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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 28, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____ to _____
Commission File Number: 0-18281
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Hologic, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-2902449
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(State of incorporation) (I.R.S. Employer Identification No.)
590 Lincoln Street, Waltham, Massachusetts 02154
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(Address of principal executive offices) (Zip Code)
(617) 890-2300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Rights to purchase
Common Stock
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
10-K. ___
The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of November 29, 1996 was $322,042,600 based on
the price of the last reported sale on the Nasdaq National Market System.
As of November 29, 1996 there were 12,881,704 shares of the registrant's Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held
on February 28, 1997 (Items 10,11,12 and 13).
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Introductory Statement
When used in this Report, the words "expects," "anticipates," "estimates,"
"should," "will," "could," "would," "may," and similar expressions are intended
to identify forward-looking statements. Such statements, which include
statements relating to the timing and availability of products under
development, the ability of the Company to market such products, once developed,
successfully, the anticipated growth or expansion of the markets for the
Company's products, and other matters are subject to risks and uncertainties
that could cause actual results to differ materially from those anticipated.
These forward-looking statements speak only as of the date of this Report. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectation with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
Part I
Item 1. Business
Hologic, Inc. ("Hologic" or the "Company") is a leading international
developer, manufacturer and marketer of X-ray bone densitometers which precisely
measure bone density for use in the diagnosis and monitoring of metabolic bone
diseases such as osteoporosis. Hologic pioneered the use of dual-energy X-ray
absorptiometry (''DXA'') to measure bone density, introducing the first DXA bone
densitometer in 1987. Since this introduction, DXA systems have become the
standard for measuring bone density. In 1995, Hologic introduced its fourth
generation of DXA bone densitometers, its clinically oriented QDR 4500 ACCLAIM
product line.
To address the growing clinical market for the early diagnosis and monitoring
of osteoporosis, Hologic is developing products that it believes will complement
its DXA product line. In December 1994, Hologic acquired the ultrasound bone
analyzer business of Walker Sonix, Inc. (''Walker Sonix''). Hologic is
developing an enhanced ultrasound bone analyzer, the Sahara, which it has
recently introduced in clinical test sites in the United States and certain
international markets. Hologic believes that ultrasound systems could represent
a relatively low cost, compact, easy-to-use, non-X-ray based, screening
technique to assist in the initial diagnosis of osteoporosis. In September 1994,
Hologic began a joint development effort with Serex, Inc. (''Serex'') to develop
a diagnostic strip test to detect biochemical markers that indicate the rate of
a patient's bone loss. The strip test is being designed to provide a physician
with a real-time means of measuring a patient's biochemical response to
osteoporosis therapies and compliance with those therapies, as a complement to
periodic bone density measurements.
On August 29, 1996, Hologic's wholly-owned subsidiary merged with FluoroScan
Imaging Systems, Inc. ("FluoroScan" or the "Company") in a pooling-of-interests
transaction. The merger was completed by the exchange of .31069 shares of
common stock of Hologic for each outstanding share of FluoroScan common stock.
Hologic issued 1,454,901 shares of common stock in exchange for all outstanding
shares of FluoroScan common stock. Hologic also reserved an additional 300,375
shares of its common stock for issuance to holders of FluoroScan options and
warrants. FluoroScan manufactures and distributes the FluoroScan Imaging System
(the ''FluoroScan System''), a low intensity, real-time mini c-arm X-ray imaging
device which provides high resolution images at radiation levels and at a cost
well below those of conventional X-ray and fluoroscopic equipment. These mini c-
arm systems are used primarily by orthopedic surgeons to perform minimally
invasive surgical procedures on a patient's extremities (i.e., hand, wrist,
knee, foot, ankle, ect.).
Used herein the term "Company" includes Hologic and all of its subsidiaries,
including FluoroScan.
The Hologic logo is a service mark of Hologic. QDR and QDR-1000 are
registered trademarks of X-Ray Technology Corp., a wholly-owned subsidiary of
Hologic. QDR-1000W and QDR-2000 are trademarks of X-Ray Technology Corp.
ACCLAIM and Sahara are registered trademarks of Hologic.
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Bone Assessment Product Background
Osteoporosis. Osteoporosis is a condition characterized by reduced bone
density that leads to an increased risk of fractures. Bone is a dynamic organ
that is maintained through a process referred to as remodeling in which old bone
is removed (resorption) and new bone is formed. In early adulthood, the levels
of bone resorption and bone formation are generally balanced, with the quantity
and distribution of bone throughout the body varying over time depending on
muscle mass, strength and use. When remodeling does not function properly, and
resorption exceeds formation, the result is a net loss of bone mass and density,
often causing diminished structural integrity of the skeleton (particularly of
the trabecular ''spongy'' bone) and an increased risk of fracture.
According to the National Osteoporosis Foundation (the ''NOF''), 25 million
Americans, 80% of whom are women, and approximately 250 million people
worldwide, suffer from osteoporosis. Osteoporosis typically develops silently
over a period of years, eventually progressing to a point where a fracture can
easily occur, causing pain and disability. The post-menopausal female population
has the highest incidence of osteoporosis and the highest rate of morbidity
(loss of quality of life) and mortality due to osteoporosis. The NOF estimates
that in the United States osteoporosis contributes to more than 1.3 million
fractures annually, a majority of which were of the spine and hip, and that
related direct healthcare and indirect productivity costs in 1987 were
approximately $10 billion. Hip fractures lead to the most serious consequences.
According to the NOF, as many as one in every five hip fracture patients dies
from complications within a year after fracture, one in every four requires
long-term care and an even higher percentage of hip fracture patients never
return to an active and independent lifestyle. According to the Centres for
Disease Control and Prevention, about 850,000 people aged 65 and older suffer
from fractures every year. Total medical care costs for fractures among older
adults totaled $13.8 billion in 1995.
Until recently, osteoporosis was thought to be an untreatable consequence of
aging. The Company believes that the recent development and introduction of new
drug therapies, the aging of the population, and an increased focus on women's
health issues and preventive medical practices has created a growing awareness
among patients and physicians that osteoporosis is treatable.
Therapies. The Company believes that over 70 clinical studies are currently
in progress to assess the safety and effectiveness of new therapies to treat
osteoporosis. However, prior to 1995, there were only two approved drug
treatments for osteoporosis in the United States, hormone replacement therapy,
using estrogen and related hormones (''HRT''), and calcitonin, with the most
widely prescribed treatment being HRT. Patient concerns regarding complications
related to prolonged use of HRT have contributed to a low compliance rate. Until
recently, calcitonin was available only in an injectable form, a delivery method
that has contributed to low patient compliance. Although HRT and calcitonin have
generally been shown in clinical trials to slow or stop the loss of bone mass,
these therapies have not been proven to restore bone mass.
In September 1995, the FDA approved Merck's drug Fosamax for the treatment of
established osteoporosis in post-menopausal women. Fosamax is a bisphosphonate
that acts by coating the bone surface and inhibiting bone resorption. Merck
reported that in clinical studies of Fosamax conducted in over 16 countries
post-menopausal patients with established osteoporosis who were treated with
Fosamax gained on average of 7-10% bone mass in the spine and 7-8% bone mass in
the hip over a three-year period compared to patients treated with placebo, and
that Fosamax reduced the number of new vertebral fractures (fractures of the
spine) by approximately 48% compared with placebo. Merck is conducting ongoing
clinical trials to determine the effectiveness of Fosamax in preventing
osteoporosis, and in April 1996 filed a supplement with the FDA for approval of
the use of Fosamax for that purpose. Fosamax is also approved in approximately
40 countries in addition to the United States. In October 1996, Merck reported
that more than 1,959,000 patients worldwide were taking Fosamax.
Other therapies cleared by the FDA to treat osteoporosis in 1995 are a one-
tablet hormone replacement therapy, which combines estrogen and progestin,
developed by Wyeth-Ayerst Laboratories, and an intra-nasal formulation of
calcitonin developed by Sandoz. In addition, in November 1995, an FDA advisory
committee recommended that the FDA approve slow-release sodium fluoride for the
treatment of post-menopausal osteoporosis. Additional therapies undergoing
clinical trials for the prevention or treatment of osteoporosis include
bisphosphonates being developed by
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Proctor & Gamble (Rasidronate), Boehringer-Mannheim (Ibandronate) and Sanofi
(Tiludronate), and estrogen analogues or anti-estrogens being developed by Eli
Lilly (Raloxifene) and Pfizer (Draloxifene).
In several European countries, Japan and other international markets, there
has been an earlier availability and greater acceptance of osteoporosis
therapies. Some of these therapies include estrogens, bisphosphonates,
calcitonins, vitamin D compounds and ipriflavone.
The timing of when and where new drugs will become commercially available, if
ever, is uncertain. However, the Company believes that there will be broadened
and new approvals of osteoporosis therapies for both treatment and prevention
which should positively impact the bone assessment market worldwide.
Diagnosis and Monitoring of Osteoporosis. There are a number of different
technologies that are available that can be used to assess bone mineral status.
Since the introduction of the first DXA bone densitometer by the Company in
1987, dual-energy X-ray absorptiometry has become the primary means of measuring
bone density. Prior to that introduction, the most widely used bone density
measuring technique for the hip and spine was dual photon absorptiometry (DPA).
DPA systems were not very precise and required relatively long scanning times
and the use of an expensive radioactive source that required periodic
replacement. In contrast, DXA systems have much higher precision, require
significantly shorter scanning times and do not require a radioactive source.
DXA systems require a low patient radiation exposure. The most advanced DXA
systems can be used to measure the bone density of the whole body, or any site,
including the most important fracture sites of the hip or spine. As a result of
their precision and versatility, DXA systems have become the predominant means
of evaluating low bone density before fractures occur and monitoring changes in
a patient's bone density in response to therapies.
Other bone assessment technologies include single photon absorptiometry (SPA),
radiographic absorptiometry (RA), quantitative computed tomography (QCT),
quantitative ultrasound and biochemical markers.
Single photon absorptiometry was introduced in the 1960s and represents an
effective method of measuring bone density at a peripheral site of the skeleton
(forearm or heel), although it cannot be used to measure the most important
fracture sites of the spine or hip. SPA systems also have the added
inconvenience of requiring the patient to place the site being scanned in water
or other tissue-equivalent medium to achieve precision. SPA, however, does
represent a relatively inexpensive and valuable tool in the diagnosis of
osteoporosis with reasonable precision and low radiation exposure.
Quantitative computed tomography was introduced in the mid 1970s and can
measure bone density by using a CT scanner to determine both the patient's bone
density and bone distribution in three dimensions. QCT, however, has remained
limited in clinical use because of its relatively high radiation dose and the
high cost of CT scanner equipment.
Radiographic absorptiometry, also introduced in the 1970s, measures bone
density from two X-ray images (radiographs) of the hand placed alongside a
calibration device using a conventional X-ray machine. The radiographs are sent
to a central processing laboratory where a computer measures the density of the
bone. The precision of this technique is comparable to SPA measurements. An
advantage of this system is that it does not require any additional capital
investment, as traditional X-ray equipment can be used to obtain the
radiographs. The technique, however, cannot be used to measure and monitor the
hip or spine. Also, because the radiograph must be sent to a laboratory for
testing, it does not provide a real-time assessment of bone density, and, if the
test is positive, a follow-up consultation is required. The Company believes
that RA will be useful in rural areas where there may not be a sufficient
concentration of patients to justify a capital investment in DXA bone density
measuring equipment.
Ultrasound has long been used in medical testing. However, the use of
ultrasound for the detection of osteoporosis was not commercially introduced
until recently, and then only in certain foreign countries. Ultrasound
measurement has concentrated mainly on the calcaneous (the heel), which is
comprised primarily of trabecular bone, as a measuring site. Initial clinical
trials of ultrasound systems have indicated a significant association of low
ultrasonic bone measurements of the calcaneous and the risk of fracture. The
latest developments in hardware and software, resulting in enhanced
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precision and ease of use, are currently making ultrasound techniques an option
for the diagnosis of osteoporosis. Major advantages of ultrasound examination
are the complete absence of radiation and the small size and low cost of the
equipment. Ultrasound devices do not use X-rays in making their measurements and
therefore do not require X-ray licensing or registered operators. However,
because ultrasound bone measurements currently are not as precise as DXA and
other measurements, they are less reliable for continued monitoring of small
changes in bone density or for assessing the response to therapies. In addition,
they are generally limited to measurements at peripheral sites, not the more
important spine or hip fracture sites. Accordingly, the Company believes that
the most likely use for ultrasound techniques currently employed and under
development by the Company and others will be for initial screening for
osteoporosis and not for continued monitoring of changes in bone density or the
response to therapies.
Biochemical markers are substances that are produced within the body that
correlate directly or indirectly to disease or bodily function. A number of
biochemical markers have been discovered that can be used to measure the rate of
bone resorption or formation. These measurements, while not measuring bone
density, can provide a means to assess quickly (within approximately three
months) the effectiveness of treatment and patient compliance with therapies for
osteoporosis. A baseline and subsequent bone density tests (as frequently as
annually) must be used in conjunction with biochemical marker measurements to
assess fully the bone status of the patient. Because biochemical markers cannot
be used independently to diagnose osteoporosis or risk of fracture, or to
monitor a patient's changes in bone density as a result of therapy or otherwise,
the Company believes that biochemical marker tests, including those being
developed by the Company, will complement and not replace densitometry.
Bone Assessment Market
The Company believes that the clinical market for osteoporosis diagnostic and
monitoring products is expanding due to the recent development and introduction
of new drug therapies to treat osteoporosis, the more widespread and increased
reimbursement for bone density examinations, the aging of the population, and an
increased focus on women's health issues and preventive medical practices. All
of these factors have led to an increased awareness by women and primary care
providers, such as gynecologists and family physicians, that osteoporosis is a
treatable disease and that measurement of bone density is an integral component
of diagnosis and monitoring of this disease.
Upon obtaining FDA approval for Fosamax in September 1995, Merck launched an
extensive educational campaign to increase patient and physician awareness that
osteoporosis is a treatable disease. In connection with this effort, Merck is
promoting the use of DXA and other techniques to diagnose and monitor
osteoporosis and the effects of drug therapies. The Company believes that this
ongoing comprehensive Merck program has significantly contributed to the growth
of the bone densitometer and related markets. Currently, Fosamax is only
approved for use by patients with established osteoporosis. However, Merck and
other drug companies are conducting ongoing clinical trials to establish the
efficacy of drug therapies to prevent osteoporosis in high risk patients. In
April 1996, Merck filed a supplement with the United States FDA for a new
indication for Fosamax--the prevention of osteoporosis in women. Such approval
should increase the need for patient testing and monitoring at an earlier age,
before a patient is afflicted with osteoporosis.
In the United States, the Health Care Finance Administration, which
establishes guidelines for the reimbursement of health care providers treating
Medicare and Medicaid patients, provided validation for DXA bone densitometry
examinations as a clinically useful procedure by recommending the reimbursement
for DXA bone examinations in April 1994 and recently clarifying its guidelines
by recommending reimbursement for hip and spine examinations, the important
fracture sites, of approximately $121 per patient examination. Reimbursement
for densitometry done at peripheral sites declined to approximately $37. This
differential in reimbursement recognizes the important benefit of DXA
measurements of the critical fracture sites, the hip and spine, in assisting in
the detection and monitoring of bone disease. In part, as a result of the
reimbursement policy recommendations implemented by HCFA, bone density
examinations are paid for by many private third party insurers in the United
States.
With the established reimbursement levels in the United States, and the FDA
approval of Fosamax and other drug therapies, the Company believes that the
United States market for bone densitometers and other methods of bone mineral
assessment will expand from the hospitals, large clinics, research institutions
and imaging and women's centers, to the larger potential market of primary care
providers, including gynecologists and family physicians.
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In several European countries, Japan and other international markets, there
has been a greater availability or acceptance of osteoporosis therapies and an
earlier adoption of reimbursement for bone densitometry exams. Countries in
which reimbursement for the use of X-ray bone densitometers has been approved
include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and
Switzerland. In addition, the Japanese government has been actively supporting
an educational program to promote public awareness of osteoporosis as a
treatable disease. In Latin American countries such as Argentina, Brazil and
Chile, and in Pacific Rim countries, such as Australia, The Peoples Republic of
China, South Korea and Taiwan, there is a growing use of osteoporosis therapies
and an expanding market for osteoporosis diagnostic and monitoring equipment.
Bone Assessment Products
The Company's bone assessment products include a family of DXA bone
densitometers which are used for the precise measurement of bone density to
assist physicians in the diagnosis and monitoring of metabolic bone diseases
such as osteoporosis. Since commercially introducing the first DXA bone
densitometer in 1987, the Company introduced its first bone densitometer capable
of assessing the bone density of the entire body in 1989, introduced the first
bone densitometer capable of taking lateral measurements of the spine in 1991,
and, in 1995, introduced its new QDR 4500 ACCLAIM fourth generation series of
bone densitometers, which integrates the Company's most advanced X-ray
technology into a compact package that facilitates installation in a standard
examination room.
The Company believes that a significant market may exist for relatively low-
cost products that assess bone mineral status, employ technologies that do not
use ionizing radiation and may be used in a doctor's office. In order to address
this market, the Company has acquired or is developing products that use
ultrasound or measure biochemical markers to assist in the assessment of bone
mineral status.
QDR X-Ray Bone Densitometers. Since its first commercial shipment of a DXA
system in October 1987, the Company has sold more than 3,200 DXA systems. The
Company believes that its systems' performance advantages and their early
adoption by leading clinical investigators have led to their market acceptance.
The Company's DXA systems have been purchased for multiple-site studies
sponsored by the pharmaceutical companies and by the United States government
for evaluation of the incidence and treatment of osteoporosis. In addition,
pharmaceutical companies have promoted the purchase of the systems for use by
physicians to assist in the diagnosis and treatment of osteoporosis.
Advantages of the Company's DXA systems include high precision (consistency
from test to test), low patient radiation exposure equivalent to 1/10th of a
conventional chest X-ray, a relatively fast scanning time, low operating cost,
no radioactive source and the ability to measure bone density of the most
important fracture sites, the spine and hip. Studies conducted by the Company
and independent investigators have demonstrated that the systems can detect a
change in spine bone density with a precision error of less than 1%.
All the Company's DXA systems employ its patented Automatic Internal Reference
System, which continuously calibrates each patient's bone density measurement to
a known standard. This system virtually eliminates errors that might result from
manual calibration and saves operators the time-consuming task of calibrating
several times a day. The system automatically compensates for drift in the X-ray
system, detectors or other electronic components which ensures long-term
measurement stability.
Each of the Company's DXA systems contains an X-ray source mounted beneath the
patient, who is positioned lying on her back. The X-ray source generates
alternating high and low energy pulses in a thin beam that passes through the
Company's patented Automatic Internal Reference System and then through the
patient to an X-ray detector mounted above the patient. Controlled by a
computer, the X-ray source and detector are moved in tandem across the patient.
When the X-ray beam is detected, it contains information about the X-ray
absorbing characteristics of both the patient and the calibration materials in
the Automatic Internal Reference System at each of the two levels of radiation.
The system converts this information into a digital format which is processed
and analyzed by a computer and displayed on a high-resolution color monitor,
both of which are incorporated into the system.
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The Company has invested substantial resources in developing operating and
applications software for its systems. The software includes calibration
software, automated scan and analysis programs for each scan site, a patient
data base manager that archives all raw data for later retrieval and analysis
and allows the operator to review the current image with an earlier image of the
same patient.
Initial DXA systems developed by the Company employed a single narrow pencil
beam detected by one receptor. In 1991, the Company introduced the first bone
densitometer employing a high density fan shaped X-ray beam that is detected by
an array of receptors. This configuration enables the system to obtain better
quality images with improved spatial resolution, significantly faster scanning
time and higher patient throughput compared to single-beam systems. Moreover,
for standard spine and hip scans, fan beam technology can reduce scan time by a
factor of more than 25 compared to older single-beam scanning systems.
The Company developed this fan beam technology to perform lateral (side-to-
side) scans of the lower spine, in addition to the posterior-anterior (back-to-
front) measurements performed by the Company's pencil beam systems. The earliest
and most dramatic loss of bone density in the spine occurs primarily in the
spine's soft (trabecular) bone, which is positioned directly behind the hard
(cortical) bone when taking back-to-front measurements. This results in bone
density measurements that average the density of the soft and hard bone and
tends to mask changes in the soft bone. A lateral scan permits the imaging and
measurement of the spine's soft bone with only limited interference from hard
bone. In addition, a lateral scan reduces the interference caused by abnormal
accumulation of bone and calcium deposits in and around the spine.
Numerous scientific articles have established lateral bone densitometry, using
supine patient positioning, as a highly precise and more diagnostically
sensitive way to measure the spine than conventional posterior-anterior
examinations. Lateral densitometry also eliminates scan artifacts such as aortic
calcification or degenerative disease of the spinal processes that can distort
conventional posterior-anterior measurements.
In November 1994, the Company introduced the QDR 4500A ACCLAIM at the annual
meeting of the Radiological Society of North America and in January 1995
obtained FDA clearance to sell the system in the United States. See
''Regulation.''
The Company's QDR 4500 ACCLAIM series of bone densitometers offers rapid
scanning and high resolution imaging using the latest available fan beam and
high density, solid-state multi-detector array technology. In addition, the
QDR 4500 ACCLAIM series is built in modular configurations that allow customers
to add new features and capabilities, while protecting their investment in the
equipment and patient data. The ACCLAIM series is comprised of four modular
systems: the high-end QDR 4500A, the QDR 4500SL, the QDR 4500W and the QDR 4500C
clinical bone densitometer.
An important feature of the QDR 4500A and QDR 4500SL is their ability to
perform lateral (side-to-side) scans of the lower spine, without turning the
patient on her side, in addition to the posterior-anterior (back-to-front)
measurements. The QDR 4500A and QDR 4500SL ACCLAIM are capable of producing high
quality images of the spine, lateral spine, hip and other skeletal sites. The
ACCLAIM's scan arm allows for multiple scan views without patient repositioning.
The images produced can be combined with capabilities that enable vertebral
dimensions to be determined with a radiation dose approximately ten to 100 times
lower than that of conventional chest X-rays. Using the QDR 4500A or the QDR
4500SL, high-quality lateral images of the entire spine can now be obtained in
as little as ten seconds.
The ACCLAIM systems are designed to require less floor space than any other
bone densitometer capable of taking hip and spine measurements. The special
tabletop design and motorized scanner C-arm allow the QDR 4500C and QDR 4500SL
to be installed in a standard 8ft x 8ft examination room (the QDR 4500W and QDR
4500A require an 8ft x 10ft room). Installation requirements for any of the
ACCLAIM bone densitometers are minimal and normally do not require special
electrical, structural or lead-shielding preparation. In addition to their small
size, the QDR 4500 series offers virtually silent operation.
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The ACCLAIM series has replaced the Company's QDR 1500, QDR 2000 and QDR
2000plus products. The Company has retained its QDR 1000plus system as a low-
price offering. The QDR 1000plus employs the Company's older pencil beam
technology. In fiscal 1996, the ACCLAIM series accounted for approximately 86%
of DXA sales.
Ultrasound. In December 1994, the Company acquired the ultrasound bone
analyzer business of Walker Sonix. Walker Sonix had developed an ultrasound
product line to assess bone mineral status of the heel. The location of the heel
facilitates easy coupling of the ultrasound transducers at a site with a
relatively low amount of overlying soft tissue. The heel is also made up of
predominantly trabecular bone which tends to be more metabolically active. The
Walker Sonix ultrasound devices measure two parameters, Broadbased Ultrasound
Attention (BUA) and Speed of Sound (SOS) through a water medium to characterize
bone mineral status. The use of water as a medium, which is a characteristic of
other ultrasound bone analyzers, requires the patient to place her foot in
water. The use of water requires cumbersome plumbing and cleaning mechanisms to
be incorporated in the system.
The Company developed internally an enhanced dry ultrasound bone analyzer,
called ''Sahara'' that does not require the use of water. The Company believes
that this ''dry'' technology offers further operator convenience by the
elimination of the water handling required between each patient. The elimination
of the use of water has also enabled the Company to reduce the size and weight
of the device. In September 1995, the Company introduced a prototype of the
Sahara at the American Society of Bone Mineral Research. The Company initiated
clinical trials of the Sahara in the United States in the fourth quarter of
fiscal 1995 and commenced international sales of the system in the third quarter
of fiscal 1996. Commercial introduction of the system in the United States is
dependent upon FDA approval. The Company believes that this approval process may
take as long as two to three years. There can be no assurance that the Company
will be able to obtain FDA approval for the Sahara on a timely basis, if at all.
Recent studies have suggested that ultrasound provides good separation of
fracture populations from reference groups and suggests that this method is a
promising screening tool for evaluating a patient's fracture risk. However,
ultrasound does not allow for direct assessment of important hip and spine
fracture sites, has undocumented ability to follow the effects of therapy and
has less precision (reproducibility of results) compared to DXA measurements.
Accordingly, the Company believes that ultrasound systems will be used
predominantly as a low cost initial screening or diagnostic tool and not as a
patient monitoring tool.
Biochemical Markers. In September 1994, the Company entered into a joint
development agreement with Serex to develop a simple strip test for use by
physicians to monitor the levels of a patient's biochemical markers that
indicate the rate of bone resorption. Although biochemical markers cannot
measure bone density, the Company believes that biochemical markers may be
useful as a tool to determine if therapy is effective. This is accomplished by
comparing the baseline level of the marker with the value obtained from a serial
measurement performed only two or three months following the start of therapy.
This same technique may be useful to evaluate patient compliance with a
prescribed therapy.
Traditionally, biochemical markers of bone were performed using high pressure
liquid chromatography (''HPLC'') methods conducted in a research laboratory.
HPLC procedures are complex and labor intensive requiring a highly trained
technician, relatively slow, subject to high variability and expensive. For
these reasons, biochemical markers of bone using HPLC methods have not been used
for routine clinical testing. Recently, several immunodiagnostic tests that are
antibody-based have been developed as biochemical markers of bone remodeling.
Immunodiagnostic tests may be performed in a variety of technical formats. The
format that has been introduced by several companies is the microtitre plate
system, which is used for many different types of in-vitro diagnostic tests and
is normally performed in a reference laboratory.
Serex has developed a proprietary and patented technology that enables complex
immuno-chemistry assays to be performed in a strip test format that the Company
believes is well-suited for testing directly in the physician's office or the
home to provide a real-time assessment of bone resorption. In September 1994,
the Company purchased a minority interest in Serex and entered into a license
and supply agreement with Serex to develop a urine-based bone resorption test
deliverable in a diagnostic strip test format. The Company believes that other
applications for biochemical markers of bone as well as new markers are likely
to be developed in the future, and under its agreement with Serex, the Company
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retains the first right of negotiation to develop and license such tests. There
can be no assurance that Serex will be able to develop effective strip tests,
either for physician or over-the-counter use, on a timely basis, if at all, that
once developed, any strip test will be approved or cleared for sale in the
United States or other jurisdictions, or that once cleared or approved for sale
any strip test will be commercially successful.
Mini C-arm Imaging Products
Background and Market Overview
On August 29, 1996, Hologic's wholly-owned subsidiary merged with FluoroScan
in a pooling-of-interests transaction. FluoroScan manufactures and distributes
the FluoroScan Imaging System, a low intensity, real-time mini c-arm X-ray
imaging device which provides high resolution images at radiation levels and at
a cost well below those of conventional X-ray and fluoroscopic equipment. These
mini c-arm systems are used primarily by orthopedic surgeons to perform
minimally invasive surgical procedures on a patient's extremities (i.e., hand,
wrist, knee, foot, ankle, etc.).
The Company believes that certain trends in the healthcare industry will
broaden the use of mini c-arms from the hospitals and surgery centers to private
orthopedic and podiatric physician groups. Some of these trends include: the
emergence of technology that enables minimally invasive procedures and
therapies, the increase in the number of office-based procedures and
examinations as a result of efforts to contain healthcare costs, and the
development of new treatments and pharmaceuticals such as synthetic bone
materials that are facilitated by the use of a mini c-arm to perform these
procedures.
FluoroScan Products
FluoroScan pioneered the mini c-arm market with the introduction of FluoroScan
I in June 1984. The basis of the FluoroScan System technology is a second
generation micro channel plate image intensifier commonly referred to as a
''night vision'' intensifier. This technology permits the FluoroScan System to
produce high resolution readily viewable images by using a small amount of
radiation, converting it to visible light and amplifying it approximately 50,000
times. The same night vision intensifier, as used by the military, allows clear
views of a battlefield at night by amplifying small amounts of ambient light.
The FluoroScan System technology offers several advantages over existing real-
time conventional X-ray imaging devices (also known as C-arms, image
intensifiers or fluoroscopy equipment). These advantages include; a substantial
reduction of radiation to the patient and of scatter radiation to the surgeon
and other operating room personnel, a cost of approximately one-third of the
cost of a conventional C-arm, mobility, it does not require lead-lined rooms and
it can often be operated without a radiology technician.
FluoroScan III. The FluoroScan III imaging system was introduced in the
first quarter of 1996. The FluoroScan III typically has a four- or five-inch
field-of-view and is targeted primarily at orthopedic surgeons, operating rooms,
emergency rooms and ambulatory surgery centers. The new system replaced
FluoroScan I (the first generation model FluoroScan System) and has a number of
technical enhancements. FluoroScan III has dual video channels that allow a
surgeon to display different views of the anatomy for side-by-side comparison.
The unit also features four image buffer memories for instant recall of previous
images. The unit also provides for permanent storage of up to 4,000 full
resolution digital images.
The unit stands approximately four feet high, weighs about 240 pounds and can
be plugged into any standard outlet. It rests on a portable, wheeled base
cabinet, and all vital functions are computer controlled. Images can be viewed
on the monitor or, through the addition of options, printed on thermal paper or
stored on video tape or computer diskette.
FluoroScan II. The Company has introduced the FluoroScan II to veterinarians
and has exhibited a prototype of the FluoroScan II to orthopedic surgeons for
use in their offices and to other medical and veterinary offices, podiatrists
and sports medicine physicians as well as for use by the military and various
industries. The Company believes that the target audience for the three-inch
field-of-view FluoroScan II consists of users seeking a lower cost or more
mobile unit than the FluoroScan III. The Company manufactures two versions of
the FluoroScan II for the veterinary and medical markets. The veterinary version
differs from the medical version of the FluoroScan II in that it is contained in
a portable
9
<PAGE>
carrying case with a removable C-arm, which may be hand held. The
Company began sales of the veterinary version of this item in the third quarter
1995. The Company expects to begin sales of the medical version of the
FluoroScan II in the first half of 1997. Sales of this system to the medical
community in the United States will be dependent on receiving FDA 510(k)
marketing clearance. There can be no assurance that the Company will receive
510 (k) marketing clearance in a timely manner.
FluoroScan Corporate Collaboration
Certain companies are developing material to assist in the healing of bone
fractures. For example, Norian Corporation (''Norian'') is in clinical trials
in the U.S. and Europe for its Skeletal Repair System TM ("SRS"). SRS is a
material that is injected into a fracture and has been shown to hold the bones
in position while providing the raw materials to help the body repair itself
more rapidly. Since SRS requires extensive imaging from the initial injection
through the healing process, the Company believes that FDA approval and market
acceptance of SRS could provide long-term benefits for the Company. On June 12,
1995, the Company announced that it had entered an agreement with Norian. The
agreement provides for the Company to provide imaging equipment for seminars
introducing Norian's Skeletal Repair System (''SRS'') to orthopedic surgeons.
There can be no assurance that SRS will receive FDA approval, or if approved
will gain wide market acceptance or enhance sales of the Company's FluoroScan
System.
Other Products; Scanora
In order to take advantage of its European sales force and associated
distribution capability, the Company distributes Scanora, a specialized system
for taking X-ray images of the maxillo-facial anatomy (teeth, jaw and other
facial structures) manufactured by Soredex, S.A. (''Soredex''), a division of
Orion Corporation of Helsinki, Finland.
The Scanora system supports more than 1,000 different image modes, including
pre-surgical planning of dental implants, reconstructive surgery and temporal
mandibular joint repair. This system provides significantly improved images of
the maxillo-facial anatomy compared to other techniques available in the market,
such as panoramic X-rays or computed tomography. Dental implant procedures have
experienced significant growth in Europe over the past five years.
The Company is the exclusive distributor of Scanora systems in Western Europe,
the Middle East and Africa, excluding South Africa and Namibia. In addition, the
Company has non-exclusive distribution rights in several Eastern European
countries. The Company is distributing Scanora under a distribution agreement
which is renewable annually.
Customers
The Company's DXA customers include many pharmaceutical companies active in
the field of bone mineral metabolism, such as Eli Lilly, Merck, Pfizer, Proctor
& Gamble, Rhone-Poulenc/Rorer, Sanofi Research and SmithKline. The Company
believes that because of their technological features, its DXA systems have been
and continue to be the most widely used bone densitometers for clinical studies
involving the emerging drug therapies for osteoporosis. The Company has a group
of 10 employees who provide data collection and quality assurance services to
such customers. Initial clinical evaluation sites for the Company's DXA systems
included leading medical and research institutions, such as the Mayo Clinic, the
Massachusetts General Hospital and the University of California at San Francisco
in the United States; the University of Lyon and Guy's Hospital in Europe; and
Kobe University in Japan. These institutions, along with many other leading
medical institutions, continue to be users of the Company's DXA systems.
The clinical demand for the Company's DXA bone densitometers is growing as a
result of the increased worldwide focus on women's health problems and the
availability of new osteoporosis therapies entering the market. More than 75% of
the Company's new sales of DXA systems have shifted to the clinical segment of
the market which includes radiologists, endocrinologists and rheumatologists.
The Company expects a further shift in the market for bone densitometers to
primary care physicians, including gynecologists and family physicians, in
response to the development of new drug therapies for osteoporosis and the
growing awareness of osteoporosis as a treatable disease.
10
<PAGE>
In fiscal 1996 and 1995, the Company's sales to its Japanese distributor, Toyo
Medic, accounted for approximately 13% and 20% of product sales, respectively.
The loss of Toyo Medic as a customer of the Company or an adverse change in the
relationship between the Company and Toyo Medic could have a material adverse
affect on the Company's business.
Marketing and Sales
In the United States, the Company sells its DXA systems primarily through its
direct sales force and its FluoroScan Systems through a national network of
independent sales representatives and sales representative organizations. As of
November 30, 1996, the Company had approximately 18 employees engaged in DXA
sales in the United States. In order to penetrate the DXA market more
effectively, the Company has expanded its direct marketing activities, including
additions to its sales force, and has implemented various leasing programs,
including a program with a third party leasing company to make its QDR 1000plus
and QDR 4500C ACCLAIM system available to physicians on a fee-per-scan basis. To
meet the growing demand for its products, the Company plans to enhance further
its distribution capabilities in the United States through a combination of an
expansion of its sales force and strategic alliances with companies with
established distribution channels in the various market segments for the
Company's products. In the first quarter of fiscal 1996, the Company entered
into a distribution agreement with Leisegang Medical Systems. Under this
agreement Leisegang has the exclusive right (subject to attaining certain
quotas) to represent certain Company products to OB/GYN and primary care
physicians in the United States.
The Company sells its products in international markets through independent
distributors, as well as a direct sales force in France, the Benelux countries,
Spain and Portugal. As of November 30, 1996, the Company had eight employees
engaged in sales in Europe.
The Company distributes its DXA and ultrasound products in Japan through Toyo
Medic, which has been the Company's exclusive distributor in Japan since April
1988. The agreement requires Toyo Medic to purchase certain minimum quantities
and to provide technical and warranty support to its customers.
In certain other territories outside the United States, the Company sells its
systems through independent distributors, all of whom offer technical support.
The Company has increased its efforts to expand its market penetration for its
DXA systems into Latin America, including Argentina, Brazil and Chile, and into
Pacific Rim countries other than Japan, including Australia, The Peoples
Republic of China, South Korea and Taiwan, by working with local sales
representatives and distributors or entering into strategic marketing alliances
in those territories. The Company believes that with time, Eastern Europe may
present a significant opportunity for growth and also is seeking to expand its
presence in the area.
In fiscal 1996 and in fiscal 1995, foreign sales accounted for approximately
40% and 58% of the Company's product sales, respectively. The Company believes
that the relatively high level of foreign sales reflects, in part, a more
advanced regulatory status for drug therapies for osteoporosis in certain
foreign countries than in the United States. The Company's foreign sales are
subject to risks generally associated with foreign sales, including United
States and foreign regulatory approval requirements and policy changes. The
relative strength of the United States dollar in relation to foreign currencies
may also adversely affect the Company's sales to foreign countries. The Company
also believes that its sales to Europe may be seasonal, with reduced orders in
the summer months reflecting summer vacation schedules. International sales will
also be affected by government approval of new drug therapies, changes in local
healthcare policies regarding reimbursement and the strength of promotional
efforts by its distributors. Moreover, the FluoroScan System technology is
governed by the International Traffic in Arms Regulations of the United States
Department of State. As a result, the export of FluoroScan Systems to certain
countries may be limited or prohibited.
Competition
The bone assessment market is highly competitive and characterized by
continual change and improvement in technology, and multiple technologies that
have been or are under development. Some of the companies in this industry have
significantly greater manufacturing, marketing and financial resources than the
Company. See ''Background.''
11
<PAGE>
The Company believes that competition in the field of DXA bone densitometry is
based upon price, precision, speed of measurement, patient radiation dose, cost
and ease of operation, product versatility, product reliability and quality of
service. The Company believes that it competes effectively with respect to these
criteria. The Company believes that its DXA systems will also compete with other
X-ray based modalities, including a radiographic absorptiometry product
developed by CompuMed Inc. which has been licensed to Merck. The Company's DXA
systems also compete with specially-equipped CT scanners and may compete with
used and refurbished DXA systems. See ''Background'' for a discussion of the
technical advantages and disadvantages of these other systems.
The Company believes that competition in the field of ultrasound systems is
based on price, precision, speed of measurement, cost and ease of operation,
product versatility, product reliability and quality of service. The Company
believes that advantages of its Sahara ultrasound bone analyzer system include
the system's dry operation, simple single-button operation, and a compact and
self-contained design that does not require the use of a separate computer. No
ultrasound bone analyzer has been approved for commercial sale in the United
States. The timing of FDA clearance or approval for ultrasound bone analyzers in
the United States, developed by the Company and others, could have a significant
impact on their respective market shares. The Company believes that ultrasound
systems will compete with DXA systems in the diagnostic market for initial
screening of patients. However, the Company believes that because ultrasound
systems can only measure peripheral skeletal sites and do not have the precision
of DXA systems, DXA systems will continue to be the predominant means of
monitoring bone density for patients being treated for or at high risk of
osteoporosis.
Three companies have obtained FDA clearance to market biochemical marker tests
that evaluate bone turnover in a microtitre format which require samples to be
sent to the lab for evaluation. One or more of these companies may develop
point-of-care, over-the-counter or other real-time biochemical marker tests that
would compete with the biochemical marker strip tests being developed by the
Company and Serex. The Company believes that competition in this market will be
based upon price, product reliability, diagnostic sensitivity, precision and
ease of use. There can be no assurance that the Company and Serex will be able
to compete effectively in this market.
The Company believes that competition for its mini c-arm systems is based
largely on price, quality, service and production capabilities. The Company
believes that key advantages of its FluoroScan Systems include low levels of
radiation, low costs, mobility, quality and durability.
Manufacturing
The Company's manufacturing operations for its DXA and ultrasound systems
consist primarily of assembly, test, burn-in and quality control. The Company
purchases a major portion of the parts and peripheral components for its
products, and manufactures certain subsystems, such as the high-voltage X-ray
power supply, from raw materials. Parts and materials are readily available from
several supply sources.
The Company is required to purchase all of its requirements for Scanora from
Soredex. Failure of Soredex to manufacture those systems on time and in
accordance with specifications would have an adverse impact on the Company's
sales of those systems.
The Company manufactures all the FluoroScan System models and related products
at its manufacturing facility in Northbrook, Illinois. Current manufacturing
capacity permits the production of approximately 30 units per month. Generally,
units for use in the health care field are manufactured without a prior order,
while units for use in industrial applications are custom made to the customer's
specifications.
The Company performs final assembly and test of the FluoroScan System. All of
the materials and most of the purchased components used in manufacturing the
Company's products are readily available from numerous sources. Several key
components require high technology including the X-ray tube, image intensifier,
video camera and fiberoptic taper and are manufactured by only one or a small
number of suppliers.
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<PAGE>
Although the Company uses materials in its manufacturing process that may be
subject to federal, state and/or local environmental laws, the costs and effects
of compliance with these laws have not had a material effect on the Company's
financial condition or results of operations during any of the past three years.
Backlog
Backlog for the Company's systems as of November 30, 1996 and November 30,
1995 totaled approximately $9.5 million and $5.9 million, respectively. Backlog
consists of purchase orders for which a delivery schedule within the next twelve
months has been specified by the customer. Orders included in backlog may be
canceled or rescheduled by customers without significant penalty. Backlog as of
any particular date should not be relied upon as indicative of the Company's net
revenues for any future period.
Research and Development
The Company's research and development efforts are focused on enhancing its
existing products and developing new products for the bone assessment and mini
C-arm market. The Company's research and development personnel also are involved
in establishing protocols, monitoring, interpreting and submitting test data to
the FDA and other regulatory agencies to obtain the requisite clearances and
approvals for its products. At November 30, 1996, the Company had 44 persons
engaged in research and development, of whom 10 persons were engaged in software
development. The research and development group was responsible for the
introduction of the Company's fourth generation QDR ACCLAIM series of DXA bone
densitometers during 1995, the ongoing development of the Company's Sahara bone
analyzer and the ongoing development of FluoroScan III. During fiscal 1996, 1995
and 1994, the Company's research and product development expenses were
approximately, $7.3 million, $4.5 million and $3.8 million, respectively.
Patents and Proprietary Rights
The Company relies upon trade secrets and patents to protect its technology.
Due to the rapid technological change that characterizes the medical
instrumentation industry, the Company believes that the improvement of existing
products, reliance upon trade secrets and unpatented proprietary know-how and
the development of new products are generally as important as patent protection
in establishing and maintaining a competitive advantage. Nevertheless, the
Company has obtained patents and will continue to make efforts to obtain
patents, when available, in connection with its product development program. The
Company has obtained 12 patents, licensed five patents and has pending 18 patent
applications in the United States relating to its DXA technology, and has
obtained three patents, licensed four patents and has pending two patent
applications in the United States relating to its ultrasound technology. The
Company has obtained or applied for corresponding patents and patent
applications for certain of these patents and patent applications in certain
foreign countries. There can be no assurance that any of the Company's patent
applications will be granted or that any patent or patent application will
provide significant protection for the Company's products and technology.
Moreover, there can be no assurance that foreign intellectual property laws will
protect the Company's intellectual property rights. In the absence of
significant patent protection, the Company may be vulnerable to competitors who
attempt to copy the Company's products, processes or technology.
In September 1994, Serex granted the Company an exclusive license to use
Serex's technology to manufacture, market, sell and distribute the biochemical
marker strip test being developed under a joint development agreement between
Serex and the Company. Serex further granted the Company the right of first
negotiation with respect to the development and distribution of new products
conceived of by Serex for application in bone metabolism. In order to maintain
its exclusive rights once the product is developed, the Company is required to
purchase a certain minimum number of tests or pay Serex amounts that would have
been paid had the Company purchased the minimum number of tests. If the Company
does not meet these minimum requirements, its rights become nonexclusive.
In June 1989, the Company granted an exclusive worldwide license of certain of
its DXA technology to Vivid Technologies, Inc., an affiliate of S. David
Ellenbogen and Jay A. Stein, the Chief Executive Officer and Senior Vice
President of the Company, for the sole purpose of developing a baggage
inspection and security system. In September
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1996, the Company also granted Vivid Technologies, Inc. a nonexclusive license
to be used for the development of X-ray based products for process control
applications in the food and beverage industry.
Until recently, the Company had been involved in extensive patent litigation
with Lunar, with each party claiming that the other was infringing certain
patents held by the other. This litigation was settled by agreement dated
November 22, 1995. The agreement provides for certain royalties to be paid by
each party to the other for future sales of products using certain defined
technologies. The Company does not believe that amounts to be paid by either
party under this arrangement will be material. The agreement also provides that
neither party will engage the other party in patent litigation for a period of
ten years following the date of the agreement, regardless of the infringement
claimed and regardless of whether the technology in question currently exists or
is developed or acquired by the other party in the future. Neither party is
required to disclose to the other any of its technology during this ten year
period or otherwise. However, there can be no assurance that Lunar will not use
the Company's technology in a manner that would materially and adversely affect
the Company's business and results of operations.
The Company has two license agreements for technology used in its mini c-arms
with the United States government as represented by NASA that are exclusive
within the United States. The first agreement gives the Company exclusive rights
to manufacture and distribute a nonradioactive isotope version of NASA's low
intensity X-ray and gamma ray imaging device. This technology provides the
ability to amplify X-rays that have been converted to visible light. This
license agreement and underlying patent previously had an expiration date of
February 1996 but was extended as a result of GATT and now expires in July 1997.
The second agreement gives the Company exclusive rights to manufacture and
distribute NASA's high voltage isolation transformer and high voltage power
supply. This technology allows the Company products to produce low levels of
radiation. This second license and underlying patent previously had an
expiration date of 2002 but was extended as a result of GATT and now expires
2003. Pursuant to the licenses, the Company may be required to grant
sublicenses to the extent that NASA believes such sublicenses are necessary for
the health and safety needs of the United States and such needs cannot be
fulfilled by the Company.
In 1992, the Company and the U.S. Department of Justice representing NASA
brought suit against Dow Corning Wright and Xi Tec for alleged infringement of
the NASA low intensity X-ray and gamma ray imaging device patent. In 1993, the
parties agreed to settle the litigation. As part of the settlement, the Company
granted Xi Tec a nonexclusive, nonassignable and nontransferable sublicense
under the NASA license covering the X-ray and gamma ray imaging device patent
which patent previously had an expiration date of February 26, 1996 and was
extended as a result of GATT to July 1997.
Third Party Reimbursement
In the United States, the Health Care Finance Administration, which
establishes guidelines for the reimbursement of healthcare providers treating
Medicare and Medicaid patients, provided validation for DXA bone densitometry
examinations as a clinically useful procedure by recommending the reimbursement
for DXA bone examinations in April 1994, and recently clarifying its guidelines
by recommending reimbursement for hip and spine examinations, the important
fracture sites, of approximately $121 per patient examination. Reimbursement
for densitometry done at peripheral sites declined to approximately $37. This
differential in reimbursement recognizes the important benefit of DXA
measurements of the critical fracture sites, the hip and spine, in assisting in
the detection and monitoring of bone disease. In part, as a result of the
reimbursement policy recommendations implemented by HCFA, bone density
examinations are paid for by many private third party insurers in the United
States.
In several European countries, Japan and other international markets, there
has generally been an earlier adoption of reimbursement for bone densitometry
exams. Countries in which reimbursement for the use of X-ray bone densitometers
has been approved include Belgium, Brazil, Canada, Germany, Greece, Japan, South
Korea, Spain and Switzerland. In addition, in Japan, where there is a general
aversion to ionizing devices, the government has initiated a program to
subsidize purchases of ultrasound bone densitometers. As a result, there is much
greater use of ultrasound bone densitometers in Japan than in any other country.
However, DXA bone densitometers continue to account for a substantial portion of
the Japanese market.
14
<PAGE>
Regulation
The medical devices manufactured and marketed by the Company are subject to
regulation by the FDA and, in many instances, by foreign governments. Under the
Federal Food, Drug and Cosmetic Act (the "FDA Act"), manufacturers of medical
devices must comply with certain regulations governing the testing,
manufacturing, packaging and marketing of medical devices. The Company's
products are also subject to the Radiation Control for Health and Safety Act,
administered by the FDA, which imposes performance standards and record keeping,
reporting, product testing and product labeling requirements for devices using
radiation, such as X-rays.
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of the Company's medical devices within the United States must
be preceded by either a premarket notification filing pursuant to Section 510(k)
of the FDA Act or the granting of a premarket approval. The 510(k) notification
filing must contain information that establishes that the device is
substantially equivalent to an existing device that has been continuously
marketed since May 28, 1976. The Company received FDA market clearance under
510(k) for its DXA bone densitometers and expects to be eligible to seek 510(k)
clearance for its biochemical marker strip test for use by physicians, once
developed.
The premarket approval procedure involves a more complex and lengthy testing
and review process by the FDA than the 510(k) premarket notification procedure
and often requires at least several years to obtain. The Company must first
obtain an investigational device exemption ("IDE") for the product to conduct
extensive clinical testing of the device to obtain the necessary clinical data
for submission to the FDA. The FDA will thereafter only grant premarket approval
if, after evaluating this clinical data, it finds that the safety and efficacy
of the product has been sufficiently demonstrated. This approval may restrict
the number of devices distributed or require additional patient follow-up for an
indefinite period of time. The Company believes that the approval to market its
ultrasound products and its over-the-counter biochemical market strip test, once
developed, in the United States may be subject to this more stringent FDA review
process.
The Company's systems are also subject to approval by certain foreign
regulatory and safety agencies. The FluoroScan System technology is governed by
the International Traffic in Arms Regulations of the United States Department of
State. As a result, the export of FluoroScan Systems to certain countries may
be limited or prohibited.
No assurance can be given that the FDA or foreign regulatory agencies will
give the requisite approvals or clearances for any of the Company's medical
devices under development on a timely basis, if at all. Moreover, after
clearance is given, these agencies can later withdraw the clearance or require
the Company to change the device or its manufacturing process or labeling, to
supply additional proof of its safety and effectiveness, or to recall, repair,
replace or refund the cost of the medical device, if it is shown to be hazardous
or defective. The process of obtaining clearance to market products is costly
and time-consuming and can delay the marketing and sale of the Company's
products.
As a manufacturer of medical devices, the Company is subject to certain other
FDA regulations and the Company's manufacturing processes and facilities are
subject to continuing review by the FDA. Most states and certain other foreign
countries monitor and require licensing of X-ray devices. Federal, state and
foreign regulations regarding the manufacture and sale of medical devices are
subject to future change. The Company cannot predict what impact, if any, such
changes might have on its business.
Employees
As of November 30, 1996, the Company had 294 full-time employees, including 85
in manufacturing operations, 44 in research and development, 117 in marketing,
sales and support services, 38 in finance and administration and 10 in medical
data management. None of the Company's employees are represented by a union. The
Company considers its employee relations to be good.
15
<PAGE>
Item 2. Properties
The Company leases a 83,500 square foot building located in Waltham,
Massachusetts under a lease which expires in 2002 for its corporate headquarters
and manufacturing facility for its bone assessment products. The Company also
utilizes approximately 13,500 square feet of space in Northbrook, Illinois
pursuant to a lease that expires in February 1997 for operations of its wholly-
owned subsidiary, FluoroScan. The Company believes that its facilities will be
adequate for its needs for the foreseeable future. The Company also maintains
sales and service offices in France, Belgium and Spain. The Company believes
that it has adequate space for its anticipated needs and that suitable
additional space will be available at commercially reasonable prices as needed.
Item 3. Legal Proceedings
On November 22, 1995, the Company and Lunar entered into a settlement
agreement relating to litigation involving allegations of each party against the
other of patent infringement. See "Patents and Proprietary Rights."
Until recently, the Company had been involved in litigation brought in January
1995 by B.V. Optische Industrie de Oude Delft and two subsidiaries ("Oldelft")
claiming damages relating to a prior patent dispute. On December 14, 1995, the
United States District Court for the Southern District of New York granted the
Company's Motion to Dismiss and dismissed all claims against the Company. In
January 1996, Oldelft filed a motion for reconsideration of the dismissal and
amended its complaint. In April 1996, the Court denied Oldelft its motion for
reconsideration of the dismissal, and in May 1996 the Company and Oldelft
settled this matter.
Item 4. Submission of Matter to a Vote of Security Holders.
None.
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Part II
Item 5. Market Information, Holders and Dividends.
Market Information. The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "HOLX." The following table sets forth, for
the periods indicated, the high and low sales prices per share of Common Stock,
as reported by the Nasdaq National Market. All stock prices have been
retroactively restated to reflect a 2-for-1 stock split that occurred on March
25, 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1995 High Low
<S> <C> <C>
First Quarter $ 9 1/16/ $ 6 1/8/
Second Quarter $ 9 3/8/ $ 6 5/8/
Third Quarter $ 8 11/16/ $ 4 1/2/
Fourth Quarter $ 12 9/16/ $ 7 11/16/
- ------------------------------------------------------------------------------
Fiscal Year Ended September 28, 1996
First Quarter $ 22 3/4/ $ 10 3/8/
Second Quarter $ 26 3/4/ $ 17 1/4/
Third Quarter $ 49 1/2/ $ 21
Fourth Quarter $ 45 $ 26
- ------------------------------------------------------------------------------
</TABLE>
Number of Holders. As of December 16, 1996, there were approximately 343
holders of record of the Company's Common Stock.
Dividend Policy. The Company has never declared or paid cash dividends on its
capital stock and does not plan to pay any cash dividends in the foreseeable
future. The Company's current policy is to retain all of its earnings to
finance future growth.
17
<PAGE>
Item 6. Selected Financial Data.
The historical selected financial data of the Company has been retroactively
restated to reflect the acquisition of FluoroScan in a pooling-of-interests
transaction. See Note 3 of the accompanying Notes to the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30, September 25, September 24, September 30, September 28,
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $32,180 $31,068 $46,227 $54,276 $ 88,201
Other revenue 73 708 1,427 2,270 3,390
------- ------- ------- ------- --------
32,253 31,776 47,654 56,546 91,591
------- ------- ------- ------- --------
Costs and Expenses:
Cost of product sales 16,146 16,462 24,522 27,549 41,253
Research and development 3,786 3,400 3,668 4,499 7,283
Selling and marketing 6,209 7,328 7,781 11,052 16,504
General and administrative 4,410 5,066 5,795 6,879 9,081
Restructuring costs (2) --- 900 --- --- ---
Litigation expenses (3) --- --- --- 2,533 798
Acquisition expenses --- --- --- --- 1,949
------- ------- ------- ------- --------
30,551 33,156 41,766 52,512 76,868
------- ------- ------- ------- --------
Income (loss) from operations 1,702 (1,380) 5,888 4,034 14,723
Interest income 505 314 437 883 2,583
Other income (expense) 223 (36) 70 (56) (249)
------- ------- ------- ------- --------
Income (loss) before income taxes 2,430 (1,102) 6,395 4,861 17,057
Provision (benefit) for income taxes 533 (785) 1,627 1,513 5,700
------- ------- ------- ------- --------
Net income (loss) $ 1,897 $ (317) $ 4,768 $ 3,348 $ 11,357
======= ======= ======= ======= ========
Net income (loss) per common and
common equivalent share:
Primary (1) $.21 $(.04) $.51 $.34 $.91
======= ======= ======= ======= ========
Fully diluted $.49 $.33
======= =======
Weighted average number of common and
common equivalent shares outstanding:
Primary 8,967 8,726 9,355 9,831 12,524
======= ======= ======= ======= ========
Fully diluted 9,649 10,230
======= =======
- ---------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data
Working capital $16,420 $15,336 $23,967 $27,189 $ 97,199
Total liabilities 6,149 7,681 9,426 12,551 15,835
Total assets 24,452 25,652 36,670 44,083 123,107
Stockholders' equity 18,303 17,971 27,244 31,532 107,272
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All share and per share data has been restated to reflect the 2-for-1 stock
split that occurred on March 25, 1996.
(2) The fiscal 1993 restructuring charge of $900,000, or $.10 per share,
relates to the reorganization of the Company's European operations.
(3) The fiscal 1995 litigation expenses of $2.5 million before income taxes
($1.8 million after tax, or $.18 per share) relate primarily to certain patent
litigation. A definitive agreement was reached by the Company and the other
party to this litigation in November 1995, settling all outstanding disputes.
See "Patents and Proprietary Rights"
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
included elsewhere in this Report. This Report contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The Company's actual
results could differ materially from those anticipated in the forward-looking
statements.
Overview
Since inception, the Company has experienced generally increasing annual sales
as interest in bone diseases, such as osteoporosis, has grown, as new drug
therapies have become available in the United States and other countries to
treat these diseases and as the use of DXA systems to measure bone density has
become more widespread. In fiscal 1996, sales of the Company's X-Ray bone
densitometers reached record levels, especially in the United States, as Merck
began marketing Fosamax, its recently approved drug for the treatment of
osteoporosis.
The Company introduced the first DXA bone densitometer in 1987 and continued
with a string of new product advancements including the introduction of the
fourth- generation clinically-oriented ACCLAIM series of bone densitometers in
fiscal 1995. In fiscal 1996, ACCLAIM sales represented approximately 86% of the
Company's total DXA sales. The Company achieved a slightly higher gross margin
on this product line because of higher selling prices and lower overall
manufacturing costs than the older DXA line. In July 1996, the Company began
international shipments of Sahara, a completely dry ultrasound system that does
not require water as a coupling medium like the other competitive devices.
On August 29, 1996, the Company acquired all of the common stock of
FluoroScan, an industry leader in the field of mini c-arm imaging systems. All
results have been restated to reflect the acquisition of FluoroScan in a
pooling-of-interests transaction. All share and per share data has been
retroactively restated to reflect a 2-for-1 stock split that occurred on March
25, 1996. On a combined basis, the Company recognized total revenues of $91.6
million, a 62% increase when compared to revenues of $56.5 million for fiscal
1995. Net income for fiscal 1996 would have been approximately $12 million, or
$1.03 per share, as compared to $10.9 million, or $.96 per share, for Hologic,
absent the one time charges incurred in the fourth quarter relating to the
merger with FluoroScan.
19
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items as shown in the Company's consolidated statements
of operations.
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------
September 24, September 30, September 28,
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Product sales 97.0% 96.0% 96.3%
Other revenue 3.0 4.0 3.7
------ ------ ------
100.0 100.0 100.0
------ ------ ------
Cost and expenses:
Cost of product sales 51.5 48.7 45.0
Research and development 7.7 8.0 8.0
Selling and marketing 16.3 19.5 18.0
General and administrative 12.2 12.2 9.9
Litigation expenses -- 4.5 .9
Acquisition expenses -- -- 2.1
------ ------ ------
87.7 92.9 83.9
------ ------ ------
Income from operations 12.3 7.1 16.1
Interest income 0.3 1.6 2.8
Other income (expense) 0.8 (0.1) (0.3)
------ ------ ------
Income before income taxes 13.4 8.6 18.6
Provision for income taxes 3.4 2.7 6.2
------ ------ ------
Net income 10.0% 5.9% 12.4%
====== ====== ======
</TABLE>
Fiscal Years Ended September 28, 1996, September 30, 1995 and September 24,
1994
Revenues. Total revenues were $91.6 million in fiscal 1996, $56.5 million in
fiscal 1995 and $47.7 million in fiscal 1994. Total revenues in fiscal 1996
increased 62% when compared to fiscal 1995 as a result of the acceleration in
demand for the Company's x-ray bone densitometers in both the domestic and
international markets, but especially in the United States where DXA sales
increased more than 300% in fiscal 1996 over fiscal 1995. The increase in total
revenues of 19% in fiscal 1995 compared to fiscal 1994 was primarily due to the
increase in the total number of DXA product shipments in both the Company's
domestic and international markets, particularly to Europe where product sales
increased 30% over the prior year. In addition, to a lesser extent, the
increases in annual revenues were attributable to increased sales of mini c-arm
imaging systems. There was also a shift in product sales mix in 1996 and 1995
to the Company's new line of bone densitometers, the ACCLAIM series, which the
Company began shipping in January 1995. The new ACCLAIM products have higher
average selling prices than the comparable DXA bone densitometers which they
replace. The ACCLAIM product line accounted for over 78% and 42% of product
sales in fiscal 1996 and 1995, respectively.
Other revenues consist primarily of royalty revenues from the Company's
licensing of its technology to a related party and revenue relating to medical
data management services provided to pharmaceutical companies to assist in the
collection and monitoring of clinical trial data. In fiscal 1996, other revenue
increased 49% to $3.4 million from $2.3 million in fiscal 1995, and in fiscal
1995, other revenue increased 59% from $1.4 million in fiscal 1994. These
increases were primarily due to an increase in revenue relating to medical data
management services.
20
<PAGE>
In fiscal 1996, approximately 60% of product sales were generated in the
United States, 17% in Asia, 17% in Europe and 6% in other international markets.
In fiscal 1995, approximately 42% of product sales were generated in the United
States, 28% in Europe, 22% in Asia and 8% in other international markets. In
fiscal 1994, approximately 40% of product sales were generated in the United
States, 30% in Asia, 25% in Europe and 5% in other international markets.
Costs and Expenses. The cost of product sales decreased as a percentage of
product sales to 47% in fiscal 1996 from 51% in fiscal 1995 and from 53% in
fiscal 1994. In fiscal 1996, these costs decreased as a percentage of product
sales primarily due to (i) increased shipments of a new family of DXA bone
densitometers, the ACCLAIM series, which earns a better gross margin than the
Company's older DXA systems, (ii) a volume increase in the number of DXA systems
sold resulting in certain manufacturing efficiencies and (iii) an increase in
sales by the Company's direct sales force (primarily in the United States) which
results in higher average selling prices. Partially offsetting these decreases
were increased costs primarily relating to mini c-arm systems. In fiscal 1996,
the Company realized lower margins on the newly introduced FluoroScan III
model, which is slightly more expensive to produce than the FluoroScan I model
which it replaced, and due to an increase in international sales through
distributors which result in lower selling prices. In fiscal 1995, the cost of
product sales decreased as a percentage of product sales when compared to 1994
primarily due to initiating shipments of the ACCLAIM series and a volume
increase in the number of DXA systems sold, resulting in certain manufacturing
efficiencies. The Company began selling the ACCLAIM product in the second
quarter of fiscal 1995 and has recognized higher gross margins than on the older
DXA product lines due to higher average selling prices and lower labor and
overhead-related manufacturing costs.
Research and development expenses increased 62% to $7.3 million (8% of total
revenues) in fiscal 1996 from $4.5 million (8% of total revenues) in fiscal 1995
and $3.7 million (8% of total revenues) in fiscal 1994. These increases were
primarily due to the addition of engineering personnel, outside consultants
working on the development of new products and the funding of Serex to develop a
biochemical marker strip test.
Selling and marketing expenses increased 49% to $16.5 million (19% of product
sales) in fiscal 1996 from $11.1 million (20% of product sales) in fiscal 1995
primarily due to an increase in sales personnel and related expenses, marketing
and promotional costs incurred in connection with the ACCLAIM series and
increased sales commissions based on the higher sales volume. In addition, the
Company incurred additional costs in connection with its strategic alliances for
the development of new products and the distribution of products through new
sales channels. The 42% increase in fiscal 1995 expenses from the $7.8 million
(17% of product sales) in fiscal 1994 was primarily due to an increase in sales
personnel and related expenses, marketing and promotional costs incurred in
connection with the introduction of new products and increased sales
commissions based on higher sales volume.
General and administrative expenses increased to $9.1 million (10% of total
revenues) in fiscal 1996 from $6.9 million (12% of total revenues) in fiscal
1995 and $5.8 million (12% of total revenues) in fiscal 1994. The increase of
32% in fiscal 1996 when compared to fiscal 1995 was primarily due to increased
headcount and other compensation-related expenditures, and an increase in
accounts receivable reserves, as a result of the increase in accounts
receivable. The increase in fiscal 1995 when compared to fiscal 1994 was
primarily due to increased headcount and other compensation-related
expenditures.
Litigation expenses incurred in fiscal 1996 and in fiscal 1995 were in
connection with the Company's disputes with Lunar Corporation (Lunar) and B.V.
Optische Industrie de Oude Delft ("Oldelft"). Legal expenses in connection with
the patent litigation with Lunar began in October 1994 and represent a
substantial portion of the total litigation expenses. In November 1995, a
definitive agreement that provides for the cross-licensing of certain patent
rights and a non-assertion agreement for all patents involving DXA and
ultrasound technologies for a period of ten years was reached by the Company and
Lunar. The complaint brought by Oldelft against the Company was settled in May
1996.
21
<PAGE>
Acquisition expenses incurred in fiscal 1996 were direct transaction costs
related to the Company's merger with FluoroScan Imaging Systems, Inc. These
costs were expensed in the period incurred in accordance with the pooling-of-
interests accounting for business combinations.
Interest Income. Interest income increased to $2.6 million in fiscal 1996
from $900,000 in fiscal 1995 as the Company earned a higher rate of return on a
higher investment base than in the prior year. In January 1996, the Company
received proceeds of approximately $49.2 million from a public sale of Common
Stock which increased the investment base. The Company also received
approximately $8.0 million from the exercise of FluoroScan warrants in July
1996. The Company has invested these proceeds in investment grade corporate and
government securities. In fiscal 1996, the Company also increased the number of
long-term receivables to Latin American customers resulting in additional
interest income. In fiscal 1995, the Company's interest income increased from
$440,000 in fiscal 1994 as the Company earned a higher rate of return on a
slightly higher investment base than in the prior year and the number of long-
term receivables to Latin American customers also increased. In addition, the
proceeds of FluoroScan's initial public offering in July 1994 were available for
investment for all of fiscal 1995.
Other Income/Expense. In fiscal 1996 and 1995, the Company incurred other
expenses of $250,000 and $60,000, respectively. These expenses were primarily
attributable to the interest costs on a line of credit established by the
Company in the third quarter of fiscal 1994 for use by the Company's European
subsidiaries to borrow funds in their local currencies to pay for all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions. These interest costs were offset in part by royalty income earned
by FluoroScan. In fiscal 1994, other income of $70,000 was attributable to
royalty income earned by FluoroScan which was partially offset by the interest
expense associated with the Company's foreign line of credit which was in place
only part of the year. To the extent that foreign currency exchange rates
fluctuate in the future, the Company may be exposed to continued financial risk.
Although the Company has established a borrowing line denominated in the two
foreign currencies (the French franc and the Belgian franc) in which the
subsidiaries currently conduct business to minimize this risk, there can be no
assurance that the Company will be successful or can fully hedge its outstanding
exposure.
Provision for Income Taxes. The Company's effective tax rate was 33.4% in
fiscal 1996, 31.1% in fiscal 1995 and 25.4% in fiscal 1994. The Company's
effective tax rate is lower than the statutory tax rates due primarily to the
tax benefits associated with the Company's foreign sales corporation and the
utilization of net operating losses in foreign jurisdictions and tax credits.
The increase in the effective tax rate is primarily due to the significant
increase in U.S. income. See Note 5 of the Consolidated Financial Statements.
Liquidity and Capital Resources
At September 28, 1996, working capital was $97.2 million and cash, cash
equivalents and short-term investments totaled $75.7 million. The Company has
funded its operations primarily through cash flows from operations and the
issuance of securities. The cash, cash equivalents and short-term investments
balance increased approximately $60.3 million from September 30, 1995 primarily
due to the net proceeds of approximately $49.2 million from the public offering
of common stock and $8.0 million from the exercise of certain FluoroScan common
stock warrants. In addition, the cash, cash equivalents and short-term
investments balance increased approximately $3.1 million primarily due to the
proceeds and tax benefits from the exercise of stock options and an increase in
the Company's accrued expenses, which were partially offset by an increase in
accounts receivable. The increase in accrued expenses and accounts receivable
reflects the Company's introduction of its new ACCLAIM family of bone
densitometers and the increase in sales activity. At September 28, 1996, one
customer had accounts receivable outstanding of approximately $2.2 million which
were within their payment terms. The Company finances certain sales to Latin
America over a two to three year time frame. At September 28, 1996, the Company
had long-term accounts receivable outstanding of approximately $1.3 million
relating to these sales, which were included in other assets. In fiscal 1996,
the Company purchased approximately $2.4 million of
22
<PAGE>
property and equipment, primarily computers and other equipment associated with
the hiring of additional personnel.
The Company does not currently have any significant capital commitments and
believes that existing sources of liquidity, funds expected to be generated from
operations and a $3.0 million credit line for use by its European subsidiaries,
will provide adequate cash to fund the Company's anticipated working capital and
other cash needs for the foreseeable future.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 123 "Accounting for Stock-Based
Compensation," which becomes effective for fiscal years beginning after December
15, 1995. SFAS 123 establishes new financial accounting and reporting standards
for stock-based compensation plans. However, entities are allowed to elect
whether to measure compensation expense for stock-based compensation under SFAS
123 or Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued
to Employees." The Company has elected to remain with the accounting under APB
Opinion No. 25 and will make the required pro forma disclosures of net income
and earnings per share as if the provisions of SFAS 123 had been applied in its
fiscal 1997 financial statements. The potential impact of adopting this
standard on the Company's pro forma disclosures of net income and earnings per
share cannot be quantified at this time.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Public Accountants
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a
Delaware corporation) and subsidiaries as of September 30, 1995 and September
28, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
FluoroScan Imaging Systems, Inc., a company acquired during 1996 in a
transaction accounted for as a pooling of interests, as discussed in Note 3.
Such statements are included in the consolidated financial statements of
Hologic, Inc. and reflect total revenues of 19% in 1994 and total assets and
total revenues of 23% in 1995, of the related consolidated totals. The
statements for 1994 and 1995 were audited by other auditors whose reports
thereon have been furnished to us. Our opinion expressed herein, insofar as it
relates to amounts included for FluoroScan Imaging Systems, Inc., is based
solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hologic, Inc. and subsidiaries as of September 30,
1995 and September 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 28, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 6, 1996
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a
Delaware corporation) and subsidiaries as of September 30, 1995 and September
28, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
FluoroScan Imaging Systems, Inc., a company acquired during 1996 in a
transaction accounted for as a pooling of interests, as discussed in Note 3.
Such statements are included in the consolidated financial statements of
Hologic, Inc. and reflect total revenues of 19% in 1994 and total assets and
total revenues of 23% in 1995, of the related consolidated totals. The
statements for 1994 and 1995 were audited by other auditors whose reports
thereon have been furnished to us. Our opinion expressed herein, insofar as it
relates to amounts included for FluoroScan Imaging Systems, Inc., is based
solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hologic, Inc. and subsidiaries as of September 30,
1995 and September 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 28, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 6, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors of FluoroScan Imaging Systems, Inc.:
We have audited the accompanying consolidated balance sheet of FluoroScan
Imaging Systems, Inc. and subsidiary as of December 31, 1995 and the related
consolidated statements of income, stockholder's equity, cash flows for each of
the two years in the period ended December 31, 1995 (not presented herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express and opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FluoroScan Imaging
Systems, Inc., and subsidiary at December 31, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Chicago, Illinois
February 23, 1996
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 28,
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,886,413 $ 28,754,023
Short-term investments 2,492,671 46,907,728
Accounts receivable, less reserves of $850,000 and
$1,360,000 in 1995 and 1996, respectively 13,544,746 21,735,613
Inventories 8,556,505 11,122,988
Prepaid expenses and other current assets 2,260,216 4,513,375
----------------- -----------------
Total current assets 39,740,551 113,033,727
----------------- -----------------
PROPERTY AND EQUIPMENT, AT COST:
Equipment 3,326,465 4,813,647
Furniture and fixtures 1,129,061 1,349,659
Leasehold improvements 848,876 1,494,936
----------------- -----------------
5,304,402 7,658,242
Less--Accumulated depreciation and amortization 3,254,750 3,973,723
----------------- -----------------
2,049,652 3,684,519
----------------- -----------------
OTHER ASSETS, NET 2,292,555 6,389,210
----------------- -----------------
$ 44,082,758 $123,107,456
=============== =================
</TABLE>
<TABLE>
<CAPTION>
September 30, September 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 2,058,898 $ 2,534,740
Accounts payable 4,483,275 4,025,790
Accrued expenses 4,616,273 7,515,365
Deferred revenue 1,392,667 1,758,871
----------------- ------------------
Total current liabilities 12,551,113 15,834,766
----------------- ------------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized--1,622,685 shares
Issued and outstanding--none - -
Common stock, $.01 par value-
Authorized--30,000,000 shares
Issued and outstanding--9,323,077 shares and
12,871,274 shares in 1995 and 1996, respectively 93,231 128,713
Capital in excess of par value 24,467,440 89,253,570
Retained earnings 7,115,983 18,069,697
Cumulative translation adjustment (145,009) (179,290)
----------------- ------------------
Total stockholders' equity 31,531,645 107,272,690
----------------- ------------------
$ 44,082,758 $123,107,456
================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 28,
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,886,413 $ 28,754,023
Short-term investments 2,492,671 46,907,728
Accounts receivable, less reserves of $850,000 and
$1,360,000 in 1995 and 1996, respectively 13,544,746 21,735,613
Inventories 8,556,505 11,122,988
Prepaid expenses and other current assets 2,260,216 4,513,375
----------------- -----------------
Total current assets 39,740,551 113,033,727
----------------- -----------------
PROPERTY AND EQUIPMENT, AT COST:
Equipment 3,326,465 4,813,647
Furniture and fixtures 1,129,061 1,349,659
Leasehold improvements 848,876 1,494,936
----------------- -----------------
5,304,402 7,658,242
Less--Accumulated depreciation and amortization 3,254,750 3,973,723
----------------- -----------------
2,049,652 3,684,519
----------------- -----------------
OTHER ASSETS, NET 2,292,555 6,389,210
----------------- -----------------
$ 44,082,758 $123,107,456
=============== =================
</TABLE>
<TABLE>
<CAPTION>
September 30, September 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 2,058,898 $ 2,534,740
Accounts payable 4,483,275 4,025,790
Accrued expenses 4,616,273 7,515,365
Deferred revenue 1,392,667 1,758,871
----------------- ------------------
Total current liabilities 12,551,113 15,834,766
----------------- ------------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized--1,622,685 shares
Issued and outstanding--none -
Common stock, $.01 par value-
Authorized--30,000,000 shares
Issued and outstanding--9,323,077 shares and
12,871,274 shares in 1995 and 1996, respectively 93,231 128,713
Capital in excess of par value 24,467,440 89,253,570
Retained earnings 7,115,983 18,069,697
Cumulative translation adjustment (145,009) (179,290)
----------------- ------------------
Total stockholders' equity 31,531,645 107,272,690
----------------- ------------------
$ 44,082,758 $123,107,456
================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
------------------------Years Ended------------------------
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
REVENUES:
Product sales $ 46,226,614 $ 54,276,761 $ 88,200,646
Other revenue 1,427,634 2,270,068 3,389,979
------------------ ------------------ ------------------
47,654,248 56,546,829 91,590,625
------------------ ------------------ ------------------
COSTS AND EXPENSES:
Cost of product sales 24,521,726 27,548,992 41,252,990
Research and development 3,667,765 4,498,857 7,283,430
Selling and marketing 7,781,351 11,052,233 16,504,076
General and administrative 5,795,030 6,878,759 9,080,580
Litigation expenses - 2,533,493 797,819
Acquisition expenses - - 1,948,889
------------------ ------------------ ------------------
41,765,872 52,512,334 76,867,784
------------------ ------------------ ------------------
Income from operations 5,888,376 4,034,495 14,722,841
INTEREST INCOME 436,881 883,245 2,583,404
OTHER INCOME (EXPENSE) 69,687 (56,484) (249,379)
------------------ ------------------ ------------------
Income before provision for income taxes 6,394,944 4,861,256 17,056,866
PROVISION FOR INCOME TAXES 1,627,000 1,513,000 5,700,000
------------------ ------------------ ------------------
Net income $ 4,767,944 $ 3,348,256 $ 11,356,866
================== ================== ==================
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary $ .51 $ .34 $ .91
======= ======= =======
Fully diluted $ .49 $ .33
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 9,355,055 9,830,637 12,523,983
============= ============= =============
Fully diluted 9,648,847 10,229,729
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in
Number $.01 Excess of
of Shares Par Value Par Value
<S> <C> <C> <C>
BALANCE, SEPTEMBER 25, 1993 8,719,525 $ 87,195 $ 19,098,069
Issuance of common stock 222,210 2,222 3,997,755
Repurchase and retirement of common stock (9,321) (93) (97,407)
Amortization of deferred compensation - - -
Exercise of stock options 156,328 1,564 364,866
Tax benefit from stock options exercised - - 200,000
Net income - - -
Translation adjustments - - -
------------- ------------- ----------------
BALANCE, SEPTEMBER 24, 1994 9,088,742 90,888 23,563,283
Exercise of common stock warrants 39,297 393 (393)
Amortization of deferred compensation - - -
Exercise of stock options 129,436 1,294 241,965
Issuance of common stock under employee stock purchase plan 9,560 96 59,057
Stock issuance in conjunction with collaboration agreement 56,042 560 323,528
Tax benefit from stock options exercised - - 280,000
Net income - - -
Translation adjustments - - -
------------- ------------- ----------------
BALANCE, SEPTEMBER 30, 1995 9,323,077 93,231 24,467,440
Exercise of common stock warrants 357,037 3,570 8,040,811
Issuance of common stock, net of issuance costs of $390,774 2,492,000 24,920 49,168,876
Compensation expense related to issuance of stock options - - 109,780
Adjustment for FluoroScan Imaging Systems, Inc. pooling of
interests from year-end change (Note 3) - - -
Exercise of stock options 684,310 6,843 2,374,909
Issuance of common stock under employee stock purchase plan 14,850 149 161,754
Tax benefit from stock options exercised - - 4,930,000
Net income - - -
Translation adjustments - - -
------------- ------------- ----------------
BALANCE, SEPTEMBER 28, 1996 12,871,274 $ 128,713 $ 89,253,570
============= ============= ================
</TABLE>
<TABLE>
<CAPTION>
Retained Cumulative Total
Earnings Deferred Translation Stockholders'
(Deficit) Compensation Adjustment Equity
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 25, 1993 $ (1,000,217) $ (46,896) $ (167,579) $ 17,970,572
Issuance of common stock - - - 3,999,977
Repurchase and retirement of common stock - - - (97,500)
Amortization of deferred compensation - 37,591 - 37,591
Exercise of stock options - - - 366,430
Tax benefit from stock options exercised - - - 200,000
Net income 4,767,944 - - 4,767,944
Translation adjustments - - (1,454) (1,454)
------------- ------------ ------------- --------------
BALANCE, SEPTEMBER 24, 1994 3,767,727 (9,305) (169,033) 27,243,560
Exercise of common stock warrants - - - -
Amortization of deferred compensation - 9,305 - 9,305
Exercise of stock options - - - 243,259
Issuance of common stock under employee stock purchase plan - - - 59,153
Stock issuance in conjunction with collaboration agreement - - - 324,088
Tax benefit from stock options exercised - - - 280,000
Net income 3,348,256 - - 3,348,256
Translation adjustments - - 24,024 24,024
---------------- -------------- ------------- -----------------
BALANCE, SEPTEMBER 30, 1995 7,115,983 - (145,009) 31,531,645
Exercise of common stock warrants - - - 8,044,381
Issuance of common stock, net of issuance costs of $390,774 - - - 49,193,796
Compensation expense related to issuance of stock options - - - 109,780
Adjustment for FluoroScan Imaging Systems, Inc. pooling of
interests from year-end change (Note 3) (403,152) - - (403,152)
Exercise of stock options - - - 2,381,752
Issuance of common stock under employee stock purchase plan - - - 161,903
Tax benefit from stock options exercised - - - 4,930,000
Net income 11,356,866 - - 11,356,866
Translation adjustments - - (34,281) (34,281)
---------------- -------------- ------------- -----------------
BALANCE, SEPTEMBER 28, 1996 $ 18,069,697 $ - $ (179,290) $ 107,272,690
================ ============ ============= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------Years Ended------------------
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,767,944 $ 3,348,256 $ 11,356,866
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 773,896 704,471 889,550
Adjustment for FluoroScan Imaging Systems, Inc. pooling
of interests from year-end change (Note 3) - - (403,152)
Compensation expense related to issuance of stock options - - 109,780
Changes in assets and liabilities-
Accounts receivable (5,688,781) (1,413,830) (8,853,238)
Inventories (992,714) (2,979,382) (2,666,599)
Prepaid expenses and other current assets (333,513) (247,043) (2,268,108)
Accounts payable (183,706) 2,094,602 (403,566)
Accrued expenses (517,462) 771,440 2,936,322
Deferred revenue 27,344 505,765 384,142
------------ ------------ ------------
Net cash provided by (used in) operating activities (2,146,992) 2,784,279 1,081,997
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity investments - - (3,830,832)
Purchases of available-for-sale investments (8,979,190) (4,367,946) (75,561,809)
Sales of available-for-sale investments 8,899,850 5,394,790 31,146,752
Purchase of property and equipment, net (890,568) (1,042,792) (2,382,639)
(Increase) decrease in other assets (267,857) (365,011) 71,161
------------ ------------ ------------
Net cash used in investing activities (1,237,765) (380,959) (50,557,367)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (settlement) under line of credit 2,311,352 (536,200) 604,654
Payment of reorganization debt (214,892) - -
Net proceeds from exercise of common stock warrants - - 8,044,381
Net proceeds from sale of common stock 4,366,407 302,412 51,737,451
Purchase and retirement of common stock (97,500) - -
Tax benefit from stock options exercised 200,000 280,000 4,930,000
------------ ------------ ------------
Net cash provided by financing activities 6,565,367 46,212 65,316,486
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (94,627) (15,082) 26,494
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,085,983 2,434,450 15,867,610
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,365,980 10,451,963 12,886,413
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,451,963 $ 12,886,413 $ 28,754,023
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 1,287,440 $ 860,309 $ 2,959,167
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
Preferred stock investment acquired in exchange
for common stock $ - $ 324,088 $ -
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
Hologic, Inc. (the Company) is engaged in the development, manufacture
and distribution of proprietary x-ray and other medical systems. On
August 29, 1996, the Company completed a merger with FluoroScan Imaging
Systems, Inc., a manufacturer of low-intensity, real-time x-ray imaging
devices (see Note 3).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the
application of certain accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned
subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
(b) Fiscal Year
The Company's fiscal year ends on the last Saturday in
September. Fiscal 1994, 1995 and 1996 ended on September 24,
1994, September 30, 1995 and September 28, 1996, respectively.
Operations for fiscal 1994 and 1996 include 52 weeks and 1995
includes 53 weeks.
(c) Stock Split
On March 25, 1996, the Company affected a two-for-one stock
split. The stock split has been retroactively reflected in the
accompanying consolidated financial statements and notes for all
periods presented.
(d) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments with
maturities of three months or less at the time of acquisition to
be cash equivalents. Included in cash equivalents at September
30, 1995 and September 28, 1996 are approximately $4,217,000 and
$8,735,000, respectively, of securities purchased under
agreements to resell. The securities purchased under agreements
to resell are collateralized by U.S. Government securities.
Short-term investments have maturities of greater than three
months and consist of securities issued by the U.S. Government
and its agencies. Investments with maturities of greater than
one year have been classified as long-term. As of September 28,
1996, the Company had long-term investments of approximately
$3,831,000, with an average maturity period of 25 months, which
are included in other assets in the accompanying consolidated
balance sheets.
The Company accounts for investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. Under SFAS No. 115, investments that the Company has
the positive intent and ability to hold to maturity are reported
at amortized cost, which approximates fair market value, and are
classified as held-to-maturity. The investments that the Company
has deemed held-to- maturity include cash equivalents and
securities issued by U.S. Government agencies, which total
approximately $10,305,000 and $20,473,000 at September 30, 1995
and September 28, 1996, respectively. Investments purchased to
be held for indefinite periods of time and not intended at the
time of purchase to be held until maturity are classified as
available-for-sale; the investments that the Company has deemed
available for sale total approximately $1,803,000 and
$54,396,000 at September 30, 1995 and September 28, 1996,
respectively. These investments consist of securities issued by
the U.S. Government and are carried at cost, which approximates
fair market value.
(f) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, requires
disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that subject the Company
to credit risk consist primarily of trade accounts receivable.
The Company utilizes distributors in certain countries with
various credit terms, depending on the individual circumstances.
One distributor had amounts due to the Company of approximately
$2,231,000 and $2,633,000 as of September 30, 1995 and September
28, 1996, respectively. This distributor accounted for 22%, 15%,
and 10% of product sales for fiscal 1994, 1995 and 1996,
respectively. The Company has not experienced any material
losses related to receivables from individual customers or
groups of customers in the x-ray and medical devices industry.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and
cash equivalents, short-term investments, accounts receivable,
line of credit and accounts payable. The carrying amounts of the
Company's cash and cash equivalents, short-term investments,
accounts receivable, line of credit and accounts payable
approximate fair value due to the short-term nature of these
instruments.
(h) Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of the following:
<TABLE>
<CAPTION>
September 30, September 28,
1995 1996
<S> <C> <C>
Raw materials and work-in-process $ 5,669,780 $ 8,291,870
Finished goods 2,886,725 2,831,118
----------- -----------
$ 8,556,505 $11,122,988
=========== ===========
</TABLE>
Work-in-process and finished goods inventories consist of
materials, labor and manufacturing overhead.
(i) Depreciation and Amortization
The Company provides for depreciation and amortization by
charges to operations, using the straight-line and
declining-balance methods, which allocate the cost of property
and equipment over the following estimated useful lives:
Estimated
Asset Classification Useful Life
Equipment 5 Years
Furniture and fixtures 5-7 Years
Leasehold improvements Life of lease
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Long-Lived Assets
The Company assesses the realizability of its long-lived assets,
including intangible assets, in accordance with SFAS No. 121,
Accounting for Impairment of Long-lived Assets and for
Long-lived Assets To Be Disposed Of.
(k) Foreign Currency Translation
The Company translates the financial statements of its foreign
subsidiaries in accordance with SFAS No. 52, Foreign Currency
Translation. In translating the accounts of the foreign
subsidiaries into U.S. dollars, assets and liabilities are
translated at the rate of exchange in effect at year-end, while
stockholders' equity is translated at historical rates. Revenue
and expense accounts are translated using the weighted average
exchange rate in effect during the year. Gains and losses from
foreign currency translation are credited or charged to
cumulative translation adjustment, included in stockholders'
equity in the accompanying consolidated balance sheets.
Transaction gains in fiscal 1994, 1995 and 1996 were not
significant.
(l) Revenue Recognition
The Company recognizes product revenue upon shipment. A
provision is made at that time for estimated warranty costs to
be incurred. Other revenues are recorded at the time the product
is shipped or the service rendered.
Maintenance revenues are recognized over the term of the
contract. Cash received in excess of revenues recognized is
included in deferred revenue in the accompanying consolidated
balance sheets.
(m) Research and Development and Software Development Costs
Research and development costs, other than software development
costs, have been charged to operations as incurred. SFAS No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased
or Otherwise Marketed, requires the capitalization of certain
computer software development costs incurred after technological
feasibility is established. The Company believes that once
technological feasibility of a software product has been
established, the additional development costs incurred to bring
the product to a commercially acceptable level are not
significant.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Net Income per Common and Common Equivalent Share
Net income per share data are computed using the weighted
average number of shares of common stock outstanding during each
period. Common equivalent shares from stock options and warrants
have been included in the computation using the treasury stock
method only when their effect would be dilutive. Fully diluted
net income per share has been separately presented only when the
difference from primary net income per share is significant.
(o) Derivative Financial Instruments
During fiscal 1996, the Company adopted SFAS No. 119, Disclosure
About Derivative Financial Instruments and Fair Value of
Financial Instruments, which requires disclosures about
derivative financial instruments. The adoption of this standard
did not have an effect on its consolidated financial position or
results of operations. At September 30, 1995 and September 28,
1996, the Company had no instruments requiring disclosure under
SFAS No. 119.
(3) ACQUISITION OF FLUOROSCAN IMAGING SYSTEMS, INC.
On August 29, 1996, the Company acquired all the common stock of
FluoroScan Imaging Systems, Inc. (FluoroScan) in exchange for 1,454,901
shares of the Company's common stock. Under the terms of the agreement,
FluoroScan shareholders received .31069 of a share of the Company's
common stock in exchange for each share of FluoroScan common stock.
Additionally, all outstanding options and warrants to acquire FluoroScan
common stock were converted to options and warrants to acquire 297,517
shares of the Company's common stock. FluoroScan is a manufacturer and
distributor of low-intensity, real-time X-ray imaging devices.
The merger qualifies as a tax-free reorganization and was accounted for
as a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of FluoroScan for
all periods presented. FluoroScan's fiscal year-end has been changed
from December 31 to the last Saturday in September to conform to the
Company's fiscal year-end. Fiscal 1994 represents the results of
Hologic, Inc. (Hologic) and FluoroScan for the years ended September 24,
1994 and December 31, 1994, respectively. Fiscal 1995 represents the
results of Hologic and FluoroScan as of and for the year ended September
30, 1995 and December 31, 1995, respectively. Fiscal 1996 represents the
results of Hologic and FluoroScan as of and for the twelve months ended
September 28, 1996. Based on the difference in fiscal year-ends, results
of operations for the three months ended December 31, 1995 for
FluoroScan have been included in the accompanying consolidated
statements of income for both fiscal 1995 and 1996. For the three months
ended December 31, 1995, FluoroScan recorded total revenues of
$3,877,968 and net income of $403,152.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) ACQUISITION OF FLUOROSCAN IMAGING SYSTEMS, INC. (Continued)
Accordingly, the retained earnings (deficit) and net income in the
accompanying consolidated statement of stockholders' equity and cash
flows, respectively, have been adjusted in fiscal 1996 to reflect the
net income of FluoroScan for the three months ended December 31, 1995.
Separate and combined results of Hologic and FluoroScan during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
Hologic FluoroScan Combined
<S> <C> <C> <C>
Nine Months Ended June 29, 1996
(Unaudited)-
Net revenues $ 56,349,729 $ 10,870,000 $ 67,219,729
Net income 8,271,037 972,557 9,243,594
Fiscal Year Ended September 30, 1995-
Net revenues $ 43,399,850 $ 13,146,979 $ 56,546,829
Net income 1,869,519 1,478,737 3,348,256
Fiscal Year Ended September 24, 1994-
Net revenues $ 38,483,743 $ 9,170,505 $ 47,654,248
Net income 2,995,177 1,772,767 4,767,944
</TABLE>
(4) LINE OF CREDIT
The Company maintains a line of credit with a bank for the equivalent of
$3,000,000, which bears interest at the Paris Interbank Offered Rate
(4.62% at September 28, 1996) plus 1.50%. The borrowings under this line
are primarily used by the Company's European subsidiaries to settle
intercompany sales and are denominated in the respective local
currencies of its European subsidiaries. The line of credit may be
canceled by the bank with a 30-day notice. The average outstanding
balance during fiscal 1996 was approximately $2,177,000, and the
weighted average interest rate for fiscal 1996 was 6.29%. Interest
expense on this line of credit of approximately $79,000, $204,000 and
$154,000 has been included in other expenses in the accompanying
consolidated statements of income for 1994, 1995 and 1996, respectively.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes.
The provision for income taxes in the accompanying consolidated
statements of income consists of the following:
<TABLE>
<CAPTION>
--------------------------Years Ended-------------------------
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
Federal-
Current $ 2,236,800 $ 1,073,100 $ 5,942,000
Deferred (778,800) 198,900 (569,000)
----------------- ----------------- -------------------
1,458,000 1,272,000 5,373,000
----------------- ----------------- -------------------
State-
Current 169,000 231,000 315,000
----------------- ----------------- -------------------
Foreign-
Current - 10,000 12,000
----------------- ----------------- -------------------
$ 1,627,000 $ 1,513,000 $ 5,700,000
================= ================ =================
</TABLE>
A reconciliation of the federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
----------------------Years Ended-----------------------
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
Income tax provision at federal statutory rate 34.0 % 34.0 % 34.0 %
Increase (decrease) in tax resulting from-
Net effect of (income) losses of foreign subsidiaries
not provided (0.6) (3.5) 0.1
State tax provision, net of federal benefit 2.4 4.1 1.1
Research and development tax credit (0.3) (1.0) (2.0)
Effect of not providing U.S. taxes on exempt FSC income (3.1) (2.8) (1.0)
Nondeductible pooling of interest expenses - - 2.9
Decrease in valuation allowance (9.3) - -
Other 2.3 0.3 (1.7)
------ ------ ------
Effective tax rate 25.4 % 31.1 % 33.4 %
====== ====== ======
</TABLE>
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) INCOME TAXES (Continued)
The components of domestic and foreign income (loss) before the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
Domestic $ 6,276,206 $ 4,330,083 $ 17,481,453
Foreign 118,738 531,173 (424,587)
------------- ------------- -------------
$ 6,394,944 $ 4,861,256 $ 17,056,866
============= ============= =============
</TABLE>
During fiscal 1994, 1995 and 1996, the Company realized tax benefits of
approximately $200,000, $280,000 and $4,930,000, respectively, relating to
the exercise of certain stock options. These benefits are reflected as a
component of capital in excess of par value.
The components of the net deferred tax asset recognized as other current
assets in the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
September 30, September 28,
1995 1996
<S> <C> <C>
Deferred tax assets $ 1,188,000 $ 2,437,000
Valuation allowance (488,000) (658,000)
------------ ------------
$ 700,000 $ 1,779,000
============ ============
</TABLE>
The approximate income tax effect of each type of temporary difference
and carryforward before allocation of the valuation allowance is approximately
as follows:
<TABLE>
<CAPTION>
September 30, September 28,
1995 1996
<S> <C> <C>
Foreign net operating loss carryforwards $ 353,000 $ 523,000
Nondeductible accruals 290,000 864,000
Nondeductible reserves 511,000 1,005,000
Other temporary differences 34,000 45,000
------------- -------------
$ 1,188,000 $ 2,437,000
============= =============
</TABLE>
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) INCOME TAXES (Continued)
In fiscal 1996, the valuation allowance increased $170,000 as a result
of the foreign net operating losses incurred in fiscal 1996. The
valuation allowance relates primarily to certain deferred tax assets in
foreign jurisdictions, for which realization is uncertain.
(6) COMMON STOCK
(a) Stock Option Plans
The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is
administered by the Board of Directors and authorizes the Company to
issue options to purchase up to 1,900,000 shares that have been
reserved by the Company. Under the terms of the 1986 Plan, the
Company granted employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than fair market value at the date of
grant. In addition, the Company may grant nonqualified options to
other participants. During fiscal 1996, the 1986 Plan was terminated.
Options granted under the 1986 Plan vest over a five-year period and
are exercisable at varying dates.
The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995
Stock Option Plan (the 1995 Plan), both of which were originally
adopted by FluoroScan, are administered by the Board of Directors and
the Company has issued options to purchase 289,252 shares of the
Company's common stock, as of September 28, 1996. Under the terms of
the 1994 Plan and the 1995 Plan, the Company may grant employees
either incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and deferred stock awards at a
price not less than the fair market value on the date of grant. The
Company does not intend to grant any additional options under this
plan.
In June 1995, the Board of Directors adopted the 1995 Combination
Stock Option Plan (the 1995 Combination Plan), pursuant to which the
Company is authorized to issue 1,100,000 options to purchase shares.
Under the terms of the 1995 Combination Plan, the Company may grant
employees either incentive stock options or nonqualified stock
options to purchase shares of the Company's common stock at a price
not less than the fair market value at the date of grant. In
addition, the Company may grant nonqualified options to other
participants. As of September 28, 1996, the Company had 404,914
options available for grant under this plan.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) COMMON STOCK (Continued)
(a) Stock Option Plans (Continued)
The Company's 1990 Nonemployee Director Stock Option Plan (the
Directors' Plan) allows for eligible directors to receive options to
purchase 10,000 shares of common stock upon election as a director.
The options vest ratably over a five-year period. In addition,
eligible directors are entitled to annual option grants to purchase
8,000 shares of common stock, which vest after six months. Option
grants under the Directors' Plan are at not less than fair market
value on the date of grant. The Company has reserved 200,000 shares
of common stock for issuance under the Directors' Plan. As of
September 28, 1996, the Company had 96,000 options available for
grant.
The Company's 1994 Directors' Stock Option Plan (the 1994 Directors'
Plan), originally adopted by FluoroScan, allows for eligible
directors to receive options to purchase an aggregate of 9,321 shares
of common stock. Option grants under the 1994 Directors' Plan are at
not less than the fair market value on the date of grant. As of
September 28, 1996 the Company has issued options to purchase 22,370
shares of common stock under the 1994 Directors' Plan. The Company
does not intend to grant any additional options under this plan.
The following table summarizes all stock option activity under all of
the plans for the three years ended September 28, 1996.
<TABLE>
<CAPTION>
Number Exercise Price
of Shares per Share
<S> <C> <C> <C>
Outstanding, September 25, 1993 743,300 $ .05-$ 8.88
Granted 688,511 1.82- 21.69
Terminated (26,991) .50- 19.92
Exercised (156,328) .05- 4.25
---------- ------------------------
Outstanding, September 24, 1994 1,248,492 .05- 21.69
Granted 892,624 6.19- 32.59
Terminated (15,821) 1.94- 19.92
Exercised (129,436) .05- 7.07
---------- ------------------------
Outstanding, September 30, 1995 1,995,859 .05- 32.59
Granted 312,072 11.50- 46.88
Terminated (36,374) 1.94- 30.58
Exercised (667,372) .05- 20.72
---------- ------------------------
Outstanding, September 28, 1996 1,604,185 $ .50-$ 46.88
========== ========================
Exercisable, September 28, 1996 205,956 $ .50-$ 18.75
=========== =========================
</TABLE>
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) COMMON STOCK (Continued)
(a) Stock Option Plans (Continued)
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 requires the measurement of the fair value of stock options
or warrants to be included in the statement of income or
disclosed in the notes to the financial statements. The Company
is required to adopt SFAS No. 123 in fiscal 1997 and has
determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board
Opinion No. 25 and elect the disclosure-only alternative under
SFAS No. 123. The Company will be required to disclose the pro
forma net income or loss and per share amounts in the notes to
financial statements using the fair-value-based method beginning
in the year ending September 27, 1997, with comparable
disclosures for the year ended September 28, 1996. The Company
has not determined the impact of these pro forma adjustments.
(b) Employee Stock Purchase Plan
In December 1994, the Company adopted the 1995 Employee Stock
Purchase Plan (the ESP Plan) in compliance with Section 423 of
the Internal Revenue Code. Employees who have completed 12
consecutive months or two years, whether or not consecutive, of
employment with the Company are eligible to participate in the
ESP Plan. The ESP Plan allows participants to purchase common
stock of the Company at 85% of the fair market value, as
defined. The Company may issue up to 200,000 shares under the
ESP Plan. During fiscal 1995 and 1996, the Company issued 9,560
and 14,850 shares, respectively, under the ESP Plan. At
September 28, 1996, the Company has 175,590 shares available for
purchase under the ESP Plan.
(c) Rights Agreement
In December 1992, the Company adopted a shareholder rights plan.
The plan is intended to protect shareholders from unfair or
coercive takeover practices. In accordance with the plan, the
Board of Directors declared a dividend distribution of one
common stock purchase right for each share of common stock
outstanding until the rights become detachable. Each right
entitles the registered holder to purchase from the Company one
share of common stock for $15, adjusted for certain events. In
the event that the Company is acquired in a merger or other
business combination transaction or more than 50% of its assets
or earning power is sold, each holder shall thereafter have the
right to receive, upon exercise of each right, that number of
shares of common stock of the acquiring company which, at the
time of such transaction, would have a market value of two times
the $15 per share exercise price. The rights will not be
detachable or exercisable until certain events occur. The Board
of Directors may elect to terminate the rights under certain
circumstances. Subsequent to year end, the Board of Directors
increased the exercise price per share to $90.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) COMMON STOCK (Continued)
(d) Secondary Public Offering
On January 26, 1996, the Company completed a secondary public
offering of 2,492,000 shares of its common stock. The proceeds
to the Company, net of underwriting discounts, commissions and
offering expenses were approximately $49,194,000.
(e) Initial Public Offering
In July 1994, prior to becoming a wholly owned subsidiary of the
Company through the merger discussed in Note 3, in July 1994,
FluoroScan completed an initial public offering of 222,210
shares of common stock. The proceeds to the Company net of
underwriting discounts, commissions and offering expenses were
approximately $4,000,000.
(f) Warrants
In conjunction with FluoroScan's initial public offering, the
Company issued 357,294 warrants to purchase common stock at an
exercise price of $22.53. In July 1996, the Company redeemed
357,037 warrants resulting in proceeds to the Company of
approximately $8 million. Of the warrants issued to
underwriters, which were not subject to redemption, 257 remained
outstanding at September 28, 1996. The underwriters' warrants
expire in July 1999.
(g) Underwriter's Option
In conjunction with FluoroScan's initial public offering, the
Company sold to the underwriter an option to purchase up to
31,069 shares of common stock at an exercise price of $33.80. As
of September 28, 1996, there were 14,131 options outstanding.
The options expire in July 1999.
(7) PROFIT-SHARING 401(k) PLAN
The Company has a qualified profit-sharing plan covering substantially
all of its employees. Contributions to the plan are at the discretion of
the Company's Board of Directors. The Company has recorded approximately
$120,000, $135,000 and $309,000 as a provision for the profit-sharing
contribution for fiscal 1994, 1995 and 1996, respectively.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) RELATED-PARTY TRANSACTIONS
(a) Management Services Agreement
The Company has an agreement with Vivid Technologies, Inc.
(Vivid), an affiliated company, whereby the Company provides
management, administrative and support services. In addition,
the Company leased a portion of its facilities to Vivid through
February 1996 for approximately $15,000 per month. Vivid paid
the Company for all direct costs incurred, as well as a portion
of the Company's overhead costs, as defined, representing the
pro rata portion of costs attributable to Vivid. The Company
charged Vivid approximately $544,000, $530,000 and $325,000
under the agreement during fiscal 1994, 1995 and 1996,
respectively, which have been offset against operating expenses
of the Company. Vivid also purchased approximately $229,000 and
$210,000 of inventory and spare parts from the Company in fiscal
1994 and 1995, respectively. Vivid did not make any purchases
from the Company in fiscal 1996. Of these amounts, approximately
$463,000 and $34,000 were unpaid as of September 30, 1995 and
September 28, 1996, respectively.
(b) License and Technology Agreement
The Company has an agreement with Vivid whereby Vivid obtained a
perpetual, exclusive worldwide license to utilize certain of the
Company's technology and patents for the sole purpose of
developing baggage and inspection security systems (the
Exclusive License). In September 1996, this license was amended
to grant Vivid a nonexclusive license to utilize these patents
and technology for certain new product development for other
applications (the Nonexclusive License). Royalty payments to the
Company under the Exclusive License are 5% of product revenue on
Vivid's first $50 million in sales; thereafter, payments are 3%
of Vivid's sales up to $200 million. Royalty payments under the
Nonexclusive License are 3% on sales up to $200 million. No
royalty payments will be made on aggregate revenues in excess of
$200 million for either the Exclusive License or the
Nonexclusive License. The agreement terminates by mutual
agreement of the two parties or under certain other
circumstances, as defined. The Company recognized approximately
$688,000, $719,000 and $775,000 of royalty revenue under the
Exclusive License for fiscal 1994, 1995 and 1996, respectively.
Approximately $351,000 and $624,000 were outstanding at
September 30, 1995 and September 28, 1996, respectively. The
Company has not recognized any royalty revenue under the
Nonexclusive License.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) COMMITMENTS
(a) Operating Leases
The Company and its subsidiaries lease certain equipment and
conduct their operations in leased facilities under operating
lease agreements that expire through fiscal 2002. In addition,
the facility lease requires the Company to pay a percentage of
real estate taxes and certain operating costs of the property.
Future minimum lease payments under the operating leases are
approximately as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
<S> <C>
September 27, 1997 $ 914,000
September 26, 1998 863,000
September 25, 1999 801,000
September 24, 2000 794,000
September 30, 2001 713,000
Thereafter 285,000
-------------
$ 4,370,000
</TABLE>
Rental expense, net of subrentals from Vivid, was approximately
$721,000, $736,000 and $796,000 for fiscal 1994, 1995 and 1996,
respectively.
The lease agreement for the Company's headquarters included a
free rent and reduced rent period. The Company recognized the
rent expense evenly over the term of the lease agreement.
(b) Patent Acquisition
In fiscal 1992, the Company acquired certain patents pertaining
to technology incorporated into certain of the Company's
products. The Company paid approximately $245,000 for these
patents and related expenses upon entering into the agreement.
In May 1993, this agreement was amended such that the Company
paid approximately $344,000 for additional patent rights and
related expenses, of which $50,000 was paid through the issuance
of 21,334 shares of common stock. The Company may be required to
make additional payments of common stock (up to a maximum of
64,000 shares) for certain additional patent rights, if and when
available. The cost of these patents is being amortized over
their expected life of 10 years.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) COMMITMENTS (Continued)
(c) Royalty Agreements
The Company, through its FluoroScan subsidiary, has two license
agreements covering three patents. Under the agreements, the
Company is required to pay royalties ranging from 3.5% to 4.5%
of sales, as defined. Royalty expense under these agreements was
approximately $81,000, $19,000 and $8,000 in 1994, 1995 and
1996, respectively. The Company has also entered into a
sublicense agreement on one of the patents. Royalties earned
under this sublicense agreement were approximately $154,000,
$204,000 and $35,000 in 1994, 1995 and 1996, respectively.
(10) COLLABORATION AGREEMENT
In June 1995, the Company acquired a 5% minority interest in a
collaborating company. To acquire this minority interest, the Company
issued 56,042 shares of common stock and paid $75,912 in cash in return
for all of the outstanding convertible preferred stock of the
collaborating company. The Company also entered into a development
agreement with the collaborating company related to a certain product.
As part of the development agreement, the Company will reimburse the
collaborating company for expenses incurred in the development of this
product. In order to maintain its exclusive rights in the collaborating
company's technology, the Company must meet required sales volumes, as
defined, in the five years commencing 90 days after approval of the
product by the Food and Drug Administration. The Company is also
required to pay royalties to the collaborating company based on net
sales of the product, as defined. No royalties were due under the
agreement as of September 28, 1996.
(11) FEE PER SCAN PROGRAM
The Company has entered into a strategic fee per scan program with a
leasing company whereby the Company sells its systems to the leasing
company, which, in turn, leases the systems to third parties. Under the
terms of the agreement, the Company is contingently liable for a certain
amount per system, up to a maximum of the greater of (i) the sale price
of four systems or (ii) 10% of the aggregate value of systems sold under
the program. At September 28, 1996, the Company has deferred revenue of
approximately $280,000 in connection with this program.
<PAGE>
HOLGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12) GEOGRAPHIC INFORMATION
Revenues, net income (loss) and identifiable assets for the Company's
U.S. and European operations are summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------1994------------------------------------
United European
States Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 38,816,948 $ 8,837,300 $ - $ 47,654,248
Transfers between geographic areas 2,833,417 1,452,712 (4,286,129) -
------------------ ----------------- ----------------- -------------
Total revenues $ 41,650,365 $ 10,290,012 $ (4,286,129) $ 47,654,248
================== ================= ================= ============
Net income $ 4,642,345 $ 118,738 $ 6,861 $ 4,767,944
================== ================= ================= ============
Identifiable assets $ 32,871,307 $ 5,091,193 $ (1,292,657) $36,669,843
================== ================= ================= ============
-------------------------------------1995---------------------------------
Revenues from unaffiliated customers $ 44,396,343 $ 12,150,486 $ - $ 56,546,829
Transfers between geographic areas 4,105,914 2,085,185 (6,191,099) -
------------------ ----------------- ----------------- ------------
Total revenues $ 48,502,257 $ 14,235,671 $ (6,191,099) $ 56,546,829
================== ================= ================= ============
Net income (loss) $ 2,843,413 $ 519,941 $ (15,098) $ 3,348,256
================== ================= ================= ============
Identifiable assets $ 39,213,833 $ 6,353,095 $ (1,484,170) $44,082,758
================== ================= ================= ============
-------------------------------------1996----------------------------------
Revenues from unaffiliated customers $ 79,688,198 $ 11,902,427 $ - $91,590,625
Transfers between geographic areas 6,038,947 1,187,355 (7,226,302) -
------------------ ----------------- ------------------ ------------
Total revenues $ 85,727,145 $ 13,089,782 $ (7,226,302) $91,590,625
================== ================= ================= ============
Net income (loss) $ 11,702,269 $ (436,053) $ 90,650 $11,356,866
================== ================= ================== ============
Identifiable assets $ 120,749,056 $ 6,549,660 $ (4,191,260) $123,107,456
================== ================= ================= ============
</TABLE>
Export sales from the United States to unaffiliated customers primarily
in Europe and Asia during fiscal 1994, 1995 and 1996 totaled
approximately $16,755,000, $16,620,000 and $21,468,000, respectively.
<PAGE>
PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12) GEOGRAPHIC INFORMATION (Continued)
Transfers between the Company and its European subsidiaries are
generally recorded at amounts similar to the prices paid by unaffiliated
foreign dealers. All intercompany profit is eliminated in consolidation.
Export product sales as a percentage of total product sales are as
follows:
<TABLE>
<CAPTION>
-----------------Years Ended------------------
September 24, September 30, September 28,
1994 1995 1996
<S> <C> <C> <C>
Europe 25% 28% 17%
Asia 30 22 17
All others 5 8 6
---- ---- ----
60% 58% 40%
==== ==== ====
</TABLE>
(13) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, September 28,
1995 1996
<S> <C> <C>
Accrued payroll and employee benefits $ 975,814 $2,993,389
Accrued commissions 1,350,356 2,355,126
Accrued legal 639,654 458,447
Other accrued expenses 1,650,449 1,708,403
---------- ----------
$4,616,273 $7,515,365
========== ==========
</TABLE>
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) LITIGATION
On September 7, 1994, Lunar Corporation (Lunar) filed a complaint in
United States District Court against the Company, alleging, among other
things, that two of the Company's patents are not valid and infringe on
three of Lunar's patents. The Company filed a counterclaim against Lunar
with respect to the infringement of two of the Company's patents and a
declaration that certain of Lunar's patents are invalid and
unenforceable.
On November 22, 1995, the Company and Lunar executed a definitive
agreement settling all disputes between the parties. The agreement
provides for the cross-licensing of certain patent rights and continuing
payments between the parties related to future sales. The Company and
Lunar have agreed not to engage each other in patent litigation in the
area of x-ray densitometry and ultrasound for a ten-year period.
Management believes that the financial terms of this agreement will not
have a material adverse effect on the Company's financial position or
results of operations.
On January 24, 1995, B.V. Optische Industrie de Oude Delft (Oldelft)
filed suit in the United States District Court against the Company
seeking unspecified treble damages, attorneys' fees and costs relating
to a prior patent dispute between the Company and Oldelft relating to
equalization radiography. On December 14, 1995, the litigation was
dismissed by the United States District Court. In April 1996, a motion
for reconsideration filed by Oldelft was dismissed, and in May 1996, the
Company and Oldelft settled the matter.
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(15) QUARTERLY INCOME STATEMENT INFORMATION (UNAUDITED)
The following table presents a summary of quarterly results of
operations for 1995 and 1996:
<TABLE>
<CAPTION>
-------------------------------------1995---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Total revenue $ 12,689,777 $ 12,604,857 $14,505,672 $ 16,746,523
Net income 984,342 571,299 804,942 987,673
Primary net income per common and
common equivalent share .10 .06 .08 .10
Fully diluted net income per common and
common equivalent share
.10 .06 .08 .09
-------------------------------------1996---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<C> <C> <C> <C>
Total revenue $ 18,692,144 $ 22,294,277 $ 26,233,308 $ 24,370,896
Net income 1,717,869 3,419,901 4,105,824 2,113,272
Primary net income per common and
common equivalent share .16 .28 .31 .15
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference to the
sections entitled "Election of Directors" and "Executive Officers" in the
Registrant's Proxy Statement.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation" in the Registrant's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the
section entitled "Share Ownership of Directors, Officers and Certain Beneficial
Owners" in the Registrant's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to the
section entitled "Certain Transactions" in the Registrant's Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 30, 1995
and September 28, 1996
Consolidated Statements of Operations for the years
ended September 24, 1994, September 30, 1995 and September 28, 1996
Consolidated Statements of Stockholders' Equity for the years ended
September 24, 1994, September 30, 1995 and September 28, 1996
Consolidated Statements of Cash Flows for the years ended September
24, 1994, September 30, 1995 and September 28, 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of
this report and should be read in conjunction with the consolidated
financial statements:
Schedule
--------
Report of Independent Public Accountants on Schedule
II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
(3) Listing of Exhibits
<TABLE>
Exhibit
Number Reference
- ------- ---------
<S> <C> <C>
2.01 Merger Agreement between the Company and
its Massachusetts predecessor...... A
2.02 Agreement and Plan of Merger between the Company,
Fenway Acquisition Corp., and FluoroScan Imaging
Systems, Inc....................... I-2.01
3.01 Certificate of Incorporation of the Company......... A
3.02 By-laws of the Company............. A
4.01 Specimen certificate for shares of the
Company's Common Stock............. A
4.02 Description of capital stock (contained in the Certificate
of Incorporation of the Company filed, as Exhibit 3.01)... A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.03 Rights Agreement dated December 22, 1992................ C
4.04 Amendment No. 1 to Rights Agreement................. G
10.07 1986 Combination Stock Option Plan, as amended............ F*
10.08 Amended and Restated 1990 Non-Employee
Director Stock Option Plan.................... H
10.09 Employee Stock Purchase Plan of the Company............... F
10.10 1995 Combination Stock Option Plan........................ H*
10.12 Form of Indemnification Agreement for directors and
certain officers of the Company.................... A*
10.17 Management Agreement between the Company and
Vivid Technologies, Inc............................... A*
10.18 License Agreement between the Company and
Vivid Technologies, Inc., as amended...................... A
10.19 Distribution Agreement between the Company, Toyo Medic
Company Limited and Yokogawa Medical Systems, Ltd......... B*
10.20 Facility lease between the Company and
Lincoln Street Trust.......................... B
10.21 Orion Corporation Soredex Distribution
Agreement for Scanora............................ D**
10.22 Employment Agreement with an officer
of the Company..................... E
10.23 Form of Selling Stockholders Agreement............
10.24 Serex License Agreement................. H**
10.25 Amendment No.1 to the License Agreement between
the Company and Vivid Technologies, Inc........... Filed herewith
10.26 Facility Lease between the Company and
Mangen Management Company.......... Filed herewith
10.27 Employment Agreement with an officer of the Company...... I-10.13
10.28 Employment Agreement with an officer of the Company....... I-10.14
10.29 FluoroScan Imaging Systems, Inc. 1994 Amended
and Restated Stock Incentive Plan.............. J-99.1
10.30 FluoroScan Imaging Systems, Inc. 1995
Stock Incentive Plan...................... J-99.2
10.31 FluoroScan Imaging Systems, Inc. 1994
Directors Stock Option Plan................... J-99.3
10.32 First Amendment to the facility lease between the Company
and Lincoln Street Trust........... I-10.17
11.01 Statement re: Computation of Per Share Earnings........ Filed herewith
22.01 Subsidiaries of the Company........ Filed herewith
24.01 Consent of Arthur Andersen LLP..... Filed herewith
28.01 Press Release dated December 22, 1992..................... C
28.02 Letter to Stockholders dated December 22, 1992........... C
- ----------------------
</TABLE>
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A. The above exhibits were previously filed as an exhibit of the same number
to the Company's Registration Statement on Form S-1 (Registration No.
33-33128) filed on January 24, 1990 and are incorporated herein by
reference.
B. The above exhibits were previously filed as an exhibit of the same number
to the Company's 1990 Annual Report on Form 10-K and are incorporated
herein by reference.
<PAGE>
C. The above exhibits were previously filed as an exhibit of the same number to
the Company's 1992 Annual Report on Form 10-K and are incorporated herein by
reference.
D. The above exhibit was previously filed as an exhibit of the same number to
the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated
herein by reference.
E. The above exhibit was previously filed as an exhibit of the same number to
the Company's 1993 Annual Report on Form 10-K and is incorporated herein by
reference.
F. The above exhibits were previously filed as an exhibit of the same number to
the Company's 1994 Annual Report on Form 10-K and is incorporated herein by
reference
G. The above exhibit was previously filed as an exhibit of the above
referenced number of the Company's Registration Statement on Form S-3
(Registration No. 33-65019) filed on December 14, 1995 and is incorporated
herein by reference.
H The above exhibits were previously filed as an exhibit of the same number to
the Company's 1995 Annual Report on Form 10-K and is incorporated herein by
reference.
I. The above exhibit was previously filed as an exhibit of the above
referenced number of the Company's Proxy Statement and Prospectus on Form
S-4 filed (Registration No. 333-08977) on August 6, 1996 and is
incorporated herein by reference.
J. The above exhibit was previously filed as an exhibit of the same number of
the Company's Registration Statement on Form S-8 (Registration No.
333-11853) filed on September 12, 1996 and is incorporated herein by
reference.
(d) Financial Statement Schedules:
The financial statement schedules required are included as part of Item (2)
above.
<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 on
its behalf by the undersigned, thereunto duly authorized.
HOLOGIC, INC.
By: /s/ S. DAVID ELLENBOGEN
-------------------------------
S. DAVID ELLENBOGEN
Chief Executive Officer
Dated: December 27, 1996
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 and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ S. DAVID ELLENBOGEN Director
- --------------------------- and Chief Executive Officer December 27, 1996
S. DAVID ELLENBOGEN
Vice President, Finance and
/s/ GLENN P. MUIR Principal Financial and
- --------------------------- Accounting Officer December 27, 1996
GLENN P. MUIR
/s/ JAY A. STEIN Director and
- --------------------------- Senior Vice President December 27, 1996
JAY A. STEIN
/s/ LARRY GROSSMAN Director and Vice President December 27, 1996
- ---------------------------
LARRY GROSSMAN
/s/ IRWIN JACOBS Director December 27, 1996
- ---------------------------
IRWIN JACOBS
/s/ WILLIAM A. PECK Director December 27, 1996
- ---------------------------
WILLIAM A. PECK
/s/ GERALD SEGEL Director December 27, 1996
- ---------------------------
GERALD SEGEL
/s/ ELAINE ULLIAN Director December 27, 1996
- ---------------------------
ELAINE ULLIAN
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hologic, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Hologic, Inc. and subsidiaries included
in this Form 10-K and have issued our report thereon dated November 6, 1996.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities Exchange Commission's rules and is not part of the
basic financial statements. The schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Boston, Massachusetts
November 6, 1996
<PAGE>
SCHEDULE II
HOLOGIC, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End of
of Period Expenses Period
---------- ---------- ---------
<S> <C> <C> <C>
Allowance for Uncollectible Amounts Year
Ended:
September 24, 1994 $195 655 850
September 30, 1995 850 850
September 28, 1996 850 510 1,360
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Reference
- ------ ---------
<S> <C> <C>
2.01 Merger Agreement between the Company and its Massachusetts
predecessor.............................................. A
2.02 Agreement and Plan of Merger between the Company, Fenway
Acquisition Corp., and FluoroScan Imaging Systems, Inc... I-2.01
3.01 Certificate of Incorporation of the Company.............. A
3.02 By-laws of the Company................................... A
4.01 Specimen certificate for shares of the Company's Common
Stock.................................................... A
4.02 Description of capital stock (contained in the
Certificate of Incorporation of the Company filed, as
Exhibit 3.01)............................................ A
4.03 Rights Agreement dated December 22, 1992................. C
4.04 Amendment No. 1 to Rights Agreement...................... G
10.07 1986 Combination Stock Option Plan, as amended........... F*
10.08 Amended and Restated 1990 Non-Employee Director Stock
Option Plan.............................................. H
10.09 Employee Stock Purchase Plan of the Company.............. F
10.10 1995 Combination Stock Option Plan....................... H*
10.12 Form of Indemnification Agreement for directors and
certain officers of the Company.......................... A*
10.17 Management Agreement between the Company and Vivid
Technologies, Inc........................................ A*
10.18 License Agreement between the Company and Vivid
Technologies, Inc., as amended........................... A
10.19 Distribution Agreement between the Company, Toyo Medic
Company Limited and Yokogawa Medical Systems, Ltd........ B*
10.20 Facility lease between the Company and Lincoln Street
Trust.................................................... B
10.21 Orion Corporation Soredex Distribution Agreement for
Scanora.................................................. D**
10.22 Employment Agreement with an officer of the Company...... E
10.23 Form of Selling Stockholders Agreement...................
10.24 Serex License Agreement.................................. H**
10.25 Amendment No.1 to the License Agreement between the
Company and Vivid Technologies, Inc......................Filed herewith
10.26 Facility Lease between the Company and Mangen Management
Company..................................................Filed herewith
10.27 Employment Agreement with an officer of the Company...... I-10.13
10.28 Employment Agreement with an officer of the Company...... I-10.14
10.29 FluoroScan Imaging Systems, Inc. 1994 Amended and
Restated Stock Incentive Plan............................ J-99.1
10.30 FluoroScan Imaging Systems, Inc. 1995 Stock Incentive
Plan..................................................... J-99.2
10.31 FluoroScan Imaging Systems, Inc. 1994 Directors Stock
Option Plan.............................................. J-99.3
10.32 First Amendment to the facility lease between the Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
and Lincoln Street Trust................................. I-10.17
11.01 Statement re: Computation of Per Share Earnings.........Filed herewith
22.01 Subsidiaries of the Company..............................Filed herewith
24.01 Consent of Arthur Andersen LLP...........................Filed herewith
28.01 Press Release dated December 22, 1992.................... C
28.02 Letter to Stockholders dated December 22, 1992........... C
- -----------------------
</TABLE>
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A. The above exhibits were previously filed as an exhibit of the same number to
the Company's Registration Statement on Form S-1 (Registration No. 33-33128)
filed on January 24, 1990 and are incorporated herein by reference.
B. The above exhibits were previously filed as an exhibit of the same number
to the Company's 1990 Annual Report, on Form 10-K and are incorporated herein
by reference.
C. The above exhibits were previously filed as an exhibit of the same number to
the Company's 1992 Annual Report on Form 10-K and are incorporated herein by
reference.
D. The above exhibit was previously filed as an exhibit of the same number to
the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated
herein by reference.
E. The above exhibit was previously filed as an exhibit of the same number to
the Company's 1993 Annual Report on Form 10-K and is incorporated herein by
reference.
F. The above exhibits were previously filed as an exhibit of the same number to
the Company's 1994 Annual Report on Form 10-K and is incorporated herein by
reference
G. The above exhibit was previously filed as an exhibit of the above referenced
number of the Company's Registration Statement on Form S-3 (Registration No.
33-65019) filed on December 14, 1995 and is incorporated herein by reference.
H. The above exhibits were previously filed as an exhibit of the same number to
the Company's 1995 Annual Report on Form 10-K and is incorporated herein by
reference.
I. The above exhibit was previously filed as an exhibit of the above referenced
number of the Company's Proxy Statement and Prospectus on Form S-4 filed
(Registration No. 333-08977) on August 6, 1996 and is incorporated herein by
reference.
J. The above exhibit was previously filed as an exhibit of the same number of
the Company's Registration Statement on Form S-8 (Registration No. 333-11853)
filed on September 12, 1996 and is incorporated herein by reference.
<PAGE>
Exhibit 10.25
FIRST AMENDMENT TO LICENSE AND TECHNOLOGY AGREEMENT
First Amendment to License Agreement dated as of September 25, 1996 by and
between Vivid Technologies, Inc., a Massachusetts Corporation (f/k/a Vivitech,
Inc., "Vivid"), and Hologic, Inc., a Delaware corporation (formerly a
Massachusetts corporation, "Hologic").
WHEREAS the parties entered into a License Agreement dated as of June 22,
1989 (the "Original Agreement") pursuant to which Hologic licensed certain
technology and know-how to Vivid to design, develop, improve, enhance,
manufacture, market, distribute and sell X-ray screening security systems that
are capable of screening luggage and cargo for particular types of contraband;
and
WHEREAS the parties desire to clarify and modify the license as set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Original Agreement.
2. Section 2(g) of the Original License Agreement is hereby amended and
restated in its entirety to read as follows:
"Product" shall mean collectively (i) any X-ray screening security
system embodying the Base Technology and/or the Patents that is capable of
screening luggage, cargo, parcels, mail, personal effects and other similar
items for contraband, including without limitation explosives, drugs and
currency (the "Original Product"), or (ii) any X-ray screening system
embodying the Base Technology and/or the Patents that is capable of being
used for process control applications in the food and/or beverage industry
(the "Additional Product").
3. Hologic hereby grants to Vivid a nonexclusive license to utilize the Base
Technology for the purpose of designing, developing, improving, enhancing,
manufacturing, marketing and selling the Additional Product. In connection
therewith Section 3(a) of the Original Agreement is hereby amended and stated in
its entirety to read as follows:
(a) Subject to the terms and conditions set forth in this Agreement,
Hologic hereby grants Vivid (i) a perpetual, exclusive, worldwide license
to utilize the Base Technology, Patents and Know-how to design, develop,
improve, enhance, manufacture, market and sell the Original Product and
(ii) a perpetual, nonexclusive, worldwide license to utilize the Base
Technology, Patents and Know-how to design, develop, improve, enhance,
manufacture, market and sell the Additional Product. Vivid may not use the
Base Technology, Patents and Know-how for any other purpose.
4. The royalties payable by Vivid to Hologic as set forth in Section 5 of the
Original Agreement in respect of sales of the Original Product shall remain
unaffected by the inclusion the Additional Product in the definition of
"Product," and Vivid shall pay a further royalty in respect of sales of the
Additional Product as set forth below. In connection therewith, Section 5 of
the Original Agreement shall be amended and restated in its entirety to read as
follows:
5. Royalties
---------
In consideration of the rights and privileges granted herein, Vivid
hereby agrees to pay Hologic (a) royalties with respect to actual
commercial sales of the Original
<PAGE>
Product by Vivid or any of Vivid's Affiliated Parties in accordance with
the following schedule:
<TABLE>
<CAPTION>
------------------------------------------------------
Original Product
Aggregate Net Sales Price Royalty Rate
------------------------------------------------------
<S> <C>
$0 -- $50,000,000.00 5%
------------------------------------------------------
$50,000,000.01 to $200,000,000.00 3%
------------------------------------------------------
Over $200,000,000.000 0%
------------------------------------------------------
</TABLE>
and (b) royalties with respect to actual commercial sales of the Additional
Product by Vivid or any of Vivid's Affiliated Parties in accordance with
the following schedule:
<TABLE>
<CAPTION>
----------------------------------------------
Additional Product
Aggregate Net Sales Price Royalty Rate
----------------------------------------------
<S> <C>
$0 -- $200,000,000.00 3%
----------------------------------------------
Over $200,000,000.000 0%
----------------------------------------------
</TABLE>
Royalties computed pursuant to this Section 5 shall be payable within 60
days following the end of each quarter of Vivid's fiscal year.
5. Section 17 of the Original License Agreement is hereby amended and restated
in its entirety to read as follows:
17. Non-Competition.
---------------
So long as this Agreement is in effect, Hologic shall not manufacture,
or distribute any product, whether now existing or hereafter developed,
that is used for a purpose that is the same as or substantially similar to
the purpose for which the Original Product is used.
6. Hologic hereby consents to the reincorporation of Vivid in the State of
Delaware.
7. In all other respects, the Original License is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
an instrument under seal as of the date first above written.
HOLOGIC, INC. VIVID TECHNOLOGIES, INC.
By:/s/ S. David Ellenbogen By:/s/ James J. Aldo
----------------------- -----------------
<PAGE>
Exhibit 10.26
September 21, 1994
Mr. Larry Grossman, Chairman
Mr. Arlen Issette, President
FluoroScan Imaging Systems, Inc.
650 B Anthony Trail
Northbrook, Illinois 60062
Dear Larry and Arlen:
This letter will act as an addendum to the Lease between FluoroScan Imaging
Systems, Inc. (and its' predecessor HealthMate, Inc.) and Margen Management
Company for the premises at 650 B Anthony Trail, Northbrook, Il. dated February
8, 1989. The following items, with our mutual approvals, can simply be attached
to the existing Lease.
Term: March 1, 1995 -- February 28, 1997
Monthly Rent Schedule:
3/1/95 - 2/28/96 $7,007.77 Per Month
3/1/96 - 2/28/97 $7,218.00 Per Month
FluoroScan Imaging Systems, Inc. shall have the first right of refusal on any
contiguous space as it becomes available.
Except as otherwise stated herein, all terms and conditions of the original
Lease dated February 8, 1989 shall continue to remain in force and effect
throughout the term of this Lease extension.
Please indicate your acceptance and approval of the foregoing by signing and
dating this addendum. This letter shall then constitute a binding Lease
pursuant to the terms and conditions herein set forth.
Sincerely,
MARGEN MANAGEMENT COMPANY
/s/Richard J. Pearlman
- ----------------------
Richard J. Pearlman
President
Accepted by: /s/ Arlen Issette
---------------------------------------
FluoroScan Imaging System, Inc.
President
Date: 9/18/94
---------------------------------------
<PAGE>
March 5, 1990
Mr. Larry Grossman - Chairman
Mr. Arlen Issette - President
HealthMate, Inc.
650B Anthony Trail
Northbrook, Illinois 60062
Dear Larry and Arlen:
This letter will act as an addendum to the Lease for (13,412 Sq. Ft.) 650B
Anthony Trail between Margen Management Co. and HealthMate, Inc. dated February
8, 1989. The following items, with our mutual approvals, can simply be attached
to the existing lease.
Term: Five years commencing on March 1, 1990 and expiring on February 28, 1995.
Monthly Rent Schedule:
3/1/90 - 8/31/90 $5,000.00 Per Month
9/1/90 - 2/28/91 $5,500.00 Per Month
3/1/91 - 8/31/91 $6,000.00 Per Month
9/1/91 - 8/31/92 $6,236.58 Per Month
9/1/92 - 8/31/93 $6,486.02 Per Month
9/1/93 - 8/31/94 $6,739.53 Per Month
9/1/94 - 2/28/95 $7,007.77 Per Month
Additional Work:
Installation by landlord of 2 new outside windows (Approx. size 3' x 6') in west
front office. Cost is to be split between the tenant and landlord. Tenants
share will not exceed $1,700.00. Payment is due upon completion of work and
presentation of contractors invoice.
Front office ceiling tiles to be repositioned to tenants satisfaction.
Landlord will provide a $200.00 allowance for an electric opener for van door.
/s/ /s/
- ----------------------------------- -----------------------------------
L. Grossman A. Issette
/s/
-----------------------------------
R. Pearlman
Future construction: Landlord hereby grants tenant, at tenant's expense,
permission to construct additional offices and work areas including,
flooring and lighting in accordance with local zoning and building
codes of the Village of Northbrook.
<PAGE>
Except as otherwise stated herein, all terms and conditions of the Lease shall
continue to remain in force and effect throughout the five year period of this
addendum.
Please indicate your acceptance and approval of the foregoing by the signing and
dating of this letter. This letter shall constitute a binding lease pursuant to
the terms and conditions herein set forth.
Sincerely yours,
Margen Management Co.
Richard J. Pearlman
Vice President
ACCEPTED BY: HealthMate, Inc.
/s/
------------------------------- ----------------------
Larry Grossman, Chairman Date
/s/
------------------------------- ----------------------
Arlen Issette, President Date
CC: Florrie Gottainer
RP/pg
<PAGE>
SUMMARY OF BASIC LEASE PROVISIONS
---------------------------------
<TABLE>
<CAPTION>
A. Building and address:
<S> <C> <C>
HARBOR INDUSTRIAL
650 B ANTHONY TRAIL
NORTHBROOK, ILLINOIS 60062
B. Landlord and Current Address:
Margen Management Co.,
E.B. Shapiro
710 Anthony Trail
Northbrook, Illinois 60062
C. Rent Payable to:
_______________________
c/o Margen Management
Co. - E.B. Shapiro
710 Anthony Trail
Northbrook, Illinois 60062
D. Tenant and Current Address:
HealthMate Inc.
3175 McArthur
Northbrook, IL 60062
E. Date of Lease: February 8, 1989
F. Lease Term: 36 1/2 Months
G. Commencement Date of Term February 11, 1989
H. Expiration Date of Term: February 28, 1992
I. Monthly Rent (Initial): $4,750.00
J. Square Footage Applicable to Premises 13,412 Sq. Ft.
K. Square Footage of the Building 97,841 Sq. Ft.
Stops: R.E. Taxes $1.00 per Sq. Ft.
Operating Expenses $0.10 per Sq. Ft.
L. Adjustment Lease Term: Prior Year
M. Tenant's Proratable Share of Building 13.71%
N. Amount of Security Deposit (1 month) $4,750.00
O. Space/Premises Address 650 B
P. Specified Use of Premises: Assembly of Medical Equipment
Q. H.V.A.C. Filter Change Service: Tenant's Responsibility
R. Fire Alarm Service by Landlord: Total System by Landlord: Individual
Premises by Tenant if
so desired.
S. Guarantor(s) an Current Address: ______________________
______________________
______________________
T. Option to Renew: ______________________
</TABLE>
<PAGE>
MARGEN MANAGEMENT COMPANY
COMMERCIAL LEASE AGREEMENT
THIS LEASE is made this 8th day of February, 1989, by and between:
LANDLORD: HARBOR INDUSTRIAL PLAZA as agent for the Beneficiaries
of American National Bank and Trust Company of
Chicago Trust No. 42683 dated April 28, 1978
c/o Margen Management Co.
710 Anthony Trail
Northbrook, Illinois 60062
Attention: Eugene B. Shapiro
TENANT: HealthMate Inc.
Address: 650 B. Anthony Trail
Northbrook, IL 60062
who hereby mutually covenant and agree as follows:
1. GRANT: Landlord for and in consideration of the rents herein reserved and
-----
of the covenants and agreements herein contained on the part of Tenant to be
performed, hereby leases to Tenant, and Tenant hereby lets from Landlord,
premises consisting of approximately 13,412 square feet, commonly known as Space
No. B (the "Premises") in the building located at 650 Anthony Trail, Northbrook,
Illinois (the "Building"), being the real estate legally described on Exhibit
"A" attached hereto (the "Real Estate"), which Premises are outlined on the site
plan attached hereto as Exhibit "A".
2. TERM: The Term of this Lease shall commence on February 11, 1989, (the
-----
"Commencement Date") and shall expire on February 28, 1992 (the "Expiration
Date"), unless sooner terminated as herein set forth.
3. TENANT'S PRO RATA SHARE: As used in this Lease, Tenant's Pro Rata Share
-----------------------
shall be 13.71%.
4. RENT:
----
(a) Tenant agrees to pay monthly as base rental (the "Base Rental") during the
first twelve months of the Term of this Lease the sum of ($4,750.00), which
amount shall be payable to Landlord at the address shown above on the first day
of each month. The Base Rental for each successive twelve (12) month period
during the Term of this Lease shall increase as follows:
<PAGE>
<TABLE>
<S> <C> <C> <C>
MONTHLY RENTAL SCHEDULE February 11, 1989 February 28, 1989 0 Rent
March 1, 1989 February 28, 1990 $4,750.00
March 1, 1990 February 28, 1991 $6,985.42
March 1, 1991 February 28, 1992 $7,264.83
</TABLE>
One monthly installment of Base Rental shall be due and payable on March 1, 1989
by Tenant for the first month's Base Rental and a like monthly installment shall
be due and payable on or before the first day of each calendar month succeeding
the "Commencement Date" during the demise Term; provided, that if the
Commencement Date should be a date other than the first day of a calendar month,
the monthly rental set forth above shall be pro rated to the end of that
calendar month, and all succeeding installments of rent shall be payable on or
before the first day of each succeeding calendar month during the Term. Tenant
shall pay, as additional rental, all other sums due under this Lease.
(b) Tenant agrees to pay Landlord as additional rental Tenant's Pro Rata Share
of (i) the Real Estate Taxes (as defined below) for the Property in excess of
$1.00/square foot and (ii) the Operating Expenses (as defined below) for the
Building in excess of the sum of $.10 per square foot. Landlord shall, within
nine months following determination such sums for which additional rental is due
under this paragraph, invoice Tenant for the additional rental. The invoice
shall include in reasonable detail all computations of the additional rental,
and Tenant agrees to pay the additional rental within ten days following receipt
of such invoice. If the Expiration Date is other than the last day of a
calendar year, the amount of any additional rental payable by Tenant applicable
to the year in which the Expiration Date shall occur shall be prorated on the
ratio that the number of days from the commencement of such year to and
including the Expiration Date bears to 365. If at any time during the Term of
this Lease, Landlord has reason to believe the per square foot Operating
Expenses for the calendar year will exceed the sum set forth above, Landlord may
direct Tenant to prepay monthly one-twelfth of an amount equal to the additional
rental paid for such item in the previous year. If the invoice delivered in
accordance with this subparagraph 4(b) shows an amount owing by Tenant that is
less than the sum of the monthly payments made by Tenant in the previous
calendar year , Landlord may elect to apply such excess payment toward an
additional rental due in the current year or to refund the excess to Tenant. If
such invoice shows an amount owing by Tenant which is more than the sum of the
monthly payments made by Tenant in the previous calendar year, Tenant shall pay
such deficiency to Landlord within ten (10) days after receipt of the invoice.
During the year in which this Lease terminate Landlord shall have the option to
invoice Tenant for Tenant's Pro Rata Share of the excess Real Estate Taxes
and/or Operating Expenses based upon the previous year's Real Estate Taxes
and/or Operating Expenses; Landlord shall invoice Tenant under this option
within thirty (30) days prior to the termination of the Lease or at any time
thereafter. Tenant shall have the right, at its own expense and at a reasonable
time, to audit Landlord's books relevant to the additional rentals due under
this paragraph.
The term "Operating Expenses" as used herein includes all expenses incurred with
------------------
respect to the maintenance and operation of the Building and/or the Property
including, but not limited to, maintenance and repair costs, sewer, security,
trash and snow removal, landscaping, utility bills repairs, maintenance, or
other expenses for maintaining and operating the Building including the
<PAGE>
common area and parking area maintenance, and all insurance premiums Landlord is
required to pay or deems necessary to pay, including public liability insurance,
with respect to the Building. The term "Operating Expenses" does not include any
capital improvement to the Building nor shall it include repairs, restoration or
other work occasioned by fire, windstorm or other casualty, income and franchise
taxes of Landlord, expenses incurred in leasing to or procuring of tenants,
leasing commissions, advertising expenses, expenses for the renovating space for
new tenants, interest or principal payments on any mortgage or other
indebtedness of Landlord, compensation paid to any employee of Landlord for any
depreciation allowance or expense.
The term "Real Estate Taxes" as used above includes any and all federal, state
-----------------
and local governmental taxes, assessments and charges of every kind and nature
whatsoever, whether general, special, ordinary or extraordinary which Landlord
shall pay or become obligated to pay in connection with or because of ownership,
leasing, management, control or operation of the Building and/or the Property
and all other matters with respect thereto, including but not limited to
attorney's fees, appraisal charges, and all other costs and expenses incurred by
Landlord in seeking a reduction of the Real Estate Taxes.
(c) If any increase in the fire insurance premiums paid by Landlord for the
Building is caused by Tenant's use and occupancy of the Premises, or if Tenant
vacates the Premises and causes an increase in such premiums, then Tenant shall
pay as additional rental the amount of such increases to Landlord.
(d) Other remedies for nonpayment of rent notwithstanding, if the monthly
rental payment is not received by Landlord on or before the 7th day of the month
for which rent is due, or if any other payment due from Tenant is not received
by Landlord on or before the 7th day of the month next following the month in
which Tenant was invoiced, a service charge of five per cent (5%) of such past
due amount shall become due and payable in addition to such amounts owed under
this Lease. Tenant's duty to pay base rental, additional rental or any other
sums due hereunder shall survive termination of this Lease by lapse of time or
otherwise.
(e) No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed in accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term.
5. SECURITY DEPOSIT: On the date of execution of this Lease by Tenant, there
----------------
shall be due and payable by Tenant a Security Deposit in an amount equal to one
monthly Rental installments in the amount due during the last year of this Lease
to be held for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that the deposit shall not be
considered an advance payment of rental nor a measure of Landlord's damage in
case of default by Tenant. Upon the occurrence of an event of default by Tenant
or
<PAGE>
breach by Tenant of Tenant's covenants under this Lease, Landlord may, from
time to time, without prejudice to any other remedy, use the Security Deposit to
the extent necessary to make good any arrears of rent and/or damage, injury,
expense or liability caused to Landlord thereby and Tenant shall promptly
reimburse Landlord such amount. If Tenant has fully performed this Lease, any
remaining balance of the Security Deposit shall be returned by Landlord to
Tenant upon termination of this Lease. Landlord shall not pay interest on the
Security Deposit. Landlord may commingle the Security Deposit with other funds.
Amount of Security Deposit $4,750.00.
6. SIGNS: Tenant shall not exhibit, inscribe, paint or affix any sign on the
-----
exterior of the Building or the Property. Tenant may letter paint a sign on the
glass panel of the front entry door or the glass window adjacent to the entry
front door. All signage must have the consent of the Landlord prior to
installation and such consent shall not be unreasonably withheld. Landlord, in
addition to its other remedies available hereunder, may remove such sign without
any liability to Tenant and Tenant shall reimburse Landlord for the cost of such
removal immediately upon demand therefor. If Landlord installs a building
directory, Tenant shall advise Landlord of name it desires and reimburse
Landlord for costs only of Tenant's sign.
7. USAGE: Tenant warrants and represents to Landlord that the Premises shall
-----
be used and occupied only for the purpose of assembly of medical equipment.
Tenant shall occupy the Premises, conduct its business and control its agents,
employees, invitees and visitors in such a manner as is lawful, reputable and
will not create any nuisance or otherwise interfere with, annoy or disturb any
other tenant in its normal business operations or Landlord in its management of
the building. Tenant shall not commit, or suffer to be committed, any waste on
the Premises, nor shall Tenant permit the Premises to be used in any way which
would, in the opinion of Landlord, be extra hazardous on account of fire or
otherwise which would in any way increase or render void the fire insurance on
the Premises or contents of the building.
8. SERVICES: Tenant at its sole cost and expense, shall pay all charges for
--------
gas, water (only if necessary) and electricity used by Tenant and during the
term of this Lease. Gas and electric meters will be provided for tenant's
premises.
9. HOUSEKEEPING: Tenant will instruct its employees to cooperate and keep
------------
the common areas in an orderly manner. The Tenant will be responsible for any
nuisance caused by its employees, contractors, invitees, licensees or visitors.
10. REPAIRS AND MAINTENANCE.
-----------------------
(a) Unless otherwise expressly provided, Landlord shall not be required to
make any improvements, replacements or repairs of any kind or character to the
Premises during the Term of this Lease. Landlord shall maintain only the roof,
foundation, parking area, landscaped areas, and the structural soundness of the
exterior walls (excluding all exterior glass and overhead doors, if any) of the
Building in good repair and condition except for reasonable wear and tear.
Landlord's cost of maintaining the items set forth in this subparagraph are
subject to the additional rental provisions in paragraph 4. Tenant shall repair
and pay for any damage caused
<PAGE>
by the negligence or default of Tenant or Tenant's agents, employees, invitees,
licensees or visitors. Landlord shall not be liable to Tenant, except as
expressly provided in this Lease, for any damage or inconvenience, and Tenant
shall not be entitled to any abatement or reduction of rent by reason of any
repairs, alterations or additions made by Landlord under this Lease. Tenant
shall at its own costs and expense, maintain all other parts of the Premises and
other improvements on the Premises in good repair and condition including all
necessary replacements, particularly, plumbing, electrical heating and air
conditioning equipment.
(b) Tenant shall, at its own cost and expense, repair or replace any damage or
injury to all or any part of the Premises or the dock or other common areas
caused by Tenant or Tenant's agents, employees, invitees, licensees or visitors;
provided, however, if Tenant fails to make the repairs or replacements promptly,
Landlord may, at its option, make the repairs or replacements and the cost of
such repairs or replacements shall be charged to Tenant as additional rental and
shall become payable by Tenant with the payment of the rental next due
hereunder. Tenant's duty under this paragraph shall survive termination of this
Lease by lapse of time or otherwise.
(c) Tenant shall not allow any damages to be committed on any portion of the
Premises, and at the termination of this Lease, by lapse of time or otherwise,
Tenant shall deliver the Premises to Landlord in as good condition as existed at
the Commencement Date, ordinary wear and tear excepted. The cost and expense of
any repairs necessary to restore the condition of the Premises shall be borne by
Tenant, and if Landlord undertakes to restore the Premises it shall have a right
of reimbursement against Tenant.
(d) All requests for repairs or maintenance that are the responsibility of
Landlord pursuant to any provision of this Lease must be made in writing to
Landlord at the address set forth above.
11. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Tenant, at Tenant's expense,
-------------------------------------------
shall comply with all laws, ordinances, orders, rules and regulations of state,
federal, municipal or other agencies or bodies having jurisdiction relating to
the use, condition and occupancy of the Premises. Tenant will comply with the
rules of the Building adopted by Landlord which are set forth on a schedule
attached to this Lease. Landlord shall have the right at all times to change
the rules and regulations of the Building or to amend them in any reasonable
manner as may be deemed advisable for the safety, care and cleanliness, and for
the preservation of good order, of the Premises. All changes and amendments in
the rules and regulations of the Building will be sent by Landlord to Tenant in
writing and shall therefore be carried out and observed by Tenant.
12. LANDLORD IMPROVEMENTS: If construction to the Premises is to be performed
---------------------
by Landlord prior to Tenant's occupancy, Landlord will commence and/or complete
the construction of the improvements constituting the Premises, including
partitions, in accordance with the floor plan and its specifications agreed to
by the parties and made a part of this Lease by reference. The floor plan shall
be approved and signed by the parties prior to the commencement of construction.
Any changes or modifications to the approved plans and specifications shall be
made and accepted by written change order signed by Landlord and Tenant and
shall constitute an amendment to this Lease. Upon completion of the Premises
and other improvements in
<PAGE>
accordance with the plans and specifications, Tenant agrees to execute and
deliver to Landlord a letter accepting delivery of the Premises.
13. ALTERATIONS AND IMPROVEMENTS: Tenant shall not make or allow to be made
----------------------------
any alterations or physical additions in or to the Premises without first
obtaining the written consent of Landlord. Any alterations, physical additions
or improvements to the Premises made by Tenant shall at once become the property
of Landlord and shall be surrendered to Landlord upon the termination of this
Lease. Landlord, at its option, may require Tenant to remove any physical
additions and/or repair any alterations in order to restore the Premises to the
condition existing at the time Tenant took possession, all costs of removal
and/or alterations to be borne by Tenant. This clause shall not apply to
moveable equipment or furniture owned by Tenant which may be removed by Tenant
at the end of the Term of this Lease if Tenant is not then in default and if
such equipment and furniture is not then subject to any other rights, liens and
interests of Landlord.
14. CONDEMNATION:
------------
(a) If, during the Term of this Lease, all or a substantial part of the
Building or the Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation, or by right of eminent domain or by
purchase in lieu thereof, and the taking would prevent or materially interfere
with the use of the Premises for the purpose for which they are then being used,
this Lease shall terminate and the rent shall be abated during the unexpired
portion of this Lease effective on the date physical possession is taken by the
condemning authority. Tenant shall have no claim to the condemnation award.
(b) In the event a portion of the Building or the Premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in subparagraph (a) above, the base
rental payment under this Lease during the unexpired portion of the Term shall
be adjusted to such an extent as may be fair and reasonable under the
circumstances. Tenant shall have no claim to the condemnation award.
15. FIRE AND CASUALTY:
-----------------
(a) If the Premises should be totally destroyed by fire or other casualty, or
if the Premises should be so damaged so that rebuilding cannot reasonably be
completed with one hundred eighty (180) working days after the date of written
notification by Tenant to Landlord of the destruction, this Lease shall
terminate and the rent shall be abated for the unexpired portion of the Lease,
effective as of the date of the written notification.
(b) If the Premises or the Building should be partially damaged by fire or
other casualty, and rebuilding or repairs can reasonably be completed within one
hundred eighty (180) working days from the date of written notification by
Tenant to Landlord of the destruction, this Lease shall not terminate, but
Landlord may at its sole risk and expense proceed with reasonable diligence to
rebuild or repair the Building or other improvements to substantially the same
condition in which
<PAGE>
they existed prior to the damage. If the Premises are to be rebuilt or repaired
and are untenantable in whole or in part following the damage, and provided the
damage or destruction was not caused or contributed to by act, failure to act or
negligence of Tenant, its agents, employees, invitees or those for whom Tenant
is responsible, the rent payable under this Lease during the period for which
the Premises are untenantable shall be adjusted to such an extent as may be fair
and reasonable under the circumstances. In the event that Landlord fails to
complete the necessary repairs or rebuilding within one hundred eighty (180)
working days from the date of written notification by Tenant to Landlord of the
destruction, Tenant may at its option terminate this Lease by delivering written
notice of termination to Landlord, whereupon all rights and obligations under
this Lease shall cease to exist.
16. INSURANCE: (a) At all times subsequent to Tenant's taking possession of
---------
the Premises, Tenant shall, at its sole cost and expense maintain:
(i) Comprehensive General Public Liability Insurance against claims for
personal injury, death or property damage occurring in connection with the use
and occupancy of the Premises, naming Tenant and Trustee and its beneficiaries
and the management of the Building as the named insurers, such insurance to
afford protection to the limit of not less than Five Hundred Thousand Dollars
($500,000.00) in respect to injury or death of a single person and to the limit
of not less than One Million Dollars ($1,000,000.00) in respect to any one
accident, and to the limit of not less than One Hundred Thousand Dollars
($100,000.00) in respect to property damage.
(ii) Steam Boiler Insurance on all steam boilers, pressure tanks and
other such apparatus, if any, as shall from time to time be installed by Tenant
on the Premises, in such amount as Landlord may from time to time reasonably
require.
(iii) Worker's Compensation Insurance shall be maintained at all times
when any work is in process in connection with any change or alteration being
made by Tenant and Tenant shall maintain or hire only such contractors who
maintain Worker's Compensation Insurance covering all persons employed in
connection within the work and with respect to whom death or bodily injury
claims could be asserted against Landlord, the Trustee or its beneficiaries, as
well as Tenant or the Premises.
(iv) Fire and Extended Coverage Insurance (contents broad form) on
Tenant's personal property located in the Premises in amounts reasonably deemed
adequate by Tenant to fully insure such personal property.
(b) With respect to policies which Tenant is required to procure and maintain
hereunder:
(i) Each such policy shall contain an agreement or endorsement that it
will not be canceled by insurer without at least thirty (30) days' prior written
notice to Landlord.
(ii) Each such policy, or a certification therefor issued by insurer
thereunder, shall be deposited by Tenant with Landlord.
<PAGE>
(iii) If Tenant furnishes any insurance in the form of a blanket policy,
it will furnish satisfactory proof that such blanket policy complies in all
respects with the provisions of this Lease, and that the coverage thereunder is
at least equal to the coverage which would be provided under a separate policy
covering only the Premises.
(iv) Each such policy shall be issued by insurers of recognized
responsibility licensed to do business in Illinois.
(v) Not less than thirty (30) days prior to the expiration date of any
such policy, Tenant will furnish Landlord with a new policy or certificate
therefor or a renewal thereof in substitution of the expiring policy.
(vi) Tenant will not do, suffer or permit any act or omission, whether
upon the Premises or otherwise, which might or would void or impair the
obligation of such policy or insurance.
(c) Landlord agrees to maintain for the Building in force during the Term:
(i) Comprehensive General Liability Insurance on an occurrence basis with
minimum limits of liability in an amount of Five Hundred Thousand Dollars
($500,000) for bodily injury, personal injury or death to any one person and One
Million Dollars ($1,000,000) for bodily injury, personal injury or death to more
than one person and One Hundred Thousand Dollars ($100,000) with respect to
damage to property, including water and sprinkler damage to the Building; and
(ii) Fire Insurance, with extended coverage and vandalism and malicious mischief
endorsements, in an amount adequate to cover at least eighty percent (80%) of
the replacement value of the Building.
(d) Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
Neither party shall be liable to the other for any damage caused by fire or any
of the risks insured against under any insurance policy required by this Lease.
If any insurance policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of subrogation,
the party undertaking to obtain the insurance shall notify the other party of
this fact. The other party shall have a period of ten (10) days after receiving
the notice either to place the insurance with a company that is reasonably
satisfactory to the other party and that will carry the insurance with a waiver
of subrogation, or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If the insurance cannot be obtained or the party
in whose favor a waiver of subrogation is desired refuses to pay the additional
premium charged, the other party is relieved of the obligation to obtain a
waiver of subrogation rights with respect to the particular insurance involved.
17. HOLD HARMLESS: Landlord shall not be liable to Tenant's employees,
-------------
agents, invitees, licensees or visitors, or to any other person, for any injury
to person or damage to property on or about the Property caused by the
negligence or misconduct of its agents, servants
<PAGE>
or employees, or of any other person entering upon the Property under express or
implied invitation by Tenant, or caused by the Building and improvements located
on the Property becoming out of repair, or caused by leakage of gas, oil, water
or steam or by electricity emanating from the Building. Tenant agrees to
indemnify and hold harmless Landlord of and from any loss, attorney's fees,
expenses or claims arising out of any such damage or injury.
18. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and
---------------
to perform this Lease and to grant the estate demised and that Tenant, upon
payment of the required rents and performing the terms, conditions, covenants
and agreements contained in this Lease, shall peaceably and quietly have, hold
and enjoy the premises during the full Term of this Lease as well as any
extension or renewal thereof. Landlord shall not be responsible for the acts or
omissions of any other tenant or third party that may interfere with Tenant's
use and enjoyment of the Premises.
19. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right, at all
-------------------------
reasonable hours, to enter the Premises for the following reasons: inspection,
making repairs; making alterations or additions as Landlord may deem necessary
or desirable; determining Tenant's use of the Premises; determining if an act of
default under this Lease has occurred; and to show the Premises to prospective
tenants or purchasers of the Property.
20. ASSIGNMENT OR SUBLEASE: Landlord shall have the right to transfer and
----------------------
assign, in whole or in part, its rights and obligations in the Building and the
Property. Tenant shall not assign this Lease or sublet all or any part of the
Premises without the prior written Consent of Landlord. In addition, Landlord
shall have the option, upon receipt from Tenant of written request for
Landlord's consent to subletting or assignment, to cancel this Lease as of the
date the requested subletting or assignment is to be effective by delivering
written notice of such exercise within twenty (20) days. In the event of any
assignment or subletting, Tenant shall nevertheless at all times remain fully
responsible and liable for the payment of the rent and for compliance with all
of its other obligations under the terms, provisions and covenants of this
Lease. Upon the occurrence of an "event of default" as defined below, if all or
any part of the Premises are then assigned or sublet, Landlord, in addition to
any other remedies provided by this Lease or provided by law, may, at its
option, collect directly from the assignee or sublessee all rents becoming due
to Tenant by reason of the assignment or sublease, and Landlord shall have a
security interest in all properties on the Premises to secure payment of such
sums. Any collection directly by Landlord from the assignee or sublessee shall
not be construed to constitute a notation or a release of Tenant from the
further performance of its obligations under this Lease.
21. LANDLORD'S LIEN: As security for payment of rent, damages and all other
---------------
payments required to be made by this Lease, Tenant hereby grants to Landlord a
lien upon all property of Tenant now or subsequently located upon the Premises.
If Tenant abandons or vacates any substantial portion of the Premises or is in
default in the payment of any rentals, damages or other payments required to be
made by this Lease or is in default of any other provision of this Lease,
Landlord may enter upon the Premises, by picking or changing locks if necessary,
and take possession of all or any part of the personal property, and may sell
all or any part of the
<PAGE>
personal property at a public or private sale, in one or successive sales, with
or without notice, to the highest bidder for cash, and, on behalf of Tenant,
sell and convey all or part of the personal property to the highest bidder,
delivering to the highest bidder all of Tenant's title and interest in the
personal property sold to him. The proceeds of the sale of the personal property
shall be applied by Landlord toward the reasonable costs and expenses of the
sale, including attorney's fees, and then toward the payment for all sums then
due by Tenant to Landlord under the terms of this Lease; any excess remaining
shall be paid to Tenant or any other person entitled thereto by law.
22. UNIFORM COMMERCIAL CODE OF ILLINOIS: This Lease is intended as and
-----------------------------------
constitutes a security agreement within the meaning of the Uniform Commercial
Code of the State of Illinois and Landlord, in addition to the rights prescribed
in this Lease, shall have all of the rights, titles, liens and interests in and
to Tenant's property now or hereafter located upon the Premises which are
granted a secured party, as that term is defined, under the Uniform Commercial
Code to secure the payment to Landlord of the various amounts provided in this
Lease. Tenant will on request execute and deliver to Landlord a financial
statement for the purpose of perfecting Landlord's security interest under this
Lease or Landlord may file this Lease or a copy thereof as a financial
statement.
23. DEFAULT BY TENANT: The following shall be deemed to be events of default
-----------------
by Tenant under this Lease:
(a) Tenant shall fail to pay when due any installment of rent or any other
payment required pursuant to this Lease:
(b) Tenant shall vacate or abandon any portion of the Premises;
(c) Tenant shall fail to comply with any term provision or covenant of this
Lease, other than the payment of rent, and the failure is not cured within
thirty (30) days after written notice to Tenant;
(d) Tenant shall file a petition or be adjudged bankrupt or insolvent under
the National Bankruptcy Act, as amended, or any similar law or statute of the
United States or any state; or a receiver or trustee shall be appointed for all
or substantially all of the assets of Tenant; or Tenant shall make a transfer
in fraud of creditors or shall make an assignment for the benefit of creditors;
or
(e) Tenant shall do or permit to be done any act which results in a lien being
filed against the Property or the Building.
24. REMEDIES FOR TENANT'S DEFAULT: Upon the occurrence of any event of
-----------------------------
default, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand:
<PAGE>
(a) Terminate this Lease, in which event Tenant shall immediately surrender
the Premises to Landlord, and if Tenant fails to surrender the Premises,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the
Premises, by picking or changing locks if necessary, and lock out, expel, or
remove Tenant and any other person who may be occupying all or any part of the
Premises without being liable for prosecution of any claim for damages. Tenant
agrees to pay on demand the amount of all loss and damage which Landlord may
suffer by reason of the termination of the Lease under this subparagraph,
whether through inability to relet the Premises on satisfactory terms or
otherwise.
(b) Enter upon and take possession of the Premises, by picking or changing
locks if necessary, and lock out, expel or remove Tenant and any other person
who may by occupying all or any part of the Premises without being liable for
any claim for damages, and relet the Premises on behalf of Tenant and receive
directly the rent by reason of the reletting. Tenant agrees to pay Landlord on
demand any deficiency that may arise by reason of any reletting of the Premises;
further, Tenant agrees to reimburse Landlord for any costs or expenses incurred
by it for the reletting of the Premises, including attorneys' fees and broker's
commission.
(c) Enter upon the Premises, by picking or changing locks if necessary,
without being liable for prosecution of any claim for damages, and do whatever
Tenant is obligated to do under the term of this Lease. Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in
effecting compliance with Tenant's obligations under this Lease; further,
Tenant agrees that Landlord shall not be liable for any damages resulting to
Tenant from effecting compliance with Tenant's obligations under this
subparagraph caused by the negligence of Landlord or otherwise.
25. WAIVER OF DEFAULT OR REMEDY: Failure of Landlord to declare an event of
---------------------------
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Landlord shall have the right to declare the default at any time
and take such action as is lawful or authorized under this Lease. Pursuit of
any one or more of the remedies set forth in paragraph 24 above shall not
preclude pursuit of any one or more of the other remedies provided elsewhere in
this Lease or provided by law, nor shall pursuit of any remedy provided
constitute forfeiture or waiver of any rent or damages accruing to Landlord by
reason of the violation of any of the terms, provisions or covenants of this
Lease. Failure by Landlord to enforce one or more of the remedies provided upon
an event of default shall not be deemed or constitute a waiver of the default or
of any other violation or breach of any of the terms, provisions and covenants
contained in this Lease. Waiver of a default shall not constitute waiver of any
other or further default.
26. ACTS OF GOD: Landlord shall not be required to perform any covenant or
-----------
obligation in this Lease, or be liable in damages to Tenant, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
by or prevented by an act of God or force majeure.
27. ATTORNEY'S FEES: In the event Tenant defaults in the performance of any
----------------
of the terms, covenants, agreements or conditions contained in this Lease and
Landlord places in the
<PAGE>
hands of an attorney the enforcement of all or any part of this Lease, the
collection of any rent due or to become due or recovery of the possession of the
Premises, Tenant agrees to pay Landlord reasonable attorney's fees for the
services of the attorney, whether suit is actually filed or not. In no event
shall the attorney's fees be less than fifteen percent (15%) of the outstanding
balance owed by Tenant to Landlord.
28. HOLDING OVER: In the event of holding over by Tenant after the expiration
------------
or termination of this Lease, the hold over shall be as a Tenant at will and all
of the terms and provisions of this Lease shall be applicable during that
period, except that Tenant shall pay Landlord as rental for the period of such
hold over an amount equal to double the rent payable for the month immediately
preceding said holding over, computed on a month to month basis (without
reduction for any partial months). Tenant agrees to vacate and deliver the
Premises to Landlord upon Tenant's receipt of notice from Landlord to vacate.
The rental payable during the hold over period shall be payable to Landlord on
demand. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this Lease except Landlord shall have option to elect to
treat such hold over as a renewal of this Lease for one (1) year on all terms
and conditions herein, which election may be exercised by Landlord at any time
from time to time during a hold over by giving written notice thereof to Tenant.
The provisions of this Paragraph 28 shall not be deemed to limit or exclude any
of Landlord's rights of re-entry or any other right or remedy granted to
Landlord hereunder or by law. In the event Tenant fails to surrender the
Premises upon termination or expiration of this Lease or such month-to-month
tenancy, then Tenant shall indemnify Landlord against all loss, cost, expenses
or liability resulting from any delay of Tenant in not surrendering the
Premises, including, but not limited to, any amounts required to be paid to
third parties who were to have occupied the Premises and any attorney's fees or
broker's commissions related thereto.
29. RIGHTS OF MORTGAGEE: Tenant accepts this Lease subject and subordinate to
-------------------
any recorded mortgage or deed of trust lien presently existing or hereafter
created upon the Premises by Landlord. Landlord is hereby irrevocably vested
with full power and authority to subordinate Tenant's interest under this Lease
to any mortgage or deed of trust lien hereafter placed on the Premises, and
Tenant agrees upon demand to execute additional instruments subordinating this
Lease as Landlord may require. If the interests of Landlord under this Lease
shall be transferred by reason of foreclosure or other proceedings for
enforcement of any mortgage or deed of trust on the Premises, Tenant shall be
bound to the transferee (sometimes called the "Purchaser"), at the option of the
Purchaser, under the Terms, covenants and conditions of this Lease for the
balance of the term remaining, and any extensions or renewals, with the same
force and effect as if the Purchaser were Landlord under this Lease, and, if
requested by the Purchaser, Tenant agrees to attorn to the Purchaser, including
the mortgagee under any such mortgage if it be the Purchaser, as its Landlord.
30. ESTOPPEL CERTIFICATE: Tenant agrees to furnish promptly, from time to
--------------------
time, upon request of Landlord or Landlord's mortgagee, a statement certifying,
if applicable, that Tenant is in possession of the Premises; the Premises are
acceptable; the Lease is in full force and effect; the Lease is unmodified;
Tenant claims no present charge, lien, or claim of offset against rent;
<PAGE>
the rent is paid for the current month, but is not prepaid for more than one
month and will not be prepaid for more than one month in advance; there is no
existing default by reason of some act or omission by Landlord; and such other
matters as may be reasonably required by Landlord or Landlord's mortgagee.
31. SUCCESSORS: This Lease shall be binding upon and inure to the benefit of
----------
Landlord and Tenant and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should
Landlord's interest in the Premises cease to exist for any reason during the
term of this Lease, then notwithstanding the happening of such event this Lease
nevertheless shall remain unimpaired and in full force and effect and Tenant
hereunder agrees to attorn to the then owner of the Premises. If Landlord
sells, assigns or otherwise transfers its interest in the Property, Landlord
shall have the right to transfer the Security Deposit to such purchaser to be
held under the terms of this Lease and, in such event, Landlord shall be
released from all liability for holding or returning the Security Deposit to
Tenant.
32. RENT TAX: If applicable at any time during the Term, Tenant shall pay and
--------
be liable for all rental, sales and use taxes or other similar taxes, if any,
levied or imposed by any city, state, county or other governmental body having
authority, such payments to be in addition to all other payments required to be
paid to Landlord by Tenant under the terms of this Lease. Any such payment
shall be paid concurrently with the payment of the rent upon which the tax is
based.
33. DEFINITION: The following definitions apply to the terms set forth below
----------
as used in this Lease:
(a) "Abandon" means the vacating of all or a substantial portion of the
Premises by Tenant, whether or not Tenant is in default of the rental payments
due under this Lease.
(b) An "act of God" or "force majeure" is defined for purposes of this Lease
as strikes, lockouts, sit-downs, material or labor restrictions, by any
governmental authority, unusual transportation delays, riots, floods, washouts,
explosions, earthquakes, fire, storms, weather (including wet grounds or
inclement weather which prevents construction), acts of public enemy, wars,
insurrections and any other cause not reasonably within the control of Landlord
and which by the exercise of due diligence Landlord is unable, wholly or in
part, to prevent or overcome.
(c) The "Commencement Date" shall be the date set forth in Paragraph 2. The
Commencement Date shall constitute the commencement of this Lease for all
purposes, whether or not Tenant has actually taken possession.
(d) "Square Feet" or "square foot" as used in this Lease includes the area
contained within the space occupied by Tenant together with a common area
percentage factor of Tenant's space proportionate to the total building area as
determined by the architect by measuring to the outside of the exterior walls
and to the center of the demising walls of the Building.
34. MISCELLANEOUS: The captions appearing in this Lease are inserted only as
-------------
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of such
<PAGE>
paragraph. If any provision of this Lease shall ever be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Lease, and such other provisions shall continue in full force
and effect. This Lease shall be deemed to have been made in and shall be
construed in accordance with the laws of the State of Illinois.
In the absence of fraud, no person, firm, or corporation or the heirs, legal
representatives, successors or assigns respectively, executing this Lease in a
representative capacity shall be held individually liable hereunder.
A default in this Lease or in any other Lease made between Landlord and Tenant
shall, at the option of the Landlord, be deemed a default under this Lease, the
other Lease or both Leases.
This Lease shall become effective only upon execution by both Landlord and
Tenant and Tenant's payment of the Security Deposit and first month's rent.
35. NOTICE:
------
(a) All rent and other payments required to be made by Tenant shall be payable
to Landlord at the address set forth on page 1.
(b) All payments required to be made by Landlord to Tenant shall be payable to
Tenant at the address set forth on page 1 or at any other address within the
United States as Tenant may specify from time to time by written notice.
(c) Any notice or document required or permitted to be delivered by this Lease
shall be deemed to be delivered (whether or not actually received) when hand
delivered or when deposited in the United States Mail, postage prepaid,
certified mail, return receipt requested, addressed to the parties at the
respective addresses set forth on Page 1.
36. REAL ESTATE BROKER: Tenant warrants that it has no dealings with any
------------------
broker or agent other than Howard Ecker and Florrie Gottainer in connection with
this Lease and covenants to pay, defend hold harmless and indemnify Landlord
from and against any and all costs, expense or liability for any compensation,
commission or charges claimed by any broker or agent with respect to this Lease
or the negotiation thereof.
37. BINDING EFFECT AND LIMITATION OF LIABILITY: Except as expressly provided
------------------------------------------
herein, this Lease shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and permitted assigns, and all
covenants and agreements herein contained to be observed and performed by Tenant
shall be joint and several. Anything in this Lease to the contrary
notwithstanding, Tenant agrees that Tenant shall look solely to the estate and
interest of Landlord, its successors and assigns, in and to the project of which
the Premises are a part or the proceeds therefrom for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
hereunder, and no other property or assets of Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
<PAGE>
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder or Tenant's use, or occupancy of the Premises.
38. ENTIRE AGREEMENT AND LIMITATION OR WARRANTIES: IT IS EXPRESSLY AGREED BY
---------------------------------------------
TENANT, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS
LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE
ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL
REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC
DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE. LANDLORD AND TENANT
EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF
MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER
KIND ARISING OUT OF THIS LEASE AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
THOSE EXPRESSLY SET FORTH IN THIS LEASE. IT IS LIKEWISE AGREED THAT THIS LEASE
MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY BOTH LANDLORD AND TENANT.
39. AUTHORITY: If Tenant is a corporation, Tenant agrees to provide a
---------
certified copy of resolutions duly adopted by its Board of Directors and a
certified copy of such relative portion of its By-Laws setting forth that the
execution and delivery of this Lease have been duly and validly authorized by
all necessary and appropriate corporate action and that this Lease is valid and
binding and fully enforceable in accordance with its terms. Tenant does hereby
warrant and represent that its signatories whose signatures appear below have
been and are on the date of this Lease duly authorized by all necessary and
appropriate corporate action to execute this Lease.
40. CONTROL OF TENANT: If Tenant is a corporation, and if at any time during
-----------------
the Term the persons, firms or corporations who own a majority of its shares at
the time of execution of this Lease cease to own such shares and such succession
shall not first have been approved in writing by Landlord, then such succession
shall, at the option of Landlord, be deemed a default by Tenant under this
Lease. If Tenant is a limited partnership, and if at any time during the terms
of this Lease any person, from a corporation, who, at the date hereof, is a
general partner thereof ceases to be such a general partner and such succession
shall not first have been approved in writing by Landlord, then such succession
shall, at the option of Landlord, be deemed a default by Tenant under this
Lease.
41. FINANCIAL STATEMENTS: Tenant shall provide Landlord with a copy of its
--------------------
annual Financial Statements prepared in accordance with generally accepted
accounting principles within thirty days (30) when requested by Landlord.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed the foregoing
instrument or caused the same to be executed the day and year first above
written.
LANDLORD: TENANT:
Harbor Industrial Plant -------------------------------
By: /s/ By: /s/
------------------------- ----------------------------
Vice President (Name and Title)
/s/
-------------------------
EUGENE B. SHAPIRO
Eugene B. Shapiro ATTEST:
as agent for the beneficiaries of
American National Bank (Seal)
- ----------------------
Trust No. 42807 and 42683
---------------
By:
--------------------------
Title
CERTIFICATE (if Tenant is a Corporation)
I, _________________________, Secretary of ________________________________
__________________________, Tenant, hereby Certify that the officers executing
the foregoing Lease on behalf of
___________________________________________________________, a
______________________ corporation, were duly authorized to act in their
capacities as the (Vice) President and (Assistant) Secretary of said corporation
and their actions are the action of said corporation, as Tenant.
Dated:
----------------------- -----------------------
Secretary
(Corporate Seal)
<PAGE>
GUARANTY
--------
The undersigned hereby agree to guarantee the full and prompt performance
of Tenant of all of the terms, covenants, conditions and obligations of Tenant
under the foregoing Lease and to pay all costs and attorneys' fees incurred by
Landlord in enforcing the foregoing Lease or this Guaranty and Landlord shall
have the right, in its sole discretion, to proceed first directly against the
undersigned Guarantors without exhausting any other remedies which it may have.
Date:
--------------------------
Guarantor's Signature Name and Address
- --------------------- ----------------
- -------------------------------- --------------------------------
--------------------------------
- -------------------------------- --------------------------------
--------------------------------
<PAGE>
RULES AND REGULATIONS
1. Tenant shall not make any alterations or additions in or about the Premises
without Landlord's prior written consent and all such work shall comply
with Village of Northbrook's ordinances, rules and regulations.
2. Tenant shall not at any time occupy any part of the Premises or project as
sleeping or lodging quarters.
3. Tenant shall not place, install or operate on the Premises or in any part
of the Building, any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about the
Premises or Property any explosives, gasoline, kerosene, oil, acids,
caustics, or any flammable, explosive or hazardous material without written
consent of Landlord.
4. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the Premises or the Property regardless of
whether such loss occurs when the area is locked against entry or not.
5. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Premises or Property.
6. Employees of Landlord shall not receive or carry messages for or to any
Tenant or other person, nor contract with or render free or paid services
to any Tenant or Tenant's agents, employees or invitees.
7. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, hallways or stairways shall be blocked or obstructed, or any
rubbish, litter, trash, or material of any nature placed, emptied or thrown
into these areas nor such area be used by Tenant's agents, employees or
invitees at any time for purposes inconsistent with their designation by
Landlord.
8. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse, or by the defacing or injury of any part of
the Building shall be borne by the person who shall occasion it. No person
shall waste water by interfering with the faucets or otherwise.
9. No person shall disturb occupants of the Building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises, or any unreasonable use.
<PAGE>
10. Nothing shall be thrown out in common areas (freight docks, etc.) and
Tenant shall promptly pay for any costs resulting in clean up of common
areas caused by its employees or invitees.
11. Tenant and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Landlord. Upon request Tenant
shall furnish Landlord with state automobile license numbers of Tenant's
vehicles and its employees' vehicles. Tenant shall not leave any vehicle
in a state of disrepair (including without limitation, flat tires, out of
date inspection stickers or license plates) on the Premises or Property.
If Tenant or its employees, agents or invitees park their vehicles in areas
other than the designated parking areas or leave any vehicle in a state of
disrepair, Landlord, after giving written notice to Tenant of such
violation, shall have the right of remove such vehicles at Tenant's
expense.
12. No additional locks or similar devices shall be attached to any door and no
locks shall be changed except by Landlord. A master key system has been
provided with key given to the fire department to be kept in their lock box
to which only the fire department has a key. Upon termination of this
lease, or Tenant's possession of the Premises, Tenant shall surrender all
keys for all locks to the Premises.
It is Landlord's desire to maintain in the Building and Property the
highest standard of dignity and good taste consistent with comfort and
convenience for Tenants. Any action or condition not meeting this high
standard should be reported directly to Landlord. Your cooperation will be
mutually beneficial and sincerely appreciated. Landlord reserves the right
to make such other and further reasonable rules and regulations as in its
judgment may from time to time be necessary, for the safety, care and
cleanliness of the Premises and the preservation of good order therein.
<PAGE>
EXHIBIT A
(650 Anthony Trail)
1. LEGAL DESCRIPTION
LOT 2 IN MARLENES RESUBDIVISION OF LOTS 11 AND 12 IN THE RESUBDIVISION OF
PART OF LOT 4 IN BLOCK 3 IN FIRST RESUBDIVISION OF SKY HARBOR INDUSTRIAL
PARK UNIT ONE IN THE SOUTH HALF OF SECTION 5, TOWNSHIP 42 NORTH, RANGE 12,
EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
2. BUILDING FLOOR PLAN, ADDRESS:
Square footage
Diagram of property layout at 650B Anthony Trail
<TABLE>
<CAPTION>
Unit/Space: Total Area: Pro Rata Share%
----------- ----------- ---------------
<S> <C> <C>
C 19,545 19.97
B 13,412 13.71
A 25,433 25.99
D 20,470 20.92
E 7,940 8.12
F 11,043 11.29
------ ------
97,841 100.00%
------ ------
</TABLE>
<PAGE>
This Rider Is To Be Made Part Of The Lease Dated February 8, 1989
By And Between HealthMate Inc., Lessee
and Eugene B. Shapiro As Agent For The Beneficiaries Of
American National Bank Trust No. 42807 and 42683
1. Lessee's Work: Lessor will allow Lessee to install their own exhaust fan
through existing opening in roof deck, and add additional electrical
according to Northbrook Village Codes.
2. Lease Term: Lessee will give written notice to Lessor no later than
November 28, 1989 as to their intent to remain in tenancy for years 2 and
3, or their intent to vacate the premises by February 28, 1990 with no
penalty.
Should Lessee vacate the premises at the end of (1) one year they must
restore the premises to its original move-in condition.
3. Lessor's Work: Lessor agrees to remove one existing wall in the offices
and bring such to proper repair in the event Lessee notifies Lessor that
they are remaining for years 2 and 3.
LANDLORD: TENANT:
HARBOR INDUSTRIAL PLAZA
/s/
-------------------------------
By: /s/ By: /s/
----------------------------------- --------------------------
/s/ (Name and Title)
- ---------------------------------------- Kenneth Wiefelman, President
EUGENE B. SHAPIRO HealthMate Inc.
Eugene B. Shapiro as agent for the
beneficiaries of American National
Bank Trust No. 42807 and 42683
<PAGE>
Exhibit 11.01
Hologic, Inc. and Subsidiaries
Statement RE: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Fiscal years ended
PRIMARY: September 24, September 30, September 28,
1994 1995 1996
Net Income $4,767,944 $3,348,256 $11,356,866
========== ========== ===========
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 8,892,393 9,201,947 11,698,371
Common Stock equivalents
outstanding pursuant to
treasury stock method 462,662 628,690 825,612
------- ------- -------
Weighted average number of common
and common equivalent shares
outstanding 9,355,055 9,830,637 12,523,983
========= ========= ==========
Per share amount $0.51 $0.34 $0.91
===== ===== =====
FULLY DILUTED:
Net Income $4,767,944 $3,348,256 --
---------- ---------- -------------
Weighted average number of
common shares outstanding 8,892,393 9,201,947
Common Stock equivalents
outstanding pursuant to
treasury stock method 756,454 1,027,782 --
---------- ---------- -------------
Weighted average number of common
and common equivalent shares
outstanding 9,648,847 10,229,729 --
=========== ========== =============
Per share amount $0.49 $0.33 --
===== ===== =============
</TABLE>
<PAGE>
Exhibit 22.01
Hologic Subsidiaries
Hologic Europe N.V.
avenue H. Matisse Laan 14
Bruxelles 1140 Brussel
Belgium
Hologic France S.A.
Parc du Moulin de Massy
35 rue du Saule Trapu
F-91882 Massy Cedex
France
FluoroScan Imaging Systems, Inc.
650B Anthony Trail
Northbrook, Illinois 60062
FluoroScan International, Inc.
72, rue du Faubourg St. Honore
75008 Paris France
<PAGE>
Exhibit 24.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this Form 10K,
into the Company's previously filed Registration Statement File Nos. 33-35191
and 33-47830.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANICAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-28-1996
<CASH> 28,754,023
<SECURITIES> 46,907,728
<RECEIVABLES> 21,735,613
<ALLOWANCES> 1,360,000
<INVENTORY> 11,122,988
<CURRENT-ASSETS> 113,033,727
<PP&E> 7,658,242
<DEPRECIATION> 3,973,723
<TOTAL-ASSETS> 123,107,456
<CURRENT-LIABILITIES> 15,834,766
<BONDS> 0
0
0
<COMMON> 128,713
<OTHER-SE> 107,143,977
<TOTAL-LIABILITY-AND-EQUITY> 123,107,456
<SALES> 88,200,646
<TOTAL-REVENUES> 91,590,625
<CGS> 41,252,990
<TOTAL-COSTS> 76,867,784
<OTHER-EXPENSES> 249,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,056,866
<INCOME-TAX> 5,700,000
<INCOME-CONTINUING> 11,356,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,356,866
<EPS-PRIMARY> .91
<EPS-DILUTED> 0
</TABLE>
