<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
FILE NO. 1-13391
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10/A
------------------------
AMENDMENT NO. 2
TO REGISTRATION STATEMENT
ON FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
THERMO VISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 04-3296594
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8E FORGE PARKWAY, FRANKLIN, MASSACHUSETTS 02038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 553-1689
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
COMMON STOCK,
PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
================================================================================
<PAGE> 2
THERMO VISION CORPORATION
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM FORM 10 ITEM CAPTION CAPTION IN INFORMATION STATEMENT
- ---- ------------------------------ ---------------------------------------------------------
<S> <C> <C>
1. Business...................... Summary -- Distributed Company, -- Vision and -- Summary
Consolidated Financial Information; The Company; Selected
Financial Information; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Trademarks
2. Financial Information......... Summary -- Summary Consolidated Financial Information;
Capitalization; Selected Financial Information;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Index to Financial
Statements
3. Properties.................... Business -- Properties; Certain Transactions -- Other
Relationships
4. Security Ownership of Certain
Beneficial Owners and
Management.................... Security Ownership of Certain Beneficial Owners and
Management
5. Directors and Executive
Officers...................... Management
6. Executive Compensation........ Summary -- Vision Stock Option Grants; The
Distribution -- Vision Stock Option Grants; Listing and
Trading of Vision Common Stock; Management -- Executive
Compensation
7. Certain Relationship and
Related Transactions.......... Summary -- Relationship with Optek after the Distribution
and -- Relationship with Thermo Electron, Thermo
Instrument and other Affiliates; The
Distribution -- Relationship Between Optek and Vision
After the Distribution; Risk Factors -- Potential
Conflicts of Interest and -- Control by Thermo
Instrument; Listing and Trading of Vision Common Stock;
Certain Transactions
8. Legal Proceedings............. Business -- Legal Proceedings
9. Market Price of and Dividends
on the Registrant's Common
Equity and Related Shareholder
Matters....................... Summary -- Trading Market and -- Dividend Policy; Risk
Factors -- Absence of Public Market; Possible Volatility
of Stock Price; Possible Delisting and -- Absence of
Dividends; Listing and Trading of Vision Common Stock;
Description of Capital Stock
10. Recent Sales of Unregistered
Securities.................... Recent Sales of Unregistered Securities
11. Description of Registrant's
Securities to be Registered... Description of Capital Stock
12. Indemnification of Directors
and Officers.................. Indemnification of Directors and Officers
13. Financial Statements and
Supplementary Data............ Index to Financial Statements
14. Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure...... Not Applicable
</TABLE>
NOTE: THIS REGISTRATION STATEMENT ON FORM 10/A ASSUMES THAT THE VISION
COMMON STOCK HAS BEEN ACCEPTED FOR LISTING ON THE AMEX, ALTHOUGH SUCH ACCEPTANCE
HAD NOT OCCURRED AS OF THE DATE OF THE FILING OF THIS REGISTRATION STATEMENT ON
FORM 10/A WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 3
[THERMO OPTEK CORPORATION LETTERHEAD]
, 1997
Dear Shareholder:
On November 24, 1997, the Board of Directors (the "Optek Board") of Thermo
Optek Corporation, a Delaware corporation ("Optek"), approved a distribution
(the "Distribution") to Optek shareholders of all of the outstanding shares of
Common Stock of Thermo Vision Corporation ("Vision") held by Optek
(approximately 6,783,800 shares which constitute 100% of the outstanding
shares). It is expected that the Distribution will be made on or about December
12, 1997, to shareholders of record of Optek Common Stock on December 10, 1997,
which is the date that the Optek Board initially has fixed as the record date
for the Distribution (such date, as it may be deferred, the "Record Date").
However, the Record Date will be deferred by one day for each day that the
pricing of Vision's planned initial underwritten public offering described below
(the "IPO") is deferred beyond December 8, 1997. If you are an Optek shareholder
on the Record Date, you will also be entitled to become a shareholder of Vision.
The Distribution will not be effected unless immediately thereafter the IPO is
consummated.
The shares of Vision Common Stock to be distributed in the Distribution
will be subject to a restriction set forth in Vision's Certificate of
Incorporation that will prohibit the sale, transfer, pledge, or other
disposition of such shares until the sooner to occur of (i) 60 days following
the pricing of the IPO or (ii) March 1, 1998.
Immediately following consummation of the Distribution, Vision will be
owned by the same shareholders, in the same proportions as Optek. As a result,
Thermo Instrument Systems Inc., a Delaware corporation ("Thermo Instrument") and
holder of approximately 93% of the outstanding shares of Common Stock of Optek,
will own approximately 93% of the outstanding shares of Common Stock of Vision.
Thermo Instrument is a majority-owned subsidiary of Thermo Electron Corporation.
Vision has filed a registration statement on Form S-1 with the Securities
and Exchange Commission (the "Commission") relating to the IPO, which provides
for an offering of approximately 1,075,000 shares of Vision Common Stock. Vision
expects to close the IPO immediately following the Distribution. Following the
consummation of the IPO, Thermo Instrument will own approximately 80% of the
outstanding shares of Vision Common Stock.
Vision, established as a separate subsidiary of Optek in November 1995, is
a supplier of a diverse array of photonics products, including optical
components, imaging sensors and systems, lasers, optically based instruments,
optoelectronics, and fiber optics.
The Optek Board believes that the Distribution is in the best interests of
Optek, Vision, and the Optek shareholders because it will, by creating two
separate public companies, improve both companies' access to capital, improve
the focus of management and employees on the performance of their respective
businesses, and provide improved management incentives directly linked to the
objective performance of each company's stock in the public markets.
If you are a holder of Optek Common Stock on the Record Date, you will
receive 14 shares of Vision Common Stock for each 100 shares of Optek Common
Stock you own on that date. Based on the currently anticipated timing of the
IPO, it is expected that certificates representing Vision Common Stock will be
mailed to you on or about December 12, 1997. However, the timing of the mailing
will be delayed if the pricing of the IPO is delayed. The Common Stock of Vision
has been approved for listing on the American Stock Exchange under the symbol
"VIZ," subject to the condition that the IPO is consummated immediately
following the consummation of the Distribution.
<PAGE> 4
The enclosed Information Statement provides important information regarding
the Distribution and Vision's organization, business, properties, and historical
and pro forma financial information. Shareholders are encouraged to read this
material carefully.
Holders of Optek Common Stock on the record date for the Distribution are
not required to take any action to participate in the Distribution. Shareholder
approval of the Distribution is not required, and Optek is therefore not
soliciting your proxy.
Sincerely,
EARL R. LEWIS
Chairman and
Chief Executive Officer
2
<PAGE> 5
INFORMATION STATEMENT
------------------------
THERMO VISION CORPORATION
Distribution of Approximately 6,783,800 Shares of
Common Stock
(par value, $.01 per share)
This Information Statement is being furnished to shareholders of Thermo
Optek Corporation, a Delaware corporation ("Optek"), in connection with the
distribution (the "Distribution") by Optek to its shareholders of all of the
outstanding shares of common stock, $.01 par value ("Vision Common Stock"), of
its wholly owned subsidiary Thermo Vision Corporation, a Delaware corporation
("Vision"), held by Optek (approximately 6,783,800 shares or 100% of the
outstanding shares).
It is expected that the Distribution will be made beginning on or about
December 12, 1997, to holders of record of common stock, $.01 par value, of
Optek ("Optek Common Stock") on December 10, 1997, which is the date that the
Optek Board of Directors (the "Optek Board") initially has fixed as the record
date for the Distribution (such date, as it may be deferred, the "Record Date").
However, the Record Date will be deferred by one day for each day that the
pricing of Vision's planned initial underwritten public offering described below
(the "IPO") is deferred beyond December 8, 1997. The Distribution will be made
on the basis of 14 shares of Vision Common Stock for each 100 shares of Optek
Common Stock held by Optek stockholders on the Record Date. The shares of Vision
Common Stock to be distributed in the Distribution will be subject to a
restriction set forth in Vision's Certificate of Incorporation that will
prohibit the sale, transfer, pledge, or other disposition of such shares until
the sooner to occur of (i) 60 days following the pricing of the IPO or (ii)
March 1, 1998 (the "Charter Transfer Restriction"). See "Description of Capital
Stock." The Distribution will not be effected unless the IPO is scheduled to
close immediately thereafter.
No consideration will be required to be paid by Optek shareholders for the
shares of Vision Common Stock to be received by them in the Distribution, nor
will they be required to surrender or exchange shares of Optek Common Stock in
order to receive Vision Common Stock. The Internal Revenue Service (the "IRS")
has ruled that the receipt of shares of Vision Common Stock in the Distribution
will not result in the recognition of income, gain, or loss to Optek
shareholders for federal income tax purposes. See "The Distribution -- Certain
Federal Income Tax Considerations of the Distribution." Neither Optek nor Vision
will receive any cash or other proceeds from the distribution of Vision Common
Stock.
Immediately following consummation of the Distribution, Thermo Instrument
Systems Inc., a Delaware corporation ("Thermo Instrument") and holder of
approximately 93% of the outstanding shares of Optek Common Stock, will own
approximately 93% of the outstanding shares of Vision Common Stock. Thermo
Instrument is a majority-owned subsidiary of Thermo Electron Corporation
("Thermo Electron").
Vision has filed a registration statement on Form S-1 with the Securities
and Exchange Commission (the "Commission") relating to the IPO, which provides
for an offering of approximately 1,075,000 shares of Vision Common Stock. Vision
expects to close the IPO immediately following the Distribution. Following the
consummation of the IPO, Thermo Instrument will own approximately 80% of the
outstanding shares of Vision Common Stock. See "Introduction." As a result,
Thermo Instrument will have the power to elect the entire Board of Directors of
Vision and to approve or disapprove any corporate actions submitted to a vote of
Vision's shareholders
No public trading market for the Vision Common Stock currently exists. It
is possible that a "when-issued" trading market may develop prior to the Record
Date, although such trading is not expected to occur because the shares of
Vision Common Stock to be distributed in the Distribution are subject to the
Charter Transfer Restriction. The Vision Common Stock has been approved for
listing on the American Stock Exchange (the "AMEX") under the symbol "VIZ,"
subject to the condition that the IPO is consummated immediately following the
consummation of the Distribution. See "Listing and Trading of Vision Common
Stock."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS INFORMATION STATEMENT IS , 1997.
<PAGE> 6
No person is authorized to give any information or to make any
representation other than those contained in this Information Statement, and if
given or made, such information or representations must not be relied upon as
having been authorized. This Information Statement does not constitute an offer
to sell or a solicitation of any offer to buy any securities. This Information
Statement presents information concerning Vision believed by Vision to be
accurate as of the date set forth on the cover hereof. This Information
Statement presents information concerning Optek believed by Optek to be accurate
as of the date set forth on the cover hereof. Changes may occur in the presented
information after that date. Neither Vision nor Optek plans to update said
information except in the course of fulfilling their respective normal public
reporting and disclosure obligations.
This Information Statement contains forward-looking statements that involve
risks and uncertainties, such as statements of Vision's plans, objectives,
expectations, and intentions. The cautionary statements made in this Information
Statement should be read as being applicable to all forward-looking statements
wherever they appear in this Information Statement. Vision's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" herein,
as well as those discussed elsewhere in this Information Statement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
SUMMARY............................................................................... 3
THE COMPANY........................................................................... 7
INTRODUCTION.......................................................................... 7
THE DISTRIBUTION...................................................................... 8
RISK FACTORS.......................................................................... 12
LISTING AND TRADING OF VISION COMMON STOCK............................................ 16
CAPITALIZATION........................................................................ 18
SELECTED FINANCIAL INFORMATION........................................................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 20
BUSINESS.............................................................................. 23
MANAGEMENT............................................................................ 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 40
CERTAIN TRANSACTIONS.................................................................. 42
RECENT SALES OF UNREGISTERED SECURITIES............................................... 45
DESCRIPTION OF CAPITAL STOCK.......................................................... 46
INDEMNIFICATION OF DIRECTORS AND OFFICERS............................................. 46
EXPERTS............................................................................... 47
AVAILABLE INFORMATION................................................................. 47
TRADEMARKS............................................................................ 47
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX A............................................................................... A-1
</TABLE>
2
<PAGE> 7
- --------------------------------------------------------------------------------
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained, or incorporated by
reference, in this Information Statement and the Annex hereto. Unless otherwise
defined herein, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Information Statement. Shareholders
are urged to read this Information Statement and the Annex hereto in their
entirety.
All share and per share data in this Information Statement have been
adjusted to give effect to all stock splits of Vision Common Stock and Optek
Common Stock effected prior to the date hereof, including (i) a three-for-two
split of the Optek Common Stock effected on April 11, 1996, in the form of a
stock dividend and (ii) a 4,845-for-one split of the Vision Common Stock
effected on August 27, 1997, in the form of a stock dividend and an approximate
7-for-5 split of the Vision Common Stock effected on November 14, 1997, in the
form of a stock dividend.
Distributing Company....... Thermo Optek Corporation, a Delaware corporation
("Optek"). As used in this Information Statement,
the term "Optek" refers to Optek and its
subsidiaries (other than Thermo Vision
Corporation and its subsidiaries) as of the
relevant date, unless the context otherwise
requires.
Distributed Company........ Thermo Vision Corporation, a Delaware corporation
("Vision"). As used in this Information
Statement, the term "Vision" refers to Thermo
Vision Corporation and its subsidiaries as of the
relevant date, unless the context otherwise
requires.
Vision..................... Vision designs, manufactures, and markets a diverse
array of photonics products, including optical
components, imaging sensors and systems, lasers,
optically based instruments, optoelectronics, and
fiber optics. The principal executive office of
Vision is located at 8E Forge Parkway, Franklin,
Massachusetts 02038 and its telephone number is
(508) 553-1689. See "The Company" and "Business."
Shares to be Distributed... Approximately 6,783,800 shares of Vision Common
Stock, which constitutes 100% of the Vision
Common Stock outstanding on the Record Date.
Immediately following consummation of the
Distribution, Thermo Instrument will own
approximately 93% of the outstanding shares of
Vision Common Stock. See "The
Distribution -- Manner of Effecting the
Distribution."
Charter Transfer
Restriction................ The shares of Vision Common Stock to be distributed
in the Distribution will be subject to the
Charter Transfer Restriction that prohibits the
sale, transfer, pledge, or other disposition of
such shares until the sooner to occur of (i) 60
days following the pricing of the IPO or (ii)
March 1, 1998. The Charter Transfer Restriction
has been imposed at the request of the
representatives of the underwriters in the IPO
because of the inability to obtain customary
lock-up agreements from the public shareholders
of Optek to whom the shares of Vision Common
Stock will be distributed in the Distribution.
See "Description of Capital Stock".
IPO........................ Vision has filed a registration statement on Form
S-1 with the Commission relating to the IPO,
which provides for an offering of approximately
1,075,000 shares of Vision Common Stock. Vision
expects to close the IPO immediately following
the Distribution. The shares of Vision Common
Stock to be issued in the IPO will not be subject
to the Charter Transfer Restriction. Following
the consummation of the
- --------------------------------------------------------------------------------
3
<PAGE> 8
- --------------------------------------------------------------------------------
IPO, Thermo Instrument will own approximately 80%
of the outstanding shares of Vision Common Stock.
See "Introduction."
Record Date................ December 10, 1997, subject to deferral by one day
for each day that the pricing of the IPO is
deferred beyond December 8, 1997.
Distribution Date.......... On or about December 12, 1997, subject to deferral
by one day for each day that the pricing of the
IPO is deferred beyond December 8, 1997.
Distribution............... On the Distribution Date, the Distribution Agent
(as defined below) will begin distributing
certificates representing Vision Common Stock to
Optek shareholders. Optek shareholders will not
be required to make any payment or to take any
other action to receive their Vision Common
Stock. The Distribution will not be effected
unless immediately thereafter the IPO is
consummated. See "The Distribution -- Manner of
Effecting the Distribution."
Distribution Ratio......... Fourteen shares of Vision Common Stock for each 100
shares of Optek Common Stock.
Distribution Agent......... American Stock Transfer & Trust Company.
Fractional Shares of Vision
Common Stock............. No fractional shares of Vision Common Stock will be
distributed. A cash payment will be made to Optek
shareholders otherwise entitled to a fractional
share of Vision Common Stock as a result of the
Distribution. See "The Distribution -- Manner of
Effecting the Distribution."
Trading Market............. Currently no public trading market for Vision
Common Stock exists. The Vision Common Stock has
been approved for listing on the AMEX under the
symbol "VIZ," subject to the condition that the
IPO is consummated immediately following the
consummation of the Distribution. It is possible
that a "when-issued" trading market in the Vision
Common Stock may develop prior to the Record
Date, although such trading is not expected to
occur because the shares of Vision Common Stock
to be distributed in the Distribution are subject
to the Charter Transfer Restriction. See "Listing
and Trading of Vision Common Stock."
Dividend Policy............ Vision currently does not intend to pay cash
dividends on the Vision Common Stock. See "Risk
Factors -- Absence of Dividends" and "Description
of Capital Stock -- Dividends."
Risk Factors............... The shares of Vision Common Stock to be issued in
the Distribution involve a high degree of risk.
Shareholders should consider and read carefully
the factors discussed under "Risk Factors."
Reasons for the
Distribution............... The Optek Board believes that the Distribution is
in the best interests of Optek, Vision and Optek
shareholders because it will, by creating two
separate public companies, improve both
companies' access to capital, improve the focus
of management and employees on the performance of
their respective businesses, and provide improved
management incentives directly linked to the
objective performance of each company's stock in
the public markets. See "The
Distribution -- Background and Reasons for the
Distribution."
- --------------------------------------------------------------------------------
4
<PAGE> 9
- --------------------------------------------------------------------------------
Certain Federal Income Tax
Consequences............. Optek has received a favorable private letter
ruling from the IRS to the effect that the
Distribution qualifies as a "tax-free" spinoff
under Section 355 of the Internal Revenue Code of
1986, as amended (a "Section 355 Spinoff"). As a
Section 355 Spinoff, neither Optek nor its
shareholders will recognize gain or loss as a
result of the Distribution of Vision Common
Stock. See "Risk Factors" and "The
Distribution -- Certain Federal Income Tax
Consequences of the Distribution."
Relationship with Optek
after the Distribution..... In connection with the Distribution, Vision and
Optek have entered into or will enter into a
Distribution Agreement (the "Distribution
Agreement") and a Tax Matters Agreement (the "Tax
Matters Agreement") relating to the Distribution.
In addition, Vision and Optek are parties to a
Contract Research and Development Agreement (the
"CID Contract R&D Agreement") relating to the
development by Vision of certain charge-injection
device ("CID") sensors and systems, a Supply
Agreement (the "CID Supply Agreement") relating
to the supply by Vision to Optek of CID sensors
and a lease relating to office and manufacturing
space in Margate, England (the "Hilger Lease").
See "The Distribution -- Relationship Between
Optek and Vision After the Distribution" and
"Certain Transactions -- Other Relationships."
Relationship with Thermo
Electron, Thermo
Instrument, and other
Affiliates............... Effective as of the Distribution Date, Vision will
become a party to the Thermo Electron Corporate
Charter and a Corporate Services Agreement, a Tax
Allocation Agreement, a Master Guarantee
Reimbursement Agreement, and a Master Repurchase
Agreement with Thermo Electron and Vision will
become a party to a Master Guarantee
Reimbursement Agreement with Thermo Instrument.
See "Certain Transactions -- Relationship with
Thermo Electron and Thermo Instrument." In
addition, Vision and Thermo Instrument are
parties to a lease relating to office and
manufacturing space in Franklin, Massachusetts.
See "Certain Transactions -- Other
Relationships." Moreover, certain Thermo Electron
subsidiaries purchase Vision products and Vision
purchases products from certain Thermo Electron
subsidiaries. See "Certain Transactions -- Other
Relationships."
Vision Stock Option
Grants..................... Vision has adopted the Vision Equity Incentive Plan
(the "Vision EIP") and has reserved an aggregate
of 700,000 shares of Vision Common Stock for
issuance to employees and directors of Vision and
others pursuant thereto. Prior to the
Distribution Date, Vision plans to grant options
pursuant to the Vision EIP covering up to 350,000
shares of Vision Common Stock with exercise
prices equal to the fair market value of the
Vision Common Stock on the respective dates of
grant.
- --------------------------------------------------------------------------------
5
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR(1) ENDED(1)(2)
----------------------------------------------- ----------------------------- PRO FORMA
1992 1993 SEPTEMBER 28, SEPTEMBER 27, COMBINED
(2)(3) (2)(3)(4) 1994(3) 1995 1996(5) 1996(5) 1997(6) 1996(7)
------ --------- ------- ------ ------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues.............. $ 755 $ 2,397 $4,242 $6,026 $30,434 $22,369 $28,445 $ 33,940
Gross Profit.......... 377 903 1,231 2,544 13,368 9,705 12,654 14,312
Operating Income
(Loss).............. (69) 239 261 282 2,467 1,839 3,110 831
Net Income (Loss)..... (71) 66 146 147 1,418 1,049 1,702 338
Earnings (Loss) per
Share(8)............ (.01) .01 .02 .02 .21 .15 .25 .05
Weighted Average
Shares(8)........... 6,784 6,784 6,784 6,784 6,784 6,784 6,784 6,784
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 27,
1997(2)(6)
-------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital........................................................ $10,461
Total Assets........................................................... 38,698
Long-term Obligations.................................................. 7,747
Shareholder's Investment............................................... 23,379
</TABLE>
- ---------------
(1) All periods presented include the results of Thermo Vision Colorado.
(2) Derived from unaudited financial statements.
(3) Includes a pro rata share of equity in the losses of CIDTEC through the date
of the acquisition of its assets by Thermo Instrument in October 1994 and
the consolidated results of CIDTEC since October 1994.
(4) Includes the results of Hilger since its acquisition by Thermo Instrument in
July 1993.
(5) Includes the results of Oriel and Corion since their acquisition by Vision
in February 1996.
(6) Includes the results of LSI since its acquisition by Vision in February
1997.
(7) The pro forma combined statement of income data was derived from the pro
forma combined condensed statements of income included elsewhere in this
Information Statement. The pro forma combined statement of income data sets
forth the results of operations for the 1996 fiscal year as if the
acquisitions of Oriel and Corion had occurred on January 1, 1996.
(8) Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Weighted average shares for such
periods represent the 6,783,783 shares issued to Optek in connection with
the initial capitalization of Vision.
6
<PAGE> 11
THE COMPANY
Vision was incorporated in Delaware in November 1995 as a wholly owned
subsidiary of Optek. Vision initially was comprised of two businesses: CID
Technologies Inc., a manufacturer of CIDs used for imaging sensors and video
cameras ("CIDTEC"); and Scientific Measurement Systems Inc., a producer of
low-cost optically based components, instruments, and accessories, which now
conducts business under the name "Thermo Vision Colorado." Vision subsequently
acquired four additional businesses from unrelated third parties. In February
1996, Vision acquired Oriel Instruments Corporation, a manufacturer and
distributor of photonics components and instruments ("Oriel"), and the assets of
Corion Corporation, a manufacturer of commercial optical filters (Vision's
Corion division being referred to herein as "Corion"). In February 1997, Vision
acquired Laser Science, Inc., a manufacturer of gas lasers ("LSI"). In July
1997, Vision acquired the assets of Centronic, Inc. ("Centronic"), a
manufacturer of silicon photodiodes, through Vision's Centro Vision, Inc.
("Centro Vision") subsidiary. In addition, in August 1997, Vision's wholly owned
subsidiary Hilger Crystals Limited ("Hilger") purchased the crystal-materials
business of Hilger Analytical Limited ("Hilger Analytical"), a wholly owned
subsidiary of Optek and manufacturer of crystals used for X-ray scintillation
and infrared spectroscopy. From the time of Vision's incorporation in November
1995, the crystal-materials business of Hilger Analytical has been under
Vision's management.
The principal executive office of Vision is located at 8E Forge Parkway,
Franklin, Massachusetts 02038 and its telephone number is (508) 553-1689.
INTRODUCTION
On November 24, 1997 (the "Declaration Date"), the Optek Board declared a
dividend of 14 shares of Vision Common Stock for each 100 shares of Optek Common
Stock held of record on the Record Date. On the Distribution Date, Optek will
effect the Distribution by delivering all of the issued and outstanding shares
of Vision Common Stock to the Distribution Agent for transfer and distribution
to the holders of record of Optek Common Stock at the Record Date. It is
expected that certificates representing shares of Vision Common Stock will be
mailed to Optek shareholders on or about December 12, 1997, although the timing
of the mailing will be delayed if the pricing of the IPO is delayed. The shares
of Vision Common Stock to be distributed in the Distribution will be subject to
the Charter Transfer Restriction. See "Description of Capital Stock." The
Distribution will not be effected unless immediately thereafter the IPO is
consummated. As a result of the Distribution, 100% of the outstanding shares of
Vision Common Stock will be distributed to Optek shareholders. Approximately 93%
of such shares will be held by Thermo Instrument. Following the Distribution,
Optek's operations will consist of the design, manufacture, marketing, and sale
of instruments for elemental, molecular, and materials analysis and
characterization, and Vision's operations will consist of the design,
manufacture, marketing, and sale of optical components, imaging sensors and
systems, lasers, optically based instruments, optoelectronics, and fiber optics.
Vision plans to issue and sell approximately 1,075,000 shares of Vision
Common Stock in the IPO. Vision anticipates using the net proceeds of the IPO
for general corporate purposes, including possible acquisitions and research and
development funding. Vision currently anticipates that Fahnestock & Co. Inc. and
HSBC Securities, Inc. will serve as managing underwriters in the IPO. Vision
filed a registration statement on Form S-1 with the Commission with respect to
the IPO on October 17, 1997, and expects to close the IPO in December 1997.
However, the IPO is contingent upon a number of factors, including consummation
of the Distribution, stock market conditions and Vision's and the managing
underwriters' determination as to the appropriate timing of such offering, and
there can be no assurance that the IPO will be consummated. Moreover, the number
of shares of Vision Common Stock to be sold in the IPO is subject to change
based on a number of factors, including the possible exercise by the
underwriters of their over-allotment option. The shares of Vision Common Stock
to be issued in the IPO will not be subject to the Charter Transfer Restriction.
The offering of the shares of Vision Common Stock in the IPO will be made only
by means of a prospectus complying with the requirements of the Securities Act
of 1933, as amended, and this Information Statement does not constitute an offer
to sell, or solicitation of an offer to buy, any shares of Vision Common Stock.
Optek shareholders of record with inquiries relating to the Distribution
should contact the Distribution Agent by telephone at (781) 921-8200 or Optek in
writing at Thermo Optek Corporation, 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046, Attention: John N. Hatsopoulos, Chief Financial
Officer.
7
<PAGE> 12
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Thermo Electron Spinout Strategy. Vision currently is a wholly owned
subsidiary of Optek. The Optek Common Stock is publicly traded on the AMEX.
Approximately 93% of such outstanding stock is owned by Thermo Instrument, and
approximately 7% is owned by the public. Thermo Instrument, a public company,
the stock of which is traded on the AMEX, is approximately 82%-owned by Thermo
Electron and approximately 18%-owned by the public. Thermo Electron is a widely
held public company, the stock of which is traded on the New York Stock
Exchange. Thermo Electron is the parent corporation of a group of corporations
which as of September 27, 1997, included 21 publicly traded subsidiaries in
which Thermo Electron directly or indirectly held a majority interest.
Thermo Electron has adopted a strategy of "spinning out" certain of its
businesses into separate subsidiaries and having these subsidiaries sell a
minority interest to outside investors. Thermo Electron believes that this
strategy provides additional motivation and incentives for management of the
subsidiaries through the establishment of subsidiary-level stock option
incentive programs, improved access to capital to support the subsidiaries'
growth, and the preservation and fostering of an entrepreneurial culture within
such subsidiaries. At the same time, as a result of this strategy, Thermo
Electron's wholly and majority-owned subsidiaries are able to draw on certain
centralized corporate, administrative, financial, tax, and other services that
would not be available to many independent companies of similar size. Several of
Thermo Electron's subsidiaries have in turn adopted this type of strategy and
have "spun out" subsidiaries of their own. Virtually all such transactions have
involved a sale of the common stock of the spunout company, with Thermo Electron
(or a subsidiary such as Thermo Instrument) retaining a majority interest of
such common stock (a "Spinout IPO"). See "Certain Transactions -- Relationship
with Thermo Electron and Thermo Instrument."
Distribution v. Spinout IPO. Although Optek was incorporated in August
1995 and Vision's business was included with Optek at that time, the rapid
growth of Vision, and the business exigencies that motivate the Distribution,
were not fully apparent when the decision to include Vision within Optek was
made. For the reasons described below, the Optek Board believes that the
proposed Distribution will better achieve the purposes of the Thermo Electron
spinout strategy than would a Spinout IPO of Vision by Optek.
The Optek Board believes that consummation of the Distribution rather than
a Spinout IPO of Vision will better achieve the business purposes that motivate
the Distribution. The Optek Board believes that (i) as a separate entity and not
a subsidiary of Optek, Vision will be able to maximize its own business without
being constrained by concerns about the effects on Optek's earnings, (ii)
Vision's ability to efficiently access capital markets will be improved if
Vision is spun off as a separate entity from Optek, (iii) management and
development of certain of Vision's technology will receive more focused
attention and resources as a result of the Distribution, and (iv) Thermo
Instrument, which is a much larger entity than Optek, will be able to tolerate a
higher degree of risk with respect to the operations of Vision than would Optek.
The Optek Board further believes that making Vision the first fourth tier
("great-grandchild") public subsidiary of Thermo Electron pursuant to a Spinout
IPO would create unnecessary and significant additional complexity in the Thermo
Electron corporate structure. As of September 27, 1997, the corporate structure
of the Thermo Electron family of corporations included 7 publicly held
first-tier subsidiaries of Thermo Electron ("children") and 14 publicly held
second-tier subsidiaries ("grandchildren"). This complexity makes it more
difficult for the stock markets, stock analysts, and investment advisers to
analyze and value these layers of corporations.
Reasons for the Distribution. Optek and Vision have different business
focuses and objectives. Optek is engaged in the instruments business and Vision
is engaged in the photonics products business. Optek is a worldwide leader in
the development, manufacture, and marketing of analytical instruments that use a
range of optical spectroscopy and other energy based techniques. These
instruments are used in the quantitative and qualitative chemical analysis of
elements and molecular compounds in a wide variety of solids, liquids and gases.
The photonics market in which Vision participates is divided into six distinct
segments: optical components, imaging sensors and systems, lasers, optically
based instruments, optoelectronics, and fiber
8
<PAGE> 13
optics. Vision operates in all six of these segments. In contrast, Optek offers
products principally in the optically based instruments segment of the photonics
market and in other closely aligned instruments markets. Optek's instruments
range in price from approximately $30,000 to $700,000. In contrast, most of
Vision's products range in price from approximately $0.10 to $12,000.
The Optek Board believes that the Distribution of Vision Common Stock by
Optek will serve to create and foster an entrepreneurial culture in and create
improved incentives for management of each of Optek and Vision. A principal
purpose for the Distribution is to allow Vision to grant its own stock options
to its management and directors. By creating two separate public companies, the
value of stock options granted to Optek's and Vision's respective managements
will more closely follow the business results those managers have achieved for
their separate companies. In addition, following the Distribution, Vision's
management will be subject to the visibility and public scrutiny of the public
market and, the Optek Board believes, will gain significant business experience
and skill as a result of managing a public company.
The Optek Board further believes that managerial, budgetary, and capital
resources will best be applied to each of Optek's and Vision's businesses by
separating these businesses. For example, the Optek Board believes that the
Distribution will facilitate Vision's ability to devote such resources as are
appropriate, based on factors particular to Vision's business, in maintaining
and expanding the distribution channels for its products. Optek's and Vision's
distribution channels differ because of differences in the nature of the buyers
of each company's products and in the prices of such products.
Potential investors in Vision, the Optek Board believes, will be confident
that as Vision's parent corporation, Thermo Instrument is large enough and
diverse enough to allow Vision the flexibility for Vision's management to pursue
its growth strategy, such as potential acquisitions or research and development,
without undue concern over the effect on its parent corporation's earnings. The
Optek Board also believes that Thermo Instrument is an appropriate and desirable
parent corporation of Vision because Thermo Instrument (i) has sufficient size
to support Vision (with 1996 revenue of $1.21 billion as compared to 1996
revenue of $351 million for Optek), (ii) has already adopted its own "spinout"
structure, (iii) has already created five publicly held subsidiaries, and thus
(iv) has positioned itself to permit its public subsidiaries to pursue their own
independent business objectives.
In addition, Vision has filed a registration statement on Form S-1 with the
Commission relating to the IPO, which provides for an offering of approximately
1,075,000 shares of Vision Common Stock. Vision expects to close the IPO
immediately following the Distribution. See "Introduction." The Optek Board
believes that the terms of the IPO will be more favorable than the terms Vision
could have obtained if Optek were not planning to effect the Distribution.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement and the Tax Matters Agreement between Optek and
Vision. Under the terms and conditions of the Distribution Agreement, Optek will
effect the Distribution by providing for the delivery of the Vision Common Stock
held by Optek to the Distribution Agent for distribution to the Optek
shareholders. The Distribution will be made on the basis of 14 shares of Vision
Common Stock for each 100 shares of Optek Common Stock held on the Record Date.
Certificates representing shares of Vision Common Stock are expected to be
mailed or delivered by American Stock Transfer & Trust Company (the
"Distribution Agent") on or about December 12, 1997, subject to deferral by one
day for each day that the pricing of the IPO is deferred beyond December 8,
1997.
No fractional shares of Vision Common Stock will be received by Optek
shareholders. Fractional shares, if any, will be aggregated and sold, on behalf
of the shareholders entitled to receive such shares, by the Distribution Agent.
The Distribution Agent will use the net proceeds from the sale of fractional
shares to make cash payments to those shareholders otherwise entitled to receive
fractional shares in proportion to their respective interests in such fractional
shares.
Holders of Optek Common Stock will not be required to pay cash or any other
consideration for the Vision Common Stock received in the Distribution or to
surrender or exchange certificates representing shares of Optek Common Stock in
order to receive the Vision Common Stock. Holders of Optek Common Stock will
9
<PAGE> 14
continue to own their shares of Optek Common Stock and, if such shareholders
were shareholders of record on the Record Date, they will also receive shares of
Vision Common Stock. The Distribution will not otherwise change the number of,
or the rights associated with, outstanding shares of Optek Common Stock.
All shares of Vision Common Stock distributed to Optek shareholders in the
Distribution will be (i) fully paid and nonassessable and the holders thereof
will not be entitled to preemptive rights and (ii) subject to the Charter
Transfer Restriction. See "Description of Capital Stock."
ACCOUNTING TREATMENT OF THE DISTRIBUTION
The Distribution will be treated for accounting purposes as a payment of a
dividend of shares of Vision Common Stock to shareholders of Optek in the period
in which the Distribution is consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Optek has received a favorable private letter ruling from the IRS (the "Tax
Ruling") substantially to the effect that, among other things, the Distribution
will qualify as a Section 355 Spinoff, and, in general, that for federal income
tax purposes:
(1) No gain or loss will be recognized by or be includable in the
income of a holder of Optek Common Stock solely as a result of the receipt
of Vision Common Stock in the Distribution.
(2) No gain or loss will be recognized by Optek, its subsidiaries, or
Vision upon the Distribution.
(3) The tax basis of Optek Common Stock held by a shareholder
immediately prior to the Distribution will be apportioned (based upon
relative market values on the Distribution Date) between such Optek Common
Stock and the Vision Common Stock received by such shareholder in the
Distribution.
(4) Assuming that the Optek Common Stock is held as a capital asset,
the holding period for the Vision Common Stock received in the Distribution
by a holder of Optek Common Stock will include the period during which such
Optek Common Stock was held.
The Distribution, although tax-free as of the Distribution Date, could be
rendered taxable as a result of subsequent actions or events. For a description
of subsequent actions or events that could render the Distribution taxable, see
"Risk Factors -- Risk of Loss of "Tax-Free" Treatment of Distribution." If the
Distribution were rendered taxable as a result of subsequent actions or events
(i) a corporate-level taxable gain would be recognized by the group of
corporations with which Optek and Vision file consolidated federal income tax
returns, generally equal to the amount by which the fair market value of the
Vision Common Stock distributed in the Distribution exceeded Optek's basis
therein, although the gain attributable to Thermo Instrument's ownership of
Optek (approximately 93%) would be deferred pursuant to the consolidated return
regulations until certain events occurred, including deconsolidation of Optek or
Thermo Instrument or the sale of the shares of Vision Common Stock received by
Thermo Instrument in the Distribution, (ii) each of Optek and Vision, as a
former member of that group, would be severally liable for the corporate-level
tax on such gain, and (iii) each holder of Optek Common Stock who receives
shares of Vision Common Stock in the Distribution would be treated as having
received a taxable dividend in an amount equal to the fair market value of the
Vision Common Stock received (assuming that Optek had sufficient current or
accumulated "earnings and profits"). Under the consolidated return regulations,
Thermo Instrument will be entitled to exclude 100% of such dividends received.
Under the Tax Matters Agreement, each of Optek and Vision agrees to indemnify
the other for certain taxes incurred with respect to the Distribution (and
related transactions) as a result of certain post-Distribution actions. These
indemnification obligations do not extend to shareholders of Optek.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR CONSEQUENCES TO THEM OF THE DISTRIBUTION, INCLUDING THE APPLICATION
OF STATE, LOCAL, AND FOREIGN TAX LAWS. SHAREHOLDERS ARE ALSO ADVISED TO FILE
WITH THE IRS THE FORM OF INFORMATION STATEMENT ANNEXED HERETO AS ANNEX A WITH
THE TAX RETURN COVERING THE PERIOD IN WHICH THE DISTRIBUTION OCCURS.
10
<PAGE> 15
VISION STOCK OPTION GRANTS
Vision has adopted the Vision EIP and has reserved an aggregate of 700,000
shares of Vision Common Stock for issuance to employees and directors of Vision
and others pursuant thereto. Prior to the Distribution Date, Vision plans to
grant options pursuant to the Vision EIP covering up to 350,000 shares of Vision
Common Stock with exercise prices equal to the fair market value of the Vision
Common Stock on the respective dates of grant.
RELATIONSHIP BETWEEN OPTEK AND VISION AFTER THE DISTRIBUTION
In connection with the Distribution, Optek and Vision have entered or will
enter into a Distribution Agreement, summarized below, and a Tax Matters
Agreement. See "The Distribution -- Certain Federal Income Tax Consequences of
the Distribution." In addition, Vision and Optek are parties to the CID Contract
R&D Agreement, the CID Supply Agreement which will be effective as of the
Distribution Date, and the Hilger Lease. See "Business -- Products -- Imaging
Sensors and Systems" and "Certain Transactions -- Other Relationships."
The Distribution Agreement provides for, among other things: (a) the
principal corporate transactions required to effect the Distribution, including,
among other things, the preparation of the Registration Statement on Form 10
registering the Vision Common Stock under the Exchange Act (the "Registration
Statement"), (b) the conditions thereto, and (c) certain other agreements
governing the relationship between Vision and Optek with respect to or resulting
from the Distribution. Subject to certain exceptions, the Distribution Agreement
also provides for certain cross-indemnification designed principally to place
financial responsibility for the liabilities of Vision's businesses with Vision
and financial responsibility for the liabilities of Optek's business with Optek.
The Distribution Agreement also provides for cross-indemnities in respect of
certain liabilities under the Exchange Act relating to the Registration
Statement.
For information relating to Vision's relationship with Thermo Electron,
Thermo Instrument, and other affiliates, see "Certain Transactions."
11
<PAGE> 16
RISK FACTORS
Holders of Optek Common Stock should be aware that the Distribution and
ownership of Vision Common Stock involve certain risks, including those
described below, which could adversely affect the value of their holdings.
Neither Optek nor Vision makes, nor is any other person authorized to make, any
representations as to the future market value of the Vision Common Stock.
Risks Associated with Technological Change, Obsolescence, and the
Development and Acceptance of New Products. The market for Vision's products is
characterized by rapid and significant technological change and evolving
industry standards. New product introductions responsive to these factors
require significant planning, design, development, and testing at the
technological, product, and manufacturing process levels, and may render
existing products and technologies uncompetitive or obsolete. There can be no
assurance that Vision's products will not become uncompetitive or obsolete. In
addition, industry acceptance of new applications for Vision's technologies
developed by Vision may be slow to develop due to, among other things, the
general unfamiliarity of users with new applications and technologies. There can
be no assurance that these factors will not have a material adverse effect on
Vision's results of operations, financial condition, or business.
Risks Associated with Acquisition Strategy; No Assurance of a Successful
Acquisition Strategy. Vision's growth strategy is to supplement its internal
growth with the acquisition of businesses and technologies that complement or
augment Vision's existing product lines. Since February 1996, Vision has
acquired four companies from unrelated third parties that comprise the bulk of
its operations. Certain businesses that Vision may seek to acquire in the future
may be marginally profitable or unprofitable. In order for any acquired
businesses to achieve the level of profitability desired by Vision, Vision must
successfully reduce expenses and improve market penetration. No assurance can be
given that Vision will be successful in this regard. In many instances,
acquisitions by Vision will result in Vision recording cost in excess of net
assets of acquired companies on its balance sheet. Such cost in excess of net
assets of acquired companies will be amortized as a non-cash expense over
specified periods. 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.
These factors may adversely affect both the availability and price of
prospective acquisition targets. There can be no assurance that Vision will be
able to complete pending or future acquisitions. In order to finance any
acquisitions, it may be necessary for Vision to raise additional funds through
public or private financings. Any equity or debt financing, if available at all,
may be on terms which are not favorable to Vision and may result in dilution to
Vision shareholders. In the past, a significant portion of the funding for
Vision's acquisitions has come from Optek, Thermo Instrument, or Thermo
Electron. Although Thermo Electron and Thermo Instrument regularly fund
acquisitions by their respective wholly and partially owned subsidiaries,
neither Thermo Electron nor Thermo Instrument has committed to fund any future
acquisitions by Vision. There can be no assurance that Vision will be able to
secure any such financing or that these factors will not have a material adverse
effect on Vision's results of operations, financial condition, or business. See
"Business -- Strategy."
Intense Competition. Vision encounters and expects to continue to
encounter intense competition in the sale of its products. Vision believes that
the principal competitive factors affecting the market for its products include
product performance, price, reliability, and customer service. Vision's
principal competitors include Melles Griot, Inc.; Optical Coating Laboratory,
Inc.; Newport Corporation; Coherent, Inc.; Corning OCA Corporation; the Bicron
Business Unit of Saint-Gobain Industrial Ceramics, Inc.; and UDT Sensors, Inc.
Certain of these companies and certain of Vision's other competitors have
substantially greater financial, marketing, and other resources than those of
Vision. 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 Vision. In addition,
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 Vision's current products,
products under development, or ability to discover new technologies will be
sufficient to enable it to compete effectively with its competitors. In
addition, there can be no assurance that these factors will not have a material
adverse effect on Vision's results of operations, financial condition, or
business. See "Business -- Competition."
12
<PAGE> 17
Possible Adverse Impact of Significant International Sales. Sales outside
the United States accounted for approximately 40%, 31%, 37%, and 34% of Vision's
revenues for the fiscal years ended December 31, 1994, December 30, 1995, and
December 28, 1996, and the nine months ended September 27, 1997, respectively,
and Vision expects that international sales will continue to account for a
significant portion of its revenues in the future. Sales to customers in foreign
countries are subject to a number of risks, including the following: agreements
may be difficult to enforce and receivables difficult to collect through a
foreign country's legal system; foreign customers may have longer payment
cycles; foreign countries could impose withholding taxes or otherwise tax
Vision'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 provided by Vision in
foreign markets where payment for Vision's products 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 effect on Vision's results of operations, financial condition, or
business. See Note 7 to Vision's Consolidated Financial Statements for data for
Vision by geographical area.
Risks Associated with Protection, Defense, and Use of Intellectual
Property. Vision holds a number of patents relating to various aspects of its
products and believes that proprietary technical know-how is critical to many of
its products. Proprietary rights relating to Vision's products are protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained in confidence as trade
secrets. There can be no assurance that patents will issue from any pending or
future patent applications owned by or licensed to Vision or that the claims
allowed under any issued patents will be sufficiently broad to protect Vision's
technology. In the absence of patent protection, Vision may be vulnerable to
competitors who attempt to copy Vision's products or gain access to its trade
secrets and know-how. Proceedings initiated by Vision to protect its proprietary
rights could result in substantial costs to Vision. There can be no assurance
that competitors of Vision will not initiate litigation to challenge the
validity of Vision's patents or that they will not use their resources to design
comparable products that do not infringe Vision's patents. There may also be
pending or issued patents held by parties not affiliated with Vision that relate
to Vision's products or technologies. Vision may need to acquire licenses to, or
contest the validity of, any such patents. There can be no assurance that any
license required under any such patent would be made available on acceptable
terms, if at all, or that Vision would prevail in any such contest. Vision could
incur substantial costs in defending itself in suits brought against it or in
suits in which Vision may assert its patent rights against others. If the
outcome of any such litigation is unfavorable to Vision, Vision's results of
operations, financial condition, or business could be materially adversely
affected. In addition, Vision 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 these
agreements will not be breached, that Vision would have adequate remedies for
any breach, or that Vision's trade secrets will not otherwise become known or be
independently developed by competitors. See "Business -- Intellectual Property."
Dependence on Key Personnel. Vision's success depends to a significant
extent upon a number of key employees, including Kristine S. Langdon, Vision's
President and Chief Executive Officer, and other members of senior management.
The loss of the services of one or more of these key employees could have a
material adverse effect on Vision. Vision believes that its future success will
depend in part on its ability to attract, motivate, and retain highly skilled
technical, managerial, and marketing personnel. Competition for such personnel
is intense and there can be no assurance that Vision will be successful in
attracting, motivating, and retaining key personnel. See "Business -- Personnel"
and "Management."
Potential Fluctuations in Quarterly Performance. Vision's quarterly
operating results may vary significantly depending on a number of factors,
including the timing of product development and introduction, size, timing, and
shipment of individual orders, seasonality of revenue, foreign currency exchange
rates, the mix of products sold, and general economic conditions. Because
Vision's operating expenses are based on anticipated revenue levels and a high
percentage of Vision'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. For example, since the February 1996
acquisitions of Orial and Corion, Vision's quarterly revenues have
13
<PAGE> 18
ranged from a low of $8.1 million to a high of $10.6 million and its quarterly
net income has ranged from a low of $0.4 million to a high of $0.6 million. See
Note 9 to Vision's Consolidated Financial Statements for certain information
concerning Vision's quarterly operating results since the beginning of fiscal
1996.
Absence of Public Market; Possible Volatility of Stock Price; Possible
Delisting. Prior to the Distribution, there has been no public market for the
Vision Common Stock. It is possible that a "when-issued" trading market may
develop prior to the Record Date, although such trading is not expected to occur
because the shares of Vision Common Stock to be distributed in the Distribution
are subject to the Charter Transfer Restriction. See "Description of Capital
Stock." There can be no assurance regarding the prices at which the Vision
Common Stock will trade before or after the Distribution Date and the Charter
Transfer Restriction lapses. The market prices for securities of companies such
as Vision has historically been highly volatile. Announcements of technological
innovations or new commercial products by Vision or its competitors, disputes
concerning patent or proprietary rights, publicity regarding products under
development by Vision or its competitors, and economic and other external
factors, as well as period-to-period fluctuations in financial results, may have
a significant impact on the market price of Vision Common Stock and Vision's
results of operations, financial condition, or business.
The Vision Common Stock has been approved for listing on the AMEX under the
symbol "VIZ," subject to the condition that the IPO is consummated immediately
following the consummation of the Distribution. Vision will be subject to the
AMEX's maintenance requirements. A failure of Vision Common Stock to meet the
AMEX's maintenance requirements may result in a delisting of such securities. In
particular, Vision may have difficulty maintaining the minimum market
capitalization requirements of the AMEX because such capitalization is dependent
on the price at which the shares of Vision Common Stock trade from time to time.
The liquidity of securities not listed on an exchange or delisted securities,
which would probably trade in the over-the-counter markets, may be impaired, not
only in the number of shares that could be bought or sold, but also through
delays in the timing of transactions, reductions in securities analysts' and
media coverage of Vision, and lower prices than might otherwise be attained.
There can be no assurance that these factors will not have a material adverse
effect on Vision's results of operations, financial condition, or business.
Risk of Loss of "Tax-free" Treatment of Distribution. Although Optek
received the Tax Ruling stating that the Distribution will be considered
tax-free as of the Distribution Date, certain actions ("Post-Distribution Acts")
involving Vision, Optek, or their respective shareholders following the
Distribution Date could render the Distribution taxable. Any of the following
Post-Distribution Acts potentially could render the Distribution taxable: (i)
the transfer by Vision or Optek of a material portion of its assets (other than
a transfer of assets in the ordinary course of business); (ii) the merger of
Vision or Optek with or into another corporation in a transaction that does not
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"); (iii) the discontinuance by Vision or
Optek of a material portion of its historical business activities; (iv) the
conversion (or redemption or exchange) of the Vision Common Stock distributed in
the Distribution into or for any other stock, security, property, or cash; (v)
the issuance of additional shares of stock by Vision pursuant to negotiations,
agreements, plans, or arrangements entered into before the Distribution that
causes the shareholders who receive their shares of Vision Common Stock in the
Distribution to no longer have control of Vision within the meaning of Section
368(c) of the Code; (vi) transfers of stock of Vision and/or Optek by Vision's
shareholders of sufficient quantity to cause the historic shareholders of Optek
not to be considered to have maintained sufficient "continuity of proprietary
interest" in one or both of the companies; and (vii) the acquisition of a 50% or
greater interest in Optek or Vision pursuant to a plan (or deemed to be pursuant
to a plan) in existence on the Distribution Date. If the Distribution were
rendered taxable as a result of a Post-Distribution Act, then (x) the
corporate-level taxable gain would be recognized by the consolidated group of
which Thermo Electron is the parent, although the gain attributable to Thermo
Instrument's ownership of Optek (approximately 93%) would be deferred pursuant
to applicable consolidated return regulations (see "The Distribution -- Certain
Federal Income Tax Consequences of the Distribution"), (y) each of Optek and
Vision as a former member of that group, would be severally liable for the
corporate-level tax on such gain when such gain becomes taxable under the
consolidated return regulations, and (z) except in the case of an acquisition
described in clause (vii) of the preceding sentence, each holder of Optek Common
Stock who received shares of Vision Common Stock in
14
<PAGE> 19
the Distribution would be treated as having received a taxable dividend in an
amount equal to the fair market value of the Vision Common Stock received
(assuming that Optek had sufficient current or accumulated "earnings and
profits"). Under the consolidated return regulations, Thermo Instrument will be
entitled to exclude 100% of such dividends received. Under the Tax Matters
Agreement, each of Optek and Vision agrees to indemnify the other for certain
taxes incurred with respect to the Distribution as a result of its Post-
Distribution Acts. These indemnification obligations do not extend to
shareholders of Optek.
Potential Conflicts of Interest. Following the Distribution, for financial
reporting purposes, Vision's financial results will continue to be included in
Thermo Instrument's and Thermo Electron's consolidated financial statements.
Certain officers and directors of Vision, including John N. Hatsopoulos, Paul F.
Kelleher, Earl R. Lewis, and Arvin H. Smith, are also officers and directors of
Thermo Instrument, Thermo Electron and/or other subsidiaries of Thermo Electron.
These officers and directors will devote only a small portion of their working
time (anticipated to be less than 5% in the case of Messrs. Hatsopoulous,
Kelleher, and Smith and less than 10% in the case of Mr. Lewis) to the affairs
of Vision. Further, it is an essential element of Thermo Electron's career
development program that successful executives and managers be considered for
positions of increased responsibility anywhere within the Thermo Electron family
of companies. A number of Vision's executives and managers were promoted to
their present positions under this policy. There can be no assurance that
Vision's present executives and managers will not assume other positions within
the Thermo Electron family of companies, causing them to be unavailable to serve
Vision or to reduce the amount of time that they devote to the affairs of
Vision. The members of the Vision Board of Directors (the "Vision Board") and
the officers of Vision who are also affiliated with Thermo Instrument or Thermo
Electron will consider not only the short-term and the long-term impact of
operating decisions on Vision, but also the impact of such decisions on the
consolidated financial results of Thermo Instrument and Thermo Electron. In some
cases, the impact of such decisions could be disadvantageous to Vision while
advantageous to Thermo Instrument or Thermo Electron, or vice versa. For
example, conflicts may arise with respect to possible future acquisitions by
Vision of assets or businesses of Thermo Instrument or another Thermo Electron
affiliated company in which the purchase price to be paid by Vision is subject
to negotiation between Vision and Thermo Instrument or such other Thermo
Electron affiliated company. These negotiations will be subject to the potential
conflicts associated with related-party transactions. In addition, Vision's
operating flexibility may be limited because Vision is a party to various
agreements with Thermo Electron and sells products to and purchases products
from certain of Thermo Electron's other subsidiaries. There can be no assurance
that these factors will not have a material adverse effect on Vision's results
of operations, financial condition or business. See "Certain Transactions."
Control by Thermo Instrument. Following the Distribution, Vision's
shareholders will not have the right to cumulate votes for the election of
directors and Thermo Instrument, which will own approximately 93% of the voting
stock of Vision and which currently intends to maintain at least a majority
interest in Vision in the future, will have the power to elect the entire Vision
Board, and to approve or disapprove any corporate actions submitted to vote of
Vision's shareholders. There can be no assurance that these factors will not
have a material adverse effect on Vision's results of operations, financial
condition or business. See "Certain Transactions -- Relationship with Thermo
Electron and Thermo Instrument" and "Security Ownership of Certain Beneficial
Owners and Management."
Absence of Dividends. Vision anticipates that for the foreseeable future,
Vision's earnings, if any, will be retained for use in the business and that no
cash dividends will be paid on the Vision Common Stock. Declaration of dividends
on the Vision Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements, and general business conditions. See "Description of Capital Stock
- -- Dividends."
15
<PAGE> 20
LISTING AND TRADING OF VISION COMMON STOCK
Optek presently owns 100% of the outstanding shares of Vision Common Stock.
No trading prices are available with respect to such shares. The shares of
Vision Common Stock to be distributed to Optek shareholders in the Distribution
will be subject to the Charter Transfer Restriction, which prohibits the sale,
transfer, pledge, or other disposition of such shares until the sooner to occur
of (i) 60 days following the pricing of the IPO or (ii) March 1, 1998. See
"Description of Capital Stock." The Distribution will not be effected unless,
immediately thereafter the IPO is consummated. There can be no assurance as to
the price at which Optek Common Stock or Vision Common Stock may be traded after
the Distribution and the expiration of the Charter Transfer Restriction or
whether their initial combined price will be higher or lower than the price of
the Optek Common Stock prior to the Distribution. After the Distribution,
approximately 6,783,800 shares of Vision Common Stock will be issued and
outstanding.
Vision has filed a registration statement on Form S-1 with the Commission
relating to the IPO, which provides for an offering of approximately 1,075,000
shares of Vision Common Stock. Vision expects to close the IPO immediately
following the Distribution. Following the consummation of the IPO, Thermo
Instrument will own approximately 80% of the outstanding shares of Vision Common
Stock. See "Introduction."
Prior to the Distribution Date, Vision plans to grant options pursuant to
the Vision EIP to employees and directors of Vision and others covering up to
350,000 shares of Vision Common Stock with exercise prices equal to the fair
market value of the Vision Common Stock on the respective dates of grant. See
"Management -- Vision Stock Option Grants."
The Vision Common Stock has been approved for listing on the AMEX under the
symbol "VIZ," subject to the condition that the IPO's consummated immediately
following the consummation of the Distribution. Based on the expected number of
holders of Optek Common Stock of record as of the Record Date, Vision is
expected to initially have approximately 66 shareholders of record on the
Distribution Date. The Transfer Agent and Registrar for the Vision Common Stock
will be American Stock Transfer & Trust Company. There can be no assurance that
an active trading market in Vision Common Stock will develop or, if a market
does develop, at what prices Vision Common Stock will trade. See "Risk
Factors -- Absence of Public Market; Possible Volatility of Stock Price;
Possible Delisting."
The shares of Vision Common Stock will not trade on the AMEX on a
"when-issued" basis. However, it is possible that a "when-issued" trading market
in Vision Common Stock may develop prior to the Record Date, although such
trading is not expected to occur because of the Charter Transfer Restriction. A
"when-issued" trading market occurs when trading in shares begins prior to the
time stock certificates are actually available or issued.
Following the expiration of the Charter Transfer Restriction, the shares of
Vision Common Stock distributed to Optek shareholders will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of Vision under the Securities Act. Persons who may be deemed to be
affiliates of Vision after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with
Vision, and will include: (a) the directors and executive officers of Vision and
(b) Thermo Instrument. All of the shares of Vision Common Stock held by
affiliates of Vision may generally only be resold (i) in compliance with the
applicable provisions of Rule 144 under the Securities Act, (ii) under an
effective registration statement under the Securities Act, or (iii) pursuant to
an exemption from the registration requirements of the Securities Act.
Under Rule 144, an affiliate is entitled to sell, within any three-month
period, a number of shares of Vision Common Stock that does not exceed the
greater of 1% of the then outstanding shares of Vision Common Stock
(approximately 67,840 shares immediately after the Distribution) or the average
weekly trading volume of the Vision Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale, and notice of sale are satisfied.
In addition, the shares of Vision Common Stock distributed to Thermo
Instrument in the Distribution will be "restricted securities" under Rule 144.
As a result, Thermo Instrument will not be permitted to resell such shares
pursuant to Rule 144 during the one-year period following the Distribution Date.
16
<PAGE> 21
Upon consummation of the Distribution, affiliates of Vision will hold
approximately 6,412,000 shares of Vision Common Stock and Thermo Instrument will
hold approximately 6,300,000 of these shares of Vision Common Stock. Following
the Distribution Date, Vision will file with the Commission a Registration
Statement on Form S-8 to register under the Securities Act the 700,000 shares of
Vision Common Stock which have been reserved for issuance pursuant to the Vision
EIP. See "Management -- Vision Stock Option Grants."
17
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of Vision as of September
27, 1997, and as adjusted to give effect to an IPO of 1,075,000 shares (which
assumes no exercise by the underwriters of their over-allotment option) at an
assumed initial public offering price of $9.00 per share (which is the midpoint
of the estimated initial pubic offering price range of $8.00 to $10.00 per
share) and after deducting the estimated underwriting discount and offering
expenses payable by Vision in connection with the IPO. The actual number of
shares and public offering price may vary from these assumptions. See
"Introduction."
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Short-term Obligations:
Note payable..................................................... $ 729 $ 729
Capital lease obligation......................................... 18 18
------- -------
$ 747 $ 747
======= =======
Long-term Obligations, Due to Affiliates........................... $ 7,747 $ 7,747
------- -------
Shareholder's Investment:
Common stock, $.01 par value, 50,000,000 shares authorized;
6,783,783 shares issued and outstanding(1)(2)................. 68 79
Capital in excess of par value................................... 20,137 28,209
Retained earnings................................................ 3,139 3,139
Cumulative translation adjustment................................ 35 35
------- -------
Total Shareholder's Investment................................ 23,379 31,462
------- -------
Total Capitalization (Long-term Obligations and
Shareholder's Investment).............................. $31,126 $39,209
======= =======
</TABLE>
- ---------------
(1) Does not include 725,000 shares of Vision Common Stock reserved for issuance
under Vision's stock-based compensation plans. Prior to the Distribution
Date, Vision plans to grant options pursuant to the Vision EIP covering up
to 350,000 shares of Vision Common Stock with exercise prices equal to the
fair market value of the Vision Common Stock on the respective dates of
grant. See "Management -- Compensation of Directors," "-- Compensation of
Executive Officers," and "-- Vision Stock Option Grants."
(2) Reflects an increase in authorized shares and stock splits in the form of
dividends effected in August 1997 and November 1997.
18
<PAGE> 23
SELECTED FINANCIAL INFORMATION
The selected financial information presented below as of and for the fiscal
years ended December 30, 1995, and December 28, 1996, and for the fiscal year
ended December 31, 1994, has been derived from Vision's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this Information
Statement. This information should be read in conjunction with Vision's
Consolidated Financial Statements and related notes included elsewhere in this
Information Statement. The selected financial information as of and for the
fiscal years ended January 2, 1993, and January 1, 1994, as of December 31,
1994, and as of and for the nine months ended September 28, 1996, and September
27, 1997, have not been audited but, in the opinion of Vision, includes all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly such information in accordance with generally accepted accounting
principles applied on a consistent basis. The results of operations for the nine
months ended September 27, 1997, are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED(1)
FISCAL YEAR(1) ----------------------------- PRO FORMA
-------------------------------------------------- SEPTEMBER 28, SEPTEMBER 27, COMBINED
1992(2) 1993(2)(3) 1994(2) 1995 1996(4) 1996(4) 1997(5) 1996(6)
------- ---------- ------- ------- ------- ------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................... $ 755 $2,397 $4,242 $6,026 $30,434 $22,369 $28,445 $33,940
------ ------ ------ ------ ------- ------- ------- -------
Costs and Operating
Expenses:
Cost of revenues.......... 378 1,494 3,011 3,482 17,066 12,664 15,791 19,628
Selling, general, and
administrative
expenses................ 370 580 826 1,519 7,402 5,362 6,558 9,440
Research and development
expenses................ 76 84 144 743 3,499 2,504 2,986 4,041
------ ------ ------ ------ ------- ------- ------- -------
824 2,158 3,981 5,744 27,967 20,530 25,335 33,109
------ ------ ------ ------ ------- ------- ------- -------
Operating Income (Loss)..... (69) 239 261 282 2,467 1,839 3,110 831
Interest and Other Expense,
Net....................... 46 145 28 31 44 34 176 78
------ ------ ------ ------ ------- ------- ------- -------
Income (Loss) Before Income
Taxes..................... (115) 94 233 251 2,423 1,805 2,934 753
Income Tax Provision (Bene-
fit)...................... (44) 28 87 104 1,005 756 1,232 415
------ ------ ------ ------ ------- ------- ------- -------
Net Income (Loss)........... $ (71) $ 66 $ 146 $ 147 $1,418 $ 1,049 $ 1,702 $ 338
====== ====== ====== ====== ======= ======= ======= =======
Earnings (Loss) per
Share(7).................. $ (.01) $ .01 $ .02 $ .02 $ .21 $ .15 $ .25 $ .05
====== ====== ====== ====== ======= ======= ======= =======
Weighted Average
Shares(7)................. 6,784 6,784 6,784 6,784 6,784 6,784 6,784 6,784
====== ====== ====== ====== ======= ======= ======= =======
BALANCE SHEET DATA (AT END
OF PERIOD):
Working Capital............. $ (315) $ (673) $ (359) $ 570 $5,601 $ 5,916 $10,461
Total Assets................ 721 2,059 6,776 6,778 28,362 28,451 38,698
Long-term Obligations....... -- -- -- -- -- -- 7,747
Shareholder's Investment.... (61) 240 4,083 4,697 20,252 20,579 23,379
</TABLE>
- ---------------
(1) All periods presented include the results of ThermoVision Colorado.
(2) Includes a pro rata share of equity in the losses of CIDTEC through the date
of the acquisition of its assets by Thermo Instrument in October 1994 and
the consolidated results of CIDTEC since October 1994.
(3) Includes the results of Hilger since its acquisition by Thermo Instrument in
July 1993.
(4) Includes the results of Oriel and Corion since their acquisition by Vision
in February 1996.
(5) Includes the results of LSI since its acquisition by Vision in February
1997.
(6) The pro forma combined statement of income data was derived from the pro
forma combined condensed statements of income included elsewhere in this
Information Statement. The pro forma combined statement of income data sets
forth the results of operations for the 1996 fiscal year as if the
acquisitions of Oriel and Corion had occurred on January 1, 1996.
(7) Pursuant to Commission requirements, earnings per share have been presented
for all periods. Weighted average shares for such periods represent the
6,783,783 shares issued to Optek in connection with the initial
capitalization of Vision.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Thermo Vision Corporation ("Vision") designs, manufactures, and markets a
diverse array of photonics products, including optical components, imaging
sensors and systems, lasers, optically based instruments, optoelectronics, and
fiber optics. Vision sells photonics products in multiple markets across a
number of industries for research, testing, detecting, and manufacturing
applications.
Results for Thermo Vision Colorado are included in the accompanying
financial statements for all periods. Thermo Vision Colorado manufactures
low-cost optically based components, instruments, and accessories. Since its
incorporation in November 1995 as a wholly owned subsidiary of Optek, Vision has
acquired four businesses from unrelated third parties that currently comprise
the bulk of its operations. In February 1996, Vision acquired Oriel, a
manufacturer and distributor of photonics components and instruments, for $11.8
million in cash and the assumption of $0.7 million in debt, and Corion, a
manufacturer of commercial optical filters, for $5.1 million in cash. Vision
obtained the cash portions of the purchase prices of its Oriel and Corion
acquisitions from Optek in the form of capital contributions. In February 1997,
Vision acquired LSI, a manufacturer of gas lasers, for $3.6 million in cash.
Vision borrowed $3.6 million from Optek to fund this acquisition. In July 1997,
Vision acquired Centronic, a manufacturer of silicon photodiodes, for $3.8
million in cash. Vision borrowed $3.8 million from Thermo Electron to fund this
acquisition.
In August 1997, Vision acquired the crystal-materials business of Hilger
Analytical, a wholly owned subsidiary of Optek, in consideration for the
assumption by Vision of $908,000 of Optek's existing obligation under a line of
credit. Because Vision and Hilger were deemed for accounting purposes to be
under control of their common owner, Thermo Instrument, the transaction has been
accounted for at historical cost in a manner similar to a pooling of interests.
Accordingly, all historical information presented includes the results of
operations of Hilger since 1993, the year in which it was acquired by Thermo
Instrument. From the time of Vision's incorporation in November 1995, the
crystal-materials business of Hilger Analytical has been under Vision's
management. All of Vision's other acquisitions were accounted for using the
purchase method of accounting. See "Certain Transactions -- Other
Relationships."
Approximately 5% of Vision's fiscal 1996 revenues originated outside the
U.S. and approximately 31% of Vision's fiscal 1996 revenues were exports from
the U.S. Revenues originating outside the U.S. represent revenues of Hilger.
Hilger's operations are located in the United Kingdom and principally sell in
the local currency. Exports from Vision's U.S. operations are denominated in
U.S. dollars. Although Vision seeks to charge its customers in the same currency
as its operating costs, Vision's financial performance and competitive position
can be affected by currency exchange rate fluctuations.
RESULTS OF OPERATIONS
Nine Months Ended September 27, 1997, Compared With Nine Months Ended
September 28, 1996
Revenues increased 27% to $28.4 million in the nine months ended September
27, 1997, from $22.4 million in the nine months ended September 28, 1996, due
primarily to the inclusion of revenues for the full nine-month period from Oriel
and Corion, acquired in February 1996, and the inclusion of revenues from LSI,
acquired in February 1997, and Centronic, acquired in July 1997. These
acquisitions added revenues of $5.2 million in 1997. Revenues from Vision's
existing operations increased $0.8 million, primarily due to increased revenues
at Hilger from shipments under its Stanford Linear Accelerator contract, which
commenced in the second quarter of 1996.
The gross profit margin increased slightly to 44% in the nine months ended
September 27, 1997, from 43% in the nine months ended September 28, 1996, due
primarily to improved margins at Corion resulting from manufacturing
efficiencies and cost reductions.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 23% in the nine months ended September 27, 1997, from 24% in the
nine months ended September 28, 1996, due primarily to
20
<PAGE> 25
increased revenues at Oriel. Research and development expenses increased to $3.0
million in the nine months ended September 27, 1997, from $2.5 million in the
nine months ended September 28, 1996, due primarily to the inclusion of research
and development expenses at LSI.
Interest expense of $0.2 million in the nine months ended September 27,
1997, primarily represents interest incurred on the $3.6 million promissory note
issued to Optek for the purchase of LSI and the $3.8 million promissory note
issued to Thermo Electron for the purchase of Centronic.
The effective tax rate was 42% in the nine months ended September 27, 1997,
and September 28, 1996. The effective tax rates exceeded the statutory federal
income tax rate due primarily to the impact of nondeductible amortization of
cost in excess of net assets of acquired companies and state income taxes.
1996 Compared With 1995
Revenues increased to $30.4 million in 1996 from $6.0 million in 1995, due
primarily to the inclusion of $24.2 million of revenues from Oriel and Corion,
acquired in February 1996. Revenues from Vision's existing operations increased
$0.2 million, due primarily to the inclusion of a $0.5 million nonrecurring sale
at CIDTEC, offset in part by decreased revenues at Thermo Vision Colorado due to
lower demand.
The gross profit margin increased to 44% in 1996 from 42% in 1995, due
primarily to the inclusion of higher-margin revenues at Oriel, offset in part by
the inclusion of lower-margin revenues at Corion.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 24% in 1996 from 25% in 1995, due primarily to lower costs as a
percentage of revenues at acquired businesses. Research and development expenses
increased to $3.5 million in 1996 from $0.7 million in 1995, due primarily to
the inclusion of $2.5 million of research and development expenses at acquired
businesses.
Interest expense in both periods represents interest incurred on short-term
borrowings at Hilger.
The effective tax rate was 41% in 1996 and 1995. The effective tax rates
exceeded the statutory federal income tax rate due primarily to the impact of
nondeductible amortization of cost in excess of net assets of acquired companies
in both years and state income taxes in 1996.
1995 Compared With 1994
Revenues increased 42% to $6.0 million in 1995 from $4.2 million in 1994,
due primarily to the inclusion of $1.7 million of revenues for the full period
from CIDTEC, acquired in October 1994.
The gross profit margin increased to 42% in 1995 from 29% in 1994, due
primarily to the inclusion of higher-margin revenues from CIDTEC for the full
period.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in 1995 from 19% in 1994, due primarily to increased costs at
Thermo Vision Colorado for an advertising campaign completed in 1995. Research
and development expenses increased to $0.7 million in 1995 from $0.1 million in
1994, due primarily to the inclusion of research and development expenses at
CIDTEC.
Interest expense in both periods represents interest incurred on short-term
borrowings at Hilger.
The effective tax rate increased to 41% in 1995 from 37% in 1994. The
effective tax rates exceeded the statutory federal income tax rate due primarily
to the impact of nondeductible amortization of cost in excess of net assets of
acquired companies. The effective tax rate increased in 1995 due primarily to
higher nondeductible amortization of cost in excess of net assets of acquired
companies.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $10.5 million at September 27, 1997,
compared with $5.6 million at December 28, 1996. Included in working capital are
cash and cash equivalents of $0.2 million at September 27, 1997, compared with
$0.3 million at December 28, 1996. During the first nine months of 1997,
operating activities provided $2.6 million of cash.
21
<PAGE> 26
Investing activities used $8.5 million of cash during the first nine months
of 1997. In February 1997, Vision acquired LSI for $3.5 million in cash, net of
cash acquired. In July 1997, Vision acquired Centronic for $3.8 million in cash.
In August 1997, Vision acquired the crystal-materials business of Hilger
Analytical in consideration for the assumption by Vision of $0.9 million of
Optek's existing obligation under a line of credit. Vision expended $1.1 million
on purchases of property, plant, and equipment during the first nine months of
1997 and plans to expend approximately $0.4 million on such purchases during the
remainder of 1997. In addition, Oriel leases its facilities under an agreement
expiring in early 1998 and has leased new premises to which it plans to relocate
upon expiration of the lease. In connection with this relocation, Vision expects
to expend approximately $0.4 million in 1998 for leasehold improvements.
Vision's financing activities provided $5.8 million of cash during the
first nine months of 1997, due primarily to borrowings for acquisitions. In
February 1997, Vision borrowed $3.6 million from Optek to fund the acquisition
of LSI. In June 1997, Vision borrowed an additional $0.3 million from Optek to
fund certain property additions relating to its acquisition of LSI. Vision
issued promissory notes reflecting these borrowings to Optek payable in 2000 and
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. In July 1997, Vision borrowed $3.8
million from Thermo Electron to fund the acquisition of Centronic, pursuant to a
promissory note payable in 2000 and bearing interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each quarter.
During 1996, operating activities provided $1.7 million of cash. Cash
provided by Vision's operating results was limited in part by the use of $0.7
million in cash to fund an increase in accounts receivable, due primarily to a
nonrecurring sale at CIDTEC.
Investing activities used $16.9 million of cash during 1996. In February
1996, Vision acquired Oriel and Corion for $15.5 million in cash, net of cash
acquired. Vision expended $1.5 million on purchases of property, plant, and
equipment during 1996.
Vision's financing activities provided $15.3 million of cash in 1996,
primarily due to transfers from Optek to fund acquisitions, net of Vision's
transfer of cash to Optek.
Hilger, Vision's foreign subsidiary, has a credit facility arrangement for
working capital needs. See Note 6 to Vision's Consolidated Financial Statements.
Although Vision generally expects to have positive cash flow from its existing
operations, Vision may require significant amounts of cash for any acquisition
of complementary businesses. Vision expects that it will finance any such
acquisitions through a combination of the net proceeds from Vision's IPO, which
is expected to close immediately following the Distribution, internally
generated funds, additional debt or equity financing from capital markets, and
short- or long-term borrowings from Thermo Instrument or Thermo Electron,
although Vision has no agreement with these companies or other parties to ensure
that funds will be available on acceptable terms or at all. See "Risk Factors --
Risks Associated with Acquisitions Strategy; No Assurance of a Successful
Acquisition Strategy." Vision believes its existing resources are sufficient to
meet the capital requirements of its existing businesses for at least the next
24 months.
22
<PAGE> 27
BUSINESS
INTRODUCTION
Thermo Vision Corporation ("Vision") designs, manufactures, and markets a
diverse array of photonics products, including optical components, imaging
sensors and systems, lasers, optically based instruments, optoelectronics, and
fiber optics. Vision sells photonics products in multiple markets across a
number of industries for research, testing, detecting, and manufacturing
applications. Vision's products range from optical filters used in blood glucose
monitoring, to charge-injection devices ("CIDs") used in optical spectroscopy,
to specialty light sources used for quality assurance in semiconductor
photolithography. Many of Vision's customers are manufacturers that incorporate
Vision's products into medical and dental diagnostic instruments, analytical
instruments, equipment for semiconductor manufacturing, and X-ray screening
devices. Vision estimates that the current worldwide market for photonics
products of all types is approximately $15.5 billion.
Photonics technologies involve the creation and manipulation of light and
other forms of radiant or electromagnetic energy. Photonics technologies use
light to detect, transmit, store, and process information and to generate
energy, as well as to capture and display images. Because photons are massless,
travel at the speed of light, and do not generate heat in travel, photonics
technologies potentially offer many advantages over electronics technologies,
including greater speed and miniaturization. Photonics technologies have many
familiar applications, including supermarket scanners, compact discs, laser
printers, and telecommunications, which use fiber optic technology extensively.
Photonics technologies also play a central role in machine vision, semiconductor
photolithography, electronic imaging, and phototherapeutics.
There are three key elements in Vision's business strategy. First, in order
to expand the markets that it addresses, Vision creates new products and
applications by building on its core photonics technologies. For example, under
an exclusive supply arrangement with a customer, Vision has recently designed
and developed a sensor based on Vision's CID technology for use in the
customer's dental X-ray imaging system. Second, Vision focuses its marketing
efforts on reaching technical users of photonics products so that Vision's
products will be incorporated into product prototypes, ultimately resulting in
new supply relationships as the customers' products are commercialized. Vision
uses product catalogues, such as the well-known catalogues of Vision's Oriel
subsidiary, that provide detailed technical information in addition to product
specifications and highlights in order to maintain visibility with customers on
a cost-effective basis. In addition, Vision's subsidiaries and divisions
maintain networks of dealers and distributors both in the United States and in
over 35 foreign countries. Third, Vision continually monitors the photonics
industry to identify businesses with complementary products and technologies as
acquisition candidates. The photonics industry is highly fragmented, with
numerous competitors. Vision believes it is often more cost effective to target
an attractive market segment through the acquisition of established, smaller,
focused providers that enjoy favorable reputations and have developed
technological expertise than to enter the segment through internal product
development. Since February 1996, Vision has acquired four businesses from
unrelated third parties that currently comprise the bulk of its operations.
Vision offers products in all six segments of the photonics market.
Vision's principal product offerings in these segments are:
- Optical Components -- Light sources, optical filters, optical crystals,
and precision mechanical positioning devices used to create and
manipulate light.
- Imaging Sensors and Systems -- CID digital sensors and cameras used to
absorb photons and convert them into electrical charges that comprise an
image.
- Lasers -- Pulsed nitrogen and carbon dioxide ("CO(2)") lasers used as
light sources.
- Optically Based Instruments -- Modular spectrophotometers for physics
research, mercury analyzers for environmental testing, and
fluorescence-lifetime measurement instruments for biological research.
- Optoelectronics -- Silicon photodiode detectors for light sensing.
23
<PAGE> 28
- Fiber Optics -- Specialized fiber optic cables for remote sensing.
Vision develops and manufactures most of the products that it sells, although it
also distributes photonics products manufactured by third parties.
INDUSTRY OVERVIEW
Photonics involves the use of technologies to create, manipulate, and
measure light and other forms of radiant or electromagnetic energy, the basic
unit of which is the photon. Photons are the smallest units of energy by which
light is measured. They are massless and travel at the speed of light.
Photonics is directed at the portion of the electromagnetic spectrum
ranging from the ultraviolet through the infrared, including the relatively
narrow visible portion between the ultraviolet and infrared. Many substances
selectively emit or absorb energy at various wavelengths within this portion of
the electromagnetic spectrum. Photonics extends into the X-ray region of the
electromagnetic spectrum through the use of scintillators that convert X-rays
into lower-energy or longer-wavelength photons.
Photonics technologies use light to detect, transmit, store, and process
information and to generate energy, as well as to capture and display images.
High-power applications of photonics technologies include welding, surgery, and
industrial metal cutting. Low-power applications include information processing
and imaging. Other applications include medical diagnostic and analytical
instruments, as well as semiconductor production. Because photons are massless,
travel at the speed of light, and do not generate heat in travel, photonics
technologies potentially offer many advantages over electronic technologies,
including greater speed and miniaturization.
As a result of advances in photonics technologies stemming from U.S.
government funding of programs involving photonics as well as advances in
computer technologies, beginning in the mid 1980's a range of new commercial
applications for photonics technologies have emerged. Photonics technologies
have many familiar applications, including supermarket scanners, compact discs,
laser printers, and telecommunications, which use fiber optic technology
extensively. Photonics technologies also play a central role in laser surgery,
machine vision, semiconductor photolithography, electronic imaging, and
phototherapeutics. Additional applications for photonics technologies are being
developed at an increasing rate. In the commercial arena, the growth of the
photonics industry has been in significant part a function of the performance of
the industries that use photonics products, including the semiconductor and
medical diagnostic instrument industries. According to industry sources, over
4,000 companies engage in photonics-related businesses.
The photonics industry is divided into six segments based on applicable
technologies. Vision offers products in each of these industry segments.
- Optical Components. Optical components include light sources, filters,
crystals, prisms, lenses, detectors, and mechanical positioning devices.
These components are used to create, manipulate, and measure light in all
optically based systems. Primary applications for optical components
include semiconductor production, medical and analytical instruments, and
telecommunications. Vision estimates that the current worldwide market
for optical components is approximately $2.0 billion.
- Imaging Sensors and Systems. Imaging sensors are photosensitive
materials that absorb light and convert photons into an electrical
charge. An imaging system is photosensitive material that is
electronically connected to a recording and/or display device. The use of
these sensors and systems has grown rapidly following the introduction of
low-cost digital sensors that provide real-time images. For example,
according to industry sources, the 1996 worldwide market for
charge-coupled device ("CCD") imaging sensors, which are widely used for
consumer (camcorders), service (teleconferencing), and industry (machine
vision) applications, was approximately $700 million. Vision estimates
that the current worldwide market for imaging sensors and systems of all
types is approximately $2.5 billion.
- Lasers. Lasers are instruments that produce a brilliant beam of highly
monochromatic, coherent light. Lasers produce this light through
excitation of a gas or solid state material. The commercial
24
<PAGE> 29
applications for lasers have grown as advances in electronic and laser
technologies have enabled the production of smaller and less expensive
lasers that provide light over a wide spectral range. Lasers are used in
such products as CD-ROMs, surgical devices, telecommunications equipment,
and analytical instruments. Vision estimates that the current worldwide
market for lasers is approximately $2.5 billion.
- Optically Based Instruments. Optically based instruments combine of
optical components with signal processors and are used primarily in
analytical and medical diagnostic applications. These instruments range
from high-end flexible systems, such as elemental spectrometers, to
low-cost modular instruments used primarily by university and government
researchers. Vision estimates that the current worldwide market for
optically based instruments is approximately $2.0 billion.
- Optoelectronics. Optoelectronics are devices that function as
electrical-to-optical or optical-to-electrical converters. These devices
respond to light, emit or modify optical energy, or use optical energy
for their internal operations. A well-known example of an optoelectronic
device is the LED (light emitting diode) which is used in a wide variety
of applications, including consumer products (cellular phones and
calculators) and automotive products (center brake lights). These devices
have proliferated as a result of their low cost and small size. Vision
estimates that the current worldwide market for optoelectronic devices is
approximately $5.0 billion.
- Fiber Optics. Fiber optics are single or bundled fibers that reflect
light internally down their length. Specialized fibers made of different
materials have been developed to transmit light of particular
wavelengths, such as quartz fibers for use with ultraviolet light. Fiber
optics are primarily used to move light for telecommunications purposes.
In addition, fiber optics enable remote sensing by bringing light from an
instrument to a sample and routing the resulting signal to the detector.
As a result, fiber optics frequently are used for incoming material
inspection, process measurements, quality control of manufactured goods,
and testing in hostile environments and biological systems. Vision
estimates that the current worldwide market for fiber optics is
approximately $1.5 billion.
STRATEGY
Vision's goal is to become a leader in the photonics market. There are
three key elements in Vision's strategy to achieve this goal.
Create New Products and Applications by Building on Core Photonics
Technologies
Vision is expanding into new markets by building on its core technologies
to develop new products and applications. In order to reduce the development
costs borne by Vision and to obtain rapid market penetration, Vision often seeks
to undertake these development efforts on a collaborative basis with its
customers. For example, under an exclusive supply arrangement with a customer,
Vision has designed and developed a sensor based on Vision's CID technology for
use in the customer's dental X-ray imaging system. In other customer-sponsored
programs, Vision is developing a radiation-hardened, color CID camera for
inspection of nuclear facilities and a CID camera for use in aiming X-rays with
a high degree of precision at the cancerous area of a patient receiving
radiation therapy.
In 1996, building on its expertise in the design and manufacture of optical
components for incorporation into optical instrument subassemblies and modular
analytical instrument systems, Vision introduced its modular MIR 8000
spectrophotometer for physics research. While the MIR 8000 is a complete
spectrophotometer that can be configured to meet individual customer needs,
Vision also manufactures and sells all of the subsystems of this instrument
individually.
Market to Technical Users on a Cost-effective Basis
Because of the technical sophistication of many purchasers of Vision's
products and the low unit prices of many of these products, key aspects of
Vision's marketing strategy are to provide prospective purchasers with technical
information (in addition to product information) and to maintain visibility with
its customer base
25
<PAGE> 30
while limiting expensive one-on-one contact primarily to larger OEM customers.
Vision's Oriel Instruments Corporation subsidiary ("Oriel"), Corion division
("Corion"), and Centro Vision, Inc. subsidiary ("Centro Vision") pursue this
strategy through the use of catalogues that provide both detailed technical
information of interest to designers of systems that incorporate photonics
products and components and product specifications and highlights. Over the
years, Oriel's informative series of photonics product catalogues have become a
staple on engineers' and scientists' bookshelves. Vision plans to leverage these
well-established distribution channels by adding products of companies acquired
by Vision to the catalogues. Vision makes its catalogues widely available so
that designers will incorporate Vision's products into prototypes, ultimately
resulting in new supply relationships as the products are commercialized. In
addition, Vision's subsidiaries and divisions maintain networks of dealers and
distributors both in the United States and in over 35 foreign countries.
All seven Vision subsidiaries and divisions use Web sites to reach Vision's
large and technically sophisticated customer base. A number of Vision's Websites
include virtual catalogues that are easy to update and portions of which can be
directly downloaded by a potential customer. The academic and international
segments of Vision's customer base frequently access this source of information
about Vision's products. Vision plans to produce certain of its catalogues on
CD-ROMs in order to further reduce marketing costs.
Acquire Businesses with Complementary Products and Technologies
Vision plans to combine internal growth with the acquisition of businesses
with complementary products and technologies in all six segments of the
photonics industry. The photonics industry is highly fragmented, with numerous
competitors. Vision believes it is often more cost effective to target an
attractive market segment through the acquisition of established, smaller,
focused providers that enjoy favorable reputations and have developed
technological expertise than to enter the segment through internal product
development. Since February 1996, Vision has acquired four businesses from
unrelated third parties that currently comprise the bulk of its operations.
Since January 1, 1992, Thermo Electron Corporation ("Thermo Electron") and
its subsidiaries have acquired over 90 businesses, of which over 30 were
acquired by Thermo Instrument Systems Inc. ("Thermo Instrument") and its
subsidiaries. Consistent with the approach of Thermo Electron and Thermo
Instrument, Vision seeks to strengthen each business that it acquires, while at
the same time provide the acquired business with flexibility in determining how
to achieve the goals set by Vision. Vision seeks to reduce the overhead of
acquired businesses through centralization of legal, financial, and employee
benefit services and to realize cost savings through economies of scale in areas
such as advertising and trade show participation. Vision believes that this
approach has played an important role in enabling Vision to improve the
financial performance of the companies it has acquired. Moreover, Vision
believes that businesses that it acquires may be able to enhance their market
penetration through access to Vision's distribution channels, such as the Oriel
catalogues, and may benefit from product development or marketing collaborations
with Vision's existing businesses.
PRODUCTS
Vision's products consist of optical components, imaging sensors and
systems, lasers, optically based instruments, optoelectronics, and fiber optics.
Vision manufactures most of the products that it sells, although it also
distributes products manufactured by third parties.
Optical Components
Vision offers a broad line of optical components, including light sources,
filters, crystals, mirrors, prisms, lenses, and precision mechanical positioning
devices. These optical components are used to create and manipulate light. They
are manufactured for use in much of the electromagnetic spectrum, including
X-ray, ultraviolet, visible, and infrared. Vision designs its optical components
both for specific applications and for use in modular systems. Revenues from the
sale of optical components by Oriel, Corion, Hilger, and Thermo Vision Colorado
(including in fiscal 1996 the periods prior to their acquisition by Vision in
the case of Oriel and Corion) totalled approximately $25.2 million in fiscal
1996 and approximately $18.7 million for the nine months ended September 27,
1997.
26
<PAGE> 31
The primary optical components offered by Vision are:
Light Sources. Vision's Oriel subsidiary designs, manufactures, and
markets a broad range of continuous and pulsed light sources, including
laboratory light sources and specialty light sources for solar simulation and
photolithography. Vision's light sources produce light at a variety of energy
levels across the portion of the electromagnetic spectrum ranging from the
ultraviolet through the infrared. Vision also sells light source accessories
that complement its light source product line, including shutters, fiber optics,
relay optics, and safety equipment.
Vision's laboratory light source products include lamps, lamp housings, and
power supplies. Vision offers a variety of lamps, including xenon, mercury, and
quartz halogen. Vision's broad range of laboratory light source products allows
researchers and engineers to select a light source that provides the most
appropriate wattage and wavelength for a specific application. The primary
customers for Vision's laboratory light sources and accessories are
manufacturers of analytical instruments, semiconductor manufacturers, optical
equipment designers, and university and government researchers. Vision's
laboratory light sources range in price from approximately $150 to $7,500.
Vision's solar simulators are specially filtered arc sources that duplicate
all or part of the solar spectrum. Solar simulators are used to test the
efficacy of sunscreen products and photoinduced side effects of pharmaceuticals,
particularly new photoactivated drugs for the treatment of tumors. Scientists
also use Vision's solar simulators to test solar cells and to study the impact
of increased ultraviolet exposure on the biosystem, a field of growing interest
as a result of the damage that has occurred in the ozone layer. Semiconductor
manufacturers use Vision's deep ultraviolet photolithography light sources as
part of the etching process in the development and production of semiconductors.
Vision's solar simulator and photolithography light sources range in price from
approximately $8,000 to $100,000.
In 1996, Vision's Oriel subsidiary introduced a new instrument called
Accudose for use as a quality-assurance tool in semiconductor photolithography.
This instrument uses a deep ultraviolet light source to test the exact energy
dose for the proper exposure of photoresist, an expensive chemical used in
etching semiconductor chips. Vision believes that Accudose provides
semiconductor manufacturers with significant savings in product waste and
machine time and that demand for the product will increase as the semiconductor
industry continues to move to smaller line widths. The price of Accudose is
approximately $65,000.
Optical Filters. Vision designs, manufactures, and markets most of its
optical filters through its Corion division. Vision manufactures its optical
filters by precisely coating up to 100 layers of specified materials onto a
glass substrate and then carefully cutting the resulting plate into pieces.
Optical filters provide a low-cost method of screening all but a particular
wavelength of light. They also can be used to control and enhance light by
altering the transmission, reflection, and absorption of light's various
wavelengths to achieve a desired effect, such as wavelength selection,
antireflection, antiglare, or electromagnetic shielding. Optical filters are
often used together with a light source, a detector, mirrors, lenses, and prisms
in an optical system. The primary customers for Vision's optical filters are
manufacturers of medical diagnostic and analytical instruments. For example,
Vision's optical filters are used to isolate a particular wavelength of light in
medical instruments that detect and measure various substances, such as glucose,
DNA, proteins, cholesterol, and steroids, in blood and other bodily fluids.
Vision's filters are also used in agricultural applications such as sorting
fruit and grading rice. Vision's optical filter products range in price from
approximately $8 to $4,000.
Optical Crystals. Vision's Hilger Crystals Limited ("Hilger") subsidiary
manufactures and markets optical crystals. Vision manufactures its crystal
products through a process in which various types of salts are melted in a
furnace and then drawn and formed onto a seed crystal. Vision's crystals are
used primarily for scintillation (converting X-rays into photons that can be
detected and monitored by optical detectors) and infrared optical applications
(beam splitting). Manufacturers of X-ray baggage screening equipment are the
principal customers for Vision's crystals. Other customers include university
and government researchers. Vision recently began producing scintillator
crystals for the upgraded detector to be installed at the Stanford Linear
Accelerator ("SLAC"), a government-sponsored high-energy physics project. This
two-year contract commenced in 1996 and provides for payments of over $2.0
million, of which approximately $488,000 had
27
<PAGE> 32
been received by Vision through September 27, 1997. The crystals being supplied
to SLAC involve complex geometries and are significantly longer than crystals
normally produced by Vision. Vision's crystals range in price from approximately
$100 to $1,500.
Precision Mechanical Positioning Devices. Vision markets various devices
for precision placement of optical components, including optical tables, and
benches and related accessories, optical mounts, holders, and positioners. These
devices are used to stabilize, hold, and position various optical components,
including mirrors, prisms, polarizers, filters, lenses, sources, detectors, and
sample holders. Vision sells its precision mechanical-positioning devices to
individual researchers and increasingly to manufacturers of instruments used in
X-ray crystallography for pharmaceutical research and manufacturers of equipment
used in semiconductor manufacturing. Vision's precision mechanical positioning
devices range in price from $10 to $2,000.
Imaging Sensors and Systems
Vision's CID Technologies Inc. ("CIDTEC") subsidiary designs, assembles,
and markets imaging sensors and complete video camera systems based on its
proprietary CID technology. Vision's CID sensor is a silicon wafer that is
processed into a semiconductor device comprised of an array of light-sensing
elements known as pixels. When a CID image sensor is exposed to light, each
pixel absorbs photons and converts them into an electrical charge. These charges
in the pixels comprise an image which is then processed into a computer-readable
format. Vision's CID sensors are sensitive to the full range of the visible
light spectrum and into the shorter wavelengths of the ultraviolet and X-ray
regions. Vision's sensors can be designed to have very high dynamic range at low
light levels, which makes them attractive in demanding spectroscopy and
astronomy applications. Vision offers a number of proprietary sensors based on
its own designs and also customizes sensors to particular customer
specifications. Vision's CID camera systems are comprised of three main
components: a CID image sensor, video processing electronics, and a lens. The
camera's output is a digital electronic signal that is fed into a computer for
image-processing applications. Revenues from the sale of imaging sensors and
systems by CIDTEC totalled approximately $2.7 million in fiscal 1996 and
approximately $1.8 million for the nine months ended September 27, 1997.
Vision believes that its CID sensor has several advantages in comparison
with other semiconductor image detectors, particularly CCDs. In contrast with
CCD sensors, CID sensors are capable of randomly addressing individual pixels,
which improves the speed and quality of imaging. In low-light applications, such
as the detection of trace levels of an element by an optical spectrometer,
Vision's CID technology permits pixels to be queried repeatedly and
nondestructively to determine whether sufficient light has been collected to
produce the requisite information. In contrast, when a pixel is read in a CCD
sensor, the charge is destroyed and the CCD sensor must reacquire a charge
before it is read again. Moreover, CID sensors potentially have higher silicon
manufacturing yields than comparably sized CCD sensors because CIDs have simpler
pixel structures and because single pixel defects occurring in CIDs do not
adversely affect the entire row of pixels in which the defective pixel is
located. As a result, Vision believes that it may be possible to produce CID
sensors at a lower cost than CCD sensors in manufacturing runs of a comparable
scale. CID sensors also have superior resistance to radiation than CCD sensors,
which is an advantage in environments such as nuclear power plants and space
satellites. Finally, CID sensors have greater sensitivity to ultraviolet light
than CCDs.
Thermo Optek Corporation ("Optek") has used Vision's CID products in
Optek's optical spectrometers since 1992. Vision and Optek are parties to a
Supply Agreement (the "CID Supply Agreement") to be effective as of the
Distribution Date pursuant to which Vision has agreed to supply Optek with, and
Optek has agreed to purchase from Vision, all of Optek's requirements for CID
sensors for use in Optek's optical spectrometers. Under the CID Supply
Agreement, subject to certain limited exceptions, Vision is not permitted to
sell CID sensors to any other manufacturer of optical spectrometers. The CID
Supply Agreement expires in 2007. Vision believes that the terms of the CID
Supply Agreement are no less favorable than Vision could have obtained from an
unaffiliated third party. Vision's CID products also are used as the "eyes" in
certain machine vision (robotics) applications in industries such as automobile
manufacturing and meat packaging. Vision's CID sensors range in price from
approximately $1,250 to $6,000 and its CID cameras range in price from
approximately $2,500 to $35,000.
28
<PAGE> 33
Vision recently extended its CID technology to a new application by
developing a CID sensor for use in a dental X-ray imaging system. Vision
developed this sensor pursuant to an exclusive supply arrangement with a
customer. Vision expects to begin shipment of its CID sensor to this customer in
the fourth quarter of 1997. This customer recently received FDA marketing
approval in connection with the dental X-ray imaging system. The customer's
dental X-ray imaging system is designed to replace conventional dental X-ray
film by providing a real-time X-ray video image of a patient's teeth, although
market acceptance of this system cannot be assured. Vision believes that the
customer's system will permit faster diagnosis, reduce patient X-ray exposure,
and eliminate the need for X-ray supply storage and disposal of chemicals used
in X-ray film processing.
Vision believes its CID technology will be applicable in several new
contexts that offer significant market potential. For example, the semiconductor
industry is developing integrated circuits with increasing circuit density and
smaller features. Machine vision systems used for inspection and process control
in the production of these types of circuits are moving to increasingly shorter
wavelengths (i.e., deeper into the ultraviolet) to "see" these very small
features. Vision's CID technology is well suited for this application because it
provides greater ultraviolet light sensitivity than competing technologies. In
addition, because CID sensors allow random access to individual pixels and small
subarrays of pixels within the full frame, Vision's CID sensors are particularly
useful in astronomy applications and may have application in communications
lasers, security systems, and teleconferencing equipment. For example, because
CID sensors can scan an entire room and quickly switch to reading only a certain
area of pixels that include the subject of interest, use of CID sensors in
teleconferencing applications might eliminate the need for mechanical camera
movement. Because CID technology offers greater radiation resistance than
competing technologies, CID based products also may be desirable for use in the
harsh conditions above the earth's atmosphere.
Vision contracts with third parties for the fabrication of the silicon
wafers used in Vision's CID sensors. These manufacturers follow Vision's
proprietary designs and specifications. Upon receipt of the silicon wafers from
the manufacturer, Vision probes the wafers for quality control and assurance
purposes, transfers the wafers to a clean room where they are cut into
individual devices, packages the devices with a ceramic backing, and wire bonds
them.
Lasers
Vision's Laser Science, Inc. ("LSI") and Oriel subsidiaries design,
manufacture, and market pulsed gas lasers. Vision's lasers are comprised of a
plasma cartridge in which gas is ionized, resonating mirrors, and a power
supply. Vision's laser product line consists of pulsed nitrogen lasers, nitrogen
laser accessories, and pulsed CO(2) lasers. Pulsed lasers are preferable to
continuous lasers in measurement applications because the break in the laser
beam provides discrete time segments in which to perform measurements. Revenues
from the sale of lasers and laser accessories by Oriel (including in fiscal 1996
the period prior to its acquisition by Vision) and LSI (which was an independent
company throughout fiscal 1996 and through February 17, 1997) totalled
approximately $4.2 million in fiscal 1996 and approximately $3.2 million for the
nine months ended September 27, 1997.
Nitrogen Lasers. Vision's pulsed nitrogen lasers use electrical energy to
excite nitrogen gas in order to produce ultraviolet light. The primary customers
for these lasers are manufacturers of matrix-assisted-laser-
desorption-ionization time-of-flight ("MALDI-TOF") mass spectrometers. Vision's
nitrogen lasers are employed as the ionizing source in these MALDI-TOF
spectrometers. MALDI-TOF spectrometers are used principally for biotechnology
research in academia, government, and the pharmaceutical industry. MALDI-TOF
spectrometers determine the molecular weights of proteins, peptides, and other
complex biomolecules by measuring the time required for an ionized molecule of
the substance to reach a detector. The measurement of time is converted into a
measurement of mass. Vision is the leading supplier of pulsed nitrogen lasers
for use in MALDI-TOF spectrometers. According to industry sources, worldwide
sales of MALDI-TOF spectrometers are estimated to increase at a rate of 20% per
year through 1999. Vision also sells its pulsed nitrogen lasers for
incorporation into instruments employed in homogeneous time-resolved
fluorescence, a new technology used in high-throughput drug screening and
clinical diagnostic applications. Vision's nitrogen lasers range in price from
approximately $4,500 to $5,500.
29
<PAGE> 34
Nitrogen Laser Accessories. Vision offers a line of optional accessories
to complement its pulsed nitrogen lasers. Vision believes that its expertise in
combining these accessories with its pulsed nitrogen lasers to configure laser
systems for specialized experiments is of particular value to the research
community. Among the most popular of these accessories are tunable dye modules
that can be used together with a Vision pulsed nitrogen laser to produce laser
light that is tunable over a range of visible wavelengths. Vision also offers
microscope adapters that couple Vision's pulsed nitrogen laser systems to a
variety of commercially available microscopes for experiments at the cellular
level or smaller. Laser systems including accessories, typically range in price
from approximately $9,200 to $19,000.
Pulsed CO(2) Lasers. Vision's LSI subsidiary designs, manufactures, and
markets pulsed CO(2) lasers. LSI developed considerable expertise in the field
of CO(2) lasers as a result of work performed by it for the U.S. government in
the 1980's and early 1990's. Vision's primary pulsed CO(2) laser product
offering is a compact sealed laser that provides an infrared light source that
broadens the variety of large molecules that can be studied with MALDI-TOF
spectrometers. This laser is priced at approximately $7,500.
Optically Based Instruments
Vision designs, manufactures, and markets a variety of optically based
instruments that perform measurement and analysis functions. Vision focuses on
the development of low-cost analyzers that are appropriate for distribution
through product catalogues, Web sites, and other indirect distribution channels.
These products use standard photonics components as building blocks that are
designed to work together in multiple configurations and to be easily modified
to accommodate changing end-user requirements. Revenues from the sale of
optically based instruments by Oriel (including in fiscal 1996 the period prior
to its acquisition by Vision) and Thermo Vision Colorado totalled approximately
$3.6 million in fiscal 1996 and approximately $2.6 million for the nine months
ended September 27, 1997.
Vision's principal optically based instrument products are:
MIR 8000. Vision's MIR 8000 is a modular spectrophotometer. Vision
designed the MIR 8000 for the physics research market. Uses of the MIR 8000
include evaluating the performance of laser diodes, detectors, and other optical
components. The MIR 8000 is comprised of subsystems so that it can be modified
to meet the requirements of each user. The subsystems of the MIR 8000 include: a
source chamber or a chamber for light-emitting samples; a scanner or
interferometer chamber containing a beamsplitter and fixed and moving mirrors; a
detector chamber; a data-acquisition system; and software modules for physics
applications such as mathematical modeling. The sources, scanners, detectors,
and software modules may be interchanged as experimental needs evolve. Vision
believes that the modular nature of the MIR 8000 is particularly appealing to
university, government, and photonics industry researchers who require
economical and highly flexible research tools. The MIR 8000 ranges in price from
approximately $16,400 to $21,000.
QS1E Mercury Analyzer. Vision's QS1E mercury analyzer is an instrument for
detecting the presence and level of mercury in water and bodily fluids.
Water-monitoring authorities and environmental laboratories use the QS1E to test
both drinking water and wastewater for compliance with government regulations
governing permissible levels of mercury. Other users include medical
laboratories, which test bodily fluids to determine exposure to mercury, and
researchers, who use the QS1E to examine foods and other biomatter to trace
mercury in the environment. The QS1E mercury analyzer sells for approximately
$15,000.
LifeSense. In 1997, Vision introduced its LifeSense low-cost,
fluorescence-lifetime sensor for the biological research market. LifeSense
excites a sample with a specific wavelength of light and measures the lifetime
of the resulting fluorescence in order to identify particular substances
contained in the sample. Vision's LifeSense instrument is operated from a
personal computer and consists of interchangeable modulated light sources,
including infrared diode lasers or blue or green light-emitting diodes, a sample
compartment, and a photodetector. Vision's LifeSense is used primarily in
medical, pharmaceutical, and other bioresearch applications, including detection
and identification of biological molecules in high-performance liquid
chromatography and capillary electrophoresis. LifeSense can use fiber optics for
remote sensing in bioprocess and process control applications. The price of
Vision's LifeSense instrument is approximately $20,000.
30
<PAGE> 35
Accessories. Through Thermo Vision Colorado, Vision offers a number of
accessories related to its optically based instruments, including autosamplers
that automatically insert a substance, tissue, or other sample into an
analytical instrument for testing or monitoring. Vision's autosamplers range in
price from approximately $2,000 to $5,000.
Optoelectronics
Through its Centro Vision subsidiary, Vision designs, assembles, and
markets silicon photodiode detectors for ultraviolet, visible, and near-infrared
applications. Silicon photodiodes are light-sensing elements constructed from
silicon wafers similar to those used in the manufacture of integrated circuits.
These devices differ from CID and CCD devices in that photodiodes are single
light sensors, while CID and CCD devices are an array of light sensors. Revenues
from the sale of optoelectronic devices by Centro Vision (which was an
independent company throughout fiscal 1996 and through July 5, 1997) totalled
approximately $5.5 million in fiscal 1996 and approximately $4.1 million for the
nine months ended September 27, 1997.
Vision customizes its photodiodes for specific applications by
incorporating particular materials into windows or filters placed in front of
the photodiodes. For example, because ordinary glass absorbs ultraviolet
wavelengths, Vision places a fused silica or ultraviolet transmitting window
over its photodiodes for ultraviolet-detection applications. Another type of
filter used by Vision modifies the normal silicon response to approximate the
spectral response of the human eye. In order to sense X-rays, Vision coats the
photodiode with scintillation crystals that convert X-ray radiation to
longer-wavelength radiation that can be detected by a silicon photodiode sensor.
To enhance a device's response at a desired wavelength, Vision applies an
antireflection coating directly to the silicon in some cases.
The primary customers for Vision's silicon photodiode detectors are
manufacturers of medical diagnostic and analytical instruments. In these
instruments, the Vision photodiode detectors are used to sense or measure the
light emitted by or passing through a sample. End-users employ these instruments
in applications such as blood oximetry (noninvasive monitoring of blood oxygen
saturation) and determination of various substances in bodily fluids. Vision
also offers photodiodes for use in a variety of space applications, such as in
NASA's sun trackers that are used to orient and stabilize satellites in orbit
and in the smoke sensors that have been approved for use in space station Alpha.
Other applications include monitoring ultraviolet sources in drinking water
purifiers that use ultraviolet radiation to kill impurities, computer security
code readers in financial institutions, "magic eye" door openers, stamp
detectors for the U.S. Post Office, and flame detectors in gas furnaces.
Vision's silicon photodiode detectors range in price from approximately $0.10 to
$2,000.
As with its CID sensors, Vision contracts with third parties for the
fabrication of the silicon wafers used in its photodiode sensors in accordance
with Vision's designs and specifications, and itself performs quality control
and assurance and product assembly.
Fiber Optics
Vision's Oriel subsidiary offers a line of specialty fiber optic cables for
the transmission of different wavelengths of light. Certain of these cables are
bifurcated to permit two-way transmittal of light or are bundled for special
applications. Most of the specialty fiber optic cable that Vision sells is used
for remote sensing applications. Vision's fiber optics products range in price
from approximately $30 per meter to $1,600 per meter. Revenues from the sale of
fiber optic cables by Oriel (including in fiscal 1996 the period prior to its
acquisition by Vision) totalled approximately $1.0 million in fiscal 1996 and
approximately $0.7 million for the nine months ended September 27, 1997.
RESEARCH AND DEVELOPMENT
Vision maintains active programs for the development of new technologies
and the enhancement of its existing products. In addition, Vision seeks to
develop new applications for its products and technologies. Vision incurred
research and development expenses of $144,000; $743,000; and $3,499,000 in 1994,
1995, and 1996, respectively. In addition, Vision received $28,000; $490,000;
and $532,000 for customer-sponsored contract research and development expenses
in 1994, 1995, and 1996, respectively. Vision's principal research
31
<PAGE> 36
and development projects in 1996 were directed at the development of its CID
sensor for use in a dental imaging system and the MIR 8000 modular
spectrophotometer and extending the life of its optical filter products by
increasing humidity resistance.
The current focus of Vision's research and development efforts include
developing a filter to isolate a particular ultraviolet wavelength from a
mercury lamp for use in semiconductor photolithography, continuing work on
extending the life of its optical filters through increased humidity resistance,
and improving the performance and reliability of its pulsed CO(2) laser
products.
Vision is seeking to leverage its CID technology by developing a
radiation-hardened, color CID camera for use in the inspection of nuclear power
plants. A customer is funding a portion of the costs of this project in exchange
for distribution rights in a specified territory. Vision believes that there may
be significant applications for color CID cameras in markets outside of nuclear
inspection. Because of the resistance of CID sensors to radiation, Vision also
is developing, in collaboration with a medical instrument manufacturer a CID
camera for use in aiming X-rays with a high degree of precision at the cancerous
area of a patient receiving radiation therapy.
SALES AND MARKETING
Vision markets its products both in the U.S. and internationally by means
of technical catalogues and through the dealer and distributor networks of its
subsidiaries and divisions. Vision sells directly to larger OEM buyers through
the direct sales forces of its subsidiaries and divisions. Vision trains the
members of its sales forces on the technical aspects of its products so that
they are able to respond to questions and otherwise support customers, dealers,
and distributors. Vision holds a minority equity interest in LOT-Oriel Holding
GmbH ("LOT-Oriel"), a large European distributor of photonics products. A
representative of Vision serves as a member of LOT-Oriel's Board of Directors.
Vision believes that its relationship with LOT-Oriel enhances Vision's
visibility in and access to the European photonics market. In fiscal 1994, 1995,
and 1996, international sales comprised approximately 40%, 31%, and 37%
respectively, of Vision's total product sales.
Vision's Oriel, Corion, and Centro Vision businesses produce catalogues
used by Vision in marketing and selling its photonics products. These catalogues
provide both detailed technical information of interest to designers of systems
that incorporate photonics products and components along with product
specifications and highlights. Over the years, Oriel's informative series of
photonics product catalogues have become a staple on engineers' and scientists'
bookshelves. Oriel mails its catalogues without charge to more than 85,000
potential customers worldwide. Vision makes its catalogues widely available so
that designers will incorporate Vision's products into prototypes, ultimately
resulting in new supply relationships as the products are commercialized.
All seven Vision subsidiaries and divisions use Web sites to reach Vision's
large and technically sophisticated customer base. A number of Vision's Web
sites include catalogues that are easy to update and portions of which can be
directly downloaded by a potential customer. Vision plans to produce certain
catalogues on CD-ROMs in order to further reduce marketing costs.
Vision's backlog was $11.4 million as of September 27, 1997, compared with
$7.4 million as of September 28, 1996. Vision includes in its backlog only
orders confirmed with a purchase order for products scheduled to be shipped
within one year.
MANUFACTURING AND RAW MATERIALS
Vision designs and manufacturers most of its products internally. Vision's
manufacturing processes are diverse and range from the purchase of raw materials
and the performance of significant processing in the case of the production of
filters by Corion and optical crystals by Hilger, to outsourcing manufacture of
primary components to third parties in the case of the production of CID sensors
by CIDTEC and photodiodes by Centro Vision, to assembly and testing of purchased
components in the case of optical sources by Oriel, lasers by LSI, and
autosamplers by Thermo Vision Colorado. Vision believes that its in-house
manufacturing and
32
<PAGE> 37
assembly capabilities allow it to achieve highly competitive delivery times and
significantly reduces its time to introduce new products to market.
Vision purchases the silicon wafers used in its CID sensors and silicon
photodiodes from third-party manufacturers that produce the wafers in accordance
with Vision's designs and specifications. Vision currently purchases CID wafers
from a single supplier, although it is exploring alternative sources of supply
and believes that a number of other qualified wafer fabricators are available.
Vision purchases CID wafers from its existing supplier on a purchase-order basis
and does not have a formal supply arrangement with this company. Vision believes
that outsourcing the production of these wafers enables it to avoid the
technological risks and significant capital costs associated with maintaining
its own fabrication lines.
INTELLECTUAL PROPERTY
Vision's success depends in part on the strength and protection of its
proprietary methodologies and designs and other proprietary intellectual rights.
Vision believes that its manufacturing know-how, particularly with respect to
its optical filters and crystals, provides it with a competitive advantage.
Vision relies upon a combination of patent, trade secret, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect its
proprietary rights. Vision seeks to limit access to and distribution of its
proprietary information. There can be no assurance that the steps taken by
Vision in this regard will be adequate to deter misappropriation of its
proprietary information, that Vision will be able to detect unauthorized use and
take appropriate steps to enforce its intellectual property rights, or that
competitors will not be able to develop similar technology independently.
Vision currently holds five issued U.S. patents expiring at various dates
ranging from 1999 to 2012. Vision also has six applications pending for
additional U.S. patents and a number of foreign counterparts for its patents in
various foreign countries. Vision also has certain registered and other
trademarks. In addition, Vision has entered into license agreements with other
companies pursuant to which it grants or receives the rights to certain
technology, know-how, or patents. Three of Vision's issued U.S. patents and four
of its U.S. patent applications pertain to its CID technology. In addition,
Vision holds a nonexclusive license to certain additional patents relating to
CID technology. See "Risk Factors -- Risks Associated with Protection, Defense,
and Use of Intellectual Property."
COMPETITION
The photonics industry is highly competitive. Vision competes with a number
of companies, many of which have substantially greater financial, marketing, and
other resources than Vision. Vision's principal competitors include
Melles-Griot, Inc.; Optical Coating Laboratory, Inc.; Newport Corporation;
Coherent, Inc.; Corning OCA Corporation; Bicron Business Unit of Saint-Gobain
Industrial Ceramics, Inc.; and UDT Sensors, Inc. Vision competes primarily in
each of the photonics market segments on the basis of product features,
performance, reliability, and price. Although Vision believes that its products
currently compete favorably with respect to such factors, there can be no
assurance that Vision can maintain its competitive position against current and
potential competitors, especially those with greater financial, manufacturing,
market, technical, and other competitive resources. Competition could increase
if new companies enter the market or if existing competitors expand their
product lines. See "Risk Factors -- Risks Associated with Technological Change,
Obsolescence, and the Development and Acceptance of New Products" and
"-- Intense Competition."
33
<PAGE> 38
FACILITIES
Vision's various businesses are operated from separate facilities, as set
forth in the table below. All of these facilities are used for manufacturing,
research and development, sales and marketing, and administration purposes.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET OWNED/LEASED LEASE EXPIRATION
----------------------------------- ----------- ------------ ----------------
<S> <C> <C> <C>
Franklin, MA....................... 40,400 Leased 2006
Grand Junction, CO................. 3,600 Owned --
Stratford, CT...................... 50,000 Leased 1998
Margate, England................... 15,000 Leased 2002
Liverpool, NY...................... 11,000 Leased 2006
Newbury Park, CA................... 18,400 Leased 1999
</TABLE>
With the exception of the Stratford, Connecticut, facility, Vision believes
that these facilities are adequate for its present operations and that suitable
additional space will be available as needed in the future. Vision has leased a
new facility in Stratford, Connecticut, to which it plans to relocate its Oriel
subsidiary's operations in the first quarter of 1998. The new premises consist
of approximately 30,000 square feet and the lease of these new premises will
expire in 2008.
PERSONNEL
As of September 27, 1997, Vision had a total of 237 employees of which 46
are engaged in research and development, 32 in sales and marketing, 115 in
manufacturing, and 44 in general administrative functions. To date, Vision has
been able to attract and retain the personnel required by its business, but
there can be no assurance that additional skilled personnel necessary to
successfully expand Vision's business and operations can be recruited and
retained. None of Vision's employees is subject to a collective bargaining
agreement, other than six employees of Hilger. Vision believes that its
relationships with employees are good.
LEGAL PROCEEDINGS
Vision is not a party to any litigation that it believes could have a
material adverse effect on Vision or its results of operations.
34
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information about the current executive
officers and directors of Vision as of September 27, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------------- --- -----------------------------------
<S> <C> <C>
Kristine S. Langdon........................... 38 President, Chief Executive Officer,
and Director
John N. Hatsopoulos........................... 63 Chief Financial Officer, Vice
President, and Director
Allen J. Smith................................ 49 Vice President
Paul F. Kelleher.............................. 55 Chief Accounting Officer
Earl R. Lewis................................. 53 Chairman of the Board and Director
Dr. D. Allan Bromley(1)....................... 71 Director
Arvin H. Smith................................ 68 Director
</TABLE>
- ---------------
(1) Member of the Audit and Human Resources Committees
Kristine S. Langdon has been President, Chief Executive Officer, and a
director of Vision since its inception in November 1995. She served as President
of Thermo Jarrell Ash Corporation, a subsidiary of Optek that manufactures
elemental spectrometers, from January 1996 until October 1996 and has served as
Vice President of Optek since its inception in August 1995. Ms. Langdon was
Special Assistant to the Presidents of Thermo Electron and Thermo Instrument
from August 1991 to April 1994 and Director of Business Development of Thermo
Jarrell Ash Corporation from April 1994 until being named President and Chief
Executive Officer of that corporation. From 1987 to 1991, Ms. Langdon was
employed by McKinsey & Co., a management consulting firm, most recently as an
engagement manager.
John N. Hatsopoulos has been Chief Financial Officer, Vice President, and a
director of Vision since August 1997. Mr. Hatsopoulos has been Chief Financial
Officer, Vice President, and a director of Optek since its inception in August
1995. Mr. Hatsopoulos has been Chief Financial Officer and a Vice President of
Thermo Instrument since 1988. Mr. Hatsopoulos has been President of Thermo
Electron since January 1997, Chief Financial Officer of Thermo Electron since
1988, and was an Executive Vice President of Thermo Electron from 1986 until
January 1997. He is also a director of Thermo Electron and of Thermo Instrument,
Metrika Systems Corporation, Thermedics Detection Inc., Thermedics Inc, Thermo
Ecotek Corporation, Thermo Fibertek Inc., Thermo Power Corporation, Thermo
TerraTech Inc., and ThermoTrex Corporation, all of which are subsidiaries of
Thermo Electron, and of LOIS/USA Inc.
Allen J. Smith has been Vice President of Vision since August 1997 and
Chairman of Vision's Oriel subsidiary since October 1994. Mr. Smith served Oriel
in various capacities, including Executive Vice President, Vice President,
general manager, and sales and marketing manager from February 1970 to October
1994.
Paul F. Kelleher has been Chief Accounting Officer of Vision since its
inception in November 1995. Mr. Kelleher has been the Chief Accounting Officer
of Optek since its inception in August 1995 and of Thermo Instrument since its
inception in 1986. Mr. Kelleher has been Senior Vice President, Finance and
Administration of Thermo Electron since June 1997 and served as its Vice
President, Finance from 1987 to 1997, and as its Controller from 1982 to January
1996. He is also a director of ThermoLase Corporation, a subsidiary of Thermo
Electron.
Earl R. Lewis has been a director of Vision since its inception in November
1995. Mr. Lewis has been Chief Executive Officer and a director of Optek since
its inception in August 1995 and Chairman of the Board of Optek since April
1997. He also served as Optek's President from August 1995 to April 1997. Mr.
Lewis served as President of Thermo Jarrell Ash Corporation through December
1995, and for more than five years
35
<PAGE> 40
prior to that date. Mr. Lewis has been President and Chief Operating Officer of
Thermo Instrument since March 1997 and January 1996, respectively, was an
Executive Vice President of Thermo Instrument from January 1996 to March 1997,
and was a Vice President of Thermo Instrument from 1990 through 1995. Mr. Lewis
has been Vice President of Thermo Electron since September 1996. Mr. Lewis is
also a director of Metrika Systems Corporation, Thermo BioAnalysis Corporation,
ThermoQuest Corporation, and ThermoSpectra Corporation, all of which are
subsidiaries of Thermo Electron.
Dr. Allan Bromley has been a director of Vision since September 1997. Dr.
Bromley has held numerous positions at Yale University since 1960, including
Dean of Engineering since 1994, Sterling Professor of the Sciences since 1993,
Henry Ford II Professor of Physics from 1972 to 1993, Chairman of the Physics
Department from 1970 to 1977, and Founder and Director of the A.W. Wright
Nuclear Structure Laboratory from 1963 to 1989. He served in the Executive
Office of the President of the United States as Assistant to the President for
Science and Technology and as Director, Office of Science and Technology Policy,
from 1989 to 1993. He is also a director of numerous nonprofit organizations.
Dr. Bromley serves on many national scientific committees and panels, including
of the U.S. National Academy of Sciences, the American Academy of Arts and
Sciences, the American Physical Society, the American Institute of Physics, and
the Washington Advisory Group LLC, and has received numerous academic and
scientific awards and honors, including the National Medal of Science in 1988.
Arvin H. Smith has been a director of Vision since its inception in
November 1995. Mr. Smith has been a director of Optek since its inception in
August 1995. Mr. Smith has been the Chairman of the Board and Chief Executive
Officer of Thermo Instrument since March 1997 and 1986, respectively, has been a
director of Thermo Instrument since 1986 and was President of Thermo Instrument
from 1986 to March 1997. Mr. Smith has been an Executive Vice President of
Thermo Electron since 1991 and a Senior Vice President of Thermo Electron from
1986 to 1991. Mr. Smith is also a director of Metrika Systems Corporation,
Thermo BioAnalysis Corporation, Thermo Power Corporation, ThermoQuest
Corporation, and ThermoSpectra Corporation, all of which are subsidiaries of
Thermo Electron.
BOARD COMMITTEES
The Vision Board has established an Audit Committee and a Human Resources
Committee each composed solely of Dr. Bromley. The Audit Committee reviews the
scope of audits with Vision's independent public accountants and meets with them
for the purpose of reviewing the results of such audits subsequent to their
completion. The Human Resources Committee reviews the performance of senior
members of management, recommends executive compensation, and administers
Vision's stock option and other stock-based compensation plans. It is currently
anticipated that Vision will not establish a nominating committee of the Vision
Board.
COMPENSATION OF DIRECTORS
All directors who are not employees of Vision, Thermo Electron or another
company affiliated with Thermo Electron ("outside directors") will receive an
annual retainer of $2,000 and a fee of $1,000 per day for attending regular
meetings of the Vision Board, and $500 per day for participating in meetings of
the Vision Board held by means of conference telephone, and for participating in
certain meetings of committees of the Vision Board. Payment of directors fees is
expected to be made quarterly. Ms. Langdon and Messrs. Hatsopoulos, Lewis, and
Arvin H. Smith are all employees of Thermo Electron companies and do not receive
any cash compensation from Vision for their services as directors. Directors are
also reimbursed for reasonable out-of-pocket expenses incurred in attending
Vision Board or committee meetings.
Directors Deferred Compensation Plan. Under Vision's Deferred Compensation
Plan for Directors (the "Deferred Compensation Plan"), a director has the right
to defer receipt of his fees until he ceases to serve as a director, dies, or
retires from his principal occupation. In the event of a change in control or
proposed change in control of Vision that is not approved by the Vision Board,
deferred amounts become payable immediately. Either of the following is deemed
to be a change of control: (a) the occurrence, without the prior approval of the
Vision Board, of the acquisition, directly or indirectly, by any person of 50%
or more of the outstanding
36
<PAGE> 41
Vision Common Stock or the outstanding common stock of Thermo Instrument, or 25%
or more of the outstanding common stock of Thermo Electron, or (b) the failure
of the persons serving on the Vision Board immediately prior to any contested
election of directors, or any exchange offer or tender offer for the Vision
Common Stock, or the common stock of Thermo Instrument or Thermo Electron to
constitute a majority of the Vision Board at any time within two years following
any such event. Amounts deferred pursuant to the Deferred Compensation Plan are
valued at the end of each quarter as units of Vision Common Stock. When payable,
amounts deferred may be disbursed solely in shares of Vision Common Stock
accumulated under the Deferred Compensation Plan. Vision has reserved 25,000
shares of Vision Common Stock under this plan. The Deferred Compensation Plan
will not become effective until the Distribution Date. No units have been
accumulated under this plan.
STOCK OWNERSHIP POLICY FOR DIRECTORS
Vision has established a stock holding policy for directors. The stock
holding policy requires each director to hold a minimum of 1,000 shares of
Vision Common Stock. Directors will be requested to achieve this ownership level
by the 1999 Annual Meeting of Shareholders of Vision. This ownership level may
by achieved by purchases of shares of Vision Common Stock in the open market or
through the exercise of stock options. Directors who are also executive officers
of Vision are required to comply with a separate stock holding policy that has
been adopted for executive officers. See "Certain Transactions -- Relationship
with Thermo Electron and Thermo Instrument -- Stock Holding Policy and
Assistance Plan."
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes compensation for services to Vision in all
capacities awarded to, earned by, or paid to Vision's Chief Executive Officer
and other most highly compensated executive officer for the fiscal year ended
December 28, 1996, and, in the case of the Chief Executive Officer only, for the
fiscal year ended December 30, 1995. No other executive officer of Vision who
held office at the end of fiscal 1996 met the definition of "highly compensated"
within the meaning of the Commission's executive compensation disclosure rules
for this period.
Vision is required to appoint certain executive officers and full-time
employees of Thermo Electron as executive officers of Vision, in accordance with
the Thermo Electron Corporate Charter. The compensation for these executive
officers is determined and paid entirely by Thermo Electron. The time and effort
devoted by these individuals to Vision's affairs is provided to Vision under the
Corporate Services Agreement between Vision and Thermo Electron. Accordingly,
the compensation for these individuals is not reported in the following table.
See "Certain Transactions -- Relationship With Thermo Electron and Thermo
Instrument."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
SECURITIES
ANNUAL UNDERLYING
COMPENSATION OPTIONS
FISCAL -------------------- (NO. OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AND COMPANY)(1) COMPENSATION(2)
- ------------------------------- ------ -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kristine S. Langdon(3)......... 1996 $100,000 $40,000 75,000(TOC) $ 5,344
President and Chief Executive 1995 93,000 35,000 5,000(TMQ) 5,198
Officer
Allen J. Smith(4).............. 1996 98,932 30,000 22,500(TOC) 4,037
Vice President
</TABLE>
- ---------------
(1) No options to purchase shares of Vision Common Stock had been granted as of
November 15, 1997. See "Management -- Vision Stock Option Grants." The named
executive officers have been granted options to purchase common stock of
certain subsidiaries of Thermo Electron as part of Thermo Electron's stock
option program. Options have been granted to the Chief Executive Officer
during the last two fiscal years
37
<PAGE> 42
and the other named executive officer during the last fiscal year in the
following Thermo Electron companies: Optek (designated in the table as
"TOC") and ThermoQuest Corporation (designated in the table as "TMQ").
(2) Represents the amount of matching contributions made by the individual's
employer on behalf of named executive officers participating in the Thermo
Electron 401(k) plan.
(3) Ms. Langdon was appointed President and Chief Executive Officer of Vision in
November 1995. Reported in the table under "Annual Compensation" and "All
Other Compensation" are the total amounts paid in fiscal 1995 for her
service in all capacities to Thermo Electron, Optek, and Optek's
subsidiaries.
(4) Mr. Smith was appointed Vice President of Vision in August 1997. He has been
Chairman of Oriel, which was acquired by Vision in February 1996, since
October 1994. Reported in the table under "Annual Compensation" and "All
Other Compensation" is Mr. Smith's compensation for fiscal 1996 paid
subsequent to the acquisition of Oriel by Vision.
Stock Options Granted During Fiscal 1996
The following table sets forth certain information concerning individual
grants of stock options made during fiscal 1996 to Vision's Chief Executive
Officer and other named executive officer. It has not been the policy of Thermo
Electron companies in the past to grant stock appreciation rights, and no such
rights were granted during fiscal 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1)(2) FISCAL 1996 SHARE DATE 5% 10%
- --------------------- ------------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kristine S. 75,000(TOC) 4.0%(4) $ 12.00 4/11/08 $716,250 $1,924,500
Langdon............
5,000(TMQ) 0.2%(4) 13.00 2/08/08 51,750 139,000
Allen J. Smith....... 22,500(TOC) 1.2%(4) 12.00 4/11/08 214,875 577,350
</TABLE>
- ---------------
(1) No options to purchase shares of Vision Common Stock had been granted as of
November 15, 1997. See "Management -- Vision Stock Option Grants."
(2) All of the options granted during the fiscal year are immediately
exercisable as of the end of the fiscal year. In all cases, the shares
acquired upon exercise are subject to repurchase by the granting corporation
at the exercise price if the optionee ceases to be employed by the granting
corporation or another Thermo Electron company. The granting corporation may
exercise its repurchase rights within six months after the termination of
the optionee's employment. For publicly traded companies, the repurchase
rights generally lapse ratably over a five- to ten-year period, depending on
the option term, which may vary from seven to twelve years, provided that
the optionee continues to be employed by the granting corporation or another
Thermo Electron company. For companies that are not publicly traded, the
repurchase rights lapse in their entirety on the ninth anniversary of the
grant date. The granting corporation may permit the holders of options to
exercise options and to satisfy tax withholding obligations by surrendering
shares equal in fair market value to the exercise price or withholding
obligation.
(3) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the common stock of the granting corporation, the
optionee's continued employment through the option period, and the date on
which the options are exercised.
38
<PAGE> 43
(4) These options were granted under stock option plans maintained by Thermo
Electron or its subsidiaries other than Optek as part of Thermo Electron's
compensation program, and accordingly are reported as a percentage of total
options granted to employees of Thermo Electron and its subsidiaries.
Stock Options Exercised During Fiscal 1996 and Fiscal Year-end Option Values
The following table reports certain information regarding stock option
exercises during fiscal 1996 and outstanding stock options held at the end of
fiscal 1996 by Vision's Chief Executive Officer and other named executive
officer. No stock appreciation rights were exercised or were outstanding during
fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE UNEXERCISED OPTIONS FISCAL YEAR-END
NAME COMPANY EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(1)
- ---------------- -------------------------- ----------- -------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Kristine S.
Langdon(2).... Optek -- -- 75,000/-- --/--
ThermoQuest Corporation -- -- 5,000/-- --/--
ThermoSpectra Corporation -- -- 400/-- $750/--
Allen J.
Smith......... Optek -- -- 22,500/-- --/--
</TABLE>
- ---------------
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable. In all cases, the shares acquired upon exercise of
the options reported in the table are subject to repurchase by the granting
corporation at the exercise price if the optionee ceases to be employed by
such corporation or another Thermo Electron company. The granting
corporation may exercise its repurchase rights within six months after the
termination of the optionee's employment. For publicly traded companies, the
repurchase rights generally lapse ratably over a five- to ten-year period,
depending on the option term, which may vary from seven to twelve years,
provided that the optionee continues to be employed by the granting
corporation or another Thermo Electron company. For companies the shares of
which are not publicly traded, the repurchase rights generally lapse in
their entirety on the ninth anniversary of the grant date. The granting
corporation may permit the holder of such options to exercise options and to
satisfy tax-withholding obligations by surrendering shares equal in fair
market value to the exercise price or withholding obligation.
(2) Ms. Langdon has been an employee of Thermo Instrument since April 1, 1994,
and was named President of Vision in November 1995. Prior to April 1, 1994,
she was employed by Thermo Electron and holds unexercised options to
purchase shares of common stock of Thermo Electron and certain of its
subsidiaries other than Optek as compensation for her service to Thermo
Electron. These options are not reported in the table as they were granted
as compensation for service to other Thermo Electron companies and prior to
her service to Optek or Vision.
VISION STOCK OPTION GRANTS
Vision has adopted the Vision EIP and has reserved an aggregate of 700,000
shares of Vision Common Stock for issuance to employees and directors of Vision
and others pursuant thereto. Prior to the Distribution Date, Vision plans to
grant options pursuant to the Vision EIP covering up to 350,000 shares of Vision
Common Stock with exercise prices equal to the fair market value of the Vision
Common Stock on the respective dates of grant.
39
<PAGE> 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Optek currently owns all of the outstanding shares of Vision Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of June 28, 1997,
regarding the number of shares of Vision Common Stock expected to be distributed
on the Distribution Date to Thermo Instrument, which is the only person or
entity that is expected by Vision to own beneficially more than five percent of
the outstanding shares of Vision 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 Instrument Systems Inc.(1)....................... 6,300,720 93%
860 West Airport Freeway
Suite 301
Hurst, Texas 76054
</TABLE>
- ---------------
(1) Thermo Electron beneficially owned approximately 83% of the common stock of
Thermo Instrument outstanding as of June 28, 1997. Accordingly, Thermo
Electron may be deemed to be a beneficial owner of the shares of Vision
Common Stock beneficially owned by Thermo Instrument following the
Distribution. Thermo Electron disclaims beneficial ownership of these
shares. Following the Distribution, Thermo Instrument will have the power to
elect all of the members of the Vision Board.
MANAGEMENT
The following table sets forth the number of shares of Vision Common Stock
expected to be distributed on the Distribution Date to, as well as the number of
shares of Thermo Instrument common stock and Thermo Electron common stock
beneficially owned as of June 28, 1997, by (i) each executive officer named in
the summary compensation table under the heading "Compensation of Executive
Officers," (ii) each director of Vision, and (iii) all of Vision's directors and
executive officers as a group, following the Distribution Date. The information
set forth below with respect to Vision Common Stock is based on certain
information known to Vision with respect to such persons' beneficial ownership
of shares of common stock of Optek as of June 28, 1997. The table assumes with
respect to the Vision Common Stock, that ownership of common stock of Optek by
such persons will not change before the Record Date of the Distribution.
While certain directors and executive officers of Vision are also directors
and executive officers of Thermo Instrument or its subsidiaries other than
Vision, all such persons disclaim beneficial ownership of the shares of the
Vision Common Stock to be distributed to Thermo Instrument.
<TABLE>
<CAPTION>
THERMO THERMO
NAME(1) VISION(2) INSTRUMENT(3) ELECTRON(4)
- -------------------------------------------------------- --------- ------------- ---------
<S> <C> <C> <C>
D. Allan Bromley........................................ 0 0 0
John N. Hatsopoulos..................................... 4,200 81,204 632,768
Kristine S. Langdon..................................... 70 7,417 16,452
Earl R. Lewis........................................... 4,060 178,233 124,184
Allen J. Smith.......................................... 0 0 0
Arvin H. Smith.......................................... 1,120 431,667 519,038
All directors and current executive officers as a group
(7 persons)........................................... 9,450 717,213 1,427,936
</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.
40
<PAGE> 45
(2) This table does not include options to purchase shares of Vision Common
Stock which will be granted prior to the Distribution Date. See
"Management -- Vision Stock Option Grants." Shares of Vision Common Stock
beneficially owned by Ms. Langdon include a total of 70 shares held by her
as custodian for two minor children. Shares of Vision Common Stock
beneficially owned by Earl R. Lewis include 350 shares owned by his spouse
and a total of 280 shares owned by two sons. Immediately following
consummation of the Distribution, it is expected that (i) Thermo Instrument
will beneficially own approximately 93% of the outstanding shares of Vision
Common Stock and (ii) the directors and executive officers of Vision will
not individually or as a group beneficially own more than 1% of the
outstanding shares of Vision Common Stock.
(3) Shares of the common stock of Thermo Instrument beneficially owned by Mr.
Hatsopoulos, Ms. Langdon, Mr. Lewis, Mr. Arvin H. Smith, and all directors
and executive officers as a group include 65,625; 7,124; 162,500; 234,375;
and 484,624 shares, respectively, that such person or group had the right to
acquire within 60 days after June 28, 1997, through the exercise of stock
options. Shares of the common stock of Thermo Instrument beneficially owned
by Mr. Hatsopoulos, Mr. Arvin H. Smith, and all directors and executive
officers as a group include 529; 530; and 1,455 shares, respectively,
allocated through June 28, 1997, to their respective accounts maintained
pursuant to Thermo Electron's employee stock ownership plan, of which the
trustees, who have investment power over its assets, are executive officers
of Thermo Electron (the "ESOP"). Shares beneficially owned by Ms. Langdon
include 293 shares held by her as custodian for two minor children. Shares
beneficially owned by Mr. Lewis include 2,390 shares held by Mr. Lewis'
spouse. The directors and executive officers of Vision did not individually
or as a group beneficially own more than 1% of the common stock of Thermo
Instrument outstanding as of June 28, 1997.
(4) The shares of the common stock of Thermo Electron shown in the table reflect
a three-for-two split of such stock distributed in June 1996 in the form of
a 50% stock dividend. Shares of the common stock of Thermo Electron
beneficially owned by Mr. Hatsopoulos, Ms. Langdon, Mr. Lewis, Mr. Arvin H.
Smith, and all directors and executive officers as a group include 535,685;
15,750; 121,536; 228,411; and 996,519 shares, respectively, that such person
or group has the right to acquire within 60 days of June 28, 1997, through
the exercise of stock options. Shares beneficially owned by Ms. Langdon
include 702 shares held by her as custodian for two minor children. Shares
of the common stock of Thermo Electron beneficially owned by Mr.
Hatsopoulos, Mr. Arvin H. Smith and all directors and executive officers as
a group include 1,934; 1,717; and 4,975 full shares, respectively, allocated
to accounts maintained pursuant to the ESOP. The directors and executive
officers of Vision did not individually or as a group beneficially own more
than 1% of the common stock of Thermo Electron outstanding as of June 28,
1997.
41
<PAGE> 46
CERTAIN TRANSACTIONS
The following is a description of the material terms of the agreements and
arrangements involving Vision and Thermo Electron, Thermo Instrument, Optek, and
other members of the Thermo Group (as defined below).
RELATIONSHIP WITH THERMO ELECTRON AND THERMO INSTRUMENT
Vision was organized in November 1995 as a wholly owned subsidiary of
Optek. Following consummation of the Distribution, Optek will own no shares of
Vision Common Stock and Thermo Instrument will own approximately 93% of the
outstanding shares of Vision Common Stock.
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 privately and publicly held subsidiaries. After the
Distribution, Vision, together with five other companies, will exist as publicly
held, majority-owned subsidiaries of Thermo Instrument. From time to time,
Thermo Electron and its subsidiaries will create other majority-owned
subsidiaries as part of Thermo Electron's spinout strategy. (Vision and the
other Thermo Electron subsidiaries are hereinafter referred to as the "Thermo
Subsidiaries.")
Thermo Instrument develops, manufactures, and markets analytical
instruments used to detect and monitor air pollution, radioactivity, complex
chemical compounds and toxic metals, and other elements in a broad range of
liquids, gases, and solids. For its fiscal years ended December 31, 1994,
December 30, 1995, and December 28, 1996, Thermo Instrument had consolidated
revenues of $649,992,000; $782,662,000; and $1,209,362,000; respectively, and
consolidated net income of $60,220,000; $79,306,000; and $132,751,000;
respectively.
Thermo Electron and its subsidiaries develop, manufacture, and market
environmental monitoring and analysis instruments and manufacture biomedical
products, including heart-assist devices and mammography systems, papermaking
and recycling equipment, alternative-energy systems, and other specialized
products and technologies. Thermo Electron and its subsidiaries also provide
environmental and metallurgical services and conduct advanced technology
research and development. For its fiscal years ended December 31, 1994, December
30, 1995, and December 28, 1996, Thermo Electron had consolidated revenues of
$1,729,191,000; $2,270,291,000; and $2,932,558,000, respectively, and
consolidated net income of $104,711,000; $139,582,000; and $190,816,000;
respectively.
See "Risk Factors -- Potential Conflicts of Interest."
The Thermo Electron Corporate Charter. Thermo Electron and each of the
Thermo Subsidiaries, including Vision, 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,
including Vision, has adopted the Thermo Electron Corporate Charter (the
"Charter") to define the relationships and delineate the nature of such
cooperation among themselves. The purpose of the Charter is to ensure that (1)
all of the companies and their shareholders are treated consistently and fairly,
(2) the scope and nature of the cooperation among the companies, and each
company's responsibilities, are adequately defined, (3) each company has access
to the combined resources and financial, managerial, and technological strengths
of the others, and (4) Thermo Electron and the Thermo Subsidiaries, in the
aggregate, are able to obtain the most favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies, and provides for centralized administrative, banking, and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning, and providing other banking and credit services. Pursuant
to the Charter, Thermo Electron may also provide guarantees of debt or other
42
<PAGE> 47
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 Vision, can withdraw from participation in the Charter upon 30 days'
prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement in effect between the
withdrawing company and Thermo Electron. The withdrawal from participation does
not terminate outstanding commitments to third parties made by the withdrawing
company, or by Thermo Electron or other members of the Thermo Group, prior to
the withdrawal. 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.
Corporate Services Agreement. As provided in the Charter, Vision 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 certain financial and other services
to Vision. Vision was assessed an annual fee equal to 1.25%, 1.2%, and 1.0% of
its revenues for these services in fiscal 1994, 1995, and 1996, respectively.
The fee is reviewed annually and may be changed by mutual agreement of Vision
and Thermo Electron. During fiscal 1994, 1995, and 1996, Thermo Electron
assessed Vision $53,000; $72,000; and $304,000; respectively.
Management believes that the charges under the Services Agreement are
reasonable and that the terms of the Services Agreement are fair to Vision. For
items such as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges Vision based on charges directly attributable to
Vision. The Services Agreement automatically renews for successive one-year
terms, unless canceled by Vision upon 30 days' prior written notice. In
addition, the Services Agreement terminates automatically in the event Vision
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, Vision will be
required to pay a termination fee equal to the fee that was paid by Vision 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 Vision or as required in
order to meet Vision's obligations under Thermo Electron's policies and
procedures. Thermo Electron will charge Vision a fee equal to the market rate
for comparable services if such services are provided to Vision following
termination.
Tax Allocation Agreement. The Tax Allocation Agreement between Vision and
Thermo Electron outlines the terms under which Vision is to be included in
Thermo Electron's consolidated Federal and state income tax returns. Under
current law, Vision will be included in such tax returns so long as Thermo
Electron owns at least 80% of the outstanding common stock of Thermo Instrument
and Thermo Instrument owns at least 80% of the outstanding Vision Common Stock.
In years in which Vision has taxable income, it will pay to Thermo Electron
amounts comparable to the taxes Vision would have paid if it had filed its own
separate-company tax returns. If Thermo Instrument's equity ownership of Vision
were to drop below 80%, Vision would file its own tax returns.
43
<PAGE> 48
Master Guarantee Reimbursement Agreement. Vision has entered into a Master
Guarantee Reimbursement Agreement with Thermo Electron which provides that
Vision will reimburse Thermo Electron for any costs it incurs in the event it is
required to pay third parties pursuant to any guarantees it issues on Vision's
behalf. Thermo Instrument has entered into a similar agreement with Thermo
Electron pursuant to which Thermo Instrument has guaranteed Vision's obligation
to so reimburse Thermo Electron. Vision has also entered into a Master Guarantee
Reimbursement Agreement with Thermo Instrument which provides that Vision will
reimburse Thermo Instrument for any costs it incurs in the event that Thermo
Instrument is required to pay Thermo Electron or any other party pursuant to any
guarantees issued on Vision's behalf.
Master Repurchase Agreement. Vision's cash equivalents are invested in a
Master Repurchase Agreement with Thermo Electron, pursuant to which Vision in
effect lends 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. Vision's funds
subject to the Master Repurchase Agreement will be readily convertible into cash
by Vision and will have an original maturity of three months or less. The Master
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.
Stock Holding Policy and Assistance Plan. Vision has adopted a stock
holding policy which requires its executive officers to acquire and hold a
minimum number of shares of Vision Common Stock. This minimum ownership level
may be achieved by purchases of shares of Vision Common Stock in the open market
or through the exercise of stock options. In order to assist the executive
officers in complying with the policy, Vision also has adopted a stock holding
assistance plan under which it may make interest-free loans to certain key
employees, including its executive officers, to enable such employees to
purchase the Vision Common Stock.
OTHER RELATIONSHIPS
In August 1997, Vision's Hilger subsidiary purchased the crystal-materials
business of Hilger Analytical, a wholly owned subsidiary of Optek, in
consideration for the assumption by Vision of $908,000 of Optek's existing
obligation under a line of credit. The weighted average interest rate for
borrowings by Optek under the line of credit in fiscal 1995 and 1996 was 6.5%
and 6.75%, respectively. Vision's current obligation under the line of credit
bears interest at a rate of 6.75%.
In February 1997, in connection with its acquisition of LSI, Vision
borrowed $3.6 million from Optek pursuant to a promissory note (the "Laser
Science Note"). The Laser Science Note bears interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each quarter,
and has a term of approximately three years. In June 1997, Vision borrowed an
additional $347,000 from Optek pursuant to a promissory note (the "Franklin
Note") in order to finance the renovation of its Franklin, Massachusetts,
facility in connection with the LSI acquisition. The Franklin Note bears
interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set
at the beginning of each quarter, and has a term of approximately three years.
In July 1997, in connection with its acquisition of the Centronic business,
Vision borrowed $3.8 million from Thermo Electron pursuant to a promissory note
(the "Centronic Note"). The Centronic Note bears interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter, and has a term of approximately three years.
Vision and Optek are parties to the CID Contract R&D Agreement pursuant to
which Optek has contracted with Vision to develop certain CID sensors and
systems for use in optical spectroscopy products manufactured and sold by Optek.
Optek has paid Vision $672,000 under the CID Contract R&D Agreement from fiscal
1995 through the first nine months of fiscal 1997. Under the CID Contract R&D
Agreement, Optek owns the resulting technology. Optek has granted Vision an
exclusive, perpetual, fully paid license to such technology in all fields other
than optical spectroscopy. The CID Contract R&D Agreement expires in November
1997. In fiscal 1994, 1995, and 1996 and for the nine months ended September 27,
1997, Optek
44
<PAGE> 49
paid approximately $24,000; $418,000; and $188,000; and $287,000; respectively,
for research and development services performed by Vision in connection with CID
sensors and systems.
Vision has leased its office and manufacturing space in Franklin,
Massachusetts, from Thermo Instrument since March 1996. Vision's rent expense
under this lease is determined on the basis of its allocated share of total
occupancy expenses. Vision made lease payments to Thermo Instrument in fiscal
1996 of $197,000. Beginning in January 1997, Vision's annual rental expense
increased to $234,000. This lease expires in 2006.
Vision's Hilger subsidiary leases its office and manufacturing space in
Margate, England, from Optek. From January 1994 through August 1997, Vision's
rent expense under this lease was determined on the basis of its allocated share
of total occupancy expenses. Vision made lease payments to a subsidiary of
Thermo Instrument in fiscal 1994, 1995, and 1996 of $46,000; $91,000; and
$100,000; respectively. Effective September 1997, Hilger has leased this space
from Optek pursuant to the Hilger Lease for an annual rental fee of $43,200,
plus its pro rata share of certain related expenses. The Hilger Lease expires in
2002.
See "The Distribution -- Relationship Between Optek and Vision After The
Distribution" for a description of the Distribution Agreement between Vision and
Optek, "The Distribution -- Certain Federal Income Tax Consequences of the
Distribution" for a description of the Tax Matters Agreement between Vision and
Optek and "Business -- Products -- Imaging Sensors and Systems" for a
description of the CID Supply Agreement between Vision and Optek.
From time to time, Vision may transact business with other companies in the
Thermo Group in the ordinary course of business. In fiscal 1994, 1995, and 1996
and for the nine months ended September 27, 1997, Vision sold a total of
$1,290,000; $2,514,000; and $1,786,000 and $1,768,000; respectively, of products
to Thermo Electron subsidiaries and purchased a total of $211,000; $1,465,000;
and $971,000; and $357,000; respectively, of products from such companies.
Vision believes that the terms of the various transactions and agreements
described above were no less favorable than Vision could have obtained from
unaffiliated third parties.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1995, Vision issued 6,783,783 shares of Vision Common Stock to
Optek in exchange for $10 at the time of incorporation of Vision. No person
acted as an underwriter with respect to this transaction. Vision relied on
Section 4(2) of the Securities Act for the exemption from the registration
requirements of the Securities Act because no public offering was involved. This
transaction represents the only sale by Vision of securities that were not
registered under the Securities Act since its incorporation in November 1995.
The Vision Board believes that Vision received fair value for the 6,783,783
shares of Vision Common Stock sold to Optek.
45
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
As of the date of this Information Statement, Vision has 50,000,000 shares
of Vision Common Stock authorized for issuance, of which 6,783,783 shares are
issued and outstanding and held by Optek. Each share of Vision Common Stock is
entitled to pro rata participation in distributions upon liquidation and to one
vote on all matters submitted to a vote of shareholders. Dividends may be paid
to the holders of Vision Common Stock when and if declared by the Vision Board
out of funds legally available therefor. Holders of Vision Common Stock have no
preemptive or similar rights. The outstanding shares of Vision Common Stock are,
and the shares to be distributed in the Distribution when issued will be,
legally issued, fully paid, and nonassessable.
Vision's Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that all shares of Vision Common Stock
issued on or before the occurrence of the Distribution (the "Restricted Shares")
are subject to the following restriction: the holder shall not sell, assign,
transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or
otherwise, any Restricted Shares (except that (i) Optek may distribute the
Restricted Shares to its shareholders in the Distribution, and (ii) the
Distribution Agent may sell fractions of Restricted Shares in order to provide
shareholders of Optek with cash in lieu of fractional Restricted Shares in the
Distribution), until the sooner to occur of (i) 60 days following the execution
of an underwriting agreement in connection with the IPO following the time at
which the registration statement with respect to such IPO is declared effective
by the Commission, or (ii) March 1, 1998. Because the closing of the IPO will
occur after the Distribution, the shares of Vision Common Stock to be issued in
the IPO will not be subject to the Charter Transfer Restriction. The Charter
Transfer Restriction has been imposed at the request of the representatives of
the underwriters in the IPO because of the inability to obtain customary lock-up
agreements from the public shareholders of Optek to whom the shares of Vision
Common Stock will be distributed in the Distribution.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The shares of Vision Common Stock have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting can elect all the
directors if they so choose, and in such event, the holders of the remaining
shares cannot elect any directors. Upon completion of the Distribution, Thermo
Instrument (and Thermo Electron through its majority ownership of Thermo
Instrument) will continue to beneficially own at least a majority of the
outstanding Vision Common Stock, and will have the power to elect all of the
members of the Vision Board.
Vision's Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty to the fullest extent permitted by the General
Corporation Law of Delaware. Vision's Certificate of Incorporation also contains
provisions to indemnify the directors and officers of Vision to the fullest
extent permitted by the General Corporation Law of Delaware. Vision believes
that these provisions will assist Vision in attracting and retaining qualified
individuals to serve as directors and officers.
DIVIDENDS
Vision anticipates that for the foreseeable future, Vision's earnings, if
any, will be retained for use in the business and that no cash dividends will be
paid on the Vision Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Vision Common Stock is American
Stock Transfer & Trust Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and Vision's Certificate of
Incorporation and By-Laws limit the monetary liability of directors to Vision
and to its shareholders and provide for indemnification of Vision's
46
<PAGE> 51
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of Vision, and with respect to any criminal
action or proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful. Vision also has indemnification agreements with its
directors and officers that provide for the maximum indemnification allowed by
law. Reference is made to Vision's Certificate of Incorporation, By-Laws, and
Form of Indemnification Agreement for Officers and Directors which are filed as
exhibits to the registration statement of which this Information Statement is a
part.
Thermo Electron has an insurance policy which insures the directors and
officers of Thermo Electron and its subsidiaries, including Vision, against
certain liabilities which might be incurred in connection with the performance
of their duties.
Under the Distribution Agreement, Optek is obligated, under certain
circumstances, to indemnify directors and officers of Vision against certain
liabilities. Reference is made to the form of Distribution Agreement which is
filed as an exhibit to the registration statement of which this Information
Statement is a part.
EXPERTS
The financial statements included in the Information Statement have been
audited by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods as indicted in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
Following the Distribution, Vision will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly, and
other reports with the Commission. Vision will also be subject to the proxy
solicitation requirements of the Exchange Act and will furnish holders of Vision
Common Stock annual reports containing consolidated financial statements
prepared in accordance with generally accepted accounting principles and audited
and reported on, with an opinion expressed, by an independent public accounting
firm, as well as quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information.
Vision has filed a registration statement on Form 10 with the Commission to
register the shares of Vision Common Stock to be issued on the Distribution Date
under the Exchange Act. This Information Statement does not contain all the
information set forth in the registration statement and the exhibits and
schedules thereto, as certain items are omitted in accordance with the rules and
regulations of the Commission. Reference is made to such registration statement
and the exhibits and schedules thereto, which may be inspected and copied, at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, Washington, D.C. 20549. In
addition, Vision is required to file electronic versions of such material with
the Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants that file electronically with the
Commission. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
TRADEMARKS
"CID(R)" is a registered trademark of Vision and "LifeSense(TM)," "MIR
8000(TM)," and "Accudose(TM)" are trademarks of Vision.
47
<PAGE> 52
THERMO VISION CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THERMO VISION CORPORATION
Report of Independent Public Accountants............................................ F-2
Consolidated Statement of Income for the years ended December 31, 1994, December 30,
1995, and December 28, 1996, and for the nine months ended September 28, 1996,
and September 27, 1997........................................................... F-3
Consolidated Balance Sheet as of December 30, 1995, December 28, 1996, and September
27, 1997......................................................................... F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 1994, December 30, 1995, and December 28, 1996, and for the
nine months ended September 28, 1996, and September 27, 1997..................... F-5
Consolidated Statement of Shareholder's Investment for the years ended December 31,
1994, December 30, 1995, and December 28, 1996, and for the nine months ended
September 27, 1997............................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
ORIEL CORPORATION
Report of Independent Public Accountants............................................ F-17
Consolidated Statement of Operations for the years ended September 30, 1994, and
September 30, 1995, and for the three months ended December 31, 1994, and
December 31, 1995................................................................ F-18
Consolidated Balance Sheet as of September 30, 1995................................. F-19
Consolidated Statement of Cash Flows for the years ended September 30, 1994, and
September 30, 1995, and for the three months ended December 31, 1994, and
December 31, 1995................................................................ F-20
Consolidated Statement of Changes in Stockholders' Equity for the years ended
September 30, 1994, and September 30, 1995, and for the three months ended
December 31, 1995................................................................ F-21
Notes to Consolidated Financial Statements.......................................... F-22
CORION CORPORATION
Report of Independent Public Accountants............................................ F-27
Statement of Operations for the year ended December 31, 1995, and for the period
from January 1, 1996, through February 28, 1996.................................. F-28
Balance Sheet as of December 31, 1995............................................... F-29
Statement of Cash Flows for the year ended December 31, 1995, and for the period
from January 1, 1996, through February 28, 1996.................................. F-30
Statement of Stockholders' Equity for the year ended December 31, 1995, and for the
period from January 1, 1996, through February 28, 1996........................... F-31
Notes to Financial Statements....................................................... F-32
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF THERMO VISION CORPORATION, ORIEL
CORPORATION, AND CORION CORPORATION (UNAUDITED)
Pro Forma Combined Condensed Statement of Income for the year ended December 28,
1996............................................................................. F-36
Notes to Pro Forma Combined Condensed Statement of Income........................... F-37
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Vision Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Vision Corporation (a Delaware corporation and 100%-owned subsidiary of Thermo
Optek Corporation) and subsidiaries as of December 30, 1995, and December 28,
1996, and the related consolidated statements of income, cash flows, and
shareholder's investment for each of the three years in the period ended
December 28, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We 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
Vision Corporation and subsidiaries as of December 30, 1995, and December 28,
1996, and the results of their operations and their cash flows for each of the
three years in period ended December 28, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 19, 1997 (except with
respect to certain matters
discussed in Note 8, as to
which the date is November 14, 1997)
F-2
<PAGE> 54
THERMO VISION CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------ ------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES (Notes 6 and 7)............. $4,242 $6,026 $30,434 $22,369 $28,445
------ ------ ------- ------- -------
Costs and Operating Expenses:
Cost of revenues................... 3,011 3,482 17,066 12,664 15,791
Selling, general, and
administrative expenses (Note
6).............................. 826 1,519 7,402 5,362 6,558
Research and development
expenses........................ 144 743 3,499 2,504 2,986
------ ------ ------- ------- -------
3,981 5,744 27,967 20,530 25,335
------ ------ ------- ------- -------
Operating Income..................... 261 282 2,467 1,839 3,110
Interest Income...................... -- -- -- -- 16
Interest Expense..................... (28) (31) (44) (34) (192)
------ ------ ------- ------- -------
Income Before Provision for Income
Taxes.............................. 233 251 2,423 1,805 2,934
Provision for Income Taxes (Note
4)................................. 87 104 1,005 756 1,232
------ ------ ------- ------- -------
NET INCOME........................... $ 146 $ 147 $ 1,418 $ 1,049 $ 1,702
====== ====== ======= ======= =======
EARNINGS PER SHARE................... $ .02 $ .02 $ .21 $ .15 $ .25
====== ====== ======= ======= =======
WEIGHTED AVERAGE SHARES.............. 6,784 6,784 6,784 6,784 6,784
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
THERMO VISION CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER
27,
1997
1995 1996 ------------
------ ------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 171 $ 306 $ 200
Accounts receivable, less allowances of $24, $266, and $369... 729 5,305 7,046
Inventories................................................... 1,301 6,404 7,931
Prepaid expenses.............................................. 34 521 812
Prepaid income taxes (Note 4)................................. 416 1,175 1,943
Due from Thermo Electron and affiliated companies (Note 6).... -- -- 101
------ ------- -------
2,651 13,711 18,033
------ ------- -------
Property, Plant, and Equipment, at Cost, Net.................... 606 3,901 4,715
------ ------- -------
Other Assets.................................................... -- 647 1,014
------ ------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 2)..... 3,521 10,103 14,936
------ ------- -------
$6,778 $28,362 $ 38,698
====== ======= =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Note payable and capital lease obligation (Note 6)............ $ 650 $ 866 $ 747
Accounts payable.............................................. 255 2,796 4,517
Accrued payroll and employee benefits......................... 40 751 733
Other accrued expenses........................................ 198 929 1,575
Due to Thermo Electron and affiliated companies (Note 6)...... 938 2,768 --
------ ------- -------
2,081 8,110 7,572
------ ------- -------
Long-term Obligations, Due to Affiliates (Note 8)............... -- -- 7,747
------ ------- -------
Commitments (Note 5)
Shareholder's Investment (Note 3):
Common stock, $.01 par value, 50,000,000 shares authorized;
6,783,783 shares issued and outstanding.................... 68 68 68
Capital in excess of par value................................ 4,608 18,693 20,137
Retained earnings............................................. 19 1,437 3,139
Cumulative translation adjustment............................. 2 54 35
------ ------- -------
4,697 20,252 23,379
------ ------- -------
$6,778 $28,362 $ 38,698
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
THERMO VISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER SEPTEMBER
28, 27,
1994 1995 1996 1996 1997
------ ----- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 146 $ 147 $ 1,418 $ 1,049 $ 1,702
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 87 182 1,251 879 1,298
Provision for losses on accounts
receivable................................ 10 14 174 186 42
Deferred income tax expense (benefit)........ (59) 31 (79) -- --
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable....................... (216) 67 (732) (734) (425)
Inventories............................... (57) (301) 471 201 (268)
Other current assets...................... 9 (2) (253) (228) (201)
Accounts payable.......................... 219 (128) (174) (1,024) 920
Other current liabilities................. (209) (136) (397) (599) (515)
------ ----- -------- -------- -------
Net cash provided by (used in) operating
activities............................ (70) (126) 1,679 (270) 2,553
------ ----- -------- -------- -------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (Note 2).... -- -- (15,528) (15,528) (7,345)
Purchases of property, plant, and equipment.... (96) (152) (1,450) (1,257) (1,142)
Other, net..................................... -- -- 92 117 --
------ ----- -------- -------- -------
Net cash used in investing activities... (96) (152) (16,886) (16,668) (8,487)
------ ----- -------- -------- -------
FINANCING ACTIVITIES:
Net proceeds from issuance of notes payable to
parent company............................... -- -- -- -- 7,747
Transfer from parent company to fund
acquisitions................................. -- -- 16,870 16,870 --
Net increase (decrease) in short-term
borrowings from Thermo Electron and
affiliates................................... 192 1 1,830 2,668 (2,868)
Net decrease in short-term borrowings.......... (230) (65) (575) (604) (116)
Net transfer (to) from parent company.......... 248 473 (2,785) (2,041) 1,444
Other.......................................... -- -- -- -- (379)
------ ----- -------- -------- -------
Net cash provided by financing
activities............................ 210 409 15,340 16,893 5,828
------ ----- -------- -------- -------
Exchange Rate Effect on Cash..................... (7) (10) 2 (1) --
------ ----- -------- -------- -------
Increase (Decrease) in Cash and Cash
Equivalents.................................... 37 121 135 (46) (106)
Cash and Cash Equivalents at Beginning of
Period......................................... 13 50 171 171 306
------ ----- -------- -------- -------
Cash and Cash Equivalents at End of Period....... $ 50 $ 171 $ 306 $ 125 $ 200
====== ===== ======== ======== =======
CASH PAID FOR:
Interest....................................... $ 28 $ 31 $ 44 $ 34 $ 52
====== ===== ======== ======== =======
Income taxes................................... $ -- $ -- $ 43 $ 38 $ --
====== ===== ======== ======== =======
NONCASH ACTIVITIES:
Transfer of acquired business from parent
company...................................... $3,401 $ -- $ -- $ -- $ --
====== ===== ======== ======== =======
Fair value of assets of acquired companies..... $ -- $ -- $ 22,480 $ 22,480 $ 9,414
Cash paid for acquired companies............... -- -- (16,870) (16,870) --
Notes payable to affiliates for acquired
companies.................................... -- -- -- -- (7,400)
------ ----- -------- -------- -------
Liabilities assumed of acquired companies.... $ -- $ -- $ 5,610 $ 5,610 $ 2,014
====== ===== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
THERMO VISION CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON
NET PARENT STOCK, CAPITAL IN CUMULATIVE
COMPANY $.01 PAR EXCESS OF RETAINED TRANSLATION
INVESTMENT VALUE PAR VALUE EARNINGS ADJUSTMENT
---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994................ $ 280 $ -- $ -- $ -- $ (2)
Net income........................... 146 -- -- -- --
Transfer of acquired business from
parent company.................... 3,401 -- -- -- --
Net transfer from parent company..... 248 -- -- -- --
Translation adjustment............... -- -- -- -- 10
------- --- ------- ------ ---
BALANCE DECEMBER 31, 1994.............. 4,075 -- -- -- 8
Net income before capitalization of
the Company....................... 128 -- -- -- --
Net transfer from parent company..... 473 -- -- -- --
Capitalization of the Company........ (4,676) 68 4,608 -- --
Net income after capitalization of
the Company....................... -- -- -- 19 --
Translation adjustment............... -- -- -- -- (6)
------- --- ------- ------ ---
BALANCE DECEMBER 30, 1995.............. -- 68 4,608 19 2
Net income........................... -- -- -- 1,418 --
Transfer from parent company to fund
acquisitions of Oriel and
Corion............................ -- -- 16,870 -- --
Net transfer to parent company....... -- -- (2,785) -- --
Translation adjustment............... -- -- -- -- 52
------- --- ------- ------ ---
BALANCE DECEMBER 28, 1996.............. -- 68 18,693 1,437 54
(UNAUDITED)
Net income........................... -- -- -- 1,702 --
Net transfer from parent company..... -- -- 1,444 -- --
Translation adjustment............... -- -- -- -- (19)
------- --- ------- ------ ---
BALANCE SEPTEMBER 27, 1997............. $ -- $ 68 $20,137 $3,139 $ 35
======= === ======= ====== ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Thermo Vision Corporation ("the Company") designs, manufactures, and
markets a diverse array of photonics products, including optical components,
imaging sensors and systems, lasers, optically based instruments,
optoelectronics, and fiber optics. The Company sells photonics products in
multiple markets across a number of industries for research, testing, detecting,
and manufacturing applications. The Company's products range from optical
filters used in blood glucose monitoring, to charge-injection devices ("CIDs")
used in optical spectroscopy, to specialty light sources used for quality
assurance in semiconductor photolithography. Many of the Company's customers are
manufacturers that incorporate the Company's products into medical and dental
diagnostic instruments, analytical instruments, equipment for semiconductor
manufacturing, and X-ray screening devices.
Relationship with Thermo Optek Corporation, Thermo Instrument Systems Inc., and
Thermo Electron Corporation
The Company was incorporated in November 1995 as a wholly owned subsidiary
of Thermo Optek Corporation ("Thermo Optek") at which time Thermo Optek
transferred to the Company all of the assets, liabilities, and businesses of two
subsidiaries of Thermo Jarrell Ash ("TJA") in exchange for 6,783,783 shares of
the Company's common stock. The companies transferred were CID Technologies Inc.
("CIDTEC") and Scientific Measurement Systems Inc., which now conducts business
under the name "Thermo Vision Colorado." In August 1997, the Company acquired
the crystal-materials business ("Hilger") of Hilger Analytical Limited, a wholly
owned subsidiary of Thermo Optek, and accounted for the transaction at
historical cost in a manner similar to a pooling of interests (Note 8). As of
December 28, 1996, Thermo Optek was a 93%-owned publicly traded subsidiary of
Thermo Instrument Systems Inc. ("Thermo Instrument"). Thermo Instrument is a
publicly traded, majority-owned subsidiary of Thermo Electron Corporation
("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income, and expenses of the Company as included in Thermo Optek's consolidated
financial statements. The accompanying financial statements do not include
Thermo Optek's general corporate debt, which is used to finance operations of
all of its respective business segments, or an allocation of Thermo Optek's
interest expense.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1994, 1995, and 1996 are for the fiscal years ended December
31, 1994, December 30, 1995, and December 28, 1996, respectively.
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The Company
provides a reserve for its estimate of warranty and installation costs at the
time of shipment.
F-7
<PAGE> 59
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company, Thermo Optek, and Thermo Instrument have tax allocation
agreements under which the Company, Thermo Optek, and Thermo Instrument are
included in Thermo Electron's consolidated federal and certain state income tax
returns. The agreements provide that in years in which the Company has taxable
income, it will pay to Thermo Electron amounts comparable to the taxes the
Company would have paid if it had filed separate tax returns. If Thermo
Instrument's beneficial equity ownership of the Company were to drop below 80%,
the Company would be required to file its own federal tax return.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Pursuant to Securities and Exchange Commission requirements, earnings per
share have been presented for all periods. Shares outstanding for such periods
represent the 6,783,783 shares issued to Thermo Optek in connection with the
initial capitalization of the Company.
Cash and Cash Equivalents
Prior to its incorporation, the cash receipts and disbursements of the
Company's domestic operations were combined with other Thermo Optek corporate
cash transactions and balances. Therefore, cash of the Company's domestic
operations through November 1995 is not included in the accompanying balance
sheet.
Inventories
Inventories are stated at the lower of cost (primarily on a first-in,
first-out basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................. $ 919 $3,142
Work in process............................................ 70 806
Finished goods............................................. 312 2,456
---- ------
$1,301 $6,404
==== ======
</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, 15 to 30 years; machinery
and equipment,
F-8
<PAGE> 60
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3 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 and buildings.......................................... $226 $ 277
Machinery and equipment..................................... 582 4,114
Leasehold improvements...................................... -- 554
---- ------
808 4,945
Less: Accumulated depreciation and amortization............. 202 1,044
---- ------
$606 $3,901
==== ======
</TABLE>
Other Assets
Other assets in the accompanying balance sheet consists primarily of a 10%
ownership interest in LOT-Oriel Holding GmbH ("LOT"). The carrying amount of the
investment, which is being accounted for under the cost method, is $500,000 in
the accompanying balance sheet.
As of December 28, 1996, the Company has an investment of less than 20% in
Andor Technology Limited ("Andor"). The carrying amount of the investment, which
is being accounted for under the cost method, is $84,000 in the accompanying
1996 balance sheet. Prior to October 1996, the Company owned approximately 51%
of Andor, and Andor's results were consolidated with those of the Company.
During the third quarter of 1996, the Company reduced its ownership interest in
Andor in a transaction with Andor's other stockholders. In consideration for the
sale of a portion of its interest in Andor, the Company received approximately
$159,000 in cash and a $147,000 principal amount 8% note, which was repaid in
September 1997. Andor's results were not material to the Company's results of
operations.
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 $115,000 and $371,000 at year-end 1995 and 1996, respectively.
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 income and are not material for the three years
presented.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, note payable, accounts payable, and due to
Thermo Electron and affiliated companies. The carrying amounts of these
financial instruments approximate fair value due to their short-term nature.
Impairment of Long-lived Assets
The Company assesses the future useful life of its long-lived assets
whenever events or changes in circumstances indicate that the current useful
life has diminished. The Company considers the future
F-9
<PAGE> 61
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows pertaining to such assets in assessing the
recoverability. If impairment has occurred, any excess of carrying value over
fair value is recorded as a loss.
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.
Interim Financial Statements
The financial statements as of September 27, 1997, and for the nine-month
periods ended September 28, 1996, and September 27, 1997, are unaudited but, in
the opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation of results for these interim periods. The
results of operations for the nine-month period ended September 27, 1997, are
not necessarily indicative of the results to be expected for the entire year.
2. ACQUISITIONS
In October 1994, Thermo Instrument acquired CIDTEC, a manufacturer of
charge-injection devices used for imaging sensors and video cameras, for
$3,401,000 in cash. The cost of this acquisition exceeded the estimated fair
market value of the acquired net assets by $2,889,000, which is being amortized
over 40 years. Thermo Instrument transferred the assets, liabilities, and
businesses of CIDTEC to Thermo Optek after its formation in August 1995. Thermo
Optek transferred the assets, liabilities, and businesses of CIDTEC to the
Company after its formation in November 1995. Because the Company, CIDTEC, and
Thermo Optek were deemed for accounting purposes to be under control of their
common majority owner, Thermo Instrument, the accompanying 1994 and 1995
historical information includes the results of operations of CIDTEC from October
1994, the date this business was acquired by Thermo Instrument.
In February 1996, the Company acquired Oriel Corporation ("Oriel"), a
manufacturer and distributor of photonics components and instruments, for
$11,798,000 in cash, and Corion Corporation ("Corion"), a manufacturer of
commercial optical filters, for $5,072,000 in cash. The cost of Oriel and Corion
exceeded the estimated fair market value of the acquired net assets by
$4,736,000 and $2,056,000, respectively, which are being amortized over 40
years. These acquisitions have been accounted for using the purchase method of
accounting, and their results of operations have been included in the
accompanying financial statements from the respective dates of acquisition.
Based on unaudited data, the following table presents selected financial
information for the Company, CIDTEC, Oriel, and Corion on a pro forma basis,
assuming the Company and CIDTEC had been combined since the beginning of 1994
and the Company, Oriel, and Corion had been combined since the beginning of
1995. Additional pro forma financial information for the Company, Oriel, and
Corion is included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues............................................. $5,366 $33,355 $33,940
Net income (loss).................................... (248) 145 532
Earnings (loss) per share............................ (.05) .03 .11
</TABLE>
F-10
<PAGE> 62
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of CIDTEC
been made at the beginning of 1994 or the acquisitions of Oriel and Corion been
made at the beginning of 1995.
3. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by Thermo Instrument.
Under this plan, shares of Thermo Instrument's and Thermo Electron's common
stock can be purchased at the end of a 12-month plan year at 95% of the fair
market value at the beginning of the plan year, and the shares purchased are
subject to a six-month resale restriction. Prior to November 1, 1995, the
applicable shares of common stock could be purchased at 85% of the fair market
value at the beginning of the plan year, and the shares purchased were subject
to a one-year resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
401(k) Savings Plans
Substantially all of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plans 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 $4,000; $39,000; and
$182,000 in 1994, 1995, and 1996, respectively.
4. INCOME TAXES
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................ $ 5 $ 9 $2,186
Foreign............................................. 228 242 237
---- ---- ------
$233 $251 $2,423
==== ==== ======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ 62 $(11) $ 895
State............................................. 7 (1) 105
Foreign........................................... 77 85 84
---- ---- ------
146 73 1,084
---- ---- ------
Net deferred (prepaid):
Federal........................................... (53) 28 (71)
State............................................. (6) 3 (8)
---- ---- ------
(59) 31 (79)
---- ---- ------
$ 87 $104 $1,005
==== ==== ======
</TABLE>
F-11
<PAGE> 63
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rate................. $79 $ 85 $ 824
Increases (decreases) resulting from:
State income taxes, net of federal benefit................. 1 1 64
Foreign tax rate differential.............................. (1) 3 3
Tax benefit of foreign sales corporation................... -- (2) (5)
Amortization of cost in excess of net assets of acquired
companies............................................... 8 16 80
Nondeductible expenses and other........................... -- 1 39
--- ---- ------
$87 $104 $1,005
=== ==== ======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
Reserves and other accruals............................... $ 47 $ 229
Inventory basis difference................................ 347 713
Accrued compensation...................................... 22 136
Other, net................................................ -- 97
---- ------
$416 $1,175
==== ======
Deferred income taxes:
Fixed assets.............................................. $ 20 $ 20
Intangible assets......................................... 25 25
---- ------
$ 45 $ 45
==== ======
</TABLE>
A provision has not been made for U.S. or additional foreign taxes on
$707,000 of undistributed earnings of the Company's foreign subsidiary that
could be subject to taxation if remitted to the U.S. because the Company plans
to keep this amount permanently reinvested overseas. The Company believes that
any additional U.S. tax liability due upon remittance of such earnings would be
immaterial due to available U.S. foreign tax credits.
5. COMMITMENTS
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $20,000; $120,000; and $438,000 in
1994, 1995, and 1996, respectively. Future minimum payments due under
noncancellable operating leases at December 28, 1996, are $450,000 in 1997;
$165,000 in 1998; $129,000 in 1999; $120,000 in 2000; $120,000 in 2001; and
$631,000 in 2002 and thereafter. Total future minimum lease payments are
$1,615,000. The Company also has operating lease arrangements with related
parties as discussed in Note 6.
F-12
<PAGE> 64
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED-PARTY TRANSACTIONS
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 1.0% of the
Company's revenues. The Company paid an annual fee equal to 1.25% and 1.20% of
the Company's revenues in 1994 and 1995, respectively. The annual fee is
reviewed and adjusted annually by mutual agreement of the parties. For these
services, the Company was charged $53,000; $72,000; and $304,000 in 1994, 1995,
and 1996, respectively. 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.
Operating Leases
In addition to the operating leases described in Note 5, the Company leases
certain office and manufacturing space on a monthly basis from Thermo Optek and
Thermo Instrument. Prior to January 1, 1997, rent expense under these
arrangements was determined as the Company's allocated share of total occupancy
expenses. Effective for 1997, the rent expense is $308,000. The accompanying
statement of income includes expenses from these arrangements of $46,000;
$91,000; and $297,000 in 1994, 1995, and 1996, respectively.
Short-term Obligation
Note payable in the accompanying balance sheet represents short-term bank
borrowings at the Company's foreign subsidiary of $650,000 and $866,000 at
year-end 1995 and 1996, respectively. The Company has an arrangement under which
it may borrow on a bank line of credit arrangement held by Thermo Optek. The
weighted average interest rate for these borrowings was 6.50% and 6.75% at
year-end 1995 and 1996, respectively. Availability to the Company under this
line of credit totaled $1,659,000 as of December 28, 1996.
Distribution Agreement with LOT
The Company has a distribution agreement with LOT which allows LOT to be
Oriel's primary distributor in certain parts of Europe. Sales to LOT included in
the accompanying 1996 statement of income were $1,952,000. Accounts receivable
in the accompanying 1996 balance sheet includes $442,000 due from LOT.
Trademark License and Royalty Agreement
In September 1996, the Company agreed to license the use of a trademark to
Andor in exchange for a fee equal to the greater of 3.3% of the net sales
revenue, as defined, from sales of products sold under the trade name, or 10,000
British pounds sterling. The accompanying 1996 statement of income includes
revenues of $15,000 recorded under this agreement.
F-13
<PAGE> 65
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contract Research and Development
In 1994, 1995, and 1996, the Company recorded revenues of $24,000;
$418,000; and $188,000, respectively, from Thermo Optek for contract research
and development services related to components used in certain products
manufactured by Thermo Optek.
Other Related-party Transactions
The Company purchases and sells products in the ordinary course of business
with other companies affiliated with Thermo Instrument. Sales of products to
such affiliated companies totaled $1,290,000; $2,514,000; and $1,786,000 in
1994, 1995, and 1996, respectively. Purchases of products from such affiliated
companies totaled $211,000; $1,465,000; and $971,000 in 1994, 1995, and 1996,
respectively.
7. GEOGRAPHICAL INFORMATION
The Company is engaged in one business segment: designing, manufacturing,
and marketing photonics products. The following table shows data for the Company
by geographical area.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................................. $ 2,892 $ 4,453 $ 28,780
United Kingdom................................................ 1,350 1,573 1,654
------ ------ -------
$ 4,242 $ 6,026 $ 30,434
====== ====== =======
Income before provision for income taxes:
United States(a).............................................. $ 50 $ 59 $ 2,247
United Kingdom................................................ 211 223 220
------ ------ -------
Operating income.............................................. 261 282 2,467
Interest expense.............................................. 28 31 44
------ ------ -------
$ 233 $ 251 $ 2,423
====== ====== =======
Identifiable assets:
United States................................................. $ 5,585 $ 5,476 $ 26,429
United Kingdom................................................ 1,191 1,302 1,933
------ ------ -------
$ 6,776 $ 6,778 $ 28,362
====== ====== =======
Export revenues included in United States revenues above(b):
Europe........................................................ $ 154 $ 140 $ 5,053
Other......................................................... 201 145 4,434
------ ------ -------
$ 355 $ 285 $ 9,487
====== ====== =======
</TABLE>
- ---------------
(a) Includes corporate general and administrative expenses.
(b) In general, export sales are denominated in U.S. dollars.
8. SUBSEQUENT EVENTS
Acquisitions
In August 1997, the Company acquired Hilger from Thermo Optek for the
assumption of the short-term obligation discussed in Note 6. Because the Company
and Hilger were deemed for accounting purposes to be
F-14
<PAGE> 66
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under control of their common owner, Thermo Optek, the transaction has been
accounted for at historical cost in a manner similar to a pooling of interests.
Accordingly, all historical information presented includes the results of
operations of Hilger since 1993, the year in which it was acquired by Thermo
Optek.
In July 1997, the Company acquired the assets of Centronic, Inc.
("Centronic"), a manufacturer of silicon photodiodes, for $3,800,000 in cash.
The acquisition was accounted for using the purchase method of accounting, and
the cost of this acquisition exceeded the estimated fair market value of the
acquired net assets by $2,307,000, which is being amortized over 40 years. To
finance this acquisition, the Company borrowed $3,800,000 from Thermo Electron
pursuant to a promissory note due July 2000, bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter.
In February 1997, the Company acquired all the outstanding stock of Laser
Science, Inc. ("LSI") for $3,600,000 in cash. LSI is a manufacturer of nitrogen
and tunable dye lasers as well as pulsed CO(2) lasers for industry, medicine,
education, and defense. The acquisition was accounted for using the purchase
method of accounting, and the cost of this acquisition exceeded the estimated
fair market value of the acquired net assets by $2,836,000, which is being
amortized over 40 years. To finance this acquisition, the Company borrowed
$3,600,000 from Thermo Optek. In addition, the Company borrowed an additional
$347,000 from Thermo Optek to fund certain property additions made in connection
with the acquisition of LSI. These borrowings were made through the issuance of
promissory notes due February 2000, bearing interest at the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each quarter.
As of September 27, 1997, the interest rate on the promissory notes was 5.87%.
Stock-based Compensation Plans
In November 1997, the Company adopted a stock-based compensation plan for
its key employees, directors, and others, which permits the grant of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the "Board Committee"), including restricted
stock, stock options, stock bonus shares or performance-based shares. The option
recipients and the terms of options granted under this plan are determined by
the Board Committee. Options granted generally vest and become immediately
exercisable on the sixth anniversary of the grant date unless the Company's
common stock becomes publicly traded prior to such date. In such an event,
options become exercisable 90 days after the Company becomes subject to the
Securities Exchange Act of 1934, but will be subject to certain transfer
restrictions and the right of the Company to repurchase shares issued upon
exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally will be deemed to have lapsed
ratably over a five-year period after the first anniversary of the grant date.
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. As of November
14, 1997, no options have been granted under this plan. 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 Electron and
Thermo Instrument.
Reserved Shares
As of November 14, 1997, the Company has reserved 725,000 unissued shares
of its common stock for possible issuance under stock-based compensation plans.
Stock Split
In August 1997, the Company declared and effected a 4,845-for-1 stock split
in the form of a stock dividend. In November 1997, the Company declared and
effected an approximate 7-for-5 stock split in the form of a stock dividend. All
share and per share information has been restated to reflect these stock splits.
F-15
<PAGE> 67
THERMO VISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. UNAUDITED QUARTERLY INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 FIRST(A) SECOND THIRD FOURTH
- -------------------------------------------------------- -------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues................................................ $5,237 $8,931 $8,201 $8,065
Gross profit............................................ 2,221 3,904 3,580 3,663
Net income.............................................. 201 480 368 369
Earnings per share...................................... .03 .07 .05 .05
</TABLE>
<TABLE>
<CAPTION>
1997 FIRST(B) SECOND THIRD(C)
- ------------------------------------------------------- -------- ------ -------
<S> <C> <C> <C> <C>
Revenues............................................... $8,585 $9,225 $10,635
Gross profit........................................... 3,759 4,089 4,806
Net income............................................. 528 566 608
Earnings per share..................................... .08 .08 .09
</TABLE>
- ---------------
(a) Reflects the February 1996 acquisitions of Corion and Oriel.
(b) Reflects the February 1997 acquisition of LSI.
(c) Reflects the July 1997 acquisition of Centronic.
F-16
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Oriel Corporation:
We have audited the accompanying consolidated balance sheet of Oriel
Corporation (a Delaware corporation) and subsidiaries as of September 30, 1995,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the two year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of Oriel
Corporation and subsidiaries as of September 30, 1995, and the results of their
operations and their cash flows for the two-year period then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
November 1, 1995
F-17
<PAGE> 69
ORIEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -----------------------
1994 1995 1994 1995
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales..................................... $16,206,925 $18,783,394 $3,991,662 $4,816,148
Cost of goods sold............................ 8,599,976 9,815,116 2,034,847 2,604,822
----------- ----------- ---------- ----------
Gross profit................................ 7,606,949 8,968,278 1,956,815 2,211,326
Expenses:
Selling, general, and administrative........ 4,735,509 4,960,236 1,251,373 1,317,695
Research and development.................... 2,037,168 2,706,932 674,549 770,541
----------- ----------- ---------- ----------
Income from operations................... 834,272 1,301,110 30,893 123,090
Other Expense:
Interest Expense, Net....................... 51,640 41,753 853 10,937
Other, Net.................................. 44,296 136,408 14,216 20,344
----------- ----------- ---------- ----------
Income Before Provision for Income Taxes and
Minority Interest in Net Earnings (Loss) of
Equity Investee............................. 738,336 1,122,949 15,824 91,809
Provision for Income Taxes.................... 368,000 328,000 9,705 25,904
----------- ----------- ---------- ----------
Income Before Minority Interest in Net
Earnings (Loss) of Equity Investee.......... 370,336 794,949 6,119 65,905
Minority Interest in Net Earnings (Loss) of
Equity Investee............................. -- 60,654 (3,288) 25,366
----------- ----------- ---------- ----------
Net Income.................................... $ 370,336 $ 734,295 $ 9,407 $ 40,539
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE> 70
ORIEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1995 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 271,874 $ 535,431
Accounts receivable, net of allowance for doubtful accounts of
approximately $77,000.......................................... 3,755,180 3,166,208
Inventories....................................................... 4,294,761 4,589,359
Prepaid expenses.................................................. 107,913 72,751
Deferred income taxes............................................. 235,000 235,000
----------- -----------
Total current assets...................................... 8,664,728 8,598,749
----------- -----------
Property, Plant, and Equipment, at Cost:
Machinery and equipment........................................... 2,494,728 2,632,547
Furniture and fixtures............................................ 1,051,817 1,059,274
Leasehold improvements............................................ 493,343 493,343
----------- -----------
4,039,888 4,185,164
Less: Accumulated depreciation and amortization................ (2,624,379) (2,761,542)
----------- -----------
1,415,509 1,423,622
----------- -----------
Other Assets:
Investments....................................................... 500,000 500,000
Catalogue costs................................................... 212,853 180,504
Goodwill.......................................................... 120,763 117,163
Other............................................................. 40,783 54,341
----------- -----------
874,399 852,008
----------- -----------
$10,954,636 $10,874,379
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit.................................................... $ 480,915 $ 429,749
Accounts payable.................................................. 1,607,384 1,571,061
Accrued liabilities............................................... 238,229 355,645
Accrued employee benefits......................................... 466,497 394,762
Income taxes payable.............................................. 92,750 --
----------- -----------
Total current liabilities................................. 2,885,775 2,751,217
----------- -----------
Benefits Payable.................................................... 52,282 52,282
----------- -----------
Deferred Income Taxes............................................... 41,000 41,000
----------- -----------
Minority Interest in Net Assets of Equity Investee.................. 267,674 293,040
----------- -----------
Commitments and Contingencies (Notes 1, 7, and 8)
Stockholders' Equity:
Common stock, $.01 par value, 5,000,000 shares authorized;
3,419,643 shares issued........................................ 34,197 34,197
Additional paid-in capital........................................ 4,945,931 4,945,931
Retained earnings................................................. 2,933,617 2,974,156
Cumulative translation adjustment................................. 3,937 (7,667)
Treasury stock, at cost........................................... (209,777) (209,777)
----------- -----------
7,707,905 7,736,840
----------- -----------
$10,954,636 $10,874,379
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 71
ORIEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ---------------------
1994 1995 1994 1995
----------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................... $ 370,336 $ 734,295 $ 9,407 $ 40,539
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 823,206 1,052,906 281,427 209,576
Deferred income taxes...................... (55,000) (4,000) -- --
Minority interest in net earnings (loss) of
Equity Investee.......................... -- 60,654 (3,288) 25,366
Change in assets and liabilities, net of
acquisition:
Accounts receivable...................... 58,158 (747,774) 472,525 588,972
Inventories.............................. (119,437) (238,453) (197,149) (294,598)
Prepaid expense and other current
assets................................ 15,460 (39,751) 31,941 35,162
Catalogue costs.......................... (134,876) (440,596) (191,720) (36,464)
Other assets............................. 9,208 10,137 12,673 (13,558)
Accounts payable and accrued
liabilities........................... 72,446 (5,373) (356,375) 9,358
Income taxes payable..................... 135,216 (84,291) -- (92,750)
Other liabilities........................ (9,564) (44,473) -- --
----------- --------- --------- ---------
Net cash provided by operating
activities.......................... 1,165,153 253,281 59,441 471,603
----------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant, and equipment.... (408,137) (711,360) (220,949) (145,276)
Equity investment (Note 1).................... (7,776) -- -- --
----------- --------- --------- ---------
Net cash used in investing
activities.......................... (415,913) (711,360) (220,949) (145,276)
----------- --------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) on line of
credit..................................... (1,500,000) 480,915 -- (51,166)
Cumulative translation adjustment............. -- 3,937 (3,171) (11,604)
----------- --------- --------- ---------
Net cash provided by (used in)
financing activities................ (1,500,000) 484,852 (3,171) (62,770)
----------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... (750,760) 26,773 (164,679) 263,557
Cash and Cash Equivalents, beginning of
period........................................ 995,861 245,101 245,101 271,874
----------- --------- --------- ---------
Cash and Cash Equivalents, end of period........ $ 245,101 $ 271,874 $ 80,422 $ 535,431
=========== ========= ========= =========
Supplemental Disclosure:
Cash paid during the period for:
Interest................................... $ 59,242 $ 46,958 $ -- $ --
=========== ========= ========= =========
Income taxes............................... $ 338,778 $ 390,469 $ 124,228 $ 125,204
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 72
ORIEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK TOTAL
------------------- PAID-IN RETAINED TRANSLATION -------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES AMOUNT EQUITY
--------- ------- ---------- ---------- ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1993..................... 3,419,643 $34,197 $4,945,931 $1,828,986 $ -- (104,000) $(209,777) $ 6,599,337
Net income............... -- -- -- 370,336 -- -- -- 370,336
--------- ------- ---------- ---------- -------- -------- --------- ----------
Balance, September 30,
1994..................... 3,419,643 34,197 4,945,931 2,199,322 -- (104,000) (209,777) 6,969,673
Net income............... -- -- -- 734,295 -- -- -- 734,295
Translation adjustment... -- -- -- -- 3,937 -- -- 3,937
--------- ------- ---------- ---------- -------- -------- --------- ----------
Balance, September 30,
1995..................... 3,419,643 34,197 4,945,931 2,933,617 3,937 (104,000) (209,777) 7,707,905
(UNAUDITED)
Net income............... -- -- -- 40,539 -- -- -- 40,539
Translation adjustment... -- -- -- -- (11,604) -- -- (11,604)
--------- ------- ---------- ---------- -------- -------- --------- ----------
Balance, December 31,
1995..................... 3,419,643 $34,197 $4,945,931 $2,974,156 $ (7,667) (104,000) $(209,777) $ 7,736,840
========= ======= ========== ========== ======== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 73
ORIEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Acquisition
Oriel Corporation (the "Company") designs, manufactures, and distributes
precision products, light sources, monochromators, detection systems, and optics
for use in laser and medical research.
On September 27, 1994, the Company increased its holdings in Andor
Technology Limited ("Andor") from 25% to 51.25% (the "Acquisition") through the
purchase of newly issued shares of Andor for a commitment to fund $300,000 over
the following 27 months. As of September 30, 1995, $100,000 had been paid
related to this commitment. The Acquisition was accounted for as a purchase with
the excess of the acquisition cost over the fair value of Andor's net assets
($131,303) assigned to goodwill. Goodwill will be amortized over an estimated
ten year life.
The Company purchases one of its product lines from Andor. During fiscal
1994 and 1995, the Company purchased approximately $539,000 and $1,458,000,
respectively, from Andor.
Accounting Pronouncements
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair Value of Financial Instruments," which extends existing fair value
disclosure practices for some instruments by requiring all entities to disclose
the fair value of financial instruments, both assets and liabilities recognized
and not recognized in the statement of financial position, for which it is
practicable to estimate fair value. If estimating fair value is not practicable,
this Statement requires disclosure of descriptive information pertinent to
estimating the value of a financial instrument. This Statement is effective for
fiscal 1996. There will be no impact on the Company's financial position or
results of operations as the standard relates to footnote disclosure only.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
established criteria for the recognition and measurement of impairment loss
associated with long-lived assets. The Company will be required to adopt this
standard in fiscal 1997. The Company has yet to consider adoption of this
standard, however, it is not expected to have a material impact on the Company's
financial position or results of operations.
In October 1995, the FASB also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which established financial accounting and reporting
standards for stock-based employee compensation plans. Companies are encouraged,
rather than required, to adopt a new method that accounts for stock compensation
awards based on their fair value using an option pricing model. Companies that
do not adopt this new method will have to make pro forma disclosures of net
income as if the fair value based method of accounting required by SFAS No. 123
had been applied. The pro forma disclosures are required for fiscal 1996. The
fair value-based method of accounting, if adopted by the Company, is effective
for fiscal year 1997. The Company does not expect this standard to have a
material impact on the Company's financial position or results of operations
because the Company intends to only make pro forma disclosures to comply with
this pronouncement.
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, Oriel Foreign Sales Corporation, and Andor (since the Acquisition).
All significant intercompany accounts and transactions have been eliminated in
consolidation. The minority interest reflected in the consolidated balance sheet
represents the 48.75% of Andor which is owned by third parties.
Cash Equivalents
The Company considers all instruments with a maturity of three months or
less to be cash equivalents.
F-22
<PAGE> 74
ORIEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
The Company values its inventory at the lower of cost, using the first-in,
first-out method ("FIFO"), or market.
Property and Equipment
Property and equipment is recorded at cost and is depreciated, using the
straight-line method, over estimated useful lives of 3 to 8 years or, in the
case of leasehold improvements, over the shorter of the assets' useful life or
the term of the related lease.
Investments
The Company maintains a 10% ownership interest in LOT Holdings GmbH
("LOT"). The carrying amount of the investment, which is being accounted for
under the cost method, is $500,000 in the accompanying balance sheet.
The Company has entered into a distribution agreement with LOT which allows
LOT to be the Company's primary distributor in certain parts of Europe. Sales to
LOT for fiscal 1994 and 1995 were approximately $1,989,000 and $2,963,000,
respectively. The Company pays commissions to LOT on these sales and had
commissions payable of approximately $2,000 as of September 30, 1995, which is
included in the accompanying consolidated balance sheet. As of September 30,
1995, the Company had approximately $549,000 due from LOT for purchases from the
Company which are included in accounts receivable in the accompanying
consolidated balance sheet.
Catalogue Costs
Costs associated with the Company's sales catalogues are deferred and
amortized on a straight line basis over the estimated useful life of the
catalogues of between one and one-and-a-half years.
Benefits Payable
The Company provides certain medical and dental benefits for two previous
employees and their dependents. The estimated cost of such benefits is accrued
and reflected as deferred benefits payable in the accompanying consolidated
balance sheet.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments
and trade receivables. The Company holds principally all of its cash and cash
equivalents in one bank. Other than amounts due from LOT described above,
concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, which
primarily includes numerous universities and research and development ventures
in countries worldwide. The Company requires certain international customers to
furnish letters of credit. Management does not believe significant
concentrations of credit risk other than those due from LOT existed at September
30, 1995.
Use of Estimates in the Preparation of Financial Statements
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
F-23
<PAGE> 75
ORIEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim Financial Statements
The financial statements for the three-month periods ended December 31,
1994, and 1995 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 December 31, 1995, are not necessarily indicative of the results to
be expected for the entire year.
2. COMMON STOCK SUBJECT TO ISSUANCE
In connection with the 1994 acquisition of Andor stock (see Note 1), the
Company entered into an agreement with Andor whereby the remaining 48.25% of
outstanding stock of Andor would be converted into common stock of the Company.
The percentage of outstanding Company stock to be issued to Andor stockholders
in connection with this agreement would be based on the 1997 net revenue of
Andor, as defined, and would range from 10% to 60% based on net sales of
$3,000,000 to $15,000,000, respectively. This agreement was cancelled in
connection with the acquisition of the Company described in Note 8.
3. LINE OF CREDIT
In January 1995, the Company renegotiated its line of credit. Available
borrowings under the new agreement are limited to the lesser of (a) $2,000,000
or (b) 80% of eligible accounts receivable and the lesser of 25% of the value of
eligible inventory up to a maximum of $700,000. All outstanding borrowings bear
interest at prime. This line of credit expires on February 28, 1997. The use of
proceeds is for working capital purposes.
The Company is prohibited from merging or consolidating with or into any
other company nor can the Company purchase a material portion of any other
company. Since the Company has signed a letter of intent to be acquired by
another business and intends on completing this sale or another sale should this
transaction not be completed (see Note 8), the Company expects to be in default
of this covenant. As such, the outstanding borrowings against this line of
credit have been classified as currently payable in the accompanying balance
sheet.
The loan agreement also contains certain financial covenants which must be
met quarterly. In addition, the line of credit agreement contains a provision
whereby outstanding borrowings can be deemed to be currently due and payable if
the Company experiences a material adverse change, as defined, in its business
operations.
The line of credit is secured by a first priority security interest on all
assets of the Company and all letters of credit. As of September 30, 1995, the
Company had outstanding borrowings of $480,915 against this line of credit.
4. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes," under
which the Company uses an asset and liability approach to recognize deferred tax
assets and liabilities for the future tax consequences of items that have
already been recognized in its financial statements and tax returns.
F-24
<PAGE> 76
ORIEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for fiscal 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current:
Federal.............................................. $363,000 $297,000
State................................................ 60,000 35,000
-------- --------
423,000 332,000
Deferred:
Federal.............................................. (50,000) (3,000)
State................................................ (5,000) (1,000)
-------- --------
$368,000 $328,000
======== ========
</TABLE>
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Provision for income taxes at statutory rate................... $251,000 $382,000
Increases (decreases) resulting from:
State income taxes, net of federal benefit................... 36,000 23,000
Foreign tax rate differential................................ 19,000 11,000
Tax benefit of foreign sales corporation..................... (6,000) (20,000)
Other reserves and credits................................... 32,000 (78,000)
Amortization of cost in excess of net assets of acquired
companies................................................. 32,000 --
Nondeductible expenses....................................... 4,000 10,000
-------- --------
$368,000 $328,000
======== ========
</TABLE>
The appropriate tax effect of the temporary difference giving rise to the
Company's deferred tax assets and liabilities at September 30, 1995, result
primarily from allowances for doubtful accounts, inventory items, accrued
warranty, accrued vacation, deferred compensation, and different book and tax
treatments of depreciation. As of September 30, 1995, the Company had aggregate
deferred tax assets of $299,000, which was partially offset by a valuation
allowance of $27,000, and aggregate deferred tax liabilities of $78,000.
The Company also has foreign tax credit carryforwards of approximately
$19,000 at September 30, 1995, which are available to reduce future taxes on
foreign source income, if any, and which expire through 1996.
5. STOCK OPTION PLAN
The Company has established an employee Stock Option Plan which authorizes
the granting of options to purchase up to 450,000 shares of the Company's common
stock. Options are granted for a term of ten years, and are generally
exercisable at the rate of 2% per month commencing at the date of grant.
Additionally, a resolution was passed whereby all issued options are exercisable
in conjunction with any sale of the Company (see Note 8).
F-25
<PAGE> 77
ORIEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to outstanding stock options is as follows:
<TABLE>
<CAPTION>
EXERCISE
SHARES PRICE
------- ----------
<S> <C> <C>
September 30, 1993.................................... 222,500 $2.00-2.12
Canceled............................................ (12,500) 2.00-2.12
------- ----------
September 30, 1994.................................... 210,000 2.00-2.12
Issued.............................................. 148,000 2.00-2.12
------- ----------
September 30, 1995.................................... 358,000 $2.00-2.12
======= ==========
</TABLE>
6. PROFIT SHARING PLAN
The Company has a profit sharing plan which was established for all
full-time U.S. employees and which provides for discretionary Company
contributions. Included in the accompanying statements of operations is
approximately $120,000 and $125,000 related to the Company's discretionary
contributions for fiscal 1994 and 1995, respectively.
7. COMMITMENTS
The Company leases offices and plant and equipment for various periods
through 2000. The approximate minimum annual rental commitments for the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------
<S> <C>
1996...................................................... $333,000
1997...................................................... 317,000
1998...................................................... 118,000
1999...................................................... 16,000
2000...................................................... 16,000
--------
$800,000
========
</TABLE>
Rent expense for fiscal 1994 and 1995 was approximately $290,000 and
$342,000, respectively.
8. SUBSEQUENT EVENT
On February 20, 1996, all of the outstanding capital stock of the Company
was acquired by Thermo Vision Corporation, a wholly owned subsidiary of Thermo
Optek Corporation, for $11,798,000 in cash.
F-26
<PAGE> 78
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Corion Corporation:
We have audited the accompanying balance sheet of Corion Corporation as of
December 31, 1995, and the related statements of operations, changes in
stockholders' equity, and cash flows for 1995 and the period from January 1,
1996, through February 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Corion Corporation as of
December 31, 1995, and its results of operations and cash flows for 1995 and the
period from January 1, 1996, through February 29, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 12, 1996
F-27
<PAGE> 79
CORION CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
THROUGH
1995 FEBRUARY 29, 1996
------- -----------------
<S> <C> <C>
Net sales (Note 9)................................................... $ 8,546 $ 968
Cost of goods sold................................................... (6,679) (506)
------- -----
Gross profit....................................................... 1,867 462
Selling, general, and administrative expense......................... 1,751 308
Research and development expense..................................... 415 83
------- -----
Income (loss) from operations...................................... (299) 71
Interest Income...................................................... 7 3
Interest Expense..................................................... (319) (46)
Other Expense, Net................................................... (34) --
------- -----
Net Income (Loss).................................................... $ (645) $ 28
======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 80
CORION CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995
-------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 479
Trade accounts receivable, less allowance for doubtful accounts of $50............ 1,157
Other receivables................................................................. 101
Inventories....................................................................... 1,204
Other current assets.............................................................. 164
------
3,105
------
Property and Equipment.............................................................. 5,216
Less: Accumulated depreciation.................................................... 3,714
------
1,502
------
$ 4,607
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable...................................................................... $ 1,616
Accounts payable.................................................................. 403
Accrued expenses.................................................................. 366
------
2,385
------
Long-term Note Payable.............................................................. 1,000
------
Commitments (Notes 5 and 7)
Stockholders' Equity (Notes 6 and 7):
Class A voting common stock, $1.00 par value, 1,000,000 shares authorized; 494,570
shares issued and outstanding.................................................. 495
Class B nonvoting common stock, $.10 par value, 3,000,000 shares authorized;
1,483,710 shares issued and outstanding........................................ 148
Retained earnings................................................................. 579
------
1,222
------
$ 4,607
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 81
CORION CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
THROUGH
1995 FEBRUARY 29, 1996
----- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)................................................... $(645) $ 28
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 369 60
Provision for doubtful accounts.................................. 52 --
Loss on sale of property and equipment........................... 2 --
Changes in assets and liabilities:
Trade accounts receivable...................................... 419 407
Inventories.................................................... 894 (168)
Other current assets........................................... 20 (15)
Accounts payable............................................... (438) (101)
Accrued expenses............................................... 98 (113)
----- -----
Net cash provided by operating activities................... 771 98
----- -----
Cash Flows from Investing Activities:
Additions to property and equipment................................. (40) (8)
Proceeds from sale of property and equipment........................ 1 --
----- -----
Net cash used in investing activities....................... (39) (8)
----- -----
Cash Flows from Financing Activities:
Repayments of notes payable......................................... (480) (89)
----- -----
Net cash used in financing activities....................... (480) (89)
----- -----
Net Increase in Cash and Cash Equivalents............................. 252 1
Cash and Cash Equivalents at Beginning of Period...................... 227 479
----- -----
Cash and Cash Equivalents at End of Period............................ $ 479 $ 480
===== =====
Supplemental Disclosure:
Cash paid during the period for:
Interest......................................................... $ 310 $ 59
===== =====
Income taxes..................................................... $ 9 $ --
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 82
CORION CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED STOCKHOLDERS'
CLASS A CLASS B EARNINGS EQUITY
------- ------- -------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1994........................... $ 495 $ 148 $1,224 $ 1,867
Net loss.......................................... -- -- (645) (645)
---- ---- ------ ------
Balance December 31, 1995........................... 495 148 579 1,222
Net income........................................ -- -- 28 28
---- ---- ------ ------
Balance February 29, 1996........................... $ 495 $ 148 $ 607 $ 1,250
==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 83
CORION CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Corion Corporation (the "Company") is engaged in the manufacturing and
marketing of optical filters and other coated optical products.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
short-term investments with an original maturity date of three months or less to
be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out ("FIFO") method.
Property and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized on the straight-line method over
the shorter of the lease term or estimated useful life of the asset.
Income Taxes
The Company is an S corporation for federal tax reporting purposes. Under
the applicable S corporation provisions, the Company does not incur federal
income taxes at the corporate level as such taxes are an obligation of the
stockholders. The Company does provide for state income taxes as necessary.
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"), deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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.
F-32
<PAGE> 84
CORION CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Raw materials.................................................. $ 182
Work in process................................................ 626
Finished goods................................................. 396
-----
$1,204
=====
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1995 ------------
--------------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment............................ $4,860 4-12 years
Furniture and fixtures............................. 152 5 years
Leasehold improvements............................. 204 4 years
------
$5,216
======
</TABLE>
4. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Note payable to bank with interest at the corporate base rate plus 1%
(9.50% at December 31, 1995), secured by all assets of the Company... $1,616
Subordinated notes payable to stockholders, interest at 15%, payable
semiannually, principal payable in full on January 1, 2002........... 1,000
------
Total notes payable............................................... 2,616
Less currently payable................................................. 1,616
------
Long-term notes payable........................................... $1,000
======
</TABLE>
The $1,616,000 note payable, which is contractually based on monthly
payments of principal and interest, requires the maintenance of certain minimum
levels of working capital and net worth and includes other covenants which,
among other items, restrict the Company's ability to borrow, pay dividends, and
make investments. At February 29, 1996, the Company was not in compliance with
certain of such covenants and had not obtained waivers from the lending bank.
However, this note was repaid in connection with the February 29, 1996, sale of
substantially all of the assets and certain liabilities of the Company, as
described in Note 10. Accordingly, this note payable is classified as a current
liability in the accompanying balance sheet.
5. LEASE COMMITMENTS
The Company leases its building from a trust, the primary beneficiaries of
which include certain principal stockholders and officers of the Company. The
building is leased under a rental agreement which expires on November 1, 1999.
The agreement provides for adjustments upwards on certain dates by a factor
equal to the change in the Consumer Price Index from August 1, 1984, to each of
the adjustment dates. The Company also
F-33
<PAGE> 85
CORION CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
leases vehicles and office equipment under leases expiring at various dates
through February 1998. Minimum lease commitments under all operating leases are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996................................................... $ 283
1997................................................... 283
1998................................................... 278
1999................................................... 230
------
Total........................................ $1,074
======
</TABLE>
Rent expense under operating leases amounted to $305,000 and $50,000 for
1995 and the period from January 1, 1996, through February 29, 1996,
respectively. Of these amounts, approximately $271,000 and $45,000 was paid to
the trust in 1995 and the period from January 1, 1996, through February 29,
1996, respectively.
6. STOCKHOLDERS' EQUITY
Stock Option Plan
On November 9, 1989, the board of directors approved the 1989 Stock Option
Plan (the "Plan"), which provides that key employees may be granted nonqualified
stock options, enabling them to purchase shares of the Company's stock at a
price not less than 80% of the fair market value of the stock on the date of
grant. Subsequently, on May 20, 1992, and on October 27, 1993, the board amended
the Plan to increase the total number of shares which may be issued under the
Plan to 16,500 shares of Class A common stock and 49,500 shares of Class B
common stock, and to allow the administrative committee to determine at the time
of grant to make the options exercisable over various periods from the date of
grant including immediately upon the date of grant. A summary of the Company's
stock option information as of December 31, 1995, is as follows:
<TABLE>
<CAPTION>
CLASS OF NUMBER OF RANGE OF OPTION
COMMON STOCK SHARES PRICES PER SHARE
------------ --------- ----------------
<S> <C> <C> <C>
Outstanding............................. A 7,500 $ .82 - 1.58
Exercisable............................. A 7,500 .82 - 1.58
Outstanding............................. B 36,500 .78 - 1.58
Exercisable............................. B 22,500 .78 - 1.58
</TABLE>
Data concerning outstanding and exercisable options as of February 29,
1996, is not materially different from the data presented for December 31, 1995.
7. COMMON STOCK PURCHASE AGREEMENTS
The Company has entered into stock purchase agreements with various
officers of the Company which state that in the event of the officer's death,
the Company will purchase all outstanding shares of common stock owned by the
officer tendered by his legal representative. The purchase price has been
established at 1.075 times the adjusted net book value of such shares as shown
on the balance sheet of the Company as of the last day of the calendar quarter
immediately preceding the individual's death.
8. PROFIT-SHARING AND SAVINGS PLAN
The Company has a profit-sharing and savings plan covering substantially
all employees who have met eligibility requirements. The Company may contribute
any amount as determined by the board of directors under the profit-sharing
plan. In addition, to encourage employee saving, the Company had adopted a
practice of matching employee contributions up to $400 per plan year. Total
profit-sharing plan expenses, including
F-34
<PAGE> 86
CORION CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
administrative expenses and matching and discretionary grants for 1995 and the
period from January 1, 1996, through February 29, 1996, were $29,000 and $5,000,
respectively.
9. SIGNIFICANT CUSTOMERS
Net sales from government related contracts were approximately 33% of total
net sales in 1995 and were less than 10% of total net sales in the period from
January 1, 1996, through February 29, 1996. In addition, one commercial customer
accounted for approximately 11% of total net sales in the period from January 1,
1996, through February 29, 1996.
10. SUBSEQUENT EVENT
On February 29, 1996, the Company was sold to Thermo Vision Corporation.
F-35
<PAGE> 87
THERMO VISION CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
In February 1996, Thermo Vision Corporation ("the Company") acquired Oriel
Corporation ("Oriel"), a manufacturer and distributor of photonics components
and instruments, for $11.8 million in cash, and Corion Corporation ("Corion"), a
manufacturer of commercial optical filters, for $5.1 million in cash. These
acquisitions have been accounted for using the purchase method of accounting,
and their results of operations have been included in the accompanying financial
statements from the respective dates of acquisition.
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the year ended December 28, 1996, as if
the acquisitions of Oriel and Corion had occurred on January 1, 1996. Oriel and
Corion's historical statements of income represent their results for the period
from January 1, 1996, through February 20, 1996, and February 29, 1996, the
respective dates of acquisition by the Company. Oriel's historical statement of
income for the period from January 1, 1996, to February 20, 1996, includes
$581,000 of nonrecurring compensation costs incurred in connection with its
acquisition by the Company. The pro forma results of operations are not
necessarily indicative of future operations or the actual results that would
have occurred had the acquisitions of Oriel and Corion been made on January 1,
1996. This statement should be read in conjunction with the accompanying notes
and the respective historical financial statements and related notes of the
Company, Oriel, and Corion appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
THERMO -------------------------
VISION ORIEL CORION ADJUSTMENTS COMBINED
------- ------- ------ ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $30,434 $ 2,538 $968 $ -- $33,940
------- ------- ---- ---- ------
Costs and Operating Expenses:
Cost of revenues...................... 17,066 2,056 506 -- 19,628
Selling, general, and administrative
expenses........................... 7,402 1,667 308 63 9,440
Research and development expenses..... 3,499 459 83 -- 4,041
------- ------- ---- ---- ------
27,967 4,182 897 63 33,109
------- ------- ---- ---- ------
Operating Income (Loss)................. 2,467 (1,644) 71 (63) 831
Interest Income......................... -- -- 3 -- 3
Interest Expense........................ (44) (5) (46) 46 (49)
Other Expense........................... -- (32) -- -- (32)
------- ------- ---- ---- ------
Income (Loss) Before Provision (Benefit)
for Income Taxes...................... 2,423 (1,681) 28 (17) 753
Provision (Benefit) for Income Taxes.... 1,005 (602) -- 12 415
------- ------- ---- ---- ------
Net Income (Loss)....................... $ 1,418 $(1,079) $ 28 $(29) $ 338
======= ======= ==== ==== ======
Earnings per Share...................... $ .21 $ .05
======= ======
Weighted Average Shares................. 6,784 6,784
======= ======
</TABLE>
F-36
<PAGE> 88
THERMO VISION CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
NOTE 1 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 28, 1996 (IN THOUSANDS, EXCEPT IN
TEXT)
<TABLE>
<CAPTION>
DEBIT
(CREDIT)
--------
<S> <C>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Service fee of 1.0% of the revenues of Oriel and Corion for services provided under
a services agreement between the Company and Thermo Electron...................... $ 35
Amortization over 40 years of $4,736,000 and $2,056,000 of "Cost in excess of net
assets of acquired companies" created by the acquisitions of Oriel and Corion,
respectively...................................................................... 28
----
63
----
INTEREST EXPENSE
Reduction in Corion interest expense incurred on notes payable to related parties
that were not purchased by the Company............................................ (46)
----
PROVISION FOR INCOME TAXES
Income tax expense on earnings of Corion calculated at the Company's statutory
income tax rate of 40%............................................................ 11
Income tax benefit associated with the adjustments above (excluding amortization of
cost in excess of net assets of Oriel), calculated at the Company's statutory
income tax rate of 40%............................................................ 1
----
12
----
</TABLE>
F-37
<PAGE> 89
ANNEX A
SAMPLE FORM OF INFORMATION STATEMENT
TO BE PROVIDED TO INTERNAL REVENUE SERVICE BY SHAREHOLDERS
Note: Attachment to 1997 federal income tax return of shareholders
Statement of shareholders receiving a distribution of stock in Thermo
Vision Corporation (a controlled corporation), pursuant to Treas. Reg. sec.
1.355-5(b).
1. The undersigned, a shareholder owning shares of Thermo Optek
Corporation as of , 1997, received a distribution of stock in a
controlled corporation that qualifies under sec. 355 pursuant to a private
letter ruling received by Thermo Optek Corporation from the Internal Revenue
Service.
2. The name and addresses of the corporations involved are:
Thermo Optek Corporation
8E Forge Parkway
Franklin, Massachusetts 02038 (Distributing Corporation)
Thermo Vision Corporation
8E Forge Parkway
Franklin, Massachusetts 02038 (Controlled Corporation)
3. No stock or securities in Thermo Optek Corporation were surrendered by
the undersigned.
4. shares of Thermo Vision Corporation were received
constituting only common shares in such corporation.
5. No cash or other property was received by the undersigned in connection
with the distribution except for $ representing a cash payment in lieu
of fractional shares.
Shareholder
--------------------------------------
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE DISTRIBUTION UPON THEM.
A-1
<PAGE> 90
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 15. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(a) Financial Statement Schedules
Financial Statement Schedule as of December 28, 1996, and the Report of
Independent Public Accountants on such schedule are included in this
Registration Statement. All other schedules are omitted because they
are not applicable or are not required under Regulation S-X.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
2.1 Form of Plan and Agreement of Distribution between Thermo Optek Corporation
("Optek") and the Registrant.
2.2 Asset Purchase Agreement dated as of January 23, 1996, by and between the Registrant
and Corion Corporation. Pursuant to Item 601(b)(2) of Regulation S-K, schedules to
this Agreement have been omitted. The Registrant hereby undertakes to furnish
supplementally a copy of such schedules to the Commission upon request.
2.3 Purchase Agreement dated as of February 7, 1996, by and between the Registrant and
the shareholders and optionholders of Oriel Corporation as set forth therein.
Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been
omitted. The Registrant hereby undertakes to furnish supplementally a copy of such
schedules to the Commission upon request.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Form of Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate of the Registrant.
*8.1 Tax Private Letter Ruling dated August 22, 1997 issued by the Internal Revenue
Service.
10.1 Form of Corporate Services Agreement between Thermo Electron Corporation ("Thermo
Electron") and the Registrant.
10.2 Thermo Electron Corporate Charter, as amended and restated, effective January 3,
1993 (filed as Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the
fiscal year ended January 3, 1993 [File No. 1-8002] and incorporated herein by
reference).
10.3 Form of Tax Allocation Agreement between Thermo Electron and the Registrant.
10.4 Form of Master Repurchase Agreement between Thermo Electron and the Registrant.
10.5 Form of Master Guarantee Reimbursement Agreement between Thermo Electron and the
Registrant.
10.6 Form of Master Guarantee Reimbursement Agreement between Thermo Instrument Systems
Inc. ("Thermo Instrument") and the Registrant.
10.7 Form of Tax Matters Agreement between Optek and the Registrant.
10.8 CID Contract Research and Development Agreement dated October 1994 between Optek and
the Registrant.
10.9 Form of CID Supply Agreement between Optek and the Registrant.
10.10 Form of Equity Incentive Plan of the Registrant.
10.11 Form of Deferred Compensation Plan for Directors of the Registrant.
10.12 Indemnification Agreement effective as of December 31, 1995, between the Registrant
and Thermo Instrument.
10.13 Form of Indemnification Agreement for Officers and Directors of the Registrant.
10.14 Sublease Agreement dated as of September 1, 1997, between the Registrant and Thermo
Instrument.
10.15 Sublease Agreement effective as of February 1, 1984, between Oriel Instruments
Corporation and Osbrook Associates Limited Partnership, as modified.
10.16 $3.8 Million Principal Amount Promissory Note due July 13, 2000, issued by the
Registrant to Thermo Electron.
</TABLE>
II-1
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.17 $3.6 Million Principal Amount Promissory Note and $347,438 Principal Amount
Promissory Note, both due February 18, 2000, issued by the Registrant to Optek.
10.18 Optek Equity Incentive Plan (filed as Exhibit 10.6 to Optek's Registration Statement
on Form S-1 [File No. 333-03630], and incorporated herein by reference).
10.19 Thermo Instrument -- ThermoSpectra Corporation Nonqualified Stock Option Plan (filed
as Exhibit 10.51 to Thermo Instrument's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, [File No. 1-9786] and incorporated herein be
reference).
10.20 Thermo Instrument -- ThermoQuest Corporation Nonqualified Stock Option Plan (filed
as Exhibit 10.65 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal
year ended December 30, 1995, [File No. 1-10114] and incorporated herein by
reference).
10.21 Agreement of Lease dated as of October 6, 1997, between Oriel Instruments
Corporation and 1608 Development Limited Partnership.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith. All other exhibits were previously filed or were previously
incorporated herein by reference.
II-2
<PAGE> 92
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Amendment No. 2 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
THERMO VISION CORPORATION
By: /s/ KRISTINE S. LANGDON
------------------------------------
Name: Kristine S. Langdon
Title: President and Chief Executive
Officer
Date: November 25, 1997
II-3
<PAGE> 93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Vision Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Thermo Vision Corporation included in
Thermo Vision Corporation's Form 10 and have issued our report thereon dated May
19, 1997. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. Thermo Vision
Corporation's schedule of Valuation and Qualifying Accounts, included in
Schedule II on page S-2, is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 19, 1997
S-1
<PAGE> 94
SCHEDULE II
THERMO VISION CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING CHARGED TO ACCOUNTS AT END
OF YEAR EXPENSE WRITTEN OFF OTHER(a) OF YEAR
---------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts...... $ -- $ 10 $ -- $ -- $ 10
YEAR ENDED DECEMBER 30, 1995
Allowance for Doubtful Accounts...... $ 10 $ 14 $ -- $ -- $ 24
YEAR ENDED DECEMBER 28, 1996
Allowance for Doubtful Accounts...... $ 24 $174 $ (82) $150 $ 266
</TABLE>
- ---------------
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements.
S-2
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Form of Plan and Agreement of Distribution between Thermo Optek
Corporation ("Optek") and the Registrant. ................................
2.2 Asset Purchase Agreement dated as of January 23, 1996, by and between the
Registrant and Corion Corporation. Pursuant to Item 601(b)(2) of
Regulation S-K, schedules to this Agreement have been omitted. The
Registrant hereby undertakes to furnish supplementally a copy of such
schedules to the Commission upon request. ................................
2.3 Purchase Agreement dated as of February 7, 1996, by and between the
Registrant and the shareholders and optionholders of Oriel Corporation as
set forth therein. Pursuant to Item 601(b)(2) of Regulation S-K, schedules
to this Agreement have been omitted. The Registrant hereby undertakes to
furnish supplementally a copy of such schedules to the Commission upon
request. .................................................................
3.1 Amended and Restated Certificate of Incorporation of the Registrant. .....
3.2 Form of Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. .........................................
3.3 Bylaws of the Registrant. ................................................
4.1 Specimen Common Stock Certificate of the Registrant. .....................
8.1 Tax Private Letter Revenue Ruling dated August 22, 1997 issued by the
Internal Revenue Service. ................................................
10.1 Form of Corporate Services Agreement between Thermo Electron Corporation
("Thermo Electron") and the Registrant. ..................................
10.2 Thermo Electron Corporate Charter, as amended and restated, effective
January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's Annual Report
on Form 10-K for the fiscal year ended January 3, 1993 [File No. 1-8002]
and incorporated herein by reference). ...................................
10.3 Form of Tax Allocation Agreement between Thermo Electron and the
Registrant. ..............................................................
10.4 Form of Master Repurchase Agreement between Thermo Electron and the
Registrant. ..............................................................
10.5 Form of Master Guarantee Reimbursement Agreement between Thermo Electron
and the Registrant. ......................................................
10.6 Form of Master Guarantee Reimbursement Agreement between Thermo Instrument
Systems Inc. ("Thermo Instrument") and the Registrant. ...................
10.7 Form of Tax Matters Agreement between Optek and the Registrant. ..........
10.8 CID Contract Research and Development Agreement dated October 1994 between
Optek and the Registrant. ................................................
10.9 Form of CID Supply Agreement between Optek and the Registrant. ...........
10.10 Form of Equity Incentive Plan of the Registrant. .........................
10.11 Form of Deferred Compensation Plan for Directors of the Registrant. ......
10.12 Indemnification Agreement effective as of December 31, 1995, between the
Registrant and Thermo Instrument. ........................................
10.13 Form of Indemnification Agreement for Officers and Directors of the
Registrant. ..............................................................
10.14 Sublease Agreement dated as of September 1, 1997, between the Registrant
and Thermo Instrument. ...................................................
10.15 Sublease Agreement effective as of February 1, 1984, between Oriel
Instruments Corporation and Osbrook Associates Limited Partnership, as
modified. ................................................................
10.16 $3.8 Million Principal Amount Promissory Note due July 13, 2000, issued by
the Registrant to Thermo Electron. .......................................
10.17 $3.6 Million Principal Amount Promissory Note and $347,438 Principal
Amount Promissory Note, both due February 18, 2000, issued by the
Registrant to Optek. .....................................................
10.18 Optek Equity Incentive Plan (filed as Exhibit 10.6 to Optek's Registration
Statement on Form S-1 [File No. 333-03630], and incorporated herein by
reference). ..............................................................
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ------------
<C> <S> <C>
10.19 Thermo Instrument -- ThermoSpectra Corporation Nonqualified Stock Option
Plan (filed as Exhibit 10.51 to Thermo Instrument's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, [File No. 1-9786] and
incorporated herein be reference). .......................................
10.20 Thermo Instrument -- ThermoQuest Corporation Nonqualified Stock Option
Plan (filed as Exhibit 10.65 to Thermo Cardiosystems' Annual Report on
Form 10-K for the fiscal year ended December 30, 1995, [File No. 1-10114]
and incorporated herein by reference). ...................................
10.21 Agreement of Lease dated as of October 6, 1997, between Oriel Instruments
Corporation and 1608 Development Limited Partnership. ....................
21.1 Subsidiaries of the Registrant. ..........................................
27.1 Financial Data Schedule. .................................................
</TABLE>
<PAGE> 1
Exhibit 8.1
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Washington, DC 20224
Index Numbers: 332.00-00
355.01-00 Contact Person:
355.04-00
Telephone Number:
In Reference to:
CC: DOM: CORP: 1 PLR-103878-97
Date: AUG 22 1997
RE:
Distributing =
Controlled =
Parent =
"This document may not be used or cited as precedent
Corporation A = SECTION 6110 (I) (3) OF THE INTERNAL REVENUE CODE."
Corporation B =
Corporation C =
Corporation D =
Business A =
Business B =
Date A =
Q% =
R% =
S% =
T =
U =
V =
<PAGE> 2
PLR-253926-96
Page 2
W =
X =
$Y =
$Z =
Dear
This is in response to a letter dated February 25, 1997, requesting a
ruling as to the federal income tax consequences of a proposed transaction.
Additional information was submitted in letters dated May 28, June 11, June 25,
1997, and August 8, 1997.
Parent is the common parent of a consolidated group of corporations. It
has one class of stock outstanding, which is publicly traded on a national
exchange. Corporation A is a subsidiary of Parent, which owns Q% of the
Corporation A stock. The remaining Corporation A stock is publicly traded on a
national exchange.
Distributing, a State A corporation, is a subsidiary of Corporation A.
Distributing has one class of stock outstanding, R% of which is owned by
Corporation A. Parent owns S% of the Distributing stock, while the remaining
stock is publicly traded. Distributing is primarily a holding company, and
predominantly conducts its business activities through a number of wholly-owned
subsidiaries. Corporation B is one of the wholly-owned subsidiaries of
Distributing.
Controlled, a State A corporation, is also a wholly-owned subsidiary of
Distributing. Corporations C and D are a wholly-owned subsidiary of Controlled.
Corporation C is engaged in Business B. Controlled received the stock of
Corporation C from Distributing, on Date A. It is represented that no gain or
loss was recognized in this transaction, which qualified for tax-free treatment
under section 351.
Additionally, Distributing currently holds a note in the amount of $Z from
Corporation D. The Corporation D note arose because Distributing financed the
cash acquisition of Corporation D.
Financial information has been received which indicates that Business A
conducted by Corporation B and Business B conducted by Corporation C have each
had gross receipts and operating expenses representative of the active conduct
of a trade or business for each of the past 5 years.
<PAGE> 3
PLR-253926-96
Page 3
Information has also been received indicating the need for Controlled to
obtain capital, as it has planned several acquisitions. Consequently, it will
require $Y in additional capital funding. In accordance with the historic
business strategy of Parent, and in order to raise capital to effect its plans,
Controlled proposes to undertake an initial public offering of not more than U
shares of its stock. The proceeds will be used solely to fund the aforementioned
corporate acquisitions and the expansion of the Controlled business. The
management of Parent has concluded, based upon documentation provided by its
investment banker and by independent analysts, that Controlled will raise
significantly more per share in an initial public offering ("IPO") if it were a
subsidiary of Corporation A rather than of Distributing.
Additionally, Controlled intends to adopt a stock option plan ("Controlled
Stock Option Plan") and in connection with the proposed transaction intends to
grant options for T shares of its stock. Controlled also proposes to adopt a
stock holding policy ("Controlled Stock Holding Policy") under which certain
Controlled executives will be required to purchase and hold shares of Controlled
stock. It is anticipated that no more than V shares will be purchased pursuant
to this policy.
Accordingly, the parties propose to undertake the following transactions:
STEP ONE Distributing will contribute to Corporation B
substantially all of Distributing's assets, except for
its stock in Controlled and Corporation B, in
constructive exchange for additional shares of
Corporation B stock.
STEP TWO Distributing will contribute to Controlled a portion of
the Corporation D note, with a principal amount of $Z,
in constructive exchange for additional shares of
Controlled stock. Controlled will transfer the $Z amount
of the note to Corporation B in satisfaction of an equal
amount of intercompany debt owed to Corporation B.
STEP THREE Corporation C will liquidate into its parent
corporation, Controlled, by statutory merger.
STEP FOUR Prior to the consummation of the transaction, Controlled
with increase its authorized and outstanding stock to W
shares. Distributing will distribute all of the stock of
Controlled to its shareholders on a one-for-ten pro rata
basis. No fractional shares will be issued in the
transaction. Shares representing aggregate
<PAGE> 4
PLR-253926-96
Page 4
fractional share interests will be sold by the exchange
agent and the proceeds will be distributed to the
affected Distributing shareholders.
STEP FIVE Within one year after the date of the distribution of
the Controlled stock, Controlled will make an IPO not to
exceed U shares of its stock, including underwriter
over-allotments, to raise $Y.
The following representation has been made in connection with STEP TWO (the
contribution by Distributing to Controlled of the Corporation D note, in
constructive exchange for Controlled stock).
(a) The Corporation D note is a note for a stated principal
amount, due and payable in less than three years, and
will not be convertible into stock of Controlled.
The following representations have been made in connection with STEP THREE
(the liquidation of Corporation C into Controlled by statutory merger):
(a1) Controlled, on the date of the adoption of the plan of
liquidation, and at all times until the final
liquidating distribution is completed, will be the owner
of at least 80% of the single outstanding class of
Corporation C stock.
(b1) No shares of Corporation C stock will have been redeemed
during the 3 years preceding the plan of complete
liquidation of Corporation C.
(c1) All distributions from Corporation C to Controlled
pursuant to the plan of complete liquidation will be
made within a single taxable year of Corporation C.
(d1) As soon as the first liquidating distribution has been
made, Corporation C will cease to be a going concern and
its activities will be limited to winding up its
affairs, paying its debts, and distributing its
remaining assets to its shareholders.
(e1) Corporation C will retain no assets following the final
liquidating distribution.
(f1) Corporation C will not have acquitted assets in any
nontaxable transaction at any time, except for
<PAGE> 5
PLR-253926-96
Page 5
acquisitions occurring more than 3 years prior to the
date of adoption of the plan of liquidation.
(g1) No assets of Corporation C have been, or will be,
disposed of by either Corporation C or Controlled except
for dispositions in the ordinary course of business and
dispositions occurring more than 3 years prior to the
adoption of the plan of liquidation.
(h1) The liquidation of Corporation C will not be preceded by
or followed by the reincorporation in, or transfer or
sale to, a recipient corporation (Recipient) of any of
the businesses or assets of Corporation C if persons
holding, directly or indirectly, more than 20% in value
of the Corporation C stock also hold, directly or
indirectly, more than 20% of the value of the stock in
Recipient. For purposes of this representation,
ownership will be determined by application of the
constructive ownership rules of section 318(a) of the
Code as modified by section 304(c)(3).
(i1) Prior to the adoption of the liquidation plan, no assets
of Corporation C will have been distributed in kind,
transferred, or sold to Controlled, except for (i)
transactions occurring in the ordinary course of
business and (ii) transactions occurring more than 3
years prior to adoption of the liquidation plan.
(j1) Corporation C will report all earned income represented
by assets that will be distributed to its shareholders
such as receivables being reported on a cash basis,
unfinished construction contracts, commissions due, etc.
(k1) The fair market value of the assets of Corporation C
will exceed its liabilities both at the date of the
adoption of the plan of complete liquidation and
immediately prior to the time the first liquidating
distribution is made.
(l1) No debt owed by Corporation C to Controlled or by
Controlled to Corporation C has been or will be
cancelled, forgiven, or discounted during the period
commencing 3 years prior to adoption of the plan of
liquidation and ending with the final liquidating
distribution.
<PAGE> 6
PLR-253926-96
Page 6
(m1) Controlled is not an organization that is exempt from
federal income tax under section 501 or any other
provision of the Code.
(n1) All other transaction undertaken contemporaneously with,
in anticipation of, in conjunction with, or in any way
related to, the proposed liquidation of Corporation C
have been fully disclosed.
The following additional representations have been made in connection with
STEP FOUR (the distribution of all of the stock of Controlled by Distributing):
(a2) There have been no negotiations, agreements, or
arrangements for the issuance in connection with the
transaction of options to acquire more than T shares
pursuant to the Controlled Stock Option Plan, for the
issuance of more than U shares pursuant to the IPO, or
for the acquisition in connection with the transaction
of more than V shares pursuant to the Controlled Stock
Holding Policy, or for the issuance in the Transaction
of more than X shares to shareholders of Distributing
that will be sold in the public market by the exchange
agent and the proceeds distributed among affected
shareholders in lieu of issuing fractional shares,
provided that the number of options or shares issued or
acquired in connection with the transaction pursuant to
one category may be properly increased in respect of any
decrease in the number of shares issued or acquired in
the other two categories. This representation is based
on there being W shares of Controlled stock outstanding
immediately prior to the distribution of all such
shares. If the number of Controlled shares outstanding
at such time is adjusted, corresponding adjustments will
be made in the number of shares issued or acquired
pursuant to the Controlled Stock Option Plan, the IPO,
and the Controlled Stock Holding Policy and the
fractional shares sold in the transaction.
(b2) The indebtedness owned by Controlled to Distributing
after the distribution of the Controlled corporation
stock will not constitute stock or securities.
(c2) No part of the consideration to be distributed by
Distributing will be received by a shareholder as a
creditor, employee, or in any other capacity
<PAGE> 7
PLR-253926-96
Page 7
other than that of a shareholder of the corporation.
(d2) The fair market value of the gross assets of the
Corporation B Active business will be, as of the date of
the transaction, equal to or greater than 5% of the fair
market value of all the Corporation B's assets.
(e2) The five years of financial information submitted on
behalf of Corporation B is representative of the
corporation's present operation, and with regard to such
corporation, there have been no substantial operational
changes since the date of the last financial statements
submitted.
(f2) The fair market value of the gross assets of the
Controlled Active Business will be, as of the date of
the transaction, equal to or greater than 5% of the fair
market value of all of the Controlled assets.
(g2) The five years of financial information submitted on
behalf of Controlled is representative of the
corporation's present operation, and with regard to such
corporation, there have been no substantial operational
changes since the date of the last financial statements
submitted.
(h2) Immediately after the distribution, at least 90% of the
fair market value of the gross assets of Distributing
will consist of stock or securities of controlled
corporations that are engaged in the active conduct of a
trade or business as defined in section 355(b)(2).
(i2) Following the transaction, Corporation B and Controlled
will each continue the active conduct of its business,
independently and with its separate employees.
(j2) The distribution of the stock of Controlled is carried
out for the following corporate business purposes:
enhanced access to capital markets; improved management
incentives; and better focus by each of Distributing and
Controlled on its own business. The distribution of the
stock of Controlled is motivated, in whole or
substantial part, by these corporate business purposes.
<PAGE> 8
PLR-253926-96
Page 8
(k2) There is no plan or intention by any shareholder who
owns 5% or more of the stock of Distributing, and the
management of Distributing, to its best knowledge, is
not aware of any plan or intention on the part of any
particular remaining shareholder or security holder of
Distributing to sell, exchange, transfer by gift, or
otherwise dispose of any stock in, or securities of,
either Distributing or Controlled after the transaction,
other than the sale of fractional shares through the
exchange agent.
(l2) There is no plan or intention by either Distributing or
Controlled, directly or through any subsidiary
corporation, to purchase any of its outstanding stock
after the transaction, other than through stock
purchases meeting the requirements of section 4.05(1)(b)
of Rev. Proc. 96-30.
(m2) There is no plan or intention to liquidate either
Distributing or Controlled, to merge either corporation,
or to sell or otherwise dispose of the assets of either
corporation after the transaction, except in the
ordinary course of business.
(n2) The total adjusted bases and the fair market value of
the assets transferred to Controlled by Distributing
each equals or exceeds the sum of the liabilities
assumed by the controlled corporation plus any
liabilities to which the transferred assets are subject.
(o2) The liabilities assumed in the transaction and the
liabilities to which the transferred assets are subject
were incurred in the ordinary course of business and are
associated with the assets being transferred.
(p2) Immediately before the distribution, items of income,
gain, loss, deduction, and credit will be taken into
account as required by the applicable intercompany
transaction regulations (see ss. 1.1502-13 and ss.
1.1502-14 as in effect before the publication of T.D.
8597, 1995-32 I.R.B. 6, and as currently in effect; ss.
1.1502-13 as published by T.D. 8597. Distributing's
excess loss account, if any, with respect to the
Controlled stock distributed to a shareholder who is not
a member of the Parent consolidated group
<PAGE> 9
PLR-253926-96
Page 9
will be included in income immediately before the
distribution. (See ss. 1.1502-19).
(q2) Payments made in connection with all continuing
transactions, if any, between Distributing and
Controlled with be for fair market value based on terms
and conditions arrived at by the parties bargaining at
arm's length.
(r2) No two parties to the transaction are investment
companies as defined in ss. 368(a)(2)(F)(iii) and (iv).
(s2) The sale of fractional shares in the public market by
the exchange agent effecting the transaction and
distribution of the cash proceeds thereof among affected
Distributing shareholders is solely for the purpose of
avoiding the expense and inconvenience to Controlled of
issuing fractional shares and does not represent
separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to
the shareholders of Distributing instead of issuing
fractional shares of Controlled stock will not exceed
one percent of the total consideration that will be
issued in the transaction to the Distributing
shareholders in connection with the distribution of the
shares of Controlled. The fractional share interests of
each Controlled shareholder interest will be aggregated,
and no Distributing shareholder will receive cash in an
amount equal to or greater than the value of one full
share of Controlled stock.
Based solely on the information submitted and on the representations set
forth above, it is held as follows as to STEP THREE:
(1) For federal income tax purposes, the merger of Corporation C into
Controlled pursuant to applicable state law will be treated as a
distribution by Corporation C to Controlled in complete
liquidation of Corporation C within the meaning of ss. 332.
(2) No gain or loss will be recognized to Corporation C on the
distribution of its assets to Controlled and the assumption of
liabilities of Corporation C by Controlled in complete
liquidation. (ss. 336(d)(3) and 337(a))
<PAGE> 10
PLR-253926-96
Page 10
(3) No gain or loss was recognized to Controlled on its receipt of
the assets of Corporation C and its assumption of liabilities by
Controlled in complete liquidation (ss. 332(a)).
(4) Controlled's basis in the assets received from Corporation C in
the liquidation will be the same as the basis of those assets in
the hands of Corporation C immediately prior to the liquidation
(ss. 334(b)(1)).
(5) Controlled's holding period for the assets received in the
complete liquidation will include the period during which those
assets were held by Corporation C. (ss. 1223(2)).
(6) Pursuant to ss. 381(a) and ss. 1.381(a)-1 of the Income Tax
Regulations, Controlled will succeed to and will take into
account the items of Controlled described in ss. 381(c), 382,
383, and 384, subject to the conditions and limitations of ss.
381(b) and (c) and the regulations thereunder.
(7) As provided in ss. 381(c)(2) and Treas. Reg. ss. 1.381(c)(2)-1,
Controlled will succeed to and take into account the earnings and
profits or deficit in earnings and profits of Corporation C as of
the date of the merger. Any deficit in earnings and profits of
Corporation C will be used only to offset earnings and profits
accumulated after the distribution. The amount of earnings and
profits or deficit in earnings and profits of Corporation C to
which Controlled succeeds to under ss. 381 must be adjusted so as
not to duplicate any amount reflected in earnings and profits
under ss. 1.1502-33(c)(4), ss. 1.381(c)(2)-1, and ss.
1.1502-33(c)(5).
Based solely on the information submitted and on the representations set
forth above, it is held as follows as to STEP FOUR:
(la) The transfer by Distributing to Controlled of the Corporation D
note, as described above, solely in constructive exchange for
stock of Controlled, followed by the distribution of the
Controlled stock by Distributing will be a reorganization within
the meaning of ss. 368(a)(1)(D) of the Code. Distributing and
Controlled each will be a "party to a reorganization" within the
meaning of ss. 368(b).
(2a) No gain or loss will be recognized to Distributing upon the
transfer of assets to Controlled in constructive
<PAGE> 11
PLR-253926-96
Page 11
exchange for Controlled stock, as described above
(ss. 361(a)).
(3a) No gain or loss will be recognized to Controlled on the receipt
of the asset in constructive exchange for Controlled stock, as
described above (ss. 1032(a)).
(4a) The basis of the asset received by Controlled will be the same as
the basis of such asset in the hands of Distributing immediately
prior to the transaction described above (ss. 362(b)).
(5a) The holding period of the Distributing asset received by
Controlled will include the period during which such asset was
held by Distributing (ss. 1223(2)).
(6a) No gain or loss will be recognized to Distributing upon the
distribution of all of its Controlled stock, as described above
(ss. 361(c)(1)).
(7a) No gain or loss will be recognized to (and no amount will be
included in the income of) the shareholders of Distributing upon
the receipt of Controlled stock (including fractional share
interests) (ss. 355(a)(1)).
(8a) The basis of the Controlled stock in the hands of the
Distributing shareholders will be allocated between the
Distributing stock and the Controlled stock held by such
shareholder after the transaction in proportion to their relative
fair market values, as provided by ss. 1.358-2 (ss. 358(a)(1)
and (b)).
(9a) The holding period of the Controlled stock (including fractional
share interests) received by the shareholders of Distributing
will include the period during which the shareholders of
Distributing held the Distributing stock with respect to which
the distribution is made, provided that the Distributing stock is
a capital asset in the hands of the respective shareholders of
Distributing on the date of the distribution (ss. 1223(1)).
(10a) As provided in ss. 312(h), proper allocation of earnings and
profits between Distributing and Controlled will be made under
ss. 1.312-10(a).
(11a) A holder of a fractional share interest in Controlled will
recognize gain or loss on the sale of the fractional share
interest equal to the difference between the cash received and
the holder's basis in such interest (ss. 1001). Provided the
fractional share
<PAGE> 12
PLR-253926-96
Page 12
interest is a capital asset in the hand of the exchanging holder,
such gain or loss will be capital gain or loss to such holder
subject to the provisions and limitations of Subchapter P and
chapter 1 of the Code.
This ruling is directed only to the taxpayer who requested it. Section
6610(j)(3) of the Code provides that it may not be used or cited as precedent.
A copy of this letter should be attached to the Federal income tax returns
of the taxpayers involved for the taxpayer year in which the transaction covered
by this ruling is consummated.
Sincerely yours,
Assistant Chief Counsel (Corporate)
By /s/ Howard W. Staiman
------------------------------
Howard W. Staiman
Assistant to the Chief, Branch 1
