermo Electron's Employee Stock Ownership
Plan of which the trustees, who have investment power over its assets, are
executive officers of Thermo Electron (the "ESOP"). Shares beneficially
owned by Mr. Wood include 2,600 shares held in a trust of which Mr. Wood's
spouse is the trustee. No director or executive officer beneficially owned
more than 1% of the common stock of Thermedics outstanding as of November
30, 1996; all Directors and executive officers as a group beneficially
owned 1.2% of such common stock outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to
reflect a three-for-two stock split effected on May 22, 1996. Shares of
the common stock of Thermo Electron beneficially owned by Mr. Wood, Mr.
Langan, Mr. Hatsopoulos, Dr Fine and by all Directors and executive
officers as a group include 227,658, 15,000, 379,685, 54,637 and 774,554
shares, respectively, that such person or group has the right to acquire
within 60 days of November 30, 1996, through the exercise of stock
options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors
and executive officers as a group include 1,934 and 3,258 full shares,
respectively, allocated through November 30, 1996 to their respective
accounts maintained pursuant to the ESOP. No director or executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
outstanding as of November 30, 1996; all directors and executive officers
as a group beneficially owned less than 1% of the common stock of Thermo
Electron outstanding as of such date.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the principal terms applicable to
the authorized shares of TDX Common Stock.
As of the date of this Prospectus, the Company had 50,000,000 shares of TDX
Common Stock authorized for issuance, of which 10,683,500 were issued and
outstanding. Each share of TDX Common Stock is entitled to pro rata
participation in distributions upon liquidation and to one vote on all matters
submitted to a vote of shareholders. Dividends may be paid to the holders of
TDX Common Stock when and if declared by the Board of Directors out of funds
legally available therefor. Holders of TDX Common Stock have no preemptive,
subscription, redemption, conversion or similar rights. The outstanding shares
of TDX Common Stock are, and the shares offered hereby when issued will be,
legally issued, fully paid and nonassessable.
The shares of TDX Common Stock have noncumulative voting rights. As a
result, the holders of more than 50% of the shares voting can elect all the
directors if they so choose, and in such event, the holders of the remaining
shares cannot elect any directors. Upon completion of the Rights Offering,
Thermedics will continue to beneficially own at least a majority of the
outstanding TDX Common Stock, and will have the power to elect all of the
members of the Company's Board of Directors. Thermedics is a majority-owned
subsidiary of Thermo Electron and, therefore, Thermo Electron may be deemed a
beneficial owner of the shares of TDX Common Stock beneficially owned by
Thermedics. Thermo Electron disclaims beneficial ownership of these shares.
The Company's Articles of Organization, as amended, contain certain
provisions permitted under the Business Corporation Law of the Commonwealth of
Massachusetts relating to the liability of directors. These provisions
eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The Company's
By-Laws also contains provisions to indemnify the directors and officers of
the Company to the fullest extent permitted by the Business Corporation Law of
the Commonwealth of Massachusetts. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors and officers.
The transfer agent and registrar for the TDX Common Stock is American Stock
Transfer & Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Rights Offering, there will be a maximum of
12,883,500 shares of TDX Common Stock outstanding, assuming the sale of all of
the Underwritten Shares. The shares issued in the Rights Offering will be
freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased in the Rights Offering by affiliates of the Company, as that
term is defined in Rule 144 under the Securities Act (an "Affiliate"), may
generally only be resold in compliance with applicable provisions of Rule 144.
The Company has agreed, pursuant to Stock Purchase Agreements with the
shareholders of the Company other than Thermedics, to file a registration
statement under the Securities Act covering the sale of the 683,500 shares of
TDX Common Stock owned by them (the "Registrable Shares") within 120 days of
the closing of the Rights Offering. All fees, costs and expenses of the
registration of the Registrable Shares will be paid by the Company. See "Risk
Factors--Significant Additional Shares Eligible for Sale After the Offering."
As of December 28, 1996, Thermedics owned 10,000,000 of the outstanding
shares of TDX Common Stock. Thermo Electron, Thermedics and the Company have
agreed, without the prior written consent of the Representatives of
Underwriters, not to offer, sell or otherwise dispose of any shares of TDX
Common Stock within a 180-day period after the date of this Prospectus, other
than (i) shares of TDX Common Stock to be issued in the Rights Offering, (ii)
the issuance of options and sales of shares of TDX Common Stock pursuant to
existing stock-based compensation plans, (iii) shares of TDX Common Stock
which may be sold to Thermedics and Thermo Electron, (iv) the issuance of
shares of TDX Common Stock as consideration for the acquisition of one or more
businesses (provided that such TDX Common Stock may not be resold prior to the
expiration of the 180-day period referenced above) and (v) the sale of Rights
by Thermo Electron. So long as Thermedics is able to elect a majority of the
Board of Directors it will be able to cause the Company at any time to
register under the Securities Act all or a portion of the TDX Common Stock
owned by Thermedics or its affiliates, in which case it would be able to sell
such shares without restriction upon effectiveness of the registration
statement.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined
in Rule 144) for at least two years from the later of the date such securities
were acquired from the Company or (if applicable) the date they were acquired
from an Affiliate is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of TDX Common Stock or (ii) the average weekly trading
volume in the TDX Common Stock during the four calendar weeks preceding the
date on which notice of such sale was filed pursuant to Rule 144 provided
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, under Rule 144(k), if a
period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale is
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144. The Securities and Exchange Commission has
proposed an amendment to Rule 144 which would reduce the holding period
required for shares subject to Rule 144 to become eligible for sale in the
public market from two years to one year, and from three years to two years in
the case of Rule 144(k).
The Company has reserved 358,333 shares of TDX Common Stock for grants under
its existing stock-based compensation plans. As of December 28, 1996 the
Company had options outstanding to purchase up to 218,180 shares of TDX Common
Stock to certain of its officers and directors at a weighted average exercise
price of $10.41 per share. Ninety days after the completion of the Rights
Offering such options will become immediately exercisable, subject to the
right of the Company to repurchase shares at the exercise price if the
optionee ceases to be employed by the Company or another Thermo Electron
company. This repurchase right lapses ratably (on an annual basis) over a five
to ten year period depending upon the term of the option. As of December 28,
1996,
53
<PAGE>
the repurchase right had lapsed as to 16,502 shares issuable upon exercise of
outstanding options. The Company has reserved 140,153 shares remaining for
future grant under plans. The Company intends to file registration statements
under the Securities Act to register all shares of TDX Common Stock issuable
under such plans. Shares covered by these registration statements that are not
subject to transferability restrictions will be eligible for sale in the
public market immediately upon the filing of such registration statements,
subject to Rule 144 limitations applicable to Affiliates as noted above.
Prior to the Rights Offering, there has been no public market for the TDX
Common Stock, and no prediction can be made as to the effect, if any, that
market sales of shares of TDX Common Stock or the availability of shares for
sale will have on the market price of the TDX Common Stock prevailing from
time to time. Nevertheless, sales of significant numbers of shares of the TDX
Common Stock in the public market could adversely affect the market price of
the TDX Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--
Significant Additional Shares Eligible for Sale After the Offering."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Standby Underwriting
Agreement, each of the Underwriters named below, for whom Lehman Brothers Inc.
and NatWest Securities Limited are acting as Representatives (the
"Representatives") has severally agreed to purchase from the Company at the
Subscription Price the respective percentage set forth opposite its name below
of a number of shares of TDX Common Stock equal to (i) 300,000 shares of TDX
Common Stock (the "Firm Shares") and (ii) 1,000,000 shares less the number of
shares purchased upon the exercise of Rights (together with the Firm Shares,
the "Underwritten Shares"):
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERWRITER UNDERWRITTEN SHARES
----------- -------------------
<S> <C>
Lehman Brothers Inc. .................................
NatWest Securities Limited............................
---
Total............................................... 100%
===
</TABLE>
In the Standby Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Underwritten Shares if any Underwritten Shares are purchased. In the event of
a default by any Underwriter, the Standby Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriter may be increased or the Standby Underwriting Agreement may be
terminated. The Company has been advised by the Representatives that the
several Underwriters propose to offer shares to certain dealers at a
concession initially equal to $ per share. Such concession may be changed
by the Underwriters to an amount not in excess of $ per share. The
Representatives have informed the Company that the Underwriters do not intend
to confirm sales of shares of TDX Common Stock to any accounts over which they
exercise discretionary authority.
The Company has granted the several Underwriters an option, exercisable not
later than 30 days after the Expiration Date, to purchase up to 195,000
additional shares of TDX Common Stock at the Subscription Price. To the extent
that the Underwriters exercise such option, each of the Underwriters severally
will have a firm commitment to purchase the same percentage thereof as is
shown in the above table. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the shares of TDX
Common Stock offered hereby.
Under current applicable law, the Underwriters may bid for and purchase
Rights for certain purposes. Such purchases will be subject to certain price
and volume limitations when the TDX Common Stock is being stabilized by the
Underwriters or when the Underwriters own Rights without an offsetting short
position in the TDX Common Stock. Such limitations provide, among other
things, that subject to certain exceptions, not more than one bid to purchase
Rights may be maintained in any one market at the same price at the same time
and that the initial bid for or purchase of Rights may not be made at a price
higher than the highest current independent bid price on the AMEX. Any such
price may not be increased, subject to certain exceptions, unless the
Underwriters have not purchased any Rights for a full business day or the
independent bid price for such Rights on the American Stock Exchange has
exceeded such price for a full business day. Effective March 4, 1997, the
foregoing restrictions on the bids for and purchase of Rights will terminate.
From the date hereof, the Underwriters may offer and sell TDX Common Stock
at prices set from time to time by the Representatives, which prices may be
higher or lower than the Subscription Price. Under rules applicable prior to
March 4, 1997, prior to the Expiration Date, each such price when set will not
exceed, if
55
<PAGE>
applicable, the highest price at which the TDX Common Stock last sold on the
AMEX (plus an amount equal to an exchange commission) or the current asked
price on the AMEX (plus such commission), whichever is higher and any such
offering price set on any calendar day will not be increased more than once
during that day. Any such offering may include TDX Common Stock acquired or to
be acquired through the exercise of the Rights or may be made in anticipation
of the purchase of Underwritten Shares. As a result of such offerings, the
Underwriters may realize profits or losses independent of the underwriting
commissions and fees described below.
In connection with this offering, the Underwriters may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the TDX Common Stock at levels above those which might otherwise prevail in
the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid, or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of TDX Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits Lehman Brothers Inc. to reclaim a selling concession from a syndicate
member in connection with the offering when shares of TDX Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the American Stock Exchange, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
The Company has agreed to pay a management fee equal to $506,000 to the
Representatives, a standby fee of $230,000 to the Underwriters and additional
fees of $.58 per share to the Underwriters for each share of TDX Common Stock
actually purchased by the Underwriters (other than the Firm Shares and the
first 45,000 of overallotment shares), whether pursuant to Rights purchased
and exercised by the Underwriters or pursuant to the Standby Underwriting
Agreement; provided that such fees in the aggregate shall not exceed 6% of the
Subscription Price for each share of TDX Common Stock purchased pursuant to
the exercise of Rights (by the Underwriters or otherwise) or pursuant to the
Standby Underwriting Agreement (other than the Firm Shares and the first
45,000 of overallotment shares) plus an amount equal to the aggregate purchase
price of Rights purchased by the Underwriters, up to $100,000. The Company has
agreed to allow the Underwriters to exercise any Rights held by them on the
first business day following the Expiration Date. The Company has also agreed
to reimburse the Underwriters for their out-of-pocket expenses in connection
with the Rights Offering.
The Standby Underwriting Agreement provides that the Company, Thermedics and
Thermo Electron will indemnify the Underwriters against certain liabilities
incurred in connection with the Rights Offering, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, Thermedics and Thermo Electron have also agreed that they will
not, without the Representatives' prior written consent, offer, sell, grant
any options to purchase or otherwise dispose of any TDX Common Stock within
180 days after the date of this Prospectus, other than (i) sales of shares of
TDX Common Stock to be issued in the Rights Offering, (ii) the issuance of
options and sales of shares of TDX Common Stock pursuant to existing stock-
based compensation plans, (iii) shares of TDX Common Stock which may be sold
to Thermedics and Thermo Electron, (iv) the issuance of shares of TDX Common
Stock as consideration for the acquisition of one or more businesses (provided
that such TDX Common Stock may not be resold prior to the expiration of the
180-day period referenced above) and (v) the sale of Rights by Thermo
Electron. See "Shares Eligible for Future Sale."
Thermo Electron may sell its Rights from time to time prior to the
Expiration Date in transactions on the American Stock Exchange, in negotiated
transactions, including transactions with the Underwriters, or a combination
of such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Such transactions may be effected by the sale
of the Rights to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
Thermo Electron and/or the purchasers of the Rights for whom such broker-
dealers may act as agent or to whom they sell as principal, or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). Thermo Electron and any broker-dealer
56
<PAGE>
who acts in connection with the sale of Rights by Thermo Electron may be
deemed to be "underwriters" as that term is defined in the Securities Act, and
any commission received by them and profit on any resale of the Rights as
principal might be deemed to be underwriting discounts and commissions under
the Securities Act.
Each of the Underwriters from time to time has performed various investment
banking services for Thermo Electron and its subsidiaries.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the TDX Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any TDX Common Stock within the United
States, its territories or possessions or to persons who are citizens thereof
or residents therein. The Standby Underwriting Agreement does not limit sales
of TDX Common Stock offered hereby outside of the United States.
NatWest Securities Limited has also represented and agreed that as a part of
the distribution of the TDX Common Stock offered hereby, (i) it has not
offered or sold and will not offer or sell any TDX Common Stock to persons in
the United Kingdom except to persons whose ordinary activities involve them in
aquiring, managing, holding or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
(the "POS Regulations") or the Financial Services Act 1986 (the "Act"); (ii)
it has complied and will comply with all applicable provisions of the Act with
respect to anything done by it in relation to the TDX Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on, in the United Kingdom any document received
by it in connection with the issue of the TDX Common Stock, other than any
document which consists of or any part of listing particulars, supplementary
listing particulars or any other document or instrument required or permitted
to be published by listing rules under Part IV of the Act, to a person who is
of a kind described in Article 11 (3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise be lawfully issued or passed on.
Prior to the Rights Offering there has been no public market for the TDX
Common Stock. The Subscription Price for the TDX Common Stock will be
determined by the Company in consultation with the Representatives. Among the
factors to be considered in determining the Subscription Price will be
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the state of the Company's business operations,
an assessment of the Company's management, the consideration of the above
factors in relation to market valuations of companies in related businesses
and other factors deemed relevant.
LEGAL OPINIONS
The validity of the issuance of the TDX Common Stock offered hereby will be
passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of
Thermo Electron, Thermedics and the Company, and certain legal matters will be
passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Mr. Hoogasian owns or has the right to acquire 8,900 shares of
common stock of Thermedics and 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.
57
<PAGE>
The Consolidated Financial Statements of Rutter & Co. B.V. as of December 28,
1996 and for the period from January 25, 1996 to December 28, 1996 have been
audited by Deloitte & Touche, independent auditors and registeraccountants, as
stated in their report included herein. The consolidated financial statements
and financial statement schedule of the Company are included herein in
reliance upon the respective reports of such firms given upon their authority
as experts in accounting and auditing in giving said reports. The combined
financial statements of Moisture Systems Corporation and Moisture Systems
Limited are included herein in reliance upon the authority of Arthur Andersen
LLP as experts in accounting and auditing in giving said reports.
The Consolidated Financial Statements of Rutter & Co. B.V. for the two years
ended December 31, 1995 included in this Prospectus have been audited by
Deloitte & Touche, independent auditors and registeraccountants, as stated in
their reports appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) on Form S-1 under the Securities
Act with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Although statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to set forth all material elements of such documents, such statements
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement, although setting forth all material elements of such
documents, shall be deemed qualified by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. The address of such site is http://www.sec.gov.
The distribution of this Prospectus and the offering of the Rights and the
shares of TDX Common Stock in certain jurisdictions may be restricted by law.
No action has been taken by the Company, Thermedics or the Underwriters that
would permit an offering of the Rights or such shares or the circulation or
distribution of this Prospectus or any offering material in relation to the
Company, the Rights or such shares in any country outside the United States
where action for that purpose is required. Persons into whose possession this
Prospectus comes are required by the Company and the Underwriters to inform
themselves about and to observe any such restrictions, including the
following:
The TDX Common Stock may not be offered for sale in the United Kingdom
except in circumstances that do not constitute an offer to the public within
the meaning of the POS Regulations and therefore offers may not be made other
than to persons who, at the date of this document, are persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the POS
Regulations.
58
<PAGE>
This document may only be issued or passed on to any person in the United
Kingdom if at the date of issue hereof such person is either (i) a person who
is reasonably believed to be of the kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, as amended, or (ii) a person who is reasonably believed to be an
existing registered stockholder of either Thermedics or the Company and
therefore a person of the kind described in Article 3(1) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996.
The Rights may not be sold, transferred or exercised by any person located
in Canada. The Subscription Agent will sell the Rights for the account of each
Thermedics or Thermedics Detection stockholder located in Canada and mail the
proceeds of such sale to each such stockholder. See "The Rights Offering--
Method of Transferring Rights."
No application has been made to the French Commission des Operations de
Bourse in respect of this Prospectus or any part hereof. The Company hereby
represents and agrees, and each French recipient, by his acceptance of this
Prospectus agrees, that neither this Prospectus nor any part hereof
constitutes a public offering of Rights or shares of Thermedics Detection
Common Stock in France. The Company and Thermedics further confirm that they
have not, and each French recipient, by his acceptance of this Prospectus,
confirms that such recipient has neither offered for sale nor sold nor will
offer for sale or sell (whether by use of this Prospectus or any part hereof,
any information contained herein or any connected or related document or
otherwise) any of the Rights or shares of Thermedics Detection Common Stock to
the public in France.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish holders of the TDX Common Stock offered
hereby with annual reports containing financial statements audited by an
independent public accounting firm and with quarterly reports containing
unaudited summary financial statements for each of the first three quarters of
each fiscal year.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THERMEDICS DETECTION INC.
Reports of Independent Public Accountants............................... F-2
Consolidated Statement of Income for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996................................ F-4
Consolidated Balance Sheet as of December 30, 1995 and December 28,
1996................................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1994, December 30, 1995 and December 28, 1996.......................... F-6
Consolidated Statement of Shareholders' Investment for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996............. F-7
Notes to Consolidated Financial Statements.............................. F-8
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
Report of Independent Public Accountants................................ F-19
Combined Statement of Income for the year ended December 30, 1995 and
for the period from December 31, 1995 through January 25, 1996......... F-20
Combined Balance Sheet as of December 30, 1995.......................... F-21
Combined Statement of Cash Flows for the year ended December 30, 1995
and for the period from December 31, 1995 through January 25, 1996..... F-22
Combined Statement of Owners' Investment for the year ended December 30,
1995 and for the period from December 31, 1995 through January 25,
1996................................................................... F-23
Notes to Combined Financial Statements.................................. F-24
RUTTER & CO. B.V.
Auditor's Report........................................................ F-28
Consolidated Balance Sheets at December 31, 1995 and 1994............... F-29
Consolidated Profit and Loss Accounts for the years ended December 31,
1995 and 1994.......................................................... F-30
Notes to the Consolidated Balance Sheets and the Consolidated Profit and
Loss Accounts.......................................................... F-31
Parent Company Balance Sheets at December 31, 1995 and 1994............. F-35
Parent Company Profit and Loss Accounts for the years ended December 31,
1995 and 1994.......................................................... F-36
Notes to the Parent Company Balance Sheets and the Parent Company Profit
and Loss Accounts...................................................... F-37
Supplementary Information............................................... F-40
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF THERMEDICS DETECTION
INC., MOISTURE SYSTEMS AND RUTTER & CO. B.V. (UNAUDITED)
Pro Forma Combined Condensed Statement of Income for the year ended
December 28, 1996...................................................... F-45
Note to Pro Forma Combined Condensed Statement of Income................ F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
We have audited the accompanying consolidated balance sheet of Thermedics
Detection Inc. (a Massachusetts corporation and 94%-owned subsidiary of
Thermedics Inc.) and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of income, cash flows and
shareholders' investment for each of the three years in the period ended
December 28, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of Rutter & Co. B.V. (a wholly owned
subsidiary of Thermedics Detection Inc.), for the period from January 25, 1996
(the date of acquisition) through and as of December 28, 1996, which
statements reflect total assets and total revenues of 16% and 17% in 1996,
respectively, of the consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Thermedics Detection Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended December 28, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of the Rutter & Co. B.V.
segment of Thermedics Detection Inc. as of December 28, 1996, and the related
consolidated statements of income, stockholder's equity, and cash flows for
the period from January 25, 1996 (acquisition date) to December 28, 1996 (all
expressed in Netherlands Guilders) (not included herein). These financial
statements are the responsibility of Thermedics Detection Inc.'s and Rutter &
Co. B.V.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in the Notes to the financial statements (not included herein),
the consolidated balance sheet of the Rutter & Co. B.V. segment of Thermedics
Detection Inc. includes the net assets acquired by Thermedics Detection Inc.
in its purchase of Rutter & Co. B.V. on January 25, 1996, after giving effect
to the allocation of Thermedics Detection Inc.'s purchase price to the
consolidated net assets of Rutter & Co. B.V. and to the changes in the
consolidated net assets of Rutter & Co. B.V. subsequent to the acquisition;
the related consolidated statements of income, stockholder's equity, and cash
flows reflect the results of operations and cash flows of Rutter & Co. B.V.
subsequent to such acquisition after giving effect to the allocation of
Thermedics Detection Inc.'s purchase price to Rutter & Co. B.V.'s consolidated
net assets.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Rutter & Co. B.V. segment
of Thermedics Detection Inc. at December 28, 1996, and the results of their
operations and their cash flows for the period from January 25, 1996 to
December 28, 1996 in conformity with generally accepted accounting principles
in the United States of America.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
January 29, 1997
F-3
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues (Note 8)
Product............................................ $40,436 $18,457 $31,255
Service............................................ 9,907 9,497 12,495
------- ------- -------
50,343 27,954 43,750
------- ------- -------
Costs and Operating Expenses:
Cost of product revenues........................... 18,052 9,895 15,417
Cost of service revenues........................... 6,854 5,341 6,733
Selling, general and administrative expenses (Note
6)................................................ 11,973 7,487 15,525
Research and development expenses.................. 3,895 2,741 4,608
------- ------- -------
40,774 25,464 42,283
------- ------- -------
Operating Income..................................... 9,569 2,490 1,467
Interest Income...................................... -- -- 229
Interest Expense, Related Party (Note 2)............. -- -- (1,119)
Other Income (Expense)............................... -- (72) 12
------- ------- -------
Income Before Provision for Income Taxes............. 9,569 2,418 589
Provision for Income Taxes (Note 4).................. 3,189 910 227
------- ------- -------
Net Income........................................... $ 6,380 $ 1,508 $ 362
======= ======= =======
Earnings per Share................................... $ .63 $ .15 $ .04
======= ======= =======
Weighted Average Shares.............................. 10,069 10,069 10,320
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 1,282 $13,484
Accounts receivable, less allowances of $516 and $1,215.... 4,619 9,387
Unbilled contract costs and fees........................... 1,152 307
Inventories................................................ 8,991 8,793
Prepaid and refundable income taxes (Note 4)............... 1,530 2,173
Prepaid expenses........................................... 208 547
------- -------
17,782 34,691
------- -------
Property, Plant and Equipment, at Cost, Net.................. 2,230 1,784
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 2).. -- 16,694
------- -------
Other Assets................................................. 310 314
------- -------
$20,322 $53,483
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable........................................... $ 1,558 $ 3,030
Accrued payroll and employee benefits...................... 681 1,375
Accrued installation and warranty expenses................. 1,414 1,413
Deferred revenue........................................... 1,324 1,281
Customer deposits.......................................... 446 637
Other accrued expenses..................................... 1,086 3,436
Due to parent company and affiliates....................... -- 161
------- -------
6,509 11,333
------- -------
Deferred Income Taxes (Note 4)............................... 40 40
------- -------
Promissory Note to Parent Company (Note 2)................... -- 21,200
------- -------
Commitments (Note 5)
Shareholders' Investment (Note 3):
Common stock, $.10 par value, 15,000,000 shares authorized;
10,000,000 shares and 10,683,500 shares issued and
outstanding .............................................. 1,000 1,068
Capital in excess of par value............................. 6,114 13,130
Retained earnings.......................................... 6,774 7,136
Cumulative translation adjustment.......................... (115) (424)
------- -------
13,773 20,910
------- -------
$20,322 $53,483
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .................................. $ 6,380 $ 1,508 $ 362
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization.............. 1,060 1,159 2,364
Provision for losses on accounts
receivable................................ 128 98 582
Other noncash expenses..................... 1,127 727 1,804
Increase (decrease) in deferred income
taxes..................................... 81 (40) --
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable...................... 1,862 1,051 (1,776)
Unbilled contract costs and fees......... 1,687 (931) 845
Inventories.............................. 4,649 (3,213) 1,254
Other current assets..................... (934) (116) (599)
Accounts payable......................... (2,977) 182 758
Other current liabilities................ (11,147) (2,392) 1,045
-------- ------- --------
Net cash provided by (used in) operating
activities............................. 1,916 (1,967) 6,639
-------- ------- --------
INVESTING ACTIVITIES:
Acquisitions (Note 2)........................ -- -- (21,668)
Acquisition of product line (Note 2)......... -- -- (300)
Purchases of machinery, equipment and
leasehold improvements...................... (722) (608) (766)
Proceeds from sale of machinery, equipment
and leasehold improvements.................. 448 19 113
Purchase of other assets..................... (471) -- --
-------- ------- --------
Net cash used in investing activities... (745) (589) (22,621)
-------- ------- --------
FINANCING ACTIVITIES:
Net proceeds from private placement of
Company common stock (Note 7)............... -- -- 6,964
Proceeds from issuance of promissory note to
parent company (Note 7)..................... -- -- 21,200
Transfers to parent company and additional
capital contributions, net ................. (984) 3,170 120
Other........................................ -- -- (15)
-------- ------- --------
Net cash provided by (used in) financing
activities............................. (984) 3,170 28,269
-------- ------- --------
Exchange Rate Effect on Cash.................. 14 (138) (85)
-------- ------- --------
Increase in Cash and Cash Equivalents......... 201 476 12,202
Cash and Cash Equivalents at Beginning of
Year......................................... 605 806 1,282
-------- ------- --------
Cash and Cash Equivalents at End of Year...... $ 806 $ 1,282 $ 13,484
======== ======= ========
CASH PAID FOR:
Interest..................................... $ -- $ -- $ 596
======== ======= ========
Income taxes................................. $ 338 $ 152 $ 618
======== ======= ========
NONCASH ACTIVITIES:
Fair value of assets of acquired companies... $ -- $ -- $ 24,328
Cash paid for acquired companies............. -- -- 21,668
-------- ------- --------
Liabilities assumed of acquired
companies................................ $ -- $ -- $ 2,660
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THERMEDICS DETECTION INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL IN CUMULATIVE
STOCK, $.10 EXCESS OF RETAINED TRANSLATION
PAR VALUE PAR VALUE EARNINGS ADJUSTMENT
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994........... $1,000 $ 2,814 $ -- $ 8
Net income........................ -- -- 6,380 --
Transfer to parent company, net... -- -- (984) --
Translation adjustment............ -- -- -- (10)
------ ------- ------ -----
BALANCE DECEMBER 31, 1994......... 1,000 2,814 5,396 (2)
Net income........................ -- -- 1,508 --
Additional capital contribution... -- 3,300 -- --
Transfer to parent company, net... -- -- (130) --
Translation adjustment............ -- -- -- (113)
------ ------- ------ -----
BALANCE DECEMBER 30, 1995......... 1,000 6,114 6,774 (115)
Net income........................ -- -- 362 --
Additional capital contribution... -- 120 -- --
Net proceeds from private
placement of Company common stock
(Note 7)......................... 68 6,896 -- --
Translation adjustment............ -- -- -- (309)
------ ------- ------ -----
BALANCE DECEMBER 28, 1996......... $1,068 $13,130 $7,136 $(424)
====== ======= ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Thermedics Detection Inc. ("the Company") develops, manufactures and markets
high-speed on-line detection and measurement systems used in a variety of
industrial process applications, explosives detection and laboratory analysis.
The Company's industrial process systems use ultratrace chemical-concentration
detectors, high-speed gas chromatography, X-ray imaging, near-infrared
spectroscopy and other technologies for quality assurance of in-process and
finished products, primarily in the food, beverage, pharmaceutical, forest
products, chemical and other consumer products industries. The Company's
explosives-detection equipment uses trace particle- and vapor-detection
techniques based on its proprietary chemiluminescene and high-speed gas
chromatography technologies. Customers use the Company's explosives-detection
equipment to detect plastic and other explosives at airports and border
crossings, for other high-security screening applications and for forensics
and search applications.
Relationship with Thermedics Inc. and Thermo Electron Corporation
The Company operated as a division of Thermedics Inc. ("Thermedics") until
its incorporation as a Massachusetts corporation in December 1990. In
connection with the Company's incorporation, Thermedics transferred to the
Company its TEA Analyzer and certain other trace detection technologies in
exchange for 10,000,000 shares of the Company's common stock. As of December
28, 1996, Thermedics owned 94% of the Company's outstanding common stock. As
of December 28, 1996, Thermedics is a 51%-owned subsidiary of Thermo Electron
Corporation ("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income and expenses of the Company as included in Thermedics' consolidated
financial statements.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1994, 1995 and 1996 are for the fiscal years ended December
31, 1994, December 30, 1995 and December 28, 1996, respectively.
Revenue Recognition
The Company recognizes product revenues upon shipment of its products. The
Company provides a reserve for its estimate of warranty and installation costs
at the time of shipment. The Company recognizes service revenues over the term
of the contract. Deferred revenue in the accompanying balance sheet consists
of unearned revenue on service contracts which is recognized over the life of
the service contract. Substantially all of the deferred revenue included in
the accompanying balance sheet as of December 30, 1995, will be recognized
within one year. Revenues and profits on long-term contracts are recognized
using the percentage-of-completion method. Revenues recorded under the
percentage-of-completion method, including revenues from long-term research
and development contracts, were $1,923,000 in 1994, $3,987,000 in 1995 and
$1,758,000 in 1996. The percentage of completion is determined by relating the
actual costs incurred to date to management's estimate of total costs to be
incurred on each contract. If a loss is indicated on any contract in process,
a provision is made currently for the entire loss. Contracts generally provide
for the billing of customers on a cost-plus-fixed-fee basis as costs are
incurred. Revenues earned on contracts in process in excess of billings are
classified as unbilled contract costs and fees in the accompanying balance
sheet. There are no significant amounts included in the accompanying balance
sheet that are not expected to be recovered from existing contracts at current
contract values, or that are not expected to be collected within one year,
including amounts that are billed but not paid under retainage provisions.
F-8
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
Income Taxes
The Company and Thermedics have a tax allocation agreement under which the
Company is included in Thermedics' consolidated federal and certain state
income tax returns. The agreement provides that in years in which the Company
has taxable income, it will pay to Thermedics amounts comparable to the taxes
the Company would have paid had it filed separate tax returns. If Thermedics'
equity ownership of the Company were to drop below 80%, the Company would be
required to file its own income tax returns.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for all
periods include 10,000,000 shares issued to Thermedics in connection with the
initial capitalization of the Company, the effect of shares sold through
private placements, as well as the effect of the assumed issuance of the
private placements and the assumed exercise of stock options issued within one
year prior to the Company's proposed initial public offering with exercise
prices less than the subscription price. Because the effect of the assumed
exercise of stock options issued more than one year prior to the Company's
proposed initial public offering would be immaterial, they have been excluded
from the earnings per share calculation.
Stock Split
In March 1996, the Company declared and effected a two-for-three reverse
stock split. All share and per share information has been restated to reflect
the stock split.
Cash and Cash Equivalents
Cash receipts and cash disbursements of the Company's domestic operations
were combined with other Thermedics corporate cash transactions and balances
prior to the Company's March 1996 private placement of common stock.
Therefore, cash of the Company's domestic operations is not included in the
accompanying balance sheet as of December 30, 1995. The Company's cash
equivalents in 1995 include investments in commercial paper and short-term
certificates of deposit of the Company's foreign operations, which have an
original maturity of three months or less. Cash and cash equivalents are
carried at cost, which approximates market value.
As of December 28, 1996, $10,976,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of U.S.
government agency securities, corporate notes, commercial paper, money market
funds and other marketable securities, in the amount of at least 103% of such
obligation. The Company's funds subject to the repurchase agreement are
readily convertible into cash by the Company and have an original maturity of
three months or less. The
F-9
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase agreement earns a rate based on the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each quarter.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies................................... $ 7,089 $ 6,135
Work in process............................................. 784 871
Finished goods.............................................. 1,118 1,787
------- -------
$ 8,991 $ 8,793
======= =======
</TABLE>
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: machinery and equipment,
three to ten years and leasehold improvements, the lesser of the term of the
lease or the life of the asset. Property, plant and equipment is comprised of
the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and leasehold improvements............. $ 4,874 $ 5,683
Less: Accumulated depreciation and amortization............. 2,644 3,899
------- -------
$ 2,230 $ 1,784
======= =======
</TABLE>
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over periods not exceeding 40
years. Accumulated amortization was $403,000 at December 28, 1996. The Company
assesses the future useful life of this asset whenever events or changes in
circumstances indicate that the current useful life has diminished. The
Company considers the future undiscounted cash flows of the acquired companies
in assessing the recoverability of this asset. If impairment has occurred, any
excess of carrying value over fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments are
reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains and
losses are included in the accompanying statement of operations and are not
material for the three years presented.
F-10
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, due to parent company and
affiliates and promissory note to parent company. Their respective carrying
amounts in the accompanying balance sheet approximate fair value due to their
short-term nature, except for the promissory note to parent company. The
carrying amount of the promissory note to parent company approximates fair
value based on borrowing rates available to the Company at December 28, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On January 25, 1996, the Company acquired the assets of Moisture Systems
Corporation and certain affiliated companies (collectively, "Moisture
Systems"), and the stock of Rutter & Co. B.V. ("Rutter") for a total purchase
price of $21,668,000 in cash, which included the repayment of $700,000 of
debt. Moisture Systems and Rutter design, manufacture and sell instruments
that use near infrared spectroscopy to measure moisture and other product
constituents, including fats, proteins, oils, flavorings, solvents, adhesives
and coatings, in a variety of manufacturing processes. These systems are used
across the food, pharmaceutical, chemical, petrochemical, tobacco, forest
products, pulp and paper, converting, plastics, textiles, corrugating and
other industries. To finance these acquisitions, the Company borrowed
$21,200,000 from Thermedics pursuant to a promissory note due March 1998,
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. As of December 28, 1996, the
interest rate on the promissory note was 5.77%. In December 1996, the Company
acquired certain moisture measurement product lines for approximately $300,000
in cash, subject to certain post closing adjustments. In addition, the Company
has agreed to pay a licensing fee on sales of these products through December
2000.
These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of Moisture Systems and Rutter exceeded the estimated fair
value of the acquired net assets by $17,326,000, which is being amortized over
40 years. Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired.
The following table presents selected financial information for the Company,
Moisture Systems and Rutter on a pro forma basis, as if the acquisitions of
Moisture Systems and Rutter had occurred as of January 1, 1995.
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenues..................................................... $46,485 $45,297
Net Income................................................... 1,796 520
Earnings per Share........................................... .18 .05
</TABLE>
The pro forma results are not necessarily indicative of future operations on
the actual results that would have occurred had the acquisitions of Moisture
Systems and Rutter been made at the beginning of 1995. Additional pro forma
information for the Company, Moisture Systems and Rutter is included elsewhere
in this prospectus.
F-11
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EMPLOYEE BENEFIT PLANS
Stock-based Compensation Plans
Stock Option Plan
On November 1, 1994, the Company adopted a stock-based compensation plan for
its key employees, directors and others, which permits the grant of a variety
of stock and stock-based awards as determined by the human resources committee
of the Company's Board of Directors (the "Board Committee"), including
restricted stock, stock options, stock bonus shares or performance-based
shares. The option recipients and the terms of options granted under this plan
are determined by the Board Committee. Options granted generally vest and
become immediately exercisable on the ninth anniversary of the grant date,
unless the Company's common stock becomes publicly traded prior to such date.
In such an event, options become exercisable 90 days after the Company becomes
subject to the Securities Exchange Act of 1934, but will be subject to certain
transfer restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally will be deemed to have lapsed
ratably over periods ranging from five to ten years after the first
anniversary of the grant date, depending on the term of the option, which will
generally range from ten to twelve years. Nonqualified stock options may be
granted at any price determined by the Board Committee, although incentive
stock options must be granted at not less than the fair market value of the
Company's common stock on the date of grant. To date, all options have been
granted at fair market value.
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by Thermedics. Under
this plan, shares of Thermedics and Thermo Electron's common stock may be
purchased at the end of a 12-month plan year at 95% of the fair market value
at the beginning of the plan year, and the shares purchased are subject to a
six-month resale restriction. Prior to November 1, 1995, the applicable shares
of common stock could be purchased at 85% of the fair market value at the
beginning of the plan year, and the shares purchased were subject to a one-
year resale restriction. Shares are purchased through payroll deductions of up
to 10% of each participating employee's gross wages.
Pro Forma Stock-based Compensation Plans Expense
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company
has elected to continue to apply APB 25 in accounting for its stock-based
compensation plans. Had compensation cost for awards in 1996 under the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method set forth under SFAS No.
123, the effect on the Company's net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net income:
As reported.......................................... $362
Pro forma............................................ 102
Earnings per share:
As reported.......................................... .04
Pro forma............................................ .01
</TABLE>
Pro forma net income for 1995 was not materially different from historical
net income in 1995.
F-12
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years. Pro forma compensation expense for options granted is reflected over
the vesting period, therefore future pro forma compensation expense may be
greater as additional options are granted.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Risk-free interest rate.............................................. 6.4%
Expected life of options............................................. 7 years
</TABLE>
Expected volatility of zero is assumed for options granted in Company common
stock due to the Company's status as nonpublic.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Stock Option Plan Activity
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
RANGE OF
WEIGHTED WEIGHTED OPTION
NUMBER AVERAGE NUMBER AVERAGE NUMBER PRICES
OF EXERCISE OF EXERCISE OF PER
SHARES PRICE SHARES PRICE SHARES SHARE
------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year...................... 25 $ 9.75 26 $9.75 -- --
Granted..................... 207 $10.45 2 $9.75 26 $9.75
Exercised................... -- $ -- -- $ -- -- --
Forfeited................... -- $ -- -- $ -- -- --
Expired..................... (14) $ 9.79 (3) $9.75 -- --
--- ------ --- ----- --- -----
Options outstanding, end of
year......................... 218 $10.41 25 $9.75 26 $9.75
=== ====== === ===== === =====
Options exercisable........... -- $ -- -- $ -- -- $ --
=== ====== === ===== === =====
Options available for grant... 116 309 308
=== === ===
Weighted average fair value of
options granted during year.. $ 3.76 $4.15
====== =====
</TABLE>
As of December 28, 1996, the options outstanding were exercisable at prices
ranging from $9.75 to $10.75 and had a weighted-average remaining contractual
life of 9.7 years.
At December 28, 1996, the Company had reserved 358,333 unissued shares of
its common stock for possible issuance under the stock-based compensation
plans.
F-13
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For this
plan, the Company contributed and charged to expense $159,000, $233,000 and
$247,000 in 1994, 1995 and 1996, respectively.
Defined Benefit Pension Plan
The Company's Rutter subsidiary, acquired in January 1996, has a defined
benefit pension plan covering substantially all of its full-time employees.
The Company's funding policy is to make contributions within a range required
by applicable regulations in the Netherlands.
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Service cost..................................................... $ 22
Interest cost on projected benefit obligation.................... 45
Return on plan assets............................................ (9)
Amortization of unrecognized obligation.......................... (26)
----
$ 32
====
</TABLE>
The funded status of the Company's defined benefit pension plan is as
follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits............................................. $607
Non-vested benefits......................................... --
----
Accumulated benefit obligation.............................. 607
Effect of projected future salary increases................... 152
----
Projected benefit obligation.................................. 759
Plan assets at fair value..................................... 965
----
Excess of plan assets over projected benefit obligation....... 206
Unrecognized net gain......................................... 196
Initial unrecognized net obligation........................... (69)
----
Prepaid pension cost........................................ $333
====
</TABLE>
Significant actuarial assumptions used to determine the net periodic pension
cost during 1996 were:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Discount rate.......................................................... 7%
Rate of increase in salary levels up to age 45......................... 4.5%
Rate of increase in salary levels after age 45......................... 2.5%
Expected long-term rate of return on assets............................ 4.0%
</TABLE>
F-14
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $9,379 $2,197 $(1,742)
Foreign............................................... 190 221 2,331
------ ------ -------
$9,569 $2,418 $ 589
====== ====== =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................... $2,736 $681 $(350)
State................................................. 568 166 (90)
Foreign............................................... 116 94 692
------ ---- -----
3,420 941 252
------ ---- -----
Net prepaid:
Federal............................................... (188) (25) (195)
State................................................. (43) (6) (34)
Foreign............................................... -- -- 204
------ ---- -----
(231) (31) (25)
------ ---- -----
$3,189 $910 $ 227
====== ==== =====
</TABLE>
Provision for income taxes in the accompanying statement of operations
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate............ $3,253 $ 822 $201
Increases (decreases) resulting from:
State income taxes, net of federal tax................ 346 106 (82)
Foreign tax rate and tax law differential............. 51 19 103
Tax benefit of foreign sales corporation.............. (499) (133) --
Deemed dividend from foreign subsidiary............... -- 80 --
Other, net............................................ 38 16 5
------ ----- ----
$3,189 $ 910 $227
====== ===== ====
</TABLE>
F-15
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and other accruals............................... $ 556 $ 999
Inventory basis difference................................ 675 643
Accrued compensation...................................... 133 130
Other, net................................................ 28 30
------- -------
$ 1,392 $ 1,802
======= =======
Deferred income taxes:
Depreciation.............................................. $ 40 $ 40
======= =======
</TABLE>
5. COMMITMENTS
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $413,000, $542,000 and $1,335,000
in 1994, 1995 and 1996, respectively. Total future minimum payments due under
noncancelable operating leases at December 28, 1996, are $1,220,000 in 1997;
$1,041,000 in 1998; $953,000 in 1999; $880,000 in 2000; $850,000 in 2001; and
$3,714,000 in 2002 and thereafter. Total future minimum lease payments are
$8,658,000.
6. RELATED PARTY TRANSACTIONS
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management,
certain employee benefit administration, tax advice and preparation of tax
returns, centralized cash management, and certain financial and other
services, for which the Company pays Thermo Electron an annual fee equal to
1.0% of the Company's revenues. The Company paid Thermo Electron an amount
equal to 1.25% and 1.20% of the Company's revenues in 1994 and 1995,
respectively. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. For these services, the Company was charged
$629,000, $335,000 and $438,000 in 1994, 1995 and 1996, respectively.
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the Company
would have incurred on a stand-alone basis. The corporate services agreement
is renewed annually but can be terminated upon 30 days' prior notice by the
Company or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationship among
Thermo Electron and its majority-owned subsidiaries). For additional items
such as employee benefit plans, insurance coverage and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable to
the Company.
Research and Development Agreement
Pursuant to a subcontract entered into in October 1993, the Company performs
research and development services for Coleman Research Corporation
("Coleman"), which is the prime contractor under a contract with the U.S.
Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron
and was acquired by Thermo Electron in March 1995. Coleman paid the Company
$234,000, $829,000 and $619,000 for services rendered in 1994, 1995 and 1996,
respectively.
F-16
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Arrangement
The Company purchases an X-ray source that is used as a component in its
InScan systems from Trex Medical Corporation, a publicly traded, majority-
owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded,
majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is
purchased pursuant to written purchase orders. The Company paid Trex Medical
Corporation $18,000, $285,000 and $162,000 under this arrangement in 1994,
1995 and 1996, respectively.
Sublease Agreement
Subsequent to year end 1996, the Company subleased approximately 8,000
square feet of space in its Chelmsford, Massachusetts, facility to Thermo
Cardiosystems Inc. ("Thermo Cardiosystems"), a publicly traded, majority-owned
subsidiary of Thermedics, under a two-year sublease agreement. Under this
sublease, Thermo Cardiosystems will pay the Company base rent of $40,000 in
the first year and $44,000 in the second year, together with an amount equal
to approximately $33,000 per year, representing Thermo Cardiosystems' pro rata
allocation of the facility's aggregate operating costs, real estate taxes and
utilities.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
7. PRIVATE PLACEMENTS OF COMMON STOCK
In March 1996, the Company issued 300,000 shares of its common stock in a
private placement at $10.00 per share, for net proceeds of $3,000,000.
In November 1996, the Company issued 383,500 shares of its common stock in a
private placement at $10.75 per share, for net proceeds of $3,964,000.
F-17
<PAGE>
THERMEDICS DETECTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
8. SIGNIFICANT CUSTOMER AND GEOGRAPHICAL INFORMATION
Sales to one customer accounted for 64%, 36% and 24% of the Company's total
revenues in 1994, 1995 and 1996, respectively.
The Company is engaged in one business segment: developing, manufacturing
and marketing of high-speed on-line detection and measurement systems used in
a variety of industrial process applications, explosives detection and
laboratory analysis. The following table shows data for the Company by
geographical area.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................. $47,098 $22,571 $32,003
The Netherlands............................... -- -- 7,547
Other Europe.................................. 7,454 4,057 5,893
Other......................................... 2,042 2,600 2,588
Transfers among geographical areas (a)........ (6,251) (1,274) (4,281)
------- ------- -------
$50,343 $27,954 $43,750
======= ======= =======
Income before provision for income taxes:
United States................................. $ 9,505 $ 2,933 $ (859)
The Netherlands............................... -- -- 1,514
Other Europe.................................. 317 (127) 394
Other......................................... (126) 348 412
Corporate and eliminations (b)................ (127) (664) 6
------- ------- -------
Total operating income........................ 9,569 2,490 1,467
Other expense................................. -- (72) (878)
------- ------- -------
$ 9,569 $ 2,418 $ 589
======= ======= =======
Identifiable assets:
United States................................. $14,369 $15,806 $31,924
The Netherlands............................... -- -- 8,574
Other Europe.................................. 2,509 2,850 3,506
Other......................................... 915 1,666 1,615
Corporate and eliminations (c)................ -- -- 7,864
------- ------- -------
$17,793 $20,322 $53,483
======= ======= =======
Export revenues included in United States
revenues above (d):
Mexico........................................ $10,416 $ 1,363 $ 2,015
Germany....................................... 6,028 3,914 2,487
Other Europe.................................. 9,200 3,995 4,420
South America................................. 10,892 3,271 3,998
Other......................................... 3,139 2,341 4,437
------- ------- -------
$39,675 $14,884 $17,357
======= ======= =======
</TABLE>
- --------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Primarily general and administrative expenses.
(c) Primarily cash and cash equivalents.
(d) In general, export sales are denominated in U.S. dollars.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moisture Systems Corporation and Moisture Systems Limited:
We have audited the accompanying combined balance sheet of Moisture Systems
Corporation and Moisture Systems Limited (collectively, the Company) as of
December 30, 1995, and the related combined statements of income, cash flows
and owners' investment for the year ended December 30, 1995 and for the period
from December 31, 1995 through January 25, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Moisture Systems
Corporation and Moisture Systems Limited as of December 30, 1995 and the
results of their operations and their cash flows for the year ended December
30, 1995 and for the period from December 31, 1995 through January 25, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
F-19
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
------- -------------
<S> <C> <C>
Revenues (Note 6)........................................ $12,075 $1,141
------- ------
Costs and Operating Expenses:
Cost of revenues....................................... 5,805 563
Selling, general and administrative expenses........... 5,423 495
------- ------
11,228 1,058
------- ------
Operating Income......................................... 847 83
Interest Income.......................................... 24 1
Interest Expense (Note 4)................................ (189) (18)
------- ------
Income Before Provision for Income Taxes................. 682 66
Provision for Income Taxes (Note 3)...................... 47 6
------- ------
Net Income............................................... $ 635 $ 60
======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995
------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 297
Accounts receivable, less allowance of $86........................... 2,264
Inventories.......................................................... 1,978
Prepaid expenses..................................................... 26
------
4,565
------
Property, Plant and Equipment, at Cost, Net............................ 1,006
------
Other Assets........................................................... 22
------
$5,593
======
LIABILITIES AND OWNERS' INVESTMENT
Current Liabilities:
Notes payable and current portion of capital lease obligation (Note
4).................................................................. $1,157
Accounts payable..................................................... 1,008
Accrued payroll and employee benefits................................ 191
Dividends payable (Note 5)........................................... 120
Other accrued expenses............................................... 597
------
3,073
------
Long-term Obligations:
Capital lease obligation (Note 4).................................... 233
Other................................................................ 42
------
275
------
Owners' Investment (Note 5):
Common Stock......................................................... --
Capital in excess of par value....................................... 3,128
Accumulated deficit.................................................. (587)
Treasury stock, at cost.............................................. (296)
------
2,245
------
$5,593
======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-21
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 635 $ 60
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 445 11
Provision for losses on accounts receivable......... 33 2
Other noncash expenses.............................. (2) --
Changes in current accounts:
Accounts receivable............................... 495 (160)
Inventories....................................... (486) 120
Other current assets.............................. 85 6
Accounts payable.................................. (188) 146
Other current liabilities......................... 256 (9)
------- -----
Net cash provided by operating activities....... 1,273 176
------- -----
INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (112) (4)
Proceeds from sale of property, plant and equipment... 96 --
Increase in other assets.............................. (22) (8)
------- -----
Net cash used in investing activities........... (38) (12)
------- -----
FINANCING ACTIVITIES:
Net proceeds from line of credit (Note 4)............. 723 --
Repayment of note payable (Note 4).................... (1,071) --
Repayment of capital lease obligation................. (409) (34)
Repayment of related party debt (Note 7).............. (89) (23)
Dividends paid........................................ (617) (120)
------- -----
Net cash used in financing activities........... (1,463) (177)
------- -----
Decrease in Cash and Cash Equivalents................... (228) (13)
Cash and Cash Equivalents at Beginning of Period........ 525 297
------- -----
Cash and Cash Equivalents at End of Period.............. $ 297 $ 284
======= =====
CASH PAID FOR:
Interest.............................................. $ 189 $ 18
======= =====
Income Taxes.......................................... $ 36 $ --
======= =====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-22
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
COMBINED STATEMENT OF OWNERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED TREASURY
STOCK PAR VALUE DEFICIT STOCK
------ ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994................ $ -- $3,128 $(866) $(296)
Net income............................... -- -- 635 --
Dividends declared (Note 5).............. -- -- (356) --
----- ------ ----- -----
BALANCE DECEMBER 30, 1995................ -- 3,128 (587) (296)
Net income............................... -- -- 60 --
----- ------ ----- -----
BALANCE JANUARY 25, 1996................. $ -- $3,128 $(527) $(296)
===== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-23
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Nature of Operations
The accompanying combined financial statements include the accounts of
Moisture Systems Corporation (a Massachusetts corporation) and Moisture
Systems Limited (a United Kingdom corporation) (collectively, "the Company"),
companies under common control. The Company designs, manufactures and sells
instruments that use near infrared spectroscopy to measure moisture and other
product constituents, including fats, proteins, oils, flavorings, solvents,
adhesives and coatings, in a variety of manufacturing processes. The Company's
systems are used across the food, pharmaceutical, chemical, petrochemical,
tobacco, forest products, pulp and paper, converting, plastics, textiles,
corrugating and other industries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1995 are for the fiscal year ended December 30, 1995.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty and installation costs at the
time of shipment.
Cash and Cash Equivalents
The Company considers liquid investments with original maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1995
---------
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies..................................... $ 1,812
Work in process and finished goods............................ 166
--------
$ 1,978
========
</TABLE>
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: building--30 years;
building under capital lease--ten years; and machinery and equipment--three to
ten years. Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1995
---------
(IN THOUSANDS)
<S> <C> <C>
Building...................................................... $ 213
Building under capital lease.................................. 3,058
Machinery and equipment....................................... 1,506
--------
4,777
Less: Accumulated depreciation and amortization............... 3,771
--------
$ 1,006
========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, notes payable and current portion of capital
lease obligation, accounts payable, and long-term obligations. The
F-24
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
carrying amounts of these financial instruments, with the exception of long-
term obligations, approximate fair value due to their short-term nature. The
carrying amount of long-term obligations approximates fair value based on the
borrowing rates currently available to the Company.
Foreign Currency
All assets and liabilities of the Company's foreign operations are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Foreign currency transaction gains and losses are included in
the accompanying statement of income and are not material for the two periods
presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. EMPLOYEE BENEFIT PLAN
401(k) Savings Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in the Company's 401(k) savings plan. Contributions to the 401(k)
savings plan are made by the employee. The Company does not contribute to this
plan.
3. INCOME TAXES
Moisture Systems Corporation has elected to be taxed as an S corporation for
federal and state income tax purposes. As an S corporation, taxable income of
Moisture Systems Corporation is reported on the individual income tax returns
of its stockholders, although certain states require a corporate-level tax.
Moisture Systems Limited is taxable at U.K. tax rates. The Company provides
for state and foreign income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets or liabilities are computed based on
the differences between the financial reporting basis and income tax basis of
assets and liabilities as measured by the enacted tax laws and rates expected
to be applicable when the differences reverse.
F-25
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
---- -------------
(IN THOUSANDS)
<S> <C> <C>
Domestic.................................................. $580 $117
Foreign................................................... 102 (51)
---- ----
$682 $ 66
==== ====
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1996
---- -------------
(IN THOUSANDS)
<S> <C> <C>
Currently payable:
State................................................... $12 $ 2
Foreign................................................. 21 4
--- ----
33 6
--- ----
Net deferred:
State................................................... 14 --
--- ----
$47 $ 6
=== ====
</TABLE>
The provision for income taxes differs from the provision calculated by
applying the statutory federal income tax rate of 34% to income before
provision for income taxes due to the following:
<TABLE>
<CAPTION>
DEC. 31, 1995
THROUGH
1995 JAN. 25, 1995
-------------- -------------
(IN THOUSANDS)
Income tax provision at statutory rate..... $ 232 $ 22
Increases (decreases) resulting from:
Income taxed to shareholders............. (197) (18)
State income taxes....................... 26 1
Foreign tax differential ................ (14) 1
----- ----
$ 47 $ 6
===== ====
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Prepaid income taxes:
U.K. building indexation................. $ 90
Various reserves and accruals............ 12
-----
102
Less: Valuation allowance.................. (90)
-----
$ 12
=====
Deferred income taxes:
Capital lease............................ $ 17
=====
</TABLE>
The valuation allowance was established by Moisture Systems Limited due to
the uncertainty of the realizability of the U.K. building indexation value and
the ability to use U.K. loss carryforwards.
F-26
<PAGE>
MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONCLUDED)
4. LONG-TERM OBLIGATION AND OTHER FINANCING ARRANGEMENTS
The Company entered into a building lease that met the requirements for
treatment as a capital lease. The future minimum lease payments under the
agreement are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $480
1997.......................................................... 240
----
720
Less: amount representing interest............................ 53
----
Present value of minimum lease payments....................... 667
Less: current portion......................................... 434
----
Long-term capital lease obligation............................ $233
====
</TABLE>
As of December 31, 1994, the Company had $1,071,000 outstanding under a note
payable with a bank. Borrowings bore interest at the prime rate plus 1%, which
was 9.5% at December 31, 1994, and were secured by the assets of the Company.
The outstanding balance on this note was paid in June 1995.
In June 1995, the Company entered into a line of credit agreement with a
bank. Borrowings bore interest at the prime rate plus 1%, were secured by the
assets of the Company and were due in April 1996. As of December 30, 1995, the
Company had $723,000 principal amount outstanding under this agreement,
bearing interest at 9.5%. Maximum borrowings during the period were
$1,400,000. The outstanding balance on this agreement was paid upon the sale
of the Company (Note 8).
5. OWNERS' INVESTMENT
A dividend to owners of the Company of $381,000 was declared in 1994 and
paid in 1995. A dividend to owners of the Company of $356,000 was declared in
1995.
6. SIGNIFICANT CUSTOMER AND EXPORT SALES
Sales to one customer accounted for 11% of the Company's total revenues in
1995.
The Company's export sales to the Netherlands were 12% of total revenues in
1995. All other export sales were 32% of total revenues in 1995.
7. RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with its owners and
affiliated companies. These transactions include sales, purchases, leasing and
short-term borrowings. Any amounts related to these related party
transactions, which have not been eliminated, have been separately presented
or are not material to the financial statements taken as a whole.
8. SALE TO THERMEDICS DETECTION INC.
On January 25, 1996, the Company was sold to Thermedics Detection Inc.
F-27
<PAGE>
AUDITOR'S REPORT
Introduction
We have audited the accompanying 1995 and 1994 consolidated and parent
company financial statements of Rutter & Co. B.V. at Enschede. Our audit
procedures also included the disclosures included in the supplementary
information under the caption "United States Generally Accepted Accounting
Principles (U.S. GAAP)". These financial statements and such supplementary
information are the responsibility of the entity's management. Our
responsibility is to express an opinion on these financial statements and such
supplementary information based on our audits.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, the above mentioned financial statements of Rutter & Co.
B.V. give a true and fair view of the financial position of the entity as of
December 31, 1995 and 1994 and of the result for the years then ended in
accordance with accounting principles generally accepted in the Netherlands
and comply with the legal requirements for financial statements as included in
Part 9, Book 2 of the Netherlands Civil Code.
Generally accepted accounting principles in the Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States of America would have affected net income for
each of the two years in the period ended December 31, 1995 and stockholders'
equity as of December 31, 1995 and 1994, to the extent summarized in the
supplementary information under the caption "United States Generally Accepted
Accounting Principles (U.S. GAAP)". In our opinion, such supplementary
information when considered in relationship to the basic financial statements
taken as a whole presents fairly in all material respects the information set
forth therein.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
March 13, 1996, except for the
supplementary information under the
caption "United States Generally
Accepted Accounting Principles (U.S.
GAAP)", as to which the date is
December 20, 1996.
F-28
<PAGE>
RUTTER & CO. B.V.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
NLG NLG
<S> <C> <C> <C> <C>
ASSETS
Fixed assets
Tangible fixed assets
Office furniture and equipment....... 128,504 119,565
Leasehold improvements............... 152,720 5,200
Other fixed assets................... 28,000 309,224 11,630 136,395
--------- ---------
Financial fixed assets
Participations in group companies.... -- 839,241
Other receivables.................... 17,539 17,539 17,381 856,622
--------- ---------
Current assets
Inventories............................ 1,430,415 1,548,100
Receivables
Accounts receivable, net of allow-
ances of NLG 32,640 in 1995 and NLG
33,360 in 1994...................... 2,389,051 1,886,393
Other receivables and prepayments.... 383,728 288,090
--------- ---------
2,772,779 2,174,483
Cash at bank and in hand............... 1,061,735 819,783
--------- ---------
5,591,692 5,535,383
========= =========
GROUP EQUITY, PROVISIONS AND LIABILI-
TIES
Group equity
Legal entity share in group equity..... 1,795,569 1,259,669
Minority interest...................... 22,063 12,471
--------- ---------
1,817,632 1,272,140
PROVISIONS
Pensions............................... 286,313 245,625
Short-term liabilities
Accounts payable....................... 1,078,612 831,278
Taxes and social security.............. 121,995 100,899
Other payables and accrued liabili-
ties.................................. 2,287,140 3,085,441
--------- ---------
3,487,747 4,017,618
--------- ---------
5,591,692 5,535,383
========= =========
</TABLE>
F-29
<PAGE>
RUTTER & CO. B.V.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
NLG NLG
<S> <C> <C> <C> <C>
Net sales......................... 13,707,261 11,293,027
Cost of materials................. 6,785,566 5,688,601
---------- ----------
Gross margin...................... 6,921,695 5,604,426
Wages and salaries................ 1,937,551 1,862,455
Social security costs............. 450,089 493,875
Depreciation and amortization..... 101,537 80,154
Other operating expenses.......... 1,476,502 1,448,109
--------- ---------
Total operating expenses.......... 3,965,679 3,884,593
---------- ----------
Operating result.................. 2,956,016 1,719,833
Interest income................... 37,771 26,450
Interest charges.................. 57,729 85,288
---------- ----------
Result on ordinary activities be-
fore taxation.................... 2,936,058 1,660,995
Taxation on result of ordinary
activites........................ 1,057,674 572,478
---------- ----------
Result on ordinary activities af-
ter taxation..................... 1,878,384 1,088,517
Minority interest................. 10,522 (7,302)
---------- ----------
1,888,906 1,081,215
Result non-consolidated companies,
after taxation................... (689) 346,467
---------- ----------
Net income........................ 1,888,217 1,427,682
========== ==========
</TABLE>
F-30
<PAGE>
RUTTER & CO. B.V.
NOTES TO THE CONSOLIDATED BALANCE SHEETSAND THE CONSOLIDATED PROFIT AND LOSS
ACCOUNTS
ACTIVITIES
The principal operations of Rutter & Co. B.V. (the "Company") are commercial
activities including the sale of automatic control systems and machinery-
equipment to customers in various industries in Western Europe as well as the
development of equipment. The Company is also a sales agent in the Netherlands
for a number of foreign suppliers.
The Company was wholly owned by Rutter Holdings B.V. during the periods
covered by these financial statements. On January 25, 1996, Thermedics
Detection Inc. purchased all of the outstanding shares of the Company.
ACCOUNTING POLICIES
General
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the Netherlands, which differ in
certain material respects from U.S. GAAP as summarized in the supplementary
information.
The accounting principles are based on the historical cost convention.
Assets and liabilities are stated at face value if not mentioned otherwise at
the applicable sheet item. Exchange rate differences due to transactions in
currencies other than the Netherlands guilder ("foreign currencies") are
reflected in the consolidated profit and loss account. From time-to-time, the
Company enters into foreign exchange contracts as a hedge against accounts
payable denominated in foreign currencies. The financial statements of foreign
subsidiaries have been translated into Netherlands guilders at the exchange
rate in effect on the respective balance sheet dates.
Consolidation
The following companies are included in the consolidation:
<TABLE>
<CAPTION>
NAME PERCENTAGE STATUTORY DOMICILE
---- ---------- ------------------
<S> <C> <C>
Rutter & Co. B.V................... 100 Enschede (The Netherlands)
SARL Rutter Instrumentation........ 90 Perreux-sur-Marne (France)
Systech Instruments B.V............ 50 Enschede (The Netherlands)
During 1995 the Company signed a letter of intent with Thermedics Detection
Inc., a U.S. company. The letter of intent stated that three of the Company's
subsidiaries would be sold before the date of purchase of the Company's
shares. Since each of the following such subsidiaries was spun-off by the
Company to its shareholder, Rutter Holdings B.V., prior to December 31, 1995,
due to the temporary control of these subsidiaries, the Company has accounted
for such subsidiaries using the equity method:
<CAPTION>
NAME PERCENTAGE STATUTORY DOMICILE
---- ---------- ------------------
<S> <C> <C>
Unitron Systems Terneuzen B.V...... 72 Terneuzen (The Netherlands)
Rutter & Eichholzer AG............. 100 Zug (Switzerland)
Rutter & Co. GmbH.................. 100 Ahaus (Germany)
</TABLE>
All significant intercompany profits, transactions and balances have been
eliminated in consolidation.
F-31
<PAGE>
RUTTER & CO. B.V.
VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS
VALUATION OF ASSETS AND LIABILITIES
Tangible fixed assets
The tangible fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method based on the
estimated useful lives of the related assets. In the case of leasehold
improvements, the estimated useful lives of the related assets do not exceed
the remaining term of the corresponding lease. The following table presents
the assigned economic lives of the Company's equipment and other fixed assets:
<TABLE>
<CAPTION>
CATEGORY ASSIGNED ECONOMIC LIFE
-------- ----------------------
<S> <C>
Leasehold improvements........................... 6 years
Office furniture and equipment................... 3-5 years
Other fixed assets............................... 3-5 years
</TABLE>
Financial fixed assets
Other receivables are stated at face value.
Inventories
Equipment inventories are stated at the lower of cost or market (first-in,
first-out method). Allowances are made for slow-moving, obsolete or unsaleable
stock.
Receivables
Receivables are stated at nominal value, less an allowance for possible
uncollectible amounts. Other receivables at December 31, 1995 include the sold
participations Rutter & Eichholzer AG at Zug (Switzerland) and Rutter & Co.
GmbH at Ahaus (Germany).
Provisions
The provision for pension liabilities concerns a past-service liability. The
past-service liability is calculated proportionally based on market rate and
actuarial principles.
DETERMINATION OF CONSOLIDATED RESULTS
Determination of the consolidated results is based on the accrual method of
accounting. Profits are recognized as far as they are realized at balance
sheet date, losses and risks are recognized at the moment they can be
ascertained. Sales include the fees charged to customers for delivered goods
or services excluding value added tax.
The cost of materials sold consist of the purchase price of the goods
combined with freight, import duties and realized exchange differences on the
purchase transactions in foreign currencies. The Company is included in a
fiscal unity for corporate income taxes and value added taxes with its parent
company Rutter Holdings B.V. and Pover Gemeenschappelijk Bezit B.V. For these
financial statements, income and value added tax effects for the Company have
been calculated on a stand-alone basis.
F-32
<PAGE>
RUTTER & CO. B.V.
NOTES TO SPECIFIC ITEMS OF THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED
STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OFFICE OTHER
FURNITURE OPERATING
LEASEHOLD AND FIXED
IMPROVEMENTS EQUIPMENT ASSETS TOTAL
------------ --------- --------- --------
NLG NLG NLG NLG
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets
Book value at January 1, 1994......... 9,695 98,362 19,391 127,448
Additions............................. -- 70,480 -- 70,480
------- ------- ------- --------
9,695 168,842 19,391 197,928
Book value of disposals............... -- -- -- --
Depreciation.......................... 4,495 48,974 7,761 61,230
Foreign currency differences.......... -- (303) -- (303)
------- ------- ------- --------
Book value at December 31, 1994....... 5,200 119,565 11,630 136,395
Additions............................. 180,659 66,825 37,395 284,879
------- ------- ------- --------
185,859 186,390 49,025 421,274
Book value of disposals............... -- 890 11,630 12,520
Depreciation.......................... 33,139 59,003 9,395 101,537
Foreign currency differences.......... -- 2,007 -- 2,007
------- ------- ------- --------
Book value at December 31, 1995....... 152,720 128,504 28,000 309,224
======= ======= ======= ========
Accumulated depreciation at December
31, 1994............................. 83,203 467,416 19,396 570,015
======= ======= ======= ========
Accumulated depreciation at December
31, 1995............................. 116,342 524,344 9,395 650,081
======= ======= ======= ========
FINANCIAL FIXED ASSETS
Participations in group companies
Balance at January 1, 1994............ 600,199
Net income from subsidiaries.......... 346,467
Dividends............................. (107,425)
--------
Balance at December 31, 1994.......... 839,241
Net loss from subsidiaries............ (689)
--------
838,552
Less:
Sale 72%-participation in Unitron
Systems Terneuzen B.V. at
Terneuzen.......................... 742,144
Sale 100%-participation Rutter &
Eichholzer AG at Zug............... 41,233
Sale 100%-participation Rutter & Co.
GmbH at Ahaus...................... 55,175 838,552
------- --------
Balance at December 31, 1995.......... --
========
<CAPTION>
1995 1994
--------- --------
<S> <C> <C> <C> <C>
Other receivables NLG NLG
Balance at January 1.................. 17,381 24,489
Addition.............................. 158 (7,108)
------- --------
Balance at December 31................ 17,539 17,381
======= ========
</TABLE>
F-33
<PAGE>
RUTTER & CO. B.V.
CURRENT ASSETS
Inventories
The inventories consist of purchased equipment and components.
Cash at bank and in hand
This item includes cash and bank balances.
CONTINGENT LIABILITIES
. The companies are mostly accomodated in rented premises. Expiration dates
are varying.
. At balance sheet dates there were no forward purchase contracts in U.S.
dollars.
. On the basis of operational lease a number of cars is rented. The yearly
charges are NLG 222,480 (1994: NLG 257,700).
. The Company has a line of credit with a bank which provides up to a
maximum of NLG 2,500,000. As security for borrowings under the line of
credit, (assignment of) right of lien is given against:
--receivables;
--equipment;
--company inventories and merchandise inventories;
--shares Unitron Systems Terneuzen B.V.
At the balance sheet dates, the Company did not draw on these facilities.
The Company, Rutter Holdings B.V., Rutter & Co. GmbH and Pover
Gemeenschappelijk Bezit B.V. are severally liable.
. The company is severally liable for tax liabilities which result from the
fiscal unity with group companies for the value added tax and corporate
tax.
. At December 31, 1995 and 1994, bank guarantees (letters of credit) to the
amount of NLG 123,320 and NLG 181,404 were outstanding. The guarantees,
originally expressed in foreign currencies, are converted at the rates of
exchange at the balance sheet dates.
. A former Italian agent has claimed an amount of NLG 200,000 because of
the termination of the commercial agency relationship. The concerning
contracts were closed by Rutter & Eichholzer AG. No guarantees are given
for this subsidiary by Rutter & Co. B.V. Since Eichholzer AG was sold
during 1995, management does not believe this matter will materially
affect results of operations or the financial position of the Company.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Net-sales
The sales have increased by 22.6%.
Wages and salaries
In 1995, the Company employed 25 people (1994: 24). Under article 383, Book
2 Civil Code disclosure of the remuneration of the manager is omitted.
Director's fee
Paid director's fees amounted to NLG 10,000 (1994: NLG 20,000).
Social security costs
The social security costs include pension expenses in the amount of NLG
161,041 (1994: NLG 193,863).
F-34
<PAGE>
RUTTER & CO. B.V.
PARENT COMPANY BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
(AFTER PROFIT APPROPRIATION)
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
NLG NLG
<S> <C> <C> <C> <C>
ASSETS
Fixed assets
Tangible fixed assets
Leasehold improvements.............. 152,720 5,200
Office furniture and equipment...... 98,220 83,146
Other operating fixed assets........ 28,000 11,630
--------- ---------
278,940 99,976
Financial fixed assets
Participations in group companies... 60,476 951,483
Current assets
Inventories
Merchandise inventory............... 1,046,160 1,162,111
Receivables
Accounts receivable................. 1,904,891 1,494,440
Group companies..................... 812,340 798,524
Other receivables and prepayments... 270,784 141,813
--------- ---------
2,988,015 2,434,777
Cash at bank and in hand.............. 879,865 662,495
--------- ---------
5,253,456 5,310,842
========= =========
SHAREHOLDERS' EQUITY, PROVISIONS AND
LIABILITIES
Shareholders' equity
Share capital paid up and called
up................................. 451,000 451,000
Legally-required reserves........... -- 440,289
Other reserves...................... 1,361,711 353,879
--------- ---------
1,812,711 1,245,168
Provisions
Pensions 286,313 245,625
Short-term liabilities
Accounts payable.................... 923,165 743,904
Group companies..................... -- 1,909,847
Taxes and social security........... 12,935 14,357
Other creditors and accrued liabili-
ties............................... 2,218,332 1,151,941
--------- ---------
3,154,432 3,820,049
--------- ---------
5,253,456 5,310,842
========= =========
</TABLE>
F-35
<PAGE>
RUTTER & CO. B.V.
PARENT COMPANY PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994
(EXPRESSED IN NETHERLANDS GUILDERS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Result of participations after taxation.................... (72,455) 411,519
Balance of other profits and losses........................ 1,963,313 992,762
--------- ---------
Result after taxation...................................... 1,890,858 1,404,281
========= =========
</TABLE>
F-36
<PAGE>
RUTTER & CO. B.V.
NOTES TO THE PARENT COMPANY BALANCE SHEETS AND PARENT COMPANY PROFIT AND LOSS
ACCOUNTS
ACCOUNTING POLICIES
General
The accounting principles are mentioned in the notes to the consolidated
balance and the consolidated profit and loss account.
VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS
Financial fixed assets
The participations are valued on the basis of the net equity method.
Profit and loss account
The financial statements of the company are included in the consolidated
annual report. Under article 402, title 9 Civil Code it is sufficient to state
a summarized profit and loss account.
NOTES TO SPECIFIC ITEMS OF THE PARENT COMPANY BALANCE SHEETS AND PARENT
COMPANY PROFIT AND LOSS ACCOUNTS
BALANCE SHEET
<TABLE>
<CAPTION>
OFFICE OTHER
FURNITURE OPERATING
LEASEHOLD AND FIXED
IMPROVEMENTS EQUIPMENT ASSETS TOTAL
------------ --------- --------- -------
NLG NLG NLG NLG
FIXED ASSETS
<S> <C> <C> <C> <C>
Tangible fixed assets
Book value at January 1, 1994........ 9,695 76,887 19,391 105,973
Additions............................ -- 47,159 -- 47,159
------- ------- ------ -------
9,695 124,046 19,391 153,132
Book value of disposals.............. -- -- -- --
Depreciation......................... 4,495 40,900 7,761 53,156
------- ------- ------ -------
Book value at December 31, 1994...... 5,200 83,146 11,630 99,976
Additions............................ 180,659 65,341 37,395 283,395
------- ------- ------ -------
185,859 148,487 49,025 383,371
Book value of disposals.............. -- -- 11,630 11,630
Depreciation......................... 33,139 50,267 9,395 92,801
------- ------- ------ -------
Book value at December 31, 1995...... 152,720 98,220 28,000 278,940
======= ======= ====== =======
Accumulated depreciation at December
31, 1994............................ 83,203 404,863 19,396 507,462
======= ======= ====== =======
Accumulated depreciation at December
31, 1995............................ 116,342 455,130 9,395 580,867
======= ======= ====== =======
</TABLE>
F-37
<PAGE>
RUTTER & CO. B.V.
<TABLE>
<CAPTION>
NLG
--------
<S> <C> <C>
FINANCIAL FIXED ASSETS
Participations in group companies
Balance at January 1, 1994............................... 647,388
Dividends................................................ (107,424)
Results of participations after taxation................. 411,519
--------
Balance at December 31, 1994............................. 951,483
Add:
Purchase 50%-participation in Systech Instruments B.V.
at Enschede........................................... 20,000
--------
971,483
Less:
Sale 72%-participation in Unitron Systems Terneuzen
B.V. at Terneuzen (realizable value).................. 742,144
Sale 100%-participation Rutter & Eichholzer AG at Zug
(realizable value).................................... 41,233
Sale 100%-participation Rutter & Co. GmbH at Ahaus (re-
alizable value)....................................... 55,175 838,552
------- --------
132,931
Add:
Results of participations after taxation............... (72,455)
--------
Balance at December 31, 1995............................. 60,476
========
</TABLE>
Specification
<TABLE>
<CAPTION>
PART OF THE ISSUED CAPITAL NOMINAL PAID SHARE CAPITAL NAME AND DOMICILE
-------------------------- -------------------------- -----------------
%
<S> <C> <C>
90 Frfrs 900,000 SARL Rutter Instrumentation
at Perreux-sur-Marne
50 NLG 40,000 Systech Instruments B.V. at
Enschede
</TABLE>
F-38
<PAGE>
RUTTER & CO. B.V.
SHAREHOLDERS' EQUITY
Differences exist between parent company shareholders' equity and group
equity included in the consolidated financial statements. These differences
are due to intercompany profits included in the inventory of a subsidiary,
which are eliminated in the consolidation.
<TABLE>
<CAPTION>
1995 1994
--------- -------
NLG NLG
<S> <C> <C>
Share capital paid up and called up
The authorized share capital consists of
500 shares each NLG 1000,
451 shares were issued and fully paid.
Legally-required reserves
Balance at January 1.................................... 440,289 136,019
Proposed appropriation for the year..................... -- 304,270
Release in favor of the other reserve................... 440,289 --
--------- -------
Balance at December 31.................................. -- 440,289
========= =======
Other reserve
Balance at January 1.................................... 353,879 272,796
From legally-required reserves.......................... 440,289 --
Write-off goodwill...................................... -- (18,928)
Proposed appropriation for the year..................... 567,543 100,011
--------- -------
Balance at December 31.................................. 1,361,711 353,879
========= =======
</TABLE>
PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
1995 1994
------- -------
NLG NLG
<S> <C> <C>
Result of participations after taxation
Share result group companies.............................. (71,766) 65,052
Share result other participations......................... (689) 346,467
------- -------
(72,455) 411,519
======= =======
</TABLE>
The management board: L.L.A.Pover
Enschede, The Netherlands, March 13, 1996
F-39
<PAGE>
RUTTER & CO. B.V.
SUPPLEMENTARY INFORMATION
PROVISIONS OF THE ARTICLES OF ASSOCIATION ON THE SUBJECT OF PROFIT
APPROPRIATION
Article 14
1. The profits are at the disposal of the general meeting of shareholders.
2. The company can only distribute if the shareholders' equity exceeds the
share capital paid up and called up added with the legally-required
reserves.
3. Distribution of profits takes place after the adoption of the financial
statements from which it appears that distribution is allowed.
4. The general meeting of shareholders can between times decide to make a
distribution, if the requirements of Article 2 are met.
POST-BALANCE-SHEET EVENTS
Due to the sale of the shares of the Company to Thermedics Detection Inc.,
credit facilities are cancelled at the beginning of 1996. Hereby existing
securities are given free.
PROFIT APPROPRIATION 1995
The profit over the year 1995 in the amount of NLG 1,890,858 is at the
disposal of the general meeting of shareholders. The managent board proposes
to appropriate the net result as follows:
<TABLE>
<CAPTION>
NLG
---------
<S> <C>
Interim dividend................................................. 742,144
Final dividend................................................... 581,171
Allocation to other reserves (retained earnings)................. 567,543
---------
1,890,858
=========
</TABLE>
This proposal is comprehended in the financial statements.
F-40
<PAGE>
RUTTER & CO. B.V.
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
a. Basis of Presentation
The accompanying financial statements are presented using Netherlands
generally accepted accounting principles (GAAP) and are denominated in
Netherlands guilders. The exchange rate at December 31, 1995 was 1.60.
Inclusion of separate parent company financial statements as a component of
the basic financial statements is a requirement under Netherlands GAAP. No
similar requirement exists under U.S. GAAP.
b. Scope of Consolidation and Related Party Transactions
The Netherlands GAAP financial statements include the accounts of three
subsidiaries using the equity method of consolidation during 1994.
Each of the three subsidiaries was spun-off by the Company to its
shareholder, Rutter Holdings B.V., during the year ended December 31, 1995.
Such transactions were undertaken in advance of the sale of the ownership
interests change in ownership of the Company in 1996. For U.S. GAAP purposes,
such subsidiaries represent a change in the reporting entity, since the
Company and the subsidiaries, which were spun-off, have been managed and
financed historically as if they were autonomous, have no more than incidental
common facilities and costs, will be operated and financed autonomously after
the spin-off, and will not have material financial commitments, guarantees, or
contingent liabilities to each other after the spin-off. Accordingly, the U.S.
GAAP financial statements are presented as if the Company never had an
investment in these subsidiaries.
The financial statements of Systech Instruments B.V. are fully consolidated
in the financial statements prepared under Netherlands GAAP. Under U.S. GAAP
this subsidiary would have been accounted for using the equity method of
accounting. Systech Instruments B.V. did not have any activities during 1995.
The balances consolidated for Systech Instruments B.V. are immaterial to the
consolidated balances.
c. Pension plans
In the Netherlands, the Company sponsors a defined benefit pension plan for
substantially all of its Netherlands employees. SFAS 87, the U.S. accounting
principles for pensions, uses accrual assumptions, including estimated future
salary increases, when calculating pension expense. For Netherlands GAAP
purposes, determination of pension expense does not take future salary
increases into account, but does consider prior back service costs and lower
discount rates.
In France, legally required retirement indemnities exist for U.S. GAAP
purposes. However, such amounts are immaterial and have not been provided.
d. Income taxes
Generally, temporary differences between financial statement and tax
reporting do not exist in the Netherlands GAAP accounts. Accordingly, deferred
income taxes which have been provided relate to the temporary differences
resulting from other U.S. GAAP reconciling items.
e. Cumulative translation adjustment
Translation adjustments for income statement items under Netherlands GAAP
were calculated using the exchange rate at the applicable balance sheet dates.
Under SFAS 52 of U.S. GAAP, the translation for income statement items is to
be calculated using the weighted average exchange rate for the year. For
purposes of applying U.S. GAAP, the SFAS 52 approach was applied starting at
January 1, 1989. Since this date, the year-end exchange rate has approximated
the average rate, resulting in no material differences in any year.
Accordingly, no cumulative translation adjustment at December 31, 1995 and
1994 has been recorded.
f. Fair value of financial instruments
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value.
g. Use of estimates
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that could affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
F-41
<PAGE>
RUTTER & CO. B.V.
and liabilities at the balance sheet dates, and the reported amounts of
revenue and expense during the reported periods. Actual results may vary from
such estimates.
h. Operating leases
The Company leases certain facilities and automobiles under operating
leases. As of December 31, 1995, the minimum annual rental commitments are as
follows:
<TABLE>
<CAPTION>
NLG
---------
<S> <C>
1996.................................................................. 313,230
1997.................................................................. 317,561
1998.................................................................. 233,316
1999.................................................................. 133,032
2000.................................................................. 71,629
Thereafter............................................................ --
---------
Total............................................................... 1,068,768
=========
</TABLE>
Rental expense was NLG 339,245 and NLG 306,774 for the years ended December
31, 1995 and 1994, respectively.
i. New accounting pronouncement
In March 1995, the United States Financial Accounting Standards Board issued
SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", which is applicable to the Company beginning
in 1996. Management believes that application of SFAS 121 will not result in
any adjustments to the carrying value of the Company's long-lived assets.
j. Stockholders' equity
Differences exist between parent company shareholders' equity and group
equity included in the consolidated financial statements prepared under
Netherlands GAAP due to intercompany profits included in the inventory of a
subsidiary, which are eliminated in the consolidation. On a U.S. GAAP basis,
parent company equity would be the same as consolidated equity.
k. Dividends
Management of the Company has proposed a final dividend of NLG 581,171 and
NLG 1,000,000 at December 31, 1995 and 1994, respectively. These proposed
dividends are accrued in the financial statements prepared under Netherlands
GAAP. Since these proposed dividends are subject to the authorization of the
general meeting of shareholders, these dividends would not be presented as a
liability in the financial statements prepared under U.S. GAAP.
l. Netherlands GAAP--U.S. GAAP reconciliation
The following is a summary of the significant adjustments to net income for
the years ended December 31, 1995 and 1994 and to stockholders' equity as of
December 31, 1995 and 1994, which would be required if U.S. GAAP had been
applied instead of Netherlands GAAP in the financial statements:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Net income according to the consolidated financial
statements prepared under Netherlands GAAP............. 1,888,217 1,427,682
U.S. GAAP adjustments:
Increase due to effects of applying SFAS 87,
"Employers' Accounting for Pensions"................. 156,525 177,105
Decrease due to effects of applying SFAS 109,
"Accounting for Income Taxes"........................ (54,780) (61,987)
Decrease due to elimination of net income of
subsidiaries spun-off................................ -- (346,467)
--------- ---------
Net income in accordance with U.S. GAAP............... 1,989,962 1,196,333
========= =========
</TABLE>
F-42
<PAGE>
RUTTER & CO. B.V.
A reconciliation of legal entity share in group equity in the balance sheet
from Netherlands GAAP reporting to stockholder's equity in U.S. GAAP reporting
is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
--------- ---------
NLG NLG
<S> <C> <C>
Legal entity share in group equity according to the
consolidated financial statements prepared under
Netherlands GAAP........................................ 1,795,569 1,259,669
U.S. GAAP adjustments:
Increase due to effects of applying SFAS 87,
"Employers' Accounting for Pensions".................. 524,379 367,867
Decrease due to effects of applying SFAS 109,
"Accounting for Income Taxes"......................... (183,533) (128,753)
Increase due to accrual of proposed final dividends.... 581,171 1,000,000
Other.................................................. 29,015 --
--------- ---------
Stockholder's equity in accordance with U.S. GAAP........ 2,746,601 2,498,783
========= =========
</TABLE>
The accompanying consolidated statements of stockholder's equity has been
prepared in accordance with U.S. GAAP.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER
31, 1995 AND 1994
<TABLE>
<CAPTION>
NUMBER OF SHARE
ORDINARY CAPITAL TOTAL
SHARES AT PAR ACCUMULATED STOCKHOLDER'S
OUTSTANDING VALUE EARNINGS EQUITY
----------- ------- ----------- -------------
NLG NLG NLG
<S> <C> <C> <C> <C>
Balance January 1, 1994......... 451 451,000 1,651,450 2,102,450
Net income...................... -- -- 1,196,333 1,196,333
Dividend paid................... -- -- (800,000) (800,000)
--- ------- ---------- ----------
Balance December 31, 1994....... 451 451,000 2,047,783 2,498,783
Net income...................... -- -- 1,989,962 1,989,962
Dividends paid.................. -- -- (1,742,144) (1,742,144)
--- ------- ---------- ----------
Balance December 31, 1995....... 451 451,000 2,295,601 2,746,601
=== ======= ========== ==========
</TABLE>
F-43
<PAGE>
RUTTER & CO. B.V.
Cash flow data is not required to be prepared under Netherlands GAAP. The
accompanying 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
<PAGE>
THERMEDICS DETECTION INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
On January 25, 1996, Thermedics Detection Inc. (the "Company") acquired the
assets of Moisture Systems Corporation and certain affiliated companies
(collectively, "Moisture Systems"), and the stock of Rutter & Co. B.V.
("Rutter") for a total purchase price of $21,668,000 in cash, which included
the repayment of $700,000 of debt. To finance these acquisitions, the Company
borrowed $21,200,000 from Thermedics Inc. ("Thermedics") pursuant to a
promissory note (the "promissory note") due March 1998, and bearing interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. These acquisitions have been accounted for using
the purchase method of accounting.
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the year ended December 28, 1996, as
if the acquisitions of Moisture Systems and Rutter had occurred on January 1,
1996. Moisture Systems and Rutter's historical statements of income represent
their results for the 25 day period from January 1, 1996 through January 25,
1996, the date of acquisition by the Company. Rutter's historical consolidated
statement of income, which is denominated in Netherlands guilders, has been
translated at the average exchange rate of .5903 for the year ended December
28, 1996. The pro forma statement of income is not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisitions of Moisture Systems and Rutter been made on January 1, 1996. This
statement should be read in conjunction with the accompanying notes and the
respective historical financial statements and related notes of the Company,
Moisture Systems and Rutter appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- --------------------
THERMEDICS MOISTURE
DETECTION SYSTEMS RUTTER ADJUSTMENTS COMBINED
---------- -------- ------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues....................... $43,750 $1,141 $593 $(187) $45,297
------- ------ ---- ----- -------
Costs and Operating Expenses:
Cost of revenues............. 22,150 563 267 (187) 22,793
Selling, general and
administrative expenses..... 15,525 495 168 45 16,233
Research and development
expenses.................... 4,608 -- -- -- 4,608
------- ------ ---- ----- -------
42,283 1,058 435 (142) 43,634
------- ------ ---- ----- -------
Operating Income............... 1,467 83 158 (45) 1,663
Interest Income................ 229 1 1 -- 231
Interest Expense............... (1,119) (18) -- (83) (1,220)
Other Income................... 12 -- 43 -- 55
------- ------ ---- ----- -------
Income Before Provision for
Income Taxes.................. 589 66 202 (128) 729
Provision for Income Taxes..... 227 6 59 (1) 291
------- ------ ---- ----- -------
Net Income..................... $ 362 $ 60 $143 $(127) $ 438
======= ====== ==== ===== =======
Earnings per Share............. $ .04 $ .04
======= =======
Weighted Average Shares........ 10,320 10,320
======= =======
</TABLE>
F-45
<PAGE>
THERMEDICS DETECTION INC.
NOTE TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
NOTE 1--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 28, 1996 (IN THOUSANDS, EXCEPT IN
TEXT)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
REVENUES
Elimination of intercompany sales between Moisture Systems and Rutter......................... $187
----
COST OF REVENUES
Elimination of costs associated with intercompany sales between Moisture Systems and Rutter... (187)
----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Service fee of 1.0% of the revenues of Moisture Systems and Rutter for services provided under
a services agreement between the Company and Thermo Electron................................. 15
Amortization over 40 years of $11,569,000 and $5,757,000 of cost in excess of net assets of
acquired companies created by the acquisitions of Moisture Systems and Rutter, respectively.. 30
----
45
----
INTEREST EXPENSE
Interest expense on the $21,200,000 promissory note issued to Thermedics to finance the
acquisitions of Moisture Systems and Rutter, calculated at an average interest rate of
5.74%........................................................................................ 83
----
PROVISION FOR INCOME TAXES
Income tax benefit associated with the adjustments above (excluding nondeductible amortization
of cost in excess of net assets of acquired companies relating to Rutter), calculated at the
Company's statutory income tax rate of 38%................................................... (45)
Income tax provision associated with the earnings of Moisture Systems Corporation, an S
corporation, calculated at the Company's statutory income tax rate of 38%.................... 44
----
(1)
----
</TABLE>
F-46
<PAGE>
At the upper left of the page is a graphic image depicting the Company's
SecurScan system. To the right of this graphic is a graphic image of the
Company's EGIS system. At the upper right of the page is the following caption:
The Company's EGIS system (below), which is a highly sensitive trace
particle- and vapor-detection system for screening people, baggage, packages,
freight, and electronic equipment for explosives, has an installed base of more
than 200 units in 21 countries, including more than 100 units in airports. The
Company recently introduced a prototype of its new SecurScan system (left) for
screening people for traces of explosives.
Below the image of the SecurScan system is a graphic image depicting a
number of moisture analysis instruments manufactured by the Company's Moisture
Systems division. To the right of this image is the following caption:
Equipment manufactured by the Company's Moisture Systems division (left)
uses near-infrared light absorption technology to measure moisture and other
product constituents in manufacturing processes for the food, pharmaceutical,
chemical and other industries.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any in-
formation or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not con-
stitute an offer of any securities other than those to which it relates or an
offer to sell, or a solicitation of an offer to buy, to any person in any ju-
risdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any cir-
cumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
The Company.............................................................. 19
The Rights Offering...................................................... 20
Selected Financial Information........................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 33
Relationship with Thermo Electron and Thermedics......................... 42
Transactions with Affiliates............................................. 43
Management............................................................... 45
Security Ownership of Certain Beneficial Owners and Management........... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Opinions........................................................... 57
Experts.................................................................. 57
Additional Information................................................... 58
Reports to Security Holders.............................................. 59
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
Until , 1997 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the registered securities, whether or not participat-
ing in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
LOGO
COMMON STOCK
-----------------
PROSPECTUS
, 1997
-----------------
LEHMAN BROTHERS
NATWEST SECURITIES LIMITED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All amounts shown
are estimates except for the Securities and Exchange Commission (the
"Commission") registration fee, the NASD filing fee and the American Stock
Exchange listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration fee................ $ 10,451
NASD filing fee.................................................... 3,949
American Stock Exchange listing fee................................ 37,500
Legal fees and expenses............................................ 20,000
Accounting fees and expenses....................................... 280,000
Blue sky fees and expenses (including legal fees and expenses)..... 10,000
Printing and engraving expenses.................................... 150,000
Transfer agent and subscription agent fees......................... 50,000
Miscellaneous...................................................... 98,100
--------
Total.......................................................... $660,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Massachusetts Business Corporation Law and the Company's Articles of
Organization and By-Laws limit the monetary liability of directors to the
Company and to its stockholders and provide for indemnification of the
Company's officers and directors for liabilities and expenses that they may
incur in such capacities. In general, officers and directors are indemnified
with respect to actions taken in good faith in a manner reasonably believed to
be in, or not opposed to, the best interests of the Company, and with respect
to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. The Company also has
indemnification agreements with its directors and officers that provide for
the maximum indemnification allowed by law. Reference is made to the Company's
Articles of Organization, By-Laws and form of Indemnification Agreement for
Officers and Directors incorporated by reference as Exhibits 3.1, 3.2 and
10.10 hereto, respectively.
Thermo Electron Corporation has an insurance policy which insures the
directors and officers of Thermo Electron and its subsidiaries, including the
Company, against certain liabilities which might be incurred in connection
with the performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March and November 1996, pursuant to Securities Purchase Agreements with
certain investors, the Registrant sold an aggregate of 683,500 shares of
Common Stock for an aggregate gross purchase price of $7,122,625. All of such
investors were accredited investors (as defined in Regulation D) who made
appropriate investment representations. Such sales were made in reliance upon
the exemption from the registration provisions of the Securities Act set forth
in Section 4(2) thereof and Regulation D thereunder relative to sales by an
issuer not involving any public offering.
From December 1990 through December 31, 1996, the Registrant granted options
under its stock-based compensation plans to purchase an aggregate of 218,217
shares of Common Stock at a weighted average exercise price of $10.41 per
share. None of these options have been exercised. Exemption from registration
for these grants is claimed under Section 4(2) of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------------------------------------------------
<C> <S>
1 Form of Standby Underwriting Agreement
2.1 Asset Purchase Agreement dated as of January 25, 1996 among the
Registrant, Moisture Systems Corporation and certain Affiliates
of Moisture Systems Corporation. Pursuant to Item 601(b)(2) of
Regulation S-K, schedules to this Agreement have been omitted.
The Registrant hereby undertakes to furnish supplementally a
copy of such schedules to the Commission upon request.
2.2 Share Purchase Agreement dated as of January 25, 1996 among the
Registrant, Rutter Holding B.V. and certain Affiliates of Rutter
Holding B.V. Pursuant to Item 601(b)(2) of Regulation S-K,
schedules to this Agreement have been omitted. The Registrant
hereby undertakes to furnish supplementally a copy of such
schedules to the Commission upon request.
3.1 Articles of Organization of the Registrant, as amended
3.2 By-Laws of the Registrant
*4.1 Specimen Common Stock Certificate
4.2 Specimen Rights Certificate
5 Opinion of Seth H. Hoogasian, Esq. with respect to the validity
of the securities being offered
10.1 Corporate Services Agreement dated as of March 20, 1996 between
Thermo Electron Corporation ("Thermo Electron") and the
Registrant
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (incorporated by reference herein form
Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 (File No. 1-8002))
10.3 Tax Allocation Agreement dated as of March 20, 1996 between
Thermedics Inc. ("Thermedics") and the Registrant
10.4 Master Repurchase Agreement dated as of March 20, 1996 between
Thermo Electron and the Registrant
10.5 Master Guarantee Reimbursement Agreement dated as of March 20,
1996 among Thermo Electron, Thermedics and the Registrant
10.6 Master Guarantee Reimbursement Agreement dated as of March 20,
1996 between Thermedics and the Registrant
10.7 Equity Incentive Plan of the Registrant
10.8 Deferred Compensation Plan for Directors of the Registrant
10.9 $21.2 Million Principal Amount Promissory Note due March 1998,
issued by the Registrant to Thermedics
10.10 Form of Indemnification Agreement for Officers and Directors
10.11 Stock Purchase Agreement dated as of March 25, 1996 between
David H. Fine and the Registrant
10.12 Stock Purchase Agreement dated as of November 19, 1996 between
Jeffrey J. Langan and the Registrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------------------------------------------------
<C> <S>
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of the
Registrant's parent, Thermo Electron Corporation, and its
subsidiaries, for services rendered to the Registrant or to such
affiliated corporations. Such plans were filed as Exhibits 10.21
- 10.44 to the Annual Report on Form 10-K of Thermo Electron for
the fiscal year ended December 30, 1995 [File No. 1-8002] and as
Exhibits 10.18 - 10.19, 10.22, and 10.48 - 10.49 to the Annual
Report on Form 10-K of Thermedics for the fiscal year ended
December 30, 1995 [File No. 1-9567] and are incorporated herein
by reference.
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Deloitte & Touche Registeraccountants
23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)
24 Power of Attorney (see page II-5 of the Registration Statement)
27 Financial Data Schedule
99.1 Form of Subscription Agency Agreement
*99.2 Instructions as to use of Thermedics Detection Inc. Subscription
Certificates and International Holder Subscription Forms
99.3 International Holder Subscription Form
99.4 Form of Letter to Thermedics Detection stockholders
99.5 Form of Letter to Thermedics stockholders
</TABLE>
- --------
* Filed herewith. All other exhibits previously filed.
(b) FINANCIAL STATEMENT SCHEDULE
The financial Statement Schedule as of September 28, 1996 and the Report of
Independent Public Accountants on such schedule are included in this
Registration Statement. All other schedules are omitted because they are not
applicable or are not required under Regulation S-X.
ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes to provide the underwriters at the
closing specified in the standby underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
(e) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of Regulation S-X at the start of any
delayed offering or throughout a continuous offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHELMSFORD, MASSACHUSETTS, ON THIS 18TH DAY OF FEBRUARY, 1997.
Thermedics Detection Inc.
/s/ Jeffery J. Langan
By:__________________________________
JEFFREY J. LANGAN, CHIEF
EXECUTIVE OFFICERAND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Jeffery J. Langan* Chief Executive
- ------------------------------------ Officer, President February 18,
JEFFREY J. LANGAN and Director 1997
(Principal
Executive Officer)
John N. Hatsopoulos* Vice President,
- ------------------------------------ Chief Financial February 18,
JOHN N. HATSOPOULOS Officer and 1997
Director
Paul F. Kelleher* Chief Accounting
Officer
(Principal Accounting Officer)
- ------------------------------------ February 18,
PAUL F. KELLEHER 1997
John W. Wood Jr.* Chairman of the
- ------------------------------------ Board and Director February 18,
JOHN W. WOOD JR. 1997
February ,
- ------------------------------------ Director 1997
MORTON COLLINS
/s/ Jonathan W. Painter
*By: _______________________________
JONATHAN W. PAINTER
ATTORNEY-IN-FACT
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Thermedics Detection Inc. included in
Thermedics Detection Inc.'s Form S-1 and have issued our report thereon dated
February 3, 1997. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. Thermedics
Detection Inc.'s Schedule of Valuation and Qualifying Accounts, included in
Schedule II on page S-2, is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
S-1
<PAGE>
SCHEDULE II
THERMEDICS DETECTION INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING CHARGED TO ACCOUNTS ACCOUNTS AT END
DESCRIPTION OF PERIOD EXPENSE OTHER (A) RECOVERED WRITTEN OFF OF PERIOD
- ----------- ---------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Allowance for Doubtful
Accounts.............. $431 $128 $ -- $ -- $ (12) $547
YEAR ENDED DECEMBER 30,
1995
Allowance for Doubtful
Accounts.............. $547 $ 98 $ -- $ -- $(129) $516
YEAR ENDED DECEMBER 28,
1996
Allowance for Doubtful
Accounts.............. $516 $582 $122 $167 $(172) $1,215
</TABLE>
- --------
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements included elsewhere in this
Prospectus and foreign currency translation adjustment.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
----------- --------------------------------------------------------- ----
<C> <S> <C>
1 Form of Standby Underwriting Agreement
2.1 Asset Purchase Agreement dated as of January 25, 1996
among the Registrant, Moisture Systems Corporation and
certain Affiliates of Moisture Systems Corporation.
Pursuant to Item 601(b)(2) of Regulation S-K, schedules
to this Agreement have been omitted. The Registrant
hereby undertakes to furnish supplementally a copy of
such schedules to the Commission upon request.
2.2 Share Purchase Agreement dated as of January 25, 1996
among the Registrant, Rutter Holding B.V. and certain
Affiliates of Rutter Holding B.V. Pursuant to Item
601(b)(2) of Regulation S-K, schedules to this Agreement
have been omitted. The Registrant hereby undertakes to
furnish supplementally a copy of such schedules to the
Commission upon request.
3.1 Articles of Organization of the Registrant, as amended
3.2 By-Laws of the Registrant
*4.1 Specimen Common Stock Certificate
4.2 Specimen Rights Certificate
5 Opinion of Seth H. Hoogasian, Esq. with respect to the
validity of the securities being offered
10.1 Corporate Services Agreement dated as of March 20, 1996
between Thermo Electron Corporation ("Thermo Electron")
and the Registrant
10.2 Thermo Electron Corporate Charter, as amended and
restated effective January 3, 1993 (incorporated by
reference herein form Exhibit 10.1 to Thermo Electron's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 (File No. 1-8002))
10.3 Tax Allocation Agreement dated as of March 20, 1996
between Thermedics Inc. ("Thermedics") and the Registrant
10.4 Master Repurchase Agreement dated as of March 20, 1996
between Thermo Electron and the Registrant
10.5 Master Guarantee Reimbursement Agreement dated as of
March 20, 1996 among Thermo Electron, Thermedics and the
Registrant
10.6 Master Guarantee Reimbursement Agreement dated as of
March 20, 1996 between Thermedics and the Registrant
10.7 Equity Incentive Plan of the Registrant
10.8 Deferred Compensation Plan for Directors of the
Registrant
10.9 $21.2 Million Principal Amount Promissory Note due March
1998, issued by the Registrant to Thermedics
10.10 Form of Indemnification Agreement for Officers and
Directors
10.11 Stock Purchase Agreement dated as of March 25, 1996
between David H. Fine and the Registrant
10.12 Stock Purchase Agreement dated as of November 19, 1996
between Jeffrey J. Langan and the Registrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
----------- --------------------------------------------------------- ----
<C> <S> <C>
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may
be granted awards under stock-based compensation plans of
the Registrant's parent, Thermo Electron Corporation, and
its subsidiaries, for services rendered to the Registrant
or to such affiliated corporations. Such plans were filed
as Exhibits 10.21 - 10.44 to the Annual Report on Form
10-K of Thermo Electron for the fiscal year ended
December 30, 1995 [File No. 1-8002] and as Exhibits 10.18
- 10.19, 10.22, and 10.48 - 10.49 to the Annual Report on
Form 10-K of Thermedics for the fiscal year ended
December 30, 1995 [File No. 1-9567] and are incorporated
herein by reference.
11 Computation of Earnings per Share
21 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Deloitte & Touche Registeraccountants
23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit
5)
24 Power of Attorney (see page II-5 of the Registration
Statement)
27 Financial Data Schedule
99.1 Form of Subscription Agency Agreement
*99.2 Instructions as to use of Thermedics Detection Inc.
Subscription Certificates and International Holder
Subscription Forms
99.3 International Holder Subscription Form
99.4 Form of Letter to Thermedics Detection stockholders
99.5 Form of Letter to Thermedics stockholders
</TABLE>
- --------
* Filed herewith. All other exhibits previously filed.
<PAGE>
Exhibit 4.1
[FRONT OF STOCK CERTIFICATE]
THERMEDICS DETECTION INC.
TDX
COMMON STOCK PAR Incorporated under the laws of the COMMON STOCK
PAR VALUE $.10 Commonwealth of Massachusetts CUSIP 88355E 10 5
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.10 PAR VALUE, OF
THERMEDICS DETECTION INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. The Certificate and the shares represented hereby are issued under and
shall be subject to the laws of the Commonwealth of Massachusetts and all the
provisions of the Articles of Organization and the By-Laws of the Corporation,
and all the amendments from time to time made thereto. This Certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[ THERMEDICS DETECTION INC. ]
[ Corporate Seal ]
Treasurer President and Chief Executive Officer
<PAGE>
[BACK OF STOCK CERTIFICATE]
THERMEDICS DETECTION INC.
This Corporation will furnish without charge to each stockholder who so
requests, a copy of the designations, powers, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof, and the qualifications, limitation or restrictions of such preferences
and/or rights. Any such requests may be addressed to the Clerk of the
Corporation.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entirety
JT TEN - as joint tenants with right of
survivorship and not as
tenants in common
UNIF GIFT MIN ACT - __________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
_____________________________________________________________________________
_________________________________________________________ Shares of the Stock
represented by the within Certificate, and do hereby irrevocably constitute
and appoint _________________________________________________________________
_____________________________________________________________________________
Attorney to transfer the said Stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated _______________________________ _________________________________
Signature
___________________________________
THE SIGNATURES TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermedics Detection Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated February 3, 1997 (and to all references to our Firm) included in
or made a part of this Registration Statement and related Prospectus of
Thermedics Detection Inc.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moisture Systems Corporation and Moisture Systems Limited:
As independent public accountants, we hereby consent to the use of our
report dated February 3, 1997 (and to all references to our Firm) included in
or made a part of this Registration Statement and related Prospectus of
Thermedics Detection Inc.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-19199 of Thermedics Detection Inc. on Form S-1 of our report dated January
29, 1997 (relating to the consolidated financial statements of Rutter & Co.
B.V. for the period from January 25, 1996 to December 28, 1996, not presented
separately herein) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the use in this Amendment No. 2 to Registration Statement
No. 333-19199 of Thermedics Detection Inc. on Form S-1 of our report dated
March 13, 1996 (except for the disclosures included in the supplementary
information under the caption "United States Generally Accepted Accounting
Principles (U.S. GAAP)" which is as of December 20, 1996) relating to the
consolidated financial statements of Rutter & Co. B.V. for the two years ended
December 31, 1995 appearing in this Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche Registeraccountants
Almelo, The Netherlands
February 17, 1997
<PAGE> EXHIBIT 99.2
INSTRUCTIONS AS TO USE OF THERMEDICS DETECTION INC.
SUBSCRIPTION CERTIFICATES
AND
INTERNATIONAL HOLDER SUBSCRIPTION FORMS
----------------
CONSULT THE SUBSCRIPTION AGENT, YOUR BANK OR BROKER
AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Thermedics Detection Inc., a Massachusetts corporation (the
"Company"), to the holders of its Common Stock, par value $.10 per share (the
"Thermedics Detection Common Stock"), as described in the Company's Prospectus
dated February 21, 1997 (the "Prospectus"). Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Prospectus.
Holders of record of Thermedics Detection Common Stock at the close of
business on February 6, 1997 (the "Thermedics Detection Record Date") are
receiving 0.366 subscription rights (the "Rights") for each share of
Thermedics Detection Common Stock held by them on the Thermedics Detection
Record Date. Thermedics Inc. ("Thermedics"), as a holder of record of
Thermedics Detection Common Stock, is redistributing the Rights received by it
to the holders of its Common Stock, par value $.05 per share (the "Thermedics
Common Stock"). Holders of record of Thermedics Common Stock are receiving
0.10 Rights for each share of Thermedics Common Stock held by them on February
21, 1997 (the "Thermedics Record Date"). An aggregate of approximately
1,900,000 Rights exercisable to purchase an aggregate of approximately
1,900,000 shares of Thermedics Detection Common Stock (the "Underlying
Shares") are being distributed in connection with the Rights Offering. Each
Right is exercisable, upon payment of $ in cash (the "Subscription Price"),
to purchase one share of Thermedics Detection Common Stock (the "Basic
Subscription Privilege"). In addition, subject to the allocation described
below, each Right also carries the right to subscribe at the Subscription
Price for an unlimited number of additional shares of Thermedics Detection
Common Stock (the "Oversubscription Privilege"). Underlying Shares will be
available for purchase pursuant to the Oversubscription Privilege only to the
extent that all the Underlying Shares are not subscribed for through the
exercise of the Basic Subscription Privilege by the Expiration Date (as
defined below). If the Underlying Shares so available are not sufficient to
satisfy all subscriptions pursuant to the Oversubscription Privilege, the
available Underlying Shares will be allocated pro rata (subject to the
elimination of fractional shares) among the holders of Rights who exercise the
Oversubscription Privilege in proportion, not to the number of shares
requested pursuant to the Oversubscription Privilege, but to the number of
shares they have purchased pursuant to the Basic Subscription Privilege;
provided, however, that if such pro rata allocation results in any holder
being allocated a greater number of Excess Shares than such holder subscribed
for pursuant to the exercise of such holder's Oversubscription Privilege, then
such holder will be allocated only such number of Excess Shares as such holder
subscribed for and the remaining Excess Shares will be allocated among all
other holders exercising Oversubscription Privileges. See "The Rights
Offering" in the Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed by the Company and Thermedics has been rounded up
to the nearest whole number in order to avoid issuing fractional Rights.
The Rights will expire at 5:00 p.m., Eastern time, on March 19, 1997 (the
"Expiration Date"). The Rights have been listed for trading on the American
Stock Exchange.
The number of rights to which you are entitled is printed on the face of
your subscription certificate. You should indicate your wishes with regard to
the exercise or sale of your Rights by completing the appropriate form or
forms on the back of your subscription certificate and returning the
certificate to the Subscription Agent in the envelope provided. If you are
located outside of the United States or have an APO or FPO address, you have
not been provided with a subscription certificate, but have received an
International Holder Subscription Form (unless you are located in the United
Kingdom). You should indicate your wishes with regard to the
<PAGE>
exercise or sale of your Rights by completing the International Holder
Subscription Form and returning it to the Subscription Agent by mail or by
telecopy at the address and telecopier number provided below. Holders located
in the United Kingdom who are interested in participating in the Rights
Offering should contact Lehman Brothers International (Europe), One Broadgate,
London, England, EC2M 7HA, telephone 44-1-71-260-2793, telecopier 44-1-71-260-
2635, attention: Mr. Adrian Norman.
YOUR SUBSCRIPTION CERTIFICATE OR INTERNATIONAL HOLDER SUBSCRIPTION FORM MUST
BE RECEIVED BY THE SUBSCRIPTION AGENT, OR GUARANTEED DELIVERY REQUIREMENTS
WITH RESPECT TO YOUR SUBSCRIPTION CERTIFICATE MUST BE COMPLIED WITH AND
PAYMENT OF THE SUBSCRIPTION PRICE, INCLUDING FINAL CLEARANCE OF ANY CHECKS,
MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR BEFORE 5:00 P.M., EASTERN
TIME, ON THE EXPIRATION DATE. YOU MAY NOT REVOKE ANY EXERCISE OF A RIGHT.
THE ISSUANCE OF SHARES UPON THE EXERCISE OF RIGHTS IS CONDITIONED UPON THE
SALE OF AT LEAST 1,000,000 SHARES OF THERMEDICS DETECTION COMMON STOCK IN THE
RIGHTS OFFERING OR TO THE STANDBY UNDERWRITERS DESCRIBED IN THE PROSPECTUS. IF
AT LEAST 1,000,000 SHARES ARE NOT SOLD, THE SUBSCRIPTION PRICE WILL BE
RETURNED TO YOU WITHOUT INTEREST OR DEDUCTION.
1. SUBSCRIPTION PRIVILEGE.
To exercise Rights, complete Form 1 of the subscription certificate and send
your properly completed and executed subscription certificate or, for holders
outside the United States or with APO or FPO addresses, an International
Holder Subscription Form, together with payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, to the Subscription
Agent. An International Holder Subscription Form, but not a subscription
certificate, may be sent by telecopy to the Subscription Agent at the number
provided below. Payment of the Subscription Price must be made in U.S. dollars
for the full number of Underlying Shares being subscribed for (a) by check or
bank draft drawn upon a U.S. bank or postal, telegraphic or express money
order payable to American Stock Transfer & Trust Company as Subscription
Agent, or (b) by wire transfer of same day funds to the account maintained by
the Subscription Agent for such purpose at The Chase Manhattan Bank, 55 Water
Street, New York, New York 10041, Account No. 323294723, ABA No. 021 000 021.
Any wire transfer of funds should clearly indicate the identity of the
subscriber who is paying the Subscription Price by the wire transfer. The
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) the clearance of any uncertified check, (ii) the receipt
by the Subscription Agent of any certified check or bank draft drawn upon a
U.S. bank or any postal, telegraphic or express money order or (iii) the
receipt of good funds in the Subscription Agent's account designated above. If
paying by uncertified personal check, please note that the funds paid thereby
may take up to five business days to clear. Accordingly, holders of Rights who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to
consider payment by means of certified or cashier's check, money order or wire
transfer of funds. You may also transfer your subscription certificate to your
bank or broker in accordance with the procedures specified in Section 3(a)
below, by making arrangements with such bank or broker for the delivery of
funds on your behalf and requesting such bank or broker to exercise the
subscription certificate on your behalf. Alternatively, you may cause a
written guarantee substantially in the form of EXHIBIT A to these instructions
(the "Notice of Guaranteed Delivery") from a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or from a commercial bank or trust company having an
office or correspondent in the United States (each of the foregoing being an
"Eligible Institution"), to be received by the Subscription Agent at or prior
to the Expiration Date together with payment in full of the applicable
Subscription Price. Such Notice of Guaranteed Delivery must state your name,
the number of Rights represented by your subscription certificate and the
number of Rights being exercised pursuant to the Basic Subscription Privilege
and the number of
2
<PAGE>
Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and will guarantee the delivery to the
Subscription Agent of your properly completed and executed subscription
certificate within three American Stock Exchange trading days following the
date of the Notice of Guaranteed Delivery. If this procedure is followed, your
subscription certificate must be received by the Subscription Agent within
three American Stock Exchange trading days following the date of the Notice of
Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery
may be obtained upon request from the Subscription Agent at the address, or by
calling the telephone number, indicated below.
Banks, brokers and other nominee holders of Rights who exercise Rights and
the Oversubscription Privilege on behalf of beneficial owners of Rights will
be required to certify to the Subscription Agent and the Company, in
connection with the exercise of the Oversubscription Privilege, as to the
aggregate number of Rights that have been exercised and the number of shares
that are being subscribed for pursuant to the Oversubscription Privilege, by
each beneficial owner of Rights on whose behalf such nominee holder is acting.
If more Underlying Shares are subscribed for pursuant to the Oversubscription
Privilege than are available for sale, Underlying Shares will be allocated, as
described above, among persons exercising the Oversubscription Privilege in
proportion to such persons' exercise of the Rights pursuant to the Basic
Subscription Privilege.
The address, telephone and telecopier numbers of the Subscription Agent are
as follows:
If By Mail: If By Hand:
American Stock Transfer & Trust American Stock Transfer & Trust
Company 40 Wall Street New York, New Company 40 Wall Street, 46th Floor New
York 10005 York, New York 10005
If By Overnight Courier or Telecopier:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone and Telecopier Numbers:
Telephone: 718-921-8200
Telecopier: 718-234-5001
If you exercise less than all of the Rights evidenced by your subscription
certificate by so indicating in Form 1 of your subscription certificate, the
Subscription Agent will issue you a new subscription certificate evidencing
the unexercised Rights or, if you so indicate in Form 3 of your subscription
certificate, will endeavor to sell such unexercised Rights for you. However,
if you choose to have a new subscription certificate sent to you, you may not
receive such new subscription certificate in sufficient time to permit you to
sell or exercise the Rights evidence thereby. International holders or holders
with APO or FPO addresses who exercise less than all of their Rights will not
receive a subscription certificate evidencing their remaining Rights. If you
have not indicated the number of Rights being exercised, or if you have not
forwarded full payment of the Subscription Price for the number of Rights that
you have indicated are being exercised, you will be deemed to have exercised
the Basic Subscription Privilege with respect to the maximum number of whole
Rights which may be exercised for the Subscription Price payment delivered by
you and, to the extent that the Subscription Price payment delivered by you
exceeds the product of the Subscription Price multiplied by the number of
Rights evidenced by the subscription certificate or International Holder
Subscription Form delivered by you (such excess being the "Subscription
Excess"), you will be deemed to have exercised your Oversubscription Privilege
to purchase, to the extent available, that number of whole shares of
Thermedics Detection Common Stock equal to the quotient obtained by dividing
the Subscription Excess by the Subscription Price.
3
<PAGE>
2. DELIVERY OF STOCK CERTIFICATES, ETC.
The issuance of shares of Thermedics Detection Common Stock purchased upon
the exercise of Rights is conditioned upon the sale of at least 1,000,000
shares of Thermedics Detection Common Stock in the Rights Offering or to the
Standby Underwriters (the "Closing Condition"). If the Closing Condition is
satisfied, it is anticipated that the closing of the sale of shares issuable
upon exercise of the Rights (the "Closing") will occur on or about the fourth
business day following the Expiration Date. The date upon which the Closing
occurs is referred to herein as the "Closing Date." If the Closing Condition
is not satisfied, the Subscription Agent shall mail to you the aggregate
Subscription Price delivered by you for the exercise of Rights, without
interest or deduction, as soon as practicable after a determination has been
made that the Closing will not occur. If the Closing occurs, the following
deliveries and payments will be made to the address shown on the face of your
subscription certificate or, in the case of international holders or holders
with APO or FPO addresses, the address shown on the records of the Company or
Thermedics, as the case may be, unless, in the case of domestic holders, you
provide instructions to the contrary on Form 4 of your subscription
certificate.
(a) Basic Subscription Privilege and Oversubscription Privilege. As soon as
practicable after the Closing Date, the Subscription Agent will mail to each
exercising Rights holder certificates representing shares of Thermedics
Detection Common Stock purchased pursuant to the Subscription Privilege and
the Oversubscription Privilege.
(b) Cash Payments. As soon as practicable after the Closing Date, the
Subscription Agent will mail to each Rights holder who exercises the
Oversubscription Privilege any excess funds received in payment of the
Subscription Price for Underlying Shares that are subscribed for by such
Rights holder but not allocated to such Rights holder pursuant to the
Oversubscription Privilege.
Promptly following any sale of Rights through the Subscription Agent and
receipt of the proceeds therefrom, the Subscription Agent will mail a check
for any Rights sold to the holder of such Rights, less applicable commissions
and other costs of sale.
3. SALE OR TRANSFER OF RIGHTS.
(a) Sale of Rights through a Bank or Broker. To sell all Rights evidenced by
a subscription certificate through your bank or broker, so indicate on Form 2
and deliver your properly completed and executed subscription certificate to
your bank or broker. Your subscription certificate should be delivered to your
bank or broker in ample time for it to be exercised. If Form 2 is completed
without designating a transferee, the Subscription Agent may thereafter treat
the bearer of the subscription certificate as the absolute owner of all of the
Rights evidenced by such subscription certificate for all purposes, and the
Subscription Agent shall not be affected by any notice to the contrary.
Because your bank or broker cannot issue subscription certificates, if you
wish to sell less than all of the Rights evidenced by the subscription
certificate, either you or your bank or broker must instruct the Subscription
Agent as to the action to be taken with respect to the Rights not sold, or you
or your bank or broker must first have your subscription certificate divided
into subscription certificates of appropriate denominations by following the
instructions in paragraph 4 of these instructions. The subscription
certificates evidencing the number of Rights you intend to sell can then be
transferred by your bank or broker in accordance with the instructions in this
paragraph 3(a). International Holder Subscription Forms may not be used to
sell, transfer or subdivide Rights except to instruct the Subscription Agent
to sell the Rights as described in paragraph 3(c).
(b) Transfer of Rights to a Designated Transferee. To transfer all of your
Rights to a transferee other than a bank or broker, you must complete Form 2
in its entirety, execute the subscription certificate and have your signature
guaranteed by an Eligible Institution. A subscription certificate that has
been properly transferred in its entirety may be exercised by a new holder
without having a new subscription certificate issued. Because only the
Subscription Agent can issue subscription certificates, if you wish to
transfer less than all of the Rights evidenced by your subscription
certificate to a designated transferee, you must instruct the Subscription
Agent as
4
<PAGE>
to the action to be taken with respect to the Rights not sold or transferred,
or you must divide your subscription certificate into subscription
certificates of appropriate smaller denominations by following the
instructions in paragraph 4 of these instructions. The subscription
certificate evidencing the number of Rights you intend to transfer can then be
transferred by following the instructions in this paragraph 3(b).
(c) Sale of Rights through Subscription Agent. To sell some or all of the
Rights evidenced by your subscription certificate through the Subscription
Agent, you much check Form 3 and sign in the space marked "Signature of
Holder(s)" and deliver the subscription certificate to the Subscription Agent
or complete and deliver (by telecopy if desirable) an International Holder
Subscription Form to the Subscription Agent. If proceeds from the sale of your
Rights are to be paid or delivered to any person other than the person in
whose name the subscription certificate was issued, you must complete Form 4
and your signature must be guaranteed by an eligible guarantor institution
which is a participant in the securities transfer association recognized
program (otherwise known as the Medallion Signature Guarantee Program). ANY
SIGNATURE GUARANTEE NOT MADE IN ACCORDANCE WITH THE MEDALLION SIGNATURE
GUARANTEE PROGRAM WILL NOT BE ACCEPTED BY THE SUBSCRIPTION AGENT. Proceeds
from the sale of Rights sold pursuant to an instruction contained on an
International Holder Subscription Form may only be paid and delivered to the
record holder of the Thermedics Detection Common Stock or Thermedics Common
Stock, as the case may be, as to which such Rights were issued. Your
subscription certificate or International Holder Subscription Form should be
delivered to the Subscription Agent in ample time for it to be sold and
exercised, but in no event later than 11:00 a.m., Eastern time, on March 13,
1997. The Subscription Agent's obligation to execute orders is subject to its
ability to find buyers at a price that will result in net proceeds to the
holder. If you wish to sell less than all of your Rights, you or your bank or
broker must instruct the Subscription Agent as to the action to be taken with
respect to the Rights not sold. Promptly following any sale of your Rights
through the Subscription Agent and its receipt of the proceeds of sale, the
Subscription Agent will send you, or your designee, a check for the net
proceeds of such sale as described in the Prospectus. If you wish to sell your
Rights through the Subscription Agent, you should complete the Substitute Form
W-9 referred to in paragraph 8 below.
(d) Automatic Sale of Rights for International Holders. If the Subscription
Agent has not received instructions from international holders prior to 11:00
a.m., Eastern time, on March 13, 1997, it will sell the Rights held by such
holders, if feasible, and remit the proceeds to them. The Subscription Agent's
obligation to sell the Rights is subject to its ability to find buyers at a
price that will result in net proceeds to the holder.
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
Send your subscription certificate, together with complete separate
instructions (including specification of the denominations into which you wish
your Rights to be divided) signed by you, to the Subscription Agent, allowing
a sufficient time for new subscription certificates to be issued and returned
so that they can be used prior to the Expiration Date. Alternatively, you may
ask a bank or broker to effect such actions on your behalf. Your signature
must be guaranteed by an Eligible Institution if any of the new subscription
certificates are to be issued in a name other than that in which the old
subscription certificate was issued. Subscription certificates may not be
divided into fractional Rights, and any instruction to do so will be rejected.
As a result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new subscription certificates in time to enable the Rights holder to complete
a sale or exercise by the Expiration Date. Neither the Company nor the
Subscription Agent will be liable to either a transferor or transferee for any
such delays.
5. EXECUTION
(a) Execution by Registered Holder. The signature on the subscription
certificate or the International Holder Subscription Form must correspond with
the name of the registered holder exactly as it appears on the face of the
subscription certificate or, in the case of international holders or holders
with APO or FPO addresses, the name of the registered holder as shown on the
records of the Company or Thermedics, as the case may be,
5
<PAGE>
without any alteration or change whatsoever. Persons who sign the subscription
certificate or the International Holder Subscription Form in a representative
or other fiduciary capacity must indicate their capacity when signing and,
unless waived by the Subscription Agent in its sole and absolute discretion,
must present to the Subscription Agent satisfactory evidence of their
authority to so act.
(b) Execution by Person Other than Registered Holder. If the subscription
certificate or the International Holder Subscription Form is executed by a
person other than the holder named on the face of the subscription certificate
or shown on the records of the Company or Thermedics, as the case may be,
proper evidence of authority of the person executing the subscription
certificate or the International Holder Subscription Form must accompany the
same unless, for good cause, the Subscription Agent dispenses with proof of
authority.
(c) Signature Guarantees. Your signature must be guaranteed by an Eligible
Institution if you wish to transfer your Rights, as specified in paragraph
3(b) above, to a transferee other than a bank or broker, or if you specify
special payment or delivery instructions pursuant to Form 4.
6. METHOD OF DELIVERY.
The method of delivery of subscription certificates or International Holder
Subscription Forms and payment of the Subscription Price to the Subscription
Agent will be at the election and risk of the Rights holder, but, if sent by
mail, it is recommended that they be sent by registered mail, properly
insured, with return receipt requested, and that a sufficient number of days
be allowed to ensure delivery to the Subscription Agent and the clearance of
any checks sent in payment of the Subscription Price prior to 5:00 p.m.,
Eastern time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), exercises of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected by
instructing DTC to transfer Rights (such Rights being "DTC Exercised Rights")
from the DTC account of such holder to the DTC account of the Subscription
Agent, together with payment of the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic Subscription Privilege. The
Oversubscription Privilege in respect of DTC Exercised Rights may not be
exercised through DTC. The holder of a DTC Exercised Right may exercise the
Oversubscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
Eastern time, on the Expiration Date, a DTC Participant Oversubscription
Exercise Form, in the form available from the Subscription Agent, together
with payment of the appropriate Subscription Price for the number of
Underlying Shares for which the Oversubscription Privilege is to be exercised.
If a Notice of Guaranteed Delivery relates to Rights with respect to which
exercise of the Basic Subscription Privilege will be made through DTC and such
Notice of Guaranteed Delivery also relates to the exercise of the
Oversubscription Privilege, a DTC Participant Oversubscription Exercise Form
must also be received by the Subscription Agent in respect of such exercise of
the Oversubscription Privilege on or prior to the Expiration Date.
8. SUBSTITUTE FORM W-9.
Each Rights holder who elects either to exercise Rights or to have the
Subscription Agent endeavor to sell such holder's Rights should provide the
Subscription Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is included as EXHIBIT B hereto. Additional copies
of Substitute Form W-9 may be obtained upon request from the Subscription
Agent at the address or by calling the telephone number indicated above.
Failure to provide the information on the form may subject such holder to 31%
federal income tax withholding with respect to (i) dividends that may be paid
by the Company on shares of Thermedics Detection Common Stock purchased upon
the exercise of Rights (for those holders exercising Rights), or (ii) funds to
be remitted in respect of Rights sold by the Subscription Agent (for those
holders electing to have the Subscription Agent sell their Rights).
6
<PAGE>
EXHIBIT A
TO INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION CERTIFICATES
ISSUED BY
THERMEDICS DETECTION INC.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated
February 21, 1997 (the "Prospectus") of Thermedics Detection Inc., a
Massachusetts corporation (the "Company"), if a holder of Rights cannot
deliver the subscription certificate(s) evidencing the Rights (the
"Subscription Certificate(s)"), to the Subscription Agent listed below (the
"Subscription Agent") at or prior to 5:00 p.m., Eastern time, on March 19,
1997 (the "Expiration Date"). Such form must be delivered by hand or sent by
facsimile transmission or mailed to the Subscription Agent, and must be
received by the Subscription Agent on or prior to the Expiration Date. See
"The Rights Offering" in the Prospectus. Payment of the Subscription Price of
$ per share for each share of Thermedics Detection Common Stock subscribed
for upon exercise of such Rights must be received by the Subscription Agent in
the manner specified in the Prospectus at or prior to 5:00 p.m., Eastern time,
on the Expiration Date even if the Subscription Certificate evidencing such
Rights is being delivered pursuant to the procedure for guaranteed delivery
thereof.
The Subscription Agent is:
American Stock Transfer & Trust Company
General Information:
1-718-921-8200
By Mail: Facsimile Transmission: By Hand:
American Stock Transfer & 1-718-234-5001 American Stock Transfer &
Trust Company 40 Wall Street Trust Company 40 Wall Street
New York, New York 10005 46th Floor New York, New York
10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States,
guarantees that the undersigned will deliver to the Subscription Agent the
certificate representing the Rights being exercised hereby, with any required
signature guarantee and any other required documents, all within three
American Stock Exchange trading days after the date hereof.
Dated: ________________, 1997
(Name of Firm)
(Address) (Authorized Signature)
(Area Code and Telephone
Number)
A-1
<PAGE>
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the Subscription Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the holder of
Subscription Certificate(s) representing Rights and that such Subscription
Certificate(s) cannot be delivered to the Subscription Agent at or before 5:00
p.m., Eastern time, on the Expiration Date. Upon the terms and subject to the
conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to exercise (i) the Basic
Subscription Privilege to subscribe for one share of Thermedics Detection
Common Stock per Right with respect to each of Rights represented by such
Subscription Certificate and (ii) the Oversubscription Privilege relating to
such Rights to subscribe, to the extent that Excess Shares (as defined in the
Prospectus) are available therefor, for an aggregate of up to Excess
Shares. The undersigned understands that payment of the Subscription Price of
$ per share for each share of Thermedics Detection Common Stock subscribed
for pursuant to the Basic Subscription Privilege and the Oversubscription
Privilege must be received by the Subscription Agent at or before 5:00 p.m.,
Eastern time, on the Expiration Date and represents that such payment, in the
aggregate amount of $ , either (check appropriate box):
[_] is being delivered to the Subscription Agent herewith
or
[_] has been delivered separately to the Subscription Agent;
and is or was delivered in the manner set forth below (check appropriate box
and complete information relating thereto):
[_] wire transfer of funds
--name of transferor institution ............................
--date of transfer ..........................................
--confirmation number (if available) ........................
[_] uncertified check (Payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date.)
[_] certified check
[_] bank draft (cashier's check)
[_] money order
--name of maker .............................................
--date of check, draft or money order .......................
--check, draft or money order number ........................
--bank on which check is drawn or issuer of money order .....
Signature(s) ..........................
Address .............................
.....................................
....................................... .....................................
Name(s) ...............................
....................................... Area Code and Tel. No(s). ......
....................................... .....................................
(Please type or print)
Subscription Certificate No(s). (if available) ................................
A-2
<PAGE>
EXHIBIT B
TO INSTRUCTIONS
IMPORTANT TAX INFORMATION
Under the federal income tax law, (i) dividend payments that may be made by
the Company on shares of Thermedics Detection Common Stock issued upon the
exercise of Rights, and (ii) payments that may be remitted by the Subscription
Agent to Rights holders in respect of Rights sold on such holders' behalf by
the Subscription Agent, may be subject to backup withholding, and each Rights
holder who either exercises Rights or requests the Subscription Agent to sell
Rights should provide the Subscription Agent (as the Company's agent, in
respect of exercised Rights, and as payer with respect to Rights sold by the
Subscription Agent) with such Rights holder's correct taxpayer identification
number on Substitute Form W-9 below. If such Rights holder is an individual,
the taxpayer identification number is his social security number. If the
Subscription Agent, which is also the transfer agent for the Company, is not
provided with the correct taxpayer identification number in connection with
such payments, the Rights holder may be subject to a $50 penalty imposed by
the Internal Revenue Service.
Certain Rights holders (including, among others, all corporations and
certain foreign individuals) are exempt from these backup withholding and
reporting requirements. In general, in order for a foreign individual to
qualify as an exempt recipient, that Rights holder must submit a statement,
signed under the penalties of perjury, attesting to that individual's exempt
status. Such statements can be obtained from the Subscription Agent. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company or the Subscription Agent, as the
case may be, will be required to withhold 31 percent of any such payments made
to the Rights holder. Backup withholding is not an additional tax. Rather, the
amount of backup withholding is treated, like other withheld amounts, as an
advance payment of the person's tax liability. If withholding results in an
overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the Rights holder is required to notify the
Subscription Agent of his correct taxpayer identification number by completing
the form below certifying that the taxpayer identification number provided on
Substitute Form W-9 is correct (or that such Rights holder is awaiting a
taxpayer identification number).
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights holder is required to give the Subscription Agent the social
security number or employer identification number of the record owner of the
Rights. If the Rights are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on
which number to report.
B-1
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--TAXPAYER IDENTIFICATION NO. __________ PART II--For
Payees Exempt
FORM W-9 from Backup
DEPARTMENT OF THE ---------------------------------------------- Withholding (see
TREASURY INTERNAL enclosed Guidelines)
REVENUE SERVICE Enter your tax- ____________________
payer identifica- Social Security No.
tion number in the OR
appropriate box.
PAYER'S REQUEST FOR For most individu-
TAXPAYER als, this is your
IDENTIFICATION social security
NUMBER (TIN) number. If you do
not have a number,
see Obtaining a
Number in the en-
closed Guidelines.
Note: If the ____________________
account is in more Employer
than one name, see Identification
the chart on page Number
2 of the enclosed
Guidelines to
determine what
number to give.
- ----------------------------------------------------------------------------------------------
Certification--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I am exempt from
backup withholding, I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out item (2)
SIGNATURE: ________________________________ DATE: __________, 1997
- -----------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
</TABLE>
B-2
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens,
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen, i.e., 00-000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
GIVE THE NAME
GIVE THE NAME AND AND EMPLOYER
FOR THIS TYPE OF SOCIAL SECURITY IDENTIFICATION
ACCOUNT: NUMBER OF FOR THIS TYPE OF ACCOUNT: NUMBER OF
- ----------------------------------------------- -----------------------------------------------
<S> <C> <S> <C>
1. Individual The individual 7. Corporation The corporation
2. Two or more The actual owner of 8. Association, club, The organization
individuals (joint the account, if religious, charitable,
account) combined funds, the educational or other
first individual on exempt organization
the account (1) 9. Partnership The partnership
3. Custodian account The minor (2) 10. A broker or registered The broker or
of a minor (Uniform nominee nominee
Gift to Minors Act) 11. Account with the The public
4. a. The usual The grantor-trustee (1) Department of Agriculture entity
revocable savings in the name of a public
trust (grantor is entity (such as a State
also trustee) or local government,
b. The so-called The actual owner (1) school district, or
trust account that prison) that receives
is not a legal or agricultural program
valid trust under payments.
State law. --------------------------------------------
5. Sole The owner (3)
Proprietorship
6. A valid trust, Legal entity (do not
estate or pension furnish the
trust identification number
of the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title)(4)
- -----------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your Social Security
Number or your Employer Identification Number.
(4) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
B-3
<PAGE>
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are exempt from backup withholding. For interest and dividends,
the following payees are exempt:
. A corporation.
. An organization exempt from tax under section 501(a), or an individual
retirement account, or a custodial account under section 403(b)(7).
. The United States or any of its agencies and instrumentalities.
. A State, the District of Columbia, a possession of the United States or
any of their political subdivisions or instrumentalities.
. A foreign government or any of its political subdivisions, agencies or
instrumentalities.
. An international organization or any of its agencies or instrumentalities.
. A foreign central bank of issue.
. A dealer in securities or commodities required to register in the United
States or a possession of the United States.
. A real estate investment trust.
. An entity registered at all times under the Investment Company Act of
1940.
. A common trust fund operated by a bank under section 584(a).
. A financial institution.
. A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
. An exempt charitable remainder trust, or a trust described in section
4947.
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to non-resident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one non-resident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: you may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the taxpayer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE
THE FORM AND RETURN IT TO THE PAYER.
Payments not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under section 6041, 6041A, 6042,
6044, 6045, 6049, 6050A and 6050N and the regulations thereto.
PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividends, interest, or other
payments to give taxpayer identification numbers to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes and
to help verify the accuracy of your tax return. Payers must be given the
numbers whether or not recipients are required to file tax returns. Payers
must generally withhold 31% of taxable interest, dividends, and other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1)PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to
a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not willful neglect.
(2)CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3)CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
B-4
