SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9567
THERMEDICS INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2788806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2999
Woburn, Massachusetts 01888-1799
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to the
filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 26, 1996, was approximately $433,605,000.
As of January 26, 1996, the Registrant had 35,746,162 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report to Shareholders for the
year ended December 30, 1995, are incorporated by reference into Parts I
and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 20, 1996, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
The businesses of Thermedics Inc. (the Company or the Registrant) are
divided into two segments: Instruments and Other Equipment, and Biomedical
Products. The Company's Instruments and Other Equipment segment includes
Thermo Sentron Inc. (Thermo Sentron), a newly formed subsidiary of the
Company. On January 2, 1996, the Company transferred to Thermo Sentron the
assets, liabilities and business of Ramsey Technology, Inc., which was
acquired in March 1994, for 7,000,000 shares of Thermo Sentron common
stock. Thermo Sentron designs, develops, manufactures, and sells high-speed
precision weighing and inspection equipment for industrial production and
packaging lines. On February 1, 1996, Thermo Sentron filed a registration
statement under the Securities Act of 1933 with the Securities Exchange
Commission covering shares of common stock to be offered in its initial
public offering. Also part of the Instruments and Other Equipment segment
is the Orion laboratory products division (Orion) of Analytical Technology,
Inc., which the Company acquired in December 1995 for approximately $52.7
million in cash, which included the repayment of $8.6 million of debt,
subject to a post-closing adjustment. To partially finance this
acquisition, the Company borrowed $38.0 million from Thermo Electron
Corporation (Thermo Electron) pursuant to a promissory note due December
1996. The balance of the purchase price was funded from the Company's
working capital. Orion is a manufacturer of electrochemistry,
microweighing, process and other instruments used to analyze the chemical
compositions of foods, beverages, and pharmaceuticals and detect
contaminants in environmental and high-purity water samples. The
Instruments and Other Equipment segment, through its Thermedics Detection
Inc. (Thermedics Detection) subsidiary also develops, manufactures, and
markets high-speed detection instruments, including the Alexus(R) system, a
process detection instrument used in product quality assurance
applications, and the EGIS(R) system, a security instrument used to detect
explosives at airports and other locations. In January 1996, Thermedics
Detection acquired the assets of Moisture Systems Corporation and certain
affiliated companies (collectively, MSC), and the stock of Rutter & Co.
(Rutter) for a total of $20.5 million in cash and the assumption of certain
liabilities. MSC and Rutter design, manufacture, and sell instruments which
use near infrared radiation to measure moisture for protein and other
product components in the manufacturing process for the food,
pharmaceutical, chemical, wood, pulp, paper, and other industries. Through
the Company's Thermo Voltek Corp. (Thermo Voltek) subsidiary, the
Instruments and Other Equipment segment manufactures a line of electronic
test instruments and high-voltage power conversion systems.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. (Thermo Cardiosystems) subsidiary has developed two
implantable left ventricular-assist systems (LVAS): an implantable
pneumatic, or air-driven system, and an electric version. In October 1994,
the Company announced that the U.S. Food and Drug Administration (FDA)
granted approval for the commercial sale of the air-driven LVAS for use as
a bridge-to-transplant. With this approval, the air-driven system became
available for sale to cardiac centers throughout the U.S. The Company also
develops, manufactures, and markets enteral nutrition-delivery systems and
a line of medical-grade polymers used in medical disposables and
nonmedical, industrial applications, including safety glass and automotive
coatings.
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The Company was incorporated in 1983 under the laws of Massachusetts
as a wholly owned subsidiary of Thermo Electron. Prior to that time, the
business of the Company was conducted by the R & D/New Business Center of
Thermo Electron. As of December 30, 1995, Thermo Electron owned 17,315,326
shares of the Company's common stock, representing 51% of such stock
outstanding. In January 1996, the Company issued 1,688,161 shares of its
common stock to Thermo Electron in exchange for 315,199 shares of Thermo
Voltek common stock and 529,965 shares of Thermo Cardiosystems common
stock. The shares of common stock were exchanged at their respective fair
market values on the date of the transaction. Thermo Electron is a world
leader in environmental monitoring and analysis instruments and a
manufacturer of biomedical products, including mammography systems,
paper-recycling and papermaking equipment, alternative-energy systems,
industrial process equipment, and other specialized products. Thermo
Electron also provides environmental and metallurgical services and
conducts advanced technology research and development.
Thermo Electron intends, for the foreseeable future, to maintain at
least 50% ownership of the Company. This may require the purchase by Thermo
Electron of additional shares of common stock of the Company (or debentures
convertible into common stock) from time to time as the number of
outstanding shares issued by the Company increases. These or any other
purchases may be made either in the open market or directly from the
Company. See Notes 4 and 8 to Consolidated Financial Statements in the
Company's 19951 Annual Report to Shareholders for a description of
outstanding stock options and convertible debentures issued by the Company.
During 1995, Thermo Electron purchased 484,300 shares of the Company's
common stock in the open market at a total price of $8,632,000.
As of December 30, 1995, the Company owned 52% and 50% of the
outstanding common stock of Thermo Cardiosystems and Thermo Voltek,
respectively. After the completion of Thermo Sentron's initial public
offering, the Company is expected to own approximately 74% of Thermo
Sentron's common stock. The Company intends, for the foreseeable future, to
maintain at least 50% ownership of Thermo Cardiosystems, Thermo Voltek, and
Thermo Sentron. This may require the purchase by the Company of additional
shares of common stock or, if applicable, convertible debentures (which are
then converted) of these companies from time to time, if the number of the
companies' outstanding shares increases, whether as a result of conversion
of convertible obligations or exercise of stock options issued by them, or
otherwise. These or any other purchases by the Company may be made either
in the open market or directly from Thermo Cardiosystems, Thermo Voltek,
Thermo Sentron or Thermo Electron or pursuant to the conversion of all or
part of the $7,500,000 principal amount 6 3/4% subordinated convertible
note due 2002 and the $4,000,000 principal amount 5% subordinated
convertible note due 2003 issued by Thermo Voltek to the Company,
convertible into shares of Thermo Voltek's common stock at conversion
prices of $6.40 and $5.67 per share, respectively. In addition, at December
30, 1995, Thermo Cardiosystems and Thermo Voltek had outstanding (i) stock
options and warrants exercisable for 798,000 and 511,000 shares,
respectively, at various prices and subject to various vesting schedules,
and (ii) convertible debentures (other than those held by the Company)
convertible into 535,511 shares and 2,148,085 shares, respectively. During
1995, the Company purchased 21,300 shares of Thermo Voltek common stock in
the open market at a total price of $179,000.
1 References to 1995, 1994, and 1993 herein are for the fiscal years
ended December 30, 1995, December 31, 1994, and January 1, 1994,
respectively.
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(b) Financial Information About Industry Segments
The Company's business is divided into two industry segments as
follows:
Instruments and Other Equipment
The Company designs, develops, manufactures, and sells high-speed
precision weighing and inspection equipment for industrial production and
packaging lines. The Company also manufactures and markets
electrochemistry, microweighing, process, and other instruments for
analyzing the chemical compositions of foods, beverages and pharmaceuticals
and detecting contaminants in environmental and high-purity water samples.
The Company also develops, manufactures, and markets high-speed detection
instruments, including the Alexus system, a process detection instrument
used in product quality assurance applications, and the EGIS system, a
security instrument used to detect explosives at airports and other
locations. The Company also develops, manufactures and sells instruments
which use near infrared radiation to measure moisture for protein and other
product components in the manufacturing process. In addition, the Company
develops, manufactures, and markets a line of electronic test instruments,
and makes high-voltage power conversion systems.
Biomedical Products
The Company develops, manufactures, and markets left
ventricular-assist systems; enteral feeding products; and a line of
medical-grade polymers used in catheters and tubing, and for nonmedical
applications, such as protective coatings for industrial products and
safety glass.
Financial information concerning the Company's industry segments is
summarized in Note 14 to Consolidated Financial Statements in the
Registrant's 1995 Annual Report to Shareholders and is incorporated herein
by reference.
(c) Description of Business
(i) Principal Products and Services
Instruments and Other Equipment
Precision Weighing and Inspection Equipment. Through its Thermo
Sentron subsidiary, the Company designs, develops, manufactures, and sells
high-speed precision weighing and inspection equipment for industrial
production and packaging lines. Thermo Sentron serves two principal
markets: packaged goods and bulk materials. Thermo Sentron's products for
the packaged goods market include a wide range of checkweighing equipment
and metal detectors that can be integrated at various stages in production
lines for process control and quality assurance. These products are sold
primarily to customers in the food processing and pharmaceutical
industries. Products in Thermo Sentron's bulk-material line include
conveyor belts, scales, solids level measurement and conveyor monitoring
devices, and sampling systems. These products are sold primarily to
customers in the mining and material processing industries, as well as
electric utilities, chemical, and other manufacturing companies.
During 1995 and 1994, the Company derived revenues of $67.5 million
and $50.1 million, respectively, from its precision weighing and inspection
equipment.
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Laboratory Products. To expand its product quality assurance
offerings, the Company acquired Orion in December 1995. Through Orion, the
Company manufactures and markets electrochemistry, microweighing, process,
and other instruments used to analyze the chemical composition in foods,
beverages, and pharmaceuticals and detect contaminants in environmental and
high-purity water samples. Orion's laboratory products include ion and
moisture analysis and precision weighing systems. Orion's laboratory
pH/ion-selective products, marketed under the Orion brand name, identify
chemical substances found in various types of solutions, including foods,
pharmaceuticals, soils, and water. Pure water monitors, also marketed under
the Orion name, use ion-selective technology to monitor parameters required
for the control of high-purity water systems in power generation and other
industrial applications. Other products include Cahn microweighing and
moisture balances, Russell pH products, and Lear/Fischer
filtration/moisture analysis products, all marketed under the Orion brand
name. Orion also markets consumable products for its earlier instruments
line. Orion had revenues of $46.3 million in fiscal 1994.
Process Detection Instruments. In 1992, Thermedics Detection
introduced Alexus, a high-speed product quality assurance system based on
the Company's vapor-detection technology, for use in bottling lines in the
carbonated beverage industry. The Company continues to develop new product
quality assurance technologies to address the need for product quality in
the beverage market. In 1994, the Company upgraded its Alexus systems to
offer higher selectivity and operating efficiency and introduced the Alexus
W10, which provides the bottled water industry with a device to help ensure
product quality in returned water containers. In 1995, the Company
developed a high-speed X-ray imaging system, currently being evaluated by
several major beer companies in the U.S. and overseas, to detect liquid
fill-levels for the beverage industry. The Company is also developing a
high-speed gas chromatography instrument to provide laboratory-quality
analysis in the field for process control applications.
The Company, through its newly acquired MSC and Rutter businesses, has
a leading position in the market for near infrared radiation technology to
measure moisture for protein and other product components in the
manufacturing process for the food, pharmaceutical, chemical, wood, pulp,
paper, and other industries. MSC and Rutter had combined revenues of $20.0
million in 1994.
During 1995, 1994, and 1993, the Company derived revenues from its
process detection instrument business of approximately $16.2 million, $38.0
million, and $34.4 million, respectively.
Security Instruments. Also through Thermedics Detection, the Company
has developed a line of security instruments. The Company's TEA
Analyzer(R), introduced in 1975, uses vapor-detection technology to analyze
substances for nitrogen-based carcinogens. From this technology, Thermedics
Detection developed the EGIS system, a highly sensitive vapor-detection
instrument for screening people, baggage, packages, freight, and electronic
equipment such as personal computers for the presence of a wide range of
explosives, including the plastic explosives that have proven difficult to
detect using conventional methods. The EGIS system detects ultratrace
quantities of certain explosives and indicates the concentration and type
of explosive detected. The EGIS system is in use in 21 countries and
operational in 40 international airports, and is also used in government
buildings, embassies, and other locations where there is a high degree of
concern for security. The EGIS system has assisted in identifying
explosives used in terrorist bombings, including those in Oklahoma City
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and at the World Trade Center in New York, as well as in Israel, Buenos
Aires, and the United Kingdom.
Electronic Test Instruments. Through Thermo Voltek's KeyTek Instrument
(KeyTek) division, the Company designs, develops, and manufactures
electronic test instruments that simulate different types of pulsed
electromagnetic interference (pulsed EMI) in order to test electronic and
electrical systems and components for electromagnetic compatibility (EMC).
Pulsed EMI, which is caused by natural and man-made phenomena such as
lightning, static electricity, and electrical power disturbances, can
damage or disrupt the operation of any product that uses digital circuits.
Consequently, manufacturers of electronic systems and integrated circuits
must engineer their products for immunity to pulsed EMI. The Company's
products are used by these customers primarily for product development,
design verification, and quality assurance, enabling them to meet higher
levels of product performance, reliability, and safety, and to meet
increasingly stringent regulatory requirements, including a European Union
(EU) directive that took effect on January 1, 1996.
Thermo Voltek instruments that test products for immunity to pulsed
EMI fall into two main categories: (1) equipment to test electronic
products such as computers and (2) equipment to test individual electronic
components such as integrated circuits. This subsidiary's products also
test for immunity to certain types of power quality failure, which include
voltage swells, dips, and interruptions on power lines.
On March 1, 1995, as part of its strategy to address additional
segments of the EMC testing market, Thermo Voltek acquired substantially
all of the assets, subject to certain liabilities, of Kalmus Engineering
Incorporated (Kalmus), a manufacturer of radio frequency (RF) power
amplifiers. RF power amplifiers are used to test products for immunity to
conducted and radiated RF interference, another form of electromagnetic
interference, and are purchased by many of the same customers that purchase
Thermo Voltek's pulsed EMI testing products. In addition, RF power
amplifiers are used in a variety of laboratory and test applications where
precise control over power level and frequency are required; in medical
imaging applications; and in wireless communications applications, such as
in cellular telephone systems, wireless wide area networks (WANs) and local
area networks (LANs), and mobile data communications.
Through Thermo Voltek's Comtest subsidiary, the Company provides
EMC-consulting and systems-integration services, acts as distributor of a
broad range of EMC-testing products, and manufactures specialized power
supplies for use in telecommunications equipment.
During 1995, 1994, and 1993, the Company derived revenues of $31.6
million, $19.0 million, and $13.2 million, respectively, from electronic
test instruments.
High-voltage Systems. Through Thermo Voltek's Universal Voltronics
division, the Company designs, manufactures, and markets high-voltage power
conversion systems, modulators, fast-response protection systems, and
related high-voltage equipment for industrial, medical, and environmental
processes, and defense and scientific research applications. These systems
transform utility-supplied voltage and current into the high voltage or
current required by the user and allow precise control over the performance
level desired for each application. The Company's systems produce power
ranging from 1,000 to 1,000,000 volts, and range in size from small systems
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used in benchtop instruments to room-sized systems used in scientific
research applications.
The Company currently sells products on an OEM (original equipment
manufacturer) basis for use in commercial applications, which include
electrostatic coating and separation, industrial and medical lasers, and
electron-beam applications. In addition, the Company has developed
high-voltage power supplies for microwave-driven light sources used to test
projection televisions during the manufacturing process.
Biomedical Products
Left Ventricular-assist Systems. The Company, through its Thermo
Cardiosystems subsidiary, has developed two versions of its LVAS: an
implantable pneumatic (IP), or air-driven system that can be controlled by
either a bedside or portable console and an electric system that features
an internal electric motor powered by an external battery pack worn by the
patient. These devices are designed to perform substantially all or part of
the pumping function of the left ventricle of the natural heart for
patients suffering from cardiovascular disease. Both of the Company's
systems employ the Company's HeartMate(R) blood pump and are designed for
long-term use. This pump incorporates proprietary technological advances in
biological compatibility that distinguish it from other competitive
devices, including proprietary textured linings that can significantly
reduce the likelihood of blood clots that can lead to strokes.
Unlike a total artificial heart system, which requires removal of the
natural heart, the LVAS allows the natural heart to remain in place and
assists the heart when it is unable to provide sufficient cardiac function
to maintain life. This approach provides the advantage of leaving in place
certain biological control mechanisms and also provides the important
psychological advantage of not removing the organ.
IP LVAS. The Company announced in October 1994, that the IP LVAS
system had been approved by the FDA for commercial sale for use as a
bridge-to-transplant. This approval allows the Company to sell the IP LVAS
to any of the nearly 900 cardiac surgery centers in the United States. In
April 1994, the Company received the European Conformity Mark (CE Mark),
which allows commercial sale of the air-driven LVAS in all European
Community countries. The IP LVAS is intended as a bridge-to-transplant for
patients awaiting heart transplantation. In the IP LVAS, the HeartMate
blood pump is coupled to an external console connected to the body by a
tube. The Company has also developed the HeartPak(TM), a lightweight
portable console that can be carried over the shoulder. The portable
console received the CE Mark for commercial sale in European Community
countries in February 1995. In July 1995, the FDA approved the beginning of
Phase I clinical trials of the HeartPak portable pneumatic driver. Phase I
of the study will evaluate the safety of the system in the hospital; Phase
II will evaluate the system in the home environment.
To date, more than 500 patients have been supported by the IP LVAS
prior to transplantation, including one patient who was supported for 390
days. There are currently approximately 60 cardiac surgery centers in the
United States that offer the Company's IP LVAS to patients. In addition,
Thermo Cardiosystems is working with nearly 30 cardiac sites in such
countries as the United Kingdom, Germany, Sweden, Japan, the Netherlands,
France, Italy, and Belgium. In November 1995, the U.S. Health Care Finance
Administration (HCFA) issued a decision that extends Medicare coverage to
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Thermo Cardiosystems' IP LVAS. Several major nongovernment insurers,
including Blue Cross/Blue Shield of Connecticut, Aetna Life & Casualty
Company (Aetna) and the health maintenance organization (HMO) U.S.
Healthcare, have already agreed to offer coverage for the IP LVAS.
Additional insurers are reviewing the clinical results with the device, and
additional coverage decisions will be forthcoming.
Electric LVAS. The Company has also developed an electric LVAS that
uses the HeartMate blood pump driven by an internal electric motor mounted
in the blood pump housing. The system is connected to an external battery
pack by wires that exit the body, allowing the patient complete mobility.
In early 1991, the Company received an investigational device
exemption (IDE) from the FDA allowing the Company to begin clinical studies
of the electric LVAS. This IDE is being restructured as a two-phase study
to evaluate the electric system for safety in the hospital and home
environment. The efficacy of the HeartMate blood-contacting components,
common to both the air-driven and electric devices, has already been
established, thereby reducing the complexity level for testing of the
Company's electric LVAS. To date, 18 clinical sites have been approved by
the FDA and more than 70 implants have been performed, including one
implant that supported a patient for 416 days prior to transplant. In April
1993, the FDA granted approval to allow patients with an electric LVAS to
be discharged from the hospital with their physician's approval, improving
quality of life and reducing substantial costs associated with extended
hospital stays. The electric LVAS may not be sold commercially in the U.S.
until it has received approval from the FDA. In December 1995, the FDA
approved the protocol for conducting clinical trials of the electric LVAS
as an alternative to heart transplant. The trial is expected to compare the
results of approved patients using the device to a similar number using
drug therapy. In August 1995, the electric LVAS was awarded the CE Mark,
allowing commercial sale of this system in all European Community
countries. The electric system is used as a bridge-to-transplant in the
U.S. and Europe, and is also implanted as an alternative to heart
transplant in Europe.
Medical Grade Polymers and Enteral Nutrition-Delivery Systems. The
Company's research relating principally to the development of its LVAS has
resulted in the development of proprietary medical-grade plastics marketed
under the names Tecoflex(R) and Tecothane(R). Tecoflex and Tecothane are
thermoplastic polyurethanes used in medical disposables and industrial
products. The Company sells Tecoflex and Tecothane in bulk form for
fabrication by the customer, and the Company also extrudes precision tubing
to customer specifications. Tecoflex and Tecothane can be custom-fabricated
to a variety of shape, size, hardness, color, and opacity specifications.
Tecoflex and Tecothane are used by medical-products companies to
fabricate products such as catheters and tubing for drug-delivery systems,
enteral nutrition-delivery systems, fluid transfer systems, and diagnostic
devices. In addition, due to the strength, weather resistance, and optical
clarity of these polyurethanes, they are used by industrial customers for
aerospace and safety glass applications.
The Company introduced Scent Seal fragrance samplers, which were
developed from the Company's polymer technology, in 1993. Scent Seal
fragrance samplers are used to hermetically seal a fragrance rendition in
perfume advertisements for magazines, and are an alternative to commonly
used fragrance strips.
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In June 1995, Thermedics entered into an agreement granting Arcade,
Inc., the leading manufacturer of scent-sampling products, an exclusive,
worldwide license to manufacture and distribute the Company's fragrance
samplers under Thermedics' patents and know-how. The license arrangement
follows the termination of Thermedics' exclusive marketing agreement with
Scent Seal, Inc., and the acquisition of Scent Seal, Inc. by Arcade. Under
the license agreement, Arcade pays royalties to Thermedics on licensed
fragrance samplers sold by Arcade, and Thermedics continues to provide the
polymer gels needed to produce the fragrance samplers. Arcade pays
Thermedics royalties of approximately five percent of revenues from the
licensed samplers, with minimum annual royalty payments required to
maintain an exclusive license.
The Company's Corpak Inc. (Corpak) subsidiary designs, manufactures,
and markets enteral feeding systems that introduce special nutritional
solutions into the stomach or the small intestine through tubes entering
the nose or stomach. Enteral therapy is used for patients who are unable to
feed themselves but who do not require parenteral (intravenous) feeding.
Corpak's products include bags for nutritional fluids, delivery pumps,
associated pump sets that hook up to the pumps, and feeding tubes. In
addition, Corpak markets a range of enteral feeding supplements.
(ii) New Products
The Company's business includes the development and introduction of
new products in the following categories: precision measurement and
inspection equipment, process detection instruments, security instruments,
electronic test instruments, high-voltage systems, left ventricular-assist
systems, and biomaterials. The Company also develops electrochemistry,
microweighing, and other laboratory instruments through its recently
acquired Orion subsidiary.
(iii) Raw Materials
The Company has a number of sole-source suppliers. A number of the
components of the Company's EMC-testing products are supplied by
sole-source vendors. The Company also relies upon one supplier as a sole
source of one of the chemical components used in the manufacture of one of
its polyurethanes. To date, the Company has experienced no difficulties in
obtaining these materials and components.
The Company relies on a number of custom-designed components and
materials supplied by other companies to manufacture its LVAS, most of
which are available from a large number of suppliers. These suppliers, in
turn, rely on one or two basic raw materials. In 1992, two major
manufacturers, E.& M. DuPont de Nemours & Co. (DuPont) and Dow Corning
(Dow), decided to phase out or eliminate their supply of raw materials for
implantable medical devices. These withdrawals have affected the
availability of several components and materials the Company uses in its
products.
The Company has developed and received FDA approval for the use of one
alternative material, and is in the process of qualifying certain other
alternative materials or developing alternative sources for the materials
no longer supplied by Dow and Dupont. While the Company believes that it
has adequate supplies of materials to meet demand for the LVAS for the
foreseeable future, no assurance can be given that the Company will not
experience shortages of certain materials in the future that could delay
shipments of the LVAS.
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The Company currently expects to spend approximately $2,000,000 on
research, development, and the equipment necessary to test and obtain FDA
approval for new alternative materials, approximately $1,390,000 of which
has been spent to date. However, the cost to the Company to evaluate and
test alternative materials and the time necessary to obtain FDA approval
for these materials are inherently difficult to determine because both time
and cost are dependent on at least two factors: the similarity of the
alternative material to the original material, and the amount of
third-party testing that may have already been completed on alternative
materials.
The Company does not expect that the introduction of alternative
materials will adversely affect clinical trials of the electric LVAS. There
can be no assurance, however, that the substitution of these materials will
not cause delays in the Company's LVAS development program.
(iv) Patents, Licenses and Trademarks
The Company considers its intellectual property important in the
operation and growth of its business, and its policy is to protect this
property through patents, license and confidentiality agreements,
trademarks, and trade secret protection. The Company applies for and
maintains patents in the U.S. and in foreign countries, particularly in the
areas of biomedical materials, medical products, and analytical
instruments. Although some of these patent rights may provide the Company
with a competitive advantage, the Company primarily relies on its know-how
and trade secrets. In April 1995, Thermo Cardiosystems received
correspondence from a third party alleging that the textured surface of the
LVAS housing infringed certain patent rights of such third party. Thermo
Cardiosystems had previously received similar correspondence from this
third party but had not received any communication for more than three
years. In its April 1995 communication, the third party offered Thermo
Cardiosystems a license, which Thermo Cardiosystems has elected not to
accept. Although Thermo Cardiosystems has not received any communication
since April 1995 and believes that it has adequate defenses to the claims
of the third party, due to the inherent uncertainty of litigation, no
assurance can be made that Thermo Cardiosystems would be successful were
any litigation to be commenced.
The Company also has certain licenses to the technology resulting from
its customer-sponsored development of a high-speed detection system for
product quality assurance. The patents and agreements of the Company have
varying lives ranging from one year to approximately 20 years, and the
Company does not believe that the expiration or termination of any one of
these patents or agreements would materially affect the Company's business.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales of
products and services.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
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(vii) Dependency on a Single Customer
No customer represented 10% or more of the Company's total revenues in
1995. The Company derived 21% and 43% of its total revenues in 1994 and
1993, respectively, from The Coca-Cola Company and its affiliates. The
Company derived 5% of its total revenues in 1994 from Scent Seal Inc.,
which represented 23% of the Biomedical Products segment revenues.
(viii) Backlog
The Company's backlog of firm orders at year-end 1995 and 1994 was as
follows:
(In thousands) 1995 1994
------------------------------------------------------------------------
Instruments and Other Equipment $31,800 $26,200
Biomedical Products 2,200 3,700
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$34,000 $29,900
======= =======
The Company anticipates that substantially all of the backlog at the
end of 1995 will be shipped or completed during fiscal 1996.
(ix) Government Contracts
Not applicable.
(x) Competition
In general, the Company competes with other entities on the basis of
technological advances, particularly with respect to the Company's work in
analytical instruments and biomedical devices.
Instruments and Other Equipment
Precision Weighing and Inspection Equipment. The Company's Thermo
Sentron subsidiary competes with several international and regional
companies in the market for its products. Thermo Sentron's competitors in
the packaged goods market differ from those in the bulk materials market.
The principal competitive factors in both markets are customer service and
support, quality, reliability, and price.
Laboratory Products. The Company's Orion division competes with
several international companies. In the markets for the products made by
its Orion division, the Company competes on the basis of performance,
service, technology, and price.
Process Detection Instruments. The Company's product quality assurance
systems compete with chemical-detection systems manufactured by several
companies using similar technology as well as other technologies and
processes for product quality assurance. Competition in the markets for all
of the Company's detection products is based primarily on performance,
service, and price.
11PAGE
<PAGE>
Security Instruments. In the security instruments market, the Company
competes with a small number of companies that include makers of other
chemical-detection instruments as well as enhanced X-ray detectors. Since
the Federal Aviation Administration (FAA) has not required that U.S.
airports and airlines buy advanced explosives-detection equipment, the
Company has not sold any EGIS systems to U.S. airlines. The Company
believes that the companies, if any, whose devices are required by the FAA
will have a substantial competitive advantage in the United States. In
December 1994, the FAA approved the use of an X-ray imaging system
developed by InVision Technologies in Foster City, California, indicating
that the FAA is currently focusing its attention on X-ray technology.
Electronic Test Instruments. The Company is a leading supplier of
pulsed EMI testing equipment. The Company estimates that there are
approximately 15 companies worldwide that independently manufacture and
market pulsed EMI test equipment for electronic products and approximately
10 companies that independently manufacture and market component-
reliability test equipment. The Company competes in this market primarily
on the basis of performance, technical expertise, and reputation.
In the market for RF power amplifiers, the Company competes with
approximately five companies worldwide. Competition in this market is based
primarily on the basis of technical expertise, reputation, and price.
High-voltage Systems. The Company estimates that there are
approximately 20 companies that independently manufacture and market
high-voltage power supply systems of the general type manufactured and
marketed by Thermo Voltek. Thermo Voltek competes for both contract and
commercial sales primarily on the basis of technical expertise, product
performance, and reputation. Substantially all of Thermo Voltek's contract
and commercial revenues are subject to intense competitive bidding.
Biomedical Products
Left Ventricular-assist Systems. The Company is aware of one other
company that has submitted a PMA application with the FDA for an
implantable LVAS. The Company is unaware whether this PMA application has
been accepted for filing by the FDA. Also, the Company is aware of one
other company that has received approval by the FDA Advisory Panel on
Circulatory System Devices and subsequent commercial approval for its
cardiac-assist device. This is an external device that is positioned on the
outside of the patient's chest and is intended for short-term use in the
hospital environment. In addition, the Company is aware that a total
artificial heart is currently undergoing clinical trials. The requirement
of obtaining FDA approval for commercial sale of an LVAS is a significant
barrier to entry into the U.S. market for these devices. There can be no
assurance, however, that FDA regulations will not change in the future,
reducing the time and testing required for others to obtain FDA approval
for commercial sale. In addition, other research groups and companies, some
of which have significantly greater resources than those of the Company,
are developing cardiac systems using alternative technologies or concepts,
one or more of which might prove functionally equivalent to or more
suitable than the Company's systems. Among products that have been approved
for commercial sale, the Company competes primarily on the basis of
performance, service capability, and price. Competition in the market for
medical devices is also significantly affected by the reimbursement
policies of government and private insurers. Any product for which
12PAGE
<PAGE>
reimbursement is not available from such third party payors will be at a
significant competitive disadvantage. In November 1995, the HCFA issued a
decision that extends Medicare Coverage to the IP LVAS. Several major
health insurers, including Aetna and U.S. Healthcare, have agreed to offer
coverage for the IP LVAS, while many others are reimbursing on a
case-by-case basis.
Medical Grade Polymers and Enteral Nutrition-Delivery Systems. In the
market for medical-grade polymers and enteral nutrition-delivery systems,
the Company competes primarily with large pharmaceutical, medical device,
and chemical companies, many of which have substantially greater financial,
technical, and human resources than those of the Company. Competition
within these markets is intense, and is based primarily on price, efficacy,
and technological advances.
(xi) Research and Development
The Company maintains a research and development capability to support
its existing products and to develop new products. A number of programs are
under way, funded by the Company solely or jointly with an outside company.
These programs include development of new products to perform substantially
all or part of the pumping function of the left ventricle of the natural
heart, process detection and security instruments, electronic test
instruments, and high-voltage power supply products. The Company also
develops new grades of polymers to meet specific customer requirements for
industrial and medical applications.
During 1995, 1994, and 1993, the Company expended $11,087,000,
$10,445,000, and $6,434,000, respectively, on internally sponsored research
and development programs, and $3,125,000, $1,702,000, and $2,702,000,
respectively, on research and development programs sponsored by others. At
December 30, 1995, 169 professional employees were engaged full-time in
research and development activities.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal,
state, and local environmental regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
As of December 30, 1995, the Company's Instruments and Other Equipment
and Biomedical Products segments employed 1,095 and 277 people,
respectively.
(d) Financial Information about Exports by Domestic Operations and about
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 14 to Consolidated Financial
Statements in the Registrant's 1995 Annual Report to Shareholders and is
incorporated herein by reference.
13PAGE
<PAGE>
(e) Executive Officers of the Registrant
Present Title
Name Age (Year First Became Executive Officer)
-------------------- --- ------------------------------------
John W. Wood Jr. 52 President and Chief Executive
Officer (1984)
Victor L. Poirier 54 Senior Vice President (1983)
John T. Keiser 60 Senior Vice President (1994)
John N. Hatsopoulos* 61 Vice President and Chief Financial
Officer (1983)
David H. Fine 53 Vice President (1993)
Paul F. Kelleher 53 Chief Accounting Officer (1985)
* John N. Hatsopoulos, Chairman of the Company, and George N. Hatsopoulos,
a director of the Company, are brothers.
Each executive officer serves until his successor is chosen or
appointed and qualified or until earlier resignation, death, or removal.
All executive officers have held comparable positions for at least five
years either with the Company or with its parent company, Thermo Electron.
Mr. Keiser was appointed senior vice president of the Company in 1994, at
the same time he was named president of Thermo Biomedical, a newly created
subsidiary of Thermo Electron. From 1985 and until 1994, Mr. Keiser was
president of the Eberline Instrument division of Thermo Instrument Systems
Inc., a majority-owned public subsidiary of Thermo Electron. Messrs. Wood
and Fine are full-time employees of the Company. Messrs. Hatsopoulos and
Kelleher are full-time employees of Thermo Electron and Mr. Poirier is a
full-time employee of Thermo Cardiosystems, but they devote such time to
the affairs of the Company as the Company's needs reasonably require.
Item 2. Properties
The location and general character of the Company's properties by
industry segment as of December 30, 1995, are as follows:
Instruments and Other Equipment
The Company owns approximately 45,000, 9,500, and 13,800 square feet
of office, engineering, laboratory, and production space in New York,
Canada, and Scotland, respectively, and leases approximately 560,000 square
feet of office, engineering, laboratory, and production space principally
in Minnesota, Massachusetts, Italy, the Netherlands, and the United Kingdom
under leases expiring from 1996 to 2001.
Biomedical Products
The Company leases approximately 146,000 square feet of office,
engineering, laboratory, and production space in Illinois and Massachusetts
under leases expiring in 1996 and 2003, respectively.
The Company believes that its facilities are in good condition and are
adequate to meet its current needs and that other suitable space is readily
available if any of such leases are not extended.
14PAGE
<PAGE>
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.10 par value, and dividend policy are included
under the sections labeled "Common Stock Market Information" and "Dividend
Policy" in the Registrant's 1995 Annual Report to Shareholders and is
incorporated herein by reference.
Item 6. Selected Financial Data
Information concerning the Registrant's selected financial data is
included under the sections labeled "Selected Financial Information" and
"Dividend Policy" in the Registrant's 1995 Annual Report to Shareholders
and is incorporated herein by reference.
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1995 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 30,
1995, are included in the Registrant's 1995 Annual Report to Shareholders
and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Public Accountants on Accounting
and Financial Disclosure
Not applicable.
15PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A, not later than 120 days after the close of the fiscal
year. The information concerning delinquent filers pursuant to Item 405 of
Regulation S-K is incorporated herein by reference from the material
contained under the heading "Disclosure of Certain Late Filings" under the
caption "Stock Ownership" in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
16PAGE
<PAGE>
PART IV
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules.
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14.
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Certain Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
not required, or because the required information is shown either
in the financial statements or in the notes thereto.
(b) Reports on Form 8-K.
On December 12, 1995, the Company filed a Current Report on Form
8-K pertaining to the acquisition of the Orion laboratory products
division of Analytical Technology, Inc. On February 14, 1996, the
Company filed an amendment on Form 8-K/A, the purpose of which was
to file the financial information required by Form 8-K concerning
this acquisition.
(c) Exhibits.
See Exhibit Index on the page immediately preceding exhibits.
17PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: March 8, 1996 THERMEDICS INC.
By: John W. Wood Jr.
----------------
John W. Wood Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 8, 1996.
Signature Title
--------- -----
By: John W. Wood Jr. President, Chief Executive Officer
--------------------- and Director
John W. Wood Jr.
By: John N. Hatsopoulos Chairman of the Board, Vice President,
--------------------- Chief Financial Officer and Director
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
---------------------
Paul F. Kelleher
By: Peter O. Crisp Director
---------------------
Peter O. Crisp
By: Paul F. Ferrari Director
---------------------
Paul F. Ferrari
By: George N. Hatsopoulos Director
---------------------
George N. Hatsopoulos
By: Robert C. Howard Director
---------------------
Robert C. Howard
By: Arvin H. Smith Director
---------------------
Arvin H. Smith
By: Nicholas T. Zervas Director
---------------------
Nicholas T. Zervas
18PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of Thermedics Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermedics
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 7, 1996 (except
with respect to the matters discussed in Note 15 as to which the date is
February 9, 1996). Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14 on page 17 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 7, 1996
19PAGE
<PAGE>
SCHEDULE II
THERMEDICS INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions Deductions
----------------------------- ----------
Balance at Charged to Accounts Balance
Beginning Costs and Accounts Written at End
Description of Year Expenses Other(a) Recovered Off of Year
- ------------------- ---------- ---------- ------- --------- -------- --------
Year Ended
December 30, 1995
Allowance for
Doubtful Accounts $ 3,640 $ 689 $ 365 $ 2 $ (714) $ 3,982
Year Ended
December 31, 1994
Allowance for
Doubtful Accounts $ 944 $ 1,190 $ 2,717 $ 60 $(1,271) $ 3,640
Year Ended
January 1, 1994
Allowance for
Doubtful Accounts $ 769 $ 92 $ 141 $ 133 $ (191) $ 944
(a) Includes allowance of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's 1995
Annual Report to Shareholders and foreign currency translation adjustment.
20PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
2.1 Asset and Stock Purchase Agreement dated as of January 28,
1994 between Thermo Electron Corporation and Baker Hughes
Incorporated (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K relating to events occurring on
March 16, 1994 [File No. 1-9567] and incorporated herein by
reference).
2.2 Assignment and Assumption Agreement dated March 16, 1994
among Thermo Electron Corporation, the Registrant, and
Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K relating to events
occurring on March 16, 1994 [File No. 1-9567] and
incorporated herein by reference).
2.3 Agreement and Plan of Merger dated as of November 29, 1995,
by and among the Registrant, ATI Merger Corp., Analytical
Technology, Inc., and, for certain limited purposes, Thermo
Instrument Systems Inc. (filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K relating to events
occurring on November 29, 1995 [File No. 1-9567] and
incorporated herein by reference).
2.4 Asset and Share Purchase Agreement dated as of November 29,
1995, by and among Thermo Instrument Systems Inc., ATI
Acquisition Corp., Analytical Technology, Inc., and, for
certain limited purposes, the Registrant (filed as Exhibit
10(a) to the Registrant's Current Report on Form 8-K
relating to events occurring on November 29, 1995 [File No.
1-9567] and incorporated herein by reference).
2.5 Asset Purchase Agreement dated as of January 25, 1996 among
Thermedics Detection Limited, Moisture Systems Corporation,
Moisture Systems Limited and Anacon Corporation. Schedules
to this Agreement have been omitted pursuant to Rule 601(b)
(2) of Regulation S-K. The Registrant hereby undertakes to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Articles of Organization (filed as Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 [File No. 1-9567] and incorporated
herein by reference).
3.2 Amendment to Articles of Organization dated October 25, 1993
(filed as Exhibit 3(c) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 2, 1993
[File No. 1-9567] and incorporated herein by reference).
3.3 Amended and Restated By-laws of the Registrant (filed as
Exhibit 3(c) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1992 [File No.
1-9567] and incorporated herein by reference).
21PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
4.1 Fiscal Agency Agreement dated as of July 16, 1990, among the
Registrant, Thermo Electron Corporation, and Chemical Bank
as fiscal agent (filed as Exhibit B to the Registrant's
Current Report on Form 8-K relating to events occurring on
July 16, 1990 [File No. 1-9567] and incorporated herein by
reference).
4.2 Fiscal Agency Agreement dated January 5, 1994 among Thermo
Cardiosystems, Thermo Electron Corporation and Chemical Bank
(filed as Exhibit 4.11 to Thermo Cardiosystems' Annual
Report on Form 10-K for the fiscal year ended January 1,
1994 [File No. 1-10114] and incorporated herein by
reference).
4.3 Fiscal Agency Agreement dated November 19, 1993 among Thermo
Voltek, Thermo Electron Corporation and Chemical Bank (filed
as Exhibit 4.3 to Thermo Voltek's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No. 1-10574]
and incorporated herein by reference).
4.4 Guarantee Reimbursement Agreement dated February 7, 1994
among Thermo Cardiosystems Inc., Thermo Voltek Corp., the
Registrant and Thermo Electron Corporation (filed as Exhibit
4.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 [File No. 1-9567] and
incorporated herein by reference).
The Registrant hereby agrees, pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K, to furnish to the
Commission upon request, a copy of each other instrument
with respect to other long-term debt of the Company or its
subsidiaries.
10.1 Amended and Restated Corporate Services Agreement between
Thermo Electron Corporation and the Registrant dated as of
January 3, 1993 (filed as Exhibit 10(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
2, 1993 [File No. 1-9567] and incorporated herein by
reference).
10.2 Lease dated November 1983, between WGO Limited Partnership,
as Lessor, and the Registrant, as Lessee (filed as Exhibit
10(l) to the Registrant's Registration Statement on Form S-1
[Reg. No. 2-96962] and incorporated herein by reference;
amendments thereto filed as Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 [File No. 1-9567] and incorporated
herein by reference).
10.3 Thermo Electron Corporate Charter as amended and restated
effective January 3, 1993 (filed as Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-9567] and incorporated
herein by reference).
22PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.4 Lease dated August 25, 1978 between National Boulevard Bank
of Chicago and Walpak Company (filed as Exhibit 10(p) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 [File No. 1-9567] and incorporated
herein by reference).
10.5 Exclusive Base Technology License Agreement between Thermo
Electron and the Registrant dated January 8, 1988 (filed as
Exhibit 10(q) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 2, 1988 [File No.
1-9567] and incorporated herein by reference).
10.6 Research and Development Contract between Thermo Electron
and the Registrant dated January 8, 1988 (filed as Exhibit
10(r) to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 2, 1988 [File No. 1-9567] and
incorporated herein by reference).
10.7 Exclusive License and Marketing Agreement between Thermo
Electron and the Registrant dated January 8, 1988 (filed as
Exhibit 10(s) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 2, 1988 [File No.
1-9567] and incorporated herein by reference).
10.8 Intellectual Property Cross-license Agreement between the
Registrant and Thermo Cardiosystems Inc. (filed as Exhibit
10(i) to Thermo Cardiosystems' Registration Statement on
Form S-1 [Reg. No. 33-25144] and incorporated herein by
reference).
10.9 Amendment No. 1 dated March 29, 1991 to Exclusive License
and Marketing Agreement between the Registrant and Thermo
Electron Corporation (filed as Exhibit 10(r) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 1991 [File No. 1-9567] and
incorporated herein by reference).
10.10 Management Agreement by and between Thermo Electron and the
Registrant dated November 15, 1991 (filed as Exhibit 10(t)
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991 [File No. 1-9567] and
incorporated herein by reference).
10.11 Sublease dated June 1, 1993, between Apollo Computer, Inc.,
as Sublessor, Thermedics Detection Inc., as Subleasee, and
Trustees of 220 Mill Road Trust, as Master Lessor (filed as
Exhibit 10(ll) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended July 3, 1993 [File No.
1-9567] and incorporated herein by reference).
23PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.12 Agreement dated May 26, 1993 between Thermo Cardiosystems
Inc. and The Polymer Technology Group, Incorporated (filed
as Exhibit 10(nn) to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 3, 1993 [File
No. 1-9567] and incorporated herein by reference).
10.13 Lease Agreement dated August 2, 1993 between Comtest Invest
B.V. and Comtest Instrumentation B.V. (filed as Exhibit 10.6
to Thermo Voltek's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-10576] and
incorporated herein by reference).
10.14 Master Repurchase Agreement dated January 1, 1994 between
the Registrant and Thermo Electron Corporation (filed as
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No. 1-9567]
and incorporated herein by reference).
10.15 $38,000,000 Promissory Note dated as of December 11, 1995
issued by the Registrant to Thermo Electron Corporation
(filed as Exhibit 10(b) to the Registrant's Current Report
on Form 8-K relating to events occurring on November 29,
1995 [File No. 1-9567] and incorporated herein by
reference).
10.16-17 Reserved.
10.18 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10(d) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-84380] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Nonqualified
Stock Option Plan is 1,931,923 shares, after adjustment to
reflect share increases approved in 1986 and 1992, 5-for-4
stock split effected in January 1985, 4-for-3 stock split
effected in September 1985 and 3-for-2 stock splits effected
in October 1986 and November 1993).
10.19 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 10(e) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-84380] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Incentive
Stock Option Plan is 1,931,923 shares, after adjustment to
reflect share increases approved in 1986 and 1992, 5-for-4
stock split effected in January 1985, 4-for-3 stock split
effected in September 1985 and 3-for-2 stock splits effected
in October 1986 and November 1993).
10.20 Directors Stock Option Plan of the Registrant (filed as
Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 [File No.
1-9567] and incorporated herein by reference).
24PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.21 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10(g) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-96962] and incorporated
herein by reference).
10.22 Equity Incentive Plan of the Registrant (filed as Appendix A
to the Proxy Statement dated May 10, 1993 of the Registrant
[File No. 1-9567] and incorporated herein by reference).
(Maximum number of shares issuable is 1,500,000 shares,
after adjustment to reflect 3-for-2 stock split effected in
November 1993).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of the
Registrant's parent, Thermo Electron Corporation, and its
subsidiaries, for services rendered to the Registrant or to
such affiliated corporations. Such plans are listed under
Exhibits 10.23 - 10.90.
10.23 Thermo Electron Corporation Incentive Stock Option Plan
(filed as Exhibit 4(d) to Thermo Electron's Registration
Statement on Form S-8 [Reg. No. 33-8993] and incorporated
herein by reference). (Maximum number of shares issuable in
the aggregate under this plan and the Thermo Electron
Nonqualified Stock Option Plan is 9,035,156 shares, after
adjustment to reflect share increases approved in 1984 and
1986, share decrease approved in 1989, and 3-for-2 stock
splits effected in October 1986, October 1993 and May 1995).
10.24 Thermo Electron Corporation Nonqualified Stock Option Plan
(filed as Exhibit 4(e) to Thermo Electron's Registration
Statement on Form S-8 [Reg. No. 33-8993] and incorporated
herein by reference). (Plan amended in 1984 to extend
expiration date to December 14, 1994; maximum number of
shares issuable in the aggregate under this plan and the
Thermo Electron Incentive Stock Option Plan is 9,035,156
shares, after adjustment to reflect share increases approved
in 1984 and 1986, share decrease approved in 1989, and
3-for-2 stock splits effected in October 1986, October 1993
and May 1995).
10.25 Thermo Electron Corporation Equity Incentive Plan (filed as
Exhibit 10.1 to Thermo Electron's Quarterly Report on Form
10-Q for the quarter ended July 2, 1994 [File No. 1-8002]
and incorporated herein by reference). (Plan amended in 1989
to restrict exercise price for SEC reporting persons to not
less than 50% of fair market value or par value; maximum
number of shares issuable is 7,050,000 shares, after
adjustment to reflect 3-for-2 stock splits effected in
October 1993 and May 1995 and share increase approved in
1994).
25PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.26 Thermo Electron Corporation - Thermedics Inc. Nonqualified
Stock Option Plan (filed as Exhibit 4 to a Registration
Statement on Form S-8 of Thermedics Inc. [Reg. No. 2-93747]
and incorporated herein by reference). (Maximum number of
shares issuable is 450,000 shares, after adjustment to
reflect share increase approved in 1988, 5-for-4 stock split
effected in January 1985, 4-for-3 stock split effected in
September 1985, and 3-for-2 stock splits effected in October
1986 and November 1993).
10.27 Thermo Electron Corporation - Thermo Instrument Systems Inc.
(formerly Thermo Environmental Corporation) Nonqualified
Stock Option Plan (filed as Exhibit 4(c) to a Registration
Statement on Form S-8 of Thermo Instrument [Reg. No.
33-8034] and incorporated herein by reference). (Maximum
number of shares issuable is 421,875 shares, after
adjustment to reflect 3-for-2 stock splits effected in July
1993 and April 1995 and 5-for-4 stock splits effected in
December 1995).
10.28 Thermo Electron Corporation - Thermo Instrument Systems Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.12 to
Thermo Electron's Annual Report on Form 10-K for the fiscal
year ended January 3, 1987 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of shares
issuable is 600,285 shares, after adjustment to reflect
share increase approved in 1988, 3-for-2 stock splits
effected in January 1988, July 1993 and April 1995 and
5-for-4 stock split effected in December 1995).
10.29 Thermo Electron Corporation - Thermo TerraTech Inc.
(formerly Thermo Process Systems Inc.) Nonqualified Stock
Option Plan (filed as Exhibit 10.13 to Thermo Electron's
Annual Report on Form 10-K for the fiscal year ended January
3, 1987 [File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable is 108,000
shares, after adjustment to reflect 6-for-5 stock splits
effected in July 1988 and March 1989 and 3-for-2 stock split
effected in September 1989).
10.30 Thermo Electron Corporation - Thermo Power Corporation
(formerly Tecogen Inc.) Nonqualified Stock Option Plan
(filed as Exhibit 10.14 to Thermo Electron's Annual Report
on Form 10-K for the fiscal year ended January 3, 1987 [File
No. 1-8002] and incorporated herein by reference). (Amended
in September 1995 to extend the plan expiration date to
December 31, 2005).
26PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.31 Thermo Electron Corporation - Thermo Cardiosystems Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.11 to
Thermo Electron's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of shares
issuable is 130,500 shares, after adjustment to reflect
share increases approved in 1990 and 1992, 3-for-2 stock
split effected in January 1990, 5-for-4 stock split effected
in May 1990 and 2-for-1 stock split effected in November
1993).
10.32 Thermo Electron Corporation - Thermo Ecotek Corporation
(formerly Thermo Energy Systems Corporation) Nonqualified
Stock Option Plan (filed as Exhibit 10.12 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990 [File No. 1-8002] and incorporated
herein by reference).
10.33 Thermo Electron Corporation - ThermoTrex Corporation
(formerly Thermo Electron Technologies Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 10.13 to
Thermo Electron's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of shares
issuable is 180,000 shares, after adjustment to reflect
3-for-2 stock split effected in October 1993).
10.34 Thermo Electron Corporation - Thermo Fibertek Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.14 to
Thermo Electron's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of shares
issuable is 600,000 shares, after adjustment to reflect
2-for-1 stock split effected in September 1992 and 3-for-2
stock split effected in September 1995).
10.35 Thermo Electron Corporation - Thermo Voltek Corp. (formerly
Universal Voltronics Corp.) Nonqualified Stock Option Plan
(filed as Exhibit 10.17 to Thermo Electron's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993 [File
No. 1-8002] and incorporated herein by reference). (Maximum
number of shares issuable is 57,500 shares, after adjustment
to reflect 3-for-2 stock split effected in November 1993 and
share increase approved in September 1995).
10.36 Thermo Electron Corporation - Thermo BioAnalysis Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.31 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
27PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.37 Thermo Electron Corporation - ThermoLyte Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.32 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.38 Thermo Electron Corporation - Thermo Remediation Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.33 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.39 Thermo Electron Corporation - ThermoSpectra Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.34 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.40 Thermo Electron Corporation - ThermoLase Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.35 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10573] and
incorporated herein by reference).
10.41 Thermo Electron Corporation - ThermoQuest Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.41 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.42 Thermo Electron Corporation - Thermo Optek Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.42 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.43 Thermo Electron Corporation - Thermo Sentron Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.43 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.44 Thermo Electron Corporation - Trex Medical Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.44 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
28PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.45 Thermo Ecotek Corporation (formerly Thermo Energy Systems
Corporation) Incentive Stock Option Plan (filed as Exhibit
10.18 to Thermo Electron's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Ecotek Nonqualified Stock Option Plan is 900,000 shares,
after adjustment to reflect share increase approved in
December 1993).
10.46 Thermo Ecotek Corporation (formerly Thermo Energy Systems
Corporation) Nonqualified Stock Option Plan (filed as
Exhibit 10.19 to Thermo Electron's Annual Report on Form
10-K for the fiscal year ended January 2, 1993 [File No.
1-8002] and incorporated herein by reference). (Maximum
number of shares issuable in the aggregate under this plan
and the Thermo Ecotek Incentive Stock Option Plan is 900,000
shares, after adjustment to reflect share increase approved
in December 1993).
10.47 Thermo Ecotek Corporation (formerly Thermo Energy Systems
Corporation) Equity Incentive Plan (filed as Exhibit 10.46
to Thermo TerraTech's (formerly Thermo Process') Annual
Report on Form 10-K for the fiscal year ended April 2, 1994
[File No. 1-9549] and incorporated herein by reference).
10.48 Thermedics Inc. - Thermedics Detection Inc. Nonqualified
Stock Option Plan (filed as Exhibit 10.20 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
10.49 Thermedics Inc. - Thermo Sentron Inc. Nonqualified Stock
Option Plan (filed as Exhibit 10.51 to Thermo Cardiosystems'
Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 [File No. 1-10114] and incorporated herein
by reference).
10.50 Thermedics Detection Inc. Equity Incentive Plan (filed as
Exhibit 10.69 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 [File No.
1-9567] and incorporated herein by reference).
10.51 Thermo Cardiosystems Inc. Incentive Stock Option Plan (filed
as Exhibit 10(f) to Thermo Cardiosystems' Registration
Statement on Form S-1 [Reg. No. 33-25144] and incorporated
herein by reference). (Maximum number of shares issuable in
the aggregate under this plan and the Thermo Cardiosystems
Nonqualified Stock Option Plan is 1,143,750 shares, after
adjustment to reflect share increase approved in 1992,
3-for-2 stock split effected in January 1990, 5-for-4 stock
split effected in May 1990 and 2-for-1 stock split effected
in November 1993).
29PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.52 Thermo Cardiosystems Inc. Nonqualified Stock Option Plan
(filed as Exhibit 10(g) to Thermo Cardiosystems'
Registration Statement on Form S-1 [Reg. No. 33-25144] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Cardiosystems Incentive Stock Option Plan is 1,143,750
shares, after adjustment to reflect share increase approved
in 1992, 3-for-2 stock split effected in January 1990,
5-for-4 stock split effected in May 1990 and 2-for-1 stock
split effected in November 1993).
10.53 Thermo Cardiosystems Inc. Equity Incentive Plan (filed as
Attachment A to the Proxy Statement dated May 5, 1994 of
Thermo Cardiosystems [File No. 1-10114] and incorporated
herein by reference).
10.54 Thermo Voltek Corp. (formerly Universal Voltronics Corp.)
1985 Stock Option Plan (filed as Exhibit 10.14 to Thermo
Voltek's Annual Report on Form 10-K for the fiscal year
ended June 30, 1985 [File No. 0-8245] and incorporated
herein by reference). (Maximum number of shares issuable is
200,000 shares, after adjustment to reflect 1-for-3 reverse
stock split effected in November 1992 and 3-for-2 stock
split effected in November 1993).
10.55 Thermo Voltek Corp. (formerly Universal Voltronics Corp.)
1990 Stock Option Plan (filed as exhibit 10.2 to Thermo
Voltek's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990 [File No. 1-10574] and incorporated
herein by reference). (Maximum number of shares issuable is
400,000 shares, after adjustment to reflect share increases
in 1993 and 1994, 1-for-3 reverse stock split effected in
November 1992 and 3-for-2 stock split effected in November
1993).
10.56 Thermo Voltek Corp. Equity Incentive Plan (filed as Exhibit
10.21 to Thermo Voltek's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 [File No. 1-10574] and
incorporated herein by reference).
10.57 Thermo Sentron Inc. Equity Incentive Plan (filed as Exhibit
10.57 to Thermo Cardiosystems' Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 [File No.
1-10114] and incorporated herein by reference).
10.58 Thermo Instrument Systems Inc. Incentive Stock Option Plan
(filed as Exhibit 10(c) to Thermo Instrument's Registration
Statement on Form S-1 [Reg. No. 33-6762] and incorporated
herein by reference). (Maximum number of shares issuable in
the aggregate under this plan and the Thermo Instrument
Nonqualified Stock Option Plan is 2,812,500 shares, after
adjustment to reflect share increase approved in 1990,
3-for-2 stock splits effected in January 1988, July 1993 and
April 1995 and 5-for-4 stock effected in December 1995).
30PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.59 Thermo Instrument Systems Inc. Nonqualified Stock Option
Plan (filed as Exhibit 10(d) to Thermo Instrument's
Registration Statement on Form S-1 [Reg. No. 33-6762] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Instrument Incentive Stock Option Plan is 2,812,500 shares,
after adjustment to reflect share increase approved in 1990,
3-for-2 stock splits effected in January 1988, July 1993 and
April 1995 and 5-for-4 stock split effected in December
1995).
10.60 Thermo Instrument Systems Inc. Equity Incentive Plan (filed
as Appendix A to the Proxy Statement dated April 27, 1993 of
Thermo Instrument [File No. 1-9786] and incorporated herein
by reference). (Maximum number of shares issuable is
4,031,250 shares, after adjustment to reflect share increase
approved in December 1993, 3-for-2 stock splits effected in
July 1993 and April 1995 and 5-for-4 stock split effected in
December 1995).
10.61 Thermo Instrument Systems Inc. (formerly Thermo
Environmental Corporation) Incentive Stock Option Plan
(filed as Exhibit 10(d) to Thermo Environmental's
Registration Statement on Form S-1 [Reg. No. 33-329] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Instrument (formerly Thermo Environmental) Nonqualified
Stock Option Plan is 1,160,156 shares, after adjustment to
reflect share increase approved in 1987, 3-for-2 stock
splits effected in July 1993 and April 1995 and 5-for-4
stock split effected in December 1995).
10.62 Thermo Instrument Systems Inc. (formerly Thermo
Environmental Corporation) Nonqualified Stock Option Plan
(filed as Exhibit 10(e) to Thermo Environmental's
Registration Statement on Form S-1 [Reg. No. 33-329] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Instrument (formerly Thermo Environmental) Incentive Stock
Option Plan is 1,160,156 shares, after adjustment to reflect
share increase approved in 1987, 3-for-2 stock splits
effected in July 1993 and April 1995 and 5-for-4 stock split
effected in December 1995).
10.63 Thermo Instrument Systems Inc. - ThermoSpectra Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.45 to
Thermo Power's Annual Report on Form 10-K for the fiscal
year ended October 1, 1994 [File No. 1-10573] and
incorporated herein by reference).
31PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.64 Thermo Instrument Systems Inc. - Thermo BioAnalysis
Corporation Nonqualified Stock Option Plan (filed as Exhibit
10.64 to Thermo Cardiosystems' Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 [File No.
1-10114] and incorporated herein by reference).
10.65 Thermo Instrument Systems Inc. - ThermoQuest Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.65 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.66 ThermoSpectra Corporation Equity Incentive Plan (filed as
Exhibit 10.59 to Thermo Power's Annual Report on Form 10-K
for the fiscal year ended October 1, 1994 [File No. 1-10573]
and incorporated herein by reference).
10.67 Thermo BioAnalysis Corporation Equity Incentive Plan (filed
as Exhibit 10.67 to Thermo Cardiosystems' Annual Report on
Form 10-K for the fiscal year ended December 30, 1995 [File
No. 1-10114] and incorporated herein by reference).
10.68 Thermo Optek Corporation Equity Incentive Plan (filed as
Exhibit 10.68 to Thermo Cardiosystems' Annual Report on Form
10-K for the fiscal year ended December 30, 1995 [File No.
1-10114] and incorporated herein by reference).
10.69 ThermoQuest Corporation Equity Incentive Plan (filed as
Exhibit 10.69 to Thermo Cardiosystems' Annual Report on Form
10-K for the fiscal year ended December 30, 1995 [File No.
1-10114] and incorporated herein by reference).
10.70 ThermoTrex Corporation (formerly Thermo Electron
Technologies Corporation) Incentive Stock Option Plan (filed
as Exhibit 10(h) to ThermoTrex's Registration Statement on
Form S-1 [Reg. 33-40972] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the ThermoTrex Nonqualified
Stock Option Plan is 1,945,000 shares, after adjustment to
reflect share increases approved in 1992 and 1993 and
3-for-2 stock split effected in October 1993).
10.71 ThermoTrex Corporation (formerly Thermo Electron
Technologies Corporation) Nonqualified Stock Option Plan
(filed as Exhibit 10(i) to ThermoTrex's Registration
Statement on Form S-1 [Reg. No. 33-40972] and incorporated
herein by reference). (Maximum number of shares issuable in
the aggregate under this plan and the ThermoTrex Incentive
Stock Option Plan is 1,945,000 shares, after adjustment to
reflect share increases approved in 1992 and 1993 and
3-for-2 stock split effected in October 1993).
32PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.72 ThermoTrex Corporation - ThermoLase Corporation (formerly
ThermoLase Inc.) Nonqualified Stock Option Plan (filed as
Exhibit 10.53 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No. 1-9567]
and incorporated herein by reference).
10.73 ThermoTrex Corporation - Trex Medical Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.73 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.74 ThermoLase Corporation (formerly ThermoLase Inc.) Incentive
Stock Option Plan (filed as Exhibit 10.55 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 [File No. 1-9567] and incorporated
herein by reference). (Maximum number of shares issuable in
the aggregate under this plan and the ThermoLase
Nonqualified Stock Option Plan is 2,800,000 shares, after
adjustment to reflect share increase approved in 1993 and
2-for-1 stock splits effected in March 1994 and June 1995.)
10.75 ThermoLase Corporation (formerly ThermoLase Inc.)
Nonqualified Stock Option Plan (filed as Exhibit 10.54 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-9567] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the ThermoLase
Incentive Stock Option Plan is 2,800,000 shares, after
adjustment to reflect share increase approved in 1993 and
2-for-1 stock splits effected in March 1994 and June 1995).
10.76 ThermoLase Corporation Equity Incentive Plan (filed as
Exhibit 10.81 to Thermo TerraTech's (formerly Thermo
Process') Annual Report on Form 10-K for the fiscal year
ended April 1, 1995 [File No. 1-9549] and incorporated
herein by reference).
10.77 Trex Medical Corporation Equity Incentive Plan (filed as
Exhibit 10.77 to Thermo Cardiosystems' Annual Report on Form
10-K for the fiscal year ended December 30, 1995 [File No.
1-10114] and incorporated herein by reference).
10.78 Thermo Fibertek Inc. Incentive Stock Option Plan (filed as
Exhibit 10(k) to Thermo Fibertek's Registration Statement on
Form S-1 [Reg. No. 33-51172] and incorporated herein by
reference).
10.79 Thermo Fibertek Inc. Nonqualified Stock Option Plan (filed
as Exhibit 10(l) to Thermo Fibertek's Registration Statement
on Form S-1 [Reg. No. 33-51172] and incorporated herein by
reference).
33PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.80 Thermo Fibertek Inc. Equity Incentive Plan (filed as
Attachment A to the Proxy Statement dated May 3, 1994 of
Thermo Fibertek [File No. 1-11406] and incorporated herein
by reference).
10.81 Thermo Power Corporation (formerly Tecogen Inc.) Incentive
Stock Option Plan, as amended (filed as Exhibit 10(h) to
Thermo Power's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 1993 [File No. 1-10573] and
incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan and the Thermo
Power Nonqualified Stock Option Plan is 950,000 shares,
after adjustment to reflect share increases approved in
1990, 1992 and 1993).
10.82 Thermo Power Corporation (formerly Tecogen Inc.)
Nonqualified Stock Option Plan, as amended (filed as Exhibit
10(i) to Thermo Power's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 3, 1993 [File No. 1-10573]
and incorporated herein by reference). (Maximum number of
shares issuable in the aggregate under this plan and the
Thermo Power Incentive Stock Option Plan is 950,000 shares,
after adjustment to reflect share increases approved in
1990, 1992 and 1993).
10.83 Thermo Power Corporation Equity Incentive Plan (filed as
Exhibit 10.60 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No. 1-9567]
and incorporated herein by reference).
10.84 Thermo Power Corporation - ThermoLyte Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.84 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.85 ThermoLyte Corporation Equity Incentive Plan (filed as
Exhibit 10.71 to Thermo Power's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 [File No.
1-10573] and incorporated herein by reference).
10.86 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)
Incentive Stock Option Plan (filed as Exhibit 10(h) to
Thermo TerraTech's Registration Statement on Form S-1 [Reg.
No. 33-6763] and incorporated herein by reference). (Maximum
number of shares issuable in the aggregate under this plan
and the Thermo TerraTech Nonqualified Stock Option Plan is
1,850,000 shares, after adjustment to reflect share
increases approved in 1987, 1989 and 1992, 6-for-5 stock
splits effected in July 1988 and March 1989 and 3-for-2
stock split effected in September 1989).
34PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
--------------------------------------------------------------------------
10.87 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)
Nonqualified Stock Option Plan (filed as Exhibit 10(i) to
Thermo TerraTech's Registration Statement on Form S-1 [Reg.
No. 33-6763] and incorporated herein by reference).
(Maximum number of shares issuable in the aggregate under
this plan and the Thermo TerraTech Incentive Stock Option
Plan is 1,850,000 shares, after adjustment to reflect share
increases approved in 1987, 1989 and 1992, 6-for-5 stock
splits effected in July 1988 and March 1989 and 3-for-2
stock split effected in September 1989).
10.88 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)
Equity Incentive Plan (filed as Exhibit 10.63 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 [File No. 1-9567] and incorporated
herein by reference). (Maximum number of shares issuable is
1,750,000 shares, after adjustment to reflect share increase
approved in 1994).
10.89 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)
- Thermo Remediation Nonqualified Stock Option Plan (filed
as Exhibit 10(l) to Thermo TerraTech's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 1, 1994 [File
No. 1-9549] and incorporated herein by reference).
10.90 Thermo Remediation Inc. Equity Incentive Plan (filed as
Exhibit 10.7 to Thermo Remediation's Registration Statement
on Form S-1 [Reg. No. 33-70544] and incorporated herein by
reference).
13 Annual Report to Shareholders for the year ended December
30, 1995 (only those portions incorporated herein by
reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
EXHIBIT 2.5
Execution Copy
--------------
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made and entered into as of
the 25th day of January, 1996, by and among Thermedics Detection
Inc., a corporation organized under the laws of Massachusetts
(the "Buyer"), Moisture Systems Corporation, a Massachusetts
corporation ("MSC"), Moisture Systems Limited, a limited company
organized under the laws of England ("MSC-UK"), Anacon
Corporation, a Massachusetts corporation ("Anacon"), and the
principals of MSC, MSC-UK and Anacon whose names appear on the
signature pages hereto (the "Principals"). MSC, MSC-UK and
Anacon are referred to herein individually as the Seller and
collectively as the Sellers.
The Buyer desires to purchase, and the Sellers desire to
sell substantially all of their assets, subject to the assumption
by the Buyer of certain liabilities.
NOW THEREFORE, in consideration of the premises and the
mutual covenants, agreements and provisions herein contained, the
parties hereto agree as follows:
AGREEMENT
The parties, intending to be legally bound, agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1:
"Accounts Receivable" -- as defined in Section 3.7.
"Assets" -- as defined in Section 2.1.
"Applicable Contract"-- any Contract (a) under which any of
the Sellers has any rights, (b) under which any of the Sellers
has subject to any obligation or liability, or (c) by which any
of the Sellers or any of the assets owned or used by any of the
Sellers is bound.
"Assumed Liabilities" -- as defined in Section 2.4.
"Balance Sheet Date" -- as defined in Section 2.4.
"Best Efforts"-- the efforts that a prudent Person desirous
of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible;
provided, however, that a Person required to use his Best
Efforts under this Agreement will not be required to take actions
that would result in a materially adverse change in the benefits
PAGE
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to such Person of this Agreement and the Contemplated
Transactions.
"Breach"--a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any
instrument delivered pursuant to this Agreement will be deemed to
have occurred if there is or has been any inaccuracy in or breach
of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy,
breach, or failure.
"Buyer"-- as defined in the first paragraph of this
Agreement.
"Closing"-- as defined in Section 2.7.
"Closing Balance Sheet" -- as defined in Section 2.5.
"Closing Date" -- as defined in Section 2.7.
"Code"-- the Internal Revenue Code of 1986 or any successor
law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"Competitive Business" -- as defined in Section 6.17.
"Consent"-- any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization ).
"Contemplated Transactions"-- all of the transactions
contemplated by this Agreement, including:
(a) the sale of the Assets by the Sellers to Buyer;
(b) the performance by Buyer and the Sellers of their
respective covenants and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Assets
and exercise of control over the Assets.
"Contract"-- any agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or
implied) that is legally binding.
"Damages"-- as defined in Section 5.2.
"Disclosure Letter"-- the disclosure letter delivered by the
Sellers to the Buyer concurrently with the execution and delivery
of this Agreement and attached hereto as Exhibit A and
incorporated into this Agreement as a part hereof.
"Draft Closing Balance Sheet" -- as defined in Section 2.5.
2PAGE
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"Encumbrance"-- any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge,
security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting (in the case of
any security), transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environment"-- soil, land, surface or subsurface strata,
surface waters (including navigable waters and ocean waters),
groundwater, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health and Safety Liabilities"-- any cost,
damages, expense, liability, obligation, or other responsibility
arising from or under Environmental Law, Occupational Safety and
Health Law, a contract or other obligation relating to:
(a) any environmental, health, or safety matters or
conditions (including on-site or off-site contamination,
occupational safety and health, and regulation of chemical
substances or products);
(b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands and response, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health
Law;
(c) financial responsibility under Environmental Law
or Occupational Safety and Health Law for cleanup costs or
corrective action, including any cleanup, removal, containment,
or other remediation or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested
by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, or remedial
measures required under Environmental Law or Occupational Safety
and Health Law.
The terms "removal," "remedial," and "response action" include
the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Sec. 9601 et seq., as amended ("CERCLA").
"Environmental Law"-- any Legal Requirement designed:
(a) to advise appropriate authorities, employees, and
the public of intended or actual releases of pollutants or
hazardous substances or materials, violations or discharge
limits, or other prohibitions and of the commencements of
3PAGE
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activities, such as resource extraction or construction, that
could have an adverse impact on the Environment;
(b) to permit or license, or to prevent or acceptably
minimize the release of pollutants or hazardous substances or
materials into the Environment;
(c) to reduce the quantities, prevent the release, and
minimize the hazardous characteristics of wastes that are
generated;
(d) to protect resources, species, or ecological
amenities;
(e) to acceptably minimize the risks inherent in
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(f) to clean up pollutants that have been released,
prevent the threat of release, or pay the costs of such clean up
or prevention; or
(g) to make responsible parties pay private parties,
or groups of them, for damages done to their health or
Environment, or to permit self-appointed representatives of the
public interest to recover for injuries done to public assets.
"ERISA"-- the Employee Retirement Income Security Act of
1974 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"ERISA Affiliate" -- as defined in Section 3.9.
"Exchange Act" -- the Securities Exchange Act of 1934 or any
successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"Excluded Assets"-- as defined in Section 2.2.
"Excluded Liabilities" --as defined in Section 2.4.
"Facilities"-- any real property, leaseholds, or other
interests currently or formerly owned or operated by any of the
Sellers (or any predecessor Person) and any buildings, plants,
structures, or equipment currently or formerly owned, leased, or
operated by any of the Sellers (or any predecessor Person).
"FERC" -- Federal Energy Regulatory Commission
"Financial Statements -- as defined in Section 3.4.
"GAAP"-- generally accepted United States accounting
principles, applied on a basis consistent with the basis on which
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the Balance Sheet and the other financial statements referred to
in Section 3.4 were prepared.
"Governmental Authorization"-- any approval, consent,
license, permit, waiver, exemption or variance, or other
authorization issued, granted, given, or otherwise made available
by or under the authority of any Governmental Body or pursuant to
any Legal Requirement.
"Governmental Body"-- any:
(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch,
department, official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled or purporting to
exercise, any administrative, executive, judicial (including
court), legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Activity"-- the distribution, generation,
handling, importing, management, manufacturing, processing,
production, refinement, Release, storage, transfer,
transportation, treatment, or use (including any withdrawal or
other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing
that increases the danger, or risk of danger, or poses an
unreasonable risk of harm to persons or property on or off the
Facilities.
"Hazardous Materials"-- any substance that is listed,
deemed, designated, or classified as, or otherwise determined to
be, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including
any admixture or solution thereof, and specifically including
petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos containing materials.
"Indemnified Persons"-- as defined in Section 5.2.
"IRS"-- the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States
Department of the Treasury.
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"Knowledge"-- an individual will be deemed to have
"Knowledge" of a particular fact or other matter if:
(a) such individual is actually aware of such fact or
other matter; or
(b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the
Ordinary Course of Business or in the course of a reasonable
investigation made in connection with making representations and
warranties concerning the sale of a business.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any
individual who is serving, or who has at any time served, as a
director, officer, employee, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter; provided that, the
Sellers will be deemed to have "Knowledge" of a particular fact
or other matter only if any of Dennis Carlson, Roger Carlson,
John Fordham or Phillippa Higgs has, or at any time had,
Knowledge of such fact or other matter.
"Lease" -- a lease of MSC-UK's premises at the Old School,
Station Road, Cogenhoe, Northampton England to be entered into at
the Closing by MSC-UK (as lessor) and the Buyer or the Buyer's
designee (as lessee).
"Legal Requirement"-- any federal, state, local, municipal,
foreign, international, multinational, or other constitution,
law, ordinance, order, principle of common law, regulation,
statute, or treaty.
"Material Adverse Effect" -- any loss to the Sellers or,
after the Closing, to the Buyer that, taken as a whole, is in
excess of $100,000 .
"Net Asset Benchmark" -- as defined in Section 2.5.
"Occupational Safety and Health Law"-- any Legal Requirement
designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards.
"Order"-- any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered
by any court, administrative agency, or other Governmental Body
or by any arbitrator.
"Ordinary Course of Business"-- an action taken by a Person
will be deemed to have been taken in the "Ordinary Course of
Business" only if:
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(a) such action is consistent with the past practices
of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(b) such action is not required to be authorized by
the board of directors of such Person (or by any Person or group
of Persons exercising similar authority), is not required to be
specifically authorized by the parent company (if any) of such
Person, and does not require any other separate or special
authorization of any nature; and
(c) such action is similar in nature and magnitude to
actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business
as such Person.
"Organizational Documents"-- (a) the articles or certificate
of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a
general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership;
(d) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a
Person; (e) the memorandum and articles of association of an
English company; and (f) any amendment to any of the foregoing.
"Person"-- any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization, or other entity or Governmental Body.
"Plan"-- as defined in Section 3.9.
"Principals" -- as defined in the first paragraph of this
Agreement.
"Proceeding"-- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought,
conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Purchase Price" -- as defined in Section 2.3.
"Related Person"-- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly
controlled by any one or more members of such individual's
Family;
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(c) any Person in which members of such individual's
Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which one or more
members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a
similar capacity);
(d) any Person in which such specified Person holds a
Material Interest; and
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a similar
capacity).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's
spouse and former spouses, (iii) the brother, sister or child of
the individual or the individual's spouse, and (iv) any other
natural person who resides with such individual, and (b)
"Material Interest" means direct or indirect beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person.
"Release"-- any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into
the Environment.
"Representative"-- MSC, as representative of all of the
Sellers and the Principals.
"Restricted Employee" -- as defined in Section 6.16.
"Securities Act"-- the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that
Act or any successor law.
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"Seller" and "Sellers"-- as defined in the first paragraph
of this Agreement.
"Subsidiary"-- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other
interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other
than securities or other interests having such power only upon
the happening of a contingency that has not occurred) are held by
the Owner or one or more of its Subsidiaries.
"Tax"-- any tax (including without limitation any income,
capital gains, gross receipts, license, payroll, employment,
excise severance, stamp, occupation, premium, windfall profits,
environmental (including without limitation taxes under Code
Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax or other fiscal charges of any
kind whatsoever, including any fine, interest, penalty, or
addition thereto, whether disputed or not), imposed, assessed, or
collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other
Contract relating to the sharing or payment of any such tax.
"Tax Return"-- any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including without limitation any schedule or attachment thereto,
and any amendment thereof.
"Threat of Release"-- a substantial likelihood of a Release
that may require action in order to prevent or mitigate damage to
the Environment that may result from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or
statement has been made (orally or in writing) or any notice has
been given (orally or in writing), or if any other event has
occurred or any other circumstances exists, that would lead a
prudent Person to conclude that such a claim, Proceeding, action
or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"UK Employees" -- all employees of MSC-UK, as listed in
Exhibit G attached hereto.
2. SALE AND TRANSFER OF ASSETS; CLOSING
2.1 Sale of Assets. Subject to Section 2.2, at the
Closing, the Buyer shall purchase, acquire and accept, and the
Sellers shall assign, transfer, convey and deliver all of the
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Sellers' right, title and interest in and to, the assets,
properties and rights (contractual or otherwise) of every kind,
nature and description owned by the Sellers (collectively, the
"Assets"). The Assets shall include, without limitation, the
following:
(a) Inventories. All inventories of raw materials,
work in process, finished products and resale merchandise, scrap
inventory, and expendable manufacturing supplies.
(b) Machinery and Equipment. All machinery and
equipment used in the research and development, manufacture,
production, assembly, test, handling, distribution, demonstration
and sale of products, together with the spare-parts inventories
and all manufacturing or production tools and maintenance
supplies pertaining thereto.
(c) Intellectual Property Rights and Trademarks. All
patents, trademarks, service marks, copyrights, trade names and
applications therefor.
(d) Technical Information and Intangibles. All
inventions, discoveries (whether patentable or unpatentable),
processes, designs, know-how, trade secrets, proprietary data,
software programs and intellectual property of all kinds,
including drawings, plans, specifications, processes, patents,
dies, designs, blue prints, records, data, product development
records, production outlines, diskettes, source code, object
code, flow charts, information, media or knowledge and
procedures, and customer and supplier lists.
(e) Contracts. All real and personal property leases,
licenses, sales, secrecy, confidentiality, distribution, supply
and other Contracts, purchase contracts, sales orders, prepaid
items, warranties and all causes of action and claims related
thereto.
(f) Motor Vehicles. All cars, trucks and other motor
vehicles, automotive equipment and other rolling stock.
(g) Books and Records. All books, records and
accounts, correspondence, production records, technical,
accounting, manufacturing and procedural manuals, and customer
lists; employment records, studies, reports or summaries relating
to any environmental conditions or consequences of any operation,
as well as all studies, reports or summaries relating directly to
the general condition of the Sellers; and any confidential
information which has been reduced to writing relating to or
arising out of the business of the Sellers.
(h) Permits and Approvals. To the extent
transferable, all Governmental Authorizations.
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(i) Claims. All claims, prepayments, refunds, causes
of action, choses in action, rights of recovery, rights of
setoff, rights of recoupment, rights under warranties and other
similar assets.
(j) Furniture and Fixtures. All office furniture,
office equipment and supplies and computer hardware.
(k) Accounts Receivable. All trade and other accounts
and notes receivable and any rights of recovery or setoff of
every type and character.
(l) Miscellaneous Supplies. All catalogs, brochures,
product literature, product-related application notes, manuals,
technical papers, other printed materials, shipping and packaging
materials and labels, cartons and shipping containers, palettes,
shipping equipment, graphics, artwork, photographic film, slides,
negatives, color separations, printer's and photographer's plates
and so-called "camera-ready materials" and sales and advertising
materials.
(m) Cash and Securities. All cash, bank accounts,
money market accounts, certificates of deposit, treasury bills,
bonds, notes, securities and similar assets.
(n) Stock in Subsidiaries. All of the Sellers' stock
in any Subsidiaries.
2.2 Excluded Assets. Notwithstanding anything to the
contrary herein, the Assets shall not include the following
assets of the Sellers (the "Excluded Assets"):
(a) The buildings and real property located at The Old
School, Station Road, Cogenhoe, Northampton, England owned by
MSC-UK.
(b) The assets described on Exhibit B attached hereto.
2.3 Purchase Price for the Assets. Subject to Section 2.5,
the aggregate purchase price for the Assets shall be $13,500,000
(the "Purchase Price") payable as follows: (a) $12,225,000 to
MSC, (b) $475,000 to MSC-UK and (c) $800,000 to Anacon.
2.4 Assumption of Liabilities. At the Closing, the Buyer
shall assume only the following liabilities of the Sellers (the
"Assumed Liabilities"): (i) liabilities reflected on the
September Balance Sheets, except for any such liabilities
discharged since the date of the September Balance Sheets (the
"Balance Sheet Date") and except for liabilities excluded from
the Draft Closing Balance Sheet pursuant to Section 2.5(a), (ii)
liabilities incurred by the Sellers in the Ordinary Course of
Business since the Balance Sheet Date, (iii) liabilities under
bona fide warranty obligations of the Sellers outstanding as of
the Closing Date, and (iv) liabilities and obligations under any
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Contract assigned to the Buyer pursuant hereto, except for any
such liabilities or obligations resulting from the actual or
alleged breach by any of the Sellers of any such Contracts. In
furtherance of, but without limiting, the foregoing, except to
the extent reflected on the September Balance Sheets, the Assumed
Liabilities will not include any liabilities or obligations of
the Sellers (a) for any Environmental Health and Safety
Liabilities resulting from the ownership, operation or condition
of the Facilities, or for any liabilities or obligations
resulting from any Hazardous Activity conducted on or prior to
the Closing Date, (b) for any Taxes resulting from the conduct of
the business of the Sellers prior to the Closing Date, (c) to any
retired or other former employees of any of the Sellers for
salaries or benefits accrued prior to the Closing Date, (d) under
any agreements with any employees providing for severance
payments in the event such employees are terminated by Buyer
after the Closing, (e) under any employee benefit plan maintained
by any of the Sellers, including, without limitation, the defined
benefit plan maintained by MSC-UK or (f) payables relating to the
dust monitor business. The Sellers and the Buyer anticipate that
the United Kingdom Transfer of Undertakings (Protection of
Employment) Regulations 1981 (the "Transfer Regulations") will
apply to the sale and purchase under this Agreement in respect of
the UK Employees. The Sellers and the Buyer acknowledge and
agree that under the Transfer Regulations the contracts of
employment between MSC-UK and the UK Employees will have effect
after the Closing Date as if originally made between Buyer and
the UK Employees. This shall not, however, diminish the Sellers'
obligations pursuant to Section 5.2 to indemnify the Buyer
against the liabilities specified in clauses (c), (d) and (e) of
the preceding sentence or any other liabilities not specifically
assumed by the Buyer under this Section 2.4, in relation to the
UK Employees or any other past or present employees of MSC-UK or
any predecessor of MSC-UK. Notwithstanding the foregoing, the
Buyer acknowledges and agrees that it will be responsible for any
severance payments imposed by statute incurred when any UK
Employee is terminated by Buyer after the Closing. Any
liabilities or obligations of the Sellers that are not Assumed
Liabilities are referred to herein as "Excluded Liabilities."
2.5 Post-Closing Adjustments. The Purchase Price set forth
in Section 2.2 shall be subject to adjustment after the Closing
Date as follows:
(a) Within 60 days after the Closing Date, the Buyer
shall prepare and deliver to the Representative balance sheets
reflecting the net tangible assets of each Seller (each, a "Draft
Closing Balance Sheet"). The Buyer shall prepare the Draft
Closing Balance Sheets in accordance with GAAP. For purposes of
this Agreement, "net tangible assets" shall mean tangible Assets
minus Assumed Liabilities. Notwithstanding anything to the
contrary herein, the Draft Closing Balance Sheets shall not
include any liabilities for vacation time for employees of the
Sellers accrued between June 1, 1995 and the Closing Date or any
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of the following liabilities: (i) as described in the September
Balance Sheet of MSC, (A) notes payable-officers, (B) accrued
royalties payable, (C) accrued salaries-officers and (D) accrued
dividends, (ii) as described in the September Balance Sheet of
Anacon, (A) notes payable-officers, (B) accrued rent-related, (C)
accrued expenses-related and (D) accrued dividends, and (iii) any
payables from MSC-UK to Moisture Systems Consolidated Corporation
In addition, the Draft Closing Balance Sheets shall not include
any of the following assets as described on the September Balance
Sheet of MSC: (i) notes receivable, (ii) interest receivable and
(iii) rents receivable. It is agreed that the valuation for all
inventory on the Draft Closing Balance Sheet for Anacon shall be
no greater than $150,000.
(b) The Representative shall deliver to the Buyer
within 60 days after receiving the Draft Closing Balance Sheets a
detailed statement describing its objections (if any) thereto.
Failure of the Representative so to object to any Draft Closing
Balance Sheet shall constitute acceptance thereof, whereupon such
Draft Closing Balance Sheet shall be deemed to be a "Closing
Balance Sheet". The Buyer and the Representative shall use
reasonable efforts to resolve any such objections, but if they do
not reach a final resolution within 30 days after the Buyer has
received the statement of objections, the Buyer and
Representative shall select an internationally recognized
accounting firm mutually acceptable to them (the "Neutral
Auditors") to resolve any remaining objections. If the Buyer and
Representative are unable to agree on the choice of Neutral
Auditors, they shall select as Neutral Auditors an
internationally recognized accounting firm by lot (after
excluding their respective regular independent accounting firms).
The Neutral Auditors shall determine whether the objections
raised by the Representative are valid. Each Draft Closing
Balance Sheet that is the subject of objections by the
Representative shall be adjusted in accordance with the Neutral
Auditor's determination and, as so adjusted, shall be a Closing
Balance Sheet. Such determination by the Neutral Auditors shall
be conclusive and binding upon the Buyer and Representative. The
Buyer, on one hand, and the Sellers, on the other, shall share
equally the fees and expenses of the Neutral Auditors.
(c) If the net tangible assets as shown on the Closing
Balance Sheet applicable to any Seller is less than the Net Asset
Benchmark for such Seller, such Seller shall pay to the Buyer, by
wire transfer in immediately available funds, within ten business
days after the date on which the Closing Balance Sheet is finally
determined pursuant to this Section 2.5, an amount equal to such
deficiency (plus interest thereon from the Closing Date at the
interest rate equal to the base rate of the Bank of Boston as
announced from time to time).
(d) If the net tangible assets as shown on the Closing
Balance Sheet applicable to any Seller is more than the Net Asset
Benchmark for such Seller, the Buyer shall pay to such Seller, by
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wire transfer in immediately available funds, within ten business
days after the date on which the Closing Balance Sheet is finally
determined pursuant to this Section 2.5, an amount equal to such
excess (plus interest thereon from the Closing Date at the
interest rate equal to the base rate of Bank of Boston as
announced from time to time).
(e) As used in this Section 2.5, "Net Asset Benchmark"
means (i) with respect to MSC, $2,415,000, (ii) with respect to
MSC-UK, $313,500 and (iii) with respect to Anacon, $250,000.
2.6 Allocation of Purchase Price. The final allocation of
the Purchase Price among the Assets shall reflect the book value
of the Assets as shown on the Closing Balance Sheets. The Buyer
and the Sellers each shall report the federal, state, provincial,
foreign and local income and other tax consequences of the
transaction contemplated hereby in a manner consistent with such
allocation.
2.7 The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur at the
offices of Thermo Electron Corporation, 81 Wyman Street, Waltham,
Massachusetts, at 10:00 a.m. on the date set forth in the first
paragraph of this Agreement (the "Closing Date").
2.8 Deliveries by the Sellers to the Buyer. At the
Closing, the Sellers shall deliver, or cause to be delivered, to
the Buyer, or any Subsidiary of the Buyer designated by the Buyer
for this purpose:
(a) such executed assignments, patent assignments,
trademark assignments, bills of sale, certificates of title, or
other documents, each dated the Closing Date, as shall be
necessary, in the reasonable opinion of Buyer and its counsel to
transfer to the Buyer all of the Sellers' right, title and
interest in and to the Assets; and
(b) an opinion of Bingham, Dana & Gould, counsel to
the Sellers, in the form attached hereto as Exhibit C;
(c) consents to the assignment of the Contracts listed
on Exhibit D; and
(d) the Lease.
2.9 Deliveries by the Buyer to the Sellers. At the
Closing, the Buyer shall deliver to the Sellers:
(a) the Purchase Price less the retention described in
Section 2.10 by wire transfer to the account(s) designated by the
Sellers; and
(b) an executed assumption agreement and such other
documents, each dated as of the Closing Date, as shall be
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necessary, in the reasonable opinion of the Sellers and their
counsel, for the assumption by the Buyer of all of the Assumed
Liabilities.
(c) an opinion of Seth H. Hoogasian, general counsel
of the Buyer, in the form attached hereto as Exhibit E.
2.10 Escrow. For the purpose of providing security for the
obligations of the Sellers and the Principals under section 5.2,
$1,350,000 (the "Escrow Amount") shall be withheld from the
Purchase Price delivered at Closing and shall be placed in an
escrow account with an escrow agent (the "Agent") satisfactory
to the parties. On the first anniversary of the Closing Date,
the Representative may withdraw for distribution to the Sellers,
as their interests appear, 50% of the Escrow Amount, together
with interest earned on such portion, less the amount of any
unsatisfied claims for indemnification made by the Buyer prior to
such first anniversary. On the second anniversary of the
Closing, the Representative may withdraw the remainder of the
Escrow Amount, together with any interest thereon, for
distribution to the Sellers, as their interests appear, less the
amount of any unsatisfied claims for indemnification made by the
Buyer on or prior to such second anniversary. Any portion of the
Escrow Amount that cannot be withdrawn from the escrow account
due to pending claims by the Buyer for indemnification, shall
remain in the escrow account until the resolution of such claims
by judgment of a court from which no appeal can be made, decision
of an arbitrator or agreement of the Buyer and the
Representative.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers represent and warrant to Buyer as follows:
3.1 Organization and Good Standing.
(a) Each of the Sellers is a corporation duly
organized, validly existing, and in good standing under the laws
of the state or other jurisdiction of its incorporation or
organization, with full corporate power and authority to conduct
its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to
perform all its obligations under Applicable Contracts. Each of
the Sellers is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state
or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the
failure to so qualify, individually or in the aggregate, would
not have a Material Adverse Effect.
(b) Each of the Sellers has delivered to Buyer copies
of its Organizational Documents, as currently in effect.
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3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and
binding obligations of the Sellers, enforceable against them in
accordance with its terms.
(b) Except as set forth in Part 3.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor
the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice
or lapse of time): (i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of
any of the Sellers, or (B) any resolution adopted by the board of
directors or the stockholders of any of the Sellers; (ii)
contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any
of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to
which any of the Sellers, or any of the assets owned or used by
any of the Sellers, may be subject; (iii) contravene, conflict
with, or result in a violation or breach of any provision of, or
give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; (iv)
result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any of the
Sellers; or (v) entitle any employee or other person to severance
or other payments by any of the Sellers or create any other
obligation to an employee or other person, including any increase
in benefits.
(c) Except as set forth in Part 3.2 of the Disclosure
Letter, none of the Sellers will be required to give any notice
to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
3.3 Subsidiaries. Set forth in Part 3.3 of the Disclosure
Letter is a list of all Subsidiaries of the Sellers, including,
with respect to each Subsidiary, its jurisdiction of
incorporation. All of the outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully
paid, nonassessable and free of preemptive rights, and is owned
beneficially and of record by the respective Seller or by another
Subsidiary of a Seller free and clear of any Encumbrance or
restriction of any nature, including, without limitation, any
restriction on transfer or voting. No shares of any Subsidiary's
capital stock are reserved for issuance, and there are no
options, warrants, convertible instruments or other rights,
agreements or commitments, contingent or otherwise, obligating a
Subsidiary to issue, sell or purchase shares of capital stock.
None of the Sellers is a partner or joint venturer with any other
person. None of the Sellers is subject to any obligation,
contingent or otherwise, to provide funds to or make an
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investment (in the form of a loan, capital contribution or
otherwise) in any entity. None of the Sellers has any equity
interest in any corporation, partnership or other business entity
other than the Subsidiaries listed on the Disclosure Letter.
Each Subsidiary is in good standing under the laws of its
jurisdiction of incorporation and has all requisite power and
authority to own, operate and lease its properties and to carry
on its business as it is now being conducted. The Sellers have
delivered to Buyer complete and correct copies of the
Organizational Documents of each Subsidiary, as amended. Each
Subsidiary is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which
the character of the properties owned, operated or leased by it
or the nature of its activities is such that qualification is
required by applicable laws, except where the failure to so
qualify would not, individually or in the aggregate, have a
Material Adverse Effect. All jurisdictions where the
Subsidiaries are qualified as foreign corporations or are
required to be so qualified are listed on Part 3.3 of the
Disclosure Letter.
3.4 Financial Statements. Each Seller has delivered to
Buyer: (a) an unaudited consolidated balance sheet of such
Seller as at December 31, 1994 (each a "1994 Balance Sheet"), and
the related unaudited statement of income and cash flows for the
fiscal year then ended (each a "1994 Income Statement") and (b)
an unaudited balance sheet of such Seller as at September 31,
1995 (each a "September Balance Sheet") and the related unaudited
statement of income and cash flows for the nine months then ended
(each a "September Income Statement"). The 1994 Balance Sheets,
September Balance Sheets, 1994 Income Statements and September
Income Statements are referred to collectively as the "Financial
Statements". The Financial Statements fairly present the
financial condition and the results of operations and cash flows
of the Sellers as at the respective dates of and for the periods
referred to therein all in accordance with GAAP, except that the
September Balance Sheets are subject to normal year-end
adjustments. The Financial Statements reflect the consistent
application of such accounting principles throughout the periods
involved.
3.5 Books and Records. The books of account, minute books,
and other records of the Sellers, all of which have been made
available to Buyer, are complete and correct in all material
respects.
3.6 Title to Properties; Encumbrances. Except as set forth
in part 3.6 of the Disclosure Letter, the Sellers have valid and
legally enforceable title to all of the Assets free and clear of
any Encumbrances whatsoever, and the consummation of the
Contemplated Transactions will vest in Buyer all of the Sellers'
right, title and interest in and to the Assets.
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3.7 Accounts Receivable. All accounts receivable of the
Sellers that are reflected on the September Balance Sheets
(except for those collected in full prior to the Closing Date) or
on the accounting records of the Sellers as of the Closing Date
(collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or
services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date and except as set forth on
Part 3.7 of the Disclosure Letter, to the Knowledge of the
Sellers, the Accounts Receivable are or will be as of the Closing
Date current and collectible net of the respective reserves shown
on the September Balance Sheets or on the accounting records of
the Sellers as of the Closing Date. Except as set forth on Part
3.7 of the Disclosure Letter, none of the Sellers has received
notice that there is any contest, claim, or right of set-off with
any maker of an Account Receivable relating to the amount or
validity of such Account Receivable. The Sellers do not have any
accounts receivable from Moisture Systems Consolidated
Corporation and MSC does not have any accounts receivable from
MSC-UK which were assigned to MSC from Moisture Systems
Consolidated Corporation.
3.8 Taxes. Except as set forth in Part 3.8 of the
Disclosure Letter:
Each of the Sellers has accurately prepared and duly
and timely filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Sellers have been paid when due,
other than those being contested in good faith and where adequate
reserves (determined in accordance with GAAP) have been
established therefor. All Taxes of any of the Sellers
attributable to Tax periods or portions thereof ending on or
prior to the Closing Date, including Taxes that may become
payable by any of the Sellers in future periods in respect of any
transactions or sales occurring on or prior to the Closing Date,
that have not yet been paid have, in the aggregate, been
adequately reflected as a liability on the books of the Sellers
in accordance with GAAP. None of the Sellers is currently being
audited or examined by any Governmental Body, nor have any
deficiencies for any Tax been asserted against any of the
Sellers. No claim or inquiry with respect to any material amount
of Taxes has been made within the past seven years by an
authority in a jurisdiction where any of the Sellers did not file
Tax Returns that it is or may be subject to any Tax by that
jurisdiction. Without limiting the generality of the foregoing,
each of the Sellers has withheld or collected and duly paid all
Taxes required to have been withheld or collected and paid in
connection with payments to foreign persons, sales and use Tax or
Value Added Tax obligations, and amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
person.
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3.9 Employee Benefits. Part 3.9 of the Disclosure Letter
contains a true, correct and complete list of all benefit plans
(as defined in Section 3(3) of ERISA) and all pension, benefit,
profit sharing, retirement, deferred compensation, welfare,
insurance, disability, bonus, vacation pay, severance pay and
other similar plans, programs and agreements, whether reduced to
writing or not, relating to any of the employees of any of the
Sellers (the "Plans") and, except as set forth in Part 3.9 of the
Disclosure Letter, none of the Sellers has any obligations,
contingent or otherwise, past or present, under applicable law or
the terms of any Plan. With respect to all Plans, each of the
Sellers is in compliance with all applicable Legal Requirements,
including ERISA. Each of the Sellers has performed all material
obligations required to be performed by it under, and is not in
material violation of, and there has been no material default or
violation by any other party with respect to, any of the Plans.
There are no pending or, to the Knowledge of the Sellers,
Threatened Proceedings by employees or former employees of any of
the Sellers, or beneficiaries or spouses of any of the above,
involving any Plan (other than routine, undisputed claims for
benefits). The Sellers have provided the Buyer with copies of
each Plan that is in writing and with a written summary of each
oral Plan. Except for MSC's 401(k) plan, no Plan is an "employee
pension benefit plan" as such term is defined in Section 3(2) of
ERISA. None of the Sellers nor any ERISA Affiliate (as defined
below) contributes to or has an obligation to contribute to or
has contributed to or had an obligation to contribute to within
the past six years, a "multiemployer" plan as defined in Section
4001(a)(3) of ERISA. None of the Sellers nor any ERISA Affiliate
has withdrawn from a multi-employer plan in a complete or partial
withdrawal that resulted in any unsatisfied employer liability.
None of the Sellers contributes to an employee pension benefit
plan that is subject to Section 412 of the Code or Title IV of
ERISA. "ERISA Affiliate" means an entity which is a member of
(i) a controlled group of corporations (as defined in Section
414(b) of the Code), (ii) a group of trades or businesses under
common control (as defined in Section 414(c) of the Code), or
(iii) an affiliated service group (as defined in Section 414(m)
of the Code or the regulations under Section 414(o) of the Code),
any of which includes any of the Sellers.
3.10 Compliance with Legal Requirements;
(a) Except as set forth in Part 3.10 of the Disclosure
Letter: (i) each of the Sellers is, and at all times since
January 1, 1991 has been, in compliance with each Legal
Requirement that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any of its
assets; (ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may constitute or
result in a violation by any of the Sellers of, or a failure on
the part of any of the Sellers to comply with, any Legal
Requirement; (iii) none of the Sellers has received, at any time
since January 1, 1991, any notice or other communication (whether
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oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement.
Notwithstanding anything herein to the contrary, the Sellers make
no representation or warranty with respect to the applicability
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, to the Contemplated Transactions.
(b) The Sellers have obtained all Governmental
Authorizations necessary for the conduct of their respective
businesses as currently conducted. Except as set forth in Part
3.10 of the Disclosure Letter: (i) each of the Sellers is, and
at all times since January 1, 1991 has been, in compliance in
all material respects with each such Governmental Authorization,
(ii) no event has occurred or circumstance exists that may (with
or without notice or lapse of time) constitute or result directly
or indirectly in a violation of or a failure to comply with any
term or requirement of any such Governmental Authorization; (iii)
none of the Sellers has received, at any time since January 1,
1991, any notice or other communication (whether oral or written)
from any such Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any such
Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any such
Governmental Authorization; and (iv) the rights of the Sellers
under such Governmental Authorizations shall not be affected by
the consummation of the Contemplated Transactions.
Notwithstanding anything herein to the contrary, the Sellers make
no representation or warranty with respect to the applicability
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, to the Contemplated Transactions.
3.11 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.11 of the Disclosure
Letter, there is no pending Proceeding: (i) that has been
commenced by or against any of the Sellers or that otherwise
relates to or may affect the business of, or any of the assets
owned or used by, any of the Sellers, or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated
Transactions. To the Knowledge of the Sellers, (A) no such
Proceeding has been Threatened, and (B) no event has occurred or
circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding.
(b) Except as set forth in Part 3.11 of the Disclosure
Letter there is no Order to which any of the Sellers, or any of
the assets owned or used by any of the Sellers is subject. Each
of the Sellers is in full compliance with all of the terms and
requirements of each Order to which it, or any assets owned or
used by it, is subject.
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3.12 Absence of Certain Changes and Events. Except as set
forth in Part 3.12 of the Disclosure Letter, since the Balance
Sheet Date, each of the Sellers has conducted its business only
in the Ordinary Course of Business and there has not been any:
(a) except in the Ordinary Course of Business, payment
or increase by any of the Sellers of any bonuses, salaries,
commissions or other compensation to any stockholder, director,
officer, or employee or entry into any employment, severance, or
similar Contract with any director, officer, or employee;
(b) adoption of, or, except in the Ordinary Course of
Business, increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with
any employees of any of the Sellers;
(c) damage to or destruction or loss of any asset or
property of any of the Sellers, whether or not covered by
insurance, having a Material Adverse Effect;
(d) except in the Ordinary Course of Business, sale
(other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property
of any of the Sellers or mortgage, pledge, or imposition of any
Encumbrance on any asset or property of any of the Sellers;
(e) cancellation or waiver of any claims or rights
with a value to any of the Sellers in excess of $25,000;
(f) material change in the accounting methods used by
any of the Sellers;
(g) material adverse change in the financial
condition, assets, liabilities, earnings, business or prospects
of the Sellers, taken as a whole;
(h) indebtedness or other liability or obligation
(whether absolute, accrued, contingent or otherwise) incurred, or
other transaction (except that reflected in this Agreement)
engaged in, by any of the Sellers, except those in the Ordinary
Course of Business which are, individually and in the aggregate
to one group of related parties, less than $25,000 in amount;
(i) acquisition of any assets other than in the
Ordinary Course of Business;
(j) any material reduction in the rate of, or gross
margins associated with, bookings or orders for the products
or services of the Sellers, taken as a whole; or
(k) agreement, whether oral or written, by any of the
Sellers to do any of the foregoing.
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3.13 Contracts; No Defaults.
(a) Part 3.13(a) of the Disclosure Letter contains a
complete and accurate list, and the Sellers have delivered to
Buyer true and complete copies of, each of the following
Applicable Contracts: (i) each agreement that involves aggregate
future payments by any of the Sellers of more than $25,000; (ii)
each distributorship, sales agency, franchise, joint venture or
partnership agreement; (iii) each agreement not made in the
ordinary course of business which is to be performed after the
Closing; (iv) each outstanding commitment to make a capital
expenditure, capital addition or capital improvement involving an
amount in excess of $20,000; (v) each real or personal property
lease; (vi) each agreement relating to the loan of money or
availability of credit to or from any of the Sellers; (vii) each
agreement limiting the freedom of any of the Sellers to compete
in any line of business or with any Person; (viii) each written
agreement, contract, arrangement or understanding between any of
the Sellers and any present or former employee; (ix) each license
agreement relating to patents, trademarks, know-how or other
intellectual property, whether as licensee or licensor; (x) each
collective bargaining agreement or other contract or commitment
to or with any labor union or other group of employees; (xi) each
mortgage, pledge, security, title retention, or similar agreement
encumbering any of the Assets; (xii) each agreement providing
for payments to or by any Person based on sales, purchases,
revenues, profits or assets; (xiii) each guaranty or similar
undertaking with respect to the obligations of any other Person;
(xiv) each agreement relating to the acquisition or disposition
of significant assets, businesses or companies within the past
five years; and (xv) each other agreement which cannot be
terminated by the Sellers within one year after the date hereof
without penalty or under which the consequences of a default or
termination would have a Material Adverse Effect.
(b) Except as set forth in Part 3.13(b) of the
Disclosure Letter, to the Knowledge of the Sellers, each Contract
identified or required to be identified in Part 3.13(a) of the
Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms. Except as set forth in
Part 3.13(b) of the Disclosure Letter and except where
non-compliance would not result in a Material Adverse Effect:
(i) each of the Sellers is, and at all times since January 1,
1991 has been, in compliance with all applicable terms and
requirements of each Applicable Contract; (ii) each other Person
that has any obligation or liability under any Applicable
Contract is, and at all times since January 1, 1991 has been, in
compliance with all applicable terms and requirements of such
Applicable Contract; and (iii) none of the Sellers has given to
or received from any other Person, at any time since January 1,
1991, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation
or breach of, or default under, any Applicable Contract.
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(c) There are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to any of the Sellers under Applicable
Contracts with any Person having the contractual or statutory
right to demand or require such renegotiation and no such Person
has made written demand for such renegotiation.
3.14 Insurance. Part 3.14 of the Disclosure Letter sets
forth a list (including the name of the insurer, the name of the
policyholder, the name of each insured, the policy number and
periods of coverage, and the scope of coverage) of all policies
of fire, theft, casualty, liability, burglary, fidelity, workers
compensation, business interruption, environmental, product
liability, automobile and other forms of insurance under which
any of the Sellers is the beneficiary. None of the Sellers has
received notice from any insurer under any such policy
disclaiming coverage or canceling or materially amending any such
policy. Such policies or extensions or renewals thereof in such
amounts will be outstanding and in full force without
interruption until the Closing Date. The Sellers have paid all
premiums due, and have otherwise performed all of their
respective obligations under, each such policy. The Sellers have
given proper and timely notice to the insurer of all claims that
may be insured under such policies.
3.15 Environmental Matters. Except as set forth in Part
3.15 of the Disclosure Letter:
(a) To the knowledge of the Sellers, the Sellers are
in full compliance with all Environmental Laws. None of the
Sellers has any basis to expect, nor has any of them or any other
Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened order, notice, or
other communication from (i) any Governmental Body or private
citizen acting in the public interest, (ii) the current or prior
owner or operator of any Facilities, or (iii) any other Person,
of any actual or potential violation or failure to comply with
any Environmental Law, or of any actual or Threatened obligation
to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in
which any of the Sellers has had an interest, or with respect to
any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used,
transported or processed by any of the Sellers, or any other
Person for whose conduct they are or may be held responsible, or
from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of any
of the Sellers, Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental,
Health, and Safety Liabilities or arising under or pursuant to
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any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real,
personal, or mixed) in which any of the Sellers has or had an
interest.
(c) To the knowledge of the Sellers, none of the
Sellers nor any other Person for whose conduct they are or may be
held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or any other
properties and assets (whether real, personal, or mixed) in which
any of the Sellers (or any predecessor) has or had an interest,
or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(d) To the knowledge of the Sellers, there has been no
Release or, to the Knowledge of any of the Sellers, Threat of
Release, of any Hazardous Materials at or from the Facilities or
at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, transported,
produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real,
personal, or mixed) in which any of the Sellers has or had an
interest, or to the Knowledge of any of the Sellers any
geologically or hydrologically adjoining property, whether by the
Sellers or any other Person.
(e) The Sellers have delivered to Buyer true and
complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by any of the Sellers
pertaining to Hazardous Materials or Hazardous Activities in, on,
or under the Facilities, or concerning compliance by any of the
Sellers, or any other Person for whose conduct they are or may be
held responsible, with Environmental Laws or Occupational Safety
and Health Laws.
(f) Part 3.15 of the Disclosure Letter sets forth or
describes in reasonable detail: (i) all landfills, surface
impoundments, pits, underground injections wells, waste piles,
incinerators and any other units used by any of the Sellers for
the handling, treatment, recycling, storage or disposal of
Hazardous Materials at any Facility and (ii) all underground or
above-ground storage tanks at the Facilities or on any property
owned or operated at any time by any of the Sellers.
3.16 Labor Disputes; Compliance . Since January 1, 1991,
none of the Sellers has been a party to any collective bargaining
Contract or other labor Contract. Since January 1, 1991, there
has not been, there is not presently pending or existing, and to
the Knowledge of the Sellers or the Principals there is not
Threatened any strike, slowdown, picketing, work stoppage, labor
arbitration or proceeding in respect of the grievance of any
employee, application or complaint filed by an employee or union
with the National Labor Relations Board or any comparable
Governmental Body, organizational activity, or other labor
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dispute against or affecting any of the Sellers or their
premises, and no application for certification of a collective
bargaining agent is pending or to the Knowledge of the Sellers is
Threatened. There is no lockout of any employees by any of the
Sellers, and no such action is contemplated by any of the
Sellers. There is no recognized trade union in respect of the UK
Employees.
3.17 Intellectual Property. The Sellers own or have
adequate license to use, free and clear of any Encumbrance or
obligation of payment, all patents, trademarks, trade names,
service marks, branch names and copyrights, and applications
therefor, used in the conduct of the business or the use of which
is necessary for the conduct of the business of the Sellers as
presently conducted (the "Intangibles"). Set forth in Part 3.17
of the Disclosure Letter is a complete list and summary
description of all Intangibles and licenses or sublicenses
entered into or granted by or to the Sellers with respect thereto
and the countries of registration. The Sellers own or possess
adequate rights to use, free and clear of any Encumbrance or
obligation of payment, all inventions, technology, technical
know-how, processes, designs, trade secrets, vendor and customer
lists and other confidential information required for or used in
the business of the Sellers as presently conducted ("Trade
Secrets"). No person has made any claim or demand upon any of
the Sellers pertaining to, and no proceedings are pending or to
the Knowledge of the Sellers Threatened, which challenge the
rights of any of the Sellers in respect of any Intangibles or
Trade Secrets. No Intangible owned or used by any of the Sellers
is subject to any Order. To the Knowledge of the Sellers, none
of the Sellers has infringed or engaged in the unauthorized use
of, or violated any confidentiality agreement that pertains to,
any patent, trademark, trade name, service mark, brand name or
copyright, or any invention, technology, technical know-how,
process, design, trade secret or other intellectual property of
another Person. To the Knowledge of the Sellers no third party
is engaged in the infringement or unauthorized use of any
Intangible or Trade Secret.
3.18 Relationships with Related Persons. Except as set
forth in Part 3.18 of the Disclosure Letter, no Related Person of
any of the Sellers has any interest in any property (whether
real, personal, or mixed and whether tangible or intangible) used
in or pertaining to the business of any of the Sellers. Except
as set forth in Part 3.18 of the Disclosure Letter, no Related
Person of any of the Sellers owns of record or as beneficial
owner, an equity interest or any other financial or profit
interest in any Person that (i) has business dealings or a
financial interest in any transaction with any of the Sellers, or
(ii) engages in a Competing Business except for ownership of less
than one percent of the outstanding capital stock of any
Competing Business that is publicly traded on any recognized
exchange or in the over-the-counter market. Except as set forth
in Part 3.18 of the Disclosure Letter, none of the Sellers nor
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any Related Person of any of the Sellers is a party to any
Contract with, or has any claim or right against, any of the
Sellers.
3.19 Brokers or Finders. None of the Sellers or the
Principals or their respective agents have incurred any
obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment
in connection with the Contemplated Transactions.
3.20 No Termination of Relationship. To the Knowledge of
the Sellers no relationship between any of the Sellers and a
distributor, customer, supplier, lender, employee or other person
will be terminated or adversely affected as a result of the
execution of this Agreement or the performance of the
Contemplated Transactions.
3.21 Customers and Suppliers. No material supplier of the
Sellers has indicated within the past year that it will stop, or
materially decrease the rate of, supplying materials, products,
or services to the Sellers and no material customer of the
Sellers has indicated within the past year that it will stop, or
materially decrease the rate of, buying materials, products or
services from the Sellers. Part 3.21 of the Disclosure Letter
sets forth a list of (a) each customer that accounted for more
than 5% of the combined revenues of the Sellers during the last
fiscal year and (b) each supplier that is the sole supplier of
any significant product or component to the Sellers.
3.22 Recalls. No products of any of the Sellers have been
recalled since January 1, 1991 and, to the Knowledge of the
Sellers there is no basis for any such recall.
3.23 Backlog. The backlog of MSC as of the Closing Date is
greater than or equal to $1,750,000. For purposes of this
Section 3.23, "backlog" means all firm orders and commitments for
MSC's products and services which orders and commitments contain
terms and conditions that are consistent with MSC's practices
over the past year.
3.24 Inventories. All Inventories (as defined below) are of
a quality and quantity usable and salable in the Ordinary Course
of Business. Items included in such Inventories are carried on
the books of the Sellers at the lower of cost or market and, with
respect to Inventories existing as of the Balance Sheet Date, are
reflected on the September Balance Sheets net of applicable
reserves for excess and obsolete items. Such reserves have been
determined in accordance with past practices and conform to
generally accepted accounting principles consistently applied.
The term "Inventories" includes all stock of raw materials,
work-in-process and finished goods held by the Sellers, for
manufacturing, assembly, processing, finishing, and sale or
resale to others.
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3.25 Product and Service Warranties. The Sellers have
provided the Buyer with copies of the current standard warranty
used for each of the products and services of the Sellers. Part
3.25 of the Disclosure Letter also describes any and all other
product or service warranties made by or on behalf of the Sellers
that deviate materially from the current standard warranties and
which remain in effect on the date hereof, or pursuant to which
any of the Sellers have any remaining obligations.
3.26 Authority of Representative. The Representative has
all necessary legal power and authority to act on behalf of the
Sellers and the Principals as provided herein.
3.27 No Additional Representations and Warranties. Except
as specifically set forth in this Agreement (including the
Disclosure Letter), the Sellers and Principals disclaim all
representations and warranties, whether express or implied,
written or oral.
3.28 Sufficiency of Assets. Except as set forth in Part
3.28 of the Disclosure Letter, the assets owned by the Sellers
are the only assets necessary for the continued conduct of the
businesses of the Sellers after the Closing in substantially the
same manner as conducted prior to the Closing.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation
duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. Buyer has the absolute and
unrestricted right, power, and authority to execute and deliver
this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Exhibit D, neither the
execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to: (i) any provision of Buyer's
Organizational Documents; (ii) any resolution adopted by the
board of directors or the stockholders of Buyer; (iii) any Legal
Requirement or Order to which Buyer may be subject; or (iv) any
Contract to which Buyer is a party or by which Buyer may be
bound.
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Except as set forth in Exhibit D, Buyer is not and will not be
required to obtain any Consent from any Person in connection with
the execution and delivery of this Agreement by Buyer or the
consummation or performance of any of the Contemplated
Transactions by Buyer.
4.3 Certain Proceedings. There is no pending Proceeding
that has been commenced against Buyer and that challenges, or may
have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions.
To Buyer's Knowledge, no such Proceeding has been Threatened.
4.4 Brokers and Finders. Buyer and its officers and agents
have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and
will indemnify and hold the Sellers and the Principals harmless
from any such payment alleged to be due by or through Buyer as a
result of the action of Buyer or its officers or agents.
5. INDEMNIFICATION; REMEDIES
5.1 Survival. Subject to Section 5.4, all representations,
warranties, covenants, and obligations in this Agreement, the
Disclosure Letter and any other certificate or document delivered
pursuant to this Agreement will survive the Closing; the right to
indemnification, reimbursement, or other remedy based on such
representations, warranties, covenants, and obligations will not
be affected by any investigation conducted with respect to, or
any Knowledge acquired (or capable of being acquired) about the
accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation.
5.2 Indemnification and Reimbursement By the Sellers and
the Principals. The Sellers and the Principals will indemnify
and hold harmless Buyer, its representatives, stockholders,
controlling persons, and affiliates (collectively, the
"Indemnified Persons"), and will reimburse the Indemnified
Persons, for any loss, liability, claim, damage, expense
(including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising from or in
connection with:
(a) any Breach of any representation or warranty made
by any of the Sellers in this Agreement, the Disclosure Letter,
or any other certificate or document delivered at and in
connection with the Closing of the Contemplated Transactions by
any of the Sellers pursuant to this Agreement;
(b) any Breach by any of the Sellers of any covenant
or obligation of any of the Sellers in this Agreement;
(c) any Excluded Liability;
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<PAGE>
(d) any claim by any Person for brokerage or finder's
fees or commissions or similar payments based upon any agreement
or understanding alleged to have been made by any such Person
with any of the Sellers or the Principals; or
(e) any product liability claim relating to products
sold by any of the Sellers prior to the Closing Date; provided
that such claim is not caused by Buyer's intervening negligence
in the service, maintenance or repair of such product.
5.3 Indemnification and Reimbursement by Buyer. Buyer will
indemnify and hold harmless the Sellers and the Principals, and
will reimburse the Sellers and the Principals, for any Damages
arising from or in connection with (a) any Breach of any
representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement, (c) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions or (d) any
Assumed Liabilities.
5.4 Time Limitations. None of the Sellers or the
Principals will have any liability for indemnification under
section 5.2(a) with respect to any representation or warranty in
Sections 3.4, 3.5, 3.7, 3.9, 3.12, 3.14, 3.16, 3.19, 3.20, 3.21,
3.22, 3.23, 3.24 unless on or before March 31, 1997 the
Representative is given notice of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known
by Buyer. None of the Sellers or the Principals will have any
liability for indemnification under section 5.2(a) with respect
to any representation or warranty in Sections 3.8, 3.10, 3.11,
3.13, 3.15, 3.17, 3.18, 3.25, 3.26, unless on or before the
second anniversary of the Closing Date the Representative is
given notice of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Buyer.
The Sellers and the Principals will have no liability for
indemnification under Section 5.2(a) with respect to Section 3.1,
3.2, 3.3, or 3.6, unless on or before the expiration of the
applicable statute of limitations the Representative is given
notice of a claim specifying the factual basis of that claim in
reasonable detail to the extent known by Buyer. A claim for
indemnification or reimbursement under Sections 5.2 (b), (c) or
(d) may be made at any time.
5.5 Limitations on Amount -- Sellers and Principals.
(a) None of the Sellers or the Principals will have
any liability for indemnification pursuant to Section 5.2(a), (i)
at any time with respect to any claim by the Buyer for less than
$5,000 and (ii) until the total of all Damages with respect to
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<PAGE>
such matters (including claims under $5,000) exceeds $100,000,
and then such liability shall only be for Damages in excess of
$100,000. Notwithstanding any provision herein to the contrary,
except for liability for indemnification with respect to breaches
of Sections 3.1, 3.2, 3.3 or 3.6, the maximum aggregate liability
of the Sellers and the Principals under Section 5.2 shall not
exceed $6,750,000.
(b) Notwithstanding any provision herein to the
contrary, except for liability for indemnification with respect
to breaches of Sections 3.1, 3.2, 3.3 or 3.6, no Principal shall
have any liability under section 5.2 in excess of the amount set
forth opposite such Principal's name on Exhibit F attached
hereto. In addition, with respect to any single claim (and
subject to the overall limitation set forth in the preceding
sentence) for indemnification, Dennis Carlson shall not have any
liability which is greater than the product of (i) the amount set
forth opposite Dennis Carlson's name on Exhibit F attached hereto
divided by $6,750,000 and (ii) the total amount of the claim for
which Buyer is then seeking indemnification.
5.6 Procedures for Indemnification -- Third Party Claims.
(a) Promptly after receipt by an indemnified party
under Section 5.2 or Section 5.3 of notice of the commencement
of any Proceeding against it, such indemnified party will, if a
claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any
liability that it may have to any indemnified party, except to
the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 5.6(a) is
brought against an indemnified party and it gives notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will, unless the claim involves Taxes, be
entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party
to such Proceeding and the indemnified party determines in good
faith that joint representation would be inappropriate, or (ii)
the indemnifying party fails to provide reasonable assurance to
the indemnified party of its financial capacity to defend such
Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified party and, after notice
from the indemnifying party to the indemnified party of its
election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this
Section 5 for any fees of other counsel or any other expenses
with respect to the defense of such Proceeding, in each case
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<PAGE>
subsequently incurred by the indemnified party in connection with
the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of
a Proceeding, (i) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified
party's consent unless (A) there is no finding or admission of
any violation of Legal Requirements or any violation of the
rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief
provided is monetary damages that are paid in full by the
indemnifying party; and (ii) the indemnifying party will have no
liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or
settlement effected by the indemnified party. Notwithstanding
the foregoing, if a customer or a supplier any of the Sellers
asserts that the Buyer is liable to such customer or supplier for
a monetary obligation which may constitute or result in Damages
for which the Buyer may be entitled to indemnification pursuant
to this Section 5 and the Buyer reasonably determines that it has
a valid business reason to fulfill such obligations, then (i) the
Buyer shall be entitled to satisfy such obligation without prior
notice to or consent from the Sellers, (ii) the Buyer may make a
claim for indemnification pursuant to this Section 5 and (iii)
the Buyer shall be reimbursed, in accordance with the provisions
of this Section 5, for any such Damages for which it is entitled
to indemnification pursuant to the provisions of this Section 5;
provided, however, that if the Buyer makes a claim for
indemnification in accordance with this sentence the Sellers and
the Principals shall not be deemed to have waived any defense to
such claim by the Buyer, notwithstanding the Buyer's prior
satisfaction of the obligation for which indemnification is
sought, and it shall not be a defense to the Buyer's claim for
indemnification that the Buyer has satisfied the obligation for
which indemnification is sought.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its
affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or
settlement effected without its consent.
(d) For purposes of providing any notice required
under this Section 5, the Buyer may treat the Representative as
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<PAGE>
the authorized representative of all of the Sellers and
Principals any notice given to the Representative shall be deemed
given to each Seller and each Principal.
5.7 Procedure for Indemnification -- Other Claims. A claim
for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom
indemnification is sought.
6. GENERAL PROVISIONS
6.1 Expenses. Except as otherwise expressly provided in
this Agreement, each party to this Agreement will bear its
respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. In the event of
termination of this Agreement, the obligation of each party to
pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party.
6.2 Public Announcements. Any public announcement or
similar publicity with respect to this Agreement or the
Contemplated Transactions will be issued, if at all, by the Buyer
only with the consent of the Representative, and by any of the
Sellers or the Principals, only with the consent of the Buyer,
none of which consents will unreasonably be withheld. The
content of any public announcement by the Buyer will be subject
to review and approval by the Representative, and the content of
any public announcement by any of the Sellers or the Principals
will be subject to review and approval by the Buyer, none of
which approvals will unreasonably be withheld. Sellers and Buyer
will consult with each other concerning the means by which the
Sellers' employees, customers, and suppliers and others having
dealings with the Sellers will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for any
such communication.
6.3 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will
be deemed to have been duly given when actually received or if
earlier, one day after deposit with a nationally recognized
overnight delivery service, charges prepaid, or three days after
deposit in the U.S. mail by certified mail, return receipt
requested, postage prepaid, in each case to the appropriate
addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers a party may designate by
notice to the other parties):
any Seller or the Representative:
Moisture Systems Corporation
117 South Street
Hopkinton, MA 01748-2273
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<PAGE>
Attention: President
Fax No.: (508) 435-6677
with a copy to:
John J. Concannon III, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110-1726
Fax No.: (617) 951-8736
Buyer:
Thermedics Detection Inc.
220 Mill Road
Chelmsford, MA 01824
Attention: President
Fax No.: (508) 251-2024
with a copy to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254-9046
Attention: General Counsel
Fax No. (617) 622-1283
6.4 Jurisdiction; Service of Process. Any action or
proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any
of the parties in the courts of the Commonwealth of
Massachusetts, County of Middlesex, or, if it has or can acquire
jurisdiction, in the United States District Court for the
District of Massachusetts and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection
to venue laid therein. With respect to MSC-UK and the
Principals, any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts
of England and each of MSC-UK, the Principals and Buyer consents
to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or
proceeding referred to in this Section 6.4 may be served on any
party anywhere in the world.
6.5 Further Assurances. The parties agree (a) to furnish
upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c)
to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of
this Agreement and the documents referred to in this Agreement.
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<PAGE>
6.6 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the
failure nor any delay by any party in exercising any right,
power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum
extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a
party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party
will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
6.7 Entire Agreement and Modification. This Agreement
supersedes all prior agreements between the parties with respect
to its subject matter and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement
of the terms of the agreement between the parties with respect to
its subject matter. This Agreement may not be amended except by
a written agreement executed by the party to be charged with the
amendment.
6.8 Disclosure Letter. In the event of any inconsistency
between the statements in the body of this Agreement and those in
the Disclosure Letter (other than an exception expressly set
forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the
statements in the body of this Agreement will control.
6.9 Assignments, Successors, and Third-Party Rights. No
party hereto may assign any of its, his or her rights under this
Agreement without the prior consent of the other parties except
that Buyer may assign any of its rights under this Agreement to
any Subsidiary of Buyer, provided that Buyer shall remain jointly
and severally liable with such Subsidiary for any of Buyer's
obligations hereunder. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of
the parties. Nothing expressed or referred to in this Agreement
will be construed to give any Person other than the parties to
this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
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<PAGE>
6.10 Severability. If any provision of this Agreement is
held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain
in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or
unenforceable.
6.11 Section Headings; Construction. The headings of
Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All
references to "Sections" refer to the corresponding Sections of
this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
6.12 Time of Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of
the essence.
6.13 Governing Law. This Agreement will be governed by and
construed under the laws of the Commonwealth of Massachusetts
without regard to conflicts of laws principles.
6.14 Relief. In the event of a breach of the provisions of
this Agreement by a Seller, in addition to any other rights and
remedies that Buyer may have under law or in equity, Buyer shall
have the right to specific performance and injunctive relief, it
being acknowledged and agreed that money damages will not provide
an adequate remedy.
6.15 Access to Information. The Sellers shall make
available, and direct and authorize their respective independent
public accountants to make available, to the Buyer and to the
independent public accountants representing the Buyer (at no cost
to the Buyer), all working papers pertaining to the examination
by the Sellers' accountants of the accounting records of the
Sellers, and shall provide such cooperation as Buyer shall
reasonably request in connection with Buyer's preparation of any
financial statements relating to the businesses of the Sellers
required to be included in any filing made by Buyer or any
affiliate of Buyer with the Securities and Exchange Commission
pursuant to the Securities Act or the Exchange Act. For a period
of time as may be reasonably requested, upon written request of a
Seller or Principal, Buyer or its successor shall make or cause
to be made available to such Seller or Principal, as the case may
be, all books and records included in the Assets that are needed
by such Seller or Principal for a valid business or financial
purpose, and permit such Seller or Principal to inspect and copy
such books and records upon reasonable notice and at such
reasonable times as may be mutually agreed upon by such Seller or
Principal and Buyer and shall be at such Seller's or Principal's
sole cost and expense.
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6.16 Solicitation. For a period of two years after the
Closing Date, none of the Sellers or the Principals shall, either
directly or indirectly as a stockholder, investor, partner,
director, officer, employee or in any other capacity, solicit or
attempt to induce any Restricted Employee to terminate his or her
employment with Buyer or any affiliate of the Buyer; provided,
however, that it shall not be a breach of this Section 6.16 for
any Seller or Principal to solicit Restricted Employees by means
of general public advertisements. For purposes of this
agreement, a "Restricted Employee" shall mean any person, other
than employees terminated involuntarily by the Buyer, who (i)
either (A) hold or have access to trade secrets or other
confidential information relating to the business of the Sellers
or (B) had annual base salary in 1994 of at least $50,000, and
(ii) either (X) was an employee of the Buyer or any affiliate of
the Buyer on either the date of this Agreement or the Closing
Date or (Y) was an employee of any of the Sellers on either the
date of this Agreement or the Closing Date and who is employed by
the Buyer immediately after the Closing.
6.17 Non-Competition.
(a) For a period of five years after the Closing Date,
none of the Sellers or the Principals shall, either directly or
indirectly as a stockholder, investor, partner, director,
officer, employee, consultant or otherwise, engage in a
Competitive Business in any territory. For purposes of this
Agreement, a "Competitive Business" means (i) the development,
manufacture, marketing or sale of any product utilizing near
infrared technology which is competitive with any product
manufactured, sold or developed (or under development) by a
Seller on or prior to the Closing Date or (ii) the rendering or
marketing of any service which is competitive with any service
rendered or marketed (or proposed to be rendered or marketed) by
a Seller on or prior to the Closing Date. Buyer acknowledges and
agrees that the Principals are and will be passive investors in
Sensortech Systems Inc.
(b) The Sellers and the Principals agree that the
duration and geographic scope of the non-competition provision
set forth in this Section 6.17 are reasonable. In the event that
any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that
extent unenforceable, the parties agree that the provision shall
remain in full force and effect for the greatest time period and
in the greatest area that would not render it unenforceable. The
parties intend that this non-competition provision shall be
deemed to be a series of separate covenants, one for each and
every county of each and every state of the U.S. and each and
every political subdivision of each and every country outside the
U.S. where this provision is intended to be effective.
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6.18 Seniority of Employees. To the extent that length of
service is relevant for vesting or benefit calculations or
allowances under retirement or other benefit plans made available
to Buyer's employees, any of the Seller's employees that accept
employment with the Buyer shall receive credit for their years of
service with the Sellers.
6.19 United Kingdom Value Added Tax. The Sellers and Buyer
intend that article 5 of the United Kingdom Value Added Tax
(Special Provisions) Order 1992 shall apply to the sale of Assets
located in the United Kingdom under this Agreement, so that the
sale is treated as neither a supply of goods nor a supply of
services.
6.20 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original
copy of this Agreement and all of which, when taken together,
will be deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
THERMEDICS DETECTION INC.
By: John W. Wood, Jr.
--------------------------
Name: John W. Wood, Jr.
--------------------------
Title: Chairman
-------------------------
SELLERS:
MOISTURE SYSTEMS CORPORATION
By: Roger E. Carlson
-----------------------------
Name: Roger E. Carlson
---------------------------
Title: President
--------------------------
MOISTURE SYSTEMS LIMITED
By: John Fordham
-----------------------------
Name: John Fordham
---------------------------
Title: Director
--------------------------
ANACON CORPORATION
By: Roger E. Carlson
-----------------------------
Name: Roger E. Carlson
---------------------------
Title: President
--------------------------
PRINCIPALS:
Dennis Carlson
------------------------------
Dennis Carlson
Roger Carlson
------------------------------
Roger Carlson
John Fordham
------------------------------
John Fordham
Exhibit 13
Thermedics Inc.
Consolidated Financial Statements as of December 30, 1995
PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Income
(In thousands except per share amounts) 1995 1994 1993
-------------------------------------------------------------------------
Revenues (Note 14) $175,754 $155,111 $ 80,220
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 97,290 87,597 45,965
Selling, general and administrative
expenses (Note 9) 47,933 42,734 20,757
Expenses for research and development 11,087 10,445 6,434
-------- -------- --------
156,310 140,776 73,156
-------- -------- -------
Operating Income 19,444 14,335 7,064
Interest Income 9,073 7,273 6,065
Interest Expense (3,677) (3,206) (2,383)
Gain on Issuance of Stock by
Subsidiary (Note 12) 3,455 - -
Gain on Sale of Investments 421 203 409
Other Income 14 719 491
-------- -------- ------
Income Before Provision for Income
Taxes and Minority Interest 28,730 19,324 11,646
Provision for Income Taxes (Note 6) 9,154 7,334 4,623
Minority Interest Expense 4,455 1,153 353
-------- -------- --------
Net Income $ 15,121 $ 10,837 $ 6,670
======== ======== ========
Earnings per Share $ .45 $ .33 $ .22
======== ======== ========
Weighted Average Shares 33,660 32,878 30,291
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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Thermedics Inc.
Consolidated Balance Sheet
(In thousands) 1995 1994
--------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 37,370 $ 37,043
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $76,682 and $72,731) (Notes 2 and 9) 77,916 71,680
Accounts receivable, less allowances
of $3,982 and $3,640 41,327 33,645
Unbilled contract costs and fees 1,582 497
Inventories 42,679 26,801
Prepaid income taxes and expenses (Note 6) 8,645 4,676
-------- --------
209,519 174,342
-------- --------
Property, Plant and Equipment, at Cost, Net 12,933 10,727
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $39,795 and $46,863) (Note 2) 39,953 45,426
-------- --------
Other Assets 4,171 5,582
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 6) 101,574 55,490
-------- --------
$368,150 $291,567
======== ========
3PAGE
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Thermedics Inc.
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1995 1994
-------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (includes $38,000 due
to parent company in 1995) (Notes 3 and 8) $ 47,420 $ 10,576
Accounts payable 16,336 9,481
Accrued payroll and employee benefits 8,893 7,369
Deferred revenue 1,705 2,463
Customer deposits 2,162 2,546
Accrued income taxes 2,340 582
Accrued warranty costs 3,637 3,380
Other accrued expenses (Note 3) 15,307 7,675
Due to parent company 1,606 1,940
-------- --------
99,406 46,012
-------- --------
Deferred Income Taxes and Other Deferred
Items (Note 6) 2,173 1,565
-------- --------
Long-term Obligations (Note 8) 45,201 82,551
-------- --------
Minority Interest 54,360 29,674
-------- --------
Commitments and Contingency (Notes 7 and 10)
Shareholders' Investment (Notes 4 and 11):
Common stock, $.10 par value, 50,000,000
shares authorized; 33,986,050 and
33,303,135 shares issued 3,399 3,330
Capital in excess of par value 120,665 102,975
Retained earnings 42,187 27,066
Treasury stock at cost, 2,146 and 14,671 shares (42) (310)
Cumulative translation adjustment (88) 326
Net unrealized gain (loss) on available-for-sale
investments (Note 2) 889 (1,622)
-------- --------
167,010 131,765
-------- --------
$368,150 $291,567
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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Thermedics Inc.
Consolidated Statement of Cash Flows
(In thousands) 1995 1994 1993
--------------------------------------------------------------------------
Operating Activities:
Net income $ 15,121 $ 10,837 $ 6,670
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,678 4,208 2,434
Gain on issuance of stock by
subsidiary (Note 12) (3,455) - -
Provision for losses on accounts
receivable 689 1,190 92
Gain on sale of investments (421) (203) (409)
Minority interest expense 4,455 1,153 353
Other noncash expenses 962 1,382 816
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable 221 (1,750) (4,730)
Inventories and unbilled contract
costs and fees (10,304) 7,090 (9,478)
Prepaid income taxes and expenses (1,957) 112 (1,601)
Accounts payable 3,468 (7,362) 1,771
Other current liabilities (5) 2,430 13,242
Other 461 (129) (63)
--------- --------- ---------
Net cash provided by operating
activities 14,913 18,958 9,097
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (56,560) (44,657) (1,069)
Purchases of property, plant and
equipment (4,407) (3,220) (3,444)
Purchases of available-for-sale
investments (101,246) (78,303) -
Proceeds from sale and maturities of
available-for-sale investments 104,786 77,677 -
Increase in short-term investments - - (51,304)
Purchases of long-term investments - - (9,960)
Proceeds from sale of long-term
investments - - 10,982
Other 399 266 (498)
--------- --------- ---------
Net cash used in investing
activities $ (57,028) $ (48,237) $ (55,293)
--------- --------- ---------
5PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Cash Flows (continued)
(In thousands) 1995 1994 1993
-------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company
and subsidiary common stock $ 4,515 $ 2,020 $ 31,766
Purchases of Company and subsidiary
common stock (179) (8,064) -
Proceeds from issuance of note
payable to parent company (Note 3) 38,000 - -
Net proceeds from issuance of long-term
obligations (Note 8) - 31,968 33,483
Other 608 134 -
--------- --------- ---------
Net cash provided by financing
activities 42,944 26,058 65,249
--------- --------- ---------
Exchange Rate Effect on Cash (502) 85 (37)
--------- --------- ---------
Increase (Decrease) in Cash and
Cash Equivalents 327 (3,136) 19,016
Cash and Cash Equivalents at Beginning
of Year 37,043 40,179 21,163
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 37,370 $ 37,043 $ 40,179
========= ========= =========
Cash Paid For:
Interest $ 3,328 $ 2,884 $ 2,241
Income taxes $ 6,489 $ 4,980 $ 5,624
Noncash Activities:
Fair value of assets of acquired
companies $ 67,394 $ 65,493 $ 4,725
Cash paid for acquired companies (56,879) (44,743) (1,085)
--------- --------- ---------
Liabilities assumed of acquired
companies $ 10,515 $ 20,750 $ 3,640
========= ========= =========
Issuance of Company common stock to
parent company in exchange for
subsidiary common stock $ - $ 936 $ -
Conversions of Company and subsidiaries'
convertible obligations (Note 8) $ 37,317 $ 9,745 $ 9,190
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Shareholders' Investment
Common
Stock, Capital in
$.10 Par Excess of Retained
(In thousands) Value Par Value Earnings
-------------------------------------------------------------------------
Balance January 2, 1993 $ 1,866 $ 58,188 $ 9,559
Net income - - 6,670
Public offering of Company
common stock 215 29,765 -
Issuance of stock under
employees' and directors'
stock plans 17 1,604 -
Tax benefit related to
employees' and directors'
stock plans - 300 -
Conversions of subordinated
convertible debentures 47 7,061 -
Effect of three-for-two
stock split 1,072 (1,072) -
Effect of majority-owned
subsidiaries' equity
transactions - (510) -
Expiration of subsidiary's
redemption rights - 2,943 -
Translation adjustment - - -
------- -------- --------
Balance January 1, 1994 3,217 98,279 16,229
Net income - - 10,837
Issuance of stock under
employees' and directors'
stock plans 14 1,079 -
Tax benefit related to
employees' and directors'
stock plans - 668 -
Conversions of subordinated
convertible debentures 92 9,316 -
Issuance of stock to parent
company (Note 11) 7 929 -
Effect of majority-owned
subsidiaries' equity
transactions - (7,296) -
Effect of change in accounting
principle (Note 2) - - -
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) - - -
Translation adjustment - - -
-------- -------- --------
Balance December 31, 1994 $ 3,330 $102,975 $ 27,066
7PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Shareholders' Investment (continued)
Common
Stock, Capital in
$.10 Par Excess of Retained
(In thousands) Value Par Value Earnings
-------------------------------------------------------------------------
Net income $ - $ - $ 15,121
Issuance of stock under
employees' and directors'
stock plans 7 378 -
Tax benefit related to
employees' and directors'
stock plans - 434 -
Conversions of subordinated
convertible debentures 62 6,259 -
Effect of majority-owned
subsidiaries' equity
transactions - 9,858 -
Capital contribution from
parent company - 761 -
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) - - -
Translation adjustment - - -
-------- -------- --------
Balance December 30, 1995 $ 3,399 $120,665 $ 42,187
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
8PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Shareholders' Investment (continued)
Net
Unrealized
Gain (Loss)
Cumulative on Available-
Treasury Translation for-sale
(In thousands) Stock Adjustment Investments
--------------------------------------------------------------------------
Balance January 2, 1993 $ (290) $ - $ -
Net income - - -
Public offering of Company
common stock - - -
Issuance of stock under
employees' and directors'
stock plans 18 - -
Tax benefit related to
employees' and directors'
stock plans - - -
Conversions of subordinated
convertible debentures - - -
Effect of three-for-two
stock split - - -
Effect of majority-owned
subsidiaries' equity
transactions - - -
Expiration of subsidiary's
redemption rights - - -
Translation adjustment - (2) -
-------- --------- --------
Balance January 1, 1994 (272) (2) -
Net income - - -
Issuance of stock under
employees' and directors'
stock plans (38) - -
Tax benefit related to
employees' and directors'
stock plans - - -
Conversions of subordinated
convertible debentures - - -
Issuance of stock to parent
company (Note 11) - - -
Effect of majority-owned
subsidiaries' equity
transactions - - -
Effect of change in accounting
principle (Note 2) - - 1,185
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) - - (2,807)
Translation adjustment - 328 -
-------- -------- --------
Balance December 31, 1994 $ (310) $ 326 $ (1,622)
9PAGE
<PAGE>
Thermedics Inc.
Consolidated Statement of Shareholders' Investment (continued)
Net
Unrealized
Gain (Loss)
Cumulative on Available-
Treasury Translation for-sale
(In thousands) Stock Adjustment Investments
--------------------------------------------------------------------------
Net income $ - $ - $ -
Issuance of stock under
employees' and directors'
stock plans 268 - -
Tax benefit related to
employees' and directors'
stock plans - - -
Conversions of subordinated
convertible debentures - - -
Effect of majority-owned
subsidiaries' equity
transactions - - -
Capital contribution from
parent company - - -
Change in net unrealized gain
(loss) on available-for-sale
investments (Note 2) - - 2,511
Translation adjustment - (414) -
-------- -------- --------
Balance December 30, 1995 $ (42) $ (88) $ 889
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
10PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermedics Inc. (the Company) develops, manufactures, and markets precision
weighing and inspection equipment, electrochemistry and microweighing
products, product quality assurance systems, electronic test instruments
and explosives-detection devices, as well as implantable heart-assist
systems and other biomedical products.
Relationship with Thermo Electron Corporation
The Company was incorporated in 1983 as a wholly owned subsidiary of Thermo
Electron Corporation (Thermo Electron). As of December 30, 1995, Thermo
Electron owned 17,315,326 shares of the Company's common stock,
representing 51% of such stock outstanding (Note 15).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company,
its wholly owned subsidiaries, and its majority-owned public subsidiaries,
Thermo Cardiosystems Inc. (Thermo Cardiosystems) and Thermo Voltek Corp.
(Thermo Voltek). All material intercompany accounts and transactions have
been eliminated. The Company's percentage ownership of its majority-owned
public subsidiaries at year-end was as follows:
1995 1994 1993
---- ---- ----
Thermo Cardiosystems 52% 55% 54%
Thermo Voltek 50% 60% 53%
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1995, 1994, and 1993 are for the fiscal years ended
December 30, 1995, December 31, 1994, and January 1, 1994, respectively.
Cash and Cash Equivalents
As of December 30, 1995, $25,685,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Company in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally
consisting of U.S. government agency securities, corporate notes,
commercial paper, money market funds, and other marketable securities, in
the amount of at least 103% of such obligation. The Company's funds subject
to the repurchase agreement are readily convertible into cash by the
Company and have an original maturity of three months or less. The
repurchase agreement earns a rate based on the Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. As of
December 30, 1995, the Company's cash equivalents were also invested in
U.S. government agency discount notes and money market preferred stock,
which have an original maturity of three months or less. Cash equivalents
are carried at cost, which approximates market value.
11PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Available-for-sale Investments
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
effective January 2, 1994, the Company's short- and long-term debt and
marketable equity securities are accounted for at market value (Note 2).
Prior to 1994, these investments were carried at the lower of cost or
market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1995 1994
------------------------------------------------------------------------
Raw materials and supplies $21,517 $13,223
Work in process and finished goods 21,162 13,578
------- -------
$42,679 $26,801
======= =======
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings and
improvements -- 5 to 25 years, machinery and equipment -- 3 to 10 years,
and leasehold improvements -- the shorter of the term of the lease or the
life of the asset. Property, plant and equipment consist of the following:
(In thousands) 1995 1994
------------------------------------------------------------------------
Land and building $ 2,944 $ 2,686
Machinery, equipment and leasehold improvements 27,358 21,681
------- -------
30,302 24,367
Less: Accumulated depreciation and amortization 17,369 13,640
------- -------
$12,933 $10,727
======= =======
Other Assets
Other assets in the accompanying balance sheet includes the cost of
acquired patents, trademarks, and other specifically identifiable
intangible assets. These assets are being amortized using the straight-line
method over their estimated useful lives, which range from 2 to 40 years.
These assets were $2,916,000 and $3,037,000, net of accumulated
amortization of $2,245,000 and $1,762,000, at year-end 1995 and 1994,
respectively.
12PAGE
<PAGE>
Thermedics 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 periods not exceeding 40
years. Accumulated amortization was $6,343,000 and $4,634,000 at year-end
1995 and 1994, respectively. The Company assesses the future useful life of
this asset whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment, titled
"Cumulative translation adjustment." In 1994, the Company recorded foreign
currency transaction gains of $635,000 on the repayment of intercompany
borrowings, denominated in U.S. dollars, by several of the Company's
foreign subsidiaries. The borrowings resulted from the acquisition of
Ramsey Technology, Inc. by the Company. Foreign currency transaction gains
are included in other income in the accompanying 1994 statement of income.
There were no foreign currency transaction gains and losses in 1995, and
the foreign currency transactions gains and losses included in the
accompanying 1993 statement of income were immaterial.
Revenue Recognition
In general, the Company recognizes revenues upon shipment of its products.
The Company provides a reserve for its estimate of warranty costs at the
time of shipment. Revenues and profits on substantially all contracts are
recognized using the percentage-of-completion method. Revenues recorded
under the percentage-of-completion method were $8,521,000 in 1995,
$2,253,000 in 1994, and $5,087,000 in 1993. The percentage of completion is
determined by relating either the actual costs or actual labor incurred to
date to management's estimate of total costs or total labor, respectively,
to be incurred on each contract. If a loss is indicated on any contract in
process, a provision is made currently for the entire loss. The Company's
contracts generally provide for billing of customers upon the attainment of
certain milestones specified in each contract or for billing customers
monthly as costs are incurred on a cost-plus-fixed-fee basis. Revenues
earned on contracts in process in excess of billings are classified as
unbilled contract costs and fees in the accompanying balance sheet. There
are no significant amounts included in the accompanying balance sheet that
are not expected to be recovered from existing contracts at current
contract values, or that are not expected to be collected within one year,
including amounts that are billed but not paid under retainage provisions.
Gain on Issuance of Stock by Subsidiary
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain.
13PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary,
the Company, or Thermo Electron, gain recognition does not occur on
issuances subsequent to the date of a repurchase until such time as shares
have been issued in an amount equivalent to the number of repurchased
shares. Such transactions are reflected as equity transactions and the net
effect of these transactions is reflected in the accompanying statement of
shareholders' investment as "Effect of majority-owned subsidiaries' equity
transactions."
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
recognizes deferred income taxes based on the expected future tax
consequences of differences between the financial statement basis and the
tax basis of assets and liabilities calculated using enacted tax rates in
effect for the year in which the differences are expected to be reflected
in the tax return.
Earnings per Share
Earnings per share have been computed based on the weighted average number
of shares outstanding during the year. Because the effect of the assumed
exercise of stock options would be immaterial, they have been excluded from
the earnings per share calculation. Fully diluted earnings per share have
not been presented because the effect of the assumed exercise of stock
options and the assumed conversion of the Company's subordinated
convertible debentures would be immaterial.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liablilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Available-for-sale Investments
Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In accordance with
SFAS No. 115, the Company's debt and marketable equity securities are
considered available-for-sale investments in the accompanying balance sheet
and are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component
of shareholders' investment titled "Net unrealized gain (loss) on
available-for-sale investments." Effect of change in accounting principle
in the accompanying 1994 statement of shareholders' investment represents
the unrealized gain, net of related tax effects, pertaining to
available-for-sale investments held by the Company on January 2, 1994.
14PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type, as of December 30, 1995 and December 31, 1994, are as
follows:
1995 Gross Gross
Unrealized Unrealized
(In thousands) Market Value Cost Basis Gains Losses
--------------------------------------------------------------------------
Government agency securities $ 99,373 $ 98,434 $ 1,020 $ (81)
Corporate bonds 10,612 10,169 454 (11)
Money market preferred stock 6,297 6,287 28 (18)
Other 1,587 1,587 - -
-------- -------- -------- --------
$117,869 $116,477 $ 1,052 $ (110)
======== ======== ======== ========
1994 Gross Gross
Unrealized Unrealized
(In thousands) Market Value Cost Basis Gains Losses
--------------------------------------------------------------------------
Government agency securities $ 92,316 $ 94,148 $ 2 $ (1,834)
Corporate bonds 12,100 12,491 9 (400)
Money market preferred stock 7,194 7,455 - (261)
Other 5,496 5,500 - (4)
-------- -------- -------- --------
$117,106 $119,594 $ 11 $ (2,499)
======== ======== ======== ========
Short- and long-term available-for-sale investments in the
accompanying 1995 balance sheet include $59,595,000 with contractual
maturities of one year or less, $51,005,000 with contractual maturities of
more than one year through five years, and $7,269,000 with contractual
maturities of more than five years. Actual maturities may differ from
contractual maturities as a result of the Company's intent to sell these
securities prior to maturity and as a result of put and call options that
enable either the Company and/or the issuer to redeem these securities at
an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains recorded in the
accompanying statement of income. Gain on sale of investments in 1995
resulted from gross realized gains of $439,000 and gross realized losses of
$18,000 relating to the sale of available-for-sale investments. Gain on
sale of investments in 1994 resulted from gross realized gains of $241,000
and gross realized losses of $38,000 relating to the sale of
available-for-sale investments.
15PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
3. Acquisitions
In December 1995, the Company acquired the Orion laboratory products
division (Orion) of Analytical Technology, Inc. for approximately $52.7
million in cash, which included the repayment of $8.6 million of debt,
subject to a post-closing adjustment. To partially finance this
acquisition, the Company borrowed $38.0 million from Thermo Electron
pursuant to a promissory note due December 1996, and bearing interest at
the Commercial Paper Composite Rate plus 25 basis points. The balance of
the purchase price was funded from the Company's working capital. Orion
manufactures electrochemistry, microweighing, process, and other
instruments used to analyze the chemical composition of foods, beverages,
and pharmaceuticals and detect contaminants in environmental and
high-purity water samples. Additionally, in 1995, one of the Company's
majority-owned subsidiaries made an acquisition for $3.8 million in cash.
In March 1994, the Company acquired substantially all of the assets,
subject to certain liabilities, of Ramsey Technology, Inc. (Ramsey), a
business of Baker Hughes Incorporated, for a cash purchase price of $41.9
million. In January 1996, Ramsey was contributed by the Company to its
newly formed Thermo Sentron Inc. (Thermo Sentron) subsidiary in exchange
for shares of Thermo Sentron common stock. Thermo Sentron designs,
develops, manufactures, and sells high-speed precision weighing and
inspection equipment for industrial production and packaging lines.
Additionally, in 1994, the Company and one of its majority-owned
subsidiaries made two other acquisitions for an aggregate of $2.8 million
in cash.
In August 1993, Thermo Voltek acquired Comtest Instrumentation B.V., a
Netherlands-based company, and Comtest Limited, a U.K. operation
(collectively, Comtest), for $831,000 in cash and the repayment of $238,000
of Comtest's debt. Comtest distributes products used to test electronic
equipment for electromagnetic compatibility (EMC), provides EMC-related
consulting services, and manufactures specialized power supplies for
telecommunications equipment.
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 the acquisitions in 1995, 1994, and
1993, exceeded the estimated fair value of the acquired net assets by $86.4
million, which is being amortized over periods not exceeding 40 years.
Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired and, for
acquisitions completed in 1995, is subject to adjustment upon finalization
of the purchase price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company, Orion, Thermo Sentron, and Comtest
on a pro forma basis, assuming the Company and Orion had been combined
since the beginning of 1994 and the Company, Thermo Sentron and Comtest had
been combined since the beginning of 1993. The effect on the Company's
financial statements of the acquisitions not included in the pro forma data
was not material to the Company's results of operations and financial
position.
(In thousands except per share amounts) 1995 1994 1993
-------------------------------------------------------------------------
Revenues $218,920 $212,392 $142,307
Net income 17,186 12,821 5,943
Earnings per share .51 .39 .20
16PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions been made at the beginning of 1994 or 1993, as applicable.
Other accrued expenses in the accompanying balance sheet include
$2,454,000 and $3,080,000 at year-end 1995 and 1994, respectively, for
estimated severance, relocation, and other reserves associated with
acquisitions.
4. Stock-based Compensation Plans
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1983, permitted the
grant of nonqualified and incentive stock options. These plans expired
during 1993. A third plan, adopted in 1993, permits the grant of a variety
of stock and stock-based awards as determined by the human resources
committee of the Company's Board of Directors (the Board Committee),
including restricted stock, stock options, stock bonus shares, or
performance-based shares. To date, only nonqualified stock options have
been awarded under this plan. The option recipients and the terms of
options granted under this plan are determined by the Board Committee.
Generally, options granted to date are exercisable immediately, but are
subject to certain transfer restrictions and the right of the Company to
repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over periods ranging from four to ten years after
the first anniversary of the grant date, depending on the term of the
option, which may range from seven to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee,
although incentive stock options must be granted at not less than the fair
market value of the Company's stock on the date of grant. To date, all
options have been granted at fair market value. The Company also has a
directors' stock option plan, adopted in 1991, that provides for the grant
of stock options to outside directors pursuant to a formula approved by the
Company's shareholders. Options awarded under this plan are exercisable six
months after the date of grant and expire three or seven years after the
date of grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in stock-based
compensation plans of Thermo Electron or its majority-owned subsidiaries.
17PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
4. Stock-based Compensation Plans (continued)
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including tax
benefits realized, are credited to equity. A summary of the Company's stock
option information is as follows:
1995 1994 1993
----------------- ----------------- -----------------
Range of Range of Range of
(In thousands Number Option Number Option Number Option
except per of Prices of Prices of Prices
share amounts) Shares per Share Shares per Share Shares per share
--------------------------------------------------------------------------
Options outstanding, $ 4.70- $ 4.70- $ 4.70-
beginning of year 1,773 $16.45 1,669 $16.45 936 $10.65
13.00- 12.43- 8.47-
Granted 27 21.40 366 14.53 1,035 16.45
4.70- 4.70- 4.70-
Exercised (74) 16.28 (195) 10.65 (261) 10.65
Lapsed or 5.00- 5.00- 5.00-
cancelled (169) 16.28 (67) 16.28 (41) 10.00
----- ----- -----
Options outstanding, $ 4.70- $ 4.70- $ 4.70-
end of year 1,557 $21.40 1,773 $16.45 1,669 $16.45
===== ===== =====
$ 4.70- $ 4.70- $ 4.70-
Options exercisable 1,557 $21.40 1,771 $16.45 1,665 $16.28
===== ===== =====
Options available
for grant 545 457 770
===== ===== =====
5. Employee Benefit Plans
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in an employee stock purchase plan sponsored by the Company or
its majority-owned public subsidiaries. Prior to the November 1995 plan
year, shares of the Company's or its majority-owned public subsidiaries',
and shares of Thermo Electron's common stock could be purchased at the end
of a 12-month plan year at 85% of the fair market value at the beginning of
the plan year, and the shares purchased were subject to a one-year resale
restriction. Effective November 1, 1995, the applicable shares of common
stock may be purchased at 95% of the fair market value at the beginning of
the plan year, and the shares purchased are subject to a six-month resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During 1995, 1994, and 1993,
the Company issued 14,552 shares, 13,711 shares, and 36,080 shares,
respectively, of its common stock under this plan.
18PAGE
<PAGE>
Thermedics Inc.
5. Employee Benefit Plans (continued)
401(k) Savings Plan and Employee Stock Ownership Plan
The majority of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan and, prior to 1995, in
Thermo Electron's employee stock ownership plan (ESOP). Contributions to
the 401(k) savings plan are made by both the employee and the Company.
Company contributions are based upon the level of employee contributions.
For these plans, the Company contributed and charged to expense $1,011,000,
$942,000, and $412,000 in 1995, 1994, and 1993, respectively. Effective
December 31, 1994, the ESOP was split into two plans: ESOP I, covering
employees of Thermo Electron's corporate office and its wholly owned
subsidiaries and ESOP II, covering employees of certain of Thermo
Electron's majority-owned subsidiaries, including the Company. Also,
effective December 31, 1994, the ESOP II plan was terminated and as a
result, the Company's employees are no longer eligible to participate in an
ESOP.
6. Income Taxes
The components of income before provision for income taxes and minority
interest are as follows:
(In thousands) 1995 1994 1993
--------------------------------------------------------------------------
Domestic $25,020 $17,761 $10,244
Foreign 3,710 1,563 1,402
------- ------- -------
$28,730 $19,324 $11,646
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 1995 1994 1993
--------------------------------------------------------------------------
Currently payable:
Federal $ 7,541 $ 5,390 $ 3,417
State 1,546 1,335 1,169
Foreign 1,783 998 111
------- ------- -------
10,870 7,723 4,697
------- ------- -------
Prepaid:
Federal (1,373) (331) (35)
State (343) (58) (13)
Foreign - - (26)
------- ------- -------
(1,716) (389) (74)
------- ------- -------
$ 9,154 $ 7,334 $ 4,623
======= ======= =======
The provision for income taxes that is currently payable does not
reflect $3,935,000, $668,000, and $300,000 of tax benefits of the Company
and its majority-owned subsidiaries allocated to capital in excess of par
value, directly or through the effect of majority-owned subsidiaries'
equity transactions, in 1995, 1994, and 1993, respectively, or $89,000 of
tax benefits used to reduce cost in excess of net assets of acquired
companies in 1993.
19PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
6. 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 rates of 35% in 1995 and 1994 and 34% in 1993 to income before
provision for income taxes and minority interest due to the following:
(In thousands) 1995 1994 1993
--------------------------------------------------------------------------
Provision for income taxes at statutory rate $10,056 $ 6,763 $ 3,960
Increases (decreases) resulting from:
State income taxes, net of federal tax 782 830 763
Reduction in valuation allowance (854) - -
Gain on issuance of stock by subsidiary (1,206) - -
Tax-exempt investment income (115) (113) (215)
Tax benefit of foreign sales corporation (323) (833) -
Amortization of cost in excess of
net assets of acquired companies 232 296 199
Current losses of subsidiaries not
benefited and foreign tax rate
differential 485 363 1
Nondeductible expenses 137 88 54
Other, net (40) (60) (139)
------- ------- -------
$ 9,154 $ 7,334 $ 4,623
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1995 1994
----------------------------------------------------------------
Prepaid income taxes:
Inventory reserves $ 1,926 $ 1,328
Reserves and accruals 1,042 1,242
Warranty reserves 1,142 1,100
Federal tax loss carryforwards 1,016 964
State tax loss carryforwards 829 774
General business credit carryforward 260 132
Accrued compensation 1,013 881
Allowance for doubtful accounts 684 451
Available-for-sale investments (116) 364
Other, net 207 446
------- -------
8,003 7,682
Less: Valuation allowance 1,516 3,951
------- -------
$ 6,487 $ 3,731
======= =======
Deferred income taxes, net:
Trademarks and other intangible assets $ 1,627 $ 1,249
Available-for-sale investments - (502)
Difference in book and tax basis
of fixed assets 348 585
------- -------
$ 1,975 $ 1,332
======= =======
20PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The valuation allowance relates primarily to the uncertainty
surrounding the realizability of net operating loss and credit
carryforwards, and other tax assets of certain subsidiaries. The decrease
in the valuation allowance is due primarily to reduced uncertainty
surrounding the realizability of such future tax benefits and was recorded
in part as a reduction of the 1995 provision for income taxes and as an
increase to capital in excess of par value.
As of December 30, 1995, federal and state tax attributes existed at
Thermo Voltek, which are not consolidated for federal tax purposes. Thermo
Voltek had federal and state tax net operating loss carryforwards of
approximately $3,000,000 expiring in 1998 through 2006 and general business
credits of approximately $132,000 expiring in 1996 through 2004. These tax
assets and the related valuation allowance are included above. The
carryforwards of Thermo Voltek are limited to a tax benefit of
approximately $240,000 per year under Sections 382 and 383 of the U.S.
Internal Revenue Code.
The Company has not recognized a deferred tax liability for the
difference between the book basis and tax basis of the common stock of its
domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the
Company does not expect this basis difference to become subject to tax at
the parent level. The Company believes it can implement certain tax
strategies to recover its investment in its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on
$3,371,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company currently
plans to keep these amounts permanently reinvested overseas. The Company
believes that any additional U.S. tax liability due upon remittance of such
earnings would be immaterial due to available U.S. foreign tax credits.
7. Commitments
The Company leases various office and manufacturing facilities under
noncancellable operating lease arrangements expiring between 1996 and 2003.
The accompanying statement of income includes expenses from operating
leases of $3,403,000, $2,081,000, and $882,000 in 1995, 1994, and 1993,
respectively. Future minimum payments due under noncancellable operating
leases as of December 30, 1995, are $3,291,000 in 1996; $2,326,000 in 1997;
$1,959,000 in 1998; $1,341,000 in 1999; $731,000 in 2000; and $419,000 in
2001 and thereafter. Total future minimum lease payments are $10,067,000.
21PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
8. Short- and Long-term Obligations and Other Financing Arrangements
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1995 1994
--------------------------------------------------------------------------
6 1/2% Subordinated convertible debentures,
due 1998, convertible at $10.42 per share $ 8,037 $14,435
3 3/4% Subordinated convertible debentures,
due 2000, convertible into shares of
Thermo Voltek at $11.75 per share 25,240 34,500
Noninterest-bearing subordinated convertible
debentures, due 1997, convertible into shares
of Thermo Cardiosystems at $21.74 per share 11,642 33,000
5 1/2% Subordinated convertible notes, due 2002,
convertible into shares of Thermo Cardiosystems
at $9.88 per share - 450
Other 282 166
------- -------
$45,201 $82,551
======= =======
The Company's convertible obligations are guaranteed on a subordinated
basis by Thermo Electron. The Company has agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under
its guarantee of Thermo Voltek's or Thermo Cardiosystems' obligations.
In lieu of issuing shares of Thermo Voltek common stock upon the
conversion of the 3 3/4% subordinated convertible debentures due 2000,
Thermo Voltek has the option to pay holders of the debentures cash equal to
the weighted average market price of Thermo Voltek's common stock on the
trading date prior to conversion.
During 1995, 1994, and 1993, convertible obligations of $37,317,000,
9,745,000, and 9,190,000, respectively, were converted into common stock of
the Company.
See Note 13 for the fair value of the Company's long-term obligations.
The Company borrowed $38,000,000 from Thermo Electron pursuant to a
promissory note due December 1996, to partially finance the acquisition of
Orion in December 1995 (Note 3).
Several of the Company's foreign subsidiaries have lines of credit
under which an aggregate of approximately $13,800,000 may be borrowed at a
current rate as determined by each country's local market. The lines of
credit are denominated in local currency. Amounts borrowed under these
agreements are included in notes payable and current maturities of
long-term obligations in the accompanying balance sheet and are guaranteed
by either the Company or Thermo Electron. The weighted average interest
rate on these borrowings was 8.5% and 7.7% at year-end 1995 and 1994,
respectively.
9. Related Party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management,
certain employee benefit administration, tax advice and preparation of tax
22PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
returns, centralized cash management, and certain financial and other
services, for which the Company paid Thermo Electron annually an amount
equal to 1.20% of the Company's revenues in fiscal 1995 and 1.25% of the
Company's revenues in fiscal 1994 and 1993. Beginning in fiscal 1996, the
Company will pay an annual fee equal to 1.0% of the Company's revenues. The
annual fee is reviewed and adjusted annually by mutual agreement of the
parties. The corporate services agreement is renewed annually but can be
terminated upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron
Corporate Charter defines the relationships among Thermo Electron and its
majority-owned subsidiaries). In addition, the Company utilizes data
processing and contract administration services of two majority-owned
subsidiaries of Thermo Electron, which are charged based on actual usage.
For these services, as well as the administrative services provided by
Thermo Electron, the Company was charged $2,142,000, $1,964,000, and
$1,086,000 in 1995, 1994, and 1993, respectively. Management believes that
the service fees charged by Thermo Electron and its subsidiaries 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.
Distribution Agreements
Pursuant to international distributorship agreements, the Company appointed
Arabian Business Machines Co. (ABM) and Olayan Financing Company (OFC) as
its exclusive distributors of the Company's security instruments in certain
Middle Eastern countries. ABM and OFC are members of The Olayan Group. Ms.
Hutham S. Olayan, a Director of Thermo Electron, is the President and a
Director of Olayan America Corporation and Competrol Real Estate Limited,
two other members of The Olayan Group, which are indirectly controlled by
Suliman S. Olayan, Ms. Olayan's father. Revenues recorded under this
agreement totaled $3,000, $42,000, and $33,000 in 1995, 1994, and 1993,
respectively. In addition, during 1994 the Company sold $1,240,000 of
security instruments directly to a customer in the Middle East and paid a
commission of $409,000 pursuant to the ABM distributor agreement.
Management Contract
Prior to 1994, the Company performed supervisory management services with
respect to International Technidyne Corporation (ITC), a wholly owned
subsidiary of Thermo Electron, in exchange for a fixed fee of $150,000 per
year, plus an incentive fee based on objective financial performance
criteria established on an annual basis by Thermo Electron and the Company.
Effective January 2, 1994, in lieu of the management fee, two executive
employees of the Company allocate a portion of their salary and bonus for
the time they devote to Thermo Electron in connection with certain
management responsibilities relating to ITC and Thermo Electron's other
biomedical businesses. In 1995, 1994, and 1993, the Company was reimbursed
$402,000, $84,000, and $266,000, respectively, under these arrangements.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
23PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
Short-term Available-for-sale Investments
At December 30, 1995, the Company's short-term available-for-sale
investments included $2,052,000 of 6 1/2% subordinated convertible
debentures due 1997, which were purchased on the open market for
$1,795,000. The debentures have a par value of $1,800,000 and were issued
by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo Electron.
10. Contingency
Thermo Cardiosystems has received correspondence alleging that the textured
surface of its left ventricular-assist system's housing infringes the
intellectual property rights of another party. In general, an owner of
intellectual property can prevent others from using such property without a
license and is entitled to damages for unauthorized past usage. The Company
has investigated the bases of the allegation and, based on the opinion of
its counsel, believes that if Thermo Cardiosystems were sued on these
bases, it would have meritorious defenses.
11. Common Stock
At December 30, 1995, the Company had reserved 2,977,154 unissued shares of
its common stock for possible issuance under stock-based compensation plans
and possible issuance upon conversion of the 6 1/2% subordinated
convertible debentures (Note 15).
During 1994, the Company issued 66,265 shares of its common stock to
Thermo Electron in exchange for 124,800 shares of Thermo Voltek common
stock.
12. Transactions in Stock of Subsidiaries
During 1995, $9,111,000 principal amount of Thermo Voltek's subordinated
convertible debentures were converted into 775,399 shares of Thermo Voltek
common stock, resulting in gains of $3,455,000 from the issuance of stock
by subsidiary.
During 1995, $21,808,000 principal amount of Thermo Cardiosystems'
subordinated convertible obligations were converted into 1,027,984 shares
of Thermo Cardiosystems common stock. No gains were recorded on the
conversions of these convertible obligations as Thermo Cardiosystems was
principally engaged in research and development at the time the convertible
obligations were issued.
24PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, notes
payable and current maturities of long-term obligations, accounts payable,
due to parent company, and long-term obligations. The carrying amounts of
these financial instruments, with the exception of available-for-sale
investments and long-term obligations, approximates fair value due to their
short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices. See Note 2 for fair value information pertaining to these
financial instruments.
The fair value of long-term obligations was determined based on quoted
market prices. The fair value of convertible obligations at year-end 1995
exceeds the carrying amount primarily due to the market price of the
Company's or subsidiaries' common stock exceeding the conversion price of
the convertible obligations. The carrying amount and fair value of the
Company's long-term obligations are as follows:
1995 1994
--------------------- -----------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
-------------------------------------------------------------------------
Long-term
obligations:
Convertible
obligations $44,919 $95,589 $82,385 $78,284
Other long-term
obligations 282 282 166 166
------- ------- ------- -------
$45,201 $95,871 $82,551 $78,450
======= ======= ======= =======
25PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information and
Concentrations of Risk
The Company's principal businesses can be divided into two segments. The
Company's Instruments and Other Equipment segment develops, manufactures,
sells, and distributes precision equipment that weighs and inspects bulk
materials and packaged goods; electrochemistry, microweighing, and other
laboratory instruments; process detection instruments; explosives-detection
instruments; instruments that test electronic and electrical systems and
components for immunity to electromagnetic interference; high-voltage
power-conversion systems; and provides related consulting services. The
Company's Biomedical Products segment develops, manufactures, and sells
left ventricular-assist systems (LVAS) and other biomedical products.
The Company's Instruments and Other Equipment segment derived revenues
from precision weighing and inspection equipment of $67.5 million and $50.1
million in 1995 and 1994, respectively. In addition, this segment derived
revenues from process detection instruments of $16.2 million, $38.0
million, and $34.4 million and from electronic test instruments of $31.6
million, $19.0 million, and $13.2 million in 1995, 1994, and 1993,
respectively.
The Company's Biomedical Products segment derived revenues from LVAS
devices of $20.6 million, $10.4 million, and $3.5 million in 1995, 1994,
and 1993, respectively.
Certain raw materials used in the manufacture of Thermo Cardiosystems'
LVAS are available from only one supplier. While the Company believes that
it has adequate supplies of materials to meet demand for the LVAS for the
foreseeable future, no assurance can be given that the Company will not
experience shortages of certain materials in the future that could delay
shipments of the LVAS.
No customer represented 10% or more of the Company's total revenues in
1995. During 1994 and 1993, revenues derived from one customer represented
21% and 43% of the Company's total revenues, respectively.
26PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information and
Concentrations of Risk (continued)
Information for 1995, 1994, and 1993, with respect to the Company's
two business segments, is shown in the following table.
(In thousands) 1995 1994 1993
-------------------------------------------------------------------------
Segment Information
Revenues:
Instruments and Other Equipment $136,742 $124,100 $ 60,120
Biomedical Products 39,012 31,011 20,100
-------- -------- --------
$175,754 $155,111 $ 80,220
======== ======== ========
Income before provision for income
taxes and minority interest:
Instruments and Other Equipment $ 14,778 $ 16,054 $ 10,733
Biomedical Products 7,128 1,337 (1,820)
Corporate (a) (2,462) (3,056) (1,849)
-------- -------- --------
Total operating income 19,444 14,335 7,064
Interest and other income, net 9,286 4,989 4,582
-------- -------- --------
$ 28,730 $ 19,324 $ 11,646
======== ======== ========
Identifiable assets:
Instruments and Other Equipment $213,755 $141,763 $ 84,302
Biomedical Products 128,170 117,475 82,209
Corporate and eliminations (b) 26,225 32,329 70,976
-------- -------- --------
$368,150 $291,567 $237,487
======== ======== ========
Depreciation and amortization:
Instruments and Other Equipment $ 4,040 $ 2,923 $ 1,235
Biomedical Products 1,609 1,256 1,132
Corporate 29 29 67
-------- -------- --------
$ 5,678 $ 4,208 $ 2,434
======== ======== ========
Capital expenditures:
Instruments and Other Equipment $ 2,669 $ 1,919 $ 2,389
Biomedical Products 1,715 1,278 1,039
Corporate 23 23 16
-------- -------- --------
$ 4,407 $ 3,220 $ 3,444
======== ======== ========
(a) Primarily general and administrative expenses.
(b) Primarily cash, cash equivalents, and short- and long-term
investments.
27PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
14. Business Segments, Geographical Information and
Concentrations of Risk (continued)
(In thousands) 1995 1994 1993
-------------------------------------------------------------------------
Geographical Information
Revenues:
United States $127,729 $121,351 $ 79,001
Europe 43,018 31,640 6,918
Other 13,084 12,594 2,225
Transfer among geographical areas (c) (8,077) (10,474) (7,924)
-------- -------- --------
$175,754 $155,111 $ 80,220
======== ======== ========
Income before provision for income
taxes and minority interest:
United States $ 17,124 $ 15,292 $ 7,494
Europe 3,170 1,040 536
Other 1,612 1,059 883
Corporate (d) (2,462) (3,056) (1,849)
-------- -------- --------
Total operating income 19,444 14,335 7,064
Interest and other income, net 9,286 4,989 4,582
-------- -------- --------
$ 28,730 $ 19,324 $ 11,646
======== ======== ========
Identifiable assets:
United States $301,613 $225,569 $158,342
Europe 33,259 27,361 7,020
Other 7,053 6,308 1,149
Corporate and eliminations (e) 26,225 32,329 70,976
-------- -------- --------
$368,150 $291,567 $237,487
======== ======== ========
Export revenues included in United States
revenues above (f):
Europe $ 17,748 $ 21,455 $ 14,310
South America 5,357 9,011 14,728
Mexico 1,923 10,726 11,466
Other 15,098 14,412 3,686
-------- -------- --------
$ 40,126 $ 55,604 $ 44,190
======== ======== ========
(c) Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(d) Primarily general and administrative expenses.
(e) Primarily cash, cash equivalents, and short- and long-term
investments.
(f) In general, export sales are denominated in U.S. dollars.
28PAGE
<PAGE>
Thermedics Inc.
Notes to Consolidated Financial Statements
15. Subsequent Events
Transfer of Common Stock
On January 22, 1996, the Company issued 1,688,161 shares of its common
stock to Thermo Electron in exchange for 315,199 shares of Thermo Voltek
common stock and 529,965 shares of Thermo Cardiosystems common stock. The
shares of common stock were exchanged at their respective fair market
values on the date of the transaction.
Redemption of Convertible Debentures
On February 9, 1996, the Company called for redemption on March 11, 1996
all of the outstanding principal amount of its 6 1/2% subordinated
convertible debentures due 1998. The value of the securities into which the
debentures are convertible exceeded the redemption amount as of the notice
date of the redemption.
29PAGE
<PAGE>
Report Of Independent Public Accountants
To the Shareholders and Board of Directors of Thermedics Inc.:
We have audited the accompanying consolidated balance sheets of Thermedics
Inc. (a Massachusetts corporation and 51%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of December 30, 1995 and December
31, 1994, and the related consolidated statements of income, shareholders'
investment, and cash flows for each of the three years in the period ended
December 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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
Thermedics Inc. and subsidiaries as of December 30, 1995 and December 31,
1994 and the results of their operations and their cash flows for each of
the three years in the period ended December 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements,
effective January 2, 1994, the Company changed its method of accounting for
investments in debt and marketable equity securities.
Arthur Andersen LLP
Boston, Massachusetts
February 7, 1996 (except with respect
to the matters discussed in Note 15
as to which the date is February 9, 1996)
30PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company's business can be divided into two segments: Instruments and
Other Equipment, and Biomedical Products. The Instruments and Other
Equipment segment includes Ramsey Technology, Inc., which was acquired in
March 1994 and was contributed by the Company in January 1996 to its newly
formed Thermo Sentron Inc. (Thermo Sentron) subsidiary in exchange for
shares of Thermo Sentron common stock. Thermo Sentron designs, develops,
manufactures, and sells high-speed precision weighing and inspection
equipment for industrial production and packaging lines. The Instruments
and Other Equipment segment also includes the Orion laboratory products
division (Orion) of Analytical Technology, Inc., which was acquired in
December 1995. Orion is a manufacturer of electrochemistry, microweighing,
process, and other instruments used to analyze the chemical compositions of
foods, beverages, and pharmaceuticals and detect contaminants in
environmental and high-purity water samples. The Instruments and Other
Equipment segment, through the Company's Thermedics Detection Inc.
(Thermedics Detection) subsidiary, also develops, manufactures, and markets
high-speed detection instruments, including the Alexus(R) system, a process
detection instrument used in product quality assurance applications, and
the EGIS(R) system, a security instrument used to detect explosives at
airports and other locations. Through the Company's Thermo Voltek Corp.
(Thermo Voltek) subsidiary, the Instruments and Other Equipment segment
also manufactures a line of electronic test instruments and high-voltage
power conversion systems.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. (Thermo Cardiosystems) subsidiary has developed two
implantable left ventricular-assist systems (LVAS): a pneumatic, or
air-driven system, and an electric version. In October 1994, the Company
announced that the U.S. Food and Drug Administration (FDA) granted approval
for the commercial sale of the air-driven LVAS for use as a
bridge-to-transplant. With this approval, the air-driven system became
available for sale to cardiac centers throughout the United States. Thermo
Cardiosystems received the European Conformity Mark (CE Mark) for
commercial sale of the air-driven LVAS in all European Community countries
in April 1994, and, in August 1995, received the same approval for the
electric system. The electric version of the LVAS is currently being used
in the U.S. in clinical trials for patients awaiting heart transplants and,
late in 1995, the FDA approved the protocol for conducting clinical trials
of the electric LVAS as an alternative to heart transplant. Thermo
Cardiosystems' electric LVAS is being used in Europe as a
bridge-to-transplant and as an alternative to heart transplant. According
to terms set by the FDA, no profit can be earned from the sale of an LVAS
until the FDA has approved the device for commercial sale. With FDA
approval, the Company began earning a profit on the sale of its air-driven
LVAS in the fourth quarter of 1994. In October 1994, Thermo Cardiosystems
announced a price increase in the U.S. for its air-driven LVAS that was
phased in during a six-month period that more than doubled the average
price of the air-driven LVAS. The Company also develops and manufactures
enteral nutrition delivery systems and a line of medical-grade polymers,
used in medical disposables and nonmedical, industrial applications,
including safety glass and automotive coatings.
Approximately 27% of the Company's revenues originate outside of the
U.S. Although the Company seeks to charge its customers in the same
currency as its operating costs, the Company's financial performance and
31PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Overview (continued)
competitive position can be affected by currency exchange rate fluctuations
affecting the relationship between the U.S. dollar and foreign currencies.
Where appropriate, the Company uses forward contracts to reduce its
exposure to currency fluctuations.
In October 1995, the Financial Accounting Standards Board (FASB)
issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures"
(Proposed Statement). The Proposed Statement would establish new rules for
how consolidated financial statements should be prepared. If the Proposed
Statement is adopted, there could be significant changes in the way the
Company records certain transactions of its controlled subsidiaries,
including the following: (i) any sale of the stock of a subsidiary that
does not result in a loss of control would be accounted for as a
transaction in equity of the consolidated entity with no gain or loss being
recorded and (ii) under certain circumstances acquisitions could be
structured to significantly reduce the goodwill that is recorded and
consequently reduce the Company's future goodwill amortization associated
with the acquisition. The Company typically acquires technology companies
which are often characterized by significant amounts of goodwill. In
addition, under the Proposed Statement, a company that has made certain
equity investments of generally less than 20% ownership would record a gain
(or loss) upon increasing its investment level to the point of exerting
"significant influence," generally 20% or higher.
The FASB conducted a hearing concerning the Proposed Statement in
February 1996, at which Thermo Electron, along with other major companies
and many of the major accounting firms and accounting associations,
expressed their disagreement with various parts of the Proposed Statement.
The FASB expects to issue a final Statement by June 30, 1996, which could
become effective for fiscal years beginning after December 15, 1996.
Results of Operations
1995 Compared With 1994
Total revenues in 1995 were $175.8 million, compared with $155.1 million in
1994. Instruments and Other Equipment segment revenues increased 10% to
$136.7 million in 1995 from $124.1 million in 1994. Revenues increased
$17.4 million due to the inclusion of sales for a full year from Thermo
Sentron, which was acquired in March 1994. Revenues from Thermo Voltek
increased $12.7 million, due to the inclusion of an additional $7.2 million
in revenues from businesses acquired in 1994 and 1995, an increase of $3.1
million in revenues from Comtest due primarily to the introduction of a new
product line in 1995, and an increase of $2.3 million in revenues from
Keytek due to greater demand. Revenues at Thermedics Detection were $28.0
million in 1995, compared with $50.3 million in 1994. Revenues from
Thermedics Detection's process detection instruments declined to $16.2
million in 1995 from $38.0 million in 1994. This decline is due to a
decrease in demand from Thermedics Detection's principal customer, which
has substantially completed its deployment of Alexus product quality
assurance systems. While the Company has expanded its customer base and
continues to develop Alexus upgrades and new applications for its process
detection technology in the food and beverage market, no assurance can be
32PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
1995 Compared With 1994 (continued)
given that the Company will be able to significantly broaden the market for
its process detection systems.
Revenues from Thermedics Detection's EGIS explosives-detection system
declined to $8.0 million in 1995 from $10.1 million in 1994. The Company's
sales of the EGIS system have been made primarily to government entities
outside of the U.S. During 1993 and 1994, large orders from the U.K. and
German governments accounted for a significant portion of EGIS sales. These
orders have now been filled. Demand for this highly specialized product
will vary widely over time in a particular country, and among different
countries, due to many factors beyond the control of the Company, such as
budgetary constraints and social and political concerns about security. Due
to the nature of demand for the EGIS system, future sales levels will
depend, to a significant extent, upon the Company's ability to obtain large
orders from one or more government entities.
Biomedical Products segment revenues increased 26% to $39.0 million in
1995 from $31.0 million in 1994. Revenues from Thermo Cardiosystems
increased by $10.2 million to $20.6 million due in part to an increase in
the price of the LVAS. Revenues also increased due to a 43% increase in the
number of air-driven and electric LVAS units shipped during 1995 compared
with 1994. The increase in revenues from Thermo Cardiosystems was partially
offset by a decline of $2.8 million in revenues from Scent Seal fragrance
samplers. In June 1995, the Company entered into an agreement granting an
exclusive license to all of its patents and know-how relating to the Scent
Seal fragrance samplers to a third party in consideration for royalty
payments on future sales by the licensee. The Company recorded royalty
income of $197,000 in 1995.
The gross profit margin was 45% in 1995, compared with 44% in 1994.
The gross profit margin for the Instruments and Other Equipment segment was
43% in 1995, compared with 44% in 1994. This decline was due primarily to
lower gross margins at Thermedics Detection as a result of a lower sales
volume and, to a lesser extent, the inclusion of lower-margin research and
development contract revenues. In addition, Thermo Voltek's gross profit
margin decreased to 48% in 1995 from 49% in 1994 due primarily to higher
European sales in one product line, which has lower margins due to
competitive pricing pressures. These decreases were offset in part by
improved gross profit margins at Thermo Sentron due to a reduction in
operating expenses. The gross profit margin for the Biomedical Products
segment was 49% in 1995, compared with 42% in 1994, reflecting higher
margins at Thermo Cardiosystems resulting from the LVAS price increase and,
to a lesser extent, the increase in sales volume and improvements in
manufacturing efficiencies.
Selling, general and administrative expenses as a percentage of
revenues decreased to 27% in 1995 from 28% in 1994. This decline results
primarily from lower expenses as a percentage of revenues at Thermo
Cardiosystems as a result of a higher sales volume in 1995 and, to a lesser
extent, a reduction in operating expenses at Thermo Sentron. These
improvements were partially offset by higher expenses as a percentage of
revenues at Thermedics Detection due to a lower sales volume in 1995.
Research and development expenses as a percentage of revenues decreased to
6.3% in 1995 from 6.7% in 1994 due primarily to lower expenses as a
percentage of revenues at Thermo Cardiosystems as a result of an increase
in total revenues.
33PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
1995 Compared With 1994 (continued)
Interest income increased to $9.1 million in 1995 from $7.3 million in
1994 due to higher prevailing interest rates in 1995. Interest expense
increased to $3.7 million in 1995 from $3.2 million in 1994 as a result of
borrowings by Thermo Sentron's and Thermo Voltek's foreign subsidiaries,
offset in part by a decrease in interest expense due to conversions of
subordinated convertible obligations.
Gain on issuance of stock by subsidiary of $3.5 million in 1995
resulted from the conversion of $9.1 million principal amount of Thermo
Voltek's 3 3/4% subordinated convertible debentures.
The effective tax rate was 32% in 1995, compared with 38% in 1994. The
effective tax rate in 1995 was below the statutory federal income tax rate
due primarily to the nontaxable gain on issuance of stock by subsidiary and
the reduction of the valuation allowance no longer required, offset in part
by state income taxes (Note 6). The effective tax rate in 1994 was higher
than the statutory federal income tax rate due primarily to state income
taxes.
Minority interest expense increased to $4.5 million in 1995 from $1.2
million in 1994 due to higher net income at the Company's 52%-owned Thermo
Cardiosystems subsidiary and, to a lesser extent, the Company's 50%-owned
Thermo Voltek subsidiary.
1994 Compared With 1993
Total revenues in 1994 were $155.1 million, compared with $80.2 million in
1993, an increase of 93%. Instruments and Other Equipment segment revenues
more than doubled in 1994 to $124.1 million from $60.1 million in 1993.
This increase reflects the inclusion of $50.1 million in revenues from
Thermo Sentron, which was acquired in March 1994, $4.6 million in
additional revenues from Comtest, which was acquired by Thermo Voltek in
August 1993, and an increase of $4.1 million in revenues from the Company's
EGIS explosives-detection systems. Process detection instrument sales,
principally to one customer, were $38.0 million in 1994, compared with
$34.4 million in 1993.
Biomedical Products segment revenues increased 54% to $31.0 million in
1994 from $20.1 million in 1993. The improvement is primarily the result of
a $6.9 million increase in sales of Thermo Cardiosystems' LVAS to $10.4
million and additional revenues of $3.0 million from Scent Seal fragrance
samplers, which were introduced in the first quarter of 1993.
The Company's gross profit margin remained relatively unchanged at 44%
in 1994 and 43% in 1993. The gross profit margin for the Instruments and
Other Equipment segment remained unchanged at 44% in both 1994 and 1993.
Improved efficiencies in the worldwide service organization for process
detection instruments and, to a lesser extent, improved margins at
Universal Voltronics as a result of increased commercial sales relative to
lower-margin government contract revenues were offset by the inclusion of
lower-margin Thermo Sentron revenues. The gross profit margin for the
Biomedical Products segment was 42% in 1994, compared with 38% in 1993,
reflecting higher margins derived from Thermo Cardiosystems' LVAS due to
higher sales, manufacturing efficiencies, and the initial impact of the
price increase for the air-driven system which took effect in the fourth
quarter of 1994.
Operating income, before the inclusion of Thermo Cardiosystems'
results, was $15.3 million in 1994, compared with $10.2 million in 1993.
34PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
1994 Compared With 1993 (continued)
This improvement results primarily from higher sales, which resulted in
higher gross profit. Including Thermo Cardiosystems' operating losses of
$0.9 million in 1994 and $3.2 million in 1993, the Company reported
operating income of $14.3 million in 1994, compared with $7.1 million in
1993. Thermo Cardiosystems' lower operating loss resulted primarily from an
increased gross profit margin on higher revenues, partially offset by
increased expenses to develop and market its LVAS.
Interest income increased to $7.3 million in 1994 from $6.1 million in
1993. This increase is due to higher average invested amounts derived from
the issuance of $34.5 million principal amount of 3 3/4% subordinated
convertible debentures by Thermo Voltek in November 1993, and the issuance
of $33.0 million principal amount of noninterest-bearing subordinated
convertible debentures by Thermo Cardiosystems in January 1994. This
increase was offset in part by cash expended for the acquisition of Thermo
Sentron in March 1994. Interest expense increased to $3.2 million in 1994
from $2.4 million in 1993 due to the issuance of the 3 3/4% subordinated
convertible debentures by Thermo Voltek, partially offset by conversions of
the Company's 6 1/2% subordinated convertible debentures.
Other income includes $635,000 in 1994 relating to foreign currency
transaction gains.
The effective tax rate was 38% in 1994 and 40% in 1993. These rates
exceed the statutory federal income tax rate due primarily to state income
taxes (Note 6).
Liquidity and Capital Resources
Working capital, including cash, cash equivalents, and short-term
available-for-sale investments, was $110.1 million at December 30, 1995,
compared with $128.3 million at December 31, 1994. Cash, cash equivalents,
and short- and long-term available-for-sale investments were $155.2 million
at December 30, 1995, compared with $154.1 million at December 31, 1994. Of
the $155.2 million balance at December 30, 1995, $90.5 million was held by
Thermo Cardiosystems, $34.7 million by Thermo Voltek, and the remainder by
the Company and its wholly owned subsidiaries. During 1995, $14.9 million
of cash was provided by operating activities and the Company expended $4.4
million on purchases of property, plant and equipment.
In December 1995, the Company acquired Orion for approximately $52.7
million in cash, which included the repayment of $8.6 million of debt,
subject to a post-closing adjustment. To partially finance this
acquisition, the Company borrowed $38.0 million from Thermo Electron
pursuant to a promissory note due December 1996, and bearing interest at
the Commercial Paper Composite Rate plus 25 basis points. The balance of
the purchase price was funded from the Company's working capital. In
January 1996, the Company acquired the assets of Moisture Systems
Corporation, based in Hopkinton, Massachusetts, and certain affiliated
companies, as well as Netherlands-based Rutter & Co., for a total purchase
price of $20.5 million in cash and the assumption of certain liabilities.
In connection with these acquisitions, the Company borrowed $15.0 million
from Thermo Electron pursuant to a promissory note due February 1997, and
bearing interest at the Commercial Paper Composite Rate plus 25 basis
points. Thermo Electron has indicated its intention to require the
Company's indebtedness to Thermo Electron be repaid to the extent the
Company's liquidity and cash flow permit. On February 1, 1996, Thermo
35PAGE
<PAGE>
Thermedics Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Liquidity and Capital Resources (continued)
Sentron filed a registration statement under the Securities Act of 1933
with the Securities and Exchange Commission covering shares of common stock
to be offered in its initial public offering.
The Company intends, for the foreseeable future, to maintain at least
50% ownership of Thermo Cardiosystems, Thermo Voltek and Thermo Sentron.
This may require the purchase by the Company of additional shares of common
stock or, if applicable, convertible debentures (which are then converted)
of these companies from time to time, if the number of the companies'
outstanding shares increases, whether as a result of conversion of
convertible notes or exercise of stock options issued by them, or
otherwise. These or any other purchases may be made either in the open
market or directly from Thermo Cardiosystems, Thermo Voltek or Thermo
Sentron, or pursuant to the conversion of all or part of Thermo Voltek's
subordinated convertible notes held by Thermedics. During 1995, the Company
expended $179,000 to purchase shares of Thermo Voltek common stock on the
open market.
In 1996, the Company expects to make capital expenditures of
approximately $6.6 million. The Company expects to continue to pursue its
strategy of expanding its business both through the continued development,
manufacture, and sale of new products, and through the possible acquisition
of companies that will provide additional marketing or manufacturing
capabilities and new products. The Company expects that it will finance
these acquisitions through a combination of internal funds, additional debt
or equity financing from the capital markets, or short-term borrowings from
Thermo Electron. The Company believes its existing resources are sufficient
to meet the capital requirements of its existing operations for the
foreseeable future.
36PAGE
<PAGE>
Thermedics Inc.
Selected Financial Information
(In thousands
except per share amounts) 1995(a) 1994(b) 1993(c) 1992(d) 1991
- ------------------------------------------------------------------------------
Statement of Income Data:
Revenues $175,754 $155,111 $ 80,220 $ 45,778 $ 32,295
Net income 15,121 10,837 6,670 2,467 1,613
Earnings per share .45 .33 .22 .09 .06
Balance Sheet Data:
Working capital $110,113 $128,330 $133,003 $ 63,205 $ 78,359
Total assets 368,150 291,567 237,487 146,663 128,880
Long-term obligations 45,201 82,551 59,130 33,820 34,315
Common stock of subsidiary
subject to redemption - - - 5,468 5,486
Shareholders' investment 167,010 131,765 117,451 69,323 73,510
Quarterly Information (Unaudited)
(In thousands except per share amounts)
1995 First Second Third Fourth(a)
- -------------------------------------------------------------------------------
Revenues $ 43,858 $ 43,268 $ 41,224 $ 47,404
Gross profit 19,572 19,553 17,595 21,744
Net income 3,262 3,666 4,017 4,176
Earnings per share .10 .11 .12 .12
1994 First(b) Second Third Fourth
- -------------------------------------------------------------------------------
Revenues $ 27,293 $ 42,403 $ 41,578 $ 43,837
Gross profit 11,637 17,593 18,479 19,805
Net income 2,152 2,510 2,886 3,289
Earnings per share .07 .08 .09 .10
(a) Reflects the December 1995 acquisition of the Orion laboratory products
division of Analytical Technology, Inc.
(b) Reflects the January 1994 issuance of $33.0 million principal amount of
noninterest-bearing subordinated convertible debentures by Thermo
Cardiosystems Inc. and the March 1994 acquisition of Ramsey Technology, Inc.
(c) Reflects the May 1993 public offering of the Company's common stock for net
proceeds of $30.0 million, the August 1993 acquisition of Comtest
Instrumentation B.V. and Comtest Limited, and the November 1993 issuance of
$34.5 million principal amount of 3 3/4% subordinated convertible debentures
by Thermo Voltek Corp.
(d) Reflects the June 1992 acquisition of KeyTek Instrument.
37PAGE
<PAGE>
Thermedics Inc.
Common Stock Market Information
The following table shows the market range for the Company's common stock
based on reported sales prices on the American Stock Exchange (symbol TMD)
for 1995 and 1994.
1995 1994
----------------- ----------------
Quarter High Low High Low
-----------------------------------------------------------------------
First $17 1/2 $12 1/2 $15 $11 7/8
Second 20 1/2 15 1/2 15 7/8 12
Third 21 3/4 17 3/4 15 7/8 12 7/8
Fourth 28 17 1/2 16 1/8 12 3/8
As of January 26, 1996, the Company had 2,328 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 26, 1996 was $26 1/4 per share.
Common stock of the following majority-owned public subsidiaries is
traded on the American Stock Exchange: Thermo Cardiosystems Inc. (symbol
TCA) and Thermo Voltek Corp. (symbol TVL).
Stock Transfer Agent
The Bank of Boston is the stock transfer agent and maintains shareholder
activity records. The agent will respond to questions on issuances of stock
certificates, changes of ownership, lost stock certificates, and changes of
address. For these and similar matters, please direct inquiries to:
The Bank of Boston
P.O. Box 644
Mail Stop: 45-02-09
Boston, Massachusetts 02102-0644
(617) 575-3120
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use
earnings to finance expansion and growth. Payment of dividends will rest
within the discretion of the Company's Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
38PAGE
<PAGE>
Thermedics Inc.
Shareholder Services
Shareholders of Thermedics Inc. who desire information about the Company
are invited to contact John N. Hatsopoulos, Chief Financial Officer,
Thermedics Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046, (617) 622-1111. A mailing list is maintained to enable
shareholders whose stock is held in street name, and other interested
individuals, to receive quarterly reports, annual reports, and press
releases as quickly as possible. Quarterly reports and press releases will
also be available through the Internet at Thermo Electron's home page on
the World Wide Web (http://www.thermo.com).
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended December
30, 1995, as filed with the Securities and Exchange Commission, may be
obtained at no charge by writing to John N. Hatsopoulos, Chief Financial
Officer, Thermedics Inc., 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, May 20, 1996, at
1:15 p.m. at the Turnberry Isle Resort & Club, Aventura, Florida.
Exhibit 21
THERMEDICS INC.
Subsidiaries of the Registrant
At March 6, 1996, Thermedics Inc. owned the following companies:
State or Jurisdiction Registrant's
Name of Incorporation % of Ownership
- -------------------------------------------------------------------------------
Analytical Technology, Inc. Delaware 100%
Orion Foreign Sales Corp. U.S. Virgin Islands 100%
Orion Research Limited United Kingdom 100%
Orion Research Puerto Rico, Inc. Puerto Rico 100%
Corpak Inc. Massachusetts 100%
Walpak Company Illinois 100%
Orion Research, Inc. Massachusetts 100%
Russell pH Limited Scotland 100%
Thermedics Detection Inc. Massachusetts 100%
Rutter & Co. Netherlands 100%
Rutter Instrumentation S.A.R.L. France 90%
Systech B.V. Netherlands 50%
ThermedeTec Corporation Delaware 100%
Thermedics Detection de Argentina S.A. Argentina 100%
Thermedics Detection de Mexico, S.A. de C.V. Mexico 100%
Thermedics Detection GmbH Germany 100%
Thermedics Detection Limited United Kingdom 100%
Thermedics Detection Scandinavia AS Norway 100%
Thermedics F.S.C. Inc. U.S. Virgin Islands 100%
Thermo Sentron Inc. Delaware 100%
Ramsey France S.A.R.L. France 100%
Ramsey Ingenieros S.A. Spain 100%
Ramsey Italia S.R.L. Italy 100%
Tecno Europa Elettromeccanica S.R.L. Italy 100%
Ramsey Technology Inc. Massachusetts 100%
Xuzhou Ramsey Technology Co., Limited China 50%
Thermedics Australia Pty. Ltd. Australia 100%
Thermo Sentron B.V. Netherlands 100%
Thermo Sentron Canada Inc. Canada 100%
Thermo Sentron GmbH Germany 100%
Thermo Sentron Limited United Kingdom 100%
Hitech Electrocontrols Limited United Kingdom 100%
Hitech Licenses Ltd. United Kingdom 100%
Hitech Metal Detectors Ltd. United Kingdom 100%
Thermo Sentron SEC Corporation Massachusetts 100%
Thermo Sentron (South Africa) Pty. Ltd. South Africa 100%
TMD Securities Corporation Massachusetts 100%
Thermo Cardiosystems Inc. Massachusetts 52%
TCA Securities Corporation Massachusetts 100%
Thermo Voltek Corp. Delaware 50%
Comtest Europe B.V. Netherlands 100%
Comtest Instrumentation, B.V. Netherlands 100%
Comtest Limited United Kingdom 100%
KeyTek FSC, Ltd. U.S. Virgin Islands 100%
TVL Securities Corporation Delaware 100%
UVC Realty Corp. New York 100%
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 7, 1996 (except
with respect to the matters discussed in Note 15 as to which the date is
February 9, 1996), included in or incorporated by reference into Thermedics
Inc.'s Annual Report on Form 10-K for the year ended December 30, 1995, and
into the Company's previously filed Registration Statement No. 2-93746 on
Form S-8, Registration Statement No. 33-00183 on Form S-8, Registration
Statement No. 2-93747 on Form S-8, Registration Statement No. 33-8992 on
Form S-8, Registration Statement No. 33-31621 on Form S-8, Registration
Statement No. 33-9215 on Form S-8, Registration Statement No. 33-43707 on
Form S-3, Registration Statement No. 33-40866 on Form S-3, Registration
Statement No. 33-64070 on Form S-8, Registration Statement No. 33-86972 on
Form S-8, Registration Statement No. 33-86974 on Form S-8 and Registration
Statement No. 033-65279 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 37,370
<SECURITIES> 77,916
<RECEIVABLES> 45,309
<ALLOWANCES> 3,982
<INVENTORY> 42,679
<CURRENT-ASSETS> 209,519
<PP&E> 30,302
<DEPRECIATION> 17,369
<TOTAL-ASSETS> 368,150
<CURRENT-LIABILITIES> 99,406
<BONDS> 45,201
<COMMON> 3,399
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<OTHER-SE> 163,611
<TOTAL-LIABILITY-AND-EQUITY> 368,150
<SALES> 175,754
<TOTAL-REVENUES> 175,754
<CGS> 97,290
<TOTAL-COSTS> 97,290
<OTHER-EXPENSES> 11,087
<LOSS-PROVISION> 689
<INTEREST-EXPENSE> 3,677
<INCOME-PRETAX> 28,730
<INCOME-TAX> 9,154
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