<PAGE> 1
As filed with the Securities and Exchange Commission on September 15, 2000
File No. _____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------
THERMO BIOMEDICAL INC.
(Exact Name of Registrant as Specified in its Charter)
---------------
DELAWARE 04-3505871
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
81 Wyman Street
Waltham, Massachusetts 02454-9046
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities to be registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on Which
Title of Each Class to be so Registered Each Class is to be Registered
--------------------------------------- ------------------------------
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Common Stock, par value $.01 per share............................ American Stock Exchange
Series A Junior Participating Preferred Stock Purchase Rights
(initially to be traded with shares of Common Stock)............ American Stock Exchange
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Securities to be registered pursuant to Section 12(g) of the Act: None
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THERMO BIOMEDICAL INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
The information set forth in the Information Statement of Thermo Biomedical
Inc. ("Thermo Biomedical") attached hereto (the "Information Statement") under
the captions "Summary," "Our Company," "The Distribution," "Risk Factors,"
"Listing and Trading of Our Common Stock," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management," "Principal
Stockholders," "Transactions with Related Parties," "Description of Capital
Stock," "Indemnification of Directors and Officers," "Experts," "Where You Can
Find More Information" and "Index to Consolidated Financial Statements" is
incorporated herein by reference as set forth below.
ITEM 1. BUSINESS
See the sections of the Information Statement captioned "Our Company," "The
Distribution," "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
ITEM 2. FINANCIAL INFORMATION
See the sections of the Information Statement captioned "Summary -- Summary
Consolidated Financial Data," "Risk Factors," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Index to Consolidated Financial
Statements."
ITEM 3. PROPERTIES
See the sections of the Information Statement captioned "Business --
Properties" and "Transactions with Related Parties."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section of the Information Statement captioned "Principal
Stockholders."
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
See the section of the Information Statement captioned "Management."
ITEM 6. EXECUTIVE COMPENSATION
See the sections of the Information Statement captioned "Summary -- Planned
Stock Option Grants," "The Distribution -- Planned Stock Option Grants,"
"Listing and Trading of Our Common Stock" and "Management."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the sections of the Information Statement captioned "Summary -- Our
Relationship with Thermo Electron after the Distribution," "The Distribution --
Our Relationship with Thermo Electron after the Distribution" and "Transactions
with Related Parties."
ITEM 8. LEGAL PROCEEDINGS
See the section of the Information Statement captioned "Business -- Legal
Proceedings."
<PAGE> 3
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
See the sections of the Information Statement captioned "Summary -- Trading
Market," "Summary -- Dividend Policy," "Risk Factors," "Listing and Trading of
Our Common Stock" and "Description of Capital Stock."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 11. DESCRIPTION OF THE REGISTRANT'S SECURITIES TO BE REGISTERED
See the section of the Information Statement captioned "Description of
Capital Stock."
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
See the sections of the Information Statement captioned "Description of
Capital Stock -- Delaware Law and Our Charter and By-laws Provisions;
Anti-Takeover Effects" and "Indemnification of Directors and Officers."
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the sections of the Information Statement captioned "Summary -- Summary
Consolidated Financial Data," "Capitalization," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Index to Consolidated Financial Statements."
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) See the section of the Information Statement captioned "Index to
Consolidated Financial Statements."
(b) The following documents are filed as exhibits hereto:
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Exhibit Number Description
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3.1 Certificate of Incorporation of the Registrant
3.2 Form of Restated Certificate of Incorporation of the Registrant
3.3 By-laws of the Registrant
3.4 Form of Amended and Restated By-laws of the Registrant
3.5* Form of Certificate of Designation for Thermo Biomedical Inc. Series A Junior
Participating Preferred Stock (included as Exhibit A to Exhibit 10.5)
4.1* Form of Common Stock Certificate of the Registrant
4.2* Form of Rights Certificate (included as Exhibit B to Exhibit 10.5)
4.3* Summary of Rights to Purchase Series A Junior Participating Preferred Stock
(included as Exhibit C to Exhibit 10.4)
10.1 Form of Plan and Agreement of Distribution
10.2* Form of Tax Matters Agreement
10.3* Form of Transition Services Agreement
10.4* Form of Employee Benefits Agreement
10.5* Form of Rights Agreement
10.6* Form of Indemnification Agreement with Directors and Officers of the Registrant
10.7* Form of 2000 Equity Incentive Plan of the Registrant
10.8* Form of 2000 Employee Stock Purchase Plan of the Registrant
10.9* Form of Deferred Compensation Plan for Directors of the Registrant
21.1* Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the Fiscal Year Ended January 1, 2000
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27.2 Financial Data Schedule for the Fiscal Year Ended January 2, 1999
27.3 Financial Data Schedule for the Fiscal Year Ended January 3, 1998
27.4 Financial Data Schedule for the Six Months Ended July 1, 2000
27.5 Financial Data Schedule for the Six Months Ended July 3, 1999
</TABLE>
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* To be filed by amendment.
This Registration Statement on Form 10 assumes that the Internal Revenue
Service has ruled that none of Thermo Electron Corporation, Thermo Biomedical or
Thermo Electron Corporation's stockholders will recognize income, gain or loss
for federal income tax purposes as a result of the distribution of shares of
common stock of Thermo Biomedical to the stockholders of Thermo Electron
Corporation. This Registration Statement on Form 10 also assumes that the
American Stock Exchange has approved the listing of shares of common stock and
associated preferred stock purchase rights of Thermo Biomedical.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
THERMO BIOMEDICAL INC.
Date: September 15, 2000 By: /s/ William B. Ross
-----------------------------------
William B. Ross
Interim Chief Executive Officer
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THERMO ELECTRON CORPORATION
81 WYMAN STREET
WALTHAM, MASSACHUSETTS 02454-9046
________ __, 2000
Dear Fellow Thermo Electron Stockholder:
In January 2000, we announced our intention to create a new, consolidated
company to provide medical equipment and systems to the healthcare industry.
Toward achieving this goal, we have combined in Thermo Biomedical Inc., a wholly
owned subsidiary that we established in 1995, the assets and liabilities of
several other businesses that comprise our respiratory care, neuro care and
specialty medical products businesses.
On ________ __, 2000, we approved a pro rata distribution to Thermo
Electron stockholders of approximately ___% of the shares of Thermo Biomedical
common stock held by Thermo Electron. If you were a Thermo Electron stockholder
on ________ __, 2000, the record date for the distribution, you will become a
stockholder of Thermo Biomedical. Immediately following the distribution, Thermo
Biomedical will be owned by the same stockholders, in the same proportions as
Thermo Electron, except that Thermo Electron will retain approximately ___% of
the outstanding shares of Thermo Biomedical common stock.
We believe that the distribution is in the best interests of Thermo
Electron, Thermo Biomedical and the Thermo Electron stockholders. As a result of
the distribution, we expect that each company will have improved access to
capital, a more focused business and management incentives more directly linked
to the objective performance of that company's stock in the public markets.
If you were a holder of Thermo Electron common stock on the record date for
the distribution, you will receive _____ shares of Thermo Biomedical common
stock for each share of Thermo Electron common stock you owned on that date. We
expect to mail certificates representing Thermo Biomedical common stock to you
on or about ________ __, 2000. The common stock of Thermo Biomedical has been
approved for listing on the American Stock Exchange under the symbol "___."
The enclosed information statement explains the distribution in detail and
provides important information regarding Thermo Biomedical's organization,
business, properties and historical financial information. We encourage you to
read this material carefully.
Please note that stockholder approval is not required for the distribution,
and holders of Thermo Electron common stock are not required to take any action
to participate in the distribution. Accordingly, we are not asking you for a
proxy.
Very truly yours,
RICHARD F. SYRON
Chairman of the Board and Chief Executive Officer
Thermo Electron Corporation
<PAGE> 6
THERMO BIOMEDICAL INC.
81 WYMAN STREET
WALTHAM, MASSACHUSETTS 02454-9046
________ __, 2000
Dear Thermo Biomedical Stockholder:
We welcome you as a "founding" stockholder of Thermo Biomedical.
Thermo Biomedical already has a substantial presence in the medical
products industry. We are a leading supplier of respiratory, neurodiagnostic,
patient monitoring and pulmonary care products. As an independent, focused
entity, our mission is to expand our market position by providing greater value
to a range of customers in today's competitive healthcare arena.
This is a very exciting time, and we are enthusiastic about what the future
holds. We believe that Thermo Biomedical has a strong opportunity to grow. As a
new Thermo Biomedical stockholder, you have an opportunity to grow with us. We
are committed to building value for you, and we look forward to continuing the
Thermo Electron tradition of product innovation and excellence.
Very truly yours,
Chairman of the Board
Thermo Biomedical Inc.
<PAGE> 7
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000
INFORMATION STATEMENT
THERMO BIOMEDICAL INC.
DISTRIBUTION OF ________ SHARES OF COMMON STOCK
AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS
Thermo Electron Corporation is furnishing this information statement to its
stockholders in connection with the distribution by Thermo Electron to its
stockholders of approximately ___% of the outstanding shares of the common stock
of Thermo Biomedical Inc., together with associated preferred stock purchase
rights. As of the date of this information statement, Thermo Electron owns all
of our outstanding common stock and associated preferred stock purchase rights.
We expect Thermo Electron to effect the distribution beginning on or about
________ __, 2000 to holders of record of Thermo Electron common stock on
________ __, 2000. Thermo Electron will distribute _____ shares of our common
stock for each share of Thermo Electron common stock held on the record date.
Each share of our common stock will have attached to it one of our preferred
stock purchase rights, the principal terms of which are described under
"Description of Capital Stock -- Stockholder Rights Plan." Where appropriate,
references in this information statement to our common stock include the
associated preferred stock purchase rights, which initially will be attached to
our common stock.
Thermo Electron stockholders will not be required to pay for the shares of
our common stock or associated preferred stock purchase rights received in the
distribution, nor will they be required to surrender or exchange any of their
shares of Thermo Electron common stock. Thermo Electron has received a ruling
from the Internal Revenue Service to the effect that Thermo Electron
stockholders will not recognize income, gain or loss for federal income tax
purposes upon the receipt of shares of our common stock and associated preferred
stock purchase rights in the distribution. See "The Distribution -- Federal
Income Tax Consequences of the Distribution." Neither we nor Thermo Electron
will receive any cash or other proceeds from the distribution.
No public trading market for our common stock currently exists, although a
"when-issued" trading market may develop on or shortly before the record date
for the distribution. Our common stock has been approved for listing on the
American Stock Exchange under the symbol "___." See "Listing and Trading of Our
Common Stock."
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IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 14.
---------------
THE DISTRIBUTION DOES NOT REQUIRE THE VOTE OF THERMO ELECTRON STOCKHOLDERS.
THERMO ELECTRON IS NOT ASKING YOU FOR A PROXY.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT IS ________ __, 2000.
<PAGE> 8
You should only rely on the information contained in this information
statement. Neither we nor Thermo Electron has authorized anyone to provide you
with information different from that contained in this information statement.
Neither we nor Thermo Electron is offering to sell or soliciting any offers to
buy any securities. This information statement presents information concerning
our company that we believe to be accurate as of the date of this information
statement. This information statement also presents information concerning
Thermo Electron that Thermo Electron believes to be accurate as of the date set
forth on the cover. Neither we nor Thermo Electron plans to update the
information set forth in this information statement except in the course of
fulfilling our respective normal public reporting and disclosure obligations.
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TABLE OF CONTENTS
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PAGE
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Summary...................................................................................................... 3
Our Company.................................................................................................. 7
The Distribution............................................................................................. 8
Risk Factors................................................................................................. 14
Special Note About Forward-Looking Statements................................................................ 22
Listing and Trading of Our Common Stock...................................................................... 23
Capitalization............................................................................................... 24
Selected Consolidated Financial Data......................................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 26
Business..................................................................................................... 31
Management................................................................................................... 49
Principal Stockholders....................................................................................... 57
Transactions with Related Parties............................................................................ 59
Description of Capital Stock................................................................................. 62
Indemnification of Directors and Officers.................................................................... 66
Experts...................................................................................................... 67
Where You Can Find More Information.......................................................................... 67
Index to Consolidated Financial Statements................................................................... F-1
Annex A - Sample Form of Information Statement to be Provided to Internal Revenue Service by Stockholders.... A-1
</TABLE>
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This information statement contains registered trademarks and trade names
of Thermo Electron and Thermo Biomedical. This information statement also
contains registered trademarks and trade names of other companies.
<PAGE> 9
SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the distribution of our
common stock to Thermo Electron stockholders, including information that may be
important to you. To better understand the distribution and the business and
financial position of our company, you should review this entire document
carefully.
All share and per share data in this information statement give effect to
all stock splits of our common stock effected prior to the date of this
information statement. This information statement assumes that the Internal
Revenue Service, or IRS, has ruled that none of Thermo Electron, our company or
the Thermo Electron stockholders will recognize income, gain or loss for federal
income tax purposes solely as a result of the distribution. This information
statement also assumes that the American Stock Exchange has approved the listing
of our common stock and associated preferred stock purchase rights.
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Distributing company...................... Thermo Electron Corporation, a Delaware corporation. As used in
this information statement, the term "Thermo Electron" includes
Thermo Electron Corporation and its subsidiaries, other than our
company and our subsidiaries, as of the relevant date, unless the
context otherwise requires.
Distributed company....................... Thermo Biomedical Inc., a Delaware corporation. As used in this
information statement, the terms "Thermo Biomedical," "we," "our,"
"us" and similar terms include Thermo Biomedical Inc. and our
subsidiaries, as of the relevant date, unless the context otherwise
requires.
Distributed shares........................ Approximately ________ shares of our common stock, which constituted
approximately ___% of our common stock outstanding on the record
date for the distribution. This number of shares will be reduced to
the extent that cash payments are made in lieu of the issuance of
fractional shares of our common stock.
Record date............................... ________ __, 2000.
Distribution date......................... On or about ________ __, 2000.
Distribution.............................. On the distribution date, the distribution agent identified below
will begin distributing certificates representing our common stock
to Thermo Electron stockholders. Each certificate representing
shares of our common stock will also represent an equal number of
our preferred stock purchase rights, which initially will be
attached to the common stock. Thermo Electron stockholders will not
be required to make any payment or take any other action to receive
their shares of our common stock and associated preferred stock
purchase rights. The distributed shares of our common stock will be
freely transferable by persons who are not affiliates of our
company. On the distribution date, Thermo Electron also plans to
distribute shares of common stock of Thermo Fibertek Inc., a
majority-owned subsidiary of Thermo Electron, to Thermo Electron
stockholders as of the record date.
Distribution ratio........................ _____ shares of our common stock for each share of Thermo Electron
common stock.
Distribution agent........................ ___________________.
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Fractional shares of our common stock..... Thermo Electron will not distribute any fractional shares of our
common stock. In lieu of distributing a fraction of a share of our
common stock to any Thermo Electron stockholder, the distribution
agent will send to the stockholder a check in an amount equal to
such fraction multiplied by the closing price of our common stock on
the American Stock Exchange on the date two trading days prior to
the distribution date. No interest will accrue on the amount of any
payment made in lieu of a fractional share. Thermo Electron will
retain all fractional shares of our common stock.
Trading market............................ Our common stock has been approved for listing on the American Stock
Exchange under the symbol "___." No public trading market for our
common stock currently exists. However, a "when-issued" trading
market in our common stock may develop on or shortly before the
record date for the distribution.
Dividend policy........................... We currently do not intend to pay cash dividends on our common stock.
Risk factors.............................. The distribution and ownership of our common stock involve various
risks. You should read carefully the factors discussed under "Risk
Factors."
Reasons for the distribution.............. The Thermo Electron board of directors believes that the
distribution is in the best interests of Thermo Electron, our
company and the Thermo Electron stockholders. The Thermo Electron
board expects that, as a result of the distribution, each company
will have improved access to capital, a more focused team of
management and employees, and management incentives linked more
directly to the objective performance of that company's stock in the
public markets.
Federal income tax consequences........... Thermo Electron has received a favorable private letter ruling from
the IRS to the effect that the distribution will qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code of
1986. As a result, Thermo Electron, our company and the Thermo
Electron stockholders will not recognize gain or loss upon the
distribution of our common stock, except that the Thermo Electron
stockholders will recognize gain or loss as result of receiving cash
in lieu of fractional shares of our common stock.
Our relationship with
Thermo Electron after the distribution.. After the distribution, Thermo Electron and our company will be
separate, independent, publicly owned companies. We have entered
into several agreements with Thermo Electron to define our
companies' ongoing relationship after the distribution. These
agreements allocate responsibility for obligations both before and
after the distribution date.
Stock plans and planned option grants..... We have adopted an equity incentive plan under which we have
reserved ______ shares of common stock for issuance to our
employees, officers, directors, consultants and advisors. At or
about the time of the distribution, we expect to grant options under
this plan to purchase an aggregate of ______ shares of our common
stock. We also have adopted an employee stock purchase plan, under
which we have reserved _______ shares of common stock for issuance
to our employees, and a directors' deferred compensation plan, under
which
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we have reserved _______ shares of common stock for issuance to our
directors.
Stockholder inquiries..................... Thermo Electron stockholders with inquiries relating to the
distribution should contact the distribution agent by telephone at
___________ or Thermo Electron in writing at Thermo Electron
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046, Attention: Corporate Secretary.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table is a summary of the consolidated financial data of our
business. You should read this information in conjunction with the consolidated
financial statements and related notes included elsewhere in this information
statement and the discussion contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We acquired Medical Data Electronics in July 1996, Nicolet Vascular in
August 1997, Bear Medical Systems in October 1997, Grason-Stadler in November
1998 and Erich Jaeger in July 1999. The consolidated financial data below
reflect the financial data of each acquired company beginning as of the date of
acquisition.
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SIX MONTHS ENDED FISCAL YEAR ENDED
-------------------- --------------------------------------------------------
JULY 1, JULY 3, JAN. 1, JAN. 2, JAN. 3, DEC. 28, DEC. 30,
2000 1999 2000 1999 1998 1996 1995
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(UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues ..................................... $176,336 $162,140 $358,553 $306,363 $267,464 $222,675 $170,318
Net income ................................... 13,050 14,128 28,850 24,334 21,203 85 3,825
Basic and diluted earnings per share ......... $ 4,350 $ 4,709 $ 9,617 $ 8,111 $ 7,068 $ 28 $ 1,275
Basic and diluted weighted average shares .... 3 3 3 3 3 3 3
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital .............................. $ 55,918 $ 70,469 $ 49,964 $ 67,216 $ 64,616 $ 50,075 $ 43,483
Total assets ................................. 386,958 325,967 380,109 320,344 312,268 249,805 229,871
Long-term obligations ........................ -- -- -- -- 8,651 21,290 8,407
Minority interest ............................ -- 8,972 9,222 8,646 7,887 6,995 11,114
Shareholder's investment ..................... 278,834 248,949 255,431 249,271 226,892 168,322 156,350
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6
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OUR COMPANY
We were incorporated in Delaware in August 1995 as a wholly owned
subsidiary of Thermo Electron. Until recently, we functioned primarily as a
holding company for a number of businesses that had been acquired by Thermo
Electron, including Bird Medical Technologies, Bear Medical Systems and Nicolet
Biomedical. In connection with the Thermo Electron reorganization described
under "The Distribution--Background and Reasons for the Distribution--Thermo
Electron Reorganization," in the third quarter of 2000 Thermo Electron
reallocated a number of subsidiaries and operating divisions among Thermo
Electron and some of its subsidiaries, including our company. These transactions
included Thermo Electron's transfer to us of its Corpak, Erich Jaeger and
Tecomet subsidiaries and substantially all of the assets and related liabilities
of its Thermedics Polymer Products division. The effect of these transactions
was to transfer to us all of the assets and subsidiaries of Thermo Electron,
other than those previously owned by us, that comprise our respiratory care,
neuro care and specialty medical products businesses. See "Business -- Our
History" for a discussion of our principal subsidiaries.
Our principal executive offices are located at 81 Wyman Street, Waltham,
Massachusetts 02454-9046, and our telephone number is (781) 622-1000.
7
<PAGE> 14
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Thermo Electron Reorganization
On January 31, 2000, Thermo Electron announced that its board of directors
had authorized its management to proceed with a major reorganization of its
operations. The reorganization reflects a significant change in strategic
direction for Thermo Electron, in terms of both its business focus and its
operating structure.
- Until Thermo Electron adopted the reorganization plan, it had been
engaged in operating and managing a diversified group of businesses,
including its core measurement and detection instruments business. If
Thermo Electron completes the planned reorganization, it will focus
primarily on segments of its core instruments business.
- Thermo Electron historically pursued a strategy of publicly offering
minority interests in some of its subsidiaries. These subsidiaries, in
turn, pursued the same strategy. Thermo Electron's management
reevaluated the benefits and detriments of this corporate structure
and concluded that Thermo Electron would benefit if it reorganized its
instruments businesses under a single parent company without minority
interests. To implement this strategic change, Thermo Electron has
acquired the minority interests in most of its subsidiaries, and these
subsidiaries in turn have acquired the minority interests in most of
their subsidiaries.
As part of this reorganization, on May 1, 2000, Thermo Electron commenced
an exchange offer of shares of its common stock for all of the outstanding
shares of common stock of Thermedics Inc., a majority-owned subsidiary of Thermo
Electron that included a portion of our historical business. On June 29, 2000,
Thermo Electron closed the exchange offer, and on June 30, 2000, Thermedics was
merged with and into Thermo Electron.
Following this merger, in the third quarter of 2000, Thermo Electron
reallocated a number of subsidiaries and operating divisions among Thermo
Electron and some of its subsidiaries, including our company. These transactions
included Thermo Electron's transfer to us of its Corpak, Erich Jaeger and
Tecomet subsidiaries and substantially all of the assets and related liabilities
of its Thermedics Polymer Products division. The effect of these transactions
was to transfer to us all of the assets and subsidiaries of Thermo Electron,
other than those previously owned by us, that comprise our respiratory care,
neuro care and specialty medical products businesses.
Purpose of the Distribution
On ________ __, 2000, as part of its corporate reorganization, Thermo
Electron announced the distribution of approximately ________ shares of our
common stock, representing approximately ___% of our outstanding shares of
common stock, to stockholders of record of Thermo Electron on ________ __, 2000.
On the date of the distribution, each Thermo Electron stockholder of record on
the record date will receive ___ shares of our common stock, along with our
associated preferred stock purchase rights, for each share of Thermo Electron
common stock held by such stockholder on the record date. On the distribution
date, Thermo Electron also plans to distribute shares of common stock of Thermo
Fibertek Inc., a majority-owned subsidiary of Thermo Electron, to Thermo
Electron stockholders as of the record date.
Thermo Electron is effecting the distribution of our common stock for the
following purposes:
- Thermo Electron Reorganization. Management of Thermo Electron has
determined that Thermo Electron should redefine itself as a focused
instrument company without the distraction of managing unrelated
business units, such as our company. The distribution will assist
Thermo Electron in focusing on its core instruments business by
spinning-off our biomedical business.
- Need for Additional Capital. In order to expand our business, we
expect to require approximately $50 to $100 million in additional
financing within the next 12 months. Thermo Electron estimates that
our capital needs, combined with those of Thermo Electron and Thermo
Fibertek Inc., a majority-owned subsidiary of Thermo Electron to be
spun off as part of Thermo Electron's reorganization, exceed Thermo
Electron's projected capital resources. Thermo Electron has determined
that the most efficient way to meet these
8
<PAGE> 15
projected capital needs is for us and Thermo Fibertek to raise our own
additional capital, while Thermo Electron dedicates available cash and
anticipated proceeds from the divestiture of its non-core business
units to its instruments business.
- Facilitating Our Future Financings. Thermo Electron has concluded that
a public offering by us as an independent company would raise funds on
better economic terms than could be raised through either an
additional public offering of Thermo Electron common stock or a public
offering of our common stock by us while we continue to be controlled
by Thermo Electron. Thermo Electron also believes that its present
organizational structure limits the ability of Thermo Electron and its
subsidiaries, including our company, to fund future growth
opportunities. We will only make a public offering of our common stock
by means of a prospectus complying with the requirements of the
Securities Act, and this information statement does not constitute an
offer to sell, or a solicitation of an offer to buy, any shares of our
common stock.
- Facilitating Our Growth Strategy. We plan to aggressively seek to
expand our business over the next several years through the
introduction of new products, investments in therapeutic and
information opportunities in the respiratory and neurological markets,
and the acquisition of complementary technologies and businesses. In
order to pursue acquisitions or invest significant capital in research
and development, we, as a wholly owned subsidiary of Thermo Electron,
have had to obtain the approval of Thermo Electron's management and
compete with other Thermo Electron businesses for limited capital
resources. As an independent company, with access to our own capital
and without the involvement of Thermo Electron, we will be free to
pursue our growth and acquisition strategies.
- Attraction and Retention of Employees. Following the distribution, we
and Thermo Electron each will have a continued need to recruit
qualified managers. Due to the differences of the industries in which
we and Thermo Electron compete, we and Thermo Electron believe that we
each will be better able to attract qualified candidates because our
respective businesses will be more focused and not part of a large
diversified company. We and Thermo Electron each will be able to focus
on our respective businesses, and we each will be able to reward our
employees through incentive compensation and option plans that are
tied more directly to the performance of our own business.
MANNER OF EFFECTING THE DISTRIBUTION
In connection with the distribution, we have entered into a distribution
agreement and a tax matters agreement with Thermo Electron that set forth the
general terms and conditions of the distribution. We also have entered into a
transition services agreement and an employee benefits agreement with Thermo
Electron that will govern our relationship with Thermo Electron following the
distribution. The distribution agreement provides that Thermo Electron will
effect the distribution by delivering shares of our common stock held by Thermo
Electron to the distribution agent, __________, for distribution to the Thermo
Electron stockholders. The distribution agent will distribute ___ shares of our
common stock, along with associated preferred stock purchase rights, for each
share of Thermo Electron common stock held on ________ __, 2000, the record date
for determining stockholders of Thermo Electron entitled to participate in the
distribution. The distribution agent will mail or deliver certificates
representing shares of our common stock on or about ________ __, 2000.
Thermo Electron stockholders will not receive any fractional shares of our
common stock. In lieu of distributing a fraction of a share to any Thermo
Electron stockholder, the distribution agent will send the stockholder a check
in an amount equal to such fraction multiplied by the closing price of our
common stock on the American Stock Exchange on the on the date two trading days
prior to the distribution date. No interest will accrue on the amount of any
payment made in lieu of the issuance of a fractional share. Thermo Electron will
retain all fractional shares of our common stock.
Holders of Thermo Electron common stock are not required to pay cash or any
other consideration for the shares of our common stock and associated preferred
stock purchase rights received in the distribution. They will not need to
surrender or exchange certificates representing shares of Thermo Electron common
stock in order to receive shares of our common stock and associated preferred
stock purchase rights. Holders of Thermo Electron common stock will continue to
own their shares of Thermo Electron common stock and, if such stockholders were
stockholders of record on the record date for the distribution, they will also
receive shares of our common stock and
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associated preferred stock purchase rights. The distribution will not otherwise
change the number of, or the rights associated with, outstanding shares of
Thermo Electron common stock.
All shares of our common stock distributed to Thermo Electron stockholders
in the distribution will be fully paid and nonassessable, and the holders
thereof will not be entitled to preemptive rights. See "Description of Our
Capital Stock."
ACCOUNTING TREATMENT OF THE DISTRIBUTION
The distribution will be treated for accounting purposes as a payment of a
dividend of shares of our common stock to stockholders of Thermo Electron in the
period in which the distribution is consummated.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Thermo Electron has received a favorable private letter ruling from the IRS
substantially to the effect that, among other things, the distribution will
qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code.
As a result:
- Thermo Electron stockholders will not recognize gain or loss upon the
receipt of our common stock and associated preferred stock purchase
rights in the distribution.
- Neither we nor Thermo Electron will recognize gain or loss upon the
distribution.
- The aggregate tax basis of the Thermo Electron common stock and our
common stock in the hands of each Thermo Electron stockholder after
the distribution will equal the aggregate tax basis of the Thermo
Electron common stock held immediately before the distribution.
Applicable treasury regulations require that the tax basis of the
Thermo Electron common stock and our common stock in the hands of each
Thermo Electron stockholder be allocated in proportion to fair market
value at the time of the distribution.
- Assuming that a holder's Thermo Electron common stock is held as a
capital asset, the holding period for the shares of our common stock
received in the distribution by the holder will include the holding
period of the Thermo Electron common stock upon which the distribution
will be made.
Although the distribution will be tax-free as of the distribution date, the
occurrence of various actions or events within two years following the
distribution could render the distribution taxable to us, Thermo Electron and
stockholders of Thermo Electron who receive shares of our common stock in the
distribution. The events that could cause the distribution to become taxable
retroactively include:
- our transfer of a material portion of our assets outside of the
ordinary course of business;
- Thermo Electron's transfer of a material portion of its assets outside
of the ordinary course of business;
- the liquidation of our company or Thermo Electron, or the merger of
our company or Thermo Electron with or into another corporation;
- our discontinuance of a material portion of our historical business
activities;
- Thermo Electron's discontinuance of a material portion of its
historical business activities;
- the conversion, redemption or exchange of shares of our common stock
received in the distribution into or for any other stock, security,
property or cash;
- transfers of our common stock or Thermo Electron common stock in
amounts sufficient to cause the historic shareholders of Thermo
Electron not to be considered to have maintained sufficient continuity
of proprietary interest in our company, Thermo Electron or both; and
- the acquisition of stock in Thermo Electron or our company pursuant to
a plan in existence on the date of the distribution of our common
stock that causes the aggregate amount of stock of the relevant
company
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acquired pursuant to the plan to equal or exceed 50% of the
outstanding stock, by vote or value, of such company.
If the distribution of our shares becomes taxable as a result of one of any
of the foregoing actions, then:
- The group of corporations with which we and Thermo Electron currently
file consolidated federal income tax returns would recognize a
corporate-level taxable gain. This gain generally would equal the
amount by which the fair market value of the shares of our common
stock distributed in the distribution exceeded Thermo Electron's basis
in those shares.
- We and Thermo Electron each would be severally liable for the
corporate-level tax on such gain.
- Each holder of Thermo Electron common stock who received shares of our
common stock in the distribution would be treated as having received a
taxable dividend in an amount equal to the fair market value of the
shares of our common stock received, to the extent of Thermo
Electron's current or accumulated earnings and profits.
Under the tax matters agreement, we have agreed to indemnify Thermo
Electron, but not the stockholders of Thermo Electron, against liability for
taxes resulting from (a) the conduct of our business following the distribution
or (b) the failure of the distribution to Thermo Electron stockholders of shares
of our common stock or of the Thermo Fibertek common stock to continue to
qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code as
a result of actions that we take following the distribution. Thermo Electron has
agreed to indemnify us against taxes resulting from the conduct of Thermo
Electron's business prior to and following the distribution or from the failure
of the distribution of shares of our common stock to the Thermo Electron
stockholders to continue to qualify as a tax-free spin-off under Section 355 of
the Internal Revenue Code other than as a result of actions that we may take
following the distribution. If any of our post-distribution activities causes
the distribution to become taxable, we could incur significant liability to
Thermo Electron, which could adversely affect our results of operations,
financial position and cash flows.
THERMO ELECTRON STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR CONSEQUENCES TO THEM OF THE DISTRIBUTION, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS. IN ADDITION, THERMO ELECTRON
STOCKHOLDERS SHOULD FILE WITH THE IRS THE FORM OF INFORMATION STATEMENT ANNEXED
HERETO AS ANNEX A WITH THE TAX RETURN COVERING THE PERIOD IN WHICH THE
DISTRIBUTION OCCURS.
STOCK PLANS AND PLANNED STOCK OPTION GRANTS
We have adopted a 2000 equity incentive plan and reserved ________ shares
of our common stock for issuance to our employees, officers, directors,
consultants and advisors under this plan. At or about the time of the
distribution, we anticipate granting options covering an aggregate of _______
shares of our common stock under our equity incentive plan. See "Management --
Planned Stock Option Grants." We have also adopted a 2000 employee stock
purchase plan, under which we have reserved an aggregate of _______ shares, and
a directors' deferred compensation plan, under which we have reserved an
aggregate of _______ shares.
TREATMENT OF THERMO ELECTRON RESTRICTED STOCK
Thermo Electron has granted some of our key employees, including William
Ross and Gerald Brew, awards of restricted shares of Thermo Electron common
stock that are subject to forfeiture, in whole or in part, if employment
terminates prior to three years from the date of grant. We expect that our
employees will forfeit their restricted shares of Thermo Electron common stock
as a result of our spin-off from Thermo Electron. At or about the time of the
distribution, we plan to issue our employees who forfeit restricted shares of
Thermo Electron common stock replacement restricted shares of our common stock
with the same vesting provisions. We plan to provide these employees with
replacement restricted shares of our common stock with a value that is
comparable to the value of the forfeited restricted shares of Thermo Electron
common stock.
OUR RELATIONSHIP WITH THERMO ELECTRON AFTER THE DISTRIBUTION
In connection with the distribution, we and Thermo Electron have entered
into a distribution agreement, a transition services agreement and an employee
benefits agreement, each of which is summarized below. In addition,
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we have entered into a tax matters agreement, which is summarized above under
"The Distribution -- Federal Income Tax Consequences of the Distribution."
Distribution Agreement
The distribution agreement provides for, among other things:
- the principal corporate transactions required to effect the
distribution, including the preparation of a registration statement
registering our common stock and associated preferred stock purchase
rights under the Securities Exchange Act;
- the conditions to effecting the distribution, including the transfer
to Thermo Electron on the distribution date of all of our cash and
cash equivalents, other than the cash and cash equivalents of our
foreign subsidiaries; and
- agreements governing the relationship between us and Thermo Electron
with respect to or resulting from the distribution.
The distribution agreement provides for cross-indemnification designed
principally to place financial responsibility for the liabilities of our
business with us and financial responsibility for the liabilities of Thermo
Electron's business with Thermo Electron. The distribution agreement also
provides for cross-indemnities in respect of liabilities under the Securities
Exchange Act relating to the registration of our common stock.
Transition Services Agreement
The transition services agreement provides that Thermo Electron's corporate
staff will provide us with routine administrative services, including legal
advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services, for a 12-month period following the distribution. Thermo
Electron will provide us with these routine services at a level and in a manner
consistent with the services that Thermo Electron provided to us prior to the
distribution. In return for these routine administrative services, we will pay
Thermo Electron a fee equal to 0.8% of our gross revenues for the 12-month
period following the distribution, plus out-of-pocket and third party expenses.
In addition to routine administrative services, the transition services
agreement provides that Thermo Electron, in its discretion, may also provide us
with additional services specifically requested by us, such as litigation
support, acquisition and offering support and tax audit support services. For
these additional services, we will pay Thermo Electron fees comparable to the
fees Thermo Electron charged us and its other subsidiaries for similar services
prior to the distribution, plus out-of-pocket and third party expenses. Thermo
Electron's good faith determination of whether a service is a routine
administrative service covered by the 0.8% fee or an additional service to be
provided at additional cost is binding on both parties.
Employee Benefits Agreement
The employee benefits agreement provides for, among other things:
- the principal transactions required to establish our employee benefit
plans and to transition our employees from Thermo Electron's employee
benefit plans to our employee benefit plans;
- agreements governing the relationship between us and Thermo Electron
with respect to our employee benefit plans, including with respect to
Thermo Electron's assistance with administering our employee benefit
plans; and
- agreements relating to the treatment of options to purchase shares of
Thermo Electron common stock held by our employees.
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The employee benefits agreement provides for cross indemnification designed
principally to place financial responsibility for our employee benefit plans
with us and financial responsibility for Thermo Electron's employee benefit
plans with Thermo Electron.
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RISK FACTORS
Holders of Thermo Electron common stock should be aware that the
distribution and ownership of our common stock involve a number of risks and
uncertainties, including those described below. These risks and uncertainties
could materially and adversely affect our business, financial condition and
results of operations and the value of our common stock. Neither we nor Thermo
Electron makes any representation as to the future market value of our common
stock.
RISKS RELATED TO THE DISTRIBUTION
A NUMBER OF ACTIONS FOLLOWING THE DISTRIBUTION OF OUR COMMON STOCK COULD CAUSE
THE DISTRIBUTION TO BE TAXABLE TO US, THERMO ELECTRON AND STOCKHOLDERS OF THERMO
ELECTRON WHO RECEIVE SHARES OF OUR COMMON STOCK IN THE DISTRIBUTION.
Although the IRS has issued a ruling that no gain or loss will be
recognized by us, Thermo Electron or its stockholders upon the distribution of
our common stock as of the date of the distribution, the distribution could
become taxable if we, Thermo Electron or the stockholders of Thermo Electron who
receive shares of our common stock in the distribution take any of a number of
actions following the distribution. Actions that could render the distribution
taxable are discussed above under the caption "The Distribution -- Background
and Reasons for the Distribution -- Federal Income Tax Consequences of the
Distribution." Our tax matters agreement with Thermo Electron restricts our
ability to engage in these types of actions. These restrictions could prevent us
from engaging in transactions following the distribution that might otherwise
benefit our business.
YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS BECAUSE OUR HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS A
SEPARATE COMPANY.
The historical consolidated financial information included in this
information statement is not necessarily indicative of what our results of
operations, financial position and cash flows will be in the future. We have not
made adjustments to this information to reflect many significant changes that
will occur in our cost structure, funding and operations as a result of our
separation from Thermo Electron, including changes in our employee base, changes
in our tax structure, increased costs associated with reduced economies of
scale, increased marketing expenses related to establishing a new brand identity
and increased costs associated with being a public, stand-alone company. We
cannot assure you what our cost structure will be in the future as we operate as
a separate company or what the actual effects of our spin-off from Thermo
Electron will be.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE DISTRIBUTION, WHICH
COULD AFFECT THE VALUE OF OUR COMMON STOCK.
Our common stock will not be publicly traded prior to the distribution
date, although a "when-issued" trading market in our common stock may develop on
or shortly before the record date for the distribution. After the distribution
of shares of our common stock to stockholders of Thermo Electron, the public
markets will establish trading prices for our common stock. An active trading
market may not develop or be sustained in the future.
We cannot predict the prices at which our common stock may trade after the
distribution. The market price of our common stock may fluctuate significantly
due to a number of factors, some of which may be beyond our control, including:
- actual or anticipated fluctuations in our operating results;
- changes in earnings estimated by securities analysts or our ability to
meet those estimates;
- the operating and stock price performance of other comparable
companies; and
- developments in and publicity regarding the medical device industries
in which we compete.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on the market price of our
common stock. In addition, the stock market in general has experienced extreme
volatility that has often been unrelated to the operating performance of
particular companies. These broad
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market fluctuations may adversely affect the trading price of our common stock
regardless of our actual performance.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET FOLLOWING
THE DISTRIBUTION COULD DEPRESS OUR STOCK PRICE.
All of the shares of our common stock distributed by Thermo Electron, other
than shares distributed to our affiliates, will be eligible for immediate resale
in the public market. Thermo Electron stockholders may decide to sell shares of
our common stock received in the distribution for a number of reasons, including
that our business profile or market capitalization may not fit their investment
objectives. For example, a portion of Thermo Electron's common stock is held by
index funds tied to the Standard & Poor's 500 Index or other stock indices.
Since we will not be in these indices at the time of Thermo Electron's
distribution of our common stock, these index funds will be required to sell our
stock. Any sales of substantial amounts of common stock in the public market, or
the perception that such sales might occur, whether as a result of this
distribution or otherwise, could harm the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity
securities.
WE NEED TO ADOPT A NEW NAME IN CONNECTION WITH THE DISTRIBUTION. OUR NEW NAME
WILL NOT IMMEDIATELY BE RECOGNIZED AS A BRAND IN THE MARKETPLACE, AND, AS A
RESULT, OUR BUSINESS COULD SUFFER.
Prior to the distribution, we plan to change our corporate name. The
distribution agreement requires that we cease using the Thermo Biomedical name
within 180 days of the distribution. The loss of the "Thermo" brand name may
hinder our ability to establish new relationships. In addition, our customers,
suppliers and partners may react negatively to our separation from Thermo
Electron.
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH THERMO ELECTRON WITH
RESPECT TO OUR PAST AND ONGOING RELATIONSHIPS THAT COULD HARM OUR BUSINESS
OPERATIONS.
Conflicts of interest may arise between us and Thermo Electron in a number
of areas relating to our past and ongoing relationships, including:
- labor, tax, employee benefit, indemnification and other matters
arising from our separation from Thermo Electron;
- intellectual property matters;
- employee retention and recruiting;
- major business combinations involving us;
- the nature, quality and pricing of the transition services Thermo
Electron has agreed to provide us; and
- business opportunities that may be attractive to both Thermo Electron
and us.
We may not be able to resolve any potential conflicts, and even if we do,
the resolution may be less favorable than if we were dealing with an
unaffiliated party.
RISKS RELATED TO OUR BUSINESS
PRIOR TO THE DISTRIBUTION, WE HAVE NOT OPERATED AS A SEPARATE, STAND-ALONE
ENTITY, AND WE MAY HAVE DIFFICULTY INTEGRATING OUR BUSINESS ORGANIZATION.
We operate our business directly and through a number of subsidiaries and
operating divisions. We only recently acquired some of our subsidiaries and
operating divisions from Thermo Electron. We and Thermo Electron have conducted
these operations largely as autonomous, unaffiliated businesses. As part of our
spin-off from Thermo Electron, we plan to manage these operations in a more
coordinated manner. The following factors may make it difficult for us to
integrate and consolidate our operations:
- Our success in integrating these businesses will depend on our ability
to coordinate geographically separate organizations and integrate
personnel with different business backgrounds and corporate cultures.
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- Our ability to combine these businesses will require coordination of
administrative, sales and marketing, distribution and accounting and
finance functions and expansion of information and management systems.
- The integration process could disrupt our businesses.
- Retaining key employees of these businesses may be difficult.
WE DEPEND ON THIRD PARTY REIMBURSEMENT TO OUR CUSTOMERS FOR MARKET ACCEPTANCE OF
OUR PRODUCTS. OUR PROFITABILITY WOULD SUFFER IF THIRD PARTY PAYORS FAILED TO
PROVIDE APPROPRIATE LEVELS OF REIMBURSEMENT FOR THE PURCHASE OR USE OF OUR
PRODUCTS.
Sales of medical products largely depend on the reimbursement of patients'
medical expenses by government health care programs and private health insurers.
The cost of some of our products, particularly our VMAX and MasterScreen
pulmonary function and metabolic diagnostic systems, our epilepsy monitoring
systems and our intra-operative monitoring systems, is substantial. Without the
financial support of the government or third party insurers, the market for some
of our products will be limited.
Governments and private insurers in many countries closely examine medical
products and devices incorporating new technologies to determine whether to
reimburse for the purchase or use of such products and devices and, if so, the
appropriate level of reimbursement. We cannot be sure that third party payors
will reimburse sales of our products now under development or enable us to sell
these products at profitable prices. We also cannot be sure that third party
payors will maintain the current level of reimbursement to physicians and
medical centers for use of our current products. Any reduction in the amount of
this reimbursement could harm our business.
During the past several years, major third party payors have substantially
revised their reimbursement methodologies in an attempt to contain their
healthcare reimbursement costs. Third party payors have recently increased their
emphasis on managed care, which has led to an increased emphasis on the use of
cost-effective medical devices by healthcare providers. In addition, through
their purchasing power, these payors often seek discounts, price reductions or
other incentives from medical products suppliers.
The federal government and private insurers have considered ways to change,
and have changed, the manner in which health care services are provided and paid
for in the United States. In the future, it is possible that the government may
institute price controls and further limits on Medicare and Medicaid spending.
These controls and limits could affect the payments we receive from sales of our
products. Internationally, medical reimbursement systems vary significantly,
with some medical centers having fixed budgets, regardless of the level of
patient treatment, and other countries requiring application for, and approval
of, government or third party reimbursement. Even if we succeed in bringing our
new products to market, uncertainties regarding future health care policy,
legislation and regulation, as well as private market practices, could affect
our ability to sell our products in commercially acceptable quantities at
profitable prices.
IT MAY BE DIFFICULT FOR US TO EXPAND BECAUSE SOME OF THE MARKETS FOR OUR
PRODUCTS ARE NOT GROWING.
Some of the markets in which we compete, such as the market for mechanical
ventilators, are largely mature. Revenues in these markets have been flat or
declining over the past several years. To address this issue, we are pursuing a
number of strategies to improve our internal growth. These strategies may not
result in the growth of our business, and we may not be able to successfully
implement these strategies.
IF WE DO NOT INTRODUCE NEW PRODUCTS IN A TIMELY MANNER, OUR PRODUCTS COULD
BECOME OBSOLETE AND OUR OPERATING RESULTS COULD SUFFER.
The medical device industry is characterized by rapid technological
changes, frequent new product and service introductions and evolving industry
standards. Without the timely introduction of new products and enhancements, our
products could become technologically obsolete over time, in which case our
revenue and operating results could suffer. The success of our new product
offerings will depend upon several factors, including our ability to:
- accurately anticipate customer needs;
- innovate and develop new technologies and applications;
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- successfully commercialize new technologies in a timely manner;
- price our products competitively and manufacture and deliver our
products in sufficient volumes and on time; and
- differentiate our offerings from our competitors' offerings.
In developing any new product, we may be required to make a substantial
investment before we can determine the commercial viability of the new product.
If we fail to accurately foresee our customers' needs and future activities, we
may invest heavily in research and development of products that do not lead to
significant revenue.
OUR FAILURE TO CONDUCT A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR OF
THE DISTRIBUTION COULD IMPAIR OUR ABILITY TO GROW OUR BUSINESS AND MAY CAUSE THE
DISTRIBUTION TO BE TAXABLE TO US, THERMO ELECTRON AND STOCKHOLDERS OF THERMO
ELECTRON WHO RECEIVE SHARES OF OUR COMMON STOCK IN THE DISTRIBUTION.
We believe that, in order to grow our business, we need to raise
approximately $50 to $100 million within the next 12 months. We plan to raise
these funds by conducting an initial public offering of shares of our common
stock. We may be unable to complete a public offering for a number of reasons,
including adverse market conditions or adverse developments in our business
following the distribution. If we are unable to complete a public offering of
shares of our common stock on acceptable terms or at all, we may be required to
revise our business plan to reduce expenditures, including curtailing our growth
strategies, ceasing planned acquisitions or reducing product development
efforts.
In addition, the IRS ruling that no gain or loss will be recognized by us,
Thermo Electron or its stockholders upon the distribution of our common stock as
of the date of the distribution is based, in part, on our representation that we
will conduct a public offering of our common stock within one year of the
distribution. If we do not conduct a public offering within one year of the
distribution, the distribution could become taxable to us, Thermo Electron and
the stockholders of Thermo Electron who receive shares of our common stock in
the distribution.
WE FACE AGGRESSIVE COMPETITION IN MANY AREAS OF OUR BUSINESS, AND OUR BUSINESS
WILL BE HARMED IF WE FAIL TO COMPETE EFFECTIVELY.
We encounter aggressive competition from numerous competitors in many areas
of our business. Many of our current and potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical and marketing resources than we have. We may not be able to
compete effectively with these competitors. For example, a number of large
medical device companies, including Agilent Technologies and GE Marquette, have
recently entered the market for portable patient monitoring systems. These
companies have substantially greater resources, including capital, name
recognition and manufacturing and marketing capabilities, than our Medical Data
Electronics subsidiary. To remain competitive, we must develop new products and
periodically enhance our existing products in a timely manner. We anticipate
that we may have to adjust the prices of many of our products to stay
competitive. In addition, new competitors may emerge, and entire product lines
may be threatened by new technologies or market trends that reduce the value of
these product lines.
DIFFICULTIES PRESENTED BY INTERNATIONAL OPERATIONS COULD NEGATIVELY AFFECT OUR
BUSINESS.
International revenues account for a substantial portion of our revenues.
In 1999, international revenues from continuing operations, including export
revenues from the United States, accounted for approximately 34% of our total
revenues. We plan to continue expanding our presence in international markets.
Among the international risks we believe are most likely to affect us are:
- difficulties in staffing and managing international operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- language and cultural differences;
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- local economic conditions in foreign markets; and
- international currency issues, including fluctuations in currency
exchange rates.
DEMAND FOR SOME OF OUR PRODUCTS DEPENDS ON THE CAPITAL SPENDING POLICIES OF OUR
CUSTOMERS AND ON GOVERNMENT FUNDING POLICIES. CHANGES IN THESE POLICIES COULD
NEGATIVELY AFFECT OUR BUSINESS.
Our customers include laboratories, universities, healthcare providers and
public and private research institutions. Many factors, including public policy
spending provisions, available resources and economic cycles have a significant
effect on the capital spending policies of these entities. These policies in
turn can have a significant effect on the demand for our products. For example,
a reduction in funding to major government research support agencies, such as
the National Institute of Health and the National Science Foundation, could
adversely affect sales of our sleep diagnostic testing equipment.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD CAUSE OUR STOCK PRICE TO
DECREASE.
Our operating results have fluctuated significantly from quarter to quarter
in the past and are likely to vary in the future. These fluctuations are due to
several factors relating to the sale of our products, including the timing and
volume of customer orders, customer cancellations, reductions in orders by our
distributors and the timing and amount of our expenses. Because of these
fluctuations, it is likely that in some future quarter or quarters our operating
results could fall below the expectations of securities analysts or investors.
If so, the market price of our stock would likely decrease.
Our quarterly results may also be adversely affected because some customers
may have inadequate financial resources to purchase our products or may fail to
pay for our products after receiving them. In particular, hospitals are
increasingly experiencing financial constraints, consolidations and
reorganizations as a result of cost containment measures and declining
third-party reimbursement for services, which may result in decreased product
orders or an increase in bad debts in any quarter.
OUR COMPETITIVE POSITION IS DEPENDENT IN PART ON PROTECTING OUR INTELLECTUAL
PROPERTY, WHICH CAN BE DIFFICULT AND EXPENSIVE.
Patent and trade secret protection is important to us because developing
and marketing new technologies and products is time-consuming and expensive. We
own many U.S. and foreign patents and intend to apply for additional patents to
cover our products. We may not obtain issued patents from any pending or future
patent applications owned by or licensed to us. The claims allowed under any
issued patents may not be broad enough to protect our technology.
Our competitive position is also dependent upon unpatented trade secrets.
Trade secrets are difficult to protect. Our competitors may independently
develop proprietary information and techniques that are substantially equivalent
to ours or otherwise gain access to our trade secrets, such as through
unauthorized or inadvertent disclosure of our trade secrets.
WE MAY BECOME INVOLVED IN LITIGATION RELATING TO OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE AND MAY DIVERT OUR ATTENTION
FROM THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.
We believe that the success of our business depends, in part, on obtaining
patent protection for our products, defending our patents once obtained and
preserving our trade secrets. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets and to determine the
validity and scope of our proprietary rights. Any litigation could result in
substantial expense and diversion of our attention from our business, and may
not adequately protect our intellectual property rights.
In addition, we may be sued by third parties which claim that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that the validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions for which important legal
principles are unresolved. Any litigation or claims against us, whether or not
valid, could result in substantial costs, could place a significant strain on
our financial resources and could harm our reputation. Such claims could result
in awards of substantial damages, which could have a significant adverse impact
on our results of operations. In addition, intellectual property litigation or
claims could force us to:
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- cease selling, incorporating or using any of our products that
incorporate the challenged intellectual property, which would
adversely affect our revenue;
- obtain a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable
terms, if at all; and
- redesign our products, which would be costly and time-consuming.
IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION
RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT
ARE IMPORTANT TO OUR BUSINESS.
We license rights to products and technology that are important to our
business, and we expect to enter into additional licenses in the future. For
instance, a number of the therapy-based products that we are developing
incorporate proprietary technologies that we have licensed from third parties.
Under these licenses, we are subject to commercialization and development,
sublicensing, royalty, insurance and other obligations. If we fail to comply
with any of these requirements, or otherwise breach a license agreement, the
licensor may have the right to terminate the license in whole or to terminate
the exclusive nature of the license. In addition, upon the termination of the
license, we may be required to license to the licensor any related intellectual
property that we develop.
OUR ABILITY TO MARKET AND SELL OUR PRODUCTS AND GENERATE REVENUE DEPENDS UPON
RECEIPT OF DOMESTIC AND FOREIGN REGULATORY APPROVAL OF OUR PRODUCTS AND
MANUFACTURING OPERATIONS. OUR FAILURE TO OBTAIN OR MAINTAIN REGULATORY APPROVALS
COULD NEGATIVELY AFFECT OUR BUSINESS.
United States. Before we can market new products in the United States, we
must obtain clearance from the United States Food and Drug Administration, or
FDA. In general, the FDA may authorize the marketing of a medical device either
through the clearance of a 510(k) premarket notification or the approval of a
premarket approval application, depending on the type of device. See "Business
-- Government Regulation -- United States -- U.S. Food and Drug Administration."
A 510(k) premarket notification may not require clinical data, and we
believe that it typically takes from three to six months from the date of
submission to obtain 510(k) clearance. If the FDA concludes that a product does
not meet the requirements to obtain clearance through the 510(k) premarket
notification procedure, then we are required to file a premarket approval
application for such product. The approval process for a premarket approval
application is lengthy, expensive and typically requires extensive preclinical
and clinical trial data. We may not obtain clearance of a 510(k) notification or
approval of a premarket approval application with respect to any of our products
on a timely basis, if at all. If we fail to obtain timely clearance or approval
for our products, we will not be able to market and sell our products. We have
made enhancements to some of our currently marketed products that we have
determined do not necessitate the filing of a new 510(k) notification. However,
if the FDA does not agree with our determination, it will require us to file a
new 510(k) notification for the modification and may prohibit us from marketing
the modified device until we obtain FDA clearance.
The FDA also requires us to adhere to the current good manufacturing
practice requirements of its Quality System Regulation, which include design
controls, testing, quality control, storage and documentation procedures. The
FDA may at any time inspect our facilities to determine whether we are in
adequate compliance with current good manufacturing practice requirements.
Compliance with the current good manufacturing practice requirements for medical
devices is difficult and costly. In addition, we may not continue to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies.
International. Medical device laws and regulations are also in effect in
many countries outside the United States. These range from comprehensive device
approval requirements for some or all of our medical device products to requests
for product data or certifications. The number and scope of these requirements
are increasing. The requirements governing the conduct of clinical trials and
product approvals also vary widely from country to country. Because we derive a
significant amount of our revenues from international sales, any delay or
withdrawal of approval or change in international regulations could have an
adverse effect on our revenues and profitability.
General. The federal, state and foreign laws and regulations regarding the
manufacture and sale of our products are subject to future changes, as are
administrative interpretations of regulatory agencies. If we fail to comply with
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<PAGE> 26
applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, including warning letters, fines, product seizures,
recalls, injunctions, withdrawal of marketing clearances or approvals, and civil
and criminal penalties.
OUR DEPENDENCE ON SUPPLIERS FOR MATERIALS COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.
Outside vendors, some of whom are sole-source suppliers, provide key
components and raw materials that we use in the manufacture of our products,
such as the raw materials for our medical-grade polyurethanes and the beryllium
copper strips included in our medical imaging components. Although we believe
that alternative sources for these components and raw materials are available,
any supply interruption in a limited or sole-source component or raw material
could harm our ability to manufacture the affected product until we identify and
qualify a new source of supply. In addition, an uncorrected defect or supplier's
variation in a component or raw material, either unknown to us or incompatible
with our manufacturing process, could harm our ability to manufacture the
affected product. We may not be able to find a sufficient alternative supplier
in a reasonable time period, or on commercially reasonable terms, if at all,
which could impair our ability to produce and supply our products.
In addition, manufacturers of our product components may need to comply
with FDA or other regulatory manufacturing regulations and satisfy regulatory
inspections in connection with the manufacture of the components. If we cannot
obtain a necessary component, we may need to find, test and obtain regulatory
approval for a replacement component, which would cause a significant delay.
OUR BUSINESS COULD SUFFER DUE TO POTENTIAL DEFECTS IN SOFTWARE CONTAINED IN SOME
OF OUR PRODUCTS.
Some of our products, such as our neurodiagnostic and intra-operative
monitoring products, incorporate sophisticated computer software that we have
developed or licensed from third parties. Software as complex as that
incorporated into our products frequently contain errors or failures, especially
when first introduced. In addition, new products or enhancements may contain
undetected errors or performance problems that, despite testing, are discovered
only after commercial shipment. Because some of our products are used with
critically ill patients, we expect that our customers will have an increased
sensitivity to software defects than purchasers of software products generally.
Any errors or performance problems that arise may cause delays in product
shipments, loss of revenue, delays in market acceptance of our products,
diversion of management's time, damage to our reputation, litigation and
increased service or warranty costs.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW COULD
PREVENT OR DELAY TRANSACTIONS THAT OUR STOCKHOLDERS MAY FAVOR.
Provisions of our charter and by-laws may discourage, delay or prevent a
merger or acquisition that our stockholders may consider favorable, including
transactions in which you might otherwise receive a premium for your shares. For
example, these provisions:
- authorize the issuance of "blank check" preferred stock without any
need for action by stockholders;
- provide for a classified board of directors with staggered three-year
terms;
- require supermajority stockholder voting to effect various amendments
to our charter and by-laws;
- eliminate the ability of stockholders to call special meetings of
stockholders;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on
by stockholders at stockholder meetings.
In addition, we have adopted a stockholder rights plan intended to protect
stockholders in the event of an unfair or coercive offer to acquire our company
and to provide our board of directors with adequate time to evaluate unsolicited
offers. This rights plan may have anti-takeover effects. The rights plan will
cause substantial dilution to a person or group that attempts to acquire us on
terms that our board of directors does not believe are in the best
20
<PAGE> 27
interests of us and our stockholders and may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including
transactions in which you might otherwise receive a premium for your shares.
21
<PAGE> 28
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This information statement includes statements that are subject to risks
and uncertainties and are based on the beliefs and assumptions of our
management, based on information currently available to our management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "likely," "will" or similar expressions, we are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of our operations set forth under
"Summary," "Risk Factors," "The Distribution -- Background and Reasons for the
Distribution," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Transactions with Related Parties" and
"Consolidated Financial Statements" in this information statement.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Our future results of operations may
differ materially from those expressed in the forward-looking statements. Many
of the important factors that will determine these results and values are beyond
our ability to control or predict. You should not put undue reliance on any
forward-looking statements. For a discussion of important factors that may cause
our actual results to differ materially from those suggested by the
forward-looking statements, you should read carefully the section of this
information statement captioned "Risk Factors" that starts on page 14.
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<PAGE> 29
LISTING AND TRADING OF OUR COMMON STOCK
Thermo Electron presently owns all of the outstanding shares of our common
stock. No trading prices are available with respect to such shares. Neither we
nor Thermo Electron can assure you as to the trading price of our common stock
or Thermo Electron's common stock after the distribution or as to whether their
initial combined price will be higher or lower than the price of Thermo Electron
common stock prior to the distribution.
After the distribution, approximately ________ shares of our common stock
will be issued and outstanding. In addition, at about the time of the
distribution, we anticipate granting options under our 2000 equity incentive
plan to purchase an aggregate of _______ shares of our common stock to our
employees and directors.
The American Stock Exchange has approved our common stock for listing under
the symbol "___." Based on the number of holders of Thermo Electron common stock
of record as of the record date for determining those stockholders entitled to
receive shares in the distribution, we expect to have approximately ______
stockholders of record on the date of the distribution.
The American Stock Exchange has also approved our preferred stock purchase
rights for listing. Initially, these preferred stock purchase rights will attach
to and trade with our common stock. See "Description of Capital Stock --
Stockholder Rights Plan" for a description of our preferred stock purchase
rights.
The transfer agent and registrar for our common stock will be
_____________.
An active trading market in our common stock may not develop. If a market
does develop, we cannot predict the prices at which our common stock will trade.
A "when-issued" trading market in our common stock may develop on or shortly
before the record date for the distribution. A "when-issued" trading market
occurs when trading in shares begins prior to the time stock certificates are
actually available or issued.
Shares of our common stock distributed to Thermo Electron stockholders will
be freely transferable, except for shares received by persons who may be deemed
to be our "affiliates" under the Securities Act. Persons who may be deemed to be
our affiliates after the distribution generally may include individuals or
entities that control, are controlled by, or are under common control with us,
and will include our directors and executive officers. Our affiliates generally
may only resell the shares of our common stock held by them:
- in compliance with the applicable provisions of Rule 144 under the
Securities Act;
- under an effective registration statement under the Securities Act; or
- pursuant to an exemption from the registration requirements of the
Securities Act.
Under Rule 144, an affiliate may sell, within any three-month period, a
number of shares of our common stock that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock (approximately
______ shares immediately after the distribution) or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the date on which notice of such sale was
filed under Rule 144,
provided, in either case, applicable requirements concerning availability of
public information, manner of sale and notice of sale are satisfied.
Upon consummation of the distribution, our affiliates will hold
approximately ________ shares of our common stock. Prior to the distribution, we
plan to file with the SEC a registration statement on Form S-8 to register under
the Securities Act the ________ shares of our common stock that we have reserved
for issuance under our 2000 equity incentive plan, our 2000 employee stock
purchase plan and our directors' deferred compensation plan.
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<PAGE> 30
CAPITALIZATION
The following table sets forth our capitalization as of July 1, 2000.
<TABLE>
<CAPTION>
JULY 1, 2000
--------------
(in thousands)
<S> <C>
Short-term obligations.................................................................. $ 39,677
========
Stockholder's investment:
Common stock, $.01 par value, 3,000 shares authorized, issued and outstanding........ 0
Capital in excess of par value....................................................... 262,355
Retained earnings.................................................................... 18,244
Accumulated other comprehensive items................................................ (1,765)
--------
Total stockholder's investment................................................... 278,834
--------
Total capitalization................................................................. $318,511
========
</TABLE>
The above information excludes:
- ______ shares issuable upon the exercise of options that we anticipate
granting under our 2000 equity incentive plan at or about the time of
the distribution to our officers, directors and employees;
- ______ restricted shares of our common stock that we anticipate
awarding under our 2000 equity incentive plan at about the time of the
distribution to our employees who forfeit restricted shares of Thermo
Electron common stock as a result of our spin-off from Thermo
Electron; and
- _______ additional shares of common stock that we have reserved for
issuance under our stock plans.
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<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
fiscal years ended January 1, 2000 and January 2, 1999 and for the year ended
January 3, 1998 have been derived from our consolidated financial statements,
which have been audited by Arthur Andersen LLP, independent public accountants,
included elsewhere in this information statement. The selected consolidated
financial data for the six-month periods ended July 1, 2000 and July 3, 1999
have been derived from our unaudited consolidated financial statements included
elsewhere in this information statement. The selected consolidated financial
data for the six-month periods ended July 1, 2000 and July 3, 1999, as of the
year ended January 3, 1998 and as of and for the years ended December 28, 1996
and December 30, 1995 have not been audited but, in the opinion of management,
include all adjustments, consisting only of normal, recurring adjustments,
necessary to present fairly such information in accordance with generally
accepted accounting principles applied on a consistent basis. The results of
operations for the six months ended July 1, 2000 are not necessarily indicative
of results for the entire year.
We acquired Medical Data Electronics in July 1996, Nicolet Vascular in
August 1997, Bear Medical Systems in October 1997, Grason-Stadler in November
1998 and Erich Jaeger in July 1999. The consolidated financial data below
reflect the financial data of each acquired company beginning as of the date of
acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
--------------------- ---------------------------------------------------------
JULY 1, JULY 3, JAN. 1, JAN. 2, JAN. 3, DEC. 28, DEC. 30,
2000 1999 2000 1999 1998 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
STATEMENT OF INCOME DATA:
Revenues .................................... $ 176,336 $ 162,140 $ 358,553 $ 306,363 $ 267,464 $ 222,675 $ 170,318
--------- --------- --------- --------- --------- --------- ---------
Costs and operating expenses:
Cost of revenues .......................... 90,609 84,101 186,444 158,572 134,542 112,869 87,985
Selling, general and administrative
expenses ............................... 50,316 45,769 102,780 89,628 83,261 76,299 63,125
Research and development expenses ......... 11,509 7,448 18,519 14,188 11,869 12,018 8,994
Restructuring and other unusual costs
(income), net ........................... 988 -- -- 788 (1,259) 24,764 --
--------- --------- --------- --------- --------- --------- ---------
153,422 137,318 307,743 263,176 228,413 225,950 160,104
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ..................... 22,914 24,822 50,810 43,187 39,051 (3,275) 10,214
Interest income ............................. 86 21 275 85 3 22 9
Interest expense ............................ (907) (312) (1,410) (981) (1,477) (1,470) (1,127)
Other income (expense), net ................. (68) -- 437 -- -- (574) 477
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest ......................... 22,025 24,531 50,112 42,291 37,577 (5,297) 9,573
Income tax (provision) benefit .............. (8,784) (10,077) (20,686) (17,198) (15,482) 1,263 (4,980)
Minority interest (expense) income .......... (191) (326) (576) (759) (892) 4,119 (768)
--------- --------- --------- --------- --------- --------- ---------
Net income .................................. $ 13,050 $ 14,128 $ 28,850 $ 24,334 $ 21,203 $ 85 $ 3,825
========= ========= ========= ========= ========= ========= =========
Basic and diluted earnings per share ........ $ 4,350 $ 4,709 $ 9,617 $ 8,111 $ 7,068 $ 28 $ 1,275
========= ========= ========= ========= ========= ========= =========
Basic and diluted weighted average shares ... 3 3 3 3 3 3 3
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ............................. $ 55,918 $ 70,469 $ 49,964 $ 67,216 $ 64,616 $ 50,075 $ 43,483
Total assets ................................ 386,958 325,967 380,109 320,344 312,268 249,805 229,871
Long-term obligations ....................... -- -- -- -- 8,651 21,290 8,407
Minority interest ........................... -- 8,972 9,222 8,646 7,887 6,995 11,114
Shareholder's investment .................... 278,834 248,949 255,431 249,271 226,892 168,322 156,350
OTHER FINANCIAL DATA:
Book value per share (at end of period) ..... $ 92,945 $ 82,983 $ 85,144 $ 83,090 $ 75,631 $ 56,107 $ 52,117
Cash dividends .............................. -- -- -- -- -- -- --
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our business operates in three reportable segments: respiratory care, neuro
care and specialty medical products. The respiratory care segment designs,
manufactures and markets a variety of medical devices for the diagnosis and
treatment of respiratory-related disorders. The neuro care segment designs,
manufactures and markets a comprehensive line of neurodiagnostic systems, as
well as a line of wireless patient monitoring systems. The specialty medical
products segment designs, manufactures and markets critical care disposable
devices and specialty products and materials for sale to original equipment
manufacturers.
RESULTS OF OPERATIONS
First Six Months 2000 Compared with First Six Months 1999
Revenues increased to $176.3 million in the first six months of 2000 from
$162.1 million in the first six months of 1999. Revenues increased by $9.3
million in the respiratory care segment and $4.8 million in the neuro care
segment.
Revenues in the respiratory care segment increased to $86.8 million in the
first six months of 2000 from $77.5 million in the first six months of 1999,
primarily due to the inclusion of $19.6 million of revenues from Erich Jaeger,
which was acquired in July 1999. This increase was offset in part by a decline
in sales of respiratory products due to strong demand in 1999 for year 2000
compliant products and competitive pricing pressures in Europe due to Euro
weakness in 2000.
Revenues in the neuro care segment increased to $59.6 million in the first
six months of 2000 from $54.7 million in the first six months of 1999. Revenues
increased as a result of demand for new products for which orders had been
received in 1999 and higher shipments of year 2000 compliant products that the
segment had been unable to ship prior to the end of 1999 due to capacity
constraints. This increase was offset in part by a $0.8 million decrease in
sales of wireless patient monitoring equipment due to continued lower demand.
Backlog for this segment decreased to $17.5 million at July 1, 2000, from $24.8
million at year-end 1999, primarily due to the completion of shipments for year
2000 compliant products and new products that had been ordered in 1999.
Revenues in the specialty medical products segment were relatively
unchanged at $30.0 million in the first six months of 2000 and $29.9 million in
the first six months of 1999.
Our backlog increased to $58.0 million at July 1, 2000, from $55.7 million
at year-end 1999. The increase occurred in the specialty medical products and
respiratory care segments due to higher demand, offset in part by a decrease in
the neuro care segment, as discussed above.
The gross profit margin increased to 49% in the first six months of 2000
from 48% in the first six months of 1999. The improvement occurred primarily in
the neuro care segment due to higher revenues and the introduction of
higher-margin products.
Selling, general and administrative expenses as a percentage of revenues
increased to 29% in the first six months of 2000 from 28% in the first six
months of 1999, primarily due to the inclusion of higher selling, general and
administrative expenses as a percentage of revenues at Erich Jaeger. Selling,
general and administrative expenses increased by $4.5 million to $50.3 million
in 2000, due to the inclusion of $7.5 million of expenses of Erich Jaeger. This
increase was offset in part by lower costs for commissions and incentive
compensation resulting from a decline in revenues at existing businesses in the
respiratory care segment.
Research and development expenses increased to $11.5 million in the first
six months of 2000 from $7.4 million in the first six months of 1999, primarily
as the result of the inclusion of $2.6 million of expenses at Erich Jaeger. In
addition, higher research and development costs for new products contributed to
the increase, including expenditures for seizure prediction and level of
consciousness products in the neuro care segment.
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<PAGE> 33
We recorded unusual costs of $1.0 million in the first six months of 2000,
primarily for employee retention costs in connection with Thermo Electron's plan
to distribute our common stock to Thermo Electron's stockholders. We expect to
pay amounts accrued for employee retention in 2001.
Interest expense increased to $0.9 million in the first six months of 2000
from $0.3 million in the first six months of 1999. The increase is primarily due
to interest expense incurred on borrowings used to fund the acquisition of Erich
Jaeger, offset in part due to lower outstanding borrowings related to the
acquisition of Medical Data Electronics.
Our effective tax rate was 40% in the first six months of 2000 and 41% in
the first six months of 1999. The effective tax rates exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
1999 Compared with 1998
Revenues increased to $358.6 million in 1999 from $306.4 million in 1998.
Increases in revenues in the respiratory care segment of $34.6 million and the
neuro care segment of $19.7 million were offset in part by a decrease in
revenues in the specialty medical products segment of $2.1 million.
Revenues in the respiratory care segment increased to $184.4 million in
1999 from $149.8 million in 1998, primarily due to the inclusion of $22.0
million in revenues from Erich Jaeger, which was acquired in July 1999.
Revenues also increased due to higher demand for year 2000 compliant products.
Revenues in the neuro care segment increased to $116.8 million in 1999
from $97.1 million in 1998. Revenues increased $12.5 million due to the
inclusion of a full twelve months of revenues from Grason-Stadler, which was
acquired in November 1998. Revenues also increased due to higher demand for year
2000 compliant products and enhanced product introductions, as well as $2.8
million of higher sales in Asia due to improved economic conditions there
following uncertainty in 1998. These increases were offset in part by a decrease
in revenues of $1.8 million from wireless patient monitoring systems due to
lower demand.
Revenues in the specialty medical products segment decreased to $57.4
million in 1999 from $59.5 million in 1998. Revenues decreased $1.8 million due
to lower demand for fabricated metal components, particularly artificial hips.
The segment's principal customer for this product reduced its purchases as part
of measures to improve its inventory management.
The gross profit margin was 48% in 1999 and 1998. The gross profit margin
in the neuro care segment decreased to 46% in 1999 from 48% in 1998, primarily
due to a decrease in revenues from wireless patient monitoring systems and
inventory provisions of $0.7 million for this product line. This decrease was
offset by an increase in the gross profit margin in the respiratory care segment
due to $1.2 million of inventory provisions for obsolete mechanical ventilators
in 1998.
Selling, general and administrative expenses represented 29% of revenues in
1999 and 1998. Selling, general and administrative expenses increased by $13.2
million to $102.8 million in 1999, primarily due to the inclusion of $9.6
million of expenses at acquired businesses. In addition, selling, general and
administrative expenses increased due to higher commissions and incentive
compensation in the respiratory care and neuro care segments related to
increased revenues and higher provisions for accounts receivable reserves in the
respiratory care segment due to an increase in international revenues and an
associated increase in the aging of accounts receivable.
Research and development expenses increased to $18.5 million in 1999 from
$14.2 million 1998. The increase in research and development expenses was
primarily due to the inclusion of $3.9 million of expenses at acquired
businesses.
We recorded unusual costs of $0.8 million in 1998, primarily for severance
costs for seven employees at SensorMedics.
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<PAGE> 34
Interest expense increased to $1.4 million in 1999 from $1.0 million in
1998. The increase was a result of borrowings used to finance the acquisition of
Erich Jaeger, offset in part due to lower outstanding borrowings related to the
acquisition of Medical Data Electronics.
In 1999, two of our subsidiaries recorded currency transaction gains
totaling $0.4 million on short-term intercompany borrowings.
The effective tax rate was 41% in 1999 and 1998. The effective tax rate
exceeded the statutory federal income tax rate primarily due to the impact of
state income taxes and nondeductible amortization of cost in excess of net
assets of acquired companies.
1998 Compared with 1997
Revenues increased to $306.4 million in 1998 from $267.5 million in 1997.
Revenues increased by $26.2 million in the respiratory care segment, $8.6
million in neuro care segment and $4.0 million in the specialty medical products
segment.
Revenues in the respiratory care segment increased to $149.8 million in
1998 from $123.6 million in 1997. Revenues increased $24.7 million due to the
inclusion of a full twelve months of revenues from Bear Medical Systems, which
was acquired in October 1997. In addition, revenues increased due to the
introduction of new products, offset in part by $1.7 million of lower revenues
in Asia due to economic uncertainty in that region.
Revenues in the neuro care segment increased to $97.1 million in 1998 from
$88.4 million in 1997. Revenues increased $9.9 million due to the acquisitions
of Nicolet Vascular in August 1997 and Grason-Stadler in November 1998. This
increase was offset in part by a $3.8 million decrease in revenues from existing
businesses, primarily due to economic uncertainty in Asia.
Revenues in the specialty medical products segment increased to $59.5
million in 1998 from $55.4 million in 1997. The increase resulted primarily from
higher sales of fabricated metal components due to increased demand for
artificial hips from the segment's principal customer for this product. This
increase was offset in part by $2.2 million of lower demand for surgical smoke
evacuation equipment primarily due to disruption caused by a change in
distribution channels from distributor sales to direct sales.
The gross profit margin decreased to 48% in 1998 from 50% in 1997. The
decrease was primarily due to lower margins in the respiratory care segment as a
result of the inclusion of lower-margin revenues from Bear Medical Systems for
the full twelve months in 1998 as well as inventory provisions of $1.2 million
for obsolete mechanical ventilators at Bear Medical Systems. In addition, the
gross profit margin in the neuro care segment decreased, primarily due to the
expansion of lower-margin sales to national buying segments. These decreases in
gross profit margin were offset in part by higher margins at the specialty
medical products segment due to increased revenues.
Selling, general and administrative expenses as a percentage of revenues
decreased to 29% in 1998 from 31% 1997. This decrease was primarily due to the
inclusion of a full twelve months of lower selling, general and administrative
expenses as a percentage of revenues at Bear Medical Systems and an increase in
revenues. Selling, general and administrative expenses increased $6.4 million in
1998 to $89.6 million, primarily due to the inclusion of expenses at acquired
businesses.
Research and development expenses increased to $14.2 million in 1998 from
$11.9 million in 1997, due to the inclusion of $2.3 million in expenses from
Bear Medical Systems.
We recorded unusual costs of $0.8 million in 1998 and unusual income of
$1.3 million in 1997. Unusual costs in 1998 were primarily for severance for
seven employees at SensorMedics. Unusual income in 1997 consists of income of
$1.5 million recorded at SensorMedics related to the termination of its
post-retirement benefits plan, partially offset by $0.2 million of severance
costs at SensorMedics.
Interest expense decreased to $1.0 million in 1998 from $1.5 million in
1997, primarily due to lower outstanding borrowings related to the acquisition
of Medical Data Electronics.
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<PAGE> 35
Our effective tax rate was 41% in 1998 and 1997. The effective tax rate
exceeded the statutory federal income tax rate primarily due to the impact of
state income taxes and nondeductible amortization of cost in excess of net
assets of acquired companies.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $55.9 million at July 1, 2000, compared
with $50.0 million at January 1, 2000. Cash and cash equivalents were $6.4
million at July 1, 2000, compared with $3.0 million at January 1, 2000.
During the first six months of 2000, our operating activities provided
$16.6 million of cash. Cash of $11.8 million was provided by a decrease in
accounts receivable due to lower revenues in the second quarter of 2000 compared
with the fourth quarter of 1999. Cash of $8.5 million was used to fund an
increase in inventories, primarily at the respiratory care segment due to a
decline in revenues and replenishment of year-end inventory levels following
strong fourth quarter 1999 sales. The specialty medical products segment also
increased inventories from the year-end 1999 level, due to the effect of
improved inventory management measures by the segment's principal customer for
artificial hips. In addition, $7.6 million in cash was used to fund a decrease
in other current liabilities, primarily accrued payroll and employee benefits.
In the first six months of 2000, we expended $4.1 million for the purchase
of property, plant and equipment. During the remainder of 2000, we expect to
make capital expenditures of approximately $5.0 million for the purchase of
additional property, plant and equipment.
During the first six months of 2000, our financing activities used cash of
$8.9 million, primarily for transfers to Thermo Electron.
During 1999, our operating activities provided $37.2 million of cash. Cash
provided by operations was offset in part by $20.4 million of cash to fund an
increase in accounts receivable, primarily in the respiratory care segment due
to higher revenues and an increase in fourth quarter shipments in 1999 over
1998. An increase in other current liabilities provided $8.9 million of cash,
primarily consisting of accrued payroll and benefits that were paid in 2000.
Our primary investing activity in 1999 was the acquisition of Erich Jaeger
for $28.4 million in cash, net of cash acquired. We also expended $7.0 million
for the purchase of property, plant and equipment.
During 1999, our financing activities used cash of $1.2 million. We
borrowed $40.2 million from a wholly owned subsidiary of Thermo Electron to
finance the acquisition of Erich Jaeger and repay a portion of Erich Jaeger's
debt. Cash of $18.3 million was used to repay long-term obligations, and cash of
$22.1 million was transferred to Thermo Electron.
As of July 1, 2000, Thermo Electron had advanced to us $39.0 million
relating to the acquisition of our Erich Jaeger subsidiary. This advance is due
on demand by Thermo Electron. Thermo Electron has advised us that it plans to
refinance this amount on our behalf with a third party on a long-term basis. If
such efforts are not completed prior to the distribution, Thermo Electron has
agreed to convert the debt to a two-year balloon note with interest payable
quarterly at an annual rate of eight percent.
In accordance with the terms of the distribution agreement, immediately
prior to the distribution, we will transfer to Thermo Electron all of our cash
and cash equivalents, other than the cash and cash equivalents of our foreign
subsidiaries. Cash and cash equivalents in the accompanying balance sheet
represent cash of our foreign subsidiaries.
We believe that, in order to grow our business, we need to raise
approximately $50 to $100 million in the next 12 months. We plan to raise these
funds by conducting an initial public offering of shares of our common stock. We
may be unable to complete a public offering for a number of reasons, including
adverse market conditions or adverse developments in our business following the
distribution. If we are unable to complete a public offering of shares of our
common stock on acceptable terms or at all, we may be required to revise our
business plan to reduce expenditures, including curtailing our growth
strategies, ceasing planned acquisitions or reducing product development
efforts. In addition, if we do not conduct a public offering within one year of
the distribution, the distribution could become taxable to us, Thermo Electron
and the stockholders of Thermo Electron who receive shares of our common stock
in the distribution.
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<PAGE> 36
Beyond the next 12 months, our capital requirements will depend on many
factors, including the rate of our sales growth, market acceptance of our new
and existing products, the success of our product development efforts, capital
spending policies of our customers, government spending policies and general
economic conditions. Although we are not a party to any agreement or letter of
intent with respect to a potential transaction, we may enter into acquisitions
or strategic arrangements in the future that could require us to seek additional
debt or equity financing.
MARKET RISK
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates, which could affect our future results of operations and
financial condition. We manage our exposure to these risks through our regular
operating and financing activities.
Foreign Currency Exchange Rates
We generally view our investment in foreign subsidiaries with a functional
currency other than our reporting currency as long-term. Our investment in
foreign subsidiaries is sensitive to fluctuations in foreign currency exchange
rates. The functional currencies of our foreign subsidiaries are principally
denominated in German marks. The effect of a change in foreign exchange rates on
our net investment in foreign subsidiaries is reflected in the "Accumulated
other comprehensive items" component of shareholder's investment. A 10%
fluctuation in fiscal year-end 1999 functional currencies would not have a
material impact on shareholder's investment. A 10% appreciation in fiscal
year-end 1998 functional currencies, relative to the U.S. dollar, would result
in a $312,000 reduction of shareholder's investment.
Interest Rates
Our cash, cash equivalents and variable-rate short-term obligations are
sensitive to changes in interest rates. Interest rate changes would result in a
change in interest income and expense due to the difference between the current
interest rates on cash, cash equivalents and the variable-rate short-term
obligations and the rate that these financial instruments may adjust to in the
future. A 10% increase in fiscal year-end 1999 interest rates would result in a
negative impact of $86,000 on our net income. A 10% decrease in fiscal year-end
1998 interest rates would result in a negative impact of $7,000 on our net
income.
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<PAGE> 37
BUSINESS
OVERVIEW
We design, manufacture and market a variety of medical devices, instruments
and specialty products for use in the delivery of a range of healthcare
services. We conduct our operations through the following three groups:
- Our respiratory care group designs, manufactures and markets products
for the diagnosis and treatment of respiratory-related disorders,
including mechanical ventilators, diagnostic equipment for respiratory
and circulatory disorders and instruments for diagnosing sleep-related
disorders.
- Our neuro care group designs, manufactures and markets products for
use in the diagnosis and monitoring of nerve, brain, hearing and other
disorders, as well as a line of wireless patient monitoring systems.
- Our specialty medical products group designs, manufactures and markets
products for a range of medical uses, including surgical implant
components, critical care tube feeding systems, medical grade
polyurethanes and surgical barrier control systems.
In addition, we are developing a variety of new, high value healthcare products
for the respiratory and neuro care markets, including therapy and
information-based products. We sell our products to hospitals, alternate care
sites, clinical laboratories and other customers on a worldwide basis. In
addition, we sell our specialty materials and a limited number of other products
to original equipment manufacturers.
The following table sets forth the revenues generated by each of our
operating groups during fiscal 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
OPERATING GROUP
REVENUES PERCENTAGE REVENUES PERCENTAGE REVENUES PERCENTAGE
(IN OF TOTAL (IN OF TOTAL (IN OF TOTAL
THOUSANDS) REVENUES THOUSANDS) REVENUES THOUSANDS) REVENUES
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Respiratory Care Group..................... $184,371 51.4% $149,813 48.9% $123,600 46.2%
Neuro Care Group........................... $116,784 32.6% $ 97,088 31.7% $ 88,441 33.1%
Specialty Medical Products Group........... $ 57,398 16.0% $ 59,462 19.4% $ 55,423 20.7%
</TABLE>
Two classes of products offered by our respiratory care group, ventilators and
pulmonary function testing equipment, including product sales, service and
replacement parts, accounted for approximately 23.2% and 15.5% of our total
revenues in fiscal 1999. International revenues from continuing operations,
including export revenues from the United States, accounted for approximately
34%, 32% and 31% of our total revenues in 1999, 1998 and 1997. The operating
results of our respiratory care, neuro care and specialty medical products
groups are discussed in more detail in note 10 to our consolidated financial
statements included elsewhere in this information statement.
We compete in a number of rapidly growing segments of the healthcare
industry. We estimate that, from 1995 to 1999, worldwide healthcare expenditures
in the respiratory care market grew at an annual rate of 10% and worldwide
healthcare expenditures in the neuro care market grew at an annual rate of 8%.
We believe that we are the worldwide market leader in several of the areas in
which we compete, including the areas of neurodiagnostic instrumentation, lung
function testing, pediatric ventilation and high frequency oscillating
ventilation. In addition, we believe that we have the second largest installed
base of mechanical ventilators worldwide.
Our subsidiaries historically have conducted their operations largely as
autonomous, unaffiliated businesses. As part of our spin-off from Thermo
Electron, we plan to manage the operations of our subsidiaries in a more
integrated manner.
OUR HISTORY
We operate through a number of subsidiaries and divisions that have
significant experience and brand name recognition in their markets. Although we
have owned some of these subsidiaries for more than three years, we recently
acquired several subsidiaries and operating divisions from Thermo Electron in
connection with its corporate
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restructuring. See "The Distribution -- Background and Reasons for the
Distribution -- Thermo Electron Reorganization."
The following table sets forth the principal subsidiaries and divisions
that comprise our business.
<TABLE>
<CAPTION>
SUBSIDIARY OPERATING GROUP PRINCIPAL PRODUCTS COMMENCED ACQUIRED BY
OPERATIONS THERMO ELECTRON
<S> <C> <C> <C> <C>
Bear Medical Systems Inc. Respiratory Care Mechanical ventilators 1972 October 1997
Bird Medical Technologies Inc. Respiratory Care Mechanical ventilators 1954 October 1995
Erich Jaeger GmbH Respiratory Care Pulmonary function testing and 1954 July 1999
metabolic equipment
SensorMedics Corporation Respiratory Care Pulmonary function testing 1983 July 1996
equipment, sleep diagnostic
equipment and specialized
ventilators
Grason-Stadler, Inc. Neuro Care Hearing diagnostic equipment 1949 November 1998
Medical Data Electronics, Inc. Neuro Care Wireless patient monitoring 1979 July 1996
systems
Nicolet Biomedical Inc. Neuro Care Neurodiagnostic equipment 1967 August 1993
Nicolet Vascular Inc. Neuro Care Peripheral vascular testing 1976 August 1997
equipment
Bird Life Design Corporation Specialty Medical Disposable respiratory products 1991 October 1995
Products
Corpak LLC Specialty Medical Critical care feeding tubes 1980 April 1986
Products and disposable respiratory
accessories
Stackhouse, Inc. Specialty Medical Surgical barrier control 1936 October 1995
Products systems
Thermedics Polymer Products Specialty Medical Medical grade polyurethanes 1983 Not applicable
Products and polyurethane films
Tecomet Inc. Specialty Medical Surgical implant components 1964 Not applicable
Products and medical imaging components
</TABLE>
OUR STRATEGY
Our objectives are to expand our core businesses and to offer new products
and services in the high value therapy and information segments of the
respiratory care and neuro care markets. We are pursuing a number of strategies
intended to achieve these objectives, some of which are based on our spin-off
from Thermo Electron and others are based on specific business plans.
Our Spin-Off Related Strategies
We plan to take advantage of the opportunities presented by the
consolidation of the several subsidiaries and divisions that comprise our
business and our spin-off from Thermo Electron by pursuing the following
strategies:
- Better integrating our operations. We plan to better integrate our
research and development, manufacturing and sales and marketing
organizations to more efficiently use our assets and business
infrastructure. For example:
- A number of our subsidiaries maintain product service
organizations with similar expertise. We believe that we can
extend the service coverage, and therefore the marketability, of
many of our product lines by expanding the breadth of products
covered by each of our service organizations to include similar
products of our other subsidiaries.
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- We recently implemented an initiative to pool the research and
development expertise of our Erich Jaeger, Nicolet Biomedical and
SensorMedics staff involved in the area of diagnostic brain wave
products to create more robust brain wave amplifiers.
- A number of our subsidiaries have global sales and marketing
organizations with strengths in particular geographic areas. For
example, our Erich Jaeger subsidiary has historically had a
greater presence in Europe, South Africa and the Middle East than
our other subsidiaries. We plan to utilize these sales and
marketing organizations to introduce products of other
subsidiaries into additional geographic markets.
- Exploiting increased economies of scale. We believe that the
combination of the operations of our various subsidiaries into one
company and a more coordinated management of our business will enable
us to achieve economies of scale that were unavailable to our
subsidiaries prior to our spin-off from Thermo Electron. For example,
we believe that we can obtain better terms and coverage of an
increased number of products from group purchasing organizations and
suppliers by negotiating as a unified company rather than on a
subsidiary-by-subsidiary basis.
- Access capital markets. We believe that, in order to grow our
business, we need to raise approximately $50 to $100 million in the
next 12 months. We plan to raise these funds by conducting an initial
public offering of shares of our common stock, which we may supplement
with subsequent public offerings or private placements of debt or
equity. We believe that the capital markets prefer "pure play"
companies over conglomerates engaged in a variety of unrelated
businesses. We therefore believe that we can raise funds on better
economic terms as an independent medical products company than as a
majority-owned subsidiary of Thermo Electron. We will only make a
public offering of shares of our common stock by means of a prospectus
complying with the requirements of the Securities Act, and this
information statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any shares of our common stock.
Our Business-Related Strategies
We plan to expand our existing respiratory care, neuro care and specialty
medical products businesses and move into the high value therapeutic and
information-based segments of the respiratory care and neuro care markets. Key
elements of our strategy to achieve these objectives include:
- Developing high value products. We plan to capitalize on our expertise
and our relationships with physicians and other medical caregivers in
the respiratory care and neuro care markets to develop new, high value
products for the respiratory care and neuro care markets, including
therapy and information-based products. We are conducting research and
development focused on a number of potential therapeutic products,
including:
- an inhaled drug delivery device for administering drugs for the
treatment of asthma and other disorders into the respiratory
system more efficiently than traditional methods;
- a device to measure the level of consciousness of a patient under
anesthesia; and
- a device to rapidly clear gases, such as carbon monoxide, from
the blood.
We also are conducting ongoing research and development efforts
focused on information-based products. For example, we are developing
a large scale asthma management program designed to reduce
asthma-related hospitalization and overall asthma treatment costs.
- Establishing new sales channels. While we continue to market our
products to hospitals and healthcare providers, we also plan to market
select products directly to insurance companies, health maintenance
organizations and governmental entities. For example, we plan to
market our large scale asthma management program to insurance
companies, which could benefit from the reduction in costs that we
expect to result from this program.
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- Strengthening competitive position through continuous product
improvements and extensions. We plan to continually develop product
enhancements and next-generation products to strengthen our
competitive position. We currently are developing a number of product
enhancements and next-generation products, including:
- an adult high frequency oscillating ventilator, which would
assist patient breathing with a reduced risk of damage to the
lungs;
- a new transcranial doppler sonograph, which is a device that
measures brain blood flow during surgery; and
- a hood and gown set for preventing contamination in
pharmaceutical and semiconductor manufacturing.
- Acquiring strategic businesses, products and technologies. We plan to
pursue strategic acquisitions of businesses, products and technologies
that will provide us with additional industry expertise, enhance our
product development capacity and enable us to offer more complete
product lines to our customers. We believe that it is often more cost
effective to target an attractive market segment through the
acquisition of established, smaller, focused businesses that enjoy
favorable reputations and have developed technological expertise than
to enter the segment through internal product development.
OUR PRODUCTS
We offer a variety of respiratory care, neuro care and specialty medical
products for use in the delivery of a range of healthcare services.
RESPIRATORY CARE PRODUCTS
In General
Our respiratory care group designs, manufactures and markets a variety of
medical devices for the diagnosis and treatment of respiratory-related
disorders. Our product offerings include:
- mechanical ventilators;
- diagnostic equipment for respiratory and circulatory disorders; and
- diagnostic and therapeutic equipment for sleep-related disorders.
The applications of our respiratory care products vary from intensive care to
home care and from surgery to ambulatory out-patient settings. However, these
products generally share a common therapeutic or diagnostic focus on breathing
and the adequate availability of oxygen throughout the body.
We market our respiratory care products in the United States and
internationally to a variety of customers, including hospitals, clinics, private
physicians, research centers and original equipment manufacturers. We offer
these products under a number of brand names, including:
- Bird Products,
- Bear Medical Systems,
- Erich Jaeger and
- SensorMedics.
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Our Mechanical Ventilators
We design, manufacture and market a range of mechanical ventilators and
related products for use by hospitals and medical professionals. Mechanical
ventilators assist patients who are unable to breathe adequately for themselves
due to disease or injury. These devices pump heated, humidified, oxygen-enriched
air into the lungs at regulated pressures, volumes and times in order to
approximate normal breathing or to modify breathing to treat disorders.
Mechanical ventilators may be stationary or portable. They are typically
configured either for adult or pediatric use.
We market our mechanical ventilators worldwide under the Bird Products,
Bear Medical Systems and SensorMedics brand names.
Adult Ventilators. Adult patients who require respiratory support from a
ventilator include sufferers of severe lung disease and those who have
experienced trauma, burns or near-drowning. Adult ventilators also assist
patient breathing during and after surgery until the effects of general
anesthesia have dissipated.
We offer a range of adult ventilators for institutional and home use,
including:
- T-Bird Ventilator, a full-featured adult and pediatric ventilator that
can be powered by a battery and used without an air compressor,
thereby facilitating the movement of patients;
- Bear 1000 Adult Ventilator, a full-featured ventilator for intensive
care applications; and
- Bird 8400 STI, a full-featured adult ventilator for critical care
applications.
We also offer several portable adult ventilators, such as the Legacy, the Avian
and the Bear 33, which are primarily used for home care, patient transport and
military applications. Our adult ventilators range in price from $5,000 to
$30,000, depending on modes of operation, portability, software and other
features.
Infant and Pediatric Ventilators. Infant and pediatric ventilators are
similar in function to adult ventilators but deliver smaller amounts of oxygen
at lower pressures than adult ventilators. Infants and children requiring
respiratory support from a ventilator include:
- prematurely delivered infants with respiratory distress syndrome, a
condition whereby a premature infant's underdeveloped lungs cannot
properly transfer oxygen into the blood or remove carbon dioxide from
the blood;
- infants and children in post-operative care;
- infants with chronic pulmonary diseases or neuromuscular diseases,
such as bronchopulmonary dysplasia, a chronic lung disease affecting
premature infants; and
- victims of trauma or acute infections.
We currently offer a range of infant and pediatric ventilators, including
the Bird V.I.P. and the Bear Cub 750 ventilators. Each of these products
provides for air flow in synchronization with a patient's normal breathing
patterns, thereby reducing the strain on an infant's lungs. Our Bear Cub
ventilator, which we introduced in 1981, was among the first ventilators
specifically designed for use with infants. The Bear Cub 750 is designed for
newborns and patients under 35 kg. We designed the Bird V.I.P. for use with
newborns and patients under 60kg. Our infant and pediatric ventilators range in
price from $8,000 to $22,000, depending on product features and functionality.
High Frequency Ventilator. High frequency ventilators are specialized
ventilators designed to reduce the damage to a patient's lungs that may be
caused by the continuous expansion and compression characteristic of traditional
mechanical ventilation. The SensorMedics 3100 HFOV, our high frequency
oscillating ventilator, delivers up to 900 very rapid, small volume breaths per
minute. This product provides superior oxygenation at much lower pressures,
which reduces lung damage as compared with conventional ventilators and other
types of
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<PAGE> 42
high frequency ventilators. The FDA first approved the 3100 HFOV for use in
newborns between 0.54 and 4.6 kg in weight in 1991. In 1994, the FDA approved
the 3100 HFOV for use in children in acute respiratory failure with no upper
weight limit. We offer the 3100 HFOV at a price of $28,000. We also offer the
3100 HFOV on a short-term rental basis through an arrangement with a national
medical equipment supplier.
Related Products. We offer a variety of related respiratory care products,
including:
- air/oxygen blenders, which are ventilator components that regulate, in
specific concentrations, the oxygen delivered by a mechanical
ventilator;
- ventilator accessories, such as air compressors, heated humidifiers
and mounting stands; and
- monitoring devices that measure the volume of gas entering and exiting
a patient's lungs during mechanical ventilation.
Our Pulmonary Function Testing Equipment
We design, manufacture and market an extensive line of pulmonary function
testing equipment for use by a variety of healthcare providers, including
hospitals and research centers. Pulmonary function testing equipment measures
and analyzes breathing in order to evaluate the condition of the heart, lungs
and metabolism. These instruments assist in the diagnosis of heart and lung
disease and in the evaluation of a patient's fitness and metabolic condition. In
pulmonary function testing, a patient typically breathes into a mouthpiece
connected to a diagnostic instrument. This instrument measures the gas
concentration, air flow and air volume and collects data on the level of
exchange of oxygen and carbon dioxide in the patient's lungs.
We market our pulmonary function testing equipment internationally under
the SensorMedics and Erich Jaeger brand names. We believe that our SensorMedics
and Erich Jaeger subsidiaries are collectively the largest manufacturer of
pulmonary function testing equipment worldwide.
We offer a broad line of pulmonary function testing equipment, from basic
spirometry products, which measure the rate and volume of breathing, to complete
pulmonary function and metabolic systems, which measure a range of heart, lung
and metabolic functions. Our principal pulmonary function testing products are:
- SensorMedics VMAX, a portable pulmonary function and metabolic
diagnostic system designed for use primarily by healthcare providers.
VMAX is a modular system that allows end-users to tailor it to their
specific needs and to add diagnostic functions as those needs change.
VMAX may be configured in a variety of ways, ranging from a simple
spirometry system to a full-featured pulmonary function and metabolic
diagnostic lab. We market VMAX at prices ranging from $5,000 to
$50,000, depending on the scope of available testing, patient handling
capabilities, analysis software and other options.
- Erich Jaeger MasterScreen, a full-function, pulmonary function and
metabolic diagnostic system for use primarily by healthcare providers.
Our MasterScreen series of products are similar to the VMAX system,
but are constructed in a more integrated fashion. We plan to continue
to offer both products in order to meet varying customer requirements
and preferences. We market MasterScreen primarily outside the United
States at prices ranging from $34,000 to $85,000, depending on product
features.
Our Sleep Diagnostic Testing Equipment
We offer a complete line of specialized sleep diagnostic testing equipment.
These products measure a variety of respiratory and neurological functions to
assist in the diagnosis and monitoring of sleep disorders, such as snoring and
obstructive sleep apnea, a condition whereby a person stops breathing
intermittently during sleep. Our products range from basic sleep diagnostic
systems that monitor one patient, such as the SensorMedics SomnoTract, to a
networked, modular, expandable sleep lab that can monitor multiple patients
simultaneously, such as the SensorMedics SomnoStar. We offer our sleep
diagnostic testing equipment at prices ranging from $8,000 for a small, portable
monitor capable of tracking eight respiratory parameters to $200,000 for
24-channel combined respiratory and neurology systems, often in configurations
of two to eight beds.
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NEURO CARE PRODUCTS
In General
Our neuro care group designs, manufactures and markets a comprehensive line
of neurodiagnostic systems and a line of wireless patient monitoring systems. We
market our neurodiagnostic and patient monitoring products worldwide to a
variety of customers, including hospitals, universities, clinics and physicians
offices. We offer these products under a number of well-known brand names,
including:
- Grason-Stadler,
- Nicolet Biomedical,
- Medical Data Electronics and
- Nicolet Vascular, IMEX and EME.
We believe that our Nicolet Biomedical subsidiary is the world leader in annual
sales of neurological instrumentation used in neurodiagnostic testing and
long-term epilepsy monitoring.
Our Neurodiagnostic Products
We design, manufacture and market a comprehensive line of instruments,
referred to as neurodiagnostic systems, that measure, display and analyze
electrical impulses in a patient's brain, nerves, muscles and other organs.
Physicians and technologists use these data to assist in the diagnosis of
neurological, brain, auditory, psychological, learning and sleep disorders.
We offer a range of products that address the principal areas of
neurodiagnostics, including:
Electromyography and Evoked Potential. We offer a line of instruments for
electromyography and evoked potential. Electromyography, or EMG, is the
measurement of electrical activity in the nerves and muscles. Evoked potential,
or EP, is the monitoring of patient response to stimuli in order to evaluate the
condition of specific nerve pathways. Physicians and technicians in the fields
of neurology, physical medicine and rehabilitation use EMG and EP data to
confirm the diagnosis of various diseases and disorders, including Lou Gehrig's
disease, multiple sclerosis and spinal cord injury. Our principal EMG and EP
diagnostic product is the Nicolet Biomedical Viking, which we believe offers the
highest quality signal currently available to distinguish electrical impulses
within the body from background noise. We believe that the success of the Viking
results from its high signal quality, reliability and modular design. We offer
the Viking line of products at prices ranging from $16,500 to $85,000, depending
on the number of channels measured, reporting capabilities, exam options and
other product features.
Electroencephalography. We offer a line of instruments for
electroencephalography. An electroencephalograph, or EEG, is a visual display of
electrical activity generated by nerve cells in the brain. By placing electrodes
on the scalp, the brain's activity can be amplified and displayed in rising and
falling potentials called brain waves. Physicians use EEGs primarily for
epilepsy diagnosis and monitoring of surgical and pharmaceutical treatments. Our
principal EEG diagnostic product is the Nicolet Biomedical AllianceWorks digital
EEG monitor, which allows screening of brain wave abnormalities. We offer the
AllianceWorks line of products at prices ranging from $22,000 to $35,000,
depending on software options, including report generation, digital video and
signal spike detection.
Epilepsy Monitoring. We offer a line of EEG products for long term epilepsy
monitoring. Our BMSI epilepsy monitoring system combines EEG data with digital
video of a patient to enable a physician to assess the frequency and severity of
epileptic seizures over a multiple day period, typically three or four days. Our
system helps the physician to locate the site of epileptic seizures in the brain
and to determine the proper dosage of drug therapies for treatment of a
particular patient. We offer our epilepsy monitoring systems at prices ranging
from $35,000 to $90,000, depending on the number of channels of brain wave data
monitored and software options.
Audiology. We offer a variety of audiology diagnostic instruments.
Audiology is the assessment of hearing, auditory performance and balance
disorders using a variety of testing techniques, including the evaluation of the
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function of the ear and the measurement of neural responses to sound. We offer a
broad range of audiology diagnostic instruments for middle ear testing in adults
and children that we market under the Grason-Stadler and Nicolet brand names. We
also offer instruments for evaluating balance disorders, such as the Nystar
In-Windows(R), a system that analyzes reflexive eye movements in response to
visual stimuli. We offer our audiology diagnostic instruments at prices ranging
from $400 to $25,000, depending on the type of measurement, the portion of the
auditory system assessed and the associated computer processing capabilities. In
September 1999, we introduced the GSI 70, an infant hearing screener for early
detection of hearing disorders that could affect the development of speech and
language abilities in children. We offer this product at prices ranging from
$3,500 to $6,500, depending on its configuration for single or multiple patient
use and patient data management features.
Intra-Operative Monitoring. We offer a line of products for monitoring
nerve pathways during spine, skull or muscle surgery to reduce the possibility
of nerve damage. Our intra-operative monitoring products assist surgeons in
preserving the functional integrity of a patient's circulatory and nervous
systems during and after complex surgical procedures, such as vascular
reconstruction and tumor removal. Our Nicolet Biomedical subsidiary was a
pioneer in the area of intra-operative monitoring of nerve pathways, with the
introduction of the Viking IOM in 1991. In the third quarter of 2000, Nicolet
Biomedical introduced the Bravo Endeavor, a sophisticated 16-channel
intra-operative monitoring system providing simultaneous EEG, EP and EMG
monitoring for use in the operating room and intensive care units. We offer the
Bravo Endeavor at prices ranging from $50,000 to $70,000, depending on
portability, stimulators and software options.
Related Products. We offer a variety of products related to our
neurodiagnostic instruments, including:
- Medical pocket dopplers, which are instruments that detect fetal
heartbeats and blood clots in the legs. We market these products under
the Nicolet Vascular brand name.
- Transcranial doppler sonographs, which are instruments that measure
blood flow in the brain. We market these products under the Nicolet
Vascular brand name.
- Nic Vue Patient Administrator database software, which manages patient
data from multiple Nicolet Biomedical applications and across multiple
patient visits. This software enables the review of data acquired
across Nicolet Biomedical's neurodiagnostic systems.
- Sleep study systems that measure a variety of neurological functions
to assist in the diagnosis and monitoring of sleep disorders, which we
market under the Ultrasom brand name.
Many neurodiagnostic systems are designed to function only on one model of
a personal computer and with a specified version of an operating system.
Upgrades in personal computers or the release of a newer version of a specified
operating system can render these neurodiagnostic systems obsolete. In contrast,
Nicolet Biomedical has designed its neurodiagnostic systems to function on all
Windows-compatible personal computer systems to prevent its products from
becoming obsolete in the short-term as a result of changes in personal computer
technologies.
Our Wireless Patient Monitoring Systems
We design, manufacture and market a variety of wireless patient monitoring
systems which measure, display and document a variety of vital signs, including
heart activity, blood pressure, pulse rate, blood oxygen levels, body
temperature, respiration rate and other specialized parameters. These systems
enable hospitals to relocate patients who require monitoring but do not
otherwise need to be in an intensive care unit to lower cost settings. We market
our wireless patient monitoring systems to hospitals worldwide.
We offer our wireless, portable patient monitors under the Escort brand
name. Our Escort wireless monitors are capable of monitoring up to 11 vital
signs and transmitting this information over radio frequencies to a monitoring
station. These monitors are well suited for emergency room use, where critical
care patients often require transportation to other areas of the hospital. We
offer our Escort wireless monitors at prices ranging from $6,000 to $16,000,
depending on the configuration required for specific applications.
We also offer a computer-based wireless central monitoring station for our
Escort wireless monitors that we market under the Escort Vision brand name. The
Escort Vision central monitoring station provides centralized, real-
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time patient monitoring, alarm surveillance and documentation for up to 16
patients. Because the Escort Vision central monitoring station receives patient
data by radio signal, it provides hospitals with flexibility in designing a
patient monitoring system and may be moved easily to different areas of a
hospital. We offer the Escort Vision central monitoring station at prices
ranging from $20,000 to $30,000, depending on its intended use.
We also offer a line of telemetry transmitters that transmit data about a
patient's cardiovascular system, such as blood pressure and pulse, to a central
monitoring station. Telemetry systems are used in post-coronary care and other
situations where a patient requires heart monitoring but is allowed freedom of
movement as part of the recovery process. We market these products under the
Guardian brand name at prices ranging from $1,000 to $2,500, depending on heart
and blood oxygen level monitoring capabilities.
SPECIALTY MEDICAL PRODUCTS
Our specialty medical products group designs, manufactures and markets
critical care disposable devices and specialty products and materials. We market
our critical care disposable products, such as our feeding tubes, disposable
respiratory accessories and surgical barrier control systems, to hospitals and
clinics worldwide. We market our specialty products and materials, such as our
medical grade plastics, called polyurethanes, to original equipment
manufacturers for inclusion in their products.
Our Critical Care Disposables
We design, manufacture and market a variety of critical care disposable
products, including:
- Specialty feeding tubes that supply nutrition to critically ill or
compromised patients by a tube that runs from the nose into the
stomach or small bowel. This allows easily-digested nutrients to be
delivered into a patient's digestive tract rather than into the blood
stream. Our specially designed tubes can be placed into the small
bowel at the patient's bedside by the nursing staff, without any
special equipment, thus avoiding patient transport and physician
involvement. We market these products under the Corflo brand name.
- Neonatal/Pediatric devices, such as:
- Closed suctioning system that assists infants who require
mechanical ventilation by maintaining an open airway and ensuring
that the lungs remain inflated. We market this product under the
Neo Link brand name.
- Farrell Gastric Relief System that eliminates the gas and fluid
buildup common in infants suffering from digestive complications,
thereby allowing the delivery of nutrients into the stomach. We
market this product under the Corflo brand name.
- Disposable respiratory accessories that assist a patient's breathing
during surgery or trauma. We market these products under the Pulmonex
brand name. Our disposable respiratory accessory products include:
- ventilator masks;
- resuscitation bags, which enable manual ventilation during
cardio-pulmonary resuscitation;
- hyperinflation circuits, which assist infants and small children
in breathing during suctioning procedures and patient transport;
and
- KidO2 oxygen delivery system, which resembles a toy bear and
delivers oxygen to pediatric patients.
- Surgical implant components, which are fine metal parts used in
reconstructive surgery of bones and joints. We market implant
components to original equipment manufacturers that design and
distribute orthopedic implants worldwide.
- Surgical barrier control systems, which protect both patients and
doctors from contamination introduced into the operating room. We
market these products to hospitals worldwide under the Stackhouse
brand name. Our principal surgical barrier control systems are:
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- Freedom Mark IV Surgical Helmets and ACS Surgical Face Shields,
which are head protection devices that protect surgeons from
contamination introduced into the operating room; and
- Versa Vac 2 and Intellivac Surgical Smoke Evacuation Systems,
which are air filtration systems that collect the smoke plume
created from vaporizing tissue during a laser surgery or
electrosurgery procedure.
Our Specialty Materials and Products
We design, manufacture and market a variety of specialty products and
materials for inclusion by original equipment manufacturers in their products.
Our specialty products and materials include:
- Medical imaging components that limit the "scatter" of high resolution
images of patient anatomy, such as an X-ray image, thereby sharpening
the image.
- Medical-grade polyurethanes that are used to make catheters that go
into the body, stents that prop open blood vessels and as part of
implantable devices, such as pacemakers. We market our medical-grade
polyurethanes under the Tecoflex brand name.
- Polyurethane films that are used in a variety of applications,
including security glazing for anti-ballistic windows and protective
coatings for computer monitor screens.
OUR PRODUCTS UNDER DEVELOPMENT
We plan to capitalize on our expertise and our relationships with
physicians and other medical caregivers in the respiratory care and neuro care
markets to expand our business into high value opportunities, including therapy
and information-based products. In addition to developing new products, we plan
to enhance and extend our existing product lines and develop new products, which
we call next generation products, to broaden our existing portfolio of
respiratory care, neuro care and specialty medical products.
Therapy and Information-Based Products
We are developing a number of therapy and information-based products,
including those described below.
Asthma Diagnosis and Management. We are developing a large scale asthma
management program designed to reduce asthma-related hospitalization. Asthma is
a chronic respiratory disorder in which inflammation in the airways of the lungs
causes difficulty breathing. The National Center for Health Statistics estimates
that, as of 1996, more than 14 million people in the United States suffered from
asthma; approximately 4.4 million of whom were children. A report published in
The New England Journal of Medicine estimates that the cost for asthma treatment
in the United States was approximately $7.5 billion in 1998.
Patients who are enrolled in our asthma management program breathe into a
small hand-held device twice a day. The device measures the patient's lung
function and transmits the data via telephone line to an asthma case manager,
who reviews the data and recommends changes in medication.
In 1998, we collaborated with a pharmaceutical company to institute a pilot
study for our asthma management program in South Africa. During this study,
which lasted 12 months, approximately 68 patients were monitored on a daily
basis. Asthma-related hospitalizations among participants in the pilot program
decreased by 68% compared to a similar-sized control group. We recently
implemented a second pilot study in Germany and have expanded the study in South
Africa.
We do not believe that this program will require FDA approval prior to
marketing in the United States. We expect to market this program to medical
insurers and health maintenance organizations in the United States.
Inhaled Drug Delivery Device. We are developing an electrohydrodynamic, or
EHD, nebulizer which provides for the administration of a drug in a uniform
particle size. A variety of pharmaceuticals, including albuterol, a drug
commonly prescribed for the treatment of asthma, are administered through the
use of a nebulizer. A nebulizer is a
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device that transforms a liquid drug into a vapor, thereby permitting the
administration of the drug into the respiratory system. Traditional nebulizers
provide for an uneven particle size, which causes approximately 80% of the
administered drug to end up in the mouth, throat and stomach, with only 20%
reaching the lungs.
Because our EHD nebulizer delivers a drug in a uniform particle size,
approximately 75% of the administered drug ends up in evenly dispersed
concentrations in the lungs. We believe that this product has particular
application in the treatment of asthma and in the delivery of therapeutic agents
for the treatment of diseases such as cystic fibrosis, adult respiratory
distress syndrome and lung cancer.
We believe that our EHD nebulizer will require 510(k) clearance from the
FDA prior to marketing in the United States. In addition, we expect that each
drug planned for use with our EHD nebulizer will require separate FDA approval
under applicable drug approval procedures. We plan to commence clinical trials
of our EHD nebulizer with albuterol in 2001.
Consciousness Monitor. We are developing a consciousness monitor to
accurately assess a patient's level of consciousness when under the effects of
anesthesia. Clinical trials of this product are in process. We expect to file
with the FDA for 510(k) clearance in 2001.
SeizeAlert Seizure Detection and Prediction Monitor. We are developing a
seizure detection and prediction monitor to accurately predict an epileptic
seizure from 45 minutes to two hours before its onset. We are developing this
product in conjunction with Oak Ridge National Laboratory. We plan initially to
configure this product for long-term epilepsy monitoring in clinics, but expect
eventually to market a wearable form for use outside of the hospital. We have
conducted clinical trials of the stationary version of this product in over 400
patients and expect to complete these clinical trials by the end of 2000. We
believe that our seizure detection and prediction monitor will require 510(k)
clearance from the FDA prior to marketing in the United States.
Gas Clearance and Rebreathing Device. We are developing a device that
rapidly clears gases such as carbon monoxide and some anesthesias from the
blood. This device also allows a patient to rebreathe exhaled gasses when
hyperventilating, thereby enabling the rapid delivery of oxygen to a patient
without increasing the level of carbon dioxide in the blood. We do not believe
that this device will require 510(k) clearance from the FDA prior to marketing
it as a rebreather in the United States. However, we believe that this device
will require 510(k) clearance from the FDA prior to marketing it as a gas
clearance device in the United States. We are currently conducting clinical
trials of this device for gas clearance applications and expect to file for
510(k) clearance in 2001.
Next Generation Products
The following table sets forth some products that we recently introduced to
the market as well as some of our new products and product enhancements
currently under development.
<TABLE>
<CAPTION>
GROUP PRODUCT DESCRIPTION DEVELOPMENT STATUS
----- ------- ----------- ------------------
<S> <C> <C> <C>
Respiratory Care Kodiak Ventilator High-end ventilator Prototypes being built for user
evaluation
Respiratory Care Apnoescreen Home device for diagnosing sleep Product released Summer 2000
disorders
Neuro Care BMSI Intuition Epilepsy screening and surgical Product released summer 2000
brain/nerve monitoring device
Neuro Care VersaLab SE Modular platform for blood flow FDA submission expected in the
analysis in expectant mothers and fourth quarter of 2000
during blood vessel surgery
Specialty Medical Freedom Shield Helmet/gown system for commercial Product released summer 2000
Products chip and pharmaceutical
manufacturers
Specialty Medical Feeding Tube Used to optimize accurate In clinical trials
Products Location Device location of feeding tubes
</TABLE>
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RESEARCH AND DEVELOPMENT
We perform applied research directed at the development of new products,
the development of new uses for existing products and the improvement of
existing products. We primarily focus our research and development activities on
responding to marketplace needs. We supplement our internal research efforts
with third-party and university technical agreements.
We have historically organized our research and development activities by
operating group and subsidiary. However, we recently implemented an initiative
to strategically reorganize our research and development efforts by product area
and functional use rather than along traditional company lines. For example, our
Erich Jaeger, Nicolet Biomedical and SensorMedics subsidiaries each historically
maintained a research and development group with expertise in the area of brain
wave amplifiers. We are currently engaged in a project in which the members of
these groups share their expertise in brain wave amplifiers in order to take
advantage of each member's specialized knowledge. We believe that a number of
other opportunities exist to structure our research and development organization
on a functional, rather than organizational, basis.
The following table sets forth our research and development expenses,
including clinical and regulatory expenses, for the periods indicated.
<TABLE>
<CAPTION>
FISCAL PERIOD RESEARCH AND DEVELOPMENT EXPENSES
------------- ---------------------------------
<S> <C>
1997 $11.9 million
1998 $14.2 million
1999 $18.5 million
Six months ended July 1, 2000 $11.5 million
</TABLE>
We expect research and development expenses to increase in the future as we seek
to enhance our existing products and develop additional products. As of August
1, 2000, we had approximately 200 full time employees engaged in research and
development.
SALES AND MARKETING
We currently market our products in over 150 countries using a network of
distributors, independent manufacturers' representatives and our own direct
sales force. Our sales and marketing strategy for our product lines differs
based on the type of market and our assessment of how we can maximize our
resources and make the greatest impact on the particular market. Our customers
include hospitals, alternate care sites, clinical laboratories, private
physicians and original equipment manufacturers. As of August 1, 2000, we had
approximately 390 full time sales and marketing employees.
United States. We market our products in the United States through the
field sales organizations of our various subsidiaries and, in some cases,
through distributors. A number of our subsidiaries have entered into
arrangements with several group purchasing organizations in the United States,
including Premier, Inc., Novation, LLC, HCA, The Healthcare Company, Consorta,
Inc. and Tenet Healthcare Corporation. Group purchasing organizations are
associations of hospitals and other health care organizations that pool their
purchasing power to negotiate more favorable terms. We believe that these
arrangements provide us with the opportunity for increased market penetration
without requiring significant additional sales and marketing resources.
International. We market many of our products worldwide, including in most
major European countries. A number of our subsidiaries, including Erich Jaeger
and Nicolet Biomedical, maintain sales and marketing organizations in a number
of foreign countries, including the United Kingdom, Austria, France, The
Netherlands, Germany and Japan. We also use distributors to market our products
in over 150 countries worldwide. We select our distributors based on their
knowledge of the particular product and medical specialty.
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Backlog. Our backlog was $58.0 million as of July 1, 2000, compared with a
backlog of $55.7 million at the end of fiscal 1999 and a backlog of $55.6
million as of July 1, 1999. We include in our backlog only orders confirmed
with a purchase order for products scheduled to be shipped within one year.
Purchase orders included in our backlog may be subject to termination, revision
or delay, and our backlog may not necessarily be a meaningful predictor of
future results.
MANUFACTURING AND RAW MATERIALS
We manufacture substantially all of our products at ten facilities in the
United States, comprising approximately 380,000 square feet. We manufacture a
small number of products at manufacturing facilities located in Europe. Our
manufacturing processes are diverse and include, among other processes:
- machining of surgical implant components, ventilator components and
imaging equipment;
- assembly and testing of purchased components in the case of
ventilators, neurodiagnostic instruments and other electronic
products;
- assembly of surgical helmet systems;
- manufacturing of polyurethane resins;
- development of software programs for neurodiagnostic and pulmonary
diagnostic systems and other electronics products; and
- molding and clean room assembly of polyurethane feeding tubes.
We believe that our in-house manufacturing and assembly capabilities allow us to
achieve high quality levels and significantly reduce our time to introduce
products to market. The quality assurance groups at each facility independently
verify that product fabrication and inspection processes meet our specifications
and applicable regulatory requirements.
Our manufacturing facilities are subject to periodic inspection by
regulatory authorities, including Quality System Regulation inspections
conducted by the FDA and European Medical Device Directive compliance
inspections conducted by ISO-authorized agencies. We believe that our facilities
are in substantial compliance with current good manufacturing practice
requirements set forth in the Quality System Regulations and the Medical Device
Directive. Almost all of our manufacturing facilities are ISO 9001 certified,
which means they meet the manufacturing requirements of the Medical Device
Directive of the European Union. All of our principal products are qualified to
bear the CE mark, which means that these products meet the necessary safety
standards for marketing and sale in the European Union.
We believe that we have a readily available supply of raw materials for all
of our significant products from various sources, and we do not anticipate any
difficulties in obtaining raw materials essential to our business. However, we
purchase some components and raw materials, such as the raw materials for our
medical grade polyurethanes and the beryllium copper strips included in our
medical imaging components, from sole sources of supply. We believe that we have
the ability to locate, over time, alternative sources of supply or to develop
the internal capability to produce such components, if necessary.
INTELLECTUAL PROPERTY
We pursue a policy of seeking patent protection of our technology, products
and product improvements both in the United States and in selected foreign
countries. As of August 1, 2000, we held 111 issued United States patents and 57
patents in foreign countries, which expire over the next 20 years. We also have
approximately 15 United States patent applications pending and a number of
foreign counterparts pending in selected foreign countries. We do not consider
any patent or related group of patents to be of such importance that its
expiration or termination would materially affect our business.
We also rely on trade secrets and technological innovations to develop and
maintain our competitive position. In an effort to protect our trade secrets, we
generally require our employees, consultants and advisors to execute
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confidentiality and invention assignment agreements upon commencement of
employment or consulting relationships with us.
We have entered into a number of license and other arrangements under which
we have obtained rights to manufacture and market some of our products or
product candidates. For instance, a number of the therapeutic-based products
that we are developing incorporate proprietary technologies that we have
licensed from third parties. Under our existing licenses, we are subject to
commercialization and development, sublicensing, royalty, insurance and other
obligations. If we fail to comply with any of these requirements, or otherwise
breach a license agreement, the licensor may have the right to terminate the
license in whole or to terminate the exclusive nature of the license. In
addition, upon the termination of the license, we may be required to license to
the licensor any related intellectual property that we develop.
COMPETITION
The respiratory care, neuro care and specialty medical products markets are
highly competitive. We compete with many companies ranging from small start-up
enterprises to companies that are larger and more established than us, with
access to significant financial resources and greater name recognition, research
and development experience and regulatory, manufacturing and marketing
capabilities. We compete in each of our markets primarily on the basis of
reputation, product reliability and performance, product features and benefits,
price and post-sale service and support. Although we believe that our products
currently compete favorably with respect to these factors, we cannot assure you
that we can maintain our competitive position against our current and potential
competitors.
Our principal competitors in the respiratory care, neuro care and specialty
medical products markets include:
<TABLE>
<CAPTION>
PRODUCT GROUP PRINCIPAL COMPETITORS
------------- ---------------------
<S> <C>
Respiratory Care Products Siemens AG, Tyco Healthcare Group and Dragerwork AG
Neuro Care Products Bio-logic Systems Corporation, Teca-Oxford Instruments
PLC and Agilent Technologies, Inc.
Specialty Medical Products Ross Products Division of Abbott Laboratories, The Dow
Chemical Company and customer in-house manufacturing
facilities
</TABLE>
GOVERNMENT REGULATION
United States
U.S. Food and Drug Administration
In the United States, the testing, manufacture and sale of our products are
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state agencies. Pursuant to the Food, Drug, and Cosmetic Act,
and the related regulations, the FDA regulates the preclinical and clinical
testing, manufacture, labeling, distribution and promotion of medical devices,
such as our products. If we do not comply with applicable requirements, we can
be subject to, among other things:
- fines,
- injunctions,
- civil penalties,
- recall or seizure of products,
- total or partial suspension of production,
- refusal of the government to grant premarket clearance or premarket
approval for devices,
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- withdrawal of marketing clearances or approvals and
- criminal prosecution.
A medical device may be marketed in the United States only if (1) the FDA
gives prior authorization, (2) the device is subject to a specific exemption or
(3) the device was marketed prior to May 28, 1976, the effective date of the
Medical Device Amendments to the Food, Drug, and Cosmetic Act. Depending on the
type of medical device, FDA authorization typically takes one of the following
two forms:
- Premarket clearance under section 510(k) of the Food, Drug, and
Cosmetic Act. The FDA will generally grant a device 510(k) premarket
clearance when an applicant submits information which establishes that
a proposed device is substantially equivalent to a legally marketed
device. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety
or effectiveness or constitute a major change in the intended use of
the device, require new 510(k) submissions. We believe that it now
usually takes from three to six months from the date of submission to
obtain 510(k) clearance, although it can take substantially longer,
depending on the device.
- Premarket approval, or PMA. A PMA application requires an applicant to
prove the safety and effectiveness of the device to the FDA. The
process of obtaining PMA approval is expensive and uncertain. We
believe that FDA approval usually takes from one to three years after
filing, but it can take longer, depending on the device.
The FDA classifies medical devices in the following three categories,
according to the level of patient risk associated with a device.
- Class I devices are non-critical products for which general regulatory
controls are sufficient to provide reasonable assurance of safety and
effectiveness. Most Class I devices are exempt from the requirement of
510(k) premarket clearance. The FDA must grant 510(k) premarket
clearance prior to marketing a non-exempt Class I device in the United
States.
- Class II devices are devices for which general regulatory controls are
insufficient to provide reasonable assurance of safety and
effectiveness and which therefore need special regulatory controls
such as compliance with FDA prescribed standards. The FDA must grant
510(k) premarket clearance prior to marketing a Class II device in the
United States.
- Class III devices are devices classified by the FDA as posing the
greatest risk, such as life-sustaining, life-supporting or implantable
devices, or devices that are not substantially equivalent to a legally
marketed Class I or Class II device. The FDA generally must approve a
PMA application prior to marketing a Class III device in the United
States. Only one of our principal products, the 3100A HFOV high
frequency oscillating ventilator, is a Class III device. The FDA has
approved a premarket approval application for use of this product in
children in acute respiratory failure with no upper weight limit.
If human clinical trials of a device are required, whether to support a
510(k) or a PMA application, the sponsor of the trial, which is usually the
manufacturer or the distributor of the device, must have an investigational
device exemption, or IDE, before beginning human clinical trials. If a device
presents a significant risk to the patient, the FDA must approve the sponsor's
IDE application before the clinical trial may start. An IDE application for a
significant risk device must be supported by data, typically including the
results of animal and laboratory testing. If the IDE application is approved by
the FDA and one or more appropriate Institutional Review Boards, or IRBs, human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
nonsignificant risk to the patient, a sponsor may begin a clinical trial after
obtaining approval for the study by the IRB at each clinical site without the
need for FDA approval of an IDE application.
The Food, Drug, and Cosmetic Act regulates our quality control and
manufacturing procedures by requiring us to demonstrate and maintain compliance
with the Quality System Regulation, or QSR, which sets forth the FDA's current
good manufacturing practices requirements. These requirements include, among
other things, that:
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- we use written procedures to control our product development and
manufacturing process;
- we validate, by extensive and detailed testing of every aspect of the
process, our ability to produce devices which meet our manufacturing
specifications;
- we investigate any deficiencies in the manufacturing process or in the
products produced; and
- we maintain detailed record keeping.
The FDA monitors compliance with the QSR and current good manufacturing
practices requirements by conducting periodic inspections of manufacturing
facilities. Violations of applicable regulations noted by the FDA during
inspections of our manufacturing facilities could adversely affect the continued
marketing of our products.
The FDA enforces post-marketing controls that include the requirement to
file medical device reports, or MDRs, when we become aware of information
suggesting that any of our marketed products may have caused or contributed to a
death, serious injury or serious illness. The FDA also requires the filing of an
MDR when we become aware that any of our products has malfunctioned and that a
recurrence of that malfunction would likely cause or contribute to a death,
serious injury or serious illness. The FDA relies on MDRs to identify product
problems and utilizes MDRs to determine whether it should exercise its
enforcement powers.
Other FDA requirements govern product labeling and prohibit a manufacturer
from marketing an approved device for unapproved applications. If the FDA
believes that a manufacturer is not in compliance with the law, it can institute
an enforcement action against the manufacturer, its officers and employees.
Other Regulations
We are also subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances. In
addition, some of our products, such as our wireless patient monitoring systems,
transmit or receive information through radio signals and are, therefore,
subject to regulation by the United States Federal Communications Commission.
International
We derive a significant portion of our revenue from sales of our products
outside the United States. Sales of medical devices outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. These laws and regulations range from simple product registration
requirements in some countries to complex clearance and production controls in
others. As a result, the processes and time periods required to obtain foreign
marketing approval may be longer or shorter than those necessary to obtain FDA
approval or marketing clearance. These differences may affect the efficiency and
timeliness of international market introduction of our products.
We may not sell medical devices in European Union countries unless the
devices bear the CE mark, a symbol of adherence to quality assurance standards
and compliance with applicable regulatory requirements known as the European
Directives. Almost all of our manufacturing facilities have received ISO 9001
certification, evidence of a quality system that meets the requirements of the
Medical Device Directive, a European Directive that prescribes safety standards
for medical devices. Compliance with the Medical Device Directive is one of the
prerequisites to CE mark certification of a medical device. As of August 1,
2000, all of our key respiratory care and neuro care products bore the CE mark.
Unapproved medical devices manufactured in the United States may be
distributed and sold outside the United States subject to FDA export
requirements. An unapproved device that could be marketed under the FDA's 510(k)
premarket notification requirements may be exported to another country without
the FDA's permission if the device meets the specifications of a foreign
purchaser, is not in conflict with the laws of the country to which it is
exported, is marketed for export only and is not distributed in the United
States. An unapproved device that is subject to PMA requirements may be exported
after notification to the FDA if the device is approved for use by selected
countries or regional regulatory authorities specified in the Food, Drug, and
Cosmetic Act and if the device meets the
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specifications of a foreign purchaser, is not in conflict with the laws of the
country to which it is exported, is marketed for export only and is not
distributed in the United States. An unapproved device that is not approved by
recognized countries may only be exported after a determination by the FDA that
exportation is not contrary to the public health and that the device is approved
in the country to which it is exported, meets the specifications of a foreign
purchaser, is not in conflict with the laws of the country to which it is
exported, is marketed for export only and is not distributed in the United
States.
THIRD PARTY REIMBURSEMENT
In the United States, healthcare providers that purchase medical devices
generally rely on third party payors, such as Medicare, Medicaid, private health
insurance plans and health maintenance organizations, to reimburse all or a
portion of the cost of the devices. The Health Care Financing Administration of
the U.S. Department of Health and Human Services, commonly referred to as HCFA,
funds and administers the Medicare program. HCFA and the states jointly fund the
Medicaid program, and the states administer the Medicaid program under general
federal oversight. The competitive position of some of our products will depend,
in part, upon the extent of coverage and adequate reimbursement for such
products and for the procedures in which such products are used.
The federal government and various state governments are currently
considering proposals to reform the Medicare and Medicaid healthcare
reimbursement system. We are unable to evaluate what legislation may be drafted
and whether or when any such legislation will be enacted and implemented. Some
of these proposals, if adopted, could have an adverse effect on our business,
financial condition and results of operations.
During the past several years, the major third party payors have
substantially revised their reimbursement methodologies in an attempt to contain
their healthcare reimbursement costs. Medicare reimbursement for inpatient
hospital services is based on a fixed amount per admission based on the
patient's specific diagnosis. As a result, any illness to be treated or
procedure to be performed will be reimbursed only at a prescribed rate set by
the government that is known in advance to the healthcare provider. If the
treatment costs less, the provider keeps the overage; if it costs more, the
provider cannot bill the patient for the difference. No separate payment is made
in most cases for products such as our instrumentation when they are furnished
or used in connection with inpatient care. Many private third party payors and
some state Medicaid programs have also adopted similar prospective payment
systems.
Third party payors have recently increased their emphasis on managed care,
which has led to an increased emphasis on the use of cost-effective medical
devices by healthcare providers. In addition, through their purchasing power,
these payors often seek discounts, price reductions or other incentives from
medical products suppliers.
Reimbursement and healthcare payment systems in international markets vary
significantly by country and include both government sponsored healthcare and
private insurance. We have received international reimbursement approvals for
many of our products and plan to seek international reimbursement approvals for
other products. In contrast to the United States, Europe is a highly fragmented
market, with a large number of distinct and uniquely structured health care
delivery and payment systems. European health care systems are beginning to
confront the same fiscal pressures and limitations that characterize the United
States health care system and are increasingly adopting many of the same cost
and utilization control mechanisms. To the extent that any of our products are
not entitled to reimbursement in any international market, market acceptance of
such products in such international market would be adversely affected.
PRODUCT LIABILITY AND INSURANCE
Our business entails the risk of product liability and product recall
claims. Any claims of these types could have an adverse impact on us. We
maintain general liability and commercial liability insurance policies which
include coverage for product liability claims. We evaluate our insurance
requirements on an ongoing basis to enable us to maintain an adequate level of
coverage. However, product liability claims could exceed our insurance coverage
limits and insurance may not be available on commercially reasonable terms or at
all.
PROPERTIES
We own or lease approximately 15 properties in the United States and lease
approximately 17 properties internationally, which generally consist of
administrative and sales offices, manufacturing, assembly and distribution
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facilities and warehouse facilities. In the United States, we own facilities
with an aggregate size of approximately 319,000 square feet, and we lease
approximately 390,000 square feet of space. Internationally, we lease facilities
with an aggregate size of approximately 195,000 square feet. We believe our
current facilities will be sufficient to meet out needs for the foreseeable
future and that additional space will be available at a reasonable cost to meet
out needs in the future.
PERSONNEL
We had approximately 1,950 full-time employees at August 1, 2000,
consisting of approximately 1,530 employees based in the United States and
approximately 420 employees based outside the United States.
We have no collective bargaining agreements with our United States
employees. Approximately 8 of our operating locations outside the United States
have collective bargaining agreements and/or work counsel agreements covering
approximately 330 employees.
LEGAL PROCEEDINGS
On July 19, 1999, our Bird Products subsidiary commenced a lawsuit against
a former employee, Douglas DeVries, and Pulmonetic Systems, Inc. in the United
States District Court for the Central District of California for patent
infringement, misappropriation of trade secrets, breach of contract, unfair
competition and wrongful interference with a business relationship. Our claims
in this lawsuit stem, in part, from Pulmonetic's marketing of a mechanical
ventilator that we believe infringes a patent related to our T-Bird Ventilator.
The defendants in this case have counter sued Bird Products, as well as Bird
Medical and Thermo Electron, claiming, among other things, trade libel, abuse of
process, unfair competition, false advertising, breach of contract and
violations of antitrust laws. Currently the matter is in the early stages of
discovery. Summary judgment motions with respect to some of the claims are
pending. In a related case, on June 2, 2000, we commenced a lawsuit against
Douglas DeVries and Pulmonetic Systems in the United States District Court for
the Central District of California for copyright infringement stemming from
Pulmonetic's copying of computer software programs and operating manuals
associated with our T-Bird Ventilator. Currently the matter is in the early
stages of discovery. We believe that our claims against Douglas DeVries and
Pulmonetic Systems are meritorious and that the defendants' claims against Bird
Products, Bird Medical and Thermo Electron are without merit. We plan to
vigorously pursue our claims in these cases and defend against each claim
asserted in the defendants' counter suit. We cannot assure you that we will be
successful in this litigation, and an adverse resolution of the claims made in
the defendants' countersuit could require the payment of substantial monetary
damages. Our involvement in this suit has entailed, and may continue to entail,
the expenditure of significant financial and managerial resources.
In addition to the foregoing, we are involved from time to time in
litigation on various matters which are routine to the conduct of our business,
including product liability claims. Management believes that none of these
actions, individually or in the aggregate, will have a material adverse effect
on our financial position or results of operations.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information with respect to those individuals who
currently serve as our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE EXPECTED POSITION
---- --- -----------------
<S> <C> <C>
William B. Ross 50 Interim Chief Executive Officer and Director
Gerald G. Brew 44 President, Nicolet Biomedical Inc.
Theo Melas-Kyriazi 41 Chief Financial Officer
John T. Keiser 64 Director
Richard F. Syron 56 Director
</TABLE>
Each executive officer serves until his successor is chosen and appointed
by our board of directors and qualified or until his or her earlier resignation,
death or removal. Mr. Melas-Kyriazi will resign as our chief financial officer
on or before the distribution date. In addition, Messrs. Ross, Keiser and Syron
will resign as our directors on or before the distribution date.
Mr. Ross has been our interim chief executive officer and one of our
directors since July 2000 and has been the president of SensorMedics
Corporation, one of our wholly owned subsidiaries, since October 1996. Mr. Ross
was president of SensorMedics Corporation's Critical Care division from January
1995 to October 1996, and prior to that time, was the vice president, sales and
marketing for SensorMedics Corporation.
Mr. Brew has been the president of Nicolet Biomedical Inc., one of our
wholly owned subsidiaries, since October 1993.
Mr. Melas-Kyriazi was appointed chief financial officer of our company in
July 2000 and of Thermo Electron in January 1999. He was the treasurer of Thermo
Electron from 1988 until he was named vice president of corporate strategy in
March 1998. Prior to his appointment as a vice president of Thermo Electron, Mr.
Melas-Kyriazi served as president and chief executive officer of Thermo Spectra
Corporation, a former indirect subsidiary of Thermo Electron and a manufacturer
of imaging and inspection, temperature control and test and measurement
instruments, from its inception in August 1994 until March 1998. Mr.
Melas-Kyriazi is a citizen of Greece. Mr. Melas-Kyriazi is a full-time employee
of Thermo Electron, but devotes such time to the affairs of our company as our
needs reasonably require.
Mr. Keiser has served as one of our directors since August 1995. Mr. Keiser
became chief operating officer, biomedical, of Thermo Electron in September 1998
and was a vice president of Thermo Electron from April 1997 until his promotion.
From March 1998, Mr. Keiser served as the president of Thermedics Inc., a former
majority-owned subsidiary of Thermo Electron and a manufacturer of biomedical
products and security instruments, until its merger with Thermo Electron in June
2000. Mr. Keiser also served as chief executive officer of Thermedics from
December 1998 through June 2000. From 1994 until March 1998, Mr. Keiser had
served as a senior vice president of Thermedics. He has also been the president
of Thermo Electron's wholly owned biomedical group, a manufacturer of medical
equipment and instruments, since 1994. Mr. Keiser is a director of Thermo
Cardiosystems Inc. and Trex Medical Corporation.
Dr. Syron has served as one of our directors since July 2000. Dr. Syron has
been a director of Thermo Electron since September 1997, its chief executive
officer since June 1999 and chairman of the board since January 2000. Dr. Syron
also served as the president of Thermo Electron from June 1999 until July 2000.
From April 1994 until May 1999, Dr. Syron was the chairman and chief executive
officer of the American Stock Exchange Inc. located at 86 Trinity Place, New
York, NY 10006-1881. Dr. Syron is also a director of Dreyfus Corporation, The
John Hancock Corporation and Thermo Fibertek Inc.
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<PAGE> 56
BOARD OF DIRECTORS
Our board of directors currently is comprised of three directors: John T.
Keiser, William B. Ross and Richard F. Syron. All three directors will resign on
or before the distribution date and be replaced by a board of directors
comprised of at least six members, including our chief executive officer and
five directors who are not otherwise affiliated with our company or with Thermo
Electron. At the time of the distribution, the terms of office of our board of
directors will be divided into three classes. As a result, a portion of our
board of directors will be elected each year. The division of the three classes
and their respective election dates are as follows:
- the term of the class 1 directors will expire at the 2001 annual
meeting of stockholders;
- the term of the class 2 directors will expire at the 2002 annual
meeting of stockholders; and
- the term of the class 3 directors will expire at the 2003 annual
meeting of stockholders.
At each annual meeting of stockholders after the distribution, the
successors to directors whose terms are to expire will be elected to serve from
the time of election and qualification until the third annual meeting following
election. Only our board of directors may change the authorized number of
directors. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of our company.
BOARD COMMITTEES
Prior to the distribution, we anticipate that our board of directors will
establish an audit committee, a nominating committee and a human resources
committee composed exclusively of outside directors. The audit committee will
review the scope of audits with our independent public accountants and will meet
with them for the purpose of reviewing the results of such audits subsequent to
their completion. The nominating committee will consider nominees for election
or appointment to our board of directors and will nominate potential new
directors. The human resources committee will review the performance of senior
members of management, recommend executive compensation and administer our stock
option and other stock-based compensation plans.
COMPENSATION OF DIRECTORS
We anticipate that all directors who are not our employees will receive an
annual retainer of $10,000 and a fee of $1,000 per day for attending regular
meetings of our board of directors, and $500 per day for participating in
meetings of our board of directors held by means of conference telephone and for
participating in meetings of committees of our board. We expect to pay these
fees quarterly. We will also reimburse directors for reasonable out-of-pocket
expenses incurred in attending board or committee meetings.
Directors' Deferred Compensation Plan. We have adopted a directors'
deferred compensation plan and have reserved ________ shares of our common stock
for issuance to our directors under this plan. Under our deferred compensation
plan for directors, a director may defer receipt of his cash fees until he
ceases to serve as a director, dies or retires from his principal occupation. In
the event of a change in control or proposed change in control of our company
that is not approved by our board of directors, deferred amounts will become
payable immediately. For these purposes, a change in control includes:
- the acquisition by any person of 40% or more of our outstanding common
stock or voting securities;
- the failure of our board of directors to include a majority of
directors who are "continuing directors", which term is defined to
include directors who were members of our board on the date on which
the plan was adopted or who subsequent to that date were nominated or
elected by a majority of directors who were "continuing directors" at
the time of such nomination or election;
- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving our company or
the sale or other disposition of all or substantially all of our
assets unless immediately after such transaction (1) all holders of
our common stock immediately prior to such transaction own more than
60% of the outstanding voting securities of the resulting or acquiring
50
<PAGE> 57
corporation in substantially the same proportions as their ownership
immediately prior to such transaction and (2) no person after the
transaction owns 40% or more of the outstanding voting securities of
the resulting or acquiring corporation; or
- approval by our stockholders of a complete liquidation or dissolution.
Amounts deferred pursuant to the deferred compensation plan will be valued
at the end of each quarter as units of our common stock. When payable, amounts
deferred may be disbursed solely in shares of our common stock accumulated under
the deferred compensation plan. The deferred compensation plan will be effective
on the date of distribution of shares of our common stock. No units have yet
been accumulated under this plan.
Director Option Grants. We may, in our discretion, grant stock options and
other equity awards to our non-employee directors under our 2000 equity
incentive plan. At about the time of the distribution, we anticipate granting
each of our non-employee directors an option to purchase _______ shares of our
common stock under our 2000 equity incentive plan. We expect that the exercise
price of these options will be based on the average closing price of our common
stock over the first five days of trading on the American Stock Exchange.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the total compensation paid or accrued to
our interim chief executive officer and the individual who is expected to be our
next most highly compensated executive officer, who are referred to as our named
executive officers. The compensation shown in this table was paid by Thermo
Electron or its subsidiaries, including our company, for services rendered to
Thermo Electron and its subsidiaries. Amounts shown are for each named executive
officer in his last position with Thermo Electron or its subsidiaries, including
our company, and do not necessarily reflect the compensation that these
individuals will earn in their new capacities as our executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
RESTRICTED SECURITIES
NAME AND FISCAL ANNUAL COMPENSATION STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARD (1) OPTIONS (2) COMPENSATION (3)
------------------ ---- ------ ----- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William B. Ross 1999 $190,000 $165,000 $205,037 (TMD)(4) 14,100 (TMO) $7,200
Interim Chief Executive 1998 $170,000 $127,000 -- 57,800 (TMO) $5,625
Officer 1997 $148,846 $100,000 -- 8,150 (TMO) $5,344
---------------------------------------------------------------------------------------------------------------------
Gerald G. Brew 1999 $162,693 $85,000 $174,249 (TMD)(4) 9,600 (TMO) $4,800
President 1998 $159,681 $71,000 -- 36,500 (TMO) $4,800
Nicolet Biomedical Inc. 1997 $136,075 $95,000 -- 2,500 (TMO) $4,800
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In fiscal 1999, Mr. Ross was awarded 23,600 shares of restricted common
stock of Thermedics Inc., then a majority-owned public subsidiary of Thermo
Electron Corporation referred to in the table as TMD, with a value of
$205,037 on the grant date. In fiscal 1999, Mr. Brew was awarded 20,300
shares of restricted common stock of Thermedics with a value of $174,249 on
the grant date. The restricted stock awards vest 33% per year commencing on
the first anniversary of the grant date. Any cash dividends paid on
restricted shares are entitled to be retained by the executive without
regard to vesting. Any non-cash dividends paid on restricted shares are
entitled to be retained by the executive subject to the same vesting
restrictions as the underlying stock. At January 1, 2000, Mr. Ross held
23,600 shares of restricted stock of Thermedics with an aggregate value of
$128,336, and Mr. Brew held 20,300 shares of restricted stock of Thermedics
with an aggregate value of $110,391.
(2) As of the date of this information statement, we have not granted any
options to purchase shares of our common stock. At about the time of the
distribution, however, we plan to grant William B. Ross an option to
purchase ______ shares of our common stock and Gerald G. Brew an option to
purchase ______ shares of our common stock. See "Management -- Planned
Stock Option Grants." During the last three years, Thermo Electron granted
our named executive officers options to purchase shares of its common
stock, designated in the table as TMO, as part of its stock option program.
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<PAGE> 58
(3) Represents the amount of matching contributions made by the individual's
employer on behalf of the named executive officers participating in the
Thermo Electron 401(k) plan or, in the case of Mr. Brew, the Nicolet
Instruments Savings Retirement Plan, maintained by Nicolet Biomedical Inc.,
one of our wholly owned subsidiaries.
(4) Subsequent to January 1, 2000, Thermo Electron took Thermedics private in a
merger transaction whereby each outstanding share of Thermedics common
stock was exchanged for 0.45 shares of the common stock of Thermo Electron
and each outstanding option for Thermedics common stock was converted into
approximately 0.45 options to purchase shares of the common stock of Thermo
Electron.
Stock Options Granted During Fiscal 1999
The following table sets forth information concerning individual grants of
stock options made during fiscal 1999 to our named executive officers. As of the
date of this information statement, we have not granted any options to purchase
shares of our common stock. At about the time of the distribution, however, we
plan to grant William B. Ross an option to purchase ______ shares of our common
stock and Gerald G. Brew an option to purchase ______ shares of our common
stock. See "Management -- Planned Stock Option Grants."
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OPTION TERM (2)
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED AND COMPANY FISCAL YEAR SHARE DATE 5% 10%
---- ------------------- ------------ ----- ---- -- --
<S> <C> <C> <C> <C> <C> <C>
William B. Ross 12,000 (TMO) 0.40%(3) $14.39 3/17/04 $47,710 $105,422
2,100 (TMO) 0.07%(3) $14.81 9/22/04 $ 8,590 $ 18,988
-------------------------------------------------------------------------------------------------------------------
Gerald G. Brew 9,600 (TMO) 0.32%(3) $14.39 3/17/04 $38,170 $ 84,338
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during fiscal 1999 were immediately exercisable
as of the end of fiscal 1999 for a five year term. In all cases, the shares
acquired upon exercise are subject to repurchase at the exercise price if
the executive ceases to be employed by us or Thermo Electron. The
repurchase rights may be exercised within six months after the termination
of the executive's employment. The repurchase rights lapse ratably over a
one-year period, provided the executive continues to be employed by us or
Thermo Electron. The executive may exercise options and to satisfy tax
withholding obligations by surrendering shares equal in fair market value
to the exercise price or withholding obligation.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock of the
granting company, the executive's continued employment through the option
period and the date on which the options are exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron as part of its compensation program. Accordingly, we have reported
these options as a percentage of total options granted to employees of
Thermo Electron and its subsidiaries.
Option Exercises During Fiscal 1999 and Fiscal Year-End Option Values
The following table reports information regarding stock option exercises
during fiscal 1999 and outstanding stock options held at the end of fiscal 1999
by our named executive officers.
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<PAGE> 59
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND
FISCAL 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY (1) EXERCISE REALIZED (2) UNEXERCISABLE) (1) UNEXERCISABLE)
---- ----------- ----------- ------------ ------------------- --------------
<S> <C> <C> <C> <C> <C>
William B. Ross (TMO) -- -- 82,850/0 $7,719/--
----------------------------------------------------------------------------------------------------------------
Gerald G. Brew (TMO) -- -- 73,350/0 $5,856/--
(TBA) (3) -- -- 2,000/0 $16,750/--
(THS) (4) 1,406 $6,003 --/-- --/--
(TKN) (5) -- -- 3,200/0 $0/--
(TCK) (6) -- -- 3,600/0 $0/--
(TMD) (7) -- -- 1,600/0 $0/--
(TXM) -- -- 10,000/0 $0/--
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable as of fiscal year-end. In all cases, the shares
acquired upon exercise of the options reported in the table are subject to
repurchase at the exercise price if the executive ceases to be employed by
us or Thermo Electron. The repurchase rights may be exercised within six
months after the termination of the executive's employment. The repurchase
rights generally lapse ratably over a one- to ten-year period, depending on
the option term, which may vary from three to twelve years, provided that
the executive continues to be employed by us or Thermo Electron. The
executive may be permitted to exercise options and to satisfy tax
withholding obligations by surrendering shares equal in fair market value
to the exercise price or withholding obligation. Please refer to following
company abbreviations used in this table: Thermedics Inc., designated in
the table as TMD; Thermo BioAnalysis Corporation, designated in the table
as TBA; Thermo Ecotek Corporation, designated in the table as TCK; Thermo
Electron Corporation, designated in the table as TMO; ThermoSpectra
Corporation, designated in the table as THS; ThermoTrex Corporation,
designated in the table as TKN; and Trex Medical Corporation, designated in
the table as TXM.
(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive exercising the option. The amounts shown represent
the difference between the option exercise price and the market price on
the date of exercise, which is the amount that would have been realized if
the shares had been sold immediately upon exercise.
(3) Subsequent to January 1, 2000, Thermo Electron took Thermo BioAnalysis
Corporation private in a merger transaction whereby each outstanding share
of Thermo BioAnalysis common stock was exchanged for $28.00 in cash and
each outstanding Thermo BioAnalysis option converted into approximately
1.47 options to purchase shares of the common stock of Thermo Electron.
(4) Subsequent to January 1, 2000, Thermo Electron took ThermoSpectra
Corporation private in a merger transaction whereby each outstanding share
of ThermoSpectra common stock was exchanged for $28.00 in cash and each
outstanding ThermoSpectra option was converted into approximately 1.41
options to purchase shares of the common stock of Thermo Instrument Systems
Inc., then a majority owned public subsidiary of Thermo Electron.
(5) Subsequent to January 1, 2000, Thermo Electron took ThermoTrex Corporation
private in a merger transaction whereby each outstanding share of
ThermoTrex common stock was exchanged for 0.5503 shares of the common stock
of Thermo Electron and each outstanding ThermoTrex option was converted
into approximately 0.5503 options to purchase shares of the common stock of
Thermo Electron.
(6) Subsequent to January 1, 2000, Thermo Electron took Thermo Ecotek
Corporation private in a merger transaction whereby each outstanding share
of Thermo Ecotek common stock was exchanged for 0.431 shares of the common
stock of Thermo Electron and each outstanding Thermo Ecotek option was
converted into approximately 0.431 options to purchase shares of the common
stock of Thermo Electron.
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<PAGE> 60
(7) Subsequent to January 1, 2000, Thermo Electron took Thermedics Inc. private
in a merger transaction whereby each outstanding share of Thermedics common
stock was exchanged for 0.45 shares of the common stock of Thermo Electron
and each outstanding Thermedics option was converted into approximately
0.45 options to purchase shares of the common stock of Thermo Electron.
PLANNED STOCK OPTION GRANTS
Our 2000 equity incentive plan provides for the issuance of stock options,
restricted stock and other stock based awards for up to ________ shares of our
common stock to our employees, directors, consultants and advisors. At about the
time of the distribution, we anticipate granting options covering an aggregate
of ______ shares of our common stock under our 2000 equity incentive plan,
including options for ______ shares to William B. Ross and options for ______
shares to Gerald G. Brew. We expect that the exercise price of these options
will be based on the average closing price of our common stock over the first
five days of trading on the American Stock Exchange.
2000 EQUITY INCENTIVE PLAN
We have adopted a 2000 equity incentive plan and reserved an aggregate of
________ shares of our common stock for issuance to our employees, officers,
directors, consultants and advisors under this plan.
Our 2000 plan provides for the grant of a variety of stock and stock-based
awards in such form or in such combinations as may be approved by our board of
directors. The types of awards that may be granted under our 2000 plan include
stock options, restricted and unrestricted shares, rights to receive cash or
shares on a deferred basis or based on performance, cash payments sufficient to
offset the federal, state and local ordinary income taxes of participants
resulting from transactions under the 2000 plan, and loans to participants in
connection with awards. Our officers, employees, directors, consultants and
advisors and those of our subsidiaries will be eligible to receive awards under
the 2000 plan. However, incentive stock options may only be granted to our
employees. Incentive stock options will have an exercise price of 100% or more
of the fair market value of our common stock on the grant date. Nonstatutory
stock options may have an exercise price as low as 85% of the fair market value
of our common stock on the grant date.
Our board of directors will administer the 2000 plan, although it may
delegate its authority to one or more of its committees and, in limited
circumstances, to one or more of our executive officers who are also members of
our board of directors. Our board of directors will authorize the human
resources committee to administer the plan, including the granting of options to
our executive officers. In accordance with the provisions of the 2000 plan, our
human resources committee will select the recipients of awards and determine:
- the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
Unless otherwise provided in the agreement evidencing an award, if there is
a change in control of our company, as defined in the 2000 plan, any stock
options that are not then exercisable and fully vested will become fully
exercisable and vested; the restrictions applicable to restricted stock awards
will lapse and shares issued pursuant to such awards will be free of
restrictions and fully vested; and deferral and other limitations and conditions
that related solely to the passage of time or continued employment or other
affiliation will be waived and removed but other conditions will continue to
apply unless otherwise provided in the instrument evidencing the awards or by
agreement between the participant and us. A change in control includes:
- the acquisition by any person of 40% or more of our outstanding common
stock or voting securities;
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<PAGE> 61
- the failure of our board of directors to include a majority of
directors who are "continuing directors", which term is defined to
include directors who were members of our board on date on which the
plan was adopted or who subsequent to that date were nominated or
elected by a majority of directors who were "continuing directors" at
the time of such nomination or election;
- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving our company or
the sale or other disposition of all or substantially all of our
assets unless immediately after such transaction (a) all holders of
our common stock immediately prior to such transaction own more than
60% of the outstanding voting securities of the resulting or acquiring
corporation in substantially the same proportions as their ownership
immediately prior to such transaction and (b) no person after the
transaction owns 40% or more of the outstanding voting securities of
the resulting or acquiring corporation; or
- approval by our stockholders of a complete liquidation or dissolution.
Our board of directors will make appropriate adjustments to the maximum
number of shares of our common stock that may be delivered under the 2000 plan,
and under outstanding awards, to reflect stock dividends, stock splits and
similar events. Our board of directors may also make appropriate adjustments to
avoid distortions in the operation of the 2000 plan in the event of any
recapitalization, merger or consolidation involving our company, any transaction
in which we become a subsidiary of another entity, any sale or other disposition
of all or a substantial portion of our assets or any similar transaction, as
determined by our board of directors.
The 2000 plan will remain in full force and effect until terminated by our
board of directors or until shares are depleted under the plan. Our board of
directors may at any time or times amend or review the 2000 plan or any
outstanding award for any purpose which may at the time be permitted by law, or
may at any time terminate the plan as to any further grants of awards. No
amendment of the 2000 plan or any outstanding award may adversely affect the
rights of a participant as to any previously granted award without his or her
consent. Stockholder approval of amendments shall be required only as is
necessary to satisfy the then-applicable requirements of Rule 16b-3 under the
Exchange Act, of any stock exchange upon which our common stock is listed, of
Section 162(m) of the Internal Revenue Code, or of any federal tax law or
regulation relating to stock options or awards.
2000 EMPLOYEE STOCK PURCHASE PLAN
We have adopted a 2000 employee stock purchase plan and reserved an
aggregate of ________ shares of our common stock for issuance to our employees
under this plan.
All full-time employees and part-time employees working at least 20 hours
per week and who have been employed for at least six months are eligible to
participate in the stock purchase plan, unless they own more than 5% of our
common stock. Options to purchase shares of our common stock may be granted from
time to time at the discretion of our board of directors, which will also
determine the date upon which such options are exercisable. Only employees based
in the United States will be eligible to participate in the stock purchase plan.
A participating employee may purchase stock only through payroll
deductions, which may not exceed 10% of his gross salary or wages during the
year. Employees will be allowed to decrease, but not increase the percentage of
wages contributed once during the plan year. An employee may suspend his or her
contributions, but then is not permitted to contribute again for the remainder
of the plan year.
The exercise price of options to purchase shares of our common stock
granted under the stock purchase plan will be 85% of the lower of the per share
fair market value of our common stock as of the first or last day of a plan
period. On the last day of a plan period, referred to as the exercise date,
participants may elect to use their accumulated payroll deductions to purchase
shares at the exercise price. Participants must agree not to resell the shares
so purchased for a period of one year following the exercise date. A
participant's rights under the purchase plan are nontransferable, and except in
the case of death of the employee, may not be exercised if the employee is not
still employed by us at the exercise date. If an employee dies, his or her
beneficiary may withdraw the accumulated payroll deduction or use such
deductions to purchase shares on the exercise date. A participant may elect to
discontinue participation at any time prior to the exercise date and to have his
or her accumulated payroll deduction refunded together with interest on such
amount as fixed by the board of directors from time to time.
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<PAGE> 62
The stock purchase plan will remain in full force and effect until
suspended or discontinued by our board of directors. Our board of directors may
at any time or times amend or review the stock purchase plan for any purpose
which may be permitted by law, or may at any time terminate the stock purchase
plan, provided that no amendment that is not approved by our stockholders shall
be effective if it would cause the stock purchase plan to fail to satisfy the
requirements of Rule 16b-3 (or any successor rule) of the Securities Exchange
Act. No amendment of the stock purchase plan may adversely affect the rights of
any recipient of any option previously granted without such recipient's consent.
The stock purchase plan will expire on ________ __, 2010, provided that the
number of shares available for issuance under the stock purchase plan is not
exhausted prior to that date.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the date of the distribution, we expect to appoint at least two
outside directors to comprise our human resources committee. No executive
officer will have served as a director or member of the compensation committee,
or other committee serving an equivalent function, of any entity whose executive
officers serve as a member of the human resources committee of our board of
directors. Prior to the formation of the human resources committee, the full
board of directors made all decisions regarding executive officer compensation
and the granting of stock options.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
Thermo Electron currently owns all of the outstanding shares of our common
stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the number of shares
of our common stock that we expect to be held by each person or entity that we
believe will own beneficially more than five percent of the outstanding shares
of our common stock immediately following the distribution. Information
regarding the number of shares of our common stock that we expect will be
beneficially owned by FMR Corporation and Dodge & Cox Incorporated is based on
the number of shares of Thermo Electron common stock beneficially owned by each
such entity as of December 31, 1999 derived from the most recent Schedule 13G of
such entity received by Thermo Electron.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
<S> <C> <C>
Thermo Electron Corporation...........
PO Box 9046
81 Wyman Street
Waltham, MA 02454-9046
FMR Corporation ......................
82 Devonshire Street
Boston, MA 02109
Dodge & Cox Incorporated .............
One Sansome Street
35th Floor
San Francisco, CA 94104
</TABLE>
MANAGEMENT
The following table sets forth information regarding the number of shares
of our common stock that we expect to be held immediately following the
distribution, as well as the number of shares of Thermo Electron common stock
beneficially owned as of June 30, 2000, by each of our named executive officers,
each of our directors and our executive officers and directors as a group. The
information set forth below with respect to our common stock is based on
information known to us with respect to each listed person's beneficial
ownership of shares of Thermo Electron common stock as of June 30, 2000. The
table assumes with respect to our common stock that ownership of Thermo Electron
common stock by such persons will not change before the record date of the
distribution.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to shares. Shares of common
stock issuable under stock options that are exercisable within 60 days after
June 30, 2000 or issuable pursuant to outstanding warrants that may be exercised
upon completion of the distribution are deemed outstanding for computing the
percentage ownership of the person holding the options or warrants but are not
deemed outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
community property laws. Although some of our directors and executive officers
are also directors and executive officers of Thermo Electron or its subsidiaries
other than us, all such persons disclaim beneficial ownership of the shares of
our common stock retained by Thermo Electron.
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<TABLE>
<CAPTION>
THERMO THERMO ELECTRON
NAME (1) BIOMEDICAL (2) CORPORATION (3)
-------- -------------- ---------------
<S> <C> <C>
Gerald G. Brew......................... 83,476
John T. Keiser......................... 591,982
William B. Ross........................ 93,776
Richard F. Syron....................... 1,409,806
All directors and current executive 2,891,879
officers as a group (5 persons)...
</TABLE>
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) This table does not include options to purchase shares of our common stock
that we anticipate granting at about the time of or following the
distribution. Immediately following consummation of the distribution, we
expect that our directors and executive officers will not individually or
as a group beneficially own more than one percent of our outstanding shares
of common stock. See "Management--Planned Stock Option Grants."
(3) Shares of the common stock of Thermo Electron beneficially owned by Mr.
Brew, Mr. Keiser, Mr. Ross, Dr. Syron and all directors and current
executive officers as a group include 77,386, 430,352, 81,900, 1,311,000
and 2,514,996 shares that such person or group had the right to acquire
within 60 days of June 30, 2000, through the exercise of stock options.
None of the directors or the named executive officers beneficially owned
more than 1% of the Thermo Electron common stock outstanding as of June 30,
2000; all directors and current executive officers as a group did not
beneficially own more than 1% of the Thermo Electron common stock
outstanding as of such date.
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TRANSACTIONS WITH RELATED PARTIES
The following is a description of the material terms of the agreements and
arrangements involving our company and either Thermo Electron or Thermo
Electron's direct and indirect subsidiaries.
GENERAL
We were organized in August 1995 as a wholly owned subsidiary of Thermo
Electron. Prior to the distribution, Thermo Electron transferred several
subsidiaries and operating divisions to us. These transfers are discussed in
more detail under the heading "Background and Reasons for the
Distribution--Thermo Electron Reorganization."
Immediately prior to the distribution, we will be a wholly-owned subsidiary
of Thermo Electron. After the distribution, we will be an independent, publicly
traded company, and no Thermo Electron directors will serve on our board of
directors.
We have entered into several agreements with Thermo Electron to define our
ongoing relationship after the distribution and to allocate tax, employee
benefits and other specified liabilities and obligations arising from periods
prior to the distribution date. We entered into these agreements while we are
still a wholly-owned subsidiary of Thermo Electron. The material terms of these
agreements are set forth under the caption "The Distribution--Our Relationship
with Thermo Electron after the Distribution" and "The Distribution--Federal
Income Tax Consequences of the Distribution."
OTHER AGREEMENTS
Corporate Services Arrangement. Prior to the distribution, we had a
corporate services arrangement with Thermo Electron under which Thermo
Electron's corporate staff provided administrative services, including legal
advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services, for which we paid Thermo Electron an amount equal to 0.8% of
our revenues in fiscal 1999 and for the six months ended July 1, 2000 and 1.0%
of our revenues in each of fiscal 1998 and 1997. For additional items such as
employee benefit plans, insurance coverage and other identifiable costs, Thermo
Electron charged us based upon the actual costs attributable to these services.
Thermo Electron charged us a total of $2,675,000, $2,451,000, $2,868,000 and
$1,411,000 under this arrangement in fiscal 1997, 1998 and 1999 and for the six
months ended July 1, 2000. We believe that the service fees charged by Thermo
Electron were reasonable and that such fees were representative of the expenses
that we would have incurred had we been independent of Thermo Electron during
these periods. Our corporate services arrangement with Thermo Electron will
terminate upon the distribution.
Tax Allocation Agreement. Prior to the distribution, we had a tax
allocation agreement with Thermo Electron that outlined the terms under which we
were to be included in Thermo Electron's consolidated federal and state income
tax returns and under which we were responsible for the payment of taxes. Under
current law, we were included in such tax returns so long as Thermo Electron
owned at least 80% of our outstanding common stock. In years in which we had
taxable income, we were obligated to pay Thermo Electron amounts comparable to
the taxes we would have paid if we had filed our own separate company tax
returns. Under this agreement, we paid Thermo Electron a total of $15,482,000,
$17,198,000, $20,686,000 and $8,784,000 in fiscal 1997, 1998 and 1999 and for
the six months ended July 1, 2000.
Cash Transfers to and from Thermo Electron. Prior to the distribution, our
cash receipts and disbursements were combined with other Thermo Electron
corporate cash transactions. In fiscal 1997, 1998 and 1999, Thermo Electron
transferred $10,848,000, $868,000 and $1,469,000 to us. For the six months ended
July 1, 2000, we transferred $1,216,000 to Thermo Electron.
Cash Management Arrangement. Prior to the distribution, some of our
European-based subsidiaries participated in a cash management arrangement with a
wholly-owned subsidiary of Thermo Electron. Under this arrangement, amounts
advanced to the wholly-owned subsidiary of Thermo Electron by our European-based
subsidiaries bore interest based on the Euro market rates. The arrangement
required Thermo Electron's subsidiary to maintain cash, cash equivalents, and/or
immediately available bank lines of credit equal to at least 50% of all funds
invested under this cash management arrangement by all Thermo Electron
subsidiaries other than wholly-owned subsidiaries. We could withdraw funds
invested in this cash management arrangement on 30 days' prior
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notice. Under this arrangement, our European-based subsidiaries had access to a
$2,167,000 line of credit, of which they had borrowed $802,000 at the end of
fiscal 1999 and $201,000 at July 1, 2000.
Acquisition Debt. In July 1999, a subsidiary of Thermedics Inc., then a
majority-owned subsidiary of Thermo Electron, acquired Erich Jaeger GmbH for
$30,479,000 in cash, including the repayment of debt, and the assumption of
$13,401,000 of indebtedness. Thermedics financed this acquisition with
$30,479,000 of short-term borrowings from a wholly-owned subsidiary of Thermo
Electron which are due on demand and bear interest at prevailing German market
rates, set at the beginning of each month. The interest rate was 3.95% at
January 1, 2000 and 4.98% at July 1, 2000. Of the indebtedness assumed,
Thermedics refinanced $9,692,000 with additional borrowings from the
wholly-owned subsidiary of Thermo Electron and repaid the balance upon maturity
in May 2000. Following the merger of Thermedics with Thermo Electron, in the
third quarter of 2000, Thermo Electron contributed Erich Jaeger to Thermo
Biomedical along with the indebtedness from the acquisition. As of July 1, 2000,
we owed the wholly-owned subsidiary of Thermo Electron $38,785,000 under this
arrangement. This advance is due on demand by Thermo Electron. Thermo Electron
has advised us that it plans to refinance this amount on our behalf with a third
party on a long-term basis. If such efforts are not completed prior to our
spin-off, Thermo Electron has agreed to convert the debt to a two-year balloon
note with interest payable quarterly at an annual rate of eight percent.
Operating Lease. We lease approximately 67,000 square feet of office space
in Madison, Wisconsin from Nicolet Instruments Corp., a wholly-owned subsidiary
of Thermo Electron, under an operating lease that expires in 2001. Under this
lease, we paid rent of $790,000, $782,000, $772,000 and $381,000 in fiscal 1997,
1998 and 1999 and for the six months ended July 1, 2000.
Thermo Cardiosystems Lease. Thermo Cardiosystems Inc., a majority-owned
subsidiary of Thermo Electron, leases approximately 35,000 square feet of office
and research space from us in Woburn Massachusetts pursuant to a lease which
expires in February 2004. Under this lease, we have received payments of
$170,000, $151,000, $171,000 and $92,500 in fiscal 1997, 1998 and 1999 and for
the six months ended July 1, 2000.
Services for Thermo Cardiosystems. We provide metal fabrication services to
Thermo Cardiosystems Inc., a majority-owned subsidiary of Thermo Electron. For
these services, Thermo Cardiosystems paid us $1,871,000, $1,714,000, $3,622,000
and $1,769,000 in fiscal and 1997, 1998 and 1999 and for the six months ended
July 1, 2000.
Sale of Products to Thermo Electron Subsidiaries. From time to time, we may
transact business with Thermo Electron and its subsidiaries in the ordinary
course of business. In fiscal 1997, 1998 and 1999 and for the six months ended
July 1, 2000, we sold a total of $1,030,000, $1,350,000, $1,446,000 and $593,000
of products to Thermo Electron and its subsidiaries.
Agreements with Trex Medical Corporation. Our Tecomet subsidiary and Trex
Medical Corporation, a majority-owned subsidiary of Thermo Electron, jointly
developed technology related to one of our medical imaging components, referred
to as a high transmission cellular, or HTC, grid. On August 23, 2000, in
contemplation of the sale of the United States operations of Trex Medical to
Hologic, Inc., Tecomet entered into an agreement with Trex Medical setting forth
their rights in this jointly-developed technology, and in four United States
patents related to this technology. Under this agreement:
- Tecomet retained the exclusive, royalty-free right to use the
technology and related patents to make HTC grids for use in the field
of x-ray mammography and agreed, subject to the terms and conditions
of the supply agreement described below, to sell these grids
exclusively to Trex Medical;
- Tecomet retained the non-exclusive, royalty-free right to use the
technology and related patents to make HTC grids for any party for use
in any medical field other than x-ray mammography, and Trex Medical
retained the non-exclusive, royalty-free right to use the technology
and related patents to make HTC grids for its own use in any medical
field other than x-ray mammography; and
- Tecomet retained the exclusive, royalty-free right to use the
technology and related patents to make HTC grids and other products
for use in non-medical fields.
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This agreement expires on the date of expiration of the last of the related
patents, unless earlier terminated for a material breach.
In connection with this agreement, Tecomet entered into a supply agreement
with Trex Medical whereby Tecomet agreed to manufacture and sell HTC grids for
use in the field of x-ray mammography exclusively to Trex Medical. In return,
Trex Medical agreed to purchase all of the HTC grids for use in the field of
x-ray mammography as it may require from Tecomet. This agreement has a three
year term, which automatically renews for successive one year periods unless
terminated on at least 60 days notice prior to the end of a term.
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DESCRIPTION OF CAPITAL STOCK
The following summary is qualified by reference to the provisions of
applicable law and to our charter and by-laws included as exhibits to the
registration statement of which this information statement is a part.
COMMON STOCK
Our charter authorizes ________ shares of common stock, par value $.01 per
share, for issuance. As of the date of this information statement, ________
shares of our common stock are issued, outstanding and held by Thermo Electron.
Our charter provides for the following with respect to our common stock:
Voting. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. 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.
Dividends. If our board of directors declares a dividend, holders of common
stock will receive payments on a ratable basis from our funds that are legally
available to pay dividends. However, this dividend right is subject to any
preferential dividend rights we may grant to the persons who hold preferred
stock, if any is outstanding.
Liquidation. If we are dissolved, the holders of our common stock will be
entitled to share ratably in all the assets that remain after we pay our
liabilities and any amounts we may owe to the persons who hold preferred stock,
if any is outstanding.
Other. Holders of our common stock do not have preemptive, subscription,
redemption or conversion rights. The outstanding shares of our common stock are,
and the shares to be distributed by Thermo Electron will be, fully paid and
nonassessable.
The rights, powers, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Currently, we have no shares of preferred stock
outstanding.
PREFERRED STOCK
Our charter authorizes our board of directors, subject to any limitations
prescribed by law and without further stockholder approval, to issue from time
to time up to ________ shares of preferred stock in one or more series. Our
charter also authorizes our board of directors, subject to the limitations
prescribed by Delaware law, to:
- establish the number of shares to be included in each series and to
fix the voting powers, preferences, qualifications and special or
relative rights or privileges of each series; and
- issue preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other
rights of the holders of common stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock or of
rights to purchase preferred stock, however, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding common stock.
Our board of directors has authorized ________ shares of Series A junior
participating preferred stock for issuance under our stockholder rights plan.
See "--Stockholder Rights Plan" below. We have no current plans to issue any
preferred stock other than as may be provided for by the stockholder rights
plan.
DELAWARE LAW AND OUR CHARTER AND BY-LAWS PROVISIONS; ANTI-TAKEOVER EFFECTS
Staggered Board. Our charter provides that:
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- the board of directors be divided into three classes, with staggered
three-year terms;
- directors may be removed only for cause by the vote of the holders of
at least 75% of the shares of our capital stock entitled to vote; and
- any vacancy on the board of directors, however occurring, including a
vacancy resulting from an enlargement of the board, may only be filled
by vote of a majority of the directors then in office.
These provisions could discourage, delay or prevent a change in control of our
company or an acquisition of our company at a price which many stockholders may
find attractive. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions may also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or attempting to change the
composition or policies of our board of directors.
Stockholder Action; Special Meeting of Stockholders. Our charter and
by-laws also provide that:
- stockholder action may be taken only at a duly called and convened
annual or special meeting of stockholders and then only if properly
brought before the meeting;
- stockholder action may not be taken by written action in lieu of a
meeting;
- special meetings of stockholders may be called only by our chairman of
the board, our chief executive officer or by our board of directors;
and
- in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with requirements regarding
providing specified information and advance notice to us.
These provisions could delay, until the next stockholders' meeting, actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity from
making a tender offer for our common stock, because a person or entity, even if
it acquired a majority of our outstanding voting securities, would be able to
take action as a stockholder only at a duly called stockholders' meeting, and
not by written consent.
Supermajority Votes Required. The General Corporation Law of Delaware
provides that the vote of a majority of the shares entitled to vote on any
matter is required to amend a corporation's charter or by-laws, unless a
corporation's charter or by-laws, as the case may be, requires a greater
percentage. Our charter requires the vote of the holders of at least 75% of our
capital stock entitled to vote to amend or repeal any of the foregoing
provisions. The 75% stockholder vote is in addition to any separate class vote
that might be required pursuant to the terms of any series of preferred stock
that might be then outstanding.
Business Combinations. Following the distribution, we will be subject to
the provisions of Section 203 of the Delaware General Corporation Law. Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.
Indemnification. Our charter provides that our directors will not be
personally liable to us or to our stockholders for monetary damages for breach
of fiduciary duty as a director, except that the limitation will not eliminate
or limit liability to the extent that the elimination or limitation of this
liability is not permitted by the Delaware General Corporation Law as it exists
or may later be amended. Our charter further provides for the indemnification of
our directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary.
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STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of the rights to purchase from the corporation shares of its capital
stock, subject to any provisions of its charter. The price and terms of the
shares must be stated in the company's charter or in a resolution adopted by the
board of directors for the creation or issuance of such rights.
We have entered into a rights agreement with __________ as rights agent and
have issued to Thermo Electron, our sole stockholder prior to the distribution,
one preferred stock purchase right for each outstanding share of our common
stock. Each right, when exercisable, entitles the registered holder to purchase
from us a unit consisting of one ten-thousandth of a share of Series A junior
participating preferred stock at a purchase price of $_____, subject to
adjustment.
The rights agreement provides that, with respect to the period of time
prior to the distribution, the rights will not become exercisable as a result of
Thermo Electron's ownership of our stock.
The following description is a summary of the material terms of our
stockholder rights plan after the distribution. It does not restate these terms
in their entirety. We urge you to read our stockholder rights plan because it,
and not this description, defines the terms and provisions of our plan. We have
filed a copy of the rights agreement that establishes our rights plan as an
exhibit to our registration statement on Form 10 of which this information
statement forms a part. You may obtain a copy of the rights agreement at no
charge by writing to us at the address listed below under the caption "Where You
Can Find More Information."
Distribution of rights. Initially, the rights are not exercisable and are
attached to all certificates representing outstanding shares of our common
stock, and we will not distribute separate rights certificates. The rights will
separate from our common stock, and a rights distribution date will occur, upon
the earlier of the following events:
- 10 business days after a public announcement that a person or group
has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of the outstanding shares of our common stock; and
- 10 business days following the start of a tender offer or exchange
offer that would result in a person or group beneficially owning 15%
or more of the outstanding shares of our common stock.
The distribution date may be deferred by our board of directors. In addition,
some inadvertent actions will not trigger the occurrence of the rights
distribution date.
Prior to the rights distribution date:
- the rights are evidenced by our common stock certificates and will be
transferred with and only with such common stock certificates; and
- the surrender for transfer of any certificates of our common stock
will also constitute the transfer of the rights associated with our
common stock represented by such certificate.
The rights are not exercisable until the rights distribution date and will
expire at the close of business on ________ __, 2010, unless we redeem or
exchange them earlier as described below.
As soon as practicable after the rights distribution date, rights
certificates will be mailed to the holders of record of our common stock as of
the close of business on the rights distribution date. From and after the rights
distribution date, the separate rights certificates alone will represent the
rights. All shares of our common stock issued prior to the rights distribution
date will be issued with rights. Shares of our common stock issued after the
rights distribution date in connection with specified employee benefit plans or
upon conversion of specified securities will be issued with rights. Except as
otherwise determined by our board of directors, no other shares of our common
stock issued after the rights distribution date will be issued with rights.
Flip-in event. If a person becomes the beneficial owner of 15% or more of
the outstanding shares of our common stock, except as described below, each
holder of a right will thereafter have the right to receive, upon exercise, a
number of shares of our common stock, or, in some circumstances, cash, property
or other securities of
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ours, which equals the exercise price of the right divided by one-half of the
current market price of our common stock on the date the acquisition occurs.
However, following the acquisition:
- rights are not exercisable until the rights are no longer redeemable
by us as set forth below; and
- all rights that are, or were, under the circumstances specified in the
rights agreement, beneficially owned by any acquiring person will be
null and void.
The event set forth in this paragraph is referred to as a flip-in event. A
flip-in event would not occur if there is an offer for all of our outstanding
shares of common stock that our board of directors determines is fair to our
stockholders and in their best interests.
For example, at an exercise price of $100 per right, each right not owned
by an acquiring person, or by some related parties, following a flip-in event
would entitle the holder to purchase for $100 the number of shares of our common
stock, or other consideration, as noted above, as equals $100 divided by
one-half of the current market price of our common stock. Assuming that our
common stock had a per share value of $50 at that time, the holder of each valid
right would be entitled to purchase four shares of our common stock for $100.
Flip-over event. If at any time after a person has become the beneficial
owner of 15% or more of the outstanding shares of our common stock:
- we are acquired in a merger or other business combination transaction
in which we are not the surviving corporation,
- our common stock is changed or exchanged for stock or securities of
any other person or for cash or any other property or
- 50% or more of our assets or earning power is sold or transferred,
then each holder of a right, except rights which previously have been voided as
set forth above, shall thereafter have the right to receive, upon exercise, that
number of shares of common stock of the acquiring company which equals the
exercise price of the right divided by one-half of the current market price of
that company's common stock at the date of the occurrence of the event. This
exercise right does not arise if the merger or other transaction follows an
offer for all of our outstanding shares of common stock that our board of
directors determines is fair to our stockholders and in their best interests.
For example, at an exercise price of $100 per right, each right following
an event described in the preceding paragraph would entitle the holder to
purchase for $100 the number of shares of common stock of the acquiring company
as equals $100 divided by one-half of the current market price of that company's
common stock. Assuming that the common stock had a per share value of $100 at
that time, the holder of each valid right would be entitled to purchase two
shares of common stock of the acquiring company for $100.
Exchange of rights. At any time after a flip-in event, when no person owns
a majority of our common stock, our board of directors may exchange the rights,
other than rights owned by the acquiring person that have become void, in whole
or in part, at an exchange ratio of one share of our common stock, or one
ten-thousandth of a share of preferred stock, or of a share of a class or series
of preferred stock having equivalent rights, preferences and privileges, per
right.
Series A junior participating preferred stock. Series A preferred stock
purchasable upon exercise of the rights will not be redeemable. Each share of
series A preferred stock will be entitled to receive, when, as and if declared
by our Board, a minimum preferential quarterly dividend payment of $100 per
share and will be entitled to an aggregate dividend of 10,000 times the dividend
declared per share of our common stock. In the event of liquidation, the holders
of the series A preferred stock will be entitled to a minimum preferential
liquidating payment of $100 per share and will be entitled to an aggregate
payment of 10,000 times the payment made per share of our common stock. Each
share of series A preferred stock will have 10,000 votes, voting together with
our common stock. Finally, in the event of any merger, consolidation or other
transaction in which our common stock is
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changed or exchanged, each share of series A preferred stock will be entitled to
receive 10,000 times the amount received per share of our common stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the series A preferred stock's dividend,
liquidation and voting rights, the value of one ten-thousandth of a share of
series A preferred stock purchasable upon exercise of each right should
approximate the value of one share of our common stock.
Redemption of rights. At any time until ten business days following the
date of a public announcement that a person has acquired or obtained the right
to acquire beneficial ownership of 15% or more of the outstanding shares of our
common stock, we may redeem the rights in whole, but not in part, at a price of
$.001 per right, payable in cash or stock. Immediately upon the redemption of
the rights or such earlier time as established by our board of directors in the
resolution ordering the redemption of the rights, the rights will terminate and
the only right of the holders of rights will be to receive the $.001 redemption
price.
Status of rights holder and tax effects. Until a right is exercised, the
holder of the right, as such, will have no rights as a stockholder of ours,
including the right to vote or to receive dividends. Although the distribution
of the rights should not be taxable to stockholders or to us, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
rights become exercisable for our common stock, or other consideration, or for
common stock of the acquiring company as described above.
Board's Authority to Amend. Our board of directors may amend any provision
of the rights agreement, other than the redemption price, prior to the date on
which the rights are no longer redeemable. Once the rights are no longer
redeemable, our board's authority to amend the rights agreement is limited to
correcting ambiguities or defective or inconsistent provisions in a manner that
does not adversely affect the interest of holders of rights.
Effects of the rights. The rights are intended to protect our stockholders
in the event of an unfair or coercive offer to acquire our company and to
provide our board of directors with adequate time to evaluate unsolicited
offers. The rights may have anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us without
conditioning the offer on a substantial number of rights being acquired. The
rights, however, should not affect any prospective offeror willing to make an
offer at a fair price and otherwise in the best interests of us and our
stockholders, as determined by a majority of our board of directors. The rights
should not interfere with any merger or other business combination approved by
our board of directors.
DIVIDENDS
We currently anticipate that we will retain all of our earnings for use in
the development of our business, and we do not anticipate paying any cash
dividends in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is __________.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and our charter and by-laws limit the
monetary liability of our directors and provide for indemnification of our
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, our best interests, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. In addition, we have entered into indemnification agreements with our
directors and officers that provide for the maximum indemnification allowed by
law. We refer you to our charter, by-laws and form of indemnification agreement
for officers and directors which are filed as exhibits to the registration
statement of which this information statement is a part.
We have an insurance policy which insures our directors and officers
against liabilities that might be incurred in connection with the performance of
their duties.
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Under the distribution agreement, Thermo Electron is obligated, under
specified circumstances, to indemnify our directors and officers against
liabilities. We refer you to the form of distribution agreement which is filed
as an exhibit to the registration statement of which this information statement
is a part.
EXPERTS
The consolidated financial statements in this information statement and
elsewhere in the registration statement on Form 10 of which this information
statement forms a part have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
WHERE YOU CAN FIND MORE INFORMATION
Following the distribution, we will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the SEC. We will also be subject to the proxy solicitation
requirements of the Exchange Act. We plan to distribute to our stockholders
annual reports containing audited consolidated financial statements. We also
plan to make available to our stockholders, within 45 days after the end of each
of the first three fiscal quarters of each fiscal year, reports containing
interim unaudited financial information.
We have filed a registration statement on Form 10 with the SEC to register
the shares of our common stock to be issued on the date of distribution of
shares of our common stock under the Exchange Act. This information statement
does not contain all the information set forth in the registration statement and
the exhibits and schedules thereto, as some items are omitted in accordance with
the rules and regulations of the SEC. For further information about us and our
common stock, we refer you to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to, are not necessarily complete, and in each instance
reference is made to the copy of each contract, agreement or other document
filed as an exhibit to the registration statement, each statement being
qualified by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings, including the
registration statement, will also be available to you on the SEC's website
(http://www.sec.gov).
67
<PAGE> 74
THERMO BIOMEDICAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants................................. F-2
Consolidated Statement of Income for Each of the Three Years in the
Period Ended January 1, 2000, and for the Six Months Ended
July 3, 1999 and July 1, 2000....................................... F-3
Consolidated Balance Sheet as of January 2, 1999, January 1, 2000
and July 1, 2000.................................................... F-4
Consolidated Statement of Cash Flows for Each of the Three Years in
the Period Ended January 1, 2000 and for the Six Months Ended
July 3, 1999 and July 1, 2000....................................... F-6
Consolidated Statement of Comprehensive Income and Shareholder's
Investment for Each of the Three Years in the Period Ended
January 1, 2000 and for the Six Months Ended July 1, 2000........... F-8
Notes to Consolidated Financial Statements............................... F-9
F-1
<PAGE> 75
To the Board of Directors of Thermo Biomedical Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Biomedical Inc. (a wholly owned subsidiary of Thermo Electron) and subsidiaries
as of January 1, 2000 and January 2, 1999, and the related consolidated
statements of income, cash flows and comprehensive income and shareholder's
investment for each of the three years in the period ended January 1, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
Biomedical Inc. and subsidiaries as of January 1, 2000 and January 2, 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended January 1, 2000 in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Boston, Massachusetts
September 1, 2000
F-2
<PAGE> 76
THERMO BIOMEDICAL INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 1, JULY 3,
2000 1999 1999 1998 1997
------- ------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES (Note 10) $ 176,336 $ 162,140 $ 358,553 $ 306,363 $ 267,464
--------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues 90,609 84,101 186,444 158,572 134,542
Selling, general, and administrative expenses
(Note 7) 50,316 45,769 102,780 89,628 83,261
Research and development expenses 11,509 7,448 18,519 14,188 11,869
Restructuring and other unusual costs (income), net
(Notes 3 and 8) 988 -- -- 788 (1,259)
--------- --------- --------- --------- ---------
153,422 137,318 307,743 263,176 228,413
--------- --------- --------- --------- ---------
Operating Income 22,914 24,822 50,810 43,187 39,051
Interest Income 86 21 275 85 3
Interest Expense (907) (312) (1,410) (981) (1,477)
Other Income (Expense), Net (68) -- 437 -- --
--------- --------- --------- --------- ---------
Income Before Provision for Income Taxes and Minority
Interest 22,025 24,531 50,112 42,291 37,577
Provision for Income Taxes (Note 4) 8,784 10,077 20,686 17,198 15,482
Minority Interest Expense 191 326 576 759 892
--------- --------- --------- --------- ---------
NET INCOME $ 13,050 $ 14,128 $ 28,850 $ 24,334 $ 21,203
========= ========= ========= ========= =========
Basic and Diluted Earnings per Share (Note 11) $ 4,350 $ 4,709 $ 9,617 $ 8,111 $ 7,068
========= ========= ========= ========= =========
Basic and Diluted Weighted Average Shares
(Note 11) 3 3 3 3 3
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 77
THERMO BIOMEDICAL INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
JULY 1,
2000 1999 1998
------- ---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,429 $ 3,012 $ 2,398
Advance to affiliate -- 132 --
Accounts receivable, less
allowances of $6,746, $6,601,
and $3,448 73,276 86,189 59,109
Inventories 66,902 58,734 54,542
Deferred tax asset (Note 4) 13,055 13,055 9,714
Prepaid expenses 3,885 3,803 3,177
-------- -------- --------
163,547 164,925 128,940
-------- -------- --------
Property, Plant and Equipment,
at Cost, Net 27,586 28,290 27,406
-------- -------- --------
Other Assets 8,673 5,722 4,339
-------- -------- --------
Cost in Excess of Net Assets
of Acquired Companies (Note 2) 187,152 181,172 159,659
-------- -------- --------
$386,958 $380,109 $320,344
======== ======== ========
F-4
<PAGE> 78
THERMO BIOMEDICAL INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 1,
2000 1999 1998
------- ---- ----
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term obligations (includes
advance from affiliate of $38,986 in 2000 and $35,402 in 1999;
Notes 2 and 5) $ 39,677 $ 38,916 $ 11,212
Accounts payable 17,253 17,821 14,367
Accrued payroll and employee benefits 12,006 15,638 9,484
Accrued installation and warranty costs 6,567 7,236 6,482
Deferred revenue 8,564 9,957 6,948
Accrued commissions 4,499 5,451 3,447
Other accrued expenses 17,487 18,310 9,457
Due to parent company and affiliated companies (Note 2) 1,576 1,632 327
--------- --------- ---------
107,629 114,961 61,724
--------- --------- ---------
Other Deferred Items (Note 4) 495 495 703
--------- --------- ---------
Minority Interest (Note 2) -- 9,222 8,646
--------- --------- ---------
Commitments (Note 9)
Shareholder's Investment (Notes 2 and 3):
Common stock, $.01 par value, 3,000 shares authorized, issued and
outstanding -- -- --
Capital in excess of par value 262,355 240,167 240,167
Retained earnings 18,244 16,605 9,840
Accumulated other comprehensive items (1,765) (1,341) (736)
--------- --------- ---------
278,834 255,431 249,271
--------- --------- ---------
$ 386,958 $ 380,109 $ 320,344
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 79
THERMO BIOMEDICAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 1, JULY 3,
2000 1999 1999 1998 1997
------- ------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 13,050 $ 14,128 $ 28,850 $ 24,334 $ 21,203
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,762 5,970 13,353 11,757 11,774
Provision for losses on accounts receivable 510 1,260 3,362 1,316 1,598
Minority interest expense 191 326 576 759 892
Gain on curtailment of postretirement benefit plan
(Note 3) -- -- -- -- (1,487)
Other noncash items (5) (3) 167 607 791
Changes in current accounts, excluding the effects
of acquisitions:
Accounts receivable 11,775 (6,124) (20,394) (425) (8,786)
Inventories (8,468) (667) 2,643 1,363 (2,770)
Other current assets (158) (2,654) (2,274) 1,553 (1,655)
Accounts payable (447) 2,250 1,233 (826) 2,003
Other current liabilities (7,634) 4,267 8,941 (4,869) 2,685
Other -- 791 711 (2,199) 715
-------- -------- -------- -------- --------
Net cash provided by operating activities 16,576 19,544 37,168 33,370 26,963
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Acquisition, net of cash acquired (Note 2) -- -- (28,395) -- --
Purchases of property, plant and equipment (4,149) (3,089) (7,049) (7,352) (4,081)
Proceeds from sale of property, plant and equipment 246 64 1,029 364 322
Advances to affiliate 132 -- (132) -- --
Other (433) 6 (289) (300) (943)
-------- -------- -------- -------- --------
Net cash used in investing activities $ (4,204) $ (3,019) $(34,836) $ (7,288) $ (4,702)
-------- -------- -------- -------- --------
</TABLE>
F-6
<PAGE> 80
THERMO BIOMEDICAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
July 1, July 3,
2000 1999 1999 1998 1997
------- ------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of short-term obligations to
affiliated companies (Note 2) $ -- $ -- $ 40,171 $ -- $ --
Repayment of long-term obligations -- -- (8,610) (8,088) (12,195)
Repayment of notes payable (Note 2) -- -- (9,692) -- --
Net transfer to parent company (11,411) (13,822) (22,085) (18,781) (7,309)
Increase (decrease) in short-term borrowings 2,512 (959) (976) 835 (377)
-------- -------- -------- -------- --------
Net cash used in financing activities (8,899) (14,781) (1,192) (26,034) (19,881)
-------- -------- -------- -------- --------
Exchange Rate Effect on Cash (56) (885) (526) 536 (898)
-------- -------- -------- -------- --------
Increase in Cash and Cash Equivalents 3,417 859 614 584 1,482
Cash and Cash Equivalents at Beginning of Period 3,012 2,398 2,398 1,814 332
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Period $ 6,429 $ 3,257 $ 3,012 $ 2,398 $ 1,814
======== ======== ======== ======== ========
CASH PAID FOR
Interest $ 390 $ 274 $ 1,355 $ 1,203 $ 1,783
Income taxes $ 9,815 $ 10,046 $ 21,000 $ 12,627 $ 14,333
NONCASH ACTIVITIES (Note 2)
Fair value of assets of acquired company $ -- $ -- $ 57,059 $ -- $ --
Cash paid for acquired company -- -- (30,479) -- --
-------- -------- -------- -------- --------
Liabilities assumed of acquired company $ -- $ -- $ 26,580 $ -- $ --
======== ======== ======== ======== ========
Transfer of acquired businesses from parent company $ -- $ -- $ -- $ 16,540 $ 45,822
======== ======== ======== ======== ========
Transfer of acquired minority interest in subsidiaries
from parent company $ 22,188 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 81
THERMO BIOMEDICAL INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 1,
2000 1999 1998 1997
------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
COMPREHENSIVE INCOME
Net Income $ 13,050 $ 28,850 $ 24,334 $ 21,203
--------- --------- --------- ---------
Other Comprehensive Items:
Foreign currency translation adjustment (424) (605) 286 (1,146)
--------- --------- --------- ---------
$ 12,626 $ 28,245 $ 24,620 $ 20,057
========= ========= ========= =========
SHAREHOLDER'S INVESTMENT
Common Stock, $.01 Par Value:
Balance at beginning and end of period $ -- $ -- $ -- $ --
--------- --------- --------- ---------
Capital in Excess of Par Value:
Balance at beginning of period 240,167 240,167 223,627 177,805
Transfer of acquired minority interest in
subsidiaries from parent company (Note 2) 22,188 -- -- --
Transfer of acquired businesses from parent
company (Note 2) -- -- 16,540 45,822
--------- --------- --------- ---------
Balance at end of period 262,355 240,167 240,167 223,627
--------- --------- --------- ---------
Retained Earnings:
Balance at beginning of period 16,605 9,840 4,287 (9,607)
Net income 13,050 28,850 24,334 21,203
Net transfer to parent company (11,411) (22,085) (18,781) (7,309)
--------- --------- --------- ---------
Balance at end of period 18,244 16,605 9,840 4,287
--------- --------- --------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of period (1,341) (736) (1,022) 124
Other comprehensive items, net (424) (605) 286 (1,146)
--------- --------- --------- ---------
Balance at end of period (1,765) (1,341) (736) (1,022)
--------- --------- --------- ---------
$ 278,834 $ 255,431 $ 249,271 $ 226,892
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 82
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Thermo Biomedical Inc. (the "Company") designs, manufactures and markets
medical devices and products, including respiratory care equipment,
neurodiagnostic systems and wireless patient monitoring systems, critical care
disposable devices and other specialty products and materials.
RELATIONSHIP WITH THERMO ELECTRON CORPORATION
The Company operated as a division of Thermo Electron Corporation ("Thermo
Electron") until its incorporation as a Delaware corporation in August 1995 as a
wholly owned subsidiary of Thermo Electron. Subsequently, Thermo Electron
contributed all of the assets or stock of certain of its subsidiaries relating
to its Nicolet Biomedical Inc. ("Nicolet Biomedical"), Bird Medical
Technologies, Inc. ("Bird Medical Technologies"), SensorMedics Corporation
("SensorMedics"), Medical Data Electronics, Inc. ("Medical Data Electronics")
and Bear Medical Systems Inc. ("Bear Medical Systems") subsidiaries to the
Company. In September 2000, Thermo Electron contributed its MWW, Corpak LLC
("Corpak") and Tecomet Inc. ("Tecomet") subsidiaries and substantially all of
the assets and liabilities of its Thermedics Polymer Products division to the
Company. The transfers of these businesses from Thermo Electron were recorded at
historical cost. As of January 1, 2000, Thermo Electron owned 100% of the
Company's outstanding common stock.
The accompanying financial statements include the assets, liabilities,
income and expenses of the businesses described above from the dates they were
first included in Thermo Electron's consolidated financial statements. The
accompanying financial statements do not include Thermo Electron's general
corporate debt, which is used to finance operations of all of its respective
business segments, or an allocation of Thermo Electron's interest expense. The
Company has had positive cash flows from operations for all periods presented.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998 and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999 and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal year 1997 included 53 weeks.
REVENUE RECOGNITION
The Company recognizes its revenues upon shipment of its products. The
Company provides a reserve for its estimate of installation and warranty costs
at the time of shipment.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholder's investment.
INCOME TAXES
The Company and Thermo Electron have a tax allocation agreement under which
the Company is included in Thermo Electron's consolidated federal and certain
state income tax returns. The agreement provides that in years in which the
Company has taxable income, it will pay to Thermo Electron amounts comparable to
the taxes the Company would have paid if it had filed separate tax returns. If
Thermo Electron's ownership of the Company were to fall below 80%, the Company
would be required to file its own federal income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
F-9
<PAGE> 83
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company's cash receipts and disbursements were combined with other
Thermo Electron corporate cash transactions. The Company's cash and cash
equivalents include investments in interest-bearing accounts of the Company's
foreign subsidiaries, which have an original maturity of three months or less.
Cash equivalents are carried at cost, which approximates market value. Cash
transfers between the Company and Thermo Electron appear in the accompanying
statement of cash flows and statement of comprehensive income and shareholder's
investment as "Net transfer to parent company."
The following table presents the cash flows between the Company and
Thermo Electron:
Retained Average
(In thousands) Earnings Balance
-------------- -------- -------
BALANCE DECEMBER 28, 1996 $ (9,607) $
Net income 21,203
Corporate service fee payment (2,675)
Tax allocation payment to parent company (15,482)
Other cash transfers from parent company 10,848
-------- --------
BALANCE JANUARY 3, 1998 4,287 (2,660)
Net income 24,334
Corporate service fee payment (2,451)
Tax allocation payment to parent company (17,198)
Other cash transfers from parent company 868
-------- --------
BALANCE JANUARY 2, 1999 9,840 7,064
Net income 28,850
Corporate service fee payment (2,868)
Tax allocation payment to parent company (20,686)
Other cash transfers from parent company 1,469
-------- --------
BALANCE JANUARY 1, 2000 16,605 13,223
(Unaudited)
Net income 13,050
Corporate service fee payment (1,411)
Tax allocation payment to parent company (8,784)
Other cash transfers to parent company (1,216)
-------- --------
BALANCE JULY 1, 2000 $ 18,244 $ 17,425
======== ========
ADVANCE TO/FROM AFFILIATE
Certain of the Company's European-based subsidiaries participate in a
cash management arrangement with a wholly owned subsidiary of Thermo Electron.
Under this arrangement, amounts advanced to the wholly owned subsidiary of
Thermo Electron by the Company's European-based subsidiaries bear interest based
on Euro market rates. The Company has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice.
The Company has access to a $2,167,000 line of credit from such wholly owned
subsidiary of Thermo Electron under this arrangement, of which the Company had
borrowed $802,000 at year-end 1999.
F-10
<PAGE> 84
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted-average basis) or market value and include materials, labor and
manufacturing overhead. The components of inventories are as follows:
(In thousands) 1999 1998
-------------- ---- ----
Raw Materials $29,527 $27,285
Work in Process 9,322 6,877
Finished Goods 19,885 20,380
------- -------
$58,734 $54,542
======= =======
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of the inventories to net realizable value.
PROPERTY, PLANT AND EQUIPMENT
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company provides
for depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings, 20 to 30 years;
machinery and equipment, 2 to 12 years; and leasehold improvements, the shorter
of the term of the lease or the life of the asset.
Property, plant and equipment consists of the following:
(In thousands) 1999 1998
-------------- ---- ----
Land and Buildings $10,343 $10,837
Machinery and Equipment 57,217 50,274
Leasehold Improvements 7,512 7,370
------- -------
75,072 68,481
Less: Accumulated Depreciation and Amortization 46,782 41,075
------- -------
$28,290 $27,406
======= =======
OTHER ASSETS
Other assets in the accompanying balance sheet include the cost of
acquired patents and trademarks. These assets are being amortized using the
straight-line method over their estimated useful lives, which range from 3 to 17
years. These assets were $4,354,000 and $2,636,000, net of accumulated
amortization of $6,744,000 and $5,817,000, at year-end 1999 and 1998,
respectively.
F-11
<PAGE> 85
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $20,278,000 and $15,770,000 at year-end 1999 and 1998,
respectively. The Company assesses the future useful life of this and other
long-term assets whenever events or changes in circumstances indicate that the
current useful life has diminished. Such events or circumstances generally
include the occurrence of operating losses or a significant decline in earnings
associated with the acquired business or asset. The Company considers the future
undiscounted cash flows of the acquired businesses in assessing the
recoverability of this asset. The Company assesses cash flows before interest
charges and, when an impairment is indicated, writes the asset down to fair
value. If quoted market prices are not available, the Company estimates fair
value by calculating the present value of future cash flows. If impairment has
occurred, any excess of carrying value over fair value is recorded as a loss.
FOREIGN CURRENCY
All assets and liabilities of the Company's foreign subsidiaries are
translated at year end exchange rates, and revenues and expenses are translated
at average exchange rates for the year, in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as a
separate component of shareholder's investment titled "Accumulated other
comprehensive items." Foreign currency transaction gains and losses are included
in the accompanying statement of income and are not material for each of the
three years presented.
COMPREHENSIVE INCOME
Comprehensive income combines net income and "other comprehensive items,
net" which represents foreign currency translation adjustments, reported as a
component of shareholder's investment in the accompanying balance sheet. At
year-end 1999 and 1998, the balance of other comprehensive items represents the
Company's cumulative translation adjustment. During the first six months of 2000
and 1999, the Company had unaudited comprehensive income of $12,626,000 and
$13,500,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur upon customer acceptance and/or at completion of
installation. SAB 101 requires that companies conform their revenue recognition
practices to the requirements therein during the fourth quarter of calendar 2000
through recording a cumulative net of tax effect of the change in accounting.
The Company has not completed the analysis to determine the effect that SAB 101
will have on its financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, advance to affiliate, accounts receivable, notes payable and
current maturities of long-term obligations, accounts payable and due to parent
company and affiliated companies. Their respective carrying amounts in the
accompanying balance sheet approximate fair value due to their short-term
nature.
F-12
<PAGE> 86
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The financial statements as of July 1, 2000 and for the six-month periods
ended July 1, 2000 and July 3, 1999 are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of results for the interim periods. The results of operations
for the six-month period ended July 1, 2000 are not necessarily indicative of
the results to be expected for the entire year.
2. ACQUISITIONS
In July 1999, Thermedics Inc. ("Thermedics"), then a majority-owned
subsidiary of Thermo Electron, through its wholly owned subsidiary, MWW,
acquired Erich Jaeger, GmbH ("Erich Jaeger"), a medical products company based
in Germany, for $30,479,000 in cash, including the repayment of certain of Erich
Jaeger's indebtedness, and the assumption of $13,401,000 of Erich Jaeger's
indebtedness. Erich Jaeger develops and manufactures equipment for
lung-function, cardio-respiratory and sleep-disorder diagnosis and monitoring.
MWW financed this acquisition with $30,479,000 of short-term borrowings from a
wholly owned subsidiary of Thermo Electron, which are due on demand and bear
interest at prevailing German market rates, set at the beginning of each month.
The interest rate at January 1, 2000 was 3.95%. MWW was subsequently contributed
by Thermo Electron to the Company. Of the indebtedness assumed, the Company
refinanced $9,692,000 with additional borrowings from the wholly owned
subsidiary of Thermo Electron and repaid the balance upon maturity in May 2000.
Of the total borrowings from Thermo Electron of $40,171,000 for the acquisition
of Erich Jaeger and payment of its indebtedness, $34,600,000 is included in
advance from affiliate, a component of notes payable and current maturities of
long-term obligations, and $3,853,000 is included in due to parent company and
affiliated companies, net of currency effects, in the accompanying 1999 balance
sheet.
In November 1998, Thermo Electron acquired the Grason-Stadler Inc.
("Grason-Stadler") subsidiary of Welch-Allyn, Inc. for $16,540,000 in cash and
the assumption of certain liabilities. Grason-Stadler manufactures audio meters
and other clinical hearing measurement instruments.
In August 1997, Thermo Electron acquired IMEX Medical Systems Inc. ("IMEX")
for $9,400,000 in cash and the assumption of certain liabilities. IMEX was
renamed Nicolet Vascular Inc. ("Nicolet Vascular"). Nicolet Vascular
manufactures products used to evaluate peripheral vascular disease, as well as
products to detect fetal heartbeat. In October 1997, Thermo Electron acquired
the business of Bear Medical Systems from Allied Healthcare Products, Inc. for
$36,333,000 in cash. Bear Medical Systems designs, manufactures and markets
respiratory products, primarily ventilators used in acute hospital and long-term
care.
On June 30, 2000, Thermo Electron completed a transaction through which it
acquired shares representing the minority interest in Thermedics. Cost in excess
of net assets of acquired companies of $12,775,000 arose in this transaction
related to Thermedics' ownership of MWW, Corpak and Thermedics Polymer Products.
This amount became part of the historical cost of these businesses as of June
30, 2000. As part of this transaction, the Company's minority interest liability
related to these subsidiaries of $9,413,000 was discharged. Subsequent to this
date, the Company has no minority interests in any of its subsidiaries.
These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of these acquisitions exceeded the estimated fair value of
the acquired net assets by $88,956,000, which is being amortized over 40 years.
Allocation of the purchase price for these acquisitions was based on estimates
of the fair value of the net assets acquired.
F-13
<PAGE> 87
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS (CONTINUED)
Based on unaudited data, the following table presents selected financial
information for the Company and Bear Medical Systems on a pro forma basis,
assuming they had been combined since the beginning of 1997. The effect of the
acquisitions of Erich Jaeger, Nicolet Vascular and Grason-Stadler were not
material to the Company's results of operations at their respective dates of
acquisition.
(In thousands) 1997
-------------- ----
Revenues $293,505
Net Income 23,079
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of Bear
Medical Systems been made at the beginning of 1997.
In connection with these acquisitions, the Company has undertaken certain
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalized its
restructuring plans no later than one year from the respective dates of the
acquisitions. Restructuring costs for SensorMedics, which was accounted for as a
pooling of interests in 1996, were charged to expense as incurred and are
described in Note 8. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1997 is as follows:
(In thousands)
--------------
BALANCE AT DECEMBER 28, 1996 $ 336
Reserves established 492
Usage (356)
-----
BALANCE AT JANUARY 3, 1998 472
Usage (472)
-----
BALANCE AT JANUARY 2, 1999 AND JANUARY 1, 2000 $ --
=====
The acquisition expenses for the 1997 acquisitions consisted of severance
for 11 employees across all functions. The Company finalized its restructuring
plans for the 1997 acquisitions in 1998.
F-14
<PAGE> 88
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS (CONTINUED)
A summary of the changes in accrued acquisition expenses for Grason-Stadler
is as follows:
(In thousands) Total
-------------- -----
Reserves established $ 33
Usage (8)
----
BALANCE AT JANUARY 2, 1999 25
Usage (25)
----
BALANCE AT JANUARY 1, 2000 $ --
====
The principal acquisition expenses for Grason-Stadler consisted of
severance for one employee. The Company finalized its restructuring plans for
Grason-Stadler in 1999.
A summary of the changes in accrued acquisition expenses for Erich Jaeger
is as follows:
<TABLE>
<CAPTION>
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
-------------- --------- ----------- ----- -----
<S> <C> <C> <C> <C>
Reserves established $ 2,335 $ 680 $ 431 $ 3,446
Currency translation (146) (42) (27) (215)
-------- ------- ----- -------
BALANCE AT JANUARY 1, 2000 2,189 638 404 3,231
(Unaudited)
Reserves established 237 -- 379 616
Usage (798) (153) (9) (960)
Currency translation adjustment (113) (33) (21) (167)
-------- ------- ----- -------
BALANCE AT JULY 1, 2000 $ 1,515 $ 452 $ 753 $ 2,720
======== ======= ===== =======
</TABLE>
The principal accrued acquisition expenses for Erich Jaeger consisted of
severance for 36 employees across all functions and the abandonment of operating
facilities in the United States and the Netherlands with lease terms through
2003. The amounts captioned as other primarily represent employee relocation
costs. Severance and other costs will primarily be paid over the remainder of
2000. No unresolved matters remained at July 1, 2000, related to the
restructuring plans for Erich Jaeger.
3. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by Thermo Electron.
Prior to the 1998 program year, shares of Thermo Electron's common stock could
be purchased at the end of a 12-month period at 95% of the fair market value at
the beginning of the plan year, and the shares purchased were subject to a
six-month resale restriction. Effective November 1, 1998, shares of Thermo
Electron's common stock may be purchased at 85% of the lower of the fair market
value at the beginning or end of the plan year, and the shares purchased are
subject to a one-year resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
F-15
<PAGE> 89
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
Certain of the Company's employees participate in the stock option plans of
Thermo Electron. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth
a fair-value based method of recognizing stock-based compensation expense. As
permitted by SFAS No. 123, the Company has elected to continue to apply APB No.
25 to account for its stock-based compensation plans. Had compensation cost for
awards granted after 1994 under stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method set forth
under SFAS No. 123, the effect on the Company's net income would have been:
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Net Income:
As reported $28,850 $24,334 $21,203
Pro forma 27,109 21,637 20,689
Basic and Diluted Earnings per Share:
As reported 9,617 8,111 7,068
Pro forma 9,036 7,212 6,896
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Compensation expense for options granted is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(K) SAVINGS PLAN
Substantially all of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. In addition, certain of
the Company's employees are eligible to participate in 401(k) saving plans
sponsored by the Company's Nicolet Biomedical subsidiary. Contributions to the
plans are made by both the employee and the Company. Company contributions are
based upon the level of employee contributions. For these plans, the Company
contributed and charged to expense $1,607,000, $1,387,000 and $1,321,000 in
1999, 1998 and 1997, respectively.
POSTRETIREMENT BENEFITS
Prior to December 1997, SensorMedics provided certain health care and life
insurance benefits to eligible retired employees. All employees became eligible
for retiree health care benefits after reaching age 55 with 10 years of service,
provided they began employment with SensorMedics prior to January 1, 1995. In
situations where full-time employees retired from SensorMedics between age 55
and age 65, most were eligible to receive, at a cost to the retiree equal to the
cost for an active employee, certain health care benefits identical to those
available to active employees. The plans were unfunded. SensorMedics continued
to fund benefit costs principally on a pay-as-you-go basis, with the retiree
paying a portion of the costs. After attaining age 65, an eligible retiree's
health care benefits coverage became subject to Medicare "carve-out" provisions,
with the retiree paying the same pro-rata amount they paid prior to reaching age
65 (although total payments for SensorMedics and retiree were lower due to
Medicare "carve-out" provisions). SensorMedics reserved the right to change or
terminate the benefits at any time.
F-16
<PAGE> 90
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Effective January 1, 1995 SensorMedics amended the health care and life
insurance benefits available for eligible retirees. The amendment principally
capped benefits SensorMedics would pay for eligible retiree health care for
employees retiring on or after January 1, 1997 and excluded any postretirement
benefits for any employee hired after January 1, 1995. This amendment resulted
in an unrecognized prior service gain of $1,013,000, which was amortized on a
straight-line basis over the average remaining employee service period of
approximately 13 years as a reduction in postretirement benefit expense
beginning in 1995.
In December 1997, SensorMedics decided to terminate this plan, effective
January 31, 1999. Accordingly, SensorMedics recorded a curtailment gain of
$1,487,000, which is included in restructuring and other unusual costs (income),
net in the accompanying 1997 statement of income.
4. INCOME TAXES
The components of income before provision for income taxes and minority
interest are as follows:
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Domestic $46,408 $42,925 $38,129
Foreign 3,704 (634) (552)
------- ------- -------
$50,112 $42,291 $37,577
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Currently Payable (Refundable):
Federal $16,799 $13,686 $13,862
State 3,306 2,486 2,725
Foreign 1,893 9 23
------- ------- -------
21,998 16,181 16,610
------- ------- -------
Net Deferred (Prepaid):
Federal (1,195) 883 (980)
State (181) 134 (148)
Foreign 64 -- --
------- ------- -------
(1,312) 1,017 (1,128)
------- ------- -------
$20,686 $17,198 $15,482
======= ======= =======
F-17
<PAGE> 91
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAXES (CONTINUED)
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes due to the
following:
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Provision for Income Taxes at Statutory Rate $17,540 $14,802 $13,152
Increases (Decreases) Resulting From:
Foreign sales corporation benefit (1,107) (1,044) (961)
State income taxes, net of federal tax 2,031 1,703 1,675
Amortization of cost in excess of net
assets of acquired companies 1,148 845 949
Nondeductible costs 511 663 574
Foreign tax rate differential and
foreign losses not benefited 555 231 216
Other 8 (2) (123)
------- ------- -------
$20,686 $17,198 $15,482
======= ======= =======
Deferred tax asset and deferred income taxes in the accompanying balance
sheet consist of the following:
(In thousands) 1999 1998
-------------- ---- ----
Prepaid (Deferred) Income Taxes:
Inventory basis difference $ 6,197 $ 5,860
Reserves and accruals 4,434 2,469
Accrued compensation 2,377 1,985
Net operating loss and credit carryforwards 971 884
Depreciation and amortization 432 1,313
Other, net 47 (600)
------- -------
14,458 11,911
Less: Valuation allowance (971) (884)
------- -------
$13,487 $11,027
======= =======
The valuation allowance relates to uncertainty surrounding the realization
of the foreign tax loss and credit carryforwards. At year-end 1999, the Company
had foreign net operating loss carryforwards of $2,300,000, of which $800,000
expire in 2004 and the balance do not expire. A provision has not been made for
U.S. or additional foreign taxes on $1,600,000 of undistributed earnings of
foreign subsidiaries which could be subject to taxation if remitted to the
United States. because the Company plans to keep these amounts permanently
invested overseas.
5. SHORT-TERM OBLIGATIONS
Notes payable and current maturities of long-term obligations in the
accompanying balance sheet includes $187,000 and $1,880,000 at year-end 1999 and
1998, respectively, of short-term bank borrowings and borrowings under lines of
credit at certain of the Company's foreign subsidiaries. The weighted average
interest rate for these borrowings was 6.6% and 3.1% at year-end 1999 and 1998,
respectively.
F-18
<PAGE> 92
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SHORT-TERM OBLIGATIONS (CONTINUED)
In addition, through June 1999, the Company's Netherlands-based subsidiary
had an agreement with a wholly owned subsidiary of Thermo Electron under which
the subsidiary could borrow funds bearing interest at a rate based on
Netherlands market rates, set at the beginning of each month. At year-end 1998,
the Company had borrowings under this agreement of $651,000, which is included
in notes payable and current maturities of long-term obligations in the
accompanying balance sheet. The weighted average interest rate for these
borrowings was 4.5% at year-end 1998.
At year-end 1999, certain of the Company's Germany-based subsidiaries had
borrowings of $802,000 under an arrangement with a wholly owned subsidiary of
Thermo Electron (Note 1). The weighted average interest rate for these
borrowings was 3.95% at year-end 1999.
Unused lines of credit, including amounts available under arrangements with
a wholly owned subsidiary of Thermo Electron, were $1,899,000 at year-end 1999.
Borrowings under lines of credit are generally guaranteed by Thermo Electron.
6. LONG-TERM OBLIGATIONS
To partially finance the acquisition of Medical Data Electronics in August
1996, the Company issued a promissory note in the amount of $24,296,000 to the
previous owners. This note was noninterest-bearing and called for annual
payments of $9,167,000 with a final maturity of July 1999. The Company
discounted the note for an effective interest rate of 6.46%.
7. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES
The Company and Thermo Electron have a corporate services arrangement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. The Company paid an amount equal to 0.8% and 1.0% of the
Company's revenues in 1998 and 1997, respectively. For these services the
Company was charged $2,868,000, $2,451,000 and $2,675,000 in 1999, 1998 and
1997, respectively. Management believes that the service fees charged by Thermo
Electron are reasonable and that such fees are representative of the expenses
the Company would have incurred on a stand-alone basis. For additional items
such as employee benefit plans, insurance coverage and other identifiable costs,
Thermo Electron charges the Company based upon costs attributable to the
Company.
OPERATING LEASE
The Company leases office space from an affiliate which is controlled by
Thermo Electron under an operating lease arrangement that expires in 2001. The
accompanying statement of income includes expense from this lease of $772,000,
$782,000 and $790,000 in 1999, 1998 and 1997, respectively. Future minimum
payments due under this lease at January 1, 2000, are $745,000 in 2000 and
$728,000 in 2001.
OTHER RELATED-PARTY TRANSACTIONS
The Company provides metal fabrication services to Thermo Cardiosystems
Inc., a majority-owned subsidiary of Thermo Electron. The Company was paid
$3,622,000, $1,714,000 and $1,871,000 in 1999, 1998 and 1997, respectively, for
these services.
The Company sold products totaling $1,446,000, $1,350,000 and $1,030,000
during 1999, 1998 and 1997, respectively, to affiliates controlled by Thermo
Electron.
F-19
<PAGE> 93
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RESTRUCTURING AND OTHER UNUSUAL COSTS (INCOME)
Restructuring and other unusual costs (income), net in 1998 and 1997
includes $788,000 and $175,000, respectively, of costs recorded at SensorMedics,
primarily consisting of severance costs for seven employees. In addition, in
1997, the Company recorded restructuring costs of $53,000 relating primarily to
the closure of Nicolet Biomedical's operations in Germany.
During 1997, the Company recorded an unusual gain of $1,487,000 resulting
from the curtailment of an employee benefit plan at SensorMedics (Note 3).
The Company recorded restructuring and other unusual costs of $988,000
during the first six months of 2000, representing employee retention costs in
connection with Thermo Electron's proposed plan to spin off the Company (Note
11). The retention costs are being recorded ratably over the period through
which the employees must remain employed to qualify for the payment.
The Company recorded restructuring and other unusual costs, net, as
follows:
Employee
(In thousands) Severance Retention Total
-------------- --------- --------- -----
1997 RESTRUCTURING PLAN
Costs incurred in 1997 (a) $ 175 $ -- $ 175
1997 Usage (105) -- (105)
------ ------- ------
BALANCE AT JANUARY 3, 1998 (b) 70 -- 70
1998 Usage (70) -- (70)
------ ------- ------
BALANCE AT JANUARY 2, 1999 AND
JANUARY 1, 2000 $ -- $ -- $ --
====== ======= ======
1998 RESTRUCTURING PLAN
Costs incurred in 1998 $ 788 $ -- $ 788
1998 Usage (11) -- (11)
------ ------- ------
BALANCE AT JANUARY 2, 1999 777 -- 777
1999 Usage (516) -- (516)
Currency translation (102) -- (102)
------ ------- ------
BALANCE AT JANUARY 1, 2000 (c) 159 -- 159
2000 Usage (108) -- (108)
Currency translation (8) -- (8)
------ ------- ------
BALANCE AT JULY 1, 2000 $ 43 $ -- $ 43
====== ======= ======
(Unaudited)
2000 RESTRUCTURING PLAN
Costs incurred in 2000 (d) $ -- $ 988 $ 988
2000 Usage -- (5) (5)
------ ------- ------
BALANCE AT JULY 1, 2000 (e) $ -- $ 983 $ 983
====== ======= ======
(a) Excludes a $1,487,000 gain on the termination of a postretirement benefit
plan in the Respiratory Care segment and noncash charges of $53,000 in the
Neuro Care segment.
(b) The balance of accrued severance at year-end 1997 represents amounts for
planned severances in the Respiratory Care segment. The payments were made
in 1998.
F-20
<PAGE> 94
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RESTRUCTURING AND OTHER UNUSUAL COSTS (INCOME) (CONTINUED)
(c) The balance of accrued severance at year-end 1998 represents amounts for
planned severances in the Respiratory Care segment. Payments were made in
1999 and will continue through 2000.
(d) Reflects costs of $104,000, $206,000 and $678,000 in the Respiratory Care,
Neuro Care and Specialty Medical Products segments, respectively.
(e) The Company expects to make the payments for employee retention during
2001.
9. COMMITMENTS
In addition to the related-party operating leases described in Note 7, the
Company leases manufacturing, office and research facilities under various
operating lease arrangements. The accompanying statement of income includes
expense from these leases of $4,591,000, $5,954,000 and $4,695,000 in 1999, 1998
and 1997, respectively. Future minimum payments due under these noncancelable
operating leases at January 1, 2000, are $4,366,000 in 2000; $3,662,000 in 2001;
$3,205,000 in 2002; $2,532,000 in 2003; $2,127,000 in 2004; and $463,000 in 2005
and thereafter.
10. BUSINESS SEGMENT INFORMATION, EXPORT REVENUES AND CONCENTRATIONS OF RISK
BUSINESS SEGMENT INFORMATION
The Company's businesses operate in three segments: Respiratory Care, Neuro
Care, and Specialty Medical Products. The Respiratory Care segment, which
includes the Company's Bear Medical Systems, Bird Products Corporation,
SensorMedics and Erich Jaeger subsidiaries, develops, manufactures and markets a
variety of medical products for the diagnosis and treatment of
respiratory-related disorders. The Neuro Care segment, which includes the
Company's Medical Data Electronics and Nicolet Biomedical subsidiaries,
develops, manufactures and markets a comprehensive line of neurodiagnostic
systems, as well as a line of wireless patient monitoring systems. The Specialty
Medical Products segment, which includes the Company's Tecomet, Bird Life
Design, Stackhouse, Inc., Corpak and Thermedics Polymer Products subsidiaries,
develops, manufactures and markets critical care disposable devices and
specialty products and materials for sale to original equipment manufacturers.
In classifying operational entities into a particular segment the Company
aggregates businesses with similar economic characteristics, products and
services, production processes, customers and methods of distribution.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 1, JULY 3,
(In thousands) 2000 1999 1999 1998 1997
-------------- ------- ------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Respiratory Care $ 86,766 $ 77,481 $ 184,371 $ 149,813 $ 123,600
Neuro Care 59,576 54,746 116,784 97,088 88,441
Specialty Medical Products 29,994 29,913 57,398 59,462 55,423
--------- --------- --------- --------- ---------
$ 176,336 $ 162,140 $ 358,553 $ 306,363 $ 267,464
========= ========= ========= ========= =========
Income Before Provision for Income Taxes and
Minority Interest:
Respiratory Care $ 10,939 $ 13,886 $ 30,480 $ 24,536 $ 24,871
Neuro Care 6,630 4,863 9,304 6,931 7,260
Specialty Medical Products 5,705 6,534 11,832 13,044 8,317
Corporate (a) (360) (461) (806) (1,324) (1,397)
--------- --------- --------- --------- ---------
Total operating income 22,914 24,822 50,810 43,187 39,051
Interest and other expense, net (889) (291) (698) (896) (1,474)
--------- --------- --------- --------- ---------
$ 22,025 $ 24,531 $ 50,112 $ 42,291 $ 37,577
========= ========= ========= ========= =========
</TABLE>
F-21
<PAGE> 95
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BUSINESS SEGMENT INFORMATION, EXPORT REVENUES, AND CONCENTRATIONS OF RISK
(CONTINUED)
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Total Assets:
Respiratory Care $193,670 $132,133 $142,706
Neuro Care 142,284 147,456 127,129
Specialty Medical Products 39,953 39,418 38,762
Corporate 4,202 1,337 3,671
-------- -------- --------
$380,109 $320,344 $312,268
======== ======== ========
Depreciation and Amortization:
Respiratory Care $ 5,979 $ 4,113 $ 4,266
Neuro Care 4,876 4,880 4,205
Specialty Medical Products 2,498 2,764 3,303
-------- -------- --------
$ 13,353 $ 11,757 $ 11,774
======== ======== ========
Capital Expenditures:
Respiratory Care $ 2,988 $ 2,838 $ 1,049
Neuro Care 2,236 1,876 1,224
Specialty Medical Products 1,825 2,638 1,808
-------- -------- --------
$ 7,049 $ 7,352 $ 4,081
======== ======== ========
(a) Primarily general and administrative expenses.
EXPORT REVENUES
Export revenues accounted for 24%, 27% and 25% of the Company's total
revenues in 1999, 1998 and 1997, respectively.
CONCENTRATIONS OF RISK
The Company sells its products to customers in the healthcare industry. The
Company does not normally require collateral or other security to support its
accounts receivable. Management does not believe that this concentration of
credit risk has, or will have, a significant negative impact on the Company.
11. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------
JULY 1, JULY 3,
(In thousands except per share amounts) 2000 1999 1999 1998 1997
--------------------------------------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income $13,050 $14,128 $28,850 $24,334 $21,203
------- ------- ------- ------- -------
Basic and Diluted Weighted Average Shares 3 3 3 3 3
------- ------- ------- ------- -------
Basic and Diluted Earnings per Share $ 4,350 $ 4,709 $ 9,617 $ 8,111 $ 7,068
======= ======= ======= ======= =======
</TABLE>
F-22
<PAGE> 96
THERMO BIOMEDICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. PROPOSED REORGANIZATION
On January 31, 2000, Thermo Electron announced that, as part of a major
reorganization plan, it plans to spin off the Company as a dividend to Thermo
Electron shareholders. The distribution is subject to receipt of a favorable
ruling from the Internal Revenue Service regarding the tax treatment of the
spinoff, and other customary conditions. If these conditions are met, the
Company expects the transaction to occur in late 2000 or in early 2001.
F-23
<PAGE> 97
ANNEX A
SAMPLE FORM OF INFORMATION STATEMENT
TO BE PROVIDED TO INTERNAL REVENUE SERVICE BY STOCKHOLDERS
Note: Attachment to 2000 federal income tax return of stockholders
Statement of stockholders receiving a distribution of stock in Thermo
Biomedical Inc. (a controlled corporation), pursuant to Treas. Reg. Section
1.355-5(b).
1. The undersigned, a stockholder owning shares of Thermo Electron Corporation
as of ________ __, 2000, received a distribution of stock in a controlled
corporation that qualifies under Section 355 pursuant to a private letter ruling
received by Thermo Electron Corporation from the Internal Revenue Service.
2. The name and addresses of the corporations involved are:
Thermo Electron Corporation (Distributing Corporation)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
Thermo Biomedical Inc. (Controlled Corporation)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
3. No stock or securities in Thermo Electron Corporation were surrendered by the
undersigned.
4. ____ shares of Thermo Biomedical Inc. were received constituting only common
shares in such corporation.
5. No cash or other property was received by the undersigned in connection with
the distribution except for $______ representing a cash payment in lieu of
fractional shares.
Stockholder
--------------------------------------------------------------------------------
STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE DISTRIBUTION UPON THEM.
A-1
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Restated Certificate of Incorporation of the Registrant
3.3 By-laws of the Registrant
3.4 Form of Amended and Restated By-laws of the Registrant
3.5* Form of Certificate of Designation for Thermo Biomedical Inc. Series A Junior
Participating Preferred Stock (included as Exhibit A to Exhibit 10.5)
4.1* Form of Common Stock Certificate of the Registrant
4.2* Form of Rights Certificate (included as Exhibit B to Exhibit 10.5)
4.3* Summary of Rights to Purchase Series A Junior Participating Preferred Stock
(included as Exhibit C to Exhibit 10.4)
10.1 Form of Plan and Agreement of Distribution
10.2* Form of Tax Matters Agreement
10.3* Form of Transition Services Agreement
10.4* Form of Employee Benefits Agreement
10.5* Form of Rights Agreement
10.6* Form of Indemnification Agreement with Directors and Officers of the Registrant
10.7* Form of 2000 Equity Incentive Plan of the Registrant
10.8* Form of 2000 Employee Stock Purchase Plan of the Registrant
10.9* Form of Deferred Compensation Plan for Directors of the Registrant
21.1* Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the Fiscal Year Ended January 1, 2000
27.2 Financial Data Schedule for the Fiscal Year Ended January 2, 1999
27.3 Financial Data Schedule for the Fiscal Year Ended January 3, 1998
27.4 Financial Data Schedule for the Six Months Ended July 1, 2000
27.5 Financial Data Schedule for the Six Months Ended July 3, 1999
</TABLE>
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* To be filed by amendment.
