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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Thermo BioAnalysis Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock
2) Aggregate number of securities to which transaction applies: 3,007,930
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): The filing fee of $18,570.00
represents 1/50 of 1% of the sum of (a) $37,861,000.00, which is the debt
component of the consideration to be paid for the entities being acquired
by the Registrant in the transaction and (b) $54,988,721.00, which amount
is the value of the securities to be issued by the registrant as
consideration in the transaction (as calculated by multiplying the average
of the high and low prices of the registrant's common stock on July 29,
1998 by the number of shares to be issued -- $18.28125 X 3,007,930 =
$54,988,721.00).
4) Proposed maximum aggregate value of transaction: $92,849,721.00
5) Total fee paid: $18,570.00
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[Thermo BioAnalysis LOGO]
August 10, 1998
Dear Stockholder:
The enclosed Notice calls a Special Meeting of the Stockholders of Thermo
BioAnalysis Corporation. I respectfully request all Stockholders to attend this
Meeting, if possible.
Enclosed with this letter is a proxy authorizing three officers of the
Company to vote your shares for you if you do not attend the Meeting. Whether or
not you are able to attend the Meeting, I urge you to complete your proxy and
return it to our transfer agent, American Stock Transfer & Trust Company, in the
enclosed addressed, postage-paid envelope, as a quorum of the Stockholders must
be present at the Meeting, either in person or by proxy.
I would appreciate your immediate attention to the mailing of this proxy.
Yours very truly,
Colin Maddix's Signature
COLIN MADDIX
President and Chief Executive Officer
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[Thermo BioAnalysis LOGO]
NOTICE OF SPECIAL MEETING
August 10, 1998
To the Holders of the Common Stock of
THERMO BIOANALYSIS CORPORATION
A Special Meeting of the Stockholders (the "Meeting") of Thermo BioAnalysis
Corporation (the "Company") will be held on Thursday, September 10, 1998, at
2:00 p.m. local time at the offices of Thermo Electron Corporation, 81 Wyman
Street, Waltham, MA 02454. The purposes of the Meeting are to consider and take
action upon the following matters:
1. A proposal to approve the listing on the American Stock Exchange, Inc.
of 3,007,930 shares of the Company's common stock to be issued in
connection with the acquisition by the Company of the Clinical Products
Group of Life Sciences International Limited, a manufacturer of
cytology, histology and pathology equipment and consumables, as well as
a supplier of consumables for blood gas and ion-selective electrolyte
analyzers, pursuant to Share Purchase Agreements dated as of May 11,
1998, between the Company and Thermo Instrument Systems Inc. and
certain of its subsidiaries.
2. A proposal recommended by the Board of Directors to amend the Company's
Certificate of Incorporation to increase the Company's authorized
common stock, $.01 par value per share, from 25 million shares to 75
million shares.
The transfer books of the Company will not be closed prior to the Meeting,
but, pursuant to appropriate action by the Board of Directors, the record date
for the determination of the Stockholders entitled to receive notice of and to
vote at the Meeting is July 31, 1998.
The By-laws require that the holders of a majority of the stock issued and
outstanding and entitled to vote be present or represented by proxy at the
Meeting in order to constitute a quorum for the transaction of business. It is
important that your stock be represented at the Meeting regardless of the number
of shares you may hold. Whether or not you are able to be present in person,
please sign and return promptly the enclosed proxy in the accompanying envelope,
which requires no postage if mailed in the United States.
This Notice, the Proxy Card and Proxy Statement enclosed herewith are sent
to you by order of the Board of Directors.
SANDRA L. LAMBERT
Secretary
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PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Thermo
BioAnalysis Corporation (the "Company" or "Thermo BioAnalysis") for use at the
Special Meeting of the Stockholders (the "Meeting") to be held on Thursday,
September 10, 1998, at 2:00 p.m. local time at the offices of Thermo Electron
Corporation, 81 Wyman Street, Waltham, MA 02454, and any adjournment thereof.
The mailing address of the executive office of the Company is 504 Airport Road,
Santa Fe, New Mexico 87504-2108, and its telephone number is (505) 471-3232.
This proxy statement and the enclosed proxy were first furnished to Stockholders
of the Company on or about August 13, 1998.
VOTING PROCEDURES
The Board of Directors intends to present to the Meeting a proposal to
approve the listing on the American Stock Exchange, Inc. of 3,007,930 shares
(the "TBA Shares") of the Company's common stock, $.01 par value per share
("Common Stock") to be issued in connection with the acquisition by the Company
of the Clinical Products Group (the "Clinical Products Group") of Life Sciences
International Limited ("LSI"). The Clinical Products Group is comprised of
Shandon Inc. and its related businesses, including ALKO Diagnostic Corporation.
The Clinical Products Group designs, manufactures and markets a broad range of
cytology, histology and pathology equipment and consumables and consumables for
blood gas and ion-selective electrolyte analyzers. The businesses of Shandon
Inc., Shandon Scientific Ltd. and Life Sciences International SNC were acquired
pursuant to a Share Purchase Agreement, dated as of May 11, 1998 (the "Thermo
Instrument Share Purchase Agreement") between the Company and Thermo Instrument
Systems Inc. ("Thermo Instrument"), a publicly held subsidiary of Thermo
Electron Corporation ("Thermo Electron"). The business of Shandon GmbH was
acquired pursuant to a Share Purchase Agreement, dated as of May 11, 1998 (the
"ThermoQuest Share Purchase Agreement") between the Company and ThermoQuest
Corporation ("ThermoQuest"), a publicly held subsidiary of Thermo Instrument.
The Thermo Instrument Share Purchase Agreement and the ThermoQuest Share
Purchase Agreement are collectively referred to as the "Share Purchase
Agreements." Copies of the Share Purchase Agreements are attached hereto as
Appendices A and B.
The net purchase price (the "Purchase Price") for the Clinical Products
Group is approximately $66.7 million, payable in the TBA Shares. The Purchase
Price represents the sum of the net book value of the Clinical Products Group as
of April 4, 1998, plus a percentage of Thermo Instrument's total cost in excess
of net assets acquired associated with its acquisition of LSI, based on the
aggregate 1996 revenues of the Clinical Products Group relative to LSI's 1996
consolidated revenues. In addition, the Company assumed approximately $37.9
million of existing indebtedness owed by the Clinical Products Group to Thermo
Instrument, making the gross purchase price approximately $104.5 million. This
amount includes approximately $12.0 million for an equivalent amount of cash
acquired. This existing indebtedness owed to Thermo Instrument is due January 2,
1999 and bears interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter. See "Proposal to Approve the
Listing of Shares Issuable in Connection with an Acquisition -- Summary of the
Share Purchase Agreements."
The Board of Directors also intends to present to the Meeting a proposal to
amend the Company's Certificate of Incorporation to increase the Company's
authorized Common Stock from 25 million shares to 75 million shares.
The representation in person or by proxy of a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting is necessary to provide a
quorum for the transaction of business at the Meeting. Shares can only be voted
if the Stockholder is present in person or is represented by returning a
properly signed proxy. Each Stockholder's vote is very important. Whether or not
you plan to attend the Meeting in person, please sign and promptly return the
enclosed Proxy Card, which requires no postage if mailed in the United States.
All signed and returned proxies will be counted towards establishing a quorum
for the Meeting, regardless of how the shares are voted. Proxies are being
solicited by the Company.
Shares represented by proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on the
Proxy Card. If your Proxy Card is signed and returned without
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specifying choices, your shares will be voted for the management proposals and
as the individuals named as proxy holders on the proxy deem advisable on all
other matters that may properly come before the Meeting.
The proposal for the acquisition of the Clinical Products Group must
receive the affirmative vote of a majority of shares present in person or
represented by proxy, and entitled to vote on the matter, for approval. The
proposal to amend the Company's Certificate of Incorporation to increase the
Company's authorized Common Stock must receive the affirmative vote of a
majority of the Company's outstanding Common Stock entitled to vote on the
matter for approval. An instruction to abstain from voting on either proposal
will be treated as shares present and entitled to vote and, for purposes of
determining the outcome of the vote, will have the same effect as a vote against
such proposal. A broker "non-vote" occurs when a nominee holding shares for a
beneficial holder does not have discretionary voting power and does not receive
voting instructions from the beneficial owner. Broker "non-votes" will not be
treated as shares present and entitled to vote on a voting matter and will
therefore have no effect on the outcome of the vote on the proposal for the
acquisition of the Clinical Products Group and will have the effect of a vote
against the proposal to increase the authorized Common Stock.
A Stockholder who returns a proxy may revoke it at any time before the
Stockholder's shares are voted at the Meeting by written notice to the Secretary
of the Company received prior to the Meeting, by executing and returning a
later-dated proxy or by voting by ballot at the Meeting. Representatives of
Arthur Andersen LLP, the Company's independent public accountants since its
inception in 1995, are not expected to be present at the Meeting.
The outstanding stock of the Company entitled to vote (excluding shares
held in treasury by the Company) as of July 31, 1998, consisted of 18,094,348
shares of Common Stock. Only Stockholders of record at the close of business on
July 31, 1998 (the "Record Date"), are entitled to vote at the Meeting. Each
share is entitled to one vote.
-- PROPOSAL 1 --
PROPOSAL TO APPROVE THE LISTING OF SHARES
ISSUABLE IN CONNECTION WITH AN ACQUISITION
SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE SHARE PURCHASE AGREEMENTS
On May 11, 1998, the Company agreed to purchase from Life Sciences
International Limited ("LSI"), a wholly owned subsidiary of Thermo Instrument,
or from LSI's wholly owned subsidiaries, the businesses comprising the Clinical
Products Group of LSI, which designs, manufactures and markets a broad range of
clinical laboratory equipment and consumables, including cytology, histology and
pathology equipment and consumables and consumables for blood gas and
ion-selective electrolyte analyzers. The Clinical Products Group includes
Shandon Inc., Shandon Scientific Ltd., Life Sciences International SNC, Shandon
GmbH and certain of their related subsidiaries, including ALKO Diagnostic
Corporation ("ALKO Diagnostic"). The businesses comprising the Clinical Products
Group, together with their respective subsidiaries, are often referred to herein
collectively as the "Acquired Companies."
Approval of the Share Purchase Agreements and the transactions contemplated
thereby (the "Acquisition") by the Stockholders of the Company is not required
by the General Corporation Law of the State of Delaware or by the Company's
Certificate of Incorporation or By-Laws, as amended. However, the rules of the
American Stock Exchange, Inc. (the "AMEX"), on which the Company's Common Stock
is listed for trading, require that the holders of a majority of the Company's
outstanding shares present and voting at a shareholders' meeting approve the
listing of the TBA Shares to be issued pursuant to the Share Purchase Agreements
prior to their issuance. This approval is required pursuant to Section 712 of
the AMEX Company Guide, which requires shareholder approval prior to listing of
shares to be issued as partial consideration for an acquisition if any
substantial shareholder of the listed company has a five percent or greater
interest in the company to be acquired and the issuance of such shares as
consideration could result in an increase in the outstanding shares of the
listed company of five percent or more. Thermo Instrument is a "substantial
shareholder" of the Company and also has a greater than five percent interest in
the Acquired Companies. Moreover, the issuance of the 3,007,930 TBA Shares as
consideration will result in an increase in the
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Company's outstanding shares of more than five percent. Both Thermo Instrument
and Thermo Electron have agreed to vote all of their shares of the Company's
Common Stock held as of the Record Date of the Meeting in favor of the listing
of the TBA Shares and all matters related thereto. As of July 4, 1998 (without
giving effect to the issuance of the TBA Shares), Thermo Instrument owned
approximately 51.7% of the outstanding Common Stock of the Company and Thermo
Electron owned approximately 14.6% of the outstanding Common Stock of the
Company. After giving effect to the issuance of the TBA Shares pursuant to the
Share Purchase Agreements, Thermo Instrument will own approximately 59.7% of
such outstanding Common Stock and Thermo Electron will own approximately 12.2%
of such outstanding Common Stock.
BACKGROUND OF THE SHARE PURCHASE AGREEMENTS
In January 1997, Thermo Instrument initiated a tender offer to acquire all
of the issued and outstanding shares of LSI, a then London Stock Exchange-listed
company, for 135 pence per share. In March 1997, Thermo Instrument acquired
164,126,284 shares, or approximately 95%, of LSI for an aggregate of
approximately $355,000,000, in completion of its tender offer for the shares of
LSI. Thermo Instrument subsequently acquired the remaining LSI shares pursuant
to the compulsory acquisition rules applicable to United Kingdom companies.
Subsequent to the acquisition of LSI, Thermo Instrument and its
subsidiaries evaluated the various component businesses of LSI for their most
appropriate strategic fit within Thermo Instrument and its subsidiary companies.
In October 1996, prior to LSI's acquisition by Thermo Instrument, LSI underwent
a reorganization into four distinct product groups. One of these groups, the
Clinical Products Group, included the companies that comprise the Acquired
Companies, which manufacture products complementary to those manufactured by the
Company. During March and April, 1998, officers of both the Company and Thermo
Instrument, including Mr. Colin Maddix, President and Chief Executive Officer of
the Company, and Mr. Earl R. Lewis, President and Chief Executive Officer of
Thermo Instrument, met to discuss the sale of the Acquired Companies to the
Company. Those officers of the Company and Thermo Instrument determined that the
operations of the Acquired Companies could be more easily integrated with the
operations of the Company than with those of Thermo Instrument, based on the
location of the Acquired Companies' manufacturing facilities, the types of
products manufactured by the Acquired Companies and the Company, and the
Acquired Companies' distribution network. In April 1998, the decision was made
by Messrs. Maddix and Lewis on behalf of the Company and Thermo Instrument,
respectively, to present the proposed sale of the Acquired Companies to the
Boards of Directors of the Company and Thermo Instrument for their
consideration. On April 15, 1998 and April 20, 1998, the Boards of Directors of
the Company and Thermo Instrument, respectively, both unanimously determined
that a transfer of the businesses conducted by the Acquired Companies from
Thermo Instrument and certain of its subsidiaries to the Company would enable
the Company to expand its growth in the diagnostic products market. The Board of
Directors of Thermo Instrument is comprised of Mr. Arvin H. Smith, Col. Frank
Borman, Dr. George N. Hatsopoulos, Mr. John N. Hatsopoulos, Mr. Polyvios C.
Vintiadis and Mr. Earl R. Lewis. The Board of Directors of the Company is
comprised of Mr. Earl R. Lewis, Dr. Elias P. Gyftopoulos, Mr. Barry S. Howe, Mr.
Colin Maddix, Mr. Jonathan W. Painter, Mr. Arvin H. Smith and Dr. Arnold N.
Weinberg.
Accordingly, the Company entered into a Share Purchase Agreement on May 11,
1998 with Thermo Instrument and ThermoQuest, respectively.
CALCULATION OF THE PURCHASE PRICE FOR THE ACQUIRED COMPANIES
The net purchase price (the "Purchase Price") for the Clinical Products
Group is approximately $66.7 million, payable in shares of the Company's Common
Stock as described below. The Purchase Price represents the sum of the net book
value of the Clinical Products Group as of April 4, 1998, plus a percentage of
Thermo Instrument's total cost in excess of net assets acquired associated with
its acquisition of LSI, based on the aggregate 1996 revenues of the Clinical
Products Group relative to LSI's 1996 consolidated revenues. In addition, the
Company assumed approximately $37.9 million of existing indebtedness owed by the
Clinical Products Group to Thermo Instrument, making the gross purchase price
approximately $104.5 million. This amount includes approximately $12.0 million
for an equivalent amount of cash acquired. This existing indebtedness owed to
Thermo Instrument is due January 2, 1999 and bears interest at the 90-day
Commercial
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Paper Composite Rate plus 25 basis points, set at the beginning of each quarter.
Such rate was 5.70% on the first business day of the fiscal quarter ended July
4, 1998. The 90-day Commercial Paper Composite Rate is determined by the Federal
Reserve Bank from its database of transactions in commercial paper that are
cleared through a system operated by the Depository Trust Company.
At a closing held on June 9, 1998 (the "Closing"), the Company acquired all
of the issued and outstanding shares of the companies comprising the Clinical
Products Group from Thermo Instrument and ThermoQuest. At the closing, Thermo
Instrument and ThermoQuest received the right to receive an aggregate of
3,007,930 shares of the Company's Common Stock (the "TBA Shares") on the date
that the TBA Shares are listed on the AMEX. Each TBA Share is valued at $22.163,
the average of the closing prices of the Company's Common Stock as reported by
the AMEX for each of the five trading days prior to April 20, 1998, the date the
parties reached agreement in principle on the material terms of the transaction.
REASONS FOR THE ACQUISITION/RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors believes that the acquisition of the
Acquired Companies complements the Company's existing product lines and is
consistent with its long-term strategy. The Company's long-term strategy
includes the development and marketing of a portfolio of biomolecular
instruments and consumables, clinical laboratory equipment and supplies, and
information management systems for biochemistry, clinical diagnosis and other
applications through the research and development of innovative products and
through the acquisition of complementary businesses and technologies. The
Company presently designs, manufactures and markets instruments, consumables and
information management systems used in biochemical research, clinical diagnosis
and pharmaceutical production, and intends to integrate the products
manufactured by the Acquired Companies for use by medical professionals in
clinical diagnostic laboratories into the Company's existing product lines. The
Company's Board of Directors believes that the Company's acquisition of the
Acquired Companies will enable the Company to enter new markets for its
biochemical and diagnostic products in which it is not well represented and to
strengthen its presence in markets in which it already operates.
In making the decision to engage in the Acquisition, the Company's Board of
Directors considered the following factors, which were considered to have a
material bearing on the Board's decision: the types of products manufactured by
the Acquired Companies; the potential to integrate these products with those
manufactured by the Company; the ability to expand the Company's existing
technological and research capabilities; the geographic presence of sales,
manufacturing, distribution and other facilities of the Acquired Companies as
compared with the existing geographic presence of the Company; perceived
strengths of the management, research and other personnel of the Acquired
Companies; the financial history and financial projections of the Acquired
Companies; and the Company's ability to expand its market share, research
capabilities, and technological capacity through integration of the Acquired
Companies with the Company's existing operations.
The Company's Board of Directors considers attractive acquisition
opportunities from time to time that are identified by the Company for the
Board's review. The Board of Directors decided to proceed with the Acquisition
because it perceived synergies between the Company and the Acquired Companies,
as described above, that would make the Acquisition beneficial to the Company
and its Stockholders. At the time the Board decided to approve the Acquisition,
the Company had not identified other acquisition candidates that were as
attractive as the Acquired Companies. Consequently, the Board had not considered
at length any alternative transactions to the Acquisition at the time it voted
to approve the Acquisition.
The Company's Board of Directors made the decision to engage in the
Acquisition following (i) the acquisition by Thermo Instrument of LSI in March
1997, (ii) Thermo Instrument's evaluation of the relationship between the
different component companies of LSI and the businesses in which Thermo
Instrument operates, which process took place during March and April, 1997, and
(iii) the presentation by Thermo Instrument of its proposal for the sale of the
Acquired Companies to the Company in April, 1998. The Board of Directors
determined that the Acquisition presented an attractive opportunity for the
Company, for the reasons set forth above, and thus decided to proceed with the
Acquisition. The Company could not
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have engaged in the Acquisition at an earlier time than it did because the
process of evaluating the potential fit between the respective businesses of the
Acquired Companies and the Company was not complete until early March 1998. Once
the decision had been made to acquire the Acquired Companies, however, the
Company proceeded expeditiously to consummate the Acquisition in order not to
delay the integration of the Acquired Companies into the Company and the receipt
of potential benefits from the combination of the entities' operations.
As with any acquisition, however, there can be no assurance that the
Company will be successful in integrating the businesses of the Acquired
Companies with its current operations, nor that the benefits which the Company's
Board of Directors expects from the Acquisition, as described above, will be
achieved. If the Company were unsuccessful in achieving such integration, such
failure could adversely affect the Company's performance. See "Forward-Looking
Statements -- Risks Associated with Acquisition Strategy."
The Board of Directors has unanimously approved the Share Purchase
Agreements and the transactions contemplated thereby and believes that the Share
Purchase Agreements are fair to and in the best interests of the Company and its
Stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR
OF THE LISTING OF THE TBA SHARES TO BE ISSUED IN CONNECTION WITH THE SHARE
PURCHASE AGREEMENTS.
ACCOUNTING TREATMENT OF THE ACQUISITION
Because the Company and the Acquired Companies were deemed for accounting
purposes to be under control of their common majority-owner, Thermo Instrument,
the Acquisition has been accounted for in a manner similar to a pooling of
interests. Accordingly, the Company's financial statements include the results
of the Clinical Products Group from the March 1997 date on which Thermo
Instrument acquired LSI. The TBA Shares have been deemed to be outstanding from
that date. See pro forma data set forth at "Selected Financial
Information -- Thermo BioAnalysis."
SUMMARY OF THE SHARE PURCHASE AGREEMENTS
General
On May 11, 1998, the Company agreed with Thermo Instrument and ThermoQuest
that it would purchase the Clinical Products Group from LSI or LSI's
wholly-owned subsidiaries. The Clinical Products Group includes Shandon Inc.,
Shandon Scientific Ltd., Life Sciences International SNC, Shandon GmbH and
certain of their related subsidiaries, including ALKO Diagnostic (together with
certain other of their respective subsidiaries, the "Acquired Companies").
Issuance of the TBA Shares
Thermo Instrument's and ThermoQuest's right to receive the TBA Shares is
conditioned on the prior listing of the TBA Shares for trading upon the AMEX. In
the Share Purchase Agreements, the Company agreed to take all action necessary
in accordance with applicable law to convene a meeting of its Stockholders for
the purpose of approving the listing of the TBA Shares for trading upon AMEX,
and to recommend to the Stockholders the approval of such listing. In the Share
Purchase Agreements, Thermo Instrument agreed to vote all of the shares of the
Company's Common Stock held by it as of the Record Date in favor of such
listing. Accordingly, the listing of the TBA Shares is assured because of Thermo
Instrument's greater than fifty percent ownership of the Company.
As of July 4, 1998, Thermo Instrument owned 7,798,000 shares of the
Company, or approximately 51.7% of the outstanding shares. Giving effect to the
issuance of the TBA Shares to Thermo Instrument would increase Thermo
Instrument's ownership percentage to 59.7%.
Representations and Warranties; Indemnification
In the Share Purchase Agreements, the Company and Thermo Instrument or
ThermoQuest, as applicable, made certain representations and warranties to one
another with respect to certain customary
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matters, such as their respective organization and their respective authority to
enter into the Share Purchase Agreements. Thermo Instrument and ThermoQuest also
made representations and warranties to the Company with respect to certain other
matters, including (i) the capitalization of the Acquired Companies, (ii)
environmental conditions with respect to the Acquired Companies' properties and
(iii) the Acquired Companies' consolidated financial statements for the three
months ended April 4, 1998, and as of January 3, 1998 and the three years then
ended. The representations and warranties made by Thermo Instrument and
ThermoQuest with respect to environmental conditions at the Acquired Companies'
properties include statements regarding the absence of activity on premises
occupied by the Acquired Companies involving use, handling, storage, or disposal
of hazardous or toxic wastes in violation of common law or any applicable
environmental law. In addition, the representations and warranties of Thermo
Instrument and ThermoQuest with respect to the Acquired Companies' consolidated
financial statements state that such financial statements fairly present the
financial condition, results of operations and cash flows of the Acquired
Companies as at the dates and for the periods indicated, in each case in
accordance with generally accepted accounting principles consistently applied.
Each party has agreed to indemnify the other for a period of two years from the
Closing for any damages the indemnified party suffers as a result of breaches of
such representations and warranties by the other party. Notwithstanding this
indemnification, the Company would be required to report as an expense in its
results of operations the full amount, including any reimbursable amount, of any
damages, with any indemnification payment it receives from Thermo Instrument or
ThermoQuest being treated as a contribution to stockholders' investment.
Amendments; Waivers
Any provision of the Share Purchase Agreements may be amended or waived by
the mutual consent of the parties at any time. The Company does not expect that
any material provisions of the Share Purchase Agreements will be amended or
waived. However, as any amendment or waiver of any provision of the Share
Purchase Agreements requires the consent of both the Company and Thermo
Instrument or ThermoQuest, as applicable, any changes made will be the result of
negotiation between and agreement of the parties.
PREVIOUS TRANSACTIONS BETWEEN THE ACQUIRED COMPANIES AND THE COMPANY
Prior to the transactions represented by the Share Purchase Agreements,
there were no material contracts, arrangements, understandings, relationships,
negotiations, or transactions between the Acquired Companies or their affiliates
and the Company and its affiliates, except for the purchase of all of the issued
and outstanding shares of LSI, the parent company of the Acquired Companies, by
Thermo Instrument, the Company's parent company, in March 1997. See "Background
of the Share Purchase Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Acquisition is intended to be treated as a reorganization for federal
income tax purposes. The Company will recognize no gain or loss in connection
with the Acquisition or the issuance of the TBA Shares.
REGULATORY APPROVALS
No federal or state regulatory approvals are required in order to issue the
TBA Shares pursuant to the Share Purchase Agreements.
NO DISSENTERS' APPRAISAL RIGHTS
Under applicable provisions of the Delaware General Corporation Law,
holders of the Company's Common Stock will not have any dissenters' appraisal
rights in connection with the listing of the TBA Shares, or any other
transaction described in this Proxy Statement, to be acted upon at the Meeting.
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INFORMATION CONCERNING THE ACQUIRED COMPANIES
BUSINESS
Under the terms of the Share Purchase Agreements, the Company acquired all
of the issued and outstanding shares of the Acquired Companies in exchange for
Thermo Instrument's and ThermoQuest's right to receive an aggregate of 3,007,930
TBA Shares and debt to Thermo Instrument. The principal executive office of
Shandon Inc. is 171 Industry Drive, Pittsburgh, PA 15275, and its telephone
number is 412-788-1133. The principal executive office of Shandon Scientific
Ltd. is 93/96 Chadwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7
1PR, England, and its telephone number is 011-44-1-928-566611. The principal
executive office of Life Sciences International SNC is Immeuble "Le Minnesota",
Eragny Parc, Avenue Du Gros Chene, Parc D'Activite Des Bellevues, 95610
Eragny-Sur-Oise, France, and its telephone number is 011-33-1-3432-5100. The
principal executive office of Shandon GmbH is Berner Strasse 53, 60437 Frankfurt
A.M., Germany, and its telephone number is 011-49-69-5091-9021.
The following is a brief description of the businesses of the Acquired
Companies.
General
The Clinical Products Group designs, manufactures and markets a broad range
of clinical laboratory equipment and consumables, including cytology, histology
and pathology equipment and consumables and consumables for blood gas and ISE
analyzers.
Principal Products
Cytology and Histology Products
The cytology and histology products of the Clinical Products Group are used
by medical laboratories to prepare microscope slides containing thin layers of
specially stained cells from body fluid and tissue samples. Medical
professionals analyze these slides to detect and diagnose cancers and other
diseases. Slide preparation is a multi-step process, which, in most cases,
requires a specimen to be stabilized, mounted, sectioned, stained and
coverslipped. The Clinical Products Group offers a complete line of equipment,
accessories and consumables to perform each step in the slide preparation
process.
The Clinical Products Group's Cytospin cytocentrifuge is one of the most
widely used methods for depositing cells from fluid samples, such as
cerebrospinal fluids, bronchial washings and peritoneal cavity aspirations, onto
microscope slides. Other principal equipment products include: tissue
processors, which stabilize and preserve tissue samples obtained from biopsies
and autopsies; cryostats, which rapidly stabilize specimens using a freezing
technique; embedding stations, which permanently mount specimens in paraffin to
facilitate sectioning; microtomes, which section samples; automatic slide
stainers, which stain the nuclei and cytoplasm of the mounted cells; and
coverslippers, which permanently mount glass covers on the slides.
The Clinical Products Group also manufactures and markets cytology and
histology consumables. Cytofunnels are patented disposable specimen containers
that are used in conjunction with its Cytospin. Other consumables offered by the
Clinical Products Group include biopsy bags, disposable cutting blades, knife
holders, reagents used by tissue processors, cell stains and fixatives, glass
slides and slide racks. In addition, the Clinical Products Group manufactures
and markets immunohistochemistry kits, which are used to provide specific
information about a disease.
Pathology Equipment
The Clinical Products Group is also a leading provider of vented dissection
equipment and refrigerated storage facilities used in autopsies and forensic
evaluations. These products, which are sold under the Shandon-Lipshaw brand
name, are used by laboratories, morgues, medical schools, medical examiners, and
research and veterinary facilities worldwide. The Clinical Products Group also
designs, manufactures and installs complete autopsy/mortuary facilities based
upon customers' specific space, function and budget requirements.
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<PAGE> 11
The Clinical Products Group manufactures and markets a series of stationary
tables, ranging from a standard autopsy table to an elevating, rotating autopsy
table. These tables are equipped with several safety features including a down
draft ventilation system to ensure that fumes are exhausted away from the work
surface and a built-in continuous table rinse to flush waste away from the table
surface. Other principal pathology products include dissecting sinks, cadaver
lifts, transportable tables and carts, refrigerators, storage facilities and
workstations. In addition to being used for autopsies, the Clinical Products
Group's workstations are used by medical laboratories for many types of gross
examinations and sectioning of specimens. In addition, the Clinical Products
Group also markets numerous pathology-related consumables including fume hoods
and filters, dissecting tools, instrument trays, and disposable boots and
gloves.
Blood Gas and Ion-Selective Electrolyte ("ISE") Consumables
The Clinical Products Group's ALKO Diagnostic business supplies consumables
for blood gas and ISE analyzers. Blood gas analyzers are used to diagnosis the
type and stage of certain diseases, such as coronary artery disease, by
measuring the levels of gases in blood samples. ISE analyzers perform the same
function by measuring the levels of electrolytes in blood, plasma, serum and
urine samples. ALKO Diagnostic's products, which are used to calibrate, clean
and maintain these analyzers, include electrodes, buffers, calibrators,
cartridges and tubing.
Principal Customers; Marketing and Distribution
The principal customers for the Acquired Companies' products are hospitals,
medical laboratories, medical schools, medical examiners and research
facilities. The Clinical Products Group sells to it customers through its direct
sales force and distributors. The Clinical Products Group has direct sales
offices in France, Germany, the United Kingdom and the United States.
Competition
The Acquired Companies, excluding ALKO Diagnostic, compete primarily on the
basis of product quality, brand recognition, customer service and price.
Competitors include: Leica Microsystems and Sakura Finetechnical Co., Ltd. in
the cytology and histology equipment market; Allegiance Corporation, DAKO and
Merck & Co., Inc. in the cytology and histology consumables market; and Jewett
Refrigeration Co., Inc. and Mopec Inc. in the pathology market. ALKO Diagnostic
competes primarily on the basis of price, customer relationships and product
quality in the blood gas and ISE analyzers market. Principal competitors are the
manufacturers of the blood gas and ISE analyzers, including Abbott Laboratories,
AVL Scientific Corp., Chiron Corporation, Instrumentation Laboratory Company and
Radiometer America Inc.
Management
The following sets forth information concerning the management of the
Acquired Companies.
Mark J. Zinsky became President of Shandon Inc. in March 1998. Mr. Zinsky
had been Vice President of Finance for Shandon Inc. since August 1992 and in
August 1996 he was appointed Chief Financial Officer for the Clinical Products
Group.
Crawford Wilson has been the Managing Director of Shandon Scientific Ltd.
since July 1995. Prior to this appointment, Mr. Wilson served as the Operations
Director of Shandon Scientific Ltd. since November 1993. Mr. Wilson was also
appointed Vice President Manufacturing for the Clinical Products Group in
September 1996.
Bertrand Caillard has been the General Manager of Life Sciences
International SNC since 1997. Prior to this appointment, Mr. Caillard served as
the Controller of Life Sciences International SNC since 1991.
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<PAGE> 12
Bret Hendzel has been President and Chief Executive Officer of ALKO
Diagnostic Corporation since February 1997. Previously, Mr. Hendzel served as
the Consumables Product Manager for Shandon Inc. from December 1993 to January
1997 and as the Immunochemistry Product Manager for Shandon Inc. from December
1992 to November 1993.
Employees
As of April 4, 1998, the Acquired Companies had 412 employees. Seventy of
such employees are represented by a labor union. The Company believes that the
Acquired Companies' relations with its employees and the labor union are good.
Facilities
The Acquired Companies own approximately 70,000 square feet of
manufacturing, distribution and sales space in Pittsburgh, Pennsylvania and
lease approximately 153,000 square feet of manufacturing, sales and
administration space in France, Germany, the United Kingdom and the United
States under leases expiring through 2014. The Company believes that these
facilities are in good condition and are adequate for the Acquired Companies'
present operations and that suitable additional space will be available as
needed in the future. With respect to leases expiring in the near future, in the
event that the Acquired Companies do not renew such leases, the Company believes
that suitable alternative space is readily available for lease on acceptable
terms.
Research and Development
The Acquired Companies' full-time engineers and technicians are currently
working on a variety of research and development projects, including entering
clinical trials with its Cytofunnel and Cytospin for FDA clearance of their use
to improve cervical cancer screening and development of automated microtomes,
enhanced cryostats and the next generation of slide staining equipment. Research
and development expenditures in 1996 were $1.3 million, or approximately 1.6% of
the Acquired Companies' revenue. Research and development expenditures from
January 1, 1997 to March 12, 1997 were $684,000, or approximately 5.2% of the
Acquired Companies' revenue for this period. Research and development activities
are managed in order to obtain a balance between improvements to existing
products, development of new applications and introduction of new product lines.
SELECTED QUARTERLY FINANCIAL DATA -- CLINICAL PRODUCTS GROUP
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ 17,965 20,673 19,011 23,108
Gross Profit........................................ 7,392 8,297 7,734 9,621
Net Income (Loss)................................... 1,303 372 539 (2,128)
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ 16,139 19,861 16,598 20,694
Gross Profit........................................ 6,328 8,281 6,482 8,590
Net Income (Loss)................................... (48) 1,138 (793) 703
</TABLE>
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<PAGE> 13
SELECTED FINANCIAL INFORMATION -- CLINICAL PRODUCTS GROUP
The selected financial information below as of and for the years ended
December 31, 1995 and 1996 and the period from January 1, 1997 through March 12,
1997 has been derived from the Combined Financial Statements of the Clinical
Products Group of Life Sciences International PLC, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere in this proxy statement. This information should be
read in conjunction with the Combined Financial Statements of the Clinical
Products Group of Life Sciences International PLC and related notes included
elsewhere in this proxy statement. The selected financial information for the
years ended December 31, 1993 and 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
GAAP applied on a consistent basis.
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH
1993 1994 1995 1996 MARCH 12, 1997
--------------- -------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $63,565 $ 69,079 $73,292 $80,757 $13,250
------- -------- ------- ------- -------
Costs and Operating Expenses:
Cost of revenues...................... 38,422 38,301 43,611 47,713 8,835
Selling, general and administrative
expenses........................... 18,909 23,079 25,772 25,217 4,545
Research and development expenses..... 897 1,185 1,188 1,328 684
------- -------- ------- ------- -------
58,228 62,565 70,571 74,258 14,064
------- -------- ------- ------- -------
Operating Income (Loss)................. 5,337 6,514 2,721 6,499 (814)
------- -------- ------- ------- -------
Interest and Other Income (Expense),
Net................................... (1,361) (1,705) (1,060) (6,170) (610)
------- -------- ------- ------- -------
Income (Loss) Before Income Taxes....... 3,976 4,809 1,661 329 (1,424)
Income Tax Provision (Benefit).......... 1,081 1,027 661 243 (513)
------- -------- ------- ------- -------
Net Income (Loss)....................... $ 2,895 $ 3,782 $ 1,000 $ 86 $ (911)
======= ======== ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital......................... (15,833) (14,454) (9,577) (9,307) (8,612)
Total Assets............................ 63,163 59,887 64,213 68,384 72,721
Long-term Obligations................... 2,813 2,763 2,361 2,172 2,175
Shareholder's Investment................ 1,836 4,618 5,963 5,312 4,615
</TABLE>
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<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS OF THE CLINICAL PRODUCTS GROUP
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Results of Operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements."
OVERVIEW
The Clinical Products Group operated as part of LSI, a London Stock
Exchange-listed company, until March 1997, at which time Thermo Instrument
acquired all of LSI. In May 1998, the Company agreed to acquire the Clinical
Products Group, which provides equipment and consumables for cytology, histology
and pathology applications, and also supplies consumables for blood gas and ISE
analyzers.
The Clinical Products Group sells its products on a worldwide basis. As a
result, its financial performance and competitive position can be affected by
currency exchange rate fluctuations. Where appropriate, forward contracts are
used to reduce exposure to currency fluctuations.
RESULTS OF OPERATIONS
1996 Compared With 1995
Revenues increased to $80.8 million in 1996 from $73.3 million in 1995,
primarily due to increased demand related to the introduction of the Clinical
Products Group's Pathfinder product in late 1995, as well as manufacturing
improvements that facilitated increased shipments. In addition, revenues
increased $1.8 million due to the strengthening of the U.S. dollar relative to
foreign currencies in countries where the Company operates.
The gross profit margin increased to 41% in 1996 from 40% in 1995,
primarily due to higher margins on Pathfinder and other new products introduced
in late 1995.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 31% in 1996 from 35% in 1995, primarily due to an increase in
revenues and, to a lesser extent, the effect of streamlining distribution
channels in late 1995. Research and development expenses were relatively
unchanged at $1.3 million in 1996 and $1.2 million in 1995.
Interest income primarily represents interest earned on advances to an
affiliated company, which bear interest at 10.0% (see Note 5 to the Combined
Financial Statements of the Clinical Products Group of Life Sciences
International PLC). Interest expense primarily represents interest on advances
from affiliated companies, which bore interest at annual rates of between 6.3%
and 10.0% during 1995 and 1996 (see Note 5 to the Combined Financial Statements
of the Clinical Products Group of Life Sciences International PLC).
Foreign currency exchange gains and losses result from foreign currency
exchange rate fluctuations on advances from affiliated companies that are
denominated in foreign currencies (see Note 5 to the Combined Financial
Statements of the Clinical Products Group of Life Sciences International PLC).
The effective tax rates were 74% in 1996 and 40% in 1995. These rates
exceed the statutory U.S. federal income tax rate primarily due to the impact of
relatively high tax rates in certain countries in which the Clinical Products
Group operates, and the impact of state income taxes. The effective tax rate
increased in 1996 due to increased losses in certain countries that have lower
tax rates and the larger relative effect of nondeductible expenses in 1996.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was negative $9.3 million as of December 31,
1996, compared with negative $9.6 million as of December 31, 1995. Included in
working capital are cash and cash equivalents of $12.5 million as of December
31, 1996, compared with $8.7 million as of December 31, 1995. During 1996,
operating activities provided $8.4 million of cash. An increase in other current
liabilities provided $6.2 million in cash, primarily due to increases in certain
trade and other operating balances payable to other LSI companies.
Investing activities used $1.8 million in cash during 1996, primarily
related to purchases of property, plant, and equipment.
Financing activities used $2.8 million of cash during 1996. A net decrease
in short-term obligations used $1.6 million of cash and transfers to parent
company totaled $0.9 million.
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<PAGE> 16
INFORMATION CONCERNING THE COMPANY
BUSINESS
General
Thermo BioAnalysis develops, manufactures and supplies a broad range of
products, including biomolecular instruments and consumables, clinical
laboratory equipment and supplies, and information management systems, that are
used in biochemical research, clinical diagnosis and pharmaceutical production.
The Company has more than 30,000 customers in the U.S. and over 35 foreign
countries, including pharmaceutical, biotechnology, chemical and industrial
companies, hospitals and medical laboratories, as well as academic institutions,
government laboratories and private foundations.
The Company's strategy is to (i) broaden its product offerings by
developing products internally and making strategic acquisitions, (ii) optimize
its product mix by increasing the percentage of its revenues derived from
consumable sales, (iii) continue to invest in research for product development
and enhancement of existing products, (iv) continue to focus on product quality
and (v) pursue and integrate strategic acquisitions as a means of broadening its
product lines, improving its market share and enhancing growth.
Information regarding the Company's revenues, income before provision for
income taxes, and identifiable assets is contained in Note 8 to the Company's
financial statements included elsewhere in this proxy statement.
The backlog of firm orders was $31.2 million and $20.1 million as of April
4, 1998 and March 29, 1997, respectively. The Company includes in backlog only
those orders for which it has received firm purchase orders and for which
delivery has been specified within twelve months. 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.
Principal Products
Biomolecular Instruments and Consumables
The Company's proprietary immunoassay instruments and laboratory
consumables are offered through its DYNEX and Labsystems OY businesses. The
Company also manufactures and markets a variety of proprietary products based on
emerging technologies, which include optical biosensor, polymerase chain
reaction ("PCR"), MALDI-TOF mass spectrometry ("MALDI-TOF"), DNA amplification
and capillary electrophoresis ("CE") technologies. These products are offered
through the Company's Affinity Sensors, MALDI-TOF, Hybaid and CE businesses.
Immunoassay. The Company designs, manufactures, sells and supports
products for immunoassay testing. Immunoassays are studies performed for the
qualitative and quantitative analysis of the molecular interaction between
molecules. Immunoassays are widely used in pharmaceutical and biopharmaceutical
research, as well as for clinical testing and diagnosis of patient samples. In
vitro diagnostic instruments for immunoassay testing are designed to measure the
presence of specific substances, or analytes, in blood or other body fluids.
Immunoassay technology is used in a number of screening, diagnostic and
monitoring tests, including tests for pregnancy, hepatitis and HIV.
The Company is a market leader in microplate technology, which
significantly improves the speed and efficiency of immunoassay testing. This
technology enables laboratories to run analyses of up to 384 samples
simultaneously using small amounts of both the sample being tested and the
chemicals used to test the samples. Microplate systems offer clinical users the
ability to automate and increase the throughput of their testing processes. The
Company's DYNEX and Labsystems OY businesses pioneered the development of
microplate technology, now an industry standard for immunoassay testing in
clinical applications and in pharmaceutical and biopharmaceutical research, with
its Microtiter and Multiskan product lines, respectively.
The primary advantage of the Company's immunoassay testing systems is the
breadth of its line of microplate products and services. In addition, its
microplate products are compatible with all detection
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<PAGE> 17
technologies and many reagent test kits. A number of immunoassay systems
currently available are closed systems, manufactured and supplied by certain
reagent manufacturers. These closed systems can only process tests made by that
manufacturer, limiting flexibility and requiring the user to purchase multiple
systems in order to utilize a variety of test kits. The Company's systems are
open systems that allow laboratories and clinics to select the most appropriate
and cost-effective assay from products offered by several competing reagent
manufacturers and to rapidly introduce new diagnostic tests as they become
available. The Company believes that this advantage will become increasingly
important as laboratories and clinics face continued cost pressure in the
current healthcare environment.
The Company's principal immunoassay products include:
Microplate detection systems that read the results of diagnostic tests
through the detection of color, luminescence or fluorescence. The Company
markets the DYNEX ImmunoAssay System ("DIAS") reader, a modular,
fully-automated detector that serves as a stand-alone reader or as the
controlling unit of DYNEX's automated microplate processing system; the MRX
calorimetric detectors; the MLX luminescence detector; and the Fluorolite
line of fluorescence detectors.
Automated testing systems that combine detection, washing, reagent
dispensing, incubation and data management functions. The Company's DIAS
system with time management software allows users to automatically process
and analyze microplate applications and to conduct several assays or tests
concurrently or at pre-scheduled intervals. This system can be configured
to hold up to 24 microplates, resulting in the automated analysis of up to
2,304 samples.
Consumables, consisting primarily of small plastic microplates with
384 wells, which are used to hold the sample and reagents during the
immunoassay testing process. The Company's consumables are used by both
reagent manufacturers, who coat them with reagents and resell them to
laboratories, and by researchers, who are developing new applications using
experimental reagents for testing purposes. The Company's plastic products
are manufactured using high-performance resins with characteristics that
facilitate consistent test results.
In 1997, the Company introduced a combination luminescence and fluorescence
microplate, the Fluoroskan Ascent FL. The Fluoroskan offers on-board dispensers
for kinetic analysis, precise temperature control, orbital shaking and robotic
integration capabilities. Additionally, in 1997, the Company launched its
Cliniplate 384-well microplate that addresses the high throughput-sampling
marketplace.
Laboratory Consumables. The Company designs, manufactures and markets a
wide range of laboratory consumables. For example, the Company develops a
variety of hand-held, single and multi-channel pipettes, as well as tips which,
combined with pipettes, are used to transport and deposit precise amounts of
fluids and reagents during tests in clinical and research laboratories. The
Company's Labsystems OY business produced the world's first continuously
adjustable micropipette and the first multi-channel pipette for microplates. The
Company's comprehensive range of Finnpipette liquid handling equipment includes
the Finnpipette Digital and the Finnpipette BioControl, an electronically
assisted trigger-action pipette available in single channel and multi-channel
versions. The Company also manufactures disposable plastic pipette tips that are
designed to be used once and then discarded, as well as a variety of other
specialty, high precision plastic products, including microplates and
microstrips in which laboratory tests are carried out.
Optical Biosensors. Optical biosensor systems are a new technology used to
quantify biomolecules and characterize their functional properties. Unlike
competing technologies, which statically measure only the presence and quantity
of a biomolecule, optical biosensors dynamically measure the speed and strength
of the molecular interaction. The result is an analytical instrument that
provides previously unavailable information regarding molecular activity in real
time without the need for chemical or radioactive labels, thereby reducing the
time associated with the testing process.
The Company offers both manual and automated versions of its IAsys optical
biosensor system, which includes patented technology that directly detects an
extensive range of analytes, including biopharmaceuticals, proteins, peptides,
DNA and cells. The Company believes that the IAsys system has a wide range of
applications, including life sciences research, clinical diagnostics,
environmental, industrial and defense
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<PAGE> 18
applications. In 1997, the Company introduced a multi-analyte biosensor, IAsys
Auto+ Advantage. The IAsys Auto+ offers improved sensitivity, and the
availability of prewritten scripts provides researchers with a high degree of
flexibility when designing experiments.
MALDI-TOF Mass Spectrometry. Mass spectrometry measures the molecular
weight of a sample's components, thereby enabling identification and measurement
of organic chemical compounds and/or inorganic elements contained in the sample.
Historically, mass spectrometry has been of little use to biochemists because
mass spectrometry measurements of large molecules, such as the biomolecules that
comprise peptides and proteins that have molecular weights in excess of 3,000
daltons, were not possible.
The development of ionization techniques such as those used in the
MALDI-TOF mass spectrometer have solved this problem. MALDI-TOF mass
spectrometers, first commercially available in 1990, measure the amount of time
required for an ionized molecule to reach a detector and convert that
measurement into a measurement of mass. Using these devices, biochemists can
measure molecules with molecular weights of up to 500,000 daltons.
The Company currently offers three MALDI-TOF mass spectrometers: LASERMAT,
an automated standard resolution benchtop instrument controlled by a personal
computer and designed to permit biochemists to conduct fast and accurate
measurements in their own laboratories; VISION 2000, a high-resolution,
research-grade instrument designed for the analysis of complex biomolecules with
a mass range of up to 500,000 daltons; and the DYNAMO, an enhanced benchtop
MALDI-TOF mass spectrometer which has significantly enhanced resolution.
DNA Amplification. The Company designs, manufactures and markets PCR
thermal cyclers and hybridization ovens for DNA amplification. PCR thermal
cyclers are used to amplify short sections of DNA by means of established gene
amplification processes. This technique creates numerous copies of a section of
DNA from a limited sample. PCR is used by research laboratories in order to
diagnose and treat genetically based diseases and in connection with drug
discovery efforts. The Company's hybridization ovens are used in a process in
which synthetic probes made of short fragments of complementary DNA attach to a
DNA sequence under study, enabling identification of the sequence.
Capillary Electrophoresis. CE is a purification and separation technique
commercially introduced in 1989. CE systems separate molecules by measuring the
speeds at which different compounds move through an extremely narrow tube, or
capillary, that is charged with an electric field. The largest market for CE
systems are biopharmaceutical companies, whose research activities require
state-of-the-art CE systems and related supplies. One of the principal
applications for CE systems is the analysis and separation of biomolecules such
as proteins, peptides and nucleic acids, including DNA. Applications of DNA
separation by CE include the identification of specific individuals through DNA
"fingerprinting" and the diagnosis of diseases and specific genetic disorders
such as leukemia, hepatitis and sickle cell anemia.
The Company's SpectraPHORESIS line of CE systems includes a low-cost,
manually controlled CE system and a fully automated CE system with multiple
wavelength detectors. In 1996, the Company introduced its new generation CE
system, the SpectraPHORESIS Ultra. The Company's CE systems offer high
sensitivity, as well as advanced data handling, control and automation features.
The Company also offers a line of CE capillaries, buffers and other consumables.
Information Management Systems
The Company offers laboratory information management systems ("LIMS") and
chromatography data systems ("CDS"), through its LabSystems business, for use in
laboratories, industrial applications and clinical testing facilities.
Companies can improve the efficiency of their analytical laboratories by
using a LIMS to perform sample login, test scheduling, test execution automated
results entry, results validation, reporting and data archiving. LIMS benefits
include minimizing the number of laboratory personnel needed to handle increases
in sample volume, facilitating the implementation of new analytical procedures
and improving compliance with regulatory guidelines. Productivity and accuracy
can also be enhanced by reducing manual data transcription
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<PAGE> 19
and automating error-prone manual tasks such as sample status tracking,
calculations, report preparation and information retrieval. In addition, LIMS
facilitates the maintenance of data and procedure security, audit trials and
validation checks that are key components in complying with regulatory agency
requirements.
LabSystems, the Company's information management systems business, designs,
develops and supports LIMS and CDS. LabSystems is recognized as one of the
world's leading LIMS suppliers. LabSystems also maintains an implementation
support group that provides software customization and project management
services for its customers. LabSystems' products are distributed throughout a
diversified user base, including research and development, quality
assurance/quality control and processing facilities. A substantial majority of
LabSystems' customers are Fortune 500 companies in the process chemical,
aerospace, pharmaceutical, environmental, oil and gas, petrochemical,
automotive, food and beverage, agricultural and medical products industries.
SampleManager, LabSystems' LIMS product, is a fully-integrated suite of
software modules that provides industry-specific functionality in the areas of
statistical analysis, instrument control, pharmaceutical stability studies,
pharmaceutical batch material control and data security and integrity. The
current version of SampleManager is available on DEC, HP and IBM platforms,
running Rdb, Oracle and Microsoft Windows NT. LabSystems also offers
SampleManager-IDI, a software module that enables SampleManager to interface
with SAP AG's R3 office data management system. The Company's SampleManager-IDI
software module has been certified by SAP AG and integrates SampleManager with
the user's other software data systems. All current LabSystems LIMS products are
now fully compatible with the 32 bit Windows NT operating system.
XChrom and Multichrom, the Company's CDS products, are open system
analytical tools which assist users in analyzing chromatographic data obtained
via gas and liquid chromatography and capillary electrophoresis. XChrom is
available on a variety of platforms, runs on any Intel 486 or Pentium-based
personal computer under Microsoft Windows NT, and may be customized to suit most
hardware configurations. Multichrom is a multi-user, multi-channel system for
the DEC Alpha AXP and VAX platforms under the OpenVMS operating system.
Chromatography instruments and auto samples from leading vendors can be
controlled centrally by XChrom and Multichrom, providing a common interface
between instruments and aiding productivity and compliance with regulatory
practices.
XChrom and Multichrom are designed for use as stand-alone data systems or
as part of an integrated system running LIMS products. Sample lists, calibration
protocols and analytical results can be shared between the two applications,
simplifying operation and avoiding transcription errors. The close interaction
between the Company's LIMS and chromatography applications is of particular
benefit to customers operating in a regulated environment.
LabSystems recently introduced Yukon, a software interface between
SampleManager and various analytical instruments. Yukon allows laboratory
personnel to automatically send analytical results from a laboratory test
instrument to SampleManager, thereby eliminating the time-consuming task of
manually transmitting such results into the management information system and
ensuring a secure information flow free of transcription errors. LabSystems also
launched Atlas, a 32 bit Windows NT upgrade to both Multichrom and XChrom, in
April 1998. Atlas is designed for multiple users and multiple instruments for
use in secure and regulated laboratory environments.
Health Physics Joint Venture
In April 1998, the Company announced its intention to form a health physics
joint venture with Thermo Instrument. As of July 5, 1998, the Company will
contribute the assets and liabilities of its Eberline health physics business,
which is based in Santa Fe, New Mexico, to the joint venture, in exchange for a
49% equity interest in the joint venture. The Company's Eberline health physics
business is a supplier of analytical instrumentation, radiation detection and
radiation monitoring systems.
As of the same date, Thermo Instrument will contribute to the joint venture
(i) all of the assets and liabilities of National Nuclear Corporation ("National
Nuclear"), a wholly owned subsidiary of Thermo
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<PAGE> 20
Instrument based in Sunnyvale, California, (ii) all of the issued and
outstanding shares of ESM Eberline Instruments Strahlen - und Umweltmesstechnik
GmbH ("Eberline Instruments"), a subsidiary of Thermo Instrument based in
Germany, and (iii) $13.0 million in cash in exchange for a 51% equity interest
in the joint venture. National Nuclear is a manufacturer of specialized
instruments, systems and monitoring devices for the detection of low-level
amounts of radioactive materials and contamination. Eberline Instruments is a
manufacturer of radiation measuring and monitoring devices for personal
protection, environmental monitoring and military applications.
Profits and losses from the joint venture will be allocated (a) one-third
to Thermo Instrument and two-thirds to the Company until the later of (i) July
2000 or (ii) such time as the joint venture has achieved consolidated division
income (defined as operating income excluding payments pursuant to the Services
Agreement (see "Relationship with Affiliates")) of 17% for a full fiscal year
and (b) to the members of the joint venture in accordance with their respective
equity interests thereafter.
Intellectual Property
The Company's policy is to protect its intellectual property rights and to
apply for patent protection when appropriate. The Company currently holds
several issued United States patents expiring at various dates and has
applications pending for additional United States patents and a number of
foreign counterparts for its patents in various foreign countries. In addition,
the Company has registered, or other, trademarks. Patent protection provides the
Company with competitive advantages with respect to certain systems. The Company
believes, however, that technical know-how and trade secrets are more important
to its business than patent protection.
Principal Customers; Marketing and Distribution
The Company markets, sells and distributes its products worldwide through a
number of channels, including direct sales forces, independent sales
representatives, distributors and original equipment manufacturers ("OEMs"). The
method of distribution is determined independently by each of the Company's
businesses, which take into account the particular product line and market size
and potential, as well as the local business conventions, industry mix and the
availability of technically qualified representatives.
Biomolecular Instruments and Consumables. The Company has focused its
sales efforts on the research and clinical diagnostic markets, including
healthcare and hospital facilities, chemical and pharmaceutical manufacturers,
universities, medical and pharmaceutical research laboratories, veterinary and
agricultural research laboratories and governmental institutions such as the
U.S. Food and Drug Administration ("FDA"), the National Institutes of Health and
the Centers for Disease Control. The Company's products are used principally by
large research and clinical laboratories and manufacturers, including
pharmaceutical companies, where large-batch, high volume testing methods are
required.
The Company sells its immunoassay and optical biosensor products
principally through its direct sales force, OEMs and through distributors
throughout the major countries in the world. The Company maintains direct sales
and service offices in Europe, Japan and the United States. The Company also
sells through manufacturers' representatives.
The Company distributes its laboratory consumables through regional and
national distributor sales channels in over 100 countries worldwide. The
Company's microplates are also sold to OEMs that then incorporate the
microplates into kits sold to diagnostic laboratories.
The Company distributes its MALDI-TOF mass spectrometry products through
its direct sales force in the United States and Western Europe and through sales
representatives elsewhere in the world. The Company distributes its MALDI-TOF
mass spectrometry products in Japan through an arrangement with ThermoQuest.
ThermoQuest also distributes the Company's CE products and is the exclusive
distributor of such products in jurisdictions in which it maintains a direct
sales force.
Information Management Systems. The Company serves a variety of geographic
markets and maintains direct sales and service offices in the United Kingdom and
the United States, as well as a network of
17
<PAGE> 21
distributors, including in some locations Thermo Instrument, in the United
States, Europe, Australia and China.
Competition
The markets for the Company's products are highly competitive. In each of
the markets it serves, the Company competes with a number of companies, many of
which have greater engineering, manufacturing, and marketing resources than the
Company.
Biomolecular Instruments and Consumables
The Company competes in the immunoassay market primarily on the basis of
technological innovation, performance (including throughput and sensitivity),
flexibility and price. In the detection-systems market, the Company competes
primarily with Bio-Tek Instruments, Inc. and Molecular Devices Corporation. In
the automated-systems market, the Company's main competitors include BioChem
Pharma Inc., Immunosystems, Inc., Hamilton Bonaduz AG and Tecan AG.
The Company competes in the laboratory consumables market primarily on the
basis of price, performance and ease of use. The Company's principal competitors
in the consumables or plastics market include Nalge Nunc Inc., Corning-Costar
Corporation, Rainin Instruments, Greiner GmbH and Eppendorf GmbH.
In the optical biosensors market, the Company competes primarily on the
basis of technological innovation, performance and price. The Company's main
competitor is Biacore, Inc.
The Company competes in the MALDI-TOF mass spectrometry market primarily on
the basis of the technical performance of its MALDI-TOF mass spectrometers, as
well as on the need in the analytical biochemistry community for highly
automated mass spectrometers. To a lesser degree, the Company also competes on
the basis of price. Principal competitors in the mass spectrometry market
include PerSeptive Biosystems, Inc., a subsidiary of Perkin Elmer Corporation
("Perkin Elmer"), Shimadzu Corporation, Hewlett-Packard Company
("Hewlett-Packard"), Bruker Instruments Inc. and Micromass Ltd.
The Company's thermal cyclers compete in the DNA amplification market
primarily on the basis of performance, ease of use and, to a lesser extent,
price. Major competitors include Perkin Elmer and MJ Research Technology, a
division of Protean.
The Company competes in the market for CE systems primarily on the basis of
technical performance and automation features and, to a lesser extent, price.
The Company's principal competitors in the CE market include Beckman Coulter,
Inc. ("Beckman"), Bio-Rad Laboratories, Inc. and Hewlett-Packard.
Information Management Systems
The Company competes in the high-end LIMS and CDS markets primarily on the
basis of the functionality, flexibility and technical sophistication of its
systems, as well as on its ability to tailor its software packages to a
customer's specific laboratory protocols, its ability to provide superior
customer service and technical support, and price. Significant competitors in
the LIMS and CDS markets include Perkin Elmer, Beckman, Hewlett-Packard and Lab
Vantage Solutions, Inc., and Waters Corporation in the CDS market.
Employees
As of April 4, 1998 (without giving effect to the acquisition of the
Acquired Companies), the Company had a total of 1,013 employees. The Company
considers its relations with its employees to be good.
Facilities
The Company owns approximately 2,000 square feet of office space in
Stockholm, Sweden. The Company leases approximately 68,000 square feet of
manufacturing, sales and administration space in Virginia, Massachusetts and
California under leases expiring through 2002. The Company leases approxi-
18
<PAGE> 22
mately 303,000 square feet of manufacturing, sales and administration space in
Finland, England, Russia and other European countries, including 14,000 square
feet subleased from ThermoQuest, under leases expiring through 2016. In
addition, the Company leases approximately 12,000 square feet of sales space in
Japan and Hong Kong under leases expiring through 1999. The Company believes
that its existing facilities and offices are in good condition and are adequate
for its current needs and that suitable additional space will be available as
needed in the future. With respect to leases expiring in the near future, in the
event that the Company does not renew such leases, the Company believes that
suitable alternative space is available for lease on acceptable terms.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been publicly traded on the AMEX (symbol:
TBA) since its initial public offering on September 18, 1996. The following
table sets forth, for the periods indicated, the high and low sales prices of
the Company's Common Stock as reported in the consolidated transaction reporting
system since that date.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
Third Quarter............................................... $14 $13 1/8
Fourth Quarter.............................................. $14 5/8 $12 1/2
</TABLE>
<TABLE>
<CAPTION>
1997
----
<S> <C> <C>
First Quarter............................................... $14 1/8 $ 9 3/4
Second Quarter.............................................. $16 1/8 $ 9
Third Quarter............................................... $18 1/4 $14 1/2
Fourth Quarter.............................................. $20 $16 5/8
</TABLE>
<TABLE>
<CAPTION>
1998
----
<S> <C> <C>
First Quarter............................................... $22 3/8 $17 7/16
Second Quarter.............................................. $22 3/4 $17 7/16
Third Quarter (through August 7, 1998)...................... $19 1/8 $17 1/4
</TABLE>
The high, low and closing prices of the Company's Common Stock on the AMEX
on May 12, 1998, the date preceding the public announcement of the Share
Purchase Agreements, were $22, $21 15/16 and $21 15/16, respectively. On August
7, 1998, the closing price of the Common Stock on the AMEX was $19 1/8 per
share. There were 74 holders of Common Stock of record as of August 7, 1998.
Holders of Common Stock do not have any preemptive rights to subscribe for
additional issuances of Common Stock or securities convertible into Common
Stock.
The Company has never paid cash dividends to its Stockholders and does not
expect to pay cash dividends in the future because its policy has been to use
earnings to finance expansion and growth. Payment of dividends rests within the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements and financial condition.
19
<PAGE> 23
SELECTED QUARTERLY FINANCIAL DATA -- THERMO BIOANALYSIS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998
---------
FIRST
---------
<S> <C> <C> <C> <C>
Revenues............................................ $54,434
Gross Profit........................................ 27,851
Net Income.......................................... 3,202
Earnings per Share:
Basic............................................. .23
Diluted........................................... .21
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------
FIRST (1) SECOND THIRD FOURTH
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $26,801 $58,790 $53,354 $63,053
Gross Profit........................................ 12,952 28,130 25,521 32,569
Net Income.......................................... 1,582 3,187 2,425 4,146
Earnings per Share:
Basic............................................. .15 .23 .17 .29
Diluted........................................... .14 .21 .16 .26
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------
FIRST (2) SECOND THIRD FOURTH
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $10,911 $18,871 $19,346 $22,521
Gross Profit........................................ 4,195 9,481 9,573 10,593
Net Income (Loss)................................... (3,114) 431 787 1,460
Earnings (Loss) per Share:
Basic............................................. (.38) .05 .10 .15
Diluted........................................... (.38) .05 .09 .14
</TABLE>
- ---------------
(1) Reflects the results of the Labsystems OY, Hybaid and Labsystems Japan
divisions of LSI, and the Clinical Products Group of LSI, since their
acquisition by Thermo Instrument on March 12, 1997, including the 1,300,000
shares issued to Thermo Instrument in connection with the acquisition of the
Labsystems OY and Hybaid divisions of LSI and the 3,007,930 shares to be
issued to Thermo Instrument in connection with the acquisition of the
Clinical Products Group of LSI.
(2) Reflects the results of DYNEX since February 7, 1996, and the Affinity
Sensors and LabSystems divisions of Fisons since their acquisition by Thermo
Instrument on March 29, 1996, including the associated write-off of
$3,500,000 of acquired technology.
20
<PAGE> 24
SELECTED FINANCIAL INFORMATION -- THERMO BIOANALYSIS
The selected financial information below as of and for the fiscal years
ended December 30, 1995, December 28, 1996 and January 3, 1998 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 proxy statement. This information should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes included elsewhere in this proxy statement. The selected financial
information as of and for the fiscal year ended January 1, 1994 and December 31,
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 proxy statement. The selected financial information for the three month
periods ended March 29, 1997 and April 4, 1998 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 GAAP applied on a consistent basis. The results of operations
for the three months ended April 4, 1998, are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ---------------------
------------------------------------------------------- MARCH 29, APRIL 4,
1993 1994 1995 1996 (1) 1997 (2) 1997 1998
------- ------- ------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $24,479 $25,127 $22,534 $ 71,649 $201,998 $26,801 $ 54,434
------- ------- ------- -------- -------- ------- --------
Costs and Operating Expenses:
Cost of revenues................... 13,010 14,176 13,036 37,807 102,826 13,848 26,583
Selling, general and administrative
expenses......................... 4,914 5,054 4,804 20,987 61,946 7,985 17,899
Research and development
expenses......................... 2,242 2,042 1,325 7,298 14,057 2,352 3,923
Write-off of acquired technology... -- -- -- 3,500 -- -- --
------- ------- ------- -------- -------- ------- --------
20,166 21,272 19,165 69,592 178,829 24,185 48,405
------- ------- ------- -------- -------- ------- --------
Operating Income..................... 4,313 3,855 3,369 2,057 23,169 2,616 6,029
Interest and Other Income (Expense),
Net................................ -- -- 819 (593) (5,294) (131) (1,005)
------- ------- ------- -------- -------- ------- --------
Income Before Provision for Income
Taxes.............................. 4,313 3,855 4,188 1,464 17,875 2,485 5,024
Provision for Income Taxes........... 1,775 1,455 1,674 1,900 6,535 903 1,822
------- ------- ------- -------- -------- ------- --------
Net Income (Loss).................... $ 2,538 $ 2,400 $ 2,514 $ (436) $ 11,340 $ 1,582 $ 3,202
======= ======= ======= ======== ======== ======= ========
Earnings (Loss) per Share (3):
Basic............................ $ .39 $ .37 $ .33 $ (.05) $ .86 $ .15 $ .23
======= ======= ======= ======== ======== ======= ========
Diluted.......................... $ .39 $ .37 $ .33 $ (.05) $ .79 $ .14 $ .21
======= ======= ======= ======== ======== ======= ========
Weighted Average Shares (3):
Basic............................ 6,500 6,500 7,694 8,542 13,232 10,624 14,086
======= ======= ======= ======== ======== ======= ========
Diluted.......................... 6,500 6,500 7,694 8,542 16,367 13,694 17,299
======= ======= ======= ======== ======== ======= ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working Capital...................... $ 6,333 $ 8,282 $27,105 $ 59,750 $ 50,501 $ 52,972
Total Assets......................... 13,596 14,349 32,907 122,997 322,439 324,866
Long-term Obligations................ -- -- -- 50,000 100,204 100,198
Shareholders' Investment............. 8,332 10,162 29,146 51,316 134,343 135,626
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
--------------------------------------------------- -----------------------
MARCH 29, APRIL 4,
1993 1994 1995 1996(1) 1997(2) 1997 1998
------- ------- ------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF
PERIOD):
Working Capital...................... $ 6,333 $ 8,282 $27,105 $ 59,750 $ 50,501 $ 52,972
Total Assets......................... 13,596 14,349 32,907 122,997 322,439 324,866
Long-term Obligations................ -- -- -- 50,000 100,204 100,198
Shareholders' Investment............. 8,332 10,162 29,146 51,316 134,343 135,626
PER SHARE DATA:
HISTORICAL:
Book Value per Share.......................................................... $ 9.54 $ 9.62
Cash Dividends Declared per Share............................................. -- --
Earnings per Share:
Basic....................................................................... .86 .23
Diluted..................................................................... .79 .21
PRO FORMA COMBINED:
Book Value per Share.......................................................... $ 9.54 $ 9.62
Cash Dividends Declared per Share............................................. -- --
Loss per Share:
Basic....................................................................... .45 .23
Diluted..................................................................... .45 .21
</TABLE>
- ---------------
(1) Reflects the results of DYNEX since February 1996, and the Affinity Sensors
and LabSystems divisions of Fisons since their acquisition by Thermo
Instrument in March 1996, including the associated write-off of $3,500,000
of acquired technology.
(2) Reflects the results of the Labsystems OY, Hybaid, and Labsystems Japan
divisions of LSI, and the Clinical Products Group of LSI, since their
acquisition by Thermo Instrument in March 1997. Weighted average shares
include the effect of assuming as outstanding from March 1997 the 1,300,000
shares issued as part of the purchase price for the Labsystems OY and Hybaid
divisions of LSI, and the 3,007,930 shares issuable to Thermo Instrument as
part of the purchase price for the Clinical Products Group of LSI. Pro forma
data for the acquisitions of the Labsystems OY and Hybaid divisions of LSI
and the Clinical Products Group of LSI is included elsewhere in this proxy
statement.
(3) Pursuant to Securities and Exchange Commission requirements, earnings (loss)
per share have been presented for all periods. Weighted average shares for
all periods include the 6,500,000 shares issued to Thermo Instrument in
connection with the initial capitalization of the Company.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- THERMO BIOANALYSIS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements."
OVERVIEW
The Company has three principal product lines: biomolecular instruments and
consumables, clinical laboratory equipment and supplies and information
management systems. The Company's biomolecular instruments and consumables are
based on proprietary immunoassay, optical biosensor, polymerase chain reaction
("PCR"), MALDI-TOF mass spectometry ("MALDI-TOF"), DNA amplification and
capillary electrophoresis ("CE") technologies, and are used in pharmaceutical
and biopharmaceutical research, as well as for clinical laboratory testing and
diagnosis of patient samples. The Company's clinical laboratory business
supplies a range of equipment and consumables with applications in cytology,
histology and pathology. The Company's information management systems business
designs, implements and supports laboratory information management systems
("LIMS"), and chromatography data systems ("CDS") for use in laboratories,
industrial applications and clinical testing facilities.
The Company was incorporated in February 1995 and on February 7, 1996,
acquired the DYNEX Technologies division of Dynatech Corporation. Since then,
the Company has acquired from Thermo Instrument the LabSystems and Affinity
Sensors divisions of Fisons, the Labsystems OY, Hybaid and Labsystems Japan
divisions of LSI, and the Clinical Products Group of LSI. The Company's
financial statements include the results of operations of the acquired divisions
of Fisons and LSI from March 29, 1996 and March 12, 1997, respectively, the date
these businesses were acquired by Thermo Instrument (see Note 2 to the Company's
Consolidated Financial Statements included elsewhere in this proxy statement).
As of July 5, 1998, the Company will contribute the assets and liabilities
of its health physics division to a joint venture the Company formed with Thermo
Instrument. The Company will receive a 49% equity interest in the joint venture,
and will initially receive 67% of the profit and losses of the joint venture.
See "Business -- Health Physics Joint Venture." The Company's health physics
business had revenues of $13.4 million in 1997.
Approximately 33%, 45% and 64% of the Company's revenues in 1995, 1996 and
1997, respectively, were derived from sales of products and services outside the
U.S., through export sales and sales by the Company's foreign operations. During
1997, the Company's sales to Asia were approximately 14% of total revenues,
primarily to Japan, China, and Hong Kong. The Company's sales to Asia could be
adversely affected by the unstable economic conditions in Asia. See
"Forward-looking Statements -- Risks Associated with International Operations."
The Company anticipates that a significant portion of its revenues will
continue to be from sales to customers outside the U.S. As a result, the
Company's financial performance and competitive position can be affected by
currency exchange rate fluctuations. The Company may use forward contracts to
reduce its exposure to currency fluctuations.
RESULTS OF OPERATIONS
First Quarter 1998 Compared With First Quarter 1997
Revenues increased to $54.4 million in the first quarter of 1998 from $26.8
million in the first quarter of 1997. Revenues increased $28.0 million due to
acquisitions. In addition, an increase in revenues at DYNEX was slightly more
than offset by decreases in sales of LIMS and MALDI-TOF instruments. Revenues
also
23
<PAGE> 27
decreased $0.2 million due to the strengthening of the U.S. dollar relative to
foreign currencies in countries in which the Company operates.
The gross profit margin increased to 51% in the first quarter of 1998 from
48% in the first quarter of 1997, primarily due to the inclusion of a full
period of higher-margin revenues from the Labsystems OY liquid handling
business, acquired effective March 12, 1997, as well as an increase in the gross
profit margin at DYNEX, primarily due to an increase in the sale of certain
higher-margin products. These increases were offset in part by inclusion of a
full period of lower-margin revenues from the clinical laboratory products
business, acquired effective March 12, 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased to 33% in the first quarter of 1998 from 30% in the first quarter of
1997, primarily due to the inclusion of the liquid handling and PCR businesses,
which have higher costs as a percentage of revenues, for a full period in 1998,
offset in part by the impact of the inclusion of the clinical laboratory
products business, which has lower costs as a percentage of revenues, for a full
period in 1998. Research and development expenses increased to $3.9 million in
the first quarter of 1998 from $2.4 million in the first quarter of 1997,
primarily due to the inclusion of a full period of expenses at acquired
businesses. Research and development expenses as a percentage of revenues
decreased to 7% in 1998 from 9% in 1997, primarily due to lower costs as a
percentage of revenues at acquired businesses.
Interest income increased to $1.0 million in the first quarter of 1998 from
$0.7 million in the first quarter of 1997, primarily due to interest income
received from Thermo Instrument on a $9.1 million adjustment to the aggregate
purchase price for the acquisitions of the Labsystems OY, Hybaid and Labsystems
Japan divisions of LSI, offset in part by the effect of lower average invested
balances in 1998. Interest expense increased to $2.0 million in the first
quarter of 1998 from $0.9 million in the first quarter of 1997, primarily due to
interest expense on the debt to Thermo Instrument associated with the Company's
acquisitions.
The effective tax rate was 36% in both periods, and exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies, offset in part by the impact of relatively low tax rates in certain
countries in which the Company operates.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased by the
Company. The Company believes that its internal information systems and current
products are either year 2000 compliant or will be so prior to the year 2000
without incurring material costs. There can be no assurance, however, that the
Company will not experience unexpected costs and delays in achieving year 2000
compliance for its internal information systems and current products, which
could result in a material adverse effect on the Company's future results of
operations.
The Company is presently assessing the effect that the year 2000 problem
may have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this might
have on the Company. The Company has not completed its analysis and is unable to
conclude at this time that the year 2000 problem as it relates to its previously
sold products and products purchased from key suppliers is not reasonably likely
to have a material adverse effect on the Company's future results of operations.
See "Forward-looking Statements -- Potential Impact of Year 2000 on Processing
Date-sensitive Information."
1997 Compared With 1996
Revenues increased to $202.0 million in 1997 from $71.6 million in 1996.
Revenues increased $132.0 million due to acquisitions. In addition, revenues at
the Company's LIMS and CE businesses increased $3.1 million primarily due to new
product introductions and sales generated at four direct sales and service
offices established in the second quarter of 1997. These increases were offset
in part by a decrease in revenues at the Company's health physics division, due
to weakness in U.S. Department of Energy and nuclear power plant spending, and,
to a lesser extent, a $1.2 million decrease due to the unfavorable effects of
currency
24
<PAGE> 28
translation as a result of the strengthening of the U.S. dollar relative to
foreign currencies in countries in which the Company operates.
The gross profit margin increased to 49% in 1997 from 47% in 1996,
primarily due to the inclusion of higher-margin revenues from Labsystems OY,
acquired effective March 12, 1997, and, to a lesser extent, the inclusion of
higher-margin revenues from the Company's LIMS business, acquired effective
March 29, 1996. These increases were offset in part by the inclusion of
lower-margin revenues from the clinical laboratory products business, acquired
effective March 12, 1997, and, to a lesser extent, the PCR business, also
acquired effective March 12, 1997.
Selling, general and administrative expenses as a percentage of revenues
increased to 31% in 1997 from 29% in 1996. The increase was primarily due to the
impact of higher costs at the Labsystems OY and PCR businesses, acquired
effective March 12, 1997, as well as an increase in costs in the LIMS business
as a result of the opening of four direct sales and service offices in the
second quarter of 1997. In addition, the Company incurred $0.7 million of
severance and related costs related to reductions in personnel in 1997. These
increases were offset in part by the impact of clinical laboratory products
business, acquired effective March 12, 1997, which has lower costs as a
percentage of revenues. Research and development expenses increased to $14.1
million in 1997 from $7.3 million in 1996, primarily due to the inclusion of
research and development costs at acquired businesses. Research and development
expenses as a percentage of revenues decreased to 7% in 1997 from 10% in 1996.
During 1996, the Company wrote off $3.5 million of acquired technology in
connection with the acquisitions of the U.K.-based LIMS and optical biosensor
businesses (see Note 2 to the Company's Consolidated Financial Statements
included elsewhere in this proxy statement.)
Interest income increased to $2.4 million in 1997 from $1.3 million in
1996, primarily due to interest income earned on invested proceeds from the
Company's initial public offering of common stock in September and October 1996.
Interest expense increased to $7.7 million in 1997 from $1.9 million in 1996,
primarily due to interest expense on the $50.0 million promissory note to Thermo
Instrument associated with the acquisition of the Labsystems OY and Hybaid
divisions of LSI, interest expense on the $37.9 million of existing indebtedness
owed by the Clinical Products Group of LSI to Thermo Instrument that was assumed
by the Company and the inclusion of a full year of interest for the $50.0
million Convertible Note issued to Thermo Instrument in July 1996. These
increases were offset in part by the effect of the repayment in July 1996 of a
$30.0 million promissory note issued to Thermo Electron in February 1996.
The effective tax rate was 37% in 1997, compared with 38% in 1996,
excluding the effect of the 1996 write-off of acquired technology associated
with the acquisitions of the Company's U.K.-based LIMS and optical biosensor
businesses, for which no tax benefit was recorded. These rates exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes.
1996 Compared With 1995
Revenues increased to $71.6 million in 1996 from $22.5 million in 1995. An
increase in revenues of $52.3 million due to acquisitions was offset in part by
lower revenues at the Company's MALDI-TOF business due to increased competition
and a change in distribution channels from commission-based sales agents to
distributors. In addition, the Company believes that revenues at its health
physics division decreased primarily due to reduced spending at U.S. Department
of Energy facilities as a result of the federal budgetary impasse.
The gross profit margin increased to 47% in 1996 from 42% in 1995,
primarily due to the inclusion of higher-margin revenues at the Company's LIMS
and optical biosensor businesses and, to a lesser extent, at the Company's
immunoassay business. These increases were offset in part by a decrease in
margins at the Company's MALDI-TOF business, due to a change in distribution
channels from commission-based sales agents to distributors, which resulted in
reduced revenues.
Selling, general and administrative expenses as a percentage of revenues
increased to 29% in 1996 from 21% in 1995, primarily due to higher costs as a
percentage of revenues at the Company's recently acquired immunoassay business
and, to a lesser extent, at the LIMS business. In mid-1996 the Company
implemented
25
<PAGE> 29
a cost reduction plan at the immunoassay business, which is intended to reduce
selling, general, and administrative expenses as a percentage of revenues
primarily by decreasing staffing levels and, to a lesser extent, travel and
other related costs. Research and development expenses increased to $7.3 million
in 1996 from $1.3 million in 1995, primarily due to the inclusion of expenses at
acquired businesses.
During 1996, the Company wrote off $3.5 million of acquired technology in
connection with the acquisitions of the U.K.-based LIMS and optical biosensor
businesses (see Note 2 to the Company's Consolidated Financial Statements
included elsewhere in this proxy statement.)
Interest income in both periods primarily represents interest earned on
invested proceeds from the Company's private placements of common stock in March
and April 1995, and initial public offering of common stock in September and
October 1996. Interest expense in 1996 represents interest associated with a
$50.0 million Convertible Note issued to Thermo Instrument in July 1996 and, to
a lesser extent, interest associated with a $30.0 million promissory note issued
to Thermo Electron in February 1996, which was repaid in July 1996.
The effective tax rate was 38% and 40% in 1996 and 1995, respectively,
excluding the effect of the 1996 write-off of acquired technology associated
with the acquisitions of the U.K.-based LIMS and optical biosensor businesses,
for which no tax benefit has been recorded. These rates exceeded the statutory
federal income tax rate primarily due to losses at foreign businesses for which
no benefit could be recognized and the impact of state income taxes. The
effective tax rate decreased in 1996 primarily due to income from certain newly
acquired foreign companies, which are subject to lower tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $53.0 million as of April 4, 1998,
compared with $50.5 million as of January 3, 1998. Included in working capital
are cash and cash equivalents of $43.5 million as of April 4, 1998, compared
with $39.7 million as of January 3, 1998. Of the Company's total cash and cash
equivalents at April 4, 1998, $13.0 million was invested in a repurchase
agreement with Thermo Electron (see Note 1 to the Company's Consolidated
Financial Statements included elsewhere in this proxy statement). During the
first quarter of 1998, operating activities used $4.1 million of cash. A
decrease in "Due to parent company and affiliated companies" used $10.3 million
in cash, primarily due to the repayment of certain trade and other operating
balances payable to other Thermo Instrument companies.
The Company's investing activities provided $7.4 million in cash in the
first quarter of 1998. The Company made expenditures of $1.9 million for
purchases of property, plant, and equipment, and expects to make capital
expenditures of approximately $4.9 million during the remainder of 1998.
The Company's financing activities provided $0.8 million of cash during the
first quarter of 1998. A net increase in the Company's bank overdraft facility
provided $0.7 million.
During 1997, $16.7 million of cash was provided by operating activities. An
increase in accounts receivable used $11.3 million in cash, primarily as a
result of an increase in shipments near the end of the year.
Investing activities used $20.1 million in cash during 1997. In May 1997,
the Company agreed to acquire Labsystems OY and Hybaid, which comprised the
Biosystems Group of LSI, from Thermo Instrument for approximately $102.5
million, which consists of: a) approximately $91.5 million for the net operating
assets of the acquired businesses plus b) $11.0 million for an equivalent amount
of cash held by the acquired businesses. Of the $102.5 million aggregate
purchase price, the Company paid $35.6 million in cash to Thermo Instrument in
June 1997, issued a $50.0 million promissory note to Thermo Instrument, and
issued to Thermo Instrument in April 1998 1,300,000 shares of Company common
stock valued at $16.9 million at the time of the May 1997 agreement to acquire
Labsystems OY and Hybaid (see Note 2 to the Company's Consolidated Financial
Statements included elsewhere in this proxy statement). The $50.0 million
promissory note, which bears interest at the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter, is due on July
15, 1999. During the first quarter of 1998, the Company received a refund from
Thermo Instrument of approximately $5.1 million relating to the purchase price
for the Biosystems Group, based on Thermo Instrument's final determination of
the book value of the acquired net
26
<PAGE> 30
assets as well as its final determination of the cost in excess of net assets
acquired. In July 1997, the Company agreed to acquire Labsystems Japan for
approximately $5.9 million in cash. Subsequently, the Company assumed certain
additional trade payables totaling approximately $4.4 million, which resulted in
a corresponding decrease in the purchase price. Of the $4.4 million purchase
price adjustment, $0.4 million was received in 1997 and the remainder was
received during the first quarter of 1998 (see Note 2 to the Company's
Consolidated Financial Statements included elsewhere in this proxy statement).
The Company expended $4.5 million for purchases of property, plant and equipment
during 1997.
In May 1998, the Company agreed to acquire the Clinical Products Group of
LSI, which is comprised of Shandon Inc. and its related businesses, including
ALKO Diagnostic, from Thermo Instrument. The net purchase price for the Clinical
Products Group is approximately $66.7 million, which represents the sum of the
net book value of the businesses as of April 4, 1998, plus a percentage of
Thermo Instrument's total cost in excess of net assets acquired associated with
its acquisition of LSI, based on the 1996 revenues of the Clinical Products
Group relative to LSI's 1996 consolidated revenues.
The net purchase price for the Clinical Products Group will be paid with
3,007,930 shares of Company Common Stock valued at $66.7 million (see Note 2 to
the Company's Consolidated Financial Statements included elsewhere in this proxy
statement). Issuance of the Common Stock will occur immediately after the
listing upon the AMEX of the 3,007,930 shares of Company Common Stock issuable
to Thermo Instrument, which will require approval by the Company's shareholders.
Because Thermo Instrument is the Company's majority shareholder and intends to
vote its shares in favor of such listing, the approval is assured. In addition,
the Company assumed approximately $37.9 million of existing indebtedness owed by
the Clinical Products Group to Thermo Instrument, making the gross purchase
price approximately $104.5 million. This amount included approximately $12.0
million for an equivalent amount of cash acquired. The existing indebtedness
owed to Thermo Instrument is due January 2, 1999 and bears interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
The Company has undertaken a restructuring of the Biosystems Group of LSI
and the Clinical Products Group of LSI (see Note 2 to the Company's Consolidated
Financial Statements included elsewhere in this proxy statement). The Company
expended $3.4 million and $0.9 million for restructuring activities during 1997
and the first quarter of 1998, respectively, and had accrued $4.2 million at
April 4, 1998, which will be expended primarily during the remainder of 1998.
The Company expects that such expenditures will not change materially from
amounts accrued at April 4, 1998.
The Company has signed two non-binding letters of intent relating to the
purchase of two businesses for consideration of approximately $36.0 million in
cash. These proposed acquisitions are subject to certain conditions, including
completion of due diligence and negotiation of definitive agreements. There can
be no assurance that these acquisitions will be completed.
Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of cash
for the possible acquisition of complementary businesses and technologies. The
Company expects that it will finance these acquisitions through a combination of
internal funds, additional debt or equity financing and/or short-term borrowings
from Thermo Instrument or Thermo Electron, although there is no agreement with
these companies to ensure that funds will be available on acceptable terms or at
all. The Company expects to pay its $37.9 million debt payable to Thermo
Instrument with a portion of the net proceeds from the sale of the shares of
Common Stock offered hereby. The Company also has a $50.0 million promissory
note payable to Thermo Instrument in July 1999, which it expects to pay through
a combination of internal funds and additional debt or equity financing,
possibly to include a portion of the net proceeds from the sale of the shares of
Common Stock offered hereby. Thermo Instrument, however, has stated its
intention to require repayment of such indebtedness only to the extent that the
Company's resources permit. Accordingly, the Company believes that its existing
cash and cash equivalents are sufficient to meet the capital requirements of its
existing businesses for the foreseeable future, including at least the next 24
months.
27
<PAGE> 31
FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 1998 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
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 February 1996, the
Company acquired substantially all the assets, subject to certain liabilities,
of DYNEX Technologies, a supplier of automated systems, detection systems and
consumables for the immunoassay market; effective March 1996, the Company
acquired its Affinity Sensors and LabSystems businesses, a supplier of optical
biosensors, and laboratory information management systems and chromatography
data systems, respectively; effective March 1997, the Company acquired
Labsystems OY, a manufacturer of microplate-based immunoassay instruments and
liquid handling equipment, and Hybaid Limited ("Hybaid"), a manufacturer of
thermal cyclers and consumables for DNA amplification. There can be no assurance
that the Company will be able to successfully integrate all of these recently
acquired businesses, or any future acquired businesses, and realize the benefits
expected from such acquisitions. In addition, promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals,
including antitrust approvals. Any acquisitions completed by the Company may be
made at substantial premiums over the fair value of the net assets of the
acquired companies, resulting in significant amortization expenses related to
goodwill and other intangible assets. 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 that are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders.
Intense Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company believes
that the principal competitive factors affecting the markets for its products
include product features, product performance, price and service. The Company's
competitors include a number of large multinational corporations. These
companies and certain of the Company's other competitors have substantially
greater financial, marketing and other resources than the Company. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than the Company. Competition could
increase if new companies enter the market or if existing competitors expand
their product lines or intensify efforts within existing product lines. There
can be no assurance that the Company's current products, products under
development or ability to develop new technologies will be sufficient to enable
it to compete effectively.
Rapid and Significant Technological Change and New Products. The markets
for the Company's products are characterized by rapid and significant
technological change, evolving industry standards and frequent new product
introductions and enhancements. Many of the Company's products and products
under development are technologically innovative and require significant
planning, design, development and testing at the technological, product and
manufacturing process levels. These activities require significant capital
commitments and investment by the Company. In addition, products that are
competitive in the Company's markets are characterized by rapid and significant
technological change due to industry standards that may change on short notice
and by the introduction of new products and technologies that render existing
products and technologies uncompetitive or obsolete. There can be no assurance
that any of the products currently being developed by the Company, or those to
be developed in the future, will be technologically feasible or accepted by the
marketplace, that any such development will be completed in any particular time
frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete.
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<PAGE> 32
Uncertainty of Market Acceptance of New Products. Certain of the Company's
products represent alternatives to traditional instruments and methods and as a
result 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. This is particularly true where the purchase of the
product requires a significant capital commitment. The Company's optical
biosensor, MALDI-TOF mass spectrometry and capillary electrophoresis products
are based on relatively new, emerging technologies. The Company believes that,
to a significant extent, its growth prospects depend on its ability to gain
acceptance by a broader group of customers of the efficiency and efficacy of the
Company's innovative technologies. There can be no assurance that the Company
will be successful in obtaining such broad acceptance.
Dependence on Capital Spending Policies and Government Funding. The
Company's customers include pharmaceutical, biotechnology, chemical and
industrial companies, hospitals and clinical diagnostic laboratories and
companies. The capital spending policies of these companies and institutions can
have a significant effect on the demand for the Company's products. Such
policies are based on a wide variety of factors, including the resources
available to make such purchases, the spending priorities among various types of
research equipment and the policies regarding capital expenditures during
recessionary periods. Any decrease in capital spending by life sciences
companies could have a material adverse effect on the Company's business and
results of operations. Biotechnology companies have raised significant amounts
of capital through public equity offerings and most of these companies are
engaged in programs that include capital spending. However, the availability of
capital through the public markets can be cyclical and there can be no assurance
that the raising of capital by these companies will continue, nor can there be
any assurance that additional capital, if available, will result in increased
sales of the Company's products.
A significant portion of the Company's sales are to universities,
government research laboratories, private foundations and other institutions
where funding is dependent on grants from government agencies such as the
National Institutes of Health ("NIH") and the equivalent of the NIH in foreign
countries where the Company markets its products. If government funding
necessary to purchase the Company's products were to become unavailable to
researchers for any extended period of time, or if overall research funding were
to decrease, the Company's business and results of operations could be adversely
affected. In addition, a significant portion of sales by the Company's Eberline
health physics division that was recently contributed to the joint venture with
Thermo Instrument are made to various branches of the United States government,
primarily the United States Department of Energy. Any further decline in
purchases by the United States government, including, without limitation,
declines as the result of budgeting limitations, could have an adverse effect on
the Company's investment in this joint venture.
Potential Fluctuations in Quarterly Performance. Many of the Company's
products are large systems that may require significant capital expenditures.
Consequently, the timing of sales of these systems could affect the Company's
quarterly earnings. Further, the Company's quarterly operating results may also
vary significantly depending on a number of other factors, including the size,
timing and shipment of individual orders, changes in pricing by the Company or
its competitors, discount levels, seasonality of revenue, foreign currency
exchange rates, the mix of products sold, the timing of the announcement,
introduction and delivery of new product enhancements by the Company and its
competitors, and general economic conditions. Generally, the Company recognizes
product revenues upon shipment of its products. Revenues on substantially all
contracts are recognized using the percentage-of-completion method. Typically,
the Company experiences higher revenues in the fourth quarter, and to a lesser
extent, the second quarter of each fiscal year. Because certain operating
expenses of the Company are based on anticipated capacity 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 effect on
the Company's business or results of operations.
Risks Associated with International Operations. International sales
accounted for 64% of the Company's total revenues in 1997. A significant portion
of the Company's manufacturing operations are based in Finland. The Company
intends to continue to expand its presence in international markets.
International operations are subject to a number of risks, including the
following: agreements may be difficult to enforce and
29
<PAGE> 33
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. 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. A
portion of the Company's revenues is derived from sales in Asia. Asia is
experiencing a severe economic crisis, which has been characterized by sharply
reduced economic activity and liquidity, highly volatile foreign-currency-
exchange and interest rates, and unstable stock markets. The Company's sales to
Asia could be materially adversely affected by the unstable economic conditions
there.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products and processes because of the length of
time and expense associated with bringing new products through the development
process and to the marketplace. The Company's success depends, in part, on its
ability to develop patentable products and obtain and enforce patent protection
for its products both in the United States and in other countries. The Company
has filed and intends to file applications as appropriate for patents covering
its products. No assurance can be given that patents will issue from any pending
or future patent applications owned by or licensed to the Company, or that the
claims allowed under any issued patents will be sufficiently broad to protect
the Company's technology. In addition, no assurance can be given that any issued
patents owned by or licensed to the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The Company could incur substantial costs in
defending itself in suits brought against it or in suits in which the Company
may assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others, nor breaching the
technology licenses upon which components of the Company's products are based.
The Company is aware of patents and patent applications belonging to competitors
and other third parties, and it is uncertain whether these patents and patent
applications will require the Company to alter its products or processes, pay
licensing fees or cease making and selling infringing products and pay damages
for past infringement. In particular, the Company has been named as a defendant
in a patent infringement lawsuit brought by Biacore AB and Biacore, Inc.
("Biacore"). The complaint alleges that the design of the cuvette used in the
Company's optical biosensor system infringes a patent held by Biacore; however,
if Biacore were successful in enforcing such patent, the Company believes that
it is entitled to indemnification for losses in this matter by Rhone-Poulenc
Rorer Inc., the parent company of Fisons plc ("Fisons"). Fisons initially sold
the business to Thermo Instrument in March 1996.
The Company is aware of patents held by another third party that may relate
to the features of certain of the Company's MALDI-TOF mass spectrometers. The
Company has alleged that this party infringes certain of the Company's patents
on its MALDI-TOF mass spectrometers. This party was recently acquired by another
company with whom the Company has a dispute relating to patents licensed by such
acquiring company to the Company. The Company has ceased making royalty payments
of approximately $1.2 million per year but continues to accrue the royalties for
financial reporting purposes, pending a resolution of both of these matters.
There can be no assurance that a favorable resolution will occur.
In general, the holder of a patent who is successful in proving
infringement by the Company would subject the Company to damages for past
infringement and would enjoin the Company from manufacturing and selling
products utilizing the features associated with such patent, which could have a
material adverse effect on the Company's business and results of operations.
The Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that
30
<PAGE> 34
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors.
Government Regulations; No Assurance of Regulatory Approval. The
production and marketing of certain of the Company's products and its ongoing
research and development activities are subject to regulation by government
authorities in the United States and in other countries. To the extent that an
analytical instrument or an in vitro diagnostic product will be used in human
clinical or diagnostic applications, the manufacturer of that instrument may be
required to submit to the U.S. Food and Drug Administration ("FDA"), prior to
commercial distribution of the instrument or in vitro diagnostic product in the
U.S., either a premarket notification ("510(k)") or a premarket approval ("PMA")
application, unless the product has been in commercial distribution for the
labeled intended use since before May 28, 1976, the effective date of the
Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. The FDA
uses a risk-based system to classify medical devices. Unless they are exempt,
lower risk devices, in Class I and Class II, are generally subject to 510(k)
premarket notification, in which the FDA determines that a device is safe and
effective based on its "substantial equivalence" to a legally marketed product.
Highest risk, Class III devices are subject to the premarket approval process,
in which the FDA generally determines the safety and effectiveness of the device
based on the submission of clinical data. The Company has, to date, been
required to obtain 510(k) clearances with respect to certain clinical
applications, instruments and in vitro diagnostic products, which are classified
as Class I and Class II products. There can be no assurance that 510(k)
clearance for any future product or modification of an existing product will be
granted by the FDA within a reasonable time frame, if at all, that in the future
the FDA will not require manufacturers of certain medical devices to engage in a
more thorough and time consuming approval process than the 510(k) process, or
that international government agencies will permit marketing of the Company's
products in their respective jurisdictions.
As a result of the clinical applications of certain of the Company's
instruments and in vitro diagnostic products, certain of the Company's
facilities are registered with the FDA as medical device manufacturers. As such,
the Company may be inspected on a routine basis by the FDA for compliance with
the FDA's Quality System Regulation and other applicable regulations. These
regulations require that the Company manufacture its products and maintain
related documentation in accordance with current good manufacturing practices
with respect to manufacturing, testing and quality control activities. Further,
the Company is required to comply with various FDA requirements for reporting of
product malfunctions and other matters.
The regulatory standards for manufacturing are currently being applied
stringently by the FDA and state regulatory agencies. Noncompliance with FDA or
applicable state agency regulations, or discovery of previously unknown problems
with a product, manufacturer, or facility may result in restrictions on such
product or manufacturer, including fines, recalls, injunctions or seizures of
products, refusal of the government to approve or clear product approval
applications or to allow the Company to enter into government supply contracts,
or even withdrawal of the product from the market, or criminal prosecution, any
of which could have a material adverse effect on the Company's business and
results of operations.
In addition, a significant percentage of the Company's product revenues are
derived from sales outside of the United States. International regulatory bodies
often establish varying regulations governing product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. In order to continue to sell its instrument
products in Europe, certain of the Company's facilities maintain ISO 9000 series
registration, an internationally-recognized set of quality standards, and each
of its instrument products is required to obtain a CE Mark as evidence of
compliance with European Union electronic safety requirements. Failure to
receive a CE Mark certification would prohibit the Company from selling its
products in Europe, which could have a material adverse effect on the Company's
business and results of operations. At the present time, analytical instruments
and in vitro diagnostic products are not subject to CE Mark requirements under
the Medical Device Directive, but it is anticipated that CE Mark requirements
will be extended to include analytical instruments and in vitro diagnostic
products within the next two years. Certain other countries require the Company
to obtain clearances for its products prior to marketing the products in those
countries. In addition, certain countries impose product specifications that
31
<PAGE> 35
differ from those mandated in the United States. These requirements may
significantly affect the efficiency and timeliness of international market
introductions of the Company's products.
Although the Company has an active program to comply with CE Mark
requirements and an ISO 9000 compliance program, there can be no assurance that
the Company will be successful in maintaining its compliance with current or
future applicable certification requirements. Any violation of, and the cost of
compliance with, these regulations or requirements could have a material adverse
effect on the Company's business and results of operations.
Uncertainty of Patient Reimbursement. The Federal government regulates
reimbursement of fees for certain diagnostic examinations and capital equipment
acquisition costs connected with services to Medicare beneficiaries. Recent
legislation has limited Medicare reimbursement for diagnostic examinations. For
example, deficit reduction measures have resulted in reimbursement rate
reductions in the past and may result in further rate reductions in the future.
These policies may have the effect of limiting the availability or reimbursement
for procedures, and as a result may inhibit or reduce demand by healthcare
providers for products in the markets in which the Company competes. Although
the Company cannot predict what effect the policies of government entities and
other third-party payors will have on future sales of the Company's products,
there can be no assurance that such policies would not have a material adverse
effect on the Company's business and results of operations.
Potential Product Liability. The Company's business exposes it to
potential product liability claims which are inherent in the manufacturing,
marketing and sale of biomedical instruments and diagnostic products, and as
such the Company may face substantial liability to patients for damages
resulting from the faulty design or manufacture of its products. The Company
currently maintains product liability insurance, but there can be no assurance
that this insurance will provide sufficient coverage in the event of a claim,
that the Company will be able to maintain such coverage on acceptable terms, if
at all, or that a product liability claim would not materially adversely affect
the Company's business or results of operations.
Potential Impact of Year 2000 on Processing Date-sensitive
Information. The Company is currently assessing the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal information
systems and current products are either year 2000 compliant or will be so prior
to the year 2000 without incurring material costs. There can be no assurance,
however, that the Company will not experience unexpected costs and delays in
achieving year 2000 compliance for its internal information systems and current
products, which could result in a material adverse effect on the Company's
future results of operations.
The Company is presently assessing the effect that the year 2000 problem
may have on its previously sold products. The Company is also assessing whether
its key suppliers are adequately addressing this issue and the effect this might
have on the Company. The Company has not completed its analysis and is unable to
conclude at this time that the year 2000 problem as it relates to its previously
sold products and products purchased from key suppliers is not reasonably likely
to have a material adverse effect on the Company's future results of operations.
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<PAGE> 36
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 4, 1998 with respect to the only person
that was known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
- ------------------- ------------------ -------------------------
<S> <C> <C>
Thermo Electron Corporation(1)........................ 13,031,240 71.9%
81 Wyman Street
Waltham, MA 02454-9046
</TABLE>
- ---------------
(1) Thermo Electron beneficially owned 71.9% of the Common Stock outstanding as
of July 4, 1998, of which approximately 59.7% is owned through Thermo
Instrument and approximately 12.2% is owned directly. Includes 3,030,303
shares of Common Stock that Thermo Electron, through Thermo Instrument, has
the right to acquire through the conversion of the Convertible Note. Thermo
Electron, through Thermo Instrument, has the power to elect all of the
members of the Company's Board of Directors. After the issuance of 3,007,930
TBA Shares, Thermo Electron will beneficially own approximately 75.9% of the
outstanding Common Stock.
MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo Instrument, the Company's parent company, and
of Thermo Electron, Thermo Instrument's parent company, as of March 1, 1998,
with respect to (i) each Director, (ii) each executive officer named in the
summary compensation table under the heading "Compensation of Executive
Officers" and (iii) all Directors and current executive officers as a group.
While certain Directors and executive officers of the Company are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the shares
of Common Stock beneficially owned by Thermo Electron.
<TABLE>
<CAPTION>
THERMO BIOANALYSIS THERMO INSTRUMENT THERMO ELECTRON
NAME(1) CORPORATION(2) SYSTEMS INC.(3) CORPORATION(4)
------- ------------------ ----------------- ---------------
<S> <C> <C> <C>
Elias P. Gyftopoulos....................... 15,000 58,766 72,067
Donald W. Hanna............................ 21,000 19,557 20,645
Barry S. Howe.............................. 64,900 125,422 77,670
Earl R. Lewis.............................. 72,500 203,726 84,037
Colin Maddix(5)............................ 0 40,000 0
Jonathan W. Painter........................ 15,000 7,188 28,537
Arvin H. Smith............................. 39,000 539,583 519,038
Arnold N. Weinberg......................... 15,892 0 0
All Directors and current executive
officers as a group (10 persons)......... 286,492 1,101,832 1,614,821
</TABLE>
- ---------------
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares of the Common Stock beneficially owned by Dr. Gyftopoulos, Mr.
Hanna, Mr. Howe, Mr. Lewis, Mr. Painter, Mr. Smith, Dr. Weinberg and all
Directors and current executive officers as a group include 15,000, 21,000,
50,000, 15,000, 20,000, 15,000 and 206,200 shares, respectively, that such
person or group has the right to acquire within 60 days of March 1, 1998,
through the exercise of stock options. Shares of the Common Stock
beneficially owned by Dr. Weinberg and all directors and current
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<PAGE> 37
executive officers as a group include 892 full shares allocated to Dr.
Weinberg's account under the Company's deferred compensation plan for
directors. Shares of the Common Stock beneficially owned by Mr. Howe
include 600 shares held in custodial accounts for the benefit of two minor
children. Shares of the Common Stock beneficially owned by Mr. Lewis
include 1,000 shares held by Mr. Lewis's spouse. No director or executive
officer beneficially owned more than 1% of the Common Stock outstanding as
of March 1, 1998; all Directors and current executive officers as a group
beneficially owned 2.6% of the Common Stock outstanding as of such date.
(3) The shares of the common stock of Thermo Instrument shown in the table
reflect a five-for-four split of such stock distributed in October 1997 in
the form of a 25% stock dividend. Shares of the common stock of Thermo
Instrument beneficially owned by Dr. Gyftopoulos, Mr. Hanna, Mr. Howe, Mr.
Lewis, Mr. Maddix, Mr. Painter, Mr. Smith and all Directors and current
executive officers as a group include 18,075, 18,750, 111,327, 172,085,
40,000, 7,031, 292,698 and 749,298 shares, respectively, that such person
or group had the right to acquire within 60 days after March 1, 1998,
through the exercise of stock options. Shares of the common stock of Thermo
Instrument beneficially owned by Mr. Painter, Mr. Smith and all directors
and current executive officers as a group include 157, 663 and 1,976
shares, respectively, allocated through March 1, 1998, 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 of the common
stock of Thermo Instrument beneficially owned by Mr. Howe include 2,450
shares held in a trust of which he is a trustee. Shares of the common stock
of Thermo Instrument beneficially owned by Mr. Lewis include 2,987 shares
held by his spouse. No Director or executive officer beneficially owned
more than 1% of the common stock of Thermo Instrument outstanding as of
March 1, 1998; all Directors and current executive officers as a group
beneficially owned less than 1% of the common stock outstanding as of such
date.
(4) Shares of the common stock of Thermo Electron beneficially owned by Dr.
Gyftopoulos, Mr. Hanna, Mr. Howe, Mr. Lewis, Mr. Painter, Mr. Smith and all
Directors and current executive officers as a group include 10,375, 18,398,
68,687, 84,037, 22,775, 228,411 and 1,138,155 full shares, respectively,
that such person or group has the right to acquire within 60 days of March
1, 1998, through the exercise of stock options. Shares of the common stock
of Thermo Electron beneficially owned by Mr. Painter, Mr. Smith and all
current Directors and executive officers as a group include 590, 1,717 and
5,769 full shares, respectively, allocated to accounts maintained pursuant
to the ESOP. Shares of the common stock of Thermo Electron beneficially
owned by Mr. Howe include 200 shares held in custodial accounts for the
benefit of two minor children. No director or executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
outstanding as of March 1, 1998; all Directors and current executive
officers as a group beneficially owned 1% of the Thermo Electron common
stock outstanding as of such date.
(5) Information as to Mr. Maddix's ownership is reported as of March 11, 1998.
RELATIONSHIP WITH AFFILIATES
Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermo Electron and certain of its
subsidiaries have created several privately and publicly held subsidiaries, and
Thermo Instrument has created the Company as a publicly held, majority-owned
subsidiary. From time to time, Thermo Electron and its subsidiaries will create
other majority-owned subsidiaries as part of its spinout strategy. (The Company
and such other majority-owned Thermo Electron subsidiaries are hereinafter
referred to as the "Thermo Subsidiaries.")
Thermo Electron and each of the Thermo Subsidiaries 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 have 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
34
<PAGE> 38
Charter is to ensure that (1) all of the companies and their stockholders are
treated consistently and fairly, (2) the scope and nature of the cooperation
among the companies, and each company's responsibilities, are adequately
defined, (3) each company has access to the combined resources and financial,
managerial and technological strengths of the others, and (4) Thermo Electron
and the Thermo Subsidiaries, in the aggregate, are able to obtain the most
favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
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 establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
each of the Thermo Subsidiaries.
The Charter presently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Company, can withdraw from participation in the Charter upon 30
days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) 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. In
addition, 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.
As provided in the Charter, the Company and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and financial and other services to the Company. In 1995, 1996 and
1997, the Company was assessed an annual fee for these services equal to 1.2%,
1.0% and 1.0%, respectively, of the Company's revenues. The fee is reviewed
annually and may be changed by mutual agreement of the Company and Thermo
Electron. Thermo Electron and the Company have agreed to reduce the fee to 0.8%
of the Company's revenues effective January 1, 1998. During fiscal 1995, fiscal
1996 and fiscal 1997, Thermo Electron assessed the Company $270,000, $716,000
and $2,020,000, respectively, in fees under the Services Agreement.
Management believes that the charges under the Services Agreement are
reasonable and that the terms of the Services Agreement are 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
attributable to the Company. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services Agreement terminates automatically in
35
<PAGE> 39
the event the Company ceases to be a member of the Thermo Group or ceases to be
a participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis by
the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
RELATED PARTY TRANSACTIONS
Formation of Health Physics Joint Venture
In April 1998, the Company announced its intention to form a health physics
joint venture with Thermo Instrument. As of July 5, 1998, the Company will
contribute the assets and liabilities of its Eberline health physics business,
which is based in Santa Fe, New Mexico, to the joint venture, in exchange for a
49% equity interest in the joint venture. The Company's Eberline health physics
business is a supplier of analytical instrumentation, radiation detection and
radiation monitoring systems.
As of the same date, Thermo Instrument will contribute to the joint venture
(i) all of the assets and liabilities of National Nuclear Corporation ("National
Nuclear"), a wholly owned subsidiary of Thermo Instrument based in Sunnyvale,
California, (ii) all of the issued and outstanding shares of ESM Eberline
Instruments Strahlen - und Umweltmesstechnik GmbH ("Eberline Instruments"), a
subsidiary of Thermo Instrument based in Germany, and (iii) $13,000,000 in cash
in exchange for a 51% equity interest in the joint venture. National Nuclear is
a manufacturer of specialized instruments, systems and monitoring devices for
the detection of low-level amounts of radioactive materials and contamination.
Eberline Instruments is a manufacturer of radiation measuring and monitoring
devices for personal protection, environmental monitoring and military
applications.
Profits and losses from the joint venture will be allocated (a) one-third
to Thermo Instrument and two-thirds to the Company until the later of (i) July
2000 or (ii) such time as the joint venture has achieved a consolidated division
income (defined as operating income excluding payments pursuant to the Services
Agreement) of 17% for a full fiscal year and (b) to the members of the joint
venture in accordance with their respective equity interests thereafter.
Acquisition of Biosystems Group of LSI
Effective March 1997, the Company acquired the Biosystems Group of LSI from
Thermo Instrument. The Biosystems Group is comprised of Labsystems OY and Hybaid
Limited. The acquisition was effected through the issuance of 1,300,000 shares
of the Company's Common Stock to Thermo Instrument (valued at $16,868,000 at the
time the purchase agreement was signed), payment of $30,483,000 in cash to
Thermo Instrument and the issuance of a promissory note to Thermo Instrument in
the aggregate principal amount of $50,000,000. This promissory note bears
interest at the 90-day Commercial Paper Composite Rate, plus 25 basis points,
set at the beginning of each quarter, and is due July 15, 1999. The aggregate
purchase price of approximately $97,351,000 represents the sum of (i) the net
book value of the Biosystems Group plus (ii) a percentage of Thermo Instrument's
total cost in excess of net assets acquired associated with its acquisition of
LSI, based on the aggregate 1996 revenues of the Biosystems Group relative to
LSI's 1996 consolidated revenues.
Additionally, the Company acquired the Labsystems Japan business of LSI
from Thermo Instrument, effective March 1997, for approximately $5,900,000 in
cash. The purchase price represents the sum of (i) the net book value of
Labsystems Japan plus (ii) a percentage of Thermo Instrument's total cost in
excess of net assets acquired associated with its acquisition of LSI, based on
the aggregate 1996 revenues of Labsystems Japan relative to LSI's 1996
consolidated revenues. Subsequent to the initial determination of the purchase
price, the Company assumed certain additional trade payables totaling
approximately $4.4 million, which resulted in a corresponding decrease in the
purchase price.
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<PAGE> 40
Acquisition of Affinity Sensors and LabSystems
In March 1996, Thermo Instrument acquired a substantial portion of the
businesses comprising the Scientific Instruments Division of Fisons plc
("Fisons"), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc.
("Rhone-Poulenc"). In July 1996, the Company acquired from Thermo Instrument two
businesses formerly part of Fisons, Affinity Sensors and LabSystems, for an
aggregate purchase price of $9,000,000 in cash. The purchase price for Affinity
Sensors and LabSystems represents the sum of (i) the net tangible book value of
those businesses on their date of acquisition by Thermo Instrument plus (ii) a
percentage of Thermo Instrument's intangible assets associated with the acquired
businesses relative to the aggregate 1994 and 1995 revenues of the Fisons
businesses. Because the Company, Affinity Sensors and LabSystems were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Instrument, the transaction has been accounted for in a manner similar to a
pooling of interests.
Miscellaneous
The Company has entered into a lease and services arrangement with
ThermoQuest under which ThermoQuest leases approximately 14,000 square feet of
space, and provides certain accounting and administrative services, to the
Company. The Company pays ThermoQuest rent in the amount of three British pounds
sterling per square foot and an allocated portion of ThermoQuest's costs for
providing such services. The arrangement may be terminated by the Company or by
ThermoQuest upon six months' prior notice. During fiscal 1995, fiscal 1996,
fiscal 1997 and the three months ended April 4, 1998, the Company paid
ThermoQuest approximately $105,000, $105,000, $74,000 and $12,000, respectively,
under this arrangement.
ThermoQuest acts as a distributor of certain of the Company's products, is
the exclusive distributor of the Company's MALDI-TOF products in Japan and is
the exclusive distributor of the Company's CE products in countries in which it
maintains a direct sales force. ThermoQuest is responsible for all installation
and warranty labor obligations at its expense. These arrangements may be
terminated on not less than three months' notice by either party given after
December 31, 1996. During fiscal 1996, fiscal 1997 and the three months ended
April 4, 1998, the Company sold $2,058,000, $1,448,000 and $328,000,
respectively, of products to ThermoQuest under these arrangements. Prior to
1996, ThermoQuest acted as a commission-based sales agent for these products.
Under this prior arrangement, the Company paid ThermoQuest commissions of
$1,263,000 in fiscal 1995.
The Company has entered into an arrangement with ThermoQuest whereby
ThermoQuest provides assembly labor for the Company's CE products on a contract
basis. Under this arrangement, ThermoQuest assembles instruments as required by
the Company for a charge based on the sum of ThermoQuest's actual cost of
materials and the allocable portion of its labor, overhead and other indirect
expenses. During fiscal 1995, fiscal 1996, fiscal 1997 and the three months
ended April 4, 1998, the Company paid ThermoQuest approximately $600,000,
$471,000, $632,000 and $200,000, respectively, under this arrangement.
Various Thermo Instrument companies act as distributors of certain of the
Company's LabSystems and Affinity Sensors products under informal arrangements
that date from prior to the acquisition of the Fisons businesses in March 1996.
Under such arrangements, the respective Thermo Instrument companies are
generally responsible for warranty repair and maintenance obligations. During
fiscal 1996, fiscal 1997 and the three months ended April 4, 1998, LabSystems
and Affinity Sensors sold an aggregate of approximately $3,912,000, $1,836,000
and $163,000, respectively, of products to Thermo Instrument companies under
these arrangements. LabSystems and Affinity Sensors made no sales under these
arrangements in fiscal 1995.
Various Thermo Instrument companies act as distributors of certain products
of Labsystems OY and Hybaid Limited under informal distribution agreements.
During fiscal 1997 and the three months ended April 4, 1998, Labsystems OY and
Hybaid Limited sold an aggregate of approximately $5,129,000 and $290,000 of
products to Thermo Instrument companies under these arrangements. Labsystems OY
and Hybaid made no sales under these arrangements in any prior period.
From March through December 1997, the Clinical Products Group's Shandon
Inc. subsidiary ("Shandon") acted as a distributor of primarily scientific
research equipment and certain histology equipment for various Thermo Instrument
subsidiaries under informal agreements. During this period and the three
37
<PAGE> 41
months ended April 4, 1998, Thermo Instrument subsidiaries sold an aggregate of
$2,731,000 and $405,000, respectively, of products to Shandon under these
arrangements.
From March through December 1997, a subsidiary of Thermo Instrument
provided maintenance and warranty services to customers of Shandon under an
informal agreement. Shandon paid $364,000 for such services. The Thermo
Instrument subsidiary purchased $191,000 of parts from Shandon. Shandon made no
such payments or purchases in the three months ended April 4, 1998.
From March through December 1997, two subsidiaries of ThermoQuest acted as
distributors of certain of Shandon's histology products under informal
arrangements. During this period and the three months ended April 4, 1998,
Shandon sold $2,143,000 and $13,000, respectively, of products to such
ThermoQuest subsidiaries.
From March through December 1997, a subsidiary of Thermo Optek Corporation
("Thermo Optek"), a majority-owned subsidiary of Thermo Instrument, acted as a
distributor of certain of Shandon's laboratory consumables under an informal
arrangement. During this period, Shandon sold $282,000 of products to such
Thermo Optek subsidiary. Shandon made no such sales in the three months ended
April 4, 1998.
In February 1996, the Company borrowed $30,000,000 from Thermo Electron
pursuant to a promissory note, due February 1997, and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. In July 1996, the Company borrowed $50,000,000 from
Thermo Instrument pursuant to a subordinated convertible note, due in 2001,
convertible into shares of Common Stock at $16.50 per share, and bearing
interest at an annual rate of 4.875% (the "Convertible Note"). The Company
repaid the amounts owed to Thermo Electron in July 1996 with proceeds from the
Convertible Note. The Company also borrowed $50,000,000 from Thermo Instrument
in connection with its acquisition of the Biosystems Group of LSI from Thermo
Instrument. Such promissory note is due July 15, 1999 and bears interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
The Company, along with certain other Thermo Subsidiaries, participates in
a notional pool arrangement with Barclays Bank, which includes a $150 million
credit facility. Only European-based Thermo Subsidiaries participate in this
arrangement. Under this arrangement the Bank notionally combines the positive
and negative cash balances held by the participants to calculate the net
interest yield/expense for the group. The benefit derived from this arrangement
is then allocated based on balances attributable to the respective participants.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. In addition, funds on deposit under this arrangement provide credit
support for overdraft obligations of other participants. As of April 4, 1998,
the Company had a negative cash balance of approximately $3,190,000, based on an
exchange rate of $1.66/L1.00 as of April 4, 1998. For 1997, the average annual
interest rate earned on deposits by participants in this credit arrangement was
approximately 6.5% and the average annual interest rate paid on overdrafts was
approximately 7.2%.
As of December 30, 1995 and December 28, 1996, Thermo Electron and its
other subsidiaries owed the Company $761,000 and $965,000, respectively, for
products, services and miscellaneous items, net of amounts due to Thermo
Electron and its other subsidiaries under the Services Agreement and related
administrative charges and for other products, services and miscellaneous items.
As of January 3, 1998 and April 4, 1998, the Company owed Thermo Electron and
its other subsidiaries $7,085,000 and $510,000, respectively, for amounts due
under the Services Agreement and related administrative charges, and for other
products, services and miscellaneous items, net of amounts owed to the Company
by Thermo Electron and its other subsidiaries for products, services and
miscellaneous items. The largest amount of net indebtedness owed by Thermo
Electron and its other subsidiaries to the Company during fiscal 1995 and 1996
was $761,000 and $1,496,000, respectively. These amounts do not bear interest
and were or are expected to be paid in the normal course of business.
As of April 4, 1998, $13,012,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of corporate
notes, United States government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. The Company's funds subject to the repurchase
38
<PAGE> 42
agreement will be readily convertible into cash by the Company and have an
original maturity of three months or less. The repurchase agreement earns
interest at the rate of the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
STOCK HOLDING ASSISTANCE PLAN
In 1996, the Company adopted a stock holding policy which requires its
executive officers to acquire and hold a minimum number of shares of Common
Stock. In order to assist the executive officers in complying with the policy,
the Company also adopted a stock holding assistance plan, under which it may
make interest-free loans to certain key employees, including its executive
officers, to enable these individuals to purchase the Common Stock in the open
market. In 1996, Mr. Barry S. Howe, then the Company's chief executive officer,
received loans in the aggregate principal amount of $164,376 under this plan to
purchase 12,000 shares, of which amount $131,500 was outstanding as of April
1998. Also in 1996, Dr. Richard W.K. Chapman, then the Company's chairman of the
board, received loans in the aggregate principal amount of $131,176.30 under
this plan to purchase 10,000 shares. All of these loans are repayable upon the
earlier of demand or the fifth anniversary of the date of the loan, unless
otherwise authorized by the Human Resources Committee of the Company's Board of
Directors.
RECOMMENDATION
The affirmative vote of a majority of shares present in person or
represented by proxy, and entitled to vote, at the meeting is required to
approve this proposal. The Board of Directors believes that the proposal is in
the best interest of the Company and its Stockholders and recommends that the
Stockholders vote "FOR" the approval of the listing of shares of the Company's
Common Stock on the American Stock Exchange, Inc. in connection with the
acquisition of the Acquired Companies. If not otherwise specified, proxies will
be voted FOR approval of this proposal. Thermo Instrument, which owned
approximately 51.7% of the outstanding Common Stock as of June 19, 1998, has
sufficient votes to approve the proposal and has indicated its intention to vote
for the proposal.
PROPOSAL 2
PROPOSAL TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has determined that it is advisable to increase the
Company's authorized Common Stock from 25 million shares to 75 million shares,
and has voted to recommend that the Stockholders adopt an amendment to the
Company's Certificate of Incorporation effecting this proposed increase.
As of June 19, 1998, approximately 15.1 million shares of Common Stock were
issued and outstanding (excluding treasury shares) and approximately an
additional 4.3 million shares were reserved for issuance upon (i) the conversion
of the Company's 4.875% Subordinated Convertible Note due to Thermo Instrument,
which was issued in July 1996 and (ii) the exercise of options granted under the
Company's various stock-based compensation plans. In addition, the Company
anticipates issuing approximately an additional 3.0 million shares in connection
with the acquisition of the Clinical Products Group, as described in Proposal 1
above. Accordingly, a total of approximately 2.6 million shares of Common Stock
are available for future issuance.
The Board of Directors believes it continues to be in the best interest of
the Company to have sufficient additional authorized but unissued shares of
Common Stock available in order to provide flexibility for corporate action in
the future. Management believes that the availability of additional authorized
shares for issuance from time to time in the Board of Directors' discretion in
connection with possible acquisitions of other companies, future financings,
investment opportunities, stock splits or dividends or for other corporate
purposes is desirable in order to avoid repeated separate amendments to the
Company's Certificate of Incorporation and the delay and expense incurred in
holding special meetings of the Stockholders to approve such amendments. There
are at present no specific understandings, arrangements or agreements with
respect
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<PAGE> 43
to any future acquisitions that would require the Company to issue any new
shares of its Common Stock, except as otherwise described in this Proxy
Statement. The Board of Directors believes that the currently available unissued
shares do not provide sufficient flexibility for corporate action in the future.
No further authorization by vote of the Stockholders will be solicited for
the issuance of the additional shares of Common Stock proposed to be authorized,
except as might be required by law, regulatory authorities or rules of the
American Stock Exchange, Inc. or any stock exchange on which the Company's
shares may then be listed. The issuance of additional shares of Common Stock may
have a dilutive effect on the Company's current Stockholders. The Stockholders
of the Company do not have any preemptive right to purchase or subscribe for any
part of any new or additional issuance of the Company's securities.
RECOMMENDATION
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve the amendment to the
Company's Certificate of Incorporation to effect the proposed increase in the
Company's authorized shares. The Board of Directors considers this amendment to
be advisable and in the best interests of the Company and its Stockholders and
recommends that the Stockholders vote "FOR" approval of the amendment. If not
otherwise specified, proxies will be voted FOR approval of this amendment.
Thermo Instrument, which owned approximately 51.7% of the outstanding Common
Stock as of July 4, 1998, has sufficient votes to approve the proposed amendment
and has indicated its intention to vote for the approval of the proposed
amendment.
OTHER ACTION
Management is not aware at this time of any other matters that will be
presented for action at the Meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of such proxy holders.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the 1999 Annual
Meeting of the Stockholders of the Company must be received by the Company for
inclusion in the proxy statement and form of proxy relating to that meeting no
later than December 29, 1998.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily by mail, but regular employees of the
Company may solicit Proxies personally or by telephone or telegram. Brokers,
nominees, custodians and fiduciaries are requested to forward solicitation
materials to obtain voting instructions from beneficial owners of stock
registered in their names, and the Company will reimburse such parties for their
reasonable charges and expenses in connection therewith.
Santa Fe, New Mexico
August 10, 1998
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<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THERMO BIOANALYSIS CORPORATION
Report of Independent Public Accountants............... F-2
Consolidated Statement of Operations for the years
ended December 30, 1995, December 28, 1996 and January
3, 1998 and for the three months ended March 29, 1997
and April 4, 1998..................................... F-3
Consolidated Balance Sheet as of December 28, 1996,
January 3, 1998 and April 4, 1998..................... F-4
Consolidated Statement of Cash Flows for the years
ended December 30, 1995, December 28, 1996 and January
3, 1998 and for the three months ended March 29, 1997
and April 4, 1998..................................... F-5
Consolidated Statement of Shareholders' Investment for
the years ended December 30, 1995, December 28, 1996
and January 3, 1998 and for the three months ended
April 4, 1998......................................... F-6
Notes to Consolidated Financial Statements............. F-7
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
Reports of Independent Public Accountants.............. F-22
Consolidated Statement of Operations for the years
ended March 31, 1994 and 1995 and for the period from
April 1, 1995 through February 7, 1996................ F-24
Consolidated Balance Sheet as of March 31, 1995 and
February 7, 1996...................................... F-25
Consolidated Statement of Cash Flows for the years
ended March 31, 1994 and 1995 and for the period from
April 1, 1995 through February 7, 1996................ F-26
Consolidated Statement of Shareholders' Investment for
the years ended March 31, 1994 and 1995 and for the
period from April 1, 1995 through February 7, 1996.... F-27
Notes to Consolidated Financial Statements............. F-28
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
Auditors' Report....................................... F-33
Combined Profit and Loss Accounts for the three years
ended December 31, 1996............................... F-34
Combined Statements of Total Recognised Gains and
Losses for the three years ended December 31, 1996.... F-35
Combined Balance Sheets at December 31, 1995 and
1996.................................................. F-36
Combined Cash Flow Statements for the three years ended
December 31, 1996..................................... F-37
Notes to the Combined Financial Statements............. F-38
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
Report of Independent Public Accountants............... F-53
Combined Statement of Operations for the years ended
December 31, 1995 and 1996 and the period from January
1, 1997 through March 12, 1997........................ F-54
Combined Balance Sheet as of December 31, 1995 and
1996.................................................. F-55
Combined Statement of Cash Flows for the years ended
December 31, 1995 and 1996 and the period from January
1, 1997 through March 12, 1997........................ F-56
Combined Statement of Shareholders' Investment for the
years ended December 31, 1995 and 1996 and the period
from January 1, 1997 through March 12, 1997........... F-57
Notes to Combined Financial Statements................. F-58
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF THERMO
BIOANALYSIS CORPORATION, THE BIOSYSTEMS GROUP OF LIFE
SCIENCES INTERNATIONAL PLC AND THE CLINICAL PRODUCTS GROUP
OF LIFE SCIENCES INTERNATIONAL PLC (UNAUDITED)
Pro Forma Combined Condensed Statement of Operations
for the year ended
January 3, 1998...................................... F-65
Notes to Pro Forma Combined Condensed Statement of
Operations............................................ F-67
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Thermo BioAnalysis Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
BioAnalysis Corporation (a Delaware corporation and 77%-owned subsidiary of
Thermo Instrument Systems Inc.) and subsidiaries as of December 28, 1996 and
January 3, 1998, and the related consolidated statements of operations, cash
flows, and shareholders' investment for each of the three years in the period
ended January 3, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
BioAnalysis Corporation and subsidiaries as of December 28, 1996 and January 3,
1998 and the results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 5, 1998
F-2
<PAGE> 46
THERMO BIOANALYSIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
------- ------- -------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (includes $1,834, $6,298,
$16,667, $962 and $698 from affiliated
companies; Notes 6 and 8).............. $22,534 $71,649 $201,998 $26,801 $54,434
------- ------- -------- ------- -------
Costs and Operating Expenses:
Cost of revenues (includes $797,
$1,842, $9,272, $379 and $426 for
revenues from affiliated companies;
Note 6)............................. 13,036 37,807 102,826 13,848 26,583
Selling, general and administrative
expenses (Note 6)................... 4,804 20,987 61,946 7,985 17,899
Research and development expenses...... 1,325 7,298 14,057 2,352 3,923
Write-off of acquired technology
(Note 2)............................. -- 3,500 -- -- --
------- ------- -------- ------- -------
19,165 69,592 178,829 24,185 48,405
------- ------- -------- ------- -------
Operating Income......................... 3,369 2,057 23,169 2,616 6,029
Interest Income.......................... 819 1,280 2,431 725 998
Interest Expense (includes $0, $0,
$7,624, $771 and $1,865 to related
party; Note 6)......................... -- (1,873) (7,725) (856) (2,003)
------- ------- -------- ------- -------
Income Before Provision for Income
Taxes.................................. 4,188 1,464 17,875 2,485 5,024
Provision for Income Taxes (Note 4)...... 1,674 1,900 6,535 903 1,822
------- ------- -------- ------- -------
Net Income (Loss)........................ $ 2,514 $ (436) $ 11,340 $ 1,582 $ 3,202
======= ======= ======== ======= =======
Earnings (Loss) per Share (Note 9):
Basic.................................. $ .33 $ (.05) $ .86 $ .15 $ .23
======= ======= ======== ======= =======
Diluted................................ $ .33 $ (.05) $ .79 $ .14 $ .21
======= ======= ======== ======= =======
Weighted Average Shares (Note 9):
Basic.................................. 7,694 8,542 13,232 10,624 14,086
======= ======= ======== ======= =======
Diluted................................ 7,694 8,542 16,367 13,694 17,299
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 47
THERMO BIOANALYSIS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 4,
1996 1997 1998
-------- ----------- --------
(UNAUDITED)
--------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes $39,649, $10,158 and
$13,012 under repurchase agreement with affiliated
company)................................................ $ 45,476 $ 39,704 $ 43,526
Accounts receivable, less allowances of $991, $6,232 and
$5,926.................................................. 17,265 47,210 45,146
Inventories............................................... 14,592 38,635 39,282
Prepaid income taxes (Note 4)............................. 2,319 8,484 8,475
Prepaid expenses and other current assets................. 618 4,221 5,446
Due from parent company and affiliates.................... 965 -- --
-------- -------- --------
81,235 138,254 141,875
-------- -------- --------
Property, Plant and Equipment, at Cost, Net................. 5,547 22,967 22,160
-------- -------- --------
Other Assets................................................ 3,098 2,712 2,397
-------- -------- --------
Cost in Excess of Net Assets of Acquired Companies (Note
2)........................................................ 33,117 158,506 158,434
-------- -------- --------
$122,997 $322,439 $324,866
======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Borrowings under overdraft facility....................... $ -- $ 2,465 $ 3,190
Accounts payable.......................................... 4,282 12,596 12,618
Accrued payroll and employee benefits..................... 2,616 8,482 6,504
Accrued income taxes...................................... 2,775 6,097 5,550
Accrued acquisition expenses (Note 2)..................... 1,857 5,110 4,198
Other accrued expenses.................................... 5,794 13,482 13,651
Deferred revenue.......................................... 4,161 3,675 4,821
Due to parent company and affiliated companies (Note 2)... -- 35,846 38,371
-------- -------- --------
21,485 87,753 88,903
-------- -------- --------
Deferred Income Taxes (Note 4).............................. 196 139 139
-------- -------- --------
Long-term Obligations:
Note payable to parent company (Note 6)................... -- 50,000 50,000
Subordinated convertible note, due to parent company (Note
6)...................................................... 50,000 50,000 50,000
Other..................................................... -- 204 198
-------- -------- --------
50,000 100,204 100,198
-------- -------- --------
Commitments and Contingency (Note 5)
Shareholders' Investment (Notes 2, 3 and 7):
Common stock, $.01 par value, 25,000,000 shares
authorized; 9,771,500, 14,081,448 and 14,091,470 shares
issued.................................................. 98 141 141
Capital in excess of par value............................ 47,882 131,483 131,585
Retained earnings......................................... 1,707 9,633 11,788
Treasury stock at cost, 392 shares in 1998................ -- -- (7)
Cumulative translation adjustment......................... 1,629 (6,914) (7,881)
-------- -------- --------
51,316 134,343 135,626
-------- -------- --------
$122,997 $322,439 $324,866
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 48
THERMO BIOANALYSIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,514 $ (436) $ 11,340 $ 1,582 $ 3,202
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 346 3,002 9,452 1,178 2,760
Provision for losses on accounts receivable........... -- 210 606 10 5
Deferred income tax expense (benefit)................. (60) 10 (948) -- --
Write-off of acquired technology (Note 2)............. -- 3,500 -- -- --
Changes in current accounts, excluding the effects of
acquisitions:
Accounts receivable................................. 388 (2,091) (11,330) 2,749 2,062
Inventories......................................... (303) 548 1,970 (3,370) (1,407)
Other current assets................................ (698) 817 2,065 (2,179) (1,136)
Accounts payable.................................... (384) 1,706 145 450 29
Due to/from parent company and affiliates........... (781) (264) 6,913 (2,334) (10,342)
Other current liabilities........................... 740 1,587 (3,519) 3,404 728
Other................................................. -- 34 47 -- --
------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities...................................... 1,762 8,623 16,741 1,490 (4,099)
------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired in 1996 (Note 2)....... -- (50,698) (41,053) -- --
Cash acquired through acquisitions from Thermo Instrument
in 1997 (Note 2)........................................ -- -- 23,995 23,995 --
Adjustment to acquisition purchase price (Note 2)......... -- -- 955 -- 9,075
Purchases of property, plant and equipment................ (313) (1,476) (4,535) (468) (1,851)
Proceeds from sale of property, plant and equipment....... -- -- 665 -- --
Other..................................................... (183) -- (103) -- 220
------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities...................................... (496) (52,174) (20,076) 23,527 7,444
------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of Company common stock
(Note 7)................................................ 14,918 20,782 21 -- 95
Proceeds from issuance of subordinated convertible note to
parent company (Note 6)................................. -- 50,000 -- -- --
Proceeds from issuance of note payable to Thermo Electron
(Note 6)................................................ -- 30,000 -- -- --
Repayment of note payable to Thermo Electron (Note 6)..... -- (30,000) -- -- --
Increase in bank overdraft facility, net.................. -- -- 2,465 219 725
Repayment of long-term debt............................... -- -- (2,220) (240) --
Transfer from parent company to fund income tax
payments................................................ 1,930 -- -- -- --
Net transfer to parent company............................ (383) -- -- -- --
Other..................................................... -- 58 -- -- --
------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities...................................... 16,465 70,840 266 (21) 820
------- -------- -------- -------- --------
Exchange Rate Effect on Cash.............................. (5) 440 (2,703) 732 (343)
------- -------- -------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents.......... 17,726 27,729 (5,772) 25,728 3,822
Cash and Cash Equivalents at Beginning of Period.......... 21 17,747 45,476 45,476 39,704
------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Period................ $17,747 $ 45,476 $ 39,704 $ 71,204 $ 43,526
======= ======== ======== ======== ========
CASH PAID FOR:
Interest.................................................. $ -- $ 1,848 $ 7,736 $ 609 $ 1,324
======= ======== ======== ======== ========
Income taxes.............................................. $ 1,930 $ 536 $ 5,718 $ 693 $ 2,359
======= ======== ======== ======== ========
NONCASH INVESTING ACTIVITIES (NOTE 2):
Fair value of assets of acquired companies, including cash
acquired of $23,995 in 1997 and the three months ended
March 29, 1997.......................................... $ -- $ 68,356 $242,374 $242,374 --
Cash paid for acquired companies.......................... -- (52,191) (41,053) -- --
Issuance of Company common stock for acquired companies... -- -- (83,533) (83,533) --
Promissory note payable to parent company for acquired
companies............................................... -- -- (50,000) (50,000) --
Debt payable to parent company for acquired companies..... -- -- (37,861) (78,914) --
Adjustments to purchase price due from parent company for
acquired companies...................................... -- -- 9,075 9,075 --
------- -------- -------- -------- --------
Liabilities assumed of acquired companies............. $ -- $ 16,165 $ 39,002 $ 39,002 $ --
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 49
THERMO BIOANALYSIS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK,
NET PARENT $.01 CAPITAL IN CUMULATIVE
COMPANY PAR EXCESS OF RETAINED TREASURY TRANSLATION
INVESTMENT VALUE PAR VALUE EARNINGS STOCK ADJUSTMENT
----------- ------ ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994.................... $ 10,162 $ -- $ -- $ -- $ -- $ --
Net income prior to capitalization of
Company.................................... 371 -- -- -- -- --
Net transfer from parent company............. 1,547 -- -- -- -- --
Capitalization of Company.................... (12,080) 65 12,015 -- -- --
Net proceeds from issuance -- 16 14,902 -- -- --
of Company common stock
(Note 7)...................................
Net income after capitalization of
Company.................................... -- -- -- 2,143 -- --
Translation adjustment....................... -- -- -- -- -- 5
-------- ---- -------- ------- ------ -------
BALANCE DECEMBER 30, 1995.................... -- 81 26,917 2,143 -- 5
Net loss..................................... -- -- -- (436) -- --
Net proceeds from issuance of -- 17 20,765 -- -- --
Company common stock (Note 7)..............
Tax benefit related to employees' and -- -- 200 -- -- --
directors' stock plans.....................
Translation adjustment....................... -- -- -- -- -- 1,624
-------- ---- -------- ------- ------ -------
BALANCE DECEMBER 28, 1996.................... -- 98 47,882 1,707 -- 1,629
Net income................................... -- -- -- 11,340 -- --
Deemed distribution to parent company for the -- -- -- (3,414) -- --
acquisition of the Clinical Products Group
of LSI (Note 2)............................
Issuance of Company common stock under -- -- 21 -- -- --
employees' and directors' stock plans......
Tax benefit related to employees' and -- -- 90 -- -- --
directors' stock plans.....................
Issuance of Company common stock for the -- 13 16,855 -- -- --
acquisition of the Biosystems Group of LSI
(Note 2)...................................
Company common stock issuable for the -- 30 66,635 -- -- --
acquisition of the Clinical Products Group
of LSI (Note 2)............................
Translation adjustment....................... -- -- -- -- -- (8,543)
-------- ---- -------- ------- ------ -------
BALANCE JANUARY 3, 1998...................... -- 141 131,483 9,633 -- (6,914)
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net income................................... -- -- -- 3,202 -- --
Deemed distribution to parent company for the -- -- -- (1,047) -- --
acquisition of the Clinical Products Group
of LSI.....................................
Issuance of Company common stock under -- -- 102 -- (7) --
employees' and directors' stock plans......
Translation adjustment....................... -- -- -- -- -- (967)
-------- ---- -------- ------- ------ -------
BALANCE APRIL 4, 1998........................ $ -- $141 $131,585 $11,788 $ (7) $(7,881)
======== ==== ======== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 50
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company has three principal product lines: biomolecular instruments and
consumables, clinical laboratory equipment and supplies and information
management systems. The Company's biomolecular instruments and consumables are
based on proprietary immunoassay, optical biosensor, polymerase chain reaction
("PCR"), MALDI-TOF mass spectometry, DNA amplification and capillary
electrophoresis ("CE") technologies, and are used in pharmaceutical and
biopharmaceutical research, as well as for clinical laboratory testing and
diagnosis of patient samples. The Company's clinical laboratory business
supplies a range of equipment and consumables with applications in cytology,
histology, and pathology. The Company's information management systems business
designs, implements and supports laboratory information management systems
("LIMS") and chromatography data systems for use in laboratories, industrial
applications and clinical testing facilities.
Relationship With Thermo Instrument Systems Inc. and Thermo Electron
Corporation
The Company was incorporated in February 1995 as a wholly owned subsidiary
of Thermo Instrument Systems Inc., at which time Thermo Instrument transferred
to the Company the assets related to certain elements of its Thermo Separation
Products Inc. CE product line, its Finnigan MAT Ltd. MALDI-TOF division and its
Eberline Instruments health physics instrumentation division in exchange for
6,500,000 shares of the Company's common stock. As of January 3, 1998, Thermo
Instrument owned 10,806,930 shares of the Company's common stock, representing
77% of such stock outstanding. Such shares include the 1,300,000 shares issued
to Thermo Instrument in connection with the acquisition of the Labsystems OY and
Hybaid divisions of LSI and 3,007,930 shares issuable to Thermo Instrument in
connection with the acquisition of the Clinical Products Group of LSI (Note 2).
Thermo Instrument is an 82%-owned subsidiary of Thermo Electron Corporation. As
of January 3, 1998, Thermo Electron owned 788,967 shares of the Company's common
stock, representing 6% of such stock outstanding.
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 1995, 1996 and 1997 are for the fiscal years ended December
30, 1995, December 28, 1996 and January 3, 1998, respectively. Fiscal year 1995
and 1996 each included 52 weeks; 1997 included 53 weeks.
Revenue Recognition
The Company recognizes revenue 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 revenue from service contracts over the
respective terms of the contracts. Information management systems revenue is
recognized upon execution of the license agreement and delivery of the software
when any ongoing service commitments are not critical to the functionality of
the software; otherwise revenue on both the service and software components is
recognized based on long-term contract accounting. Revenue from software
maintenance contracts, including amounts bundled in initial software licenses,
is recognized ratably over the term of the contract. Deferred revenue in the
accompanying 1997 balance sheet consists of unearned revenue on service
contracts and maintenance contracts, which will be recognized within one year.
F-7
<PAGE> 51
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Software Development Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established. The Company believes that, under
its current process for developing software, the software is essentially
completed concurrently with the establishment of technological feasibility.
Accordingly, no software development costs have been capitalized except for
software recorded in connection with an acquisition (see "Other Assets").
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" 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
In the period prior to the Company's initial public offering, the Company
and Thermo Instrument were included in Thermo Electron's consolidated federal
and certain state income tax returns. Subsequent to the Company's initial public
offering in September 1996, Thermo Instrument's equity ownership of the Company
was reduced below 80%, and as a result, the Company is required to file its own
federal income tax return.
In accordance with 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 (Loss) per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 9). As a result, all previously reported earnings per
share have been restated; however, basic and diluted loss per share equal the
Company's previously reported loss per share for 1996. Basic earnings per share
have been computed by dividing net income by the weighted average number of
shares outstanding during the year. Diluted earnings per share have been
computed assuming the conversion of convertible obligations and the elimination
of the related interest expense, and the exercise of stock options, as well as
their related income tax effects. For periods prior to the Company's February
1995 capitalization, shares issued in connection with such capitalization have
been shown as outstanding for purposes of computing earnings per share.
Cash and Cash Equivalents and Overdraft Facility
At year-end 1996 and 1997, $39,649,000 and $10,158,000, respectively, of
the Company's cash equivalents were invested in a repurchase agreement with
Thermo Electron. Under this agreement, the Company in effect lends excess cash
to Thermo Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, commercial paper, U.S.
government-agency securities, 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. The 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. Cash equivalents are carried at cost, which approximates market
value.
F-8
<PAGE> 52
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning in 1997, the Company has an overdraft facility for use by certain
of its European subsidiaries. As of January 3, 1998, the Company had $2,465,000
outstanding under the facility, the repayment of which was guaranteed by Thermo
Electron. Borrowings under the facility carried an interest rate of 7.2% during
1997.
Inventories
Inventories are stated at the lower of cost (on a weighted average basis)
or market value and include materials, labor and manufacturing overhead. The
components of inventories are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $ 7,473 $12,818
Work in process............................................. 1,064 3,238
Finished goods.............................................. 6,055 22,579
------- -------
$14,592 $38,635
======= =======
</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: buildings and improvements, 15 to 30
years; machinery and equipment, 2 to 10 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant and
equipment consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 285 $ 602
Buildings................................................... 2,603 6,659
Machinery, equipment and leasehold improvements............. 9,241 27,144
------- -------
12,129 34,405
Less: Accumulated depreciation and amortization............. 6,582 11,438
------- -------
$ 5,547 $22,967
======= =======
</TABLE>
Other Assets
Other assets in the accompanying balance sheet primarily represents the
cost of acquired product technology and capitalized software associated with the
1996 acquisition of the Affinity Sensors and LabSystems divisions of Fisons and
the 1997 acquisition of the Hybaid division of LSI (Note 2). These assets are
being amortized using the straight-line method over their estimated useful lives
of 8 years. These assets were $2,997,000 and $2,545,000, net of accumulated
amortization of $295,000 and $557,000, at year-end 1996 and 1997, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $1,010,000 and $4,466,000 at year-end 1996 and 1997,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future
F-9
<PAGE> 53
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. These contracts
principally hedge transactions denominated in U.S. dollars, British pounds
sterling and German deutsche marks. The purpose of the Company's foreign
currency hedging activities is to protect the Company's local currency cash
flows related to these commitments from fluctuations in foreign exchange rates.
Gains and losses arising from forward foreign exchange contracts are recognized
as offsets to gains and losses resulting from the transactions being hedged. The
Company does not enter into speculative foreign currency agreements.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, due from parent company and affiliated
companies, accounts payable, payable to parent company, a subordinated
convertible note and forward foreign exchange contracts. The carrying amounts of
these financial instruments, with the exception of the payable to parent
company, subordinated convertible note, and forward foreign exchange contracts,
approximate fair value due to their short-term nature. See Note 6 for fair value
information pertaining to the Company's payable to parent company and
subordinated convertible note.
The Company had forward foreign exchange contracts of $212,000 and
$3,675,000 outstanding at year-end 1996 and 1997, respectively. The fair value
of such contracts is the estimated amount that the Company would receive upon
termination of the contract, taking into account the change in foreign exchange
rates. The fair value of the Company's forward foreign exchange contracts
receivable (payable) was $11,000 and ($24,000) at year-end 1996 and 1997,
respectively.
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.
Presentation
Certain amounts in 1996 have been reclassified to conform to the
presentation in the 1997 financial statements.
F-10
<PAGE> 54
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Statements
The financial statements as of April 4, 1998 and for the three-month
periods ended March 29, 1997 and April 4, 1998 are unaudited but, in the opinion
of management, reflect all adjustments of a normal recurring nature necessary
for a fair presentation of results for these interim periods. The results of
operations for the three-month period ended April 4, 1998 are not necessarily
indicative of the results to be expected for the entire year.
2. ACQUISITIONS
Acquisitions Effective in 1997
In March 1997, Thermo Instrument acquired approximately 95% of the
outstanding shares of Life Sciences International PLC ("LSI"), a London Stock
Exchange-listed company. Subsequently, Thermo Instrument acquired the remaining
shares of LSI capital stock. On May 6, 1997, the Company agreed to acquire
Labsystems OY and Hybaid, which comprised the Biosystems Group of LSI, from
Thermo Instrument. Labsystems OY, based in Finland, manufactures
microplate-based immunoassay instruments and liquid-handling equipment. Hybaid,
based in the U.K., manufactures thermal cyclers and consumables for DNA
amplification. The aggregate purchase price for Labsystems OY and Hybaid is
approximately $102,451,000, which consists of: a) approximately $91,500,000 for
the net operating assets of the acquired businesses plus b) $11,000,000 for an
equivalent amount of cash held by the acquired businesses. The purchase price
for the net operating assets represents the sum of the net book value, exclusive
of cash, of the businesses as of the date that Thermo Instrument acquired LSI,
plus a percentage of Thermo Instrument's total cost in excess of net assets
acquired associated with its acquisition of LSI, based on the aggregate 1996
revenues of Labsystems OY and Hybaid relative to LSI's 1996 consolidated
revenues. The Company believes that this allocation methodology is reasonable
and in accordance with the guidance provided by Staff Accounting Bulletin 55
(Topic 1:B). The purchase price was subject to a post-closing adjustment based
on final determination of the net book value, exclusive of cash, of the acquired
businesses and a final calculation of Thermo Instrument's total cost in excess
of net assets acquired associated with the acquisition of LSI. The Company and
Thermo Instrument have finalized the post-closing adjustment, which resulted in
a cash refund of approximately $5.1 million that the Company received during the
first quarter of 1998. Such amount is included in due from parent company and
affiliated companies in the accompanying 1997 balance sheet.
Of the $102,451,000 aggregate purchase price, the Company paid
approximately $35,583,000 in cash to Thermo Instrument in June 1997, issued a
$50,000,000 promissory note to Thermo Instrument and, following approval by the
Company's shareholders, issued to Thermo Instrument in April 1998 1,300,000
shares of Company common stock, valued at approximately $16,868,000, or $12.98
per share, representing the five-day average (April 28, 1997 through May 2,
1997) for the period preceding the date the transaction was approved by the
Company's and Thermo Instrument's respective boards of directors. The Company
believes that this five-day average is appropriate as it most closely represents
the value of Company common stock on the date the Company became obligated to
transfer such shares to Thermo Instrument. The $50,000,000 promissory note,
which bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter, is due on July 15, 1999.
Because the Company, Labsystems OY and Hybaid were deemed for accounting
purposes to be under control of their common majority owner, Thermo Instrument,
the transaction has been accounted for in a manner similar to a pooling of
interests. Accordingly, the accompanying 1997 financial statements include the
results of Labsystems OY and Hybaid from March 12, 1997, the date these
businesses were acquired by Thermo Instrument, and the 1,300,000 shares issued
to Thermo Instrument have been deemed outstanding from that date and are
therefore included in the computation of earnings per share.
F-11
<PAGE> 55
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company agreed to acquire Labsystems Japan from Thermo
Instrument for approximately $5,900,000 in cash. Labsystems Japan was acquired
by Thermo Instrument as part of its acquisition of LSI. The purchase price for
Labsystems Japan was determined in a manner similar to that for Labsystems OY
and Hybaid. Subsequent to the initial determination of the purchase price, the
Company assumed certain additional trade payables totaling approximately $4.4
million, which resulted in a corresponding decrease in the purchase price. Of
the $4.4 million purchase price adjustment, $0.4 million was received in 1997
and the remainder is included in due from parent company and affiliated
companies in the accompanying 1997 balance sheet. Such adjustment was received
during the first quarter of 1998. Labsystems Japan distributes products
manufactured by Labsystems OY and other LSI companies. The acquisition of
Labsystems Japan has been treated for accounting purposes in a manner similar to
the acquisition of Labsystems OY and Hybaid. Accordingly, the accompanying 1997
financial statements include the results of Labsystems Japan from March 12,
1997.
In May 1998, the Company agreed to acquire the Clinical Products Group of
LSI, which is comprised of Shandon Inc. and its related businesses, including
ALKO Diagnostic, from Thermo Instrument. The Clinical Products Group provides
equipment and consumables for cytology, histology and pathology applications. It
also supplies consumables for blood gas and ISE analyzers. The net purchase
price for the Clinical Products Group is approximately $66,665,000, which
represents the sum of the net book value of the businesses as of April 4, 1998,
plus a percentage of Thermo Instrument's total cost in excess of net assets
acquired associated with its acquisition of LSI, based on the 1996 revenues of
the Clinical Products Group relative to LSI's 1996 consolidated revenues. The
Company believes that this allocation methodology is reasonable and in
accordance with the guidance provided by Staff Accounting Bulletin 55 (Topic
1:B).
The net purchase price for the Clinical Products Group will be paid with
3,007,930 shares of Company common stock valued at $22.16 per share,
representing the five-day average for the period preceding the date the parties
reached agreement in principle on the material terms of the transaction.
Issuance of the common stock will occur immediately after the listing upon the
American Stock Exchange of the 3,007,930 shares of Company common stock issuable
to Thermo Instrument, which will require approval by the Company's shareholders.
Because Thermo Instrument is the Company's majority shareholder and intends to
vote its shares in favor of such listing, the approval is assured. In addition
to the shares of Company common stock to be issued to Thermo Instrument, the
Company will assume approximately $37,861,000 of existing indebtedness owed by
the Clinical Products Group to Thermo Instrument, making the gross purchase
price approximately $104,526,000. This amount included $12,013,000 for an
equivalent amount of cash acquired. The existing indebtedness owed to Thermo
Instrument is due January 2, 1999 and bears interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each quarter.
The acquisition of the Clinical Products Group has been treated for
accounting purposes in a manner similar to the acquisition of Labsystems OY and
Hybaid. Accordingly, the accompanying 1997 financial statements include the
results of the Clinical Products Group from March 12, 1997, and the shares
issuable subject to shareholder vote have been deemed outstanding from that date
and are therefore included in the computation of earnings per share. The
purchase price for the Clinical Products Group included $3,414,000 for the
increase in net book value from the date the Clinical Products Group was
acquired by Thermo Instrument. This amount was recorded as a deemed distribution
from retained earnings, reflecting consideration to Thermo Instrument for the
earnings of the Clinical Products Group from the date of the acquisition by
Thermo Instrument.
Acquisitions Effective in 1996
In February 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of the Dynex Technologies division of Dynatech
Corporation for $43,191,000 in cash. During 1997, the Company negotiated a
post-closing adjustment in accordance with the terms of the purchase agreement,
resulting in a
F-12
<PAGE> 56
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
refund of $955,000 that has been recorded as a reduction to cost in excess of
net assets of acquired companies. Dynex designs, manufactures, and markets
products used in the immunoassay segment of the bioinstrumentation market. This
acquisition has been accounted for using the purchase method of accounting, and
Dynex's results have been included in the accompanying financial statements from
the date of acquisition.
On March 29, 1996, Thermo Instrument acquired a substantial portion of the
businesses comprising the Scientific Instruments Division of Fisons, a wholly
owned subsidiary of Rhone-Poulenc Rorer Inc. In July 1996, the Company acquired
from Thermo Instrument two businesses formerly part of Fisons, Affinity Sensors
and LabSystems, for an aggregate purchase price of $9,000,000 in cash. The
purchase price for Affinity Sensors and LabSystems represents the sum of the net
tangible book value of those businesses on March 29, 1996, plus a percentage of
Thermo Instrument's intangible assets associated with its acquisition of the
Fisons businesses, based on the aggregate 1994 and 1995 revenues of the acquired
businesses relative to the aggregate 1994 and 1995 revenues of the Fisons
businesses. The Company believes that this allocation methodology is reasonable
and in accordance with the guidance provided by Staff Accounting Bulletin 55
(Topic 1:B). Affinity Sensors supplies biosensors used in life sciences research
by the pharmaceutical and biotechnology industries, universities and medical
research institutes. LabSystems designs, implements and supports laboratory
information management systems and chromatography data systems used in research
and development, quality assurance and control and processing plants. Because
the Company, Affinity Sensors and LabSystems were deemed for accounting purposes
to be under control of their common majority owner, Thermo Instrument, the
transaction has been accounted for in a manner similar to a pooling of
interests. Accordingly, the accompanying financial statements include the
results of Affinity Sensors and LabSystems from March 29, 1996, the date these
businesses were acquired by Thermo Instrument. The acquired assets of Affinity
Sensors and LabSystems included certain technologies for which technological
feasibility had not been established at the acquisition date and which had no
alternative future use. In connection with the acquisitions, the Company wrote
off such technology in the amount of $3,500,000, which represents the portion of
the purchase price allocated to technology in development at the acquired
businesses, based on estimated replacement cost.
The aggregate cost of the Clinical Products Group of LSI, the Labsystems OY
and Hybaid divisions of LSI and Dynex exceeded the estimated fair value of the
acquired net assets by $167,151,000, 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.
In connection with the acquisition of the Clinical Products Group of LSI
and the Labsystems OY and Hybaid divisions of LSI, the Company is in the process
of restructuring the acquired businesses. This restructuring is expected to
primarily include reductions in staffing levels and, to a lesser extent, costs
for termination of certain joint venture arrangements. In accordance with the
requirements of EITF 95-3, as part of the cost of the acquisition, the Company
has established reserves of approximately $8,536,000, of which the Company
expended $3,426,000 during 1997, primarily for severance payments. Unresolved
matters at year-end 1997 included completing planned severances and termination
of joint ventures. Finalization of the Company's plan for restructuring the
acquired businesses occurred during the first quarter of 1998.
In addition to the restructuring activities described above, during 1996
the Company had undertaken a restructuring in connection with its February 1996
acquisition of Dynex. The restructuring activities primarily included reductions
of staffing, including manufacturing, sales and administrative personnel within
the acquired business, and, to a lesser extent, abandonment of excess
facilities. In connection with these restructuring activities, the Company
established reserves of $2,259,000 in 1996. During 1996, the Company expended
$548,000 for severance and $367,000 for other exit costs, including lease
payments on abandoned facilities. The Company finalized its restructuring plan
for Dynex in 1996. During 1997, the Company expended $556,000 for these matters,
which primarily represented severance, and reversed its remaining reserve of
$788,000 with a corresponding decrease to cost in excess of net assets of
acquired companies.
F-13
<PAGE> 57
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EMPLOYEE BENEFIT PLANS
Stock-based Compensation Plans
Stock Option Plans
The Company has two stock-based compensation plans for its key employees,
directors and others, adopted in 1995 and 1997, which permit the grant of a
variety of stock and stock-based awards as determined by the human resources
committee of the Company's Board of Directors (the "Board Committee"), including
restricted stock, stock options, stock bonus shares or performance-based shares.
To date, only nonqualified stock options have been granted under these plans.
The option recipients and the terms of options granted under these plans are
determined by the Board Committee. Options granted to date are immediately
exercisable, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five- to ten-year period, depending on the term
of the option, which generally ranges from seven 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 stock on the date of grant. To date, all options
have been granted at fair market value. The Company also has a directors' stock
option plan, adopted in November 1995, that provides for the grant of stock
options to outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms as
options granted to date under the stock-based compensation plan described above,
except that the option term is five years and the transfer restrictions and
repurchase rights generally lapse ratably over a four-year period. In addition
to the Company's stock-based compensation plans, certain officers and key
employees may also participate in the stock-based compensation plans of Thermo
Instrument and Thermo Electron.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year................................ -- $ -- 30 $10.00 717 $11.27
Granted............................. 30 10.00 713 11.28 282 15.71
Exercised........................... -- -- -- -- (2) 10.38
Forfeited........................... -- -- (26) 10.00 (90) 13.60
-- --- ---
Options outstanding, end of year...... 30 $10.00 717 $11.27 907 $12.42
== ====== === ====== === ======
Options exercisable................... -- $ -- 717 $11.27 907 $12.42
== ====== === ====== === ======
Options available for grant........... 70 183 291
== === ===
</TABLE>
A summary of the status of the Company's stock options at January 3, 1998,
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------------
WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER REMAINING EXERCISE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE
- ------------------------ ------ ---------------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
$10.00 - $11.84...................................... 392 9.4 years $10.00
11.85 - 13.69...................................... 270 9.5 years 12.92
13.70 - 15.53...................................... 214 9.0 years 15.50
15.54 - 17.38...................................... 31 7.0 years 17.38
---
$10.00 - $17.38...................................... 907 9.3 years $12.42
===
</TABLE>
F-14
<PAGE> 58
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Purchase Program
Effective November 1, 1997, substantially all of the Company's full-time
employees are eligible to participate in an employee stock purchase program
sponsored by the Company and Thermo Electron, under which employees can purchase
shares of the Company's and Thermo Electron's common stock. Prior to November 1,
1997, the program was sponsored by Thermo Instrument and Thermo Electron. Under
this program, the applicable shares of common stock can be purchased at the end
of a 12-month period at 95% of the fair market value at the beginning of the
period, 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 period, 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 Expense
In October 1995, the Financial Accounting Standards Board issued 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 No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards in
1997, 1996 and 1995 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 (loss) and
earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $2,514 $(436) $11,340
Pro forma........................................ 2,477 (863) 10,850
Basic earnings (loss) per share:
As reported...................................... .33 (.05) .86
Pro forma........................................ .32 (.10) .82
Diluted earnings (loss) per share:
As reported...................................... .33 (.05) .79
Pro forma........................................ .32 (.10) .76
</TABLE>
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 weighted average fair value per share of options granted was $2.93,
$5.36 and $6.73 in 1995, 1996 and 1997, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Volatility......................................... 26% 26% 28%
Risk-free interest rate............................ 6.5% 6.2% 6.4%
Expected life of options........................... 3.5 years 8.1 years 6.4 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions, including expected stock price volatility. 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
F-15
<PAGE> 59
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Defined Contribution Savings Plans
Substantially all of the Company's full-time U.S. employees, other than
employees of Shandon Inc., are eligible to participate in a 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 these plans, the Company contributed and charged to expense
$128,000, $285,000 and $433,000 in 1995, 1996 and 1997, respectively. Shandon
Inc. has a defined contribution plan covering all eligible employees.
Contributions by the Company are required based on a percentage of eligible
compensation annually. The plan does not provide for employee contributions. For
this plan, the Company contributed and charged to expense $430,000 in 1997.
4. INCOME TAXES
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................ $3,828 $1,786 $15,727
Foreign............................................. 360 (322) 2,148
------ ------ -------
$4,188 $1,464 $17,875
====== ====== =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal................................................ $1,331 $ 487 $5,255
State.................................................. 284 93 729
Foreign................................................ 119 1,310 1,499
------ ------ ------
1,734 1,890 7,483
------ ------ ------
Net deferred (prepaid):
Federal................................................ (50) 8 (381)
State.................................................. (10) 2 (81)
Foreign................................................ -- -- (486)
------ ------ ------
(60) 10 (948)
------ ------ ------
$1,674 $1,900 $6,535
====== ====== ======
</TABLE>
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $200,000
and $90,000 of such benefits that have been allocated to capital in excess of
par value in 1996 and 1997, respectively, resulting primarily from employee
exercises of stock options in affiliated companies.
F-16
<PAGE> 60
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 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>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate............. $1,424 $ 498 $6,078
Increases (decreases) resulting from:
State income taxes, net of federal tax................. 181 63 428
Net foreign losses not benefited and tax rate
differential........................................ (7) 229 283
Tax benefit of foreign sales corporation............... (6) (23) (37)
Write-off of acquired technology (Note 2).............. -- 1,190 --
Amortization of cost in excess of net assets of
acquired companies.................................. 6 6 20
Other, net............................................... 76 (63) (237)
------ ------ ------
$1,674 $1,900 $6,535
====== ====== ======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and accruals..................................... $1,872 $7,235
Net operating loss........................................ -- 609
Inventory basis difference................................ 370 1,145
Allowance for doubtful accounts........................... 77 104
------ ------
2,319 9,093
Less: Valuation allowance................................. -- 609
------ ------
$2,319 $8,484
====== ======
Deferred income taxes:
Depreciation.............................................. $ 196 $ 139
====== ======
</TABLE>
At year-end 1997, the Company had foreign net operating loss carryforwards
of approximately $1,365,000 for which a valuation allowance has been established
due to uncertainty surrounding their realizability. Of this amount,
approximately $167,000 expires in 2002 and the remainder do not expire.
A provision has not been made for U.S. or additional foreign taxes on
$8,400,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company currently plans
to keep these amounts permanently reinvested overseas.
5. COMMITMENTS AND CONTINGENCY
Operating Leases
The Company leases portions of its office and operating facilities under
various noncancellable operating lease arrangements that expire at various dates
through 2016. The accompanying statement of operations includes expenses from
operating leases of $69,000, $1,401,000 and $2,327,000 in 1995, 1996 and 1997,
respectively. Future minimum payments due under noncancellable operating leases
as of January 3, 1998, are
F-17
<PAGE> 61
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,973,000 in 1998; $3,580,000 in 1999; $3,208,000 in 2000; $2,479,000 in 2001;
$1,859,000 in 2002; and $2,873,000 in 2003 and thereafter. Total future minimum
lease payments are $17,972,000.
Contingency
As a result of the acquisition of Affinity Sensors, formerly part of the
Fisons businesses acquired by Thermo Instrument (Note 2), the Company has been
named a defendant in a dispute alleging patent infringement brought by Biacore
AB and Biacore, Inc. In general, an owner of intellectual property can prevent
others from using such property and is entitled to damages for unauthorized past
usage. The Company is vigorously defending this matter, although the Company
believes that it is entitled to indemnification for any losses on such matter by
Rhone-Poulenc Rorer under the purchase agreement between Thermo Instrument and
Rhone-Poulenc Rorer for the initial purchase of the Fisons businesses.
Accordingly, the Company does not expect that this contingency will materially
affect its future results of operations or financial position.
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 paid Thermo Electron annually an amount equal to 1.0% of the
Company's revenues in 1997 and 1996 and 1.20% of the Company's revenues in 1995.
For these services, the Company was charged $270,000, $716,000 and $2,020,000 in
1995, 1996 and 1997, respectively. Beginning in fiscal 1998, the Company will
pay an annual fee equal to 0.8% of the Company's revenues. The annual fee is
reviewed and adjusted annually by mutual agreement of the parties. 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).
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. 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.
Other Related-party Transactions
The Company purchases and sells products in the ordinary course of business
with other companies affiliated with Thermo Electron. Sales of such products to
affiliated companies totaled $1,834,000, $6,298,000 and $16,667,000 in 1995,
1996 and 1997, respectively. Purchases of products from affiliated companies
totaled $212,000, $539,000 and $3,467,000 in 1995, 1996 and 1997, respectively.
Prior to 1996, a majority-owned subsidiary of Thermo Instrument acted as a
commission-based sales agent for certain of the Company's products. The Company
paid $1,263,000 under this arrangement in 1995.
In addition, a majority-owned subsidiary of Thermo Instrument assembles
certain of the Company's products. For these services, the Company paid
$600,000, $471,000 and $632,000 in 1995, 1996 and 1997, respectively.
Operating Leases
In addition to the operating leases discussed in Note 5, the Company leases
certain manufacturing space from ThermoQuest Corporation, a majority-owned
subsidiary of Thermo Instrument, as a tenant-at-will,
F-18
<PAGE> 62
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to a six-month cancellation provision. The accompanying statement of
operations includes expenses from this operating lease of $105,000, $105,000 and
$74,000 in 1995, 1996 and 1997, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short- and Long-term Obligations
In May 1998, the Company agreed to acquire the Clinical Products Group of
LSI from Thermo Instrument (Note 2). The purchase price included the assumption
of approximately $37,861,000 of existing indebtedness owed by the Clinical
Products Group of LSI to Thermo Instrument. Such debt, which is included in due
to parent company and affiliated companies in the accompanying 1997 balance
sheet, bears interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter, and is due on January 2,
1999. The fair value of this debt approximates its carrying value due to its
variable interest rate.
In May 1997, the Company agreed to purchase Labsystems OY and Hybaid from
Thermo Instrument (Note 2). The purchase price for such businesses included a
$50,000,000 promissory note that bears interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each quarter, and
which is due on July 15, 1999. The fair value of this promissory note
approximates its carrying value due to its variable interest rate.
In July 1996, the Company issued to Thermo Instrument a $50,000,000
principal amount 4.875% subordinated convertible note, due 2001, convertible
into shares of the Company's common stock at $16.50 per share. The fair value of
the subordinated convertible note was $62,500,000 at year-end 1997, primarily
due to the market price of the Company's common stock exceeding the conversion
price of the note, and approximated its carrying value at year-end 1996,
primarily due to the quoted market price of the Company's common stock and
prevailing market interest rates.
In February 1996, the Company borrowed $30,000,000 from Thermo Electron
pursuant to a promissory note due February 1997 and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. This note was repaid in July 1996 with proceeds from
the $50,000,000 subordinated convertible note issued to Thermo Instrument.
7. COMMON STOCK
In September and October 1996, the Company sold 1,670,000 shares of its
common stock in an initial public offering at $14.00 per share for net proceeds
of $20,782,000.
In March 1995, the Company sold 700,000 shares of its common stock in a
private placement at $10.00 per share for net proceeds of $6,530,000. In April
1995, the Company sold 901,500 shares of its common stock in a private placement
for net proceeds of $8,388,000.
At January 3, 1998, the Company had reserved 4,303,203 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
for issuance upon possible conversion of the 4.875% subordinated convertible
note.
F-19
<PAGE> 63
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. GEOGRAPHICAL INFORMATION AND SIGNIFICANT CUSTOMER
The following table shows data for the Company by geographical area.
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States............................................. $17,741 $ 43,098 $ 96,146
Finland................................................... -- -- 40,520
United Kingdom............................................ 4,793 27,817 61,457
Other Europe.............................................. -- 11,228 42,080
Asia...................................................... -- 3,381 12,118
Other..................................................... -- -- 897
Transfers among geographical areas(a)..................... -- (13,875) (51,220)
------- -------- --------
$22,534 $ 71,649 $201,998
======= ======== ========
Income before provision for income taxes:
United States............................................. $ 3,321 $ 3,398 $ 16,401
Finland................................................... -- -- 11,199
United Kingdom(b)......................................... 360 (1,061) (914)
Other Europe.............................................. -- 621 550
Asia...................................................... -- 577 136
Other..................................................... -- -- 212
Corporate and eliminations(c)............................. (312) (1,478) (4,415)
------- -------- --------
Total operating income.................................... 3,369 2,057 23,169
Interest income (expense), net............................ 819 (593) (5,294)
------- -------- --------
$ 4,188 $ 1,464 $ 17,875
======= ======== ========
Identifiable assets:
United States............................................. $29,022 $ 47,096 $108,969
Finland................................................... -- -- 82,621
United Kingdom............................................ 3,885 27,720 86,025
Other Europe.............................................. -- 6,467 30,934
Asia...................................................... -- 1,149 4,060
Other..................................................... -- -- 278
Corporate(d).............................................. -- 40,565 9,552
------- -------- --------
$32,907 $122,997 $322,439
======= ======== ========
Export revenues included in United States revenues
above(e).................................................. $ 2,741 $ 3,432 $ 9,060
======= ======== ========
</TABLE>
- ---------------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Includes a write-off of acquired technology in 1996 of $3,500,000 related to
the acquisitions of Affinity Sensors and LabSystems.
(c) Primarily corporate general and administrative expenses.
(d) Primarily cash and cash equivalents.
(e) In general, export sales are denominated in U.S. dollars.
F-20
<PAGE> 64
THERMO BIOANALYSIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
U.S. government agencies accounted for 24% of the Company's total revenues
in 1995. No customer accounted for 10% or more of the Company's total revenues
in 1996 or 1997.
9. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
--------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
------ ------ ------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic
Net income (loss)................................... $2,514 $ (436) $11,340 $ 1,582 $ 3,202
------ ------ ------- ------- -------
Weighted average shares............................. 7,694 8,542 9,772 9,772 9,778
Shares issuable for acquisition of the Labsystems OY
and Hybaid divisions of LSI (Note 2).............. -- -- 1,044 257 1,300
Shares issuable for the acquisition of the Clinical
Products Group of LSI (Note 2).................... -- -- 2,416 595 3,008
------ ------ ------- ------- -------
Weighted average shares, as adjusted................ 7,694 8,542 13,232 10,624 14,086
------ ------ ------- ------- -------
Basic earnings (loss) per share..................... $ .33 $ (.05) $ .86 $ .15 $ .23
====== ====== ======= ======= =======
Diluted
Net income (loss)................................... $2,514 $ (436) $11,340 $ 1,582 $ 3,202
Effect of:
Convertible note.................................. -- -- 1,560 390 390
------ ------ ------- ------- -------
Income (loss) available to common shareholders, as
adjusted.......................................... $2,514 $ (436) $12,900 $ 1,972 $ 3,592
------ ------ ------- ------- -------
Basic weighted average shares....................... 7,694 8,542 13,232 10,624 14,086
Effect of:
Convertible note.................................. -- -- 3,030 3,030 3,030
Stock options..................................... -- -- 105 40 183
------ ------ ------- ------- -------
Weighted average shares, as adjusted................ 7,694 8,542 16,367 13,694 17,299
------ ------ ------- ------- -------
Diluted earnings (loss) per share................... $ .33 $ (.05) $ .79 $ .14 $ .21
====== ====== ======= ======= =======
</TABLE>
The computation of diluted loss per share for 1996 excludes the effect of
assuming the conversion of the Company's $50,000,000 principal amount 4.875%
subordinated convertible note because the effect would be antidilutive.
10. SUBSEQUENT EVENTS
Joint Venture
In April 1998, the Company announced its intention to contribute in July
1998 the assets and liabilities of its health physics division to a joint
venture the Company is forming with Thermo Instrument. The Company will receive
a 49% equity interest in the joint venture, and will initially receive 67% of
the profit and losses of the joint venture.
Comprehensive Income
During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"other comprehensive items" which represent foreign currency translation
adjustments, reported as a component of shareholders' investment in the
accompanying balance sheet. During the first quarter of 1997 and 1998, the
Company's unaudited comprehensive income was $1,823,000 and $2,235,000,
respectively.
F-21
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the DYNEX Technologies Division of Dynatech Corporation:
We have audited the accompanying consolidated balance sheet of the DYNEX
Technologies Division of Dynatech Corporation as of March 31, 1995 and February
7, 1996, and the related consolidated statements of operations, cash flows, and
shareholder's investment for each of the two years in the period ended March 31,
1995 and the period from April 1, 1995 through February 7, 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 Dynatech Medical Products Limited, which statements reflect 14
percent and 16 percent of consolidated assets as of March 31, 1995 and February
7, 1996, respectively, and 35 percent, 32 percent and 41 percent of consolidated
cost of revenues for each of the two years in the period ended March 31, 1995
and the period from April 1, 1995 through February 7, 1996, respectively. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits 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 the DYNEX Technologies Division of
Dynatech Corporation as of March 31, 1995 and February 7, 1996 and the results
of their operations and their cash flows for each of the two years in the period
ended March 31, 1995 and for the period from April 1, 1995 through February 7,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 19, 1996
F-22
<PAGE> 66
REPORT OF THE AUDITORS TO THE MEMBERS OF
DYNATECH MEDICAL PRODUCTS LIMITED
We have audited the accounts.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the
accounts. It is our responsibility to form an independent opinion, based on our
audit, on those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion, we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of the
company's affairs as at March 31, 1995 and at February 7, 1996 and of its income
and cash flows for the years ended March 31, 1994 and 1995 and the period from
April 1, 1995 through February 7, 1996 and have been properly prepared in
accordance with the Companies (Guernsey) Law, 1994.
Coopers & Lybrand
Chartered Accountants
Guernsey, Channel Islands
July 19, 1996
F-23
<PAGE> 67
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
-------------------- FEBRUARY 7,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Revenues (Note 6)........................................ $30,130 $37,328 $28,503
------- ------- -------
Costs and Operating Expenses:
Cost of revenues....................................... 15,476 20,297 15,783
Selling, general and administrative expenses (includes
$2,515, $2,182 and $2,152 to Dynatech Corporation)
(Note 5)............................................ 12,203 12,636 11,402
Research and development expenses...................... 2,483 2,467 2,297
------- ------- -------
30,162 35,400 29,482
------- ------- -------
Operating Income (Loss).................................. (32) 1,928 (979)
Interest Income.......................................... 154 156 146
Interest Expense (includes $1,353, $1,050 and $1,427 to
Dynatech Corporation) (Note 5)......................... (1,662) (1,312) (1,610)
------- ------- -------
Income (Loss) Before Provision for Income Taxes.......... (1,540) 772 (2,443)
Provision for Income Taxes (Note 3)...................... 228 436 320
------- ------- -------
Net Income (Loss)........................................ $(1,768) $ 336 $(2,763)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 68
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, FEBRUARY 7,
1995 1996
--------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 5,269 $ 1,232
Accounts receivable, less allowances of $293 and $174..... 5,435 4,923
Inventories............................................... 5,861 6,737
Prepaid expenses.......................................... 585 866
Prepaid income taxes (Note 3)............................. 130 170
------- -------
17,280 13,928
------- -------
Property and Equipment, at Cost, Net........................ 2,080 2,138
------- -------
$19,360 $16,066
======= =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Short-term debt........................................... $ 3,732 $ --
Accounts payable.......................................... 1,670 1,094
Accrued payroll and employee benefits..................... 1,681 825
Accrued installation and warranty expenses................ 270 270
Customer deposits......................................... 479 483
Accrued income taxes...................................... 436 320
Deferred revenue.......................................... 106 189
Accrued sales commissions................................. 427 264
Other accrued expenses.................................... 781 564
------- -------
9,582 4,009
------- -------
Deferred Income Taxes (Note 3).............................. 130 170
------- -------
Commitments (Note 4)
Shareholder's Investment:
Net parent company investment............................. 9,292 12,056
Cumulative translation adjustment......................... 356 (169)
------- -------
9,648 11,887
------- -------
$19,360 $16,066
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 69
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
------------------ FEBRUARY 7,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $(1,768) $ 336 $(2,763)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 1,255 1,103 874
Provision for losses on accounts receivable......... 36 74 41
Changes in current accounts:
Accounts receivable.............................. 1,462 (634) 333
Inventories...................................... 320 (887) (1,152)
Other current assets............................. 75 75 (301)
Accounts payable................................. (980) 693 (531)
Other current liabilities........................ 1,115 (721) (1,184)
------- ------- -------
Net cash provided by (used in) operating
activities..................................... 1,515 39 (4,683)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment...................... (892) (1,127) (975)
------- ------- -------
FINANCING ACTIVITIES:
Net transfer from Dynatech Corporation................... 895 1,746 5,527
Dividends paid to Dynatech Corporation................... (600) (400) --
Increase (decrease) in short-term debt................... 685 156 (3,652)
------- ------- -------
Net cash provided by financing activities........ 980 1,502 1,875
------- ------- -------
Exchange Rate Effect on Cash............................... 716 (489) (254)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents........... 2,319 (75) (4,037)
Cash and Cash Equivalents at Beginning of Period........... 3,025 5,344 5,269
------- ------- -------
Cash and Cash Equivalents at End of Period................. $ 5,344 $ 5,269 $ 1,232
======= ======= =======
CASH PAID FOR:
Interest................................................. $ 311 $ 260 $ 193
======= ======= =======
Income taxes............................................. $ 315 $ 305 $ 78
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 70
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET PARENT CUMULATIVE
COMPANY TRANSLATION
INVESTMENT ADJUSTMENT
---------- -----------
<S> <C> <C>
BALANCE MARCH 31, 1993...................................... $ 9,083 $ 41
Net loss.................................................... (1,768) --
Net transfer from Dynatech Corporation...................... 895 --
Dividends paid to Dynatech Corporation...................... (600) --
Translation adjustment...................................... -- 759
------- -----
BALANCE MARCH 31, 1994...................................... 7,610 800
Net income.................................................. 336 --
Net transfer from Dynatech Corporation...................... 1,746 --
Dividends paid to Dynatech Corporation...................... (400) --
Translation adjustment...................................... -- (444)
------- -----
BALANCE MARCH 31, 1995...................................... 9,292 356
Net loss.................................................... (2,763) --
Net transfer from Dynatech Corporation...................... 5,527 --
Translation adjustment...................................... -- (525)
------- -----
BALANCE FEBRUARY 7, 1996.................................... $12,056 $(169)
======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 71
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
DYNEX Technologies (the "Company") designs, manufactures and markets
products used in the immunoassay segment of the bioinstrumentation market. The
Company is a division of Dynatech Corporation ("Dynatech"), and was formerly
known as Dynatech Laboratories.
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.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty and installation costs at the
time of shipment. Deferred revenue in the accompanying balance sheet consists of
unearned revenue on service contracts which is recognized as revenue over the
life of the service contract. Substantially all of the deferred revenue included
in the accompanying balance sheet as of February 7, 1996, will be recognized
within one year.
Income Taxes
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.
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>
MARCH 31, FEBRUARY 7,
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $2,191 $2,054
Work in process............................................. 559 581
Finished goods.............................................. 3,111 4,102
------ ------
$5,861 $6,737
====== ======
</TABLE>
F-28
<PAGE> 72
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property 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, 3 to 10 years;
and leasehold improvements, the shorter of the term of the lease or the life of
the asset. Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, FEBRUARY 7,
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and leasehold improvements............. $6,782 $6,807
Less: Accumulated depreciation and amortization............. 4,702 4,669
------ ------
$2,080 $2,138
====== ======
</TABLE>
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 shareholder's investment titled "Cumulative translation
adjustment." Foreign currency transaction gains and losses are included in the
accompanying statement of operations and are not material for all 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. 401(k) SAVINGS PLAN
Substantially all of the Company's full-time U.S. employees are eligible to
participate in Dynatech'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. In addition,
the Company may provide a discretionary contribution which is allocated based on
each employee's salary and length of service. Contributions charged to expense
were $66,000, $113,000, and $103,000 for the years ended March 31, 1994 and 1995
and for the period from April 1, 1995 through February 7, 1996, respectively.
3. INCOME TAXES
The components of income (loss) before provision for income taxes are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
---------------- FEBRUARY 7,
1994 1995 1996
------- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................... $(1,094) $(163) $(1,926)
Foreign.................................................... (446) 935 (517)
------- ----- -------
$(1,540) $ 772 $(2,443)
======= ===== =======
</TABLE>
F-29
<PAGE> 73
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
------------ FEBRUARY 7,
1994 1995 1996
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable
Foreign................................................... $228 $436 $320
==== ==== ====
</TABLE>
The provision for income taxes in the accompanying statement of operations
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income (loss) before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
---------------- FEBRUARY 7,
1994 1995 1996
----- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate..... $(539) $ 270 $ (855)
Increases (decreases) resulting from:
Net foreign losses not benefited and tax rate
differential.......................................... 384 109 501
Net operating loss not benefited......................... 613 366 1,014
Other, net............................................... (230) (309) (340)
----- ------- -------
$ 228 $ 436 $ 320
===== ======= =======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
MARCH 31, FEBRUARY 7,
1995 1996
--------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Prepaid income taxes:
Reserves and accruals.......................................... $ 146 $ 192
Inventory basis difference..................................... 4 5
Net operating loss carryforwards............................... 5,003 5,397
------- -------
5,153 5,594
Less: Valuation allowance...................................... 5,023 5,424
------- -------
$ 130 $ 170
======= =======
Deferred income taxes:
Depreciation................................................... $ 127 $ 167
Other.......................................................... 3 3
------- -------
$ 130 $ 170
======= =======
</TABLE>
The valuation allowance relates to uncertainty concerning the realization
of $13,875,000 of federal net operating loss carryforwards, the realization of
which is limited to the future income of the Company's U.S. subsidiary. The loss
carryforwards will expire in the years 2004 through 2011. Any tax benefit
resulting from use of the loss carryforwards will be recorded as a reduction to
the provision for income taxes.
F-30
<PAGE> 74
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A provision has not been made for U.S. or additional foreign taxes on
$2,164,000 of undistributed earnings in foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company currently plans
to keep these amounts permanently reinvested overseas.
4. COMMITMENTS
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of operations
includes expenses from operating leases of $977,000, $948,000 and $688,000 for
the years ended March 31, 1994 and 1995 and for the period from April 1, 1995
through February 7, 1996, respectively. Future minimum payments due under
noncancelable operating leases are $736,000 in the remainder of calendar 1996;
$600,000 in 1997; $371,000 in 1998; $376,000 in 1999; $383,000 in 2000; and
$29,000 in 2001 and thereafter. Total future minimum lease payments are
$2,495,000.
5. RELATED PARTY TRANSACTIONS
Corporate Services Agreement
The Company and Dynatech have corporate services agreements under which
Dynatech provides certain administrative services, including risk management,
administration for certain employee benefits, tax advice and preparation of tax
returns, centralized cash management and certain other services. For these
services, the Company paid fees of approximately 1.2% of budgeted revenue and
2.6% of actual expenses incurred. In addition, Dynatech charged the Company an
interest allocation. The corporate service fees and the interest allocation
totaled $2,515,000, $2,182,000, and $2,152,000 for the years ended March 31,
1994 and 1995 and for the period from April 1, 1995 through February 7, 1996,
respectively. Management believes that the corporate service fee and interest
allocation are reasonable and representative of the expenses the Company would
have incurred on a stand-alone basis.
6. GEOGRAPHICAL INFORMATION
The Company is engaged in one business segment: developing, manufacturing,
and marketing products used in the immunoassay segment of the bioinstrumentation
market. The following table shows data for the Company by geographical area.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
------------------- FEBRUARY 7,
1994 1995 1996
------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States........................................ $15,541 $ 18,428 $13,250
Germany.............................................. 7,212 9,962 7,169
Guernsey Channel Islands............................. 6,591 8,163 7,547
United Kingdom....................................... 3,519 3,833 2,689
France............................................... 1,907 3,064 3,617
Other................................................ 3,827 4,907 3,806
Transfers among geographical areas (a)............... (8,467) (11,029) (9,575)
------- -------- -------
$30,130 $ 37,328 $28,503
======= ======== =======
</TABLE>
F-31
<PAGE> 75
DYNEX TECHNOLOGIES DIVISION OF DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995
MARCH 31, THROUGH
------------------- FEBRUARY 7,
1994 1995 1996
------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before provision for income taxes:
United States................................ $ (335) $ 395 $(1,257)
Germany...................................... (220) 439 286
Guernsey, Channel Islands.................... (253) 145 (573)
United Kingdom............................... 180 336 98
France....................................... (247) 125 313
Other........................................ 843 488 154
------- -------- -------
Total operating income (loss)................ (32) 1,928 (979)
Interest expense, net........................ (1,508) (1,156) (1,464)
------- -------- -------
$(1,540) $ 772 $(2,443)
======= ======== =======
Identifiable assets:
United States................................ $ 5,212 $ 5,800 $ 2,619
Germany...................................... 3,743 3,537 3,456
Guernsey, Channel Islands.................... 1,792 2,601 2,759
United Kingdom............................... 3,414 4,441 4,060
France....................................... 1,304 1,509 1,647
Other........................................ 1,506 1,472 1,525
------- -------- -------
$16,971 $ 19,360 $16,066
======= ======== =======
Export revenues included in United States
revenues above (b):
Europe....................................... $ 1,612 $ 2,519 $ 1,544
Other........................................ 1,148 1,243 878
------- -------- -------
$ 2,760 $ 3,762 $ 2,422
======= ======== =======
</TABLE>
- ---------------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) In general, export sales are denominated in U.S. dollars.
7. SUBSEQUENT EVENT
On February 7, 1996, the Company was sold to Thermo BioAnalysis
Corporation.
F-32
<PAGE> 76
AUDITORS' REPORT
The Board of Directors and Shareholders
Life Sciences International PLC:
We have audited the accompanying combined balance sheets of the Biosystems
Group of Life Sciences International PLC as of 31 December 1995 and 1996, and
the related combined profit and loss accounts, statements of total recognized
gains and losses, and cash flow statements for each of the years in the
three-year period ended 31 December 1996. These combined financial statements
are the responsibility of the management of Life Sciences International PLC. 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 in the United Kingdom 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 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 the Biosystems Group
of Life Sciences International PLC as of 31 December 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended 31 December 1996 in conformity with generally accepted
accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from accounting principles generally accepted in the United
States of America. Application of accounting principles generally accepted in
the United States of America would have affected the net profit for the years
ended 31 December 1995 and 1996, and equity shareholders' funds as of 31
December 1995 and 1996 to the extent summarised in note 24 to the combined
financial statements.
KPMG AUDIT PLC
London, England
10 February 1997, except with
respect to note 23 which is
of 6 May 1997
F-33
<PAGE> 77
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED PROFIT AND LOSS ACCOUNTS
FOR THE THREE YEARS ENDED 31 DECEMBER 1996
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
NOTE 1994 1995 1996
---- ------- ------- -------
<S> <C> <C> <C> <C>
Sales -- continuing operations......................... 2 32,239 39,494 41,384
Cost of sales -- continuing operations................. (17,097) (23,698) (24,261)
------- ------- -------
Gross profit........................................... 15,142 15,796 17,123
Distribution costs..................................... (5,465) (8,034) (7,580)
Administrative expenses................................ (2,681) (3,373) (7,148)
------- ------- -------
Operating profit -- continuing operations.............. 3 6,996 4,389 2,395
Net interest receivable/(payable)...................... 5 (2,042) (1,541) 1,599
------- ------- -------
Profit on ordinary activities before taxation.......... 4,954 2,848 3,994
Taxation............................................... 6 (1,100) (834) (1,783)
------- ------- -------
Profit on ordinary activities after taxation........... 3,854 2,014 2,211
Dividends.............................................. 7 (1,450) -- --
------- ------- -------
Retained profit for the year........................... 14 2,404 2,014 2,211
======= ======= =======
</TABLE>
There were no material acquisitions nor discontinued operations within the
meaning of the Financial Reporting Standards during the three years ended
31 December 1996.
F-34
<PAGE> 78
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE THREE YEARS ENDED 31 DECEMBER 1996
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ------
<S> <C> <C> <C>
Profit on ordinary activities after taxation................ 3,854 2,014 2,211
Unrealised currency retranslation........................... 1,475 1,571 (3,668)
----- ----- ------
Total gains and losses recognised in the year............... 5,329 3,585 (1,457)
===== ===== ======
</TABLE>
There is no material difference between the results reported and on an
unmodified historical cost basis. Accordingly, no note of historical cost
profits and losses has been prepared.
F-35
<PAGE> 79
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED BALANCE SHEETS
AT 31 DECEMBER 1995-96
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
NOTE 1995 1996
---- ------- -------
<S> <C> <C> <C>
Fixed assets
Tangible assets........................................... 8 7,390 6,133
Investments............................................... 9 410 410
------- -------
7,800 6,543
------- -------
Current assets
Stock..................................................... 10 9,250 7,883
Debtors................................................... 11 24,125 24,206
Cash at bank and at hand.................................. 17 3,275 6,571
------- -------
36,650 38,660
------- -------
Current liabilities
Creditors: amounts falling due within one year............ 12 (42,313) (42,951)
------- -------
Net current liabilities........................... (5,663) (4,291)
------- -------
Total assets less current liabilities....................... 2,137 2,252
Creditors: amounts falling due after more than one year..... 13 (132) (218)
Provisions for liabilities and charges
Deferred tax........................................... (757) (868)
Restructuring costs.................................... -- (1,221)
------- -------
Net (liabilities)/assets.................................... 1,248 (55)
======= =======
Capital and reserves
Called-up share capital (aggregated)...................... 19 (2,948) (2,948)
Share premium account (aggregated)........................ 19 (1,642) (1,642)
Other reserves............................................ 19 12,518 16,032
Profit and loss account................................... 19 (9,176) (11,387)
------- -------
Equity shareholders' funds.................................. (1,248) 55
======= =======
</TABLE>
F-36
<PAGE> 80
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED CASH FLOW STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1994-96
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
NOTE 1994 1995 1996
---- ------ ------ ------
<S> <C> <C> <C> <C>
Net cash inflow from operating activities................. 15 6,254 5,630 4,514
Returns on investments and servicing of finance
Interest received......................................... 73 555 76
Interest paid............................................. (2,114) (2,085) (2,170)
Proceeds on liquidation of foreign exchange contracts..... -- -- 3,693
------ ------ ------
Net cash inflow/(outflow) from returns on investments
and servicing of finance............................. (2,041) (1,530) 1,599
Taxation
UK corporation tax paid................................. (628) (138) (96)
Overseas tax paid....................................... (261) (560) (631)
------ ------ ------
Tax paid................................................ (889) (698) (727)
------ ------ ------
Investing activities
Investment in joint venture............................. (251) (142) --
Purchase of subsidiary undertakings net of cash
acquired............................................. 16 -- -- (33)
Cash acquired through purchase of subsidiary undertaking
by other Life Sciences company....................... 672 32 --
Purchase of land and buildings.......................... (19) (659) (245)
Purchase of other tangible fixed assets................. (1,496) (2,300) (1,231)
Receipts from sale of other tangible fixed assets....... 35 31 --
------ ------ ------
Net cash outflow from investing activities.............. (1,059) (3,038) (1,509)
Net cash inflow before financing........................ 2,265 364 3,877
------ ------ ------
Financing
Drawdown/(repayment) of long term loans................. (7,525) (12) 136
Capital element of finance lease rental payment......... -- (6) --
------ ------ ------
Net cash outflow from financing......................... (7,525) (18) 136
------ ------ ------
Increase/(decrease) in cash and cash equivalents........ 17 (5,260) 346 4,013
====== ====== ======
</TABLE>
F-37
<PAGE> 81
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1994-96
1 ACCOUNTING POLICIES
a) Basis of preparation
The combined accounts of the Biosystems Group of Life Sciences have been
prepared under the historical cost convention and in accordance with generally
accepted accounting principles in the United Kingdom.
The combined accounts of the Biosystems Group of Life Sciences, which
reflect all costs of doing business, have been prepared by aggregating the
results of operations, cash flows and balance sheets of the following companies,
which are under common control of Life Sciences International PLC, a United
Kingdom corporation, as if it was a separate entity for the periods presented:
<TABLE>
<CAPTION>
COUNTRY OF
ENTITY INCORPORATION
- ------ --------------
<S> <C>
Labsystems Oy............................................... Finland
Labsystems Hong Kong Limited................................ Hong Kong
Fastighets AB Skrubba....................................... Sweden
Labsystems AB............................................... Sweden
Life Sciences International Benelux BV...................... Netherlands
Labsystems Espana SA........................................ Spain
Hybaid Limited.............................................. United Kingdom
Labsystems Inc.............................................. USA
Denley Instruments Inc...................................... USA
Labsystems Lenpipette....................................... Russia
</TABLE>
Where companies were purchased during the period, their results are
included from the effective date of acquisition.
b) Sales
Sales are those to third parties, net of trade discounts, VAT and similar
overseas sales taxes.
c) Stock
Stock is stated at the lower of cost and estimated net realisable value.
Cost comprises purchase price of materials, direct labour costs and an
appropriate proportion of overheads.
d) Depreciation
No depreciation is provided on freehold land. Leasehold expenditure is
amortised so as to write off such expenditure on a straight-line basis over the
life of the relevant lease or 65 years, whichever is the shorter. Depreciation
of other fixed assets is provided at various rates on a straight-line basis on
cost in order to write off the assets over their useful lives, estimated to be
between 3 and 15 years.
e) Research and development expenditure
Research and development expenditure is not capitalised but charged against
profit and loss account as it is incurred.
F-38
<PAGE> 82
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
f) Foreign currencies
Assets and liabilities in foreign currencies are translated at the rates of
exchange ruling at each year end. Overseas companies' profit and loss accounts
are translated at average rates for the year. Exchange differences arising from
the retranslation at the closing rate of the opening net investment in overseas
subsidiaries and the profit and loss account for the year are shown as a
movement on reserves.
g) Taxation
The charge for taxation is based on the income for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
taxation deferred in respect of timing differences where, in the opinion of the
directors, such timing differences are likely to reverse in the foreseeable
future.
h) Leased assets
Assets obtained under hire purchase contracts and finance leases are
capitalised and depreciated over their useful lives. The interest element of the
rentals is charged to profit and loss account over the period of the contract.
Rentals paid under operating leases are charged to income as incurred.
i) Pension benefits
The Biosystems Group of Life Sciences participated in a number of pension
schemes throughout the world, both defined benefit and defined contribution
schemes, including that of Life Sciences International PLC. The assets of these
schemes are not included in the combined accounts (see note 22). Contributions
to these schemes were made in accordance with local statutory legislation or
were based upon the recommendations of qualified actuaries. Contributions paid
to defined benefit schemes were based on actual pension costs as determined by
qualified actuaries and have been charged against profits on a systematic basis
over the expected remaining service lives of participating employees.
Independent actuarial valuations of defined benefit schemes are made at least
every three years. Contributions paid to defined contribution schemes are
charged to the profit and loss account in the period in which they arise.
Pension costs are calculated and incurred separately for each company within
Life Sciences International and within the Biosystems Group. Details of actual
charges incurred are provided in note 22 to the financial statements.
j) Presentation
Certain amounts in 1995 have been reclassified to conform to the 1996
financial statement presentation.
F-39
<PAGE> 83
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2 SEGMENTAL INFORMATION
All turnover and profit is derived from, and all net assets are
attributable to one business segment, being the manufacture and supply of
BioSystems Products.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Geographical analysis of sales by location of customer
North America.......................................... 6,340 9,869 9,048
United Kingdom......................................... 2,904 3,738 4,168
Other Europe........................................... 18,634 21,748 21,048
All other areas........................................ 4,361 4,139 7,120
------ ------ ------
32,239 39,494 41,384
====== ====== ======
Geographical analysis of sales by origin
North America.......................................... 1,690 820 953
United Kingdom......................................... 6,391 9,275 9,198
Other Europe........................................... 24,158 29,399 31,233
------ ------ ------
32,239 39,494 41,384
====== ====== ======
Profit on ordinary activities before taxation
North America.......................................... 431 (127) 122
United Kingdom......................................... 754 317 (789)
Other Europe........................................... 5,811 4,178 3,115
All other areas........................................ -- 21 (53)
------ ------ ------
Operating profit....................................... 6,996 4,389 2,395
Net interest receivable/(payable)...................... (2,042) (1,541) 1,599
------ ------ ------
Profit on ordinary activities before taxation.......... 4,954 2,848 3,994
====== ====== ======
Net assets
North America.................................................. (4,349) (3,868)
United Kingdom................................................. 1,046 116
Other Europe................................................... 4,531 4,103
All other areas................................................ 20 (406)
------ ------
Net assets/(liabilities)............................... 1,248 (55)
====== ======
</TABLE>
F-40
<PAGE> 84
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3 OPERATING PROFIT
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Operating profit is stated after charging/(crediting):
Depreciation.............................................. 1,096 1,477 1,553
Research and development.................................. 2,641 3,377 3,126
Hire of plant and machinery............................... 80 162 111
Operating lease rentals................................... 523 160 348
Net loss/(profit) on sale of fixed assets................. (13) 36 25
Auditors' remuneration -- Audit........................... 38 46 54
Auditors' remuneration -- Other........................... 5 6 10
Charitable contributions.................................. -- 2 --
Net rental income......................................... 125 -- --
</TABLE>
In 1996, exceptional restructuring costs of 1,221,000 British pounds
sterling were charged to administrative expenses.
4 EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Staff costs during the year:
Wages and salaries..................................... 8,154 9,626 9,589
Social security costs.................................. 1,103 1,094 1,090
Other pension costs.................................... 991 1,134 1,130
------ ------ ------
10,248 11,854 11,809
====== ====== ======
Weighted average weekly number of employees:
Manufacturing.......................................... 271 279 281
Selling................................................ 86 100 98
Administration......................................... 55 68 67
------ ------ ------
412 447 446
====== ====== ======
</TABLE>
F-41
<PAGE> 85
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5 INTEREST
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
External interest payable
On loans from other Life Sciences' companies........... 2,049 2,046 2,118
On bank loans and overdrafts........................... 5 -- --
On other loans repayable in 5 years.................... 61 50 53
On other loans repayable after 5 years................. -- -- --
----- ----- ------
External interest payable................................ 2,115 2,096 2,171
External interest receivable............................. (73) (555) (77)
----- ----- ------
Net interest payable..................................... 2,042 1,541 2,094
Profit on liquidation of foreign exchange contracts
relating to future periods............................. -- -- (3,693)
----- ----- ------
Net interest (receivable)/payable.............. 2,042 1,541 (1,599)
===== ===== ======
</TABLE>
6 TAXATION
<TABLE>
<CAPTION>
1994 1995 1996
----- ---- -----
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
UK Corporation tax at 33%................................ 259 156 107
Overseas tax............................................. 395 423 1,600
Deferred tax............................................. 446 311 111
Adjustment for prior years............................... -- (56) (35)
----- --- -----
1,100 834 1,783
===== === =====
</TABLE>
7 DIVIDEND
In 1995 Hybaid Limited paid a dividend totaling 1,450,000 British pounds
sterling (18.05 British pounds sterling per 10 pence ordinary share) to its
parent company, Life Sciences International PLC.
F-42
<PAGE> 86
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND PLANT FIXTURES
AND AND AND
BUILDINGS MACHINERY FITTINGS TOTAL
--------- --------- -------- ------
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C>
Cost
At 1 January 1995.................................. 1,366 5,501 452 7,319
Additions arising from acquisitions............. -- 10 71 81
Other additions................................. 659 2,177 134 2,970
Disposals....................................... -- (114) (26) (140)
Currency retranslation.......................... 182 532 32 746
----- ------ ---- ------
At 31 December 1995 and 1 January 1996............. 2,207 8,106 663 10,976
Additions arising from acquisitions............. -- 32 47 79
Other additions................................. 244 1,093 133 1,470
Disposals....................................... -- (53) (28) (81)
Currency retranslation.......................... (306) (1,167) (88) (1,561)
----- ------ ---- ------
At 31 December 1996................................ 2,145 8,011 727 10,883
===== ====== ==== ======
Accumulated depreciation
At 1 January 1995.................................. (261) (1,510) (168) (1,939)
Charged in year................................. (128) (1,157) (192) (1,477)
Disposals....................................... -- 51 22 73
Currency retranslation.......................... (39) (192) (12) (243)
----- ------ ---- ------
At 31 December 1995 and 1 January 1996............. (428) (2,808) (350) (3,586)
Charged in year................................. (160) (1,260) (133) (1,553)
Disposals....................................... -- 40 16 56
Currency retranslation.......................... 70 436 44 550
Asset write down................................ (217) -- -- (217)
----- ------ ---- ------
At 31 December 1996................................ (735) (3,592) (423) (4,750)
===== ====== ==== ======
Net book value
At 31 December 1995................................ 1,779 5,298 313 7,390
At 31 December 1996................................ 1,410 4,419 304 6,133
</TABLE>
9 INVESTMENTS
Investments in joint ventures:
<TABLE>
<CAPTION>
PLACE OF
INCORPORATION EQUITY
INTEREST INTEREST 1995 1996
------------- -------- ---- ----
(IN THOUSANDS OF BRITISH POUNDS STERLING,
EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
JVC Feilong...................................... China 32.5% 201 201
Labsystems Pakistan.............................. Pakistan 33.3% 66 66
Labsystems Shanghai.............................. China 32.5% 143 143
--- ---
410 410
=== ===
</TABLE>
F-43
<PAGE> 87
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The joint ventures have been shown as investments in the balance sheet at
cost. The differences between accounting for these investments at cost and under
the equity accounting method are, in the opinion of the directors, not material.
10 STOCK
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Raw materials............................................... 2,099 1,563
Work in progress............................................ 1,284 1,067
Finished goods.............................................. 5,867 5,253
----- -----
9,250 7,883
===== =====
</TABLE>
11 DEBTORS
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Amounts falling due within one year:
Trade debtors............................................. 6,636 7,223
Amounts owed by other Life Sciences companies............. 15,876 15,312
Other debtors............................................. 664 875
Prepayments and accrued income............................ 902 761
Overseas taxes recoverable................................ 16 --
------ ------
24,094 24,171
------ ------
Amounts falling due after more than one year:
Other debtors............................................. 31 35
------ ------
24,125 24,206
====== ======
</TABLE>
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C>
Bank loans and overdrafts................................... (12) (10)
Trade creditors............................................. (2,842) (1,677)
Amounts owed to other Life Sciences companies............... (14,231) (17,200)
Loans from other Life Sciences companies.................... (21,602) (19,611)
UK Corporation tax.......................................... (138) (148)
Overseas taxes.............................................. (264) (1,558)
Other creditors and social security......................... (786) (378)
Accruals.................................................... (2,435) (2,369)
Obligations under finance leases............................ (3) --
------- -------
(42,313) (42,951)
======= =======
</TABLE>
F-44
<PAGE> 88
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Loans....................................................... (25) (126)
Obligations under finance leases............................ (1) --
Other creditors & accruals.................................. (106) (92)
---- ----
(132) (218)
==== ====
</TABLE>
14 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Retained profit for the year............................. 2,404 2,014 2,211
Other gains and losses recognised during the year*....... 1,474 1,570 (3,667)
Acquired net assets/(liabilities)........................ 1,792 (407) --
Discount on acquisition of Labsystems Lenpipette......... -- -- 153
------ ------ ------
Net (reduction)/addition to shareholders' funds.......... 5,670 3,177 (1,303)
Opening shareholders' funds.............................. (7,599) (1,929) 1,248
------ ------ ------
Closing shareholders' funds.............................. (1,929) 1,248 (55)
====== ====== ======
</TABLE>
- ---------------
* This movement represents the retranslation of opening net assets and profits
for the year denominated in foreign currencies to year end exchange rates from
opening and average rates respectively.
15 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Operating profit............................................ 6,996 4,389 2,395
Add back non cash items:
Write down of fixed assets................................ -- -- 217
Depreciation charges...................................... 1,096 1,477 1,553
(Profit)/loss on sale of fixed assets..................... (13) 36 25
(Increase)/decrease in stocks............................. (2,304) (957) 464
(Increase)/decrease in debtors............................ (852) 3,382 (1,630)
Increase/(decrease) in creditors and provisions........... (140) (477) 569
Movement in balances with other Life Sciences companies... 1,471 (2,220) 921
------ ------ ------
Net cash flow from operating activities........... 6,254 5,630 4,514
====== ====== ======
</TABLE>
F-45
<PAGE> 89
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16 PURCHASE OF SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ----
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Net assets acquired
Discount on acquisition.................................. -- -- (153)
Tangible fixed assets.................................... -- -- 70
Stock.................................................... -- -- 211
Debtors.................................................. -- -- 8
Creditors................................................ -- -- (103)
Cash..................................................... -- -- 16
------ ------ ----
-- -- 49
====== ====== ====
Satisfied by
Cash..................................................... -- -- 49
Cash of acquired subsidiary undertaking.................. -- -- (16)
------ ------ ----
Net outflow of cash in respect of the purchase of
subsidiary undertaking......................... -- -- 33
====== ====== ====
</TABLE>
17 CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- -----
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Changes during the year:
At 1 January............................................. 7,666 2,671 3,263
Net cash inflow before adjustments for the effects of
foreign exchange rates................................ (5,260) 346 4,013
Effect of foreign exchange rates......................... 265 246 (715)
------ ----- -----
At 31 December........................................... 2,671 3,263 6,561
====== ===== =====
Analysis of balances
Cash at bank and in hand................................. 2,682 3,275 6,571
Bank overdrafts.......................................... (11) (12) (10)
------ ----- -----
2,671 3,263 6,561
====== ===== =====
</TABLE>
F-46
<PAGE> 90
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18 ANALYSIS OF CHANGE IN FINANCING
<TABLE>
<CAPTION>
LOANS
DUE AFTER
SHARE SHARE MORE THAN
CAPITAL PREMIUM 3 MONTHS
------- ------- ---------
<S> <C> <C> <C>
Balance at 31 December 1994............................. 1,996 1,366 33
Cash inflow/(outflow) from financing.................. -- -- (12)
Effect of foreign exchange rates...................... -- -- 4
Acquisition of Denley................................. 952 276 --
------- ----- ---
Balance at 31 December 1995............................. 2,948 1,642 25
Cash inflow/(outflow) from financing.................. -- -- 136
Effect of foreign exchange rates...................... -- -- (35)
------- ----- ---
Balance at 31 December 1996............................. 2,948 1,642 126
======= ===== ===
</TABLE>
19 SHARE CAPITAL AND RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
SHARE PREMIUM OTHER AND LOSS
CAPITAL ACCOUNT RESERVES ACCOUNT
------- ------- -------- --------
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C>
At 1 January 1994..................................... (1,988) (980) 14,294 (3,727)
Acquisition of Hybaid Limited....................... (8) (386) 5 (1,403)
Retained profit..................................... -- -- -- (2,404)
Exchange difference on retranslation of closing
balance sheet on consolidation................... -- -- (1,474) --
------ ------ ------ -------
At 31 December 1994................................... (1,996) (1,366) 12,825 (7,534)
Acquisition of Denley Instruments Inc. ............. (952) (276) 1,263 372
Retained profit..................................... -- -- -- (2,014)
Exchange difference on retranslation of closing
balance sheet on consolidation................... -- -- (1,570) --
------ ------ ------ -------
At 31 December 1995................................... (2,948) (1,642) 12,518 (9,176)
Discount on acquisition of Labsystems Lenpipette.... -- -- (153) --
Retained profit..................................... -- -- -- (2,211)
Exchange difference on retranslation of closing
balance sheet on consolidation................... -- -- 3,667 --
------ ------ ------ -------
At 31 December 1996................................... (2,948) (1,642) 16,032 (11,387)
====== ====== ====== =======
Acquisition of Labsystems Lenpipette -- 1996
Fair value of assets acquired....................................................... 202
Cash consideration paid............................................................. (49)
-------
Discount on acquisition............................................................. 153
=======
</TABLE>
Impact on cash flows
In 1994 Hybaid Ltd contributed 65,000 British pounds sterling to the
Group's net operating cash flows, received 8,000 British pounds sterling in
respect of net returns on investments and servicing of finance, paid 628,000
British pounds sterling in respect of taxation, and utilised 204,000 British
pounds sterling for investing activities.
F-47
<PAGE> 91
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995 Denley Inc contributed 42,000 British pounds sterling to the
group's net operating cash flows, paid 13,000 British pounds sterling in respect
of taxation and utilised 3,000 British pounds sterling for investing activities.
In 1996 Lenpipette contributed 4,000 British pounds sterling to the group's
net operating cash flows and received 1,000 British pounds sterling in respect
of net returns on investments and servicing of finance.
20 FINANCIAL COMMITMENTS
As at 31 December the companies had aggregate annual commitments under
non-cancellable operating leases as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF BRITISH
POUNDS STERLING)
<S> <C> <C> <C>
Land and buildings
Expiring within one year.................................. -- -- 209
Expiring between two and five years inclusive............. 239 239 30
Expiring in over five years............................... 679 679 679
----- ----- -----
918 918 918
----- ----- -----
Other operating leases
Expiring within one year.................................. 86 98 113
Expiring between two and five years inclusive............. 163 204 218
Expiring in over five years............................... -- -- --
----- ----- -----
249 302 331
----- ----- -----
Total............................................. 1,167 1,220 1,249
===== ===== =====
</TABLE>
21 COMPANIES INCLUDED IN COMBINED ACCOUNTS
The financial statements presented above have been produced by aggregating
the results and assets of the following companies:
<TABLE>
<CAPTION>
NAME OF ENTITY COUNTRY OF INCORPORATION
- -------------- ------------------------
<S> <C>
Labsystems Oy............................................... Finland
Labsystems Hong Kong Limited................................ Hong Kong
Fastighets AB Skrubba....................................... Sweden
Labsystems Sweden AB........................................ Sweden
Life Sciences International Benelux BV...................... Netherlands
Labsystems Espana SA........................................ Spain
Hybaid Limited.............................................. UK
Labsystems Inc.............................................. USA
Denley Instruments Inc...................................... USA
Labsystems Lenpipette....................................... Russia
</TABLE>
All companies listed above were either directly or indirectly owned by Life
Sciences International PLC between 1 January 1994 and 31 December 1996 with the
exception of Hybaid Limited which was acquired on 31 May 1994 and Denley
Instruments Inc which was acquired on 31 March 1995.
F-48
<PAGE> 92
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Labsystems Lenpipette was acquired on 30 November 1996. Prior to this,
Labsystems Oy held a 50% stake in this company. The results and assets of
Labsystems Lenpipette have been consolidated into those of Labsystems Oy.
All the above companies operate principally in their country of
incorporation with the exception of Life Sciences International Benelux BV which
is based in Belgium and operates in Belgium, The Netherlands, and Luxembourg.
22 PENSION SCHEME AND OTHER POST RETIREMENT BENEFIT SCHEMES
Hybaid Limited is a participant in the Life Sciences International PLC
Pension Plan, which is a separate trust. This plan provides retirement benefits
for the majority of the Company's permanent UK employees. It is funded by
contributions both from participating companies and their employees and is
contracted out of the earnings related part of the State Pension arrangements.
The pension scheme is a defined benefits scheme whereby retirement benefits
are based on the employees' final remuneration and length of service.
Contributions to the scheme are based on pension costs for all members of the
scheme across the Life Sciences International PLC Group and are made in
accordance with the recommendation of an independent actuary who values the
scheme at regular triennial intervals, the last valuation being as at 1 April
1995. Full details relating to the pension scheme are disclosed in the financial
statements of Life Sciences International PLC. Due to a surplus in that plan's
assets over its projected liabilities, no charge to the profit and loss account
was made for the three years ended 31 December 1996.
In Finland the Group does not operate a pension plan, but made
contributions amounting to 933,000 British pounds sterling in 1994
(1995 -- 1,251,000 British pounds sterling; 1996 -- 1,079,000 British pounds
sterling) to the state pension scheme in accordance with Finnish legislation.
23 POST BALANCE SHEET EVENT
Following discussions between Life Sciences International PLC (Life
Sciences) and Thermo Instrument Systems Inc. (Thermo Instrument), a U.S. based
manufacturer of scientific instruments, Life Sciences received a proposal from
Thermo Instrument to combine their businesses, offering to acquire all of the
issued share capital of Life Sciences at 1.35 British pounds sterling per 10
pence ordinary share. This offer was recommended to shareholders by the Board of
the Company on 21 January 1997. The offer was accepted by the majority of
shareholders by 12 March 1997. On May 6, 1997, Thermo Instrument agreed to sell
the businesses comprising the Biosystems Group of Life Sciences to its
majority-owned subsidiary, Thermo BioAnalysis Corporation.
24 US GAAP RECONCILIATION
BASIS OF OPERATION
The above accounts have been prepared in accordance with generally accepted
accounting principles (GAAP) in the United Kingdom which differ in certain
material respects from US GAAP. The significant differences relate principally
to the following items and the adjustments necessary to restate net income and
shareholders' equity in accordance with US GAAP are shown below.
a) Goodwill
Under UK GAAP goodwill arising on acquisition is eliminated directly
against reserves. Amounts are transferred from reserves and charged through the
profit and loss account when the related investments are sold or written down as
a result of permanent diminutions in value. Under US GAAP goodwill is
capitalised
F-49
<PAGE> 93
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and amortised by charges against income over the period, not to exceed 40 years,
over which the benefit arises. For US GAAP goodwill has been amortised by the
Group over 40 years.
b) Restructuring costs
Under UK GAAP restructuring costs shown as exceptional items are charged to
the profit and loss account in full irrespective of whether they have been
agreed or incurred. Under US GAAP certain of these costs are only charged to the
profit and loss account when certain specific criteria have been met.
c) Forward exchange contracts
Certain outstanding foreign currency forward exchange contracts which hedge
anticipated future transactions and qualify as hedge contracts under UK GAAP
would not qualify as hedges under US GAAP. The Biosystems Group historically
used forward exchange contracts to hedge fluctuations in certain exchange rates
for anticipated but not contractually firm transactions such as expected
purchases of inventory over the next several months. US GAAP permits deferral of
gains and losses on forward exchange contracts only when firm commitments are
hedged. Such gains and losses are included in "Net interest receivable /
(payable)" in the accompanying Combined Profit and Loss Accounts. Such contracts
should be recorded at fair value at each balance sheet date based on the forward
rates of exchange existing at that date and the corresponding unrealized gain or
loss would be included in the determination of net income.
d) Acquisition accounting
Under UK GAAP, the fair value balance sheet of an acquired company can not
include a provision for restructuring costs set up by the acquiring company.
Under US GAAP, certain restructuring and reorganisation costs may be considered
liabilities assumed and included in the allocation of the acquisition cost.
e) Deferred taxes
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
timing differences and a valuation allowance is established in respect of those
deferred tax assets where it is more likely than not that some portion will
remain unrealised. No US GAAP adjustment arises as there are no unrecognised UK
GAAP deferred tax liabilities or assets. Deferred tax also arises in relation to
the tax effect of other US GAAP adjustments.
F-50
<PAGE> 94
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the significant adjustments to net income for
the years ended 31 December 1995 and 1996 and to parent company investment as of
31 December 1995 and 1996, which would have been required if the combined
financial statements had been reported in accordance with US GAAP instead of UK
GAAP.
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Net income according to the consolidated financial
statements prepared under UK GAAP......................... 2,014 2,211
US GAAP adjustments:
Decrease due to effects of goodwill previously written
off.................................................... (782) (663)
Restructuring charges related to acquisition which should
have been included in goodwill......................... 235 --
Restructuring costs....................................... -- 1,186
Mark to market of foreign exchange contracts.............. 5,407 (6,726)
Deferred taxation on above adjustments.................... (1,288) 1,659
------ ------
Net income in accordance with US GAAP....................... 5,586 (2,333)
====== ======
Equity shareholders' funds under UK GAAP.................... 1,248 (55)
US GAAP adjustments:
Increase due to effects of goodwill previously written off
against reserves....................................... 25,026 24,364
Restructuring charges related to acquisition which should
have been included in goodwill......................... 235 235
Restructuring costs....................................... -- 1,186
Mark to market of foreign exchange contracts.............. 6,725 (1)
Deferred taxation on above adjustments.................... (1,521) 138
------ ------
Equity shareholders' funds under US GAAP.................... 31,713 25,867
====== ======
</TABLE>
CASH FLOWS
The above combined financial statements comply with Financial Reporting
Standard No. 1 -- "Cash flow statements" (FRS 1). Its objective and principles
are similar to those set out in SFAS No. 95 "Statement of Cash Flows." The
principal difference between the standards is in respect of classification.
Under FRS 1, cash flows are presented for (a) operating activities; (b) returns
on investments and servicing of finance; (c) taxation; (d) investing activities;
and (e) financing activities. SFAS No. 95 requires only three categories of cash
flow activity: (a) operating; (b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 would, with the exception of dividends paid, be included
as operating activities under SFAS No. 95; dividend payments would be included
as a financing activity under SFAS No. 95.
F-51
<PAGE> 95
BIOSYSTEMS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONCLUDED)
A summaried consolidated cash flow under US GAAP is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF BRITISH
POUNDS STERLING)
<S> <C> <C> <C>
Cash inflow from operating activities.................... 3,324 3,402 5,386
Cash outflow on investing activities..................... (1,059) (3,038) (1,509)
Cash (outflow)/inflow from financing activities.......... (7,525) (18) 136
------ ------ ------
Increase/(Decrease) in cash and cash equivalents......... (5,260) 346 4,013
Exchange adjustments..................................... 265 246 (715)
Cash and cash equivalents at beginning of year........... 7,666 2,671 3,263
------ ------ ------
Cash and cash equivalents at end of year................. 2,671 3,263 6,561
====== ====== ======
</TABLE>
F-52
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Clinical Products Group of Life Sciences International PLC:
We have audited the accompanying combined balance sheet of the Clinical
Products Group of Life Sciences International PLC as of December 31, 1995 and
1996, and the related combined statements of operations, cash flows, and
shareholder's investment for each of the two years in the period ended December
31, 1996 and for the period from January 1, 1997 through March 12, 1997. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Clinical Products Group of Life Sciences International PLC as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1996 and for the period from
January 1, 1997 through March 12, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 5, 1998
F-53
<PAGE> 97
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
MARCH 12,
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
Revenues (includes $9,923, $9,820 and $1,085 to affiliated
companies; Notes 5 and 8)................................. $73,292 $80,757 $13,250
------- ------- -------
Costs and Operating Expenses:
Cost of revenues (includes $6,532, $6,424 and $656 for
affiliated company revenues; Note 5)................... 43,611 47,713 8,835
Selling, general and administrative expenses (Note 5)..... 25,772 25,217 4,545
Research and development expenses......................... 1,188 1,328 684
------- ------- -------
70,571 74,258 14,064
------- ------- -------
Operating Income (Loss)..................................... 2,721 6,499 (814)
Interest Income (includes $4,030, $3,869 and $393 from
affiliated companies)..................................... 4,349 4,193 454
Interest Expense (includes $5,869, $5,992 and $708 for
affiliated companies; Note 5)............................. (6,216) (6,210) (878)
Foreign Currency Exchange Gain (Loss) (Note 5).............. 807 (4,153) (186)
------- ------- -------
Income (Loss) Before Income Taxes........................... 1,661 329 (1,424)
Income Tax Provision (Benefit) (Note 3)..................... 661 243 (513)
------- ------- -------
Net Income (Loss)........................................... $ 1,000 $ 86 $ (911)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-54
<PAGE> 98
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 8,659 $12,455
Accounts receivable, less allowances of $1,025 and
$1,146................................................. 18,433 18,725
Inventories............................................... 15,631 16,849
Prepaid income taxes (Note 3)............................. 1,412 547
Prepaid expenses and other current assets................. 1,104 1,344
------- -------
45,239 49,920
------- -------
Property, Plant and Equipment, at Cost, Net................. 11,287 11,210
------- -------
Other Assets................................................ 713 518
------- -------
Cost in Excess of Net Assets of Acquired Companies.......... 6,974 6,736
------- -------
$64,213 $68,384
======= =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term
obligations (Note 7)................................... $ 1,848 $ 200
Accounts payable.......................................... 6,414 6,316
Accrued payroll and employee benefits..................... 2,130 2,455
Other accrued expenses.................................... 7,760 5,162
Due to parent company and affiliated companies (Note 5)... 36,664 45,094
------- -------
54,816 59,227
------- -------
Deferred Income Taxes (Note 3).............................. 1,073 1,673
------- -------
Long-term Obligations (Note 7).............................. 2,361 2,172
------- -------
Commitments (Note 4)
Shareholder's Investment:
Net parent company investment............................. 6,167 5,318
Cumulative translation adjustment......................... (204) (6)
------- -------
5,963 5,312
------- -------
$64,213 $68,384
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-55
<PAGE> 99
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
MARCH 12,
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,000 $ 86 $ (911)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,534 2,370 602
Provision for losses on accounts receivable............ 84 159 --
Increase in deferred income taxes...................... 1,073 600 --
Changes in current accounts:
Accounts receivable.................................. (115) (445) 7,498
Inventories.......................................... (949) (1,219) 1,324
Other current assets................................. (152) 797 (2,009)
Accounts payable..................................... 644 (98) (1,816)
Other current liabilities............................ 232 6,155 (7,893)
------- ------- -------
Net cash provided by (used in) operating activities......... 3,351 8,405 (3,205)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (958) (1,844) (747)
Proceeds from sale of property, plant and equipment....... 599 17 --
------- ------- -------
Net cash used in investing activities....................... (359) (1,827) (747)
------- ------- -------
FINANCING ACTIVITIES:
Increase (decrease) in short-term obligations............. 739 (1,645) 3,504
Repayment of long-term obligations........................ (189) (189) --
Net transfers to parent company........................... (1,256) (935) --
------- ------- -------
Net cash provided by (used in) financing activities......... (706) (2,769) 3,504
------- ------- -------
Exchange Rate Effect on Cash................................ (400) (13) 6
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents............ 1,886 3,796 (442)
Cash and Cash Equivalents at Beginning of Period............ 6,773 8,659 12,455
------- ------- -------
Cash and Cash Equivalents at End of Period.................. $ 8,659 $12,455 $12,013
======= ======= =======
CASH PAID FOR:
Interest.................................................. $ 6,297 $ 6,297 $ 663
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-56
<PAGE> 100
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
COMBINED STATEMENT OF SHAREHOLDER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET PARENT CUMULATIVE
COMPANY TRANSLATION
INVESTMENT ADJUSTMENT
---------- -----------
<S> <C> <C>
BALANCE DECEMBER 31, 1994................................... $ 6,423 $ 60
Net income................................................ 1,000 --
Net transfer from parent company.......................... (1,256) --
Translation Adjustment.................................... -- (264)
-------- --------
BALANCE DECEMBER 31, 1995................................... 6,167 (204)
Net income................................................ 86 --
Net transfer from parent company.......................... (935) --
Translation adjustment.................................... -- 198
-------- --------
BALANCE DECEMBER 31, 1996................................... 5,318 (6)
Net loss.................................................. (911) --
Translation adjustment.................................... -- 6
-------- --------
BALANCE MARCH 12, 1997...................................... $ 4,407 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-57
<PAGE> 101
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Clinical Products Group of Life Sciences International PLC provides
equipment and consumables for the cytology, histology and pathology
applications. It also supplies consumables for blood gas and ion-selective
electrolyte analyzers.
Basis of Presentation and Combination
In May 1998, Thermo BioAnalysis Corporation, a subsidiary of Thermo
Instrument Systems Inc., entered into an agreement to acquire certain businesses
from Life Sciences International PLC ("Life Sciences"). Thermo Instrument
acquired Life Sciences as of March 12, 1997.
The accompanying combined financial statements include the following
businesses acquired by Thermo BioAnalysis: Shandon Inc. and certain related
businesses, including ALKO Diagnostic Corporation. The combination of these
businesses is collectively referred to herein as the Clinical Products Group of
Life Sciences International PLC or "the Company."
All material transactions between the businesses combined herein have been
eliminated. Transactions with other businesses within the Life Sciences group
are described as "affiliate" transactions.
The accompanying combined financial statements cover each of the years
ended December 31, 1995 and 1996 and the period from January 1, 1997 to March
12, 1997, the date on which Life Sciences was acquired by Thermo Instrument.
Revenue Recognition
The Company recognizes revenue 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 revenue from service contracts over the
respective terms of the contracts.
Income Taxes
For the periods presented, the Company was included in the consolidated or
combined tax returns of other Life Sciences businesses. Life Sciences'
intercompany tax allocation policy has been based on the income taxes calculated
on a separate return basis for each subsidiary. Income taxes payable are
therefore included with accounts payable to affiliates in the accompanying
combined balance sheet.
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.
Cash and Cash Equivalents
Cash equivalents include highly liquid debt instruments purchased with
original maturity dates of three months or less. Cash equivalents are carried at
cost, which approximates market value.
F-58
<PAGE> 102
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $ 3,424 $ 3,722
Work in process............................................. 482 395
Finished goods.............................................. 11,725 12,732
------- -------
$15,631 $16,849
======= =======
</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: buildings and improvements, 25 to 30
years; machinery and equipment, 2 to 10 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant and
equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 404 $ 411
Buildings................................................... 4,452 4,458
Machinery, equipment and leasehold improvements............. 15,295 17,378
------- -------
20,151 22,247
Less: Accumulated depreciation and amortization............. 8,864 11,037
------- -------
$11,287 $11,210
======= =======
</TABLE>
Other Assets
Other assets in the accompanying balance sheet primarily represent
intangible assets related to distribution agreements and patents associated with
an acquisition in 1990. These assets are being amortized using the straight-line
method over their estimated useful lives of 15 to 20 years. These assets were
$756,000, net of accumulated amortization of $357,000 and $399,000, at year-end
1995 and 1996, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $2,962,000 and $3,200,000 at year-end 1995 and 1996,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired companies in assessing the recoverability of this asset. 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
F-59
<PAGE> 103
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
component of shareholder's investment titled "Cumulative translation
adjustment." Foreign currency transaction gains and losses are included in the
accompanying statement of operations.
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 PLANS
Defined Contribution Plan
Shandon Inc. has a defined contribution plan covering all eligible
employees. Contributions by the Company are required based on a percentage of
eligible compensation annually. The plan does not provide for employee
contributions. The charge to operations for the Company's contributions was
$344,000, $532,000 and $129,000 for 1995, 1996 and the period from January 1,
1997 through March 12, 1997, respectively.
Defined Benefit Plan
Shandon Scientific UK Limited is a participant in the Life Sciences
International PLC Pension Plan, which is a separate trust. This plan provides
retirement benefits for the majority of the Company's permanent UK employees. It
is funded by contributions both from participating companies and their employees
and is contracted out of the earnings-related part of the State Pension
arrangements.
The pension plan is a defined benefit plan whereby retirement benefits are
based on the employees' final remuneration and length of service. Contributions
to the plan are based on pension costs for all members of the plan across the
Life Sciences International PLC Group and are made in accordance with the
recommendation of an independent actuary who values the plan at regular
triennial intervals, the last valuation being April 1, 1995. For the purposes of
these combined financial statements, this pension plan has been treated as a
multi-employer arrangement. Net periodic pension cost was not material to the
Company's results of operations for any period presented.
401(k) Savings Plan
The employees of the Company's ALKO Diagnostic subsidiary participate in a
401(k) savings plan. Contributions to the 401(k) savings plan are made by both
the employees and the Company. Company contributions are based upon the level of
employee contributions. For this plan, the Company contributed and charged to
expense $61,000, $66,000 and $28,000 for 1995, 1996 and the period from January
1, 1997 through March 12, 1997, respectively.
F-60
<PAGE> 104
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
MARCH 12,
1995 1996 1997
------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................ $4,084 $5,012 $ 544
Foreign................................................. (2,423) (4,683) (1,968)
------ ------ -------
$1,661 $ 329 $(1,424)
====== ====== =======
</TABLE>
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
MARCH 12,
1995 1996 1997
------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................... $1,127 $1,463 $ 41
State................................................. 302 335 1
Foreign............................................... (794) (1,545) (711)
------ ------ ------
635 253 (669)
------ ------ ------
Net deferred (prepaid):
Federal............................................... 21 (8) 129
State................................................. 5 (2) 27
------ ------ ------
26 (10) 156
------ ------ ------
$ 661 $ 243 $ (513)
====== ====== ======
</TABLE>
The income tax provision (benefit) in the accompanying statement of
operations differs from the provision (benefit) calculated by applying the
statutory federal income tax rate of 34% to income (loss) before income taxes
due to the following:
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
MARCH 12,
1995 1996 1997
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate... $ 565 $ 112 $ (484)
Increases (decreases) resulting from:
State income taxes, net of federal tax........... 203 220 15
Net foreign losses not benefited and tax rate
differential.................................. 29 47 (42)
Amortization of cost in excess of net assets of
acquired companies............................ (136) (136) (2)
-------- -------- --------
$ 661 $ 243 $ (513)
======== ======== ========
</TABLE>
F-61
<PAGE> 105
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED 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 accruals..................................... $ 904 $ 16
Inventory basis difference................................ 416 432
Allowance for doubtful accounts........................... 92 99
------ ------
$1,412 $ 547
====== ======
Deferred income taxes:
Depreciation.............................................. $1,073 $1,673
====== ======
</TABLE>
4. COMMITMENTS
The Company leases portions of its office and operating facilities under
various noncancellable operating lease arrangements that expire at various dates
through 2014. The accompanying statement of operations includes expenses from
operating leases of $1,130,000, $1,309,000 and $275,000 in 1995, 1996 and the
period from January 1, 1997 through March 12, 1997, respectively. Future minimum
payments due under noncancellable operating leases as of December 31, 1996, are
$1,429,000 in 1997; $1,508,000 in 1998; $1,304,000 in 1999; $959,000 in 2000;
$804,000 in 2001; and $715,000 in 2002 and thereafter. Total future minimum
lease payments are $6,719,000.
5. RELATED-PARTY TRANSACTIONS
Due to Parent Company and Affiliated Companies
The Company has advances from its parent company and affiliated companies.
The advances are due on demand, and are interest-bearing. The Company had
$61,468,000 and $62,418,000 outstanding under interest-bearing advances from its
parent company and affiliated companies at year-end 1995 and 1996, respectively.
The interest rates for the loans ranged from 6.3% to 10.0% in 1995 and from 6.4%
to 10.0% in 1996. In addition, the Company had $19,412,000 and $23,490,000 of
noninterest-bearing advances from its parent company and affiliated companies at
year-end 1995 and 1996, respectively, which were due on demand.
The Company makes interest bearing advances to an affiliated company. Such
advances bore an interest rate of 10.0% and were $34,020,000 and $30,618,000 at
year-end 1995 and 1996, respectively. In addition, the Company had a $10,196,000
noninterest-bearing, due on demand, advance to an affiliated company at year-
end 1995 and 1996, respectively.
Certain borrowings from affiliated companies were denominated in currencies
other than functional currency of the subsidiary borrowing the funds. The
Company reported foreign currency transaction gains and losses associated with
such borrowings totaling a gain of $0.8 million in 1995, a loss of $4.2 million
in 1996, and a loss of $0.2 million in the period from January 1, 1997 through
March 12, 1997, respectively.
Management Fees
Life Sciences charged the Company for management fees totaling $584,000,
$457,000 and $414,000 for 1995, 1996 and the period from January 1, 1997 through
March 12, 1997, respectively.
Other Related-party Transactions
The Company purchases and sells products in the ordinary course of business
with other companies affiliated with Life Sciences. Sales of such products to
affiliated companies totaled $9,923,000, $9,820,000 and $1,085,000 in 1995, 1996
and the period from January 1, 1997 through March 12, 1997, respectively.
Purchases of products from affiliated companies totaled $5,657,000, $7,595,000
and $847,000 in 1995, 1996 and the period from January 1, 1997 through March 12,
1997, respectively.
F-62
<PAGE> 106
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, notes payable and current maturities of
long-term debt, accounts payable, due to parent company and affiliated companies
and long-term obligations. The Company's long-term obligations (Note 7) bear
interest at a floating variable rate and therefore the carrying amounts
approximate fair value. The carrying amounts of the remaining financial
instruments, approximate fair value as a result of their short-term nature.
7. SHORT- AND LONG-TERM OBLIGATIONS
SHORT-TERM OBLIGATIONS
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $1,648,000 at year-end 1995 of amounts
borrowed under an overdraft agreement. The interest rate for these borrowings
was 8.75%.
LONG-TERM OBLIGATIONS
In July 1991, the Company borrowed $3,533,000 pursuant to two industrial
revenue bonds; payable in annual installments of $200,000. The balance
outstanding was $2,561,000 and $2,372,000 at year end 1995 and 1996,
respectively. The loan is secured by property at the Company's Shandon Inc.
division with a net book value of $3,300,000. The loan bears interest at a
variable floating rate, which was 4.4% and 3.8% at year-end 1995 and 1996,
respectively. The debt was repaid in June 1997.
8. GEOGRAPHICAL INFORMATION
The following table shows data for the Company by geographical area.
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
United States........................................ $ 40,239 $ 42,360
United Kingdom....................................... 22,746 29,472
France............................................... 13,010 13,029
Germany.............................................. 11,640 11,992
Transfers among geographical areas(a)................ (14,343) (16,096)
-------- --------
$ 73,292 $ 80,757
======== ========
Income (loss) before income taxes:
United States........................................ $ 5,620 $ 6,164
United Kingdom....................................... (3,417) (319)
France............................................... 796 582
Germany.............................................. (191) (223)
Corporate and eliminations(b)........................ (87) 295
-------- --------
Total operating income (loss)........................ 2,721 6,499
Interest and other expense, net...................... (1,060) (6,170)
-------- --------
$ 1,661 $ 329
======== ========
</TABLE>
F-63
<PAGE> 107
CLINICAL PRODUCTS GROUP OF LIFE SCIENCES INTERNATIONAL PLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Identifiable assets:
United States........................................ $ 27,982 $ 28,942
United Kingdom....................................... 21,667 24,071
France............................................... 9,529 10,766
Germany.............................................. 5,035 4,605
-------- --------
$ 64,213 $ 68,384
======== ========
</TABLE>
- ---------------
(a) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Primarily corporate general and administrative expenses.
F-64
<PAGE> 108
THERMO BIOANALYSIS CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
In March 1997, Thermo Instrument acquired approximately 95% of the
outstanding shares of Life Sciences International PLC ("LSI"), a London Stock
Exchange-listed company. Subsequently, Thermo Instrument acquired the remaining
shares of LSI capital stock. On May 6, 1997, the Company agreed to acquire
Labsystems OY and Hybaid, which comprised the Biosystems Group of LSI, from
Thermo Instrument for an aggregate purchase price of $102.5 million. The
purchase price for the net operating assets represents the sum of the net book
value, exclusive of cash, of the businesses as of the date that Thermo
Instrument acquired LSI, plus a percentage of Thermo Instrument's total cost in
excess of net assets acquired associated with its acquisition of LSI, based on
the aggregate 1996 revenues of Labsystems OY and Hybaid relative to LSI's 1996
consolidated revenues. Management believes such method of allocation is
reasonable. Of the $102.5 million purchase price, the Company paid approximately
$35.6 million in cash to Thermo Instrument in June 1997, issued a $50.0 million
promissory note to Thermo Instrument and issued to Thermo Instrument in April
1998 1,300,000 shares of Company common stock (valued at approximately $16.9
million at the time of the May 1997 agreement to acquire Labsystems OY and
Hybaid). The $50.0 million promissory note, which bears interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter, is due on July 15, 1999. The acquisition of the Labsystems OY and
Hybaid divisions of LSI has been treated for accounting purposes in a manner
similar to a pooling-of-interests. Accordingly, the accompanying financial
statements include the results of Labsystems OY and Hybaid from March 12, 1997,
the date these businesses were acquired by Thermo Instrument, and the 1,300,000
shares issued to Thermo Instrument have been deemed outstanding from that date.
In May 1998, the Company agreed to acquire the Clinical Products Group of
LSI, which is comprised of Shandon Inc. and its related businesses, including
ALKO Diagnostic, from Thermo Instrument. The net purchase price for the Clinical
Products Group is approximately $66.7 million, which represents the sum of the
net book value of the businesses as of April 4, 1998, plus a percentage of
Thermo Instrument's total cost in excess of net assets acquired associated with
its acquisition of LSI, based on the 1996 revenues of the Clinical Products
Group relative to LSI's 1996 consolidated revenues. Management believes such
method of allocation is reasonable. The net purchase price for the Clinical
Products Group will be paid with 3,007,930 shares of Company common stock valued
at $66.7 million. In addition to the shares of Company common stock to be issued
to Thermo Instrument, the Company will assume approximately $37.9 million of
existing indebtedness owed by the Clinical Products Group to Thermo Instrument,
making the gross purchase price approximately $104.5 million. This amount
included $12.0 million for an equivalent amount of cash acquired. The existing
indebtedness owed to Thermo Instrument is due January 2, 1999 and bears interest
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. The acquisition of the Clinical Products Group has
been treated for accounting purposes in a manner similar to that for the
acquisition of Labsystems OY and Hybaid. Accordingly, the accompanying financial
statements include the results of the Clinical Products Group from March 12,
1997, and the shares issuable to Thermo Instrument have been deemed outstanding
from that date.
F-65
<PAGE> 109
THERMO BIOANALYSIS CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 3, 1998
(UNAUDITED)
The following unaudited pro forma combined condensed statement of
operations sets forth the results of operations for the year ended January 3,
1998, as if the acquisitions of the Labsystems OY and Hybaid divisions of LSI
and the Clinical Products Group of LSI had occurred at the beginning of 1997. In
addition, the unaudited pro forma combined condensed statement of operations
sets forth the results of operations and the earnings per share as if the
issuance of the $50.0 million promissory note to Thermo Instrument, the issuance
of 1,300,000 shares of Company common stock to Thermo Instrument for the
acquisition of the Labsystems OY and Hybaid divisions of LSI and the issuance of
3,007,930 shares of Company common stock for the acquisition of the Clinical
Products Group of LSI had occurred at the beginning of 1997. The pro forma
results of operations are not necessarily indicative of future operations or the
actual results that would have occurred had these acquisitions and related
financing activities occurred at the beginning of 1997. These statements should
be read in conjunction with the accompanying notes and the respective historical
financial statements and related notes of the Company, the Labsystems OY and
Hybaid divisions of LSI and the Clinical Products Group of LSI appearing
elsewhere in this Prospectus. The historical statement of operations data for
the Labsystems OY and Hybaid divisions of LSI, originally prepared in accordance
with U.K. generally accepted accounting principles ("GAAP") and stated in
British pounds sterling, have been translated into U.S. dollars and presented in
a manner consistent with the financial statements of the Company, as described
in Note 1 to this pro forma combined condensed statement of operations. In
addition, the accompanying pro forma adjustments include those necessary to
conform such financial statements to U.S. GAAP.
<TABLE>
<CAPTION>
FOR THE ACQUISITION OF THE
LABSYSTEMS OY AND HYBAID DIVISIONS OF LSI
--------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------------- ------------------
LABSYSTEMS OY AND
HYBAID DIVISIONS OF LSI
---------------------------
THERMO U.K. ADJUST- U.S. ADJUST-
BIOANALYSIS GAAP MENTS GAAP MENTS COMBINED
----------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $201,998 $11,136 $ -- $11,136 $ -- $213,134
-------- ------- ----- ------- ------- --------
Costs and Operating Expenses:
Cost of revenues................... 102,826 7,860 -- 7,860 -- 110,686
Selling, general and administrative
expenses......................... 61,946 5,307 -- 5,307 197 67,450
Research and development
expenses......................... 14,057 896 -- 896 -- 14,953
Restructuring costs................ -- 600 (600) -- -- --
-------- ------- ----- ------- ------- --------
178,829 14,663 (600) 14,063 197 193,089
-------- ------- ----- ------- ------- --------
Operating Income (Loss)............. 23,169 (3,527) 600 (2,927) (197) 20,045
Interest Income..................... 2,431 45 -- 45 -- 2,476
Interest Expense.................... (7,725) (694) -- (694) (1,061) (9,480)
Foreign Currency Exchange Loss...... -- (5) -- (5) -- (5)
Other Expense, Net.................. -- (87) -- (87) -- (87)
-------- ------- ----- ------- ------- --------
Income (Loss) Before Income Taxes... 17,875 (4,268) 600 (3,668) (1,258) 12,949
Income Tax Provision (Benefit)...... 6,535 (753) 198 (555) (445) 5,535
-------- ------- ----- ------- ------- --------
Net Income (Loss)................... $ 11,340 $(3,515) $ 402 $(3,113) $ (813) $ 7,414
======== ======= ===== ======= ======= ========
Earnings per Share:
Basic.............................. $ .86 $ .55
======== ========
Diluted............................ $ .79 $ .54
======== ========
Weighted Average Shares:
Basic.............................. 13,232 256 13,488
======== ======= ========
Diluted............................ 16,367 256 16,623
======== ======= ========
<CAPTION>
FOR THE ACQUISITION OF THE
CLINICAL PRODUCTS GROUP OF LSI
--------------------------------------
HISTORICAL PRO FORMA
----------------- ------------------
CLINICAL PRODUCTS ADJUST-
GROUP OF LSI MENTS COMBINED
----------------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues............................ $13,250 $ -- $226,384
------- ------ -------
Costs and Operating Expenses:
Cost of revenues................... 8,835 -- 119,521
Selling, general and administrative
expenses......................... 4,545 5 72,000
Research and development
expenses......................... 684 -- 15,637
Restructuring costs................ -- --
------- ------ -------
14,064 5 207,158
------- ------ -------
Operating Income (Loss)............. (814) (5) 19,226
Interest Income..................... 454 -- 2,930
Interest Expense.................... (878) -- (10,358)
Foreign Currency Exchange Loss...... (186) -- (191)
Other Expense, Net.................. -- -- (87)
------- ------ -------
Income (Loss) Before Income Taxes... (1,424) (5) 11,520
Income Tax Provision (Benefit)...... (513) 112 5,134
------- ------ -------
Net Income (Loss)................... $ (911) $ (117) $ 6,386
======= ====== =======
Earnings per Share:
Basic.............................. $ .45
=======
Diluted............................ $ .45
=======
Weighted Average Shares:
Basic.............................. 591 14,079
====== =======
Diluted............................ (2,439) 14,184
====== =======
</TABLE>
F-66
<PAGE> 110
THERMO BIOANALYSIS CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The historical financial statements of the Labsystems OY and Hybaid
divisions of LSI are denominated in British pounds sterling. The Company used
the guidance of SFAS No. 52 in translating the financial statements of these
businesses for purposes of presenting the pro forma financial statements. The
Company does not believe that this had a material effect on the pro forma
results. The pro forma combined condensed statement of operations was translated
into U.S. dollars at the average exchange rate of approximately 1.60 U.S.
dollars per British pound sterling.
NOTE 2 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998 (IN THOUSANDS, EXCEPT IN
TEXT)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
ACQUISITION OF THE LABSYSTEMS OY AND HYBAID DIVISIONS OF LSI
ADJUSTMENTS TO CONVERT U.K. GAAP TO U.S. GAAP
RESTRUCTURING COSTS
Eliminate restructuring costs included in the historical
profit and loss account of the Labsystems OY and Hybaid
divisions of LSI, as these costs would not have met the
U.S. GAAP criteria for such treatment pursuant to EITF
94-3...................................................... $ (600)
----------
INCOME TAX PROVISION (BENEFIT)
Income tax provision associated with the adjustment above... 198
----------
PRO FORMA ADJUSTMENTS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Eliminate corporate service fees charged to the Labsystems
OY and Hybaid divisions of LSI by LSI..................... (60)
Service fee of 1.0% of the revenues of the Labsystems OY and
Hybaid divisions of LSI for services provided under a
services agreement between the Company and Thermo
Electron.................................................. 111
Amortization over 40 years of $71,721,000 of cost in excess
of net assets of acquired companies created by the
acquisition of the Labsystems OY and Hybaid divisions of
LSI....................................................... 146
----------
197
----------
INTEREST EXPENSE
Increase in interest expense as a result of a loan from
Thermo Instrument of $85,583,000 related to the
acquisition of the Labsystems OY and Hybaid divisions of
LSI, calculated using the 90-day Commercial Paper
Composite Rate plus 25 basis points, or 5.875%. The loan
from Thermo Instrument replaced existing indebtedness to
LSI....................................................... 1,755
Eliminate interest expense on indebtedness to LSI included
in the historical profit and loss account of the
Labsystems OY and Hybaid divisions of LSI, due to the
assumed repayment of such debt at the beginning of 1997... (694)
----------
1,061
----------
INCOME TAX PROVISION (BENEFIT)
Income tax benefit associated with the adjustments above
(excluding amortization of cost in excess of net assets of
acquired companies), calculated at the Company's statutory
income tax rate of 40%.................................... (445)
----------
</TABLE>
F-67
<PAGE> 111
THERMO BIOANALYSIS CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS -- (CONCLUDED)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance at the beginning of 1997 of 1,300,000
shares of the Company's common stock related to the
acquisition of the Labsystems OY and Hybaid division of
LSI.
</TABLE>
<TABLE>
<S> <C>
ACQUISITION OF THE CLINICAL PRODUCTS GROUP OF LSI
PRO FORMA ADJUSTMENTS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Eliminate corporate service fees charged to the Clinical
Products Group of LSI by LSI.............................. (414)
Service fee of 1.0% of the revenues of the Clinical Products
Group of LSI for services provided under a services
agreement between the Company and Thermo Electron......... 133
Amortization over 40 years of $63,788,000 of cost in excess
of net assets of acquired companies created by the
acquisition of the Clinical Products Group of LSI......... 286
----------
5
----------
INCOME TAX PROVISION (BENEFIT)
Income tax provision associated with the adjustments above
(excluding amortization of cost in excess of net assets of
acquired companies), calculated at the Company's statutory
income tax rate of 40%.................................... 112
----------
WEIGHTED AVERAGE SHARES FOR BASIC EARNINGS PER SHARE
Increase in weighted average shares outstanding due to the
assumed issuance at the beginning of 1997 of 3,007,930
shares of the Company's common stock related to the
acquisition of the Clinical Products Group of LSI.
WEIGHTED AVERAGE SHARES FOR DILUTED EARNINGS PER SHARE
Decrease in weighted average shares due to the antidilutive
effect to the pro forma results of the Company's
Convertible Note.
</TABLE>
F-68
<PAGE> 112
APPENDIX A
SHARE PURCHASE AGREEMENT
BETWEEN
THERMO BIOANALYSIS CORPORATION
AND
THERMO INSTRUMENT SYSTEMS INC.
-----------------------
May 11, 1998
-----------------------
<PAGE> 113
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "AGREEMENT") dated as of May 11, 1998 is
between Thermo BioAnalysis Corporation ("TBA"), a Delaware corporation, and
Thermo Instrument Systems Inc. ("THI"), a Delaware corporation.
PRELIMINARY STATEMENT
1. Life Sciences International Limited ("LSI"), which is a wholly-owned
subsidiary of THI, owns, directly or through wholly-owned subsidiaries, all of
the issued and outstanding shares (the "SHARES") of Shandon Inc., Shandon
Scientific Ltd. and Life Sciences International SNC. THI, LSI and those of LSI's
wholly-owned subsidiaries that own Shares are referred to individually as a
"SELLER" and collectively as the "SELLERS." Shandon Inc., Shandon Scientific
Ltd., and Life Sciences International SNC are sometimes collectively referred to
herein as the "COMPANY."
2. TBA desires to purchase, or cause its wholly-owned subsidiaries to
purchase, and THI desires to sell, or to cause its subsidiaries to sell, all of
the issued and outstanding shares of Shandon Inc., Shandon Scientific Ltd. and
Life Sciences International SNC, for the consideration set forth below, subject
to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1 - PURCHASE AND SALE OF THE SHARES
1.1 PURCHASE OF THE SHARES FROM THE SELLERS. Subject to and upon the terms
and conditions of this Agreement, at the closing of the transactions
contemplated by this Agreement (the "CLOSING"), THI shall cause its subsidiaries
to sell, transfer, convey, assign and deliver to TBA, or its wholly-owned
subsidiaries, and TBA or its wholly-owned subsidiaries shall purchase, acquire
and accept the Shares. At the option of TBA, TBA may acquire the Shares of
Shandon Inc. by effecting the merger of a subsidiary of TBA (the "MERGER SUB")
with and into Shandon Inc., pursuant to which merger (i) the Sellers' shares of
Shandon Inc. would be canceled in exchange for a portion of the total
consideration set forth in Section 1.3 below and (ii) Merger Sub's shares would
be converted into shares of Shandon Inc., the surviving corporation.
1.2 FURTHER ASSURANCES. At any time and from time to time prior to and
after the Closing, at TBA's request and without further consideration, each
Seller shall promptly execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, including agreements of merger, and
take all such other action as TBA may reasonably request, more effectively to
transfer, convey and assign to TBA, and to confirm TBA's title to, all of the
Shares owned by such Seller, to put TBA in actual possession and operating
control of the assets, properties and business of the Company, to assist in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
A-2
<PAGE> 114
1.3 PURCHASE PRICE. The purchase price to be paid by TBA for the Shares
(the "PURCHASE PRICE") shall consist of 3,007,830 shares (the "TBA SHARES") of
common stock, $.01 par value, of TBA (the "TBA COMMON STOCK"), provided that the
TBA Shares are listed on the American Stock Exchange (the "AMEX"), in accordance
with Section 4.7 hereto, on or prior to January 2, 1999. If the TBA Shares are
not so listed on the AMEX on or prior to January 2, 1999, TBA will pay a
purchase price of $66,662,536.29 in cash to THI and/or such of its subsidiaries
as THI shall designate, on January 2, 1999.
1.4 CLOSING. The Closing shall take place at the offices of THI at 81 Wyman
Street, Waltham, Massachusetts on or about May 27, 1998 (the "CLOSING DATE"). At
the Closing, THI shall deliver, or cause its subsidiaries to deliver,
certificates evidencing the Shares duly endorsed in blank or with stock powers
duly executed. At the Closing, if the TBA Shares have been listed on the AMEX in
accordance with Section 4.7 hereto, TBA shall deliver one or more certificates
representing the TBA Shares registered in the name of THI and/or such of its
subsidiaries as THI shall designate. If the TBA Shares have not been so listed,
TBA will deliver to THI an instrument obligating TBA to pay the Purchase Price,
in accordance with Section 1.3, to THI and/or such of its subsidiaries as THI
shall designate on the earlier of (i) the date the TBA Shares are listed on the
AMEX in accordance with Section 4.7 hereto and (ii) January 2, 1999. If the
Purchase Price is to be paid in cash, interest shall accrue on the amount of the
Purchase Price from the Closing Date until the date of payment at the 90-Day
Commercial Composite Rate plus 25 basis points, set at the beginning of each
quarter. If the Purchase Price is to be paid with the TBA Shares, the number of
TBA Shares shall be adjusted to prevent dilution if between the Closing Date and
the date of issuance of the TBA Shares, TBA (i) issues any shares of TBA Common
Stock or any rights to purchase TBA Common Stock as a dividend or makes any
other distribution as a dividend upon TBA Common Stock; (ii) issues any shares
of TBA Common Stock in subdivision of outstanding shares of TBA Common Stock by
reclassification or otherwise; or (iii) combines outstanding shares of TBA
Common Stock, by reclassification or otherwise.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THI
Except as set forth on the disclosure schedule delivered to TBA on the
date hereof (the "DISCLOSURE SCHEDULE"), THI represents and warrants to TBA as
follows. The term "knowledge," when used in this Agreement, shall mean actual
knowledge after reasonable investigation.
2.1 ORGANIZATION AND QUALIFICATION. Each of the Sellers and the Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power and authority
to own, lease and operate its assets and to carry on its business as now being
and as heretofore conducted. Each of the Sellers and the Company is qualified or
otherwise authorized to transact business as a foreign corporation in all
jurisdictions in which such qualification or authorization is required by law,
except for jurisdictions in which the failure to be so qualified or authorized
would not have a material adverse effect on the assets, properties, business,
results of operations, condition (financial or otherwise) or prospects of the
Company taken as a whole.
2.2 AUTHORITY. THI has full right, power, capacity and authority to execute,
deliver and
A-3
<PAGE> 115
perform this Agreement and to consummate the transactions contemplated hereby
and each of the Sellers has full right, power, capacity and authority to
consummate the transactions contemplated hereby to be performed by such Seller.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of THI. This Agreement has been duly
and validly executed and delivered by THI and constitutes the valid and binding
obligation of THI, enforceable against it in accordance with the terms hereof.
Neither the execution, delivery and performance of this Agreement, nor the
consummation of the transactions contemplated hereby will (i) conflict with or
result in a violation, breach, termination or acceleration of, or default under
(or would result in a violation, breach, termination, acceleration or default
with the giving of notice or passage of time, or both) any of the terms,
conditions or provisions of the organizational documents of any Seller or the
Company, or of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which any Seller or the Company is a party or by
which any Seller or the Company or any of their respective properties or assets
may be bound or affected; (ii) result in the violation of any order, writ,
injunction, decree, statute, rule or regulation applicable to any Seller or the
Company or any of their respective properties or assets; (iii) result in the
imposition of any lien, encumbrance, charge or claim upon any assets of the
Company; or (iv) entitle any employee of the Company to severance or other
payments or create any other obligation to an employee. No consent or approval
by, or notification to or filing with, any court, governmental authority or
third party is required in connection with the execution, delivery and
performance of this Agreement by any Seller or the consummation of the
transactions contemplated hereby.
2.3 CAPITALIZATION AND TITLE TO SHARES.
(a) The authorized share capital of the Company is set forth on EXHIBIT
A hereto. The Seller or Sellers set forth opposite the name of each company
comprising the Company on EXHIBIT A is or are the record and beneficial owner(s)
of all of the issued and outstanding shares of each such company. All of the
Shares are duly authorized and are validly issued, fully paid, nonassessable and
free of preemptive rights.
(b) There are no other shares of capital stock of the Company authorized
or outstanding or any subscriptions, options, conversion or exchange rights,
warrants, repurchase or redemption agreements, or other agreements or
commitments obligating the Company to issue, transfer, sell, repurchase or
redeem any shares of its capital stock or other securities. There are no written
shareholder agreements, voting trusts, proxies or other agreements, instruments
or understandings with respect to the voting of the capital stock of the
Company. The books and records of the Company, including without limitation the
books of account, minute books, stock certificate books and stock ledgers, are
complete and correct and accurately reflect the conduct of the business and
affairs of the Company.
2.4 SUBSIDIARIES AND OTHER AFFILIATES.
(a) The Disclosure Schedule sets forth all Subsidiaries of the Company
and the jurisdiction in which each is incorporated. All shares of the capital
stock of each Subsidiary owned by the Company are owned free and clear of any
charges, liens, encumbrances, security
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interests or adverse claims. As used in this Agreement, "SUBSIDIARY" means any
corporation or other legal entity of which a party to this Agreement owns,
directly or indirectly, fifty percent (50%) or more of the stock or other equity
interest entitled to vote for the election of directors and representations,
warranties and covenants referring to the Company contained herein shall be
deemed to mean the Company and each of its Subsidiaries, both separately and
together as a consolidated whole, unless and except to the extent expressly
indicated otherwise.
(b) There are no other shares of capital stock of any Subsidiary of the
Company authorized or outstanding or any subscriptions, options, conversion or
exchange rights, warrants, repurchase or redemption agreements, or other
agreements or commitments obligating any Subsidiary of the Company to issue,
transfer, sell, repurchase or redeem any shares of its capital stock or other
securities. There are no shareholder agreements, voting trusts, proxies or other
agreements, instruments or understandings with respect to the voting of the
capital stock of any Subsidiary of the Company.
(c) Except for its Subsidiaries, the Company does not, directly or
indirectly, own any material equity interest in any corporation, partnership,
joint venture or other entity.
2.5 FINANCIAL STATEMENTS. THI has delivered to TBA prior to the execution of
this Agreement true and complete copies of: the consolidated balance sheets of
the Company as of December 31, 1996 and 1995, and the consolidated statements of
operations, cash flows and changes in stockholder's equity of the Company for
each of the two years in the period ended December 31, 1996 and for the period
beginning January 1, 1997 and ended March 12, 1997, as audited by Arthur
Andersen LLP, the Company's certified public accountants. In addition, THI has
delivered to TBA prior to the execution of this Agreement, true and complete
copies of the unaudited consolidated balance sheets of the Company as of March
12, 1997 and April 4, 1998 and the unaudited consolidated statements of
operations for the period beginning March 13, 1997 and ended January 3, 1998 and
the three month period ended April 4, 1998. Collectively, the financial
statements referred to in the preceding two sentences are sometimes referred to
herein as the "Financial Statements" and the unaudited consolidated balance
sheet of the Company as of April 4, 1998 is referred to herein as the "Balance
Sheet." The Financial Statements have been prepared from, and are in accordance
with, the books and records of THI and fairly present the financial condition,
results of operations, cash flows and shareholder's equity of the Company as at
the dates and for the periods indicated, in each case in accordance with
generally accepted accounting principles applied on a basis consistent with
previous years subject to normal year-end adjustments, which in the aggregate
are not material, and footnote disclosures.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES; NO DEALINGS WITH AFFILIATES. As of
the date of the Balance Sheet, the Company had no liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise and whether due
or to become due (including without limitation, liabilities as guarantor or
otherwise with respect to obligations of others or liabilities for taxes due or
then accrued or to become due), required to be reflected or disclosed on the
Balance Sheet or the footnotes thereto that were not adequately reflected or
reserved against on the Balance Sheet or disclosed in the related footnotes. The
Company has no liabilities of the type required to be reflected or disclosed on
a balance sheet or the footnotes thereto in accordance with generally accepted
accounting principles, other than liabilities (i) adequately
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reflected or reserved against on the Balance Sheet or disclosed in the related
footnotes, (ii) incurred since the date of the Balance Sheet in the ordinary
course of business and consistent with past practice, (iii) that would not, in
the aggregate, have a material adverse effect on the Company taken as a whole,
or (iv) disclosed in this Agreement. The Company has no contractual arrangement
with or commitment to or from any of its stockholders, officers, management,
directors or employees (or their family members) other than such as may have
been entered into in the normal course of employment, including, without
limiting the generality of the foregoing, being directly or indirectly a joint
investor or coventurer with respect to, or owner, lessor, lessee, licenser or
licensee of, any real or personal property, tangible or intangible, owned or
used by, or a lender to or debtor of, the Company.
2.7 TAXES. The Company has accurately prepared and duly and timely filed all
federal, state, local, provincial or foreign tax and other returns and reports
which were required to be filed, in respect of all income, franchise, excise,
sales, use, property (real and personal), VAT, payroll and other taxes, levies,
imports, duties, license and registration fees, charges or withholdings of any
nature whatsoever (collectively "TAXES"), and to the extent the liabilities of
the Company, as of the date of the Balance Sheet, for Taxes have not been fully
discharged, adequate reserves have been established on the Balance Sheet. None
of the federal, state, local, provincial or foreign Tax returns of the Company
has been audited or examined by the governmental authority having jurisdiction.
No waivers of any statutes of limitation are in effect in respect of any Taxes.
The Company is not in default in the payment of any Taxes due and payable or on
any assessments received in respect thereof, and there are no claims pending or,
to the best knowledge of the Company and the Sellers, threatened, against the
Company for past due Taxes. All Taxes incurred but not yet due have been fully
accrued on the books of the Company or full reserves have been established
therefor; the reserves indicated on the Balance Sheet are also adequate to cover
all Taxes that may become payable by the Company in future periods in respect of
any transactions or sales occurring on or prior to the date of the Balance
Sheet. Without limiting the generality of the foregoing, the Company has
withheld or collected from each payment made to each of their employees,
consultants or non-U.S. payees, the amount of all Taxes required to be withheld
or collected therefrom, and has paid the same to the proper tax receiving
officers or authorized depositories.
2.8 PROPERTIES. The Company owns and has good title to all of the assets and
properties reflected as owned by it on the Balance Sheet or acquired by the
Company since the date of the Balance Sheet (except personal property sold or
otherwise disposed of in the ordinary course of business since the date of the
Balance Sheet), free and clear of any lien, claim or other encumbrance, except
for (i) the liens, claims or other encumbrances reflected on the Balance Sheet,
(ii) assets and properties disposed of, or subject to purchase or sales orders,
in the ordinary course of business since the date of the Balance Sheet, (iii)
liens, claims or other encumbrances securing the liens of materialmen, carriers,
landlords and like persons, all of which are not yet due and payable, (iv) liens
for taxes not yet delinquent and (v) liens, claims, other encumbrances or
defects in title that, in the aggregate, are not material to the Company taken
as a whole. The Company owns or has a valid leasehold interest in all of the
buildings, structures, leasehold improvements, equipment and other tangible
property material to the Company taken as a whole, all of which are in good and
sufficient operating condition and repair, ordinary wear and tear excepted and
the Company has not received any notice that any such property is in violation
in
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any material respect of any existing law or any building, zoning, health,
safety or other ordinance, code or regulation.
2.9 HAZARDOUS MATERIALS.
(a) There has been no generation, use, handling, storage or disposal of
any Hazardous Materials in violation of common law or any applicable
environmental law at any site owned or premises leased by the Company during the
period of the Company's ownership or lease. Nor has there been or is there
threatened any release of any Hazardous Materials on or at any such site or
premises during such period in violation of common law or any applicable
environmental law or which created or will create an obligation to report or
remediate such release. For purposes of this Agreement, "HAZARDOUS MATERIAL"
means any medical waste, flammable, explosive or radioactive material, or any
hazardous or toxic waste, substance or material, including substances defined as
"hazardous substances," "hazardous materials," "solid waste" or "toxic
substances" under any applicable laws or ordinances relating to hazardous or
toxic materials and substances, air pollution (including noise and odors), water
pollution, liquid and solid waste, pesticides, drinking water, community and
employee health, environmental land use management, stormwater, sediment
control, nuisances, radiation, wetlands, endangered species, environmental
permitting, petroleum products, and all rules and regulations promulgated
pursuant to any such laws and ordinances.
(b) THI has previously made available to TBA copies of all documents in
its possession concerning any environmental or health and safety matter, copies
of any environmental audits or risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans and
material correspondence with any governmental authority regarding the foregoing.
2.10 ACCOUNTS RECEIVABLE. All accounts and notes receivable of the Company
shown on the Balance Sheet and all accounts and notes receivable acquired by the
Company subsequent to the date of the Balance Sheet have arisen in the ordinary
course of business and have been collected, or are in the process of collection
and are collectible in the ordinary course of business and in any event within
nine months from the Closing Date, in the aggregate recorded amounts thereof,
less the applicable allowances reflected on the Balance Sheet with respect to
the accounts and notes receivable shown thereon, or set up consistent with past
practice on the books of the Company with respect to the accounts and notes
receivable acquired subsequent to the date of the Balance Sheet.
2.11 INVENTORIES. All Inventories (as defined below) of the Company are of a
quality and quantity usable and saleable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which are
in the aggregate immaterial to the Company taken as a whole. Items included in
such Inventories are carried on the books of the Company, and are valued on the
Balance Sheet, at the lower of cost or market. The value of obsolete materials
and materials of below-standard quality or quantity has been written down on the
books of account of the Company to realizable market value. The term
"Inventories" includes all stock of raw materials, work-in-process and finished
goods, including but not limited to finished goods purchased for resale, held by
the Company for manufacturing, assembly, processing,
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finishing, sale or resale to others, from time to time in the ordinary course of
business of the Company in the form in which such inventories then are held or
after manufacturing, assembling, finishing, processing, incorporating with other
goods or items, refining or the like.
2.12 PURCHASE AND SALE COMMITMENTS. No outstanding purchase commitments by
the Company are in excess of the normal, ordinary and usual requirements of the
Company, and the aggregate of the contract prices to which the Company has
agreed in any outstanding purchase commitments is not so excessive when compared
with current market prices for the relevant commodities or services that a
material loss is likely to result. No outstanding sales commitment by the
Company obligates the Company to sell any product or service at a price which,
because of currently prevailing and projected costs of materials or labor, is
likely to result, when all such sales commitments are taken in the aggregate, in
a material loss to the Company taken as a whole. There are no material suppliers
to the Company of significant goods or services with respect to which practical
alternative sources of supply, or comparable products, are not available on
comparable terms and conditions.
2.13 GOVERNMENTAL AUTHORIZATIONS. The Company has all governmental permits,
licenses, franchises, concessions, zoning variances and other approvals,
authorizations and orders (collectively "PERMITS") material to the Company taken
as a whole. All such Permits are presently in full force and effect, the Company
is in compliance with the requirements thereof, no suspension or cancellation of
any of them is threatened so far as is known to the Sellers or the Company, and
the sale of the Shares as contemplated hereby will not adversely affect the
validity or effectiveness of, and will not require, for retention thereof after
such sale, the consent or approval of any party to, or any other person or
governmental authority having jurisdiction of, any such Permit. None of the
Company or the Sellers has any knowledge of any fact or circumstance which would
prevent, limit or restrict it from continuing to operate its business in the
present manner, and no new requirements pertaining to the manner of operating
its business have been issued or announced by any governmental authority during
the past year nor are there any disputes pending between the Company and any
governmental authority relating to the Company's operations as presently being
conducted or actively considered.
2.14 INTELLECTUAL PROPERTY. The Company owns, or is licensed to use, or
otherwise has the right to use all patents, trademarks, service marks, trade
names, trade secrets, franchises, and copyrights, and all applications for any
of the foregoing, and all technology, know-how and processes necessary for the
conduct of its businesses as now conducted (collectively, the "PROPRIETARY
RIGHTS"). A list of all such copyrights, trademarks, tradenames and patents, and
all applications therefor, has been furnished or made available to TBA. None of
the Company or the Sellers is aware of any claim by any third party that the
business of the Company as currently conducted or proposed to be conducted
infringes upon the unlicensed Proprietary Rights of others, nor has the Company
or any of the Sellers received any notice or claim from any third party of such
infringement by the Company. None of the Company or the Sellers is aware of any
infringement by any third party on, or any competing claim of right to use or
own any of, the Proprietary Rights of the Company. The Company has the right to
use, free and clear of claims or rights of others, all customer lists and
computer software material to its business as currently conducted. To the best
knowledge of the Company and the Sellers, none of the activities of the
employees of the Company on behalf of the Company violates any agreements or
arrangements
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which any such employees have with former employers in a way which is materially
adverse to the business of the Company taken as a whole.
2.15 INSURANCE. The Company is not in default with respect to any provisions
of any policy of general liability, fire, title or other form of insurance held
by it, the Company is current in the payment of all premiums due on such
insurance and the Company has not failed to give any notice or present any claim
thereunder in due and timely fashion, except for claims that are immaterial in
both the nature of the claim and in the amount of such claim. The Company
maintains insurance on all of its assets and business (including products
liability insurance) from insurers which are financially sound and reputable, in
amounts and coverages and against the kinds of risks and losses reasonably
prudent to be insured against by corporations engaged in the same or similar
businesses. No basis exists which would jeopardize the coverage under any such
insurance. No such insurance will be terminated or canceled by reason of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. THI has previously furnished or made available
to TBA all policies of general liability, fire, title or other forms of
insurance applicable to the Company and a description of all claims pending
thereunder other than health or dental insurance claims.
2.16 EMPLOYEE BENEFIT PLANS.
(a) THI has made available or furnished to TBA true and complete copies
of each pension, profit-sharing, deferred compensation, incentive compensation,
severance pay, retirement, welfare benefit or other plan or arrangement
providing benefits to employees or retirees, including both those that do and do
not constitute employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (the "ERISA"),
currently maintained or contributed to by THI or any of its affiliates for the
benefit of the employees of the Company (each, a "PLAN").
(b) Except as set forth on the Disclosure Schedule, (i) each such Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA is being operated and administered in compliance with Section 401(a) of
the Code, a favorable determination letter has been obtained from the Internal
Revenue Service (the "IRS") for such Plan, and there is no accumulated funding
deficiency, as defined in Section 302(a)(2) of ERISA or Section 412 of the Code,
with respect to such Plan; (ii) there has been no non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code involving the assets of any Plan nor any "reportable event" within the
meaning of Section 4043 of ERISA with respect to any Plan; (iii) all required
employer contributions to such Plan have been made (or, in the case of
contributions not yet due, have been accrued on the Balance Sheet); (iv) THI has
made available to TBA as to each such Plan a true and correct copy of (w) the
annual report (Form 5500) filed with the IRS for each of the three most recent
plan years, (x) each plan, trust agreement, group annuity contract and insurance
contract, if any, relating to such Plan, (y) each actuarial report prepared for
each of the last three years for each Plan and (z) each summary plan description
distributed to participants in each Plan and each summary of material
modifications to each Plan (as defined in ERISA); and (v) each such Plan is, and
at all relevant times has been, in compliance with ERISA, the Code and the terms
of such Plan. None of the Sellers or the Company or their respective affiliates
has ever participated in a "multiemployer pension plan" as
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defined in Section 3(37) of ERISA.
(c) Each Plan applicable to employees of the Company outside of the
United States is fully funded, has been administered, in all material respects,
in compliance with its terms and the requirements of all applicable laws and
regulations and all required contributions have been made. All reports, forms
and other documents required to be filed or advisable to be filed with any
governmental entity with respect to each such Plan have been timely filed and
are complete and accurate in all material respects.
(d) Except as set forth on the Disclosure Schedule, the Company has
no obligation to provide any welfare benefits to retired or former employees
other than continuation of welfare benefits as required by applicable law.
(e) The Company has no liability under or with respect to any
employee benefit plans or arrangements that it no longer maintains or in which
it no longer participates.
2.17 AGREEMENTS AND DOCUMENTS. THI has previously furnished or made available
to TBA true, correct and complete copies of each document that is referred to or
otherwise related to any of the following items referred to in this
Section 2.17:
(a) each document related to interests in real property owned,
leased or otherwise used or claimed by the Company;
(b) (i) each agreement of the Company made in the ordinary course of
business which involves aggregate future payments by or to the Company of more
than two hundred fifty thousand dollars ($250,000) or any agreement made in the
ordinary course of business whose term extends beyond one year after the date
hereof; (ii) each agreement containing any covenant restricting the freedom of
the Company to compete in any line of business or with any person; and (iii)
each agreement of the Company not made in the ordinary course of business which
is or was to be performed after the date hereof;
(c) all employment or similar compensation agreements of the Company
which may not be terminated by the Company without penalty within thirty days
after the Closing;
(d) all bonus, incentive compensation, deferred compensation,
profit-sharing, stock option, retirement, pension, severance, indemnification,
insurance, death benefit or other fringe benefit plans, agreements or
arrangements of the Company (or applying to the Company) in effect, or under
which any amounts remain unpaid, on the date hereof or to become effective after
the date hereof;
(e) all labor unions or other organizations representing, purporting
to represent or attempting to represent any employees of the Company, and all
collective bargaining agreements of the Company with any labor unions or other
representatives or employees;
(f) each agreement or other instrument or arrangement defining the
terms on which any indebtedness of the Company (or a guarantee by the Company of
indebtedness) is or may be issued; and
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(g) the names and addresses of all banks in which the Company has
accounts or lines of credit, and with respect to each such account or line of
credit, the names of all persons authorized to draw thereon.
The Company is not a party to any oral contract or agreement which would
be required to have been furnished or made available to TBA under this
Section 2.17 had such contract or agreement been committed to writing.
2.18 VALIDITY. There is no default or claimed or purported or alleged default,
or basis on which with notice or lapse of time or both (including notice of this
Agreement), a default would exist, in any obligation on the part of any party
(including the Company) to be performed under any lease, contract, plan, policy
or other instrument or arrangement referred to in Section 2.17 or otherwise in
this Agreement.
2.19 NO CHANGES. Since the date of the Balance Sheet there has not been:
(a) any material adverse change in the business of the Company taken as
a whole;
(b) any material damage, destruction or loss (whether or not covered by
insurance) adversely affecting the business of the Company taken as a whole;
(c) any declaration, setting aside or payment of any dividend, or other
distribution, in respect of any capital stock of the Company or any direct or
indirect redemption, purchase or other acquisition of such stock;
(d) any option to purchase any capital stock of the Company granted to
any person, or any employment or deferred compensation agreement entered into
between the Company and any of its stockholders, officers, directors, employees
or consultants;
(e) any issuance or sale by the Company of any stock, bonds or other
corporate securities, or any partial or complete formation, acquisition,
disposition or liquidation of the Company;
(f) any labor union activity (including without limitation any
negotiation, or request for negotiation, with respect to any union
representation or any labor contract) respecting the Company;
(g) any statute, rule or regulation, or, to the best knowledge of the
Company and the Sellers, any government policy, adopted which may materially and
adversely affect the business of the Company;
(h) any mortgage, lien, attachment, pledge, encumbrance or security
interest created on any asset, tangible or intangible, of the Company, or
assumed, either by the Company or by others, with respect to any such assets,
except for liens permitted under Section 2.8;
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(i) any indebtedness or other liability or obligation (whether absolute,
accrued, contingent or otherwise) incurred, or other transaction (except that is
reflected in this Agreement) engaged in, by the Company, except those in the
ordinary course of business that are individually, or in the aggregate to one
group of related parties, less than one hundred thousand dollars ($100,000);
(j) any obligation or liability discharged or satisfied by the Company,
except items included in current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business which are individually, or in the aggregate to one group of
related parties, less than one hundred thousand dollars ($100,000) in amount;
(k) any sale, assignment, lease, transfer or other disposition of any
tangible asset of the Company, except in the ordinary course of business, or any
sale, assignment, lease, transfer or other disposition of its patents,
trademarks, trade names, brand names, copyrights, licenses or other intangible
assets;
(l) any amendment, termination or waiver of any material right belonging
to the Company;
(m) any increase in the compensation or benefits payable or to become
payable by the Company to any of its officers or employees;
(n) any other action or omission by the Company, or the passage of any
resolution, other than in the ordinary course of business.
2.20 LITIGATION OR PROCEEDINGS. The Company is not engaged in, or a party to,
or, to the best of the Sellers' and the Company's knowledge, threatened with,
any claim or legal action or other proceeding before any court, any arbitrator
of any kind or any governmental authority, nor does any basis for any claim or
legal action or other proceeding or governmental investigation exist. There are
no orders, rulings, decrees, judgments or stipulations to which the Company is a
party by or with any court, arbitrator or governmental authority affecting the
Company.
2.21 COMPLIANCE WITH LAWS. The Company (i) has not been and is not in
violation of any applicable building, zoning, occupational safety and health,
pension, export control, environmental or other federal, state, local or foreign
law, ordinance, regulation, rule, order or governmental policy applicable to it;
(ii) has not received any complaint from any governmental authority, and to the
best knowledge of the Sellers and the Company, none is threatened, alleging that
the Company has violated any such law, ordinance, regulation, rule, order or
governmental policy; (iii) has not received any notice from any governmental
authority of any pending proceedings to take all or any part of the properties
of the Company (whether leased or owned) by condemnation or right of eminent
domain and, to the best knowledge of the Sellers and the Company, no such
proceeding is threatened; and (iv) is not a party to any agreement or
instrument, or subject to any charter or other corporate restriction or
judgment, order, writ, injunction, rule, regulation, code or ordinance, which
materially and adversely affects, or might reasonably be expected materially and
adversely to affect the business of the Company.
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2.22 LABOR MATTERS. There are no labor organizing activities, election
petitions or proceedings, labor strikes, disputes, slowdowns, work stoppages or
unfair labor practice complaints pending or, to the best knowledge of the
Sellers and the Company, threatened against the Company or between the Company
and any of its employees.
2.23 RECALLS. There is no basis for the recall, withdrawal or suspension of
any approval by any governmental authority with respect to any product sold or
proposed to be sold by the Company. None of the products of the Company is
subject to any recall proceedings and to the best of its knowledge no such
proceedings have been threatened.
2.24 BROKERS AND FINDERS. None of the Sellers or the Company has employed any
broker, agent or finder or incurred any liability on behalf of any of the
Sellers or the Company or for any brokerage fees, agents' commissions or
finders' fees in connection with the transactions contemplated hereby.
2.25 POWERS OF ATTORNEY. The Company has no powers of attorney or similar
authorizations outstanding.
2.26 NO TERMINATION OF RELATIONSHIP. As of the date hereof, none of the
Sellers or the Company has any reason to expect that any relationship between
the Company and a material distributor, customer, supplier, lender, employee or
other person will be terminated or adversely affected as a result of the
transactions contemplated by this Agreement.
2.27 ALL INFORMATION. TBA has been furnished in writing prior to the
execution of this Agreement all information as to the business of the Company
material to a reasonable buyer's determination to enter into this Agreement and
to consummate the transactions contemplated hereby.
2.28 STATEMENTS TRUE AND CORRECT. The statements contained herein or in any
written documents prepared and delivered by or on behalf of THI pursuant to the
terms hereof are true, complete and correct in all material respects, and such
documents do not omit any material fact required to be stated herein or therein
or necessary to make the statements contained herein or therein not misleading.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF TBA
TBA represents and warrants to THI as follows.
3.1 ORGANIZATION. TBA is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and has full corporate
power and authority to own, lease and operate its assets and to carry on its
business as now being and as heretofore conducted.
3.2 AUTHORITY. TBA has full right, power, capacity and authority to execute,
deliver and
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perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of TBA, except that approval of the
TBA shareholders is required to list the TBA Shares on the AMEX. This Agreement
has been duly and validly executed and delivered by TBA and constitutes the
valid and binding obligation of TBA, enforceable against it in accordance with
the terms hereof. Neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
conflict with or result in a violation, breach, termination or acceleration of,
or default under (or would result in a violation, breach, termination,
acceleration or default with the giving of notice or passage of time, or both)
any of the terms, conditions or provisions of the Certificate of Incorporation
or By-laws of TBA, as amended, or of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which TBA is a party or
by which TBA or any of its properties or assets may be bound or affected; (ii)
result in the violation of any order, writ, injunction, decree, statute, rule or
regulation applicable to TBA or any of its properties or assets; or (iii) result
in the imposition of any lien, encumbrance, charge or claim upon any of its
assets. Except for the listing of the TBA Shares for trading on the AMEX, no
consent or approval by, or notification to or filing with, any court,
governmental authority or third party is required in connection with the
execution, delivery and performance of this Agreement by TBA or the consummation
of the transactions contemplated hereby. The TBA Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of pre-emptive rights.
3.3 STATEMENTS TRUE AND CORRECT. The statements contained herein or in any
written documents prepared and delivered by or on behalf of TBA pursuant to the
terms hereof are true, complete and correct in all material respects, and such
documents do not omit any material fact required to be stated herein or therein
or necessary to make the statements contained herein or therein not misleading.
SECTION 4 - COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. Except with the prior written consent of TBA, which
will not be unreasonably withheld or delayed, and except as otherwise
contemplated herein, during the period from the date hereof to the Closing Date,
THI shall cause the Sellers and the Company to observe the following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. The Sellers and the
Company shall:
(i) PRESERVATION OF PERSONNEL. Use all reasonable efforts to
preserve intact the business organization of the Company and keep available the
services of the present employees of the Company, in each case in accordance
with past practice, it being understood that the termination of employees with
poor performance ratings shall not constitute a violation of this covenant;
(ii) INSURANCE. Use all reasonable efforts to keep in effect
casualty, public liability, worker's compensation and other insurance policies
applicable to the Company in
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coverage amounts not less than those in effect at the date of this Agreement;
(iii) PRESERVATION OF THE BUSINESS; MAINTENANCE OF PROPERTIES.
Except as set forth in Section 4.1(b)(i), use all reasonable efforts to preserve
the business of the Company, advertise, promote and market its products and
services in accordance with past practices over the last twelve months, keep
their properties intact, preserve their goodwill, maintain all physical
properties in such operating condition as will permit the conduct of such
business on a basis consistent with past practice;
(iv) INTELLECTUAL PROPERTY RIGHTS. Use all reasonable efforts
to preserve and protect the Proprietary Rights of the Company; and
(v) ORDINARY COURSE OF BUSINESS. Operate the business of the
Company solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. THI shall cause each of the
Sellers and the Company not to:
(i) DISPOSITION OF ASSETS. Sell or transfer, or mortgage,
pledge or create or permit to be created any lien on, any of the assets of the
Company other than:
(A) the completion of documents and other instruments
relating to the transfer of the Portsmouth, New Hampshire real property from the
Company to LSI (US) Inc.
(B) the completion of documents and other instruments
relating to the transfer of all of the issued and outstanding shares of Life
Sciences International (UK) Limited from the Company to ThermoQuest Corporation
in accordance with the Asset and Share Purchase Agreement dated July 30, 1997
between ThermoQuest Corporation and THI.
(C) sales or transfers in the ordinary course of
business.
(D) the creation of liens under existing arrangements
disclosed hereunder and liens permitted under Section 2.8.
(ii) LIABILITIES. Permit the Company to (A) incur any
obligation or liability other than in the ordinary course of business, (B) incur
any indebtedness for borrowed money in excess of $100,000 or (C) enter into any
contracts or commitments involving payments by the Company of $100,000 or more
other than purchase orders and commitments for inventory, materials and supplies
in the ordinary course of business;
(iii) COMPENSATION. Except as required by applicable law or
any existing employment or severance agreement, (A) change the compensation or
fringe benefits of any officer, director, employee or agent of the Company,
except for ordinary merit increases for employees other than officers based on
periodic reviews in accordance with past practices, or (B) enter into or modify
any employment, severance or other agreement with any officer, director or
employee of the Company or any benefit plan (it being understood that hiring of
at will
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employees in the ordinary course of business shall not constitute a violation of
this covenant) or (C) enter into or modify any agreement with any consultant,
except for agreements terminable upon not more than one year's notice that are
consistent with past practices with respect to consulting agreements.
(iv) CAPITAL STOCK. Make any change in the number of shares
of capital stock of the Company authorized, issued or outstanding or grant any
option, warrant or other right to purchase, or to convert any obligation into,
shares of capital stock of the Company, or declare or pay any dividend or other
distribution with respect to any shares of capital stock of the Company, or sell
or transfer any shares of its capital stock;
(v) ORGANIZATIONAL DOCUMENTS. Amend the organizational
documents of the Company;
(vi) ACQUISITIONS. Make any material acquisition of property
other than in the ordinary course of the business of the Company other than
substantially all of the assets of Gloekler Refrigeration, Inc. ("GLOEKLER") in
accordance with the terms of the Letter of Intent dated February 27, 1998
between Shandon Inc. and Gloekler.
(vii) LICENSE AGREEMENTS. Enter into or modify any license,
technology development or technology transfer agreement between the Company and
any other person or entity.
4.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the Closing Date,
TBA shall be entitled, through its employees and representatives, to have such
access to the assets, properties, business and operations of the Company, as is
reasonably necessary or appropriate in connection with its investigation of the
Company with respect to the transaction contemplated hereby. Any such
investigation and examination shall be conducted at reasonable times and under
reasonable circumstances so as to minimize any disruption to or impairment of
the business and each party shall cooperate fully therein. No investigation by
TBA shall diminish or obviate any of the representations, warranties, covenants
or agreements of THI contained in this Agreement. In order that TBA may have
full opportunity to make such investigation, THI shall furnish the
representatives of TBA with all such information and copies of such documents
concerning the affairs of the Company as TBA may reasonably request and cause
its officers, employees, consultants, agents, accountants and attorneys to
cooperate fully with TBA's representatives in connection with such
investigation.
4.3 EXPENSES. TBA and THI shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including without limitation, all fees and
expenses of agents, representatives, counsel and accountants.
4.4 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, the parties shall
use all reasonable efforts to obtain all authorizations, consents and permits of
others required to permit the consummation of the transactions contemplated by
this Agreement.
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4.5 CONSUMMATION OF AGREEMENT. Each party shall use all reasonable efforts
to perform and fulfill all conditions and obligations to be performed and
fulfilled by it under this Agreement and to ensure that to the extent within its
control or capable of influence by it, no breach of any of its respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing Date, all to the end that the transactions contemplated by
this Agreement shall be fully carried out in a timely fashion.
4.6 FURTHER ASSURANCES. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
4.7 LISTING OF SHARES. Promptly after the date hereof, TBA shall use its
best efforts to take all action necessary in accordance with applicable law to
convene a meeting of its shareholders to be held for the purpose of approving
the listing of the TBA Shares for trading upon AMEX in accordance with Section
712 of AMEX's Listing Standards, Policies and Requirements. In connection with
such meeting, TBA's Board of Directors shall recommend to the TBA shareholders
the approval of the listing of the TBA Shares pursuant to this Agreement. THI
hereby agrees to vote all of the shares of TBA Common Stock held by it as of the
record date of any such meeting in favor of the listing of the TBA Shares and
all such related matters. TBA shall use all reasonable efforts to obtain all
votes and approvals of the TBA shareholders necessary for the listing of the TBA
Shares prior to January 2, 1999.
4.8 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. Any press release or other
information to the press or any third party with respect to this Agreement or
the transactions contemplated hereby shall require the prior approval of TBA and
THI, which approval shall not be unreasonably withheld, provided that a party
shall not be prevented from making such disclosure as it shall be advised by
counsel is required by law.
4.9 NO SOLICITATION. None of the Sellers or the Company will (i) solicit or
initiate discussions with any person, other than TBA, relating to the possible
acquisition of the Company or all or a material portion of the assets or any of
the capital stock of the Company or any merger or other business combination
with the Company (an "ACQUISITION TRANSACTION") or (ii) except to the extent
reasonably required by fiduciary obligations under applicable law as advised by
legal counsel, participate in any negotiations regarding, or furnish to any
other person information with respect to, any effort or attempt by any other
person to do or to seek any Acquisition Transaction. THI agrees to inform TBA
within one business day of its receipt of any offer, proposal or inquiry
relating to any Acquisition Transaction.
4.10 INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. TBA and THI (as the case may be, the
"INDEMNITEE") shall be indemnified on its respective demand made to the other
(the "INDEMNITOR") for the full amount of all damages (as defined below)
suffered by it as a direct or indirect result of:
(i) the inaccuracy of any representation or warranty made by
the Indemnitor
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in or pursuant to this Agreement; and
(ii) any failure by the Indemnitor to perform any obligation
or comply with any covenant or agreement specified in this Agreement.
For the purpose of this Section 4.10, the term "DAMAGES" shall be determined and
computed by reference to the effect of the compensable event on the Indemnitee,
and shall be deemed to include (i) all losses, liabilities, expenses or costs
incurred by the Indemnitee, including reasonable attorneys' fees, and (ii)
interest at the 90-Day Commercial Composite Rate plus 25 basis points, set at
the beginning of each quarter, from the date 30 days after notice of any such
claim for indemnification is given to the Indemnitor, or if an unliquidated
claim, from such later date as the claim is liquidated, to the date full
indemnification is made therefor.
(b) INDEMNIFICATION PROCEDURES. The Indemnitee shall give the
Indemnitor notice of any claim, action or proceeding by a third party which is
reasonably likely to result in a claim for indemnification under this Section
4.10. The Indemnitor shall have the right, at its expense, to defend, contest,
protest, settle and otherwise control the resolution of any such claim, action
or proceeding. The Indemnitee shall have the right to participate in any such
legal proceeding, subject to the Indemnitor's right of control thereof, at the
expense of the Indemnitee and with counsel selected by the Indemnitee.
(c) LIMITATIONS ON INDEMNIFICATION. Each of TBA and THI shall be
obligated to indemnify the other pursuant to this Section 4.10 only with respect
to claims as to which it is given written notice by the Indemnitee on or prior
to a date two years after the Closing.
4.11 TAX-FREE QUALIFICATION. THI and TBA agree that they will take no actions
not contemplated by this Agreement that would cause the transaction not to
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code.
4.12 CONTINUED PARTICIPATION IN PENSION PLAN. TBA and THI agree that, after
the Closing, employees of Shandon Scientific Ltd. and its subsidiaries shall
continue to be eligible to participate in the Life Sciences International
Limited Pension Plan subject to the same or comparable terms and conditions as
those to which they are currently subject. TBA will be charged for its
attributable portion of the pension costs associated with such plan.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TBA
The obligation of TBA to acquire the Shares is subject to the
satisfaction or waiver, at or before the Closing Date, of the following
conditions:
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of THI contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (with such exceptions as may be
permitted under or contemplated by this Agreement) and there shall not have been
any material adverse change in the business of the Company taken as a whole
since the date hereof. THI shall have performed and complied in all material
respects with all
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covenants and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing Date and shall have obtained all required
consents and approvals. THI shall have delivered to TBA a certificate, dated the
Closing Date, to the foregoing effect.
5.2 CERTIFICATES. THI shall have furnished TBA with such certificates of
public officials and of the Sellers' or the Company' officers as may be
reasonably requested by TBA.
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATION OF THI
The obligation of THI to sell the Shares is subject to the satisfaction
or waiver, at or before the Closing Date, of the following conditions:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of TBA contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (with such exceptions as may be
permitted under or contemplated by this Agreement). TBA shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date and shall have obtained all required consents and approvals, except for the
approval of the TBA shareholders of the listing of the TBA Shares on the AMEX.
TBA shall have delivered to LSI a certificate, dated the Closing Date, to the
foregoing effect.
6.2 CERTIFICATES. TBA shall have furnished THI with such certificates of
public officials and of TBA's officers as may be reasonably requested by THI.
SECTION 7 - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date as follows:
(a) by THI upon written notice to TBA if TBA has materially breached any
representation, warranty, covenant or agreement contained herein and has not
cured such breach within ten (10) business days of receipt of written notice
from THI;
(b) by TBA upon written notice to THI if THI has materially breached any
representation, warranty, covenant or agreement contained herein and has not
cured such breach within ten (10) business days of receipt of written notice
from TBA;
(c) by either party if any court of competent jurisdiction or United
States or foreign governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
sale of any of the Shares and such order, decree or ruling shall have become
final and nonappealable; or
(d) at any time with the written consent of TBA and THI.
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7.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided in
Section 7.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of any party, its directors, officers or
stockholders, other than the provisions of this Section 7.2, Section 4.3
relating to expenses and Section 4.8 relating to publicity and confidentiality
to the extent provided therein. Nothing contained in this Section 7.2 shall
relieve any party from liability for any breach of this Agreement occurring
before such termination.
7.3 AMENDMENT. This Agreement may not be amended except by an instrument
signed by each of the parties hereto.
7.4 WAIVER. At any time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of any other party hereto or
(b) waive compliance with any of the agreements of any other party or any
conditions to its own obligations, in each case only to the extent such
obligations, agreements and conditions are intended for its benefit; provided
that any such extension or waiver shall be binding upon a party only if such
extension or waiver is set forth in a writing executed by such party.
SECTION 8 - MISCELLANEOUS
8.1 NOTICES. All notices, requests, demands, consents and other
communications which are required or permitted hereunder shall be in writing,
and shall be deemed given when actually received or if earlier, one day after
deposit with a nationally recognized air courier or express mail, charges
prepaid or three days after deposit in the U.S. mail by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to THI:
Thermo Instrument Systems Inc.
860 Airport Freeway
Suite 301
Hurst, Texas 76054
Attention: President
If to TBA:
Thermo BioAnalysis Corporation
P.O. Box 2108
504 Airport Road
Santa Fe, New Mexico 87505
Attention: President
or to such other address as any party hereto may designate in writing to the
other parties, specifying a change of address for the purpose of this Agreement.
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8.2 SURVIVAL AND MATERIALITY OF REPRESENTATIONS. Each of the
representations, warranties and agreements made by the parties hereto shall be
deemed material and shall survive the Closing Date and the consummation of the
transactions contemplated hereby. All statements contained in any certificates
or other instruments delivered by or on behalf of the parties pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed material
and shall constitute representations and warranties by the person making such
statement.
8.3 ENTIRE AGREEMENT. This Agreement, including the exhibits, the Disclosure
Schedule and the other documents referred to herein, supersedes any and all oral
or written agreements or understandings heretofore made relating to the subject
matter hereof and constitutes the entire agreement of the parties relating to
the subject matter hereof.
8.4 PARTIES IN INTEREST. All covenants and agreements, representations and
warranties contained in this Agreement made by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the parties hereto, and
their respective successors, assigns, heirs, executors, administrators and
personal representatives, whether so expressed or not.
8.5 NO IMPLIED RIGHTS OR REMEDIES. Except as otherwise expressly provided
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or to give any person, firm or corporation, other than the parties
hereto, any rights or remedies under or by reason of this Agreement.
8.6 HEADINGS. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning
hereof.
8.7 SEVERABILITY. If any provision of this Agreement shall be declared void
or unenforceable by any judicial or administrative authority, the validity of
any other provision shall not be affected thereby.
8.8 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.9 FURTHER ASSURANCES. THI will execute and furnish to TBA all documents
and will do or cause to be done all other things that TBA may reasonably request
from time to time in order to give full effect to this Agreement and to
effectuate the intent of the parties.
8.10 GOVERNING LAW. This Agreement shall be governed by the law of the State
of Delaware applicable to agreements made and to be performed wholly within such
jurisdiction, without regard to the conflicts of laws provisions thereof.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first written above.
THERMO BIOANALYSIS CORPORATION
By: /s/ Colin Maddix
--------------------------------------
Name: Colin Maddix
Title: President
THERMO INSTRUMENT SYSTEMS INC.
By: /s/ Earl R. Lewis
--------------------------------------
Name: Earl R. Lewis
Title: President
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APPENDIX B
SHARE PURCHASE AGREEMENT
BETWEEN
THERMO BIOANALYSIS CORPORATION
AND
THERMOQUEST CORPORATION
-----------------------
May 11, 1998
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<PAGE> 135
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "AGREEMENT") dated as of May 11, 1998 is
between Thermo BioAnalysis Corporation ("TBA"), a Delaware corporation, and
ThermoQuest Corporation ("TMQ"), a Delaware corporation.
PRELIMINARY STATEMENT
1. TMQ owns all of the issued and outstanding shares (the "SHARES") of
Shandon GmbH, a company organized under the laws of Germany. Shandon GmbH is
sometimes referred to herein as the "COMPANY."
2. TBA desires to purchase, or cause its wholly-owned subsidiaries to
purchase, and TMQ desires to sell, or to cause its subsidiaries to sell, all of
the issued and outstanding shares of the Company for the consideration set forth
below, subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1 - PURCHASE AND SALE OF THE SHARES
1.1 PURCHASE OF THE SHARES FROM TMQ. Subject to and upon the terms and
conditions of this Agreement, at the closing of the transactions contemplated by
this Agreement (the "CLOSING"), TMQ shall sell, transfer, convey, assign and
deliver to TBA, or its wholly-owned subsidiaries, and TBA or its wholly-owned
subsidiaries shall purchase, acquire and accept the Shares.
1.2 FURTHER ASSURANCES. At any time and from time to time both prior to and
after the Closing, at TBA's request and without further consideration, TMQ shall
promptly execute and deliver such instruments of sale, transfer, conveyance,
assignment and confirmation, and take all such other action as TBA may
reasonably request, more effectively to transfer, convey and assign to TBA, and
to confirm TBA's title to, all of the Shares owned by TMQ, to put TBA in actual
possession and operating control of the assets, properties and business of the
Company, to assist in exercising all rights with respect thereto and to carry
out the purpose and intent of this Agreement.
1.3 CONSIDERATION FOR THE SHARES. The consideration to be paid by TBA for
the Shares (the "PURCHASE PRICE") shall be 100 shares (the "PURCHASE PRICE
SHARES") of TBA's common stock, par value $.01 per share (the "TBA COMMON
STOCK").
1.4 CLOSING. The Closing shall take place at the offices of Thermo Electron
Corporation at 81 Wyman Street, Waltham, Massachusetts on or about May 27, 1998
(the "CLOSING DATE"). At the Closing, TMQ shall deliver certificates evidencing
the Shares duly endorsed in blank or with stock powers duly executed. At the
Closing, if the Purchase Price Shares have been listed on the American Stock
Exchange (the "AMEX") in accordance with Section 4.7 hereto, TBA shall deliver
one or more certificates representing the Purchase Price Shares to TMQ. If the
Purchase
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Price Shares have not been so listed, TBA shall deliver an instrument obligating
TBA to issue the Purchase Price Shares to TMQ on the date that such shares are
listed on the AMEX in accordance with Section 4.7 hereto. The number of Purchase
Price Shares shall be adjusted to prevent dilution if between the Closing Date
and the date of issuance of the Purchase Price Shares, TBA (i) issues any shares
of TBA Common Stock or any rights to purchase TBA Common Stock as a dividend or
makes any other distribution as a dividend upon TBA Common Stock; (ii) issues
any shares of TBA Common Stock in subdivision of outstanding shares of TBA
Common Stock by reclassification or otherwise; or (iii) combines outstanding
shares of TBA Common Stock, by reclassification or otherwise.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TMQ
Except as set forth on the disclosure schedule delivered to TBA on the
date hereof (the "DISCLOSURE SCHEDULE"), TMQ represents and warrants to TBA as
follows. The term "knowledge," when used in this Agreement, shall mean actual
knowledge after reasonable investigation.
2.1 ORGANIZATION AND QUALIFICATION. Each of TMQ and the Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power and authority
to own, lease and operate its assets and to carry on its business as now being
and as heretofore conducted. Each of TMQ and the Company is qualified or
otherwise authorized to transact business as a foreign corporation in all
jurisdictions in which such qualification or authorization is required by law,
except for jurisdictions in which the failure to be so qualified or authorized
would not have a material adverse effect on the assets, properties, business,
results of operations, condition (financial or otherwise) or prospects of the
Company taken as a whole.
2.2 AUTHORITY. TMQ has full right, power, capacity and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of TMQ. This
Agreement has been duly and validly executed and delivered by TMQ and
constitutes the valid and binding obligation of TMQ, enforceable against it in
accordance with the terms hereof. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in a violation, breach,
termination or acceleration of, or default under (or would result in a
violation, breach, termination, acceleration or default with the giving of
notice or passage of time, or both) any of the terms, conditions or provisions
of the organizational documents of TMQ or the Company, or of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which TMQ or the Company is a party or by which TMQ or the Company or any of
their respective properties or assets may be bound or affected; (ii) result in
the violation of any order, writ, injunction, decree, statute, rule or
regulation applicable to TMQ or the Company or any of their respective
properties or assets; (iii) result in the imposition of any lien, encumbrance,
charge or claim upon any assets of the Company; or (iv) entitle any employee of
the Company to severance or other payments or create any other obligation to an
employee.
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No consent or approval by, or notification to or filing with, any court,
governmental authority or third party is required in connection with the
execution, delivery and performance of this Agreement by TMQ or the consummation
of the transactions contemplated hereby.
2.3 CAPITALIZATION AND TITLE TO SHARES.
(a) The authorized share capital of the Company is set forth on EXHIBIT
A hereto. TMQ is the beneficial owner of all of the issued and outstanding
shares of the Company. All of the Shares are duly authorized and are validly
issued, fully paid, nonassessable and free of preemptive rights.
(b) There are no other shares of capital stock of the Company
authorized or outstanding or any subscriptions, options, conversion or exchange
rights, warrants, repurchase or redemption agreements, or other agreements or
commitments obligating the Company to issue, transfer, sell, repurchase or
redeem any shares of its capital stock or other securities. There are no written
shareholder agreements, voting trusts, proxies or other agreements, instruments
or understandings with respect to the voting of the capital stock of the
Company. The books and records of the Company, including without limitation the
books of account, minute books, stock certificate books and stock ledgers, are
complete and correct and accurately reflect the conduct of the business and
affairs of the Company.
2.4 SUBSIDIARIES AND OTHER AFFILIATES.
(a) The Company has no Subsidiaries. As used in this Agreement,
"SUBSIDIARY" means any corporation or other legal entity of which a party to
this Agreement owns, directly or indirectly, fifty percent (50%) or more of the
stock or other equity interest entitled to vote for the election of directors.
(b) The Company does not, directly or indirectly, own any material
equity interest in any corporation, partnership, joint venture or other entity
2.5 FINANCIAL STATEMENTS. TMQ has delivered to TBA prior to the execution
of this Agreement true and complete copies of the unaudited consolidated balance
sheet of the Company as of January 3, 1998 and the unaudited consolidated
statement of operations of the Company for the period beginning March 12, 1997
and ended January 3, 1998. Collectively, the financial statements referred to in
the preceding sentence are sometimes referred to herein as the "Financial
Statements" and the unaudited consolidated balance sheet of the Company as of
January 3, 1998 is referred to herein as the "Balance Sheet." The Financial
Statements have been prepared from, and are in accordance with, the books and
records of TMQ and fairly present the financial condition and results of
operations of the Company as of the date and for the period indicated, in each
case in accordance with generally accepted accounting principles applied on a
basis consistent with previous years subject to normal year-end adjustments,
which in the aggregate are not material, and footnote disclosures.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES; NO DEALINGS WITH AFFILIATES. As of
the date of the Balance Sheet, the Company had no liabilities or obligations of
any nature, whether accrued,
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absolute, contingent or otherwise and whether due or to become due (including
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others or liabilities for taxes due or then accrued or to become
due), required to be reflected or disclosed on the Balance Sheet or the
footnotes thereto that were not adequately reflected or reserved against on the
Balance Sheet or disclosed in the related footnotes. The Company has no
liabilities of the type required to be reflected or disclosed on a balance sheet
or the footnotes thereto in accordance with generally accepted accounting
principles, other than liabilities (i) adequately reflected or reserved against
on the Balance Sheet or disclosed in the related footnotes, (ii) incurred since
the date of the Balance Sheet in the ordinary course of business and consistent
with past practice, (iii) that would not, in the aggregate, have a material
adverse effect on the Company taken as a whole, or (iv) disclosed in this
Agreement. The Company has no contractual arrangement with or commitment to or
from any of its stockholders, officers, management, directors or employees (or
their family members) other than such as may have been entered into in the
normal course of employment, including, without limiting the generality of the
foregoing, being directly or indirectly a joint investor or coventurer with
respect to, or owner, lessor, lessee, licenser or licensee of, any real or
personal property, tangible or intangible, owned or used by, or a lender to or
debtor of, the Company.
2.7 TAXES. The Company has accurately prepared and duly and timely filed
all federal, state, local, provincial or foreign tax and other returns and
reports which were required to be filed, in respect of all income, franchise,
excise, sales, use, property (real and personal), VAT, payroll and other taxes,
levies, imports, duties, license and registration fees, charges or withholdings
of any nature whatsoever (collectively "TAXES"), and to the extent the
liabilities of the Company, as of the date of the Balance Sheet, for Taxes have
not been fully discharged, adequate reserves have been established on the
Balance Sheet. None of the federal, state, local, provincial or foreign Tax
returns of the Company has been audited or examined by the governmental
authority having jurisdiction. No waivers of any statutes of limitation are in
effect in respect of any Taxes. The Company is not in default in the payment of
any Taxes due and payable or on any assessments received in respect thereof, and
there are no claims pending or, to the best knowledge of the Company and TMQ,
threatened, against the Company for past due Taxes. All Taxes incurred but not
yet due have been fully accrued on the books of the Company or full reserves
have been established therefor; the reserves indicated on the Balance Sheet are
also adequate to cover all Taxes that may become payable by the Company in
future periods in respect of any transactions or sales occurring on or prior to
the date of the Balance Sheet. Without limiting the generality of the foregoing,
the Company has withheld or collected from each payment made to each of their
employees, consultants or non-U.S. payees, the amount of all Taxes required to
be withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
2.8 PROPERTIES. The Company owns and has good title to all of the assets
and properties reflected as owned by it on the Balance Sheet or acquired by the
Company since the date of the Balance Sheet (except personal property sold or
otherwise disposed of in the ordinary course of business since the date of the
Balance Sheet), free and clear of any lien, claim or other encumbrance, except
for (i) the liens, claims or other encumbrances reflected on the Balance Sheet,
(ii) assets and properties disposed of, or subject to purchase or sales orders,
in the ordinary course of business since the date of the Balance Sheet, (iii)
liens, claims or other encumbrances
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securing the liens of materialmen, carriers, landlords and like persons, all of
which are not yet due and payable, (iv) liens for taxes not yet delinquent and
(v) liens, claims, other encumbrances or defects in title that, in the
aggregate, are not material to the Company taken as a whole. The Company owns or
has a valid leasehold interest in all of the buildings, structures, leasehold
improvements, equipment and other tangible property material to the Company
taken as a whole, all of which are in good and sufficient operating condition
and repair, ordinary wear and tear excepted and the Company has not received any
notice that any such property is in violation in any material respect of any
existing law or any building, zoning, health, safety or other ordinance, code or
regulation.
2.9 HAZARDOUS MATERIALS.
(a) There has been no generation, use, handling, storage or disposal of
any Hazardous Materials in violation of common law or any applicable
environmental law at any site owned or premises leased by the Company during the
period of the Company's ownership or lease. Nor has there been or is there
threatened any release of any Hazardous Materials on or at any such site or
premises during such period in violation of common law or any applicable
environmental law or which created or will create an obligation to report or
remediate such release. For purposes of this Agreement, "HAZARDOUS MATERIAL"
means any medical waste, flammable, explosive or radioactive material, or any
hazardous or toxic waste, substance or material, including substances defined as
"hazardous substances," "hazardous materials," "solid waste" or "toxic
substances" under any applicable laws or ordinances relating to hazardous or
toxic materials and substances, air pollution (including noise and odors), water
pollution, liquid and solid waste, pesticides, drinking water, community and
employee health, environmental land use management, stormwater, sediment
control, nuisances, radiation, wetlands, endangered species, environmental
permitting, petroleum products, and all rules and regulations promulgated
pursuant to any such laws and ordinances.
(b) TMQ has previously made available to TBA copies of all documents in
its possession concerning any environmental or health and safety matter, copies
of any environmental audits or risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans and
material correspondence with any governmental authority regarding the foregoing.
2.10 ACCOUNTS RECEIVABLE. All accounts and notes receivable of the Company
shown on the Balance Sheet and all accounts and notes receivable acquired by the
Company subsequent to the date of the Balance Sheet have arisen in the ordinary
course of business and have been collected, or are in the process of collection
and are collectible in the ordinary course of business and in any event within
nine months from the Closing Date, in the aggregate recorded amounts thereof,
less the applicable allowances reflected on the Balance Sheet with respect to
the accounts and notes receivable shown thereon, or set up consistent with past
practice on the books of the Company with respect to the accounts and notes
receivable acquired subsequent to the date of the Balance Sheet.
2.11 INVENTORIES. All Inventories (as defined below) of the Company are of a
quality and quantity usable and saleable in the ordinary course of business,
except for obsolete items and
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items of below-standard quality, all of which are in the aggregate immaterial to
the Company taken as a whole. Items included in such Inventories are carried on
the books of the Company, and are valued on the Balance Sheet, at the lower of
cost or market. The value of obsolete materials and materials of below-standard
quality or quantity has been written down on the books of account of the Company
to realizable market value. The term "Inventories" includes all stock of raw
materials, work-in-process and finished goods, including but not limited to
finished goods purchased for resale, held by the Company for manufacturing,
assembly, processing, finishing, sale or resale to others, from time to time in
the ordinary course of business of the Company in the form in which such
inventories then are held or after manufacturing, assembling, finishing,
processing, incorporating with other goods or items, refining or the like.
2.12 PURCHASE AND SALE COMMITMENTS. No outstanding purchase commitments by
the Company are in excess of the normal, ordinary and usual requirements of the
Company, and the aggregate of the contract prices to which the Company has
agreed in any outstanding purchase commitments is not so excessive when compared
with current market prices for the relevant commodities or services that a
material loss is likely to result. No outstanding sales commitment by the
Company obligates the Company to sell any product or service at a price which,
because of currently prevailing and projected costs of materials or labor, is
likely to result, when all such sales commitments are taken in the aggregate, in
a material loss to the Company taken as a whole. There are no material suppliers
to the Company of significant goods or services with respect to which practical
alternative sources of supply, or comparable products, are not available on
comparable terms and conditions.
2.13 GOVERNMENTAL AUTHORIZATIONS. The Company has all governmental permits,
licenses, franchises, concessions, zoning variances and other approvals,
authorizations and orders (collectively "PERMITS") material to the Company taken
as a whole. All such Permits are presently in full force and effect, the Company
is in compliance with the requirements thereof, no suspension or cancellation of
any of them is threatened so far as is known to TMQ or the Company, and the sale
of the Shares as contemplated hereby will not adversely affect the validity or
effectiveness of, and will not require, for retention thereof after such sale,
the consent or approval of any party to, or any other person or governmental
authority having jurisdiction of, any such Permit. Neither the Company nor TMQ
has any knowledge of any fact or circumstance which would prevent, limit or
restrict it from continuing to operate its business in the present manner, and
no new requirements pertaining to the manner of operating its business have been
issued or announced by any governmental authority during the past year nor are
there any disputes pending between the Company and any governmental authority
relating to the Company's operations as presently being conducted or actively
considered.
2.14 INTELLECTUAL PROPERTY. The Company owns, or is licensed to use, or
otherwise has the right to use all patents, trademarks, service marks, trade
names, trade secrets, franchises, and copyrights, and all applications for any
of the foregoing, and all technology, know-how and processes necessary for the
conduct of its businesses as now conducted (collectively, the "PROPRIETARY
RIGHTS"). A list of all such copyrights, trademarks, tradenames and patents, and
all applications therefor, has been furnished or made available to TBA. Neither
the Company nor TMQ is aware of any claim by any third party that the business
of the Company as currently conducted or proposed to be conducted infringes upon
the unlicensed Proprietary Rights of
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others, nor has the Company or TMQ received any notice or claim from any third
party of such infringement by the Company. Neither the Company nor TMQ is aware
of any infringement by any third party on, or any competing claim of right to
use or own any of, the Proprietary Rights of the Company. The Company has the
right to use, free and clear of claims or rights of others, all customer lists
and computer software material to its business as currently conducted. To the
best knowledge of the Company and TMQ, none of the activities of the employees
of the Company on behalf of the Company violates any agreements or arrangements
which any such employees have with former employers in a way which is materially
adverse to the business of the Company taken as a whole.
2.15 INSURANCE. The Company is not in default with respect to any provisions
of any policy of general liability, fire, title or other form of insurance held
by it, the Company is current in the payment of all premiums due on such
insurance and the Company has not failed to give any notice or present any claim
thereunder in due and timely fashion, except for claims that are immaterial in
both the nature of the claim and in the amount of such claim. The Company
maintains insurance on all of its assets and business (including products
liability insurance) from insurers which are financially sound and reputable, in
amounts and coverages and against the kinds of risks and losses reasonably
prudent to be insured against by corporations engaged in the same or similar
businesses. No basis exists which would jeopardize the coverage under any such
insurance. No such insurance will be terminated or canceled by reason of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. TMQ has previously furnished or made available
to TBA all policies of general liability, fire, title or other forms of
insurance applicable to the Company and a description of all claims pending
thereunder other than health or dental insurance claims.
2.16 EMPLOYEE BENEFIT PLANS
(a) TMQ has made available or furnished to TBA true and complete copies
of each pension, profit-sharing, deferred compensation, incentive compensation,
severance pay, retirement, welfare benefit or other plan or arrangement
providing benefits to employees or retirees, including both those that do and do
not constitute employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (the "ERISA"),
currently maintained or contributed to by TMQ or any of its affiliates for the
benefit of the employees of the Company (each, a "PLAN").
(b) Except as set forth on the Disclosure Schedule, (i) each such Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA is being operated and administered in compliance with Section 401(a) of
the Code, a favorable determination letter has been obtained from the Internal
Revenue Service (the "IRS") for such Plan, and there is no accumulated funding
deficiency, as defined in Section 302(a)(2) of ERISA or Section 412 of the Code,
with respect to such Plan; (ii) there has been no non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code involving the assets of any Plan nor any "reportable event" within the
meaning of Section 4043 of ERISA with respect to any Plan; (iii) all required
employer contributions to such Plan have been made (or, in the case of
contributions not yet due, have been accrued on the Balance Sheet); (iv) TMQ has
made available to TBA as to each such Plan a true and correct copy of (w) the
annual report (Form
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5500) filed with the IRS for each of the three most recent plan years, (x) each
plan, trust agreement, group annuity contract and insurance contract, if any,
relating to such Plan, (y) each actuarial report prepared for each of the last
three years for each Plan and (z) each summary plan description distributed to
participants in each Plan and each summary of material modifications to each
Plan (as defined in ERISA); and (v) each such Plan is, and at all relevant times
has been, in compliance with ERISA, the Code and the terms of such Plan. Neither
TMQ nor the Company or their respective affiliates has ever participated in a
"multiemployer pension plan" as defined in Section 3(37) of ERISA.
(c) Each Plan applicable to employees of the Company outside of the
United States is fully funded, has been administered, in all material respects,
in compliance with its terms and the requirements of all applicable laws and
regulations and all required contributions have been made. All reports, forms
and other documents required to be filed or advisable to be filed with any
governmental entity with respect to each such Plan have been timely filed and
are complete and accurate in all material respects.
(d) Except as set forth on the Disclosure Schedule, the Company has no
obligation to provide any welfare benefits to retired or former employees other
than continuation of welfare benefits as required by applicable law.
(e) The Company has no liability under or with respect to any employee
benefit plans or arrangements that it no longer maintains or in which it no
longer participates.
2.17 AGREEMENTS AND DOCUMENTS. TMQ has previously furnished or made
available to TBA true, correct and complete copies of each document that is
referred to or otherwise related to any of the following items referred to in
this Section 2.17:
(a) each document related to interests in real property owned, leased
or otherwise used or claimed by the Company;
(b) (i) each agreement of the Company made in the ordinary course of
business which involves aggregate future payments by or to the Company of more
than one hundred fifty thousand dollars ($150,000) or any agreement made in the
ordinary course of business whose term extends beyond one year after the date
hereof; (ii) each agreement containing any covenant restricting the freedom of
the Company to compete in any line of business or with any person; and (iii)
each agreement of the Company not made in the ordinary course of business which
is or was to be performed after the date hereof;
(c) all employment or similar compensation agreements of the Company
which may not be terminated by the Company without penalty within thirty days
after the Closing;
(d) all bonus, incentive compensation, deferred compensation,
profit-sharing, stock option, retirement, pension, severance, indemnification,
insurance, death benefit or other fringe benefit plans, agreements or
arrangements of the Company (or applying to the Company) in effect, or under
which any amounts remain unpaid, on the date hereof or to become effective after
the date hereof;
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(e) all labor unions or other organizations representing, purporting to
represent or attempting to represent any employees of the Company, and all
collective bargaining agreements of the Company with any labor unions or other
representatives or employees;
(f) each agreement or other instrument or arrangement defining the
terms on which any indebtedness of the Company (or a guarantee by the Company of
indebtedness) is or may be issued; and
(g) the names and addresses of all banks in which the Company has
accounts or lines of credit, and with respect to each such account or line of
credit, the names of all persons authorized to draw thereon.
The Company is not a party to any oral contract or agreement which
would be required to have been furnished or made available to TBA under this
Section 2.17 had such contract or agreement been committed to writing.
2.18 VALIDITY. There is no default or claimed or purported or alleged
default, or basis on which with notice or lapse of time or both (including
notice of this Agreement), a default would exist, in any obligation on the part
of any party (including the Company) to be performed under any lease, contract,
plan, policy or other instrument or arrangement referred to in Section 2.17 or
otherwise in this Agreement.
2.19 NO CHANGES. Since the date of the Balance Sheet there has not been:
(a) any material adverse change in the business of the Company taken as
a whole;
(b) any material damage, destruction or loss (whether or not covered by
insurance) adversely affecting the business of the Company taken as a whole;
(c) any declaration, setting aside or payment of any dividend, or other
distribution, in respect of any capital stock of the Company or any direct or
indirect redemption, purchase or other acquisition of such stock;
(d) any option to purchase any capital stock of the Company granted to
any person, or any employment or deferred compensation agreement entered into
between the Company and any of its stockholders, officers, directors, employees
or consultants;
(e) any issuance or sale by the Company of any stock, bonds or other
corporate securities, or any partial or complete formation, acquisition,
disposition or liquidation of the Company;
(f) any labor union activity (including without limitation any
negotiation, or request for negotiation, with respect to any union
representation or any labor contract) respecting the Company;
(g) any statute, rule or regulation, or, to the best knowledge of the
Company and
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TMQ, any government policy, adopted which may materially and adversely affect
the business of the Company;
(h) any mortgage, lien, attachment, pledge, encumbrance or security
interest created on any asset, tangible or intangible, of the Company, or
assumed, either by the Company or by others, with respect to any such assets,
except for liens permitted under Section 2.8;
(i) any indebtedness or other liability or obligation (whether
absolute, accrued, contingent or otherwise) incurred, or other transaction
(except that is reflected in this Agreement) engaged in, by the Company, except
those in the ordinary course of business that are individually, or in the
aggregate to one group of related parties, less than fifty thousand dollars
($50,000);
(j) any obligation or liability discharged or satisfied by the Company,
except items included in current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business which are individually, or in the aggregate to one group of
related parties, less than twenty five thousand ($25,000) in amount;
(k) any sale, assignment, lease, transfer or other disposition of any
tangible asset of the Company, except in the ordinary course of business, or any
sale, assignment, lease, transfer or other disposition of its patents,
trademarks, trade names, brand names, copyrights, licenses or other intangible
assets;
(l) any amendment, termination or waiver of any material right
belonging to the Company;
(m) any increase in the compensation or benefits payable or to become
payable by the Company to any of its officers or employees;
(n) any other action or omission by the Company, or the passage of any
resolution, other than in the ordinary course of business.
2.20 LITIGATION OR PROCEEDINGS. The Company is not engaged in, or a party
to, or, to the best of TMQ's and the Company's knowledge, threatened with, any
claim or legal action or other proceeding before any court, any arbitrator of
any kind or any governmental authority, nor does any basis for any claim or
legal action or other proceeding or governmental investigation exist. There are
no orders, rulings, decrees, judgments or stipulations to which the Company is a
party by or with any court, arbitrator or governmental authority affecting the
Company.
2.21 COMPLIANCE WITH LAWS. The Company (i) has not been and is not in
violation of any applicable building, zoning, occupational safety and health,
pension, export control, environmental or other federal, state, local or foreign
law, ordinance, regulation, rule, order or governmental policy applicable to it;
(ii) has not received any complaint from any governmental authority, and to the
best knowledge of TMQ and the Company, none is threatened, alleging that the
Company has violated any such law, ordinance, regulation, rule, order or
governmental policy; (iii) has not received any notice from any governmental
authority of any pending
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proceedings to take all or any part of the properties of the Company (whether
leased or owned) by condemnation or right of eminent domain and, to the best
knowledge of TMQ and the Company, no such proceeding is threatened; and (iv) is
not a party to any agreement or instrument, or subject to any charter or other
corporate restriction or judgment, order, writ, injunction, rule, regulation,
code or ordinance, which materially and adversely affects, or might reasonably
be expected materially and adversely to affect the business of the Company.
2.22 LABOR MATTERS. There are no labor organizing activities, election
petitions or proceedings, labor strikes, disputes, slowdowns, work stoppages or
unfair labor practice complaints pending or, to the best knowledge of TMQ and
the Company, threatened against the Company or between the Company and any of
its employees.
2.23 RECALLS. There is no basis for the recall, withdrawal or suspension of
any approval by any governmental authority with respect to any product sold or
proposed to be sold by the Company. None of the products of the Company is
subject to any recall proceedings and to the best of its knowledge no such
proceedings have been threatened.
2.24 BROKERS AND FINDERS. Neither TMQ nor the Company has employed any
broker, agent or finder or incurred any liability on behalf of TMQ or the
Company or for any brokerage fees, agents' commissions or finders' fees in
connection with the transactions contemplated hereby.
2.25 POWERS OF ATTORNEY. The Company has no powers of attorney or similar
authorizations outstanding.
2.26 NO TERMINATION OF RELATIONSHIP. As of the date hereof, neither TMQ nor
the Company has any reason to expect that any relationship between the Company
and a material distributor, customer, supplier, lender, employee or other person
will be terminated or adversely affected as a result of the transactions
contemplated by this Agreement.
2.27 ALL INFORMATION. TBA has been furnished in writing prior to the
execution of this Agreement all information as to the business of the Company
material to a reasonable buyer's determination to enter into this Agreement and
to consummate the transactions contemplated hereby.
2.28 STATEMENTS TRUE AND CORRECT. The statements contained herein or in any
written documents prepared and delivered by or on behalf of TMQ pursuant to the
terms hereof are true, complete and correct in all material respects, and such
documents do not omit any material fact required to be stated herein or therein
or necessary to make the statements contained herein or therein not misleading.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF TBA
TBA represents and warrants to TMQ as follows.
3.1 ORGANIZATION. TBA is a corporation duly organized, validly existing and
in good
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standing under the laws of the state of Delaware and has full corporate power
and authority to own, lease and operate its assets and to carry on its business
as now being and as heretofore conducted.
3.2 AUTHORITY. TBA has full right, power, capacity and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of TBA. This
Agreement has been duly and validly executed and delivered by TBA and
constitutes the valid and binding obligation of TBA, enforceable against it in
accordance with the terms hereof. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in a violation, breach,
termination or acceleration of, or default under (or would result in a
violation, breach, termination, acceleration or default with the giving of
notice or passage of time, or both) any of the terms, conditions or provisions
of the Certificate of Incorporation or By-laws of TBA, as amended, or of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which TBA is a party or by which TBA or any of its properties or
assets may be bound or affected; (ii) result in the violation of any order,
writ, injunction, decree, statute, rule or regulation applicable to TBA or any
of its properties or assets; or (iii) result in the imposition of any lien,
encumbrance, charge or claim upon any of its assets. Except for the listing of
the Purchase Price Shares for trading on the AMEX, no consent or approval by,
or notification to or filing with, any court, governmental authority or third
party is required in connection with the execution, delivery and performance of
this Agreement by TBA or the consummation of the transactions contemplated
hereby. The Purchase Price Shares will be, when issued in accordance with this
Agreement, duly authorized, validly issued, fully paid, nonassessable and free
of pre-emptive rights.
3.3 STATEMENTS TRUE AND CORRECT. The statements contained herein or in any
written documents prepared and delivered by or on behalf of TBA pursuant to the
terms hereof are true, complete and correct in all material respects, and such
documents do not omit any material fact required to be stated herein or therein
or necessary to make the statements contained herein or therein not misleading.
SECTION 4 - COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. Except with the prior written consent of TBA,
which will not be unreasonably withheld or delayed, and except as otherwise
contemplated herein, during the period from the date hereof to the Closing Date,
TMQ shall cause the Company to observe the following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. TMQ and the Company
shall:
(i) PRESERVATION OF PERSONNEL. Use all reasonable efforts
to preserve intact the business organization of the Company and keep available
the services of the present employees of the Company, in each case in accordance
with past practice, it being understood that the termination of employees with
poor performance ratings shall not constitute a violation of this
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covenant;
(ii) INSURANCE. Use all reasonable efforts to keep in
effect casualty, public liability, worker's compensation and other insurance
policies applicable to the Company in coverage amounts not less than those in
effect at the date of this Agreement;
(iii) PRESERVATION OF THE BUSINESS; MAINTENANCE OF
PROPERTIES. Use all reasonable efforts to preserve the business of the Company,
advertise, promote and market its products and services in accordance with past
practices over the last twelve months, keep their properties intact, preserve
their goodwill, maintain all physical properties in such operating condition as
will permit the conduct of such business on a basis consistent with past
practice;
(iv) INTELLECTUAL PROPERTY RIGHTS. Use all reasonable
efforts to preserve and protect the Proprietary Rights of the Company; and
(v) ORDINARY COURSE OF BUSINESS. Operate the business of
the Company solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. TMQ shall cause the
Company not to:
(i) DISPOSITION OF ASSETS. Sell or transfer, or mortgage,
pledge or create or permit to be created any lien on, any of the assets of the
Company other than sales or transfers in the ordinary course of business and the
creation of liens under existing arrangements disclosed hereunder and liens
permitted under Section 2.8.
(ii) LIABILITIES. Permit the Company to (A) incur any
obligation or liability other than in the ordinary course of business, (B) incur
any indebtedness for borrowed money in excess of $25,000 or (C) enter into any
contracts or commitments involving payments by the Company of $25,000 or more
other than purchase orders and commitments for inventory, materials and supplies
in the ordinary course of business;
(iii) COMPENSATION. Except as required by applicable law or
any existing employment or severance agreement, (A) change the compensation or
fringe benefits of any officer, director, employee or agent of the Company,
except for ordinary merit increases for employees other than officers based on
periodic reviews in accordance with past practices, or (B) enter into or modify
any employment, severance or other agreement with any officer, director or
employee of the Company or any benefit plan (it being understood that hiring of
at will employees in the ordinary course of business shall not constitute a
violation of this covenant) or (C) enter into or modify any agreement with any
consultant, except for agreements terminable upon not more than one year's
notice that are consistent with past practices with respect to consulting
agreements.
(iv) CAPITAL STOCK. Make any change in the number of
shares of capital stock of the Company authorized, issued or outstanding or
grant any option, warrant or other right to purchase, or to convert any
obligation into, shares of capital stock of the Company, or declare or pay any
dividend or other distribution with respect to any shares of capital stock of
the Company, or sell or transfer any shares of its capital stock;
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(v) ORGANIZATIONAL DOCUMENTS. Amend the organizational
documents of the Company;
(vi) ACQUISITIONS. Make any material acquisition of
property other than in the ordinary course of the business of the Company.
(vii) LICENSE AGREEMENTS. Enter into or modify any license,
technology development or technology transfer agreement between the Company and
any other person or entity.
4.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the Closing Date,
TBA shall be entitled, through its employees and representatives, to have such
access to the assets, properties, business and operations of the Company, as is
reasonably necessary or appropriate in connection with its investigation of the
Company with respect to the transaction contemplated hereby. Any such
investigation and examination shall be conducted at reasonable times and under
reasonable circumstances so as to minimize any disruption to or impairment of
the business and each party shall cooperate fully therein. No investigation by
TBA shall diminish or obviate any of the representations, warranties, covenants
or agreements of TMQ contained in this Agreement. In order that TBA may have
full opportunity to make such investigation, TMQ shall furnish the
representatives of TBA with all such information and copies of such documents
concerning the affairs of the Company as TBA may reasonably request and cause
its officers, employees, consultants, agents, accountants and attorneys to
cooperate fully with TBA's representatives in connection with such
investigation.
4.3 EXPENSES. TBA and TMQ shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including without limitation, all fees and
expenses of agents, representatives, counsel and accountants.
4.4 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, the parties shall
use all reasonable efforts to obtain all authorizations, consents and permits of
others required to permit the consummation of the transactions contemplated by
this Agreement.
4.5 CONSUMMATION OF AGREEMENT. Each party shall use all reasonable efforts
to perform and fulfill all conditions and obligations to be performed and
fulfilled by it under this Agreement and to ensure that to the extent within its
control or capable of influence by it, no breach of any of its respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing Date, all to the end that the transactions contemplated by
this Agreement shall be fully carried out in a timely fashion.
4.6 FURTHER ASSURANCES. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
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4.7 LISTING OF SHARES. Promptly after the date hereof, TBA shall take all
action necessary to list the Purchase Price Shares for trading upon the AMEX.
4.8 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. Any press release or other
information to the press or any third party with respect to this Agreement or
the transactions contemplated hereby shall require the prior approval of TBA and
TMQ, which approval shall not be unreasonably withheld, provided that a party
shall not be prevented from making such disclosure as it shall be advised by
counsel is required by law.
4.9 NO SOLICITATION. Neither TMQ nor the Company will (i) solicit or
initiate discussions with any person, other than TBA, relating to the possible
acquisition of the Company or all or a material portion of the assets or any of
the capital stock of the Company or any merger or other business combination
with the Company (an "ACQUISITION TRANSACTION") or (ii) except to the extent
reasonably required by fiduciary obligations under applicable law as advised by
legal counsel, participate in any negotiations regarding, or furnish to any
other person information with respect to, any effort or attempt by any other
person to do or to seek any Acquisition Transaction. TMQ agrees to inform TBA
within one business day of its receipt of any offer, proposal or inquiry
relating to any Acquisition Transaction.
4.10 INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. TBA and TMQ (as the case may be, the
"INDEMNITEE") shall be indemnified on its respective demand made to the other
(the "INDEMNITOR") for the full amount of all damages (as defined below)
suffered by it as a direct or indirect result of:
(i) the inaccuracy of any representation or warranty made
by the Indemnitor in or pursuant to this Agreement; and
(ii) any failure by the Indemnitor to perform any
obligation or comply with any covenant or agreement specified in this Agreement.
For the purpose of this Section 4.10, the term "DAMAGES" shall be determined and
computed by reference to the effect of the compensable event on the Indemnitee,
and shall be deemed to include (i) all losses, liabilities, expenses or costs
incurred by the Indemnitee, including reasonable attorneys' fees, and (ii)
interest at the 90-Day Commercial Composite Rate plus 25 basis points, set at
the beginning of each quarter, from the date 30 days after notice of any such
claim for indemnification is given to the Indemnitor, or if an unliquidated
claim, from such later date as the claim is liquidated, to the date full
indemnification is made therefor.
(b) INDEMNIFICATION PROCEDURES. The Indemnitee shall give the
Indemnitor notice of any claim, action or proceeding by a third party which is
reasonably likely to result in a claim for indemnification under this Section
4.10. The Indemnitor shall have the right, at its expense, to defend, contest,
protest, settle and otherwise control the resolution of any such claim, action
or proceeding. The Indemnitee shall have the right to participate in any such
legal proceeding, subject to the Indemnitor's right of control thereof, at the
expense of the Indemnitee and with
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counsel selected by the Indemnitee.
(c) LIMITATIONS ON INDEMNIFICATION. Each of TBA and TMQ shall be
obligated to indemnify the other pursuant to this Section 4.10 only with
respect to claims as to which it is given written notice by the Indemnitee on
or prior to a date two years after the Closing.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TBA
The obligation of TBA to acquire the Shares is subject to the
satisfaction or waiver, at or before the Closing Date, of the following
conditions:
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of TMQ contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (with such exceptions as may be
permitted under or contemplated by this Agreement) and there shall not have been
any material adverse change in the business of the Company taken as a whole
since the date hereof. TMQ shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date and shall have
obtained all required consents and approvals. TMQ shall have delivered to TBA a
certificate, dated the Closing Date, to the foregoing effect.
5.2 CERTIFICATES. TMQ shall have furnished TBA with such certificates of
public officials and TMQ's and the Company' officers as may be reasonably
requested by TBA.
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATION OF TMQ
The obligation of TMQ to sell the Shares is subject to the satisfaction
or waiver, at or before the Closing Date, of the following conditions:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of TBA contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (with such exceptions as may be
permitted under or contemplated by this Agreement). TBA shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date and shall have obtained all required consents and approvals, except for the
listing of the Purchase Price Shares for trading on the AMEX. TBA shall have
delivered to TMQ a certificate, dated the Closing Date, to the foregoing effect.
6.2 CERTIFICATES. TBA shall have furnished TMQ with such certificates of
public officials and of TBA's officers as may be reasonably requested by TMQ.
SECTION 7 - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date as
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follows:
(a) by TMQ upon written notice to TBA if TBA has materially
breached any representation, warranty, covenant or agreement contained herein
and has not cured such breach within ten (10) business days of receipt of
written notice from TMQ;
(b) by TBA upon written notice to TMQ if TMQ has materially
breached any representation, warranty, covenant or agreement contained herein
and has not cured such breach within ten (10) business days of receipt of
written notice from TBA;
(c) by either party if any court of competent jurisdiction or
United States or foreign governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the sale of any of the Shares and such order, decree or ruling shall have become
final and nonappealable; or
(d) at any time with the written consent of TBA and TMQ.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided in
Section 7.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of any party, its directors, officers or
stockholders, other than the provisions of this Section 7.2, Section 4.3
relating to expenses and Section 4.8 relating to publicity and confidentiality
to the extent provided therein. Nothing contained in this Section 7.2 shall
relieve any party from liability for any breach of this Agreement occurring
before such termination.
7.3 AMENDMENT. This Agreement may not be amended except by an instrument
signed by each of the parties hereto.
7.4 WAIVER. At any time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of any other party hereto or
(b) waive compliance with any of the agreements of any other party or any
conditions to its own obligations, in each case only to the extent such
obligations, agreements and conditions are intended for its benefit; provided
that any such extension or waiver shall be binding upon a party only if such
extension or waiver is set forth in a writing executed by such party.
SECTION 8 - MISCELLANEOUS
8.1 NOTICES. All notices, requests, demands, consents and other
communications which are required or permitted hereunder shall be in writing,
and shall be deemed given when actually received or if earlier, one day after
deposit with a nationally recognized air courier or express mail, charges
prepaid or three days after deposit in the U.S. mail by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to TMQ:
ThermoQuest Corporation
2215 Grand Avenue Parkway
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<PAGE> 152
Austin, Texas 78728
Attention: President
If to TBA:
Thermo BioAnalysis Corporation
P.O. Box 2108
504 Airport Road
Santa Fe, New Mexico 87505
Attention: President
or to such other address as any party hereto may designate in writing to the
other parties, specifying a change of address for the purpose of this Agreement.
8.2 SURVIVAL AND MATERIALITY OF REPRESENTATIONS. Each of the
representations, warranties and agreements made by the parties hereto shall be
deemed material and shall survive the Closing Date and the consummation of the
transactions contemplated hereby. All statements contained in any certificates
or other instruments delivered by or on behalf of the parties pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed material
and shall constitute representations and warranties by the person making such
statement.
8.3 ENTIRE AGREEMENT. This Agreement, including the exhibits, the
Disclosure Schedule and the other documents referred to herein, supersedes any
and all oral or written agreements or understandings heretofore made relating to
the subject matter hereof and constitutes the entire agreement of the parties
relating to the subject matter hereof.
8.4 PARTIES IN INTEREST. All covenants and agreements, representations and
warranties contained in this Agreement made by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the parties hereto, and
their respective successors, assigns, heirs, executors, administrators and
personal representatives, whether so expressed or not.
8.5 NO IMPLIED RIGHTS OR REMEDIES. Except as otherwise expressly provided
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or to give any person, firm or corporation, other than the parties
hereto, any rights or remedies under or by reason of this Agreement.
8.6 HEADINGS. The headings in this Agreement are inserted for convenience
of reference only and shall not be a part of or control or affect the meaning
hereof.
8.7 SEVERABILITY. If any provision of this Agreement shall be declared void
or unenforceable by any judicial or administrative authority, the validity of
any other provision shall not be affected thereby.
8.8 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same
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<PAGE> 153
instrument.
8.9 FURTHER ASSURANCES. TMQ will execute and furnish to TBA all documents
and will do or cause to be done all other things that TBA may reasonably request
from time to time in order to give full effect to this Agreement and to
effectuate the intent of the parties.
8.10 GOVERNING LAW. This Agreement shall be governed by the law of the State
of Delaware applicable to agreements made and to be performed wholly within such
jurisdiction, without regard to the conflicts of laws provisions thereof.
[REMAINDER OF PAGE LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first written above.
THERMO BIOANALYSIS CORPORATION
By: /s/ Colin Maddix
----------------------------------------
Name: Colin Maddix
Title: President
THERMOQUEST CORPORATION
By: /s/ Richard W.K. Chapman
----------------------------------------
Name: Richard W.K. Chapman
Title: President
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<PAGE> 155
ATTACHMENT A
FORM OF PROXY
THERMO BIOANALYSIS CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 10, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints John N. Hatsopoulos, Colin Maddix and
Sandra L. Lambert, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Special
Meeting of the Stockholders of Thermo BioAnalysis Corporation, a Delaware
corporation (the "Company"), to be held on Thursday, September 10, 1998 at
2:00 p.m. at Thermo Electron Corporation, 81 Wyman Street, Waltham,
Massachusetts 02454, and at any adjournment or postponement thereof, and to
vote all shares of common stock of the Company standing in the name of the
undersigned on July 31, 1998, with all of the powers the undersigned would
possess if personally present at such meeting:
(IMPORTANT = TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE> 156
PLEASE DATE, SIGN AND MAIL YOUR PROXY
CARD BACK AS SOON AS POSSIBLE!
SPECIAL MEETING OF STOCKHOLDERS
THERMO BIOANALYSIS CORPORATION
SEPTEMBER 10, 1998
<PAGE> 157
1. Approve management proposal to list 3,007,930 shares of common stock, to be
issued in connection with an acquisition, on the American Stock Exchange, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approve amendment to the Certificate of Incorporation to increase the
authorized common stock from 25 million to 75 million shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion on such other matters as may properly come before the
Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET
FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO INSTRUCTION
IS GIVEN.
Copies of the Notice of Meeting and of the Proxy Statement have been
received by the undersigned.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
Signature(s)__________________________________________ Date_____________________
Note: This proxy should be dated, signed by the shareholder(s) exactly as his or
her name appears hereon, and returned promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so indicate. If shares are held by joint
tenants or as community property, both should sign.
