<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 22, 2000
REGISTRATION NO. 333-34820
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BRUKER DALTONICS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3826 04-3110160
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
15 Fortune Drive
Billerica, MA 01821
(978) 663-3660
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Frank H. Laukien, Ph.D.
Chairman, President and Chief Executive Officer
Bruker Daltonics Inc.
15 Fortune Drive
Billerica, MA 01821
(978) 663-3660
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Richard M. Stein, Esquire Geoffrey B. Davis, Esquire
Hutchins, Wheeler & Dittmar Ropes & Gray
A Professional Corporation One International Place
101 Federal Street Boston, MA 02110
Boston, MA 02110 (617) 951-7000
(617) 951-6600
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement. If any
of the securities being registered on this form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the earlier
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. / /
--------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Subject to Completion, Dated June 22, 2000
[LOGO]
7,500,000 Shares
Common Stock
This is the initial public offering of Bruker Daltonics Inc., and we are
offering 7,500,000 shares of our common stock. We anticipate the initial public
offering price will be between $10.00 and $12.00 per share.
We have applied to list our common stock on the Nasdaq National Market under the
symbol "BDAL."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Bruker Daltonics
<S> <C> <C> <C>
Per Share $11.00 $0.77 $10.23
Total $82,500,000 $5,775,000 $76,725,000
</TABLE>
We have granted the underwriters the right to purchase up to 1,125,000
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown UBS Warburg LLC
Thomas Weisel Partners LLC
The date of this prospectus is , 2000
<PAGE>
INSIDE FRONT COVER
Enabling Life Science Tools for the Post-Genomic Era
Bruker Daltonics Logo image centered
--Genetic Variation: SNPs, Pharmacogenomics and Personalized Medicine (image)
--Proteomics (image)
--Biomarkers, Substance Detection and Pathogen Identification (image)
--Molecular Biology and Basic Medical Research (image)
--Drug Discovery, Combinatorial Chemistry and High-throughput Screening (image)
--Metabolic Profiling (image)
Our Broad Range of Applications (footer)
INSIDE FOLDOUT PANELS 1 AND 2
Bruker Daltonics logo (top left)
Bruker logo (top right)
<TABLE>
<CAPTION>
Our Related
Our Mass Spectrometry (MS) Technology Platforms + TechnologiesU Solutions for Target Markets
------------------------------------------------- -------------------- -------------------------------
(Our Array of Life Science Tools) (Our Diversified Customer Base)
<S> <C> <C>
MALDI-TOF MS (image) Consumables LIFE SCIENCE INDUSTRIES
ESI-TOF MS AnchorChip-TM- Pharmaceuticals (image)
Fourier Transform MS Microarrays Biotechnology
Ion Trap MS (image) (image) Agricultural Biotech (image)
Substance Detection and Pathogen Robotics (image) Molecular Diagnostics
Identification Tools (image) Automation OTHER LIFE SCIENCE MARKETS
Bioinformatics Universities (image)
(image) Medical Schools
Government (NIH, NSF, etc.)
SECURITY AND DEFENSE
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE
MAKING AN INVESTMENT DECISION.
Bruker Daltonics
We are a leading developer and provider of innovative life science tools
based on mass spectrometry. Our substantial investment in research and
development allows us to design, manufacture and market a broad array of
products intended to meet the rapidly growing needs of our diverse customer
base. Our customers include pharmaceutical companies, biotechnology companies,
agricultural biotechnology companies, molecular diagnostics companies, academic
institutions and government agencies.
Mass spectrometers are sophisticated devices that provide highly accurate
molecular information on a given sample. Our mass spectrometry-based systems
often combine automated sample preparation robots, advanced mass spectrometry
instrumentation which analyzes the sample, reagent kits containing chemicals and
other testing products that are consumed in performing the sample analysis and
bioinformatics software which analyzes the data produced by the sample analysis.
Our systems offer integrated solutions for applications in multiple existing and
emerging markets including (a) the study of genes and their function, or
genomics, (b) the separation, identification, characterization and study of
proteins and their function, or proteomics, (c) the measurement of products
related to the metabolism of substances and disease pathways, or metabolic and
biomarker profiling, (d) drug discovery and development, (e) tests for specific
molecules or biological pathways referred to as molecular assays and
diagnostics, (f) molecular and systems biology and (g) basic medical research.
We market our life science systems both through our direct sales force and
through strategic distribution arrangements with Agilent Technologies,
PerkinElmer, Sequenom, MWG-Biotech and others.
We are also a worldwide leader in supplying mass spectrometry-based
systems for substance detection and pathogen identification in security and
defense applications.
Our Products
Our life science solutions incorporate instruments that are based on one
of four core mass spectrometry technology platforms. Each of these platforms
utilizes a different type of mass spectrometry technology, including
(a) matrix-assisted laser desorption ionization, or MALDI, time-of-flight mass
spectrometry, (b) electrospray ionization, or ESI, time-of-flight mass
spectrometry, (c) Fourier transform mass spectrometry and (d) ion trap mass
spectrometry. We also employ our mass spectrometry technology in our substance
detection and pathogen identification systems.
Our Solutions
Our product lines integrate sophisticated mass spectrometers with
automated preparation and measurement of the samples to be analyzed and, where
appropriate, bioinformatics software that uses advanced computing techniques to
manage and analyze the data produced by our mass spectrometers. These products
address many of the analytical needs of the life science industry across a broad
range of applications.
1
<PAGE>
Our automated systems allow our customers to generate and evaluate large
volumes of accurate, high-quality data on a cost-effective basis. We believe
that this enhanced throughput and high-quality data improves our customers'
ability to apply bioinformatics to validate lead targets, understand disease
pathways and analyze lead compounds. Our customers also use our products in
molecular biology and other basic medical research. In addition, our automated,
integrated mass spectrometry technology forms the basis of our substance
detection and pathogen identification products used in security and defense
markets. We believe that our products offer the following advantages to our
customers:
- high degree of automation;
- integrated solutions;
- accurate results;
- increased productivity; and
- cost efficiency.
Our Strategy
Our strategy is to continue to be a leading provider of mass spectrometry
and related systems for use in the life sciences, as well as in substance
detection and pathogen identification. Key elements of our strategy include:
- provide a broad array of tools for a wide range of applications;
- develop new platforms, enhanced products and new applications;
- build alliances and pursue acquisitions;
- generate recurring revenue;
- develop and expand our bioinformation business; and
- leverage our intellectual property.
Bruker Daltonics was incorporated in Massachusetts in February 1991, as
Bruker Federal Systems Corporation. In February 2000, we reincorporated in
Delaware as Bruker Daltonics Inc.
Our principal executive offices are located at 15 Fortune Drive,
Billerica, Massachusetts 01821, and our telephone number is (978) 663-3660.
Information about Bruker Daltonics is available at www.daltonics.bruker.com. The
information on our website is not incorporated by reference into and does not
form a part of this prospectus. Daltonics and the Daltonics logo are trademarks
of Bruker Daltonics. All other trademarks, tradenames or copyrights referred to
in this prospectus are the property of their respective owners.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Bruker Daltonics..... 7,500,000 shares
Common stock to be outstanding
after this offering........................ 53,000,000 shares
Use of proceeds.............................. General corporate purposes, including
research and development, expansion of sales
and marketing capabilities and working
capital, including funding potential
strategic acquisitions, and repayment of our
outstanding bank debt. For more detailed
information, see "Use of Proceeds" on
page 18.
Proposed Nasdaq National Market symbol....... BDAL
</TABLE>
The number of shares to be outstanding upon completion of this offering is
based on 45,500,000 shares outstanding as of June 21, 2000. This number excludes
2,120,000 shares of common stock that will be reserved for issuance under our
stock option plan upon completion of this offering, of which 776,250 shares were
subject to outstanding options.
For a more detailed description of our capitalization, please see
"Capitalization" on page 19. See "Risk Factors" and other information included
in this Prospectus for a discussion of factors you should consider before
investing in the shares of our common stock.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE UNDERWRITERS HAVE NOT EXERCISED THEIR OPTION TO PURCHASE ADDITIONAL
SHARES; AND
- THE SEVEN-FOR-ONE COMMON STOCK SPLIT COMPLETED IN FEBRUARY 2000.
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated/Combined
Statements of Operations
Data (1):
Product revenue............. $ 30,076 $ 43,942 $ 49,247 $ 40,157 $ 60,620 $ 10,879 $ 14,035
Other revenue............... 2,049 2,130 1,878 2,050 4,070 1,019 564
---------- ---------- ---------- ---------- ---------- -------- --------
Net revenue............... 32,125 46,072 51,125 42,207 64,690 11,898 14,599
Costs and operating
expenses:
Cost of product revenue... 16,424 20,329 24,538 19,672 31,618 5,497 6,574
Sales and marketing....... 2,806 6,123 7,178 7,435 11,345 2,256 2,564
General and
administrative.......... 1,795 1,717 2,120 2,212 3,411 618 1,108
Research and
development............. 9,419 8,812 9,166 13,049 15,138 3,088 3,600
Patent litigation costs... -- 1,901 5,525 -- 538 538 303
---------- ---------- ---------- ---------- ---------- -------- --------
Total costs and
operating expenses.. 30,444 38,882 48,527 42,368 62,050 11,997 14,149
---------- ---------- ---------- ---------- ---------- -------- --------
Operating income (loss) from
continuing operations..... 1,681 7,190 2,598 (161) 2,640 (99) 450
Other income (expense)...... 196 2 127 174 130 140 (25)
Interest expense, net....... (1,341) (1,032) (743) (901) (907) (267) (103)
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations
before provision for
income taxes.............. 536 6,160 1,982 (888) 1,863 (226) 322
Provision (benefit) for
income taxes.............. 9 2,265 1,627 -- 987 (120) 185
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations..... 527 3,895 355 (888) 876 (106) 137
Income from discontinued
operations, net of income
taxes..................... 372 368 209 383 373 90 37
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)........... $ 899 $ 4,263 $ 564 $ (505) $ 1,249 $ (16) $ 174
========== ========== ========== ========== ========== ======== ========
Net income (loss) per
share-basic and diluted
Income (loss) from
continuing operations... $ 0.01 $ 0.08 $ 0.01 $ (0.02) $ 0.02 $ 0.00 $ 0.00
Income from discontinued
operations, net of
income taxes............ 0.01 0.01 0.00 0.01 0.01 0.00 0.00
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss) per
share..................... $ 0.02 $ 0.09 $ 0.01 $ (0.01) $ 0.03 $ 0.00 $ 0.00
========== ========== ========== ========== ========== ======== ========
Shares used in computing net
income (loss) per
share-basic and diluted... 45,500 45,500 45,500 45,500 45,500 45,500 45,500
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
March 31, 2000
--------------------------
Actual As Adjusted (2)
-------- ---------------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data (1):
Cash and cash equivalents................................... $ 3,905 $ 64,210
Working capital............................................. 13,335 76,271
Total assets................................................ 71,238 131,543
Total debt.................................................. 14,920 --
Total stockholders' equity.................................. 9,751 84,976
</TABLE>
----------
(1) In December 1998, Bruker Daltonics Inc. acquired Bruker Daltonik GmbH and
its subsidiary Bruker Saxonia Analytik GmbH. Since these companies were under
common ownership prior to the acquisition, the financial data is shown on a
combined basis for all years presented.
(2) The adjusted balance sheet data reflects the receipt of the net proceeds
from the sale of 7,500,000 shares of common stock by Bruker Daltonics Inc. in
this offering at an assumed initial public offering price of $11.00 per share,
after underwriting discounts and commissions and estimated offering expenses.
5
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE
WHETHER TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER
SIGNIFICANTLY. IN THIS CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
Risks Related to Our Business
If our products fail to achieve and sustain sufficient market acceptance across
their broad intended range of applications in the life sciences, we will not
generate expected revenue.
Our business strategy depends on our ability to successfully commercialize
a broad range of products based on mass spectrometry for use in a variety of
life science applications. We have only recently commercially launched many of
our current products for sale to these markets, and many of our products have
achieved only limited sales. The commercial success of our life science products
depends on our obtaining continued and expanding market acceptance of our mass
spectrometry tools by pharmaceutical and biotechnology companies and academic
and government research laboratories across the wide range of applications
covered by our product offerings. We may fail to achieve or sustain substantial
market acceptance for our products across the full range of our intended life
science applications or in one or more of our principal intended life science
applications. Any such failure could decrease our sales and revenue. To succeed,
we must convince substantial numbers of pharmaceutical and biotechnology
companies and other laboratories to replace their existing techniques with mass
spectrometry techniques employing our systems. Limited funding available for
capital acquisitions by our customers, as well as our customers' own internal
purchasing approval policies, could hinder market acceptance of our products.
Our intended life science customers may be reluctant to make the substantial
capital investment generally needed to acquire our products or to incur the
training and other costs involved with replacing their existing systems with our
products. We also may not be able to convince our intended life science
customers that our systems are an attractive and cost-effective alternative to
other technologies and systems for the acquisition, analysis and management of
molecular information. Because of these and other factors, our products may fail
to gain or sustain market acceptance.
Our products compete in markets that are subject to rapid technological change,
and most of our products are based on a range of mass spectrometry technologies
one or more of which could be made obsolete by new technology.
The market for life science discovery tools is characterized by rapid
technological change and frequent new product introductions. Rapidly changing
technology could make some or all of our life science product lines obsolete
unless we are able to continually improve our existing products and develop new
products. Because substantially all of our life science products are based on
mass spectrometry, we are particularly vulnerable to any technological advances
that would make mass spectrometry obsolete as the basis for bioanalytical
systems in any of our life science markets. To meet the evolving needs of our
customers, we must rapidly and continually enhance our current and planned
products and services and develop and introduce new products and services. Our
business model calls for us to derive a significant portion of our revenues each
year from products that did not exist in the previous year. However, we may
experience difficulties which may delay or prevent the
6
<PAGE>
successful development, introduction and marketing of new products or product
enhancements. In addition, our product lines are based on complex technologies
which are subject to rapid change as new technologies are developed and
introduced in the marketplace. We may have difficulty in keeping abreast of the
rapid changes affecting each of the different markets we serve or intend to
serve. If we fail to develop and introduce products in a timely manner in
response to changing technology, market demands or the requirements of our
customers, our product sales may decline, and we could experience significant
losses. We offer and plan to offer a broad product line and have incurred and
expect to continue to incur substantial expenses for development of new products
and enhanced versions of our existing products. The speed of technological
change in our life science markets may prevent us from being able to
successfully market some or all of our products for the length of time required
to recover their often significant development costs. Failure to recover the
development costs of one or more products or product lines could decrease our
profitability or cause us to experience significant losses.
We face substantial competition.
In each market, for each of our life science products, we face substantial
competition from major competitors, including competitors who also offer
products based on mass spectrometry technology. We expect that competition in
our life science markets will increase significantly as more biotechnology and
pharmaceutical companies adopt automated high-throughput bioanalytical
instruments as tools for drug discovery, drug development, proteomics, genomics
and metabolomics. Currently, our principal competition comes from established
companies providing products using existing technologies, including mass
spectrometry and other technologies, which perform many of the same functions
for which we market our products. Our competitors may develop or market products
that are more effective or commercially attractive than our current or future
products or that may render our products obsolete. Many of our competitors have
substantially greater financial, operational, marketing and technical resources
than we do.
In addition to the risks applicable to our life science products, our substance
detection and pathogen identification products are subject to a number of
additional risks, including lengthy product development and contract negotiation
periods and certain risks inherent in long-term government contracts.
Our substance detection and pathogen identification products are subject
to many of the same risks associated with our life science products, including
vulnerability to rapid technological change, dependence on mass spectrometry
technology and substantial competition. In addition, our substance detection and
pathogen identification products are generally sold to government agencies under
long-term contracts. These contracts generally involve lengthy pre-contract
negotiations and product development. We may be required to devote substantial
working capital and other resources prior to obtaining product orders. As a
result, we may incur substantial costs before we recognize revenue from these
products. Moreover, in return for larger, longer term contracts, our customers
for these products often demand more stringent acceptance criteria. Their
criteria may also cause delay in our ability to recognize revenue from sales of
these products. Furthermore, we may not be able to accurately predict in advance
our costs to fulfill our obligations under these long-term contracts. If we fail
to accurately predict our costs, due to inflation or other factors we could
incur significant losses. Any single long-term contract for our substance
detection and pathogen identification products may represent a material portion
of our total business volume, and the loss of any such contract could have a
material adverse effect on our results of operations. In March 2000, we
completed a production contract with the United States
7
<PAGE>
government that accounted for 12% and 13% of our net revenue in 1998 and 1999,
respectively. Failure to increase other business or to obtain another government
contract such as this one would cause our revenue to decline. Also, the presence
or absence of such contracts may cause substantial variation in our results of
operations between fiscal periods and, as a result, our results of operations
for any given fiscal period may not be predictive of our results for subsequent
fiscal periods. The resulting uncertainty may have an adverse impact on our
stock price.
Our success depends on our ability to operate without infringing or
misappropriating the proprietary rights of others.
Our commercial success depends on avoiding the infringement of other
parties' valid patents and proprietary rights as well as the breach of any
licenses relating to our technologies and products. There are various
third-party patents which may relate to our technology. We may be found in the
future to infringe these or other patents or proprietary rights of third
parties, either with products we are currently marketing or developing or with
new products which we may develop in the future. As described below, a German
court has found that sales of our ion trap mass spectrometers in Germany
infringe the European patents held by a competitor. If a third party holding
rights under a patent successfully asserts an infringement claim with respect to
any of our current or future products, we may be prevented from manufacturing or
marketing our infringing product in the country or countries covered by the
patent we infringe, unless we can obtain a license from the patent holder. We
may not be able to obtain such a license on commercially reasonable terms, if at
all, especially if the patent holder is a competitor. In addition, even if we
can obtain such a license, it may be non-exclusive, which will permit others to
practice the same technology licensed to us. We may also be required to pay
substantial damages to the patent holder. Under certain circumstances in the
United States, these damages may include damages equal to triple the actual
damages experienced by the patent holder. If we have supplied infringing
products to third parties for marketing by them or licensed third parties to
manufacture, use or market infringing products, we may be obligated to indemnify
these third parties for any damages they are required to pay to the patent
holder and for any losses the third parties may sustain themselves as the result
of lost sales or license payments they are required to make to the patent
holder. Any successful infringement action brought against us may also adversely
affect marketing of the infringing product in other markets not covered by the
infringement action, as well as our marketing of other products based on similar
technology. Furthermore, we will suffer adverse consequences of a successful
infringement action against us even if the action is subsequently reversed on
appeal, nullified through another action, or resolved by settlement with the
patent holder. The damages or other remedies awarded, if any, may be
significant. As a result, any successful infringement action against us could
prevent us from selling some or all of our products or cause us to experience
significant losses or both.
We are currently involved in several legal actions concerning technology for ion
trap mass spectrometry with a competitor and various affiliates of the
competitor, and a German court has decided that we have infringed two European
patents of the competitor.
We have been involved for several years in various litigation proceedings
with a competitor, Finnigan Corporation, and some of its affiliates regarding
the possible infringement by us of some patents of Finnigan concerning
technology for ion trap mass spectrometry. Finnigan is a subsidiary of
ThermoQuest Corporation which in turn is a subsidiary of Thermo Electron
Corporation. The various claims have been, will be or currently are being heard
in the United States International Trade Commission, the Court of Appeals for
8
<PAGE>
the Federal Circuit, and are pending in the United States District Court for the
District of Massachusetts and in various German courts. In addition, we have
filed various infringement and antitrust actions against Finnigan and its
affiliates. In 1996, 1997, 1998 and 1999, total worldwide sales of our ion trap
mass spectrometry products constituted $2.7 million, $3.2 million, $5.0 million
and $8.2 million, respectively.
A German court has recently decided that we have infringed two Finnigan
patents by selling our ion trap mass spectrometer products in Germany. As a
result, we are currently enjoined from selling our ion trap mass spectrometer
products in Germany. We will also be required to pay damages and expenses to
Finnigan in amounts to be determined by the German court in these proceedings.
In 1999, our German sales of ion trap mass spectrometry products were $2.0
million. Finnigan is seeking to enforce the same European patents against us and
Agilent in proceedings in Germany that could prevent us from distributing and
delivering our ion trap mass spectrometry products in the United Kingdom,
France, Sweden and Switzerland, and similar patents are at issue in the
litigation brought by Finnigan in Massachusetts. Finnigan may also seek to show
we have committed infringement elsewhere. Should we be found to infringe any
patents of Finnigan or its affiliates in these proceedings, we may be liable for
monetary damages and could be required to obtain licenses to commercialize our
products or to redesign our products so that they do not infringe any of these
patents. If we are unable to obtain a license or adopt a non-infringing product
design, we could be prevented from developing, manufacturing and selling some of
our ion trap mass spectrometry products. We may also have an indemnification
obligation to Agilent. In these circumstances, our ion trap business would not
develop as contemplated, and our results would materially suffer. For more
information on our litigation with Finnigan and its affiliates, please see
"Business--Legal Proceedings."
We may be involved in other lawsuits to protect or enforce our patents that are
brought by us which would be expensive and time consuming.
In order to protect or enforce our patent rights, we may initiate patent
litigation against third parties. We may also become subject to interference
proceedings conducted in the patent and trademark offices of various countries
to determine the priority of inventions. The defense and prosecution, if
necessary, of intellectual property suits, interference proceedings and related
legal and administrative proceedings is costly and diverts our technical and
management personnel from their normal responsibilities. We may not prevail in
any of these suits. An adverse determination of any litigation or defense
proceedings could put our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not issuing.
Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this type
of litigation. For example, during the course of this kind of litigation, there
could be public announcements of the results of hearings, motions or other
interim proceedings or developments in the litigation. If securities analysts or
investors perceive these results to be negative, it could have a substantial
negative effect on the trading price of our stock.
If we are unable to effectively protect our intellectual property, third parties
may use our technology, which would impair our ability to compete in our
markets.
Our continued success will depend in significant part on our ability to
obtain and maintain meaningful patent protection for our products throughout the
world. We rely on patents to protect a significant part of our intellectual
property and to enhance our
9
<PAGE>
competitive position. However, our presently pending or future patent
applications may not issue as patents, and any patent previously issued to us
may be challenged, invalidated, held unenforceable or circumvented. Furthermore,
the claims in patents which have been issued or which may be issued to us in the
future may not be sufficiently broad to prevent third parties from producing
competing products similar to our products. In addition, the laws of various
foreign countries in which we compete may not protect our intellectual property
to the same extent as do the laws of the United States. Failure to obtain
adequate patent protection for our proprietary technology could materially
impair our ability to be commercially competitive.
In addition to patent protection, we also rely on protection of trade
secrets, know-how and confidential and proprietary information. To maintain the
confidentiality of trade secrets and proprietary information, we generally seek
to enter into confidentiality agreements with our employees, consultants and
strategic partners upon the commencement of a relationship with us. However, we
may not obtain these agreements in all circumstances. In the event of
unauthorized use or disclosure of this information, these agreements, even if
obtained, may not provide meaningful protection for our trade secrets or other
confidential information. In addition, adequate remedies may not exist in the
event of unauthorized use or disclosure of this information. The loss or
exposure of our trade secrets and other proprietary information would impair our
competitive advantages and could have a material adverse affect on our operating
results, financial condition and future growth prospects. Furthermore, others
may have, or may in the future independently develop, substantially similar or
superior know-how and technology.
We have agreed to share our name, portions of our intellectual property rights
and distribution channels with other entities under common control which could
result in the loss of our name and to lock in the price of products we may sell
to these entities which may not be the best price available for these products.
We maintain a sharing agreement with 13 affiliated entities that requires
us to share portions of our intellectual property as it existed on February 28,
2000 and our distribution channels with these affiliated companies and their
affiliates. We also share the Bruker name with many of these affiliates. We
could lose the right to use the Bruker name if (a) we declare bankruptcy, (b) we
interfere with another party's use of the name, (c) we take a material action
which materially detracts from the goodwill associated with the name, or (d) we
suffer a major loss of our reputation in our industry or marketplace. The loss
of the Bruker name could result in a loss of goodwill, brand loyalty and sales
of our products. In addition, we have agreed to maintain the price of some
products purchased from and sold to these affiliates for a period of up to
twelve years, subject to yearly adjustments equal to the increase in the
Consumer Price Index.
Our manufacture and sale of products could lead to product liability claims for
which we could have substantial liability.
The manufacture and sale of our products exposes us to product liability
claims if any of our products cause injury or are found otherwise unsuitable
during manufacturing, marketing, sale or customer use. A successful product
liability claim brought against us in excess of, or outside the coverage of, our
insurance coverage could have a material adverse effect on our business,
financial situation and results of operations. We may not be able to maintain
product liability insurance on acceptable terms, if at all, and insurance may
not provide adequate coverage against potential liabilities.
10
<PAGE>
Our business could be harmed if our collaborations fail to advance our product
development.
Demand for our products will depend in part upon the extent to which our
collaborations with pharmaceutical and biotechnology companies are successful in
developing, or helping us to develop, new products and new applications for our
existing products. In addition, we collaborate with academic institutions on
product development. We have limited or no control over the resources that any
collaborator may devote to our products. Any of our present or future
collaborators may not perform their obligations as expected. If we fail to enter
into or maintain appropriate collaboration agreements or if any of these events
occur, we may not be able to develop some of our new products, which could
materially impede our ability to generate revenue.
If we lose our strategic partners, it could impair our marketing efforts.
A substantial portion of our sales of selected products consists of sales
to third parties who incorporate our products in their systems. These third
parties are responsible for the marketing and sales of their systems. We have
little or no control over their marketing and sales activities or how they use
their resources. Our present or future strategic partners may or may not
purchase sufficient quantities of products from us or perform appropriate
marketing and sales activities. These failures by our present or future
strategic partners, or our inability to maintain or enter into new arrangements
with strategic partners for product distribution, could materially impede the
growth of our business and our ability to generate sufficient revenue.
Any reduction in the capital resources or government funding of our customers
could reduce our sales and impede our ability to generate revenue.
A significant portion of our sales are capital purchases by our customers.
The spending policies of our customers could have a significant effect on the
demand for our products. These policies are based on a wide variety of factors,
including the resources available to make purchases, the spending priorities
among various types of equipment, policies regarding spending during
recessionary periods and changes in the political climate. Any changes in
capital spending or changes in the capital budgets of our customers could
significantly reduce demand for our products. The capital resources of our
biotechnology and other corporate customers may be limited by the availability
of equity or debt financing. Any significant decline in research and development
expenditures by our life science customers could significantly decrease our
sales.
We are dependent, both directly and indirectly, upon general health care
spending patterns, particularly in the research and development budgets of the
pharmaceutical and biotechnology industries, as well as upon the financial
condition of various governments and government agencies. Since our inception,
both we and our academic collaborators have benefited from various governmental
contracts and research grants. Whether we or our academic collaborators will
continue to be able to attract these grants depends not only on the quality of
our products, but also on general spending patterns of public institutions.
There exists the risk of a potential decrease in the level of governmental
spending allocated to scientific and medical research which could substantially
reduce or even eliminate our grants. Our status as a public company may reduce
our ability to obtain research grants from the German government in the future
because the German government focuses on funding small or private companies with
limited access to capital. In addition, we make a substantial portion of our
sales to non-profit and government entities which are dependent on continued
high levels of government support for scientific research. Any decline in this
support could decrease the ability of these customers to purchase our products.
11
<PAGE>
We may not be able to expand our sales and service staff to meet demand for our
products and services.
We need to expand our direct marketing and sales force as well as our
service and support staff. Our future revenue and profitability will depend on
our ability to expand our team of marketing and service personnel. Because our
products are technical in nature, we believe that our marketing, sales and
support staff must have scientific or technical expertise and experience.
Competition for employees with these skills is intense. We may not be able to
continue to attract and retain sufficient qualified sales and service people,
and we may not be able to grow and maintain an efficient and effective sales,
marketing and support department. If we fail to continue to attract or retain
qualified people, then our business could suffer.
We plan significant growth, and there is a risk that we will not be able to
manage this growth.
Our success will depend on the expansion of our operations. Effective
growth management will place increased demands on our management, operational
and financial resources. To manage our growth, we must expand our facilities,
augment our operational, financial and management systems, and hire and train
additional qualified personnel. Our failure to manage this growth effectively
could impair our ability to generate revenue or could cause our expenses to
increase more rapidly than revenue, resulting in operating losses.
If ethical and other concerns surrounding the use of genetic information, gene
therapy or genetically modified organisms become widespread, we may have less
demand for our products.
Genetic testing has raised ethical issues regarding confidentiality and
appropriate uses of the resulting information. For these reasons, governmental
authorities may limit or prohibit genetic testing. Gene therapy and genetically
modified organism content in food has raised safety concerns. Government
regulation or market forces could reduce the demand for our life science tools
for use in applications related to these markets. This could reduce the
potential markets for our products which could decrease our sales.
We are dependent upon various key personnel and must recruit additional
qualified personnel for a number of management positions.
Our success is highly dependent on the continued services of key
management, technical and scientific personnel. Our management and other
employees may voluntarily terminate their employment with us at any time upon
short notice. The loss of the services of any member of our senior management,
technical or scientific staff may significantly delay or prevent the achievement
of product development and other business objectives. Our chief executive
officer also is and has been chairman of the board of directors of an affiliated
company and a management officer of another affiliate, which may reduce the time
and attention he can devote to our management. Our future success will also
depend on our ability to identify, recruit and retain additional qualified
scientific, technical and managerial personnel. Competition for qualified
personnel is intense, particularly in the areas of information technology,
engineering and science, and the process of hiring suitably qualified personnel
is often lengthy. If we are unable to hire and retain a sufficient number of
qualified employees, our ability to conduct and expand our business could be
seriously reduced.
12
<PAGE>
We are dependent in our operations upon a limited number of suppliers and
contract manufacturers.
We currently purchase components used in our mass spectrometry instruments
from a limited number of outside sources. The reliance on a limited number of
suppliers could result in time delays associated with redesigning a product due
to an inability to obtain an adequate supply of required components and reduced
control over pricing, quality and timely delivery. Any interruption in the
supply of components could have an adverse effect on our business, results of
operations and financial condition.
If we fail to expand our international presence, our revenue will not grow as
expected.
International sales account and are expected to continue to account for a
significant portion of our total revenues. In 1999, international sales totaled
$38.5 million, or 59.4% of our net revenue. International expansion will require
that we hire additional personnel. If we fail to hire additional personnel or
develop and maintain relationships with foreign customers and partners, we may
not be able to expand our international sales and would suffer decreased
profits.
International sales and operations are and will remain subject to a number
of additional risks not typically present in domestic operations, including:
- changes in regulatory requirements;
- the imposition of government controls;
- political and economic instability or conflicts;
- costs and risks of deploying systems in foreign countries;
- limited intellectual property rights; and
- the burden of complying with a wide variety of complex foreign laws and
treaties.
Our international operations are and will remain subject to the risks
associated with the imposition of legislation and regulation relating to the
import or export of high technology products. We cannot predict whether tariffs
or restrictions upon the importation or exportation of our products will be
implemented by the United States or other countries. If these tariffs or
restrictions are imposed, our revenues or profits could suffer.
We may lose money when we exchange foreign currency received from international
sales into U.S. dollars.
A significant portion of our business is conducted in currencies other
than the US dollar, which is our reporting currency. As a result, currency
fluctuations among the US dollar and the currencies in which we do business have
caused and will continue to cause foreign currency transaction gains and losses.
We recognize foreign currency gains or losses arising from our operations in the
period incurred. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the number of currencies involved,
the variability of currency exposures and the potential volatility of currency
exchange rates.
Various international tax risks could adversely affect our earnings.
We are subject to international tax risks. Distributions of earnings and
other payments received from our subsidiaries may be subject to withholding
taxes imposed by the countries where they are operating or are formed. If these
foreign countries do not have income tax treaties with the United States or the
countries where our subsidiaries are incorporated, we
13
<PAGE>
could be subject to high rates of withholding taxes on these distributions and
payments. We could also be subject to being taxed twice on income related to
operations in these non-treaty countries. Because we are unable to reduce the
taxable income of one operating company with losses incurred by another
operating company located in another country, we may have a higher foreign
effective income tax rate than that of other companies in our industry. The
amount of the credit that we may claim against our U.S. federal income tax for
foreign income taxes is subject to many limitations which may significantly
restrict our ability to claim a credit for all of the foreign taxes we pay.
Our recent acquisition of ProteiGene involves the purchase of unproven
technology which will require substantial resources to develop.
We recently acquired ProteiGene, a company in the early stages of
developing various biological analysis systems and databases. ProteiGene's
approach and technology are not yet proven, and there is a substantial risk that
efforts in developing ProteiGene's technology will not yield any marketable
products. In addition, the effort we expend on this development will utilize
resources which we could otherwise have used in more proven areas of technology.
Responding to claims relating to improper handling, storage or disposal of
hazardous chemicals and radioactive and biological materials which we use could
be time consuming and costly.
We use controlled hazardous and radioactive materials in our business. Our
facilities in Massachusetts are regulated by the Massachusetts Department of
Public Health under 105 CMR 120.200 and 105 CMR 120.750. Our facilities in
Germany are regulated under paragraph 3 of the German Federal Radiation Safety
Regulations. The risk of accidental contamination or injury from these materials
cannot be completely eliminated. If an accident with these substances occurs, we
could be held liable for any damages that result. Additionally, an accident
could damage our research and manufacturing facilities resulting in delays and
increased costs.
Risks Related to This Offering
Concentration of ownership among our existing principal stockholders may prevent
new investors from influencing significant corporate decisions.
Following the completion of this offering, our five current stockholders
will beneficially own or control approximately 85.8% of the outstanding shares
of our common stock. Accordingly, our current stockholders will have the ability
to control the outcome of corporate actions requiring stockholder approval,
including election of directors, any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate
transactions. The concentration of ownership may also delay or prevent a change
of control of the Company at a premium price if the current stockholders oppose
it. Please see "Management" and "Principal Stockholders" for details on our
stock ownership.
Our current stockholders have controlling interests in affiliated companies and
could take actions which might not be in the best interest of our other
stockholders.
Our five current stockholders are members of an extended family and are
also the direct or indirect owners of a number of affiliated companies along
with their respective subsidiaries. Our current stockholders, including our
chief executive officer, also hold positions as officers or directors of certain
of these affiliates. The interests of our current stockholders as the direct or
indirect owners of these affiliates may conflict with their interests
14
<PAGE>
as stockholders of Bruker Daltonics. Our current stockholders, in their capacity
as Bruker Daltonics stockholders, will have no obligation to act in the best
interest of Bruker Daltonics or of other Bruker Daltonics stockholders, and they
may cause us to take actions not in the best interests of Bruker Daltonics or to
refrain from taking actions that are in our best interests.
The market price of our common stock may be highly volatile.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- developments concerning proprietary rights, including patents, by us or a
competitor;
- conditions or trends in the life sciences;
- changes in the market valuations of life sciences or life science tool
companies; and
- developments concerning our various strategic collaborations.
In addition, the stock market in general, and the Nasdaq National Market
and the market for life science companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies. Furthermore,
there has been particular volatility in the market prices of securities of
biotechnology and life science companies. These broad market and industry
factors may seriously harm the market price of our common stock regardless of
our operating performance. In the past, following periods of volatility in the
market, securities class action litigation has often been instituted against
these companies. The commencement of any litigation against us could result in
substantial costs and a diversion of management's attention and resources which
could seriously harm our ability to achieve our financial goals.
Anti-takeover provisions in our charter documents may limit the ability of
another party to acquire us which could cause our stock price to decline.
Various provisions of our certificate of incorporation and by-laws could
delay or prevent a third party from acquiring us, even if doing so might be
beneficial to our stockholders. These provisions provide for a classified board
of directors of which approximately one third of the directors will be elected
each year, allow the authorized number of directors to be changed only by a
resolution of the board of directors, establish advance notice requirements for
proposals that can be acted upon at stockholder meetings and limit who may call
stockholder meetings. These provisions may prevent a merger or acquisition that
would be attractive to stockholders and could limit the price investors would be
willing to pay in the future for our common stock.
New investors in our common stock will experience immediate and substantial
dilution.
The offering price of our common stock will be substantially higher than
the net tangible book value per share of our existing capital stock. As a
result, if you purchase common stock in this offering you will incur immediate
and substantial dilution of $9.41 in net tangible book value per share of common
stock, based on an assumed public offering price of $11.00 per share. You will
also experience additional dilution upon the exercise of outstanding stock
options. Please see "Dilution" for a more detailed discussion of the dilution
new investors will incur in this offering.
15
<PAGE>
If our stockholders sell substantial amounts of our common stock after the
offering, the market price of our stock may decline.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and under lock up
agreements with our underwriters. These lock up agreements restrict our
stockholders from disposing of their shares for one hundred eighty days after
the date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. However, Deutsche Bank Securities Inc. may release all or any
portion of the common stock from the restrictions of the lock up agreements. Any
sales of substantial amounts of common stock after the offering, including
shares issued upon the exercise of outstanding options, may cause the market
price of our common stock to decline.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." These statements
may include statements regarding:
- our business strategy;
- plans for hiring additional personnel;
- entering into business combinations or strategic alliances;
- intellectual property;
- litigation results;
- adequacy of anticipated sources of funds, including the proceeds from
this offering; and
- other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus. Following this offering, we assume no
obligation to update any forward-looking statements contained in this
prospectus.
17
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 7,500,000 shares of
common stock offered by us will be $75.2 million, after deducting the estimated
underwriting discount and offering expenses. We intend to use the net proceeds
of this offering for general corporate purposes, including research and
development, expansion of sales and marketing capabilities and working capital,
potential strategic acquisitions and repayment of our outstanding bank loans. As
of March 31, 2000, we had outstanding debt, including long-term and short-term,
in the aggregate of $14.9 million. We intend to use approximately $14.9 million
of the net proceeds of the offering to repay this debt. The interest rate on our
debt ranges from 4.7% to 7.9% with banks in Germany and the United States. The
long-term debt matures in 2003 and 2008. The amounts actually expended for
working capital purposes may vary significantly and will depend on a number of
factors, including the amount of our future revenues and the other factors
described under "Risk Factors." Accordingly, our management will retain broad
discretion in the allocation of the net proceeds of this offering. Pending these
uses, we intend to invest the proceeds in short-term, investment-grade,
interest-bearing investments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain all available funds for use in our
business and do not anticipate paying any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, results of operations and capital requirements.
18
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
- our actual capitalization as of March 31, 2000; and
- our capitalization as adjusted to reflect the receipt of net proceeds
from our sale of 7,500,000 shares of common stock at an assumed initial
public offering price of $11.00 per share in this offering, less the
underwriting discounts and commissions and estimated offering expenses.
You should read this table in conjunction with the Financial Statements
and the other financial information included in this prospectus.
<TABLE>
<CAPTION>
March 31, 2000
--------------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Short-term and long-term obligations........................ $14,920 $ --
Stockholders' equity:
Common stock, $0.01 par value; 100,000,000 shares
authorized, 45,500,000 shares issued and outstanding,
actual; and 53,000,000 shares issued and outstanding, as
adjusted (1).............................................. 455 530
Additional paid-in-capital.................................. 6,045 81,195
Accumulated other comprehensive loss........................ (3,336) (3,336)
Retained earnings........................................... 6,587 6,587
------- --------
Total stockholders' equity............................ 9,751 84,976
------- --------
Total capitalization................................ $24,671 $ 84,976
======= ========
</TABLE>
------------
(1) The number of shares of common stock does not include 2,120,000 shares of
common stock reserved for issuance under our 2000 Stock Option Plan which was
adopted in February 2000. Options for 783,135 shares of common stock were
granted under the 2000 Stock Option Plan in February 2000.
19
<PAGE>
DILUTION
Our actual net tangible book value as of March 31, 2000, was approximately
$9.0 million, or approximately $0.20 per share of common stock. After giving
effect to the sale of 7,500,000 shares of common stock offered by this
prospectus at an assumed price of $11.00 per share and after deduction of the
underwriting discounts and estimated offering expenses, our adjusted net
tangible book value at March 31, 2000, would have been $84.2 million, or $1.59
per share of common stock.
Actual net tangible book value per share before the offering has been
determined by dividing net tangible book value (total tangible assets less total
liabilities) by the number of shares of common stock outstanding at March 31,
2000, as adjusted for the seven-for-one stock split completed in February 2000.
The offering will result in an immediate increase in net tangible book value of
$1.39 per share to existing stockholders and an immediate dilution in net
tangible book value of $9.41 per share to new investors. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Actual net tangible book value per share as of March 31,
2000.................................................... $ 0.20
Increase per share attributable to new investors.......... 1.39
------
Adjusted net tangible book value per share after this
offering.................................................. 1.59
------
Dilution per share to new investors....................... $ 9.41
======
</TABLE>
The following table summarizes, on an adjusted basis as of March 31, 2000,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new investors, before deducting underwriting
discounts and commissions and estimated offering expenses, at an assumed initial
public offering price of $11.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------- ------------------------ Price
Number Percent Amount Percent Per Share
----------- -------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 45,500,000 85.8% $ 6,500,000 7.3% $ 0.14
New investors....................... 7,500,000 14.2% 82,500,000 92.7% $11.00
---------- ------ ------------ ------
Total........................... 53,000,000 100% 89,000,000 100%
========== ====== ============ ======
</TABLE>
In the preceeding tables, the shares of common stock outstanding exclude
2,120,000 shares of common stock reserved for issuance under our stock option
plan, of which 783,135 shares at a weighted average exercise price of $5.29 were
subject to outstanding options. None of these options were exercisable at
March 31, 2000.
If the underwriters exercise their over-allotment in full, the following
will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately 84.1% of the total number of shares of our
common stock outstanding; and
- the number of shares held by new investors will increase to 8,625,000
shares, or approximately 15.9% of the total number of our common stock
outstanding after this offering.
20
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The consolidated and combined statements of operations data for each of
the years ended December 31, 1997, 1998, and 1999 and the consolidated and
combined balance sheet data as of December 31, 1997, 1998 and 1999 have been
derived from our audited financial statements included elsewhere in this
prospectus which, for 1998 and 1999, have been audited by Ernst & Young LLP,
independent auditors, and for 1997 have been audited by BDO von Riegen, Lienau,
Sucker & Partner GmbH, independent auditors. The combined statements of
operations data for the years ended December 31, 1995 and 1996 and the combined
balance sheet data as of December 31, 1995 and 1996 have been derived from
unaudited financial statements not included in this prospectus. The financial
statements for 1995 through 1998 are presented on a combined basis due to the
common ownership of the Company and its affiliated company in Germany, which was
formally acquired in December 1998. The consolidated financial data for the
three months ended March 31, 1999 and 2000 are derived from our unaudited
consolidated financial statements that appear elsewhere in this prospectus,
which include all adjustments that we consider necessary for a fair presentation
of the financial position and results of operations for such periods. Historical
results are not necessarily indicative of future results. The data presented
below have been derived from financial statements that have been prepared in
accordance with accounting principles generally accepted in the United States
and should be read with the consolidated and combined financial statements,
including the notes, and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated/Combined Statements of
Operations Data:
Product revenue.............................. $30,076 $43,942 $49,247 $40,157 $60,620 $10,879 $14,035
Other revenue................................ 2,049 2,130 1,878 2,050 4,070 1,019 564
------- ------- ------- ------- ------- ------- -------
Net revenue.............................. 32,125 46,072 51,125 42,207 64,690 11,898 14,599
Costs and operating expenses:
Cost of product revenue.................... 16,424 20,329 24,538 19,672 31,618 5,497 6,574
Sales and marketing........................ 2,806 6,123 7,178 7,435 11,345 2,256 2,564
General and administrative................. 1,795 1,717 2,120 2,212 3,411 618 1,108
Research and development................... 9,419 8,812 9,166 13,049 15,138 3,088 3,600
Patent litigation costs.................... -- 1,901 5,525 -- 538 538 303
------- ------- ------- ------- ------- ------- -------
Total costs and operating expenses....... 30,444 38,882 48,527 42,368 62,050 11,997 14,149
------- ------- ------- ------- ------- ------- -------
Operating income (loss) from continuing
operations................................. 1,681 7,190 2,598 (161) 2,640 (99) 450
Other income (expense)....................... 196 2 127 174 130 140 (25)
Interest expense, net........................ (1,341) (1,032) (743) (901) (907) (267) (103)
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes.......... 536 6,160 1,982 (888) 1,863 (226) 322
Provision (benefit) for income taxes......... 9 2,265 1,627 -- 987 (120) 185
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations..... 527 3,895 355 (888) 876 (106) 137
Income from discontinued operations, net of
income taxes............................... 372 368 209 383 373 90 37
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 899 $ 4,263 $ 564 $ (505) $ 1,249 $ (16) $ 174
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share--basic and
diluted
Income (loss) from continuing operations... $ 0.01 $ 0.08 $ 0.01 $ (0.02) $ 0.02 $ 0.00 $ 0.00
Income from discontinued operations, net of
income taxes............................. 0.01 0.01 0.00 0.01 0.01 0.00 0.00
------- ------- ------- ------- ------- ------- -------
Net income (loss) per share.................. $ 0.02 $ 0.09 $ 0.01 $ (0.01) $ 0.03 $ 0.00 $ 0.00
======= ======= ======= ======= ======= ======= =======
Shares used in computing net income (loss)
per share--basic and diluted............... 45,500 45,500 45,500 45,500 45,500 45,500 45,500
</TABLE>
21
<PAGE>
SELECTED FINANCIAL DATA (Continued)
(in thousands, except per share data)
<TABLE>
<CAPTION>
As of December 31, March 31,
---------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(unaudited)
-----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated/Combined Balance Sheet Data:........
Cash and cash equivalents........................ $ 1,715 $ 3,766 $ 2,021 $ 1,135 $ 2,443 $ 3,905
Working capital.................................. (14,936) (14,759) (8,845) 6,338 12,080 13,335
Total assets..................................... 49,134 62,105 52,249 63,841 67,309 71,238
Total debt....................................... 17,797 19,033 8,496 17,924 15,340 14,920
Total stockholders' equity....................... 6,312 9,996 9,870 10,340 10,058 9,751
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS TOGETHER WITH "SELECTED FINANCIAL DATA" AND
OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF MANY FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Overview
We are a leading developer and provider of innovative life science tools
based on mass spectrometry. We are also a worldwide leader in supplying mass
spectrometry-based systems for substance detection and pathogen identification
in security and defense applications. We maintain technical centers in Europe,
North America and Japan, as well as customer support facilities in many
industrialized and developing countries. We allocate substantial capital and
resources to research and development and are party to various collaborations
and strategic alliances. Our diverse customer base includes pharmaceutical
companies, biotechnology companies, academic institutions and government
agencies.
Effective December 21, 1998, Bruker Daltonics Inc. acquired all of the
shares of Bruker Daltonik GmbH for $5.4 million. The transaction represented an
exchange between entities under common control and, accordingly, the assets
acquired and liabilities assumed have been accounted for at historical cost in a
manner similar to that of pooling-of-interests accounting. In addition, all
periods presented have been restated to reflect the businesses on a combined
basis.
Acquisitions
In December 1999, we acquired a 49% interest in ProteiGene, Inc. from a
related party. ProteiGene is a biomarker research and development company
specializing in the application of mass spectrometry and bioinformatics for
medical and microbiology cell and tissue analysis. The acquisition cost was
$50,000 in cash, the estimated fair market value, and was accounted for as a
purchase. In March 2000, we acquired the remaining 51% interest in ProteiGene
for $26,000 from an unrelated party.
In June 1999, we purchased the assets of Viking Instruments Corporation, a
developer and manufacturer of transportable gas chromatrograph mass
spectrometers. These instruments are used for laboratory and field analysis of
soil, air and water for the identification and quantification of a wide variety
of organic compounds and pollutants. The acquisition cost was $150,000, and the
results of operations are included in the accompanying consolidated financial
statements from the date of acquisition. In connection with the acquisition,
$100,000 was expensed as purchased in-process research and development, $25,000
was allocated to core technology and classified as an intangible, $20,000 was
allocated to inventory and $5,000 was allocated to fixed assets. The
amortization period is five years for the intangibles and three to five years
for the fixed assets.
The $100,000 in-process research and development was attributed to the
Viking 573, a transportable gas chromatrograph mass spectrometer, and supported
by a discounted probable cash flow analysis on a project-by-project basis
modified to reflect the stage of
23
<PAGE>
completion of the in-process research and development expenditures. As of June
22, 1999, the feasibility of the acquired technology had not been established,
and the acquired technology had no future alternative uses.
In connection with the Viking 573 project, we invested an additional
$300,000 out of operational cash flows through December 31, 1999. We shipped our
first unit in December 1999 which was accepted by the customer in January 2000.
We expect $1.2 million in revenues from this product line in 2000.
Discontinued Operations
In 1999, we decided to dispose of our analytical infrared sales group. In
March 2000, we completed the divestiture to a related party, Bruker Optik GmbH,
without a gain or loss. Our former analytical infrared sales group sold and
serviced instruments, not manufactured by us, in Germany only. The infrared
sales group generated revenues of $2.7 million in fiscal 1999. Amounts
previously reported have been reclassified as discontinued operations and are
not included in this discussion.
Significant Accounting Policies
CUSTOMER DEPOSITS. Under the terms and conditions of contracts with many
of our customers, we require a portion of the purchase price in the form of an
advance deposit. We record these deposit amounts as a liability until the
associated revenue is recognized at the time of acceptance of the system.
REVENUE RECOGNITION. We recognize revenue from system sales, including
hardware with embedded software, when a product is accepted by the customer,
except when sold through an independent distributor, a strategic distribution
partner or an unconsolidated Bruker affiliated distributor which assumes
responsibility for installation, in which case the system sale is recognized
when the products are shipped to the distributor and title has transferred to
the distributor. Our distributors do not have price protection rights or rights
to return; however our products are warranted to be free from defect for a
period of, typically, one year. Revenue from accessories and parts is recognized
upon shipment, and revenue from services when performed.
COST OF PRODUCT REVENUE. Cost of product revenue includes all direct
materials, direct labor, benefits and indirect costs related to generating
revenue. These indirect costs include indirect labor, materials and supplies,
equipment rental and depreciation of production equipment, test equipment and
facilities as related to production space revenue.
SALES AND MARKETING. Sales and marketing expenses include salaries, sales
commissions, benefits, travel, occupancy costs and related expenses for our
direct sales force, sales support and marketing functions. We have expanded our
sales and marketing organization substantially since 1997, adding subsidiaries
and sales representatives in China, France, Japan, Scandinavia, Switzerland, the
United Kingdom and Taiwan. Sales and marketing expenses also include costs
associated with supporting our distribution channel partners for our
time-of-flight and ion trap mass spectrometry products. We expect that sales and
marketing expenses will continue to increase in the future as we further expand
our global distribution capabilities and introduce new products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries, benefits and expenses for our executive, finance, legal, human
resources and internal systems support personnel. In addition, general and
administrative expenses include occupancy costs, fees for professional services
and depreciation of office equipment. We expect general and
24
<PAGE>
administrative expenses to increase as we continue to expand our administrative
infrastructure to support the anticipated growth of our business, including the
costs associated with being a public company.
RESEARCH AND DEVELOPMENT. Research and development expenses include costs
for the development of new technologies and products. These expenses include
materials, salaries, benefits, occupancy costs and related expenses for
development personnel. We expense research and development costs as incurred. We
expect to increase spending on research and development in order to develop new
products and applications.
PATENT LITIGATION COSTS. Patent litigation costs include actual and
estimated legal fees associated with litigation in connection with our
intellectual property, particularly the Finnigan litigation. These costs may
increase depending upon the outcome of the current legal proceedings.
Results of Operations
The following table sets forth certain items included in our results of
operations for the three years ended December 31, 1997, 1998 and 1999 and for
the three months ended March 31, 1999 and 2000, expressed as a percentage of our
net revenue for these periods.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue...................................... 96.3% 95.1% 93.7% 91.4% 96.1%
Other revenue........................................ 3.7 4.9 6.3 8.6 3.9
----- ----- ----- ----- -----
Net revenue...................................... 100.0 100.0 100.0 100.0 100.0
Costs and operating expenses:
Cost of product revenue.............................. 48.0 46.6 48.9 46.2 45.0
Sales and marketing.................................. 14.0 17.6 17.5 19.0 17.6
General and administrative........................... 4.2 5.3 5.3 5.2 7.5
Research and development............................. 17.9 30.9 23.4 26.0 24.7
Patent litigation costs.............................. 10.8 0.0 0.8 4.5 2.1
----- ----- ----- ----- -----
Total costs and operating expenses............... 94.9 100.4 95.9 100.9 96.9
----- ----- ----- ----- -----
Operating income (loss) from continuing operations..... 5.1 (0.4) 4.1 (0.9) 3.1
Other income (expense)................................. 0.3 0.4 0.2 1.2 (0.2)
Interest expense, net.................................. (1.5) (2.1) (1.4) (2.2) (0.7)
----- ----- ----- ----- -----
Income (loss) from continuing operations, before income
taxes................................................ 3.9 (2.1) 2.9 (1.9) 2.2
Provision for income taxes............................. 3.2 0.0 1.5 (1.0) 1.3
----- ----- ----- ----- -----
Income (loss) from continuing operations............... 0.7 (2.1) 1.4 (0.9) 0.9
Income from discontinued operations, net of income
taxes................................................ 0.4 0.9 0.5 0.8 0.3
----- ----- ----- ----- -----
Net income (loss)...................................... 1.1% (1.2)% 1.9% (0.1)% 1.2%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
PRODUCT REVENUE. Total product revenue increased $3.2 million, or 29.0%,
to $14.0 million in 2000 compared to $10.9 million in 1999. Product revenue via
affiliated distributors
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<PAGE>
increased $1.0 million, or 90.9%, to $2.1 million in 2000 compared to
$1.1 million in 1999. Life science product revenue and substance detection
product revenue as a percentage of product revenue was 64.3% and 31.9%,
respectively, in 2000 as compared to 61.7% and 29.7%, respectively, in 1999. The
increase in product revenue in 2000 was fueled by strong demand for our life
science products by new and existing customers, led by our high-end MALDI time-
of-flight product line.
OTHER REVENUE. Other revenue decreased $456,000, or 44.7%, to $564,000 in
2000 compared to $1.0 million in 1999. This decrease was due to the completion
of certain projects for early-stage research and development which were funded
by grants from the German government and the Advanced Technology Program of the
National Institute of Standards and Technologies in the United States. While we
historically have obtained significant funding under grant awards for
early-stage research and development activity, we anticipate this funding will
be significantly reduced in the future, since these grants are typically
provided to small or private companies with limited access to capital.
COST OF PRODUCT REVENUE. Cost of product revenue increased $1.1 million,
or 19.6%, to $6.6 million in 2000 compared to $5.5 million in 1999. The cost of
product revenue as a percentage of product revenue was 46.8% in 2000 as compared
to 50.5% in 1999. This decrease is due to a combination of stronger revenues
from our high-end MALDI time-of-flight product which has lower cost of product
revenue, increased efficiencies in the manufacturing operations and lower
material costs driven by an increase in volume discounts.
SALES AND MARKETING. Sales and marketing expenses increased $307,000, or
13.6%, to $2.6 million in 2000 compared to $2.3 million in 1999. The dollar
increase was due to higher sales commissions earned by our direct sales force as
a result of an increase in the number of units sold and the addition of several
distribution subsidiaries not in operation during the three months ended March
31, 1999. Sales and marketing expenses as a percentage of net revenues were
17.6% in 2000 and 19.0% in 1999, reflecting improved operating leverage as our
revenue base has grown.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$491,000, or 79.4%, to $1.1 million in 2000 compared to $618,000 in 1999. As a
percentage of net revenues, general and administrative expenses increased from
5.2% in 1999 to 7.5% in 2000. These dollar increases were due to increased
staffing and personnel-related costs incurred to manage and support our growth,
the addition of several distribution subsidiaries not in operation during the
three months ended March 31, 1999, the associated costs related to the
reincorporation of the Company, the development of the Employee Stock Option
Plan and a research and development tax study.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$512,000, or 16.6%, to $3.6 million in 2000 compared to $3.1 million in 1999. As
a percentage of net revenues, research and development expenses decreased from
26.0% in 1999 to 24.7% in 2000. The dollar increase in 2000 was due to increased
staffing and the related personnel costs incurred for late-stage testing of our
new product introductions, including APEX III, BioTOF II, esquire3000, MAP II/8
and OmniFLEX, in March 2000.
PATENT LITIGATION COSTS. Patent litigation costs were $303,000 in 2000
compared with $538,000 in 1999 all resulting from our ongoing litigation with
Finnigan. We may incur additional litigation costs in 2000.
26
<PAGE>
INTEREST EXPENSE, NET. Interest expense decreased $165,000, or 61.6%, to
$103,000 in 2000 compared to $267,000 in 1999. The decrease related to a
significant reduction of our short-term borrowing with our German lines of
credit. The interest expense is the result of our long and short-term borrowings
from banks in the United States and Germany.
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES. Income from
discontinued operations net of income taxes decreased $53,000, or 59.1%, to
$37,000 in 2000 compared to $90,000 in 1999. Income from discontinued operations
is related to the disposal of our infrared sales group in March 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
PRODUCT REVENUE. Total product revenue increased $20.5 million, or 51.0%,
to $60.6 million in 1999 compared to $40.2 million in 1998. Product revenue via
affiliated distributors increased $503,000, or 5.1%, to $10.3 million in 1999
compared to $9.8 million in 1998. Life science product revenue and substance
detection product revenue as a percentage of product revenue was 50.6% and
43.1%, respectively, in 1999 as compared to 42.1% and 53.0%, respectively, in
1998. The increase in product revenue in 1999 was fueled by strong demand for
our life science products by new and existing customers, led by our Fourier
transform mass spectrometry, MALDI time-of-flight and esquire product lines.
Additionally, $8.1 million of our 1999 substance detection and pathogen
identification product revenue was due to the completion of a large
non-recurring contract.
OTHER REVENUE. Other revenue increased $2.0 million, or 98.6%, to $4.1
million in 1999 compared to $2.0 million in 1998. This increase was due to
additional grant funding for early stage research and development from the
German government and from the Advanced Technology Program of the National
Institute of Standards and Technologies in the United States.
COST OF PRODUCT REVENUE. Cost of product revenue increased $11.9 million,
or 60.7%, to $31.6 million in 1999 compared to $19.7 million in 1998. The cost
of product revenue as a percentage of product revenue was 52.2% in 1999 as
compared to 49.0% in 1998. The increase as a percentage of product revenue was
due to lower revenue from our substance detection and pathogen identification
product, which historically has a lower cost of product revenue than our life
science products. Additionally, we have increased manufacturing capacity to meet
future projected product sales growth. This increased capacity had an adverse
effect on cost of product. We anticipate improved leverage of our fixed
manufacturing costs, and declines in cost of product revenue as a percentage of
sales, as our product revenue increases. We are also seeking to improve our
gross margin by developing new, more integrated systems and higher margin
consumables for the life science market.
SALES AND MARKETING. Sales and marketing expenses increased $3.9 million,
or 52.6%, to $11.3 million in 1999 compared to $7.4 million in 1998. As a
percentage of net revenues, sales and marketing expenses remained relatively
consistent. The increase was due to sales commissions and bonuses earned by our
direct sales force as a result of an increase in the number of units sold and
the expansion of our global distribution capabilities. The dollar increase was
also due to an increase in sales personnel and the associated recruiting,
training, travel, commissions and office space costs necessary to support a
larger sales organization.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$1.2 million, or 54.2%, to $3.4 million in 1999 compared to $2.2 million in
1998. The dollar increases were due to increased staffing and personnel related
costs incurred to manage and
27
<PAGE>
support our growth and the costs associated with the incorporation of our
foreign subsidiary offices. As a percentage of net revenues, general and
administrative expenses remained relatively consistent.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$2.1 million, or 16.0%, to $15.1 million in 1999 compared to $13.0 million in
1998. As a percentage of net revenues, research and development decreased to
23.4% as compared to 30.9%. The dollar increase in 1999 was due to increased
staffing and the related personnel costs incurred for late stage testing of our
new product introductions, including APEX III, BioTOF II, esquire3000, MAP II/8
and OmniFLEX, in March 2000. These increased expenses represented a lower
percentage of revenue due to the significant increase in revenues during fiscal
1999.
PATENT LITIGATION COSTS. Patent litigation costs were $538,000 in 1999.
This increase reflects a revised estimate of our legal costs associated with our
intellectual property litigation. We may incur additional litigation costs in
2000, primarily due to the Finnigan litigation.
INTEREST EXPENSE, NET. Interest expense increased $7,000, or 0.8%, to
$908,000 in 1999 compared to $901,000 in 1998. The interest expense is the
result of our long and short-term borrowings from banks in the United States and
Germany.
PROVISION FOR INCOME TAXES. Provision for income taxes was $987,000 in
1999 compared to $0 in 1998. The effective tax rate in 1999 was 53.0% which
reflected a blended tax rate from the various countries in which we operate. In
1999, we benefited from utilization of tax loss carryforwards in Germany. In the
United States, we were unable to recognize a tax benefit on our loss. There was
no income tax expense in 1998 as a result of the loss for the year.
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES. Income from
discontinued operations net of income taxes decreased $10,000, or 2.6%, to
$373,000 in 1999 compared to $383,000 in 1998. Income from discontinued
operations is related to the disposal of our infrared sales group in March 2000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
PRODUCT REVENUE. Total product revenue decreased $9.1 million, or 18.5%,
to $40.2 million in 1998 compared to $49.2 million in 1997. Product revenue via
affiliated distributors decreased $4.5 million, or 31.2% to $9.8 million in 1998
compared to $14.3 million in 1997. Life science product revenue and substance
detection product revenue as a percentage of product revenue was 42.1% and
53.0%, respectively, in 1998 as compared to 42.1% and 54.2%, respectively, in
1997. The decrease in product revenue in 1998 compared to 1997 was due to the
completion of a significant non-recurring substance detection contract in 1997,
a new life science product introduction delay and the expansion and
reorganization of our manufacturing operations which had an adverse effect on
shipments. We reorganized and expanded our manufacturing operations and
facilities to meet increased demand for our life science products.
OTHER REVENUE. Other revenue increased $171,000, or 9.1%, to $2.0 million
in 1998 compared to $1.9 million in 1997. This increase was due to additional
grant funding for early-stage research and development grants from the German
government and from the Advanced Technology Program of the National Institute of
Standards and Technologies in the United States.
28
<PAGE>
COST OF PRODUCT REVENUE. Cost of product revenue decreased $4.9 million,
or 19.8%, to $19.7 million in 1998 compared to $24.5 million in 1997. The cost
of product revenue as a percentage of product revenue was 49.0% in 1998 over
49.8% in 1997. The decrease in cost of product revenue is due to a shift in our
life science product mix and personnel and technological efficiencies that we
introduced to improve the manufacturing process.
SALES AND MARKETING. Sales and marketing expenses increased $257,000, or
3.6%, to $7.4 million in 1998 compared to $7.2 million in 1997. As a percent of
net revenues, sales and marketing expenses increased from 14.0% in 1997 to 17.6%
in 1998. This percentage increase was due to a decrease in 1998 net revenue.
Overall sales and marketing expenditures remained at dollar levels consistent
with the prior year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$93,000, or 4.4%, to $2.2 million in 1998 compared to $2.1 million in 1997. As a
percent of net revenues, general and administrative expenses increased from 4.2%
in 1997 to 5.3% in 1998 as a result of adding incremental staffing to support
our expected growth.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$3.9 million, or 42.4%, to $13.0 million in 1998 compared to $9.2 million in
1997. As a percent of net revenues, research and development expenses increased
from 17.9% in 1997 to 30.9% in 1998 as a result of our strategic decision to
increase our engineering and development personnel in order to continue
developing new products and applications. The increase in expense as a
percentage of revenues resulted from the corresponding decrease in revenues.
PATENT LITIGATION COSTS. In 1997, we increased by $5.5 million, our
reserve for all litigation costs we expected to incur in connection with our
defense against Finnigan's patent infringement litigation, including appeals. In
1998, we did not increase our estimate for these costs.
INTEREST EXPENSES, NET. Interest expense increased $158,000, or 21.2%, to
$901,000 in 1998 compared to $743,000 in 1997. The interest expense is the
result of our long and short-term borrowings from banks in the United States and
Germany.
PROVISION FOR INCOME TAXES. Due to the net loss in 1998, we had no
provision for income taxes. In 1997, the effective tax rate was 82.1%, which
reflects an increase in statutory rates due to a non-recurring tax assessment in
Germany.
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES. Income from
discontinued operations net of income taxes increased $175,000, or 83.6%, to
$383,000 in 1998 compared to $209,000 in 1997. Income from discontinued
operations is related to the disposal of our infrared sales group in March 2000.
Selected Quarterly Operating Results
The following table sets forth our unaudited quarterly results for the
five quarters ended March 31, 2000. This information has been prepared on the
same basis as the financial statements and, in the opinion of our management,
reflects all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the
29
<PAGE>
periods presented. The unaudited quarterly operating results are not necessarily
indicative of future results of operation. This data should be read in
conjunction with our Financial Statements and related Notes included in this
prospectus.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1999 1999 1999 1999 2000
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Product revenue..................... $10,879 $14,062 $17,243 $18,436 $14,035
Other revenue....................... 1,019 1,625 764 662 564
------- ------- ------- ------- -------
Net revenue....................... 11,898 15,687 18,007 19,098 14,599
Cost of product revenue............. 5,497 7,538 8,800 9,783 6,574
Operating expenses.................. 6,500 7,684 8,143 8,105 7,575
------- ------- ------- ------- -------
Total cost and operating
expenses.......................... 11,997 15,222 16,943 17,888 14,149
------- ------- ------- ------- -------
Operating income (loss) from
continuing operations............. (99) 465 1,064 1,210 450
Other expenses, net................. (127) (173) (225) (252) (128)
------- ------- ------- ------- -------
Income (loss) from continuing
operations before provision for
income taxes...................... (226) 292 839 958 322
Provision (benefit) for income
taxes............................. (120) 155 445 507 185
------- ------- ------- ------- -------
Income (loss) from continuing
operations........................ (106) 137 394 451 137
Income from discontinued operations,
net of income taxes............... 90 101 75 107 37
------- ------- ------- ------- -------
Net income (loss)................... $ (16) $ 238 $ 469 $ 558 $ 174
======= ======= ======= ======= =======
</TABLE>
Liquidity and Capital Resources
Presently, we anticipate that our existing capital resources and the
expected proceeds from this offering will meet our operating and investing needs
through the end of 2001. Historically, we have financed our growth through a
combination of cash provided from operations, debt financing and issuance of
common stock. Cash provided from operating activities is our primary source of
liquidity. We used $29,000 in cash flow for operations during the first quarter
of 2000, generated $5.4 million during 1999, used $6.5 million in 1998 and
generated $12.7 million in 1997.
We used $260,000 of cash in the first quarter of 2000, $4.4 million in
1999, $2.9 million in 1998 and $3.9 million in 1997 for capital expenditures.
Such capital expenditures were made to improve productivity and expand
manufacturing capacity. We expect to continue to make capital investments
focused on enhancing the efficiency of our operations and supporting our growth.
Other current assets increased at March 31, 2000 as compared to
December 31, 1999. The increase in other current assets was principally due to
an increase in a VAT tax receivable in Germany, deferred financing costs
incurred with our Registration Statement on Form S-1, and the timing of other
receivables.
In August 1999, we entered into a revolving line of credit with Citizens
Bank in the United States in the amount of $2.5 million, of which $1.0 million
was outstanding as of March 31, 2000. This line, which is secured by portions of
our inventory, receivables and
30
<PAGE>
equipment in the United States, is used to support working capital and expires
July 31, 2001. We also maintained revolving lines of credit in 1998 and 1999 of
approximately $4.2 million and $6.2 million, respectively, with German banks, of
which $1.6 million was outstanding as of March 31, 2000. Our German lines of
credit are unsecured and are renewable in June 2000. We plan to renew these
lines on substantially similar terms. In 1998 we raised $5.8 million from the
issuance of our common stock which was used to acquire the stock of our
affiliate, Bruker Daltonik GmbH.
No material capital expenditure commitments were outstanding as of
March 31, 2000. Our future capital uses and requirements depend on numerous
factors, including our success in selling our existing products, our progress in
research and development, our ability to introduce and sell new products, our
sales and marketing expenses, our need to expand production capacity, costs
associated with possible acquisitions, expenses associated with unforeseen
litigation, regulatory changes, and competition and technological developments
in the market.
Impact of Foreign Currencies
We sell our products in many countries and a substantial portion of our
sales and a portion of our costs and expenses are denominated in foreign
currencies, especially in Euro. In the first quarter 2000 and 1999, the U.S.
dollar strengthened against the Euro, and in 1998, the U.S. dollar strengthened
against the German mark. In each case, this reduced our consolidated revenue
growth rate, as expressed in U.S. dollars. In addition, the currency
fluctuations resulted in a foreign currency translation gain of $647,000 in
1998, a loss of $1.5 million in 1999 and a loss of $481,000 in the first quarter
of 2000, which are included as a component of accumulated other comprehensive
income (loss) on our balance sheets.
Historically, our realized foreign exchange gains and losses have not been
material. Accordingly, we have not hedged our foreign currency position in the
past. However, as we expand our sales internationally, we plan to evaluate our
currency risks and we may enter into foreign exchange contracts from time to
time to mitigate foreign currency exposure.
Stock Options
In February 2000, our board of directors adopted and our stockholders
approved our 2000 Stock Option Plan. The plan provides for the issuance of up to
2,120,000 shares of common stock in connection with stock options or other
awards. In February 2000, we granted stock options for 783,135 shares of common
stock, which vest over three-to-five year periods.
The Company accounts for stock-based compensation using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, because the
exercise price of our stock options equaled the fair market value of the
underlying stock on the date of grant, no compensation expense was recognized.
Our board of directors considered various factors in determining the fair market
value of the Company's common stock on the date the stock options were granted.
The board used data of comparable public companies to determine an initial
valuation of the Company as if it were a public company. The board discounted
this valuation by 20% to reflect the lack of marketability of our stock due to
our status as a private company.
Since the grant date of our stock options to the date of this Registration
Statement, various factors have contributed to the increase in the per share
value of our common stock. Our first quarter 2000 results exceeded our internal
projections by 12%. Our first quarter 2000 life science revenues grew 29% as
compared to the first quarter of 1999. Income from
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<PAGE>
continuing operations grew 229% in the first quarter 2000 as compared to the
first quarter 1999. Our new order bookings of life science products for the
first quarter 2000 increased by 33% as compared to the first quarter 1999.
Moreover, subsequent to February 2000, we introduced 6 new products
(esquire 3000, OmniFlex, MAP II/8, BioTOF II, Anchor Chips and APEX III) within
our life science product line. In March 2000, we signed a strategic
distribution/collaboration agreement with PerkinElmer Instruments for an initial
order of our OmniFlex systems. Additionally, in June 2000 we signed a strategic
collaboration agreement with Variagenics, Inc. under which we anticipate that we
will sell additional products. During the past few months, the life science
industry has benefited greatly from recent developments in sequencing the human
genome, which has fueled the growth of, and interest in, the life science
industry as a whole.
Inflation
We do not believe inflation has had a material impact on our business or
operating results during the periods presented.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The provisions of the statement require the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company is required to implement
the statement in the first quarter of fiscal 2001. We do not believe that this
new accounting standard will have a material impact on our financial statements.
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<PAGE>
BUSINESS
Overview
Bruker Daltonics is a leading developer and provider of innovative life
science tools based on mass spectrometry. Our substantial investment in research
and development allows us to design, manufacture and market a broad array of
products intended to meet the rapidly growing needs of our diverse customer
base. Our customers include pharmaceutical companies, biotechnology companies,
agricultural biotechnology companies, molecular diagnostics companies, academic
institutions and government agencies.
Mass spectrometers are sophisticated devices that provide highly accurate
molecular information. Our mass spectrometry-based systems often combine
automated sample preparation robots, advanced mass spectrometry instrumentation,
reagent kits and other disposable products used in conducting assays, or
consumables, and bioinformatics software. Our systems offer integrated solutions
for applications in multiple existing and emerging markets including genomics
and proteomics, metabolic and biomarker profiling, drug discovery and
development, molecular assays and diagnostics, molecular and systems biology and
basic medical research.
We market our life science systems both through our direct sales force and
through strategic distribution arrangements with Agilent Technologies,
PerkinElmer, Sequenom, MWG-Biotech and others. We are also a worldwide leader in
supplying mass spectrometry-based systems for substance detection and pathogen
identification in security and defense applications.
Industry Background
We design our products to address the rapidly evolving needs of the life
science industry. Public and private efforts to sequence the entire human genome
have led to advances that are fueling further investment in the discovery and
identification of single nucleotide polymorphisms, or SNPs, and other forms of
genetic variation. These developments, combined with advances in combinatorial
chemistry, which is the creation of libraries of chemical compounds, and in
basic molecular biology and medical research, are spurring growth in the
following rapidly developing and emerging areas:
- PHARMACOGENOMICS, which compares the genetic information of an individual
to the average human genome to predict the response of individual
patients and patient populations to drugs;
- PERSONALIZED MEDICINE, which seeks to apply inexpensive, rapid molecular
diagnostic tests, or assays, to profile a patient's genetic composition
and enable the prescription of individualized drug therapy;
- PROTEOMICS, which involves the large-scale separation, identification and
characterization of proteins in order to understand how proteins are
created based on the information contained in genes;
- NEW METHODS OF DRUG DISCOVERY, which are based on the rapid measurement,
or high-throughput screening, of large numbers of small organic compounds
synthesized through combinatorial chemistry against large numbers of
disease pathways, or targets, identified by genomics and proteomics;
- BIOMARKER DETECTION, OR BIO-BARCODING, which develops rapid and sensitive
assays for a broad range of cell and tissue types for applications
including infectious disease detection, human tissue assessment, the
identification of specific agricultural characteristics and pathogen
identification, even when the molecular mechanisms are not understood or
the genomic sequence is not available; and
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- METABOLIC PROFILING, OR METABOLOMICS, which analyzes the levels of
substances produced by the metabolism, or metabolites, present in a cell
or in biological fluids to draw correlations between disease states,
genetic modifications and variations in metabolite levels.
In addition, increased levels of funding for basic medical research have
fueled demand by universities, medical schools and government agencies for
sophisticated bioanalytical systems, such as mass spectrometers. Funding has
also increased for substance detection and pathogen identification systems for
security and defense applications.
LIMITATIONS OF ALTERNATIVE LIFE SCIENCE TOOLS
Many of the bioanalytical tools available today based on technologies
other than mass spectrometry, including those described in the next paragraph,
have significant limitations when used for applications including the detection
of genetic variation, pharmacogenomics, proteomics, drug discovery and biomarker
detection. These limitations include lack of throughput to accommodate the
volume of analysis required, lack of automation, time-consuming sample
preparation and insufficient accuracy of the resulting data. For example, the
two leading methods traditionally used for DNA sequencing and expression
profiling are electrophoresis and hybridization. The error rate of these
techniques can increase the cost, complexity and time involved in completing
more demanding analyses.
Traditional protein science tools including Edman sequencing and
two-dimensional gel separations are time consuming, relatively inaccurate and
labor intensive. Additionally, many alternative life sciences tools can only be
utilized by expert scientists. Other, newer bioanalytical tools, like biological
chips that can be read by fluorescence readers, may be highly automated.
However, these instruments are often less flexible or less accurate than mass
spectrometers. For other emerging applications including metabolic profiling and
rapid biomarker detection, we believe there presently are no automated,
sensitive and accurate alternative tools available other than mass
spectrometry-based systems.
Increasingly, life science companies are looking to solutions that address
the limitations inherent in these alternative tools.
MASS SPECTROMETRY
Mass spectrometers are devices for measuring the mass, or weight, of a
molecule. Mass spectrometry systems employ an ionization source which creates
charged molecules and a mass separation/detection component which separates
these charged molecules on the basis of mass to detect their presence and
quantity. Mass spectrometry has been used in physics and chemistry for over
fifty years. Over the past fifteen years, mass spectrometry has emerged as a
powerful research tool in the life sciences. For example, mass spectrometers can
determine the identity, amount, structure, sequence and other biological
properties of small molecules, like drug candidates and metabolites, as well as
large biomolecules, like proteins or DNA.
While highly accurate, mass spectrometers historically have been limited
by the time and skill required to prepare samples, conduct each measurement and
analyze the data.
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Our Solutions
Our product lines integrate sophisticated mass spectrometers with
automated sample preparation and measurement, and, where appropriate,
bioinformatics software to address many of the bioanalytical and bioinformatics
needs of the life sciences industry across a broad range of applications. Our
products have particular application to:
- genetic variation analysis, including such evolving areas as
pharmacogenomics and personalized medicine;
- proteomics;
- metabolomics;
- drug discovery based on high-throughput screening and combinatorial
chemistry; and
- drug development.
Automated high-throughput mass spectrometry systems offer significant
advantages over other bioanalytical tools, including Edman sequencing and
two-dimensional gel separations, in these emerging and rapidly changing markets.
Our automated systems allow our customers to generate and evaluate large volumes
of accurate, high-quality data on a cost-effective basis. We believe that this
enhanced throughput and high-quality data improves our customers' ability to
apply bioinformatics to validate lead disease pathways, or targets, understand
disease pathways and analyze lead compounds. Our customers also use our products
in molecular biology and other basic medical research. In addition, our
automated, integrated mass spectrometry technology forms the basis of our
substance detection and pathogen identification products used in security and
defense markets.
Our life science systems are based on four core mass spectrometry
technologies. Building on these core technologies, we offer a wide range of
systems that address key analytical needs in multiple applications across the
life sciences industry. We believe that our products offer the following
advantages to our customers:
HIGH DEGREE OF AUTOMATION. Our automated sample preparation and
measurement technology and sophisticated bioanalytic software allow our
customers to process high sample volumes with reduced reliance on highly-trained
scientific personnel.
INTEGRATED SOLUTIONS. We provide our customers with complete
bioanalytical solutions by integrating our mass spectrometry products with
sample preparation technology that conditions samples before they are analyzed,
or front-end sample preparation, purification and separation methods that clean
and separate components of sample mixtures, chemicals and other disposable
materials used in conducting assays and bioinformatics software that interprets
and analyzes data after it has been generated.
ACCURATE RESULTS. Our automated mass spectrometry systems generate large
volumes of highly accurate data with the selectivity and sensitivity our
customers demand. The high sensitivity of our products enables our customers to
pursue miniaturization and analysis of smaller samples. The accuracy of the
results reduces the need for repeat analysis to eliminate errors.
INCREASED PRODUCTIVITY. Our high-throughput products are designed to
allow our life science customers to increase productivity by generating more
results in a shorter time period.
COST EFFICIENCY. We have achieved performance advances with our products
that are designed to result in increased information per analysis at a
significantly lower cost per analysis for our customers.
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Our Strategy
Our strategy is to continue to be a leading provider of mass spectrometry
and related systems for use in life sciences, as well as in substance detection
and pathogen identification. Key elements of our strategy include:
PROVIDE A BROAD ARRAY OF TOOLS FOR A WIDE RANGE OF APPLICATIONS. In life
sciences, our strategy is to offer a broad range of products that provide
integrated solutions including sample preparation, sample analysis and data
interpretation for applications in existing and emerging life science markets.
Our longer term strategy is to expand our enabling life science tools beyond our
current mass spectrometry-based product lines, and to extend our position as a
leading provider of biological mass spectrometers to related bioinformation
business opportunities. We plan to selectively evaluate new life science markets
to which we may apply our core technologies and to continue to develop and
market our mass spectrometry systems for substance detection and pathogen
identification.
DEVELOP NEW PLATFORMS, ENHANCED PRODUCTS AND NEW APPLICATIONS. We plan to
continue our substantial investment in internal research and development. As a
result of this investment, in the past year we introduced an entirely new
technology platform, four next generation mass spectrometers, two new consumable
product lines and two bioinformatics software packages. We expect our
collaborations with key industrial and academic customers to continue to play a
strategic role in our research and development efforts and to assist us in
identifying and anticipating opportunities for enhanced products and emerging
applications.
BUILD ALLIANCES AND PURSUE ACQUISITIONS. We plan to continue to
co-develop selected products with strategic partners, especially when these
alliances expand our product lines and extend our marketing reach. As an
example, our collaboration with Agilent recently resulted in the introduction of
two ion trap instruments designed to be installed on top of a laboratory bench.
We also intend to pursue strategic acquisitions to extend our technology base.
For example, in the past year, we acquired ProteiGene and Viking to expand our
biomarker and substance detection technologies, respectively.
GENERATE RECURRING REVENUE. Our consumables and product service and
support provide an opportunity to generate recurring revenue. We seek to develop
additional consumables which enhance the ease of use and productivity of our
tools. For example, our reagents and assay kits make sample preparation easier
for our customers. We seek to increase recurring revenue from post-warranty
service to our growing industrial customer base as well as from training and
applications support.
DEVELOP AND EXPAND OUR BIOINFORMATION BUSINESS. We intend to expand our
presence in the bioinformation field through our wholly-owned subsidiary,
ProteiGene. We expect to create proprietary databases which our customers can
access by paying subscription fees, to collaborate in drug discovery with
customers in return for milestone and product royalty payments, and to offer
paid-for technology access partnerships to life science companies. We intend to
deploy our automated high-throughput mass spectrometry-based discovery tools in
an industrial-biology information production operation.
LEVERAGE OUR INTELLECTUAL PROPERTY. We expect to continue to pursue an
intellectual property strategy of obtaining extensive patent protection. As of
May 26, 2000, we owned or exclusively licensed 79 issued U.S. patents and 27
pending U.S. patent applications as well as 108 issued foreign patents and 75
pending foreign patent applications. We believe that maintaining extensive
intellectual property rights allows us to maintain a competitive advantage
through protecting access to key technologies. Where appropriate, we may pursue
an active licensing program to generate recurring revenue.
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Our Products
MASS SPECTROMETRY
We base our life science solutions on four core mass spectrometry
technology platforms which include:
- matrix-assisted laser desorption ionization, or MALDI, time-of-flight
mass spectrometry;
- electrospray ionization, or ESI, time-of-flight mass spectrometry;
- Fourier transform mass spectrometry; and
- ion trap mass spectrometry.
Time-of-Flight Mass Spectrometers measure mass based on the time it takes
for charged molecules to travel from the ionization source to the detection
component. With the ability to analyze as many as 20,000 samples per day, these
mass spectrometers currently have the highest sample throughput and can analyze
the broadest range of masses of any mass spectrometer for use in the fields of
genomics and proteomics. Our time-of-flight mass spectrometry solutions make
full use of this potential for increased speed by automating various steps of
the analysis. Our time-of-flight solutions combine high sensitivity, accuracy
and throughput to generate large volumes of accurate raw data for SNP detection
and proteomics.
Our life science tools include both MALDI and ESI time-of-flight
instruments.
MALDI TIME-OF-FLIGHT MASS SPECTROMETERS utilize an ionization process to
analyze solid samples using a laser that combines large volume sample throughput
with high mass range and significant sensitivity. Our MALDI time-of-flight mass
spectrometers are useful for (a) SNP analysis; (b) genotyping; (c) personalized
medicine; (d) forensics; (e) proteomics and protein function analysis; (f) drug
discovery and development; and (g) fast cell and tissue biomarker detection. We
offer three MALDI time-of-flight instruments:
REFLEX III-TM-. Our top-of-the-line MALDI time-of-flight instrument
offers modular flexibility that allows various configurations in the research
laboratory and automated sampling combined with high sensitivity, resolution and
accuracy.
BIFLEX III-TM-. The BIFLEX III provides high-end performance with high
throughput for industrial biology and drug discovery applications. Sequenom uses
this system in its industrial genomics MassArray system, and MWG-Biotech is
integrating it into a medium-throughput SNP detection system.
OMNIFLEX-TM-. Our first MALDI time-of-flight instrument which can be
installed on a laboratory bench can be used in general-purpose mass spectrometry
laboratories. We introduced this product in March 2000. The OmniFLEX combines
sensitivity, resolution and accuracy, for a wide variety of routine and
higher-end applications, with a lower price than our other two products
described above. We co-market this product with PerkinElmer.
These products utilize our proprietary AnchorChip microarrays which
prepare samples for analysis. These microarrays employ patented microfluidics
technology that improves sensitivity and reduces analysis time per sample by
concentrating the sample in a defined location.
ESI TIME-OF-FLIGHT MASS SPECTROMETERS utilize an ionization process to
analyze liquid samples. This process, which does not destroy the sample, allows
for rapid data acquisition and analysis of large biological molecules. ESI
time-of-flight mass spectrometers are useful for (a) identification, protein
analysis and functional complex analysis in proteomics and protein
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function; (b) molecular identification in metabolomics and drug metabolite
analysis; (c) combinatorial chemistry high-throughput screening, or HTS; and
(d) fast liquid chromatography mass spectrometry, or LC/MS, in drug discovery
and development.
BIOTOF II-TM-. We introduced our BioTOF II in March 2000. Our system
offers higher mass resolution and improved mass accuracy than we believe is
currently achievable with other commercial ESI time-of-flight systems.
FOURIER TRANSFORM MASS SPECTROMETERS utilize high-field superconducting
magnets to offer the highest resolution, selectivity and accuracy currently
achievable in mass spectrometry. Our systems based on this technology often
eliminate the need for time-consuming separation techniques in complex mixture
analyses. In addition, our systems can fragment molecular ions to perform exact
mass analysis on all fragments to determine molecular structure. Fourier
transform mass spectrometers are useful for (a) the study of the structure and
function of biomolecules including proteins, DNA and natural products;
(b) complex mixture analysis including combinatorial libraries;
(c) high-throughput proteomics and metabolomics; and (d) high-throughput drug
screening.
APEX III-TM-. Our APEX III product line offers a choice of four magnetic
field strengths. An increase in field strength improves resolution, selectivity
and accuracy. These products allow a wide range of research capabilities while
maintaining simplicity of operation. Our recent software and automation
developments allow us to offer high-throughput, easy-to-use systems.
ION TRAP MASS SPECTROMETERS measure all ions simultaneously which improves
sensitivity relative to older quadrupole mass spectrometers. Ion trap mass
spectrometers are useful for (a) sequencing and identification based on
structural analysis; (b) quantitative liquid chromatography mass spectrometry;
(c) identification of combinatorial libraries; and (d) generally enhancing the
speed and efficiency of the drug discovery and development process.
ESQUIRE3000-TM-. Our esquire3000 ion trap mass spectrometer combines our
patented ion trap technology with ion source and liquid chromatography
technology from Agilent. It offers performance benefits over other ion trap
systems, including software integration with Agilent separation systems, faster
scan rates, higher sensitivity, a wider mass range and a simple Windows NT user
interface. We also manufacture a related product, the LC/MSD-trap, which is
distributed by Agilent.
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CONSUMABLES
We sell consumables for processing, purifying and preparing samples prior
to mass spectrometric analyses. Additionally, our systems for substance
detection and pathogen identification use consumables for sample collection.
Consumables will provide an increasing recurring revenue stream as our installed
systems base grows. Our consumables include:
<TABLE>
<CAPTION>
Product Description
------------------------------------- ------------------------------------------------------------
<S> <C>
AnchorChips Microarrays that prepare samples and increase the
sensitivity of MALDI analysis, improve automation and
minimize reagent consumption
GenoPureDS kit Purifies DNA prior to mass spectrometric analysis
GenoPureOligo kit Purifies oligonucleotides, or DNA fragments, prior to
analysis
Silicon wheels Sample collection device for substance detection
Quartz tubes Sample processing device for pathogen identification
Dryers and filters Air dryers and filters for our ion mobility spectrometers
</TABLE>
AUTOMATION AND SEPARATION PRODUCTS, TRAINING AND SERVICES
We sell a broad array of related products and services with our initial
system sales and during a product's lifetime. For substance detection systems,
we have developed training products, including complete system simulator
installations. We offer post-warranty service on either a pre-paid or per-call
basis and sell repair and replacement parts for our growing installed systems
base. Our related products include:
<TABLE>
<CAPTION>
Product Description
------------------------------------- ------------------------------------------------------------
<S> <C>
Reconnaissance Simulator Training system that instructs users how to identify areas
contaminated with toxic substances
MM-1 Trainer Training product for the operation of our mass spectrometer
HP1100 and 3D-CE Products that condition samples for mass spectrometric
analysis that are produced by Agilent Technologies, Inc. and
sold by us
MAP II and II/8 Robots based on technology owned by Gilson Inc. that prepare
samples for analysis by our MALDI instruments
AutoXecute Automation software that allows our time-of-flight systems
to analyze samples automatically
</TABLE>
BIOINFORMATICS AND SOFTWARE
We have introduced automated control software to integrate separation
devices and robotics into our solutions. In addition, we provide bioinformatics
software to generate
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useable information from large volumes of raw data. Finally, we offer intuitive
data acquisition and analysis software on a Windows NT platform to make our
systems accessible to non-experts. Our related products include:
<TABLE>
<CAPTION>
Product Description
------------------------------------- ------------------------------------------------------------
<S> <C>
HyStar NT Liquid chromatography mass spectrometry software to control
Agilent and Waters liquid chromatography systems, Gilson
robots, and the operation of an integrated liquid
chromatography/nuclear magnetic resonance/mass spectrometry
system
BioTools For biomolecule identification and sequencing
Mascot Fast, automated web-enabled protein identification from
protein databases--purchased from Matrix Science
AGCTools Interpretation software for DNA mass spectra for SNPs or
other genetic variation
PolymerTools Interpretation software for mass spectra for synthetic
polymer parameters
QuantAnalysis Software for quantification of metabolites and substances
</TABLE>
SUBSTANCE DETECTION AND PATHOGEN IDENTIFICATION
We sell a wide range of portable analytical and bioanalytical detection
systems and related products. Our customers use these devices for nuclear,
biological pathogen and chemical defense applications, anti-terrorism, law
enforcement and process and facilities monitoring. Our substance detection and
pathogen identification products use many of the same technology platforms as
our life sciences products. For example, we developed our esquire products using
the same ion trap technology used in our chemical and biological mass
spectrometers. We also provide integrated, comprehensive detection suites which
include our multiple detection systems, consumables, training and simulators.
Our related products include:
<TABLE>
<CAPTION>
Product Description
------------------------------------- ------------------------------------------------------------
<S> <C>
MM-1 Mobile mass spectrometer for automatic detection of chemical
substances
CBMS Mobile ion trap mass spectrometers for automated
classification of biological pathogens and identification of
chemical agents
RAID-16 and RAID-S Portable and stationary automated ion mobility detectors for
chemical agents detection
SPME-RAID Trace detector for explosives
EM640 Series Transportable mass spectrometers for emergency response
Viking 573 Portable gas chromatography mass spectrometer for law
enforcement
RAPID II Long-range infrared detector for chemical substance clouds
SVG-2 Solid-state radiation detector
NIGAS Non-intrusive neutron activation detector for chemical
component analysis in closed containers
</TABLE>
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Research and Development
PRODUCT AND APPLICATIONS DEVELOPMENT. We commit substantial capital and
resources to internal and collaborative research and development in order to
provide innovative life science solutions to our customers. The following are a
few examples of our recent research and development accomplishments:
- After a four-year development effort, we created a new technology
platform for orthogonal time-of-flight mass spectrometry. In March 2000,
we offered our second generation product derived from this ESI
time-of-flight platform, the BioTOF II;
- In March 2000, we introduced various next-generation systems based on our
existing mass spectrometry technology platforms including the Apex III
Series Fourier transform mass spectrometer, the esquire3000 ion trap mass
spectrometer, the OmniFlex MALDI time-of-flight mass spectrometer and the
MAP II/8 sample preparation robot. These new systems typically had
two-year development and engineering cycles. These products have fewer
parts, lower production costs and improved price/performance ratios;
- We have recently commercialized our AnchorChip microarrays. These
products incorporate our patented microfluidics technology which achieves
greater sensitivity in MALDI analyses; and
- We developed our ion source, known as ZeroAdjust Nanospray-TM-, to solve
ease of use and throughput constraints associated with traditional ESI
sources at ultra low flow rates. This development increases throughput
for proteomic applications.
GRANTS. Historically, we have been the recipient of various government
grants. We recently completed a five-year Advanced Technology Program grant from
the National Institute of Standards and Technology for the development of a Mass
Tag DNA Diagnostic Mass Spectrometer. We also currently have six ongoing,
multi-year research grants from the German Federal Government for the
development of new spectrometers and new applications for analysis. We have
generally retained at least non-exclusive rights to any items or improvements we
develop under these grants. The U.S. government generally retains the right to
use technology developed under grants. The German government requires that we
use and market technology developed under grants in order to retain our rights
to the technology.
Customers
We have a broad and diversified global life science customer base that
included over 400 customers at December 31, 1999. Our life science customers
accounted for approximately 57% of our net revenue in 1999. Our life science
customer base includes pharmaceutical, biotechnology, agricultural
biotechnology, molecular diagnostics and fine chemical companies, as well as
commercial laboratories, university laboratories, medical schools and other not-
for-profit research institutes and government laboratories. We sell our
substance detection and pathogen identification products and services to defense
departments and law enforcement and emergency response professionals. In fiscal
1999, our substance detection and pathogen identification customers represented
approximately 43% of our net revenue.
During 1998 and 1999, the U.S. Department of Defense Edgewood Chemical
Biological Center accounted for 12% and 13%, respectively, of our net revenue
and the South Korean government (through its prime contractor Daewoo Heavy
Industries) accounted for 18% and 15%, respectively, of our net revenue. Our
production contract with the U.S. Department of
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Defense Edgewood Chemical Biological Center ended on March 31, 2000, and we do
not currently anticipate that our net revenue attributable to either of these
customers will account for greater than 10% of our net revenue in 2000.
Strategic Collaborations
We have several key technical collaborations and alliances for the
development and distribution of new or existing products. These collaborations
include:
AGILENT TECHNOLOGIES. In 1996, we commenced a collaboration with Agilent
Technologies (formerly Hewlett Packard) to develop and distribute ion trap
liquid chromatography mass spectrometry instrumentation. We manufacture and
distribute our esquire3000 product, and we jointly manufacture a related ion
trap product for distribution by Agilent. Under our agreement with Agilent,
neither party can conduct joint ion trap development with any other party and
each party can distribute its products without restriction.
PERKINELMER INSTRUMENTS. In March 2000, we began our alliance with
PerkinElmer to leverage PerkinElmer's global distribution capability to
co-market our OmniFlex time-of-flight products. We believe this alliance will
advance expansion into new markets, including pharmaceutical drug development,
protein, peptide and oligonucleotide product quality control, synthetic polymer
manufacturing, and quality testing in the food and beverage industries.
SEQUENOM. In 1997, we began an alliance with Sequenom to develop
industrial genomics tools for high-throughput SNP analysis. Our BIFLEX III is
the basis for a co-labeled system called SpectroScan-TM- which is an important
component of the Sequenom MassARRAY system. Each party owns the rights to any
developments it makes under this collaboration.
MWG-BIOTECH. In 1999, we began our alliance with MWG-Biotech to
co-develop an integrated system for SNP analysis, including reagent kits,
high-volume sample preparation systems and our BIFLEX III, MALDI time-of-flight
system. The National Institute of Standards has selected this system to help
establish a standard SNP database laboratory. Each party owns any developments
it makes under this collaboration.
We have a number of other collaborations, including collaborations with
Matrix Sciences and Variagenics for technology enhancements. We recently
expanded our collaboration with Variagenics to combine our technologies into an
integrated system used by Variagenics and its pharmaceutical partners to
identify genetic variances. We own all developments we make under these
collaborations.
Sales and Marketing
MARKETING ACTIVITIES. Our primary marketing theme is "Enabling Life
Science Tools Based on Mass Spectrometry." We emphasize our solutions and
technology platforms rather than simply the provision of instruments. We pursue
an active marketing program through a large number of activities throughout the
year. Our key marketing vehicles include trade shows, advertising, our website,
newsletters and related activities.
DIRECT SALES CHANNELS. During the last three years, we have committed
significant resources to upgrade and expand our direct sales force and our
distribution channels worldwide. We have direct sales coverage throughout most
of the European Union, North America and much of the Pacific Rim. During the
past three years, we have hired and trained more than forty professional
technical sales staff for direct sales and marketing activities.
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We have well-equipped application and demonstration facilities and
qualified application personnel who assist customers and provide product
demonstrations in specific application areas. We maintain our primary
demonstration facilities in the United States (Massachusetts and California),
Germany (Bremen and Leipzig), the United Kingdom and Japan. Demonstration
systems and applications scientists are also available in Australia, France,
Italy and Switzerland.
INDIRECT SALES CHANNELS. We have various international distributors and
independent sales representatives, including in the countries of South Korea,
Portugal and Israel and in the regions of Latin America and Eastern Europe. We
have adopted a distribution business model where we engage in strategic
distribution alliances with other companies to address certain market segments.
Our primary distribution alliances are:
- We manufacture for Agilent an ion trap mass spectrometer, which they
incorporate into their liquid chromatography mass spectrometry systems
for distribution into various industrial markets.
- We sell high-throughput MALDI time-of-flight mass spectrometers through
Sequenom into emerging industrial genomics markets for high-throughput
SNP analysis.
- We sell BIFLEX MALDI time-of-flight mass spectrometry systems through
MWG-Biotech for DNA/RNA applications, including SNP detection.
- We recently began co-marketing our OmniFLEX MALDI time-of-flight mass
spectrometers with PerkinElmer in a variety of industrial market
segments.
Sales Cycle and Backlog
The typical sales cycle for our life science systems is three to six
months for most product lines. However, the cycle can be in excess of a year
when a customer must budget the product into an upcoming fiscal year. Substance
detection and pathogen identification products can have multi-year sales cycles
for large production contracts.
We typically ship ordered products within twelve months after receipt of
the order. At March 31, 1999 and 2000, we had approximately $31.7 million and
$39.1 million, respectively, in orders which had not yet been shipped and
accepted by the customer.
Manufacturing
We manufacture and test the majority of our products in our three
principal ISO 9001 registered manufacturing facilities located in the United
States and Germany. We have considerable manufacturing flexibility at our
various facilities, and each facility can manufacture multiple products at the
same time. We maintain in-house key manufacturing know-how, technologies and
resources. Our facilities incorporate environmental chambers, CE mark compliance
test centers, clean room manufacturing for vacuum components, licensed
facilities for handling closed radioactive sources, computer-aided laser cutting
and vacuum welding. We maintain multiple suppliers for key components that are
not manufactured in-house.
Intellectual Property
Our intellectual property consists of patents, copyrights, trade secrets,
know-how and trademarks. Protection of our intellectual property is a strategic
priority for our business. As of June 21, 2000, we owned or exclusively licensed
79 issued U.S. patents and 27 pending U.S. patent applications as well as 108
issued foreign patents and 76 pending foreign patent applications. We have
exclusively licensed three patents, which cover time-of-flight mass spectrometry
with improved resolution and accuracy, from Indiana University.
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We believe our owned and licensed patent portfolio provides us with a
competitive advantage. This portfolio permits us to maintain access to a number
of key technologies. We license our owned patent rights where appropriate. We
will enforce our patent rights against infringers if necessary.
The patent positions of life science tool companies involve complex legal
and factual questions. As a result, we cannot predict the enforceability of our
patents with certainty. In addition, we are aware of the existence from time to
time of patents in certain countries which, if valid, could impair our ability
to manufacture and sell our products in these countries.
We also rely upon trade secrets, know-how, trademarks, copyright
protection and licensing to develop and maintain our competitive position. We
generally require the execution of confidentiality agreements by our employees,
consultants and other scientific advisors. These agreements provide that all
confidential information made known during the course of a relationship with us
will be held in confidence and used only for our benefit. In addition, these
agreements provide that we own all inventions generated during the course of the
relationship.
We are a party to various government contracts. Under some of these
government contracts, the government may receive license or similar rights to
intellectual property developed under the contract. However, under government
contracts we enter we receive no less than non-exclusive rights to any items or
technologies we develop.
Scientific Advisory Board
We have established an international Scientific Advisory Board to advise
us on strategic research and development and strategic marketing issues. The
members of the Board include:
- Jean Futrell, Ph.D., Director of the Department of Energy's Environmental
Molecular Sciences Laboratory in Richmond, Washington; former Chairman of
Chemistry and Biochemistry at the University of Delaware.
- Steven A. Hofstadtler, Ph.D., Director of Drug Discovery Technology, ISIS
Pharmaceuticals, Inc., Carlsbad, California.
- Joachim R. Wesener, Ph.D., Head of Mass Spectrometry at Bayer Central
Research, Leverkusen; Board Member of German Society for Mass
Spectrometry.
- Professor Helmut Meyer, University of Bochum, Germany; President of
Protagen AG, Bochum, Germany.
- Professor Peter Derrick, University of Warwick, United Kingdom; Director
of University of Warwick's Institute for Mass Spectrometry; Professor and
Chairman of the Department of Chemistry.
- Gunther Heinrich, Ph.D., CEO and President of EPIDAUROS AG, Bernried,
Germany.
We provide members of our Scientific Advisory Board a fee of $6,000 per
year and options at fair market value for 1,500 shares of our common stock.
These options vest in equal annual increments over the course of their
three-year tenure. We also reimburse Scientific Advisory Board members for
expenses reasonably incurred related to the services they provide us.
Competition
Our markets are highly competitive, and we expect the competition to
increase. Currently, we compete with a variety of companies that offer mass
spectrometry-based systems along each of our product lines. These competitors
include PE Biosystems,
44
<PAGE>
Amersham Pharmacia Biotech, Waters Corporation, ThermoElectron Corporation and
Hitachi. We also compete with other companies that provide analytical tools
based on other technologies. We believe that the principal competitive factors
in our markets are technological applications expertise, product functionality,
marketing expertise, distribution capability, proprietary patent portfolios,
cost and cost effectiveness.
Our existing products and any products that we develop may compete in
multiple, highly competitive markets. Many of our potential competitors in these
markets have substantially greater financial, technical and marketing resources
than we do. They may offer or succeed in developing products that would render
our products or those of our strategic partners obsolete or noncompetitive. In
addition, many of these competitors have significantly greater experience in the
life sciences market. Our ability to compete successfully will depend on our
ability to develop proprietary products that reach the market in a timely manner
and are technologically superior to and/or are less expensive, or more cost
effective, than other currently marketed products. Current competitors or other
companies may possess or develop technologies and products that are more
effective than ours. Our technologies and products may be rendered obsolete or
uneconomical by technological advances or entirely different approaches
developed by one or more of our competitors.
Employees
As of June 21, 2000, we employed over 400 full-time employees, with
approximately 80 employees in the United States and more than 320 employees
located primarily in Europe. Over 100 of these employees hold doctorates in
biology, chemistry or physics.
Facilities
Our three principal facilities incorporate manufacturing, research and
development, application and demonstration, marketing and sales and
administration functions. These are:
- a leased 25,000 square foot facility in Billerica, Massachusetts;
- an owned 50,000 square foot facility in Bremen, Germany; and
- an owned 50,000 square foot facility in Leipzig, Germany.
We lease additional centers for sales, applications and service support in
Fremont, California; Coventry, United Kingdom (Bruker Daltonics Ltd.);
Wissembourg, France (Bruker Daltonique S.A.); Stockholm, Sweden (Bruker
Daltonics Scandinavia A.B.); Faellanden, Switzerland (Bruker Daltonics GmbH);
Tsukuba, Japan (Nihon Bruker Daltonics K.K.); Beijing, People's Republic of
China and Taipei, Taiwan.
Government Regulation
We possess low-level radiation licenses for our facilities in Billerica,
Massachusetts and Leipzig, Germany. Some of our products, particularly in the
detection area, are subject to enhanced levels of export controls from the
United States and Germany. Apart from these two areas, we are not subject to
direct governmental regulation other than the laws and regulations generally
applicable to businesses in the jurisdictions in which we operate.
Legal Proceedings
FINNIGAN LITIGATION
Since December 31, 1996, we have been involved in patent litigation with a
competitor, Finnigan, a subsidiary of ThermoQuest and an indirect subsidiary of
Thermo Electron.
INTERNATIONAL TRADE COMMISSION INVESTIGATION AND APPEAL. In January 1997,
Finnigan filed a complaint with the United States International Trade Commission
alleging that our
45
<PAGE>
esquire mass spectrometer products which are based on our ion trap technology
and a related product sold by our strategic partner, Agilent (formerly a
division of Hewlett Packard), infringe Finnigan's U.S. Patents No. 4,540,884, or
the `884 patent, and U.S. Patent Re. 34,000, or the `000 patent. In February
1998, an administrative law judge initially found that some claims of the `884
patent were not infringed, some claims of the `884 patent were invalid, and that
the `000 patent was invalid. In April 1998, the Commission issued a final
determination confirming the initial determination. Finnigan appealed the
determination for the `884 patent only to the Court of Appeals for the Federal
Circuit. In June 1999, this appeals court reversed the finding of invalidity of
some claims of the `884 patent, but affirmed that our products did not infringe
the `884 patent. The impact of this decision was to leave in effect the order of
the Commission denying Finnigan the relief it sought.
PATENT INFRINGEMENT ACTION BY FINNIGAN IN UNITED STATES DISTRICT
COURT. In December 1996, Finnigan brought suit in the United States District
Court for the District of Massachusetts alleging that our esquire series of mass
spectrometer products and a related product marketed by Agilent infringe two
claims of the `000 patent and one claim of the `884 patent. The '000 patent
expires in April 2005, and the '884 patent expires in September 2002. We have
filed two motions for summary judgment. One motion seeks a ruling that the claim
of the `884 patent is not infringed. The other seeks a ruling that the `000
patent is invalid. Finnigan has opposed these motions for summary judgment and
cross-moved for summary judgment that the claim of the `884 patent covers the
method of operation of our esquire mass spectrometers and the related Agilent
product. No hearing on these motions has been scheduled as of June 21, 2000.
OUR ANTITRUST ACTION AGAINST FINNIGAN AND OTHERS IN UNITED STATES DISTRICT
COURT. In May 1997, we filed a complaint in the United States District Court
for the District of Massachusetts alleging antitrust violations against
Finnigan, ThermoQuest and Thermo Instruments, another subsidiary of
ThermoElectron, based on Finnigan's actions in connection with several of its
patents. In January 2000, Finnigan filed a motion to dismiss. We have opposed
this motion. A hearing was held in May 2000 on the motion to dismiss. The court
has not yet rendered a ruling on this motion.
PATENT INFRINGEMENT ACTION BY FINNIGAN IN THE FEDERAL COURT IN DUSSELDORF,
GERMANY. In March 1999, Finnigan brought suit in Federal Court in Dusseldorf,
Germany alleging that our esquire series of mass spectrometer products and the
related Agilent product infringe three Finnigan European patents. The court
retained the claims alleging infringement in Germany but, on jurisdictional
grounds, transferred the claims alleging infringement in the United Kingdom,
France, Sweden and Switzerland to the Federal Court in Hamburg. In January and
February 2000, the Dusseldorf court held hearings on the infringement actions.
In March 2000, the court issued rulings that distribution and delivery of our
esquire series of products and of the related Agilent product for use in Germany
infringe two Finnigan patents. The court ordered us and Agilent to pay damages
in an amount to be determined and stayed its consideration of the third patent
pending the outcome of a nullity action we brought concerning the third patent.
On May 8, 2000, we filed an appeal of this ruling. As a result of the court's
order, we are currently enjoined from selling our ion trap devices in Germany.
This restriction will continue until the Finnigan patents expire, in 2003 for
one of the patents and in 2007 for the other, unless the patents are nullified,
the infringement rulings are reversed on appeal, or we design around the
Finnigan patents. The damages for our past sales of ion trap products in Germany
to be determined by the Dusseldorf court are roughly estimated at $240,000, and
the attorneys' fees and costs that we may be required to pay are roughly
estimated at $105,000. The damages and costs that the Dusseldorf Court actually
assesses may be more or less than the amounts estimated here.
46
<PAGE>
PATENT INFRINGEMENT ACTION BY FINNIGAN IN THE FEDERAL COURT IN HAMBURG,
GERMANY. As noted above, the Dusseldorf Court transferred to the Federal Court
in Hamburg the claims alleging infringement in the United Kingdom, France,
Sweden and Switzerland. In these proceedings the substantive patent law of each
country will apply to the determination of the claims and defenses relating to
infringement in each country, respectively. As of April 10, 2000, no proceedings
have occurred in the Hamburg Court regarding these claims.
NULLITY ACTIONS AGAINST THE FINNIGAN PATENTS IN GERMANY. The same three
Finnigan patents asserted in the Dusseldorf actions are also the subject of
nullity actions we filed in the German Patent Court in Munich. In these actions
the Munich Court is being asked to determine the validity of the three Finnigan
patents as they apply in Germany. The Munich Court will not determine the
validity of the patents as the patents apply in France or the United Kingdom.
Hearings in the Munich nullity actions are anticipated to occur in July 2000,
with decisions expected to follow some months later. If we prevail in the
nullity actions, the rulings of the Dusseldorf Court will be withdrawn.
OUR PATENT INFRINGEMENT ACTION AGAINST FINNIGAN IN THE FEDERAL COURT IN
DUSSELDORF, GERMANY. In late 1999, we filed a complaint in the Federal Court in
Dusseldorf alleging that Finnigan's ion trap products infringe two of our
European patents. Hearings are scheduled for September 2000. One of our two
patents in this suit is the subject of a nullity action filed by Finnigan in the
German Patent Court in Munich. A hearing date has not yet been set for the
nullity action.
While we believe that our ion trap mass spectrometry products, including
our esquire series and the product sold by Agilent, should ultimately be held
not to infringe any claim of any valid Finnigan patent, we cannot predict the
outcome of the Finnigan litigation. In 1996, 1997, 1998 and 1999, our sales of
ion trap mass spectrometry products in Germany totaled $702,630, $727,276,
$810,767 and $2.0 million, respectively. In 1996, 1997, 1998 and 1999, our sales
of these products in other European countries totaled $448,561, $767,956,
$1.8 million and $2.6 million, respectively. In 1996, 1997, 1998 and 1999, our
sales of ion trap mass spectrometry products in the U.S. totaled $1.6 million,
$1.5 million, $2.1 million and $3.6 million, respectively. In 1996, 1997, 1998
and 1999, total worldwide sales of our ion trap mass spectrometry products
totaled $2.7 million, $3.2 million, $5.0 million and $8.2 million, respectively.
Also, under our agreement with Agilent, we may be required to indemnify Agilent
from any damages and expenses resulting from the Finnigan litigation. See "Risk
Factors--Our success depends on our ability to operate without infringing or
misappropriating the proprietary rights of others; and we are currently involved
in several legal actions concerning technology for ion trap spectrometry with a
competitor and various affiliates of the competitor, and a German court has
decided that we have infringed two European patents of the competitor."
GENERAL
We may, from time to time, be involved in other legal proceedings in the
ordinary course of business. On May 19, 2000, we received a letter from counsel
for the University of Northern Iowa Research Foundation of Cedar Falls, Iowa
alleging that certain coaxial mass spectrometer technology used in our
BioTOF II mass spectrometers infringes claims of a patent held by the
University. We believe that this allegation is without merit. We are not
currently involved in any other pending legal proceedings that, either
individually or taken as a whole, could materially harm our business, prospects,
results of operations or financial condition.
47
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their respective ages and
positions as of June 21, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- -------- ------------------------------------------
<S> <C> <C>
Frank H. Laukien, Ph.D. (1)............... 40 Chairman, President and Chief Executive
Officer
John J. Hulburt, C.P.A.................... 33 Corporate Controller and Treasurer
Dieter Koch, Ph.D......................... 60 Managing Director of Bruker Daltonik
GmbH*; Managing Director
of Bruker Saxonia Analytik GmbH* and
Director of Bruker Daltonics Inc.
Jochen Franzen, Ph.D. .................... 69 Managing Director, Bruker Daltonik GmbH*
Hans-Jakob Baum........................... 47 Vice General Manager of Bruker Daltonik
GmbH*; Managing Director of Bruker Saxonia
Analytik GmbH*
John Wronka, Ph.D. ....................... 44 Vice President
Gary Kruppa, Ph.D. ....................... 39 Vice President
Collin J. D'Silva (2)..................... 43 Director
William A. Linton (2)(3).................. 52 Director
David Southwell (2)(3).................... 39 Director
Richard M. Stein (1)(3)................... 48 Director and Secretary
Bernhard Wangler (1)...................... 49 Director
</TABLE>
------------
(1) Member of the executive committee.
(2) Member of the audit committee.
(3) Member of the compensation committee.
* Bruker Daltonik GmbH is a subsidiary of Bruker Daltonics Inc. and Bruker
Saxonia Analytik GmbH is a subsidiary of Bruker Daltonik GmbH.
FRANK H. LAUKIEN, PH.D. Dr. Laukien has been the Chairman, President and
Chief Executive Officer of Bruker Daltonics since the inception of our
predecessor company in February 1991. He has been a Managing Director of Bruker
Daltonik GmbH, a wholly-owned subsidiary of Bruker Daltonics, since August 1997.
He has also served as Chairman of Bruker AXS Inc., an affiliate of Bruker
Daltonics, since October 1997 and as President of Bruker Instruments, Inc., an
affiliate of Bruker Daltonics, since June 1997. He is a Professor of Mass
Spectrometry at the University of Amsterdam. Dr. Laukien holds a B.S. degree
from the Massachusetts Institute of Technology, as well as a M.A. and a Ph.D. in
chemical physics from Harvard University.
JOHN J. HULBURT, C.P.A. Mr. Hulburt has been our Corporate Controller
since April 2000 and our Treasurer since June 2000. From December 1996 until
April 2000, he was a manager at Ernst & Young LLP. Prior to that time,
Mr. Hulburt was a senior accountant at Arthur Andersen LLP. Mr. Hulburt is a
Certified Public Accountant. He holds a B.S. in accounting from Merrimack
College.
48
<PAGE>
DIETER KOCH, PH.D. Dr. Koch has been a Director of Bruker Daltonics since
August 1997. He is a Managing Director of Bruker Daltonik GmbH, now a
wholly-owned subsidiary of Bruker Daltonics, since June 1980. Dr. Koch has also
been the Managing Director of Bruker Saxonia Analytik GmbH, now a subsidiary of
Bruker Daltonik, since founding it in 1990. He is responsible for our substance
detection and pathogen identification product lines. He holds M.S. and Ph.D.
degrees in chemistry from the University of Cologne.
JOCHEN FRANZEN, PH.D. Dr. Franzen is a Managing Director of Bruker
Daltonik GmbH and has held this position since June 1980. He is responsible for
intellectual property and research activities at Bruker Daltonik GmbH. Prior to
1980 he served as Managing Director of Franzen Analysentechnik GmbH, a mass
spectrometry manufacturing company. Dr. Franzen served as President of the
German Society for Mass Spectrometry during 1997 and 1998. He holds an M.S.
degree from the University of Mainz and a Ph.D. in physics from the Max-Planck
Institute.
HANS-JAKOB BAUM. Mr. Baum has been a Vice General Manager of Bruker
Daltonik GmbH since August 1999. He is responsible for sales and product
applications. Mr. Baum joined Bruker Daltonik GmbH in June 1988 as a Product
Manager. From January 1991 until August 1997, he was Sales Director of Bruker
Daltonik. Before joining us, Mr. Baum was a Chemical Defense Officer in the
German Army.
JOHN WRONKA, PH.D. Dr. Wronka has been our Vice President since
June 1996. He is responsible for the general management of operations in the
U.S. Dr. Wronka joined Bruker Instruments, an affiliate of Bruker Daltonics, in
May 1989 as Mass Spectrometry Product Manager. He joined Bruker Daltonics as the
Mass Spectrometry Division Manager in July 1995 and served as a Division Manager
until June 1996. Prior to joining Bruker Instruments, Dr. Wronka was a Professor
and Instrumentation Manager for Northeastern University. He holds a B.S. from
St. Joseph's College and a Ph.D. in chemistry from the University of Delaware.
GARY KRUPPA, PH.D. Dr. Kruppa has served as our Vice President of the
Fourier Transform Mass Spectrometry Division since October 1998. He joined
Bruker Instruments, an affiliate of Bruker Daltonics, in November 1990 as an
applications scientist. He joined Bruker Daltonics in December 1994, and from
December 1994 until September 1998 he was a Product Manager. Before joining
Bruker Instruments, he was a research scientist at Ciba-Geigy, now Novartis, a
pharmaceutical and drug discovery company. Dr. Kruppa holds a B.S. degree from
the University of Delaware and a Ph.D. in chemical physics from the California
Institute of Technology.
COLLIN J. D'SILVA. Mr. D'Silva joined our board of directors in
February 2000. Mr. D'Silva is the President and Chief Executive Officer of
Transgenomic, Inc., a life science company involved in SNP discovery, in San
Jose, California. Mr. D'Silva has held these positions since 1997. From 1988 to
1997, Mr. D'Silva was President and Chief Executive Officer of CETAC
Technologies, Inc, a company designing instrumentation for elemental analysis.
Mr. D'Silva holds a B.S. degree and a Masters in Industrial Engineering from
Iowa State University as well as a Masters in Business Administration from
Creighton University.
WILLIAM A. LINTON. Mr. Linton joined our board of directors in
February 2000. Mr. Linton is the Chairman and Chief Executive Officer of Promega
Corporation, a DNA consumables company, and has held these positions since 1978.
Mr. Linton received a B.S. degree from University of California, Berkeley in
1970.
49
<PAGE>
DAVID SOUTHWELL. Mr. Southwell joined our board of directors in May 2000.
Mr. Southwell has been an Executive Vice President and the Chief Financial
Officer of Sepracor Inc. since June 1994. Before joining Sepracor Inc., he was a
Vice President at Lehman Brothers from 1984 to 1994. Mr. Southwell holds a B.A.
degree from Rice University and a Masters in Business Administration from the
Amos Tuck School of Business at Dartmouth College. Mr. Southwell is a member of
the board of directors of Biosphere Medical Inc.
RICHARD M. STEIN. Mr. Stein joined our board of directors in
February 2000 and is our Secretary. Mr. Stein has been an attorney with
Hutchins, Wheeler & Dittmar, a Boston-based law firm, since November 1992 and
became a stockholder of the firm on January 1, 1993. He served as the managing
stockholder of Hutchins, Wheeler & Dittmar from January 1995 until
December 1997. Mr. Stein holds a B.A. degree from Brandeis University and a J.D.
from Boston College Law School.
BERNHARD WANGLER. Mr. Wangler joined our board of directors in
February 2000. Mr. Wangler has been a German tax consultant and principal
partner with Kanzlei Wangler in Karlsruhe, Germany since July 1983. He has been
a Certified Public Accountant in Germany since 1984. Mr. Wangler holds a
Bachelor of Economics and Commerce degree and a Masters degree in Business
Administration from the University of Mannheim, Germany.
Board Committees
The compensation committee of the board of directors of Bruker Daltonics
is comprised of Messrs. Southwell, Stein and Linton. The compensation committee
reviews and evaluates the compensation and benefits of all of the officers of
Bruker Daltonics, reviews general policy matters relating to compensation and
employee benefits and makes recommendations concerning these matters to the
board of directors. The compensation committee also administers Bruker
Daltonics' stock option plan. See "--Benefit Plans."
The audit committee of the board of directors of Bruker Daltonics is
comprised of Messrs. Southwell, D'Silva and Linton. The audit committee reviews,
with Bruker Daltonics independent auditors, the scope and timing of the
auditors' services, the auditors' report on Bruker Daltonics' financial
statements following completion of the audit, and Bruker Daltonics' internal
accounting and financial control policies and procedures. In addition, the audit
committee makes annual recommendations to the board of directors for the
appointment of independent auditors for the ensuing year.
The executive committee of the board of directors of Bruker Daltonics is
comprised of Messrs. Laukien, Stein and Wangler. The executive committee
facilitates the day-to-day management of Bruker Daltonics. The executive
committee handles all matters deemed appropriate from time to time by the
Chairman, other than matters including the approval of any asset sale, merger,
sale of securities or financing in excess of $5 million.
Election of Directors and Officers
Our board of directors consists of seven members. Our certificate of
incorporation provides for a classified board of directors divided into three
classes. The Class I directors' term of office will expire at the annual meeting
of stockholders to be held in 2001, the Class II directors' term of office will
expire at the annual meeting of stockholders to be held in 2002 and Class III
directors' term of office will expire at the annual meeting of stockholders to
be held in 2003. Messrs. Laukien and Koch will initially serve as Class I
directors; Messrs. Stein, Wangler and D'Silva will initially serve as Class II
directors; and Messrs. Southwell and Linton will initially serve as Class III
directors. At each annual meeting of stockholders, beginning
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<PAGE>
with the 2001 annual meeting, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been duly elected and qualified, or until their earlier resignation or
removal, if any. To the extent there is an increase or reduction in the number
of directors, increase or decrease in directorships resulting therefrom will be
distributed among the classes so that, as nearly as possible, each class will
consist of an equal number of directors. Two directors will be independent, as
required by the rules of the Nasdaq National Market.
Executive officers are elected by, and serve at the discretion of, the
board.
Compensation of Directors
Our current non-employee directors receive $10,000 per calendar year and
an additional $5,000 per calendar year for each committee on which they serve.
They are also reimbursed for the expenses they incur in attending meetings of
the board or board committees. Although our directors are not entitled to any
specified number of options as a result of their positions as directors, we have
granted in the past, and intend to grant in the future, non-qualified stock
options to our non-employee directors.
Compensation Committee Interlocks and Insider Participation
None of our directors serves as a member of the board of directors or
compensation committee of any other company that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
Executive Compensation
The following table sets forth the compensation earned by our Chief
Executive Officer and each of our other most highly compensated executive
officers (collectively, the "Named Executive Officers") during the year ending
December 31, 1997, 1998 and 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus(1)
--------------------------- -------- --------- ----------
<S> <C> <C> <C>
Frank H. Laukien (2)........................................ 1999 $ 50,000 $153,530
Chairman, President and 1998 0 197,364
Chief Executive Officer 1997 0 117,500
Dieter Koch (3)............................................. 1999 117,104 36,493
Managing Director, Bruker 1998 128,483 17,056
Daltonik GmbH; Managing 1997 139,653 --
Director, Bruker
Saxonia Analytik GmbH
Jochen Franzen (3).......................................... 1999 106,755 --
Managing Director, Bruker 1998 109,154 --
Daltonik GmbH 1997 107,914 --
John Wronka................................................. 1999 70,885 123,005
Vice President 1998 68,488 75,886
1997 65,854 76,941
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus(1)
--------------------------- -------- --------- ----------
<S> <C> <C> <C>
Hans-Jakob Baum (3)......................................... 1999 93,683 32,680
Vice General Manager of 1998 96,078 28,426
Bruker Daltonik GmbH 1997 93,487 20,198
</TABLE>
------------
(1) Includes commissions paid.
(2) Frank H. Laukien's normalized salary for fiscal 2000 is $120,000.
(3) Amounts paid in Deutsch Mark and converted to United States Dollars based
on the average conversion rate for the respective year.
Benefit Plans
2000 STOCK OPTION PLAN
The 2000 Stock Option Plan, or the 2000 Plan, provides for the granting of
incentive stock options to our employees and non-qualified options, as defined
in Section 422 of the Internal Revenue Code, to our employees, directors,
advisors and consultants. The 2000 Plan was adopted and approved by our
directors and stockholders in February 2000. The 2000 Plan may be administered
by our board of directors or by our compensation committee. Either of the board
or the compensation committee has the authority to take the following actions:
(a) interpret and apply the 2000 Plan; and
(b) determine the eligibility of an individual to participate in the 2000
Plan.
Stock options are granted under stock option agreements which contain the
vesting schedules of the stock options. Non-qualified stock options are granted
with an exercise price of at least 50% of fair market value of the common stock
on the date of grant, and incentive stock options are granted with an exercise
price of at least 100% of the stock's fair market value on the date of grant. No
incentive stock options may be granted to an employee who, at the time of the
grant, owns more than 10% of the voting power or greater than 10% of a class of
Bruker Daltonics' outstanding stock, unless the purchase price of the stock is
not less than 110% of the stock's fair market value on the date of the grant and
the option, by its terms, shall not be exercisable more than five years from the
date it is granted.
Vested options may be exercised in full at one time or in part from time
to time in amounts of 50 shares or more. The payment of the exercise price may
be made as determined by the board or committee, and set forth in the option
agreement, by delivery of cash or a check. Bruker Daltonics may delay the
issuance of shares covered by the exercise of an option until the shares for
which the option has been exercised have been registered or qualified under the
applicable federal or state securities laws, or counsel for Bruker Daltonics has
opined that the shares are exempt from the registration requirements of
applicable federal or state securities laws.
The term of any option granted under the 2000 Plan is limited to either
five or ten years, depending on the nature of the option holder. Upon the
termination of an option holder's employment with Bruker Daltonics, his or her
options will terminate no more than 90 days after that option holder leaves the
employ of Bruker Daltonics. Options granted under the 2000 Plan are not
transferrable other than by will or the laws of descent and distribution. The
2000 Plan may be amended by our board of directors; provided, however, that the
board may not increase the number of shares reserved under the 2000 Plan without
the consent of our stockholders.
The compensation committee may grant up to 20% of the shares reserved for
option grants as restricted stock subject to repurchase rights rather than as
stock options.
52
<PAGE>
The number of shares reserved for issuance upon the exercise of options
under the 2000 Plan is 2,120,000. As of June 21, 2000, 776,250 options were
outstanding under the 2000 Plan. Options granted vest over a term established by
the board of directors at the date of grant. None of these options begin to vest
prior to March 1, 2001. The outstanding options have an exercise price ranging
from $5.27 to $6.33 per share.
On February 29, 2000 we granted the following officers incentive stock
options to purchase the number of shares set forth below:
<TABLE>
<S> <C>
Frank H. Laukien............................................ 25,000
Dieter Koch................................................. 25,000
Jochen Franzen.............................................. 25,000
John Wronka................................................. 12,500
Hans-Jakob Baum............................................. 12,500
</TABLE>
All of the above options have an exercise price of $5.27 per share except
those granted to Frank Laukien which have an exercise price of $5.80 per share.
None of these options are currently exercisable.
401(K) PLAN
We participate with our affiliates in a tax qualified employee savings
plan which covers all of our employees in the United States who are at least
21 years old and have completed six months of eligible service. Eligible
employees may defer up to 15% of their earnings as a salary deferral
contribution to the plan, subject to the Internal Revenue Service's annual
contribution and compensation limits. We currently match employee contributions
dollar for dollar up to 3% of eligible compensation, which includes 100% of
salary and 50% of commissions, after the second full plan year of the
participant's employment. Our 401(k) plan is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions by employees and by us to our 401(k) plan, and income earned on
plan contributions are not taxable to employees until withdrawn or distributed
from the plan, and so that contributions, including employee salary deferral
contributions, will be deductible by us when made. Our 401(k) also provides for
discretionary profit sharing. We may contribute up to 3% of a participant's
eligible compensation to profit sharing. In any given year that we conduct
profit sharing, participants are eligible for 1% after three years of service,
2% after four years of service and 3% after five or more years of service.
Limitation of Liability; Indemnification of Directors and Officers
As permitted by Delaware General Corporation Law, we have included in our
certificate of incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, other than breaches of their duty of loyalty,
actions not in good faith or which involve intentional misconduct, or
transactions from which they derive improper personal benefit. In addition, our
by-laws provide that we are required to indemnify our officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. At present, we are
not aware of any pending or threatened litigation or proceeding involving our
directors, officers, employees or agents in which indemnification would be
required or permitted, except that Jochen Franzen has been named as a defendant
in the Finnigan litigation. We believe that our certificate of incorporation and
by-law provisions are necessary to attract and retain qualified persons as
directors and officers.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 21, 2000, and as adjusted to reflect
the sale of the common stock offered hereby by:
- each person (or group of affiliated persons) who is known by us to own
beneficially more than 5% of the outstanding shares of our common stock;
- each of our directors who own our common stock;
- our executive officers listed in the "Summary Compensation Table" who own
our common stock; and
- all directors and executive officers as a group.
Except as subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them. Beneficial ownership
and percentage of ownership are calculated in accordance with the rules of the
Securities and Exchange Commission, or SEC.
<TABLE>
<CAPTION>
Percentage of
Shares Outstanding
----------------------
Number of Shares Before the After the
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
------------------------------------ ------------------ ---------- ---------
<S> <C> <C> <C>
Named Executive Officers and Directors
Frank H. Laukien....................................... 9,100,000 20.0% 17.2%
c/o Bruker Daltonics
15 Fortune Drive
Billerica, MA 01821
All Directors and Executive Officers as a Group(1)..... 9,100,000 20.0% 17.2%
(12 persons, including the above)
5% Stockholders
Dirk D. Laukien........................................ 9,100,000 20.0% 17.2%
2634 Crescent Ridge Drive
The Woodlands, TX 77381
Isolde Laukien......................................... 9,100,000 20.0% 17.2%
8 Brigham Road
Lexington, MA 02713
Joerg C. Laukien....................................... 9,100,000 20.0% 17.2%
Uhlandstrasse IO
D-76275 Ettlingen-Bruchhausen
Germany
Marc M. Laukien........................................ 9,100,000 20.0% 17.2%
8 Crest View Road
Bedford, MA 01730
</TABLE>
----------
(1) As of June 21, 2000, John J. Hulburt, Dieter Koch, Ph.D., Jochen Franzen,
Ph.D., Hans-Jakob Baum, John Wronka, Ph.D., Gary Kruppa, Ph.D., Collin J.
D'Silva, David Southwell, William A. Linton, Richard M. Stein and Bernard
Wangler were not beneficial owners of our common stock.
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RELATED TRANSACTIONS
Affiliation and Shareholders
Bruker Daltonics is affiliated with Bruker Physik AG, Bruker
Optics, Inc., Bruker AXS Inc., Rhena Invest AG, Techneon AG, SBI Holding AG and
their respective subsidiaries, collectively referred to as the Bruker affiliated
companies, through common control at the shareholder level, as our current
stockholders also own these entities. Our five stockholders are Frank H.
Laukien, Dirk D. Laukien, Isolde Laukien, Joerg C. Laukien and Marc M. Laukien.
Isolde Laukien is the mother of Dirk and Marc Laukien. Joerg, Frank, Dirk and
Marc are brothers or half-brothers.
Frank H. Laukien, Ph.D., the Chairman, President and Chief Executive
Officer of Bruker Daltonics is also Chairman of the board of directors of Bruker
AXS and director and President of Bruker Instruments, a Bruker affiliated
company. Dr. Laukien is also a director of Bruker Canada Ltd., Bruker
Netherlands B.V. and Bruker Belgium S.A., all of which are Bruker affiliated
companies. Additionally, Dr. Laukien beneficially owns directly or indirectly
more than 10% of the stock of each of the Bruker affiliated companies. Until
March 31, 2000, he was also the Chief Executive Officer of Bruker AXS.
Dieter Koch, a director of Bruker Daltonics, is an officer in Bruker
Daltonik GmbH, a subsidiary of Bruker Daltonics, and Bruker Saxonia Analytik
GmbH, a subsidiary of Bruker Daltonik. Additionally, he owns 2% of Bruker
Saxonia Analytik GmbH.
Richard M. Stein, a director of Bruker Daltonics, is a stockholder of
Hutchins, Wheeler & Dittmar, a law firm which has been retained by Bruker
Daltonics for over five years.
Bernard Wangler, a director of Bruker Daltonics, provided tax consulting
services to our German affiliates for over five years. During fiscal 1997, 1998
and 1999, our affiliates paid his firm approximately $36,900, $142,800 and
$170,000, respectively in exchange for these services.
Sharing Agreement
Bruker Daltonics entered into a sharing agreement, dated as of
February 28, 2000 with Bruker Physik AG, Techneon AG, SBI Holding AG, Rhena
Invest AG, Bruker Spectrospin SA, Bruker AXS Inc., Bruker Analytik GmbH, Bruker
Electronik GmbH, Bruker Instruments, Inc., Bruker AG, Bruker SA, Bruker
Optics, Inc. and Bruker Medical AG, all Bruker affiliated companies. The Sharing
Agreement provides for the sharing of specified intellectual property rights,
services, facilities and other related items among the parties to the Agreement.
The following description of the Sharing Agreement is a summary and is qualified
in its entirety by the provisions of the Sharing Agreement, a copy of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
NAME
Pursuant to the terms of the Sharing Agreement, Bruker Analytik and Bruker
Physik have granted to the other parties to the Sharing Agreement a perpetual,
irrevocable, non-exclusive, royalty-free, non-transferable right and license to
use the name "Bruker" in connection with the conduct and operation of their
respective businesses, provided that the parties do not materially interfere
with any other party's use of the name, do not take any action which would
materially detract from the goodwill associated with the name and do not take
any action which would cause a lien to be placed on the name or the parties'
license rights. This license automatically becomes null and void with respect to
a party if that party
55
<PAGE>
files, or has filed against it, a petition in bankruptcy, fails to comply with
the relevant terms of the Sharing Agreement, suffers a major loss of its
reputation in its industry or the marketplace or undergoes a change of control.
However, once a party to the Sharing Agreement becomes a public company and
issues stock in excess of $25.0 million to the public, it will not lose its
license to the name Bruker in a subsequent change of control.
INTELLECTUAL PROPERTY
The parties to the Sharing Agreement also generally share technology and
other intellectual property rights, as they existed on or prior to February 28,
2000, subject to the terms of the Sharing Agreement. In addition, under the
Sharing Agreement each party, including us, has agreed to negotiate with any
other party who wishes to obtain an agreement permitting such party to make a
broader use of the first party's intellectual property that was in effect on or
prior to February 28, 2000. However, no party has any obligation to enter into
these agreements. Bruker Daltonics has a written agreement in place with Bruker
Optik defining the use, royalties and terms and conditions of the use of various
technology and related intellectual property.
DISTRIBUTION
In various countries, including Australia, Belgium, Canada, India, Italy,
Netherlands, Mexico, Singapore, Spain and Thailand, Bruker Daltonics shares in
the worldwide distribution network of Bruker affiliated companies. In 2000, we
believe that less than 10% of our life sciences systems sales will be booked
through affiliated international Bruker sales offices. The Sharing Agreement
provides for the use of common distribution channels by the parties to the
agreement. The terms and conditions of sale and the transfer pricing for any
shared distribution will be on an arm's length basis as would be utilized in
typical transaction with a person or entity not a party to the agreement. The
Sharing Agreement also states that no common sales channel may have any
exclusivity in any country or geographic area.
SERVICES
We also share various general and administrative expenses for items such
as umbrella insurance policies, retirement plans, accounting services and
leases, with various affiliates. These services are charged among Bruker
Daltonics and, the Bruker affiliated entities at arm's length conditions and
pricing, according to individual Sub-Sharing Agreements.
In 1997, Bruker Instruments provided personnel, administrative and other
services to us at a cost of $370,391, the estimated fair market value of these
services. In 1998 various Bruker affiliated companies provided personnel,
administrative and other services to us at a cost of approximately $227,000, the
estimated fair market value of these services. In 1999, various Bruker
affiliated companies and their subsidiaries provided personnel, administrative
and other services, and subleased space to us at a cost of approximately
$437,000, the estimated fair market value of these services.
We sublease our facility in Billerica, Massachusetts from Bruker
Instruments. We paid rent of $125,123, $131,962 and $221,221 for increasing
square footage at $8.85 per square foot, on a triple net basis for our sublease
of this facility in 1997, 1998 and 1999, respectively. Bruker Instruments leases
this facility from Umbrina Realty Trust. Frank H. Laukien, Dirk Laukien and Marc
Laukien each own one third of the beneficial interest of Umbrina Realty Trust.
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<PAGE>
PURCHASES AND SALES
We purchase subunits or components, including some components used in our
substance detection and pathogen identification products, miscellaneous
electronics boards used in Fourier transform mass spectrometers, sheet metal
cabinets and some of the superconducting magnets used for Fourier transform mass
spectrometers, from various Bruker affiliated companies, including Bruker
Electronik GmbH, Bruker Optik GmbH, Bruker AG, Bruker Analytik GmbH and
Bruker SA, at arm's length commercial conditions and pricing. In 1997, 1998 and
1999, we purchased components from our affiliates for $3,019,177, $3,913,662 and
$3,208,572, respectively. Under the Sharing Agreement, our affiliates who supply
these subunits or components have agreed to continue to do so for at least seven
years and to provide spare parts for at least 12 years, at commercially
reasonable arm's length conditions and pricing. However, a significant portion
of these purchases may not be recurring due to the discontinued operations of
our analytical infrared sales group. In 1997, 1998 and 1999, purchases from
Bruker affiliated companies for the discontinued operations were $986,314,
$1,712,242 and $1,645,089, respectively. We expect purchases from Bruker
affiliated companies to be less than 5% of revenues.
We supply individual licenses to our HyStar software package to Bruker
affiliated companies for resale as part of its liquid chromatography/nuclear
magnetic resonance product offerings at commercially reasonable arm's length
conditions and pricing. As part of the Sharing Agreement, we guarantee a
continued supply of this software package (or its successor) for at least seven
years. In 1997, 1998 and 1999 we sold to our affiliated distributors products
for resale in the amounts of $14,256,695, $9,804,838 and $10,307,416,
respectively. Since we incorporated our own direct sales subsidiaries in 1999,
we believe that less than 10% of our future sales will be through our affiliated
distributors.
Other Transactions
In December 1999, we acquired 50,000 shares, or 49% of the stock, of
ProteiGene from Frank H. Laukien. We paid $50,000 for this stock, the estimated
fair market value and also the amount originally paid by Dr. Laukien for this
stock.
We completed the sale of our analytical infrared sales group in March 2000
to Bruker Optik GmbH, our affiliate. The purchase price for this sale was
$254,425, the net book value of the purchased assets and assumed liabilities.
Indebtedness
As of December 31, 1997, Bruker Daltonik GmbH had two demand loans
outstanding aggregating $8,262,617 from Techneon AG, an affiliated company. The
loans, which were secured by mortgages on our German real estate, accrued
interest at 5.3% and 7.5%.
As of December 31, 1997, Bruker Daltonics had a $50,000 demand loan
outstanding from Frank H. Laukien. The loan, which was unsecured, accrues
interest at prime (8.5% at December 31, 1997).
As of December 31, 1999, we had no indebtedness to any of our affiliates.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.01 par value per share, of which
53,000,000 shares will be outstanding (54,125,000 shares if the Underwriters'
over-allotment is exercised in full), and 5,000,000 shares of preferred stock,
$0.01 par value per share, none of which will be outstanding at the time of this
offering. The following description of our capital stock and certain provisions
of our restated certificate of incorporation and by-laws is a summary of the
material provisions of our capital stock, and you should also refer to the
provisions of the certificate of incorporation and by-laws, copies of which have
been filed as exhibits to the registration statement of which this prospectus is
a part.
Common Stock
Holders of our common stock are entitled to one vote for each share held
on all matters submitted to a vote of the stockholders, including the election
of directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The certificate of incorporation
does not provide for cumulative voting for the election of directors. Holders of
our common stock are entitled to receive ratably any dividends that may be
declared by the board of directors out of funds legally available and are
entitled to receive, pro rata, all assets of Bruker Daltonics available for
distribution to such holders upon liquidation. Holders of our common stock have
no preemptive, subscription or redemption rights.
Preferred Stock
We are authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by our board
of directors. The board of directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences and
any other rights, preferences, privileges and restrictions applicable to each
series of the preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of our common stock and, under certain circumstances, make it more
difficult for a third party to gain control of Bruker Daltonics, discourage bids
for our common stock at a premium or otherwise adversely affect the market price
of our common stock.
Various Certificate of Incorporation, By-law and Statutory Anti-Takeover
Provisions Affecting Stockholders
CLASSIFIED BOARD. Our board of directors is divided into three classes.
Initially Class I will serve until the annual meeting of stockholders in 2001,
Class II will serve until the annual meeting of stockholders in 2002 and
Class III will serve until the annual meeting of stockholders in 2003. Following
this initial transition period, each class will serve for three years, with one
class being elected each year. Removal of a member of the board of directors
with or without cause requires a majority vote of the board of directors or of
the stockholders. A majority of the remaining directors then in office, though
less than a quorum, and the stockholders, are empowered to fill any vacancy on
the board of directors. A majority vote of the stockholders is required to
alter, amend or repeal the foregoing provisions.
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<PAGE>
DIRECTORS LIABILITY. The certificate of incorporation provides that no
director shall be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability, provided that, to the extent provided by
applicable law, the certificate of incorporation shall not eliminate the
liability of a director for (a) any breach of the director's duty of loyalty to
us or our stockholders; (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (d) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of
Bruker Daltonics and our stockholders (through stockholders' derivative suits
against Bruker Daltonics) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches resulting
from negligent or grossly negligent behavior) except in the situations described
in clauses (a) through (d) above. The limitations summarized above, however, do
not affect the ability of Bruker Daltonics or our stockholders to seek
non-monetary-based remedies, such as an injunction or rescission, against a
director for breach of his fiduciary duty nor would such limitations limit
liability under the Federal securities laws. Our by-laws provide that we shall,
to the extent permitted by Delaware law indemnify and advance expenses to the
currently acting and former directors, officers, employees and agents of Bruker
Daltonics or of another corporation, partnership, joint venture, trust or other
enterprise if serving at our request arising in connection with their acting in
such capacities.
Various provisions described above may also have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to our board of directors. As such, the provisions could
have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires to
undertake a business combination with us or elect a new director to our board.
Statutory Business Combination Provision
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from consummating a "business combination," except
under certain circumstances, with an "interested stockholder" for a period of
three years after the date such person became an "interested stockholder"
unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a
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<PAGE>
corporation's outstanding voting stock. The term "business combination" includes
mergers, asset sales and other similar transactions resulting in a financial
benefit to an interested stockholder. Section 203 makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period. A Delaware corporation may "opt out" of
Section 203 with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
by-laws resulting from an amendment approved by holders of at least a majority
of the outstanding voting stock. We have elected to "opt" out of Section 203 in
our certificate of incorporation. Therefore any transaction between us and an
interested stockholder is not subject to the requirements of Section 203.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Bruker Daltonics will have outstanding
53,000,000 shares of our common stock. Of these shares, the 7,500,000 shares
offered hereby (8,625,000 shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of
Bruker Daltonics as that term is defined in Rule 144 described below. The
remaining 45,500,000 shares of common stock outstanding upon closing of the
offering are "restricted securities" as that term is defined in Rule 144.
In general, under Rule 144, as amended, a person who has beneficially
owned shares for at least one year is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of (a) one percent of the number of shares of common stock
then outstanding, approximately 53,000,000 shares immediately after the
completion of this offering (54,125,000 shares if the underwriters'
over-allotment option is exercised in full), or (b) generally, the average
weekly trading volume in our common stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to the availability of current public
information about Bruker Daltonics. Under Rule 701, persons who purchase shares
upon exercise of options granted prior to the effective date of this offering
are entitled to sell such shares 90 days after the effective date of this
offering in reliance on Rule 144, without having to comply with the holding
period requirements of Rule 144.
Each of our stockholders has agreed to certain restrictions on their
ability to sell, offer, contract or grant any option to sell, pledge, transfer
or otherwise dispose of shares of our common stock for a period of 180 days
after the date of this prospectus, without the prior written consent of Deutsche
Bank Securities Inc. All 45,500,000 of our outstanding shares, not including the
7,500,000 offered hereby, are subject to 180-day lockup agreements. These
45,500,000 shares are eligible for sale 180 days after the commencement of this
offering, subject to the requirements of Rule 144.
Prior to this offering, there has not been any public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the prevailing market prices and impair our
ability to raise capital through the sale of equity securities.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Deutsche Bank
Securities Inc., UBS Warburg LLC and Thomas Weisel Partners LLC, have severally
agreed to purchase from Bruker Daltonics the following respective number of
shares of common stock at a public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Deutsche Bank Securities Inc...............................
UBS Warburg LLC............................................
Thomas Weisel Partners LLC.................................
Total................................................ 7,500,000
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to various conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased. In
addition, the underwriting agreement provides that, in the event of a default by
an underwriter, in certain circumstances the purchase commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers. After
the initial public offering, representatives of the underwriters may change the
offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 1,125,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the other shares are being
offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting
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fee is currently expected to be 7% of the initial public offering price. We have
agreed to pay the underwriters the following fees, assuming either no exercise
or full exercise by the underwriters of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------------------
Without Exercise of With Full Exercise of
Fee Per Share Over-Allotment Option Over-Allotment Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Bruker Daltonics.......... $0.77 $5,775,000 $6,641,250
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1.5 million.
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.
Each of our officers and directors and all of our stockholders have agreed
not to offer, sell, contract to sell, or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters. There are no agreements between the representatives and any of our
stockholders or affiliates releasing them from these lock-up agreements prior to
the expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 375,000 shares, or 5%, of our common stock being
sold in this offering for our vendors, employees, family members of employees,
customers and other third parties. These purchasers are expected to agree not to
offer, sell, contract to sell, or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common
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stock acquired by these persons in this offering or common stock issuable upon
exercise of options or warrants held by these persons for a period of 180 days
after the effective date of the registration statement of which this prospectus
is a part without the prior written consent of Deutsche Bank Securities Inc. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent these reserved shares are purchased. Any reserved
shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
Pricing of This Offering
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the principal factors considered in determining the initial
public offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover
of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 153 filed public offerings of equity securities, of which 109 have
been completed, and has acted as a syndicate member in an additional 80 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
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CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
There are federal income and estate tax consequences related to the
ownership and disposition of our common stock by a non-U.S. holder. A non-U.S.
holder is any person or entity that, for United States federal income tax
purposes, is either a non-resident individual, a corporation or other entity
taxed as a corporation organized or created under non-U.S. law, an estate that
is not taxable in the United States on its worldwide income or a trust that is
either not subject to primary supervision over its administration by a United
States court or not subject to the control of a U.S. person with respect to
substantial trust decisions. Partnerships organized outside of the United States
and their partners should consult their own tax advisors about the consequences
of holding our common stock, as the tax treatment with respect to foreign
partnerships and their partners is complex.
Individuals may, in certain cases, be deemed to be resident aliens, as
opposed to non-resident aliens, by virtue of being present in the United States
for at least 31 days in the calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar year (counting
for such purposes, all of the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year). Resident aliens are generally subject to
United States federal income tax as if they were United States citizens.
This summary does not discuss all United States federal income tax
considerations that may be relevant to non-U.S. holders in light of their
particular circumstances or to non-U.S. holders that may be subject to special
treatment under United States federal income tax laws. This summary assumes that
non-U.S. holders hold their stock as capital assets. Furthermore, this summary
does not discuss aspects of United States federal income taxation that may be
applicable to holders of options to purchase our common stock, nor does it
address any aspects of non-U.S. taxation or United States state or local
taxation.
This summary is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing, temporary and proposed regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all of which are subject to change, possibly with retroactive effect.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE
DESCRIBED TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.
Dividends
In the event that dividends are paid on shares of our common stock,
dividends paid to a non-U.S. holder of our common stock generally will be
subject to United States withholding tax at a 30% rate, unless an applicable
income tax treaty provides for a lower withholding rate.
Currently, the applicable United States Treasury regulations presume,
absent actual knowledge to the contrary, that dividends paid to an address in a
foreign country are paid to a resident of such country for purposes of the 30%
withholding tax. However, recently finalized United States Treasury regulations
provide that in the case of dividends paid after December 31, 2000, United
States backup withholding tax at a 31% rate will be imposed on dividends paid to
non-U.S. holders if the certification or documentary evidence procedures
65
<PAGE>
and requirements set forth in such regulations are not satisfied directly or
through an intermediary. Further, in order to claim the benefit of an applicable
income tax treaty rate for dividends paid after December 31, 2000, a non-U.S.
holder must comply with certification requirements set forth in the recently
finalized United States Treasury regulations.
The 30% withholding tax does not apply to dividends paid to a non-U.S.
holder that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI,
certifying that the dividends are effectively connected with the non-U.S.
holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends will generally be subject to regular United
States income tax as if the non-U.S. holder were a United States resident. If
the non-U.S. holder is eligible for the benefits of a tax treaty between the
United States and the holder's country of residence, any effectively connected
income will be subject to United States federal income tax only if it is
attributable to a permanent establishment in the United States mainlined by the
holder. A non-U.S. corporation receiving effectively connected dividends may
also be subject to an additional "branch profits tax" imposed at a rate of 30%
(or a lower treaty rate) on an earnings amount that is net of the regular tax.
A non-U.S. holder may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the Internal Revenue Service ("IRS").
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to United States federal
income or withholding tax requirements in respect of gain recognized on a
disposition of common stock unless:
(a) the gain is effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States or of a
partnership, trust or estate in which the non-U.S. holder is a
partner or beneficiary within the United States and, if certain tax
treaties apply, is attributable to a permanent establishment of the
non-U.S. holder, within the United States;
(b) the non-U.S. holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Internal
Revenue Code, is present in the United States for 183 or more days in
the taxable year of the disposition and meets certain other tax law
requirements;
(c) the non-U.S. holder is a United States expatriate required to pay tax
pursuant to the provisions of United States tax law; or
(d) we are or have been a "United States real property holding
corporation" for federal income tax purposes at any time during the
shorter of the five-year period preceding such disposition or the
period that the non-U.S. holder holds our common stock.
We believe that we are not, have not been and do not anticipate becoming,
a United States real property holding corporation for United States federal
income tax purposes.
A non-U.S. holder who is an individual and is described in clause (a) or
(c) above will be required to pay tax on the net gain derived from a sale of our
common stock at regular graduated United States federal income tax rates.
Further, a non-U.S. holder who is an individual and who is described in
clause (b) above generally will be subject to a flat 30% tax on the gain derived
from a sale. A non-U.S. holder that is a corporation and that is described
66
<PAGE>
in clause (a) above generally will be required to pay tax on its net gain at
regular graduated United States federal income tax rates. Such non-U.S. holder
may also have to pay a branch profits tax.
Federal Estate Tax
For United States federal estate tax purposes, an individual's gross
estate will include our common stock owned, or treated as owned, by an
individual. Generally, this will be the case regardless whether or not such
individual was a United States citizen or a United States resident. This general
rule of inclusion may be limited by an applicable estate tax or other treaty.
Information Reporting and Backup Withholding Tax
Under United States Treasury regulations, we must report annually to the
Internal Revenue Service and to each non-U.S. holder the amount of dividends
paid to such holder and the tax withheld with respect to such dividends. These
information reporting requirements apply whether withholding is required. Copies
of the information returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which the non-U.S.
holder is a resident under the provisions of an applicable income tax treaty or
agreement.
Dividends
Currently, the 31% United States backup withholding tax generally will not
apply:
(a) to dividends which are paid to non-U.S. holders and are taxed at the
regular 30% withholding tax rate as discussed above; or
(b) before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. holder.
The recently finalized United States Treasury regulations provide that in
the case of dividends paid after December 31, 2000, a non-U.S. holder generally
will be subject to backup withholding tax at the rate of 31% unless:
(a) specified certification procedures are followed; or
(b) specified documentary evidence procedures are followed.
Sale or Exchange of Common Stock
U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the transaction
is effected outside the United States through a non-U.S. office of a non-U.S.
broker. However, information reporting requirements, but not backup withholding,
generally will apply to such a payment if the broker is:
- a U.S. person;
- a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S.;
- a controlled foreign corporation as defined in the Code; or
67
<PAGE>
- a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000).
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.
A non-U.S. holder will be required to certify its non-U.S. status, in
order to avoid information reporting and backup withholding at a 31% rate on
disposition proceeds, where the transaction is effected by or through a U.S.
office of a broker.
The tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. When withholding results in an overpayment of
taxes, a refund may be obtained if the required information is furnished to the
IRS.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Bruker Daltonics by Hutchins, Wheeler & Dittmar, A Professional
Corporation, Boston, Massachusetts. Richard M. Stein, a stockholder of Hutchins,
Wheeler & Dittmar, holds options to purchase 3,000 shares of the common stock of
Bruker Daltonics and will purchase shares of common stock in this
offering. Mr. Stein is also a Director and the Secretary of Bruker Daltonics.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
BDO von Riegen, Lienau, Sucker & Partner GmbH, independent auditors, have
audited our combined financial statements as of and for the year ended
December 31, 1997, as set forth in their report. Ernst & Young LLP, independent
auditors, have audited our consolidated and combined financial statements as of
and for the years ended December 31, 1998 and 1999, as set forth in their
report. We have included our financial statements in this prospectus and
elsewhere in this registration statement in reliance on BDO von Riegen, Lienau,
Sucker & Partner GmbH and Ernst & Young LLP's reports, given upon their
authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In December 1998, Bruker Daltonics Inc. dismissed BDO von Riegen, Lienau,
Sucker & Partner GmbH as the independent accountant for our subsidiary Bruker
Daltoniks GmbH and appointed Ernst & Young LLP as our independent accountants to
audit our combined/ consolidated financial statements for the year ending
December 31, 1998. The Board of Directors of Bruker Daltonics Inc. ratified this
action. We changed auditors because we wanted to utilize one global audit firm.
BDO von Riegen, Lienau, Sucker & Partner GmbH reissued their opinion as
combined financial statements of Bruker Daltonics Inc. for the year ended
December 31, 1997 on April 6, 2000. The reports of BDO von Riegen, Lienau,
Sucker & Partner GmbH on the combined financial statements for the year ended
December 31, 1997 contained no adverse opinions or disclaimers of opinion and
have not been qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with its audit for the year ended December 31, 1997,
and for the period until the change in accountants there were no disagreements
with BDO von Riegen, Lienau, Sucker & Partner GmbH on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreements if not resolved to the satisfaction of BDO von
Riegen, Lienau, Sucker & Partner GmbH would have caused them to make reference
thereto in their report on the financial statements for such year.
Bruker Daltonics Inc. provided BDO von Riegen, Lienau, Sucker & Partner
GmbH with a copy of this disclosure and requested that BDO von Riegen, Lienau,
Sucker & Partner GmbH furnish us with a letter addressed to the SEC stating that
BDO von Riegen, Lienau, Sucker & Partner GmbH agrees with the above statements.
The BDO von Riegen, Lienau, Sucker & Partner GmbH letter addressed to the SEC
was filed as Exhibit 16.1 to Amendment No. 2 to Form S-1.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission, or SEC, for our common stock that we are offering by this
prospectus. This
69
<PAGE>
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to us and our common stock, we make reference to the registration
statement and to the exhibits and schedules filed therewith. Statements
contained in this prospectus as to the contents of any contract or any other
document referred to are qualified in all respects by reference to the copy of
such contract or other document filed as an exhibit to the registration
statement. A copy of the registration statement may be inspected by anyone
without charge at the SEC's principal office in Washington, D.C., and copies of
all or any part of the registration statement may be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of certain fees prescribed by the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the web site is http://www.sec.gov. Upon completion
of the offering, we will be subject to the information reporting requirements of
the Securities Exchange Act of 1934, as amended and, in accordance therewith,
will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information.
70
<PAGE>
BRUKER DALTONICS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors for the
years ended
December 31, 1998 and 1999................................ F-2
Consolidated Balance Sheets as of December 31, 1998, 1999
and March 31, 2000 (unaudited)............................ F-3
Combined / Consolidated Statements of Operations for the
years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 1999 and 2000 (unaudited)....................... F-4
Combined / Consolidated Statements of Stockholders' Equity
for the years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 2000 (unaudited)................................ F-5
Combined / Consolidated Statements of Cash Flows for the
years ended
December 31, 1998 and 1999 and for the three months ended
March 31, 1999 and 2000 (unaudited)....................... F-6
Notes to Financial Statements for the years ended December
31, 1998
and 1999.................................................. F-7
Report of BDO von Riegen, Lienau, Sucker & Partner GmbH,
Independent Auditors for the year ended December 31,
1997...................................................... F-23
Report of Ernst & Young LLP, Independent Auditors for the
year ended December 31, 1997.............................. F-24
Combined Balance Sheet as of December 31, 1997.............. F-25
Combined Statement of Operations for the year ended December
31, 1997.................................................. F-26
Combined Statement of Stockholders' Equity for the year
ended December 31, 1997................................... F-27
Combined Statement of Cash Flows for the year ended December
31, 1997.................................................. F-28
Notes to Financial Statements for the year ended December
31, 1997.................................................. F-29
</TABLE>
All financial data schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Bruker Daltonics Inc.
We have audited the accompanying consolidated balance sheets of Bruker
Daltonics Inc. (the Company), as of December 31, 1998 and 1999, the related
combined statements of operations, stockholders' equity, and cash flows for the
year ended December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended
December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial position of Bruker
Daltonics Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 11, 2000
F-2
<PAGE>
BRUKER DALTONICS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(unaudited)
------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,134,916 $ 2,443,142 $ 3,904,531
Accounts receivable, less allowances for doubtful accounts
of $157,198 in 1998, $113,861 in 1999 and $113,861 in
2000..................................................... 9,743,922 12,203,888 8,993,853
Inventories............................................... 17,033,673 25,441,844 31,320,039
Deferred income taxes..................................... 369,150 899,000 892,095
Other assets.............................................. 1,055,375 532,446 1,970,151
----------- ----------- ------------
Total current assets.................................. 29,337,036 41,520,320 47,080,669
----------- ----------- ------------
Restricted cash............................................. 5,895,871 -- --
Property, plant and equipment, net.......................... 28,365,580 25,350,543 23,783,801
Intangible and other assets................................. 242,827 438,197 373,418
----------- ----------- ------------
Total assets...................................... $63,841,314 $67,309,060 $ 71,237,888
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings................................ $ 2,941,239 $ 2,496,350 $ 2,630,687
Accounts payable.......................................... 3,254,786 6,661,399 5,934,876
Due to affiliated companies............................... 147,239 1,496,240 4,406,424
Accrued expenses.......................................... 1,720,043 3,805,486 3,046,854
Accrued payroll........................................... 1,656,727 1,741,669 1,754,985
Customer deposits......................................... 9,872,513 8,323,465 11,221,574
Warranty reserves......................................... 3,206,621 4,739,013 4,609,828
Income taxes payable...................................... 199,982 176,690 140,648
----------- ----------- ------------
Total current liabilities............................. 22,999,150 29,440,312 33,745,876
----------- ----------- ------------
Deferred revenue............................................ 99,841 393,371 808,183
Long-term debt.............................................. 14,982,498 12,843,582 12,289,240
Deferred income tax liabilities............................. 8,667,382 8,785,712 8,600,086
Contingent liabilities...................................... 6,752,312 5,788,434 6,043,440
Stockholders' equity:
Common stock, $0.01 par value, authorized 100,000,000
shares, issued and outstanding 45,500,000 shares in 1998,
1999 and 2000............................................ 455,000 455,000 455,000
Additional paid-in capital................................ 6,045,000 6,045,000 6,045,000
Accumulated other comprehensive loss...................... (1,322,828) (2,854,829) (3,335,661)
Retained earnings......................................... 5,162,959 6,412,478 6,586,724
----------- ----------- ------------
Total stockholders' equity............................ 10,340,131 10,057,649 9,751,063
----------- ----------- ------------
Total liabilities and stockholders' equity........ $63,841,314 $67,309,060 $ 71,237,888
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BRUKER DALTONICS INC.
COMBINED / CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
---------------------------- --------------------------------
1998 1999 1999 2000
------------ ------------- ------------- -------------
COMBINED CONSOLIDATED CONSOLIDATED CONSOLIDATED
(UNAUDITED)
<S> <C> <C> <C> <C>
Product revenue...................................... $40,157,261 $60,620,349 $ 10,878,678 $ 14,034,856
Other revenue........................................ 2,049,740 4,070,101 1,019,235 563,644
----------- ----------- ------------ ------------
Net revenue................................ 42,207,001 64,690,450 11,897,913 14,598,500
----------- ----------- ------------ ------------
Costs and operating expenses:
Cost of product revenue............................ 19,672,357 31,617,724 5,496,505 6,574,128
Sales and marketing................................ 7,434,968 11,345,265 2,256,101 2,563,424
General and administrative......................... 2,212,594 3,411,138 617,531 1,108,120
Research and development........................... 13,048,670 15,138,114 3,088,341 3,600,273
Patent litigation costs............................ -- 537,817 537,817 302,937
----------- ----------- ------------ ------------
Total costs and operating expenses......... 42,368,589 62,050,058 11,996,295 14,148,882
----------- ----------- ------------ ------------
Operating income (loss) from continuing operations... (161,588) 2,640,392 (98,382) 449,618
Other income (expense)............................... 173,737 130,219 139,890 (24,784)
Interest expense, net................................ (900,829) (907,682) (267,125) (102,562)
----------- ----------- ------------ ------------
Income (loss) from continuing operations before
provision for income taxes......................... (888,680) 1,862,929 (225,617) 322,272
Provision (benefit) for income taxes................. -- 986,887 (119,577) 184,995
----------- ----------- ------------ ------------
Income (loss) from continuing operations............. (888,680) 876,042 (106,040) 137,277
Income from discontinued operations, net of income
taxes.............................................. 383,414 373,477 90,435 36,969
----------- ----------- ------------ ------------
Net income (loss).................................... $ (505,266) $ 1,249,519 $ (15,605) $ 174,246
=========== =========== ============ ============
Net income (loss) per share-basic and diluted
Income (loss) from continuing operations........... $ (0.02) $ 0.02 $ 0.00 $ 0.00
Income from discontinued operations, net of income
taxes............................................ 0.01 0.01 0.00 0.00
----------- ----------- ------------ ------------
Net income (loss) per share.......................... $ (0.01) $ 0.03 $ 0.00 $ 0.00
=========== =========== ============ ============
Shares used in computing net income (loss) per
share-basic and diluted............................ 45,500,000 45,500,000 45,500,000 45,500,000
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BRUKER DALTONICS INC.
COMBINED / CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------ Accumulated
Bruker Bruker Additional Other Total
Daltonics Daltonik Paid-in Retained Comprehensive Stockholders'
Inc. GmbH Capital Earnings Income (Loss) Equity
---------- ----------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1997....... $ 52,500 $3,489,184 $ 697,500 $7,600,096 $(1,969,494) $ 9,869,786
Issuance of common stock............ 402,500 -- 5,347,500 -- -- 5,750,000
Payments to stockholders in
connection with reorganization of
business........................... -- (3,489,184) -- (1,931,871) -- (5,421,055)
Foreign currency translation
adjustment......................... -- -- -- -- 646,666 646,666
Net loss............................ -- -- -- (505,266) -- (505,266)
-----------
Net comprehensive income............ -- -- -- -- -- 141,400
-------- ---------- ---------- ---------- ----------- -----------
Balance as of December 31, 1998....... 455,000 -- 6,045,000 5,162,959 (1,322,828) 10,340,131
Foreign currency translation
adjustment......................... -- -- -- -- (1,532,001) (1,532,001)
Net income.......................... -- -- -- 1,249,519 -- 1,249,519
-----------
Net comprehensive loss.............. -- -- -- -- -- (282,482)
-------- ---------- ---------- ---------- ----------- -----------
Balance as of December 31, 1999....... 455,000 -- 6,045,000 6,412,478 (2,854,829) 10,057,649
Foreign currency translation
adjustment (unaudited).............. (480,832) (480,832)
Net income (unaudited)................ 174,246 174,246
-----------
Net comprehensive loss (unaudited).... (306,586)
Balance as of March 31, 2000
(unaudited)......................... $455,000 $ -- $6,045,000 $6,586,724 $(3,335,661) $ 9,751,063
======== ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BRUKER DALTONICS INC.
COMBINED / CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------- ---------------------------------
1998 1999 1999 2000
----------- ------------- ------------- -------------
COMBINED CONSOLIDATED CONSOLIDATED CONSOLIDATED
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Income (loss) from continuing operations........... $ (888,680) $ 876,042 $ (106,040) $ 137,277
Adjustments to reconcile income (loss) from
continuing
operations to net cash provided by
(used in) continuing operations:
Depreciation and amortization.................. 2,604,582 3,486,625 798,484 832,570
Deferred income taxes.......................... 526,061 875,095 82,014 191,185
Charge for purchase of in-process research
and development.............................. -- 100,000 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... (6,272,587) (3,605,416) 2,952,420 3,217,331
Inventories.................................. (1,802,029) (10,264,776) (307,879) (7,205,327)
Other assets................................. (862,924) 91,990 (640,540) (1,339,639)
Accounts payable and accrued expenses........ (479,955) 6,374,182 877,284 161,104
Warranty reserve............................. 1,758,596 2,033,985 (45,506) 45,052
Contingent liabilities....................... (367,257) -- 201,682 518,525
Income taxes payable......................... (525,681) (469) 4,122 (35,789)
Deferred revenue............................. (281,799) 294,710 41,177 425,179
Customer deposits............................ 66,098 4,680,139 (282,418) 3,101,162
----------- ------------ ----------- -----------
Net cash provided by (used in) continuing
operations....................................... (6,525,575) 4,942,107 3,574,800 48,630
Net cash provided by (used in) discontinued
operations....................................... (9,068) 495,126 210,153 (78,067)
----------- ------------ ----------- -----------
Net cash provided by (used in) operating
activities................................... (6,534,643) 5,437,233 3,784,953 (29,437)
Investing activities:
Purchases of property and equipment................ (2,887,675) (4,235,677) (385,825) (309,694)
Acquisition of business, net of cash acquired...... -- (200,000) -- 50,000
----------- ------------ ----------- -----------
Net cash used in investing activities.......... (2,887,675) (4,435,677) (385,825) (259,694)
Financing activities:
Proceeds from long-term debt....................... 14,212,750 -- -- --
Proceeds from short-term borrowings................ 2,603,898 1,000,000 2,518,897 204,313
Payments on short-term borrowings.................. (50,000) (1,086,700) --
Advances from (payments to) affiliated companies... (8,616,816) 444,370 (6,305,386) 1,582,408
Issuance of common stock........................... 5,750,000 -- -- --
Payments to stockholders........................... (5,435,012) -- -- --
----------- ------------ ----------- -----------
Net cash provided by (used in) financing
activities................................... 8,464,820 357,670 (3,786,489) 1,786,721
Effect of exchange rate changes.................... 70,979 (51,000) (76,408) (36,201)
----------- ------------ ----------- -----------
Net change in cash and cash equivalents............ (886,519) 1,308,226 (463,769) 1,461,389
Cash and cash equivalents at beginning of period... 2,021,435 1,134,916 1,134,916 2,443,142
----------- ------------ ----------- -----------
Cash and cash equivalents at end of period......... $ 1,134,916 $ 2,443,142 $ 671,147 $ 3,904,531
=========== ============ =========== ===========
Supplemental cash flow information:
Cash paid for interest........................... $ 1,018,765 $ 1,231,867
Cash paid for taxes.............................. 152,821 463,987
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Bruker Daltonics Inc. and its wholly-owned subsidiaries (the "Company")
design, manufacture and market proprietary life science systems based on its
mass spectrometry core technology platforms. The Company also sells a broad
range of field analytical systems for substance detection and pathogen
identification. The Company maintains major technical centers in Europe, North
America and Japan. Bruker Daltonics allocates substantial capital and resources
to research and development and is party to various collaborations and strategic
alliances. The Company's diverse customer base includes pharmaceutical
companies, biotechnology companies, academic institutions and government
agencies.
These financial statements represent the consolidated accounts of Bruker
Daltonics Inc., and its wholly-owned subsidiaries as of December 31, 1998 and
1999 and for the year ended December 31, 1999, and the combined accounts of
Bruker Daltonics Inc., and its affiliated companies for the year ended
December 31, 1998 (see Note 3). All significant intercompany accounts and
transactions have been eliminated in consolidation and combination,
respectively.
2. Summary of Significant Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 1999 and 2000 have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of 90 days or less at date of purchase to be cash equivalents. Cash
and cash equivalents are carried at cost, which approximates fair market value
at year end.
F-7
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
RESTRICTED CASH
At December 31, 1998, $5,895,871 of cash was restricted as part of an
advance deposit for a product distribution agreement between Bruker Daltonik
GmbH and Hewlett-Packard Company (HP). The original advance was $6,680,002, from
which the Company withdrew amounts for payment as products were delivered and
accepted by HP. This deposit was reduced to $1,200,000 in the second quarter of
1999 and is no longer restricted. The Company has included the entire balance of
$5,895,871 in customer deposits as of December 31, 1998.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to credit risk consist of
cash and cash equivalents and accounts receivables. The risk with respect to
cash and cash equivalents is minimized by the Company's policy of investing in
short-term financial instruments issued by highly-rated financial institutions.
The risk with respect to accounts receivable is minimized by the credit
worthiness of the Company's customers. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations. For the
years ended December 31, 1998 and 1999, two customers accounted for an aggregate
of 32% and 30%, respectively, of the Company's product revenue. Accounts
receivables for these two customers accounted for an aggregate of 40% and 3% of
total receivables as of December 31, 1998 and 1999, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
by the first-in, first-out, ("FIFO") method.
Inventories include demonstration equipment which the Company offers to
current and potential customers. The Company amortizes its demonstration
equipment over a three year period. Amortization expense for demonstration
equipment was $258,844 and $306,792 for the years ended December 31, 1998 and
1999, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are being depreciated
on a straight-line basis over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Buildings............................ 25 years
Machinery and equipment.............. 5-10 years
Furniture and fixtures............... 3-5 years
Leasehold improvements............... Shorter of 15 years or the life of
the lease
</TABLE>
F-8
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
SOFTWARE COSTS
Purchased software is capitalized at cost and is amortized over the
estimated useful life, generally three years. Software developed for use in the
Company's products is expensed as incurred and is classified as research and
development expense.
OTHER ASSETS
Other assets consist principally of patents and licenses. Patents, patent
applications and rights are stated at acquisition cost. Amortization of patents
is recorded using the straight-line method over the legal lives of the patents,
generally for periods ranging up to ten years. Accumulated amortization of these
assets amounted to $983,702 and $1,120,840, as of December 31, 1998 and 1999,
respectively.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment, in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of," whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets are written-down to fair value when the carrying costs
exceed this amount. Any impairment losses are determined based upon estimated
future cash flows and fair values. To date, no such indicators of impairment
have been identified.
WARRANTY COSTS
The Company provides a one year parts and labor warranty with the purchase
of equipment. The anticipated cost for this one year warranty is accrued upon
recognition of the sale and is included as a current liability on the
accompanying balance sheets.
CUSTOMER DEPOSITS
Under the terms and conditions of contracts with certain customers, the
Company requires an advance deposit. These deposit amounts are recorded as a
liability until revenue is recognized against the specific contract at time of
acceptance of the system.
PATENT LITIGATION COSTS
The Company records charges for the costs it anticipates incurring in
connection with litigation and claims against the Company when management can
reasonably estimate these costs.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the
weighted-average number of common shares outstanding during the period. The
diluted earnings per share computation includes the effect of shares which would
be issuable upon the exercise of outstanding stock options, reduced by the
number of shares which are assumed to be
F-9
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
purchased by the Company from the resulting proceeds at the average market price
during the period. At December 31, 1998 and 1999 there were no stock options
outstanding, therefore basic and diluted earnings per share are equivalent.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amounts of the Company's cash and cash equivalents, accounts receivable
and accounts payable approximate fair value due to their short-term nature. The
fair value of long-term debt is estimated based on current interest rates
offered to the Company for financing arrangements with similar maturities. The
recorded value of these financial instruments approximate their fair value at
December 31, 1998 and 1999.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Accounting for Foreign Exchange," all balance sheet accounts of foreign
subsidiaries are translated into United States dollars at the current exchange
rate, and income statement items are translated at the average exchange rate for
the period; resulting translation adjustments are made directly to accumulated
other comprehensive income (loss) in stockholders' equity. Realized exchange
gains and losses are included in current operations and were not material.
REVENUE RECOGNITION
Revenue is recognized from system sales, including hardware with embedded
software, when a product is accepted by the customer, except when sold through
an independent distributor, a strategic distribution partner or an
unconsolidated Bruker affiliated distributor which assumes responsibility for
installation, in which case the system sale is recognized when the products are
shipped to the distributor and title has transferred to the distributor. Our
distributors do not have price protection rights or rights to return, however
our products are warranted to be free from defect for a period of, typically,
one year. Revenue from accessories and parts is recognized upon shipment, and
revenue from services when performed. The Company's revenue recognition policies
for software are in compliance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition.
The Company also offers to its customers warranty and service agreements
extending beyond the initial year of warranty for a fee. These fees are recorded
as deferred revenue and amortized into income over the life of the agreements.
Other revenues, which are principally comprised of research and
development grants, are recognized as grant work is performed.
The Company believes that its revenue recognition policies comply with SEC
Staff Accounting Bulletin No. 101--"Revenue Recognition in Financial
Statements."
F-10
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses included
in sales and marketing were $452,466 and $363,567 for the years ended
December 31, 1998 and 1999, respectively.
INCOME TAXES
The Company provides for income taxes under the liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statements and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the difference is expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The provisions of the statement require the recognition of all derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. The Company is required to implement the statement in
the first quarter of fiscal 2001. The Company does not believe that this new
accounting standard will have a material impact on the financial statements.
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The statement established
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products and services, geographic areas and
major customers. The adoption of the statement did not affect the results of
operations or financial position of the Company.
3. Acquisitions
BRUKER DALTONIK GMBH
Effective December 21, 1998, Bruker Daltonics Inc. acquired all the equity
interests of Bruker Daltonik GmbH formerly known as Bruker Franzen Analytik GmbH
(a manufacturer of mass spectrometers) for $5,435,012 funded through the
issuance of 5,750,000 shares of common stock for $1.00 per share to existing
shareholders. The operations of Bruker Daltonik GmbH and its subsidiary, Bruker
Saxonia Analytik GmbH, based in Germany, are included in the 1998 combined
statements of operations for comparative purposes. The transaction represented
an exchange between entities under common control and, accordingly, the assets
acquired and liabilities assumed have been accounted for at historical cost in a
manner similar to a pooling-of-interests.
F-11
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Acquisitions (continued)
PROTEIGENE, INC.
On December 6, 1999, the Company acquired a 49% interest in
ProteiGene, Inc. from an officer of the Company for $50,000, the estimated fair
market value. ProteiGene is a bioanalytical research and development company
specializing in applications of mass spectrometry and bioinformatics in medical
and microbiologic diagnostics. ProteiGene is developing products to be used in
the care of patients suffering from routine and exotic infections, organ
transplant rejection, and genetic and environmental diseases including cancers
and auto-immune conditions where standard microbiologic and histopathologic
diagnostics have proven ineffective.
VIKING INSTRUMENTS CORPORATION
On June 22, 1999, the Company purchased, the assets of Viking Instruments
Corporation, a developer and manufacturer of transportable gas chromatrograph
mass spectrometers (GC/MS). These transportable GC/MS instruments are used for
laboratory and field analysis of soil, air and water for the identification and
quantification of a wide variety of organic compounds and pollutants. The
acquisition cost was $150,000, and the results of operations are included in the
accompanying consolidated financial statements from the date of acquisition. In
connection with the acquisition, $100,000 was expensed as purchased in-process
research and development, $25,000 was allocated to core technology, and
classified as an intangible, $20,000 was allocated to inventory and $5,000 was
allocated to fixed assets. The amortization period is five years for the
intangibles and three to five years for the fixed assets.
The $100,000 in-process research and development was attributed to the
Viking 573, a transportable gas chromatrograph mass spectrometer, and supported
by a discounted probable cash flow analysis on a project-by-project basis
modified to reflect the stage of completion of the in-process research and
development expenditures. As of June 22, 1999, the feasibility of the acquired
technology had not been established and the acquired technology had no future
alternative uses.
4. Inventories
The components of inventories were as follows:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Raw materials...................... $ 3,924,861 $ 5,849,464 $ 6,612,000
Work-in-process.................... 8,833,788 10,776,494 12,044,681
Finished goods..................... 4,275,024 8,815,886 12,663,358
----------- ----------- -----------
$17,033,673 $25,441,844 $31,320,039
=========== =========== ===========
</TABLE>
F-12
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Land........................................... $ 1,726,893 $ 1,480,358
Buildings...................................... 26,975,800 24,165,161
Office furniture, machinery and equipment...... 18,443,195 18,327,638
Leasehold improvements......................... 11,085 11,085
------------ ------------
47,156,973 43,984,242
Less accumulated depreciation and
amortization................................. (18,791,393) (18,633,699)
------------ ------------
$ 28,365,580 $ 25,350,543
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1999 was
$2,464,693 and $3,317,282, respectively. Amortization of leasehold improvements
is included with depreciation in the accompanying financial statements.
6. Income Taxes
The components of income (loss) from continuing operations before
provision for income taxes consisted of the following for the years ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
United States..................................... $ 229,908 $(1,527,000)
Foreign........................................... (1,118,588) 3,389,929
----------- -----------
$ (888,680) $ 1,862,929
=========== ===========
</TABLE>
F-13
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Income Taxes (continued)
Significant components of the provision for income taxes for the years
ended December 31, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1999
---------- ---------
<S> <C> <C>
Current:
Federal.......................................... $ 96,536 $ --
State............................................ 11,464 --
Foreign.......................................... -- 72,000
--------- --------
108,000 72,000
--------- --------
Deferred:
Federal.......................................... (26,000) --
State............................................ (82,000) --
Foreign.......................................... -- 914,887
--------- --------
(108,000) 914,887
--------- --------
Total income taxes on continuing operations.. $ -- $986,887
========= ========
</TABLE>
The reconciliation of income tax computed at the United States federal
statutory tax rate to income tax expense for the years ended December 31, 1998
and 1999 was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1999
---------- ---------
<S> <C> <C>
Income tax (benefit) at statutory rate............. 34.0% 34.0%
Add (deduct):
Change in valuation allowance.................... (30.5) 35.6
Permanent differences............................ (1.6) 1.2
Foreign income tax at differing rates............ -- (8.9)
Other............................................ (1.9) (9.0)
--------- --------
-- 52.9%
========= ========
</TABLE>
F-14
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Income Taxes (continued)
The components of the Company's deferred income taxes were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory....................................... $ 301,000 $ 880,000
Warranty accrual................................ 55,000 257,000
Allowance for doubtful accounts................. 10,000 11,000
R & D tax credit carryforward................... 175,000 225,000
Net operating loss carryforward................. 29,000 171,000
Other........................................... 49,000 456,000
----------- -----------
619,000 2,000,000
Valuation allowance............................... (99,000) (763,000)
----------- -----------
Net deferred tax.................................. 520,000 1,237,000
Deferred tax liabilities:
Patent litigation costs......................... (2,793,000) (4,023,000)
Excess tax over book depreciation............... (5,998,000) (4,939,000)
Other........................................... (27,000) (162,000)
----------- -----------
Total deferred tax liabilities.................... (8,818,000) (9,124,000)
----------- -----------
Net deferred tax liability........................ $(8,298,000) $(7,887,000)
=========== ===========
</TABLE>
For financial reporting purposes, a valuation allowance of $99,000 and
$763,000 for December 31, 1998 and 1999, respectively, has been recognized to
offset deferred tax assets since uncertainty exists with respect to future
realization of deferred tax assets.
As of December 31, 1999, the Company had approximately $225,000 and
$428,000 of research and development tax credits and net operating loss
carryforwards, respectively, available to reduce future federal tax liabilities.
These credits expire at various dates through the year 2019.
Undistributed earnings of foreign subsidiaries aggregated approximately
$8.1 million at December 31, 1999, which, under existing law, will not be
subject to United States tax until distributed as dividends. Because the
earnings have been or are intended to be indefinitely reinvested in foreign
operations, no provision has been made for United States income taxes that may
be applicable thereto.
7. Financing Arrangements
In August 1999, the Company entered into a revolving line of credit with
Citizens Bank in the amount of $2,500,000. This line, which is secured by
certain inventory, receivables and equipment in the United States, is used to
provide working capital and expires July 31, 2001. Interest on this line of
credit is at the lower of LIBOR plus 175 basis points (7.91% at
F-15
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Financing Arrangements (continued)
December 31, 1999) or the Prime Rate (8.5% at December 31, 1999). There is no
commitment fee on the unused portion of the line. As of December 31, 1999, the
Company had $1,000,000 outstanding on this line of credit.
The Company also maintained revolving lines of credit in 1998 and 1999,
respectively, of approximately $4,200,000 and $6,200,000, among German banks at
interest rates ranging between 7.5% and 6.1%. At December 31, 1998 and 1999,
$2,941,239 and $1,496,350, respectively, was outstanding against these revolving
lines of credit. The lines are secured by certain inventory and accounts
receivable in Germany and are renewable in June 2000.
The weighted average interest rate for all outstanding borrowings under
the Company's lines of credit was 7.01% and 7.06% at December 31, 1998 and 1999,
respectively.
The Company has three notes payable with outstanding balances aggregating
$14,982,498 and $12,843,582 as of December 31, 1998 and 1999, respectively. One
note ($5,137,434 at December 31, 1999), with an interest rate of 5.10%, is
payable in full in 2003. The other two notes ($7,706,148 in the aggregate at
December 31, 1999), have an interest rate of 4.65% and are due in 2008. The
notes are payable to Commerzbank in Germany. Interest is due monthly and all
obligations are collateralized by the land and buildings of Bruker Daltonik
GmbH.
8. Stockholder's Equity
STOCK SPLIT
On February 14, 2000, the Board of Directors of Bruker Daltonics Inc.
authorized a seven-for-one stock split in the form of a stock dividend.
Shareholders of record received six additional shares of common stock for every
share they owned. All common shares and per share data in the accompanying
financial statements have been restated to reflect the stock split.
STOCK OPTIONS
In February 2000, the Board of Directors adopted and the Stockholders
approved the 2000 Stock Option Plan ("the Plan"). The Plan provides for the
issuance of up to 2,120,000 shares of Common Stock in connection with stock
options or other awards under the Plan. The Plan allows a committee of the Board
of Directors (the "Committee") to grant incentive stock options, non-qualified
stock options, stock appreciation rights and stock awards (including the use of
restricted stock and phantom shares). The Committee has the authority to
determine which employees will receive the rewards, the amount of the awards,
and other terms and conditions of the award. In February 2000, the Committee
granted stock options for 783,135 shares of common stock, which vest over
three-to-five year periods.
F-16
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Stockholder's Equity (continued)
Stock option activity for the three month period ended March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price
-------- --------------
<S> <C> <C>
Outstanding at December 31, 1999..................... -- --
Granted.............................................. 783,135 $5.29
Exercised............................................ -- --
Forfeited............................................ -- --
------- -----
Outstanding at March 31, 2000........................ 783,135 $5.29
=======
Exercisable at March 31, 2000........................ --
=======
Weighted average fair value of options granted during
the year........................................... $1.50
</TABLE>
Exercise prices for options outstanding as of March 31, 2000 ranged from
$5.27 to $5.80. The weighted-average remaining contractual life of those options
is 9.92 years. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 2000: risk free interest rate of 6.53%,
dividend yield of 0% and a weighted-average expected life of the option of 5
years. The Company has never declared dividends on any of its capital stock and
does not expect to do so in the foreseeable future.
The Company accounts for stock-based compensation using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under APB 25, because the exercise price of the
Company's stock options equaled the fair market value of the underlying stock on
the date of grant, no compensation expense was recognized. The Company's Board
of Directors considered various factors in determining the fair market value of
the Company's common stock on the date the stock options were granted. The Board
used data of comparable public companies to determine an initial valuation of
the Company as if the Company were a public company. The Board then discounted
this valuation by 20% to reflect the lack of marketability of our stock due to
our status as a private company.
Stock options granted to non-employees, including Scientific Advisory
Board Members, are accounted for in accordance with Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling, Goods or Services,"
which requires the value of such options to be remeasured as they vest over a
performance period. The fair value of such options is determined using the
Black-Scholes model and the resulting charge is recognized as the related
services are performed. The Company has not incurred significant compensation
expense relating to non-employee grants.
For purposes of pro forma disclosures, the estimated fair value of stock
options is amortized to expense over the options' respective vesting periods and
the estimated fair value
F-17
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Stockholder's Equity (continued)
of shares issued under the Company's stock option plan has been determined based
on the fair value at date of grant as defined by SFAS 123, the Company's pro
forma results for the three month period ended March 31, 2000 would have been as
follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma net income........................................ $153,716
Pro forma basic and diluted income per share................ $ 0.00
</TABLE>
9. Segment and Geographic Information
The Company operates in one business segment and engages in the design,
manufacturing and marketing of proprietary life science systems, process
analysis systems, and analytical instruments based primarily on mass
spectrometry technology.
GEOGRAPHIC AREAS
Information concerning principal geographic areas is as follows:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- ---------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
NET PRODUCT REVENUES FROM EXTERNAL
CUSTOMERS
Germany............................. $26,621,316 $31,694,883 $ 7,621,834 $ 4,210,614
United States....................... 13,535,945 22,166,224 3,256,844 5,927,924
Other............................... -- 6,759,242 -- 3,896,318
----------- ----------- ----------- -----------
$40,157,261 $60,620,349 $10,878,678 $14,034,856
=========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Segment and Geographic Information (continued)
Net product revenues are attributable to geographic areas based on the
region of sale.
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
LONG-LIVED ASSETS (EXCLUDING INTANGIBLE ASSETS)
Germany.......................................... $28,037,374 $24,283,757 $22,692,833
United States.................................... 328,206 484,006 342,084
Other............................................ -- 672,935 796,840
----------- ----------- -----------
$28,365,580 $25,440,698 $23,831,757
=========== =========== ===========
NET ASSETS
Germany.......................................... $ 9,307,408 $11,320,044 $11,217,117
United States.................................... 6,821,503 5,294,422 5,223,709
Other............................................ -- 357,091 189,211
----------- ----------- -----------
16,128,911 16,971,557 16,630,037
Elimination entries.............................. (5,788,780) (6,913,908) (6,878,974)
----------- ----------- -----------
$10,340,131 $10,057,649 $ 9,751,063
=========== =========== ===========
</TABLE>
10. Discontinued Operations
In 1999, the Company decided to discontinue its Fourier Transform-Infrared
(FT-IR) business. The FT-IR business unit sells and services FT-IR instruments
to a variety of markets outside the Company's core technology platform of mass
spectrometry. The Company plans to complete the sale of its FT-IR business to
Bruker Optik GmbH, an affiliated entity, in the first half of 2000 for a price,
which approximates the net book value of the assets and liabilities of the
business.
Summary results for the discontinued operations for the years ended
December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net product revenues............................ $2,853,737 $2,741,815
Total costs and expenses........................ (2,214,492) (2,119,423)
Provision for income taxes...................... (255,831) (248,915)
---------- ----------
Income from discontinued operations............. $ 383,414 $ 373,477
========== ==========
</TABLE>
The assets and liabilities of the discontinued operations as of
December 31, 1998 and 1999 consisted of inventories ($30,930 and $31,650,
respectively) and accounts payable ($24,317 and $146,686, respectively).
F-19
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
11. Related-Party Transactions
The Company is affiliated, through common shareholders, with several other
entities which use the Bruker name. The Company and its affiliates have entered
into a sharing agreement which provides for the sharing of specified
intellectual property rights, services, facilities and other related items.
The Company recognized sales to affiliated entities of $9,804,838 in 1998
and $10,307,416 in 1999 and purchases from affiliated entities of $3,913,662 in
1998 and $3,208,752 in 1999.
In 1998 and 1999, various Bruker affiliates provided administrative and
other services (including office space-see note 12) to the Company at a cost of
approximately $227,000 and $437,000, respectively, based on its assessment of
the estimated fair market value of such services.
12. Employee Benefit Plans
The Company maintains or sponsors various defined contribution retirement
plans that cover domestic and international employees. The Company may make
contributions to these plans at its discretion. Retirement benefits earned are
generally based on years of service and compensation during active employment.
Eligibility is generally determined in accordance with local statutory
requirements. However, the level of benefits and terms of vesting may vary among
plans. The Company contributed $66,110 and $122,548 in 1998 and 1999,
respectively.
13. Commitments and Contingencies
LEASES
The Company leases office space from related parties, under agreements
expiring on various dates through 2004. The Company's principal office lease
expires in 2000. These lease obligations for the next five years are as follows:
<TABLE>
<S> <C>
2000........................................................ $188,321
2001........................................................ 3,971
2002........................................................ 3,971
2003........................................................ 3,971
2004........................................................ 3,971
--------
$204,205
========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1999 was $131,962
and $283,860, respectively.
LICENSE AGREEMENTS
The Company has entered into license agreements allowing the Company to
utilize certain patents. If these patents are used in connection with a
commercial product sale, the
F-20
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
13. Commitments and Contingencies (continued)
Company pays royalties ranging from 0.15% to 5.00% on the related product
revenues. Licensing fees for the years ended December 31, 1998 and 1999 were
$146,166 and $178,327, respectively.
GRANTS
The Company has a grant from the National Institute of Standards and
Technology (NIST) Advanced Technology Program, which commenced on March 1, 1995
and ran through February 28, 2000. This grant is for the development of a DNA
sequencing time-of-flight mass spectrometer with a total project cost of
$7 million, of which $3.5 million will be reimbursed from NIST. The Company's
expenditures were $1.3 million and $2.1 million in 1998 and 1999, respectively.
Amounts reimbursed from NIST were $594,000 and $1 million in 1998 and 1999,
respectively, and are classified in other revenues.
The Company's wholly-owned subsidiary, Bruker Daltonik GmbH and its
subsidiary Bruker Saxonia Analytik GmbH, are the recipients of six grants from
German government authorities. The grants were made in connection with the
Company's development of specific spectrometers and components of spectrometers.
Total grants awarded amount to $4.8 million and expire through December 31,
2001. Amounts received under these grants during 1998 and 1999 totaled
$1.5 million and $3 million, respectively, and are classified in other revenues.
Total expenditures related to these grants were $3 million and $3.2 million in
1998 and 1999, respectively.
LEGAL
The Company's wholly-owned subsidiary, Bruker Daltonik GmbH, has a
$6.8 million and $5.8 million accrued liability at December 31, 1998 and 1999,
respectively, related to certain patent infringement litigation filed by a
competitor. In 1997, the competitor initiated an action in the United States
District Court of Massachusetts alleging patent infringement against the Company
and Hewlett-Packard. The competitor has also filed a request for an
investigation of its patent infringement claims with the United States
International Trade Commission (ITC) and has filed suit against the Company in
Germany, France and the United Kingdom. The Massachusetts patent action has been
pending the final determination of the ITC action while the actions in Germany,
France and the United Kingdom are on going.
In 1998, the ITC found in favor of the Company and in 1999 the Court of
Appeals for the Federal Circuit confirmed, in part, the ITC decision in favor of
the Company. The Company has filed counterclaims in relation to these patent
claims and in 1999 filed an anti-trust suit against the competitor in
Massachusetts Federal Court. The Company believes that it has a meritorious
defense to the competitor's claims and intends to vigorously defend itself.
Based on a review of the current facts and circumstances, management of
the Company and its subsidiary believe that the amount of the accrued liability
is a reasonable estimate of the exposure to loss associated with these matters,
representing, principally, anticipated legal fees. While acknowledging the
uncertainties of litigation, the Company believes that these matters will be
resolved without a material effect on the Company's financial position or
F-21
<PAGE>
BRUKER DALTONICS INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
13. Commitments and Contingencies (continued)
results of operations. However, an unfavorable outcome of these matters could
result in a material adverse impact on the Company's financial statements,
although an estimate of such impact cannot be made.
Other lawsuits, claims and proceedings of a nature considered normal to
its businesses are pending against the Company and its subsidiary. The Company
believes the outcome of these proceedings will not have a material impact on the
Company's financial position or results of operations.
F-22
<PAGE>
Report of BDO von Riegen, Lienau, Sucker & Partner GmbH, Independent Auditors
The Board of Directors
Bruker Daltonics Inc.
We have audited the accompanying combined balance sheet as of
December 31, 1997 of the entities listed in Note 1, and the related combined
statements of operations, stockholders' equity, and cash flows for the year 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 audit. We did not audit the financial statements of
Bruker Daltonics Inc., which statements reflect total assets of approximately
$5.5 million as of December 31, 1997 and total revenues of approximately
$14.7 million for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Bruker Daltonics Inc., is based solely on the
report of other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position at December 31, 1997 of the entities listed in
Note 1, and the results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States.
Bremen/Federal Republic of Germany, this 6th day of April, 2000
<TABLE>
<S> <C> <C>
/s/ BDO von Riegen, Lienau, Sucker & Partner GmbH
Wirtschaftsprufungsgesellschaft
(Sucker) (Dr. Lienau)
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
F-23
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Bruker Daltonics Inc.
We have audited the balance sheet of Bruker Daltonics Inc. (formerly Bruker
Analytical Systems, Inc.) (the Company) as of December 31, 1997, and the related
statements of income, stockholders' equity, and cash flows for the year then
ended (not presented separately herein). 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 audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bruker Daltonics Inc. at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 3, 2000
F-24
<PAGE>
BRUKER DALTONICS INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,021,435
Accounts receivable, less allowance for doubtful accounts
of $1,028................................................ 2,449,755
Inventories............................................... 14,436,816
Deferred tax asset........................................ 133,176
Other assets.............................................. 135,743
-----------
Total current assets.................................. 19,176,925
-----------
Restricted cash............................................. 6,680,002
Property, plant and equipment, net.......................... 26,173,305
Intangible and other assets................................. 218,396
-----------
Total assets...................................... $52,248,628
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 182,881
Accounts payable.......................................... 4,290,956
Due to affiliated companies, net.......................... 8,218,007
Accrued expenses.......................................... 1,494,795
Accrued payroll........................................... 1,340,363
Customer deposits......................................... 10,470,046
Warranty reserve.......................................... 1,269,862
Note payable to stockholder............................... 50,000
Income taxes payable...................................... 705,513
-----------
Total current liabilities............................. 28,022,423
-----------
Deferred revenue............................................ 381,640
Deferred tax liability...................................... 7,323,929
Contingent liabilities...................................... 6,650,850
Stockholders' equity:
Bruker Daltonics Inc.
Common stock $.01 par value, authorized 7,000,000 shares,
issued and outstanding 5,250,000 shares.................. 52,500
Additional paid-in capital................................ 697,500
Bruker Daltonik GmbH
Common stock no par value, authorized 1 share, issued and
outstanding 1 share...................................... 3,489,184
Accumulated other comprehensive loss...................... (1,969,494)
Retained earnings......................................... 7,600,096
-----------
Total stockholders' equity............................ 9,869,786
-----------
Total liabilities and stockholders' equity........ $52,248,628
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
BRUKER DALTONICS INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997
------------
<S> <C>
Product revenue............................................. $49,246,709
Other revenue............................................... 1,878,298
-----------
Net revenue................................................. 51,125,007
Costs and operating expenses:
Cost of product revenue................................... 24,537,719
Sales and marketing....................................... 7,178,180
General and administrative................................ 2,119,792
Research and development.................................. 9,166,087
Patent litigation costs................................... 5,525,306
-----------
Total costs and operating expenses.................. 48,527,084
Operating income from continuing operations................. 2,597,923
Other income................................................ 127,255
Interest expense, net....................................... (743,199)
-----------
Income before provision for income taxes.................... 1,981,979
Provision for income taxes.................................. 1,626,785
-----------
Income from continuing operations........................... 355,194
Income from discontinued operations, net of income taxes.... 208,851
-----------
Net income.................................................. $ 564,045
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
BRUKER DALTONICS INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------ Accumulated
Bruker Bruker Additional Other Total
Daltonics Daltonik Paid-in Retained Comprehensive Stockholders'
Inc. GmbH Capital Earnings Loss Equity
---------- ----------- ---------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31,
1996 (unaudited)........... $ 7,000 $3,489,184 $ 93,000 $7,036,051 $ (628,822) $9,996,413
Issuance of common stock... 45,500 -- 604,500 -- -- 650,000
Foreign currency
translation adjustment... -- -- -- -- (1,340,672) (1,340,672)
Net income................. -- -- -- 564,045 -- 564,045
----------
Net comprehensive loss..... -- -- -- -- -- (776,627)
------- ---------- -------- ---------- ----------- ----------
Balance as of December 31,
1997....................... $52,500 $3,489,184 $697,500 $7,600,096 $(1,969,494) $9,869,786
======= ========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
BRUKER DALTONICS INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997
------------
<S> <C>
Operating activities:
Income from continuing operations........................... $ 355,194
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization............................. 2,572,850
Deferred income taxes..................................... 1,024,312
Changes in operating assets and liabilities:
Accounts receivable..................................... 4,393,788
Inventories............................................. (325,147)
Other assets............................................ 780,460
Accounts payable and accrued expenses................... 1,556,147
Warranty reserve........................................ (1,080,366)
Contingent liabilities.................................. 3,585,381
Income taxes payable.................................... 663,583
Deferred revenue........................................ 248,820
Customer deposits....................................... (1,409,458)
------------
Net cash provided by continuing operations.................. 12,365,564
Net cash provided by discontinued operations................ 320,904
------------
Net cash provided by operating activities............... 12,686,468
Investing activities:
Purchases of property and equipment......................... (3,911,879)
------------
Net cash used in investing activities................... (3,911,879)
Financing activities:
Payments on line of credit.................................. (5,399,472)
Changes in due to affiliated companies...................... (5,366,415)
Issuance of common stock.................................... 650,000
------------
Net cash used in financing activities................... (10,115,887)
Effect of exchange rate changes............................. (403,760)
------------
Net decrease in cash and cash equivalents................... (1,745,058)
Cash and cash equivalents at beginning of year.............. 3,766,493
------------
Cash and cash equivalents at end of year.................... $ 2,021,435
============
Supplemental cash flow information:
Cash paid for interest.................................... $ 1,252,112
Cash paid for income taxes................................ 517,461
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Description of Business
These financial statements represent the combined accounts of Bruker
Daltonics Inc. (formally Bruker Analytical Systems, Inc.) and Bruker Daltonik
GmbH (formally Bruker-Franzen Analytik GmbH) including its subsidiary Bruker
Saxonia Analytik GmbH (collectively "Bruker Daltonics" or the "Company"), for
the year ended December 31, 1997. All significant intercompany accounts and
transactions have been eliminated in combination.
The Company designs, manufactures and markets proprietary life science
systems based on its mass spectrometry core technology platforms. The Company
also sells a broad range of field analytical systems for pathogen identification
and substance detection. The Company maintains major technical centers in Europe
and North America. Bruker Daltonics allocates substantial amounts to research
and development and are parties to various collaborations and strategic
alliances. The Company's diverse customer base includes pharmaceutical and
biotechnology companies, academic institutions and government agencies.
2. Summary of Significant Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of 90 days or less at date of purchase to be cash equivalents. Cash
and cash equivalents are carried at cost, which approximates fair market value
at year end. The Company has repurchase agreements with a bank. The repurchase
agreements are collateralized by investments principally consisting of U.S.
Government Agency securities in the amount of at least 100% of such obligation.
RESTRICTED CASH
At December 31, 1997, $6,680,002 of cash was restricted as part of an
advance deposit for a product distribution agreement between Bruker Daltonik
GmbH and Hewlett-Packard Company (HP). The Company withdrew amounts for payment
as products were delivered and accepted by HP.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to credit risk consist of
cash and cash equivalents and accounts receivables. The risk with respect to
cash and cash equivalents is minimized by the Company's policy of investing in
short-term financial instruments issued by highly-rated financial institutions.
The risk with respect to accounts receivable is minimized by
F-29
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
the credit worthiness of the Company's customers. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral. Credit losses have been within management's expectations.
For the year ended December 31, 1997, two customers accounted for an aggregate
of 31% of the Company's product revenue. Accounts receivables, as of
December 31, 1997, for these two customers accounted for an aggregate of 28% of
total receivables.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
by the first-in, first-out ("FIFO") method.
Inventories include demonstration equipment which the Company offers to
current and potential customers. The Company amortizes its demonstration
equipment over a three year period. Amortization expense for demonstration
equipment was $105,981 for the year ended December 31, 1997.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are being depreciated
on a straight-line basis over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Buildings................................................... 25 years
Machinery and equipment..................................... 5-10 years
Furniture and fixtures...................................... 3-5 years
</TABLE>
SOFTWARE COSTS
Purchased software is capitalized at cost and amortized over the estimated
useful life, generally three years. Software developed for use in the Company's
products is expensed as incurred and is classified as research and development
expense.
OTHER ASSETS
Other assets consist principally of patents and licenses. Patents, patent
applications and rights are stated at acquisition cost. Amortization of patents
is recorded using the straight-line method over the legal lives of the patents,
generally for periods ranging up to ten years. Accumulated amortization of these
assets amounted to $694,104 as of December 31, 1997.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment, in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of," whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets are written-down to fair value when the carrying costs
exceed this amount. Any impairment losses are determined based upon estimated
future cash flows and fair values. To date, no such indicators of impairment
have been identified.
F-30
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
WARRANTY COSTS
The Company provides a one year parts and labor warranty with the purchase
of equipment. The anticipated cost for this one year warranty is accrued upon
recognition of the sale and is included as a current liability on the
accompanying balance sheets.
CUSTOMER DEPOSITS
Under the terms and conditions of contracts with certain customers, the
Company requires an advance deposit. These deposit amounts are recorded as a
liability until revenue is recognized against the specific contract at time of
acceptance of the system.
PATENT LITIGATION COSTS
The Company records charges for the costs it anticipates incurring in
connection with litigation and claims against the Company when management can
reasonably estimate these costs.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Accounting for Foreign Exchange," all balance sheet accounts of foreign
subsidiaries are translated into United States dollars at the current exchange
rate, and income statement items are translated at the average exchange rate for
the period; resulting translation adjustments are made directly to accumulated
other comprehensive income in stockholders' equity. Realized exchange gains and
losses are included in current operations and were not material.
REVENUE RECOGNITION
Revenue is recognized from system sales, including hardware with embedded
software, when a product is accepted by the customer, except when sold through
an independent distributor, a strategic distribution partner or an
unconsolidated Bruker affiliated distributor which assume responsibility for
installation, in which case the system sale is recognized when the products are
shipped to the distributor and the title has transferred to the distributor. Our
distributors do not have price protection rights or rights to return, however
our products are warranted to be free from defect for a period of, typically one
year. Revenue from accessories and parts is recognized upon shipment, and
revenue from services when performed. The Company's revenue recognition policies
for software are in compliance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition.
The Company also offers to its customers extended warranty and service
agreements extending beyond the initial year of warranty for a fee. These fees
are recorded as deferred revenue and amortized into income over the life of the
contract.
Other revenues, which are principally comprised of research and
development grants, are recognized as grant work is performed.
F-31
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
The Company believes that its revenue recognition policies comply with SEC
Staff Accounting Bulletin No. 101--"Revenue Recognition in Financial
Statements."
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses included
in sales and marketing were $256,360 for the year ended December 31, 1997.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
The Company provides for income taxes under the liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statements and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the difference is expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
ACCOUNTING DEVELOPMENTS
In 1997, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes rules for reporting of comprehensive income and its
components. The components of comprehensive income that relate to the Company
are net earnings and foreign currency translation adjustments.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The provisions of the statement require the recognition of all derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. The Company is required to implement the statement in
the first quarter of fiscal 2001. The Company does not believe that this new
accounting standard will have a material impact on the financial statements.
3. Inventories
The components of inventories at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997
------------
<S> <C>
Raw materials............................................... $ 3,808,502
Work-in-process............................................. 4,269,997
Finished goods.............................................. 6,358,317
-----------
$14,436,816
===========
</TABLE>
F-32
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------
1997
------------
<S> <C>
Land........................................................ $ 1,118,789
Buildings................................................... 24,899,552
Office furniture, machinery and equipment................... 16,639,063
------------
42,657,404
Less accumulated depreciation............................... (16,484,099)
------------
$ 26,173,305
============
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $2,340,780.
5. Income Taxes
The components of income before provision for income taxes consisted of
the following for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1997
-------------
<S> <C>
United States............................................... $ 129,039
Foreign..................................................... 1,852,940
----------
$1,981,979
==========
</TABLE>
Significant components of the provision (benefit) for income taxes for the
year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1997
-------------
<S> <C>
Current:
Federal................................................... $ 14,752
State..................................................... 3,950
Foreign................................................... 27,311
----------
46,013
----------
Deferred:
Federal................................................... (49,806)
Foreign................................................... 1,630,578
----------
1,580,772
----------
Total income taxes on continuing operations................. $1,626,785
==========
</TABLE>
F-33
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense for the year ended December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1997
-------------
<S> <C>
Income tax (benefit) at statutory rate...................... $ 674,000
Add (deduct)
Tax differentials on foreign earnings..................... 985,000
State income taxes........................................ 4,000
Other..................................................... (36,215)
----------
$1,626,785
==========
</TABLE>
The components of the Company's deferred income taxes at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1997
-------------
<S> <C>
Deferred tax assets:
Inventory................................................. $ 131,610
Warranty accrual.......................................... 49,000
Net operating loss credit carryforward.................... 1,523,000
Other..................................................... 498,637
-----------
2,202,247
Deferred tax liabilities:
Patent litigation costs................................... (3,385,000)
Excess tax over book depreciation......................... (6,004,000)
Other..................................................... (4,000)
-----------
Total deferred tax liabilities.............................. (9,393,000)
-----------
Net deferred tax liability.................................. $(7,190,753)
===========
</TABLE>
As of December 31, 1997, the Company had approximately $3 million of net
operating loss tax credit carryforwards available to reduce future tax
liabilities. These credits expire through the year 2013.
6. Financing Arrangements
The Company maintains revolving lines of credit, of approximately
$5,300,000 among German banks at interest rates ranging between 7.25% and 7.50%.
At December 31, 1997, $182,881 were outstanding against these revolving lines of
credit. The lines are renewable annually in October 1998.
F-34
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
7. Segment and Geographic Information
The Company operates in one business segment and engages in the design,
manufacturing and marketing of proprietary life science systems, process
analysis systems, and analytical instruments based primarily on mass
spectrometry technology.
GEOGRAPHIC AREAS
Information concerning principal geographic areas for 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1997
-------------
<S> <C>
Net product revenues from external customers
Germany................................................... $36,019,815
United States............................................. 13,226,894
-----------
Combined.................................................. $49,246,709
===========
</TABLE>
Net product revenues are attributable to geographic areas based on the
region of sale.
<TABLE>
<CAPTION>
December 31,
------------
1997
------------
<S> <C>
Long-lived assets (excluding intangible assets)
Germany................................................... $26,026,746
United States............................................. 146,559
-----------
Combined.................................................. $26,173,305
===========
Net assets
Germany................................................... $ 9,146,007
United States............................................. 841,695
-----------
9,987,702
Elimination entries....................................... (117,916)
-----------
Combined.................................................. $ 9,869,786
===========
</TABLE>
8. Discontinued Operations
The Company plans to complete the sale of its FT-IR business to Bruker Optik
GmbH in the first half of 2000. The FT-IR business sells and services FT-IR
instruments to a variety of markets, outside the Company's core technology
platform of mass spectrometry.
F-35
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
8. Discontinued Operations (continued)
Summary results for the discontinued operations for the year ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997
------------
<S> <C>
Net product revenues........................................ $1,643,857
Total costs and expenses.................................... 1,295,352
Provision for income taxes.................................. 139,654
----------
Income from discontinued operations......................... $ 208,851
==========
</TABLE>
The assets and liabilities of the discontinued operations as of
December 31, 1997 consisted of accounts payable of $385,869.
9. Related-Party Transactions
As of December 31, 1997, Bruker Daltonik GmbH has two demand loans
outstanding aggregating $8,262,617 to Techneon AG, an affiliated company. The
loans, which are unsecured, bear interest at 5.25% and 7.50%.
At December 31, 1997, the Group had a $50,000 demand note to the President
of the Group. The note, which is unsecured, bears interest at prime (8.50% at
December 31, 1997).
The Company recognized sales to affiliated entities of $14,256,695 and
purchases from affiliated entities of $3,019,177 in 1997.
In 1997, Bruker Instruments, Inc., a related party, provided
administrative and other services to the Company at a cost of $370,391 based on
its assessment of the estimated fair market value of such services.
10. Employee Benefit Plans
The Company maintains or sponsors various defined contribution retirement
plans that cover domestic and international employees. The Company may make
contributions to these plans at its discretion. Retirement benefits earned are
generally based on years of service and compensation during active employment.
Eligibility is generally determined in accordance with local statutory
requirements. However, the level of benefits and terms of vesting may vary among
plans. The Company contributed $49,037 in 1997.
11. Commitments and Contingencies
LEASES
The Company leases office and production space from Bruker
Instruments, Inc. under a renewable lease. The term of this lease, which was
entered into on June 27, 1996, is for three years and four months with one year
extensions thereafter. Total rent expense was $125,123 in 1997.
F-36
<PAGE>
BRUKER DALTONICS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
11. Commitments and Contingencies (continued)
Future minimum rental payments under the Company's operating lease,
excluding real estate taxes, insurance and operating costs paid by the Company,
are $131,962, $213,782 and $184,350 for 1998, 1999 and 2000, respectively.
GRANTS
The Company has a grant from the National Institute of Standards and
Technology (NIST) Advanced Technology Program, which commenced on March 1, 1995
and runs through February 28, 2000. This grant is for the development of a DNA
sequencing time-of-flight mass spectrometer with a total project cost of
$7.0 million, of which $3.5 million will be reimbursed from NIST. The Company's
expenditures were $953,852 in 1997. Amounts reimbursed from NIST were $487,780,
and are classified in other revenues.
Bruker Daltonik GmbH and its subsidiary Bruker Saxonia Analytik GmbH, are
the recipients of five grants from German government authorities. The grants
were made in connection with the Company's development of specific spectrometers
and components of spectrometers. Grants range from $1,203,382 to $6,183,027 and
aggregate $16,483,699. The grants expire from December 31, 1997 through
January 31, 2001. Aggregate expenditures during the year ended December 31, 1997
totaled $3,744,857. Amounts reimbursed in the aggregate during 1997 totaled
$1,390,518 and are classified in other revenues. At December 31, 1997, the
Company had no grants receivable.
LEGAL
Various lawsuits, claims and proceedings of a nature considered normal to
its businesses are pending against the Company and its subsidiary. The most
significant of these are described below.
The Company has a $6.7 million accrued liability at December 31, 1997
related to certain patent infringement litigation filed by a competitor. In
1997, the competitor initiated an action in the United States District Court of
Massachusetts alleging patent infringement against the Company and
Hewlett-Packard. The competitor has also filed a request for an investigation of
its patent infringement claims with the United States International Trade
Commission (ITC) and has filed suit against the Company in Germany, France and
the United Kingdom. The Massachusetts patent action has been pending the final
determination of the ITC action while the actions in Germany, France and the
United Kingdom are on going.
Based on a review of the current facts and circumstances, management of
the Company believe that the amount of the accrued liability is a reasonable
estimate of the exposure to the loss associated with these matters,
representing, principally, anticipated legal fees. While acknowledging the
uncertainties of litigation, the Company believes that these matters will be
resolved without a material effect on the Company's financial position or
results of operations. However, an unfavorable outcome of these matters could
result in a material adverse impact on the Company's financial statements.
F-37
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. We are offering to sell, and seeking offers to buy, shares of
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary............... 1
Risk Factors..................... 6
Special Note Regarding
Forward-Looking Statements..... 17
Use of Proceeds.................. 18
Dividend Policy.................. 18
Capitalization................... 19
Dilution......................... 20
Selected Financial Data.......... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 23
Business......................... 33
Management....................... 48
Principal Stockholders........... 54
Related Transactions............. 55
Description of Capital Stock..... 58
Shares Eligible for Future
Sale........................... 61
Underwriting..................... 62
Certain United States Tax
Considerations for Non-United
States Holders................. 65
Legal Matters.................... 69
Experts.......................... 69
Change in Accountants............ 69
Where You Can Find More
Information.................... 69
Index to Financial Statements.... F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
[LOGO]
7,500,000 Shares
Common Stock
Deutsche Banc Alex. Brown
UBS Warburg LLC
Thomas Weisel Partners LLC
Prospectus
, 2000
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses (other than the underwriting discount) payable in
connection with the sale of the common stock offered hereby are as follows, all
of which will be paid by the Company:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
SEC registration fee........................................ $ 33,000
NASD filing fee............................................. 13,000
Nasdaq National Market fee.................................. 95,000
Printing expenses........................................... 300,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... 234,000
-----------
Total....................................................... $ 1,500,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact the he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suite or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and a manner he
reasonably believed to in or not opposed to the best interest of the corporation
and except that no indemnification shall be made in respect to any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the
II-1
<PAGE>
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
In addition, pursuant to our certificate of incorporation and bylaws, we
shall indemnify our directors and officers against expenses (including judgments
or amounts paid in settlement) incurred in any action, civil or criminal, to
which any such person is a party by reason of any alleged act or failure to act
in his capacity as such, except as to a matter as to which such director or
officer shall have been finally adjudged not to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation.
The underwriting agreement between Bruker Daltonics and the underwriters
of this offering provides that the underwriters are obligated, under certain
circumstances, to indemnify our directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed at Exhibit 1.1
hereto.
We maintain directors and officers liability insurance for the benefit of
our directors and certain of our officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period ending December 31, 1999, Bruker Daltonics
has issued the following securities, none of which has been registered under the
Securities Act:
1. On February 1, 1997, we sold 350,000 shares of common stock to Frank H.
Laukien for a purchase price of $3,500 and a capital contribution of
$46,500.
2. On June 30, 1997, we sold 1,750,000 shares of common stock to Isolde
Laukien for a purchase price of $17,500 and a capital contribution of
$232,500; 1,050,000 shares of common stock to Joerg C. Laukien for a
purchase price of $10,500 and a capital contribution of $139,500; 1,050,000
shares of common stock to Marc M. Laukien for a purchase price of $10,500
and a capital contribution of $139,500; and 350,000 shares of common stock
to Dirk D. Laukien for a purchase price of $3,500 and a capital
contribution of $46,500.
3. On December 21, 1998, we sold 8,050,000 shares of common stock for $80,500
and a capital contribution of $1,069,500 to each of Frank H. Laukien,
Isolde Laukien, Joerg C. Laukien, Marc M. Laukien and Dirk D. Laukien.
4. As of May 26, 2000, options to purchase 776,250 shares of common stock
were outstanding under Bruker Daltonics' 2000 Stock Option Plan. None of
the options are exercisable within 60 days. All of these options were
granted in February 2000 to officers, directors, employees and advisors of
Bruker Daltonics.
The sales of securities set forth in paragraphs one to three above were
exempt from the registration requirements of the Securities Act in reliance on
Section 4(2) thereof, or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering. The sale of securities set forth in
paragraph four above was exempt from the registration requirements of the
Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The granting of stock options described in paragraph four above did not require
registration under the Securities Act, or an exemption therefrom, insofar as
such grants did not involve a "sale" of securities as such term is used in
Section 2(3) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------------------------------------------
<C> <S>
**1.1 Form of Underwriting Agreement
**2.1 Asset Purchase Agreement dated July 1, 1996 between the
Registrant and Spectrospin AG
**2.2 Share Purchase Agreement dated December 9, 1998 among the
Registrant, Bruker Physik AG and the estate of Dr.
Guenther R. Laukien
**2.3 Asset Purchase Agreement dated May 28, 1999 between the
Registrant and Viking Instruments Corp
**2.4 ProteiGene Share Purchase Agreement dated December 6, 1999
between the Registrant and Frank H. Laukien
**2.5 ProteiGene Share Purchase Agreement dated March 1, 2000
between the Registrant and Sidney R. Kaufman
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant
**3.2 Amended and Restated Bylaws of the Registrant
*4.1 Specimen stock certificate representing shares of common
stock of the Registrant
*5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
**10.1 2000 Stock Option Plan
**10.2 Sharing Agreement dated as of February 28, 2000 among the
Registrant and 13 affiliates of the Registrant
+10.3 Collaboration and OEM Agreement dated March 6, 2000 between
PerkinElmer Instruments LLC and its Affiliates and the
Registrant and its Affiliates
**+10.4 Cooperation Agreement dated November 15, 1999 between Bruker
Daltonik GmbH and MWG-Biotech AG
**+10.5 License Agreement dated August 10, 1998 between the
Registrant and Indiana University's Advanced Research &
Technology Institute
**10.6 Lease dated June 27, 1996 between the Registrant and Bruker
Instruments, Inc., as amended
+10.7 ITMS Collaboration Agreement by and between Hewlett-Packard,
the Registrant and Bruker Daltonik GmbH, dated April 28,
1999
**+10.8 Collaboration Agreement dated December 4, 1997 between
Bruker-Franzen Analytik GmbH and Sequenom Instruments GmbH
**+10.9 Agreement by and between the Bruker Daltonik GmbH, Bruker
Saxonia Analytik GmbH and Bruker Optik GmbH dated March 30,
2000
**16.1 Letter re: change in certifying accountants
**21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO von Riegen, Lienau, Sucker & Partner GmbH
*23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)
**24.1 Power of Attorney for David Southwell
**27.1 Financial Data Schedule as of December 31, 1999
**27.2 Financial Data Schedule as of March 31, 2000
</TABLE>
---------
II-3
<PAGE>
* To be filed by amendment
** Previously filed
+ Confidential treatment requested as to certain portions, which portions
have been omitted and filed separately with the Commission.
All other schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing of this offering specified in the underwriting
agreement certificates in such denomination and registered in such names as
required by the underwriters to permit proper delivery to each purchaser.
The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Billerica, Massachusetts, on
June 22, 2000.
<TABLE>
<S> <C> <C>
BRUKER DALTONICS INC.
By: /s/ FRANK H. LAUKIEN, PH.D.
-----------------------------------------
Frank H. Laukien, Ph.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
President and Chief Executive
/s/ FRANK H. LAUKIEN, PH.D. Officer and Chairman of the
------------------------------------------- Board (Principal Executive June 22, 2000
Frank H. Laukien, Ph.D. Officer)
/s/ JOHN J. HULBURT Corporate Controller
------------------------------------------- (Principal Financial and June 22, 2000
John J. Hulburt Accounting Officer)
*
------------------------------------------- Director June 22, 2000
Dieter Koch, Ph.D.
*
------------------------------------------- Director June 22, 2000
Bernhard Wangler
*
------------------------------------------- Director June 22, 2000
William A. Linton
*
------------------------------------------- Director June 22, 2000
Collin D'Silva
*
------------------------------------------- Director June 22, 2000
Richard M. Stein
*
------------------------------------------- Director June 22, 2000
David Southwell
* /s/ FRANK H. LAUKIEN, PH.D.
-------------------------------------------
Frank H. Laukien, Ph.D., as
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------------------------------------------
<C> <S>
**1.1 Form of Underwriting Agreement
**2.1 Asset Purchase Agreement dated July 1, 1996 between the
Registrant and Spectrospin AG
**2.2 Share Purchase Agreement dated December 9, 1998 among the
Registrant, Bruker Physik AG and the estate of Dr.
Guenther R. Laukien
**2.3 Asset Purchase Agreement dated May 28, 1999 between the
Registrant and Viking Instruments Corp.
**2.4 ProteiGene Share Purchase Agreement dated December 6, 1999
between the Registrant and Frank H. Laukien
**2.5 ProteiGene Share Purchase Agreement dated March 1, 2000
between the Registrant and Sidney R. Kaufman
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant
**3.2 Amended and Restated Bylaws of the Registrant
*4.1 Specimen stock certificate representing shares of common
stock of the Registrant
*5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
**10.1 2000 Stock Option Plan
**10.2 Sharing Agreement dated as of February 28, 2000 among the
Registrant and 13 affiliates of the Registrant
+10.3 Collaboration and OEM Agreement dated March 6, 2000 between
PerkinElmer Instruments LLC and its Affiliates and the
Registrant and its Affiliates
**+10.4 Cooperation Agreement dated November 15, 1999 between Bruker
Daltonik GmbH and MWG-Biotech AG
**+10.5 License Agreement dated August 10, 1998 between the
Registrant and Indiana University's Advanced Research &
Technology Institute
**10.6 Lease dated June 27, 1996 between the Registrant and Bruker
Instruments, Inc., as amended
+10.7 ITMS Collaboration Agreement by and between Hewlett-Packard,
the Registrant and Bruker Daltonik GmbH, dated April 28,
1999
**+10.8 Collaboration Agreement dated December 4, 1997 between
Bruker-Franzen Analytik GmbH and Sequenom Instruments GmbH
**+10.9 Agreement by and between the Bruker Daltonik GmbH, Bruker
Saxonia Analytik GmbH and Bruker Optik GmbH dated March 30,
2000
**16.1 Letter re: change in certifying accountants
**21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO von Riegen, Lienau, Sucker & Partner GmbH
*23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)
**24.1 Power of Attorney for David Southwell
**27.1 Financial Data Schedule as of December 31, 1999
**27.2 Financial Data Schedule as of March 31, 2000
</TABLE>
------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions, which portions
have been omitted and filed separately with the Commission.
** Previously filed
